RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG/M/18
22 July 1998
(98-2904)
Committee on Regional Trade Agreements
Eighteenth Session
NOTE ON THE MEETINGS OF 6-7 AND 10 JULY 1998
Chairmen:  Mr. Jean-Marie Noirfalisse (Belgium) and Mr. Chul-Ki Ju (Korea)
A. Adoption of the Agenda
1. The Eighteenth Session of the Committee on Regional Trade Agreements (CRTA) was
convened in Airgram WTO/AIR/871.
2. The Chairman said he intended to make a statement in his capacity as Chairman of the CRTA
at the next General Council meeting on 15 July about the status of work in the Committee.  He had
become increasingly concerned from the Committ ee's last two meetings, and from his informal
contacts and consultations with delegations, that  the Committee was not moving forward decisively
enough in fulfilling the key elements of the CRTA's mandate:  the examination of individual regional
trade agreement (RTAs) and of the systemic implications of RTAs for the multilateral trading system.
Thus, in the light of the progress the Committee would make this week, at the end of the meeting he
would outline for the Committee under "Other Business" his proposals on how the Committee shouldset about accelerating and deepening its work in the autumn.  He also wished to briefly discuss under
"Other Business" the proposed schedule for the Committee's next Sessions and the question of
observership, and to inform the Committee of his consultations in view of the replacement of one of
the Committee's Vice-Chairmen.
3. The following Agenda was adopted:
A. Adoption of the Agenda
B. Systemic Implications of Agreements and Initiatives for  the  Multilateral
Trading System and the Relationship Between Them:
Non-Tariff Provisions in Regional Trade Agreements
C. Reporting on the Operation of Agreements
D. Examination of Regional Trade Agreements:
I. Free Trade Agreement Between Canada and ChileII. Interim Agreement Between Slovenia and the European Communities
III. European Communities-Hungary Europe Agreement, Services
IV. European Communities-Poland Europe Agreement, Services
V. European Communities-Slovak Republic Europe Agreement, Services
VI. Treaties Establishing the European Union, ServicesVII. Enlargement of the European Communities (Accession of Austria, Finland and
Sweden)
VIII. North American Free Trade Agreement
E. Other Business
4. The Chairman then noted that a revised and updated Secretariat informal paper with basic
information on notified RTAs had been made available.WT/REG/M/18
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B. Systemic Implications of Agreements and Initia tives for the Multilateral Trading System and the
Relationship Between Them
5. The Chairman said that under that standing item of the agenda, delegations had an occasion to
reflect and express opinions on how RTAs related to the multilateral trading system from different
viewpoints, following the three-pronged approach.  That day's meeting had been set aside for a debate
on the basis of a document prepared by the Secretariat and distributed two months earlier under the
symbol WT/REG/W/26.  It contained a compilation of RTAs' non-tariff provisions, and its findings,
which were based on the provisions of the RTAs (rather the actual operation of the agreements), had
given delegations much food for thought.  The main purpose of the debate was not to deliberate on the
document itself, but rather to use it to move the discussions ahead.  Since the Committee was just
initiating a debate according to the horizontal approach, he thought it was important to be flexible onhow that debate evolved.  He first invited delegations to make remarks of a general nature.
6. All intervening delegations commended the Secretariat document.
7. The representative of Australia observed that the document pointed in general to a more
liberalizing record on the part of RTAs concluded after 1990 than on the part of those RTAs which
came into force before that period.  The paper pointed to increasing sectoral coverage, particularly inagriculture, and also to the more rapid and comprehensive phase-out of quantitative
restrictions (QRs).  It might be useful for the Committee at some later stage to consider the reasons for
this.  It might be that in the years during and after the Uruguay Round, WTO Members had had better
opportunities to reflect on the functions and consequences of RTAs, in light of work done on these
issues during the Uruguay Round.  His delegation had deduced two points from the paper.  First, itseemed that, in many of the RTA provisions analyzed, there was a pronounced lack of clarity.  That
was hardly surprising given the lack of clarity in WTO provisions on many of the same issues.
Second, in some cases it might be worth analyzing whether parties to RTAs were taking on more
restrictive obligations than those under the WTO Agreements.  That was not clear from the paper, but
in some areas the evidence assembled by the Secret ariat seemed to point in that direction, and that
also might be a useful area for analysis.
8. The representative of Switzerland, noting that the information collected was based on notified
RTAs, said that in his delegation's view, the systemic debate had to be built on the totality of
provisions contained in RTAs, and that it should not be forgotten that there might be several other
types of provisions in RTAs which had not been notified or fully notified.
9. The representative of the European Communities sa id that the analysis seemed to suggest that
some trends could be identified in RTAs concluded in recent years.  First, there was greater coverage
of agriculture and a more rapid and far-reaching dismantling of QRs in RTAs.  Second, there seemed
to be a trend to place limitations on the use of safeguards, in particular after the end of the transition
periods that those RTAs typically contained.  Third, parties seemed more prepared to contemplate
provisions on regulatory issues, such as standards,  rather than limiting themselves to the dismantling
of border measures, and that was an area that merited further consideration.  His delegation supportedthe view that the Committee might benefit from expanding the scope of the RTAs analyzed so that it
could base its work on as broad a perspective as possible.
10. The representative of Korea said that the Secretariat document highlighted a general trend for
RTAs to be more liberalizing, with expanded coverage and a faster pace in eliminating restrictions.
The document also revealed other, less positive aspects of RTAs.  His delegation was particularlyconcerned with the observations made on emergency safeguard provisions and on anti-dumping and
countervailing duty provisions, which indicated gaps between the disciplines of RTAs and the WTO
in these fields. He believed that the gaps were of such nature that they would very likely result in a
higher level of trade restrictions for third-parties.   In that respect, he suggested that the CommitteeWT/REG/M/18
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request the Secretariat to prepare a paper that further elaborated on the relationship between RTAs
and the WTO, including those areas where the rules of RTAs did not correspond to those of the WTO.
11. The representative of the United States said that the document presented a very good
overview of the types of measures included in a number of RTAs.  It was a good start for exploring
such measures without becoming entangled in discussions on "other regulations of commerce"(ORCs) and "other restrictive regulations of commerce" (ORRCs).  He encouraged the Secretariat to
develop the study further to include a greater number of RTAs and to complement the section on
coverage, in particular by dealing with the duty-free versus preferential trade question and by
analyzing the preferences themselves.
12. The representative of Japan noted a number of points from the Secretariat document.  Around
20 per cent of RTAs, still had no comprehensive coverage. Many RTAs did not abolish QRs at their
entry into force.  Few RTAs provided parameters for the application of safeguards.  While manyRTAs did not meet WTO requirements because rules were unclear, many also did not satisfy the basic
WTO principle of non-discrimination.  His delegation was concerned that, given the proliferation of
RTAS, there might be a tendency to go in a direction where such de facto  derogation from the basic
rules of the WTO would be allowed.
13. The representative of New Zealand said that the document showed both a great diversity and
an evolution in the way non-tariff provisions had been dealt with in a range of RTAs.  It was
interesting to look at the issue of scope, and in particular product coverage, in terms of the way some
RTAs had developed in the past and were currently  developing.  He thought it would be useful if
some additional information could be presented regard ing the coverage issue, particularly in relation
to the differences between duty-free and preferential coverage, as these two areas had been subjects ofdiscussions in individual examinations.  The paper also reflected some interesting developments in
new areas into which some RTAs were currently venturing, in particular quite a few regulatory areas,
such as sanitary and phytosanitary (SPS) measures.  In looking at those areas, it was important to bear
in mind the specific WTO obligations which applied to them, particularly in relation to SPS measures,
which seemed in some cases to advance the cause of international standardization rather than regionalapproaches.
14. The representative of Hong Kong, China said th at his delegation took issue with the wording
of paragraphs 9-12 of the Secretariat document, where it was stated that preferential rules of origin
determined origin.  They did no such thing.  Together, the annexes of the document pointed to an
enormous diversity in the provisions of RTAs, to  the extent that one might almost wonder whether
there was any common discipline to which the RTAs all conformed.  Certainly, any
lowest-common-denominator would be very low indeed.
15. The representative of India said the document showed a diversity of interpretations of WTO
rules in various RTAs and varying degrees of conformity with these rules.  It could be said that,
broadly across the various areas looked at, the trend was encouraging to the extent that liberalization
that had not been achieved in a number of pre-1990 RTAs was at least sought in many post-1990
RTAs.  However, he wished to stress that a trend could only be helpful to a certain extent.  While thepaper would contribute to the systemic debate, the Committee would have to look at specific
examples and issues to be able to draw specific conclusions.
16. The representative of Canada recalled that the document had originally been requested by his
delegation.  It showed that there was an evolution in RTAs, which seemed to point to a deepening of
obligations taken by the parties.  Obviously, there were differences in terms of methodology,approaches and ambitions among the various RTAs.  That sort of comparative work could be
beneficial for the WTO system as a whole, as it could provide an avenue to compare the treatment of
specific issues not only across RTAs but also between RTAs and the WTO.  In that latter context, he
pointed to the fact that there had also been a significant expansion of WTO rules since 1990, andWT/REG/M/18
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therefore there was perhaps a greater convergence of ambition than what might have been the case
prior to 1990.  In his delegation's view that kind of comparative analysis would be helpful for
assessing the extent to which RTAs could contribute to the multilateral liberalization process.
17. The Chairman then invited delegations to express their views on the different annexes of
document WT/REG/W/26.
Annex I
18. The representative of the European Communitie s asked the Secretariat what had been the
definition or approach used to determine whether an RTA had a comprehensive coverage or not.
Responding to this question, the representative of the Secretariat said that RTAs indicated as having
comprehensive coverage were those where, in the specific provisions dealing with the coverage or
scope was mentioned that the agreement covered all products or all industrial and all agricultural
products.
19. The representative of Hong Kong, China said that in his last statement, he had questioned the
correctness of paragraphs 9-12 of the document, which stated that preferential rules of origin
determined origin.  Recalling that rules of origin  determined origin, he contended that preferential
rules of origin determined preferential origin.  In plain words, preferential rules of origin were not real
'origin' rules but special local content rules appli cable in certain trading arrangements for the purpose
of granting preferential treatment.  In a better ordered world, there would be no talk of preferential
rules of origin, and instead they would more properly be called something like preference qualifying
rules.  It was true, however, that they had always been known as preferential rules of origin and
indeed this terminology was sanctioned in Anne x II of the Agreement on Rules of Origin.  But
equally this Annex made absolutely clear what preferential rules of origin actually were:  in itsparagraph 2 they were defined as determining whether goods qualified for preferential treatment.  A
product which originated of an RTA according to normal MFN rules of origin still originated there
even if it did not qualify for preferential treatment under the RTA.  The use of preferential rules of
origin did not mean that products originated in different places than they would under normal MFN
rules of origin.  In relation to that issue, his delegation wished to advance one thought for colleagues'reflection: that the use of preferential rules of origin in RTAs related to the definition of "substantially
all the trade" (SAT).  It could be argued that the use of preferential origin rules should have a bearing
on determining whether the SAT criterion were met; that is, concern that the stringency of preferential
rules of origin might have added effect on the patterns of trade and economic co-operation amongst
RTA parties themselves and between RTA parties and third parties.  Therefore, to prevent
unwarranted disruptions to trade patterns, there was a prima facie  case for relating the use of
preferential rules of origin to the definition of SA T.  In measuring SAT as a percentage, as proposed
by Australia, the base - which was 100 per cent of trade between the RTA parties - should comprise
all intra-RTA trade measured according to MFN ru les, while the proportion of trade should be
measured according to preferential rules of origin. Thus, the less stringent the preferential rules of
origin were, the higher percentage they would account for when measured against a qualifying
percentage of SAT, and the easier it would be for them to meet the stipulated qualifying percentage.This was a fresh idea.  He indicated that his statement could be circulated if considered useful.  He did
not expect an immediate response but wanted to float the idea with the thought that Members might
agree with that approach ultimately for the legitimate interests of all.
20. The representative of Australia said that there were a few points that were worth noting from
the Secretariat's analysis of scope. Limiting his comments to rules of origin, he said the first point to
note was that preferential rules of origin were a crucial aspect of RTAs, and that the Committee
tended to lose sight of that.  This suggested th at in the Committee more work on that issue might
usefully be done.  He also noted that the analysis seemed to indicate that the test most often used in
RTAs for rules of origin was a technical test rather than a change in tariff heading.  That, too, was
something that could be discussed further, since it was his understanding that a change in tariffWT/REG/M/18
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heading was usefully regarded as the clearest and least complex way of determining origin, bearing in
mind that determination of origin seemed to be usually quite a complex exercise.  It would also be
useful to know to what extent the test used for de termining origin was a negative test, as opposed to a
positive test.  That was not clear from the analysis, and while he did not know whether it were
possible to draw any conclusions from the information submitted, the fact that theCommon Declaration on Preferential Rules of Origin  (Annex II to the Agreement on Rules of Origin)
did encourage the use of a positive technical test should be borne in mind.  The analysis also showed
the range and complexity of provisions in RTAs on the determination of origin.  Various RTAs
contained lengthy and detailed annexes for the attribution of origin.  That was a point worth
remembering when considering the lack of clarity of provisions in many RTAs, which was a direct
outcome of the lack of clarity of the multilateral provisions governing RTAs.  His delegation found
the analysis of the delegation of Hong Kong, China quite interesting and would like the paper to bedistributed.
21. The representative of Japan said that his delegation would later circulate a paper in which one
of the elements would be rules of origin.  He hoped that other Members would also present papers on
that area.  He would like to study the ideas put forth by the delegation of Hong Kong, China, which
opened new perspectives on the issue of rules of origin.  The Japanese paper would present examplesusing countries A and B.  In one case, countries A and B were members of an RTA with regional
rules of origin under which, if a company located in A collected 50 per cent of inputs within the
region (A and/or B), RTA origin was granted.  A product produced in country A by a foreign
company (from a third country X), by collecting 50 per cent of inputs from A and/or B, could then be
exported free of customs duties within the region.  Let us suppose that the RTA enlarged to includecountry C and the rules of origin changed.  Under the new rule, the local content ratio was raised
from 50 to 60 per cent. Because of the introduction of new regional rules of origin, the foreign
(country X) company in A would then need to collect 60 per cent of the inputs from the region - and
reduce imports of contents from home country X to a 40 per cent level - in order to meet the new rules
of origin.  In addition to the negative effects on the imports of inputs from X, the company wouldneed to bear the extra cost of technical adjustment  so that the factory could incorporate the local and
foreign inputs at a ratio of 60 to 40.  This could be viewed as a raising of trade barriers.  That example
was well-known.
22. The representative of Japan continued, adding a second illustrative case, inspired from his
reading of the book Regionalism and Multilateralism After the Uruguay Round .   I n  t h a t  c a s e ,
countries C and D were members of an RTA and had rules of origin whereby if a computer display
was imported from third country X into the region (C or D) and then assembled into a final computerin that region, the computer was given the origin of either country C or D.  Countries C and D
changed the rules of origin when they enlarged the RTA to include country E.  That new RTA
member E produced and exported computer displays  to C and D.  New rules of origin no longer gave
origin to a final computer assembled in the region (in countries C or D) when using a display
imported from third country X.  As a result, computer manufacturers in C using the display importedfrom X redirected their sourcing of displays from country X to country E.  His delegation considered
this case as having trade-diverting effects.  He ended his statement by saying that those cases had
been presented for further analysis by Members.
23. The representative of Korea said that during RTA examinations divergent views had
continuously been expressed on whether rules of orig in fell within the meaning of the term ORCs and
whether such rules adversely affected non-party suppliers. However, no common understanding had
ever been reached among Members, which, in turn, retarded the examination processes.  There were
three questions regarding preferential rules of origin and ORCs:  first, whether preferential rules of
origin could be considered as ORCs; second, when preferential rules of origin became more
restrictive; and third, how preferential rules of origin that had become more restrictive could beregulated.  He stated that, with respect to the first question, preferential rules of origin had to be
considered as ORCs for reasons of both an economic and legal nature.  On the economic aspects ofWT/REG/M/18
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the question, the preferential treatment provided for in RTAs was normally granted only to products
originating in the parties to the agreement; theref ore, preferential rules of origin were a central
element of RTAs.  As preferential rules of origin we re set in such a way that they encouraged a higher
degree of integration within an RTA than prior to su ch agreement, trade diversion was likely to result.
In order to benefit from the preferential treatment, companies within the RTA would try to increaselocal sourcing.  Existing market opportunities for outside suppliers would consequently be adversely
affected.  One of the most frequently quoted examples  of preferential rules of origin which effectively
diverted trade away from third countries was the “y arn forward rule” of a major free-trade area (FTA).
Under the rule, the parties granted duty-free treatmen t only to imports of garments from other parties
“if the yarn were made, the cloth woven and all cutting and sewing would be done within the
free-trade area.”  The impact of rules of origin was even more important because of the close
relationship that existed between trade and investment in the global economy.  Preferential rules oforigin worked as an effective incentive for a third country company to invest within an RTA. If the
company had been exporting its products to RTA parties, its decision to establish production facilities
within the RTA would undoubtedly affect trade betw een its home country and the parties to the RTA.
Finally, preferential rules of origin were frequently more complicated than non-preferential rules of
origin, and in most cases their complexity and cumbersomeness worked as a barrier to trade.  As forthe legal aspects of the question, Article XXIV of GATT 1994 did not offer any definition of ORCs,
and discussions in the CRTA had failed to produce an agreed definition of that term.  Yet there was a
broad understanding that ORCs refered to all measures affecting the conduct of trade.
 Although
preferential rules of origin were not mentioned explicitly in Article XXIV of GATT 1994, two of the
WTO Agreements linked rules of origin to trade measures and thereby provided a possible linkbetween preferential rules of origin and ORCs.  The preamble to the Agreement on Rules of Origin
recognized that clear and predictable rules of origin and their application facilitated the flow of
international trade and stated a desire that rules of origin themselves did not create unnecessary
obstacles to trade.  The Common Declaration With Regard to Preferential Rules of Origin provided
disciplines for preferential rules of origin.  Article 3(c) of that Declaration was of particular interest.It required that laws and regulations relating to preferential rules of origin be published "as if they
were subject to, and in accordance with, the provisions of Article X of GATT 1994."  It was also
worth noting that recent panel findings employed broad interpretations of the scope of measures that
affected trade.
24. Turning to the second question, the representative of Korea said that his delegation was of the
view that Article XXIV and the Understanding on the Interpretation of Article XXIV of the
GATT 1994 (the Understanding) suggested a ca se-by-case, measure-by-measure analysis in
evaluating whether ORCs had become more restrictive.  With regard to customs unions, paragraph 2
of the Understanding recognized that "for the pur pose of the overall assessment of the incidence of
other regulations of commerce for which quantification and aggregation [were] difficult, the
examination of individual measures, regulations, products covered and trade flows affected [might] be
required."  As for FTAs, paragraph 5(b) of Article XXIV stated that ORCs maintained and applicableat the formation of the FTA should not be more restrictive than the corresponding ORCs existing prior
to the formation of the FTA.  If that individual approach were taken, the task of evaluating whether
preferential rules of origin had become more restrictive might be a simple one. For example, if there
had been no preferential rules of origin, the very introduction of one implied that the degree of
restriction had increased.  Even in the case where there had been preferential rules of origin, anypreferential rules of origin calling for greater regional content than the ex ante level would be
considered as making it more restrictive.  An interesting hypothetical example had been given which
related to the examination of a major FTA, as mentioned by the Japanese representative.  It assumed
the existence of an RTA between two countries which initially used preferential rules of origin of
50 per cent value-added.  A third-country company had invested in a party to the FTA to benefit fromduty exemption by meeting this 50 per cent requirement.  The FTA later raised the preferential rules
of origin requirement to 60 per cent.  Consequently, the third-country company had to increase local
sourcing to meet the new requirement.  If that co mpany were incapable of making the adjustment, the
previous investment would become useless.  If the company had been importing parts from outsideWT/REG/M/18
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the FTA, then the adjustment by the company was lik ely to harm the outside supplier of parts.  The
RTA examination process was not a good means for ensuring that RTA parties would not increase
restrictions vis-à-vis  third parties through the use of preferential rules of origin or other trade
regulations.  The absence of a clear definition of what constituted ORCs, and the lack of agreement on
whether preferential rules of origin should be in cluded in that definition, weakened the examination
process.  Resort to the dispute settlement proces s posed a similar challenge.  No case implicating
Article XXIV had previously been brought to th e Dispute Settlement Body, precisely because the
vagueness of the requirements created manifold interpretations on which no final decisions could be
ruled.  It was therefore essential that a clear definition of what qualified as ORCs be agreed upon
through a revision of Article XXIV or the Understanding, which would include preferential rules of
origin in the definition of ORCs.
25. The representative of New Zealand said that there was much relating to the issue of rules of
origin that went beyond the general points that had arisen, which themselves had a complex
background.  The section of the analysis on Scope raised two large issues.  The first one was the way
in which coverage was looked at, namely:  Was it looked at in terms of elimination, or in terms of a
preferential trading regime which did not lead to elimination?  He supposed that it was easier to
clarify what was not covered, these areas being those not subject to any change from the m.f.n. regimethat applied.  It was useful to look further at those two categories to see how the RTAs functioned in
practice, bearing in mind the legal issues under Article XXIV which emphasized elimination of duties
on SAT.  The second question was how the preferential or duty-free access was accorded, and there
the focus was on the complex issue of preferential rules of origin.  Overall, his delegation tended to
sympathize with the approach suggested by the delegation of Hong Kong, China, which meantlooking at the preferential rules of origin in terms of the coverage test that was applied.  It would be
useful if that delegation's paper could be distributed so that the Committee could look further at how
that would apply in practice to the sort of clarifications that might be developed in terms of the scope
of RTAs.
26. The representative of India wanted to highlight two points from Annex I.  First, the scope of
RTAs was a highly significant element in the consideration of systemic issues.  Second, and related to
that, rules of origin were in themselves very important not only for the overall debate on systemic
issues but more specifically for discussion on the scope and coverage.  He agreed with the delegation
of Australia that that issue deserved more focus in  the Committee.  It was clear that the technical test
was being used far more often than the change in tariff nomenclature rule.  Also, that two types of
cumulation were being observed, i.e. either where only imports from parties were considered
domestic or where imports from certain third parties were also considered domestic.  Obviously, theseapproaches could have very different effects on third parties.  In both cases, the effects could be either
trade-creating or trade-diverting.  His delegation's basic concern was that regional or preferential rules
of origin not be formulated in such a manner that they would become detrimental to trade from third
parties. It was fairly clear that preferential rules of origin did constitute an ORC and that these
regulations therefore had to be evaluated with respect  to their impact on trade.  He looked forward to
the discussion on what was suggested by the delegation of Hong Kong, China, which seemed a useful
way to proceed.  As illustrated by the representative of Japan, if preferential rules of origin were not
formulated in a way which took account of other WTO provisions, situations could arise in which
they would be detrimental not just to trade from third parties but also to industries within parties to
an RTA.
27. The representative of the United States noted that there were some divergent views with
respect to the issues and examples raised by the delegations of Japan and Korea regarding the
Australian paper that had been circulated earlier.  However, since focus was to be on the Secretariat
analysis, he had no instructions to respond to those comments.  While not wishing to foreclose debate,
he noted that the views could have been more fully expanded had he been aware from the agenda thatdiscussions were going to be held on those examples.WT/REG/M/18
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28. The representative of Canada said that, while some of the examples were not unfamiliar to his
delegation, he would not comment on them as discussions under the agenda were from more of a
broad, policy standpoint.  Regarding the Secretariat analysis, there were a number of points that his
delegation would like to see further expanded to ensure that the understanding of the operation of
rules of origin was well elaborated.  For instance, rules of origin played a different role in FTAs ascompared to in customs unions.  While in the la tter the common external tariff operated as the
checkpoint to govern trade with third parties, in the former the rules of origin were an essential tool to
determine whether or not the product concerned qualified for preferential treatment.  That was
necessary because, for cases where the parties to the FTA did not have the same external tariff for a
product, a mechanism was needed to ensure that the product which crossed the border within the FTA
did not escape the application of a duty vis-à-vis  a third party.  It was clear, however, that the purpose
of preferential rules of origin was to govern how the product concerned would be treated within theFTA itself, and that the treatment vis-à-vis  third parties rested with the individual parties of the RTA,
thus leaving the m.f.n. treatment unaffected.  That raised an interesting debate on whether rules of
origin were within the purview Article XXIV:5.  Pr evious debates had shown that the general view in
the Committee was that that provision dealt with the impact on third parties, but by definition
preferential rules of origin were directed to the intra-trade of an RTA.  There was therefore the need tofind a way to reconcile preferential rules of origin applying only within an RTA and a measure
directed towards third parties.  In that vein, he was interested in the methodology proposed by the
delegation of Hong Kong, China.  Clearly, in negotiating an RTA, the objective was to ensure that the
rules would allow trade to flow as freely as possible so as not to disrupt any existing trade pattern.  In
that sense, if not in the legal sense, there was a practical objective of ensuring maximum coverage.Another aspect that needed to be fleshed out was the issue of cumulation, in particular how
cumulation rules affected the treatment accorded to a particular product.  It would be interesting to
explore further how that  related to the Japanese  comment on the enlargement of an RTA and whether
the impact of the cumulation rules on investment or on trade patterns had the same impact as the
change in the rule itself.  That was an issue in many of the examinations undertaken by theCommittee, and today's discussions provided useful insight as to how the debate on systemic issues
could also play into the examinations.
29. The representative of the European Communities said that preferential rules of origin were
indispensable to the operation of RTAs for determining eligibility for preferences.  He thanked
delegations for the ideas put forward, which merited some reflection.  While being reluctant in this
discussion to make closer links to examples, he felt it was important that the systemic debate kept
track of the discussions in the examinations, as both played off each other in a quite interesting way.Noting that soon the Committee would receive a notification, as well as some detailed material, on the
system of cumulation of rules of origin in the context of RTAs in Europe, he said that that would
provide the opportunity to explore some of the issues regarding which Members had indicated
interest.
30. The representative of Hong Kong, China noted that discussions were developing very
constructively.  He agreed that there were divergences of views on certain issues, but at the same time
a convergence of opinions had clearly emerged as to the need to explore further the implications of
preferential rules of origin, looking at their complexity and stringency.  He found the questions posed
by the delegation of Korea stimulating and wished to respond to them.  Concerning the first question,
he said that preferential rules of origin constituted an ORC, not only for the reasons highlighted bythat delegation, but also because the logic of the text of Article XXIV:8(a)(ii) bore out that, for
purpose of RTA analysis, preferential rules of origin were an ORC.  While agreeing with Canada that
that question related to Article XXIV:5, he wished to underscore that paragraph 8 was also relevant to
it. As for the second question, he said that the question as to whether preferential rules of origin
tended to be stringent and led to diversion of trade ought to be viewed as an empirical issue, notlending itself to any rigid, definitive conclusion.  The statement by the representative of Korea, which
he agreed with, suggested there was a tendency in ce rtain situations for preferential rules of origin to
lead to trade diversion; such observations, however, would have to be empirical.  As for the thirdWT/REG/M/18
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question, it was precisely in that context that his delegation had floated the idea of using trade carried
out under preferential rules of origin as the trade to be counted in assessing coverage of SAT
(whatever the Committee might agree as to the threshold for satisfying the SAT criteria). He
emphasized that, in proposing that, his delegation's intention was to highlight the importance of the
issue and to heighten awareness so as to facilitate  consideration, but not to come to any rigid formula
at this time, which might be prejudicial.  The idea he wanted to float was that preferential rules of
origin ought not to be misused to exclude third-party trade.  Therefore, the less stringent toward
third-party trade that the preferential rules of origin  were, the easier it ought to be to meet the criteria
of SAT.  In that connection, he understood that the Australian proposal of SAT had to be the subject
of further deliberation, and he looked forward to a decision on that.
Annex II
31. [No comments were made on Annex II.]
Annex III
32. The representative of Hong Kong, China wished  to make some general points regarding the
Committee's systemic work. In the Secretariat's document, she observed that it was clear from
Annex III that virtually all RTAs included a security exception, even if not worded on precisely the
same lines as Article XXI.  Her delegation found such an exception quite understandable, notundermining the economic rationale of an RTA.  If it were ever decided that the exceptions list in
Article XXIV:8(a)(i) and (b) should be regarded as exhaustive, then her delegation would see a need
to add Article XXI to the list, in the same way as GATS Article XIV bis was included in the
equivalent exceptions list in the GATS.
Annex IV
33. The representative of Hong Kong, China said that she was glad to note the improved situation
in more recent RTAs with respect to the elimination of QRs in intr a-RTA trade.  However, there was
no indication as to whether there was any GATT justification for these QRs.  She wondered whether,
if RTAs were to be the buttress of the multilateral trading system, any non-justified QRs should be
eliminated on all trade.
34. The representative of Australia noted that the analysis tended to show that more recent RTAs
were phasing-out QRs in a faster and more comprehensive manner; that was a welcome conclusion to
be drawn.  Referring to the information contained in paragraph 32 of the analysis, which indicated
that QRs were maintained on 14 per cent of the RTAs, he wondered whether it was possible to know
on which sectors these were typically maintained.  He also questioned whether QRs were maintained
on exports and on which sectors.
35. The representative of India noted that the trend regarding QRs was definitively favourable,
particularly in the post-1990 period.  However, he nonetheless observed from table IV.2 that  even
amongst the post-1990 RTAs, a large proportion still provided the "in principle" abolition of QRs
over the longer time period, i.e. 10 years.  Referring to paragraph 33, he pointed to the fact that,
compared to FTAs, customs unions had tended to favour a faster liberalization.  He also shared the
concern expressed by the delegation of Hong Kong, China on the GATT-consistency of theintroduction of QRs where none had existed before the RTA came into force.  He looked forward for
elaboration on those issues.
36. Associating himself with the statements made by the representatives of Hong Kong, China
and India, the representative of Japan said that his delegation was concerned with the fact that some
RTAs maintained QRs and did not abolish them at the entry into force of the RTA.  He noted thatWT/REG/M/18
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paragraph 35 indicated that in two instances parties to post-1990 RTAs were allowed to introduce new
QRs on exports; he was concerned that this might be done in cases of RTA expansion.
Annex V
37. The representative of Australia noted that paragraph 37 of the Secretariat document pointed to
the high incidence of RTAs providing sector-specific rules on subsidies which typically applied to the
agricultural sector.  He supposed that such sector-specific rules on agricultural subsidies created more
rather than fewer problems with regard to trade in  non-agricultural areas.  Perhaps more interesting
was paragraph 38, which highlighted what seemed to be a consistent theme in regard to many
provisions, i.e. the lack of clarity.  His unders tanding from the paper was that most RTAs did not
provide much detail on non-permissible subsidies.  In that regard, the request, made by the
representative of Korea for more work on the relationship between RTA and WTO rules in areas
where RTAs' rules were not clear would be quite us eful.  He noted that RTA provisions generally
referred to the prohibition of export subsidies; it might be interesting to know to what extent RTAs
did not explicitly cover the prohibition of export subsidies.  Referring to footnote 18, he said that it
was quite revealing that a few RTAs specified permitted and abolished subsidies in a way that closely
corresponded to the categories spelled out in the WTO Agreement on Subsidies and Countervailing
Measures.  The question there was how many RTAs in that way did follow the definitions laid downin that WTO Agreement, as that would give the Committee some insight into the lack of clarity in
WTO rules on subsidies.
Annex VI
38. The representative of Canada said that this Annex was an interesting and elaborated section
and involved an area where further study would be welcome.  Virtually all RTAS contained
provisions pertaining to trade remedies or contingency protection, and the various aspects of these
were thoroughly reviewed during examinations.  At first glance, it appeared that the treatment of trade
remedies varied considerably.  With respect to intr a-trade, the treatment ranged from total elimination
of trade remedies to the maintenance of pre-existing national regimes, with some other features likespecial procedural elements and consultation mechanisms.  Also of interest was the distinction
between FTAs and customs unions and the application of a common regime by the latter.  Given the
broad range of models, it would be interesting to have a more detailed survey on the specific
treatment of trade remedies in various RTAs.  Such a survey could examine both the economic and
the trade policy implications that were relevant for the elaboration of trade remedies provisions in
RTAs.  For instance, from an economic standpoint, the survey could examine what were the
underlying economic circumstances that had led parties to adopt a different regime or move to acomplete elimination of the application of trade remedies in intra-trade, and what were the
implications for third-countries.  From a trade poli cy perspective, the Committee should have a  more
detailed look at how those different models related to the test of Article XXIV and, in particular, how
they related to the existing set of disciplines laid out in the relevant WTO Agreements.  In his
delegation's view, this was an area where there had been considerable evolution in RTAs in recentyears, and a further detailed study, providing a more systematic compilation of models of trade
remedies in RTAs, could enlighten the Committee on the way forward in terms of future multilateral
rule-making in that area.
39. The representative of Japan recalled that his country had concerns relating to the issue of
safeguards in RTAs.  According to the Secretariat document, there were cases where parties to RTAs
agreed not to apply safeguard measures among themselves, or not to apply them unless imports from a
party amounted to a certain share of total imports.  He wished to illustrate the latter case with an
example where an RTA had been established between countries A and B.  An industry in country A
was seriously injured by imports coming both from country B and from third country X.  It would be
unfair if country A applied safeguards only to imports from third country X because the share ofimports from B did not reach the threshold.  He ad ded that, whenever safeguard measures were notWT/REG/M/18
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needed against RTA parties, the domestic industry was not facing serious injury and, therefore,
safeguards against third countries were equally unnecessary.  Otherwise, safeguards could create
discrimination between third countries and RTA partie s.  Safeguards were urgent temporary measures
and a derogation from GATT Article II.  Safeguard measures had to be applied irrespective of sources
and on an m.f.n. basis.
40. Turning to anti-dumping and competition policy, the representative of Japan said that that
area would be dealt with in his delegation's forthcoming paper.  He then gave an illustration, where
countries A and B formed an RTA and decided to replace anti-dumping duties with common regional
competition policies.  That meant that A and B did not apply anti-dumping measures against each
other, but applied instead common competition measures, such as anti-predatory pricing measures,
between them.  If different criteria and conditions were used in applying anti-dumping and
competition policy measures, a company in country B might export its products to A at a price of, say,10 per cent below the cost of production, because competition authorities would not regard the lower
cost of production as predatory pricing or as aime d at forming a dominant position in that area.  By
contrast, similar products imported into that region from third country X at a price 10 per cent below
the cost of production might well face the imposition of anti-dumping duties. In that case, only
third-country products would face anti-dumping duties.  He then expressed the desire for therelationship between anti-dumping and competition policy to be explored in the future.
41. The representative of Australia said that this Annex, and especially the part devoted to
safeguards, was particularly interesting.  The Australian position had always been that, given the
rationale for the formation of an RTA - i.e. deeper economic integration and a greater use of economic
complementarities - it seemed strange that members of an RTA would want to maintain safeguardprovisions.  Thus, his delegation found it interesting that the paper showed that safeguard provisions
were almost always found in RTAs.  He noted that there had been a conspicuous increase in
agricultural safeguard provisions, which was worrying when examinations of RTAs continued to
show that the coverage of agriculture in RTAs was not usually what it seemed.  An interesting
situation would be an incomplete coverage of agriculture and a greater use of agricultural safeguardsin an RTA.  Another interesting point was that very few RTAs had, as their trigger for imposing
safeguard measures, the unforeseen rise in imports, which, if he remembered correctly, was the trigger
found in the relevant WTO Agreement.  Most RTAs seemed to refer merely to a rise in imports.
While not being a safeguard expert, he wondered whether the information contained in that Annex
meant that RTAs were taking on obligations that could lead to a greater use of safeguard measures
than might be the case under multilateral instruments. If that were the case, it would be an interesting
development as it seemed to strike at the very basis of the economic arguments for forming RTAs.He appreciated that the document revealed  that a wider range of criteria for taking safeguard
measures was found in RTAs than in the WTO, and that some of the RTAs' criteria were less stringent
than those of the WTO.  Also of interest was the fact that safeguard procedures were usually not
detailed in RTAs, and that seemed consistent with what appeared to be the pronounced lack of clarity
in important RTA provisions.  He would appreciate some clarifications on how, as stated inparagraph 46, margins of preference could be maintained when RTA parties put in place structural
adjustment safeguards, because he found it difficult to visualise how margins of preference could be
maintained in that context.  The widespread use of developmental and infant-industries safeguards in
RTAs also attracted his attention, at a time when the use of similar provisions in the WTO was widely
seen as anachronistic and anomalous, which again raised the question of the tendency of RTAs to setin some cases  more restrictive conditions than existed under the WTO Agreements.  Regarding
anti-dumping, while the paper pointed to a welcomed tendency to use WTO anti-dumping definitions,
it was worrying that some RTAs allowed for the immediate imposition of anti-dumping duties, which
was not permitted under the WTO rules.
42. Referring to the comments by the representative of Japan on the relationship between
competition policy and anti-dumping measures in RTAs, the representative of Korea said that it was
his understanding that Australia and New Zealand had included in their RTA a provision replacingWT/REG/M/18
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anti-dumping provisions with provisions on a common competition policy.  He wondered whether
either delegation could provide the Committee with background information or empirical analysis on
the impact of that on third-country trade.  The representative of Australia responded, saying that under
the Australia-New Zealand Closer Economic Relati ons Agreement the two countries no longer took
anti-dumping actions between themselves but instead  used competition laws to deal with the misuse
of market power.  He was almost sure that no anal ysis had been done on the effect of that on third
countries, because he could not think how that could be done, since Australia continued to avail itself
of its WTO rights on anti-dumping in regard to third countries, and he supposed that so did
New Zealand.  He would consider the matter and cons ult with his capital; while not quite seeing the
link, he would be happy to discuss the issue bilaterally with the delegations of Korea and Japan.
43. The representative of Hong Kong, China shared the concerns expressed by the delegations of
Japan and Australia with respect to safeguards and anti-dumping measures.  On safeguards, he would
simply add that the lack of clarity in the procedures for applying safeguards in many RTAs tended to
obscure the nature of GATT Article XIX and other WTO safeguards. The nature of WTO safeguards
was exceptional and safeguard actions called for justification on a case-by-case basis.  He also said
that the issue raised by the representative of Japan on competition and anti-dumping measures did not
relate only to competition;  the reference to th e initiative on competition was relevant to the
Committee in that provisions in certain RTAs tended to magnify the lack of fairness in the use of
anti-dumping measures by individual countries and that, when applied in a regional context,
anti-dumping actions tended to be used, resulting in further and unwarranted discrimination.  Calling
the attention of Members to footnote 25 and thanking the Secretariat for the direct observation
contained therein, he said all Members were aware that the existence of a provision for measures notpermitted under WTO rules, irrespective of whether it was actually invoked or not, would constitute
violation per se .
Annex VII
44. The representative of New Zealand said that the Annex raised two broad, distinct and
interesting issues, i.e. those concerning technical barriers to trade (TBT) and those concerning
SPS-related provisions.  Concerning SPS-related provisions, it was fair to say that, a number of RTAs
included SPS-related matters as specific exceptions, in effect repeating the wording of Article XX of
the GATT.  (This related to Annex III).  However, the general direction of some of the more recent
RTAs suggested new treatment for SPS measures; in particular, there were a number of RTAs that
called for their harmonization.  It was useful to consider what that meant in light of the existence of
the WTO Agreement on SPS.  If measures were harmonized in conformity with that Agreement, he
thought that the impact on third countries would not be significant.  However, questions would beraised if, through the operation of an RTA, one party harmonized with another party and in effect
ended up erecting additional SPS barriers to third countries.  That was an issue which needed to be
looked at very closely.  It seemed to him that consequences could vary depending on what sort of
harmonization was in effect taking place.  In the area of harmonization of TBT, some similar
considerations could be highlighted, with the difference being that the level of risk involved in theTBT area was different in general from that which Members addressed through SPS measures.  It was
worth to bearing in mind what would be the cons equences if harmonization of technical regulations
ended up creating additional requirements for third countries merely as a result of the operation of an
RTA mechanism.  There were specific standards in both the TBT and SPS Agreements that regulated
whether or not measures could be validly imposed.
45. The representative of Canada said that the Annex revealed the new trend in deepening
market-access commitments.  Paragraph 55 highlighted that the frequency of the inclusion
of TBT/SPS provisions in RTAs had increased considerably in recent years.  That reflected a broader
phenomenon relating to the impact of those measures on market access more generally.  Also
interesting to note was that tables VII.2 and VII.3 both indicated that only in a minority of instancesdid the provisions of RTAs refer to WTO rules;  instead, parties to RTAs preferred to develop theirWT/REG/M/18
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own sets of rules, providing for either mutual r ecognition or harmonization.  This suggested that it
was an area where the deepening of rules at the regional level was pointing forward and was ahead of
the multilateral rules system.  It might therefore be worthwhile and instructive to keep that in mind
when examining how RTAs could contribute to the further elaboration of multilateral rule-making in
that area so as to enable greater market access.
46. The representative of Japan supported the statements made by the delegations of New Zealand
and Canada.  He thought that the SPS case presented in Australia's paper (WT/REG/W/25) was very
interesting.  If, following an enlargement of an RTA, a country might start using regional standards in
place of the international standards it had used before ;  the impact of the spread of regional standards
should thus be considered.  The Committee should come  back to the previous horizontal study by the
Secretariat on those areas and, as suggested by many delegations, should explore TBT and SPS-related
issues as concerned third countries.  He noted that he had previously presented some examples in those
areas and that, in light of paragraphs 4 and 5 of Article XXIV, he considered such arrangements as
raising barriers.  Those cases showed that the ba sic principle of non-discri mination under Article I was
not fully respected.  Noting that his delegation consid ered the provisions of Article XXIV:8 as providing
the definition of customs unions and FTAs, he said that these provisions should not be interpreted as
giving RTA parties the right to introduce trade-restrictive measures in the name of harmonization.  TheUnderstanding should also be strictly observed, as  mentioned by the delegation of Korea.  The
Understanding provided that the pur pose of RTAs should be to facilitate intra-trade and not to raise
barriers to the trade of third countries, and that RTAs should to the greatest possible extent avoid
creating adverse effects on the trade of third countrie s.  It also provided that, for the purpose of the
overall assessment of the incidence of ORCs for which quantification and aggregation were difficult,the examination of individual measures, regulations, products covered and trade flows affected might
be required.  All WTO Members faced these problems because all were outside many RTAs, even
though many were parties to some RTAs.  It was a common challenge to all Members to ensure the
non-discrimination principles of the WTO.
General Comments
47. The Chairman then invited delegations to express any ideas stimulated by the day's debate
based on the Secretariat's Inventory of Non-Tariff Provisions (document WT/REG/W/26), or to make
more general comments on the Committee's work on systemic issues.
48. The representative of Hong Kong, China said th at the main point her delegation believed the
Committee should be addressing was the fact that systemic issues had been under consideration for
over two years.  It was time to question whether current approaches were making constructive
progress.  The systemic checklist had been annotated to provide a wealth of information.  Two aspectsin particular, SAT and ORCs, had been the subjects of lengthy discussions, but without any sign of
any consensus being reached, and without sign of much willingness on the part of some to engage in
the exercise.  The systemic checklist had elaborated most, if not all, the many concerns about RTAs.
It inevitably had become discursive.  Perhaps the time had come to concentrate on a few essentials
and endeavour to make progress on these as a start, leaving other refinements to another stage.  SomeMembers were of the view that progress needed to be made on examinations of RTAs.  Her
delegation could sympathize with that view, but eq ually it considered that progress on examinations
and systemic issues should be balanced.  Most, if not all, the problems arising in examinations were
due to lack of clarity in Article XXIV.  It was not  sufficient to conclude the examinations pending
clarification of systemic issues.  This Committee had specifically been mandated by the SingaporeMinisterial Declaration to clarify the system of WTO rights and obligations as it related to RTAs.
Systemic issues should not be used as a dumping ground for Members to deposit any matter they did
not wish to address.  Answering systemic issues would be the way to resolving questions of
conformity, and a lack of such answers was what had been impeding progress in the examination of
individual RTAs.  The situation was that the assessment of an RTA's conformity with the multilateraltrading system was characterized by uncertainty.  Thus, very few examinations of RTAs had resultedWT/REG/M/18
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in consensus.  This situation was unsatisfactory both for potential participants in RTAs, because they
could not be entirely confident that an RTA being prepared would be accepted as being in conformity
with the multilateral trading system, and for the conduct of the multilateral trading system, as its
standing and acceptability depended on its being a rules-based system.  RTAs could benefit the
multilateral trading system, so it was important that, on the one hand, potential participants were notfaced with uncertainty when they entered into RTAs and that, on the other hand, the multilateral
trading system derived the maximum benefit from RTAs.  Parallel progress in systemic issues and in
RTA examinations, therefore, was not a question of negotiating linkage; it was operationally and
realistically the way to move forward.
49. The Chairman said he agreed with the assessment by the Hong Kong, China delegation with
respect to the parallelism between the Committee's examinations and systemic work, and the need to
ensure that the systemic debate should not be a "dumping ground" for issues the Committee did notwish to settle.  On the contrary, the systemic deba te should be viewed as fertile ground for the future.
50. The representative of Canada said he sympathized with some of the comments made by the
representative of Hong Kong, China.  There was eagerness on the part of many Members to press
ahead in all areas, and his delegation shared that se ntiment, both in terms of the examination process
and in terms of pursuing the Committee's discussion of systemic issues.  However, his delegation wasof the view these were two different tracks.  Since all Members participated in both tracks, there were
cross linkages – not in terms of legal issues, but rather in terms of grasping essential elements during
an examination process and then relating the discussi on of systemic issues to concrete examples that
arose during the examination.  It seemed that a number of examinations were reaching a stage where
it was an important element of the Committee's work to wrap them up, based on a fair appreciation ofthe elements that had been thoroughly discussed during the factual examination.  In his delegation's
view, this should not prevent the Committee from pressing ahead with its work on systemic issues,
but rather should stimulate it.  In terms of the work on systemic issues, earlier in the discussion a few
delegations had indicated that they would submit papers on areas of particular interest to them; it
looked as though there was a large degree of concurrence that these areas were crucial to the work ofthe Committee.  At least three topics in the discussion of the Secretariat's Inventory of Non-Tariff
Provisions attracted considerable attention:  one was rules of origin, another was contingency
protection, and the third was standards.  In each of these areas, it would be useful for the Committee
to continue to discuss some elements in greater detail.  His delegation looked forward to giving
attention to submissions by delegations and might wish to look in greater detail at the question of
anti-dumping in the context of this series of discussions.  The Committee could also draw on the note
by the Secretariat of almost two years ago regarding standards (WT/REG/W/8).  In general, theCommittee seemed to have a good deal on its plate for continuing useful discussion in these areas.
There might not be signs of consensus at this stage to make any recommendation, but that did not
prevent the Committee from pressing ahead and deepening its understanding of some salient points.
51. The representative of Canada continued by saying that another area that could be part of the
Committee's discussion in the coming months related to  the informal note circulated by the Secretariat
this Session on all the RTAs notified to the GA TT/WTO.  The informal note provided a good
overview of what existed.  As expressed by the representative of Switzerland, there was always a
concern that such a list could not be complete because other agreements were in existence but were
not yet notified.  His delegation would invite all Members to notify their agreements in earnest, so that
the note might be made as thorough and accurate as possible.  If the systemic debate were also aimedat looking at the medium term, it would be a useful exercise to try to list all other RTAs or regional
initiatives which were in progress, for which information might be publicly available.  This
information would enable the Committee to assess the existing picture of RTAs in the global trading
system; what might be equally helpful for Members as they moved toward year 2000 would be a
picture of what the world trading system might look like in 5 or 10 years.  His delegation was aware
of a number of RTAs or other initiatives that were in progress and that received considerable
publicity; a useful compilation would result if this information were attached to the informal note.  InWT/REG/M/18
Page 15
this way, the Committee would have a good overview of not only the existence of RTAs but also what
could be the importance of RTAs in the medium term.  This could be a purely factual note based on
readily available information.  The Secretariat no doubt kept a close eye on media reports announcing
RTAs and initiatives, so such a compilation could provide an overview of the trend that had been
developing in recent years.  This could feed into the Committee's discussion of the nitty-gritty of therules as well as its consideration of broader trade policy matters.  Perhaps the Chairman would wish to
include this in his concluding remarks for the Session and for consideration by all Members.
52. The representative of Australia said his delegation shared the concern of the
Hong Kong, China delegation regarding the lack of progress in the debate on systemic issues.  He also
wished to support the proposal put forth by the representative of Canada for the Secretariat to expand
the scope of the compilation it had prepared.  It would be very useful to have a purely factual note,
based on public information, which would list all the RTAs and regional initiatives that were inexistence and perhaps those being publicly discussed.  The Committee should bear in mind that one of
the items in its terms of reference mandated it also to discuss regional initiatives.  So far it had not yet
been able to do this because it had been full y (and correctly) employed in the examination of
individual RTAs and in a narrow and legal discussion of systemic issues.
53. The representative of Japan supported the proposal for the Chairman to make a statement at
the next meeting of the General Council, saying it was a good idea to raise the issue of pace.  His
delegation also supported the comments by the delegations of Australia, Canada and
Hong Kong, China overall.  Members faced a common challenge in that each Member was a third
party to many RTAs, even if many Members we re party to several RTAs.  For example, NAFTA
Parties were facing the integration of the EC, a nd the EC was facing the NAFTA and APEC, etc., and
Latin America also had market access interests in Asian countries.  So systemic issues posed a
common challenge to all Members.  His delegation would submit papers on specific issues, and it
expected other Members to do so as well, in addition to work being done by the Secretariat.  As the
representative of Canada had stated, rules of origin, contingency protection measures and standards
(for which a paper had already been done) would be appropriate topics for the Secretariat to address.In the Committee there were two main issues:  transparency and rules/disciplines.  It seemed the
Canadian proposal would serve to enhance transparency, broadening the scope of the current debate
by drawing on various sources.
54. The representative of the European Communities said that his delegation understood
delegations' frustrations regarding the perceived pace of progress of the Committee's work.  However,
he recalled that the Committee had had an interesting and informative exchange of views on an
informal basis at the last Session, when sensible points had been made about the need for theCommittee to broaden and deepen its analysis and understanding of RTAs before getting into the
substance of considering changes to the rules which applied.  That seemed a sensible approach to keep
in mind.  Some interesting and challenging ideas had been advanced this Session, which required
further thought.  That analysis would not likely lead the Committee to an early consensus regarding
what changes might be needed.  It seemed to be the general view expressed last time that this was notnecessarily something the Committee should regret or identify as a problem; rather, this was part of
the necessary process of the Committee's work.  However, it did seem the Committee needed to
consider how it might advance the process of the examination of agreements so as to bring to some
sort of conclusion the examinations of those RTAs which the Committee had been examining for
some time.  He understood the desire not to use systemic issues as a general receptacle for problemsthat could not be solved, but the Committee had to be realistic about what it could achieve within a
particular time perspective.  His delegation had indicated that it would wish to see some product from
the strand of work the Committee was doing on RTA examinations during the course of this autumn.
He was not sure, given the ideas that were still being presented, and useful papers that had been
promised, whether the systemic side would be ripe for any comparable product within that time scale.He would ask Members to bear that in mind as well.  The Committee needed to progress with care
and due attention on the systemic side.  While he could empathise with the view that the CommitteeWT/REG/M/18
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needed dialogue, it was not easy to react instantaneously to some of the ideas which were being
presented, as these warranted deeper reflection.
55. The representative of Norway thanked the Secretariat for its updated list of existing notified
agreements, which had originally been requested by his delegation.  The paper would be useful.
However, his delegation shared the views expressed by the delegations of Canada and Australiaregarding the need for an expansion of this overview to include agreements which were not notified or
which were in progress.  This would lend a more complete picture and would lead to the transparency
needed in the Committee for performing its functions in the systemic debate.
56. The representative of New Zealand supported the Chairman's response to the intervention by
the Hong Kong, China delegation in which he had underscored that there was an inevitable linkage
between the examination work and the systemic work.  That was not to say that it was impossible to
advance individual examinations where the Committee could agree that there was a sufficientconsensus evident in the report to take it forwar d.  However, in several of the examinations, the
Committee did face a number of unresolved issues for which it was difficult to formulate consensus.
While it would seem that there would be a significan t effort and motivation to resolve these issues in
the systemic discussions when they cropped up in the examinations, in reality there was a tendency
simply to relegate the issues to the systemic discussion, without unanimous commitment to resolve
them.  Rather than having the systemic debate lie as an infertile "dumping ground", it would be better,
as the Chairman had said, for the systemic debate to be a fertile forum resulting in clear
recommendations on the issues.  When he said "clear recommendations", he was not suggesting
recommendations of how the Committee might agree that a certain thing might be altered for the
future, but even a recommendation that would highlight that there were differences of view.  Itseemed that that in itself was quite important to show the world – i.e. that there remained a number of
issues that needed to be clarified.  That related to the point made by the EC representative that the
Committee needed to deepen its understanding of the individual RTAs and perhaps devote priority to
that area.  However, in a number of cases, when the Committee was involved in the individual
examinations and found that there was no common parameter for determining key issues ofconformity, it had been difficult to come up with ag reed conclusions as to how those RTAs related to
the relevant WTO obligations.  So, it seemed there would always be this inevitable linkage, frustrating
though it was.  His delegation hoped that, when the Committee faced some of these problems
repeatedly in examinations, there would be a real drive to generate concrete ideas for resolving the
problems in the systemic discussion.  This was something his delegation wished to see real progress
on by the end of the year.
57. The representative of Brazil wished to echo many of the points made by the
EC representative.  His delegation agreed that more analysis and understanding were needed before
Members considered whether there should be changes to the rules.  The Committee had heard a
number of interesting ideas which required further thought and reflection, and it needed to be realistic,
particularly with respect to RTAs whose parties were all developing countries.
58. The representative of the United States said that his delegation shared many of the concerns
and frustrations expressed by the Hong Kong, China delegation with respect to the Committee's
progress.  His delegation encouraged the Chairman to make note of the Committee's progress in the
General Council, as this seemed a positive way to move the Committee forward through some very
difficult issues.  He also agreed with the representative of Canada that the Secretariat list of RTAs
should be expanded to incorporate agreements that had not been notified, as well as whateverinformation could be provided with respect to new regional trade initiatives.  This would add to the
Committee's knowledge and give a more forward-look ing impression of trends taking place in RTAs.
As to the problems of how the Committee should try to advance the examinations and its work on
systemic issues, he noted that the EC and New Zealand representatives had clearly spelled out the
relevant problems - i.e. that the Committee had a mandate to conclude the examinations andnevertheless to do work on systemic issues.  Systemic issues would always be cropping up, and itWT/REG/M/18
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seemed impossible to hold up conclusions on examinations forever, pending complete resolution of
the systemic issues.  Nevertheless, it seemed from  the work done on the most advanced examinations
that many items identified as systemic issues were being incorporated in the draft reports, at least with
markers setting out what the issues were.  This se emed to be a positive movement in identifying what
the systemic issues were, and perhaps at this stage this was as far as the Committee could go toincorporate the work in progress on systemic issues into the examinations where they now stood.  In
the ideal world, his delegation would like to see these systemic issues resolved, which would make
very clear-cut, practical examinations.  But it did not seem this was possible in the near future, and he
feared that it would come time to report to the General Council on the work that had been done by the
Committee next year in anticipation of the Ministerial Conference, and it would be difficult for the
Committee to report that it had not completed examinations.  It seemed the Committee would run into
a practical time-frame of how it could wrap up the number of reports that were backlogged, even if itdid resolve systemic issues in the intermediate term.  So, he did not see how examinations and work
on systemic issues, even though proceeding in parallel, could be linked.  As the examinations came up
and reports were written, they would simply have to note what the issues were as they were being
developed.
59. The Chairman said that while examinations and wo rk on systemic issues were both part of the
Committee's mandate and the one could not progress without the other, it did not mean that the
Committee could not make individual progress on each of those tracks.
60. The representative of Argentina supported the point made by the representatives from the EC
and Brazil regarding the progress achieved in the Committee.  In its systemic work, the Committee
needed to allow enough time to permit reflection and exchange of views and permit a full view of the
panorama.  The Committee should not feel under pressure, rushing to conclusions without adequate
study.  Subjects did not yet seem ripe enough to permit the Committee to arrive at conclusions in the
short or middle term.  His delegation was committed to pursuing progress in the Committee, but it
wished to consider the linkage which might exist between the consideration of RTAs and systemic
problems.  His delegation was prepared to make the effort, but what was important was that theCommittee allow enough time and not be under pressure.  The most important thing was the quality of
the product, not a rush to judgment which the Membership might later regret.  He also wished to point
out that MERCOSUR, like the EC, was a customs union and often, when reference was made to that
customs union, MERCOSUR Parties found them selves tagged with the same label.
61. The representative of Venezuela said there appeared to be a greater convergence than
divergence in delegations' views on the Committee's wo rk, even if some delegations found the pace to
be slow.  Two basic elements needed to be taken into account:  one was the reality of certaincountries, including his own, which were parties to RTAs before acceding to the WTO, and the other
was the subsequent situation, in which Members we re living in parallel worlds, where they had to
ensure that the two frameworks did not contradict each other.  The purpose was to move apace in the
liberalization process.  To try to understand what the agreements meant, and how far Members had
gone, was an important task, and the Secretariat evaluation was valuable in this respect.  Membersneeded to have due appreciation for systemic problems where regional processes needed to advance in
order to come into full conformity with the global framework.  Here his delegation concurred with the
Australian delegation:  the Committee needed to extend its studies and make the necessary inputs.
With that caveat of reflecting the reality of different countries, as certain delegations had pointed out,
the Committee should give thought to how it might contribute to ongoing efforts.  For instance,countries of the Americas were involved in a regional negotiating process, i.e. the Free Trade
Agreement of the Americas.  The original inputs to the Agreement being negotiated included
references to WTO compatibility as a basic criterion.  His delegation had been wondering where it
could obtain support, or an initial assessment, from a committee on this point, so that the Agreement
would not be found incompatible when assessed.  He was not saying this should be in the Committee'sterms of reference, but as the Australian delegation had pointed out, the Committee needed to be alert
to, and give support for and inputs to the agreements that were being negotiated.  The CommitteeWT/REG/M/18
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should not just wait to make ex post facto  evaluations, but rather it should now try and give those
inputs which would permit future agreements not only to be compatible, but also to represent a
positive contribution to the development of liberalized world trade.  Finally, he thanked the
Secretariat for the useful list.
62. The Chairman said this demonstrated that regi onalism needed to nourish multilateralism and
vice versa.  In summing up, he said the Secretariat informal paper on notified RTAs should be
supplemented to be more forward-looking, drawing on all available sources.  Also, the systemic
discussion and RTA examinations were two facets of the Committee's work.  The Committee wished
to work seriously on each of the aspects so as to achieve progress.  As far as the systemic approach,
the Committee should take into account the sensi tivities voiced by the MERCOSUR members and the
EC delegation, as well as the determination shown by other Members.  Analysis needed to be
thoroughly carried out. The Committee should not work with undue haste in a rush to judgment, butinstead it should work seriously, in good faith.  Th e Committee wished to work conscientiously to see
more clearly into the systemic problems and come up with the required recommendations; it also
wished to produce something real.  The Committee's task was to tell the General Council the problems
it had identified, along with possible solutions.  The Committee therefore needed to reserve the time
necessary to do so while having the will to make progress.  There were significant political deadlinesas the WTO would increasingly be called upon to meet deadlines for the Ministerial Conference at the
end of 1999.  The Committee counted on the Secretariat's contribution both now and in the future,
particularly with a view to the Committee's next Session.  The discussion had been helpful for shaping
the statement he would make to the General Council to make the Committee more central in the life
of the WTO.
C. Reporting on the Operation of Agreements
63. The Chairman then turned to the matter of repor ting, recalling that at its Sixteenth Session the
Committee had adopted recommendations to the Counc il for Trade in Goods, the Council for Trade in
Services and the Committee on Trade and Development.  Those recommendations were contained indocuments WT/REG/W/4, WT/REG/W/5 and WT/REG/W/6, respectively.  However, before
transmitting those recommendations to the relevant bodies, the Committee had had some outstanding
points to resolve.  He recalled that in March the Secretariat had circulated an Informal Note entitled
"Submission of Biennial Reports on the Operation of Regional Trade Agreements," with a proposed
schedule for the submission of such reports in 1999.  Then, in an informal meeting, the Committee
had discussed the scheduling question, as well as the need to avoid duplication.  At that meeting the
Committee had been informed that the EC delega tion needed time to consider the practical
implications of such an exercise before th e Committee transmitted the recommendations to the
relevant bodies.  At the Committee's last Session, the EC representative had indicated that his
delegation needed additional time to discuss with the Secretariat, various Members and EC Member
States the practicalities involved.  He would now request the EC representative to update the
Committee on progress in this regard.
64. The representative of the European Communities said that internal discussions and
consultations with other Members and with the Secretariat were still in process.  Upon further
reflection it had become apparent that the problem had less to do with the practical implications of
reporting (though these remained of importance) than with the far-reaching horizontal questions it
raised, concerning the position of the EC under Article XXIV and of any other RTA achieving thatlevel of integration.  Article XXIV had been written long before the EC had come into being.  There
had been some consideration of this point during the Uruguay Round, which had resulted in the EC
becoming a WTO Member in its own right; perhaps there were still some issues in this area that
should be put on the table for further discussion.  In essence, his delegation needed more time to
reflect internally on what the recommendations w ould mean in practice and the implications on aWT/REG/M/18
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broader front.  He asked for the Committee's further indulgence and indicated that the EC would try to
coordinate among its Member States with the hope of finishing its deliberations on this matter before
the Committee's September meeting.
65. The representative of the United States said his delegation took note of the EC
representative's comments.  Although his delegation had wanted to seek approval of the reporting
schedule this Session, it was sympathetic to the EC's position and to the fact that there had been
consultations with Members, including his delegation.   The issue needed to be resolved before the
September meeting if possible; if not, perhaps some  sort of interim option might need to be resorted
to, with the Committee sending its recommendations to the relevant bodies in September, perhaps
with an attached note explaining there was an outstanding issue concerning the EC.  So, while
recognizing the complexities involved and indicating some flexibility, his delegation would strongly
encourage the EC to resolve this matter by the September meeting.
66. The representative of Japan supported the statement made by the representative of the
United States.  The Committee had spent more than two years formulating these recommendations,
but because of the EC's internal consultations, that delegation was preventing the Committee from
transmitting its recommendations to the relevant bodies.  His delegation's view was that the
Committee should transmit the recommendations as soon as possible.  Since the recommendationswere of a general nature, the EC delegation could discuss these matters and solve practical problems
(e.g., overlap with the Trade Policy Review - TPR - process and how to submit statistics) after the
Committee did so.  If the EC delegation would consult with the Secretariat and certain Members, it
would seem they could solve outstanding points quickly.  Regarding overlap with the TPR process,
his delegation would not accept the simple submission of TPR information to the CRTA;  perhaps,however, he could recommend to his capital that the EC be allowed to use TPR information, with
some additions, for reporting.
D. Examination of Regional Trade Agreements
67. Minutes for the examinations under items D.I to D.VII are being circulated as separate
documents.
Agenda Item D:VIII - Examination of the North American Free Trade Agreement
68. The Chairman reported on the informal consultations that had been held on the draft report of
the examination of the North American Free Trade Agreement (NAFTA).  The consultations
produced progress on both the format and the substance of the draft report.  Over the next two weeks
the Secretariat would be receiving further written proposals and suggestions by delegations, and a new
draft would be circulated to Members as soon as possible thereafter.  He added that it was hisintention to conduct further informal consultations on the new draft in September with the hope of
reaching a conclusion in time for the next CRTA Session; he therefore urged delegations to contribute
actively and constructively to the exercise.
69. The representative of Canada expressed disappointment that, despite the efforts of the past
few months and the seriousness with which the NAFTA Parties had approached the matter, the workdevoted to drafting the report had not yet borne fruit.  He was confident, however, that the current
draft report was close to reflecting the outcome of the examination and took into account the broad
range of views that had been expressed.  The Parties were certainly willing to work constructively
with the Committee in bringing the examination to an end, but they were concerned by the fact that
some outstanding issues did not relate to the NAFTA itself but rather were of a more general orsystemic nature or were linked to the status of ot her examinations.  The Parties wished to bring the
NAFTA examination to a conclusion as soon as possible and believed that a failure to do so wouldWT/REG/M/18
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have negative repercussions for the Committee as a whole, reducing the willingness of Members to
engage in meaningful examinations and probably having an adverse effect on the Committee's
systemic discussions as well.  That being said, he indicated that the Parties would endeavour to work
effectively and diligently with the Committee in the coming months.
E. Other Business
70. The representative of Switzerland suggested that the inclusion of the examination of
individual agreements in the draft Agenda of future CRTA sessions be fully subject to the availability
of relevant documents.  He expressed the view, supported by the representative of the United States,
that the draft Agenda should only contain items fo r which all pertinent information was ready at the
time of issuing the corresponding Airgram, i.e. ten working days before the Session.
71. The Chairman then turned to the first point he himself wished to raise under this Agenda item,
concerning his intention to make a statement at the General Council meeting of 15 July 1998.  He said
that the Committee's Vice-Chairmen and he had become increasingly concerned that the Committee
was not moving forward decisively enough in fulfilling the key elements of its mandate, i.e., the
examination of individual RTAs and consideration of systemic issues. Some useful progress had
recently been achieved on the NAFTA draft report, and he believed that it was time to broaden suchprogress by bringing along draft reports on other RTAs.  He informed the Committee that he had
instructed the Secretariat to prepare and circulate draft reports on all of those RTAs for which the
factual examination had been completed, and that, in the autumn, the Vice-Chairmen and he would
pursue consultations intensively on these draft repo rts with the aim of reaching conclusions on them
before the end of the year.  He added that it was equally important for the CRTA to deepen its work onsystemic issues.  An encouraging development, which would enrich discussions, was the announcement
by a number of delegations this Session that they  intended to circulate documents and non-papers on
various systemic issues.  This, in conjunction with  other documentation already circulated and other
papers to be prepared by the Secretariat, shoul d allow the Committee to make progress on the systemic
debate in the autumn.  With that prospect in view , it was his intention that in its annual report to the
General Council, the CRTA should present at the end of the year a substantive report on the progress it
was making in fulfilling its mandate to consider the systemic implications of RTAs and initiatives for
the multilateral trading system and the relationship between them.  He ended by saying that, in his
statement to the General Council, he would outline wh at he had just said and ask Heads of Delegations
to support the process actively and constructively.
72. The representatives of Australia, Hong Kong, China
, Japan , Korea  and Switzerland  welcomed
and supported the Chairman's initiative.
73. The representative of the United States said he could not yet react to the Chairman's proposed
statement to the General Council, however he did have  a reaction with respect to the specific point on
progress in examinations:  the Chairman's statemen t that the progress should be broadened to other
examinations was accurate, but perhaps he should in clude a reference to putting emphasis on concluding
those examinations that were at this point the most  advanced because that would be the mechanism that
would allow the other examinations to be finished.
74. The representative of Uruguay agreed that the Chairman's initiative was important and that this
was a good moment to undertake it.  Because the issues the Committee was addressing were sensitive
and complex, it seemed that despite efforts, the Co mmittee had not made as much progress as it would
have liked; it was also for this reason that his delegation believed the Committee should not harbourillusions if it were not able to go forward faster.  As was well known, the issues in the multilateral ambit
(not only in the WTO but in other fora like the Unite d Nations as well) had a long process of maturity
until they reached results which were more or less satisfactory to all parties involved.  So, theWT/REG/M/18
Page 21
Committee needed to make the effort but not be overly  concerned if it could not always go as far as it
would have liked, given the circumstances in which it was working.  His delegation wished to submit
this caveat but wished to note also that it would fully cooperate with the Chairman.
75. The representative of the European Communities supported the Chairman's initiative and said it
seemed the Committee was at a turning point in its work.  Her delegation sympathized with the
delegation of Uruguay regarding its point that the Committee's work would take time, but at a certain
time the Committee needed to reach a more conclusive stage.  The Chairman was probably right that the
Committee was at that stage.  She also suppor ted the suggestion by the representative of the
United States.
76. The second point raised by the Chairman refe red to the schedule of examinations for the
remainder of the year.  He recalled that the proposal he had distributed to delegations at the beginning of
the Session included only RTAs wh ich had not yet undergone a first round of examination, and he
announced that Parties to RTAs listed for ex amination during the Nine teenth Session would be
reminded of the need to provide Members with all th e necessary information, sufficiently in advance of
that Session.  He added that, as a follow-up to th e week's meetings, a further round of examinations
would be needed to complete the factual examin ations of a number of other RTAs (Canada-Chile,
EC-Slovenia, and possibly also the services as pects of EC-Hungary, EC-Poland and EC-Slovak
Republic Europe Agreements and of the Treaties Establishing the European Communities), which
would be taken up in September.  He urged delegations to follow strictly the deadlines set by the
Chairmen for the provision of additional questions and replies.
77. The Chairman then turned to the question of granting observer status to intergovernmental
organizations that had requested it. He said that, during informal consultations on the
NAFTA examination to be conducted in between the session, he would raise the question of
observership in the Committee.  While the CRTA had already granted observer status to six
inter-governmental bodies, namely European Free Trade Association, the Food and Agriculture
Organization, the International Monetary Fund, the Organization of American States, the United
Nations Conference on Trade and Development and the World Bank, decision was pending on anumber of requests for observership, i.e. those liste d in document WT/REG/W/11 plus those by the
Latin American Integration Association and the Latin American Economic System.  Since the last
substantive discussion on the matter had taken place more than one year ago during the Committee's
Eighth Session, he considered it worth trying to re-open the debate.  He informed the Committee that
he intended to pursue further consultations on this i ssue with interested delegations in the hope of being
able to make a suitable proposal for the Committee's consideration in September.
78. Finally, the Chairman noted that Ambassador Elad io Loizaga of Paraguay would not be able to
remain with the Committee as Vice-Chairman after the summer.  He thanked him for his service.  Given
its heavy work, the Committee would need a replacement.  To this end, he had begun consultations on
the matter.  He hoped that, following a written pr ocedure, the Committee would appoint a successor in
time for the September meeting.
79. The Committee took note of the proposed schedule and of the comments made.
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