RESTRICTED
WORLD TRADE WT/REG18/M/1
30May1997
ORGANIZATION(97-2269)
Committee onRegional Trade Agreements
Fourth Session
EXAMINATION OFTHE INTERIM AGREEMENTS BETWEEN
THE EUROPEAN COMMUNITIES AND CZECH REPUBLIC,
SLOVAK REPUBLIC, HUNGARY AND POLAND
Note ontheMeeting of18September 1996
Chairman: Mr.Stuart Harbinson (Hong Kong)
A. ADOPTION OFTHE AGENDA
1. Theagenda contained inWTO/AIR/404, wasadopted.
B. EXAMINATION OFREGIONAL TRADE AGREEMENTS
IV. Interim Agreement Between theEuropean Communities andtheCzech Republic
V. Interim Agreement Between theEuropean Communities andHungary
VI. Interim Agreement Between theEuropean Communities andPoland
VII. Interim Agreement Between theEuropean Communities andtheSlovak Republic
2. TheChairmansaidthePartiestotheInterimAgreementsbetweentheCzechandSlovakRepublic,
Hungary, Poland andtheEuropean Communities (EC) hadnotified theGATT thattheAgreements
cameintoforceon1March1992,1whentheystillrequiredratification.TheAgreementswouldgradually
establish free-trade areas overamaximum period of10years, when duties andother restrictive
regulations ofcommerce would havebeeneliminated onsubstantially alltradebetween thesignatories.
TheECandtheCzech Republic hadinformed WTO Members thatfollowing thedissolution ofthe
Czech andSlovak Federal Republic, theearlier Agreement hadbeenreplaced.2TheParties tothefour
Agreements notified WTO Members thattheadditional Protocol onTrade inTextile Products aswas
foreseen inArticle 3ofProtocol 1totheInterim Agreements, hadapplied since 1January 1993.
Document L/7377, dated 7February 1994, contained theinformation supplied bytheParties andwould
serve asareference fortheexamination.
3. Therepresentative oftheEuropean Communities saidthattheECpartnership withthecountries
ofEastandCentral Europe wasevolving. Thenegotiation ofthese Agreements began in1990 and
hadincorporated relevant GATT provisions. Since then, there hadbeensignificant changes asthe
InterimAgreementshadbeenreplacedwithfullassociationagreementsknownastheEuropeAgreements,
which werenotified totheWTO. Theoriginal agreement withtheformer Czech andSlovak Federal
Republic wasreplaced bytwoseparate Agreements. Textile protocols toeachofthese Agreements
1Circulated indocument L/6992, dated 3April 1992.
2Circulated indocument WT/REG18/N/1, dated 13May 1996.WT/REG18/M/1
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hadbeennotified. Anadditional protocol totheEurope Agreements hadbeenimplemented toextend
awiderange ofECprogrammes inareas suchasresearch anddevelopment, environment, etc.The
countries concerned hadaccepted without derogation anECproposal fortheamendment ofProtocol 4,
regarding rulesoforigin. Theagricultural trade provisions intheEurope Agreements wereadapted
aftertheenlargement oftheEC,andtotakeaccount oftheUruguay Round commitments. Anadditional
protocol ontrade-related veterinary andsanitary equivalency questions wasunderway. Negotiations
intheareaofwines andspirits hadledtoanagreement withHungary andwere inprocess withthe
Czech Republic. TheEChadabolished customs duties onimports ofcertain industrial, textile and
steelproducts wellahead ofschedule. TheParties intended tocreate afree-trade areaoveramaximum
period of10years. Duties andother restrictive regulations ofcommerce would beeliminated on
substantially allthetrade between thesignatories inthesense ofArticle XXIV oftheGATT. Hewas
oftheviewthattheAgreementshadbeensuccessfulincreatingtrade,attractinginvestmentandproviding
astable andpredictable framework forcommercial relations between theECanditspartners.
4. Therepresentative oftheCzech Republic saiditsEurope Agreement withtheECentered into
force on1February 1995 andhadbeennotified indocument WT/REG18/6 following itsratification.
Itsobjective wastoprovide anappropriate framework forbothapolitical dialogue andacomprehensive
co-operation inabroad range ofareas, andwasasteptowards theCzech Republic 'sultimate objective
offullmembership intheEC. TheAgreement included allprovisions oftheprevious Agreement
between theformer Czechoslovakia andtheECrelevant tomerchandise trade, andincorporated afew
adjustments ofatechnical nature. TheAgreement hadbeen adjusted torespond tovarious EC
liberalization initiatives, theconclusion oftheUruguay Round, andtheenlargement oftheEC.The
abolitionbytheECofcustomsdutiesonimportsofsensitivebasicindustrialproductstookplacein1993,
aheadoftheprojecteddateof1995.Inaddition,theECabolishedcustomsdutiesonimportsofindustrial
products covered bytheconsolidation ofitsgeneral system ofpreferences attheendof1994, also
ahead oftheprojected dateof1996. Thereduction bytheECofcustoms duties onimports oftextiles
andsteelproducts hadbeenaccelerated. Fortextiles, itwould becompleted by1January 1997instead
of1998, andforsteelithadbeencompleted by1January 1996, instead of1997. Theapplication
oflevyanddutyreductions foragricultural products, contained inAnnexes XI:A, XI:B andXIIIof
theAgreement hadbeenadvanced bysixmonths. There hadbeensimultaneous increases intariff
quotas covering theproducts inquestion. Asof1January 1993, anadditional protocol ontrade in
textiles products between theECandtheCzech Republic provided fortheelimination ofallremaining
ECquantitative restrictions by1January 1998. Anamendment totheprotocol wasmade totakeinto
account theECenlargement andtheresult ofamid-term review. Thecompletion ofagricultural
negotiations toadapt theAgreement tothenewsituation resulted inmodifications ofbothatechnical
andsubstantive nature. Thenegotiation outcomes would bedulynotified. Another important
development wasthefurther acceleration ofexisting tariff reduction commitments duetochanges of
baserates asaresult oftheUruguay Round multilateral negotiations. Finally, negotiations were
underway ontheimplementation rulesenvisaged bytheAgreement, inrespect ofeconomic competition
andstateaid.
5. Therepresentative ofHungary saidthatthereintegration ofitseconomy intotheworld economy
hadbeencarried outthrough itsmembership intheWTO, anactive relationship withtheIMFand
World Bank, anditsrecent accession totheOECD. TheEurope Agreement wasapartofthisprocess,
andasteptowards ECmembership. TheAgreement hadfulfilled itsoriginal expectations toalarge
extent asitdynamized bilateral tradebetween Hungary andtheEC.Thisresulted instructural changes
which furthered thetransition process ofitseconomy. Newdevelopments which hadtaken place since
thequestion andreply exercise in1994 hadbeennotified.
6. Therepresentative ofPoland saidtheEurope Agreement wasapositive outcome oftheprofound
political andeconomic transformation inEurope attheendofthe1980s. Theestablishment ofafree-
trade areawould form thebasis foracustoms union, andasteptowards fullmembership intheEC.WT/REG18/M/1
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From itsinception, theAgreement wasaprocess toward Poland 'sintegration intotheworld economy
andmultilateral trading system. Thefree-trade areawasclose tobeing accomplished, withthefinal
dismantling bytheECofitsduties ontextiles on1January 1997 andthequantitative restrictions on
those products on1January 1998. Poland would abolish itsimport duties onindustrial products on
1January 1999, withthefewexceptions tobephased outby1January 2002. Anopen-ended
liberalization oftrade inagricultural products, andeventually onfishery products would beanother
component oftheAgreement. TheAgreement wasaccompanied bytheparallel implementation of
Poland 'sfar-reaching Uruguay Round market access commitments, which narrowed theoriginal
preference margins andoffered increasing trade opportunities tothirdcountries. Hewasconvinced
thattheEurope Agreement would becompatible withWTO rules. Since document L/7377 wasissued
on7February 1994, anumber offactshadtaken place suchastheacceleration ofthedismantling
oftariffs ontextile products andclothing originating intheEC.TheAgreement would leadtotariff
reductions onspecified textile products by30percenton1January 1996, andanother 30percent
thefollowing year, andthecomplete elimination ofduties on1January 1998. Anadditional protocol
gavepreference intheduty-free quota, available toautomobiles originating intheEC,toproducts
withenvironment-friendly equipment. Inanother protocol applied defacto from 1July1993, the
ECaccelerated theapplication ofpreferential concessions foragricultural products anddismantled the
duties forPolish exports totheECsince 1January 1995. Decision 2/96oftheAssociation Council,
of16July1996, affected duties applicable toECexports ofagricultural process products intoPoland.
On1July1995, Poland eliminated itsimport quotas maintained oncertain alcohol andtobacco products,
andabolished variable levies forcertain agricultural products asaresult ofitsUruguay Round
commitments. Decision 1/96oftheAssociation Council adopted theimplementing rules necessary
fortheapplication ofArticle 63:1(i) and(ii)and2oftheEurope Agreement, andtherulesimplementing
Article 8:1(i) and(ii)and2ofProtocol 2ontheESCS products tothatAgreement. Specific provisions
ontrade between Poland, andSpain andPortugal expired attheendof1995. Finally, theprovisions
ofArticle 22inrelation totherestructuring clause hadbeen invoked byPoland forcertain
telecommunications equipment andfuels.
7. Therepresentative oftheSlovak Republic saidthatafterthedissolution oftheformer Czech and
Slovak Federal Republic, itandtheCzech Republic concluded theEurope Agreements, which entered
intoforce afterratification on1February 1995. Heemphasized thattheEurope Agreement should
beseeninthebroader context asitwould provide aregular political dialogue thatwould facilitate its
future integration totheEuropean Union. The10yeartransitional period, aswellasthedates for
fulfilling theobligation ofParties, hadbeenassumed fromtheinterim agreement. Inaddition, there
were several amendments andsupplementary protocols. Anadditional protocol ontrade intextiles
products hadbeenapplied since 1January 1993 which provided forthegradual elimination ofall
quantitative restrictions onSlovak textile products exported totheECby1January 1998. Tariff quotas
onsteelproducts, applied intheperiod 1993-95 were abolished on1January 1996. Trade insteel
products wasnowfreewiththeelimination ofallduties onsteelproducts asof1January 1996.
Regarding trade inagriculture andfoodproducts, negotiations hadbeencompleted. Theadjustments
oftherespective partoftheEurope Agreement wereinthepreparatory stage, andafterapproval would
bedulynotified.
8. Therepresentative oftheUnited States saidtheAgreements being reviewed were partofa
complex network which included theEC,theEFTA States, Hungary, Poland, theCzech Republic,
theSlovak Republic, Turkey, Bulgaria, Romania, Slovenia, Latvia, Lithuania andEstonia. He
understood thatthese Agreements were moving beyond theborders ofEurope toinclude Tunisia,
Morocco, Algeria, South Africa andothers. Oneofthemore difficult issues tobeaddressed inthe
examinationswouldbethecircumstancesunderwhichWTOMemberscoulddepartfromtheirobligation
toprovide MFN treatment toother Members. Therefore, exceptions would onlybetolerated under
theveryspecific conditions allowed forunder theWTO. Preferential tradeagreements, customs unions,
andsimilar agreements could undermine theMFN principle iftheyserved todivert rather thanexpandWT/REG18/M/1
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world trade. Article XXIV required thattheycover substantially alltrade between theparticipating
countries. Hesupported tradeintegration inEurope andagreements thatwereconcluded inconformity
withWTO rules. Despite itsgenerally open markets, hefeltthatsome Members oftheWTO and
theEChadengaged indiscriminatory regionalism. Hewasoftheviewthatthere wasaproliferation
offreetrade agreements thatdidnotsatisfy WTO rules. Specifically, theEChadnotliberalized
agriculture fullydespite thefactthatmany ofitsagreements werewithcountries forwhich agriculture
would beanareaofcomparative advantage andcontributed significantly totheireconomic growth.
Hisdelegation wasoftheview thattheexamination process should encourage trade expansion and
nottradediversion, andshould notweaken existing disciplines designed toprotect theprimacy ofMFN
treatment. Beyond assessing theWTO conformity ofeachagreement, theprocess would contribute
totransparency andtobetter understand theintent, content andoperation ofeachagreement byWTO
Members. Hethanked thedelegations fortheirrecent submission ofadditional information anddata.
9. TheChairman saidtheexamination would beanevolutionary process. Headded that
document L/7377, would serve asthebasic reference forthisexercise.
Section 1:General
10. Therepresentative oftheUnited States saidasregards ratification, onlythedatefortheEC-
Poland Agreement wasprovided. Heasked when thetrade provisions oftheother Agreements had
come intoeffect andwhen thenegotiations ofeachAgreement commenced.
11. Therepresentative ofHungary replied thattheInterim Agreement hadbeenratified bythe
Hungarian Parliament on1March 1992, andentered intoforce on1February 1994.
12. Therepresentative ofPoland saiditsParliament ratified theAgreement on20October 1992,
anditentered intoforce on1February 1994.
13. Therepresentative oftheCzech Republic saidthattheInterim Agreement withtheformer
Czechoslovakia came intoeffect on1March 1992. TheCzech Parliament approved theEurope
Agreement on8December 1993. Itwasratified on10January 1994 andentered intoforce on
1February 1994.
14. Therepresentative oftheSlovak Republic saidtheratification oftheInterim Agreement had
taken place on21December 1991, andentered intoforce on1March 1992. Ratification oftheEurope
Agreement tookplace on4December 1993, andentered intoforce on1February 1994.
Section 2:Provisions oftheInterim Agreements
15. Therepresentative oftheUnited States noted thateachAgreement listed items excluded from
coverage ornotfullyliberalized inHSChapters 25through 97,while mostagricultural products were
notcovered.TheAgreementsprovidedforthepossibilityoffutureconcessionsinagriculture.However,
hedidnotseeevidence ofanyintention tomake concessions andwondered whysomany important
items wereexcluded. Heasked iftradeliberalization would beextended toother agricultural products
thatwere currently excluded, andwhen itwould occur. Heasked ifthere were common rules and
disciplines thatapplied totradeinagricultural products. Henoted thatHungary, Poland andtheformer
Czechoslovakia raised MFN tariff ratesduring thecourse ofnegotiating preferential agreements with
theEC,though Poland stated thatsuchaction wasnotinrelation tothenegotiations withtheEC.
Hedidnotseesuchadistinction inArticle XXIV andasked howtherequirements ofArticle XXIV:4
andArticle XXV:5(b) would besatisfied inthisregard. Theresponses seemed toindicate thatneither
Poland norHungary hadfullyadopted thecombined nomenclature fortheHarmonized System. He
wondered whether thiswasstillthecase, andasked about thestatus ofadoption. Heasked about theWT/REG18/M/1
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current status ofthequantitative andother measures maintained byHungary which ithadsaiditwould
reduce notlaterthan31December 2000.
16. Therepresentative ofHungary saidthatduring thecourse ofnegotiations, tariff rateswere
increased forseven positions, three ofwhich werebound atthattime, following theprocedure under
Article XXVIII oftheGATT. Herecalled thatHungary hadsimultaneously implemented MFN duty
reductions onmore than600tariff lines. Headded thatacombined nomenclature hadentered into
force on1January 1996. Another representative ofHungary saiditintended toeliminate quantitative
restrictions bytheendof2000. Italready eliminated thequotas andrestrictions onfurniture towards
allthecontracting parties oftheGATT atthetime. Theother partoftherestrictions, contained in
Annex 6A,would beeliminated according totheschedule envisaged inthesame Annex. Ithad
eliminated itsquantitative restriction regime inthefieldofagriculture andhadintroduced atariffication
process. Inthetextiles sector, allrestrictions would beeliminated bytheendof1997 aslaidoutin
theadditional protocol negotiated ayearaftertheEurope Agreement.
17. Therepresentative ofPoland recalled thestatement byitsrepresentative attheGATT Council
on10November 1994 asregards itsimport regime forautomobiles. Atthetime, allofitscustoms
tariff wasunbound. Henoted thatthechanges inunbound duties were notsubject tonotification
procedures that,inPoland 'sview, theywereinconformity withArticle XXIV. Poland 'smarket access
commitmentwasbasedonthecustomstariffanditsconcessionlisthadbeenacceptedbyWTOMembers.
There werenoprovisions forautomobiles onthelistandtheduties remained unbound. Heemphasized
thatitdidnotactagainst GATT rules. Asregards acommon nomenclature, hesaidthatPoland had
nearly accepted theEC’snomenclature through itsaccession totheHSConvention on1January 1996.
Aswasthepractice ofmany countries, itapplied theninthdigitforinternal tariffclassification purposes.
18. Therepresentative ofJapan expressed concern about Poland 'simport regime onautomobiles.
Hesaidthatithadraised itstariffrateforimports ofnewautomobiles from15percentto35percent
onlytwoweeks afterthesigning oftheAssociation Agreement withtheEC. Ontheother hand, a
duty-free quota of30,000 newautomobiles wasextended onlytoECmanufacturers, which represented
asubstantial majority oftheimported carmarket inPoland atthattime. Thisquota wasexpanded
by5to10percentinsubsequent years. Heclaimed thatsuchmeasures caused serious damage to
exports ofthirdcountry origin. InthecaseofJapan, carsalestoPoland dropped by40percentfrom
1992to1993. Henoted thatArticle XXIV:4 stipulated thatthepurpose ofacustoms union orfree-trade
areashould betofacilitate tradebetween theconstituent territories andnottoraisebarriers tothetrade
ofother contracting parties. Article XXIV:5(b) stipulated thattheduties andother regulations of
commerce maintained ineachoftheconstituent territories thatwere applicable tothetrade ofother
WTO Members should notbehigher, ormore restrictive, thanthecorresponding duties prior tothe
formation ofthefree-trade area. ThePolish automobile policy hadcaused serious damage toimports
fromthirdcountries. Heemphasized thatitwasaclearcasewhere tradebarriers against thirdcountries
wereraised through increased duties, coupled withduty-free treatment forParties tothepreferential
agreement. Heunderstood thattheexplanation given bythePolish Government fortheaction was
thatitwasnotduetotheAssociation Agreement, butwasnecessary toaddress economic difficulties
intheprocess ofitstransition toamarket economy. Hefound theargument difficult toaccept since
thetariff wasraised onlytwoweeks afterthesigning oftheAssociation Agreement. Hesaidthatif
acountry going intoafreetrade agreement wasallowed totakesuchmeasures justbefore thedate
ofentry intoforce ofanagreement, itwould violate Article XXIV:5(b). Heemphasized thatJapan
wasstrongly concerned withthePolish action asitsetadangerous precedent which could undermine
Article XXIV asawhole.
19. Therepresentative ofIndia shared theviewoftherepresentative ofJapan.WT/REG18/M/1
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20. Therepresentative oftheUnited States saidhisdelegation alsoshared thesame concern. He
askedifPolandwasplanningtoeliminatethesemeasuresandifsimilarmeasuresappliedinothernon-EC
Parties totheAgreements inthissector. Heasked forthelegaljustification ofthePolish policy on
automobiles.
21. Therepresentative ofPoland saidithadbeenacting inaccordance withtheWTO. Herecalled
thattherehadbeenahugeinflow ofcarsintothePolish market afterliberalization sincemany exporters
hadmade useofthisunique opportunity togreatly expand theirexports. Inother contexts, similar
increases would haveprobably brought about theintroduction ofvarious protective measures forthis
verysensitive sector. Thereasoning oftherepresentatives ofJapan andtheUnited States would lead
totheconclusion thatinthecaseofacountry which hadnotbound itstariffs under theGATT the
conclusion ofafreetrade agreement would automatically result inthebinding ofthewhole tariff.
However, hedidnotbelieve thatGATT rulesmade suchastipulation. Apart fromtheexternal aspect,
suchaprocess would alsobesubject tointernal legalrequirements. Withrespect toduty-free quotas,
hewasoftheviewthattheyhadtobesituated inthecontext ofthetimetable. Under various regional
agreements, timetables wereconstructed inawaythattheduty-free quota waspartofthedismantling
process. Inthecaseoftheautomobile sector, theprocess would begradual andcarried outthrough
atwo-track system. Theduty-free quota wasconcentrated onenvironmentally-friendly automobiles.
Basic duties would bedismantled andwould converge on1January 2002. Theduty-free quota would
disappear, aswould allmechanisms ofthistype. Heurged delegations nottodraw conclusions about
possible injury resulting fromitsautomobile policy sincetheissuewascomplex. Henoted thatexporters
located intheECmade useofthequotas while respecting rules oforigin requirements. There was
thusalinktoinvestment issues asPoland wasinterested inthemanufacture ofautomobiles. Since
hisgovernment hadnottaken astand ontheissue, hedeclined tocomment further.
22. Therepresentative oftheUnited States saidHungary maintained anumber ofcharges thathad
thesame effect ascustoms duties. Heasked about thecurrent status ofHungary ’scustoms clearance,
when itsvalue-added taxes (VAT) would beeliminated andtowhattheyapplied. Heasked whether
liberalization inindustrial products hadtaken place inanysectors andthenature ofsuchaction. He
asked theParties toconfirm ifthetransition period fortheoriginal EC-Czechoslovakia Agreement
hadbegun on1March 1992. Regarding textiles, heasked foranexplanation oftheadditional protocols
thatwerenotified totheWTO foreachoftheAgreements andhowtheywould becovered bythese
Agreements. Heasked iftherewereadditional restrictions applicable totrade inthissector andwhen
andhowtherestrictionsontextileswouldbeeliminated.Finally,heaskedabouttherelationshipbetween
theprovisions inthese Agreements withrespect totextiles andthephasing-out oftheMutli-fibre
Arrangement.
23. Therepresentative ofHungary saidthatArticle 12oftheEurope Agreement defined aspecific
timetable forreducing andremoving thecharges thatweredescribed tohavethesameeffect ascustoms
duties. Itusedtohavelicensing fees,customs clearance feesandstatistical feeswhich comprised 6per
centofthecustoms value, andhadreduced thefigure to2percentonanergaomnes basis. Itapplied
a1percentcustoms clearance feeanda1percentstatistical feeonimports, which would beeliminated
by1January 1997. Heasked forclarification ofthequestion onVAT, andnoted thatitselimination
wasnotforeseen asitalsoapplied forhome producers, andwould apply toimports fromtheECand
allother countries onanational treatment basis. Regarding theTextiles Protocol, negotiations onthe
Association Agreements werecompleted inDecember 1991. Atthetime, aquantitative regime applied
tomutual textiles andclothing trade. Theadditional Protocol aimed atsettling thisissue. Itwas
negotiated during 1992, andfinalized inDecember 1992 andapplied defacto from 1January 1993.
Itsobjective wastwo-fold. First, amutual regime ofquotas orceilings wasagreed upon. Itdetermined
thequantity which could beexported totheterritory oftheother Party forconcrete product categories
intheAgreement, aswellasthegross rates applied from year-to-year, untiltherestrictions wereWT/REG18/M/1
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eliminated. Secondly, agreement wasreached ontheelimination ofallrestrictions applied bytheEC
orHungary bytheendof1997.
24. Therepresentative oftheCzech Republic saidthedateofentry intoforce oftheAgreement
initscasewasquite complicated duetothechanges initsstatestructure. TheInterim Agreement,
between theformer Czechoslovakia andtheECapplied since 1March 1992. ThenewAgreement
betweentheCzechRepublicandECwassignedon4October1993,whiletheEuropeAgreemententered
intoforce on1February 1995.
25. Therepresentative oftheSlovak Republic saidthatthesituation referred tobytherepresentative
oftheUnited States regarding trade intextiles andtheacceleration process wasmentioned inhis
introductory statement.
26. Therepresentative ofPoland recalled thatithadmade useoftherelevant Article oftheEurope
Agreement which foresaw thepossibility oftheacceleration andthedismantling ofduties onanumber
ofproducts. Ithadrestructured thetimetable ofdismantling itsduties. Hewasoftheviewthatthere
wasnocontradiction between thetextile regime under theEurope Agreement andtherelated provisions
oftheWTO. Hebelieved itspartners would welcome theacceleration ofliberalizing imports oftextiles,
andrecalled thatPoland didnotmaintain anyquantitative restrictions ontextiles.
27. Therepresentative oftheUnited States saidthatArticle 11ofeachAgreement allowed for
theretention ofanagricultural component incustoms duties. Heasked whatchanges hadtaken place
intheapplication ofthisArticle asaresult oftheimplementation oftheUruguay Round. Since the
Agreements hadbeeninforceformore thanfouryears, heasked foranestimate ofthetotalagricultural
trade covered andiftheParties intended tocover fullyagricultural trade under these Agreements.
Intheresponse toquestion 2.12.6, theParties stated thatparagraph 5ofArticle 14provided fora
regular examination ofthepossibilities ofgranting eachother further concessions. Inthisrespect,
theAgreement followed theapproach ofearlier free-trade areaagreements. Theresponse further stated
thatthenotion of"substantially allthetrade" meant lessthanalltrade, andtherefore didnotrequire
thattradeinanyspecific sector between theParties mustbeliberalized. Heclaimed thataproliferation
offreetrade agreements appeared tobeinconsistent withWTO rules. Inthisregard, theEChad
followed thesame approach inthese Agreements asinprevious agreements ofnotfullyliberalizing
trade inagriculture. Theresponse given described the"substantially allthetrade" requirement of
Article XXIV asanotion. Hedidnotconsider theprovisions ofArticle XXIV, noranyother provision
oftheWTO, asnotional andtookthem rather seriously. Since Article XXIV allowed forexemptions
fromMFN onlyunder certain conditions, heemphasized thattheexclusion ofanentire sector would
notfulfil these conditions.
28. Therepresentative oftheECsaidthatmostofitstrade inagriculture wasnotcovered inthe
liberalization sincetheseAgreements reflected whatwaseconomically andpolitically viable atthetime.
However, theliberalization thusfarshould beconsidered asearlystepstoward theprocess ofaccession
ofitspartners, although itwould bedifficult topredict thetiming. Hewasconfident thattheirsuccess
inthetransition towards amarket-oriented system would leveloutpotential pricedifferences. Hewas
oftheviewthat“substantially allthetrade”wascovered, despite thesignificant omissions. Thedebate
would continue astherewerenofirmguidelines astowhatthattermactually meant. During theUruguay
Round, theconcept thatemerged wasthatnoeconomic sector would betotally excluded. Demonstrably,
noeconomic sector hadbeenexcluded inthissituation. Thetendency would betowards opening markets
which would betrade creating forParties tothefreetrade agreements andothers. Inthisregard, it
would beamistake toclaim thattheAgreements were inconsistent withWTO rules.
29. AnotherrepresentativeoftheEuropeanCommunitiessaidthatthestatisticaldataprovidedshould
clarify thequestions concerning agricultural products. Hedismissed theideathattheagricultural sectorWT/REG18/M/1
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wasnotincluded intheliberalization process asdirect references toitcanbefound inthe"Timetable
fortheelimination oftrade barriers" supplied totheCommittee foreachcountry. Inthiscontext, he
cited thecaseofHungary, where Annexes VIIIa, VIIIb, IX,Xa,XcandXIhadbeenmentioned.
Healsodrew theattention ofparticipants tothetable called “EC12Trade withtheFour Visegrad
Countries 'Development 1989-1995 ”,asaprecise indication ofhowagriculture factored interms of
imports andexports fromthecountries concerned. Fisheries, agriculture andprocessed agricultural
products, accounted foronly7percentoftheexports andimports fromtheECwiththefourVisegrad
countries. Tariff concessions indicated inthevarious annexes hadtobeseenagainst thispercentage.
Theimpact ofagriculture ontotaltrade wasclearly quite limited.
30. Therepresentative oftheUnited States repeated thattheAgreement hadbeeninplace forover
fouryears without estimates, andasked foranestimate oftotalfisheries trade covered.
31. TherepresentativeoftheEuropeanCommunitiessaidthatbetween1to2percentofagricultural
trade wasinfishery products. Negotiations weretaking place under Article 23between theECand
Poland withaview tosecuring market access concessions. Subject toagreement, theECwould
unilaterally grant Poland improved access forhalfadozen fishitems intheformofduty-free quotas.
32. Therepresentative ofPoland saidtrade inagriculture between itandtheECwasconducted
onanMFN basis. Certain concessions weregranted duetotheenlargement oftheECsince Poland
hadenjoyed freetrade infisheries withsome oftheformer EFTA States. However, trade wasrather
marginal, duetoother factors aswell.
33. Therepresentative oftheUnited States asked whatchanges intheAgreements hadtaken place
asaresult oftherecent ECenlargement andtheimplementation oftheWTO Agreements. Heasked
forspecification bymeasure andonaproduct-specific basis. Regarding margins ofpreference, he
asked howtheoverlapping tariffpreferences granted byeachoftheParties totheECandtoeachother
would mesh andhowdidtheyrelate topreferences provided tothirdparties. Heasked howrulesof
origin would becarried out.Heasked whatbenefits ECtrade would havewithcertain EFTA States
under these FTAs, asaresult oftheestablishment oftheEEA, andwhether these Agreements had
implications forother agreements. Heasked howtariff reductions bytheParties totheAgreements
made inconnection withtheUruguay Round would affect thelevelofpreference granted totheParties.
Hewondered whether itwould decline, orwhether anabsolute percentage margin ofpreference would
bemaintained. Finally, point 2.17.3 referred toacertain threshold thatmight notbeexceeded during
thetransition period. Heasked howthisthreshold wasdetermined andwhether itactually applied.
TheChairman noted thatthequestion regarding theoverlapping oftariffpreferences andrulesoforigin
would bequite complex andmight require more thought.
34. Therepresentative ofHungary saidthatitwasstillnegotiating withtheECregarding its
enlargement andtheadaptation oftheUruguay Round results. Regarding industrial products, there
were nomajor problems since thetariff phasing-out scenarios were nearly identical. Intheareaof
agriculture, thesituation wassomewhat different andwasstillbeing negotiated.
35. Therepresentative oftheEuropean Communities recalled thatthere wereprovisions ineach
oftheAgreements which specified thattheywere notobstacles tothemaintenance orestablishment
ofother agreements, provided thattheydidnotchange thetrading regime under these Agreements.
TheParties were obliged toconsult eachother. Inaddition, there were sensitive issues which had
delayed theconclusion ofnegotiations intheareaofagriculture inparticular.
36. Therepresentative oftheCzech Republic saidthattherewerecertain changes which hadbeen
described intheareasoftextiles andsteel. Asfarastheagriculture areawasconcerned, some technicalWT/REG18/M/1
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corrections resulted from thetariffication process intheUruguay Round, andnewconcessions had
changed, butthenegotiation outcome wasnotyetformalized.
37. Therepresentative oftheSlovak Republic saidtheconsequences oftheECenlargement were
reflected intheareaoftextile products where thequotas wereincreased. Thiswasalsothecasefor
steelproducts. Atthattime, valid quotas were increased. Asfarasagriculture wasconcerned, it
wasthesame situation asthepartners.
38. Therepresentative ofPoland saiditmaintained arather uniform approach withrespect tothe
structural levelandintensity ofthePolish concessions, vis-à-vis theECandEFTA States, although
thereweresome differences, especially intheagriculture andfisheries sectors. Duetotheenlargement,
theregime hadchanged. Ithadentered intonegotiations andwasnearing formal conclusion. Itmight
taketheform ofanewadditional protocol tothisAgreement. Headded thatpartofthemeasures
were already being applied according toautonomous decisions.
39. Therepresentative oftheEuropean Communities saidthatitwould bedifficult toconsider
different freetrade agreements superimposed upon oneanother. Heurged theCommittee tofocus
itsexamination onparticular agreements. Itwasclearthatonindustrial products treatment wasidentical.
Incertain sectors, there wasare-adjustment ofthemarket which resulted inimplications ofafactual
nature. Here, thelegalaspect should beexamined foreachoftheAgreements todetermine compatibility
withGATT rules.
40. Therepresentative ofHungary alsourged theCommittee toconcentrate onthelegalaspects
oftheissues under examination. Concerning theEurope Agreement andtheCentral European Free
Trade Agreement (CEFTA) which itbothapplied, among others, hewasoftheviewthatthere was
nocontradiction intheirapproaches astheybasically provided thesame treatment totherespective
partners. Regarding thethreshold problem andmargins ofpreference, hereferred Members toArticle 8
oftheAgreement. Arelative preference wasmaintained against thebasic duty, onMFN rate. For
many products, theHungarian MFN tariffreduction hadreduced thedutytozero. Forother products,
suchasindustrial products, Annex 5oftheAgreement, stipulated thaton1January 1997thepreferential
dutyfortheECwould be60percentoftheMFN rate. Normally, theabsolute preference would
diminish asaresult ofMFN tariff reductions. Regarding thethreshold applied fortariffs, Hungary
could increase customs duties foralimited range ofproducts within alimited period inrelation toinfant
industries orduetoregional difficulties. Thethreshold ratewould beata25percentmaximum as
farastheECwasconcerned. Thepreferential margin should bemaintained.
41. Therepresentative oftheCzech Republic saidthattheremarks bytherepresentative ofHungary
alsoreflected hiscountry ’ssituation. Forallthree Agreements, withtheEC,EFTA andCEFTA,
ithadfollowed theprinciples ofharmonization toliberalize substantially alltrade. Theestablishment
ofamargin ofpreference wasnotthegoaloftheAgreement, nordiditwant tokeepthisscheme.
Rather, itsobjective wastheremoval ofobstacles totrade.
42. Therepresentative ofPoland saiditwould attempt toharmonize market access conditions for
imports fromthepreferential States. Itwould belimited bythedifferent conceptual approaches with
respect totheEFTA-Poland Agreement andtheEurope Agreement. TheCEFTA wasbased onan
asymmetric approach. Themultiplication ofdifferent treatments hadledtodifferent columns inthe
customs tariff. ThePolish customs tariffhadfivecolumns, butwould bealtered toreflect theaccession
ofSlovenia toCEFTA. Ithadapplied therestructuring clause forcertain cases, including
telecommunication equipment andfuels, andhadtherefore changed theoriginal timetables fortheduty
reduction. Theprocess wastransitional andhadadvantages tothirdcountries sinceitlimited themargin
ofpreferences, while MFN dutywasnotaffected. These instruments were necessary andwere
completely neutral toArticle XXIV 'saccess rights.WT/REG18/M/1
Page10
43. Therepresentative oftheUnited States asked ifmargins ofpreference vis-à-vis thirdcountries,
would bemaintained when thesafeguard provisions were invoked. Heasked iftheprovisions of
Article XIXintheapplication ofsafeguard measures would beobserved when itinvolved thirdcountry
trade. Heasked whether suchprovisions hadbeeninvoked inthepast, andbywhom, forwhich
products, andinwhat circumstances. Heasked howsafeguard provisions would beapplied inthe
context oftheAgreements andwhether anysafeguard actions hadbeenapplied thusfar.Henoted
thatthethirdpoint oftheresponse inNo.2.19.1, appeared topresent adifferent position from that
which theEChadexpressed inprevious meetings oftheCommittee, andasked forclarification.
44. Therepresentative oftheEuropean Communities saidthatsafeguards wereapathological aspect
builtintosuchAgreements. Since there hadbeenmuch co-operation between theParties, theyattempted
toavoid resorting tosuchadefense. Anumber ofinstitutions hadbeenestablished tohandle the
particular problems thatmight appear. Safeguard measures intheAgreements were intended tobe
exceptional, andhavelimited duration inproviding fortheprotection ofnewindustries, sectors being
restructured orwithserious difficulties, andother serious social problems. Legally, therewerestrict
limits totheuseofthese measures. Before theycould beinvoked, allthepre-set conditions hadto
bemet,while itcould notexceed 25percentadvalorem value ofthetrade inquestion. Inaddition,
thetotalvalue ofimports under thismeasure could notexceed 15percentofthetotalimports ofthe
EConindustrial products. Since theprovisions intheAgreements werecompletely parallel toWTO
rules, hewasoftheviewthatthere wasnocontradiction between thetwo.
45. TherepresentativeofHungarysaidithadnotinvokedthesafeguardmechanism.Theapplication
ofsafeguards would beaselective oneusedbytheParties against eachother.
46. Therepresentative oftheCzech Republic saidithadnotapplied suchmeasures. Hepointed
outthattherewasacleardifference between abilateral safeguard andasafeguard which covered more
partners andmore goods thanthose covered bytheAgreement itself.
47. Therepresentative oftheSlovak Republic saidithadnotapplied anyspecial safeguard measures.
Theexistence ofthemechanism would legally cover anextreme situation thatmight arise. Ifsuch
aspecific situation appeared, hesaidthatthirdparties would benefit.
48. Therepresentative ofPoland saiditdidnothaveenough experience toaddress thedifficult
issue ofsafeguards. Since ithadnodirect precedents intheinternational practice, thedebate would
bemoretheoretical thanbased onpractical calculations. Although safeguards could result intheerosion
ofafreetrade agreement, itwould bepremature todraw guidelines fortheirapplication since they
hadverydifferent origins.
49. Therepresentative ofJapan asked whether theParties could ensure thatanti-dumping measures
taken bycertain partners would notbeautomatically adopted byothers.
50. Therepresentative oftheEuropean Communities noted thatintheEurope Agreement, dumping
practices werebased ontheconcept ofArticle VIoftheGATT where either Party hadtotakeappropriate
measures inconformity withGATT rules. There wasonlyonenotion ofdumping which referred to
pertinent internal legislation inthecaseoftheECwhere there weretime-limits andprocedures. The
Agreement withPoland wasveryspecific andindicated theprocedures thathadtobeimplemented
inthecasethatthose measures wereinvoked. Before taking thesemeasures, either Party hadtoprovide
totheAssociation Council allinformation sothatanacceptable solution could befound. An
informational procedure would commence between theParties when adumping enquiry wasinitiated.
Henoted thattherehadnotbeenmany enquiries. Insome cases, alternative measures weretaken while
dumping activity hadbeenremoved inother cases. TheECwould notextend those measures ina
waythatwould notbeinconformity withtheanti-dumping legislation, incaseameasure wastakenWT/REG18/M/1
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byoneofthepartner countries. Each casewould bereviewed onitsmerits andinformation would
beprovided toallinterested parties, beitintheECorthirdcountries. Therefore, measures taken
byonecountry would notbeextended toother countries ifthetargeted country hadpractised dumping.
51. Therepresentative oftheUnited States saidthatinregard tostatemonopolies, theParties had
noted thatthere wasafive-year period forthephasing-out ofdiscrimination. Heasked iftheParties
hadidentified anydejuremonopolies?
52. Therepresentative oftheCzech Republic saidthatinnegotiating theAgreement, theobjective
wasnottoidentify dejuremonopolies buttoclearly ensure thatthere would benodiscrimination.
Inthissense, thewording wasverysimilar tothewording ofArticle XVIIoftheGATT, though without
anotification requirement. Nevertheless, theParties totheAgreement were bound bytheexisting
provisions andobligations ofArticle XVII.
53. Therepresentative oftheSlovak Republic replied inthenegative.
54. Therepresentative oftheUnited States asked ifthere hadbeen anydisputes under these
Agreements, and,particularly, ifanyhadbeensubject toarbitration. Hewondered iftheduties of
theAssociation Committee hadbeendetermined andwhether suchduties extended totheresolution
ofanti-dumping, subsidies andcountervailing dutycases.
55. Therepresentative oftheEuropean Communities saidthere wasaprovision forarbitration
intheAgreements. However, there hadbeennocaseinthelifeofthese Agreements which resulted
insuchaprocedure. Each Party could bring anydispute totheAssociation Council ithadnotbeen
abletosolve through consultation. Inthearbitration process, eachParty could appoint anarbitrator,
while asecond might beappointed within twomonths. Thetwoarbiters would agree tonominate a
third. They would meetandtakeadecision thatwould bebinding ontheParties.
56. Therepresentative oftheCzech Republic saiditwasnotcommon forthecountries whose
Agreements wereexamined toprovide acounter-question. Heasked forclarification onthemeaning
ofquestions 2.26.2 indocument L/7377, made bytheUnited States.
57. Therepresentative oftheUnited States saidhewould enquire about thispoint.
58. Therepresentative ofHungary saidthattheparticular clause regarding anti-dumping and
countervailing dutycases hadnotbeenused. There wasaspecific consultation procedure within the
safeguards oranti-dumping procedures andevenapreliminary obligation toholdconsultations where
differences were usually settled. Although thelegal possibility existed tosendevery matter before
anoutside arbitrator, itwasnotexpected thatitwould beused. TheChairman reminded theParties
thataquestion remained regarding theduties oftheAssociation Committee.
59. Therepresentative oftheEuropean Communities saidtheAssociation Council wasthesupreme
authority which hadallpowers, interalia,tosettle disputes andtakedecisions which weresubmitted
toitarising fromdisagreement between Parties. Initself, theAssociation Committee hadnopowers
ofitsownbutwould assist theAssociation Council incarrying outitstasks. TheAssociation Committee
wasmade upofrepresentatives ofMembers oftheCouncil oftheEuropean Community andofthe
Commission, andrepresentatives ofthegovernments ofeachofthepartner countries totheEurope
Agreement. Clearly, there would beafirstdecision bytheAssociation Council tocreate therules
thatgavethemandate totheAssociation Committee. There werethreelevels, namely theAssociation
Council, theCommittee assisting theCouncil andwithin theCommittee, there weresub-committees.
Thestructure hadnotbeencompletely established atalllevels, butthegeneral ideawastohavemulti-
disciplinary sub-committees which would belimited tonotmore than10sub-committees tocover allWT/REG18/M/1
Page12
areas oftheAgreement. TheEurope Agreement wasnotjustatrade agreement butaco-operation
agreement covering abroad range ofactivities. Thedecisions oftheAssociation Council would be
published intheOfficial Journal oftheEC.When afinaldecision wastaken onthestructure ofthese
sub-committees ormulti-disciplinary committees, thenecessary transparency would beprovided for.
60. Therepresentative oftheUnited States would review thispoint withhiscapital. Henoted
thattherehadbeenconfusion withtheambiguity oftheword"duties" inthiscontext. Heasked whether
substantive changes toTitleIhadbeenmade inanyoftheAgreements.
61. Therepresentative oftheEuropean Communities saidthatinhisintroductory presentation,
hedealtwiththeproblem ofvarious changes thathadtaken place andstressed thatgreat effort had
beenmade since theEuropean Council ofCopenhagen inJune1993, where itwasdecided tospeed
uptariff dismantling measures. FortheEC,theentire process envisaged for1996 wascompleted
in1994. Thedocument circulated totheCommittee thatmorning hadcontained theofficial textsfor
substantive changes, country-by-country. Theamendments could befound intheadditional protocol.
Thetables presented thesituation aftertheamendments. Measures should notbecompared withthe
Interim Agreement alone. However, iftheInterim Agreement, theEurope Agreement andtheadditional
protocol, were considered together, thesituation would beclear.
Section 3:Other Questions
62. Therepresentative oftheUnited States asked eachoftheParties toprovide information tothe
Committee onthepercentage oftheirtotaltradecovered bypreferences beyond theAgreements under
examination. Henoted thatsimilar information hadbeenprovided byotherMembers oftheCommittee
forother agreements.
63. TherepresentativeoftheEuropeanCommunitiessaidthatthedataprovidedrelatedtotheEC-12.
Ithadinformed theChairman thatitwould provide figures fortheEC-15 assoonaspossible, and
hopefully within thefollowing sixmonths. Theproblem wasduetomethodology andthecollection
ofdatastatistics which ithadnotbeenabletosolve yet.
64. Therepresentative ofHungary replied thatabout 60percentofitsimports originated from
theEC,7percentfrom CEFTA countries andabout 2percentfrom theEFTA.
65. Therepresentative oftheSlovak Republic saidin1995, 37.4percentofitsexports wentto
theECwhile ECimports represented 34.7percent.
66. Therepresentative oftheCzech Republic referred totherecently published Trade Policy Review
fortheCzech Republic. Herecalled thattheshare ofECtradeintheCzech Republic wasabout 80per
cent. Imports grew from 58.9percentin1992 to62.6percentinthefirstsixmonths of1996. Its
statistics for1994 and1995 hadbeensubmitted totheIntegrated DataBaseoftheWTO.
67. Therepresentative oftheUnited States noted thattheParties hadnotprovided estimates on
whattradewould befreeofallrestrictions attheendofthetransitional period. Since theAgreements
hadbeeninforce formore thanfouryears, heasked foranestimate.
68. Therepresentative oftheEuropean Communities saiditscirculated document provided an
exhaustivereplytothisproblemregardingthecustomsduties,andotherquantitativerestrictions,country-
by-country astheypertain totheEC.Forexample, there wasnocustoms dutyontextiles andsteel
where thetariffs hadbeeneliminated from theentry intoforce ofthese Agreements. Regarding
quantitative restrictions, there wasaregime thatprovided forsome restrictions ontextiles. Forsteel,
allrestrictions wereeliminated since theentry intoforce oftheAgreement. Fortextiles, there wereWT/REG18/M/1
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some voluntary export restraints limited to1January 1997. Thetablealsogaveanindication ofthe
timetable fordismantling, asregards toitspartners. Thetables showed thatthetrade which wasnot
liberalized wasessentially inagriculture, which didnotexceed 7percentforeither exports orimports
ofitspresent trade inagricultural products. If50percentofagricultural trade waspreferential, then
thisfigure of7percentwould bereduced accordingly. Hewasoftheviewthatitwasmeeting the
objectives ofsubstantially allthetradesinceatleast90percentoftradehadbeencovered. Thecomplete
dismantlement ofbarriers would becarried outbyitspartners intheareas where theinitial asymmetry
wasapplied.
69. Therepresentative ofPoland saidthataccording toitsstatistics for1995, theshare ofimports
from theECwas64.7percentoftotalimports, 3.1percentfortheEFTA States and5.6percent
forCEFTA. Inregard totheamount oftrade conducted under preferences, hebelieved thatsuchan
assessment could bemade butthemethodology would berather difficult since itsstatistics werenot
onthebasis oftheUruguay Round origin certificates, which would serve astheonlyevidence that
agiven product entered theterritory ofthepartner under preferential treatment. Although therewere
rulesoforigin which determined preferential treatment, partofthetrade wasnotnecessarily defined
aspreferential. Intheareaofindustrial products, thisfigure should bemarginal. Itwould bevery
difficult toassess thefigure foragriculture because itwasdifficult todetermine thepartofapartner 's
market covered under preferential quotas.
70. TherepresentativeofJapanemphasizedthathewasnotinagreementwithrespecttothedefinition
of"substantially allthetrade" asexplained bytheParties.
71. Therepresentative oftheUnited States recalled hisearlier statement about theinterlocking
network ofagreements inEurope andmultiple memberships ofeachoftheParties totheAgreements.
Heasked whatpreferences weregiven tomembers inother agreements. Since Hungary, Poland, the
Czech Republic andtheSlovak Republic were members ofCEFTA andparticipated inaFTAwith
theEFTA States andtheEC,while theECandmost EFTA States were members oftheEEA, he
wondered howtrade flowed between theAgreements.
72. Therepresentative oftheEuropean Communities saidtheproblem hadlostabitofsubstance
afterthethree EFTA States, Austria, Finland andSweden, joined theEC. Heemphasized thatthe
examination would consider theconformity ofeachoftheseregional agreements withtheGATT without
taking intoaccount thelevelofinterference between oneareaandtheother. Theactivity thattook
place between thesetsofagreements andtheoverlap would require adherence torules oforigin.
Recently, theEChadputintoplace apolicy ofcontrol inrespect ofthese rulesandmeasures against
fraud. Theproblem wasbeing studied.
73. Therepresentative oftheUnited States considered thesituation ofoverlapping preferential
agreements tobecomplex, andacknowledged thatdelegations haddifferent interpretations astowhat
constituted asystemic issue. Nevertheless, hisdelegation wasoftheviewthatsuchanissuewasindeed
systemic andrather fundamental totheWTO. Although itwould bedifficult toaddress inthecontext
ofaspecific examination which dealtwithmechanics rather thanthemetaphysics ofalltheseassociations
andtheirinteractions, hisdelegation hoped thattheissue would beaddressed andapproached ina
systemic way.
Section 4:TheEurope Agreements
74. Therepresentative oftheUnited States noted that,inanumber ofinstances, theParties had
declined toanswer questions primarily referring toservices trade onthebasisthattheGATT didnot
cover services in1994. Herequested thatthesequestions become partoftheexamination oftheservices
partoftheAgreements under GATS Article V.WT/REG18/M/1
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75. Therepresentative oftheEuropean Communities saidthatinrelation toservices, notification
hadbeenmade.
76. TherepresentativeoftheCzechRepublicsaidthatthreenotificationshadalreadybeensubmitted.
Thefourth onewhich made reference totheAgreement between theCzech Republic andtheECwas
being prepared andwould soonbemade.
77. Therepresentative ofPoland added thatthenotification under theGATS hadbeensubmitted
andreflected indocument S/CN/25 of27August 1996.
78. Therepresentative oftheSlovak Republic saidintheareaofservices, notification tookplace
on27August 1996 indocument S/C/N/23.
79. TheChairman noted thattheexamination wasclearly behind schedule. Inaddition, relevant
information hadbeentabled which Members hadnothadtimetoconsider. Herecalled thattheEC
hadoffered toconduct bilateral orplurilateral consultations toclarify outstanding issues resulting from
thenewinformation. Hewould alsoconduct informal consultations laterintheyear. Inthemeantime,
heproposed thattheSecretariat draftareport.
80. TheCommittee tooknoteofhisstatements.