RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG129/M/1
3 December 2002
(02-6665)
Committee on Regional Trade Agreements
  Thirty-Third Session
EXAMINATION OF THE INTERIM AGREEMENT
BETWEEN THE EUROPEAN COMMUNITIES
 AND THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA
Note on the Meeting of 12 November 2002
Chairperson: Mr. B. G. Chidyausiku  (Zimbabwe)
1. The meeting was convened in document WTO/AIR/1955.
2. Under Agenda Item B.I of its Thirty-Third Session, the Committee on Regional Trade
Agreements (hereinafter CRTA or the Committee) took up the first round of examination of the
Interim Agreement between the European Communities (EC) and the Former Yugoslav Republic of
Macedonia (FYROM).  The following topics were discussed:
A. G ENERAL REMARKS
B. S ECTION I - B ACKGROUND INFORMATION ON THE AGREEMENT
C. S ECTION II - TRADE PROVISIONS
A. G ENERAL REMARKS
3. The Chairman said that the FTA between the European Communities and the Former
Yugoslav Republic of Macedonia had been signed on 9 April 2001 and had entered into force on 1
June 2001.   It had been notified to the WTO on 21 November 2001 as document WT/REG129/N/1,
with the text of the Agreement appearing in document WT/REG129/1. He recalled the terms of
reference for the examination which had been adopted on 4 December 2001 and were contained indocument WT/REG129/2.  He proposed to organize th e examination by first asking the Parties and
other Members for general comments and then he would use the Standard Format, document
WT/REG129/3, to guide the debate.
4. The representative of the European Commun ities said that the Agreement was termed an
"Interim Agreement" as it would be replaced in due course by the Stabilization and Association
Agreement (SAA) concluded between the EC and FYRO M which had been signed at the same time in
April 2001.  Since the SAA included elements which were not the sole legal competence of the EC, it
needed to be ratified by each Party, including each member of the European Union.  This ratification
process was underway but would take time; only once it had been completed would the SAA enter
into force.  In the meantime the Parties had agreed to anticipate the trade elements of the SAA through
the Interim Agreement, which had been established wi th immediate effect, rather than waiting for the
SAA to be ratified and enter into force.  Memb ers were aware that the FTA between the EC and
FYROM was part of a wider process of political stabilization and re-establishment of economic
relations in a region which had been badly affected by instability and conflict over the past decade.
This wider process, which was termed the stabilization and association process, and was the key to thename SAA, had been launched in December 2000 and aimed at developing the bilateral relationship
between the EC and individual countries of the regi on including FYROM, but also at encouraging theWT/REG129/M/1
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development of stable economic and political conditions both within and among the countries of the
region. Accordingly, in the trade field and in parallel to the negotiation and establishment of FTAs
with the EC, FYROM and the other countries of the region were committed to the establishment of
their own network of compatible bilateral FTAs within the same overall framework.  This
commitment was underpinned by a Memorandum of Understanding on trade liberalization andfacilitation which had been signed in 2001 by th e EC, FYROM and by the other countries in the
region participating in the process.  In the short term, the EC acted as the external anchor for this
process and provided considerable direct assistance to the necessary reform process and institution
building within the region, whilst in the longer term the countries of the region had the prospect of full
integration into EC structures.
5. Having thus summarized the wider economic and political background of the process, the
representative of the European Communities turned to the key elements of the FTA in the area oftrade in goods.  The Interim Agreement established a free-trade area over a transitional period lasting
a maximum of ten years from the date of entry into force.  It consolidated and enhanced, on a
contractual basis, the autonomous trade preferences to the countries of south-eastern Europe which
had been applied by the EC to imports from FYROM since 1 December 2001.  In granting a waiver
for these preferences by decision of the General Council on 8 December 2000, WTO Members hadalready recognized the exceptional circumstances prevailing in the region and the important
contribution that trade preferences for exports from the region to the EC would make to economic
expansion and recovery.  The Interim Agreement was therefore based on an asymmetrical approach to
liberalization.  Liberalization on the EC side was immediate, but was implemented on a more gradual
basis by FYROM.  Accordingly, for the EC, all import duties on industrial products and the majority
of duties on agricultural and fisheries products had been eliminated on date of entry into force.  The
exceptions to tariff elimination in agriculture and fi sheries were very limited: in fisheries, only two
product types were not subject to duty-free treatment; in agriculture, only four product groups at the
HS four-digit level had been excluded, while for those products in HS Chapters 7 and 8 for which the
EC tariff provided for a combined tariff, only the ad valorem  component had been eliminated, so
there was partial liberalization.  Imports of baby beef and wine were subject to liberalized conditions
within ceilings which had been specified within tariff-rate quotas (TRQs).   On the FYROM side,
different calendars of liberalization applied: in the area of industrial products, these ranged from tariff
elimination on entry into force; through elimination over five years, which was the case, for example,
for steel; and elimination over ten years which was the case for textiles, clothing and a number of
other sensitive products.  In agriculture three levels of liberalization were foreseen:  duty-free; duty-
free within tariff quotas; and for two product groups, a reduction from MFN rates within tariff quotas.Conditions of access for processed agricultural products were contained in a specific protocol.  Import
duties on fisheries products would be eliminated ov er a maximum period of six years except for those
products listed in Annex V(b) to the Agreement which were subject to tariff reductions.  As regards
non-tariff measures, any quantitative restrictions on imports and exports and any measures having
equivalent effect had been eliminated on entry into force of the Agreement; the same applied tocustoms duties on exports and measures having equivalent effect.  Taking trade in industrial,
agricultural and fisheries products together, around 95 per cent of bilateral trade would be fully
liberalized by the end of the transitional period of ten years.  Furthermore no major sector of trade had
been excluded from the scope of the Agreement.  In consequence, the Parties had no doubt that the
FTA met the requirements of GATT Article XXIV:8 which required the elimination of duties andother restrictive regulations of commerce on substantially all the trade between the Parties.  Similarly,
as there was nothing in the Agreement which required the Parties to raise the level of duties or other
regulations of commerce applicable to third-party Members of the WTO, the Parties considered that
the Agreement also met the requirements of GATT Article XXIV:5.  In conclusion, he announced the
willingness of his delegation to respond to any questions raised by Members.
6. The representative of the Former Yugoslav Republic of Macedonia said that the Interim
Agreement, which established a free-trade area between the Parties in the sense of GATT ArticleWT/REG129/M/1
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XXIV, granted a ten year transition period to FYROM which was sufficient to prepare her country's
economy for free trade.  She added that the EC was the major trade partner of FYROM and this
Agreement was essential for her country.
B. SECTION I – BACKGROUND INFORMATION ON THE AGREEMENT
7. The representative of Australia said that while this Agreement appeared to be comprehensive
in its treatment of trade in goods, she would like more information on the treatment of agriculture and
fisheries as they were dealt with in a different way from other sectors.  She asked whether Protocol 3
of the Agreement, which applied to processed agricultural products, and Annexes IV (a), (b) and (c)
were available on the internet.  She wondered if the Parties had carried out any analysis on the
coverage of trade in agriculture under the Agreement.  For example, she had noticed that under
Article 14.1 of the Agreement only the EC's ad valorem  tariffs had been liberalized, not specific
duties.  She added that information on the propor tion of FYROM's agricultural exports to the EC to
which a specific duty applied would aid assessment of the coverage of the Agreement.
8. Referring to Article 14.1 of the Agreement, the representative of Japan asked what share of
goods were subject to ad valorem  duty in relation to the total trade volume of the EC.  He added that
he would submit further questions on tariff lines in writing.
9. The representative of the United States shared the questions raised on the scope of the
Agreement and said her delegation would have further written questions on scope and trade data, in
particular as regards the tariff lines covered, given that trade in the last five years in the region was
not representative of its full potential.  As regards the term of the Agreement, she had noted that the
Interim Agreement had a transitional period of ten years after which 95 per cent of all current bilateral
tariffs on trade would be eliminated, but she wondered if the new SAA would extend the term of theAgreement or any of the periods for the elimination of tariffs.  She added that she would have further
questions on tariff quotas and differential tariffs which were of concern to her delegation.
10. The representative of Korea said that his delegation hoped that this Agreement, which had
been notified as an interim agreement rather th an a free trade agreement, would facilitate trade
between the Parties and not raise additional trade barriers to third parties.  He wanted to resolve thesystemic question on the notification procedure of interim agreements. GATT Article XXIV:7(b)
clearly obligated Members to have prior consultations and study the plan and schedule of an interim
agreement before its entry into force.  This was cause for concern, given that this Agreement had
entered into force on 1 June 2001 and was only now being reviewed.
11. In response to the question by the representative of Australia regarding the availability of the
Agreement and its Annexes on the internet, the representative of the European Communities said that
both were available on the EC's web-site, http://www.europa.eu.int .  He could also provide the
Official Journal reference which would provide access to a full electronic copy of the Agreement and
its Annexes.  As regards the question by the repr esentative of Korea regarding the interim nature of
the Agreement, he said that there had been a misunderstanding.  This Agreement had been notified as
a free trade agreement, not an interim agreement in the sense of GATT Article XXIV:7(c).  The term
"interim agreement" arose purely from the fact that  it would be superseded by the SAA once that
Agreement had been ratified and had entered into force.  The interim agreement was only interim in
that sense, not in the systemic sense of GATT Article XXIV. In response to the question raised by the
representative of the United States on the length of the ratification process, he said that the Agreement
was subject to ratification, not only by the EC and FYROM, but also by the individual national
authorities of the 15 member states of the European Union.  This process was underway, but there wasno telling when it would be complete.  Rather than wait until ratification had been concluded, the
Parties had implemented the provisions on goods in 2001.  The SAA would enter into force once the
ratification process had been concluded, but its entry into force would not affect the transition periodsWT/REG129/M/1
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foreseen under the Agreement.  He explained that the timetable for trade liberalization on the
FYROM side had begun and the Parties expected the Agreement to be implemented in accordance
with these timetables.  On the EC side there was no timetable, as liberalization had taken place on
entry into force.  In response to the question raised about  ad valorem  customs duties covered in
Article 14.1 of the Agreement, he replied that these referred to items which were subject toelimination of an  ad valorem  component of the tariff whilst the specific component remained.  On the
EC side this referred to a limited number of fruit and vegetable products in HS Chapters 7 and 8
where a combined duty existed.  He agreed to ch eck the precise significance of this, but in his
estimation, it would not make much difference to the overall quality of liberalization on the EC side
or the very good coverage of agriculture, processed agriculture and fisheries in total.
12. The representative of Korea said he did not want to repeat the long debate regarding the
interpretation of the concept of an "interim agreement" as the text was very clear. GATT Article
XXIV:5(c) clearly stated that an interim agreement should provide a plan and schedule for the
formation of a customs union or free-trade area "within a reasonable length of time".  Further
guidelines were provided in the Understanding on the Interpretation of Article XXIV which stated
that the reasonable length of time "should exceed ten years only in exceptional cases".  The tariff
schedule of this Agreement provided for the elimin ation of tariffs within ten years, which clearly
complied with the Understanding and with Article XXIV:5(c). His remark was a systemic one and
was not related specifically to the present Agreement. It was intended to clarify his delegation's legal
interpretation which applied to interim agreements especially in terms of notification.
13. The representative of the European Communitie s thanked the representative of Korea for his
explanation that this was a systemic issue, not re lated to the present Agreement, but which applied to
any FTA which happened to be implemented on the basis of a timetable.  In this specific case, the
timetable for the EC was zero and the timetable for FYROM was ten years so there was no problem in
complying with the guideline of the Understanding which stated that the ten year period should be
exceeded only in exceptional circumstances.  Although this particular Agreement was called an
Interim Agreement, this was based on its relationship with the SAA which would replace it in duecourse.
C. SECTION II - TRADE PROVISIONS
14. The representative of the United States asked if the provisions of the System of European
Cumulation of Origin applied to this Agreemen t: would goods of FYROM and other origin be
considered as originating for this Agreement and vice-versa? For example, would products of another
country with which FYROM did not currently have an  FTA be eligible in some way for preferential
treatment under the Agreement? The representative of the European Communities replied that
FYROM did not participate in the System of European Cumulation of Origin.  Therefore the situation
described by the US representative did not presently arise under this Agreement.  The representative
of the United States asked if any other type of regional cumulation of origin applied to this Agreement
and if the SAA would include participation in the pan-European system.  The representative of the
European Communities replied in the negative to both questions.  He added that at present no regional
cumulation was possible with other countries and the SAA would not change this.  He could not say
what might happen ten years hence, but the conditions he had outlined applied at present.
15. The representative of Korea asked about the "no-drawback rule" which had been introduced
in order to avoid the circumvention of tariffs.  Provisions were to be applied from 1 January 2003,
while a partial derogation to the rule in favour of FYROM was applicable until 31 December 2005.He asked for further clarification of this, particularly in view of Article 3 on the prohibition of
subsidies in the Agreement on Subsidies and Countervailing Measures.  The representative of the
European Communities asked if the question could be submitted in writing.WT/REG129/M/1
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16. The Chairman said that the first round of ex amination of the Interim Agreement between the
European Communities and the Former Yugoslav Republic of Macedonia had allowed the Committee
to clarify a number of questions.  He asked delegations with further questions to forward them to the
Secretariat by 22 November 2002 and for the Parties to provide replies in writing no later than 10
January 2003.
17. The Committee took note of the comments made.
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