WORLD TRADE  
ORGANIZATION  TN/RL/W/8/Rev.1 
1 August 2002 
 (02-4246) 
Negotiating Group on Rules  
 
 
  
COMPENDIUM OF ISSUES RELATED TO 
REGIONAL TRADE AGREEMENTS 
Background Note by the Secretariat
 
Revision * 
 
The Negotiating Group on Rules, at its meetin g of 8 May 2002, requested the Secretariat to 
prepare a background note which could assist dele gations in the preparation of submissions and 
proposals in the context of paragraph 29 of the Doha Ministerial Declaration.1 
The present note provides a compendium of issues related to regional trade agreements 
(RTAs) that have been generated by work within the Committee on Regional Trade Agreements 
(CRTA) and discussions in other WTO Bodies, from 1996 to date.2  Mention is also made to relevant 
findings in WTO panel and Appellate Body reports. 
A structured checklist of issues is presented in  Part I, to facilitate consideration.  A more 
extended guidebook to the issues is found in Part II, including background information, as well as any 
comments or suggestions made on the subject. 
 Most of the issues summarized below refer specif ically to the application or interpretation of 
existing WTO provisions applying to RTAs.3  Other issues are of a co nceptual nature, interrogating 
the relationship between the mu ltilateral and RTA approaches, or are associated to RTA 
characteristics highlighted by r ecent developments and not explic itly or fully covered by existing 
WTO provisions.  
 
                                                      
* The revision concerns only footnote 2. 
1 «We also agree to negotiations aimed at clarifying and improving disciplines and procedures under 
the existing WTO provisions applying to regional trade agreements.  The negotiations shall take into account the 
developmental aspects of regional trade agreements. » 
2 This document offers a short summary of an extensive debate held mainly in the Committee on 
Regional Trade Agreements.  A more comprehensive, though somewhat outdated, account can be found in the document WT/REG/W/37, entitled Synopsis of "Systemic" Issues Related to Regional Trade Agreements , of 2 
March 2000. 
3 See Annex for a brief account on these provisions. TN/RL/W/8/Rev.1 
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PART I 
CHECKLIST OF ISSUES RELATED TO RTAS  
 
I. WTO BASIC TRANSPARENCY REQUIREMENTS ON RTAS 
I.1. N OTIFICATION  
I.1.1 Definition of a time-frame for notification 
I.1.2 Dealing with non-notified RTAs I.2. P
ROVISION OF INFORMATION  
I.2.1 RTA trade statistics to be made available I.2.2 Other information to be made available 
I.3. R
EPORTING OBLIGATIONS  
I.3.1 Biennial reporting on the implemen tation of customs unions and free-trade 
areas 
I.3.2 Reporting requirements for RTAs in the area of trade in services 
II. MULTILATERAL SURVEILLANCE MECHANISMS FOR RTAS 
II.1. H OMOGENEITY OF SURVEILLANCE REQUIREMENTS  
II.2. A DEQUACY OF THE EXAMINATION PROCESS  
II.3. S UITABILITY OF THE MULTILATERAL ASSESSMENT OF RTA  CONSISTENCY  
II.3.1 Legal standing of RTAs vis-à-vis  WTO rules 
II.3.2 Panel's jurisdiction to assess compatibility of RTAs 
II.3.3 Burden of proof 
II.3.4 WTO legal standing of parties to RTAs 
III. RELATIONSHIP BETWEEN RTA- SPECIFIC WTO DISCIPLINES AND 
OTHER WTO RULES 
III.1. A RTICLE XXIV*  AND THE ENABLING CLAUSE WITHIN GATT  1994  AND THE WTO   
AGREEMENT  
III.2. L INKS BETWEEN GATT  ARTICLE XXIV*  PROVISIONS AND THE RULES CONTAINED IN 
OTHER WTO  AGREEMENTS IN THE AREA OF GOODS  
III.2.1 Agreement on Textiles and Clothing (ATC) III.2.2 Agreement on Safeguards 
III.2.3 Other WTO Agreements III.3. A
RTICLE V WITHIN THE GATS  (AND ITS ANNEXES ) 
III.3.1 Links between EIAs' trade liberalization requirements and GATS "exempted" 
services sectors/modes of supply or GATS provisions s ubject to further 
negotiations 
III.3.2 Relationship between national jurisprudence and the GATS 
IV. INTERDEPENDENCE OF RTA-SPECIFIC WTO DISCIPLINES  TN/RL/W/8/Rev.1 
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 IV.1. L INKS AMONG PROVISIONS WITHIN GATT  ARTICLE XXIV* 
IV.1.1 Significance of the provisions of paragraph 4 IV.1.2 Relative precedence of paragraphs 4-5 provisions and those found in paragraph 
8 
IV.1.3 Parallelism between provisions applying to customs unions and those applying to 
FTAs 
IV.1.4 Congruity of provisions in paragr aph 8 with those contained in paragraph 5 
IV.1.5 Relevance of provisions applicable to RTAs implemented by stages 
IV.2. L
INKS AMONG PROVISIONS WITHIN GATS  ARTICLE V 
IV.2.1 Relationship between the tests on  «substantial sectoral coverage» and on 
«substantially all discrimination» 
IV.2.2 Relationship between establishment requirements and the test on «substantial 
sectoral coverage» 
IV.2.3 Relationship between the flexibility provided to EIAs involving developing 
countries and various GATS requirements 
IV.2.4 Compensation negotiations under pa ragraph 5 and its possible application to 
modifications in MFN exemptions 
V. INTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATT 
ARTICLE XXIV 
V.1. M EANING OF «SUBSTANTIALLY » 
V.1.1 Paragraph 8(a)(i) and 8(b):  «substantially all the trade» 
V.1.2 Paragraph 8(a)(ii):  «substantially the same duties and other regulations of 
commerce» 
V.2. S COPE OF THE BRACKETED EXCEPTIONS IN PARAGRAPH 8:  APPLICATION OF GLOBAL 
SAFEGUARDS TO RTA  PARTNERS  
V.3. O THER ISSUES  
V.3.1 The qualification of RTA rules of or igin as «other regulations of commerce» 
V.3.2 Non-zero preferential tariff rates 
V.3.3 Compensation for negative effects on third parties upon the 
formation/enlargement of an RTA 
VI. INTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATS 
ARTICLE V 
VI.1. M EANING OF «SUBSTANTIAL » AND «SUBSTANTIALLY » 
VI.1.1 Paragraph 1(a):  «substantial sectoral coverage» 
VI.1.2 Paragraph 1(b):  «subs tantially all discrimination» 
VI.2. S COPE OF THE BRACKETED EXCEPTIONS OF TRADE RESTRICTIVE MEASURES  
VI.3. O THER ISSUES  
VI.3.1 Footnote to paragraph 1(a): nature and aim of its parameters 
VI.3.2 Paragraph 1(b):  Meaning of the «and/or» wording TN/RL/W/8/Rev.1 
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 VI.3.3 Paragraph 1(b):  Definition of  the «reasonable time-frame» provision 
VI.3.4 Paragraph 2:  Meaning of «a wider process of economic integration» 
VI.3.5 Paragraph 3:  Scope of the flexibilit y allowed to agreements involving developing 
countries 
VI.3.6 Paragraph:4:  Methodology to assess an EIA's trade effects vis-à-vis  third parties 
VI.3.7 Paragraph 6:  Definition of «substantive business operations» 
VII. INTERACTION BETWEEN REGIONAL TRADE AGREEMENTS AND THE 
MULTILATERAL TRADING SYSTEM 
VII.1. T
HE BUILDING BLOCK /STUMBLING -BLOCK DEBATE  
VII.2. O VERLAPPING AND NETWORKS OF RTA S 
VII.3. E FFECTS OF THE EXTENSION OF TRADE POLICY AREAS REGULATED THROUGH RTA S 
VII.3.1 Trade regulatory process VII.3.2 Dispute settlement 
  TN/RL/W/8/Rev.1 
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 PART II 
COMPENDIUM OF ISSUES RELATED TO RTAS  
 
I. WTO BASIC TRANSPARENCY REQUIREMENTS ON RTAS 
A. NOTIFICATION  
1. I.1.1 Definition of a time-frame for notification 
1. The time at which an RTA should be notified by Members is not precisely formulated nor 
homogeneously expressed in WTO rules, as reflected in the provisions reproduced in the Annex.  In 
practice, many RTAs are notified when their texts have already been sealed or even when the RTA is 
already in force, and it has been argued that this restrains the effectiveness of the ensuing examination 
process.  It has been suggested that the terms «s hall promptly notify» and «deciding to enter» in 
GATT Article XXIV:7(a) should be interpreted to mean that the notification and submission of 
information should take place, at least, before th e entry into force of the RTA.  Conversely, it has 
been observed that a case-by-case approach is more appropriate to take into account the complexity of 
issues surrounding RTAs, in particular the political  and legal difficulties related to notifying an RTA 
prior to its ratification. 
2. Determination of a specific time-frame for im plementation of the «prompt notification» 
requirement in GATS ArticleV:7(a) has also been called for.  A time-frame of «at least 90 days 
advance notice» (such as that stipulated under GATS Article V:5) has been suggested. 
2. I.1.2 Dealing with non-notified RTAs 
3. A number of RTAs currently in force have not  been notified to the WTO, in particular 
preferential arrangements between developing count ries.  This is often cited as hindering any 
comprehensive and precise evaluation of the RTA phenomenon vis-à-vis  the multilateral trading 
system.  The current practice of raising question s about non-notified RTAs during WTO meetings has 
been considered insufficient as a means of gathering adequate information.  It has been suggested that  
the possibility of counter-notifica tion of RTAs be provided for. 
B. PROVISION OF INFORMATION  
1. I.2.1 RTA trade statistics to be made available 
4. The quantity and quality of statistics requested fr om RTA parties has been  highlighted in the 
context of the examination of RTAs under GATT Article XXIV. 
5. It has been argued that full statistical info rmation on trade is needed to conduct an RTA 
examination.  It has been pointed out that major difficulties exist in cases where available statistics 
cover only a period prior to the RTA entry into forc e or the very first years( s) following its entry into 
force, in particular where signific ant transition periods are foreseen.4  Conversely, it has been 
                                                      
4 It has been suggested that trade statistics should be provided for the years prior to, and following the,  
RTA's entry into force, as well as in the context of biennial reports.  More specifically, they should be separated 
into agricultural and industrial products and should indicate, both in terms of trade flows and tariff lines, the 
percentage of the trade facing MFN, less-than-MFN and duty-free rates.  TN/RL/W/8/Rev.1 
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 observed that statistics are sometimes hard to obtain and may even prove misleading, given the 
dynamics of the economic integration. 
6. A recurrent question has been whether trade statistical data should also be made available on 
a tariff-line basis (i.e. not only on actual trade flows).
5  This has raised legal controversy in the context 
of the assessment of individual RTAs' compatibility with the «substantially all the trade» requirement 
under GATT Article XXIV:8.  (On this requirement, see Section V.1.1) 
2. I.2.2 Other information to be made available 
7. Detailed economic statistics have been considered  necessary to facilitate the follow-up of the 
evolution of trade patterns and economic adjustments in RTA parties.  Further, it has been suggested 
that parties to a given RTA should provide statistical information on trade they conducted under other 
preferential schemes, on the grounds that data on "o verlapping" preferential ar rangements is vital to 
understanding the relationship between RTAs and the multilateral trading system. 
8. Discussions within the CRTA on how the provisio n of timely and accurate initial information 
on individual RTAs could be facilitated and standa rdized led its Chairman to establish non-binding 
guidelines in the form of standard formats.6  Since 1996-1997, parties to all notified RTAs have 
submitted initial information on the respective RTA under those formats. 
C. REPORTING OBLIGATIONS  
9. With respect to periodic reporting on RTAs  notified under GATT Ar ticle XXIV, an area 
closely linked to CRTA's work, feedback of WTO Me mbership at large on the operation of RTAs is 
deficient, despite efforts made to sy stematise the information furnished. 
1. I.3.1 Biennial reporting on the implemen tation of customs unions and free-trade 
areas 
10. In accordance with its terms of reference,  the CRTA has revived the requirement for 
submission of biennial reports by adopting recommendations to its parent bodies on how the required 
reporting on the operation of RTAs should be carried out.7  Subsequently, calendars for the 
submission of biennial reports have been periodically  issued by the Secretariat.  While adherence to 
the first of such calendar has been relatively high,  few biennial reports are still due for the 1999 
calendar and the 2001 calendar. 
11. Regarding objectives, Members have agreed that such reports «will serve to enhance 
transparency on how regional trade agreements are proceeding and as an input to the Committee's 
                                                      
5 On the basis of a Secretariat's survey on  Coverage, Liberalization Process and Transitional 
Provisions in Regional Trade Agreements (WT/REG/W/46), it has been noted that RTAs analysis by trade flows 
tend to overestimate product coverage in comparison with tariff line analysis.  
6 Standard Format for Information on Regional Trade Agreements (WT/REG/W/6) and Standard 
Format for Information on Economic Integration Agreements on Services (WT/REG/W/14). 
7 On the basis of recommendations adopted by the CRTA on 20 February 1998 (respectively 
WT/REG/4, WT/REG/5 and WT/REG/6) and sent to the Council for Trade in Goods (CTG), the Council for Trade in Services (CTS) and the Committee on Trade and Development (CTD), these bodies acted upon them in 
late November 1998 and invited parties to RTAs to elaborate periodic reports using, as far as possible, a 
Standard Format presentation (documents G/L/286, S/C/W/92 and WT/COMTD/16, respectively).  TN/RL/W/8/Rev.1 
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 [CRTA] work under item 1(d) of its terms of reference»8 (i.e. the "systemic issues"), as stated in 
paragraph 1 of document G/L/286. 
2. I.3.2 Reporting requirements for RTAs in the area of trade in services 
12. GATS Article V:7(b) requires the parties to an RTA implemented on the basis of a time-
frame to «report periodically» to the Council for Trad e in Services (CTS) on its implementation.  In 
that context, it has been proposed that periodic  reporting should be ex tended to all economic 
integration agreements (EIAs), whether or not implem ented in stages.  It has been noted however that 
this would require a renegotiation of GATS provisions. 
II. MULTILATERAL SURVEILLANCE MECHANISMS FOR RTAS 
13. RTAs notified to the WTO are subject to surveill ance in various Bodies, at various levels of 
depth and complexity, depending upon which provisio n the notifying Member avails itself of .  On 
6 February 1996, the General Coun cil established the CRTA, partly  with the aim of rationalizing 
RTA-related procedures contained in different WTO provisions.  The Committee's terms of reference 
thus includes the examination of any notified RTA, if /as mandated by the relevant WTO body - an 
examination which had been until th en the prerogative of separate ad hoc working parties.  WTO 
Members also entrusted the CRTA with the additional task of considering RTAs' broader, systemic 
implications.9 
A. HOMOGENEITY OF SURVEILLANCE REQUIREMENTS  
14. There have been claims of inadequate WTO surveillance of RTAs concluded among 
developing countries, in particular because these do not usually undergo examination, even when they 
take the form of free-trade areas (FTAs), customs unions or interim agreements leading to a customs 
union or a FTA (hereinafter, interim agreements).  However, the Decision on Differential and More 
Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries  (hereinafter, the 
Enabling Clause), under which provisions such RTAs have traditionally been notified, irrespective of 
their nature, does not foresee any such examination. 
15. The suggestion has been made that all RTAs (i .e. those notified under Article XXIV of the 
GATT 1994, the Enabling Clause and Article V of the GATS) should be notified to a single body, 
namely the CRTA, which would adopt the terms of reference for the examination, as appropriate.  It has been noted however that this would requ ire changes to existing legal provisions. 
B. A
DEQUACY OF THE EXAMINATION PROCESS  
16. CRTA experience has underscored that the two intertwined purposes of RTA examinations -
that is, gathering information about a given RTA and judging whether this RTA complies with the relevant legal criteria - form a pr oblematic tandem.  For several reas ons, in particular because of 
Members' divergent understanding of the criteria contained in the rules themselves, the examination 
mechanism has persistently failed to serve these purpo ses adequately in the last four decades or so. 
17. After the establishment of th e WTO, increasing calls for, and efforts towards, RTAs 
transparency were partly checked by rising "dispute-settlement awaren ess".  As a result, CRTA efforts 
towards improving examination procedures did not prevent the examination mechanism to be brought 
                                                     
 
8 The contribution to the systemic debate is also referred to in the procedures related to reporting on 
agreements submitted to both the CTS and the CTD. 
9 The decision to establish the CRTA, with its terms of reference, is contained in document WT/L/127. TN/RL/W/8/Rev.1 
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 to near-paralysis vis-à-vis  its two basic objectives, while th ere has been a plethora of RTA 
notifications. 
18. The chart below illustrates this impasse.  For clar ity reasons, it is based only on a subset of all 
RTAs notified to the GATT/WTO:  those RTAs notified under GATT Article XXIV and known to be 
still in force on 31 January 2002.
10 
Status vis-à-vis  the examination process of 
RTAs notified to the GATT/WTO under GATT Art. XXIV 
and in force on 31 January 2002 
(Cumulative figures) 
020406080100120140
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000Examination reports adoptedCRTA  factual 
examination ended
No reportGATT
Under factual examinationWTO
 
19. It is notable above that examination reports have only been adopted for those existing RTAs 
which were notified to the GATT an d examined before the establishm ent of the WTO.  In practice, 
the examination of RTAs notified between 1991 and 1994 only took off in 1996, within the CRTA.  
On none of these, nor on any of the RTAs notified since 1995, has it been possible to reach consensus 
on the format and language of the examination repo rts, despite the fact that, in most cases, the CRTA 
was able to put an end to the factual steps of the ex amination process.  This notwithstanding that draft 
texts on examination reports for a few RTAs have been under informal consultations during the last 
four years, in an effort to reach a common approach. 
20. This deadlock can be explained by the "dispu te-settlement awareness" mentioned above, in 
particular in the current situation of absence of  an agreed relationship between reports on the 
examination and dispute settlement cases:  Members se em reluctant to provide information or agree to 
conclusions that could later be used or interpreted by a dispute settlement panel.11  It has been noted 
that a further negative consequence of this dead lock is that WTO litigation may replace multilateral 
examination of an RTA (see section II.3.2). 
                                                      
10 Out of a total of 250 notifications, 168 RTAs remain in force today.  About 30 of these were notified 
under the Enabling Clause or GATS Article V. 
11 A suggestion that the examination of RTA consistency be left to the CRTA alone has been rejected.  TN/RL/W/8/Rev.1 
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 21. Suggestions have been made on how to improve the situation, in particular by emphasizing 
the transparency aspects of the examination mandate.12 
C. SUITABILITY OF THE MULTILATERAL ASSESSMENT OF RTA  CONSISTENCY  
22. The requirement for a multilateral consistency assessment of certain notified RTAs is 
contained in the provisions themselves, sometimes explicitly, as in GATS Article 7(a), sometimes 
implicitly, as in paragraph 7 of the Understanding on the Interpretation of Article XXIV of the GATT 
1994  (hereinafter, the 1994 Understanding) (see Annex).  The meaning of "consistency" is also 
defined in paragraph 1 of the 1994 Understanding wi th respect to RTAs notified under Article XXIV. 
23. Interrogations in this context mainly derive fr om the fact that only one of the examination 
reports adopted to date stated clearly that the RTA was found fully  compatible with the relevant 
GATT rules, and that the examination process has not been able to deliver any kind of examination 
report in more than seven years. 
1. II.3.1 Legal standing of RTAs vis-à-vis  WTO rules 
24. It has been argued that an RTA can be considered as tolerated or deemed compatible by the 
WTO in the absence of clear consistency conc lusions being spelled out in the report on its 
examination, or when no such examination report exists.13  Conversely, it has been argued that the 
legal status of RTAs in the WTO can also be considered as remaining unclear, the rights of WTO 
Members under dispute settlement procedures being preserved in any event. 
25. In the dispute Turkey –Restrictions on Imports of Textile and Clothing Products  (hereinafter 
Turkey – Textiles ) case, the Panel examined an argument put forward along the same lines as in 
paragraph 24 above.  The Panel agreed with the findings of the GATT Panel in EEC - Imports from 
Hong Kong,  which had rejected a similar argument put forward by the European Communities (EC), 
stating that «… it would be erroneous to interpret the fact that a measure had not been subject to 
Article XXIII over a number of years, as tantamount  to its tacit acceptance by contracting parties».14 
2. II.3.2 Panel's jurisdiction to  assess compatibility of RTAs  
26. While WTO rules provide for a mu ltilateral assessment of the cons istency of an RTA with the 
rules, the possibility of recourse to dispute settlement  is explicitly referred to in paragraph 12 of the 
Understanding: 
«Dispute Settlement  
12. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied 
by the Dispute Settlement Understanding may be invoked with respect to any matters arising 
from the application of those provisions of Article XXIV relating to customs unions, free-
trade areas or interim agreements leading to the formation of a customs union or free-trade area. » 
                                                      
12 It has been suggested that examinations be carried out on the basis of a prior factual analysis of the 
RTA by the Secretariat.  That, it has been argued, would set all Members on an equal footing and increase their 
understanding of the functioning of the agreements.   
13 The examination, which is a multilateral function (i.e. by the WTO Membership), should in principle 
include an assessment of the consistency of the examined RTA vis-à-vis  relevant WTO rules.  See a more 
detailed description in the Annex. 
14 Panel Report on EEC – Quantitative Restrictions against Imports of certain Products from 
Hong Kong , adopted on 12 July 1983 (BISD 30S/129), para. 28, and Panel Report on Turkey- Textiles , adopted 
on 19 November 1999 (WT/DS34/R), paras. 9.172-174. TN/RL/W/8/Rev.1 
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 27. With reference to the question of a panel's jurisdiction to assess the compatibility of  RTAs, 
the Appellate Body, in the Turkey – Textiles  case, stated:  
«59. We would expect a panel, when examining such a measure [taken by a party to a 
customs union], to require a party to establish that both of these conditions [the customs union fully meets the requirements of XXIV:8(a) and 5(a) and that without such measure that 
customs union could not be formed] have been fulfilled.  It may not always be possible to 
determine whether the second of the two conditions has been fulfilled without initially 
determining whether the first condition has been fulfilled.  In other words, it may not always be possible to determine whether not applying a measure would prevent the formation of a 
customs union without first determining whether there is a customs union.  In this case, the 
Panel simply assumed, for the sake of argument, that the first of these two conditions was met and focused its attention on the second condition. 
60. More specifically, with respect to the first condition, the Panel, in this case, did not 
address the question of whether the regional trade arrangement between Turkey and the European Communities is, in fact, a "customs union" which meets the requirements of 
paragraphs 8(a) and 5(a) of Article XXIV.  The Panel maintained that "it is arguable" that 
panels do not have jurisdiction to assess the overall compatibility of a customs union with the requirements of Article XXIV.  We are not called upon in this appeal to address this issue, but 
we note in this re spect our ruling in India – Quantitative Restrictions on Imports of 
Agricultural, Textile and Industrial Products  on the jurisdiction of panels to review the 
justification of balance-of-payments restrictions under Article XVIII:B of the GATT 1994. 
The Panel also considered that, on the basis of the principle of judicial economy, it was not 
necessary to assess the compatibility of the regional trade arrangement between Turkey and the European Communities with Article XXIV in order to address the claims of India. Based 
on this reasoning, the Panel assumed arguendo  that the arrangement between Turkey and the 
European Communities is compatible with the requirements of Article XXIV:8(a) and 5(a) and limited its examination to the question of whether Turkey was permitted to introduce the 
quantitative restrictions at issue.  The assumption by the Panel that the agreement between 
Turkey and the European Communities is a "customs union" within the meaning of 
Article XXIV was not appealed.  Therefore, the issue of whether this arrangement meets the requirements of paragraphs 8(a)  and 5(a) of Article XXIV is not before us.» (footnotes 
omitted)
15  
3. II.3.3 Burden of proof 
28. In the Turkey – Textiles case, the Panel recalled the well-established WTO rules on burden of 
proof, whereby «… (b)  it is for the party invoking an exception or an affirmative defense to prove that the conditions contained therein are met and … (c ) it is for the party asserting a fact to prove it», 
noting a third party's argument that «since Article XXIV was an exception invoked by Turkey, it was for Turkey to bear the burden of proof».
16  In the same case, the Appellate Body stated:  
«[w]e would expect a panel, when examining such a measure [taken by a party to a customs 
union], to require a party  to establish that both of these conditions [the customs union fully 
meets the requirements of XXIV:8(a) and 5(a) and that without such measure that customs 
union could not be formed] have been fulfilled» (emphasis added) 17  
4. II.3.4 WTO legal standing of parties to RTAs 
29. While the status of a WTO Member remains unchanged by the mere fact that it becomes party 
to an FTA, the legal standing of WTO Members which become parties to a customs union seems less clear.  The question is whether in the latter case WTO obligations continue to subsist and operate at 
the level of the original customs territories.  It ha s been argued that a new legal entity is created when 
                                                     
 
15 Appellate Body Report, adopted on 19 N ovember 1999 (WT/DS34/AB/R), paras. 59-60. 
16 WT/DS34/R, paras. 9.57 and 9.58. 
17 WT/DS34/AB/R, para. 59.  (See also paragraph 32 below.)  TN/RL/W/8/Rev.1 
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 customs territories form a customs union, on the ground that a new commercial policy vis-à-vis  third 
countries is then to be established.  
30. In the Turkey – Textiles  case, the Panel did not agree with the argument that a WTO right 
pertaining to a constituent member prior to the form ation of a customs union could be "passed" or 
"extended" to other constituent members.  The Panel noted that: 
«… even if the formation of a customs union may be the occasion for the constituent 
member(s) to adopt, to the greatest extent possible, similar policies, the specific circumstances which serve as the legal basis for one Member's  exercise of such a specific right cannot 
suddenly be considered to exist for the other constituent members.  We also consider that the 
right of Members to form a customs union is to be exercised in such a way so as to ensure that the WTO rights and obligations of third country Members (and the constituent Members) are 
respected, consistent with the primacy of the WTO, as reiterated in the Singapore 
Declaration».
18 
III. RELATIONSHIP BETWEEN RTA-SPECIFIC WTO DISCIPLINES AND OTHER 
WTO RULES 
A. ARTICLE XXIV*  AND THE ENABLING CLAUSE WITHIN GATT  1994  AND THE WTO   
AGREEMENT19 
31. The major question is whether Article XXIV should be considered as a derogation from the 
MFN obligation (Article I of the GATT) only , or from other GATT provisions as well.  Historically, 
both views have co-existed in the Membership. 
32. In the Turkey – Textiles  case, the Appellate Body found that:  
«Article XXIV may justify a measure which is inconsistent with certain other GATT 
provisions.  However, in a case involving the formation of a customs union, this "defence" is available only when two conditions are fulfilled.  First, the party claiming the benefit of this 
defence must demonstrate that the measure at issue is introduced upon the formation of a 
customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV.  And, second, that party must demonstrate that the formation of that customs 
union would be prevented if it were not allowed to introduce the measure at issue.  Again, 
both these conditions must be met to have the benefit of the defence under Article XXIV.»
20 
33. It has been noted that the granting of waivers for preferential trading agreements concluded 
between developing and developed countries has faced di fficulties in the recent past.  In that context, 
it has been argued that given the significant role played by them, and in accordance with the Doha 
Ministerial Declaration, negotiations should take into account the developmental aspects of RTAs so 
that any new rules on RTAs protect the interest s of developing and least-developed countries. 
B. LINKS BETWEEN GATT  ARTICLE XXIV*  PROVISIONS AND THE RULES CONTAINED IN OTHER 
WTO  AGREEMENTS IN THE AREA OF GOODS  
34. There is no agreed definition of the expression  «other [than duties] re gulations of commerce» 
as used in GATT Article XXIV:5.  In turn, only in  one instance the Agreements concluded in 1994 on 
non-tariff matters in the goods area refer specifically to RTAs (that is, in footnote 1 to Article 2.1 of the Agreement on Safeguards).  At the same time  as multilateral non-tariff trade-policy disciplines 
                                                     
 
18 WT/DS34/R, paras. 9.183-184 . 
19 Hereinafter, any reference to Article XXIV* (with an asterisk) includes the provisions contained in 
the 1994 Understanding, unless otherwise specified. 
20 WT/DS34/AB/R, para. 58.  That reversed the Panel finding that Article XXIV did not authorize a 
departure from GATT/WTO obligations other than Artic le I of the GATT (WT/DS34/R, paras. 9.186-9.188). TN/RL/W/8/Rev.1 
Page 12  
 
 were developing well beyond the original GATT rules,  Article XXIV provisions  with respect to these 
matters have thus remained static, and their re lationship with the new disciplines undefined. 
35. That issue surfaced again in the Council for Trad e in Goods (CTG), at the time of adoption of 
the terms of reference for the examination of the first RTA notified to the WTO.
21  The terminology 
of such examination mandate would normally refer only to the GATT 1994:  «to examine, in light of 
the relevant provisions of the GATT 1994 ...», without specifying whether the examination might also 
be carried out against the background of all WTO Agre ements relating to trade in goods.  It was then 
decided to expand those terms of reference th rough an understanding, whereby Members have: 
«... the mandate to examine the incidence and restrictiveness of all duties and regulations of 
commerce, in particular those governed by the provisions of the Agreements contained in Annex 1A of the WTO Agreement ... [but] that the purpose of an examination in the light of 
paragraph 5(a) of Article XXIV would not be to determine whether each individual duty or 
regulation existing or introduced on the occasion of the formation of a customs union is consistent with all provisions of the WTO Agreement; it would be to ascertain whether on the 
whole the general incidence of the duties and other regulations of commerce has increased or 
become more restrictive.  Accordingly, although the Working Party would conduct its examination in light of the relevant provisions of the Agreements contained in Annex 1A of 
the WTO Agreement, the conclusions of the Report of the Working Party would be confined 
to reporting on consistency with the provisions of Article XXIV».
22   
These terms of reference (including the above understanding) became standard for all subsequent 
examinations of RTAs notified under GATT Article XXIV. 
1. III.2.1 Agreement on Textiles and Clothing (ATC) 
36. In the Turkey – Textiles  case, the Appellate Body noted that: 
«The chapeau of paragraph 5 [of Article XXIV] refers only to the provisions of the GATT 
1994.  It does not refer to the provisions of the ATC.  However, Article 2.4 of the ATC 
provides that "[n]o new restrictions … shall be introduced except under the provisions of this Agreement or relevant GATT 1994 provisions.  In this way, Article XXIV of the GATT 1994 
is incorporated in the ATC and may be invoked as a defence to a claim of inconsistency with 
Article 2.4 of the ATC, provided that the conditions set forth in Article XXIV for the 
availability of this defence are met.»
23 
2. III.2.2 Agreement on Safeguards 
37. Relevant Appellate Body findings in the Turkey – Textiles  case were reflected as follows in 
the Report of the Panel on the dispute United States – Definitive Safeguard Measures on Imports of 
Wheat Gluten from the European Communities (hereinafter US – Wheat Gluten ): 
«Furthermore, we understand that Article XXIV of the GATT 1994 may provide a defence to 
a claim of violation of a provision of the GATT 1994, and may also provide a defence to a 
claim of inconsistency with a provision of another covered agreement if it is somehow 
incorporated into that provision or agreement» (footnotes omitted).24   
                                                      
21The enlargement of the EC to include Austria, Finland and Sweden. 
22 See WT/REG3/1.  This same understanding applies mutatis mutandis  to FTAs. 
23 WT/DS34/AB/R, footnote 13 to para. 45. 
24 Panel Report on US –Wheat Gluten , adopted on 19 January 2001 (WT/DS166/R), para. 8.180.   TN/RL/W/8/Rev.1 
 Page 13 
 
 
 However, the Panel did not examine whether Article XXIV of the GATT 1994 might provide a 
defence to a violation of a provision of the Agreement on Safeguards, given that such argument had 
not been presented by the United States.25 
38. Another issue refers to the lack of a mu ltilaterally agreed methodology on how should 
safeguard measures already in place within a customs union be applied by acceding parties.26 
3. III.2.3 Other WTO Agreements 
39. The Agreement on Agriculture does not specify how should individual Members' reduction 
commitments on domestic support and export su bsidies be translated into common commitments 
when a customs union is established or enlarged. 
40. The Agreement on Rules of Origin does not contain disciplines on non-preferential rules of 
origin.  No multilaterally agreed guidelines exist, apart from the Common Declaration with Regard to 
Preferential Rules of Origin annexed to the Agreemen t, which might be used in dealing with issues 
raised with respect to RTA rules of origin.27  (See Section V.3.1) 
C. ARTICLE V WITHIN THE GATS  (AND ITS ANNEXES ) 
41. One major issue is the precise scope of the exemption for EIAs provided by Article V and  in 
particular whether Article V allows  departures from any other obligations than the MFN.  It has also 
been argued that if that was the case, derogation from the other key principles of the GATS - such as 
transparency, fair administration of domestic regu lations and emergency safe guards - should not be 
allowed. 
1. III.3.1 Links between EIAs' trade liberaliza tion requirements and GATS "exempted" 
services sectors/modes of supply or GATS pr ovisions subject to further negotiations 
42. One issue refers to whether an EIA can exclude from its coverage sectors or modes of supply 
which are not subject to the GATS disciplines, either in its totality - such as services supplied in the 
exercise of governmental authority - or partially - e.g. transport sector  or certain Mode 4 aspects.  If 
that is not possible, the question remains on the extent  of the coverage required on such sectors for the 
EIA to be consistent.  
43. Another issue relates to how to interpret Article V:1(b) requirements to eliminate 
discriminatory measures on intra-trade in view of  further negotiations contemplated under various 
GATS Articles and Annexes. 
                                                      
25 While the United States argued that Article XXIV of the GATT 1994 would provide it with a 
defence to a violation of Article XIX of the GATT 1994, it stated in the Panel proceedings its understanding that 
"Article XXIV provides neither an exception nor a derogation to the provisions of the Safeguards Agreement".  
See WT/DS166/R, para. 8.181. 
26 This can also refer to  anti-dumping measures. 
27 The preamble to the Agreement recognizes that clear and predictable rules of origin and their 
application facilitates the flow of international trade, and states the desirability that rules of origin themselves do not create unnecessary obstacles to trade.  The Common De claration provides disciplines for preferential rules 
of origin;  in particular, Article 3(c) requires that laws and regulations relating to them be published "as if they 
were subject to, and in accordance with, the provisions of Article X of GATT 1994". TN/RL/W/8/Rev.1 
Page 14  
 
 2. III.3.2 Relationship between national jurisprudence and the GATS 
44. One issue relates to the application of the "grandfathering concept" to EIAs.
28  The view has 
been expressed that provisions under an EIA that ha d been drafted prior to the GATS would need to 
be updated in accordance with the GATS.  Such  amendments could be required in cases where 
national jurisprudence conflicted with existing GATS rules, and possibly also in the event of future 
modifications of GATS rules.29 
IV. INTERDEPENDENCE OF RTA-SPECIFIC WTO DISCIPLINES  
A. LINKS AMONG PROVISIONS WITHIN GATT  ARTICLE XXIV* 
1. IV.1.1 Significance of the provisions of paragraph 4 
45. A recurrent general question has been whethe r paragraph 4 of Article XXIV contains 
additional requirements to those specified in pa ragraphs 5-8 or should be viewed as merely 
introducing these provisions.30  In this respect, the Ap pellate Body Report in the Turkey – Textiles  
case stated that: 
«Paragraph 4 contains purposive, and not operative, language.  It does not set forth a separate 
obligation itself but, rather, sets forth the overriding and pervasive purpose for Article XXIV 
which is manifested in operative language in the specific obligations that are found elsewhere in Article XXIV».
31 
46. Within this general setting, it has been questi oned whether RTA parties are required not to 
increase the barriers overall or rather  not to raise any barrier, with reference to the phrase «not to raise 
barriers» towards  third parties in paragraph 4 and the corresp onding concept in paragraph 5(a).  In the 
Turkey – Textiles  case, the Panel found that: 
«What paragraph 5(a) provides, in short, is that  the effects of the resulting trade measures and 
policies of the new regional agreement shall not be more trade restrictive, overall, than were 
the constituent countries' previous trade policies» and that paragraph 5(a) provided for an 
«"economic" test» for assessing compatibility.32   
Both these findings were shared by the Appellate Body, which added that «the text of the chapeau of 
paragraph 5 should be interpreted in its context», and identified paragraph 4 as an import element in that 
context.  This led the Appellate Body to state: 
«According to paragraph 4, the purpose of a customs union is "to facilitate trade" between the 
constituent members and "not to raise barriers to the trade" with third countries.  This 
objective demands that a balance be struck by the constituent members of a customs union.  A customs union should facilitate trade within the customs union, but it should not do so in a 
way that raises barriers to trade with third countries.»
33 
                                                      
28 The question of grandfathering, or conversely the retroactive application of new rules, has also been 
raised in the context of RTAs in the goods area. 
29 Article V:7 requires the notification of all EIAs in force, including those signed before the entry into 
force of the GATS.  Thus, at least in the case of notification under the GATS, grandfathering does not exist.  
30 Reaffirmed in the fifth paragraph of the Preamble to the 1994 Understanding. 
31 WT/DS34/AB/R, para. 57. 
32 WT/DS34/R, para. 9.121. 
33 WT/DS34/AB/R, paras. 55-56.  TN/RL/W/8/Rev.1 
 Page 15 
 
 
 2. IV.1.2 Relative precedence of paragraphs 4-5 provisions and those found in paragraph 
8 
47. This issue has been raised in particular with respect to the possible impact of compliance with 
the requirement concerning common trade policy in a customs union contained in paragraph 8(a)(ii); 
more generally, it refers to cases where a measure ostensibly taken within an RTA to facilitate intra-
trade would have a trade-restrictive effect on third parties. 
48. It has been argued that, in such a situation, consistency should be measured not only against 
the criteria contained in paragraph 8 and then in paragraph 5, but also against the principles contained 
in the last sentence of paragraph 4. 
49. Some findings of the Panel an d the Appellate Body in the Turkey – Textiles  case, such as 
those reported in paragraphs 45-46, may shed light on that issue. 
3. IV.1.3 Parallelism between provisions applying  to customs unions and those applying to 
FTAs 
50. Paragraph 5 provides for an assessment of the conditions of third countries' access to the 
markets of the parties to an RTA, before and after the formation of the relevant RTA.  The basis for 
such an assessment is found in subparagraph (a) for customs unions and in subparagraph (b) for 
FTAs.  While language therein is largely symmetrical, it contains some differences:  
• subparagraph 5(a) states that the duties and other regulations of commerce «imposed» by 
a customs union are to be compared to thos e «applicable» by its parties prior to the 
institution of the union;  paragraph 2 of the 1994 Understanding clar ifies the  meaning of 
these expressions with respect to duties, by sp ecifying that, in the context of the general 
incidence calculation, «… the duties and charge s to be taken into consideration shall be 
the applied rates of duty». 
• subparagraph 5(b) provides that  the corresponding comparison for FTAs should be based 
on the duties and other regulations of commer ce «maintained in each of the constituent 
territories and applicable at the formation» of  the FTA and those previously «existing in 
the same constituent territories».  Such diffe rences in wording shed doubts on whether 
«applicable» duties for FTAs refer to bound  rates or to applied  rates. 
51. It has been argued that a consistent interpre tation of paragraph 5 would require that duties 
«applicable» by FTA parties refer to applied  rates just like in the case of a customs union (see 
Section V.3.3 for a related question).  Some findings  of both the Panel and the Appellate Body in the 
Turkey – Textiles  case are also relevant in this respect (see paragraph 46 above). 
52. Another issue raised relates to the definition of the expression «other regulations of 
commerce» itself.  It has been observed that, under  Article XXIV:5, it might have a wider scope for 
FTAs than for customs unions, especially if, as it has been argued sometimes, FTA rules of origin 
should be considered as a regulation of commerce in that context. (see Section V.3.1) 
4. IV.1.4 Congruity of provisions in paragraph 8 with those contained in paragraph 5 
53. Paragraph 8 provides for the minimum parameters which parties to a customs union or FTA 
must meet in shaping their internal trade relati ons, whereas paragraph 5 governs external relations.34 
                                                      
34 Paragraph 8(a)(ii), which deals with harmonization of the external trade regime in a customs union, 
is less unambiguously "internal" in this respect. TN/RL/W/8/Rev.1 
Page 16  
 
 54. It has been pointed out that RTAs, in comply ing with paragraph 8 disciplines to achieve 
internal trade liberalization, in pa rticular in the area of «other re strictive regulations  of commerce», 
might raise barriers to the trade of third parties, in  contradiction with paragraph 5 requirements.  The 
application or harmonization of standards (both technical barriers to trade and sanitary and 
phytosanitary measures), as well as the introducti on and enforcement of competition law, have been 
cited as possible fields where this could apply; hen ce the need to analyze the intent and application of 
the «other restrictive regulations of commerce» in operation in RTAs. 
5. IV.1.5 Relevance of provisions applic able to RTAs implemented by stages 
55. In the GATT/WTO history, though most customs unions or FTAs have been, at least in part, 
implemented by stages, very few have expressly been notified as «interim agreements».  As a 
consequence, many of the detailed provisions speci fically devoted to this type of RTA, both in 
Article XXIV and in the 1994 Understand ing, have practically become redundant.
35 
56. In that context, it has been noted that multilate ral surveillance of RTAs would be increased if 
interim agreements were notifie d under Article XXIV:5(c) of th e GATT 1994, so that existing 
requirements on the plan and schedule for an interi m agreement could be better monitored and, if 
required, recommendations on in particular «… the proposed time-frame and on measures required to 
complete the formation of the customs union or free-trade area» (paragraph 8 of the 
1994 Understanding)) could be made by Members, and further review of the agreement foreseen. 
57. Unclear issues related to transition periods have  however been highlighted in examinations of 
RTAs notified under Article XXIV, though in isolat ion from other disciplines for interim agreements: 
• Could RTA parties apply a longer (than 10 years) transition period to some products 
instead of excluding them from the sc ope of the agreement straightaway? 
• What should be expected as a «full explanation» by parties to an interim agreement with 
transitional periods longer than 10 years? 
• When should interim agreements fulfil the requ irements spelled out in paragraphs 5 and 
8:  at the time of entry into force of th e interim agreement or when the RTA has been 
fully implemented?36 
• Should consideration of the «other restrictive regulations of commerce» (paragraph 8) and 
the «other regulations of commerce» (paragra ph 5) be different in fully implemented 
RTAs and interim agreements?37 
                                                      
35 Paras. 5(c), 7(b) and 7(c) of GATT Article XXIV and paras. 3 and 8-10 of the 1994 Understanding 
deal with interim agreements. 
36 It has been argued that paragraph 8 requirements (in particular with respect to «substantially all the 
trade») should apply only at the end of the transition period, while those of paragraph 5 should apply both 
during and at the end of the transition period 
37 It has been noted that certain trade policy measures were needed only for the management of the 
transitional process and could therefore be applied in the context of interim agreements but not in fully 
implemented customs unions or FTAs.  TN/RL/W/8/Rev.1 
 Page 17 
 
 
 B. LINKS AMONG PROVISIONS WITHIN GATS  ARTICLE V 
1. IV.2.1 Relationship between the tests on «substantial sectoral coverage» and on 
«substantially all discrimination» 
58. One view is that if a sector meets the test of Ar ticle V:1(b), it should be considered also to be 
covered for purposes of Article V:1(a); conversely, th e sector would be considered as not covered if it 
did not satisfy the requirements under Article V:1(b). 
59. Another view is that the two tests are separate and that a sector need not meet the 
requirements of Article V:1(b) in order to be cons idered as covered for purposes of Article V:1(a); 
Article V:1(a) would determine the proportion of sectors or subsectors subject to liberalization, while 
Article V:1(b) would determine wh ether discriminatory measures ma intained in serv ice sectors or 
modes of supply are acceptable. 
2. IV.2.2 Relationship between establishment requirements and the test on «substantial 
sectoral coverage»  
60. The question has been raised on whether a re quirement for foreign suppliers to establish 
themselves in local jurisdiction before they be allo wed to sell services to local consumers amounted to 
an a priori  exclusion of cross-border trade in these services.  If that was considered a violation of the 
requirements of footnote 1 to Article  V:1(a), the questions has been posed on how that situation would 
be viewed in cases where individual sub-national  governments impose an establishment requirement 
for inter-state trade within that country. 
3. IV.2.3 Relationship between the flexibility provided to EIAs involving developing 
countries and various GATS requirements 
61. Subparagraph 3(b) states that notwithstanding paragraph 6, in the case of an EIA involving 
only developing countries, «more favourable treatment may be granted to juridical persons owned or 
controlled by natural persons of the parties to su ch an agreement.»  The issue is whether the more 
favourable treatment should be limited by the requirements of Article V:4 so that the «overall level of 
barriers» in each sector and subsector is not raised.  
4. IV.2.4 Compensation negotiations under par agraph 5 and its possible application to 
modifications in MFN exemptions  
62. Paragraph 5 requires a party to an EIA to pr ovide at least 90 days advance notice of any 
modification or withdrawal of a specific commitme nt that was inconsistent with the terms and 
conditions set out in its Schedule and stipulates that «the procedure set forth in paragraphs 2, 3 and 4 
of Article XXI shall apply».   
63. Though Article V:5 relates to compensation to third parties only in the context of specific 
commitments, an issue emerged on the possibility of  providing compensation for the extension of 
MFN exemptions by a customs union to its area of enlargement. 
64. It has been suggested that such extended MFN exemptions qualify as new measures, with the 
relevant provisions being those contained in the An nex on Article II Exemptions and in Article IX of 
the WTO Agreement.  MFN exemptions and specific commitments were completely different issues 
and legal provisions dealing with th e latter could not be used for modifications in the former.   
65. Conversely, it has been suggested that the automatic extension of an MFN exemption implies 
that third countries would not benefit from the same  access to the markets of acceding parties;  that TN/RL/W/8/Rev.1 
Page 18  
 
 situation could be assimilated to the one where commi tments undertaken are modified or withdrawn.  
Thus, compensation according to the Article XXI rout e, as provided for in Article V:5, would be 
applicable. (see Section VI.3.6) 
V. INTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATT 
ARTICLE XXIV 
A. M
EANING OF «SUBSTANTIALLY » 
66. The word «substantially» is found three times in  the provisions of paragraph 8, where it is 
defined what should be understood by «cus toms union» and by «free-trade area». 
1. V.1.1 Paragraph 8(a)(i) and 8(b):  «substantially all the trade»38 
67. In a customs union, according to paragraph (a)(i), duties and, apart from permissible 
exceptions,39 other restrictive regulations of commerce  should be «eliminated» with respect to 
«substantially all the trade» between the parties «or at least … substantially all the trade» in 
originating products.  A similar requirement is contained in paragraph (b) for FTAs:  that such 
elimination be made on «substantially a ll the trade» in originating products. 
68. Despite the inclusion of the fourth paragra ph in the Preamble to the 1994 Understanding,40 the 
interpretation of that expression has remained cont entious.  Two approaches, not mutually exclusive, 
are typical in that respect: 
• A quantitative approach favours the definition of a statistical benchmark, such as a 
certain percentage of the trade between RTA parties, to indicate that the coverage of a 
given RTA fulfils the requirement. 
• A qualitative approach sees th e requirement as meaning that  no sector (or at least no 
major sector) is to be kept out of intra-RTA trade liberalization; this approach aims at 
preventing the exclusion from RTA liberalization of any sector where the restrictive 
policies in place before the formation of the RTA hindered trade, which could be well 
the case if a quantitative approach was used. 
69. Apart from calls aiming at defining RTAs' coverage as meaning that all sectors should be 
included, it has been suggested that the above two approaches could be bridged or complemented by: 
• characterizing an RTA's product coverage not only in terms of trade flows but also in 
terms of a certain percentage of tariff lines;41 
• as a refinement to the quantitative appro ach, calculating the percentage of trade 
between the parties carried out under RTA rules of origin; and/or 
• exploring whether footnote 1 to GATS Article V provides a basis for some 
clarification of the «substantially all the trade» concept.42 
                                                      
38 Often also referred to as an RTA's "product coverage". 
39 «… (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) …». 
40 «Recognizing also that such contribution … if any major sector of trade is excluded».  
41 A threshold has also been proposed at 95 per cent of all HS tariff lines at the six-digit level, to be 
complemented by an assessment of prospective trade flow s at various stages of implementation of the RTA, 
thereby allowing the incorporation of cases where trade is initially concentrated in relatively few products. 
42 In referring to the need for EIAs to have substantial sectoral coverage, this footnote reads: «This 
condition is understood in terms of number of sectors, volume of trade affected and modes of supply. In order to 
meet this condition, agreements should not provide for the a priori  exclusion of any mode of supply».  TN/RL/W/8/Rev.1 
 Page 19 
 
 
 2. V.1.2 Paragraph 8(a)(ii):  «substantially the same duties and other regulations of 
commerce»43 
70. Paragraph 8(a)(ii) requir es parties to a customs union to apply «substantially the same duties 
and other regulations of commerce» vis-à-vis  third parties, i.e. provides from a certain harmonization 
of the external trade regime of the constituent members of a customs union. 
71. Concerning the extent of harmonization required, in the Turkey – Textiles  case, the Panel 
found that the flexibility provided for in paragraph 8(a) by the existence of the word «substantially» 
meant that:  
«… a situation where constituent members have "comparable" trade regulations having 
similar effects with respect to the trade with third countries, would generally meet the 
qualitative dimension of the requirements of sub-paragraph 8(a)(ii)», and that Members were 
allowed to form a customs union «… where one constituent member is entitled to impose quantitative restrictions under a special transitional regime and the other constituent member 
is not.»
44   
While agreeing with the Panel that the phrase «substantially the same» in paragraph 8(a)(ii) offered a 
certain degree of flexibility to the constituent me mbers of a customs union in the creation of a 
common commercial policy, the Appellate Body disagreed  with the Panel in that the limits established 
by such flexibility meant that "comparable" trade regul ations having similar effects with respect to the 
trade with third countries would meet the standard of  sub-paragraph 8(a)(ii).  Rather, it concluded that 
a higher degree of "sameness" was required.45 
72. With respect to the related question of whether otherwise GATT-inconsistent measures could 
be harmonized under the legal cover of Article XXIV, reference is made to the Appellate Body 
findings in the Turkey – Textiles  case, as reflected in paragraph 32 above. 
B. SCOPE OF THE BRACKETED EXCEPTIONS IN PARAGRAPH 8:  APPLICATION OF GLOBAL 
SAFEGUARDS TO RTA  PARTNERS  
73. The expression «other restrictive regulations of commerce», which is found twice in 
paragraph 8 has never been positively defined in the GATT/WTO.46  Most interrogations in this 
respect are linked to the list of permitted exceptions  to the internal elimina tion of «other restrictive 
regulations of commerce» in customs unions and FT As, as contained in paragraph 8(a)(i) and 8(b), 
respectively. 
74. The fact that neither GATT Article XIX nor Articl e VI are cited in that list has given rise to 
the general question of whether safeguard and anti-dumping measures should be considered as «other 
restrictive regulations of commerce» or not. 
75. A more specific issue in this respect is the significance of the non-inclusion of Article XIX 
among the exceptions for WTO Members' rights and obligations, and its effects on the conditions of 
application of global safeguards to RTA parties.47  Traditionally, that non-inclusion has been 
approached from three distinct, and mutually exclusive, viewpoints: 
                                                      
43 Often also referred to as an RTA's "product coverage". 
44 WT/DS34/R, para. 9.151. 
45 WT/DS34/AB/R, paras. 49-50. 
46 Neither has the expression «other regulations of  commerce» in paragraph 5 and paragraph 8(a)(ii). 
47 Only a few agreements explicitly allow for the exclusion of RTA partners from a global safeguard 
action;  in other agreements, this exemption is implicit. TN/RL/W/8/Rev.1 
Page 20  
 
 • It remains an obligation to apply global safeguards MFN, including to RTA partners; 
the bracketed list of exceptions being purely illustrative and Article XXIV not 
waiving the basic MFN principle for safeguard measures. 
•  It is permitted to apply safeguard measur es to RTA partners, though only in some 
cases, as supported by the international law on multilateral treaties whereby RTA 
parties are entitled to vary their rights a nd obligations between themselves, provided 
they do so in a manner that does not abridge the rights of third parties.
.48 
• It is forbidden to apply global safeguard measures to RTA partners, since to consider 
the list of allowed «other regulations of commerce» as exhaustive conforms with 
common practice in cases of derogations from general principles..49 
76. Rulings by panels and the Appellate Body on WTO disputes concerning the application of 
safeguard measures have not given a definite response to the basic question above, i.e. whether 
exempting parties to a given RTA from a global safeguard measure was WTO-consistent.  On the 
contrary, in the dispute Argentina – Safeguard Measures on Imports of Footwear ( hereinafter 
Argentina – Footwear (EC)) , the Appellate Body specifica lly stated the following:  
«… we wish to underscore that, as the issue is not raised in this appeal, we make no ruling on 
whether, as a general principle, a member of a customs union can exclude other members of 
that customs union from the application of a safeguard measure.»50 
In the dispute US – Wheat Gluten , the Panel maintained that same approach, later agreed upon by the 
Appellate Body,51 by stating: 
«We do not believe that we have been asked to rule, and consequently make no ruling, on 
whether or not, as a general principle, a member of a free trade area can exclude imports from 
other members of that free trade area from the application of a safeguard measure.»52 
In the more recent dispute  United States – Definitive Safeguard Measures on Imports of Circular 
Welded Carbon Quality Line Pipe from Korea ( hereinafter US – Line Pipe) , in reversing the Panel's 
finding that: 
«… the United States is entitled to rely on Article XXIV as a defence to Korea's claims under 
Articles I, XIII and XIX of GATT 1994, and Article 2.2 of the Safeguards Agreement, 
regarding the exclusion of imports from Canada and Mexico from the scope of the line pipe measure»,
53  
the Appellate Body re-stated: 
 «We need not, and so do not, rule on the question whether Article XXIV of the GATT 1994 permits exempting imports originating in a partner of a free-trade area from a measure in 
departure from Article 2.2 of the  Agreement on Safeguards .»
54 
                                                      
48 The flexibility embodied in that interpretation itself creates new interrogations concerning the 
possible exclusion of RTA parties from the application of safeguards, such as (i) whether a party would be allowed to exempt its partners from a global safeguard action depending on whether their imports accounted or 
not for a "substantial share" of total imports and contributed to "serious injury";  (ii) whether safeguards could 
be imposed on intra-trade only if determination was made that the injury was due to the reduction of duties contemplated in the RTA. 
49 Such prohibition would however not apply during the transition period. 
50 Appellate Body Report on Argentina – Footwear (EC) , adopted 12  January 2000 
(WT/DS121/AB/R), para. 113. 
51 Appellate Body Report on US – Wheat Gluten , adopted on 19 January 2001 (WT/DS166/AB/R), 
para. 99. 
52 WT/DS166/R, para. 8.183.  
53 Panel Report on US – Line Pipe , adopted on 8 March 2002 (WT/DS202/R), para. 7.167.  
54 WT/DS202/AB/R, para. 198.  TN/RL/W/8/Rev.1 
 Page 21 
 
 
 77. However, while inconclusive on the issue of the imposition or maintenance of safeguard 
measures between the constituent terr itories of a customs union or of a free-trade area in relation to 
Article XXIV, Panel and Appellate Body findings have stressed the need for a parallelism between 
the scope of a safeguard investigation and the scope of the application of safeguard measures. 
C. OTHER ISSUES  
1. V.3.1 The qualification of RTA rules of origin as «other regulations of commerce»  
78. RTA provisions on rules of origin have raised a number of issues. On the question of whether 
RTA rules of origin constitute an «other regul ations of commerce» (ORCs) under Article XXIV:5, 
distinct interpretations subsist: 
• RTA origin rules constitute an ORC.55 
• RTA origin rules do not constitute an ORC, given that by definition they do not affect 
trade with third parties. 
• A case-by-case examination of the preferential rules of origin in RTAs is needed.  
That examination would clearly indicate whether these rules had restrictive effects on 
the trade vis-à-vis  third parties . 
79. Apart from this "definition" question, discussions on RTA provisions on origin rules also 
raised a number of technical issues.  One question relates to whether it is appropriate to compare the 
rules of origin of a new RTA with those of an earlier RTA with overlapping membership which it 
superseded.  Another issue is whether diagonal cu mulation schemes contravene WTO rules, as they 
favour certain third-parties to  a particular RTA, while di scriminating against the rest.56 
80. More recently, it has been noted that a harm onization of RTA rules of origin might be 
desirable in the long run.57  However, it has been argued that th is might not be workable given that 
those rules derived from production and trade st ructures in place between the RTAs parties.58  
2. V.3.2 Non-zero preferential tariff rates 
81. The question of the application of preferential  tariffs lower than the MFN rates but higher 
than zero has been raised.  It has been argued that  such tariffs should be assessed in the context of 
paragraph 8, and while they fall short of having be en eliminated, they contribute to the objective of 
facilitating trade and may in certain instances represen t a first step towards an possible elimination of 
the duty at a later stage.  It has also been noted that the requirement to eliminate duties apply to «substantially all the trade», and that  Article XXIV is silent on the treatment of such "non-substantial" 
part of intra-trade. 
                                                     
 
 55 It has been suggested that rules of origin play a similar role in a FTA as the one played by a common 
external tariff in a customs union.  
56 Under diagonal cumulation, materials supplied by specific countries not parties of a given RTA may 
be counted, under certain conditions, as originating from the RTA. 
57 This view was expressed in the context of the debate held on a recent Secretariat's survey on  Rules of 
Origin Regimes in Regional Trade Agreements (WT/REG/W/45).  That suggestion had also been made in the 
context of Uruguay Round negotiations.  
58 For some, that "tailor made" nature  of RTA rules of origin generally resulted in more stringent than 
MFN rules of origin and seemed to be contrary to the objective of enhancing and facilitating trade between RTA parties.  In that context, these origin rules could create obstacles on intra-trade; further, they would also create 
obstacles on trade with third parties given that stringent rules of origin tended to render more difficult the 
transformation of their materials into products originating within the RTA. TN/RL/W/8/Rev.1 
Page 22  
 
 82. Conversely, it has been argued that non-zero pr eferential tariff rates could not be justified 
under paragraph 8 which require their elimination, and not their reduction, but rather that they should 
be assessed in light of  paragraph 5(b) as they amount to the raising of barriers vis-à-vis  the trade with 
third parties. 
83. An intermediate interpretation has been that th e requirement for such elimination would apply 
at the end of the transition period, and that in between such non-zero preferential tariffs should be 
allowed as they amounted to a staged implem entation of the elimination requirement. (see 
Section IV.1.5.) 
3. V.3.3 Compensation for negative effects on third parties upon the 
formation/enlargement of an RTA 
84. The need for elaborating disciplines aimed at en suring that third parties are compensated for 
possible negative effects brought by the creation or enlargement of an RTA has been raised.  
Disagreement remains on whether existing provisions  allow for such a request, and further on whether 
these would not go beyond the existing negotiating mandate. 
VI. INTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATS 
ARTICLE V 
A. M
EANING OF «SUBSTANTIAL » AND «SUBSTANTIALLY » 
1. VI.1.1 Paragraph 1(a):  «substantial sectoral coverage» 
85. Article V:1(a) provides that an EIA must have «substantial sectoral cove rage» of the trade in 
services among the Parties.  The footnote to the provision states that this expression should be 
«understood in terms of number of sectors, volume of trade affected and modes of supply».  The footnote also provides that an EIA may not a priori  exclude any of the four modes of supply.  The 
main question that remains to be solved is the exte nt of liberalization needed for an EIA to meet the 
«substantial sectoral coverage» test. 
86. Regarding the coverage of sectors
, two approaches co-exist:59 
• Not all sectors must be covered under an EIA.   
• The flexibility provided by the word «substan tial» does not allow for the exclusion of 
a sector from an EIA.  That has also been modulated by a suggestion that the 
exclusion of essential services (those wh ich serve as infrastructure for economic 
activity, such as transportation) could not be possible and that the exclusion of major 
service sectors needed to be considered in conjunction with the modes of supply and 
the volume of trade involved. 
87. Regarding the coverage of modes of supply , it has been argued that an EIA must include all 
modes of supply in order to comply with subpar agraph 1(a) requirements;  in particular, no EIA 
should a priori  exclude investment and labour mobility in the sense of Modes 3 and 4.  
                                                      
59 A number of more detailed questions have also been raised, namely (i) how to determine whether all 
sectors have been covered or not;  (ii) how to calculate the volume of trade affected when a sector is less than fully liberalized;  (iii) whether the calculation should only include that portion of trade in a sector that has been 
completely liberalized by the provisions of the EIA; (iv) if the setting of a percentage target could be feasible for 
examining the coverage of an EIA, whether it would be more appropriate to have a percentage target for the volume of services trade covered or of domestic services activity covered;  and (v) how would the "absence or 
elimination of substantially all discrimination" and the lis t of excepted measures under Article V:1(b) affect the 
percentage targets that might be set.  TN/RL/W/8/Rev.1 
 Page 23 
 
 
 88. Brief and inconclusive discussions were held  on the adequate degree of detail of the 
examination , i.e. whether it should it take place on a sector-by-sector, subsector-by-subsector or on a 
completely disaggregated basis, has been briefly ad dressed.  The lack of de tailed data on services 
trade and the fact that footnote 1 to subparagraph 1(a) lists the number of sectors covered by an EIA 
as one of the three separate factors to be examined in evaluating sectoral coverage have been 
presented as arguments favouring a sector-by-sector examination.  
89. The unavailability of reliable data on trade in services has been highlighted.  It has been 
suggested that data on domestic economic activities could be used instead, with the statistics on the 
size of the domestic market of services sectors c oncerned or their contribution to GDP being used to 
determine the coverage of sectors.  Further, it ha s been suggested that it was pointless to pursue the 
idea of percentages of sectors/trade excluded, but that an attempt should be made to define the volume 
of trade affected.  
2. VI.1.2 Paragraph 1(b):  «substantially all discrimination» 
90. The extent to which discriminatory measures s hould be allowed to exist in an EIA without 
breaching its consistenc y with Article V:I(b)60 is a debatable issue, although it is clear that those 
permissible discriminatory measures would be directly influenced by a definition of the scope of the 
list of exceptions in Article V:1(b) as well as the applicability of the «and/or» language in the context 
of provisions (i) and (ii).  It has also been noted that the unavailability of detailed data on trade in 
services makes it difficult to arrive at a pe rcentage-type test for quantitatively measuring 
«substantially all discrimination», wh ich in turn should point toward s a case-by-case examination of 
each agreement. 
B. SCOPE OF THE BRACKETED EXCEPTIONS OF TRADE RESTRICTIVE MEASURES  
91. It has been argued that the list of excep tions allowing the maintenance of certain 
discriminatory measures is not exhaustive.61  Expansion of the list of exceptions has been considered 
permissible on the basis of the Preamble to the GATS , which refers to «the rights of Members to 
regulate, and to introduce new regulations, on the supply  of services within their territories in order to 
meet national policy objectives»; however, what is c overed in the national treatment clause should not 
be added to the list. 
92. Two interpretations of the app lication of emergency safeguar ds among parties to an EIA 
co-exist: 
• Article X should be added to the listed ex ceptions so that safeguard measures can be 
applied on a MFN basis to parties to a EIA and third countries alike and thus be in 
line with the principle provided for in Article  X:1, i.e. that safeguard measures have 
to be based on the principle of non-discrimination. 
• Safeguard measures should not be applied among EIA parties, as they act against 
comparative advantage, which is in fact a very important benefit of integration 
agreements. 
93. In addition to that safeguard issue, the possib le illustrative nature the list of exceptions also 
raises the question of what other types of discriminatory measures (besides those enumerated  in the 
                                                      
60 It has been suggested that the meaning of the term "substantially all" in GATT Article XXIV:8 might 
provide a hint as to the same term meant in GATS Article V:1(b). 
61 Discriminatory measures authorized are those im posed under Articles XI (Payments and Transfers), 
XII (Restrictions to Safeguard the Balance of  Payments), XIV (General Exceptions) and XIV bis (Security 
Exceptions).  TN/RL/W/8/Rev.1 
Page 24  
 
 list) should be considered as legitimate exceptions  from the requirement in Article V:1(b) for the 
«absence or elimination of substantially all discrimination». 
C. O
THER ISSUES  
1. VI.3.1 Footnote to paragraph 1(a): nature and aim of its parameters 
94. Concerning the parameters in the footnote, the question has been raised on whether they 
should be viewed as providing a basis for assigning weights to the sectors liberalized or as establishing three separate factors to be considered in making an overall judgement.  Also, it has been 
argued that it is not clear whether parameters additi onal to those listed in the footnote might also be 
involved in examining the sectoral  coverage of an agreement. 
2. VI.3.2 Paragraph 1(b):  Meaning of the «and/or» wording 
95. Subparagraph 1(b) requires that an EIA should provide for «the absence or elimination of 
substantially all discrimination in the sense of Article XVII» through (i) elimination of existing 
discriminatory measures, and/or (ii) prohibition of new or more discriminatory measures, with certain 
listed exceptions.  The provisions under this clause should be implemented either at the entry into 
force of the Agreement or on the basis of «a reasonable time-frame».  Different views co-exist on the 
interpretation of «and/or» wording: 
• The «or» allows the parties to choose between provisions (i) and (ii), i.e. the 
elimination of existing discriminatory measures or alternatively the use of a standstill. 
• In cases where no discrimination exists at  the time of entry into force of the 
agreement or where remaining discriminatory measures do not exceed the level 
required to satisfy the «substantially all di scrimination» requiremen t, only (ii) would 
apply.  In cases where such discrimination remains beyond that level, (i) would be 
applicable and the applicability of (ii) wo uld depend on the extent to which the 
discriminatory measures are eliminated under (i). 
• Both (i) and (ii) are applicable, and that attention should be given to the paragraph 
1(b) as a whole. Paragraphs (i) and (ii) are options to be judged as appropriate against 
the circumstances of the sector being considered, not as alternatives to be freely 
chosen by the parties.  
• The «and/or» provision should be looked at in conjunction with the objective 
underlined in the chapeau of paragraph V:1(b), which provides that  «the absence or 
elimination» of substantially all discrimina tion be exercised in the sense of Article 
XVII of the GATS. 
3. VI.3.3 Paragraph 1(b):  Definition of the «reasonable time-frame» provision 
96. Regarding the time-frame itself, it could be interp reted to mean a ten-year limit (in parallel to 
the GATT Article XXIV:5(c), a five-year limit, or  any time-frame limit to be applied on a case-by-
case basis (rather than being formally defined). 
97. A related issue has been whether a gradual and selected extension (i.e. to some sectors only)  
of certain key GATS obligations (such as national treatment) over time could be regarded as being in 
breach of both Articles V and XVII in terms of pace and coverage. 
4. VI.3.4 Paragraph 2:  Meaning of «a wider process of economic integration» 
98. Paragraph 2 states that the evaluation of an ag reement's consistency with Article V:1(b) may 
also take into account its relationship to «a wider process of economic integration or trade  TN/RL/W/8/Rev.1 
 Page 25 
 
 
 liberalization» among the parties to the agreem ent, which has raised two issues, namely the 
interpretation of «a wider proc ess of economic integration» and the relationship between the 
compliance of an agreement with Article V and the existence of such a process. 
99. It has been argued that «wider process of ec onomic integration» could be construed as one 
involving the elimination of barriers to trade not only in services but also in goods,62 as well as the  
integration of government regulat ory measures (through harmoniza tion or mutual recognition) among 
the parties. 
100. In the presence of such a «wider process of economic integration», two views have been 
advanced as to its meaning in terms of RTA co nsistency assessment:  either the threshold of 
permissible discriminatory measures could be lower,  or the time-frame for a parallel liberalization of 
trade in goods could affect the «reasonable time-frame» for liberalization of trade in services. 
5. VI.3.5 Paragraph 3:  Scope of the flexibilit y allowed to agreements involving developing 
countries 
101. Subparagraph V:3(a) allows «flexibility» to the parties to an agreement that involves 
developing country Members in meeting the conditions  of paragraph 1 (particularly with respect to 
subparagraph (b)).  This flexibility is to be grante d «in accordance with the level of development of 
the countries concerned, both overall and in individual sectors and subsectors». 
102. The main issue is whether such flexibility should  be clearly defined.  In particular, doubts 
remain on the following: 
• whether the flexibility applies to both the re quirements for «absence or elimination of 
substantially all discrimination» and fo r their elimination within a «reasonable 
time-frame»;   
• whether the flexibility provided for meeting th e requirements for «substantial sectoral 
coverage» under Article V:1(a) is limite d by the emphasis on Article V:1(b) 
requirements, and if so, how much;   
• whether, in the case of an agreement comprising both developed and developing 
country Members, flexibility would be extende d to the services regimes of countries 
other than developing countries «in accordance with the level of development of the 
countries concerned». 
103. Subparagraph 3(b) provides that, notwithstanding paragraph 6, in the case of an agreement 
involving only developing countries, «more favourable treatment may be granted to juridical persons 
owned or controlled by natural persons of the partie s to such an agreement.»  It has been suggested 
that some limitations and/or conditions may be a ttached to that provision (e.g., by reserving more 
favourable treatment to enterprises that are not globally competitive).  It has been noted that 
favourable treatment under Article V:3(b) should be interpreted in conjunction with Article V:3(a), 
which modulates the preferential treatment in ac cordance with the level of development of the 
countries and their competitiveness in trade in services. 
6. VI.3.6 Paragraph:4:  Methodology to assess an EIA's trade effects vis-à-vis  third parties 
104. Paragraph 4 stipulates that parties must ensure that the agreement does not «raise the overall 
level of barriers» to trade in services with respect  to third parties «within the respective sectors or 
subsectors compared to the level app licable prior to such an agreement». 
                                                      
62 That argument finds support in the drafting history of the paragraph. TN/RL/W/8/Rev.1 
Page 26  
 
 105. Identifying the appropriate method for determin ing the change in the «overall barriers to 
trade» in services  against third parties remains the primary concern with regard to this provision.  
Differences in regulatory mechanisms across countries and the absence of detailed trade data on 
services impede a significant evaluation of the level of barriers in effect be fore the establishment of 
the RTA. 
106. It has been observed that although, in theory, all barriers could be converted into tariff 
equivalents in order to arrive at an average tariff for the parties, in practice, such an exercise would 
encounter significant data and methodological problems.  Another approach would be to prevent any 
reduction of either the level, or growth, of trade in any sector or subsector below a historical trend.63 
107. The discussion on how greater economic integration among the parties could impact third 
party trade has drawn attention to one particular situation:  the extension of MFN exemptions by a 
customs union to its area of enlargement .  More specifically, this situation raises three different 
questions, namely how to classify such exemptions, how  to deal with their trade effects, and the legal 
procedures involved. (see Section IV.2.4.) 
108. Regarding the classification issue, the extension of an MFN exemption to an enlarged area 
has been viewed either as a simple change in the geographic scope of the exemption or, alternatively, 
as a new exemption.  It has been argued that an exemption of an entirely different character to the 
original one had been created and that acceding parties remain Members of the WTO in their own 
right so that any changes to their schedules would c ount as a new measure.  The classification of such 
measures as "new" or, alternatively, "unchanged" MFN exemptions would affect the legal procedures 
involved. 
109. Regarding the trade effects of the extension of an MFN exemption, it has been suggested that 
it was irrelevant to address the question of whether over all barriers to trade had been raised as a result, 
given that such situation had to be  dealt with under different legal pr ovisions.  Conversely, it has been 
argued that, as a first step, there was a need to examine whether barriers had been raised and, if so, an 
overall evaluation of the situation should be made.64  
110. Other questions yet to be discussed with re gard to this provision are the following: 
• Under what circumstances can an EIA entail changes to the level of barriers to trade 
in services with Members outside the EIA? 
• Are these changes related to some forms of harmonization/alignment among 
members to the EIA as to their respective trea tments of third parties, in a way similar 
to that envisaged in the external trade regime of customs unions for goods? 
• Does this relate also to the concept of a «wider process of economic integration»? 
• What does the existence of «a wider process of economic integration» imply for the 
«overall level of barriers» against third parties? 
 
                                                      
63 In cases where data on trade in services is unavailable the changes in the volume of trade could be 
measured by data on domestic economic activities.  Othe rwise, data from e.g. balance of payments, stocks of 
foreign direct investment and domestic industries could be used for purposes of evaluating the level of barriers.  
64 Namely, the negative effects of the extended MFN exemption would have to be balanced with the 
trade facilitation brought to all WTO Members by the enlargement of a customs union in terms of a larger 
market and a single regulatory regime.  TN/RL/W/8/Rev.1 
 Page 27 
 
 
 7. VI.3.7 Paragraph 6:  Definition of «substantive business operations» 
111. Paragraph 6 provides that a third-party service supplier, legally recognised as a juridical 
person by an RTA party, is entitled to equivalent treatment granted within the agreement, provided 
that it engages in «substantive business operations» in  the territory of the parties to that agreement.65 
112. The main issue in this respect is the need to balance the requirements attached to «substantive 
business operations», so that they do not undermin e the entitlement of third party suppliers to the 
same benefits as those of the parties while prev enting the granting of equi valent treatment to non-
established firms, or to firms which do not participate substantively in commercial transactions.  The 
term «business operations» has been considered to c over production, distribution, marketing, sale and 
delivery of a service, as provided for in Article  XXVIII:(b).  Disagreement s ubsists on whether third-
party suppliers are entitled to a trea tment equivalent to that granted to the parties in cases (i) where 
only a branch (instead of a head office) has been established in a party to the agreement, and (ii) 
where no, or only minimal, trade take s place with the other RTA partners. 
113. Doubts still remain on whether the term «substantive business operations» is meant to 
distinguish a service supplier producing services from one selling services; or a service supplier 
actively producing and/or selling services from one wh ich is merely legally established but without as 
yet any production and sales activities; or yet betw een service supplies who may be "carrying on" a 
service (without being formally established) fr om those who are properly legally established. 
VII. INTERACTION BETWEEN REGIONAL TRADE AGREEMENTS AND THE 
MULTILATERAL TRADING SYSTEM 
A. THE BUILDING BLOCK /STUMBLING -BLOCK DEBATE  
114. In the traditional, conceptual debate on "regio nalism vs. multilateralism", it has been argued 
that RTAs, by moving generally at a faster pace than the MTS and sharing its goals, represent a way 
of strengthening the latter.66,67  The positive effects of RTAs on  the integration of developing 
countries in the world economy are also usually noted. 
115. These views have been contested on the grounds  of the fundamental changes observed in the 
geographical scale and trade-policy scope of the RTA pr ocess.  It has been argued that the impact of 
these changes, coupled with the lack of flexible accession provisions in many RTAs hampers their 
effectiveness in contributing to the growth of wo rld trade and the traditional synergies between the 
RTA and multilateral processes. 
B. OVERLAPPING AND NETWORKS OF RTA S 
116. It has been observed that overlapping RTA membership68 impacts on trade and investment 
patterns; increases the complexity of RTAs, and magnifies negative effects on trade of complex and 
varying methods of determining regional content thro ugh preferential rules of origin.  In addition, it 
                                                      
65 The concept of «substantive business operations» in services is equivalent to the rules of origin 
requirements in the goods area.  
66 This view is expressed in Regionalism and the World Trading System , WTO Secretariat, 1995.   
67 A study by the WTO Secretariat showed that there had been a definite trend toward broader as well 
as faster market access liberalisation of non-tariff measures in RTAs, in parallel to developments in the MTS (Inventory of Non-Tariff Provisions in Regional Trade Agreements,  WT/REG/W/26, para. 32). 
68 Membership to RTAs overlaps when individual countries participate in various distinct bilateral or 
plurilateral RTAs. TN/RL/W/8/Rev.1 
Page 28  
 
 has been argued that when diagonal cumulation is applied within a RTA network,
69 the preferential 
nature of any individual RTA is extended to parties to other RTAs, without any legal basis; 
furthermore, such treatment is discriminatory, sinc e some third parties to the original RTA – those 
participating in the diagonal cumulation scheme – benefit from preferential treatment, while other 
third parties – those not participatin g in the scheme – are not eligible. 
117. Conversely, it has been argued th at the constitution of RTA netw orks acts as a positive force 
for the multilateral system.  Parties to indivi dual RTAs within a ne twork move toward the 
harmonization of rules of origin with the view to greater integration.  Diagonal cumulation schemes 
under preferential rules of origin regimes reduce ba rriers and facilitate trade among participating 
economies, by simplifying and harmonizing customs procedures. 
C. EFFECTS OF THE EXTENSION OF TRADE POLICY AREAS REGULATED THROUGH RTA S 
1. VII.3.1 Trade regulatory process 
118. It has been argued that the current trend towards the creation of self-contained regional legal 
frameworks within RTAs is likely to lead to a progr essive erosion of the multila teral legal framework.  
While the impact of regional trade policy disciplin es differing from those under the WTO Agreements 
is practically impossible to jauge, it has been observed that their development could lead to Members 
forgoing some of their WTO rights when becoming parties to an RTA.  An example cited in this 
context is the fact that some RTAs provide for th e use of competition or anti-trust policy measures in 
intra-trade, in cases where anti-dumping measures w ould apply to third parties.  It has been argued 
that the maintenance of a dual system (of anti-du mping duties for third parties and competition policy 
among RTA parties) can create distortions where different criteria and conditions apply to the 
invocation of such measures. 
119. Conversely, the potential benefits to be gathered from the development and application of 
trade disciplines in individual RTAs or RTA networ ks have been highlighted, in particular their 
potential contribution to further multilateral liberalization.70  There is wide recognition, however, that 
there is a need to find ways to coordinate different approaches to particular problem areas or trade 
disciplines developed regionally, so that they in teract positively with the progress of multilateral 
disciplines in those areas.  Contingency protection instruments,71 technical barriers to trade and 
sanitary and phytosanitary measures have been identified as areas to be considered in this respect, 
given the potential impact of such  measures on third-party trade. 
2. VII.3.2 Dispute settlement 
120. Another area of growing concer n refers to the effects of the dispute settlement provisions 
contained in "new generation" RTAs, which could bu ild jurisprudence conflicting with that of the 
WTO.  This issue has raised in pa rticular with respect to RTA clause s providing that, in the event of 
inconsistency, RTA rules prevail over WTO rules.  It has been argued that this could result in a 
diminution of the rights that the parties had under th e WTO in relation to their trade with one another.  
It has however been noted that such situation was not contemplated in the language calling for RTA 
rules to prevail in the event of inconsistency; that language was geared toward  situations in which the 
RTA provisions went beyond WTO disciplines.  
                                                      
69 RTA networks are clusters of RTAs, each with si milar, if not identical, trade policy disciplines, 
developed in parallel. 
70 This reflects the "laboratory" role of RTAs. 
71 For a review of contingency instruments as provided for in a number of RTAs, see WT/REG/W/26, 
Annex VI, paras. 39-53.  TN/RL/W/8/Rev.1 
 Page 29 
 
 
 121. Also, the argument that parallel dispute settle ment procedures could nullify or impair WTO 
rights of third parties has been contested on the gr ounds that such procedures concerned trade between 
the parties and not trade with third parties. TN/RL/W/8/Rev.1 
Page 30  
 
 ANNEX 
A Brief Account of GATT/WTO Rules and Procedures on RTAs
 
 
WTO provisions governing Members' participation in customs unions, free-trade areas 
(FTAs), and interim agreements are contained in paragraphs 4-11 of GATT Article XXIV .  During the 
Uruguay Round, a number of provisions contained in th e original Article XXIV, drafted in 1947, were 
clarified or interpreted, as contained in paragraphs 1-12 of the 1994 Understanding. 
Rules with respect to reciprocal (tariff and no n-tariff) preferential arrangements on trade in 
goods among developing countries are found in paragraphs 1, 2(c), 3(a & b) and 4 of the Enabling 
Clause . 
GATS Article V  lays down the rules governing economic integration agreements in the area of 
trade in services, including those implemented in stages. 
Notification requirements 
WTO Members are required to notify the RTAs they conclude: 
«Any contracting party deciding to enter into a customs union or free-trade area, or an interim 
agreement … shall promptly notify …» [GATT Article XXIV:7(a)] 
«Any contracting party taking action to introduce an arrangement … shall:  (a) notify …» 
[Paragraph 4(a) of the Enabling Clause] 
«Members which are parties to any agreement referred to in paragraph 1 shall promptly notify 
…» [GATS Article V:7(a)] 
Provision of information 
Members are required to submit information on their agreements: 
«Any contracting party deciding to enter into a customs union or free-trade area, or an interim 
agreement … shall make available to [the  CONTRACTING PARTIES] such information 
regarding the proposed union or area as will enable them to make such reports and 
recommendations to contracting parties as they may deem appropriate.» [GATT Article XXIV:7(a)] 
«Any contracting party taking action to introduce an arrangement … shall:  (a) … furnish [the 
CONTRACTING PARTIES] with all the information they may deem appropriate relating to 
such action.» [Paragraph 4(a) of the Enabling Clause] 
«Members which are parties to any agreement referred to in paragraph 1 … shall also make 
available to the Council [for Trade in Services] such relevant information as
 may be 
requested by it.» [GATS Article V:7(a)] 
These legal texts do not characterize what the information to be provided to the WTO by 
RTA participant Member s should encompass. 
Periodic reporting 
Periodic reporting on the operation of custom s unions and FTAs was introduced by the GATT 
Council in 1971.  During several years thereafter, reports of varying comprehensiveness were 
submitted and considered by the Council, though gene rally not attracting much attention.  The 1994 
Understanding, in its paragraph 11, reiterated the obligation of providing such biennial reports.   TN/RL/W/8/Rev.1 
 Page 31 
 
 
 However, no existing record details the objectives pursued in 1971, and no further explanation was 
provided in the 1994 Understanding. 
Multilateral surveillance  
RTAs notified to the WTO are subject to surveill ance in various Bodies, at various levels of 
depth and complexity, depending upon which prov ision the notifying Member avails itself of: 
• No GATT 1947 provision did textually refer to any kind of "examination" or 
"review" of notified RTAs.  As noted ab ove, Article XXIV:7(a) foresees that 
Members will need information «to make such reports an recommendations … as 
they may deem appropriate», and requires RTA parties to make such information 
available to them.  A practice has been developed of mandating a working party to  
«examine in the light of the relevant provisions of the GATT» each RTA notified under Article XXIV, and to «report thereon».
72  In the WTO context, paragraph 7 of 
the 1994 Understanding clarified that a ll RTAs notified under GATT Article XXIV 
shall be «examined … in light of the relevant provisions of GATT 1994 and 
paragraph 1 of this Understanding» and that  a report shall be s ubmitted to the CTG 
with «findings in this regard».73  The 1994 Understanding also restated a neglected 
GATT procedure relating the periodic reporting on the operation of RTAs covered under Article XXIV.  
• The Enabling Clause (paragraph 4(b)) envisions the possibility of bilateral or 
multilateral consultations in the case of RTAs among developing countries in the area 
of trade in goods. 
• As to RTAs in the area of trade in serv ices, the wording of GATS Article V:7(a) 
makes it clear that, whenever so decided by the Council for Trade in Services (CTS), an individual EIA will undergo examination with the aim «to report … on its consistency» with GATS Article V.
74 
RTA examination procedures under the GATT 
For RTA seeking legal cover under Article XXIV of the GATT 1947, the process consisted of 
the following steps: 
• The notification of an agreement (of which the text was also made available) was 
considered by the Council, which mandated the examination to a working party and 
invited contracting parties to ask written questions to the parties and these to reply to 
them, also in writing. 
• Once a formal document was produced with all these questions and replies, the 
working party began its work. 
• Working party meetings (usually with the participation of parties' experts from 
capitals) comprised a further exchange of questions and replies, political statements 
and legal comments.  Sometimes, the partie s submitted further information in writing 
(usually, statistics).  This information wa s in some cases reproduced in a formal 
document. 
• The working party's report on the examina tion, once agreed, was transmitted to the 
Council, for adoption. 
                                                      
72 This was the standard text in the terms of reference of GATT working parties. 
73 Today, similar language is found in the standard terms of reference for the examination of individual 
RTAs notified under GATT 1994. 
74 This is also reflected in the correspondin g terms of reference for the examination. TN/RL/W/8/Rev.1 
Page 32  
 
 The process was confidential, internal to th e working party, except for the documents 
produced and the agreed report.  There were no minutes  of the debates.  Interested contracting parties 
had to request membership in each working party;  in general, only a few contracting parties (and 
usually the same) were active in  RTA-related working parties. 
Within those common procedures, each working party decided on its methods of work and 
these varied.  The format of working party reports reflected those differences: some favoured a more 
descriptive approach of the work done, mixing factual information and judgments on consistency, 
while others had a more structured approach in line with Article XXIV provisions/requirements.  
Although, in most cases, working party conclusi ons merely recorded divergent views on the 
assessment of the RTA's full compatibility with the rules (usually by summar izing elements detailed 
in previous sections), these could take up  a single paragraph or a whole section. 
Current RTA examination procedures 
Today, the process through which RTAs are dealt with after its notification and distribution of 
its text has changed, partly because of developments  in WTO rules and partly as a consequence of the 
creation of the CRTA and the procedures developed therein: 
• The notification of an agreement (together w ith its text) is considered by the CTG (if 
notified under GATT Article XXIV), the CT S (if notified under GATS Article V) or 
the Committee on Trade and Development, if notified under the Enabling Clause).  If 
examination of the agreement is needed, the relevant body adopts the terms of 
reference for the examination and transf ers the examination task to the CRTA.
 75 
• The parties to the RTA are invited to submit preliminary information on the 
agreement in the form of a Standard Fo rmat, which is pub lished as a formal 
document.  This is the initial step of what is called the "f actual" examination. 
• During (at least one or two) CRTA regular sessions, there is an exchange of oral 
questions and replies on the examined RTA, as well as more general statements by 
the parties and other Members.  Detaile d minutes are produced on each meeting 
devoted to the RTA examination, and published as formal documents. 
• Between each of those meetings, usually a round of additional written questions and 
replies takes place.  These are also published as a formal document. 
• Once the CRTA feels that the factual part  of the examination has concluded, the 
Secretariat is requested to draft a report on the examination, as the basis for consultations among Members (in open-ended informal CRTA meetings. 
• The consensual CRTA report on a given agreement would then be sent to the WTO 
body which had mandated the examination, for adoption. 
Information supplied by the parties, as well as questions and replies exchanged among 
Members in writing are issued as official, restricted WTO documents and, later, derestricted.
76  The 
same applies to proceedings of formal examinati on debates, where Members are identified in their 
interventions.  The CRTA formal sessions are open  to Members and observers, and consultations on 
draft reports are held as informal CRTA meetings (open to all Members). 
__________  
                                                      
75 In the case of services agreements and those notified under the Enabling Clause, examination is not 
automatic but should be decided by Members.  To date, decision to submit RTAs to examination was taken for 
all EIAs notified and already considered by the CTS, and for a single RTA notified under the Enabling Clause. 
76 The Standard Format is circulated as an unrestricted document.