RESTRICTED
WORLD TRADE WT/REG/W/21
28November 1997
ORGANIZATION(97-5238)
Committee onRegional Trade Agreements
SYSTEMIC ISSUES RELATED TO"SUBSTANTIALLY ALL THE TRADE"
Background Note bytheSecretariat
1. AttheThirteenth Session oftheCommittee onRegional Trade Agreements, theSecretariat
wasrequested toprepare background documentation toassist theCommittee initsconsideration of
systemic issues related totheconcept of"substantially allthetrade".
2. Thisnoteisdevoted tothedrafting history ofArticle XXIV oftheGATT 1947 andofthe
Understanding ontheInterpretation ofArticle XXIV oftheGATT 1994, withrespect tothatconcept.
Subsequent Secretariat 'snotes onother aspects related to"substantially allthetrade" willbecirculated
asaddenda tothisdocument.
_______________
DRAFTING HISTORY OFLEGAL TEXTS
Article XXIV oftheGATT 1947
3. Article38ofthefirstdraftCharteroftheInternationalTradeOrganizationoftheUnitedNations1
defined acustoms union as"thesubstitution ofasingle customs territory fortwoormore customs
territories, sothatalltariffs andother restrictive regulations ofcommerce asbetween theterritories
ofmembers oftheunion aresubstantially eliminated andthesame tariffs andother regulations of
commerce areapplied byeachofthemembers oftheunion tothetrade ofterritories notincluded in
theunion." Thissame language wasmaintained throughout thevarious versions leading toArticle 42
oftheDraft Charter, concluded inOctober 1947.
4. Asubstantial revision ofArticle 42oftheDraft Charter tookplaceattheplenary United Nations
Conference onTrade andEmployment, heldinHavana in1947-48. Thedefinition ofacustoms union
wassignificantly changed, andanewparagraph wasadded which contained adefinition ofafree-trade
area. Thenewlanguage readasfollows (with deleted language inbrackets andinserted language
underlined):2
1Thisfirstdraft Charter, based mainly onaproposal bytheUnited States, wasprepared atthemeeting of
thePreparatory Committee oftheUnited Nations Conference onTrade andEmployment inLondon inOctober-
November 1946 (UN document E/PC/T/33).
2Havana Charter, Article 44(modifications having been indicated inE/CONF.2/C.3/78, pages 15,16).WT/REG/W/21
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"4. Forthepurposes ofthisCharter:
(a) Acustoms union shallbeunderstood tomean thesubstitution
ofasingle customs territory fortwoormore customs
territories, sothat
(i) [all] tariffs andother restrictive regulations of
commerce (except, where necessary, those permitted
under Section BofChapter IVandunder Article 43
[asbetween theterritories ofmembers oftheunion
aresubstantially eliminated] areeliminated on
substantially allthetrade between theconstituent
territories oftheunion oratleastonsubstantially all
thetradeinproducts originating insuchterritories and
(ii) substantially thesame tariffs andother regulations of
commerce areapplied byeachofthemembers ofthe
union tothetrade ofterritories notincluded inthe
union, subject totheprovisions ofparagraph 5;
(b) Afree-trade areashallbeunderstood tomean agroup oftwo
ormore customs territories inwhich thetariffs andother
restrictive regulations ofcommerce (except, where necessary,
those permitted under Section BofChapter IVandunder
Article 43)between such territories areeliminated on
substantially allthetradeinproducts originating inconstituent
territories ofthefree-trade area."
Thedrafting history doesnotindicate thereasons forthechanges relating tothe"substantially allthe
trade" language.3
5. On24March 1948, theCONTRACTING PARTIES signed aSpecial Protocol amending
Article XXIV oftheGATT inlightofthefinalversion ofArticles 42to44oftheHavana Charter.
Therelevant language inthepresent textmirrors thatagreed tointhisSpecial Protocol. During the
GATT Review Session in1954-55, nothing directly related totheissueof"substantially allthetrade"
wasdiscussed.
3TheonlyexplanationprovidedinArchivesReportsofCommitteesandPrincipalSub-CommitteesoftheInterim
Commission fortheInternational Trade Organization, United Nations Conference onTrade andEmployment,
Havana, Cuba, September 1948, page 52,wasthat"thedefinition ofacustoms union ...wasamended anda
definitionofafree-tradeareawasadded";thisexplanationhadpreviouslyappearedindocumentE/CONF.2/C.3/78,
page7,para. 27.Language similar to"substantially allthetrade" appeared inthedefinition ofacustoms territory
(paragraph 2oftheArticle), forwhich aStudy Group hadbeen formed (E/CONF.2/C.3/SR.44) toconsider
thechoice ofwording, i.e."asubstantial partof"or"substantially all";theonlyapparent subsequent reference
tothissubject wasastatement intheHavana records (E/CONF.2/C.3/SR.47) that"Paragraph 2assubmitted
byWorking Party 8wasapproved."WT/REG/W/21
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Understanding ontheInterpretation ofArticle XXIV ofGATT 1994
6. During theUruguay Round, Article XXIV wasfirstconsidered within theNegotiating Group
onGATT Articles, where delegations benefitted from twonotes bytheSecretariat offering abrief
description ofthedrafting history ofArticle XXIV, along withanaccount ofsalient problems that
hadarisen withrespect totheArticle 'sinterpretation andapplication.4
7. Areview of"substantially allthetrade" wasconsidered bytheNegotiating Group, with
delegations pointing tobothqualitative andquantitative dimensions oftheterm. Onesuggested
interpretation wasthattheterminvolved anassessment "ofthepercentage oftrade covered bythe
agreement"; itwasalsocontended that"allparticipants inthepreferential trade agreement should
contribute totheliberalisation"; another viewwasthatthetermwould bedifficult toclarify, "given
thevariety ofsituations encountered" andtheneed tointerpret theterm"inthelightofdifferent
circumstances", depending onsuchfactors as"whether acustoms union wasformed between developed
countries orbetween developed anddeveloping countries".5
8. ANotebytheChairman, dated 21May1990, reflected thestateofdiscussions onArticle XXIV.
Aproposed qualification oftheterm"substantially allthetrade" wasincluded, asfollows: "The
requirement thatduties andother restrictive regulations ofcommerce beeliminated withrespect to
'substantially allthetrade'cannot besatisfied ifsuchelimination doesnotapply toanymajor sector
ofeconomic activity." Thisqualification brought mixed reactions, withsome participants noting that
ifthedefinition were tobeuseful, theterm"major sector" would havetobeclarified, perhaps by
specifying certain criteria, which didnotseem possible. Itwasalsosuggested thattheformulation
oftherequirement should beinpositive rather thannegative terms, specifying thattheelimination
ofduties andother restrictive regulations ofcommerce should becomprehensive.6
9. Adraftdecision onArticle XXIV, based oninformal consultations ofNegotiating Group I,
wascirculated on24September 1990. Thisdraftdecision contained thefollowing language relating
totheterm"substantially allthetrade":
"Preamble
...Recognising thecontribution totheexpansion ofworld trade made bycloser
integrationbetweentheeconomiesofthepartiesto[customsunionsandfree-tradeareas];
Recognising alsothatsuchcontribution isdiminished ifanysector oftradeisexcluded
fromtheelimination between theconstituent territories ofduties andother restrictive
regulations ofcommerce; ...
Agree asfollows:
...Article XXIV:8
4Documents MTN.GNG/NG7/W/13, of11August 1987 andMTN.GNG/NG7/W/13/Add.1, of10August
1988.
5MTN.GNG/NG7/7, para. 17.
6Note ontheMeeting of19-21 June 1990, MTN.GNG/NG7/19, para. 26.WT/REG/W/21
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...9.Inconsidering theconformity ofacustoms union orfree-trade areawiththe
requirements ofArticle XXIV:8 theCONTRACTING PARTIES shallinparticular
takeintoaccount whether anymajor sector oftrade isexcluded fromtheelimination
ofduties andother restrictive regulations ofcommerce."
10. Informal consultations during thecourse ofOctober 1990ledtoarevised draftdecision,7whose
Preamble wasreworded toreadinpart: "Recognising alsothatsuchcontribution isincreased ifthe
elimination between theconstituent territories ofduties andother restrictive regulations ofcommerce
extends toalltrade, anddiminished ifanymajor sector oftradeisexcluded". Thislanguage wasretained
andappears inthePreamble totheUnderstanding ontheInterpretation ofArticle XXIV ofGATT 1994.
Theproposed language specific toArticle XXIV:8 was,however, deleted.
7Therevised draft decision, dated 18October 1990, wasattached totheNote ontheMeeting of1,15and
19October 1990, Negotiating Group onGATT Articles (document MTN.GNG/NG7/22).