RESTRICTEDWORLD TRADE
ORGANIZATIONTN/RL/M/9
10 July 2003
(03-3726)
Negotiating Group on Rules
SUMMARY REPORT OF THE MEETING
HELD ON 11 JUNE 2003
Note by the Secretariat
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 11 June 2003.
A. ADOPTION OF THE AGENDA
2. The Group adopted the following agenda:
A. ADOPTION OF THE AGENDA
B. REGIONAL TRADE AGREEMENTSC. OTHER BUSINESS
B. REGIONAL TRADE AGREEMENTS
3. The Chairman noted that he would start the meeting in formal mode, before moving to an
informal debate on "Regional Trade Agreements (RTAs) Transparency Issues".  The formal debate
would focus on S & D proposals, and the three submissions received very recently.
S & D proposals
4. The Chairman informed the Group that the Chairman of the General Council had referred to
the Group a number of specific S & D proposals, of which three were RTA-related.  He had requested
the Group's consideration of the proposals "as soon as possible" and on the basis of a "specifically
drawn up schedule of work".  Further, the Group was requested to report on progress made to the last
meeting of the General Council before the Cancún Ministerial Conference.
5. The Chairman read the three RTA-related S & D proposals submitted by the African Group
(document TN/CTD/W/3/Rev.2) and by the LDCs  (document TN/CTD/W/4/Add.1).  He noted that
two of them were identical and that they all referred to the Understanding on the Interpretation of
Article XXIV of the GATT 1994 .  He regretted that the late announcement that this question would be
addressed at that meeting had not made it possible for the proponents to be present.  His intention, at
that meeting, was to invite the Group to start the pr ocess.  Under "Other Business", he would propose
future steps to fulfill the request made by the Ch airman of the General Council, in particular the
possibility to hold an additional meeting in July.
6. Expressing their understanding for the proponents' absence, participants noted that their
reactions to the proposals made would be of a very preliminary nature.  The legitimacy of the
proponents' concerns was generally recognized.  Some participants considered that finding solutions to
these S & D proposals merited high priority, as they believed that the current structure of themultilateral trading system contained some imbalances and lacked sufficient flexibility to take into
account different levels of development.  In their view, a positive response to the proposals would
renew the confidence of developing countries and LDCs in the multilateral trading system.TN/RL/M/9
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7. Though participants noted that the two identical proposals (by the African Group and the
LDCs) did not appear to add substance to the existing  legal situation, most of them recognized that a
reaffirmation of existing rights could be of value to some Members; one participant was however of
the view that a proposal without value added should not be accepted.  The Group requested
proponents to provide the concrete background of these proposals.  It was also noted that any S & Dproposal intending to clarify the relationship between the Enabling Clause and Article XXIV of the
GATT 1994 should be dealt with in the context of the Group's discussion on legal issues and after the
Cancún Ministerial Meeting.
8. As to the proposal related to special treatmen t for LDCs in arrangements with developed or
developing countries, participants were unanimous in requesting proponents to clarify the nature of
the flexibility they were seeking.  The point was made that while the Enabling Clause did not apply to
RTAs between developed and developing countries, preferential treatment for LDCs was alreadyprovided for in paragraph 2(d) of the Enabling Clause.  It was also noted that some RTAs among
developed and developing countries had been dealt with under the waiver provisions in Article IX:4
of the WTO Agreement;  in that context, proponents were requested to explain whether any linkage
existed between that proposal and another proposal made regarding waiver application by LDCs.
9. The Chairman highlighted the need for the proponents' presence for the debate to progress,
while noting the Group's understanding for their absence in light of the clash of meetings;  he would
be  conveying this message to the proponents.  In summing up the preliminary debate, he noted that
the two identical proposals did not appear to pose a problem to participants, as they seemed to re-state
the already existing law, while, at the same time, providing a reassurance vis-à-vis  existing rights, and
he urged participants to consider that point in a positive light.  As to the third proposal, the issue wasmore complicated but there was a readiness to consider ways to operationalize the proposal.  He
would report informally to the Chairman of the General Council that the Group had started
discharging its mandate in a good atmosphere and that he was optimistic that in due course he would
be able to report back in a constructive way.  He finally noted that the Group would revert back to
these issues at its next meeting.
Other issues
10. The Group moved on to have a preliminary exchange of views on three recently submitted
proposals, which due to their late arrival were only available in English.  Participants noted that the
submissions distributed as documents TN/RL/W/114 and TN/RL/W/117 addressed inter alia  a
number of issues raised in the various Chairman's informal papers on RTAs transparency.
11. The proponent of the submission contained in document TN/RL/W/114 observed that the
submission mainly dealt with systemic issues, which had not been substantially visited so far in the
Group.  The proposal built upon GATT Article XXIV:4 and the review mechanism under the
Committee on Regional Trade Agreements (CRTA).  Though RTAs were an alternative window of
trade liberalisation, it was important that they complemented multilateral trade liberalisation; they
should not make the achievement of that goal more difficult, nor occur at the cost of the trade ordevelopment of countries not parties to particular RTAs.  It was thus important to emphasize the basic
principle of RTAs, as enshrined in Article XXIV:4 of GATT 1994, that they were meant to facilitate
trade between the constituent territories and not to raise barriers to trade of other Members.
Formation of RTAs should indeed lead to meaningful welfare gains for the parties; since this required
closer integration between their economies, RTAs should extend to as large a proportion of trade aspossible.  Keeping this in mind, it might be useful to define "substantially all the trade" (SAT) for the
purpose of GATT Article XXIV, in terms of both threshold limits of HS tariff lines and trade flows, at
various stages of implementation of the RTA.TN/RL/M/9
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12. Commenting on certain proposals made to bring the RTAs notified under the Enabling Clause
within the ambit of GATT Article XXIV transparency  mechanism, i.e. to subject the agreements to
review under the CRTA, the proponent stated that this was an issue of some concern to his delegation.
Any attempt to dilute the provisions of the Enablin g Clause would be contrary to the spirit of the
WTO framework and of the Doha Ministerial Declaration.  It was his delegation's belief that it wasnot advisable to change the notification requirement of RTAs under the Enabling Clause and the
existing system of notifying such RTAs to the Committee on Trade and Development (CTD) should
continue.
13. On the issue of transparency of RTAs formed under GATT Article XXIV, the proponent said
that his delegation actively participated in the informal discussions, on the basis of the aide-mémoire
prepared by the Chairman, and felt that a two-step process of notification would be appropriate.  He
added that, in view of the increasingly comprehensive and complex character of RTAs, a prior factualanalysis of the RTA by the WTO Secretariat would be helpful in making Members more familiar with
the various RTA provisions and provide them with an analysis of their impact on the multilateral
trading system.  He suggested that, after the initial review, there could be a fixed periodicity for
review of existing RTAs, depending upon the share of their trade.
14. The proponent continued his presentation of document TN/RL/W/114 highlighting that some
of the existing provisions of preferential rules of origin (PROO) had a negative impact on non-RTA
members, by leading to significant trade diversion and creating barriers to trade.  It would be useful to
arrive at an understanding whereby RTA origin rules would be considered "other regulations of
commerce" and, as such, subject to the criteria set forth in GATT Article XXIV:4 and XXIV:5
(namely, not to raise barriers to trade for non-parties).  He added that certain tests could allowMember to assess compliance with those criteria.  He also pointed at issues relating to fast track
procedures in RTA provisions on sanitary and phytosanitary (SPS) measures and technical barriers to
trade (TBT) as requiring examination with respect to their impact on exports of non-RTA members.
The question of mutual recognition agreements (MRAs) in the context of RTAs equally deserved
careful consideration.  With respect to trade defence measures, he stressed that the primacy of WTOrules should be maintained and, in particular, the MFN character of safeguard duties as provided in
Article 2 of the Agreement on Safeguards; in his delegation's view, the provisions of GATT Article
XXIV did not permit any derogation from MFN treatm ent for safeguard measures.  Another issue that
could be addressed was the possibility of derogation from the standards of safeguard investigations in
actions taken only against RTA members.
15. Finally, the proponent said that the proposition of grandfathering existing RTAs was not in
accord with the overall purpose of the negotiations.  Since the number of RTAs had strongly increasedduring the 1990s and this trend continued, an analysis of the impact of these RTAs on the multilateral
trading system was still needed, by applying to them any improved and clarified RTA provisions.
16. Participants generally shared the proponent's views on the relationship between RTA and
multilateral trade liberalisation, and recognized RTAs' role in assisting developing countries to
integrate into the multilateral trading system.  Various participants also joined the proponent in
supporting the two-stage notification proposal, al though some questioned whether it fully addressed
the problem of timely notification, in particular for developing countries and other Members that had
particular constitutional constraints.  One participant welcomed the timeframe proposed for notifying
changes and the reference made to the WTO Agreement on Import Licensing, but others were of the
view that timeframes remained to be carefully considered.  Clarification was also sought on whethersuch a two-step process would apply to all RTAs.
17. The idea of requesting a factual analysis of notified RTAs to the Secretariat, as advocated in
the paper; met with strong support.  A few participants, however, requested that the role of the
Secretariat be further clarified, and one participant reiterated reservations regarding that proposal.TN/RL/M/9
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Participants found references made to the Trad e-Policy Review Mechanism (TPRM) as meriting
further consideration.  The idea for a periodical summary review of existing RTAs was also
welcomed, but it was noted that this might require modulation on the basis of the type of RTA and on
its country composition.
18. Several participants disagreed with the proponent's view that the fact of directly notifying an
RTA among developing countries to the CRTA would alter parties' rights under the Enabling Clause,
and that changes in the CTD review procedures would entail additional burden for the parties.  In their
opinion, a single-window approach would ensure admini strative efficiency and a better understanding
of RTAs by Members, without prejudicing the na ture of the Enabling Clause or the rights and
obligations of Members under that Clause. Also, noting the inadequacy of CTD reviews, they stressed
that, if carried out in the CRTA, the review would be done on the basis of terms of reference and
procedures adopted by the CTD and could therefore be made less burdensome than those carried outunder Article XXIV.  Further, it was noted that, while any dilution of the provisions of the Enabling
Clause would be contrary to the spirit of the Doha  Ministerial Declaration, this Declaration should not
be subject to an over-restrictive interpretation; in that sense, increased transparency should apply to all
RTAs, including those notified under the Enabling Clause.
19. Other participants shared the proponent’s views regarding RTAs under the Enabling Clause.
One participant said that the interest raised by arrangements notified under paragraph 2(c) of the
Enabling Clause was puzzling, given their generally low significance in terms of trade flows and
potential for trade diversion when compared with the Generalized System of Preferences (GSP)
regimes, also under the Enabling Clause.  Reacting to  that, a participant, noting that the great majority
of high tariffs faced by developing countries were  imposed by other developing countries, said that
the economic importance of an RTA was not the relevant issue in this context.  Another participant,
stressing that RTAs under the Enabling Clause should not face stricter disciplines nor be scrutinized
in the CRTA, proposed that procedures in the CTD be improved, if the Group felt it necessary to
increase transparency.  A number of participants referred to a Secretariat's note entitled Legal Note on
Regional Trade Arrangements under the Enabling Clause , distributed on 13 May 2003 to the CTD as
document WT/COMTD/W/114 as being of relevance to the debate.
20. Concerning the definition of SAT proposed in the submission, some participants inquired how
it could ensure that a sector of the economy was not excluded from the RTA.  Other participants noted
that while this concept referred to trade as a whole and did not provide for a sectoral approach, SAT
could not be simplified into a mathematical formula only, as it contained both quantitative and
qualitative aspects – for example, interlinkages existed between SAT and PROO.  On a more general
note, one participant highlighted the point made in the submission that welfare gains generated by anRTA tended to increase when its coverage was greater.
21. Various delegations welcomed the prominence given to RTA regulatory frameworks in the
submission and agreed that these should not work as barriers to trade for third parties.  One participant
wondered whether the proponent’s principles on some types of "other regulations of commerce"
(ORCs) should also be applied to other ORCs.  It was noted that while trade patterns changed after theformation of an RTA, negative effects on third parties need not be accepted.  However, various
participants expressed caution with regard to the concrete suggestions on how to address the negative
effects that these measures might have.  The proponent's comments on PROO prompted calls for
further consideration of that issue by the Group.  The point was made that PROO also posed problems
for GSP-related trade and that any possible solution would have broader applicability than simplyRTAs' trade.  It was also noted that PROO were problematic not only in RTAs between developed
countries, but also in RTAs between developing countries.  One participant disagreed that systems of
diagonal cumulation were not in conformity with GATT Article XXIV; rather, in his view, these
systems contributed to increase trade.  Various participants noted that while harmonisation and
recognition procedures of TBT and SPS measures might appear to work as trade restrictions, theyTN/RL/M/9
Page 5
generally aimed at facilitating trade.  One participant expressed disagreement with the proponent's
analysis on MRAs and stated that these were justified under the WTO Agreement on TBT and should
not be discussed in the Group.  Regarding trade defence measures, divergent views were expressed on
the extent to which parties to an RTA might appl y ORRCs in their intra-trade, and how these should
relate to WTO rules.  It was noted however that this issue, in particular as it referred to anti-dumpingand safeguard measures, also merited further consideration.
22. On the question of whether or not existing RTAs should be exempted from compliance with
any future new rules, it was generally felt that the question of grandfathering of existing RTAs should
be addressed once the Group had a more concrete outline of possible improvement of the rules.
Referring to the informal paper circulated by the Secretariat on this question, one participant
highlighted the importance of clarifying the temporal application of various WTO rules on RTAs.
23. The proponent reiterated that the proposal aimed at reaffirming the importance of systemic
issues, despite the intensive work being pursued on transparency.  Reacting to some of the comments
made, he noted that, if a significantly high threshold was agreed to define SAT, there might not be a
need for dealing with any possible sectoral exclus ion.  On the proposal for a two-step notification
process, he clarified that it aimed at taking into account domestic legislative constraints, and that
information provided at that stage should not surpass the level of detail contained in press
announcements made at the time of signing RTAs.  As to the TPRM-type periodicity mechanism, an
idea could be to link it to trade flows.  On gran dfathering, he cautioned against any exemption being
provided to existing RTAs, since these represented at least 50 per cent of world trade.  Regarding
RTAs under the Enabling Clause, he observed that, because of their relatively small number, a review
in the CRTA would not add any value to the situation prevailing at that date; rather, it would be more
advisable to review the CTD procedures.  The question remained whether a notification of RTAs
under the Enabling Clause to the CRTA would be the first step for a more rigorous test of these
agreements.  He finally reiterated that RTAs under the Enabling Clause, which basically consisted of
an exchange of tariff preferences, had a different meaning than those under GATT Article XXIV, and
that their review should take place in the CTD.
24. The second submission introduced was contained in document TN/RL/W/116.  The
proponent explained that the submission focused on issues relating to ORCs and ORRCs, as provided
for in GATT Articles XXIV:5 and XXIV:8.  As an overarching principle for RTAs, Article XXIV:4
provided that RTAs should not be used as a means to raise barriers to trade for non-parties.  Articles
XXIV:5 and XXIV:8 were central to the assessment of the compatibility of individual RTAs with this
overarching principle.  However, neither of th e two provisions contained a definition of what
constituted an ORC or an ORRC, nor of how these terms should be interpreted in the examination ofRTAs.  Since these lacunae had created a great deal of difficulties in past examinations, clarification
and improvement of those GATT Articles should be an important part of the negotiations on rules
relating to RTAs.  The main purpose of the submission was to elaborate on some key questions
relating to ORC and ORRC, most of which had already been raised not only in individual RTA
examinations but also in discussions on "systemi c issues" in the CRTA.  The intention was not to
propose solutions to these questions, but to present them in a way that could stimulate further debate.
The first part of the submission contained more general questions on the definition and scope of ORC
and ORRC, and the second part set forth more specific issues relating to individual measures that
might constitute ORC or ORRC.  On the definition and scope of ORC and ORRC, it raised three
questions that might lead the Group to a better understanding of the terms:  (i) what was therelationship between ORC and the more traditional and widely-used term of non-tariff measures; (ii)
how could the scope of the term ORC be defined and could the list of measures contained in the
Standard Format be any reference to such scope; and (iii) whether the use of the different terms of
ORC and ORRC, i.e. the insertion of the word "restrictive" in ORRC, affected their meaning and
scope in any significant way.  In the part dealing with specific issues, questions had been presentedrelating to PROO, standards, safeguard measures and anti-dumping measures.  The central questionTN/RL/M/9
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was whether these measures fell within the scope of ORC or ORRC and how to address the negative
effects of these measures on the trade of non-members of RTAs.  The questions contained in the
submission were not intended to be exhaustive, and the proponent was fully aware that there might be
other important questions that had bearings on ORC and ORRC.
25. Participants noted that the submission related to major issues and that it should serve as a
basis for further consideration once the Group moved into deliberations of a substantive and legal
nature.  The Chairman proposed, and the Group so agreed, to defer the consideration of this
submission to a later date.   The proponent noted his delegation's understanding with respect to the
Group’s time pressure in light of the Cancún Ministerial Meeting; the main objective of paper was to
revive discussions after a period that lacked activity.
26. Five participants had sponsored the third submission (document TN/RL/W/117).  One
sponsor, speaking on behalf of all the proponents, stat ed that the purpose of the submission was to set
out concrete practical views on how to achieve greater transparency in relation to RTAs, in line with
the format used in the informal papers by the Chairman.  In relation to when to notify, the submission
advocated a two-stage notification process, and the need for a more prescriptive approach for customs
unions in order to allow time for negotiations provid ed in GATT Article XXIV.  As to what to notify,
the submission set out specific items of information that should be notified at both of the notificationstages and highlighted the need for tariff and trade da ta, in particular the identification of which tariff
lines were granted MFN, preferential or zero tariff rates.  These minimal items of information were
not unduly onerous for RTA parties, as this kind of information should be available to negotiators
before they engaged in RTA discussions; at the same time, their provision would greatly enhance the
ability of WTO Members to discharge the systemic obligation to ensure the complementarity of RTAswith the multilateral trading system and would also be of interest to the private sector.  As to where to
notify, the proponents had set out their views in concrete terms in the submission, in particular that for
consistency reasons all RTAs should be notified to the CRTA given its expertise, institutional
memory and continuity.  The co-sponsors were fully committed to the mandate to clarify and improve
disciplines and procedures under existing WTO provisions applying to RTAs; the views contained inthe submission were moderate and balanced and they hoped that it would contribute to taking the
discussion forward towards an outcome of transparency.
27. Another co-sponsor stressed the importance of putting down some ideas on various key
transparency questions, not because the co-sponsors believed they had the complete answers but
rather because they attached fundamental importance to the question of transparency.  It would be
inconceivable that the Group deliver its mandate without significant improvements to the current
situation on the "fog" of RTAs.  Lifting this fog would be a significant outcome of the negotiations.He highlighted three features of the submission, which were not fully dealt with in the informal paper
by the Chair, namely the two-stage process for notific ation; the need to make the factual report by the
Secretariat as comprehensive as possible and include detailed information on the scope and depth of
liberalization; and the benefits to be gained in terms of transparency from developing a more
consistent practice with respect to where RTAs were notified.  While views differed on that, the co-sponsor was of the view that a distinction existed between procedures relating to transparency and the
legal standard for WTO consistency.  The submission dealt only with the former; and the benefits
flowing from transparency existed whether or not an RTA had been notified pursuant to he Enabling
Clause.  It was with that distinction between tran sparency and legal rules in mind that the proponents
hoped that some common ground could be found in that issue in the future.  By addressing the threeelements contained in the submission, the Group would go a considerable way towards lifting the fog
of RTAs.  Another co-sponsor reiterated that the objective of the submission was to facilitate the
process to achieve an early agreement on one procedural issue, namely transparency of RTAs.  In
light of that, the proposals contained ther ein aimed at being moderate and practical.TN/RL/M/9
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28. The two-stage notification process suggested in the submission prompted comments from
participants similar to those reflected in paragraph 16 above.  One of the co-sponsors noted that the
two-stage notification process would aim at allowing basic information on an RTA to be provided
early in the process; such basic information need not be extremely complete and could be similar to
what had been proposed by the proponent of TN/RL/W/114.
29. While a number of participants welcomed the timeframe proposed for full notification of an
RTA, some indicated that they could not possibl y commit to a deadline expressed in terms of "[X]
days prior to entry into force".  The reference made to notification being made prior to the application
of the preferential treatment was welcomed by some participants; an alternative way was also
suggested to link the timing of notification to the completion of ratification procedures in all RTA's
parties.
30. Divergent views were expressed on the proposed stricter notification deadlines for customs
unions than for free-trade areas (FTAs).  Some participants failed to see why more stringent
transparency requirements should be required from customs unions than from FTAs or any other type
of RTA.  In their understanding, while the formation of a customs union might lead to a modification
of bound rates, GATT Article XXIV:6 and the Understanding referred to GATT Article XXVIII
procedures and defined precisely the timeframes applicable; it was stated there that procedures had tobe commenced before bindings were broken, but not when they were to be completed.  They also
remarked that the formation of FTAs might also imply a modification of applied rates.  Other
participants observed that while FTAs might result in third parties' exports facing a relative
comparative disadvantage, the tariff applicable to them would normally not go up.  It was argued that
there was a distinction between providing relative advantage and actually raising barriers, not onlyreflected in GATT Article XXIV but also in standard WTO language for waivers.  Further, in the
view of some participants, while modification of applied rates by parties to an FTA might have the
same effect as the break of bindings following the formation of a customs union, the legal nature of
the requirements of GATT Article XXIV was fundamentally different.  It was stressed that
differentiated treatment of customs unions and FTAs was both embodied in GATT Article XXIV andreflected in the standard terms of reference a dopted by the Council for Trade in Goods for the
examinations.
31. Participants welcomed the proposals made regarding improvements on the notification of
changes made to RTAs, as well as the detailed suggest ions regarding what to notify at both stages of
the proposed notification process.  Regarding the firs t stage, the point was made that a combination of
information provided by governments to the public in general and of a contact points could represent
a real added value to the existing situation.  Regarding the second stage, some participants noted thatthe precise nature of information on the depth of intra-trade liberalization had to be defined.  Concerns
were expressed regarding the risk that this info rmation might result in a value judgement being made
by the Secretariat; in that context, the distribution by the Secretariat of a mock factual analysis of two
RTAs, as agreed informally by the Group, would help to clarify that question.  One participant
requested that data be provided to allow the Secretariat to calculate the percentage of duty-free tradeagainst the overall trade.  The proposal to request the Secretariat to prepare a draft outline for a factual
presentation on individual RTAs for the services sector, similar to the goods draft outline on goods it
had prepared and distributed informally in February, was generally supported.  The point was made
that divergent views remained on whether discussions relating to the possible submission by
Members, in electronic format, of a consolidated tariff schedule including all applied tariffs (MFNand preferential) were directly relevant to the work of this Group or the work of the Negotiating
Group on Market Access.
32.  Commenting on the proposal that all RTAs, including those under the Enabling Clause, be
notified to the CRTA, participants referred to the views they had expressed earlier on another
submission TN/RL/W/114, as reflected in paragraphs 18-19 above.TN/RL/M/9
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33. Reacting to the comments made on the distinction between customs unions and FTAs, one of
the co-sponsors noted that it aimed at allowing for the compensation requirements provided for in
GATT Article XXIV:6 and in GATS Article V:5, which foresaw an advance notice of 90 days.
C. OTHER BUSINESS
34. Referring to the relevant Airgram, the Chairman noted that S & D proposals relating to
elements in the Group's mandate, other than RTA rules, had been proposed for the agenda of the
Group’s formal meeting on 18-19 June.  That would permit at least a preliminary discussion of the
proposals, and he urged participants to inform the pertinent members of their delegation.  He also
proposed to hold formal meetings of the Group on 21-23 July, to enable the Group to report to the
General Council by the time of its 24 July meeting, which at that moment was the last General
Council meeting scheduled before the Cancún Ministerial.  While an important focus of thosemeetings would be the S & D proposals transmitted by the Chairman of the General Council, they
would also provide an additional opportunity for pursuing work on other issues, as and if desired.
Finally, he noted that in order for a submission to be reflected on the Airgram of the July meetings, it
should be placed in the hands of the Secretariat by noon of 10 July.
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