RESTRICTED
WORLD TRADE WT/REG/W/17/Add.1
5November 1997
ORGANIZATION(97-4835)
Committee onRegional Trade Agreements
SYSTEMIC ISSUES RELATED TO"OTHER REGULATIONS OFCOMMERCE"
Background Note bytheSecretariat
Addendum
1. AttheThirteenth Session oftheCommittee onRegional Trade Agreements, theSecretariat
wasrequested toprepare background documentation toassist theCommittee initsconsideration of
systemic issues related totheconcept of"other regulations ofcommerce".
2. Thisnotedescribes interpretative issues thathavearisen intheGATT years inrelation tothe
expressions "other regulations ofcommerce" (ORCs) and"other restrictive regulations of
commerce" (ORRCs) ascontained inArticle XXIV oftheGATT.
3. Thisnotedoesnotintend tobecomprehensive. Ithasbeenelaborated onthebasisofthereports
oftheworking parties thatexamined thefollowing regional tradeagreements (RTAs): Treaty ofRome
establishingtheEuropeanEconomicCommunity(EC)(BISD6S/70),StockholmConventionestablishing
theEuropeanFreeTradeAssociation(BISD9S/70),EC-IsraelAgreement(BISD23S/55),Australia-New
Zealand Closer Economic Relations Trade Agreement (BISD 31S/170), Accessions ofPortugal and
SpaintotheEC(BISD35S/293),Canada-UnitedStatesFreeTradeAgreement(BISD38S/47),European
FreeTrade Association-Turkey (BISD 40S/48).
4. Theissues highlighted below were, however, alsoaddressed inanumber ofother working
party reports.
________________
LEGAL ELEMENTS INTHE GATT FRAMEWORK
5. TheGATT experience withrespect tothetreatment ofORCs intheexamination ofRTAs shows
twotypes ofproblems. First, there aredifferences ofinterpretation with respect toORCs
(Article XXIV:5(a), 5(b)and8(a)(ii)) ascompared to"other restrictive regulations ofcommerce"
("ORRCs", Article XXIV:8(a)(i) and8(b)). These concepts aregiven separate treatment inthis
document. Second, there isthequestion ofwhatisincluded inthese concepts (i.e.theirscope) along
withquestions thatariseintheapplication ofthese regulations bydifferent RTAs.WT/REG/W/17/Add.1
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OTHER REGULATIONS OFCOMMERCE
Scope: GATT Article XXIV:5
6. During theGATT years, anumber oftradeinstruments werepresented bydifferent contracting
parties asbeing ORCs under Article XXIV:5; however, itwasnotpossible toreach consensus on
thesecategorizations. Different views, recorded intheworking party reports, astothescope ofORCs
arebriefly described below.
(a) Quantitative restrictions (QRs)
Attheexamination oftheTreaty ofRome, theECargued that,although thelanguage
ofArticle XXIV:5(a) mentioned ORCs, itreferred "...expressly torestrictive regulations of
commerce". Most other contracting parties could notaccept thisinterpretation; according
tothesedelegations, "theuseoftheterm'regulations 'inthisparagraph andinparagraph 8(a)(ii)
does notinclude quantitative restrictions imposed forbalance-of-payments reasons. An
examination oftheprovisions oftheAgreement indicates thattheterm 'regulations 'is
consistently usedtodescribe suchmatters ascustoms procedures, grading andmarketing
requirements, andsimilar routine controls ininternational trade."1
(b) Customs userfees
Attheexamination oftheCanada-United States FreeTrade Agreement (CUSFTA),
while theUSwasoftheview that"thecustoms userfeewasan'ORC'covered under
Article XXIV, paragraph 5(b)", another contracting party suggested that"thecustoms user
feeshould bemore appropriately considered asan'ORRC 'thatapplied between thetwoFTA
parties interms ofArticle XXIV:8(b)".2
(c) Rules oforigin
Attheexamination oftheCUSFTA, Canada stated that"thequestion ofwhether rules
oforigin wereoneof'ORCs 'interms ofArticle XXIV:5(b) hadnotledtoasolution inprevious
working parties onfreetrade agreements".3
(d) Duty remission schemes
Attheexamination oftheCUSFTA, arepresentative ofagroup ofcountries stated
that"ifthedutyremission scheme hadbeenterminated aspartoftheestablishment oftheFTA,
heconsidered thatanother 'regulation ofcommerce 'hadbecome more restrictive".4
1BISD 6S/78-80, paragraphs 3and5.
2BISD 38S/59-60, paragraph 40.
3BISD 38S/59, paragraph 37.
4BISD 38S/66, paragraph 62.WT/REG/W/17/Add.1
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Application: GATT Article XXIV:5
7. Besides theproblems concerning thescope ofORCs inArticle XXIV:5, difficulties alsoarose
intheGATT concerning theapplication ofthese measures. These differences ofinterpretation are
illustrated below.
(a) Effects ofrules oforigin
While some contracting parties wereoftheviewthatstrict rulesoforigin applied by
some FTAs would actasatrade barrier bythemselves andthuscreate abarrier totrade with
third-parties,someRTApartieshavemaintainedthatrulesoforiginaffectonlythetradebetween
theparties, thusnotcreating adverse effects onthetrade ofthird-parties.5
(b) Discriminatory application ofORCs
Disagreement existed astowhether ORCs could beapplied inadiscriminatory way
asregards parties andnon-parties totheagreement -i.e.whether theycould bewaived, or
removed more rapidly, between theparties totheagreement, while being imposed onthird
parties (seealsoparagraph 9below).6
(c) HowtotreatperseGATT-inconsistent measures intheevaluation ofthetrade effects
oftheestablishment ofanFTA, customs union orinterim agreement
During theexamination oftheaccession ofPortugal andSpain totheEC,some
contracting parties pointed outthatGATT-inconsistent measures "could notbeincluded inthe
assessment oftheincidence ofchanges in'other regulations ofcommerce 'which hadtobe
carried outunder Article XXIV:5(a)". TheEC'sreply wasthat"itcould notbeassumed that
themeasures which were being liberalized were GATT-inconsistent."7
Scope andApplication: GATT Article XXIV:8(a)(ii)
8. Some oftheissues raised withrespect toORCs inthecontext ofparagraph 5ofArticle XXIV
alsohadtheirequivalent withrespect toprovisions inparagraph 8(a)(ii).
9. Inparticular, theGATT history oftheinterpretation ofORCs within thisparagraph points
todivergent views onwhether, inthecontext ofa"substantially common" import régime, QRsshould
beconsidered ORCs sothatmembers ofacustoms union would berequired toapply common quotas.
Thisquestion wasraised atthetimeoftheestablishment oftheECduetothefactthat,following its
establishment, allparties tothecustoms union started toapply QRsforbalance-of-payments (BOP)
purposes, while BOPproblems werebeing experienced onlyinsome ofitsmembers. According to
theEC,paragraph 8(a)(ii) provided for"theestablishment ofacommon external tariff andcommon
regulations ofcommerce which maybeapplied notably inthefieldofquantitative import restrictions ...
[and] thisrulegives thecountries which aremembers ofacustoms union therighttoapply restrictive
5Asreported intheexaminations oftheEC-Israel Agreement (BISD 23S/58-61, paragraphs 6,10and18)
andtheCUSFTA (BISD 38S/59, paragraph 37).
6Asreported intheexamination oftheTreaty ofRome, BISD 6S/78, paragraph 3.
7BISD 35S/305-307, paragraphs 21,22and24.WT/REG/W/17/Add.1
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measures other thanthose which theywould have been abletoapply iftheunion hadnotbeen
established". Anumber ofother contracting parties, however, wereoftheviewthatcountries entering
acustoms union would continue tobegoverned bytheGATT provisions onQRs(e.g., Articles XI
andXII)andthat"adherence totheseprovisions would innocaseprevent theestablishment ofacustoms
union",inparticularbecauseparagraph8(a)(i)permittedtheuseofQRsforBOPreasons.8Theaccession
ofPortugal andSpain totheECraised asimilar problem, asthese countries started began applying
theQRsapplied bytheEC(10). While some contracting parties contended that"Article XXIV did
notrequire thatacountry acceding toacustoms union alignitsimport régime withthemore restrictive
anddiscriminatory régime ofthatcustoms union", theECwasoftheviewthat"Article XXIV:4 did
notconstitute anobligation butanobjective anddidnotpreclude members ofacustoms union from
erecting barriers totradeiftheiroverall incidence waslessrestrictive thantheoneswhich hadprevailed
before thecustoms union wasestablished".9
OTHER RESTRICTIVE REGULATIONS OFCOMMERCE
10. Article XXIV:8 requires that,apart fromafewpermissible exceptions, theduties and"other
restrictive regulations ofcommerce" beeliminated withrespect to"substantially allthetrade" between
theparties ofthecustoms union, free-trade areaorinterim agreement. ThetextofArticle XXIV:8(a)(i)
relates tocustoms unions orinterim agreements leading toacustom union andthatofArticle XXIV:8(b)
toFTAs.
Scope
11. Thescope ofORRCs inGATT Article XXIV:8(a)(i) and8(b)hasalsobeenarecurring question
intheGATT years.10
(a) Regulation onpreferred source
DuringtheexaminationoftheAustralia-NewZealandCloserEconomicRelationsTrade
Agreement (ANZCERTA), some contracting parties were concerned withthefactthatNew
Zealand granted Australia thestatus ofpreferred supplier forpurchases ofwheat andnewsprint
onthegrounds thatitwould reduce access possibilities forthird-parties. NewZealand 'sposition
wasthatthegranting ofthisstatus wasjustified bytherequirement toeliminate ORRCs between
parties toRTAs; however, thisjustification waschallenged.11
8BISD 6S/78-80, paragraphs 3,4,6and7.
9BISD 35S/305-306, paragraphs 21-22, andpages 319-320, paragraphs 47-48.
10Thescopeof"duties"underthesameparagraphshasalsobeensubjecttonumerouscontroversies,inparticular
those concerning whether thisterm includes revenue duties andfiscal charges.
11BISD 31S/176-179, paragraphs 21,22,26and29.WT/REG/W/17/Add.1
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(b) Export licensing scheme
Inthediscussion regarding thepossible introduction ofanexport licensing scheme
forshortsupply orconservation purposes heldduring theCUSFTA examination, theCanadian
position that"export control measures were included in'ORRCs '"waschallenged bya
contracting party.12
(c) Quantitative restrictions
AttheexaminationoftheCUSFTA,whileacontractingpartychallengedthemaintenance
bytheparties totheFTAofQRswithrespect todairy products andpoultry, therepresentative
ofCanada saidthat"they hadconsidered it'necessary 'tomaintain particular programmes for
suchproducts under Article XI,ameasure thatwasconsistent withArticle XXIV:8(b)".13(See
alsoparagraph 6(a)above.)
(d) Customs userfees
Seeparagraph 6(b)above.
Application
12. Thelanguage between parentheses inGATT Article XXIV:8(a)(i) and8(b)indicates thatthe
obligationtoeliminatedutiesandORRCs withrespecttosubstantiallyallthetradebetweentheconstituent
territories ofacustoms union oranFTAmaynotbeapplicable tomeasures permitted under certain
GATT Articles. Thisgavebirthtothree major problems ofinterpretation intheGATT.
13. Oneproblem related towhether thelistincluded inthese paragraphs wasexhaustive, which
would imply thatnorestrictive measures could beapplied byamember ofanRTA tointernal trade
underotherGATTprovisions(e.g.,ArticleXVIIIandArticleXXI),orsimplyillustrative.Thisproblem
isextensively dealtwithinthereport oftheWorking Party thatexamined theTreaty ofRome.14
14. Amajor difficulty concerned theapplication ofsafeguard measures inlightoftheseparagraphs.
ThefactthatArticle XIXisnotmentioned among theexceptions inArticle XXIV:8 ledtothefollowing
three different interpretations intheGATT, andnoconsensus could befound:15
(a) Intaking anArticle XIXsafeguard action, aparty toanRTA isentitled toexempt
from theapplication ofsuchsafeguard measures imports from itsRTA partners.
(b) Intaking anArticle XIXsafeguard action, aparty toanRTA isrequired toexempt
fromtheapplication ofsuchsafeguard measures imports fromitsRTA partners. One
contracting party saidthat"itwaspartoftherationale forthecreation ofacustoms
12BISD 38S/61, paragraph 45.
13BISD 38S/65, paragraph 57.
14BISD 6S/95, paragraph 16andpage 98,paragraph 26.
15Seethereports oftheexaminations oftheCUSFTA, BISD 38S/66-67, paragraph 63andtheEuropean
Free Trade Association-Turkey Agreement, BISD 40S/53-54, paragraphs 26-27.WT/REG/W/17/Add.1
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union orfreetrade agreement thatconstituent members accepted thateachmight be
amore efficient producer ofvarious products, andtheprotection against thisefficiency
should notbeinstituted ormaintained."
(c) Intaking anArticle XIXsafeguard action, aparty toanRTA isrequired toapply the
safeguard action toitsRTA partners. Inparticular, ithasbeenmentioned thatthis
selectivity intheapplication ofsafeguard measures "seemed todilute theprinciple of
non-discrimination andmost-favoured-nation application ofrestrictions based on
Article XIX."
15. Another interpretative issuerelated towhether Article XXIV allowed amember toacustoms
union orFTAtoremove QRsmore rapidly ontrade withitspartners thanontrade withthirdparties,
ortointroduce suchrestrictions onimports from thirdparties only, assummarized inthefollowing
extract ofthereport oftheWorking Party thatexamined theEuropean FreeTrade Association (EFTA):
"The member States heldtheview that,insofar asanyrestrictions theymaintained were consistent
withGATT, Article XXIV would permit them toremove restrictions among themselves atafaster
ratethanagainst thirdcountries and,although itwascertainly theirintention tofollow liberal trade
policies, theywere notprepared toforego whatever rights theyhadunder Article XXIV. Theother
viewputforward intheWorking Party wasthattheprovisions ofArticle XXIV didnotaffect inany
waytheobligations ofcontracting parties entering afree-trade areatoapply quantitative restrictions
inanon-discriminatory manner".16Thisproblem wasaddressed inanumber ofother examinations
aswell.17
16BISD 9S/76-77, paragraph 19.Thedebate continues inparagraphs 20,22and26-28.
17Seethereports oftheWorking Parties thatexamined theEC-Israel Agreement, BISD 23S/60, paragraph
12;ANZCERTA, BISD 31S/178-179, paragraphs 26and29;CUSFTA, BISD 38S/61, paragraph 45andpage
71,paragraph 77.