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26November 1997
(97-5201)
Committee onRegional Trade Agreements
Fourteenth Session
EXAMINATION OFTHE CENTRAL EUROPEAN FREE TRADE AGREEMENT
(THE CZECH REPUBLIC, HUNGARY, POLAND, ROMANIA, THE SLOVAK
REPUBLIC AND SLOVENIA) AND THE FREE TRADE AGREEMENTS
BETWEEN THE REPUBLIC OFSLOVENIA AND THE REPUBLIC OFBULGARIA,
THE CZECH REPUBLIC AND BULGARIA AND BETWEEN THE
SLOVAK REPUBLIC AND BULGARIA
Note ontheMeeting of3November 1997
Chairman: Mr.Jean-Marie Noirfalisse (Belgium)
1. TheCommittee onRegional Trade Agreements tookupitems B.I-IV oftheAgenda forits
Fourteenth Session.
A. ExaminationoftheCentralEuropeanFreeTradeAgreement(CzechRepublic,Hungary,
Poland, Romania, Slovak Republic andSlovenia)
B. Examination oftheFreeTrade Agreements Between theCzech Republic andBulgaria,
Between theSlovak Republic andBulgaria, andBetween Slovenia andBulgaria
A. ExaminationoftheCentralEuropeanFreeTradeAgreement(CzechRepublic,Hungary,Poland,
Romania, Slovak Republic andSlovenia)
2. TheChairman saidthattheCommittee 'staskwastoexamine theCentral European FreeTrade
Agreement(CEFTA)andBulgaria'srelatedbilateralFreeTradeAgreements.Henotedthatexamination
ofthebilateral Agreements hadbeenoriginally scheduled forDecember 1997, buthadbeenmoved
tothismeeting since itmade more sense toexamine themtogether withCEFTA. Thishadnotgiven
thePartiesmuchtimetosubmitdocumentationinadvanceoftheexamination.Nevertheless,heproposed
tobegin theprocess ofexamination andinvited theParties tointroduce theCEFTA andrelated bilateral
Agreements andtoexplain indetail thestructure andprocess whereby thebilateral Agreements were
linked totheCEFTA Agreement. Asecond round ofexamination would takeplace atalaterdate
oncedelegations hadhadenough timetostudy thedocumentation presented bytheParties.
3. Therepresentative ofSlovenia, speaking onbehalf oftheCEFTA countries, noted thatthis
wastheParties'firstopportunitytoexplainthefunctioningofCEFTA,anditsimpactonthedevelopment
oftradeandeconomicrelationsinCentralEurope.Hehopedthattheexaminationprocesswouldprovide
delegations withanadequate insight intotheCEFTA Agreement toenable them toassess itproperly
inthelightoftherelevant provisions oftheGATT 1994. Forthesakeoftransparency, theCEFTA
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Format, inorder tofacilitate thereview process. Theinformation provided bytheParties gavea
comprehensive overview oftheAgreement anditsstructure. Although theAgreement hadbeennotified
more thanthree years ago,theinformation provided totheCommittee wasup-to-date. Updated trade
datawould follow shortly. Heexpressed regret thattheinformation hadnotbeencirculated earlier,
butthere hadbeenproblems inmeeting thedeadline forsubmission ofmaterial. Heassured the
Committee oftheParties 'fullcooperation interms ofproviding responses toquestions andanyrequired
explanations. TodatenoneoftheParties hadreceived questions from delegations.
4. Therepresentative ofSlovenia continued, stating thattheCEFTA Agreement withitsrelevant
annexes andprotocols hadbeennotified totheGATT on30June1994. Since thentheAgreement
hadevolved considerably andamendments hadbeenmade toreflect theprogress made indeveloping
relations onthebasis oftheAgreement. Anaccession provision hadbeenadded andtwocountries -
Slovenia andRomania -hadacceded since theoriginal notification. Theprimary objective wasthe
establishment ofafree-trade areaby1January 2001. TheAgreement wasthelegal toolforthe
realization ofthisobjective andithadprovided astimulus totrade andeconomic relations inboth
quantitative andqualitative terms inarelatively short period oftime, exceeding expectations. Ithad
beenalogical stepinCentral Europe toinitiate thisAgreement andtoopenupmembership toother
countries. Thegreatest gainthusfarwasthenewopportunities foroperators, andthequalitative
improvement inthestructure oftrade. Although intra-trade hadtripled in1993, thisdidnotmean
thatrelations withtraditional trading partners haddiminished inanyway; theCEFTA Parties were
nowmore open tooutside trade thanbefore. TheParties considered thattheAgreement hadbeen
implemented inaGATT-consistent manner andthatitwasinconformity withArticle XXIV of
GATT 1994. Duties andcharges hadbeeneliminated onsubstantially alltrade within theemerging
free-trade areaandtradecoverage wasfullyinlinewiththerequirements ofArticle XXIV. Schedules
fortheremoval ofremaining barriers wereinplace andtheendofthetransition period wasreasonable.
BeyondassessingconformitywithWTOrules,thisexaminationprocessshouldcontributetotransparency
andtoabetter understanding oftheintent, content andoperation oftheAgreement.
5. Therepresentative ofthefiveother CEFTA Parties expressed theirfullsupport ofthestatement
made ontheirbehalf bytherepresentative ofSlovenia. Therepresentative ofHungary shared theview
thattheCEFTA Agreement hadbeenaconsiderable collective success, bothpolitically, since ithad
provided stability andaspirit ofcooperation, andalsofrom atrade policy point ofview, given that
inlessthanfouryears Hungary 'sturnover withtheCEFTA countries hadmore thandoubled. In
addition, there hadbeensignificant trade liberalization. Forexample, about 90percentofimports
fromtheCEFTA countries nowentered Hungary duty-free andabout 45percentofagricultural imports
fromCEFTA countries wereduty-free. Thetrade coverage ofagriculture inCEFTA asawhole was
more than80percent. Therepresentative ofPoland added that,intheformer economic system, the
Parties totheCEFTA Agreement hadenjoyed relatively close economic links. Themove toamarket
economy hadprovoked certain economic disturbances andtheintroduction oftheCEFTA Agreement
hadbeenafavourable factor instrengthening economic reform. Additionally, byestablishing alarge
free-trade area,theCEFTA Agreement hadgenerated afavourable climate forforeign direct investment.
Therepresentative oftheCzech Republic mentioned thathiscountry 'strade hadalmost doubled in
thelastthree years. TheCEFTA Agreement hadprovided ameans torenew trade which hadbeen
completely paralysed afterthebreak-up oftheSoviet Union andthedissolution ofCOMECON. The
representative oftheSlovak Republic supported thestatement made bytherepresentative ofHungary
thatthepoliticaldimensionhadbeenimportant.HepointedoutthatevidenceoftheAgreement'spositive
effects could beseenfrom therealgrowth inhiscountry 'sturnover withtheCEFTA Parties which
wasclose todouble whatithadbeenatthebeginning oftheprocess. Therepresentative ofRomania
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hadjoined CEFTA on1July1997, aftersignature inApril oftheaccession Agreement. Since CEFTA 's
creation, Romania hadbeenconsidering full-fledged participation aspartoftheliberalization process
inCentral Europe, aprocess based onamarket economy andonWTO rules, theguiding principles
oftrade inthispartofEurope. Hiscountry 'sparticipation intheCEFTA Agreement wassubject to
thesame elements andobjectives already presented andwasviewed asamechanism forstrengthening
regional cooperation. Thenewlegalfoundation necessary formembership inCEFTA, together with
participation inthemultilateral trading system complimented andstrengthened Romania 'sdomestic
reform process. Asanewmember ofCEFTA, hisdelegation wasnotinaposition toprovide statistical
dataoftheAgreement 'simpact. Romania 'simports fromCEFTA countries in1996represented less
than5percentoftotalimports. Imports andtrade ingeneral withCEFTA partners inthepastyears
hadrecovered somewhat afteraconsiderable dropatthebeginning ofthedecade. Hehoped thatthe
Agreement would openupnewpossibilities forthegrowth ofreciprocal trade andwould create new
opportunities toincrease trade withother Members oftheWTO.
6. TheChairman noted thepledge ofcooperation andtransparency oftheCEFTA Parties and
theirintention toprovide further trade data. Hethenasked Members torefertotheStandard Format,
document WT/REG11/2 issued on30October 1997, inorder tostructure discussion oftheCEFTA
Agreement.
7. TherepresentativeofJapanthankedthePartiesforprovidinginformationintheStandardFormat.
Hisdelegation hadnoted thesignificant increase intrade between theParties, butwasinterested in
further statistics, particularly withregard tothirdcountries. Inparticular, hisdelegation wanted to
know thecurrent share oftrade oftheitems whose tariffs hadbeeneliminated among Parties intheir
totalintra-trade, bothatthepresent timeandattheprojected completion ofthefree-trade area. His
second request fortrade statistics concerned trade creation versus trade diversion. Towhat extent
hadtheleveloftrade withthirdcountries changed attheformation ofthefree-trade area?
8. Therepresentative oftheEuropean Communities saidthathehadsome general comments about
theCEFTA Agreement, which werealsoapplicable toBulgaria 'sbilateral Agreements. Hisdelegation
welcomed these Agreements aspartoftheprocess ofeconomic transition andliberalization inCentral
andEastern Europe. Theywereseenasahelpful compliment totheEC'sownAssociation Agreements
andhisdelegation welcomed theParties 'commitment tocompliance withWTO rules. Asmentioned
bytherepresentative ofSlovenia, afeature ofthese Agreements wastheirrapid evolution; schedules
ofliberalization hadbeenaccelerated andnewAgreements hadbeennegotiated andquickly extended.
Thiswasasignofthegrowing confidence andsuccess oftheeconomic transition process. Hisdelegation
wasconfident thattheAgreements fulfilled therequirements ofGATT Article XXIV, inthattheywould
leadtotheestablishment ofafree-trade areawithin themeaning ofArticle XXIV:8 within areasonable
transition period. Hisdelegation hadnoted theprogress made toreach freetradeinindustrial products
andtheliberalization oftheagricultural sector. CEFTA wasanambitious Agreement andallParties
hadmade efforts toimplement itasquickly aspossible, consistent withWTO rules. Thetimetable
forindustrial liberalization hadbeenaccelerated andstepshadbeentaken toestablish afullfree-trade
areainindustrial products. TheCEFTA Parties hadmade agood startontheliberalization of
agriculture. Agriculture wascovered bytheAgreement andliberalization hadalready begun. Aswith
theEC'sAgreements, theobjective ofliberalization wasalways tempered bytheneedtotakeaccount
ofdomestic agricultural policies. Nevertheless, theprocess ofliberalization inagriculture appeared
tobeunderway andhisdelegation looked forward tofurther progress.
9. Therepresentative ofAustralia saidthathisdelegation hadsubmitted alistofspecific questions
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hadonthecurrent Agreements werelargely based onthose questions andhewould behappy tosubmit
them totheParties. Heunderstood thatthere hadbeenchanges totheAgreements since 1994. One
problem hisdelegation hadwiththenotification, andalsowiththeStandard Format provided bythe
Parties, wasthefrequent references toannexes containing exceptions. Thismade itverydifficult to
come toaconclusion about questions ofcoverage. Itwasdifficult toenterintoconstructive discussion
without statistical dataontheshare oftradethatwasduty-free andtheshare oftradethatwould merely
beliberalized. Therequirement ofArticle XXIV wasthattrade befree,notmerely liberalized. This
wasnotanewissue. Hisdelegation supported thedelegation ofJapan'srequest fordetailed statistics
asthiswould make iteasier tohaveafruitful discussion. Many ofhisdelegation 'squestions were
fortransparency purposes, inanattempt toelucidate thecoverage oftheAgreements. Ofparticular
interest wasthepercentage oftrade inagriculture thatwould befreeofduties andother charges, the
proportion oftrade inagriculture thatwould merely beliberalized, andthecorresponding timetables.
There wereanumber ofreferences intheStandard Format totheliberalization ofagricultural trade,
including references tocutsof50percentinduties.
10. Therepresentative ofCanada noted thepositive trade effects oftheAgreement mentioned by
theParties. Hisdelegation would examine thismore closely andwould appreciate additional trade
statistics inorder toestablish thattrade creation, rather thantrade diversion, hadtaken place. Itwas
important tohaveprecise information ontheextent ofthetrade coverage, andtheextent towhich it
wassubject tofullelimination (notmerely liberalization) oftariffs andother regulations ofcommerce.
Information onthetrade withthirdcountries would alsobehelpful. Concerning documentation, he
agreed thatthevarious cross-references made theStandard Format difficult todigest. Itwould be
useful iftheParties would supply asummary oftheconnections between thevarious protocols and
articles. Itappeared thattheCEFTA Agreement contained aseries ofbilateral Agreements between
eachoftheParties andasummary sheet detailing these bilateral liberalization Agreements would be
helpful inmaking atotalassessment.
11. Therepresentative oftheUnited States saidhisdelegation would nothaveanysubstantive
questions orcomments intheday'smeeting, duetothelatesubmission ofthedocumentation, notonly
forCEFTA butalsoforthebilateral Agreements. Inorder tohelphisdelegation understand howthe
various Agreements related toeachother, herequested clarification ofthestatus oftheCEFTA
Agreement withtheassociated bilateral Agreements.
12. TheChairman noted theAustralian delegation 'srequest forreplies toitsquestions submitted
in1994. Healsonoted thebroad acceptance oftheStandard Format. Headded thattheissues covered
inthisAgreement werequite complex, given thelinkages between thevarious bilateral Agreements
andCEFTA. Thethirdissue concerned thequantification oftrade effects oftheAgreements andhe
noted thattheParties would submit updated tradedatashortly. Hesuggested thattheCEFTA Parties
bearinmind thequestions concerning tradestatistics raised bythedelegations ofJapan, Australia and
Canada when presenting theirdata. Thefourth issueconcerned thescope ofcoverage oftheAgreements,
inparticular agriculture, andhenoted therequests foradditional information.
13. Therepresentative ofKorea saidhisdelegation welcomed thepromise oftransparency inthe
application oftheCEFTA Agreement. Hehoped thatthetrade creation effect wasgreater thanthe
trade diversion effect andthatthevested interest ofexisting trading partners would notbeaffected.
Hesupported therequests made byother Members foradditional information andstatistics. Hehad
aquestion regarding theinstitutional framework ofCEFTA. Hehadnoted theexistence ofaJoint
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interested inthefuture oftheCEFTA Agreement, vis-à-vis plans toassociate withtheEC:would
association beundertaken through CEFTA orbilaterally?
14. Therepresentative ofSlovenia replied thattheCEFTA Parties were aware thatthematerial
provided wasneither perfect, norcomplete, andthatexplanations regarding thefunctioning ofCEFTA
andtherelations between itsvarious parts would probably berequired. TheParties would prefer to
receive questions inwriting toenable themtoprepare comprehensive replies fortheCommittee. He
wasaware oftheimportance ofstatistics andregretted notbeing abletoprepare trade dataforthis
meeting; dataprovided atalaterdatewould takeaccount ofthequestions raised intheday'smeeting.
15. TheChairman agreed thatitwasagood ideatoputquestions inwriting asthequestions and
replies could thenbecirculated asadocument forthebenefit ofallMembers oftheCommittee. The
Chairman thenturned theattention oftheCommittee toBulgaria 'sbilateral agreements.
B. Examination oftheFreeTrade Agreements Between theCzech Republic andBulgaria, Between
theSlovak Republic andBulgaria, andBetween Slovenia andBulgaria
16. Therepresentative ofSlovenia, speaking onbehalf ofSlovenia, Bulgaria, theCzech Republic
andtheSlovak Republic, saidthatthebilateral Agreements were based onthesame model with
substantially similar, ifnotidentical, provisions. Thedifferences wereintheannexes andprotocols
which hadbeenadapted tosuitthestructure oftrade oftheParties tothevarious Agreements. The
information intheStandard Format which hadbeenprovided totheCommittee wasself-explanatory.
Theobjectives oftheAgreements were thesame: namely, thecreation ofafree-trade areainthe
transition period, which fortheCzech Republic, theSlovak Republic andBulgaria would occur by
theendof1997andforSlovenia would occur bytheendof1999. Theagreements werestraight-forward
interms ofsubstance andproduct coverage. Hewanted tohighlight twoissues: thebilateral Agreements
didnotatthisstage have anyformal connection withCEFTA, butwere theproduct ofbilateral
negotiations. Bulgaria wasaprospective Member ofCEFTA andwould havetonegotiate anaccession
agreement aftercompletion oftheprocess ofbilateral negotiations. Thevolume oftrade between
Bulgaria andtheParties withwhich ithadsigned Agreements wasrather lowand,inthecaseofBulgaria
andSlovenia, wasactually dropping. Onepurpose oftheagreements wastoreverse thistrend and
toprovide astimulus totrade withBulgaria.
17. Therepresentative ofBulgaria saidthathiscountry wasnotyetamember ofCEFTA butwas
intheprocess ofnegotiating itsbilateral agreements withallCEFTA countries withaviewtojoining
CEFTA itself. Hewanted toconfirm what hadbeensaidbytherepresentative ofSlovenia andto
underline theimportance which Bulgaria attached tothese Agreements andtofuture prospective
membership inCEFTA. Hiscountry wasconcerned about thedecline intrade andhoped thatthese
Agreements would actasastimulus foritseconomy.
18. Therepresentative ofJapan saidhisdelegation hadsome specific questions. Inaccordance
withArticle XXIV:5(b), parties toanagreement werenotsupposed toraiseduties andother regulations
ofcommerce compared tothelevelpriortotheformation oftheRTA. Hisdelegation wanted toknow
iftheParties hadraised duties andother regulations ofcommerce atthetimeoftheformation ofthe
Agreements. Asecond question concerned rulesoforigin: itwashisdelegation 'sunderstanding that
Parties were following ECrules oforigin. Didsuchrules oforigin increase barriers orrestrictions
against thirdcountries? Histhirdquestion concerned safeguards andanti-dumping measures: would
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Article VIoftheGATT 1994, inthattheywould notusedifferent criteria when applying safeguard
andanti-dumping duties against third countries? Therepresentative ofArgentina questioned the
intervention oftherepresentative ofJapan regarding theCEFTA Parties 'intention tocomply withtheir
WTO obligations. Given thatrules onanti-dumping andsafeguards were partoftheWTO Single
Undertaking, theresponse should beaffirmative without question. Therepresentative ofJapan replied
that,during theiraccession totheEC,Finland, Austria andSweden hadautomatically applied anti-
dumping duties against products fromthirdcountries without firstconducting aninvestigation. This
waswhathadprompted himtoaskthequestion.
19. Therepresentative ofAustralia saidthathisdelegation hadafairly longlistofdetailed questions
concerning Bulgaria 'sbilateral agreements which hewould provide inwriting.
20. TherepresentativeofSloveniarespondedthatthePartieswouldappreciatereceivingthequestions
inwriting. Headded thatthere wasnodoubt thattheParties would conform withtheir WTO
commitments. Nevertheless, heconsidered itagood ideatoputthisonrecord.
21. TheChairman noted thatwritten documents would enhance theaccuracy oftheCommittee 's
work. Thisconcluded theday'sdiscussion ofCEFTA andrelated bilateral Agreements. Asecond
round ofexamination oftheseAgreements wasrequired andheproposed thatittakeplace earlyin1998
onthebasisofthewritten questions totheParties andtheoralcomments made. Inthemeantime the
Parties would prepare therequired documentation andanycommunication received bytheSecretariat
would bedistributed.
22. TheCommittee tooknoteofthecomments made.