RESTRICTEDWORLD TRADE
ORGANIZATIONTN/RL/W/8
21 May 2002
(02-2804)
Negotiating Group on Rules
COMPENDIUM OF ISSUES RELATED TO
REGIONAL TRADE AGREEMENTS
Background Note by the Secretariat1
The Negotiating Group on Rules, at its meeting of 8 May 2002, requested the Secretariat to
prepare a background note which could assist delegations in the preparation of submissions and
proposals in the context of paragraph 29 of the Doha Ministerial Declaration.2
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.  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 spec ifically to the application or interpretation of
existing WTO provisions applying to RTAs.3  Other issues are of a conceptual nature, interrogating
the relationship between the multilateral and RTA approaches, or are associated to RTA
characteristics highlighted by recent developments and not explicitly or fully covered by existing
WTO provisions.
                                                     
1 Early distribution of this note in English aims at facilitating the preparation of submissions for the
July meeting of the Negotiating Group.  The French and Spanish versions will be circulated to Members well in
advance of that meeting.
2 «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. »
3 See Annex for a brief account on these provisions.TN/RL/W/8
Page 3
PART I
CHECKLIST OF ISSUES RELATED TO RTAS
I. WTO B ASIC TRANSPARENCY REQUIREMENTS ON RTA S
I.1. Notification
I.1.1 Definition of a time-frame for notification
I.1.2 Dealing with non-notified RTAs
I.2. Provision of information
I.2.1 RTA trade statistics to be made availableI.2.2 Other information to be made available
I.3. Reporting obligations
I.3.1 Biennial reporting on the implementation of customs unions and free-trade areasI.3.2 Reporting requirements for RTAs in the area of trade in services
II. M ULTILATERAL SURVEILLANCE MECHANISMS FOR RTA S
II.1. Homogeneity of surveillance requirements
II.2. Adequacy of the examination process
II.3. Suitability 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. R ELATIONSHIP BETWEEN RTA-S PECIFIC WTO D ISCIPLINES AND OTHER WTO R ULES
III.1. Article XXIV* and the Enabling Clause within GATT 1994 and the WTO
Agreement
III.2. Links between GATT Article XXIV* provis ions 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 SafeguardsIII.2.3 Other WTO Agreements
III.3. Article V within the GATS (and its Annexes)
III.3.1 Links between EIAs' trade liberaliza tion requirements and GATS  "exempted" services
sectors/modes of supply or GATS provisions subject to further negotiations
III.3.2 Relationship between national jurisprudence and the GATS
IV. I NTERDEPENDENCE OF RTA-S PECIFIC WTO D ISCIPLINES
IV.1. Links among provisions within GATT Article XXIV*
IV.1.1 Significance of the provisions of paragraph 4IV.1.2 Relative precedence of paragraphs 4-5 pr ovisions and those found in paragraph 8
IV.1.3 Parallelism between provisions applying to customs unions and those applying to FTAsIV.1.4 Congruity of provisions in paragraph 8 with those contained in paragraph 5IV.1.5 Relevance of provisions applicable to RTAs implemented by stages
IV.2. Links 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»TN/RL/W/8
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IV.2.3 Relationship between the flexi bility provided to EIAs involv ing developing countries and various
GATS requirements
IV.2.4 Compensation negotiations under paragraph 5 and its possible application to modifications in
MFN exemptions
V. I NTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATT A RTICLE XXIV
V.1. Meaning 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. Scope of the bracketed exceptions in para graph 8:  Application of global safeguards
to RTA partners
V.3. Other issues
V.3.1 The qualification of RTA rules of origin as «other regulations of commerce»
V.3.2 Non-zero preferential tariff ratesV.3.3 Compensation for negative effects on third parties upon the formation/enlargement of an RTA
VI. I NTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATS A RTICLE V
VI.1. Meaning of «substantial» and «substantially»
VI.1.1 Paragraph 1(a):  «substantial sectoral coverage»
VI.1.2 Paragraph 1(b):  «substantially all discrimination»
VI.2. Scope of the bracketed exceptions of trade restrictive measures
VI.3. Other 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
VI.3.3 Paragraph 1(b):  Definition of th e «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 flexibility allo wed 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. I NTERACTION BETWEEN REGIONAL TRADE AGREEMENTS AND THE MULTILATERAL
TRADING SYSTEM
VII.1. The building block/stumbling-block debate
VII.2. Overlapping and networks of RTAs
VII.3. Effects of the extension of trade policy areas regulated through RTAs
VII.3.1 Trade regulatory process
VII.3.2 Dispute settlementTN/RL/W/8
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PART II
COMPENDIUM OF ISSUES RELATED TO RTAS
I. WTO B ASIC TRANSPARENCY REQUIREMENTS ON RTA S
I.1. Notification
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 «shall 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 the entry into force of the RTA.  Conversely, it hasbeen 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 implementation of the «prompt notification»
requirement in GATS ArticleV:7(a) has also been called for.  A time-frame of «at least 90 daysadvance notice» (such as that stipulated under GATS Article V:5) has been suggested.
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 countries.  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 questions about non-notified RTAs during WTO meetings has
been considered insufficient as a means of gatherin g adequate information.  It has been suggested that
the possibility of counter-notification of RTAs be provided for.
I.2. Provision of information
I.2.1 RTA trade statistics to be made available
4. The quantity and quality of statistics requested from 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 information 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 force or the very first years(s) following its entry intoforce, in particular where significant transition periods are foreseen.
4  Conversely, it has been
observed that statistics are sometimes hard to obtain and may even prove misleading, given the
dynamics of the economic integration.
                                                     
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 bien nial 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
Page 6
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)
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 "overlapping" preferential arrangements is vital to
understanding the relationship between RTAs and the multilateral trading system.
8. Discussions within the CRTA on how the provision of timely and accurate initial information
on individual RTAs could be facilitated and standardized led its Chairman to establish non-bindingguidelines 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.
I.3. Reporting obligations
9. With respect to periodic reporting on RTAs notified under GATT Article XXIV, an area
closely linked to CRTA's work, feedback of WTO Membership at large on the operation of RTAs is
deficient, despite efforts made to systematise the information furnished.
I.3.1 Biennial reporting on the implementati on 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 recomme ndations 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
[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.
                                                     
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 forTrade in Services (CTS) and the Committee on Trade and Development (CTD), these bodies acted upon them inlate November 1998 and invited parties to RTAs to elaborate periodic reports using, as far as possible, aStandard Format presentation (documents G/L/286, S/C/W/92 and WT/COMTD/16, respectively).
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.TN/RL/W/8
Page 7
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 Trade in Services (CTS) on its implementation.  In
that context, it has been proposed that periodic reporting should be extended to all economic
integration agreements (EIAs), whether or not implemented in stages.  It has been noted however thatthis would require a renegotiation of GATS provisions.
II. M
ULTILATERAL SURVEILLANCE MECHANISMS FOR RTA S
13. RTAs notified to the WTO are subject to surveillance in various Bodies, at various levels of
depth and complexity, depending upon which provision the notifying Member avails itself of .  On
6 February 1996, the General Council 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 then 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
II.1. 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 Fu ller Participation of Developing Countries  (hereinafter, the
Enabling Clause), under which provisions such RTAs have traditionally been notified, irrespective oftheir 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 require changes to existing legal provisions.
II.2. Adequacy 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 problematic tandem.  For several reasons, in particular because of
Members' divergent understanding of the criteria contained in the rules themselves, the examination
mechanism has persistently failed to serve these purposes adequately in the last four decades or so.
17. After the establishment of the WTO, increasing calls for, and efforts towards, RTAs
transparency were partly checked by rising "dispute-settlement awareness".  As a result, CRTA efforts
towards improving examination procedures did not prevent the examination mechanism to be brought
to near-paralysis vis-à-vis  its two basic objectives, while there has been a plethora of RTA
notifications.
                                                     
9 The decision to establish the CRTA, with its terms of reference, is contained in document WT/L/127.TN/RL/W/8
Page 8
18. The chart below illustrates this impasse.  For clarity 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 and examined before the establishment 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 reports, despite the fact that, in most cases, the CRTAwas able to put an end to the factual steps of the examination 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 "dispute-settlement awareness" mentioned above, in
particular in the current situation of absence of an agreed relationship between reports on theexamination and dispute settlement cases:  Members seem 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 deadlock is that WTO litigation may replace multilateral
examination of an RTA (see section II.3.2).
21. Suggestions have been made on how to improve the situation, in particular by emphasizing
the transparency aspects of the examination mandate.12
                                                     
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.
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, woul d set all Members on an equal footing and increase their
understanding of the functioning of the agreements.TN/RL/W/8
Page 9
II.3. 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 with respect to RTAs notified under Article XXIV.
23. Interrogations in this context mainly derive from 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 examinationreport in more than seven years.
II.3.1 Legal standing of RTAs vis-à-vis  WTO rules
24. It has been argued that an RTA can be consider ed as tolerated or deemed compatible by the
WTO in the absence of clear consistency conclusions 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
II.3.2 Panel's jurisdiction to assess compatibility of RTAs
26. While WTO rules provide for a multilateral assessment of the consistency 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 arisingfrom the application of those provisions of Article XXIV relating to customs unions, free-trade areas or interim agreemen ts leading to the formation of a customs union or free-trade
area. »
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 unionfully meets the requirements of XXIV:8(a) and 5(a) and that without such measure thatcustoms union could not be formed] have been fulfilled.  It may not always be possible to
                                                     
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 agains t 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
Page 10
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 alwaysbe 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 metand 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" thatpanels do not have jurisdiction to assess the overall compatibility of a customs union with therequirements of Article XXIV.  We are not called upon in this appeal to address this issue, but
we note in this respect 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 andthe European Communities with Article XXIV in order to address the claims of India. Basedon 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 betweenTurkey and the European Communities is a "customs union" within the meaning ofArticle XXIV was not appealed.  Therefore, the issue of whether this arrangement meets therequirements of paragraphs 8(a) and 5(a) of Article XXIV is not before us.» (footnotesomitted)
15
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
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 has been argued that a new legal entity is created when
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 formation of a customs union could be "passed" or"extended" to other constituent members.  The Panel noted that:
                                                     
15 Appellate Body Report, adopted on 19 November 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
Page 11
«… 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 circumstanceswhich serve as the legal basis for one Member's exercise of such a specific right cannot
suddenly be considered to exist for the other cons tituent 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 SingaporeDeclaration».
18
III. RELATIONSHIP BETWEEN RTA-S PECIFIC WTO D ISCIPLINES AND OTHER WTO R ULES
III.1.  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 fr om 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 fo rmation 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) ofArticle XXIV.  And, second, that party must demonstrate that the formation of that customsunion 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 difficulties in the recent past.  In that context,
it has been argued that given the significant role played by them, and in accordance with the DohaMinisterial Declaration, negotiations should take into account the developmental aspects of RTAs so
that any new rules on RTAs protect the interests of developing and least-developed countries.
III.2.  Links between GATT Article XXIV* provisio ns 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] regulations 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
were developing well beyond the original GATT rules, Article XXIV provisions with respect to these
matters have thus remained static, and their relationship with the new disciplines undefined.
35. That issue surfaced again in the Council for Trade 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
                                                     
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 Article I of the GATT (WT/DS34/R, paras. 9.186-9.188).
21The enlargement of the EC to include Austria, Finland and Sweden.TN/RL/W/8
Page 12
be carried out against the background of all WTO Agreements relating to trade in goods.  It was then
decided to expand those terms of reference through 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 orregulation existing or introduced on the occas ion of the formation of a customs union is
consistent with all provisions of the WTO Agreement; it would be to ascertain whether on thewhole 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 ofthe WTO Agreement, the conclusions of the Report of the Working Party would be confinedto 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.
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 thisAgreement or relevant GATT 1994 provisions.  In this way, Article XXIV of the GATT 1994is 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
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
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 Agr eement on Safeguards, given that such argument had
not been presented by the United States.25
38. Another issue refers to the lack of a multilaterally agreed methodology on how should
safeguard measures already in place within a customs union be applied by acceding parties.26
                                                     
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.
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.TN/RL/W/8
Page 13
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 subsidies 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 Agreement, which might be used in dealing with issues
raised with respect to RTA rules of origin.27  (See Section V.3.1)
III.3.  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 regulations and emergency safeguards - should not be
allowed.
III.3.1 Links between EIAs' trade liberalization requirements and GATS "exempted" services
sectors/modes of supply or GATS provisions 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.
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 had been drafted prior to the GATS would need tobe 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
                                                     
27 The preamble to the Agreement recognizes that cl ear 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 Declaration 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, th e provisions of Article X of GATT 1994".
28 The question of grandfathering, or conversely the re troactive 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.TN/RL/W/8
Page 14
IV. INTERDEPENDENCE OF RTA-S PECIFIC WTO D ISCIPLINES
IV.1.  Links among provisions within GATT Article XXIV*
IV.1.1 Significance of the provisions of paragraph 4
45. A recurrent general question has been whether paragraph 4 of Article XXIV contains
additional requirements to those specified in paragraphs 5-8 or should be viewed as merelyintroducing these provisions.
30  In this respect, the Appellate 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 questioned 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 corresponding 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 policie s» 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 thatcontext.  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.  Acustoms 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
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 re spect 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 and the Appellate Body in the Turkey – Textiles  case, such as
those reported in paragraphs 45-46, may shed light on that issue.
                                                     
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
Page 15
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) forFTAs.  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 those «applicable» by its parties prior to the
institution of the union;  paragraph 2 of the 1994 Understanding clarifies the  meaning of
these expressions with respect to duties, by specifying that, in the context of the general
incidence calculation, «… the duties and charges 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 commerce «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 differences 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 interpretation 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 originshould be considered as a regulation of commerce in that context. (see Section V.3.1)
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 relations, whereas paragraph 5 governs external relations.
34
54. It has been pointed out that RTAs, in complying with paragraph 8 disciplines to achieve
internal trade liberalization, in particular in the area of «other restrictive 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 introduction and enforcement of competition law, have been
cited as possible fields where this could apply; hence the need to analyze the intent and application ofthe «other restrictive regulations of commerce» in operation in RTAs.
IV.1.5 Relevance of provisions applicable to RTAs implemented by stages
55. In the GATT/WTO history, though most customs uni ons or FTAs have been, at least in part,
implemented by stages, very few have expressly been notified as «interim agreements».  As a
                                                     
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
Page 16
consequence, many of the detailed provisions specifically devoted to this type of RTA, both in
Article XXIV and in the 1994 Understanding, have practically become redundant.35
56. In that context, it has been noted that multilateral surveillance of RTAs would be increased if
interim agreements were notified under Article XXIV:5(c) of the GATT 1994, so that existing
requirements on the plan and schedule for an interim agreement could be better monitored and, ifrequired, 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 isolation 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 scope 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 requirements spelled out in paragraphs 5 and
8:  at the time of entry into force of the interim agreement or when the RTA has beenfully implemented?
36
• Should consideration of the «other restrictive regulations of commerce» (paragraph 8) and
the «other regulations of commerce» (paragraph 5) be different in fully implementedRTAs and interim agreements?
37
IV.2.  Links among provisions within GATS Article V
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 Article V:1(b), it should be considered also to be
covered for purposes of Article V:1(a); conversely, the 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 considered as covered for purposes of Article V:1(a);
Article V:1(a) would determine the proportion of sect ors or subsectors subject to liberalization, while
Article V:1(b) would determine whether discriminatory measures maintained in service sectors or
modes of supply are acceptable.
IV.2.2 Relationship between establishment requirements and the test on «substantial sectoral
coverage»
60. The question has been raised on whether a requirement for foreign suppliers to establish
themselves in local jurisdiction before they be allowed to sell services to local consumers amounted to
                                                     
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 bothduring and at the end of the transition period
37 It has been noted that certain trade policy measur es 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
Page 17
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 qu estions 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.
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 such 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.
IV.2.4 Compensation negotiations under paragraph 5 and its possible application to
modifications in MFN exemptions
62. Paragraph 5 requires a party to an EIA to provide at least 90 days advance notice of any
modification or withdrawal of a specific commitm ent 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 Annex on Article II Exemptions and in Article IX ofthe WTO Agreement.  MFN exemptions and specific  commitments were completely different issues
and legal provisions dealing with the latter coul d not be used for modifications in the former.
65. Conversely, it has been suggested that the au tomatic extension of an MFN exemption implies
that third countries would not benefit from the same access to the markets of acceding parties;  that
situation could be assimilated to the one where commitments undertaken are modified or withdrawn.Thus, compensation according to the Article XXI route, as provided for in Article V:5, would be
applicable. (see Section VI.3.6)
V. I
NTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATT A RTICLE XXIV
V.1. Meaning 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 «customs union» and by «free-trade area».
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
                                                     
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) …».TN/RL/W/8
Page 18
originating products.  A similar requirement is contained in paragraph (b) for FTAs:  that such
elimination be made on «substantially all the trade» in originating products.
68. Despite the inclusion of the fourth paragraph in the Preamble to the 1994 Understanding,40 the
interpretation of that expression has remained contentious.  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 agiven RTA fulfils the requirement.
• A qualitative approach sees the 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 atpreventing 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 approach, 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
V.1.2 Paragraph 8(a)(ii):  «substantially the same duties and other regulations of
commerce»43
70. Paragraph 8(a)(ii) requires 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 wereallowed to form a customs union «… where one constituent member is entitled to imposequantitative restrictions under a special transitional regime and the other constituent memberis not.»
44
                                                     
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 flows 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 tomeet this condition, agreements should not provide for the a priori  exclusion of any mode of supply».
43 Often also referred to as an RTA's "product coverage".
44 WT/DS34/R, para. 9.151.TN/RL/W/8
Page 19
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 members 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 regulations having similar effects with respect to the
trade with third countries would meet the standard of sub-paragraph 8(a)(ii).  Rather, it concluded thata 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.
V.2. 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 elimination of «other restrictive
regulations of commerce» in customs unions and FTAs, as contained in paragraph 8(a)(i) and 8(b),
respectively.
74. The fact that neither GATT Article XIX nor Article 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 si gnificance 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:
• 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 measures 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 and obligations between themselves, provided they do so in amanner 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
                                                     
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.
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 beallowed to exempt its partners from a global safeguard action depending on whether their imports accounted ornot for a "substantial share" of total imports and contributed to "serious injury";  (ii) whether safeguards couldbe imposed on intra-trade only if determination was made that the injury was due to the reduction of dutiescontemplated in the RTA.
49 Such prohibition would however not apply during the transition period.TN/RL/W/8
Page 20
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 specific ally 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 ofthat 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 fromother 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 Ar ticle 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 1994permits 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
77. However, while inconclusive on the issue of the imposition or maintenance of safeguard
measures between the constituent territories of a customs union or of a free-trade area in relation toArticle 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.
V.3. Other issues
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 regulations 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.
                                                     
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.
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.TN/RL/W/8
Page 21
• 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 thetrade 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 cumulation schemes contravene WTO rules, as they
favour certain third-parties to a particular RTA, while discriminating against the rest.56
80. More recently, it has been noted that a harmonization of RTA rules of origin might be
desirable in the long run.57  However, it has been argued that this might not be workable given that
those rules derived from production and trade structures in place between the RTAs parties.58
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 been eliminated, they contribute to the objective of
facilitating trade and may in certain instances repres ent a first step towards an possible elimination of
the duty at a later stage.  It has also been note d 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.
82. Conversely, it has been argued that non-zero preferential 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 implementation of the elimination requirement. (see
Section IV.1.5.)
V.3.3 Compensation for negative effects on thir d parties upon the formation/enlargement of
an RTA
84. The need for elaborating disciplines aimed at ensuring 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.
                                                     
56 Under diagonal cumulation, materials supplied by specific countries not parties of a given RTA may
be counted, under certain conditio ns, 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 th e 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
Page 22
VI. INTERPRETATION OF PARTICULAR WORDING CONTAINED IN GATS A RTICLE V
VI.1.  Meaning of «substantial» and «substantially»
VI.1.1 Paragraph 1(a):  «substantial sectoral coverage»
85. Article V:1(a) provides that an EIA must have «substantial sectoral coverage» 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 «substantial» 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 which serve as infrastructure for economic activity, such astransportation) 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 subparagraph 1(a) requirements;  in particular, no EIA
should a priori  exclude investment and labour mobility in the sense of Modes 3 and 4.
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 addressed.  The lack of detailed data on services
trade and the fact that footnote 1 to subparagraph 1(a) lists the number of sectors covered by an EIAas 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 concerned or their contribution to GDP being used todetermine the coverage of sectors.  Further, it has 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.
VI.1.2 Paragraph 1(b):  «substantially all discrimination»
90. The extent to which discriminatory measures should be allowed to exist in an EIA without
breaching its consistency with Article V:I(b)
60 is a debatable issue, although it is clear that those
                                                     
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 beencompletely 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 thevolume of services trade covered or of domestic servi ces activity covered;  and (v) how would the "absence or
elimination of substantially all discrimination" and the list of excepted measures under Article V:1(b) affect the
percentage targets that might be set.TN/RL/W/8
Page 23
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 percentage-type test for quantitatively measuring
«substantially all discrimination», which in turn should point towards a case-by-case examination ofeach agreement.
VI.2.  Scope of the bracketed exceptions of trade restrictive measures
91. It has been argued that the list of exceptions 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 covered in the national treatment clause should notbe added to the list.
92. Two interpretations of the application of emergency safeguards among parties to an EIA
co-exist:
• Article X should be added to the listed exceptions 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 bebased 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 possibl e illustrative nature the list of exceptions also
raises the question of what other types of discriminatory measures (besides those enumerated  in thelist) should be considered as legitimate exceptions from the requirement in Article V:1(b) for the
«absence or elimination of substantially all discrimination».
VI.3.  Other issues
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 addi tional to those listed in the footnote might also be
involved in examining the sectoral coverage of an agreement.
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
                                                                                                                                                                    
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 imposed 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
Page 24
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 discrimination» requirement, only (ii) would apply.  In cases where
such discrimination remains beyond that le vel, (i) would be applicable and the
applicability of (ii) would 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» ofsubstantially all discrimination be exercised in the sense of Article XVII of the GATS.
VI.3.3 Paragraph 1(b):  Definition of the «reasonable time-frame» provision
96. Regarding the time-frame itself, it could be interpreted 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.
VI.3.4 Paragraph 2:  Meaning of «a wider process of economic integration»
98. Paragraph 2 states that the evaluation of an agreement's consistency with Article V:1(b) may
also take into account its relationship to «a wider process of economic integration or trade
liberalization» among the parties to the agreement, which has raised two issues, namely the
interpretation of «a wider process 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 economic 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 regulatory measures (through harmonization 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.
                                                     
62 That argument finds support in the drafting history of the paragraph.TN/RL/W/8
Page 25
VI.3.5 Paragraph 3:  Scope of the flexibility 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 granted «in accordance with the level of development ofthe 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 requirements for «absence or elimination of
substantially all discrimination» and for their elimination within a «reasonable
time-frame»;
• whether the flexibility provided for meeting the requirements for «substantial sectoral
coverage» under Article V:1(a) is limited 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 extended to the services regimes of countries other thandeveloping 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 personsowned or controlled by natural persons of the part ies to such an agreement.»  It has been suggested
that some limitations and/or conditions may be attached 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 accordance with the level of development of thecountries and their competitiveness in trade in services.
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 resp ect to third parties «within the respective sectors or
subsectors compared to the level applicable prior to such an agreement».
105. Identifying the appropriate method for determ ining 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 coun tries and the absence of detailed trade data on
services impede a significant evaluation of the level of barriers in effect before 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 proble ms.  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
                                                     
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.  Otherwise, 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.TN/RL/W/8
Page 26
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 extensi on 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 count 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 overall barriers to trade had been raised as a result,
given that such situation had to be dealt with under different legal provisions.  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 regard 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 treatments 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?
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 undermine the entitlement of third party suppliers to the
same benefits as those of the parties while preventing the granting of equivalent treatment to non-
established firms, or to firms which do not participate substantively in commercial transactions.  The
term «business operations» has been considered to cover production, distribution, marketing, sale and
delivery of a service, as provided for in Article XXVIII:(b).  Disagreement subsists on whether third-party suppliers are entitled to a treatment 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 takes place with the other RTA partners.
                                                     
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 largermarket and a single regulatory regime.
65 The concept of «substantive business operations» in services is equivalent to the rules of origin
requirements in the goods area.TN/RL/W/8
Page 27
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 which 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) from those who are properly legally established.
VII. INTERACTION BETWEEN REGIONAL TRADE AGREEMENTS AND THE MULTILATERAL
TRADING SYSTEM
VII.1.  The building block/stumbling-block debate
114. In the traditional, conceptual debate on "regionalism 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 process.  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.
VII.2.  Overlapping and networks of RTAs
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 through preferential rules of origin.  In addition, it
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 participating in the scheme – are not eligible.
117. Conversely, it has been argued that the constitution of RTA networks acts as a positive force
for the multilateral system.  Parties to individual RTAs within a network move toward the
harmonization of rules of origin with the view to greater integration.  Diagonal cumulation schemes
under preferential rules of origin regimes reduce barriers and facilitate trade among participating
economies, by simplifying and harmonizing customs procedures.
VII.3.  Effects of the extension of trade policy areas regulated through RTAs
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 progressive erosion of the multilateral legal framework.
                                                     
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 c ountries participate in various distinct bilateral or
plurilateral RTAs.
69 RTA networks are clusters of RTAs, each with si milar, if not identical, trade policy disciplines,
developed in parallel.TN/RL/W/8
Page 28
While the impact of regional trade policy disciplines differing from those under the WTO Agreements
is practically impossible to jauge, it has been obs erved 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 the use of competition or anti-trust policy measures in
intra-trade, in cases where anti-dumping measures would apply to third parties.  It has been arguedthat the maintenance of a dual system (of anti-dumping 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 networks 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 tradedisciplines developed regionally, so that they interact 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.
VII.3.2 Dispute settlement
120. Another area of growing concern refers to the effects of the dispute settlement provisions
contained in "new generation" RTAs, which could build jurisprudence conflicting with that of the
WTO.  This issue has raised in particular with re spect to RTA clauses 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 the 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.
121. Also, the argument that parallel dispute settlement procedures could nullify or impair WTO
rights of third parties has been contested on the grounds that such procedures concerned trade betweenthe parties and not trade with third parties.
                                                     
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
Page 29
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 the 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 non-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 informationregarding the proposed union or area as will enable them to make such reports andrecommendations to contracting parties as they may deem appropriate.» [GATTArticle XXIV:7(a)]
«Any contracting party taking action to introduce an arrangement … shall:  (a) … furnish [the
CONTRACTING PARTIES] with all the informat ion 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 Members should encompass.
Periodic reporting
Periodic reporting on the operation of customs 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 generally not attracting much attention.  The 1994
Understanding, in its paragraph 11, reiterated the obligation of providing such biennial reports.TN/RL/W/8
Page 30
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 surveillance in various Bodies, at various levels of
depth and complexity, depending upon which provision 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 above, Article XXIV:7(a) foresees that Members will needinformation «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 all
RTAs notified under GATT Article XXIV shall be «examined … in light of the relevantprovisions of GATT 1994 and paragraph 1 of this Understanding» and that a report shall
be submitted 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 services, 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 andinvited 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 part icipation of parties' experts from capitals)
comprised a further exchange of questions and replies, political statements and legal
comments.  Sometimes, the parties submitted further information in writing (usually,
statistics).  This information was in some cases reproduced in a formal document.
• The working party's report on the examination, 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 corresponding terms of reference for the examination.TN/RL/W/8
Page 31
The process was confidential, internal to the 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 conclusions merely recorded divergent views on the
assessment of the RTA's full compatibility with th e rules (usually by summarizing 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 with its text) is considered by the CTG (if
notified under GATT Article XXIV), the CTS (if notified under GATS Article V) or the
Committee on Trade and Development, if notified under the Enabling Clause).  Ifexamination of the agreement is needed, the relevant body adopts the terms of reference
for the examination and transfers 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 Format, which is published as a formal document.  This is theinitial step of what is called the "factual" 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.  Detailed 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 examination 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 forall EIAs notified and already consider ed by the CTS, and for a single RTA notified under the Enabling Clause.
76 The Standard Format is circulat ed as an unrestricted document.