RESTRICTED
WORLD TRADE WT/REG/W/16
26May1997
ORGANIZATION(97-2191)
Committee onRegional Trade Agreements
ANNOTATED CHECKLIST OFSYSTEMIC ISSUES
Note bytheSecretariat
Introduction
1. AttheNinth Session oftheCommittee onRegional Trade Agreements (CRTA), theSecretariat
wasrequested toprepare an"annotated checklist" based onthe"Checklist ofSystemic Issues Identified
intheContext oftheExamination ofRegional Trade Agreements" (WT/REG/W/12).
2. Thedocument hasbeenprepared withaviewtoproviding abriefdescription ofthecontext
inwhich theissues havebeenraised. Inthisrespect, thedocument annotates eachissue byincluding
three basic classes ofinformation, where applicable: asummary ofthetreatment oftheissue under
GATT 1947; areport ofhowtheissue wasdealtwithduring theUruguay Round; andanaccount of
points made inconnection totheissue during CRTA discussions.
3. Itshould benoted thatthematerial isnotextensive withrespect tosome Checklist issues.
Asaresult, some descriptions inthisNotearelimited tothereferences made todatewhen nosubstantive
debate hastaken place.
4. Theissues areordered inparallel withthecorresponding paragraphs ofArticle XXIV, whenever
possible. Since theyareoften interlinked, references toother issues havebeennoted.
___________________________
A. PrinciplessetoutinArticleXXIV:4andtheirrelationshipwithotherprovisionsinArticleXXIV
(WT/REG/W/12, para.3)
5. Thesecond sentence ofArticle XXIV:4 states thatthepurpose ofaregional trade
agreement (RTA) "should betofacilitate trade" among theparties and"nottoraisebarriers tothe
trade" ofthirdparties.
6. IntheGATT 1947context, theinterpretative problem focused onwhether RTAs hadtocomply
withtheprinciplescontainedinArticleXXIV:4inadditiontotherequirementssetoutinArticleXXIV:5-
9,orwhether theselatter paragraphs (inparticular paragraph 5)spelled outthecriteria fordetermining
ifanRTA mettheArticle XXIV:4 condition.1
1Aspin-off tothisinterpretation wastheideathat, where acustoms union orfree-trade areafulfilled the
requirements ofArticle XXIV:5, itwasipsofacto consistent withArticle XXIV:4.WT/REG/W/16
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7. MembersaddressedthisquestioninParagraph1oftheWTOUnderstandingontheInterpretation
ofArticle XXIV ofGATT 1994 (Understanding), which reads: "Customs unions, free-trade areas,
andinterim agreements leading totheformation ofacustoms union orfree-trade area,tobeconsistent
withArticle XXIV, mustsatisfy, interalia,theprovisions ofparagraphs 5,6,7and8ofthatArticle."
8. InCRTA discussions, theemphasis hasbeenonwhether "astable, transparent andpredictable
framework oftrading rules" inanRTA is"thegeneral presumption astohow[it]ought tooperate"
inthesense ofArticle XXIV:4. Ithasbeenpointed outthatsome RTA "rules could havetheeffect
ofrestricting theability ofthirdparties tobenefit fromthegeneral liberalizing objective" oftheRTA
andthat,asaresult, "thetradecreation possibility forthirdparties became subject toaspecial restriction
which hadtheeffect ofraising abarrier tothetrade ofother contracting parties".2Thisargument
hasbeenillustrated, inthecaseoffree-trade agreements (FTAs), bythepossibility ofsectoral rules
oforigin,3appliedtariffincreasesand"changesincustomsvaluationprocedures"4restrictingopportunities
forthirdparties.
[Seealsoissues No.C,DandE.]
B. Evaluation ofthegeneral incidence ofduties andother restrictive regulations ofcommerce
before andaftertheformation ofacustoms union (WT/REG/W/12, para.15)
9. InterpretativeproblemsrelatingtotheevaluationprovidedforinArticleXXIV:5(a)haveincluded
thefollowing:
Whethertoapproachthematterasaglobalexercise,byautomaticallyapplyingaformula
andjudging acommon external tariff initsentirety, ortoexamine individual
commodities/sectors onacountry-by-country basis.
Whether agiven calculation should bebased onthebound ratesortheactually applied
rates, andwhether acomparison ofduties collected could beused.
Whether arithmetic ortrade-weighted averages oftheduties oftheconstituent territories
should form thebasis forthecalculation.
Whether there should besome kindoftariff-equivalent measurement ofquantitative
import restrictions andvariable levies.
10. GATT 1947 bodies examining customs unions could notagree onamethodology forthe
assessment.
11. TheWTO Understanding (paragraph 2)clarified some concepts anddefined amethodology
forcomputing "weighted average tariff rates" onwhich the"overall assessment" ofthetariff aspects
oftheevaluation ofthegeneral incidence would bebased. With respect totheother-regulations-of-
commerce facetoftheexercise, theUnderstanding provides that,when "quantification andaggregation
2WT/REG4/M/2, para.8.
3AnumberofGATTworkingpartiesdiscussedtheoperationofFTAs'rulesoforigininthelightof,interalia,
Article XXIV:4 provisions. (SeeAnalytical Index ,WTO, Geneva, 1995, pp.802-803.)
4WT/REG4/M/2, paras. 12,42-46.WT/REG/W/16
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aredifficult, theexamination ofindividual measures, regulations, products covered andtrade flows
affected mayberequired".
12. IthasbeenstatedintheCRTAthatproblemsofinterpretationpersist,sinceinthe"before-versus-
after" tariff test,theassessment isbased onaverages andtherefore ignores "thefactthatexports of
thirdparties might beconcentrated inafewsectors"; also,theassessment of"theimpact ofmeasures
other thantariffs, suchasanti-dumping, preferential rulesoforigin, technical standards, subsidies and
countervailing measures" remains difficult while "thescope andimportance ofthose measures had
increased inthepost-Uruguay Round period".5
13. Currently under consideration intheCRTA isaNotebytheChairman describing thetechnical
basis onwhich theSecretariat willproceed withthecalculation ofweighted averages ofduties and
charges before andaftertheformation ofacustoms union, without prejudice tothesubstance andlegal
implications oftheprovisions involved.
[Seealsoissue No.A.]
C. Differences intheWTO regulatory framework, withrespect totariffs, forcustoms unions and
free-trade areas (FTAs) ascontained inArt.XXIV:5 andtheUnderstanding (WT/REG/W/12,
para.2(a))
14. Thetwoparallel provisions contained insub-paragraphs (a)and(b)ofArticle XXIV:5 refer
totherequirement forcustoms unions andFTAs, respectively, nottoincrease therestrictiveness of
trade barriers withtheformation ofsuchRTAs. Acomparison ofduties andother regulations of
commerce "imposed" byacustoms union andthose "applicable" byitsmembers priortotheinstitution
oftheunion isrequired inArticle XXIV:5(a); thecorresponding language usedinArticle XXIV:5(b)
withrespect toFTAs is"maintained" and"existing".
15. GATT1947bodiesassessingtheconsistencyofRTAsconsistentlystumbledontheinterpretation
ofthese terms withrespect totariffs, mostoften when examining customs unions andlessfrequently
inthecourse ofFTA examinations. Thequestion waswhether "imposed/applicable" and
"maintained/existing" referred tobound ratesofdutyortoapplied rates.
16. TheWTO Understanding partly solved theambiguity byelaborating onArticle XXIV:5(a)
provisions. Inparagraph 2itspecifies that,intheassessment ofcustoms unions, "theduties andcharges
tobetaken intoconsideration shallbetheapplied ratesofduty".
17. Reference totheissueintheCRTA haspointed tothefactthatnoclarification hasbeenproposed
withrespect totheterms "maintained/existing" ofArticle XXIV:5(b).
[Seealsoissues No.AandD.]
D. Trade diversion occurring incaseswhere amember ofanFTAmaintains high,and/or increases,
thelevels ofMFN protection, evenwithin thebound tariff rates (WT/REG/W/12, para.8)
18. Thisissue hasarisen twice inCRTA examinations ofFTAs: as"aspecific difficulty created
when amember ofafree-trade areamaintained -andespecially when itincreased -highlevels ofMFN
5WT/REG/M/4, para.60.WT/REG/W/16
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protection, evenwithin thebound tariff rates"6andas"aclearcasewhere trade barriers against third
countries were raised through increased duties"7.
[Seealsoissues No.AandC.]
E. Differences intheWTO regulatory framework forcustoms unions andfree-trade areas (FTAs)
ascontained inArt.XXIV:5 andtheUnderstanding, withrespect toother measures, suchas
rules oforigin (WT/REG/W/12, para.2(b))
19. Theonlymeasures specifically identified inthisregard havebeenrules oforigin. Theuse
ofrulesoforigin wasdiscussed byseveral working parties examining FTAs notified under theGATT
1947, though consensus wasnever reached onwhether rules oforigin were tobeconsidered asone
ofthe"other regulations ofcommerce" interms ofArticle XXIV:5(b).
20. TheWTO Agreement onRules ofOrigin aimsattheharmonization ofrules oforigin, other
thanthose relating tothegranting oftariff preferences. A"common declaration" annexed tothat
Agreement istheonlyWTO reference withrespect totheoperation ofrulesoforigin ongoods which
qualify forpreferential treatment, such asmight befound inanFTA; itprovides forenhanced
transparency ofsuchorigin rules.
21. Indiscussions oftheCRTA, thepoint hasbeenmade thatanFTA"could bejustassignificant
initstradeimpact asacustoms union, butfacesignificantly lessstringent rules". Rules oforigin have
beencitedasacharacteristic feature onwhich nodisciplines existinFTAs. Ithasbeenargued that
"rules oforigin ...wererelevant tothe'other regulations ofcommerce '-test,found inArticle XXIV:5.
Thecoreoftheconcern [hasbeen] thatinsome sectors ...theeffect seemed tobetomanage trade
andtoprevent thefulltrade-creating benefits oftheliberalization process from developing".8
[Seealsoissue No.A.]
F. Whether, inthecontext ofArt.XXIV:5(b), theduties andother regulations ofcommerce of
anewRTA canbecompared withthose ofapre-existing FTAwithoverlapping membership
(WT/REG/W/12, para.6)
22. Different views havebeenexpressed intheCRTA onwhether apre-existing FTAcanbeused
forcomparative purposes under Article XXIV:5(b). Oneviewhasbeenthatapre-existing FTAwas
aseparate agreement andtherefore should notbethebasisforcomparison; further, Article XXIV:5(b)
"mentioned internal regimes, notarrangements".9Another view hasbeenthatprior arrangements
involvingthesameconstituentterritoriesnaturallyfactorintotheanalysisofwhetheranFTAhasresulted
inhigher ormore restrictive duties andother regulations ofcommerce, as"thewords 'sameconstituent
territories 'were notqualified byanassumption thatthere hadbeennoother previous preferential
6WT/REG4/M/2, paras. 3,10,46.
7WT/REG18/M/1, para. 18.
8WT/REG4/M/2, para. 3.
9WT/REG4/M/2, para.29.WT/REG/W/16
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arrangement, and'prior'didnotassume asortofperfect, most-favoured-nation world".10Within this
same context, ithasbeenargued that"given theinterlocking networks ofvarious RTAs involving
Members,theCommitteemighthavetoconfrontthematterofoverlappingtariffschedulesandrestrictive
regulations".11
G. Thescope ofcompensation tothird parties foranyinjury caused bythecreation ofRTAs,
astheeffect ofRTAs onthirdparties isbased onanassessment ofthechanges inaverage tariff
rates (WT/REG/W/12, para.12)
23. Thismatter hasbeenraised inCRTA discussions asneeding consideration.12
[Seeissue No.C.]
H. Interrelationship between theprovisions contained inparagraph 7(a)ofArticle XXIV and
paragraph 7oftheUnderstanding with respect tonotification, supply ofinformation,
examination, andappropriate recommendations byWTO Members (WT/REG/W/12, para.4)
24. Noting theGATT 1947 Article XXIV:7(a) requirement foraContracting Party deciding to
enterintoanRTA(oraninterim agreement leading toone)to"promptly notify theContracting Parties",
theCouncil issued thefollowing decision on25October 1972:
Without prejudice tothelegalobligations tonotify inpursuance ofArticle XXIV, the
Council decides toinvite Contracting Parties thatsignanagreement falling within the
terms ofArticle XXIV, paragraphs 5to8,toinscribe theitemontheagenda forthe
firstmeeting oftheCouncil following suchsignature ,totheextent thattheadvance
notice oftendaysprescribed forinclusion ofitems ontheagenda canbeobserved.
Inclusion oftheitem should allow theCouncil todetermine theprocedures for
examination oftheagreement. [emphasis added]13
25. Members havepursued thematter ofthetiming ofnotifications andexaminations ofRTAs
inCRTA discussions. Ithasbeensuggested thatthenotification requirement needs tobeclarified
orstrengthened, aspractice hasshown there tobedelayed notifications, sothatmany examinations
could onlybeconducted “expost”.14Ithasbeenpointed outthatmore timely notification would set
inmotion theexamination process early enough forRTA parties torespond toconcerns andbring an
agreement intolinewithWTO provisions.15,16
10WT/REG4/M/2, para. 38.
11WT/REG/M/4, para.65.
12WT/REG/M/4, para.60.
1319S/13.
14WT/REG3/M/1, para.44.
15Id.,para.45.
16OftheRTAs notified under Article XXIV asofOctober 1997, onethird were notified between thedate
ofsignature andthedateofentry intoforce, andhalfwere notified after thedateofentry intoforce.WT/REG/W/16
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26. Todealwiththissituation, oneideahasbeentoadopt a"two-tiered" notification procedure,
whereby RTAparties would provide preliminary information onanagreement atitssignature andfollow
upwithmore detailed information uponitsratification.17Objections tothisideahavebeenthatitwould
notbepracticable andthattheCRTA lacks authority tomake thisaformal requirement.18While the
Committee addressed many aspects oftheexamination process intheGuidelines onProcedures to
Improve andFacilitate theExamination Process19,thetiming ofnotifications andexaminations remains
anopenquestion.
I. Notification ofFTAs under theEnabling Clause (WT/REG/W/12, para.16)
27. AttheCRTA meeting of28April 1997, several delegations expressed theview thatthe
Committee should ensure itisfullyinformed about allRTAs notified totheWTO andproposed that
theCRTArequesttheCommitteeonTradeandDevelopment(CTD)toprovidealistofallRTAsnotified
under theEnabling Clause. Some others questioned theauthority oftheCRTA torequest such
information. AttheCTDmeeting of20May1997, theSecretariat wasasked tocompile alistofRTAs
notified under theEnabling Clause.
J. Which statistics should beprovided relating totrade among parties toanRTA
(WT/REG/W/12, para.19)
28. Under Article XXIV:7(a) ofGATT 1947, parties deciding toenter intoRTAs hadthe
responsibility tomake available "such information regarding theproposed union orareaas[would]
enable [Members] tomake suchreports andrecommendations tocontracting parties astheymight deem
appropriate."
29. Indetailing howtheevaluation ofthegeneral incidence ofduties andother regulations of
commerce istobecarried out,paragraph 2oftheWTO Understanding provides that"thisassessment
shallbebased onimport statistics foraprevious representative period tobesupplied bythecustoms
union, onatariff-line basisandinvalues andquantities, broken down byWTO country oforigin...."
During thenegotiation oftheGATS, itwasrecognized thatstatistics forservices (onproduction,
distribution, andtrade flows) were notasreadily available asthose forgoods, andthattheexisting
onesweresometimesdifficulttouseforcomparativepurposesbecauseMembersuseddifferentaccounting
methods. These factors added tothechallenges ofnegotiations andwere reflected infootnote 1of
GATS Article V,which describes thesubstantial sectoral coverage condition as"understood interms
ofnumber ofsectors, volume oftrade affected andmodes ofsupply. Inorder tomeetthiscondition,
agreements should notprovide fortheapriori exclusion ofanymode ofsupply."
30. InCRTA examinations, theissue ofwhich statistics should beprovided hasarisen inseveral
contexts, including thefollowing:
17Discussionon"ProcedurestoFacilitateandImprovetheExaminationProcess,"FourthSessionoftheCRTA,
WT/REG/M/4, para.15.
18Id.,para. 18.
19WT/REG/W/15, taken noteofattheTenth Session oftheCRTA.WT/REG/W/16
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Datafromtheperspective ofeachRTApartyhasbeenrequested, notjustonthevolume
andvalue ofexports andimports, butalsoontheshare ofeachparty'stotaltradethat
these figures represent.20
Statistical information onthepercentage ofeach party'stotal trade covered by
preferences hasbeenasked for,withsomeRTAparties responding thatthisinformation
isnotcalled forintheexamination process butrather isrelevant totheCommittee 's
discussions onsystemic issues;21further, ithasbeen noted thatstatistics ontrade
enjoying preferences aredifficult toprovide, asdataonthese flows often isnot
collected, orisimprecise duetopreferences sometimes notbeing sought.22
Statistics onpreferences among the"web" ofRTAs hasbeenrequested sothatMembers
might haveanindication ofhowthemargins mesh.23
31. TheStandardFormatforInformationonRegionalTradeAgreementsonGoods24andtheStandard
Format forInformation onEconomic Integration Agreements onServices25contain guidelines forthe
provision oftrade data. Bothdocuments beartheintroductory caveat that"theinformation requested
inthisStandard Format doesnot...replace therequirement forparties ...toprovide Members with
allrelevant textsoflawsandtradedata. Further, itdoesnotpreclude Members fromposing questions
inwriting andseeking additional information from parties."
32. Requests forstatistics havealsobeenmade inthecontext oftheCRTA mandate toconsider
reporting ontheoperation ofagreements, withthesuggestion thatbiennial reporting bearelatively
simple exercise involving statistical updates.
K. Length oftransition periods forinterim agreements (WT/REG/W/12, para.10)
L. Meaning ofthephrase "plan andschedule" ofaninterim agreement, asstipulated in
Article XXIV:5(c) (WT/REG/W/12, para.13)
33. Article XXIV:5(c) requires interim agreements toinclude a"plan andschedule fortheformation
ofsuchacustoms union orsuchafree-trade areawithin areasonable length oftime." However, the
terms "reasonable length oftime" and"plan andschedule" arenotclearly defined. Inthepast,
especially, thetextsofmany agreements contained noreferences tocompletion dates, making itunclear
whether agiven interim agreement hadadefinite end-point totheperiod oftransition.
34. TheWTO Understanding addressed thequestion ofwhatconstitutes a"reasonable length of
time", saying theperiod "should exceed 10years onlyinexceptional cases," andnoting that"incases
where Members parties toaninterim agreement believe that10years would beinsufficient theyshall
provide afullexplanation totheCouncil forTrade inGoods oftheneedforalonger period."
20Forexample, WT/REG/12,16,20/M/1, para.6.
21Id.,paras. 11-15.
22Forexample, WT/REG13,14,15/M/1, para.24.
23Id.,paras.14-17.
24WT/REG/6, taken noteofattheCRTA meeting of31July1996.
25WT/REG/W/14, taken noteofattheCRTA meeting of2May 1997.WT/REG/W/16
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35. InCRTA discussions, thisissuehasbeenmentioned inalistofissues ofsystemic importance,
butnotfurther elaborated.
M. Meaning of"duties andother restrictive regulations ofcommerce" inArticles XXIV:8(a)(i)
andXXIV:8(b) (WT/REG/W/12, para.14)
36. InCRTA discussions, thisissuehasbeenmentioned inalistofissues ofsystemic importance,
butnotfurther elaborated.26
[Seeissue No.N.]
N. Application ofsafeguard andanti-dumping measures among members ofanRTA
(WT/REG/W/12, para.20)
37. ThefactthatArticles XIX(Emergency Measures) andVI(Anti-dumping Measures) arenot
mentioned among thepossible exceptions spelled out,within brackets, inArticles XXIV:8(a)(i)
andXXIV:8(b) isasource ofcontention. Oneaspect oftheissueisdirectly linked totheArticle XXIV
consistency testofanRTA: Does thatomission mean that,where anRTA retains thepossibility of
safeguard oranti-dumping typeactions among parties, itmight beviolating therequirement toeliminate
the"duties andother restrictive regulations ofcommerce" on"substantially allthetrade..." contained
inArticles XXIV:8(a)(i) andXXIV:8(b)?27
38. IntheGATT 1947, reports frombodies examining RTAs mostoftenrecounted thedisagreement
existing inrelation topractices limiting theapplication ofsafeguard andanti-dumping measures to
thirdcountries.
39. Within theCRTA, "thediscrepancy between theeffects" ofintra-RTA safeguard/anti-dumping
provisions andtherequirements ofArticle XXIV hasbeenreiterated.28
[Seeissues No.Q(c)andR.]
O. Meaning of"substantially allthetrade" inArticles XXIV:8(a)(i) andXXIV:8(b), interms of
sectors (inparticular withrespect toagriculture), volume orvalue (WT/REG/W/12, para.17)
40. Nocriteria havebeenagreed tofordetermining whattheterm"substantially" allthetrade in
Articles XXIV:8(a)(i) andXXIV:8(b) entails. Different readings ofthattermarebasically linked to
twodistinct conceptual views, oneemphasizing itsquantitative dimension, theother calling fora
qualitative analysis. Under thequantitative view, shaped interms oftradecoverage, questions include
thefollowing:
26References toworking party discussions onthissubject appear intheAnalytical Index ,WTO, Geneva,
1995, pp.820-21.
27Another aspect oftheissue touches upon therelationship between Articles XXIV andXIXprovisions:
Does theinvocation ofArticle XXIV permit adeparture from thenon-discriminatory obligation ofArticle XIX?
28WT/REG12,16,20/M/1, para.28.WT/REG/W/16
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AreRTAparties required toliberalize afixedpercentage ofthevolume oftradeamong
parties, ordoesthetestinvolve amore flexible quantitative standard, calling foracase-
by-case, "merits" typeofapproach?29
Should theeffects ofanRTA overtime(i.e.whether itpoints toward anincrease or
reduction inbarriers affecting trade among theconstituents) alsobeconsidered?
Should thedampening effect ofpre-existing trade impediments onimports ofthe
constituent parties betaken intoaccount infiguring thepercentage oftradeliberalized?30
Thequalitative viewoftheterm"substantially" allthetradebasically focuses onthepossibility
ofanRTAtocover alargeportion oftheparties 'tradebutstillfallshorts ofadequate sectoral coverage.
Inthisrespect, questions include thefollowing:
Should theconsistency-assessment takeintoaccount thetendency ofanRTAtofacilitate
trade expansion inasector eventhough provisions might notcallfortheelimination
oftrade barriers?
Should theremoval oftrade barriers havetotakeplace among alltheparties inorder
fortheliberalization tobefactored intotheassessment?
41. Inaddition todifferences inopinion withrespect totrade orsectoral coverage, themeaning
ofthedistinction drawn between thephrases "substantially allthetrade" and"trade insubstantially
alltheproducts" inArticle XXIV:8(a)(i) hasnotbeenclarified.
42. Practically allGATT 1947 bodies examining RTAs were faced withthedifficulty offilling
thegapbetween those Members holding aqualitative viewoftheterm"substantially" allthetrade,
andthose favouring itsquantitative dimension. Inmost cases, thestumbling block resided inthe
exclusion ofagricultural products (ortheagricultural sector) fromintra-RTA trade liberalization. No
consensus waseverreached onthispoint.
43. Though discussed during theUruguay Round, thisinterpretative problem isonlyreferred to
inthepreamble totheWTO Understanding, where Members '"recogniz[e]" thatintegration among
parties toRTAs contributes more totheexpansion ofworld trade when theelimination ofintra-trade
barriers covers alltrade, andless"ifanymajor sector oftrade isexcluded".
44. InCRTAdebatesandexaminationsofRTAs,thislong-standingquestionofunclearinterpretation
hasbeenrepeatedly raised, within virtually thesame parameters asbefore.
P. Relationship between Article XXIV:8(a)(ii) requirements andArticle XXIV:6 compensatory
negotiations andtheprocedures fornegotiations under Article XXVIII (WT/REG/W/12,
para.5(a))
45. Article XXIV:6 ofGATT 1947provides thatcontracting parties forming acustoms union must
follow theprocedure setforthinArticle XXVIII when proposing toincrease anyrateofdutyinamanner
29This"merits" approach wasputforth bytheEuropean Communities intheexamination oftheEECTreaty.
L/778, adopted on29November 1957, 6S/100, para.34.
30Id.WT/REG/W/16
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inconsistent withArticle II.Article XXVIII:1 inturnprovides that,"bynegotiation andagreement"
withthe"contracting parties primarily concerned", andsubject toconsultation withsubstantial suppliers,
acontracting party maymodify orwithdraw aconcession. Article XXVIII:3 thenstipulates thatthe
contracting party proposing tomodify orwithdraw theconcession isfreetodosoifnoagreement
canbereached inthisregard.
46. TheWTO Understanding elaborates onthisrequirement andstates that"Members reaffirm
thattheprocedure setforthinArticle XXVIII, aselaborated intheguidelines adopted on10November
1980 (BISD 27S/26-28) andintheUnderstanding ontheInterpretation ofArticle XXVIII ofGATT
1994, must becommenced before tariff concessions aremodified orwithdrawn..."
47. Comments made during CRTA meetings havehighlighted theinteraction ofthisaspect of
Article XXIV:6 withtheArticle XXIV:8(a)(ii) requirement thatmembers ofacustoms union apply
"substantially thesame duties andother regulations ofcommerce". Ithasbeen argued that
Article XXVIII wasdrafted withaviewtoward providing compensation when acontracting partywished
to"breakitstariffbindingstoprotectadomesticindustryfromforeigncompetition"andwasnotdesigned
withreference totheenlargement ofacustoms union, where thereareadjustments tonumerous tariff-
linesforthecommon external tariff.31Thisargument hasbeenmetbytheresponse thatthere isno
apparent conflict between therequirements ofArticle XXIV:8(a)(ii) andtheprocedures tobefollowed
inArticle XXVIII.32
48. Regarding thetiming ofcompensatory negotiations fortheenlargement ofacustoms union,
attention hasbeen drawn tothecallintheUnderstanding forArticle XXVIII procedures to"be
commenced before tariff concessions aremodified orwithdrawn" [emphasis added].
Q. Article XXIV:8(a)(ii) requirements andtheir relationship with other WTO provisions
(WT/REG/W/12, para. 5)
49. Article XXIV:8(a)(ii) requires that,inacustoms union, "substantially thesameduties andother
regulations ofcommerce" be"applied byeachofthemembers oftheunion tothetrade ofterritories
notincluded intheunion". Inother words, itrequires thata"substantially" common external trade
regime beinplace.
50. Within thecontext ofeither theextended scope ofWTO obligations aftertheUruguay Round,
orthecharacteristics ofenlarging existing customs unions, orboth, anumber ofquestions havebeen
raised inCRTA discussions:
(a) What methodology should beusedtoaggregate and/or modify commitments limiting
agricultural subsidization (domestic support and export subsidies) when
establishing/enlarging acustoms union? (WT/REG/W/12, para.5(c))
Uruguay Round agricultural reduction commitments ondomestic support andexport
subsidies arecontained ineachMember 'sWTO Schedule. Inaccordance withthe
requirement inArticle XXIV:8(a)(ii), thecommitments ofindividual Members forming
(orjoining) acustoms union mayneedtobechanged or,atleast, unified.
31WT/REG3/M/1, para. 53.
32Id.,para. 56.WT/REG/W/16
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Nomultilaterally agreed-upon methodology exists astohowtotranslate individual
Members 'commitments limiting agricultural subsidization intocommon commitments.
Whenever parties seektochange agricultural commitments asaconsequence ofthe
formation (orenlargement) ofthecustoms union, there aredifficulties relating tothe
lackofproceduresformodifyingsuchcommitments.ArticleXXIV:6andparagraphs4-
6oftheUnderstanding relate totariff changes, forwhich Article XXVIII procedures
areused. TheAgreement onAgriculture hasnoprocedures withrespect tothismatter.
(b) Introduction ofnewquantitative restrictions inthecontext ofArticles XXIV:5
andXXIV:8. (WT/REG/W/12, para.21)
Thegeneral question relates towhether compliance with therequirement in
Article XXIV:8(a)(ii) justifies thatoneormoremembers ofacustoms union beentitled
tointroduce newmeasures towhich other WTO provisions might pertain.
Within theCRTA, thisissue wasraised inconnection withTurkey 'sintroduction of
textile quotas inthecontext oftheformation ofacustoms union withtheEC.Onthe
basisoftheprovisions ofArticle XXIV, itwasargued thatcustoms unions wereallowed
tomaintain restrictive measures, among which werequantitative restrictions, "provided
those measures werenotmore restrictive thanthose inforce before theestablishment
ofthecustoms union." Inthisregard, itwasnoted thatArticle XXIV isoneofthe
"relevant GATT 1994provisions" within themeaning ofArticle 2:4oftheAgreement
onTextiles andClothing.33
(c) How todealwiththeapplication bynewRTA members ofanti-dumping/safeguard
measures already inplace within theRTA? (WT/REG/W/12, para.5(b))
Theissueiswhether acustoms union 'santi-dumping measures (against thirdcountries)
canorshould automatically beextended tonewmembers oftheunion. Theargument
linking such"automatic" extension tothefulfilment oftherequirement contained in
Article XXIV:8(a)(ii) hasbeen challenged intheCRTA onthebasis that"fresh
investigations toestablish injury tothedomestic industry" should takeplace andthat
thedumping margin tobeapplied should takeintoaccount export prices ofthegoods
soldintothenewmember markets.34
[Seeissues No.NandR.]
R. RelationshipbetweenArticleXXIVoftheGATT1994andotherprovisionsofWTOAgreements
(WT/REG/W/12, para.22)
51. Theonlyprovisions specifically identified inthisregard have been those concerning the
relationship between Article XXIV andArticle XIX. Thefundamental interpretative question is:
whenever anRTAmember takesasafeguard action, isitentitled/required toexempt fromtheapplication
oftheresulting measures imports fromitsRTA partners, ordoestheinvocation ofArticle XXIV not
permit adeparture fromthenon-discriminatory obligation ofArticle XIX? Acorollary question relates
33WT/REG22/M/1, para.21.
34WT/REG3/M/1, para.70.WT/REG/W/16
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tothedifficulties inthedetermination oftheconditions attached toArticle XIXactions inanRTA
context, partially addressed infootnote 1totheWTO Agreement onSafeguards.
52. Within theCRTA, ithasbeenclaimed that"when necessity called foremergency action, usually
thecause oftheproblem came from thepartners, rather thanthirdparties, because thepartners had
preferential tariffrates. Itthusseemed oddthattheFTApartners could beexcluded fromtheemergency
action when there wassome injury".35
[Seealsoissues No.NandQ(c).]
S. Assessment oftheconsistency ofanRTA withWTO rules when atleastoneofitsparties is
notaWTO Member (WT/REG/W/12, para.18)
53. Under GATT 1947, itwasdisputed whether agreements involving non-contracting parties were
subject totheprocedures ofArticle XXIV:7 ortothose ofArticle XXIV:10. Reports ondiscussions
attheHavana Conference, however, noted that“asixth paragraph wasadded toprovide thatthe
Organization may, byatwo-thirds vote, approve proposals which donotfully comply withthe
requirements oftheArticle provided thattheyleadtotheestablishment ofacustoms union orafree-trade
areainthesense oftheArticle. Itwastheunderstanding oftheSub-Committee thatthisnewparagraph 6
willenable theOrganization toapprove theestablishment ofcustoms unions andfree-trade areaswhich
include non-Members ”.36TheAnalytical Index indicates thatthose whofavoured theinsertion ofthe
words “asbetween theterritories ofMembers ”inArticle 44intended that“thisArticle, including the
newparagraph 6...would notprevent theformation ofcustoms unions andfree-trade areas ofwhich
oneormorepartieswerenon-MembersbutwouldgivetheOrganizationanessentialdegreeofcontrol”.37
Paragraph 10became partofGATT 1947 when theoriginal textofArticle XXIV wasreplaced by
thetextsofthecorresponding articles intheHavana Charter.38
54. Thisissue arose intheCRTA during theexamination oftheEFTA-Bulgaria FTA, when it
wasnoted thatBulgaria wasintheprocess ofacceding totheWTO.
T. Modalities toimprove themechanism ofexamining RTAs (WT/REG/W/12, para.7)
55. AsthefirstGATT 1947 working party toconduct anArticle XXIV examination ofanRTA,
theWorking Party on"The South Africa-Southern Rhodesia Customs Union" wascharged with
investigating whatprocedure might beestablished forexaminations. InitsReport, theWorking Party
stated that"nogeneral procedures canbeestablished beyond those provided intheArticle itself".39
InthediscussionofthisReportduringtheThirdSessionoftheContractingParties,therewerestatements
that"each caseshould beconsidered onitsownmerits," asnotwoRTAs hadthesame characteristics,
35WT/REG12,16,20/M/1, para.28.
36Havana Reports, p.52, para.27.
37Id.,p.51, para.23.
38Seealsotheexcerpts from thePanel Report on“EC-Tariff Treatment onImports ofCitrus Products from
Certain Countries intheMediterranean Region, ”L/5776, para.3.14, andthediscussion above concerning the
scope ofArticle XXIV:5, atpage 798.
39GATT/CP.3/24, adopted on18May 1949, II/176, 181, para.20.WT/REG/W/16
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andthat"toestablish precedents wasclearly against thespirit ofArticle XXIV".40Thiscase-by-case,
"merits" approach wasthenchampioned insubsequent working parties.41
56. Assoonastheworking party process wastransferred totheCRTA,42theCommittee began
carryingoutitsmandate"todevelop,asappropriate,procedurestofacilitateandimprovetheexamination
process", taking difficulties found initsparallel examination experience intoaccount. These problems
werelargely procedural, involving matters suchasthesubmission ofinitial information andfollow-up
questions andreplies. Theproblems werenotspecific toanindividual examination butrather were
ofamore general nature. TheCommittee worked withsuccessive drafts ofGuidelines onProcedures
toImprove andFacilitate theExamination Process andwasabletotakenoteofthese Guidelines
(document WT/REG/W/15) atitsTenth Session.
U. Questions related tooverlapping membership ofRTAs -e.g.legalimplications, rulesoforigin,
parallel disciplines, margins ofpreference, etc.(WT/REG/W/12, para.11)
57. Withtheproliferation ofRTAs inrecent years, overlapping membership ofRTAs hasattracted
attention. IntheCRTA, discussion onspecific points hasledtobroader inquiries astothepotential
ofoverlapping RTAs toadvance orhinder themultilateral trading system.
58. Concerns havebeenraised inexaminations withrespect tonegative trade effects ofdiffering
rulesoforigin, withthepoint made thatcomplex andvarying methods ofcalculating regional content
imposes asignificant burden onindustry.43Thisproblem ismagnified bytheoverlap ofRTAs.
However, itcanbeargued thatthenetworking ofRTAs actsasapositive force forthemultilateral
system, asparties aremoving toward theharmonization ofrules oforigin forthesakeofgreater
integration.
59. Regarding margins ofpreference, ithasbeen noted (i)thatpreferences linkthevarious
agreements inEurope andelsewhere together, (ii)thatitisunclear howthedifferent RTAs provide
formargins ofpreference tobegranted tothird parties, and(iii)thatthere seems tobeatendency
toward harmonization ofthepreferential treatment granted under various agreements, nottheleast
forpractical purposes.44
40GATT/CP.3/SR.13, p.5,7.
41Forexample, theReport oftheWorking Party on"Association ofGreece withtheEEC," L/1829, adopted
on15November 1962, 11S/149, 157,para.32, andtheReport oftheWorking Party on"EEC -Agreement of
Association withTurkey," L/3750, adopted on25October 1972, 19S/102, 103, para.3.
42General Council Decision of6February 1996, WT/L/127.
43Forexample, WT/REG4/M/1, para.79.
44WT/REG12,16,20/M/1, paras.16, 17.WT/REG/W/16
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V. Overlapping dispute settlement systems thatcould lead toconflicting jurisprudence
(WT/REG/W/12, para.9)
60. InCRTA discussions, attention hasbeendirected tothepotential problem ofRTAs developing
jurisprudence thatconflicts withthatoftheWTO. Thisissuearose withrespect toNAFTA Article 103,
which stipulates thattheNAFTA isto"prevail overother agreements totheextent ofanyinconsistency,
except asotherwise provided"; awritten question hadasked what thescope oftheclause is,asfar
astheparties 'obligations asWTO Members areconcerned.45During theexamination, theparties
explained thatNAFTA Article 103"wasdesigned toemphasize thatifaParty wentbefore aNAFTA
dispute settlement panel, rather thanaWTO Panel, itwould notbeabletorelyonWTO Article XIII
totrump theotherwise applicable rules oftheNAFTA."46
45WT/REG4/1, question 14.
46WT/REG4/M/1, para.31.