RESTRICTED
WORLD TRADE WT/REG/W/22/Add.1
24April 1998
ORGANIZATION(98-1676)
Original: English Committee onRegional Trade Agreements
COMMUNICATION FROM AUSTRALIA
Addendum
Atthemeeting oftheCommittee onRegional Trade Agreements of20February 1998anumber
ofCommittee Members commented ontheideas contained inanearlier Australian paper circulated
asWT/REG/W/22. Thispaper seeks toreply tosome ofthem. Asintheearlier paper, thethoughts
suggested hereareataconceptual stage. They willneedtobeexamined against thepracticalities of
thenegotiation andadministration ofregional trade agreements.
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Theproposal
1. Members willrecall thattheearlier Australian paper suggested that"substantially alltrade"
should bedefined ascoverage byafree-trade agreement oranagreement establishing acustoms union
of95percentofallthesix-digit tariff lineslisted intheHarmonised System. Thiscriterion would
onlyapply toarrangements notified under GATT Article XXIV.
Responses tocomments
What isthebasis forselecting thefigure of95percent?
2. Article XXIV:8 states thatduties andrestrictive regulations ofcommerce havetobeeliminated
onsubstantially allthetradebetween theparties toanarrangement. Weleave aside forthetimebeing
thequestion ofhow"other restrictive regulations ofcommerce" should beinterpreted. Asisalso
recognised inthepaper byHong Kong, China, (WT/REG/W/24) onthesametopic, thisclearly means
lessthanallthetrade between theparties. Thecriterion, expressed numerically, therefore hastobe
below 100percent. Theproposed figure of95percentisarbitrary. Itisoffered herefordiscussion
purposes. Thehigher thefigure is,themoreitwillcontribute totradeliberalisation between theparties.
Would thefigure of95percentapply tothetrade ofalltheparties toaregional
trade agreement?
3. Thefigure of95percentwould apply toanyarrangement regardless ofthenumber ofparties.
Between them, theparties would beabletoexempt 5percentofallsix-digit tariff linesaslisted in
theHarmonised System (HS)from therequirement speltoutinGATT Article XXIV:8. How they
would share outthe5percentwould reflect theparticular circumstances oftheeconomies involved.
Theactual division oftheavailable tariff lines would bedone through negotiations between the
prospective parties tothearrangement. Inthesame vein, if,forexample, three economies wereto
participate, eachwould beentitled toanotional 1.66percentofexceptions.WT/REG/W/22/Add.1
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What isthebasis forsuggesting thattheHarmonised System beused?
4. Theadvantage oftheHSisthatitisrecognised byallWTO members asthebasisforregulating
theconditions under which theyconduct theirtrade ingoods. Itisaneutral system inthatitcovers
trade inallgoods, regardless ofwhether aneconomy actually imports orexports alloftheproducts
listed. Thenumber oftariff linesdown tothesix-digit leveliscommon toallwhohaveaccepted it.
Itwould ofcourse bequitefeasible touseanother internationally recognised system, suchastheStandard
International Trade Classification (SITC), which isusedbymany asthebasisfortheirtradestatistics.
Why hasthesix-digit levelbeen chosen?
5. TheHSclassification isthesame forallWTO members down tothesix-digit level. Atthis
level, itoffers considerable disaggregation oftarifflines. Comparisons aretherefore veryeasy. More
detailed break-ups (e.g. eight ormore digits) could beused, butthese arespecific tothespecial
characteristics ofthetrade ofamember. Theelement ofeaseofcomparison could thenbelost.
6. Theaimofregional economic integration would besupported further ifanysensitive products
wereidentified asprecisely aspossible. Thesix-digit levelpromotes thisidea. Italsoreflects apractice
already followed bymany parties toregional tradeagreements (RTAs). RTAmembers would continue
tohavetheoption ofsplitting asix-digit tariff linetoachieve theaimofprecision.
7. Thefollowing illustration mayhelptomake thepoint clearer. Theparties toanRTA may
haveagreed tosplitasix-digit entry intothree eight-digit ones. Oneofthese would befreeofduties
andother charges inthesense ofArticle XXIV:8. Theother twowould represent sensitive products
andcontinue toattract duties. Insuchacase, itwould beappropriate toconsider thetworemaining
eight-digit linesasasingle six-digit tarifflineinorder toencourage asmuch liberalisation aspossible.
When would the95percentcriterion apply?
8. Theintroduction ofthe95percentcriterion would havetobegradual. Presumably, itwould
apply when anewarrangement isnotified. Itwould alsoapply when substantial changes toanexisting
arrangement aremade, suchaswhen afree-trade areaisconverted intoacustoms union. Ontheother
hand,itprobablywouldnotbetriggeredforexistingmemberswhenanewmemberjoinsanarrangement.
There arenever easyanswers tothisquestion, andtheextent towhich thecriterion should apply to
thejoining member remains tobeexplored.
Istheproposed criterion enough toensure compliance withArticle XXIV:8?
9. Some CRTA Members havepointed outthatitinsome cases trade maybeconcentrated in
relatively fewproducts. Theeffect ofthiscould bethatthe95-per-cent criterion would permit, for
allpractical purposes, theexemption ofsizeable trade flows. They havetherefore suggested thatthis
criterion should beaccompanied byanother onewhich would prevent thispossibility. Thisistosome
extent arestatement ofthecontroversy whether a"quantitative" ora"qualitative" criterion, orboth,
should beadopted.
10. Onepossible solution tothisproblem would betheintroduction ofanassessment ofprospective
tradeflows under anarrangement atvarious stages. These stages could be(a)entry intoforce, (b)after
fiveyearsand(c)fullimplementation,assumingthatthepartieshaveavailedthemselvesofthepossibility
ofthemaximum phase-in period foraninterim arrangement.WT/REG/W/22/Add.1
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11. Inparagraph 2oftheUnderstanding onArticle XXIV, WTO Members haveagreed toan
evaluation bytheWTO Secretariat oftheincidence oftariff rates andcustoms duties. Itmight be
possible toarrive atasimilar evaluation inrespect oftradecovered under anRTA. Suchanevaluation
would havetobebased onanagreed method which would yethavetobedeveloped. Thetextofthe
RTAusually contains clearguidance concerning coverage andanyphase-in arrangements. Inpractice,
itmight leadtothefollowing hypothetical result:
Free-trade Agreement between Customs Territory AandCustoms Territory B
Assessment ofamount oftrade covered
Entry intoforce >90% After 5years >95% After 10years 100%
Assessment ofHS6-digit lines covered
Entry intoforce >95% After 5years >98% After 10years 100%
Anyresult ofthisnature would indicate clearly thatagenuine free-trade arrangement iscontemplated.
Accordingly, anexamination andanassessment ofitsconformity withArticle XXIV should posefew
difficulty.
12. Ontheother hand, itispossible apreliminary evaluation would show thefollowing result:
Free-trade Agreement between Customs Territory CandCustoms Territory D
Assessment ofamount oftrade covered
Entry intoforce >65% After 5years >75% After 10years <85%
Assessment ofHS6-digit lines covered
Entry intoforce >95% After 5years >97% After 10years <100%
Such anoutcome would show clearly thatalthough theHS-criterion issatisfied atthetimeofentry
intoforceoftheagreementaswellasduringmuchoftheimplementationperiod,thespecificcomposition
ofthetrade between theparties leads tolessliberalisation thanwould bedesirable.
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