RESTRICTED
WORLD TRADE WT/COMTD/1/Add.12
5June1997
ORGANIZATION(97-2352)
EXAMINATION OFTHE SOUTHERN COMMON MARKET AGREEMENT
Note ontheMeeting of1May19971
Addendum
Chairman: MrStuart Harbinson (Hong Kong)
1. TheCommittee onRegional Trade Agreements continued theexamination oftheAgreement
establishing theSouthern Common Market (MERCOSUR) atitsTenth Session. Themeeting took
upthefollowing topics:
- General Remarks
- Elimination ofDuties, Charges andOther Restrictions Applied intheParties 'Trade
- Coordination ofMacroeconomic Policies
- Establishment ofaCommon External Tariff andtheAdoption ofaCommon Trade
Policy inRelation toThird States orGroups ofStates
- Rules ofOrigin
- Measures Affecting Imports from Third Countries
- Services
- Other Areas
- Calculation oftheGeneral Incidence ofDuties Before andAfter theFormation ofthe
Customs Union
General Remarks
2. TheChairman reminded delegates thatthiswasthethirdmeeting atwhich theMERCOSUR
Agreement (Agreement) wasbeing examined. Hedrew theattention ofdelegates tothenew
documentation that had been received from the Parties, and said that document
WT/COMTD/1/Add.4/Rev.1,whichcontainedcomprehensiveanswerstoquestionsposedbydelegations,
would serve astheprincipal document fortheday'ssession. Theother documents werealsohelpful
andwould serve theinvaluable purpose ofshedding lightonthemain features andmechanics ofthe
Agreement. Document WT/COMTD/1 Add.6 and7referred totherelevant MERCOSUR Directives,
Resolutions andDecisions, aswellastheSchedules ofExemptions andthetimetable forharmonising
theCommon External Tariff. Document WT/COMTD/1/Add.8 contained statistical information, while
documents WT/COMTD/1/Add.9 and10contained summary records ofthefirstandsecond
examinations. Heinformed delegates thataninformal document providing asummary ofalltherelevant
documentation submitted totheSecretariat bytheParties would bedistributed shortly.
1Themeeting wasconvened inWTO/AIR/574.WT/COMTD/1/Add.12
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3. Therepresentative ofParaguay, speaking onbehalf ofMERCOSUR, welcomed theopportunity
ofhaving theirAgreement examined bytheCommittee withtheviewofestablishing itsconsistency
withtherelevant multilateral trade rules. Therelatively short existence ofMERCOSUR proved that
itwasadynamicorganizationcontributingtotheexpansioninworldtrade.MERCOSURwascommitted
totheprinciples underpinning themultilateral trading system, andwasaware thatitspolicies must
notdetract fromthem. Multilateral andregional tradeliberalization werenotmutually exclusive, and
could assist eachother inthecommon aimofreducing orabolishing barriers tointernational trade.
TheParties totheAgreement hadprovided detailed information including comprehensive answers to
thequestions posed bydelegations demonstrating theircommitment totheoverarching principle of
transparency. Questions outside thescope oftheCommittee hadevenbeenanswered. TheParties
were confident thattheir Agreement wasconsistent withtherelevant multilateral rules. Their
commitment totheprinciples underpinning themultilateral trading system wasaffirmed bytheHeads
ofStateandGovernment attheirrecent meeting at(Fortaleza) inBrazil, inDecember 1996. Theleaders
renewed theirfaithintheprinciples of"open regionalism", through which theybelieve theywould
beabletoharness theirregional potential, andatthesame timecontribute totheexpansion ofworld
trade. Asatestofitsfaithinthemultilateral trading system, theParties hadinvited theDirector-General
oftheWTO, Mr.Renato Ruggiero, toparticipate intheforthcoming summit meeting ofMERCOSUR,
which would beheldinAsunción, Paraguay, on18-19 June1997.
4. Another representative ofParaguay, speaking onbehalf ofMERCOSUR, saidthatsince the
lastmeeting (September 1996), anumber ofimportant developments hadtaken place confirming the
Parties 'determination toestablish afunctional customs union assoonaspossible. Since January 1995,
anumber ofstepshadbeentaken todeepen andconsolidate thecustoms union .Attheeleventh meeting
oftheCouncil oftheCommon Market atFortaleza, Brazil inDecember 1996, theParties made
substantial progress inagreeing onaframework fortherealization oftheobjectives oftheOuro Preto
Protocol andMERCOSUR 'sAction Programme 2000, andgenerally those setbytheAsunción Treaty.
Inthatcontext, theParties hadagreed toapply theprovisions oftheWTO Agreement onSanitary and
Phytosanitary Measures andalsotoensure thattheircommon rules onsafeguard measures conform
totheWTO Agreement onSafeguards. Toensure thefaithful implementation ofthese Agreements,
aCommitteeonTradeDefenceandSafeguardshadbeencreated,whosemembershipandmodusoperandi
would bedetermined bytheTrade Commission. AProtocol fortheDefence ofCompetition hadbeen
adopted toguarantee competition inthecustoms territory. Thescope oftheProtocol wasquitebroad,
asitapplied toactsundertaken byphysical orlegalpersons, inpublic orprivate law,thatattempt to
inhibit, restrict ordistort competition inthecustoms territory.
5. TheCommon Market Group, which istheExecutive Body oftheMERCOSUR, hadmeton
twooccasions thisyeartoreview theprogress thatwasbeing made bysubsidiary bodies inachieving
theagreed objectives, especially intheareaoftechnical regulations. TheTrade Commission, which
wasthemainbodyresponsible forensuring thattheinstruments ofcommon tradepolicy, wereproperly
implemented, forimproving them, andproviding aregulatory framework fortheCustoms Union had
adjusted itsoperations inthelightofthenewrulesofprocedure andtheconsultancy mechanism, which
wereestablished under theOuro Preto Protocol. Consumer protection washighontheagenda ofthe
Committee, which hadalready adopted thefirstchapters ofthefuture Protocol fortheDefence ofthe
Consumer covering issues suchasthebasic rights oftheconsumer, safety ofproducts, advertising
andcontractual guarantees. Anumber ofsubsidiary bodies hadbeenestablished tostrengthen the
institutional framework ofMERCOSUR. AHeadquarters Agreement hadbeenconcluded between
MERCOSUR andUruguay, under which aSecretariat would beestablished inMontevideo. TheParties
hadalready named thefirstDirector-General oftheSecretariat inaccordance withtheestablished rules.
TheofficeoftheDirector-Generalwouldberotatedamongthemembercountries.Withintheframework
ofALADI, MERCOSUR hadconcluded free-trade agreements withChile andBolivia. Theagreements
provided foratransitional period oftenyears, within which tariff andnon-tariff barriers would be
abolished.Discussionsforafree-tradeareawerecurrentlyunderwaybetweenMERCOSURandMexicoWT/COMTD/1/Add.12
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andthemember states oftheAndean Group. Inaddition, MERCOSUR waspromoting anhemispheric
freetrade agreement (FTAA) bytheyear2005. Thethird summit wasscheduled forMay1997 at
Belo-Horizonte,BrazilanditwasexpectedthatprogresswouldbemadebyMinistersfromthethirty-four
countries.AcooperationagreementhadbeenconcludedbetweenMERCOSURandtheEuropeanUnion,
andinfurtherance ofthatWorking Groups onGoods, Services, Norms andDisciplines hadbeen
established tostudy howtrade relations might bebroadened. AsMERCOSUR wascommitted tothe
principles ofopenregionalism, ithashadcontacts withmany countries andorganisations withtheview
ofdeveloping mutually beneficial trading relations andstrengthening themultilateral trading system.
Elimination ofDuties, Charges andOther Restrictions Applied intheParties 'Trade
6. TherepresentativeoftheUnitedStateswelcomedtheprovisionofnewinformationbytheParties.
Itwasherhopethatitwould facilitate theexamination process. Answers previously provided bythe
Partiestothequestionssubmittedbyherdelegationwerenotcomprehensive.Shestressedtheimportance
oftransparency totheexamination process.
7. Therepresentative oftheEuropean Communities welcomed theprovision ofnewinformation
bytheParties andsaidthatitwould helpclarify some outstanding issues. However, someoftheanswers
tothequestions posed byhisdelegation were notveryclear. Some answers were lacking indetail
thusmaking itdifficult toappreciate themechanics oftheagreement. Hesought clarification ofthe
liberalization mechanism ofMERCOSUR ,particularly asregards theproducts subject totheadaptation
regime. Wasitprobable thattheParties would addnewproducts tothislistinthenearfuture?
Referring toquestion 108andAnnex 1totheTreaty ofAsunción, hefurther sought clarification of
theagricultural regime oftheParties. Itappeared thatthetime-period provided inthepre-existing
agreements hadexpired. What weretheimplications ofthatforthose agricultural products? Hefinally
asked fordetails about thetechnical standards regime oftheParties.
8. Therepresentative ofBrazil, speaking onbehalf ofMERCOSUR, saidthattheParties had
agreed nottoextend thecoverage oftheadaptation regime byincluding newproducts. Datawould
beprovided toshow thevolume oftrade inthese products. Responding tothequestion ontechnical
barriers totrade, heaffirmed thattheParties were committed toharmonising their legislation in
accordance withtherelevant rules oftheWTO. Todateabout 400ofsuchmeasures hadbeen
harmonized. Harmonization intheparlance ofMERCOSUR meant either theadoption ofatechnical
standard applicable toallthemember countries orthemaintenance ofanational standard which was
dulyjustified byArticle 50oftheMontevideo Treaty ortherelevant rules oftheWTO.
9. Therepresentative ofArgentina, speaking onbehalf ofMERCOSUR, confirmed thatthere
wasanagreement onagricultural products asatJanuary 1991. Thatagreement, however, expired
in1994 withtheresult thatalltherules governing intra-MERCOSUR trade inagricultural products
andtrade withthirdcountries became partofthegeneral regime ofMERCOSUR. Thus, asfaras
intra-MERCOSUR tradewasconcerned, therewasnodifferential treatment foragricultural products,
except forthose coming under thespecial regime. Asregards tradeinagricultural products withthird
countries, theCETwasapplicable toanumber ofagricultural products. Where itwasnotapplicable,
national rules prevailed.
10. Therepresentative oftheEuropean Communities saidthathehadnoted theresponse to
question 107thatnonewproducts would besubjected totheadaptation regime. Heinvited theParties
toexplain theinconsistency between theirstatement andtheanswer toquestion 22A, which talked
about thepossibility oftemporary exceptions being granted foramaximum of20products peryear.
Therepresentative ofArgentina saidthatquestion 22Areferred tothelistofproducts towhich theWT/COMTD/1/Add.12
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CETwasnotbeing applied, while question 107referred torestrictions being maintained onintra-trade.
11. Therepresentative ofKorea welcomed theprovision ofdetailed information bytheParties.
He,however, found thetrade liberalization scheme confusing, particularly regarding thelistof
exceptions. Itwashisdelegation 'sunderstanding thatthere weretwocategories ofexemptions. The
firstonecovered products under the"adaptation regime", namely the300products from Argentina,
Brazil andUruguay, andthe399products forParaguay. Theother onecovered automotive andsugar
products. Could theParties confirm whether hewascorrect inhisunderstanding? Hisdelegation
would beobliged toreceive therelevant datacovering trade inthese exempted products. Turning to
thetime-table forthegradual elimination ofduties andcharges fortheproducts falling within the
"adaptation "regime, heasked whether theParties wereoncourse toachieving theirtargets. Henoted
thattwoyears hadpassed since theimplementation oftheCET. Heasked whether theParties would
establish atime-frame fortheelimination orharmonization fortheremaining non-tariff measures by
theendofJuly1997ashadbeenindicated? Would theParties furnish theCommittee withthetime-table
andthenecessary documentation? Could theyalsogiveanindication when themeasures would be
phased outorharmonized? Hefurther drewtheattention oftheParties tothenon-tariff measures listed
inAnnex IIofWT/COMTD/1, andasked whytheParties thought thatthose measures didnotfall
within theambit ofArticle XXIV:8?
12. Therepresentative ofParaguay underlined theimportance ofdistinguishing between intra-trade
restrictions withrestrictions maintained bymember countries intheirtrade withthirdcountries. The
"adaptation regime" hadrelevance totrade among themember countries, while theother exemptions
applied tothirdcountries. Since January 1995, theParties hadliberalized tariffs imposed ongoods
originating ineachother'sterritory. Brazil andArgentina, whoweresupposed toliberalize theirtrading
regimes in1995, hadfulfilled theirobligations, while Uruguay andParaguay wereoncourse tomeeting
theirobligations bytheyear2000. TheParties werecommitted tolowering barriers inthesugar sector
andwere currently examining theoptions available tothem. Therepresentative ofBrazil saidthat
thePartiesadoptedinDecember1994adraftresolutionwhichlaiddownthefuturepolicyinautomobiles.
Acopyoftheresolution andother relevant resolutions hadbeendeposited withtheSecretariat. The
Parties should haveacommon regime inautomobiles bytheyear2000. Elements oftheregime were
currently being negotiated. Asregards theelimination ofnontariff barriers, hesaidthattheissue
wasbeing considered byaWorking Group, anditwasexpected thatthedeadline would bemetby
theParties. Theterms ofreference oftheGroup mandate ittomake recommendations totheCommon
Market Group withtheviewofdevising anappropriate framework forharmonization ortheelimination
ofallrestrictions. TheParties undertook tofurnish theCommittee withthefinallistassoonasitwas
agreed upon. Hestressed thattheParties hadeliminated mostnon-tariff restrictions andtheremaining
oneshadbeenlisted intheTreaty ofAsunción. Hereaffirmed thedetermination oftheParties to
eliminate allnon-tariff barriers. Therepresentative oftheEuropean Communities thought itwould
behelpful toexplore thelinkbetween theresponses provided toquestions 2and22.Thefactthat
therewereexceptions totheCETsuggested thattherewereinternal boundaries. Thedistinction between
theexternal exception process andtheinternal adaptation process wasnoteasytodelineate.
13. Therepresentative ofArgentina inattempting toclarify thesituation saidthatin1995 alist
wascomplied ofproducts which were subject totariffs inintra-MERCOSUR trade. Thetariffs for
theseproducts wereestablished atacertain levelunder aspecial regime called the"adaptation regime".
Insome instances, theleveloftariffs forproducts in"adaptation list"exceeded theCET. Where this
wasthecase, anexception wasprovided totheimplementation oftheCET. Apart from thislist,a
separate listofexceptions wasbeing maintained byeachmember state. There were300suchproducts
included inthelistofArgentina, Brazil andUruguay. Paraguay 'slistconsisted of399products.
Notification ofthespecial regime wasmade bytheParties in1995. Interested delegations could verify
thelistsandseetheaffected products. TheParties werecommitted tophasing outthespecial regimeWT/COMTD/1/Add.12
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forthese products, soitcould beexpected thattheexceptions totheCETwould beeliminated inthe
not-too-distant future.
14. Therepresentative oftheUnited States saidthatastudy bytheInter-American Development
Bankshowed thattheexcepted products constituted about 12percentofthetariffschedule oftheParties,
andabout 23percentinterms ofinter-regional commerce. Therepresentative ofBrazil disagreed
withthefigure of23percentgiven bytherepresentative oftheUnited States. Hesaidthatastudy
carried outbythem indicated thatthefigure wasnotmore than5percent.
15. Therepresentative ofJapan welcomed theprovision ofinformation bytheParties, andsaid
thatitwould facilitate theexamination process. He,however, asked whether theParties could explain
inwriting themainfeatures ofthespecial regimes, namely theadaptation regime andtheseparate lists
being maintained bytheParties. Hedrew attention tothecontradiction between thefigures provided
bytheParties andtheUnited States, andasked whether thefigure of5percentprovided bytheParties
included orexcluded theautomobiles andsugar sectors. Hisdelegation would beobliged iftheParties
could statedefinitively theshare of"excepted products" inintra-trade oftheParties. Heasked if
theParties could provide information onthenon-tariff barriers being maintained bythem, especially
theintended changes totheregime attheendofJuly1997. Turning toautomobiles, heasked fordetails
ofthebilateral agreement between Argentina andBrazil, particularly thebasis ofthetariff quotas
establishedintheAgreement.WasthisarrangementconsistentwiththeWTOAgreement?Presumably,
thejustification forsuchanexceptional arrangement wastheexistence ofMERCOSUR itself. Ifthat
wasthereason, howcould theParties justify thespecial regime, which wasprojected tolastuntilthe
year1999. Itwould becorrect toassert thattheParties would nothavefree-trade untiltheyear2000,
thesame yeartheCET would befullyoperational.
16. Therepresentative ofParaguay saidthattheywereprepared tomeetJapan andotherdelegations
withtheviewtoexplaining the"adaptation regime" tothem. Hereaffirmed thatatime-table would
beestablished attheendofJuly1997 fortheremoval orharmonization ofnon-tariff barriers.
17. Inaddressing theadaptation regime, therepresentative ofBrazil saidthatitshould beborne
inmind thattherewererestrictions applicable toonlythirdcountries, andtherewerethose applicable
tointra-trade between theParties. Restrictions onintra-trade imposed byBrazil andArgentina were
tobephased outby1January 1999, while those imposed byParaguay andUruguay by1January 2000.
Given theautonomy oftheParties tomaintain theirindividual tariffs insome sectors forawhile, it
wasclearthatsome ofthetariffs being maintained bytheindividual member states would behigher
thantheCET. Member states wereobliged toprogressively abolish duties onthese"excepted products"
within thetime-frames, andafterwards adjust therateofdutytotheCET.
18. Therepresentative ofBrazil saidthatsome member states'tariffs onautomotive products
including spare parts were being maintained under thespecial regime.
19. TherepresentativeofAustraliawelcomedtheprovisionofinformationbytheParties,andthought
thatitwould facilitate theexamination process. Australia wassupportive oftheattempts bythe
MERCOSUR countries toliberalize trade andinvestment. Hesought clarification oftheagricultural
regime oftheParties. Could theParties confirm thattheagricultural sector wasnowgoverned by
MERCOSUR 'sgeneral framework including theCET, withtheexception ofproducts falling under
thespecial regime. Hisdelegation would appreciate iftheParties could identify which document
contained alltherelevant information ontheagricultural regime. Therepresentative ofAustralia was
referred toWT/COMTD/1/Corr.1. Hefurther wanted theParties toconfirm whether agricultural
products notfalling under thegeneral regime weresubject tothe"adaptation regime", while therewere
separate regimes forautomobiles andthesugar sectors. Therepresentative ofArgentina saidthat
wasthecase.WT/COMTD/1/Add.12
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20. Therepresentative ofKorea asked whether theParties hadresponded toquestion number 11(g)
concerning theelimination orharmonization ofnontariffbarriers. Arepresentative ofMERCOSUR
saidthattheyhadalready responded tothequestion. TheParties hadbegun work inthisareaonthe
basis ofArticles XXandXXIofGATT 1994 andArticle 50oftheTreaty ofMontevideo. Atime-
tablewould beestablished attheendofJuly1997 fortheharmonization orelimination ofnontariff
barriers.
21. Therepresentative ofParaguay saidthatnontariff barriers existing inthemember sateswere
listed inoneoftheannexes totheTreaty ofAsunción. TheParties hadagreed thatthose barriers had
tobeharmonized oreliminated inaccordance withtheprovisions ofArticle XXandXXIofGATT 1994.
Theprovisions ofthese twoarticles werelargely reflected inArticle 50oftheTreaty ofMontevideo.
Itwasintended toexamine eachnontariff barrier inthelightofArticles XX,XXIofGATT 1994
andArticle 50oftheMontevideo Treaty withtheviewofdetermining whether aparticular measure
hadtobeeliminated orharmonized among themember states. Where aparticular measure could not
bejustified either under Articles XXorXXIofGATT 1994, itwould beeliminated. Some measures
would apply withequal effect inallthemember states, while others would apply onlyintheterritory
ofamember stateprovided thatthose measures were inconformity withtherelevant rules.
22. Therepresentative oftheEuropean Communities queried whether thelistofmeasures fellwithin
theambit ofArticle XXIV:8(a)(i). Hedoubted whether Articles XXandXXIofGATT 1994 could
providethelegalbasisfortheactioncontemplatedbytheParties.ThesetwoArticlesprovidedexceptions
toobligations under theGATT, andassuchitwashighly improbable thattheycould berelied upon
toadopt themeasures contemplated bytheParties.
23. Therepresentative ofColombia asked which percentage oftheParties 'trade wasgoverned
byspecial provisions. Itwould beappreciated ifthispointcould beclarified. Could theParties confirm
whether thefigure of5percentgiven bythem included trade inautomobiles andsugar products?
Were there anyrestrictions inplace ontrade inthese products among theParties? Therepresentative
ofParaguay reiterated thatthere wasthe"adaptation regime", which should notbeconfused withthe
special regimes existing forsugar andautomobiles sectors. Thefigure of5percentexcluded trade
inautomobiles andsugar products. Heconfirmed thatthere were restrictions among theParties as
farastrade intheautomobiles andsugar sectors were concerned.
24. Therepresentative oftheUnited States asked whether thedifference inthefigures provided
bythem (23percent) andtheParties (5percent) wasbecause oftheexclusion oftrade inthe
automobiles andsugar sectors from theproportion oftrade subject tothespecial regime. Inother
words, didtradeinthesetwosectors account for18percentofintra-trade? Shealsosought clarification
ofMERCOSUR 'sautomobiles policy, which wasunder aspecial regime different fromtheadaptation
regime.
25. Therepresentative ofArgentina challenged thefigure of23percentproduced bytheInter-
American Development Bank. Thatfigure wasincorrect, evenifyouincluded trade inautomobiles
andsugar sectors. With regard totheirautomobiles policy, hestated thattheParties hadconcluded
bilateral agreements aspart oftheir obligations under theLatin American Integration
Asociation (ALADI). These agreements pre-existed theAsunción Treaty, andwereduetobephased
outbytheyear2000, when theParties would haveacommon policy intheautomobiles sector.
Coordination ofMacroeconomic PoliciesWT/COMTD/1/Add.12
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26. Therepresentative oftheEuropean Communities asked whether theParties hadnotified the
MERCOSUR Action Planfortheyear2000. Arepresentative ofMERCOSUR saiditwasnotified
totheSecretariat inSeptember 1996.
Establishment ofaCommon External Tariff andtheAdoption ofaCommon Trade Policy in
Relation toThird States orGroups ofStates.
27. Therepresentative oftheUnited States reiterated theirviewthattheparties hadbroken anumber
oftariff bindings. Ithadbeenalmost twoyears since theywerebroken, buttheParties hadnottaken
anysteps toinvoke theprocedures required tomodify their schedules, including theprovision of
appropriate trade andtariff data. Thenotification made bytheParties lastautumn didnotsatisfy the
relevant rulesoftheWTO. Thenotification referred totheEnabling Clause, which hadnoprovision
forthemodification ofschedules, andreferred toArticle XXIV:6 which didprovide forthemodification
ofschedules inrespect ofcustoms unions. Itwastheconsidered viewoftheUnited States thatthe
provisions ofArticle XXIV:6 could notbeinvoked, unless notification oftherelevant agreement was
madeundertheprovisionsofArticleXXIV.Alegalnotificationtomodifyschedulesentailedthemeeting
ofsome obligations inaccordance withtherulesoftheWTO. Suchnotifications should under normal
circumstances bemade totheCouncil forTrade inGoods andnottheCommittee onTrade and
Development. TheParties hadfailed intheirobligation totender therelevant documents disclosing
thenomenclatures andapplied tariffs thatexisted before theCETwentintoforce. Thishadmade it
difficult fortheSecretariat tocarry outtheanalysis required under Article XXIV:5 ofGATT 1994.
DidtheParties haveanyintention ofreplacing theirindividual schedules withasingle schedule? Given
thenumerous exceptions totheCET, would aproduct which hadsatisfied thecustoms requirements
ofamember statebeadmitted freeoffurther customs duties inother member states.
28. Therepresentative ofKorea saidthatparagraph 4oftheUruguay Round Understanding on
theInterpretation ofArticle XXIV mandated thecommencement ofcompensatory negotiations before
modification orwithdrawal ofconcessions. Paragraph 5anticipated thecarrying outofnegotiations
forareasonable period oftimebefore themodification orwithdrawal ofconcessions. Acombined
reading ofthesetwoparagraphs would seemtoindicate thatanappropriate time-period should begiven
tointerested thirdparties forsubstantive negotiations priortotheestablishment ofaCET. Itwasclear
thattheParties hadnotrespected these procedural requirements. Notwithstanding theclear breach
oftherulesbytheParties, hisdelegation welcomed theirpreparedness toenter intonegotiations with
interested parties. Tofacilitate thecompensation negotiations, itwould behelpful iftheParties could
furnish interested Members with therelevant tariff dataandother documentation. Itwashis
understanding thatnewdatahadbeenrecently received bytheSecretariat from theParties. Itwas
hiswishthatthedataconsisted ofstatistics ofimports oftherelevant products under individual tariff
linesfortheprevious three years andbroken down byWTO country oforigin. Given thecomplexity
ofthesubject, areasonable period oftimewould beneeded toexamine theinformation submitted by
theParties. Hissecond comment related totheexceptions totheCET. Itwashisunderstanding that
therewereatleastfivebroad exemptions totheCET; theseincluded thecapital goods sector, information
technology andthetelecommunications sector andautomotive andsugar sectors. Hisdelegation would
appreciate receiving therelevant trade datainrespect oftheproportion oftrade inthese products in
thetotaltrade between thefourmember states, andbetween themandthirdcountries. Theprovision
ofthisdatawould beimportant forseveral reasons; itwould assist theCommittee toform ageneral
view ofthescope oftheCET. Hereserved hisdelegation 'sright toexpress anopinion onthe
consistency oftheParties 'agreement withtheWTO Agreement, untilaftertheexamination ofthe
relevant trade data. Histhird comment wasinrelation totheresponse provided bytheParties to
question 26A, which intheiropinion, heldthekeytounlocking whether ornottheagreement was
consistent withtherelevant rulesoftheWTO. Hethenproceeded toquote fromtheresponse provided
bytheParties: "Moreover, MERCOSUR considers that,thetimetables indicated above, comply withWT/COMTD/1/Add.12
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thecriterion established inArticle XXIV:5(c)". Ifthisquotation wasanything togoby,thenitmeant
thattheParties were oftheview thattheiragreement wasaninterim agreement forthecreation of
acustoms union. Could theParties confirm whether thisinterpretation wascorrect?
29. Therepresentative oftheEuropean Communities shared theviews expressed byKorea and
theUnited States. Itwashisdelegation 'shopethattheparties would commence negotiations under
Article XXIV:6 assoonaspracticable. Itwasimportant fortheParties toprovide interested Members
withcurrent information. Fortheagreement tobeheldconsistent withtheWTO rules, theParties
needed tosatisfy theprovisions ofArticle XXIV:8(a) ofGATT 1994. Twoquestions raised byKorea
andother delegations wereimportant, astheythrew lightontheconsistency orotherwise oftheCET.
Thefirstquestion related tothevolume oftrade covered bytheagreement, andthesecond question
related tothespecial arrangements andthetime-frame fortheirelimination. Theanswer toquestion 111
wasquiteunhelpful, asitreferred Members backtoquestion 22A,which inturnprovided thatmember
states ofMERCOSUR hadtherighttorequest forderogations fromtheapplication oftheCETinrespect
oftwenty products peryear. Itappeared thiswould beinaddition tothelistofproducts under the
special regimes. Would itbecorrect toassert thatasizeable proportion oftheParties 'trade wasnot
subject totheCET. Itwould beinteresting toknow howtheParties intend tobring these excepted
products intothecoverage oftheCET. Could theparties respond tothequestion posed bythe
United States astowhether aproduct which hadcleared thecustoms formalities ofamember state
including thepayment ofcustoms duties would beadmitted freeoffurther customs duties intheother
member states. Itappeared thatinthecaseofMERCOSUR, products legally cleared inonemember
statewould continue tofaceborder restrictions andtariffs inother member states. Could theParties
confirm thatafterthetransitional period, products legally imported intoamember statewould enjoy
unhindered access intheother member states.
30. Therepresentative ofAustralia asked when theParties intended tocommence negotiations under
Article XXIV:6 ofGATT 1994. WastheCETgoing tobeusedasthebenchmark rateforpurposes
ofArticle XXIV:6 negotiations. Australia wasparticularly concerned, astheratesonsome products
ofexport interest tothemhadbeenincreased. Thedutyonalumina, forexample, hadbeenincreased
contrary totheobligations oftheParties.
31. Therepresentative ofCanada welcomed theprovision ofgeneral information bytheParties,
buthighlightedthelackoftherelevantinformationrequiredtomakeanassessmentunderArticleXXIV:5
ofGATT 1994. Thishaddelayed theprocess, which wasatanyratelongoverdue. There weresome
deficiencies inthestatistics submitted bytheParties. According toparagraph 3oftheUruguay Round
Understanding, theParties should nottakeintoaccount preferential trade when establishing thelist
ofmajor suppliers. Itappeared thattheParties ignored thisprovision andtookintoaccount preferential
tradeintheiranalysis. There wasalsoaproblem withtheimport statistics, someofwhich wereprovided
atthefour-digit level. Could theParties confirm whether interested Members would retain theirrights
under Article XXVIII aftertheexpiration ofthesix-month period following thecirculation ofthe
notification tomodify concessions on6November 1996 bytheParties?
32. Therepresentative ofArgentina sought toaddress thequestion posed bytheUnited states in
relationtotheirentitlementtoavailthemselvesoftheprovisionsofArticleXXIV:6,sincetheiragreement
wasnotified under theEnabling Clause. Hesaidthatnothing intheArticle XXIV ortheUnderstanding
affected theright oftheParties toinvoke theprovisions ofArticle XXIV:6, especially where there
seemed tobeanomission onthepartofthedraftpersons. Ifthisexplanation wasnotacceptable to
theUnited States, theParties would havetheissue examined bytheirlawyers andcommunicate at
alaterdatetheiropinions totheCommittee. Asregards thequestion posed byCanada, itwasclear
thatthedeadline could beextended bymutual agreement between theParties andinterested members.
Inrelation tothepossibility ofreplacing theschedules oftheindividual member states withasingle
schedule, heconfirmed thatitwastheintention oftheParties todosoassoonaspracticable. WithWT/COMTD/1/Add.12
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respect tothequestion onwhether ornotaproduct legally imported intoamember statewould be
entitled tofreecirculation inother member states, hesaidthatwould depend onanumber ofthings.
During thetransitional period, thetariffs imposed oncertain products werebound todiffer fromone
member statetoanother. Ifthecustoms duties imposed byonemember stateislower thantheCET,
thenuponthegoods leaving theterritory ofthatstatetoanother member statewhich applied theCET,
thedifference between thedutypaidandtheCETwould havetobepaidinthesecond member state.
Similarly, iftheproduct onwhich dutyhadbeenpaidwasanexcepted product, thenonleaving the
territory ofonemember stateforanother which imposed arateinexcess oftheCET, thedifference
between thedutypaidandthatofthenewmember statewould havetobepaid. Inthethirdscenario
ofwhere allthemember states applied theCETwithnoexceptions, goods legally imported intoone
member statewould havefreecirculation within thecustoms territory. Inallcases, evidence hadto
beadduced thatdutyhadbeenpaidonthegoods inthefirststate.
33. Therepresentative ofBrazil inresponding tothequestion posed bytheEuropean Union
concerning therightofmember states torequest forderogations from theapplication oftheCETin
respect oftwenty products peryear, saidthatthiswasatemporary measure which wastriggered by
theshortages ofaparticular product inamember state. Member states wishing toavailthemselves
ofthistemporary measure hadtoseekauthorization fromtheCommerce Commission before deviating
fromtheapplication ofCET. Therequest hadtostatewhich products wereinshortsupply, thequantity
sought tobeimported intothecountry andtheduration ofthemeasures. HesaidthattheEuropean
Union hadasimilar arrangement.
34. Therepresentative ofArgentina inaddressing thequestion posed byKorea inrelation to
Article XXIV:5(c) saidheagreed thattheArticle hadtobeinterpreted narrowly. Given thefactthat
thecustoms union would befullyoperational bytheyear2000, theParties could bedeemed tohave
complied withthisArticle.
35. Therepresentative ofAustralia restated hisearlier question, namely whether column 8of
document WT/COMTD/1/Add.5/Rev.1 should beregarded astheproposed bound rateforpurposes
ofthenegotiations tobeconducted under Article XXIV:6 ofGATT 1994. Therepresentative of
Argentina answered no.TheCETcould notbeconsidered torepresent theproposed bound tariffrates.
HewentontosaythatMERCOSUR waswaiting tocommence negotiations withinterested parties
aftertheexpiration oftheninety-day period, which begun torunfrom18April 1997, thedaytherelevant
document (WT/COMTD/1/Add.8) wascirculated toMembers.
36. Therepresentative oftheEuropean Communities asked theParties iftheycould explain the
significance ofcolumn 8ofdocument WT/COMTD/1/Add.5/Rev.1, ashisdelegation wasunder the
same mistaken impression asAustralia. Therepresentative ofAustralia saidthatincalculating the
effects ofaregional trade agreement ontheinterests ofathirdcountry, itwasnecessary toknow the
tariff treatment before andaftertheimplementation oftheagreement. IftheCETdidnotrepresent
theproposed binding, itcould bedifficult forcountries tocalculate theextent towhich theirinterests
would beaffected.
37. Therepresentative oftheUnited States referred tothenotification issue, andsuggested that
hisdelegation meetwiththeParties bilaterally toresolve theproblem.
38. Therepresentative oftheEuropean Communities sought further clarification oftheprinciples
governing thefreemovement ofgoods within thecustoms territory, where those goods werenotsubject
toanyofthespecial regimes. Therepresentative ofArgentina saidinresponse thatoncetheimported
product hadcleared thecustoms formalities inthefirstmember state, thegoods would beadmitted
intheothermember states upontheproduction oftherelevant documents including evidence ofpayment
oftheCET.WT/COMTD/1/Add.12
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39. Therepresentative oftheEuropean Communities thanked therepresentative ofArgentina for
hisexplanation, butsaiditwasdiametrically opposed tothewritten answer provided toquestion 114.
Theanswer readthatproducts originating inthirdcountries andintransit through amember stateof
MERCOSUR wereliable fordutyassessment uponreaching theirfinaldestination ie.another member
stateofMERCOSUR. Therepresentative ofArgentina saidthereply toquestion 114envisaged goods
entering thecustoms territory through anexternal frontier. Goods intransit fromathirdcountry would
notbeliable forthepayment ofduties inthecountry oftransit, butinthecountry oftheir final
destination.
Rules ofOrigin
40. Therepresentative ofSwitzerland welcomed theprovision ofinformation bytheParties, and
saidthatwould facilitate theexamination process. Asitwastheintention oftheParties toestablish
acustomsunion,itwasimportantfortheWTOtomonitortheevolutionofMERCOSUR.Hisdelegation
hadsome questions ontherules oforigin ofMERCOSUR, buthaddecided toputthem inwriting
totheParties.
Measures Affecting Imports from Third Countries
41. Therepresentative oftheUnited States asked whether theParties could provide information
onthestatusoftheirdraftcommonregulationsonsafeguards,anti-dumpingandcountervailingmeasures.
Therepresentative ofKorea associated hisdelegation withthequestion posed bytheUnited States,
andsaidthatitappeared thattheParties hadacommon safeguard regime inplace, andthatcommon
regulations ondumping andsubsidies were intheprocess ofbeing drawn up.Wasittheintention
oftheParties toestablish common non-preferential rules oforigin?
42. Therepresentative oftheEuropean Communities associated hisdelegation withthequestions
posed bytherepresentative ofKorea, andrequested iftheParties could provide some insights into
howtheyintended toimplement andadminister thecommon regimes thattheyhadorintend toset
up?
43. Therepresentative ofParaguay confirmed thattheParties hadinplace acommon safeguards
regime. Implementation issues andother relevant issues were currently being studied byaspecific
Committee, which hasbeencharged withtheresponsibility ofadministering theagreement. Copies
oftheMERCOSUR 'ssafeguards agreement could beobtained fromtheSecretariat. TheParties had
notasyetfinalized theiragreements onanti-dumping andsubsidies.
44. Therepresentative ofJapan asked whether products originating inother members states of
MERCOSUR would beexempted from asafeguard measure imposed byamember state. The
representative ofParaguay saidthattheTreaty ofAsunción andthelogicofthecustoms unions dictated
theexemption ofproducts originating inpartner countries fromtheadoption ofsafeguard measures.
Services
45. Therepresentative oftheEuropean Communities referred toquestion 118,andasked whether
theAd-Hoc Services Group would submit theframework agreement onservices before
30September 1997. Ifyes,would itbepreferential arrangement orwould thebenefits beextended
onanMFN basis? Therepresentative ofParaguay saidthatitwasexpected thattheframework
agreement would besubmitted totheCouncil ofMinisters forconsideration on30September 1997.WT/COMTD/1/Add.12
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Inresponse tothesecond question, hesaidthatliberalisation would notnecessarily beonanMFN
basis. However, anyliberalisation among themember states ofMERCOSUR should benefit third
countries. Theservices sectors oftheMERCOSUR countries werealready openandtransparent, as
aresult ofthesubstantial offers thatwere tabled bythem during theUruguay Round.
Other Areas
46. Therepresentative oftheUnited States referred toquestions 69and70which wereabout the
automotive regime ofMERCOSUR. Hesaidthathisgovernment wasconsulting Brazil overtheits
national automotive policy. Heasked iftheParties could provide information onthemain elements
oftheirautomotive policy. Itappeared thattheirpolicy infringed anumber ofWTO rulesandneeded
toberemedied. Therepresentative ofParaguay saidthattheParties wereintheprocess ofcreating
acommon regime forautomobiles. Itwasexpected tobeimplemented intheyear2000. Before that
time, itwould bepremature toexpress anopinion onitsconsistency orotherwise withWTO rules.
TheParties werecommitted totheWTO andwould ensure thattheirautomotive regime fullycomplied
withtherelevant multilateral rules.
47. Therepresentative oftheUnited States saidthatBrazil hadearlier intheyearimposed certain
financing restrictions onimports withtheviewofdiscouraging theimportation offoreign products.
Thismeasure made itmore expensive toimport amounting toasurcharge onimports. Itwashis
delegation 'sunderstanding thatother members ofMERCOSUR andtwoneighbouring countries were
exempted from theapplication ofthismeasure. Itwasassuch veryclear thatthispolicy was
discriminatory initseffect onother Members oftheWTO. Could therepresentative ofBrazil clarify
whether themeasure applied onlytotrade financing forimports, ortoalltrade-financing offoreign
exchange transactions, andwhether itapplied tothefinancing ofimports ofservices? Itwashis
delegation 'sfurther understanding thatthemeasure wasimposed toarrest Brazil 'sgrowing tradedeficit
withitstrading partners. Whereas hisdelegation appreciated theproblem facing Brazil, itwashis
delegation 'sviewthatthemeasure wascounter-productive, anditinfringed theWTO rules. Heurged
theBrazilian authorities towithdraw thismeasure, given itsinconsistency withWTO rules. The
representatives ofSwitzerland, Korea andtheEuropean Communities associated theirdelegations with
thestatement justmade bytheUnited States. Arepresentative ofMERCOSUR saidthattheissue
wasbeyond theremit oftheCommittee, asthemeasures complained ofwasnotadopted by
MERCOSUR. Itwasthenational policy ofBrazil, andassuchtheissue should betaken upwiththe
Brazilian government. Therepresentative oftheUnited States saidthatthisissuecould notproperly
bedescribed asabilateral issue, asithadadiscriminatory effect onMembers oftheWTO. While
itdidnotimpose barriers tothetrade ofother members ofMERCOSUR, itraised barriers against
thetradeofthirdcountries. Therepresentative oftheEuropean Communities associated hisdelegation
withthecomments made bytherepresentative oftheUnited States.
48. Therepresentative oftheEuropean Communities saidthathisdelegation hadsubmitted
supplementary questions onagriculture andsanitary andphytosanitary measures. Oneofsuchquestions
wasquestion 129. Itseemed thattheanswer provided bytheParties wasincomplete. Heinvited the
Parties tofurnish hisdelegation withthelistofharmonized measures assoonaspracticable. The
representative ofBrazil saidthatthelistwould bemade available assoonaspossible.
49. Therepresentative ofKorea saidthathisdelegation wassatisfied withthewaytheexamination
hadproceeded. Themechanics oftheagreement hadbeenrevealed, although some important points
remained blurred. Theprogress thathadbeenmade attoday'smeeting should pavethewayforthe
Committee toconclude theexamination ofMERCOSUR verysoon. Korea hadheldexploratory talks
withMERCOSUR member countries, andwasconvinced thattheywerecommitted totheunderlying
principles ofWTO. MERCOSUR would beabuilding block forthemultilateral trading system andWT/COMTD/1/Add.12
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strengthen itinthenearfuture bycontributing toanexpansion inworld trade. Korea wasinterested
indeepening itstrade tieswithMERCOSUR.
50. TheChairman thanked Korea foritspositive assessment oftoday'smeeting. Whereas thebulk
ofthework hadbeendone, there remained some outstanding factual issues which hadtobecleared
upandother interpretational issues. Hesuggested thattheSecretariat gothrough therecord ofthe
meeting andidentify those outstanding factual issues, andwiththehelpoftheParties andavailable
information attempt tocodify thefactual issues andprepare their responses. With regard tothe
interpretational issues, hesaidthatitmight bedifficult toresolve allofthemattoday'smeeting, and
thatitwould beadvisable toleave themuntilthesecond stage oftheexamination process, namely the
drawing upoftheconclusions. These issues could bethesubject ofinformal consultations atalater
date. Hethanked theParties anddelegations fortheirgood willandenthusiasm.
Calculation oftheGeneral Incidence ofDuties Before andAfter theFormation ofthe
Customs Union
51. Therepresentative ofArgentina saidMERCOSUR 'sviews onthisissue were wellknown.
They hadmade cleartheirpreferred method ofcalculating thegeneral incidence ofduties onimports
during therelevant period, namely thethree years preceding theestablishment ofthecustoms
union (1992, 1993and1994). Whereas itwaspossible tochoose theyears 1989-1991, itwastheview
oftheParties itcould giverisetocomplications. TheParties havefurnished theCommittee withthe
relevant trade datafortheperiod 1992-1994, soitshould notbedifficult tomake anassessment. As
regards which tariffs should betaken intoaccount forpurposes ofthecomparison withtheCET, it
wastheviewoftheParties thattheCommittee should usenational tariffs asapplied bythefourmember
states in1994, theyearpreceding theestablishment oftheCET. These suggestions would helpthe
Committee tocarry outtheassessment required under Article XXIV:5 ofGATT 1994. Referring to
thedatasubmitted bythem fortheyears 1992-1994, hesaidadistinction wasmade between intra-
MERCOSUR tradeandtradewiththeoutside world. Thestatistics covered trade between theParties
andtheoutside world. Nodistinction wasmade oftrade between theParties andthesignatories to
theALADI arrangement. Thiswasbecause ofsome technical problems, andthefactthattradebetween
thetwosides wasnotsubstantial. Thepreferences didnotcover alltariff lines. Furthermore, the
parts andcomponents ofaparticular product could receive different treatment. Some might attract
preferential treatment, while other parts, especially those from other areas oftheworld, would be
subjected tothenormal tariff regime. TheParties would supply theSecretariat withanyoutstanding
information, soastoenable ittocarry outtheassessment required under Article XXIV:5.
52. Therepresentative ofKorea wasnotsurewhether theParties 'suggestions amounted toproposals
fordeviating fromthenormal standard andprocedures usedtoestablish thegeneral incidence ofduties.
Itwashisunderstanding thattherelevant baseperiod wasthethree years before theentry intoforce
oftheTreaty establishing thecustoms union, andnotthethree years preceding theintroduction of
theCET. Therepresentative ofArgentina admitted thathisproposal wasanewmethod, andsaidthat
theselection ofthethree years (1988, 1989 and1990) preceding thegoing intoforce oftheAsunción
Treaty would giverisetocomplications. Onthecontrary, theselection of1992, 1993 and1994 as
thebaseperiod would facilitate theexercise which hadtobeundertaken. Asregards thesecond proposal,
itwastheview oftheParties thatusing national tariffs astheyexisted in1994 ineachofthe
fourmember states would facilitate theassessment under Article XXIV:5.
53. Therepresentative oftheEuropean Communities saidthathisdelegation hadtaken careful
noteoftheproposals andexplanations offered bytherepresentative ofArgentina. Hisdelegation wanted
tostudy theproposals andwould comment onthem later.WT/COMTD/1/Add.12
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54. TheChairman saidthatitwasimperative thattheCommittee agree onthemethodology, so
astoenable theSecretariat toproceed withtheassessment. Failure toagree onthemethodology would
mean convening another meeting todiscuss themethodology tobeadopted.
55. Therepresentative oftheUnited States agreed withChairman 'sconcerns, butsaidthather
delegation would needafewdays, probably onedaytoreflect ontheissue. Therepresentatives of
Japan, Australia andtheEuropean Communities agreed withtheviewexpressed bytheUnited States.
TheChairman suggested thattheCommittee revert tothisissue through informal consultations. His
suggestion wasaccepted bytheParties.
56. Therepresentative ofKorea asked which tariffs would beusedforthecomparative analysis.
Itwashisunderstanding thatthetariffs which would beusedasthebenchmark afterthecreation of
thecustoms union wastheCET. Would itbetheCET asitexisted on1January 1995, ortheyear
2005 when itwould takefulleffect? Arepresentative ofMERCOSUR replied thattheCEThad,in
principle, beenfixed foreachproduct. Itwastheintention oftheParties tousetheCETasitexisted
on1January 1995, withsome minor exceptions asandwhen necessary. Inessence, theproposal was
foracomparison tobemade between national tariffs existing ineachofthemember states in1994
andtheCET, without taking intoaccount thetransitional exceptions. Asitwastheintention toalign
alltariffs totheCET, itwould make sense tochoose itasthebenchmark rate. Therepresentative
oftheUnited States saidthatwhereas herdelegation agreed thatpre-customs union tariff ratesshould
bethe1994national tariffrates, theyhaddifficulty inaccepting thatthepostcustoms union ratesshould
bethefinalCETrates. Thiswould distort reality andnotreflect theeffective rateofprotection. It
would bebetter tousetherates applied byeachmember stateon1January 1995. Ignoring the
exceptions isalsonotanaccurate picture ofthesituation thatoccurred when theCETwentintoeffect.
57. TheChairman saidthathewassatisfied withtheprogress thathadbeenmade. Only afew
factual issues hadtobeclarified. TheSecretariat andtheParties would clarify them, andmake available
toMembers anynewrelevant information. Theissues uponwhich noconsensus wasachieved ontheir
interpretation would betaken uplaterduring consultations ontheconclusions. Theissue ofthe
calculation ofthegeneral incidence ofduties would require more informal consultations which he
intended tocarry outsoon. Themeeting wasadjourned.