RESTRICTED  WORLD TRADE  
ORGANIZATION  TN/RL/M/27 
30 June 2005 
 (05-2823) 
Negotiating Group on Rules  
  
 
SUMMARY REPORT OF THE MEETING 
HELD ON 17-18 MAY 2005 
 
Note by the Secretariat
 
 
 
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 17-18 May 2005. 
A. ADOPTION OF THE AGENDA  
2. The Group adopted the following agenda: 
A. Adoption of the Agenda 
B. Regional Trade Agreements (RTAs) 
C. Other Business 
 
B. REGIONAL TRADE AGREEMENTS  
3. The Chairman proposed that the Group consider  first the submissions tabled by Australia, 
namely that contained in TN/RL/W/173 (TN/RL/W/173/ Rev.1 in its English version), which had been 
the subject of a preliminary debate at the Group's last meeting, and a follow-up proposal circulated 
just before that meeting as TN/RL/W/180.  He s uggested that the Group could then consider, on a 
preliminary manner due to its late arrival, th e submission made by the European Communities, 
circulated as TN/RL/W/179, thus allowing the Grou p to broaden its discussions on systemic issues. 
4. The proponent of TN/RL/W/180 presented his delegation's second submission on the 
definition of "substantially all trade" (SAT), which responded to the comments and requests for 
clarification by Members in relation to Australia’s previous submission on this issue.  In particular, 
the paper affirmed his delegation's position that a quantitative benchmark was needed for measuring 
substantially all trade.  That woul d involve a tariff-line coverage test , requiring duties to be eliminated 
on at least 70 per cent of tariff lines at the Harmonized System (HS) six-digit level on entry into force and 95 per cent at the end of the implementation period; and a trade volume test, to ensure that 
products that were highly traded between the pa rties were included in the lines subject to duty 
elimination.  On the trade volume test, duty elimin ation should cover all products where the average 
value of imports over the three years preceding the agreement exceeded 0.2 per cent of total imports 
of the free trade agreement (FTA) party;  in fact, th e figure proposed earlier - i.e. 2 per cent - had been 
changed to 0.2 per cent to ensure that highly traded products were adequately c overed at this level of 
disaggregation.  An alternative measure could be that, for example, the top 50 imports between the 
RTA parties, measured over the three years precedi ng the Agreement, be included in the lines subject 
to duty elimination.  The submission also elabor ated on his delegation's proposal that the RTAs' 
examination process should identify significant exports of an FTA party that, but for protectionist measures, would be traded between the FTA parties;  that amounted to a transparency device to expose 
the seriousness and sensitivity of products that were excluded from duty elimination.  A further TN/RL/M/27 
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 clarification of the issue of the ten-year phase was also provided.  Finally, the proponent reaffirmed 
his delegation's view that the new rules on SAT should  apply to all RTAs in force when the new rules 
were agreed, and stressed the need for an amb itious and robust discipline under Article XXIV to 
ensure that RTAs supported, rather than  undermined, the multilateral trading system. 
5. Participants thanked the proponent for th e follow-up submission, noting that while 
comprehensive comments would be provided on th e first submission the second submission would 
need further consideration. 
6. Various Participants supported the proposed methodology to discipline RTA negotiations and 
assign standards to RTAs.  It was noted that any clarification or improvement of WTO rules on RTAs should not result in less certainty as to whether WTO requirements were fulfilled.  Some Participants 
considered that the thresholds indicated in the su bmission were too ambitious and stressed that the 
underlying tone of the negotiations on RTAs' rules should be flexibility (to take into account different 
situations and realities) rather than rigidity; in particular, it was said that the proposed benchmarks 
amounted to all the trade, and more than just subs tantially all trade, and could therefore not be a 
starting point for discussions.  It was also stressed that a tariff-line definition was not appropriate for 
RTAs between developed and vulne rable developing countries; that proposal, combined with the 
other trade tests, set an extremely ambitious age nda that could only be discussed in a much more 
comprehensive context that appropriately modera ted ambition with the development objectives of 
RTAs as defined in the DDA.  One Participant was in favour of the creation of meaningful yet practical criteria for defining SAT which would revi ew the RTAs' trade liberalization from a variety 
of perspectives, thereby ensuring that RTAs were of a comprehensive nature and therefore supportive 
of the multilateral trading system; the need for inte grating within that definition a fixed minimum, 
ambitious benchmark had to be examined carefully .  It was also noted that the aim of these 
negotiations should be to avoid selectiveness vis-à-vis  Article I of the GATT 1994 by providing that 
those RTAs allowed by the WTO would minimize the harm to the multilateral trading system; in that 
context, the Group should aim at providing guidelines towards that objective and not try to define the 
elements of an ideal RTA. 
7. Clarification was requested on a number of aspects of the proposed tariff-line SAT 
benchmark.  Confirmation was sought  that the 95 per cent threshold would apply individually to all 
RTA parties, as it would seem from paragraph 10 of TN/RL/W/180.  With respect to the proposed benchmark and parameters to be used for defining "highly traded" products, some Participants 
wondered whether changes in the HS nomenclature (e.g ., an increase in the number of tariff lines) or 
trade developments could overturn an RTA's WTO conformity and require amending it.  It was 
stressed that trade developments should not make  an RTA incompatible with WTO rules.  The 
combination of an ambitious benchmark with the "h ighly traded" product requirement might be unfair 
for countries with limited trade diversity, and signif icantly reduce their primary source of revenue.  
Some Participants cautioned against the use of the six-digit level in the context of the tariff-line 
benchmark.  The point was made that while HS cons istency only existed up to the six-digit level, the 
fact that both the numerator and the denominator used for the calculations on the number of duty-free tariff lines referred to the same national schedule would render any discrepancies vis-à-vis  the results 
an academic issue.  It was argued that the use of th e six-digit level would not capture the true level of 
liberalization in many RTAs, in particular because in many instances concessions were exchanged at 
various levels of disaggregation; further, it coul d minimize the incentive to protect products on the 
narrowest parameters possible.  It was also proposed  that the evaluation be made on the same basis as 
that on which the RTA had been negotiated or at the eight-digit level. 
8. Divergent views were expressed regarding both th e need for the setting, and the level of, the 
initial benchmark.  One argument presented agains t the setting of an initial benchmark was that 
Article XXIV of the GATT 1994 provided for an e nd result regarding SAT but did not prescribe the 
process by which such liberalization was to be atta ined.  Also, it was argued, the imposition of such a  TN/RL/M/27 
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 criterion could not always be the most appropria te tool for obtaining overall comprehensive trade 
coverage and could impose an unnecessary degr ee of micromanagement on the RTA's trade 
liberalization; in practice, a phase-in period to  accommodate domestic sensitivities, allowing more 
time for adjustment, often resulted in a broader scope of products subject to eventual liberalization.  
Regarding the proposed level for the initial benchmark,  some Participants were of the view that it was 
too ambitious; in particular, one Participant pointed  out that the trend in most recently concluded 
RTAs was for initial liberalization of between 20 to 30 per cent of tariff lines.  Noting that the 
proposed benchmark might not be very meaningful  as major sectors could be left out, another 
Participant proposed starting from a lower benchmark but achieving the targeted liberalization within 
a short transition period. 
9. While some Participants favoured an SAT de finition based on trade benchmarks, others 
favoured a definition setting minimum percentages for both duty-free tariff lines and trade flows, 
referring in that context to the need for an adequa te approach for evaluating the exclusion of major 
sectors from the coverage of an RTA.  Recalling hi s delegation's idea put forward at the previous 
meeting of a threshold of 95 per cent of both trade a nd tariff lines, one Participant said that in order to 
reach a needed ambitious result other ideas should be explored.  Divergent views were however 
expressed on the adequacy of the proposed "hi ghly traded" product approach, and the suggested 
alternatives for dealing with such matters, and clar ification was requested on how the "highly traded" 
product approach would better a ddress the proponent's concern vis-à-vis  trade fluctuations.  The point 
was made that the proposed test might imply 100 per cent coverage in case of a country where trade 
was concentrated in a relatively small number of  tariff lines; in that case, flexibility should be 
provided for.  Alternative approaches proposed to d eal with these matters included complementing the 
tariff-line benchmark with a trade test based on the overall trade covered by the RTA; looking at the 
parties’ top imports and exports - without setting a fixed threshold requi rement for their liberalization; 
and providing for requirements in terms of  a percentage of intra-trade exports vis-à-vis  exports to all 
markets of the product in question.  Clarificati on was requested on why the benchmark proposed in 
the second paper had been made much more stringent than that proposed in th e earlier paper;  some 
Participants disagreed with the setting of such a strict threshold.  Additional information was 
requested regarding the alternativ e approach proposed in paragraph 14(ii) of TN/RL/W/180 - which, it 
was noted, appeared highly dependent on trade profiles - in particular regarding its practical effects.  
One Participant noted that performing such a test  at the six-digit level would mean extending the 
benchmark; further, it was not clear whether that approach would lead to meeting the overall aim of 
trade liberalization in every case.  He then presen ted some cases for which he had doubts on the logic 
and/or feasibility of insisting the tariff be eliminat ed for the top imports, and asked Participants to 
reflect upon them.  The first case concerned a situ ation where a country was significantly competitive 
in one product at the MFN level and where any a dditional gain from tariff elimination would be 
captured by the exporter, rather than the cons umer; the second case concerned products of high 
revenue sensitivity for a particular trading partner. 
10. One Participant proposed that the Group cons ider using other evaluative criteria for 
measuring RTA liberalization and gave examples of  various "indicators" - falling short of amounting 
to "tests" – to help clarification of the terms of the agreement.  Such "indicators" might include the 
extent to which a party’s top exports to other RT A partners and/or to the world were liberalized, 
whether any major sectors had been excluded from lib eralization, and consideration of changes in 
tariff-rate quotas (TRQs), by comparing the percentage of trade covered by TRQs at the date of entry 
into force, at some intermediate point, and at full implementation.  Other helpful "indicators" could be 
comparing the average preferential rates of each party to the RTA before and after full implementation; the highest base preferential tariff rates at the date of entry into force with the highest 
MFN applied tariff rates; and the number of tariff lines in a party’s schedule before launch of RTA 
negotiations and after the date of the RTA's entry in to force.  She clarified that RTAs' parties would 
have the opportunity to respond to questions raised by these factors.  Another Participant noted that 
the focus should not be on setting parameters for intra-trade liberalization; rather, the Group could TN/RL/M/27 
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 instead consider requiring that such preference s be extended to all WTO Members on an MFN basis 
after a given number of years, upon completion of the phasing out period.  In that context, the Negotiating Group could negotiate th e appropriate number of years and provide for adequate S&D 
provisions for developing countries. 
11. Some Participants welcomed the proponent's "but  for" test, contained in paragraphs 16 and 17 
of TN/RL/W/180; it was suggested that such a transparency device might be included in the 
Secretariat’s factual presentation of RTAs.  Doubts were however expressed on whether such an exercise would go beyond a simple information exer cise; it was noted that this should not have an 
impact on the RTA's examination and should not dive rt Participants' attention regarding informal 
discussions being held on a new transparency process for RTAs. 
12. There was disagreement on whether the Group could progress on the clarification of SAT 
with respect to duties only, as reflected in paragra ph 21 of document TN/RL/M/24.  It was argued that 
the SAT requirement related to both duties and "oth er restrictive regulations of commerce" (ORRCs), 
and that it would be more logical to seek clarific ation of all SAT-related elements together.  One 
delegation underlined the need for clarifying whethe r parties to an RTA could be exempted from trade 
defence measures taken on an MFN basis (under GA TT Articles VI and XIX); such clarification 
would keep the balance that existed in the re quirements of GATT Article XXIV:8, since it seemed 
logical that if duties were abolished for X per cent of  HS lines at the six-digit level, then trade remedy 
measures should be abolished for the same HS lines. 
13. A number of Participants suggested that the i ssue of preferential rules of origin (PROO) 
merited further consideration and could not be delinked from the SAT discussion.  In particular, they 
pointed to existing links between the SAT require ment and PROO, namely that PROO limited by 
definition the product coverage under RTAs, but al so that burdensome PROO could undermine and 
render meaningless any proposed SAT requirement.  On e Participant referred in particular to the 
implications of such a relationshi p for weak and vulnerable economies. 
14. Several Participants noted that ten years was an  ideal phase-in period.  For one Participant, 
that should be seen as the outer limit for phasi ng in liberalisation commitments and earlier 
liberalisation of SAT should be an objective in any RT A.  Some other Participan ts stressed that longer 
phase-in periods might be needed in order to achieve as comprehensive tariff-line coverage as 
possible.  In that sense, it was proposed that the rules should emphasize RTAs' comprehensiveness 
rather than the speed of liberalization.  The point was also made that transition periods longer than ten 
years were explicitly provided for in the 1994 Understanding on the Interpretation of Article XXIV of 
the GATT 1994 .  The point was made that any assessment of the reasonableness of longer transition 
periods should take into account disparities in the level of development between the parties to the 
RTA, as suggested in TN/RL/W/155;  it was furt her argued that RTAs between developed and 
vulnerable developing countries - a term unknown at the time of the Uruguay Round negotiations - 
could be justified as exceptional and be nefit from extended transition periods. 
15. Some Participants agreed with the proponent's  view recorded in paragraphs 18-21 of 
TN/RL/W/180 according to which "an RTA notifie d under Article XXIV, but not notified as an 
interim agreement, should be assessed on its trade coverage and compliance with the requirement of 
eliminating duties on substantially all trade at the tim e of entry into force" and stressed the need to 
regularise and clarify current practices.  Howeve r, other Participants, referring to GATT/WTO 
practice, noted that the timeframes provided for in the Understanding on the Interpretation of Article 
XXIV of the GATT 1994  applied to all RTAs with phase-in peri ods, even when not explicitly described 
as interim agreements; numerous RTAs notified to the WTO contained in practice the kind of plan 
and schedule contemplated in Article XXIV.  One Pa rticipant referred to Article 3.2 of the Dispute 
Settlement Understanding, which r eaffirmed that WTO Agreements were to be interpreted "in 
accordance with customary rules of interpretation of p ublic international law" an d to Article 31 of the  TN/RL/M/27 
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 Vienna Convention on the Law of Treaties; this also  gave some relevance to the practice as regards 
the notification of RTAs as interim agreements as we ll as the definition of SAT.  He argued that, in 
light of the SAT requirement, it appeared reasonable to  conclude that an insubstantial portion of intra-
trade tariffs could be eliminated over a period long er than ten years, without being subject to the 
provision for special justification as required in the case of interim agreements.  He also expressed 
concern about the burden of additio nal notification requirements if all RTAs involving developed and 
developing countries had to be notified as interi m agreements; in that respect, he asked for 
clarification on whether all such future RTAs would have to be notified as inte rim agreements if they 
were granted any extended transition period under paragraph 5(c) of Article XXIV of the GATT 
1994. 
16. Recalling that the Doha negotiating mandate re quested that RTAs' developmental aspects be 
taken into account, some Particip ants regretted the absence of a specific special and differential 
(S&D) treatment component in the proposal; although they noted the proponent's readiness to discuss, it was their view that S&D questions should be dea lt with in conjunction with discussions related to 
specific systemic issues.  The point was made that S&D treatment should reflect asymmetries among 
RTAs' parties, in particular vis-à-vis  the RTA parties' levels of economic development; tariff 
structures and tariff levels; trade patterns and industrial structures; and sensitive sectors.  In this context, some Participants argued that a single SAT benchmark and a univer sal length of transition 
period seemed inappropriate; rather , developed Members' RTAs should be subject to stricter and 
higher benchmarks than those app licable to developing Members. 
17. Divergent views were expressed on whether any newly-clarified rules on RTAs should be 
retroactive and applicable to all RTAs.  Some Pa rticipants considered unfair not to provide for 
retroactivity as this would only bind newly-estab lished RTAs to improved and strengthened rules 
while not subjecting a large number of existing RTAs to such new rules.  The sensitive nature of this 
question was however emphasized, in particular because retroactive application might imply the renegotiation of some RTAs; transition periods might  be needed and their appropriate length could 
only be better assessed when the improved disciplines had taken clearer shape. 
18. The proponent thanked Participants for the co mments made and noted that the aim of his 
delegation's proposal was to provide for a simple, clea r and sharp rule that applied to everyone.  Its 
primary element was that duties be eliminated on at  least 95 per cent of tariff lines at the six-digit 
level at the end of a transition period lasting a ma ximum of ten years.  It was his delegation's view 
that an SAT definition based on a tariff-line benchmar k was the most appropriate to deal with trade 
fluctuations.  Referring to the six-digit level, he could accept that countries had different splits in their 
schedules that might have to be accommodated in order to enhance the incentives for reducing the 
number of lines not subject to liberalization.  Howe ver, he reaffirmed that the six-digit level was 
appropriate as the benchmark basis, since it would guarantee that not too many lines were carved out 
of the agreements and it allowed comparison be tween national schedules; the clarification and 
improvement of the rules on this basis would help en sure that the entire multilateral system benefited 
from the reforms. 
19. The proponent disagreed that the initial 70 per cent benchmark amounted to unnecessary 
micromanagement, and was concerned that such a comment had been made jointly with a comment 
that longer than ten-year transition periods might be necessary.  He cautioned that if too many flexibilities were granted, Members would be allowed to do whatever they wanted with their RTAs.  
He noted that there was nothing in Article XXIV and the Understanding to suggest that SAT should 
not be met on entry into force; the proposal of allowing for 30 per cent of tariff lines not being subject to duty elimination at entry into force already provided a considerable amount of flexibility.  
However, given that it was the end result that c ounted, his delegation would reflect further on this 
question and the possibility of back-loaded duty elim ination, while noting that such an approach TN/RL/M/27 
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 would only defer the adjustment costs and could po tentially jeopardize the complete implementation 
of the RTA. 
20. The proponent also recognized that the tari ff-line approach had a weakness in cases where 
trade was highly concentrated in a relatively small number of tariff lines; it was for those cases that 
the supplementary tool of the "highly traded" produc ts had been designed.  The intention of such a 
device was to find a quantitative benchmark for iden tifying products where there was relatively high 
trade, and ensure that they were not excluded from the benchmark of 95 per cent of tariff lines.  
Analysis done by his delegation on a number of RT As had showed that setting the figure at 0.3 per 
cent of trade captured on average the top 50 imports  and that a figure of 0.2 per cent captured on 
average the top 75 imports, and that explained the two alternatives proposed.  It was his delegation's 
view that such a test was better than an overall tr ade coverage test, though it remained open to other 
approaches (e.g., the use of qualitative benchmarks so that no major sector could be excluded), provided these were accompanied by a very robust a nd ambitious tariff-line measure.  He conceded 
the point that the proposed benchmark and the "hi ghly-traded" test could mean close to 100 per cent 
coverage in cases of a country where trade was con centrated in a relatively small number of tariff 
lines; however, parties to the RTA had little to fear  in eliminating duties on those products in the 
context of Article XXIV.  Rega rding delegations' comments on the proposed alternative "highly-
traded" product test, he noted that, in general, more resistance existed on eliminating duties on 
products in which a country was not competitive; he wondered on which pro ducts duties would be 
eliminated if it was problematic to liberali ze those in which countries were competitive. 
21. The proponent reaffirmed that the "but for" test was a transparency test only, as the 
application of any disciplines to the relevant produc ts could eventually negate the flexibility that 
allowed countries to exempt from duty elimination up to 5 per cent of their HS lines; he remained 
however open to ideas in this respect.  The tariff-lin e coverage approach was the best way to ensure 
that future trade developments were covered by the rule; the test represented a snapshot at entry into 
force and would be made only once.  With respect to the view that there was a need for clarification of 
the ORRC requirement as well, he saw no reason for holding back the clarification of the SAT 
requirement on duties given that at the present time  no consensus existed on the interpretation of the 
former; discussions on both elements could be held in  parallel, but not necessarily at the same speed.  
He confirmed that the benchmark was to apply to  RTA parties individually.  He reaffirmed his 
delegation's position that the ten-year transition period referred to in the Understanding on the 
Interpretation of Article XXIV of the GATT 1994  applied only to interim agreements, and that the 
opportunity provided for by these negotiations should be grasped to clarify the present irregularity and 
make explicit any implicit unde rstanding; however, he would re flect further on the point made 
concerning GATT/WTO practice and any possible leg itimization of transition periods not explicitly 
referred to.  His delegation could go along with a longer than ten-year transition period for sensitive 
products and discuss further the issue; the starting point for this discussion would be that such a 
situation would be allowed provided that these products were covered under one of the lines not 
subject to duty elimination, and thus included in  those lines carved out of the SAT requirement, or 
otherwise if the agreement was notified as an inte rim agreement and a plan and schedule was tabled 
indicating how much time was needed and the reason for it. 
22. As regards S&D treatment, the proponent unde rlined that the proposal did not address RTAs 
notified under the Enabling Clause but only those notified under Article XXIV of the GATT 1994.  
Noting that the Enabling Clause per se  was already an S&D treatment and that Article XXIV 
constituted an exception to the MFN rule, he expr essed the view that the creation of too many 
exceptions to an exception should be avoided.  T hough his delegation was not closed to negotiating 
S&D treatment as part of the SAT definition, it wo uld not volunteer any specific S&D proposal before 
having built up some consensus around the structure and detail of a quantitative SAT definition.  
Further, his delegation was not attracted by the id ea of automatically providing a relaxation of rules 
for RTAs involving developed and developing countries, as this would seem to assume that trade  TN/RL/M/27 
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 liberalization was somehow negative for developing  countries; rather, the Group should start on the 
premise that a single benchmark might be appropria te and consider whether adjustments had to be 
made.  With respect to existing RTAs, only those ol d agreements that had lapsed would not be subject 
to the new rules.  Regarding the comments that th e proposal seemed like a straight jacket and lacked 
flexibility, he noted that while flexibility should be  allowed, there was a need for disciplines, among 
which clear quantitative benchmarks to ensure that, as RTAs proliferated, they would not become a 
recipe for countries to negotiate any type of agre ement and assert it was an RTA, as this would 
undermine the multilateral trading system. 
23. The proponent of TN/RL/W/179 stated that the submission had been made to advance 
discussions on systemic issues and was structured around three main areas.  He highlighted that 
systemic issues had to be addressed with various le nses, namely reasonableness, the need for clear and 
reinforced rules, and the development dimension.  Reasonableness meant that while there was a need 
for clear and strong rules, a certain degree of flexib ility was indispensable; in that context, concepts 
were addressed in the submission but in a ma nner that would allow precision to emerge from 
discussions within the Group.  The outcome of systemic issues’ discussions should not be the lowest 
common denominator; however, it should take into account the fact that Members had interpreted 
RTAs' rules in different manners, a nd this had generated a number of "subsets of RTAs".  The  need 
to reinforce the rules and give clear guidelines for assisting Members in the negotiations of their 
RTAs was also an issue of generic systemic intere st.  As to the development dimension, it had a 
bearing on the three areas addressed in the proposal, namely coverage and SA T, reasonable length of 
time, and "other regulations of commerce" (ORCs).  In terms of coverage, the general thrust of the 
proposal was that the rules should provide for a thre shold based on volume of trade and tariff lines.  
Such a combined threshold alone would not al ways provide WTO compatibility, but it would 
represent the first of a series of steps (also invol ving qualitative benchmarks) that RTAs would have 
to comply with to be WTO compatible.  Different coverage thresholds woul d make allowance for the 
different levels of development of RTA parties, notably in the case of RTAs between developed and 
developing countries, so that the latter could benefit from lower thresholds than the former.  In terms 
of the reasonable length of time, the lack of a co mmon interpretation of "exceptional cases" should be 
addressed by the Group; in this respect, one ex officio  exceptional case to be considered would be the 
level of development of the parties.  While a length of time of more than ten years would be 
reasonable if used by developing and least-develope d countries, more effort would be needed for 
justifying "exceptional cases" to be applied by de veloped countries.  As regards ORCs, and in 
particular the test of neutrality, it was important to  agree on a consensual interpretation of the concept 
that would be part of a package of systemic issues to be presented to Ministers.  Furthermore, the negotiations should address the need for improvi ng the coherence and logic of present rules vis-à-vis 
RTAs involving developing countries.  At present, different kinds of RTAs involving developing 
countries were regulated in different manners, e. g., an RTA between a de veloped and a developing 
country or between a regional developed and a region al developing bloc was subject to Article XXIV 
while a major RTA between developing countries would be subject to different rules.  The submission 
therefore proposed that the regulation of RTAs involving developing countries should take into account the share of world trade af fected and the effects on the multila teral trading system, so that 
RTAs affecting a sizeable part of world trade would be subject to stricter disciplines and transparency.  The aim of such a proposal was not to open a de bate on the wider question of differentiation, but 
rather to find a practical way to deal with  this issue from an open-minded perspective. 
24. The proponent further noted that the proposal did not contain figures nor provided solutions; 
although the level of engagement in the Group ha d recently increased, it was his delegation's view 
that it would be premature to do so.  In term s of SAT - the key concept regarding internal 
liberalization - a first aspect was the quantitative be nchmark.  The background for that was twofold, 
namely past practices, as referred to in the WT O report WT/REG/W/46, and the Australian paper and 
Participants' reactions to it.  The most appropriate  approach for moving forward in that area would be 
an average between the past practice and the conc erns and arguments put forward in support of a TN/RL/M/27 
Page 8  
 
 tariff-line based test.  The advantage of having a combined test would be to cover both historical and 
potential trade; further, a single combined aver age would allow for accommodating, within certain 
limits, differences that Members might have had in emphasizing these two different benchmarks.  A 
qualitative benchmark would also be an integral part  of the SAT test; given that the SAT test went 
beyond duties, there was a need for adding a wide  array of concepts for assessing compliance in a 
qualitative manner.  The submission provided an illus trative list of concepts, which though already 
extensively discussed might deserve further consid eration:  major sector; ORRCs; tariff-rate quotas 
(TRQs); linked to that, special sectoral safeguard s, seasonal restrictions and the like; and review 
clauses that would increase coverage within the tr ansition period.  The question was how to combine 
the two tests; for duties this was quite straight-fo rward and most Members had used that as a base 
benchmark in past practice.  The qualitative aspects  were very important but more complex; also, 
fewer proposals had been made in that respect.  Thus, the submission proposed that the combination 
of a quantitative and qualitative approach would be  such that the quantitative benchmark would set 
the floor, establishing a "likely" WTO conformity , with the final assessment being dependent on 
qualitative aspects.  With respect to the effects on third parties - where the key concept was ORCs - 
the traditional debate had focused on the definition of ORCs and there was no clear indication that 
consensus had been found on it.  Therefore, the proposal aimed at  shifting the focus from the ORCs 
definition as such to the neutrality test, i.e. the n eed for establishing criteria to measure the incidence 
of ORCs on third parties.  In practical terms, it was proposed to start on the basis of a very broad 
definition of ORCs, including PROO, while focusi ng more on the implications of having the 
neutrality test as it stood today.  In that context, the basic problem was that the end result had to be 
practical and reasonable in the treatment of ORCs.  The submission identified some of the parameters 
that should be incorporated in this discussion.  On e related to the fact that if the Group aimed for a 
very broad scope of ORCs, it would be difficult to have  a "one size fits all" for all type of regulations; 
a case-by-case approach might then be needed.  A second parameter was based on the fact that a 
number of regulatory measures covered by RTAs were  already dealt with in WTO Agreements; from  
his delegation's perspective, it would be odd if the final result was that an RTA could be found in 
contradiction with Article XXIV when the rules and regulations promoted by it were fully compatible 
with provisions under existing WTO Agreements.  Fi nally, an incidence assessment would have to 
take into account the effects of complying with the rules, namely greater integration of markets and 
promoting trade between RTA partners , without having negative effects on third parties.  In sum, the 
submission attempted to point to a direction and id entify some of the parameters involved, and his 
delegation remained open to any proposals that woul d fill in the content within that framework.  
25. Participants thanked the proponent for the submi ssion, which helped revive attention to RTA 
systemic issues, and noted the preliminary nature of their comments given the late arrival of the 
proposal. 
26. Several Participants supported the need for significant progress on systemic issues, as well as 
the proponent's view that the clarification of WT O rules on RTAs should be reasonable and based on 
existing realities, but could not aim at the lowest common denominator of Members’ past practices.  
One Participant commended the submission as pr oposing a balanced and equal-handed approach 
towards meeting divergent ideas regarding major syst emic issues in a broadly acceptable manner to 
all WTO members, while paying attention to the n eeds of developing countries.  Another Participant 
commended the fact that the submission acknow ledged that no subset of RTAs could a priori  be 
excluded from the negotiations, as the Doha mandate a pplied to all RTAs regardless of the provision 
under which they had been notified. 
27. Various Participants highlighted the need for an SAT definition involving both quantitative 
and qualitative assessments.  Clarif ication was sought regarding the "combined average threshold" 
concept, in particular on how this would be calcu lated and on the reasons that would make such a 
combined average an improvement compared to tw o separate benchmarks.  One Participant agreed 
that the combined average threshol d could be expected to cover both the existing and potential future  TN/RL/M/27 
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 bilateral trade between the partners.  The point w as made that it was difficult to analyze the proposal 
in the absence of set benchmarks;  however, their se tting at a low level would allow major sectors or 
highly traded products to be car ved out.  Divergent views were expressed on whether any numeric 
benchmark for coverage would ha ve to be firstly based on trade coverage or tariff lines.   
28. Some Participants agreed that no single benchmark should be de terminative of WTO 
compatibility.  Various Participants supported the proposal for developing an illustrative list of 
qualitative benchmarks for assessing coverage of RTAs.  At the same time, further clarification was 
requested regarding the points made in paragraph 10 of the proposal on review clauses, namely (i) its 
relationship to the transition periods, i.e. whether a ll such reviews and related liberalization had to be 
completed within ten years; and (ii) whether su ch review clauses would only be available for 
developing and least developed country Members.  Two additional factors had been proposed for 
inclusion in such a list, namely the possibility for th ird parties to have a real and fair opportunity to 
accede to RTAs, and the automatic extension of li beralization to all WTO Members, as proposed in 
the debate held on the previous submission.  The need for a robust SAT requirement and for ensuring 
that no major sector be excluded from coverage was reaffirmed by some Participants.  The point was 
also made that S&D should also be re flected within any qualitative benchmark. 
29. Clarification was sought regarding the meaning of the statement in paragraph 15 according to 
which "those regulations falling under existing WTO Agreements cannot be qu estioned on grounds of 
neutrality, if the parties of the RTAs fulfil their rights and obligations under those Agreements";   
illustrative examples were requested in this respec t and the question was posed as to whether this 
applied both to customs unions and free-trade areas.   Clarification was also requested on how the  
neutrality test would be evaluated in cases (i) where an RTA provided that thresholds for the 
imposition of safeguard measures applied differently  for imports from parties and from non-parties; 
(ii) where trade remedy measures were automatica lly applied among the members in the process of 
establishment or enlargement of customs union;  (iii) where anti-dumping measures were eliminated 
amongst the RTA's parties;  and (iv) where bilatera l safeguards were provided for in the RTA.  Some 
Participants expressed support for developing a chec klist of ORCs and for providing that assessment 
of neutrality be made on a case-by-case basis.   
30. Participants generally agreed that ten years was an adequate time frame for the transition 
period, as also proposed in the submission discussed  earlier in the meeting; it was however noted by 
one Participant that present rules provided for th e transition periods to apply only in the case of 
interim agreements.  Support was expressed regardi ng the need for clarifying the meaning of the 
"exceptional cases" which might go beyond the reas onable length of time; such "exceptional cases" 
should only apply to a limited number of products un der RTAs and be duly justified.  Regarding the 
point made that developing countries would be e xpected to present arguments for benefiting from 
longer transition periods, one Participant referred  to document TN/RL/W/155, which dealt with these 
questions.  The point was made that in any case, RTAs could provide for a transition period longer 
than ten years for that portion of trade falling outside the SAT requirement.  In that context, it was noted that longer phase-in periods might help achie ve greater coverage.  Further, one Participant 
argued that coverage rather than the ten-year tran sition period should be emphasized since it was her 
view that  the greater the degree of liberalization und er an RTA, the more receptive the parties were to 
liberalization under the auspices of the WTO; in that context, she requested clarification on whether it 
was the proponent's view that completion of Artic le XXIV requirements within ten years was more 
important than achieving duty-free trade on SAT. 
31.
 Various Participants shared the aim of expl oring further flexibility to the benefit of 
developing members; however, it was argued, the basic requirement that RTAs should not create 
undue difficulties for the trade of third parties s hould be ensured.  One Participant cautioned on 
addressing the issue of coherence in terms of diffe rent treatment between different types of RTAs, 
since most RTAs were not under the legal cover of  the Enabling Clause; some other Participants TN/RL/M/27 
Page 10  
 
 agreed that coherence had to apply between Article XXIV of the GATT 1994 and the Enabling 
Clause.  One Participant requested the proponent to provide his views regarding asymmetry, and in particular whether any lower threshold for de velopment reasons should still satisfy the SAT 
requirement.  Some Participants requested clarifi cations on what was being proposed, in particular 
with respect to (i) RTAs' aspects that promote de veloping countries' participation in world trade 
(paragraph 16(a)); (ii) the different  level of development of RTA par ties and their share of world trade 
(paragraph 16(b)); and (iii) coherence issues (p aragraph 17).  Divergent views were expressed 
regarding the setting of lower SA T benchmarks for developing c ountries; while one Participant 
commended differentiation of RTAs according to the  level of development of their parties and the 
share of world trade, in particular in cases of small and vulnerable economies and least-developed countries, some other Participants expressed concern regarding the proposal for disciplines that would 
have the effect of differentiating between developing  countries, as reflected in paragraph 16(b).  The 
point was made that providing for different benc hmarks would go against the WTO principle that 
S&D treatment should be oriented towards the fulfillment of WTO requirements, including SAT.  
Further, it was noted that while the proponent had indicated that it was not aiming at a debate on differentiation, the language of paragraph 18 was fa miliar and similar to the language used in that 
debate in other WTO Bodies; in that context, one Participant urged extreme caution against any 
suggestion of going down that road as this woul d not be constructive towards the objectives being 
pursued in the CRTA.  Reservations were expressed regarding any possible attempts to seek stricter 
disciplines on RTAs notified under the Enabling Clause.   Clarification was requested on whether the 
proponent had doubts regarding whether RTAs actua lly benefited developi ng countries depending on 
their level of development.  One Participant requ ested the proponent to provide information on the 
treatment it had provided for Chile, MERCOSUR and the ACPs in the context of their respective 
RTAs in force or being negotiated.  Another Participant reiterated the need for an early engagement in 
concrete discussions regarding S&D treatme nt to be included in any new rules. 
32. Reacting to the comments made, the proponent noted that the proposal did not aim at creating 
new categories of developing countries subject to di fferent rules, but rather to consider, beyond any 
dogmatic line, that some RTAs affected a great amount of trade; these RTAs, if not appropriately regulated, could have serious effects on the multila teral trading system and notably on developing 
countries not party.  His delegation had taken note of concerns expressed in that respect and would 
come back to that point at a late r stage.  He confirmed that countries should be free to have transition 
periods longer than ten years for liberalizing trade beyond the SAT requirement; the link between 
SAT and the reasonable time length had been addres sed in paragraph 12 of the submission.  An SAT 
definition allowing for both quantitative and qualitative assessment was a key element of the 
proposal; the quantitative threshold would have to be completed and supplemented by the qualitative 
aspect.  His delegation would reflect further on how to  integrate into its proposal the need to ensure 
that major sectors were not excluded from covera ge, and the question of highly traded products.  
Regarding review clauses, as reflected in paragra ph 10 of the submission, he  pointed to paragraph 19 
of TN/RL/163 which had guided his delegation's thoughts on this issue; he clarified that the question 
related to situations where a sector was excluded at  an initial stage but a commitment existed in the 
RTA to carry out future negotiations on such sector.  He noted that though this point had been raised 
in a proposal relating to trade in services, it woul d also apply to trade in goods.  Clarifications 
requested regarding the quantitative and qualitative asse ssment, as well as the neutrality aspect would 
be replied to at a later meeting, when examples woul d also be provided.  Finally, he reaffirmed that 
the main thrust of the proposal had been to pr ovide a direction that accommodated various points 
raised by different Participants' submissions, in cluding at the expense of moving his delegation's 
previous position, and he hoped that other Partic ipants would show equal flexibility in these 
discussions. 
33. The Chairman thanked the proponents and Partic ipants for having enga ged in a constructive 
discussion.  These submissions would be further considered at the Group's next meeting, when 
detailed responses to some of the comments ma de regarding TN/RL/W/179 would be provided.  TN/RL/M/27 
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 34. The Group held an informal debate on the basi s of an informal note by the Chairman, entitled 
Elements for an RTAs' Transparency Process , circulated as Job(05)/63, and the services "mock" 
presentation of the Canada-Chile Free Trade Agreemen t, dated 21 February 2005.  At the end of the 
informal discussions, the Group reverted back to formal mode. 
C. OTHER BUSINESS  
35. The Chairman informed the Group that its next meeting would take place on 13 -14 June 2005. 
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