RESTRICTED  WORLD TRADE  
ORGANIZATION  TN/RL/M/24 
23 March 2005 
 
 (05-1223) 
Negotiating Group on Rules  
  
 
SUMMARY REPORT OF THE MEETING 
HELD ON 7 MARCH 2005 
 
Note by the Secretariat
 
 
 
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 7 March 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 , on a preliminary basis, the proposal just 
made by Australia and circulated as TN/RL/W/173  (TN/RL/W/173/Rev. 1 in its English version).  
This would allow the Group to revive its discussion on systemic issues on the basis of a proposal by a 
Participant. 
4. The proponent stated that his delegation was pleased to present its submission on the 
definition of "substantially all the trade" (SAT).   GATT Article XXIV provided an exception to the 
most-favoured-nation (MFN) rule, which was the cent ral pillar of the multilateral trading system 
(MTS).  As it was known, this exception was base d on the assumption that genuinely liberalizing 
preferential trade agreements were building blocks fo r global free trade.  To ensure that RTAs were 
genuinely liberalizing, GATT Article XXIV containe d various tests, which included the requirement 
that an RTA eliminated duties on "substantially all th e trade" between the parties.  Unfortunately, the 
lack of clarity and common understanding on the mean ing of SAT had led to enormous diversity in 
the tariff-line and trade coverage of RTAs.  Some  Members had entered into RTAs that excluded 
entire sectors or their number one export;  other Me mbers had entered into RTAs with extremely 
limited tariff-line coverage on the basis that bilate ral trade was highly concentrated and the agreement 
covered most of this trade.  Doubts existed on whethe r the SAT test, in its current form, could fulfil its 
intended role as a guarantor of genuinely libera lizing RTAs;  these were reflected in the recent 
Sutherland report on the Future of the WTO, which had pinpointed the lack of definition in the SAT 
provision as a major systemic weakness in the MTS architecture.  In his delegation's view, Members 
should seize the opportunity presented by the Doha Round to create a clear, objective benchmark to assess whether their own and others' RTAs were consistent with WTO commitments.  The submission proposed a two-pronged quantitative test for assessi ng whether an RTA had eliminated duties on 
SAT, as required by GATT Article XXIV.  The fi rst prong involved the application of a tariff-line 
coverage test.  In particular, duti es would have to be eliminated on at least 70 per cent of tariff lines at TN/RL/M/24 
Page 2  
 
 the Harmonized System (HS) six-digit level on the RTA's entry into force, and at least 95 per cent of 
tariff lines after ten years.  The second prong involved the application of a trade test.  This aimed to minimise the risk that "highly traded products", an d products that would be subject to greater trade 
between the parties in the absence of protectionist  measures, be among the tariff lines exempted from 
elimination.  In particular, Members would be pr evented from excluding lines from tariff elimination 
where the value of imports from the other RTA party or  parties exceeded a fixed percentage threshold.  
His delegation had suggested a figure of two per cent for this purpose.  Also, the overall export trade 
of the RTA parties on exempted lines would be analysed during the examination process.  His 
delegation was open to Members' views on how th ese ideas could be further developed.  The two-
pronged test for SAT would apply to all RTAs unde r GATT Article XXIV.  It was his delegation's 
belief that the proposed test was sufficiently ambitio us and robust to safeguard the MTS integrity.  At 
the same time, the proposed percentage thresholds , and the implementation timeframe of ten years, 
provided some flexibility in recognition of the r eality that Members might exclude some highly 
sensitive product lines from tariff elimination.  Th ere was a need for an ambitious and robust 
discipline under Article XXIV to ensure that RTAs  supported, rather than undermined, the MTS.  His 
delegation was open to suggestions on how to fu rther develop the proposal on setting an objective 
measure of SAT, and looked forward to working constructively with all Members towards concrete 
outcomes under this important systemic aspect of the Doha mandate. 
5. Participants thanked the proponent for having made the submission that would allow the 
Group to revive the debate on systemic issues;  th ey highlighted the preliminary nature of their 
comments, given the late arrival of the proposal.  Participants acknowledged that arriving at more 
precise definitions for key issues such as SAT was an important part of the Group's mandate during 
these negotiations.   
6. It was generally noted that RTAs having wide  coverage and high quality disciplines helped 
the MTS.  Various Participants underlined the prim acy of the MTS, and that RTAs complemented and 
were building blocks to further multilateral trade libera lization.  It was also noted that negotiations at 
the multilateral level for the trade liberalization of sensitive sectors or the estab lishment of disciplines 
was facilitated if these issues had already been dealt w ith in regional and bilateral trade agreements.  
7. While a number of Participants welcomed the two-pronged approach proposed, others 
observed that developments in the MTS had shown the need for flexibility rather than for rigidity, in 
particular in light of the unique nature of each  RTA.  One Participant noted that, though the SAT 
requirement already set a fairly clear legal standard, some Members had used "the lack of clarity" of 
WTO rules as a pretext for justifying RTAs which fell short of meeting the requirement;  while each 
RTA was unique, the rules of Article XXIV of GATT 1994 did not differentiate between various 
types of FTAs or customs unions.   
8. Participants listed a number of objectives pursued  in the negotiations.  First, a more precise 
definition of the concepts included in Article XXIV of the GATT 1994 and GATS Article V would 
help Members embarking in RTAs ne gotiations to be aware of what was expected from them, while at 
the same time allowing WTO Members to better assess the degree of liberalization of RTAs.  Second, 
negotiations should aim at ensuring accountability with re gard to all RTAs. Third, a redefinition of the 
CRTA's role would be needed so that it woul d no longer be required to determine an RTA’s 
consistency with the WTO rules.  As regards proc edure, it was suggested that the Group should first 
focus its work on the tools, and related technical issues, to be used in defining SAT, leaving the 
discussion regarding precise benchmarks for a later stag e.  Finally, one Participant noted that the SAT 
clarification would not involve a new commitment but, rather, simply defining more clearly an 
existing one.   
9. Divergent views were expressed regarding the pr oposed benchmarks.  Participants supporting 
them highlighted the need for en suring that RTAs were based on ambitious standards, as only high  TN/RL/M/24 
 Page 3 
 
 
 quality RTAs could positiv ely contribute to the MTS;  they  expressed concern with requests for 
flexibility that would dilute existing requirements.  One Participant stated that while ideally an RTA 
should reach 100 per cent trade coverage, that was not always practical;  therefore, the proposal set a 
useful and pragmatic element for defining SAT.  It was noted that the 95 per cent benchmark would 
allow for certain sectors to be carved out from an agreement;  thus, the inter-related test on "highly 
traded" products was especially important to ensu re that such a situation would not occur.   
10. A number of other Participants questioned the n eed for defining such ambitious benchmarks;  
in their view, a SAT definition through quantitativ e benchmarks should be based on attainable and 
reality-based standards, including the differentia tion between industrial and agricultural products.  
They highlighted the need for finding a balan ce between too rigorous benchmarks – which would 
seriously limit the number of qualifying RTAs, t hus posing a problem to many existing RTAs and 
frustrating the establishment of future RTAs  – and too generous ones – which would result in a 
proliferation of RTAs that might undermine the MTS.  One Participant noted that reality-based standards should also permit the exclusion of sectors or at least some major sector from trade liberalization, while another Participant proposed to reduce the final liberalization benchmark to 90 
per cent of the tariff lines.  The point was also made that a SAT definition that would result in 
preventing the formation of RTAs would be c ontrary to Article XXIV:5 of the GATT 1994.  
11. Technical clarifications were requested on the u se of six-digit tariff lines.  It was noted that 
RTAs used a variety of tariff levels;  measuring RT As’ coverage on a single basis might not provide 
an accurate result.  Another major question would be how to deal with those six-digit tariff lines that 
were only partially liberalized.  It was therefore s uggested that information be provided at the same 
level of disaggregation as that used in the RTA, and that a more detailed discussion on that be held at 
a future meeting.  Clarification was also sought  on how the proponent defined exclusion from trade 
liberalization in the context of paragraph six of the submission, in particular whether the existence of 
tariff-rate quotas would mean that the product was excluded from coverage.  
12. Divergent views were expressed on the use of a ta riff-line instead of a trade benchmark.  One 
major identified risk was that the use of a tariff- line benchmark could result in situations where 
substantial coverage existe d in terms of tariff lines, but not in te rms of traded products.  In particular, 
it was noted that such an approach would not be appropriate for cases where intra-trade was 
concentrated on a relatively small number of products.  Further, the point was also made that a tariff-
line approach might be burdensome and consid erably limit flexibility regarding RTAs' product 
coverage.  In light of these problems, some Particip ants proposed that SAT be defined in terms of the 
percentage of trade covered or both the percenta ge of tariff lines and trade covered.  More 
specifically, one Participant inquired how Particip ants would view a SAT definition encompassing 
both 95 per cent of tariff lines and of trade.   
13. Participants were generally in favour of further exploring the idea of ensuring that "highly 
traded" products were not excluded from the covera ge of RTAs.  The point was made that, in many 
instances, important products were not included in RTAs because of protectionist measures existing in 
one of the Parties.  Therefore, the question of pro ducts with no or negligible  trade, as raised in 
paragraph nine of the proposal, merited further disc ussion.  Two suggestions were made as a way to 
deal with that, namely to also provide for requireme nts in terms of either a percentage of intra-trade 
exports vis-à-vis  exports to all markets of the product in qu estion or a percentage of aggregate trade 
covered.  It was however noted that while in some  cases the absence of trade was due to protectionist 
measures, in other cases this was due to genuine r easons;  and this reality should be taken into 
account.  Clarification was requested on (i) whether th e idea would be to look at peak levels or three-
year averages of "highly traded" products;  (ii) the precise basis for the calcula tion of this percentage 
of trade between the parties, in particular whethe r it referred to trade volume or value, and to MFN 
trade;  (iii) the reference period for each subsequent review;  (iv) how to deal with yearly fluctuation 
of trade vis-à-vis  the pre-defined list of "highly traded" products;  (v) the precise requirements for TN/RL/M/24 
Page 4  
 
 "highly traded" products, namely whether the sector should simply be included in the RTA or whether 
total liberalization – being it up-front or through a tr ansition period – was required;  (vi) whether these 
products would also be defined at the six-digit le vel;  and (vii) whether the fact of providing for 
regular reviews meant that an RTA which had met a ll criteria at the first examination could be found 
not to be in accordance with WTO rules at a later stage. 
14. One Participant noted that the submission only proposed a partial definition for SAT, given 
that it did not deal with other directly or indirectly related issues.  He noted that the concept of "other 
restrictive regulations of commerce" (ORRCs) and its exemption list were directly linked to SAT, and 
requested the proponent to clarify whether ORRC s applied under Articles VI and XIX of the GATT 
1994 – i.e. anti-dumping, countervailing duties and safe guards – should also be addressed as part of 
the SAT clarification.  The balance that existed in  Article XXIV:8 should be maintained;  therefore, a 
clarification of SAT should also encompass the extent  to which such trade remedy measures could be 
applied in an RTA.  He noted his delegation' s interpretation according to which trade remedy 
measures could not be applied to trade covered by free trade agreements or customs unions.  
15. Highlighting the existing links between SAT and preferential rules of origin (PROOs) , some 
Participants advocated the need for further consid ering PROOs in the context of SAT discussions.  
The point was made that PROOs limited by defin ition the products covered under an RTA;  over-
burdensome PROOs could undermine the SAT requireme nt and limit actual trade volumes.  The need 
for a clarification of the link between SAT requireme nts and "originating" products was referred to, in 
particular whether SAT should be defined only on the basis of "ori ginating" products qualifying under 
the PROOs of an RTA.  Finally, divergent view s were expressed on the extent to which the SAT 
requirement applied both to originating products and other goods, including those transhipped or re-
exported.   
16. Divergent views were expressed on the appropriateness of assessing whether the SAT 
requirements had been achieved within ten years from the entry into force of the RTA.  On one hand, 
it was noted that this was in line with reality;  in general, RTAs prescribed a timeframe for the 
elimination of duties and could therefore be regard ed, even if not explicitly recognized, as "interim 
agreements" which contained a plan and schedule for formation of a RTA as envisaged under GATT 
Article XXIV:5(c).  On the other hand, some Part icipants noted that earlier liberalization of SAT 
should be the objective of any RTA.  One Participant noted that ten years should be seen as the outer limit for phasing in liberalization commitments, and not as the normal standard.  Some Participants 
rejected that statement on the grounds that in some  instances, a longer transition period was needed so  
as to ensure that sensitive sectors were included in the agreement.  One Participant highlighted the 
importance of having a review at the end of the phase-in period and of ensuring transparency, both 
throughout that period – by requiring the notification of changes made to the RTA – and thereafter, by 
providing for periodic reporting requirements. 
17. While some Participants concurred with the pr oposed benchmark at entry into force, others 
reacted negatively to it.  For one Participan t any RTA providing for initial coverage below the 
proposed 70 per cent benchmark would be meaningl ess, while another Participant cautioned against 
the risk that flexibility could result in no trade being covered at the entry into force of an RTA.  For 
other Participants, the proposed initial benchmar k was not appropriate;  rather, they favoured 
maintaining the flexibility currently provided unde r GATT Article XXIV regard ing tariff elimination 
over a fixed period of time so as to suit their economi c and domestic imperatives.  In that context, the 
point was made that any test for initial liberaliza tion should serve two purposes, namely to create an 
incentive for quicker liberalization and to provide fl exibility for RTAs to have different starting points 
towards the ultimate goal of trade liberalizati on;  therefore, a single benchmark for initial 
liberalization would not seem appr opriate and would not capture th e numerous ways in which RTAs 
provided for trade liberalization.  Some alternativ es to this unique benchmark were proposed, namely 
to simply eliminate any defined requirement regarding entry into force;  to reduce it to 50 per cent;  to  TN/RL/M/24 
 Page 5 
 
 
 reduce duties on products by 70 per cent;  to base the test on liberalization of existing trade or trade 
value;  or, in particular in cases of RTAs between  developed and developing  countries, to allow for 
different levels of initial liberalization so as to  arrive, within a defined timeframe, at a fixed 
benchmark. 
18. Participants noted that the development dime nsion of RTAs merited discussion and analysis 
as RTAs could play a significant role in developi ng countries' economic development and integration 
into world trade.  Participants agreed with th e need for discussing special and differential (S&D) 
treatment for developing countries, and questioned whether the proponent had ideas on how best to 
reflect S&D in the SAT proposal.  In particular, they were interested in discussing whether S&D 
should involve the application of different threshol ds for RTAs between developing countries, and 
how to assess SAT in RTAs involving both develope d and developing countries.   In that respect, one 
Participant was of the view that the initial 70 pe r cent benchmark should be valid throughout the 
duration of developing countries' agreements.  Anot her Participant noted that the Group had not yet 
reached an agreement on whether RTAs notified unde r the Enabling Clause would be subject to an 
improved review process.  Anothe r Participant noted that the proposed benchmarks, and the ten years 
time frame for phasing in commitments, would be diff icult to implement for a number of developing 
countries, in particular in the context of negotia tions for the conclusion of RTAs with developed 
countries. 
19. Participants also addressed the question of appli cation of any new or clarified rules to existing 
RTAs.  The point was made that if this was required vis-à-vis  the SAT definition, a number of RTAs 
might have to be re-opened;  that would pose a prob lem in particular if not all of the RTA's parties 
were Members of the WTO.  One Participant noted  that while a general grandfathering of existing 
RTAs would not be in line with the overall pur pose of the negotiations, this question should be 
addressed in light of, and in parallel with, discussi ons for the clarification of specific rules.  One 
Participant reacted to that by proposing that this question be dealt with only once the Group had 
agreed on a SAT definition.  The point was made that SAT discussions could be limited to future 
RTAs;  for most of the RTAs in force, a review  clause existed and any ne w interpretation could be 
dealt with in that context.  Clarification was sought on whether the phased-in commitment would also 
apply to RTAs already in force. 
20. Referring to the importance of clarifying the GATS concept of "substantial sectoral coverage" 
in a manner that would require the inclusion of the economically most important service sectors, with the exception of services being supplied in the exer cise of governmental authority and secure a broad 
and real free trade within a reasonable timeframe, one Participant inquired whether the proponent 
intended to make a similar proposal on that GATS concept. 
21. The proponent thanked Participants for the in-dep th comments made, especially in light of the 
short time elapsed since the distribution of the pr oposal.  Regarding the scope of the proposal, he 
noted that it related only to goods and to the elim ination of duties under the SAT requirement;  it did 
not include services nor RTAs notified under the En abling Clause, nor did it dealt with the CRTA's 
role.  While ORRCs were referred to in the same paragraph as SAT, there was no logical need nor 
reason for addressing the former, and the Group coul d therefore progress on the clarification of SAT 
with respect to duties only.  Regarding the proposal's ambition, his delegation stood by the end-point benchmark of 95 per cent coverage;  the initial 70 per cent benchm ark was fairly generous;  however, 
given that consistency with the end-point benchm ark was the most important aspect, his delegation 
would be open to reconsider the in itial benchmark.  As regards technical issues, he clarified that a six-
digit tariff line would be counted as having been liberalized only if all duties for the products underneath it were liberalized;  partial liberalizati on would therefore be disregarded, and the same 
would occur if tariff-rate quotas remained.  Given that the HS six-digit level was the only common 
standard among WTO Members, it represented the only workable basis for setting a numerical SAT 
definition.  Regarding "highly traded" products, the two per cent referred to th e value of imports, in TN/RL/M/24 
Page 6  
 
 HS six-digit level, relative to the overall value of  imports of one party from the other RTA party;  
average values would be used, rather than peaks;   yearly fluctuation of trade would not be taken into 
account;  rather, a snapshot would be made at the entry into force of the agreement, when these 
products would be identified.  Referring to commen ts made according to which the proposal was 
over-weighted in terms of tariff lines and under-weight ed in terms of trade coverage, he highlighted 
the importance of providing for high tariff-line covera ge;  it was his delegation's view that the trade 
approach was problematic in cases where trade was concentrated in a few tariff lines.  While his 
delegation would be ready to  consider an approach that would use tests on the basis of both trade and 
tariff lines covered, high standards would have to  be set, and the proposal for a double 95 per cent 
benchmark appeared appropriate.  Regarding products on which there was little trade due to high 
protectionist measures, the proposal simply noted the need to focus on gr eater transparency and 
analysis of overall export trade;  however, his delegation remained open to further discussing any 
appropriate disciplines if Members felt it necessary.  With respect to S&D, his delegation was of the 
view that the Group should pursue its work on defini ng SAT while also focusing on appropriate S&D, 
in particular vis-à-vis  North-South RTAs.  He reaffirmed his delegation's view that the definition 
should apply to all existing RTAs;  while that might pose problems for some of them, most RTAs had 
review clauses which would allow for a re-adjustmen t of the RTA's coverage.  Regarding the ten-year 
transition period, the proposal was that 95 per cent of  tariff lines be covered by that time;  however, 
other sensitive products could be liberalized on the b asis of a longer transition period.  Clarification 
was provided on the fact that the tests and benchm arks referred to "origina ting products" as per the 
RTA's PROOs, and that no obligation would apply to non-traded products due to genuine reasons;  
that could be worked out at the drafting stage.  Regarding the CRTA's role, nothing in the proposal 
reflected a different view than that mentioned ear lier by a Participant, namely that the CRTA should 
no longer be required to determine an RTA’s cons istency with the WTO rules.  Regarding RTAs 
involving non-WTO Members, it was noted that this issue had been dealt with provisionally in the CRTA, but the Group might need to reve rt back to it at a later stage. 
22. The Chairman thanked the proponent for allowing the Group to revive the systemic debate, in 
particular on a very substantive issue, and Particip ants for having engaged in a constructive discussion 
on the basis of detailed and in-depth comments, though of a preliminary nature.  The submission 
would be further considered at the Group's next meet ing.  He invited other Participants to contribute 
to the Group's progress on the systemic debate, through the submission of proposals.   
23. The Group held an informal debate on the basi s of an informal note by the Chairman -  
entitled RTAs Transparency Process: Subse quent Notification and Reporting , dated 25 February 2005 
- and two informal notes by the Secretariat - Provision of Data on RTAs (goods) , dated 24 February 
2005, and the services "mock" presentation of th e Canada-Chile Free Trade Agreement, dated 21 
February 2005.  At the end of the informal di scussions, the Group reverted back to formal mode. 
C. O
THER BUSINESS  
24. The Chairman informed the Group that its next meeting would take place on 17-18 May 
2005.   
 
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