WORLD TRADE  
ORGANIZATION  TN/RL/W/173 
1 March 2005 
 
 (05-0859) 
Negotiating Group on Rules Original:   English 
  
 
SUBMISSION ON REGIONAL TRADE AGREEMENTS 
BY AUSTRALIA 
 
Paper by Australia
 
 
 
 The following submission, dated 28 February 2005,  is being circulated at the request of  the 
Delegation of Australia.   
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PROPOSAL FOR THE USE OF FACTUAL PRESENTATION FORMAT 
IN EXAMINATION PROCESS 
  
 This communication builds on Australia’s firs t submission on the definition of ‘substantially 
all trade’ (TN/RL/W/15) and provides a possible basi s to progress the important issue of defining with 
greater precision the term ‘substantially all the trad e’ as it pertains to Article XXIV of the General 
Agreement on Tariffs and Trade (GATT).  Agreement on the meaning of ‘substantially all trade’ is important in assessing whether regional trade agreements to which WTO Members are a party are 
consistent with the WTO commitments of those Memb ers.  This submission by Australia responds to 
the Doha Declaration mandate for negotiations to clarify and improve the WTO disciplines and 
procedures related to regional trade agreements, and provides a substantive contribution to the 
development of effective disciplines related to regi onal trade agreements in the WTO as called for by 
the report “The Future of the WTO: Addressing Institutional Challenges in the New Millennium”. 
 Background
 
1. Paragraph 29 of the Doha Declaration states: 
We also agree to negotiations aimed at clarifying and improving disciplines and 
procedures under the existing WTO provisions applying to regional trade agreements.  
The negotiations will take into account the developmental aspects of regional trade 
agreements. 
This mandate to improve and give certainty of definition and form to the disciplines and procedures of the 
WTO provisions related to regional trade agreements re flects widely held concerns ; specifically, that the 
current ambiguities have hindered the Committee for Regional Trade Agreements (CRTA) from completing even one assessment of wh ether an individual trade agreem ent conforms to WTO provisions. 
 
2. These concerns have most recently been under lined by the report “The Future of the WTO: 
Addressing Institutional Challenges in the New Millenni um” (the Sutherland report).  The Sutherland 
report articulates the importance of ensuring that regional trade agreements improve the “trading and TN/RL/W/173 
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 development prospects of beneficiaries.”  Furthe rmore, the report makes a strong call for regional 
trade agreements to “be subject to meaningful  review and effective disciplines in the WTO.” 
 3. As highlighted in the Suth erland report, the existing systemic inability to objectively discern 
whether regional trade agreements involving WTO Members are consistent with the WTO 
commitments of those Members presents the danger of a proliferation of regional trade agreements 
with poor trade-liberalising outcomes and trade distor ting effects.  Deficient regional trade agreements 
of this nature, particularly those that deliberatel y exclude entire sectors, such as agriculture, from 
liberalising commitments, undermine the multilateral trading system by entrenching protectionism, 
and give comfort to interest groups that benefit from such protectionism at the expense of the 
multilateral rules-based international trading system .  Conversely, full coverage, high quality RTAs 
would through their liberalising effect promote furt her trade liberalisation at the multilateral level. 
 4. An important element in the development of ef fective disciplines that apply to regional trade 
agreements is the definition of ‘substantially all trad e’.  Article XXIV, paragra ph 8, GATT requires that, in 
relation to customs unions and free trade agreements, “duties and other restrictive regulations of commerce … 
are eliminated with respect to substantially all the tr ade …”.  On any reading of this provision, the term 
‘substantially all trade’ is pivotal to assessing th e WTO-consistency of regional trade agreements. 
  
Substantially All Trade: A Proposed Definition
 
5. The objective of defining ‘substantially all trade’ in the context of Article XXIV and the examination 
of regional trade agreements must be to ensure that  neither entire sectors nor ‘highly traded’ products are 
excluded from regional trade agreements.  It is theref ore necessary that the defin ition incorporate quantitative 
benchmarks in relation to the “duties” aspect of the agreement that preclude such exclusions. 
 
6. In relation to preventing the exclusion of entire sectors, the appropriate quantitative measure 
needs to be sufficiently ambitious, and yet reflect the reality that some products may be excluded from regional trade agreements, and furthermore, that in some cases, liberalisation commitments may be phased-in over time.  An appropriate accommodation of  these competing factors could be achieved by 
prescribing a benchmark of eliminating all duties on a minimum of at least 95 percent of tariff 
lines at the six digit level in the harmoni sed system of tariff classification lines.   W e  r e g a r d  a  
minimum 95 percent as satisfying the requirements of an effective discipline under Article XXIV, and 
yet retains sufficient flexibility to accommodate the exclusion of certain product lines.  7. While the benchmark of at least 95 percent of  the harmonised system of tariff lines at the six 
digit level would prevent the exclusion from a regional trade agreement of a particular sector (ie. at 
the Chapter or Heading level), it may not be effec tive in deterring the exclusion of ‘highly traded’ 
products.  In addressing this issue it is important to first identify clearly what ‘highly traded’ 
products are, and in this regard we propose that these products be defined as those that 
constitute at least, say, 2 percent of trade between the parties.   We are open to other views as to an 
appropriate percentage of trade between the parties th at would give appropriate specificity to the term 
‘highly traded’ product.  The important point is to  come to an agreement on a clear definition that 
accurately describes the term ‘highly traded’. 
 8. Another aspect of preventing the exclusion of ‘highly traded’ products is to identify those products 
in the context of trade governed by the regional trade agreements.  This would require statistical 
information on the trade betw een the parties on a product sp ecific basis, with a hist orical reach of at least 
three years prior to the notification and each subsequent  review of the regional trade agreements.  Inclusion 
of this information could be an added requirement in the standard format for notification, and/or a required feature under the ‘Trade Analysis’ section in the factual presentation produced by the Secretariat. 
  TN/RL/W/173 
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 9. There is also a need to expo se to the examination process those products that Members 
currently do not, but could trade, if it were not for the protectionist measures of one or more the 
parties.   This could involve analysis of the overall export trade of each Member.  We would welcome 
proposals on how this might most appropriately be achieved.  
10. Phased-in commitments
: A plain reading of Article XXIV.8.(a) and Article XXIV.8.(b) 
suggests a requirement for regional trade agreements  to achieve the elimination of duties and other 
restrictive regulations of commerce on substantially  all trade on entry into force.  However, many 
regional trade agreements to which WTO Member s are a party clearly contain significant trade 
liberalizing commitments that are phased in over time rather than being operative on entry into force.  
Some WTO Members have sought comfort from the term ‘reasonable length of time’ in Article 
XXIV.5(c), but this provision relates specifically to “interim agreements” within the meaning of Article XXIV.5(a) and Artic le XXIV.5(b).  Accordingly, it does not have any direct bearing on 
commitments related to ‘substantially all trade’ in Customs Unions or Free Trade Agreements not 
notified as interim agreements.  However, while Ar ticle XXIV:5(c) does not directly concern itself 
with regional trade agreements other than tho se notified as interim agreements, we believe it 
nonetheless provides useful guidance when trying to accommodate the common practice of phased-in 
liberalisation commitments in regional trade agreements by WTO Members.  11. Therefore a pragmatic approach to the development and consistent application of WTO disciplines to regional trade agreem ents requires the determination of an  appropriate period of time after 
entry into force of the regional trade agreements at which to assess whether the elimination of duties and 
other restrictive regulations of commerce on substan tially all trade has been achieved.  As indicated 
above, we are firmly of the view that the precedent of defining ‘a reasonable length of time’ in Article 
XXIV.5.(c) as ten years  (articulated in the Understanding on th e Interpretation of Article XXIV of the 
General Agreement on Tariffs and Trade 1994, para graph 3) provides an appropriate model for 
application to the assessment of the elimination of duties in respect of substantially all trade. 
 12. The proposed ten year period for the assessme nt of regional trade agreements has several 
benefits: it builds on an existing implicit understandi ng by WTO Members that ten years is a suitable 
period; is consistent with the period described in  Article XXIV.5.(c); accommodates the majority of 
existing regional trade agreements that contain phased-in commitments; and is rigorous enough to 
prevent the erosion of this requirement as an effective discipline. 
 13. Complementary to this flex ibility in accommodating phased-in co mmitments, it is appropriate 
to require an ambitious yet pragmatic percentage for the elimination of duties on ‘substantially all 
trade’ upon entry into force of  regional trade agreements.  It is therefore proposed that a minimum 
level of, say, 70 percent of tariff lines at the HS six-digit level is an appropriate benchmark for 
the elimination of duties on ‘substantially all trade’ at the time of entry into force  of the regional 
trade agreement, as it ensures the ma jority of the trade between the pa rties is liberalised immediately. 
 14. The term “Substantially all Trade” calls for comprehensive liberalisation in RTAs.  This 
proposal merely provides a benchmark for this obligation.  Accordingly, these obligations should 
apply to all regional trade agreements currentl y in force to which WTO Members are a party.  
 
15. The approach outlined in this document has as its key objectives the conscientious 
implementation of the Doha mandate, the promotion of comprehensive regional trade agreements that 
deliver genuinely trade-liberalizing and less trad e distorting outcomes, and the development of a 
mutually supportive multilateral, re gional and bilateral trade architecture by ensuring that regional 
trade agreements to which WTO Members are a pa rty accurately reflect their WTO commitments.  
We are open to discussing S&D treatment for Developing Countries.  
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