RESTRICTED  WORLD TRADE  
ORGANIZATION  TN/RL/M/33  
9 December 2005 
 
 (05-5851) 
Negotiating Group on Rules  
  
SUMMARY REPORT OF THE MEETING 
HELD ON 1 NOVEMBER 2005 
 
Note by the Secretariat
 
  
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 1 November 2005. 
A. A
DOPTION OF THE AGENDA  
2. The Group adopted the following agenda: 
A. ADOPTION OF THE AGENDA ............................................................................................1  
B. REGIONAL TRADE AGREEMENTS ...................................................................................1  
C. OTHER BUSINESS ............................................................................................................4  
 
B. REGIONAL TRADE AGREEMENTS  
3. The Chairman proposed that the Group appr aise the submission made by Japan, circulated 
under TN/RL/W/190.  The proponent announced his inte ntion to help Participants in improving their 
understanding of the document, submitted some days  previously, and said that its purpose was to 
advance the discussion on the WTO rules applying to Regional Trade Agreements (RTAs) and to 
present the opinion of his delegation on "substantiall y all the trade" (SAT).  He announced that his 
country strongly preferred trade-based benchmarks  accompanied by some supplementary measures.  
In consequence, this paper attempted to find wa ys to overcome some of the disadvantages of the 
trade-based test, such as the fluctua tion of trade flows or the lack of  an incentive for tariff elimination 
in products with no trade, which should not outweigh the benefits of the trade- based test.  At the same 
time, one disadvantage of the tariff-line test was the lack of incentive to eliminate duties in products 
with a large trade volume, which made him doubtful about adopting this mechanism.  The paper compared both trade-based and tariff-line tests and highlighted that while the former encouraged 
countries to liberalize products with a large trade volume, the latter allowed for the exclusion of 
highly traded products.  Most likely, tariff elimin ation in highly traded products would bring about 
more trade creation than in products with no trade, because in most cases supply and demand 
conditions did not change by mere tariff liberalizat ion.  He did not consider the tariff-line tests 
proposed by other Participants to be ambitious  enough because they allowed for the exclusion of 
highly-traded goods, whereas his delegation's proposal had larger potential for trade expansion.  One 
Participant asked whether this trade expansion wo uld be trade creating or trade diverting.  The 
proponent clarified that by trade creation he mean t trade expansion and that  his delegation had still 
not looked at the trade creating or diverting effects of those measures.   
4. The proponent said that the paper attemp ted to solve the disadvantages outlined by 
Participants with respect to the trade-based test.  Th is exercise would be useful not only if delegations 
decided to use the trade-based t est as the primary mechanism but also if it was chosen as the 
secondary mechanism.  His delegation considered th at each test had its advantages and disadvantages 
and he wondered whether the mere  combination of both would actually provide the Group with an 
appropriate and effective benchmark towards the goal of  liberalization.  He encouraged Participants to TN/RL/M/33 
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make further contributions in this respect.  One Participant agreed that each method had advantages 
and disadvantages and that a simple tariff-line test  would not reflect accurately actual trade although it 
might give a better indication of potential trade.  On e Participant asked the proponent why, on the one 
hand he had suggested that the benchmarks should be  as simple as possible, and on the other he had 
suggested some supplementary tests rather than combining both the trade-based and the tariff-line 
tests.  The proponent replied that the mere combination of both tests was not enough because the 
tariff-line test was neutral between traded and non -traded products, and in  his delegation's view, 
Members should focus on non-traded products.  There was a significant difference in trade promotion 
effects between those products which previously we re subject to a high tariff and products for which 
the tariff rate was zero.  Trade creation effects w ould be higher in products which had no trade due to 
high tariffs.  In addition, he considered that it wa s important to evaluate parties' efforts and the 
tariff-line test counted the tariffs that were liberalized as well as the tariffs that were already bound at 
zero in the WTO.  One Participant who had already showed in previous meetings her preference for 
the tariff-line test as long as the agreed figure fo r liberalization was high enough, say 95 percent, 
expressed her openness to discuss other types of tests.  She concurred with the proponent that a tariff-
line test could be a disincentive to Members to lib eralize highly traded products.  Another Participant 
agreed that the test should be defined in such a way as to prevent the exclusion of any highly traded 
product and expressed his support for the trade-based t est because it might not be always possible to 
achieve ambitious coverage in terms of tariff lines.  In order to  measure SAT, the benchmarks should 
not include trans-shipped or re-exported goods but ju st originating goods.  One Participant remained 
convinced that the benchmark should look not only at act ual trade but also at future trade, as would be 
the case with a tariff-line based m echanism.  One Participant reitera ted his position that any inclusion 
of a quantitative threshold in the SAT benchmar k should build upon current GATT disciplines.  One 
Participant requested the proponent to explain why he put more weight on the trade-based test than on 
the tariff-line test.  He saw a similarity between the trade-based test and the European Communities' 
proposal for counting tariff lines in th at both tests tried to give a fair weight to each tariff line.  The 
proponent answered that for the time being his de legation preferred the trade-based test but it was 
open to analyzing other supplementary measures fo r a tariff-line test.  However, looking at the 
proposals that had been presented, his delegation w ould probably find it difficult to agree to simply 
combine both approaches.  One Participant agre ed that a trade-based test was a good way of 
measuring SAT and asked the proponent whether he  would measure exports and imports or just 
imports. 
5. The proponent was of the view that the main di fficulty of the trade-based test was that under 
it, trade fluctuation could make the coverage fi gures too volatile to accurately assess RTAs.  This 
could be eased by using the same data for analyzing RTAs as the parties had used in their negotiations 
and, by doing so, the coverage rate  could be independent from trade fluctuations.  A second difficulty 
of the trade-based test was that the coverage rate mi ght be mismatched with future trade patterns;  this 
could be solved by periodically reviewing cove rage rates and reassessing the situation over time, 
because even if the 50 highest traded products were assessed at the entry into force, these 50 products 
could change and Members would have to check them again.  One Participant agreed with looking at 
the trade data used in the negotiations but consid ered that a periodic review could lead to some 
uncertainty because if trade declined, an agreem ent which had met the SAT requirement initially 
might no longer qualify.  The proponent answered th at if trade declined, the new figure could be an 
incentive for Members to improve the situation a nd be consistent with WTO rules.  Another 
Participant considered that SAT should be assessed  only at the entry into force of the RTA and 
another Participant deemed periodic reviewing to be too complicated.  One Participant asked the 
proponent what would be the time frame for reviews and what would happen in the case that an 
agreement that had fulfilled the SAT requirement failed to fulfil it in a subsequent review.  The 
proponent answered that he had no clear idea on this  respect.  One revision should probably take place 
at the end of the transition period;  subsequent re views would probably depend on Members' concerns 
or on trade fluctuations.  Another Participant ask ed the proponent to compare his method for review 
and the "snapshot" suggested by Australia in TN/RL/W/180.  The proponent said that periodic  TN/RL/M/33 
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reviewing was one of the many possible solutions to the "snapshot", but it was something upon which 
the Group would still have to work.  
6. According to the proponent, a third difficulty  of the trade-based test was the potential 
underestimation of duty elimination in products with no trade.  This could be tackled by calculating 
the ratio of products with no trade whose previous ly maintained WTO bound rates were eliminated 
within in the RTA to the total number of products w ith no trade.  This calculation would evaluate the 
parties' effort to eliminate duties, especially in pr oducts with no trade because the higher the ratio, the 
more effort the RTA parties would have made to el iminate duties in products with no trade.  However, 
he agreed that this calculation did not deal with all the factors hampering trade, such as supply and 
demand conditions.  One Participant asked what tr eatment would be given to unbound rates because 
some applied MFN tariffs were quite high.  The proponent explained that, in order to acknowledge 
tariffs bound at zero in RTAs, such tariffs would be used in the numerator.  Another Participant 
deemed this method insufficient since the idea s hould not be to measure the liberalization of 
non-traded products, but rather of those that were tr aded internationally but not bilaterally, so as to 
ensure that new opportunities were opened at a multil ateral level.  The proponent replied that although 
multilateral liberalization was important, in the RTA context the focus should be on bilateral 
liberalization.  Two Participants asked the propone nt why he put so much emphasis on non-traded 
products when equally harmful distortions occurred in already traded products.  Another Participant 
expressed doubts about calculating figures based on non-traded products because some products 
might stop being traded due to high barriers and would not appear in the formula used by the 
proponent, which in turn would give an artificially high percentage.  One Participant considered that 
this formula had the same problems that had been  identified in the tariff-line approach because it 
could be exaggerated by including products with no trade.  The proponent answered that products 
with trade would be already covered by the trade- based test, which did not cover products that were 
not traded.  His delegation considered that this a pproach would be beneficial in so far as Members 
considered that there was a need to identify products  with a high potential of expansion.  Since it 
would be difficult to identify such products, there was a need to encourage parties to eliminate as 
many duties as possible, which was a similar appro ach as the tariff-line test.  One Participant asked 
the proponent if he had reflected on a parallel met hod to identify those products that would be traded 
in the absence of high tariffs.  One Participant deemed these supplemental tests to be necessary to 
complement the trade-based test, but a simple tariff-line test would be more appropriate than the supplemental tests proposed. 
7. The proponent said that the paper touched upo n six different issues that his delegation 
considered relevant for a qualitative assessment.  Of  those six issues, tariff-ra te quotas (TRQs) offered 
a potential for liberalization becau se in the case that in-quota rates were zero and quotas were 
sufficiently large, they could have the same impact  on trade expansion as duty elimination.  Although 
they would not result in complete liberalization, they could still contribute to multilateral 
liberalization.  Two Participants disagreed that TR Qs could have the same effect as duty elimination 
because normally TRQs reflected domestic consump tion and production, which together with the 
issue of the management of the out-of-quota rate, made it unlikely that they would have the same 
effect as tariff elimination.  The proponent ack nowledged that there were many issues to be 
considered when assessing the effects of TRQs but if  the situation was as he had previously described 
and the management of the TRQs remained simple, the effects would be close to complete tariff 
elimination.   
8. One Participant agreed with using qualitativ e benchmarks, and welcomed the proposal on 
TRQs because, by giving a TRQ that was equal to  the production capacity of partners, adequate 
market opening could be ensured.  He also supported point 4 which dealt with the impact of RTAs on 
development since Special and Differential (S&D) tr eatment was an aspect to be considered in RTA 
negotiations.  One Participant expressed her openness  to consider these issues but highlighted that 
development should be considered in a broader contex t.  She suggested that point 5, on the impact of 
trade defence measures, should be looked at before  the analysis of other trade restrictions.  One TN/RL/M/33 
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Participant asked the proponent whether this point was linked to the submission by Norway 
(JOB(05)/268) or if it was independent of that.  Th e proponent clarified that his view was somewhat 
different from that expressed in JOB(05)/268 and he clarified that his aim w as to ensure the proper 
use of safeguard and anti-dumping measures, so that their effect on trade expansion was minimized.  Another Participant disagreed with the benefits of a combined quantitative and qualitative approach 
and asked whether there was a sequential or paralle l relationship between both kinds of approaches.  
The proponent said that one option would be to inco rporate the results of the qualitative evaluation so 
as to correct the results of the coverage rate, but he was open to discussing further options.  In 
response to a question about why he had singled out the abuse of measures like anti-dumping and not 
others, the proponent answered that it was the pr oper use of the measure that needed to be 
emphasized.  One Participant agreed with the n eed to complement a quan titative assessment with a 
qualitative test because of the requirement f ound in GATT Article XXIV:8 to eliminate other 
restrictive regulations of commerce.  One Particip ant supported the proponent in raising these issues 
and considered that they needed further discussion.  Several Participants pointed out that any rule 
agreed upon should remain as simple as possible because it would ease the work of RTA negotiators 
and a combination of both quantitative and qualitativ e benchmarks could result in a too complicated 
rule.   
9. In response to a question concerning on what grounds the proponent considered that duties 
eliminated beyond the transition period could be co unted towards SAT, the proponent replied that 
future trade expansion was as important as duty elimin ation at entry into force.  Two Participants, 
who agreed that major sectors should not be excluded, noted that as the proponent of JOB(05)/268 
had mentioned, it was difficult to define "major sector", and asked the proponent if he had any 
suggestions on how to define it.  The proponent cl arified that he had no suggestions for the time 
being.  One Participant asked the proponent what the meaning of "total exclusion" was, i.e.  whether 
he would consider the liberalization of a single ta riff line as enough for the entire sector to qualify.   
10. One Participant pointed out that another disin centive for liberalizing products under the tariff- 
line test was the need to liberalize those tari ff lines corresponding to goods which were produced 
outside the RTA partner country, as happened in agricu ltural products.  He further explained that there 
were sectors, particularly agriculture, in which some RTA partners (not only developing countries) 
might not produce certain products because of weat her conditions or geography.  In this case, not 
extending tariff elimination to those products woul d be of no practical advantage but would give 
comfort to the domestic sector that these areas were not open to any threat of trade deflection.  This 
could also apply for non-agricultural products, pa rticularly those that required some large scale 
production, because in his analysis he found that count ries lacked either the production capacity or the 
land, for example in the case of inte grated refineries and such like. 
C. O
THER BUSINESS  
11. The Chairman informed the Group that the next informal meeting would take place on 
10-11 November 2005.  Given that so me delegations had pointed out th eir constraints in terms of time 
and human resources, he had already cancelled one meeting and considered it important to make the 
most of the upcoming meetings.  He shared with th e Group the main tasks that were to be carried out 
before the Hong Kong Ministerial Conference.  One was the Chairman's Report to the Trade Negotiations Committee (TNC) which might have some special features given the Hong Kong Ministerial, but would have the usual structure.  In  addition, the Group had to make its contribution to 
the Ministerial Declaration.  For this purpose, the Chairpersons of the different groups and the 
Director General had agreed that each Chairpers on would come up with ideas and elements about the 
work and progress in each group that  would be included in the Ministerial Declaration.  In this 
respect, the Group would receive a preliminary firs t draft before 10 November 2005 so that at the 
meeting on 10-11 November 2005, it could hold the first discussions on the text.  He invited 
Participants to submit any preliminary ideas on the Mi nisterial Declaration before 7 November 2005.    TN/RL/M/33 
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12. As for the remainder of the meeting, in info rmal mode, the Chairman suggested devoting the 
discussion to the informal Roadmap submitted by  him on 27 September 2005 so that the afternoon 
could be dedicated to bilateral di scussions.  Two Participants pointed  out that the Group had held few 
discussions on some aspects of the Roadmap, namely point C, and if they were only going to discuss it for what was left that morning, they woul d have problems moving to text-based negotiations 
immediately after Hong Kong.  The Chairman acknow ledged this and suggested dedicating the entire 
meeting on 10 November 2005 to the Roadmap a nd 11 November 2005 to the draft Ministerial 
Declaration, as well as allocating some time to disc uss issues of transparency between the two days.  
One Participant stressed that one or two discussions  on the Roadmap would not be enough to move to 
text-based negotiations.  One Participant emphasized the need to move forward on the transparency 
element of the negotiations.  Two Participants asked to be given enough time before 11 November 
2005 to consider any proposal that could emerge for the Ministerial Declaration, and agreed with the 
Chairman's proposed timetable.  One Participant recognized the work undertaken by the Chairman 
and considered his document TN/RL/13, as the best do cument that any Chairman had come up with at 
the General Council.  He asked the Chairman to pr ovide the draft Ministerial Declaration first in 
Spanish, so his delegation could ha ve more time to analyze it.  At the informal meetings he had 
attended, most documents were produced just in  English, which made him feel uncomfortable, 
considering that Spanish was also an official WTO language.  The Chairman replied that most 
documents were distributed in English because that was the language in which they were received and 
they were distributed as soon as possible.  Translation took time, although he kept very much in mind this comment.  One Participant asked the Chairman to  give further insight into the direction that the 
draft Ministerial Declaration would take, in partic ular with respect to JOB(05)/171 and the informal 
Roadmap on SAT issues.  The Chairman said he had no clear idea at that moment on whether these documents could be built into the Declaration, wh ich in any case should be succinct and not extremely 
lengthy.  He considered that the Declaration s hould be constructed using a bottom-up approach and 
invited the Participants to make suggestions in that regard. 
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