WORLD TRADE  
ORGANIZATION  TN/RL/W/179 
12 May 2005 
 (05-1936) 
Negotiating Group on Rules Original:   English 
  
SUBMISSION ON REGIONAL TRADE AGREEMENTS 
BY THE EUROPEAN COMMUNITIES 
 
Paper by the European Communities
 
 
 
The following submission, dated 10 May 2005, is  being circulated at the request of the 
Delegation of the European Communities. 
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SECOND SUBMISSION ON REGIONAL TRADE AGREEMENTS 
BY THE EUROPEAN COMMUNITIES 
 1. This second submission of the European Commun ities sets out proposals on some of the core 
substantive provisions under GATT Article XXIV.  The proposals build on the EC’s previous submission (TN/RL/W/14) on the overall approach to, and scope of, the DDA mandate.  The present 
submission is limited to some core systemic  issues under GATT Article XXIV and is without 
prejudice to the position of the European Communiti es on future transparency requirements for all 
RTAs, as well as other substantive disciplines under GATT Article XXIV, GATS Article V and the 
relevant provisions of the Enabling Clause, that  should be considered part and parcel of the 
negotiations.   
1. The Overall Approach To Systemic Issues And Next Steps 
2. The European Communities welcome the renewe d engagement by the Negotiating Group on 
the “systemic issues” which Members have agreed to  negotiate within the DDA.  Encouraging steps 
have already been taken on technical elements of any future transparency requirements.  Similar 
progress will now have to be made on the systemic issues.  In doing so, Members should recall that the substantive WTO rules for regional trade agreem ents (RTAs) are meant to ensure that regional 
agreements support the open, rules- based multilateral trading system as well as further its objective of 
promoting growth in international trade and inte gration of developing countries into the world 
economy.  However, the lack of clear and author itative guidance on how to apply the relevant WTO 
rules has cast doubts on whether th ese rules indeed do fulfil their intended purpose.  Furthermore, 
there has been a global proliferation of regional agreements, sometimes of poor quality, in recent 
years.  This development has accentuated the poten tial challenges to the multilateral trading system 
arising from regional trade agreements.   
3. The present situation is to the advantage of no one.  While RTAs have become an 
indispensable trade policy tool for most WTO Memb ers’ pursuit of their economic and developmental 
objectives, all Members face the risk that the agreem ents to which they are not parties could have 
negative implications for their own legitimate trade inte rests.  It should be in the interest of the entire 
Membership to clarify the existing WTO rules in  the Negotiating Group as a contribution to progress 
in the DDA more broadly.  Fundamentally, ensu ring the proper functioning and good health of the 
open, rules-based multilateral trading system is so mething from which all Members stand to gain but TN/RL/W/179 
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 where also all Members will have to contribute if the clarifications of the rules are to make a 
difference in the future.   
4. At the same time, in order to make progress, an y future clarifications of the WTO rules for 
RTAs must be reasonable.  The starting point for th e clarification of WTO rules for RTAs can neither 
be the a priori  exclusion of certain subsets of RTAs , nor the lowest common denominator of 
Members’ past practices.  This is increasingly urge nt, since the recent surge in RTAs has not only 
made clarification of the WTO rules more pertinen t, it may also have made clarifications more 
difficult to achieve in practice.  At the same time , the negotiations must be based on the recognition 
that Members have interpreted the relevant WTO rules differently and, hence, adopted different 
approaches in their RTAs.  Any future clarifications  would have to take into account such variations 
in approaches by Members, while going beyond the lowest common denominator.   
5. The developmental dimension of regional trade ag reements must also constitute an integral 
part of the clarification and improvement of WTO rules for RTAs.  Regional integration can play an important role in promoting economic  development in so far the agreements are sufficiently ambitious 
and take into account the specific needs and constrai nts of developing and least  developed countries.  
The negotiation should include, inter alia , consideration of clarifications of WTO rules on RTAs that 
supports the developmental impacts of RTAs as  well as recognition that the potential challenges 
arising from such RTAs to third parties’ trade and to the WTO at large may be very different 
depending on the share of world trade and the le vel of development of the parties to RTAs.   
6. In light of the debate on the systemic issu es, the European Communities believe that the 
application of these three overriding principles - sh ared systemic interest, reasonableness and the 
developmental dimension - will be instrumental for meaningful progress in the negotiations to clarify 
and improve WTO rules for RTAs within the DDA.  This submission by the European Communities 
builds on the suggested approach.  It limits itself to  identify some core elements, aimed to be broadly 
acceptable to all WTO Members, for future clarifica tion of issues related to the so-called coverage 
and neutrality of RTAs in goods th at fall under GATT Article XXIV.   
2. Coverage:  “Substantially All The Trade” 
7. The requirement of GATT Article XXIV, para graph 8, to eliminate “duties and other 
restrictive regulations of commerce … with resp ect to substantially all the trade” between RTA 
parties, is one of the key systemic issues for negotia tion.  However, so far, discussions in the Uruguay 
Round and subsequently in the Committee on Regional  Trade Agreements (CRTA) on how to clarify 
this requirement and to establish quantitative and qualitative benchmarks have been inconclusive.   
8. Members’ positions have remained divergent on th e issue of appropriate levels and types of 
quantitative benchmarks.  Concerning the possible typ es of quantitative benchmarks, as described in a 
report by the Secretariat (WT/REG/W/46, p. 5) from 2002, “[t]he percentage of trade method has 
been traditionally favoured as an indication of RT A coverage in the GATT/WTO context.”  Judging 
from many, if not most, Members’ interventions on this issue in recent meetings of the Negotiating 
Group, this appears still to be the case.  The Eur opean Communities share the view that any numeric 
benchmark for coverage woul d have to be based first and foremost  on the coverage of trade.  At the 
same time, the European Communities are ready to  explore with other WTO Members the possibility, 
and practical implications, of supplementing a be nchmark based on coverage by trade with an 
assessment of trade coverage measured by number of tariff lines.  For example, one compromise option worth further consideration would be to est ablish a combined average threshold for trade and 
tariff lines.  A combined average threshold would en sure that RTAs cover existing as well as potential 
future bilateral trade between parties, while partly accommodating the traditional differences in 
Members’ emphasis on the two forms of possible benchmarks.    TN/RL/W/179 
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 9. Concerning the appropriate level of quantitativ e benchmarks, this issue obviously cannot be 
determined now, but will have to be negotiated once some convergence has been achieved among 
Members on the possible types of benchmarks to be  used and the methodology for calculating them.  
What is important for the European Communities, as  well as probably for most Members, is that the 
level of the numerical threshold needs to reflect a reasonable balance between the shared systemic 
interest in clarifying the rules and Members’ interpretation of the disciplines to date.   
10. Moreover, the European Communities are of  the opinion that any future quantitative 
benchmarks can only serve as a tool for assessment and a guide to likely WTO-conformity.  The 
concept of “substantially all the trade” also pertains  to quality of internal elimination of duties and 
other restrictive regulations of trade between RTA par ties.  In order to facilitate the determination of 
compliance with GATT Article XXIV, Members must therefore endeavour to reach common 
understanding on key qualitative benchmar ks for RTAs.  This would include, inter alia , more precise 
definitions of the concepts “major sector” and “other restrictive regulations of commerce”;  
clarification of nature of the list of exceptions  from the obligation to eliminate duties and other 
restrictive regulations of commerce in Article XXIV :8 (a)(i) and (b);  assessment of the impact of 
possible seasonal restrictions, special sectoral saf eguards and tariff-rate quotas;  and taking into 
account review clauses and in-built provision for extension of the coverage of RTAs within 
established transition periods.  However, while  common understandings on some of these aspects 
would be advisable, any qualitative assessment of RT As would by necessity have to be made on a 
case by case basis.  Therefore, when a given RTA me ets a future quantitative benchmark, this would 
constitute an element of greater security as to whether the agreements conforms to GATT Article 
XXIV, but would not constitute an automatic guara ntee of conformity, as the other elements above 
will also have to be weighted.   
3. Transition Periods:  “Reasonable Length Of Time” And “Exceptional Cases” 
11. GATT Article XXIV, paragraph 5 (c) requires that interim agreements leading to the creation 
of a Customs Union or Free Trade Area should incl ude a plan and schedule for this process, which 
should be completed within a “reasonable length of time”.  In the Uruguay Round, Members clarified 
that this requirement “should exceed 10 years only in exceptional cases”.  The Secretariat report of 
2002 (WT/REG/W/46, p.18) revealed that, for many of the RTAs entering into force in the latter half 
of the 1990s, “only in rare cases do transition periods exceed ten years”.  In the recent surge of RTAs, 
however, transition periods have been known to go well beyond ten years.  These cases are becoming 
the rule rather than the exception.   
12. In part, the present situation is probably due to the lack of authoritative guidance of the 
concept of “exceptional cases”.  The European Communities continues to consider that, if at all 
invoked, “exceptional cases” should only be applie d to a limited number of products under RTAs, 
should not unreasonably postpone the end of the tr ansition periods, and should be used only for 
prolonged phase-in of commitments by developing and especially least-developed countries, not by 
developed countries.  At the same time, it could al so be recognized that some other Members have 
adopted longer transition periods in a limited number of RTAs where the parties have agreed to go 
well beyond the requirement of “substantially a ll the trade” coverage.  The European Communities 
are open to consider clarifications of the limited circumstances where such departures from the rule of ten years may be justified.   
4. Neutrality:  “Other Regulations Of Commerce” 
13. GATT Article XXIV, paragraph 5, sets out the requirements which a Customs Union or Free 
Trade Area must meet in respect of its impact on the interest of non-parties.  While the obligations 
with respect to duties have in part been clarified already, there is no generally agreed definition of 
what constitutes “other regulations of commerc e” for the purposes of this Article, nor of the TN/RL/W/179 
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 methodology to be followed in determining whethe r such other regulations have become more 
restrictive as a result of the formation of a Customs Union or Free Trade Area.   
14. For obvious reasons, the concept of other regulati ons of commerce appears to be broader than 
the concept of “other restrictive regulations of  commerce” in Article XXIV:8.  The European 
Communities are open to clarifying and expanding th e scope of “other regulations of commerce”, 
including the possibility that prefer ential rules of origin would fall under the concept, but only in so 
far that any future definition would be sensible, practical and not give rise to perverse outcomes with regard to the existing neutrality test.  The sugges tion by Korea (TN/RL/W/116) to use the Standard 
Format list to help clarifying the scope of the c oncept may serve as a starting point.  However, it 
should be noted, as Korea already pointed out in its s ubmission, that this list is very comprehensive.  
It may not provide the precision needed to establish a practical definition of the concept that, in turn, 
can be used to determine neutrality.  In addition, using a broad definition of the concept would make 
it very difficult to approach all tentative “regul ations of commerce” in the same manner when 
determining their impact on third parties.  The wi der the definition, the more it covers regulations 
which are only remotely related to trade, or areas where WTO Agreements already establish certain 
rights and obligations for Members.   
15. Therefore, there is a need for different appr oaches to neutrality for different forms of 
“regulations of commerce”.  In particular, the Eu ropean Communities consider that those regulations 
falling under existing WTO Agreements cannot be ques tioned on grounds of neut rality, if the parties 
of the RTAs fulfil their rights and obligations unde r those Agreements.  More over, any assessment of 
neutrality will inevitably have to be made on a case by case basis, where also the long term positive 
effects for third parties from harmonisation and deep er integration under RTAs will have to be fully 
acknowledged.   
5. Developmental Aspects:  Fair And Equi table Treatment Between Different Forms Of 
RTAs To Which Developing Countries Are Parties 
16. In line with what was implied in the subm ission by the ACP (TN/RL/W/155, p.2), the 
European Communities consider that better cohe rence must be ensured between developmental 
dimensions in the different WTO rules for RTAs.  At present, there seems to be little coherence, let 
alone logic, to the treatment of the various types of RTAs to which developing countries are parties.  The WTO disciplines for RTAs are arguably deficient in at least two ways:   
(a) Existing rules fail to create fair and equita ble treatment between different types of 
RTAs based on their developmental impacts and promotion of developing countries’ 
participation in world trade.  For exam ple, while preferential tariff and partial 
liberalization agreements among developing countries fall under the Enabling Clause, 
ambitious and full-fledged RTAs, such as Fr ee Trade Agreements between developed 
and developing countries, are subject to the stricter requirements of GATT Article 
XXIV.  Yet, North-South RTAs can have at least as high a developmental impact as 
any of those falling under the Enabling Cl ause, and it is difficult to see why the 
substantive requirements should be radically different.   
(b) Existing rules fail to establish fair and equ itable treatment between different types of 
RTAs based on their potential effects on third parties.  For example, no distinction is made in respect of regional trade agreem ents among developing countries that are 
relatively sizeable actors in world trade, a nd whose RTAs therefore are likely to have 
implications on other WTO Members and for the system as a whole, as compared to 
those between parties who represent only a small portion of world trade.  The disparity appears especially obvious if one  compares an RTA between developing 
countries who would be major traders (a nd which would fall under the Enabling  TN/RL/W/179 
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 Clause) with some existing RTAs among re latively small trading nations who are 
subject to the more comprehensive disciplines of GATT Article XXIV.   
17. Improvements and clarifications to the existi ng WTO rules for RTAs should aim to ease such 
problems of coherence.  Firstly, in the negotiations , specific consideration needs to be given to the 
tangible benefits of deeper economic integration through more ambitious regional trade agreements 
among developing countries (just as through ag reements between deve loped and developing 
countries).   
18. Secondly, it should also be recognized that the ability of many developing countries to adjust 
to greater competition on their domestic markets, or to  take full advantage of additional market access 
opportunities under RTAs, may depend on their own indivi dual level of developmen t, particularly in 
RTAs with developed countries.  Therefore, the European Communities believe that the DDA 
negotiations on RTAs should aim to clarify the fl exibilities already provided within the existing WTO 
rules on RTAs, in order to give greater security to developing country parties to RTAs to ensure that 
the rules facilitate the necessary adjustments.  Th e European Communities are prepared to explore 
various ways of achieving this aim, including the extent to which flexibilities might be appropriate 
with respect to, inter alia , the length of the transitional period, the level of final coverage and the 
degree of asymmetry for both under GATT Article XXIV.  More specifically, the European Communities are open to consider separate and differen tiated, i.e. lower, thresholds for developing 
countries and least developed countries, as propo sed in the submission by the ACP-countries 
(TN/RL/W/155).  Moreover, longer transition periods might be necessary to facilitate market building 
and consolidation through gradual openness to trad e in weak and vulnerable developing countries, 
taking into account their specific needs and constrai nts.  The European Communities would thus like 
to confirm in the negotiations these specific justific ations for developing country parties to RTAs to 
depart, where necessary, from the general rule of ten years maximum.   
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