RESTRICTED
WORLD TRADE WT/REG31/M/1
29July1997
ORGANIZATION(97-3208)
Committee onRegional Trade Agreements
Eleventh Session
EXAMINATION OFTHE FREE TRADE AGREEMENT
BETWEEN CANADA AND ISRAEL
Note ontheMeeting of20June1997
Chairman: Mr.Stuart Harbinson (Hong Kong)
1. Themeeting wasconvened inWTO/AIR/613/Rev.1.
2. TheCommittee tookuptheexamination oftheFreeTrade Agreement Between Canada and
Israel under agenda itemEofitsEleventh Session. Theexamination wasconducted onthebasis of
theStandard Format forInformation onRegional Trade Agreements andaccordingly followed itslayout.
Thefollowing topics were discussed:
A. General Statements
B. Section I - Background Information ontheAgreement
C. Section II - Trade Provisions
D. Section III - General Provisions oftheAgreement
E. Section IV - Other Provisions
A. General Statements
3. TheChairman noted thattheFreeTrade Agreement Between Canada andIsrael hadbeensigned
inJuly1996andhadentered intoforce on1January 1997. Inacommunication dated 7October 1996
(document WT/REG31/1), theParties hadprovided summary information ontheAgreement prior to
national ratification andformal notification totheWTO. Thenotification itself hadbeensubmitted
inJanuary 1997 (document WT/REG31/N/1), together withthetextoftheAgreement (document
WT/REG31/2). TheParties totheAgreement hadalsosubmitted preliminary information toassist
theCommitteeinitsexamination.Suchinformation,whichhadbeensuppliedintheformoftheStandard
Format, hadbeencirculated toallMembers earlier thatmonth indocument WT/REG31/4, withstatistics
contained inWT/REG31/4/Add.1.
4. Therepresentative ofCanada saidtheCanada-Israel FreeTrade Agreement reflected theParties '
mutual desire tostrengthen tradeandeconomic relations witheachother. TheAgreement established
alegalframework foreliminating barriers totrade, facilitating themovement ofgoods andpromoting
conditions offaircompetition between thecountries 'producers andexporters. TheAgreement
represented thecontinuation ofinitiatives taken bytherespective Governments atthebilateral, regional
andmultilateral levels infurtherance oftrade liberalization. While theleveloftrade between Canada
andIsrael wasrelatively modest, ithadgrown substantially inrecent years. Total two-way tradein1996
hadbeenjustover500million Canadian dollars, anincrease ofmore than40percentofwhatithad
beenin1994. Since theentry intoforce oftheAgreement, trade hadcontinued toexpand atarapidWT/REG31/M/1
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pace, confirming thebeneficial impact theAgreement washaving inthemarket place. Thetrade was
alsodiversified:Israel'smainexportstoCanadaincludedmachinery,preciousandsemi-preciousmetals,
chemical andplastic products, aswellasfruits andvegetables. Canada ’smainexports toIsrael included
non-ferrous metals, paper andwood products, transport equipment andmachinery. Innegotiating the
Agreement, theGovernments wereparticularly cognizant oftheneedtoensure fullcompliance with
WTO obligations, inparticular, GATT Article XXIV andtheUnderstanding onitsinterpretation.
TheAgreement provided forsubstantial coverage ofalltrade. Barriers wereremoved fromvirtually
allindustrial products immediately uponimplementation. Theonlyexceptions wereCanadian tariffs
ononeclothing product andIsraeli tariffs oncertain cotton fabrics, which would bephased outover
atwo-and-a-half yearperiod. Foragricultural products, thescope oftariff elimination extended to
awiderange ofproducts, involving approximately 80percentofthecurrent tradeinagri-food between
thecountries. Accordingly, theAgreement covered 96percentofCanada 'sexports toIsrael, and
98percentofIsrael'sexports toCanada. Inaddition, theAgreement contained acommitment to
continue discussions toseekadditional means ofexpanding thescope ofliberalized tradeinfuture years.
TheAgreement neither created newbarriers totrade withthirdcountries norraised duties orother
regulations ofcommerce ascompared tothose prior totheformation ofthefree-trade area(FTA).
Clear andpredictable rulesoforigin, based onchanges intariffclassifications, operated insuchaway
thatvirtually allexisting trade mettherequirements forpreferential treatment, thereby maximizing
thescope fortrade creation andminimizing anyriskoftrade diversion. Many non-tariff measures
continued tobegoverned byWTO rights andobligations. Inconclusion, theAgreement wasasimple,
straightforward preferential trade agreement within theterms ofArticle XXIV. Thedelegations of
Canada andIsrael hadbeenandwould remain asforthcoming aspossible insupplying theMembers
oftheCommittee withdetailed andtimely information regarding theAgreement. Theylooked forward
toproceeding expeditiously anddiligently withtheexamination process.
5. Therepresentative ofIsrael endorsed theCanadian introductory remarks ontheAgreement
andsaidhewished toaddress afewpoints. TheAgreement reflected theParties 'mutual desire to
deepen andstrengthen theiralready existing trade relations andeconomic relations andtofoster trade
liberalization. Forexample, intheelaboration oftherules oforigin, particular attention hadbeen
given toensuring themaximum degree ofopenness; tothiseffect, aspecial review provision hadbeen
added forthepurpose offurther liberalization oftherulesoforigin. TheAgreement reflected Israel's
approach tocreating free-trade areas, bywhich, asasmall economy highly dependent onforeign trade,
Israel strove toexpand itsinternational traderelations bymeans ofmultilateral, plurilateral andbilateral
improvements inmarket access andtrade liberalization.
6. Therepresentative ofSwitzerland expressed appreciation fortheinformation theParties had
provided totheCommittee fortheexamination oftheAgreement. Herecognized that, asthe
representative ofCanada hadstated, thisAgreement wasstraightforward. However, hisdelegation
wasnotyetinaposition toraisespecific questions regarding theAgreement butwould perhaps transmit
written questions totheParties.
7. Therepresentative oftheUnited States saidthatthefirstround ofanexamination tended to
be“soft”.Theexamination ofthisAgreement, however, would seemtobedirect andstraightforward.
Aswithallagreements, theCommittee would examine thisfromthestandpoint ofcompatibility with
theWTO andtheoverall transparency prescribed. Inbothrespects, theParties hadadmirably met
expectations. TheAgreement appeared tobeonethatwould withstand thetestoftimebecause ofthe
underlying interests thetwoParties hadinmaking theAgreement WTO-compatible. Hisdelegation
wasalsoappreciative oftheParties ’useoftheStandard Format, affording theCommittee agoodbasis
onwhich toexamine expeditiously theAgreement 'sprovisions.
8. Therepresentative ofJapan welcomed theefforts bytheParties toproduce early information
lastOctober andtoprovide information intheStandard Format; thisaction should beemulated byWT/REG31/M/1
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others. Onafirstlook, theAgreement seemed compatible withWTO provisions asfarasliberalization
among theParties wasconcerned. Nevertheless, hisdelegation would raisesome specific questions
regarding thepotential barriers tothirdcountries.
9. Therepresentative ofAustralia thanked theParties forthetimely submission ofinformation,
which would facilitate theexamination process andwhich served asamodel forother RTAs.
10. TheChairman called theCommittee ’sattention todocument WT/REG31/4, which contained
information intheform oftheStandard Format.
B. Section I-Background Information ontheAgreement
11. Therepresentative ofKorea asked iftheParties could provide theCommittee withdataon
theshare oftheirbilateral trade ascompared totheshare oftheirtrade withtherestoftheworld.
12. Therepresentative oftheEuropean Communities referred toparagraph 3,noting thestatement
thattheAgreement covered alltrade inindustrial products andsubstantially alltrade inagricultural
products. Itwould behelpful inthisregard toknow whatpercentage ofagricultural trade wasfree,
aswellaswhat proportion would simply besubject topreferential liberalization. Herequested
clarification concerning thetableinparagraph 3,where thedistinction between coverage andfreetrade
wassomewhat unclear. Also, thetextofparagraph 3mentioned further liberalization within twoyears
oftheAgreement 'sentry intoforce; could theParties confirm thatthisfurther liberalization would
bewithrespect toagricultural trade, since trade inindustrial products wasalready saidtobefree?
Henoted thattheAgreement wasquite similar toarrangements hisowndelegation hadinmany of
itsagreements withothercountries, andthushewelcomed thestatement bytheUnited States delegation
thattheAgreement appeared WTO compatible, asthisAgreement resembled many oftheECagreements
examined earlier thissession.
13. Therepresentative oftheUnited States hadasimilar question withregard towhatwasexcluded.
Itwould behelpful tohaveinformation onthepercentage oftradecovered, andwhatproduct categories
wereexcluded. There wasareference inthe"Scope" section which saidthatthose thatwereexcluded
were those thatwere notlisted intheAnnex. Fortransparency purposes, itwould beuseful ifthe
Parties would spelloutthese categories.
14. Therepresentative ofAustralia saidwithregard tothescope oftheAgreement thattheParties
hadstated thattheAgreement covered substantially alltrade inagricultural products, andthat80per
centofagri-food tradewascovered. Withthisinmind, hisdelegation would appreciate anexplanation
whyAnnex 2.1.2 provided onlyselective coverage. InAnnex 2.1.2.B thereweretariff-quota limitations
ontradeintheproducts listed; although theproducts might becovered bytheAgreement inthesense
thattheywerelisted, thismight notconstitute theelimination ofbarriers asrequired byArticle XXIV.
Also, inanumber ofcases tariffs between theParties hadnotbeeneliminated, butrather hadbeen
reduced inorder toprovide preferential tradebetween theParties. Hisdelegation, too,would appreciate
further dataontheproportion ofagricultural tradebetween theParties thatwasorwould becompletely
freeoftariffquotas, quantitative restrictions andtariffs; hewondered ifsuchfigures would beconsistent
withthe80percentfigure mentioned. LiketheECdelegation, hisdelegation would beinterested
toknow theintention oftheParties withrespect toArticle 11.5oftheAgreement, which contained
language onthefuture removal ofbarriers. Again, theremoval ofbarriers wasnotnecessarily the
same thing asliberalization.
15. Therepresentative ofCanada saidhecould provide answers tosome questions nowbutwould
needtorespond toothers withwritten replies. With respect totheKorean question ontheshare ofWT/REG31/M/1
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bilateral trade interms oftheParties 'global trade relations, Israel accounted for0.11percentof
Canada 'stotalimports in1996; theParties didnotyethavethecomparable figure forIsrael. Ashad
beenpointed out,thetradeinagricultural products contained various modalities forliberalization, some
ofwhichimpliedgoingtoduty-free.Infact,inCanada'scase,thevastmajorityofconcessionsaddressed
inAnnex 2.1.2A provided forduty-free treatment. Fortwoorthreeproducts itwasatariffreduction,
andinoneinstance therehadbeenthecreation ofaduty-free tariffquota, i.e.forfreshroses. Currently
theParties didnothavetheexact dataontheproportion oftrade thatwasfreeorthatwould besubject
tothefourorfivelinesforwhich onlytariff reduction wasprovided, orthatwasnotcovered. The
figure hehadquoted inhisintroductory statement -80percentcoverage ofagricultural trade -
encompassed allthose modalities ofliberalization, whether going totariff-free, atariff quota ora
reduction intariff. Theexact breakdown would beprovided atalaterstage. Perhaps heshould have
specified that,inproviding theStandard Format, theParties hadmade across-reference totheAnnex,
which hadpreviously beenprovided withthetextoftheAgreement (WT/REG/31/3). Thewaythe
Agreement wasstructured, where liberalization tookplace, theexact tariff items were identified in
theAnnex. Byimplication, where coverage wasnotprovided for,those tarifflineswerenotmentioned
inAnnex 2.1.2. Regarding theintention oftheParties withrespect tofurther liberalization, itwas
tooearlytoindicate, astheAgreement hadbeeninforce forlessthansixmonths. There wasofcourse
thecommitment toexplore thepossibility offurther liberalization, including primarily theagricultural
products, though notexclusively, sincefortwoorthreeindustrial products, tariffs would beeliminated
onlyoveratwo-and-a-half yearperiod. Ifinthemeantime there wasaninterest onthepartofthe
exporters ofthetwocountries tomove ahead faster, thatoption could beexplored. When referring
tothispossible further liberalization, itwasimportant tonotethatthismight notnecessarily entail
complete elimination, butthatsuchliberalization would betantamount toimproving theconditions
ofaccess thattheParties 'respective producers hadineachother'smarket.
16. Therepresentative ofIsrael saidhisdelegation would supply therequested trade datawhen
itwasavailable. Atthisstagehecould indicate thatimports fromCanada accounted forapproximately
1percentoftotalimports intoIsrael.
17. Therepresentative ofAustralia asked theCanadian delegate toconfirm thatforallthetariff
linesinHSChapters 1-24thatwerenotlisted inAnnex 2.1.2.A and2.1.2.B, trade would infactbe
free.
18. Therepresentative ofCanada saidthatthereverse wastrue-thatAnnex 2.1.2 contained positive
lists. Inother words, itlisted tariff linesforwhich there wascoverage intheAgreement. Coverage
tooktheform ofduty-free treatment foravastmajority ofthecovered lines. Insome instances, it
wasareduction fromtheMFN rate,andinafewother instances, itwasthecreation ofapreferential
tariff-rate quota. So,linesthatwere notmentioned intheAnnex currently were notcovered.
19. Therepresentative oftheUnited States saidthat,forthesakeoftransparency, itwould still
beuseful iftheParties would indicate byHSnumber what wasnotincluded bytheAgreement.
Otherwise,itwouldbenecessarytodoaside-by-sidecomparisonofwhatwascoveredbytheAgreement.
20. TherepresentativeofCanadasaidthePartieswouldprovidethatinformationassoonaspossible.
C. Section II-Trade Provisions
21. Therepresentative ofJapan hadaquestion concerning rules oforigin. Hereferred to
WT/REG31/1, thesecond paragraph under theheading "Rules ofOrigin", which saidthattherules
oforigin usedintheCanada-Israel Agreement werelessrestrictive thanthose oftheNAFTA. Inwhat
wayweretheylessrestrictive? When twoagreements withoverlapping membership haddifferent rulesWT/REG31/M/1
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oforigin, theflowofgoods seemed tobecome complicated. Forexample, ifIsraeli products were
exported totheUnited States viaCanada, whatwould happen insuchatransaction? Didtheintroduction
ofthenewrules oforigin haveanyimpact onthetrade ofthirdparties?
22. Therepresentative oftheEuropean Communities saidheshared theconcerns justraised by
therepresentative ofJapan. Some ofthecomments andquestions hisdelegation hadraised withrespect
tosection Iwerealsorelevant tosection II:1(a). Hisdelegation welcomed theParties 'indication that
theywould provide theextra information requested bytheUnited States delegation. Reference was
made toAnnex 4.1oftheAgreement, which listed exceptions totheabolition ofquantitative restrictions
andexport restrictions, buthehadbeenunable tolocate thispart. Henoted thatthiscovered both
import andexport duties andcharges, aswellasquantitative restrictions, andsaiditwould behelpful
tohavesome sense ofthesignificance ofthose restrictions instatistical terms. Itmight bethatthey
weredeminimis ,inwhich casetheCommittee would notneedtotaketheanalysis further. Onsection II,
inaddition tothepoints raised bytheJapanese representative, itwould behelpful tohaveclarification
ofthereference inparagraph 3tothird-country origin, withthephrase: "where suchinputs areused
toproduce goods inCanada forexport toIsrael [or]toproduce goods inIsrael forexport toCanada".
Didthatimply some sortofcontingency where itwasarequirement thatthegoods beproduced for
export forthem tobenefit from thisarrangement? Also, there wasastatement inthelastparagraph
that"thedetailed rules[had] beendesigned toreflect asclosely aspossible current patterns oftrade";
hewondered towhat extent therules would alsoallow forgrowth ofnewpatterns oftrade, and,
conversely, towhatextent theymight restrict changes inpatterns oftrade soastomerely preserve
thestatus quo.
23. TheChairman indicated thatAnnex 4.1could befound indocument WT/REG31/2, which
contained thetextoftheAgreement withitsAnnexes.
24. Therepresentative oftheUnited States referred toAnnex 4.1andasked whatproducts were
stillsubject toquantitative restrictions; thedescription ofquantitative restrictions indicated thattwo
exceptionswerelistedinthatAnnex,sohewasconfusedastowhatitemswerestillsubjecttoquantitative
restrictions. Itwasamatter oftransparency. Also, heasked what plans theParties hadforthe
elimination ofanysuchremaining quotas. Wasthereanestablished process, either within theAgreement
oroutside it,thatwould work toward theeventual elimination ofthese restrictions, orwasitmore
arhetorical hopethatthere would atsome point besuchplans?
25. Therepresentative ofAustralia associated hisdelegation withthequestions putforth bythe
delegations ofJapan andtheEuropean Communities regarding rulesoforigin. Onduties andcharges,
hepointed outthatAnnex 2.1.2 didmake provision forsome preferential duties between theParties.
Howwould thatbeconsistent withtherequirement ofGATT Article I,which precluded theintroduction
ofnewpreferences, bearing inmind thatGATT Article XXIV provided anexception orderogation
from Article Iwhen barriers totrade between theparties were tobeeliminated? Onquantitative
restrictions, heasked howtheexceptions tonational treatment inAnnex 4.1would beconsistent with
WTO rules, given thatthegrandfathering ofsuchmeasures terminated withtheentry intoforce of
theWTO on1January 1995. Inaddition, hisdelegation would appreciate information onnon-tariff
measures, ifany,thatapplied tothirdparties butthatdidnotapply totheParties. Regarding standards,
heinquired whatplans theParties hadtonegotiate anagreement onthemutual recognition ofconformity
assessment. Hethenasked theParties toindicate whether theyintended tomove toward mutual
recognition ofpackaging andlabelling standards applicable tofoodimports. Withregard tosafeguards,
hequestioned howtheParties implemented safeguards when theproblem imports werelargely sourced
fromtheFTApartner; insuchcircumstances, would action betaken under Article 4.5or4.6ofthe
Agreement?WT/REG31/M/1
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26. Therepresentative ofJapan saidthat,concerning safeguards, Article 4.6oftheAgreement
providedthataPartytakingemergencyactionunderArticleXIXwastoexcludefromtheactionimported
goods from theother Party. Itseemed there wasaproblem ofconsistency withArticle 2.2ofthe
Agreement onSafeguards.
27. Therepresentative ofNorway associated hisdelegation withthequestions putforward bythe
delegations ofAustralia andtheUnited States. Hewasparticularly interested intheinformation that
hadbeenrequested concerning quantitative restrictions, andintheconcrete question onwhich products
wereactually covered under Annex 4.1oftheAgreement. Itseemed fromtheCanadian sidetorelate
extensively tofisheries products.
28. TherepresentativeoftheEuropeanCommunitiessaidthat,withrespecttoArticle4.1,hewished
toreiterate hisdelegation 'sconcern anddesire toobtain information about theeconomic significance
oftherestrictions andexceptions totheremoval ofrestrictions listed. Atfirstglance, anumber of
significant economic sectors wereaddressed inthispartoftheAgreement, andthisraised questions
overtheextent towhich thisamounted totheelimination ofanumber ofrestrictive regulations of
commerce within themeaning ofArticle XXIV:8(b). What weretheviews oftheParties onthispoint?
29. Therepresentative ofCanada saidhisresponses would becomplemented inwriting. Thefirst
point mentioned bytheECdelegation related torules oforigin. Heappreciated thegrammatical
correction tothesentence inthethirdparagraph inthesection onrulesoforigin. Thatprovision had
beenincluded inrecognition ofthefactthateachParty hadaseparate agreement withtheUnited States.
Therefore, ithadbeentheviewoftheParties that,when aproduct contained inputs fromathirdcountry -
forexample, from theUnited States -andthenexported from Canada toIsrael, thatproduct would
beeligible forpreferential treatment because theinputthatwould haveoriginated fromtheUnited States
would havebeendeemed aninput from Canada forthepurpose ofpreferential treatment. Thiswas
sobecause ifthatproduct hadbeenexported directly from theUnited States toIsrael, itwould have
alsoreceived preferential treatment under theIsrael-United States FreeTrade Agreement. Therefore,
thiswasdeemed necessary sothattheflowoftrade would continue andsothattheAgreement would
nothaveanimpact onthirdcountries. Asforthecomment thattherules oforigin weredesigned to
match thecurrent pattern oftrade, theParties hadconsidered thistobethemosttransparent wayto
ensure thattherewasnodeliberate attempt todivert trade, soruleshadbeenstructured insuchamanner
astoencompass allthecurrent trade. Obviously, these rules would needtobeadapted tochanges
inthemarketplace, which waswhytherewasaprovision intheAgreement toreview therulesoforigin
inlightofdevelopments inthemarketplace. Asfarastherules being deemed more liberal thanthe
rules contained intheNAFTA, thiswould needtobeexamined onacase-by-case basis. Therules
oforigin intheCanada-Israel Agreement followed thesame model byusing tariff classification asa
wayofconferring origin. Eachtestforevery product needed tobelooked attodetermine thenature
ofthedifference between thetreatment inthisAgreement andthatintheNAFTA. TheParties had
submitted totheSecretariat forconsultation thedetailed listsonatariff-line basis fortheentire
Agreement. So,information ontheexact requirement foranyparticular product hadbeenprovided
andoffered thebasis forestablishing acomparison. Onageneral note, hecould indicate thatthe
Agreement didnotusespecific rulesoforigin fortheautomobile ortextile sectors thewaytheNAFTA
did.TheCanada-Israel Agreement rules werebased ontariff classification changes. Regarding the
products subject toquantitative restrictions listed inAnnex 4.1,itwasimportant tonotethatthose
restrictions hadnothing todowiththeFTAperse,butrather ingeneral wererestrictions thatCanada
orIsrael hadmaintained. IntheParties ’viewthese werefullyconsistent withWTO obligations. The
Agreement hadcitedthembecause theyhadtorelate tothespecific obligation contained inthechapter,
buttheywere neither created nordealtwithbytheAgreement. Itwasdifficult toprovide detailed
statistics ontheeconomic importance ofthevarious provisions; some were specific andrelated to
measures thathadbeeninplace foranumber ofyears. TheParties considered them tobejustified
byWTO rules, anditseemed theywerenotrelevant totheexamination oftheAgreement. RegardingWT/REG31/M/1
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theAustralian question onpreferential duties andtheintroduction ofatariff preference, again, the
Agreement provided forduty-free treatment ofthevastmajority ofagricultural products covered by
theAgreement. Insome instances, ithadnotbeenpossible during negotiations toeliminate thetariffs,
butthethrust ofliberalization wasenshrined intheAgreement, andtherefore theAgreement seemed
perfectly consistent withArticle XXIV:8. Interms ofstandards, thisprovision called forfurther
discussion among theParties, which might include thenegotiation ofamutual recognition agreement
onconformity assessment; there hadbeennodevelopments inthisprovision worth reporting tothe
Committee. TheAgreement hadonlybeeninplace forsixmonths, while thisobjective wasmore
long-term.
30. Therepresentative ofIsrael saidwithregard tosafeguards thatIsrael andCanada retained their
rights andobligations under GATT Article XIX. However, aParty taking emergency action under
Article XIXwastoexclude fromtheaction imports ofagoodfromtheotherParty unless theseaccounted
forasubstantial share oftotalimports andcontributed toserious injury. Asmentioned intheParties ’
introductoryremarks,CanadaandIsraelhadestablishedthisAgreementinordertodeepenandstrengthen
theirtrade relations byreducing tariffduties aswellasother restrictive regulations. Bearing thisgoal
inmind, theParties haddecided thatonlyunder stringent conditions would theyinclude eachother
inanyglobal safeguard action. ThiswasdoneinlightofArticle XXIV, which provided notonlyfor
customs concessions, butalsofortheremoval ofother restrictive regulations ofcommerce. Therefore,
itwastheviewoftheParties thatthiswasnotinconsistent withArticle XXIV. Other RTAs hadsimilar
provisions inthisregard.
31. Therepresentative ofKorea saidhenoted thecomment oftheCanadian representative that
some ofthequantitative restrictions maintained byCanada were notnewandwere those measures
which wereallowed under GATT 1994. Itwasinthatcontext thathehadreadpoint 3ofAnnex 4.1,
which listed measures towhich Article 4.1would notapply, "totheextent thatsuchprovisions were
mandatory legislation atthetimeofCanada 'saccession totheGATT 1947and[had] notbeenamended
soastodecreasetheirconformitywiththeGATT1994".Thisconditionseemedtorefertograndfathered
measures under GATT 1947; however, under GATT 1994, newgrandfathered measures onlyconcerned
those measures prohibiting theuse,saleorlease offoreign-built orforeign-reconstructed vessels in
commercial applications between points innational waters orthewaters ofanexclusive economic zone.
Thiswasrelated tothespecific legislation ofacertain country. Herequested clarification astohow
thiscondition related tothelanguage ofGATT 1994.
32. Therepresentative ofJapan associated hisdelegation withthepoints justmade bytheKorean
representative. Thedelegate ofCanada hadsaidthattheParties could maintain quantitative restrictions
aslongastheywere consistent withGATT 1994, forexample Article XI.But,asnoted bythe
ECdelegation, Article XXIV:8(b) provided that“afree-trade areashallbeunderstood tomean agroup
oftwoormore customs territories inwhich theduties andother restrictive regulations ofcommerce" -
thisincluded quantitative restrictions -"...are eliminated onsubstantially allthetrade between the
constituent territories inproducts originating insuchterritories. ”TheCanadian statement seemed
inconsistent withthatArticle.
33. Therepresentative ofAustralia hadafollow-up question concerning whatthedelegate ofIsrael
hadsaidwithrespect tosafeguards. Given thatArticle XIXwasnotspecifically mentioned in
Article XXIV:8(b), notwithstanding thefactthatprevious RTAs hadhadrecourse tothis,howdid
theParties justify thefactthattheyhadthree different measures toallow asafeguard action against
theFTApartner alone, which allowed fortheexclusion oftheFTApartner from aglobal safeguard
action, andalsoallowed fortheinclusion ofthepartner inaglobal safeguard action?
34. Therepresentative oftheEuropean Communities saidtheJapanese intervention hadarticulated
wellthequestion hehadbeenposing. Hisdelegation hadnotbeenquestioning whether therestrictionsWT/REG31/M/1
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listed inAnnex 4.1wereconsistent withCanada 'sorIsrael'sWTO obligations, butrather theextent
towhich theoperation ofArticle XXIV:8(b) would orought tomean thattheywereeliminated. That
concerned questions ofwhether theyconstituted other restrictive regulations ofcommerce, whether
theywerepermitted under theArticles listed, andwhether asamatter offacttheymight ormight not
cover oraffect asubstantial portion ofthetrade orpotential trade.
35. Therepresentative ofCanada saidtheParties would respond inwriting. Asapreliminary
response, however, hecould indicate thatitwashisdelegation 'sposition thatatleastsome ofthe
elements contained inAnnex 4.1wereinfactgrandfathered measures under theterms ofGATT 1994.
Inthiscategory wastheshipping andcoastal tradereference inthatparticular Annex. Itwasimportant
torecallthatinArticleXXIV:8(b)therewasaspecificindicationthatrestrictiveregulationsofcommerce
should beeliminated onsubstantially allthetrade, butalsothatparticular provision made express
reference tothose measures “except, where necessary, those permitted under Articles XI,XII,XIII,
XIV, XVandXX”ofGATT 1994. Itwastherefore hisdelegation 'sviewthatthose measures were
perfectly consistent withtheParties 'WTO obligations, andthatthose measures werejustifiable under
those particular WTO provisions.
36. Therepresentative ofIsrael saidhisdelegation would respond inwriting tothequestion by
theAustralian representative.
37. Therepresentative ofNorway sought clarification ontheanswers toquestions onAnnex 4.1,
concerning quantitative restrictions. Hehadunderstood thedelegate ofCanada tohavesaidthatthese
werenotdirectly related totheFTA, andhewondered iftheyhadbeennotified totheWTO asprovided?
38. Therepresentative ofJapan noted thatthedelegate ofCanada mentioned the"except" clause
ofArticle XXIV:8(b); however, therewerealsothewords "where necessary". So,reading thewords
"where necessary" verystrictly, theParties needed tojustify thataquantitative restriction wasindeed
necessary. Hisdelegation thuscould notagree withtheCanadian assertion.
39. Therepresentative ofCanada saidwithrespect tothequestion putforth byNorway thathe
didnothavetheinformation before himbutrecognized thatthere wasageneric obligation tonotify
quantitative restrictions totheWTO. So,ifthemeasures hadnotbeennotified, hetookduenoteof
thecomment thattheyought tobenotified. With respect totheintervention bytheJapanese
representative,herepeatedthatthosemeasureswereconsistentwithWTOobligationsandweretherefore
necessary inthesense ofArticle XXIV:8(b).
D. Section III-General Provisions oftheAgreement
40. TherepresentativeofSwitzerlandsaidtherequestforclarificationcouldbelinkedtoparagraph4,
"Relationship withOther Trade Agreements". Article 1.3,paragraph 2read: “Intheevent ofany
inconsistency between thisAgreement andsuchother agreements ...this Agreement shallprevail to
theextent oftheinconsistency except asotherwise provided inthisAgreement. ”Hisdelegation asked
theParties toelaborate onthemeaning ofthisparagraph. Wasitrelated tosafeguards? Hisdelegation
would welcome anindication ofpossible inconsistencies which theParties might identify inthetext
andanexplanation ofhowtheywould argue thatthose partsoftheAgreement werecompatible with
WTO obligations.
41. TherepresentativeofAustraliareferredtothedisputesettlementprovisionwhichenableddispute
action tobetaken intheWTO ortheFTA-butnotboth-formatters covered bybothWTO rules
andtheFTA. Could theParties explain how, inasituation where suchadispute were handled
bilaterally, theymight ensure thatbenefits accruing toWTO Members under theWTO would notbeWT/REG31/M/1
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nullified orimpaired, asprovided byArticle 3.5oftheDispute Settlement Understanding (DSU).
Also, howwould theParties ensure thatthetransparency requirements ofArticle 3.6oftheDSUwould
bemet?
42. Therepresentative ofCanada saidthatthephrase quoted bytherepresentative ofSwitzerland
wascommon inagreements andhadbeenincluded simply toensure thatifthere weredisciplines in
theCanada-Israel Agreement which wentbeyond WTO disciplines, those particular obligations would
prevail overtheWTO ones. Forexample, ifatariff issuewerebeing debated, thepreference granted
bytheFTA persewould notbeconsistent withArticle IoftheWTO. Therefore, ifthere were a
problem withrespect tothetarifftreatment accorded tothatparticular product, thedispute settlement
mechanism oftheCanada-Israel FTA would interpret thesubstantive provision ofthepreferential
Agreement overandabove whatwasintheWTO Agreement. Theconsistency waswithrespect to
theAgreement between Canada andIsrael, notwithrespect toCanada andtheother WTO Members.
Concerning theAustralian delegation ’squestion onthebilateral route versus aWTO dispute settlement
procedure, theFTAdidprovide foranelection process, where itwasnecessary tochoose oneorthe
other. Itwould beexpected thatifthematters were covered byaWTO provision, themost likely
solution would befortheParties tousetheWTO dispute settlement process, thereby avoiding potential
problems, suchasnullifying orimpairing third-party trade interests. Theselection ofthebilateral
routewould mostlikely occur when thedisagreement concerned specific provisions oftheCanada-Israel
Agreement. Regarding thequestion directed toward thetransparency obligation ofArticle 3.6ofthe
DSU, heindicated hewould respond inwriting.
43. TherepresentativeofBulgariafolloweduponthequestionposedbytheSwissdelegateregarding
thesecond paragraph ofArticle 1.3,saying theexplanation given bytheParties didnotaccord with
hisreading oftheterm“inconsistency ”.Could theParties confirm thattheinterpretation, application
andimplementation ofthisprovision oftheirAgreement would notleadtonon-conformity withWTO
obligations, andthatthird-party rights ofMembers would notbenullified orimpaired? Theexplanation
hadreferred totariffpreferences under Article XXIV andhadsaidthattheyentailed aninconsistency;
butinfacttheydidnotentail aninconsistency because theywere provided forintheGATT.
44. Therepresentative ofCanada explained thatthatparticular provision onlyapplied inacase
wheretherewasaninconsistencybetweentheFTAandWTOprovisions.Iftherewerenoinconsistency,
there would benoproblem. Anyinconsistency would stemfromthefactthattheFTAwentbeyond
some oftheobligations oftheWTO. Itwould thusbelikely thatadispute settlement panel would
rulethattheFTAprevailed totheextent ofthatinconsistency because thatinconsistency arose from
thefactthattheFTAwentbeyond theWTO Agreement.
45. TherepresentativeofSwitzerlandsaidhedidnotunderstandwhygoingbeyondWTOprovisions
couldbeconsideredasaninconsistencyinthiscontext.Itseemedthat,whenanagreementwasconsistent
withWTO rules, namely Article XXIV, thenthere would benoneedtoinclude language relating to
inconsistency. Basically, theconclusion should bethatthere wasconsistency between theFTAand
ArticleXXIV,asArticleXXIVpermittedpreferentialtarifftreatmentamongFTAparties.Hisdelegation
might liketoreturn tothisatalaterdate.
46. TheChairman saidthat,while interesting, thisaspect ofthedebate might needtotakeplace
inanother context.
47. Therepresentative ofJapan saidhisdelegation supported thepointmade bytherepresentatives
ofBulgaria andSwitzerland.WT/REG31/M/1
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E. Section IV-Other Provisions
48. Therepresentative ofAustralia asked whether theParties hadplans toexpand theAgreement
tocover trade inservices. Also, regarding theissue oftrade diversion versus trade creation, were
theParties inaposition toprovide anassurance thattherehadbeennoincrease inbarriers tothetrade
ofthirdparties asaconsequence oftheFTA? HadtheParties undertaken anystudies thatassessed
thepossible trade-creation andtrade-diversion effects oftheFTA? Ifso,theCommittee would benefit
fromknowing theresults. Finally, didtheParties haveanyplans toconduct continuing assessments
ofthetrade effects oftheFTAonbilateral trade andalsoontrade withthirdparties?
49. Therepresentative ofCanada responded thatatthisstage theParties hadnoplans toextend
coverage toservices. Regarding barriers tothird-country trade, itwastheParties 'firmbelief that
therewerenoeffects onthird-country trade, andthusnobarriers raised. Onthepossible trade-creation
effects oftheAgreement, theParties hadnotapplied anygeneral equilibrium macro-economic models
toassess thepossible effects, because these effects werelikely tobesmall, given thesmall magnitude
ofthetrade involved. However, thefactthattrade hadbeenexpanding between theParties seemed
toindicate thatthere hadbeensome trade-creating effects. Asstated earlier, theParties hadcrafted
therulesoforigin carefully soastocover alltheexisting trade, sothere wasmore potential fortrade
creation thanfortrade diversion. Ofcourse, theParties would continue tomonitor thetrade effects
oftheAgreement; theCommission established bytheAgreement would meet atleastonceayear,
anditwasanticipated thatareview oftheoverall traderelationship would bediscussed atthosemeetings.
50. Therepresentative ofIsrael saidhiscountry 'sexperience hadshown thatinthelongrunsuch
agreements hadledIsrael toliberalize andopen itseconomy notonlytoFTA partners, butalsoto
third countries. In1991, theGovernment ofIsrael started aunilateral liberalization process. This
liberalization wasstillgoing on,anditsgoalremained toreduce customs duties andensure thatIsrael's
economy wasfirmly based onopenmarket principles andcompetition. Thiswasdonetothebenefit
ofalltrading partners, preferential andnon-preferential.
51. TheChairman saidtheCommittee wasgrateful fortheParties 'forthright andexpeditious work
inproviding notification anddocumentation. Their readiness tosupply information hadbeencalled
“amodel ”.Regarding theday'sexamination, itseemed thereweresome outstanding factual questions
forwhich theParties hadindicated theywould provide relevant information inwriting. When the
outstanding factual information wasreceived, theSecretariat could circulate itindocument form. There
wereother issues ofamore substantive orinterpretive nature, where there weredifferences ofview
between some Members oftheCommittee andtheParties. Itseemed those differences werenotlikely
tobebridged through another round offactual examination. Hetherefore proposed thattheCommittee
consider thefactual exercise concluded, inlightofthefactthatoutstanding information would be
circulated. Ofcourse, thequestion andanswer process would remain openforMembers tocome back
withquestions following uponwritten replies. Ifthewritten answers weresatisfactory, thefactual
partwould befinished andtheCommittee could move ontoconsult onconclusions.
52. Therepresentative ofCanada requested Members toprovide questions inwriting toensure
thattheParties addressed them correctly.
53. TheCommittee tooknoteofthecomments made.