3

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Regional Trade Agreements and developing countries
module

Introduction
This module 16 deals with the relationship be-
tween the most-favored nation principle and
the exceptions from MFN accorded for Regional
Trade Agreements. On the one hand WTO agree-
ments grant unconditional most-favored nation
rights to all WTO members for goods (GATT Article
I) and for services (GATS Article II). On the other
hand GATT Article XXIV and GATS Article V pro-
vide rights for members to engage in RTAs that
allow them to exchange preferential treatment
that is not accorded to all other WTO members.
These rights to engage in RTAs are conditional in
that each regional discipline has its own require-
ments. Generally, for the GATT, regional members
must cover substantially all of the trade between
the members by eliminating tariff duties and
other restrictions. For services, the regional mem-
bers must also cover substantial trade and grant
non-discriminatory treatment to each others’ ser-
vices and service suppliers.
A closely related GATT rule is also covered in
this module. Known as the Enabling Clause, this
also provides for an exception from MFN prin-
ciple on behalf of developing countries for trade
Module 3
Interface between
RTAs and WTO
advantages granted by developed countries. While 16 This module draws
trade preferences in Regional Trade Agreements on Evans (2002).
between developed and developing countries
must be accorded on a reciprocal basis, the
Enabling Clause regime does not require a devel-
oping country recipient to reduce or eliminate its
own trade barriers.
In this module, the readers will learn the basic
rules for RTA formations in the WTO both for
goods and for services – how those rules were
formed and relate to economic and political as-
pects, and how the rules are being handled today
in the relationship between regional members
and the larger body of WTO membership. In addi-
tion, since different GATT/WTO regimes apply to
the concerns of developing and least developed
countries, the interface between WTO regional-
ism rules and the provisions made in WTO law
for developing and least developed countries is
taken up. Ultimately the reader should gain an
understanding from this module of what is and
what is not reasonably possible for developing
country Regional Trade Agreements within the
legal regimes of the WTO.
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Handbook
1 The WTO rules on Regional
Trade Agreements
1.1 Evolution of WTO rules affecting RTAs
1.1.1 Most-favored nation principle and RTAs
The establishment of most-favored nation in the
original General Agreement on Tariffs and Trade
(GATT 1947) was a direct consequence of the fail-
ures of commercial policy and diplomacy in the
period prior to World War II. Most of this diploma-
cy was exercised by the use of preferential trading
arrangements in the form of colonial systems and
other trading and political alliances. The difficul-
ties presented by these systems and the perceived
damage caused both to their members and to
“outsiders” led the founding countries to estab-
lish a generalized most-favored nation clause in
the GATT, together with a set of rules to govern
what would be allowed in the future preferen-
tial trading arrangements which we now refer to
as Regional Trade Agreements. In this new MFN
clause, colonial preferential arrangements were
not eliminated. Rather, the existing preference
systems were grandfathered into the new system.
They were however also subject to a standstill
whereby the existing level of preferences could
not be expanded.
Recall that MFN is neither a general nor a custom-
ary principle in international law. In the absence
of conventional treaty provisions establishing
MFN, every state and customs territory remains
otherwise free to grant or deny trading privileges
on a selective basis in any manner it sees fit. This
is in keeping with the premier principle of state
sovereignty to control commercial movements
across its own territorial borders, both in respect
of imports of foreign products, services and in-
vestment, as well as for the exportation of its own
resources and production.
The concept of a trade preference is instrumen-
tal in understanding the relationship either be-
tween RTAs and MFN, or between GSP (and other
unilateral, non-generalized preferential schemes)
and MFN. By definition, a positive preference is a
trading advantage being offered to one or more
territories. It is preferential and therefore conflicts
with MFN because the treatment is not being
likewise accorded to all other GATT parties (now
WTO members). The same conflict occurs with a
negative preference, where the MFN treatment
being accorded to all other parties is now being
denied to one or more of them. Either way, there
is a violation of MFN.
46
The GATT “innovation” in commercial policy trea-
ty practice was to generally prohibit the use of
quantitative restrictions in international trade
(GATT Article XI), in favor of the use of tariff du-
ties (import taxes) as the permitted form of legal
economic protection (GATT Article II). The GATT
then established that the tariff duties of the con-
tracting parties would operate according to MFN
(GATT Article I). Thus, any benefit or privilege that
is accorded by any GATT party to any other state
or territory would be required to immediately and
unconditionally extend that same benefit to all
other GATT contracting parties. The uncondition-
al element in GATT MFN is the right to receive the
best treatment being offered. This relates to both
the idea that once a territory is a GATT contract-
ing party (now a WTO member), it has a legal right
to receive MFN without being required to pay for
it (no conditional MFN compensation), and that
it has a right to not have MFN conditioned upon
any other policy conditions.
An example is the Sino-American relationship:
Prior to China’s accession to the WTO, its MFN
treatment was accorded by the United States on
a renewable and conditional basis that took into
account a number of policy conditions by which
the United States would choose to extend or deny
continuing MFN. Once China was admitted to the
WTO, the United States no longer had a legal basis
to conduct a review of China’s policies as a func-
tion of granting most-favored nation treatment.
Historically, GATT MFN has been viewed as a
means of protecting the interests of smaller and
weaker territories in the trading system, since
their lack of commercial policy power would oth-
erwise invite lesser treatment where they could
not impose reciprocal conditions on their larger
trading partners, or be included in preferential
systems that larger and more powerful members
might establish. At the same time, MFN has also
been viewed as an instrument favoring larger
producing territories since it guarantees a right
of access to other territories on an equal basis
with all other territories. Both elements are pres-
ent in the historical justifications for MFN.
1.1.2 The GATT Articles I and XXIV architecture
With MFN established in the GATT, the question
of its practical scope of application in global com-
mercial policy depends upon how broadly or how
narrowly the exceptions to MFN are drafted and

then how they are applied in commercial practice.
The overall impact of MFN in the system depends
upon the resulting legal architecture that is es-
tablished between this principle and the excep-
tions that are allowed to derogate from it for the
establishment of Regional Trade Agreements and
other preferential systems. This relationship be-
tween MFN and RTAs is understood by examining
both the substantive rules as well as the institu-
tional controls that are provided to secure it.
While the GATT 1947 Regional Trade Agreement
exception in Article XXIV for customs unions and
free trade areas is not the only exception in the
trading rules to MFN, it is probably the most im-
portant “rule and exception” relationship in the
multilateral trading system, since it serves to de-
fine the role and functioning of the system itself
in international trade. In order to place the origin
of the regional exception into its context, a brief
review of pre-GATT commercial practice and di-
plomacy is helpful. This story also illuminates the
role that developing countries played in the final
Article I-Article XXIV relationship as found within
the GATT/WTO today.
1.1.3 Preferential systems prior to the GATT
Different preferential systems were in use during
the inter-war period (generally between 1917 and
1941). Whidden (1945) offered five categories:
Frontier traffic: Most trading countries recog-
nized a 10 mile zone of exception along a border
area to avoid a hardship for territory commerce. A
simple example would be where a customs fron-
tier passes through a city.
Customs unions: Bilateral trade agreements (say
between A and B) in the inter-war period would
attempt to liberalize sectoral trade and also pro-
vide for negotiated MFN rights. The normal prac-
tice in these agreements would also recognize
that where the customs territory of one signatory
was enlarged by the formation of a new customs
territory (say between B and C), then the other
signatory to the bilateral agreement (party A)
would recognize this new territory and not assert
its MFN rights against the signatory partner. This
was the classic customs union exception and,
as Whidden (1945) noted, the common practice
found in United States bilateral agreements prior
to the GATT.
Tariff assimilations: Where other territories are
joined to the metropolitan area and its colonies
are then treated as a single unit. Whidden’s ex-
ample was the French system of incorporating its
colonies, particularly Madagascar, Guadaloupe,
Martinique and Indochina.
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Colonial preferences: Whereby the colonies
would retain their separate commercial identity,
but grant to and receive from the colonial power
a preferential right of free trade.
Regional preferences and low tariff clubs: A num-
ber of inter-war declarations made in Europe and
Latin America sought to extend lower tariff treat-
ment via reciprocity with other countries that
wished to or were invited to join.
Viner (1950) also reviewed the types of preferential
systems employed by territories in the inter-war
years and distilled three categories. These included
the imperial preference, characterized by him as
consisting of political ties; regional agreements,
characterized by propinquity (defined as nearness
or closeness); and plurilateral agreements, charac-
terized by the number of participants. However, ac-
cording to Viner, only for customs unions was there
a clear and generally accepted practice between na-
tions to grant an MFN exception, where MFN claus-
es were maintained in bilateral treaty relationships.
This mirrors Whidden’s comment above on customs
unions, which is to say that the leading commercial
parties at the time would provide for an MFN excep-
tion to customs unions in their bilateral treaty prac-
tices, and not necessarily recognize a similar excep-
tion for these other types of preferential systems.
This background explains why the United States
proposals for the International Trade Organization
(ITO) Charter only included a customs union ex-
ception, and also suggests a priority by the draft-
ers to seek to eliminate other systems of prefer-
ences from the international trading system. The
arguable rationale for seeking to close out other
types of systems is based on the economic and
political experience of the inter-war period.
1.1.4 Inter-war bilateralism and economic
nationalism
The arrangements concluding World War I by the
Treaty of Versailles failed to establish a generalized
most-favored nation clause to govern the post-war
commercial policies of the combating states. They
only provided for MFN as between the allied pow-
ers, and as owed to the allied powers by the axis
powers, but not granting reciprocal MFN by the
allied powers to the axis countries. Whether this
imbalance was the cause of the “beggar thy neigh-
bor” diplomacy that followed is not so clear, but
the period came to be recognized as one of intense
economic nationalism which was made effective
through bilateral policies.
Hirschman’s case study of Germany and Bulgaria
remains a classic case of how commercial relations
could be tied to national political power where
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there is a significant difference in size and mar-
ket power of the countries involved (Hirschman
1945, p. 68). In 1938 the bilateral trade between the
two countries represented 52 and 59 per cent of
Bulgaria’s total imports and exports respectively.
However, for Germany, Bulgarian trade represent-
ed less than 2 per cent of its total trade for both
imports and exports. Even while the trade was
monetarily balanced (i.e. no trade deficit), he raised
the proposition that, “... it will be much more dif-
ficult for Bulgaria to shift her trade with Germany
to other countries than it will be for Germany to
replace Bulgaria as a selling market and a source of
supplies”. This notion of asymmetric bargaining as
a function of territory and market size remains evi-
dent in commercial diplomacy, and perhaps more
so where countries are engaging in preference ar-
rangements (RTAs or GSP), where MFN is no longer
the primary point of reference.
Hirschman (1945) recognized that a strategy of
dependency would require a transaction con-
taining two preferences, one positive and one
negative. The granting of a positive preference by
one territory to another served a first purpose in
inducing the conditions of trade dependency on
the grantor country. This preference required an
initial deviation from MFN. If the grantee territo-
ry was dependent, then a second discrimination
became possible if the grantor chose to threaten
to terminate the trading privilege unless other
(political or economic) conditions were met. This
second negative preference also required an MFN
deviation since otherwise the trade of all other
countries must be terminated on the same basis.
For Hirschman, the ability to credibly threaten the
termination of trade was the essence of trade pol-
icy. The establishment of a general MFN clause in
international trade would contribute to a solution
for the problem of economic nationalism since it
would curb the ability of the more powerful mar-
ket to grant the preference in the first place, and
then also reduce its power to withdraw the trade.
1.1.5 The colonial preference issue
The British Empire evolved through the Com-
monwealth system to provide for a degree of free
trade between the colonies (and former colonies)
and Great Britain. Through most of the inter-war
period, this system did not heavily discriminate
against non-Commonwealth members, and there
are United States references in the period citing
the Commonwealth trading system as an open
system and not disadvantageous to American
trading interests. This changed with the out-
break of global depression when in 1932 the
Commonwealth became more closed in respect
of goods from third countries. For the United
48
States, the effects were exclusionary both for its
access to Commonwealth country resources as
well as for markets for United States exports.
From the United States’ point of view, there was
a clear policy distinction between maintaining
high barriers to imports to its own market and
the use by other countries of preferences to select
which sources would receive better access. The
first was a natural and legitimate expression of
a country’s economic policy while the second was
associated with an imperial policy that sought to
create dominions and zones of influence to the
exclusion of other trading nations. On the other
hand, the British and other European trading
countries viewed high United States trade bar-
riers as the priority problem, and some argued
that the extension of preference systems was
necessary to counteract closed markets and
guarantee the economic survival of the colonies
or Commonwealth members.
1.1.6 The Atlantic Charter (1941) expression
for most-favored nation
As World War II commenced, there was some gen-
eral agreement between the United States and
the United Kingdom that the post-war arrange-
ments should have to consider reestablishment
of normal commercial relations by the use of
most-favored nation. The purpose of the Atlantic
Charter (1941) was to draw the outlines of a post-
war settlement. For the Americans, this would
avoid a repeat of the Versailles approach that was
raised in 1917. Pre-eminent in the Charter discus-
sions was the pledge to introduce the generalized
most-favored nation clause, and have it equally
applied for the victorious and the defeated. The
expression of MFN for the Charter however did
not resolve the Commonwealth preference issue
for the Americans, since the final expression con-
tained Churchill’s counter-proposal, which was to
drop the explicit reference to discrimination and
to tie the obligation “access without discrimina-
tion on equal terms”, subject to the phrase, “with
due respect for their existing obligations”. Gardner
(1980) considered this the “first definition of mul-
tilateralism”, but clearly the Commonwealth pref-
erence issue was not resolved by the Charter text,
a point that later dominated and undermined
United States support for the post-war negotia-
tions for the International Trade Organization.
1.1.7 ITO proposals, Geneva and Havana
regional exceptions
The United States and British proposals for the
most-favored nation clause followed the lines of
agreement that had been settled between them
in preparation for the UN Conference on Trade
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and Employment (1946), which would lead to an
international Charter governing world trade and a
new International Trade Organization. For the MFN
clause and the regional exception, the two negoti-
ations in Geneva (1947) and in Havana (1948) were
important. The MFN compromise between the
module
all tariffs and other restrictive regulations of
members of the union are substantially elimi-
nated and substantially the same tariffs and
other regulations of commerce are applied by
each of the members of the union to the trade
of territories not included in the union”.17 17 Article XXIV, para. 4,

United States and the United Kingdom was settled
in Geneva. This clause provided a standstill for the
preferential systems as listed and annexed to what
became known as GATT Article I. This meant that
while these named systems could continue to op-
erate in derogation to the MFN rule, they could not
be expanded. Any additional preference systems
would have to find textual exception through
other drafted provisions within the Charter.
In addition, the United States submitted its draft
proposal for the regional exception and what
would later form the text for GATT Article XXIV.
This clause followed the pattern established ac-
cording to its own bilateral MFN agreements
with the change from previous practice where a
customs union also received some definition. The
definitional paragraph as proposed and resulting
from the Geneva text read as follows:
“A customs union shall be understood to mean
the substitution of a single customs territory
for two or more customs territories, so that
Final Act adopted at the
Conclusion of the second
One additional regional exception was also im- session of the preparatory
portant to the final Article XXIV text as contained committee of the United
in the GATT. This was included in the London Draft Nations Conference on
Trade and Employment,
Charter (1946), which provided for a 2/3 majority Geneva, 1947.
vote, (a waiver) whereby, “the members recognize
that there may in exceptional circumstances be
justification for new preferential arrangements
requiring an exception to the provisions of (the
chapter dealing with customs unions)”. According
to Viner (1950), as the Geneva customs union draft
also introduced the concept of interim agree-
ments leading to customs unions, the Geneva ne-
gotiators dropped this other paragraph from the
customs union Article.
This waiver text reappeared in a modified and
far more comprehensive form in the new Havana
Charter, Chapter III dealing with “Economic Devel-
opment and Reconstruction”. It became a critical
point in the discussions among the much larger
group of developing countries represented at the
Havana Conference in 1948.

Box 3
Havana Charter (ITO), Article 15: Preferential Agreements for Economic Development and Reconstruction
Article 15 provided the set of rules for authorizing new preference arrangements, recognizing that, “… special circum-
stances, including the need for economic development or reconstruction, may justify new preferential agreements
between two or more countries in the interest of the programmes of economic development or reconstruction of one
or more of them”. (para. 1)

Generally, the parties seeking new arrangements would be require to notify the Organization and provide sufficient
information. Upon that, para. 3 provided that an exception to MFN (Article 16) would be possible upon a vote, “by a
two-thirds majority of the Members present … and subject to such conditions as it may impose …”.

A distinct set of preference arrangements would be easier to form where para. 4 stated that the Organization “shall
authorize” arrangements that met a particular (and fairly complex) set of criteria. These included that the territories
would be geographically contiguous or all in the “same economic region”; that the preference be for developing a new
industry or agriculture or that be for the purpose of reconstruction or significant modernization; that the duties be elim-
inated or low enough to not undermine the objectives of the development; that the possibility of adhering to the new
preferences by non-parties be accommodated in the arrangement; and that the agreement expire within ten years.

The Article also had provisions for ultimately compensating non-parties who would be substantially injured by the
new preferential arrangements.

Overall, even while the Organization was compelled to authorize agreements which met these conditions, it still
maintained a high degree of institutional control over the exception being granted to MFN. At the same time, the
Article was granting an avenue for to exchange or grant preferences regarding individual industries or agriculture
products, as contrasted with a regional trade exception for customs union that required reciprocal elimination of
duties across substantially all the trade.

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18 E/CONF.2/C.3.SR.4.
19 Ibid., at p. 3. Article 16
refers to the MFN clause,
Article 42 was the numbered
customs union article.
20 Ibid., at p. 7, para. 27.
21 See Dam (1963, p. 275).
50
1.1.8 Havana ITO Conference, the regional
exception and free trade area proposals
Numbered as Article 15, and titled “Preferential
Agreements for Economic Development and Re-
construction”, it retained the concept of pre-ap-
proval by a 2/3 voting procedure as above. It is quite
apparent from the minutes that many Havana
negotiators were unsettled by the MFN compro-
mise that had been reached in Geneva among that
smaller group. Particularly controversial for the con-
ference members in Havana was whether future
preferences should be encouraged or discouraged,
and if permitted, whether they should be subject
to voting pre-approval by the organization. This dif-
ficulty applied to both preferences that could be
characterized as either “development” or “regional”
in orientation. Thus, from the first meeting, the
Syrian representative indicated the country’s sup-
port for most-favored nation treatment,
“but pointed out that exceptions had been ad-
mitted which would permit the continuation of
existing preferential arrangements represent-
ing vested interests. However, there were cer-
tain countries within the same economic area,
having traditional relationships which should
not be overlooked even though these had not
been formalized. His delegation had submitted
amendments, both in Geneva and here, which
would permit the conclusion of new preferential
tariff agreements for such economic areas”. 18
The representative of Lebanon made the direct pro-
posal for the inclusion of provisions for preferential
arrangements other than customs unions as,
“He would present amendments to Articles 16
and 42 to allow free trade and preferential agree-
ments for economic regions. He saw no reason
why the smaller countries should not exchange
preferences in order to compete with highly de-
veloped countries which did not need them or
which might not be ready to reciprocate”. 19
These interventions show that the arrangements
being provided by Article 15 were not being viewed
as satisfactory by some members. They point the
direction toward a type of regional exception that
could be used by developing countries and espe-
cially countries that did not already have existing
systems which had been grandfathered into the
new MFN regime.
Exercises and questions for discussion
1. Consider the possible objectives being sought by developing countries for the new ITO free trade area excep-
tion. Do you think that at that period of time developing countries were also contemplating forming new free
trade areas with leading developed market countries? Why or why not?
1.1.9 The introduction of a free trade area
exception
The question of future preferences was central
to the consideration of the MFN obligation in the
Havana forum. This was reflected by the terms of
reference made in the referral to a sub-committee
that was formed jointly between the commercial
policy committee and the development and re-
construction committee. This group was charged
with reconciling the three provisions at issue “a
view to finding a solution of the question of new
preferential arrangements”.
On completion of its work, the Joint Sub-Com-
mittee reported that,
“In paragraph 4 the definition of a customs
union, which was contained in the second sen-
tence of paragraph 4 of the Geneva draft, has
been amended and a definition of a free trade
area has been added. This describes a free trade
area as a group of two or more customs ter-
ritories within which tariffs, etc. (except where
necessary, those permitted under section B of
Chapter IV and under Article 43) are eliminated
on substantially all the trade between the con-
stituent territories or at least on substantially
all the trade in products originating in such ter-
ritories”. 20
Thus, the final text of GATT Article XXIV as we know
it was finalized to permit both the formation of
customs unions and free trade areas, together
with an expanded definitional section for both,
and providing additional articles for notification
and institutional control of Regional Trade
Agreements within the Charter. While the new
exception provided for a new form of RTA – a
free trade area, Dam (1963) viewed the overall
restrictive nature of the new Article XXIV and the
structural link between the provisions of Article I
MFN and Article XXIV as,
“... the principal objective in the drafting of the
customs union and free trade area provisions
became to tie down, in the most precise legal
language possible, the conditions that such re-
gional groupings would have to fulfill in order
to escape prohibition under the most-favored
nation clause as preferential arrangements ...”. 21
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Exercises and questions for discussion

2. When the Article XXIV draft was realized in Havana, it was still believed by all members that the rest of the
Charter, including the Article 15 provisions, would also survive and be ratified. A number of points can be raised
about Article 15:

(a) Do you think that these two articles together would have been sufficient for meeting developmental objec-
tives as time went forward?
(b) How do these provisions appear to you looking back from the modern era? Would they be satisfactory from
our current view of the role of developing countries in the multilateral trading system? How do you think
they should be viewed from an economic perspective?
(c) Do you think it would yet have been advisable to establish the later Enabling Clause exception for the GSP? Why?

For further research

The demise of Article 15 also left developing countries without any option to establish so-called horizontal non
reciprocal preferential arrangements (as between developing countries only). These arrangements are now ac-
commodated by the Enabling Clause (as later discussed in this module). Consider what, if any, criteria would be
appropriate for approving developing country horizontal preferential systems, and compare your criteria to the
original negotiated criteria provided in Article 15. A full text of Article 15 Havana Charter is available at:
http://www.wto.org/English/docs_e/legal_e/havana_e.pdf.

1.2 GATT Article XXIV

1.2.1 Customs territories and customs unions
The title of the final text of Article XXIV refers to
“Territorial Application – Frontier Traffic – Customs
Unions and Free-Trade Areas”. The Article contains
twelve paragraphs. The first two establish the ter-
ritorial application for the GATT as it applies to cus-
toms territories and defines this term as a territory
“to which separate tariffs or other regulations of
commerce are maintained for a substantial part of
the trade ... with other territories”. A number of cus-
toms territories that are not states functioned as
contracting parties to the GATT (now WTO mem-
bers). One example is Hong Kong, China, where the
territory has independent control of its borders for
the purposes of trade in goods, but not the status
of a sovereign state.
In a similar manner, a customs union (formed be-
tween two or more customs territories) can also be
considered a customs territory for the purpose of
territorial application of the GATT. The EC customs
union is a member of the WTO and has authority to
represent its Member States in those areas where
it has competence (e.g. trade in goods). This differs
from a free trade area where the individual mem-
bers retain their full sovereign control of their indi-
vidual customs territories. The members to a free
trade area can also arrange to apply the same tariff
duty levels to their trade with non-members, but
where they retain the individual power to change
those tariff levels, it is probably not the case that
they are forming a customs territory in the sense
of the term as it is used in the GATT.
Thus, while the definition does not specifically recite
the institutional power that resides in a customs
territory or a customs union, it does seem evident
that maintaining separate tariffs for a substan-
tial part of the trade with other countries is a con-
trol aspect that indicates a certain institutional
external power. For developing countries, a num-
ber of regional customs union (customs territory)
formations have been attempted, including no-
tably CARICOM, MERCOSUR, ECOWAS, the West
African Economic and Monetary Union (WAEMU/
UEMOA), the Common Market for Eastern and
Southern Africa (COMESA), SACU, not all of which
have been institutionally completed and imple-
mented. However the potential is there for this
independent customs territory representation,
both for purposes of the WTO/GATT agreement as
well as with commercial treaty relations with oth-
er countries and customs territories. For example,
the European Partnership Agreements being ne-
gotiated between the European Communities
and about 70 members of the African, Caribbean
and Pacific group are being conducted by ACP
members primarily via these regional groupings
noted above.
Paragraph 3 of Article XXIV establishes the fron-
tier traffic exception for granting advantages
to adjacent territories. This provision facilitates
movement in areas where otherwise a territorial
order would be disruptive.
The balance of the Article is dedicated to the
regional trade exceptions, except for the final
paragraph 12 which is the provision for sub-
federal responsibility. This provides that each
contracting party to the GATT will take reasonable
measures available to ensure that its regional
and local governmental authorities observe the
general agreement.

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22 Article XXIV, para. 8(a)(i)
for customs unions and
Article XXIV, para. 8(b) for free
trade areas.
23 Understanding on the
Interpretation of Article XXIV
of the General Agreement
on Tariffs and Trade 1994,
preamble, third recitation.
24 Article XXIV, para. 8(a)(ii).
52
1.2.2 Article XXIV 1994 understanding
Article XXIV has not been amended since its adop-
tion in the GATT, but it has received a definitive
interpretation in the form of an “Understanding”
completed during the Uruguay Round (UR), titled
“GATT-1994 Understanding on the Interpretation of
Article XXIV”. This text forms the basis of a legal inter-
pretation for Article XXIV and its provisions need to
be read along with the GATT Article XXIV paragraphs
where it adds detail and context to some of the provi-
sions. Reference to this Understanding will be made
throughout the description of Article XXIV where its
terms inform the Article XXIV paragraphs.
1.2.3 Article XXIV – purpose of the regional
exception, paragraph 4
Paragraph 4 of Article XXIV states that the contract-
ing parties recognize the desirability of increasing
the freedom of trade by voluntary agreements
of closer integration between the parties to such
agreements. In other words, the contracting parties
recognize explicitly that Regional Trade Agreements
are an approved means of increasing free trade be-
tween the members. (The preamble to the 1994
Understanding reaffirms this purposive expression
by also recognizing the contribution to the expan-
sion of world trade that can be made by customs
unions and free trade areas.)
Paragraph 4 goes on to state that the contracting
parties also recognize that the purpose of a customs
union or a free trade area should be to facilitate
trade between the parties to the agreements and
not to raise barriers to the trade of other contracting
parties. In other words, reducing barriers among the
regional members is the objective to be reached by
Regional Trade Agreement while at the same time
regional members should not be raising barriers to
the trade of non-regional members. This establishes
the two primary legal aspects for free trade areas and
customs unions that are treated by the Article.
The two pillars of this paragraph 4 expression are
played out in two primary paragraphs. Paragraph
8 of the Article establishes the definitions for what
constitutes a customs union and a free trade area
and provides the requirements for the elimination
of barriers between the regional members. These
requirements can be characterized as the internal
trade requirements for Article XXIV agreements.
Paragraph 5 of the Article deals with the require-
ments for not raising barriers to the trade of other
GATT parties and also grants the exception for quali-
fied regional agreements from the other provisions
of the GATT. These requirements can be character-
ized as the external trade requirements for Article
XXIV agreements.
1.2.4 Article XXIV, paragraph 8
Since paragraph 8 provides the definitions for cus-
toms unions and free trade areas, paragraph 8 is the
first to consider in any evaluation. Reading the pro-
visions for both forms to draw out the definitional
elements common to both, the following expression
is provided. A free trade area or a customs union,
“… shall be understood to mean” (an area or terri-
tory) whereby “duties and other restrictive regula-
tions of commerce (except, where necessary, those
permitted under Article XI, XII, XIII, XIV, XV and XX)
are eliminated with respect to substantially all the
trade between the constituent territories.” 22
The requirement to eliminate refers both to duties
and to other restrictive regulations of commerce
(ORRC). These two terms describe what must be
eliminated, i.e. the types of barriers to be eliminated
by the regional members. This elimination is then
also directed to the term substantially all the trade
which suggests some sort of volume indicator as to
how much trade between the members must be
made free of duties and ORRC. In addition, there is a
listing of articles provided for restrictions that need
not be eliminated.
While there are many interpretation issues raised
by these terms, which have been longstanding
issues in the review of RTAs in the GATT and WTO
practice, paragraph 8 was not treated in the
Uruguay Round Understanding on Article XXIV,
except for the following single and perhaps not in-
significant preamble expression. This states that
the contribution of regional agreements to the
expansion of world trade,
“… is increased if the elimination between the
constituent territories of duties and other restric-
tive regulations of commerce extends to all trade,
and diminished if any major sector of trade is
excluded.” 23
The other elements of paragraph 8 relate to cus-
toms union formations only as the members to a
customs union must also apply “substantially the
same duties and other regulations of commerce”
(ORC) to the trade of other parties.24 This is a re-
quirement to establish a functioning common ex-
ternal tariff by applying the same rates of impor-
tation (and supposedly exportation) duties to the
trade of non-members. Depending on the meaning
of the term “other regulations of commerce” this
requirement could also include the operation of a
common commercial policy for operation of other
trade instruments such as anti-dumping measures
and safeguard measures.

1.2.5 Article XXIV, paragraph 5
After meeting the definitional tests for internal trade
required by para. 8, a consideration of how the RTA
will affect other GATT parties is made as according to
Article XXIV, para. 5. This paragraph first opens by ac-
cording the regional exception for customs unions
and free trade areas (and interim agreements lead-
ing to either), in stating that “the provisions of the
agreement shall not prevent … the formation of a
customs union or a free-trade area ... ”.
This exception granting is then followed by the
proviso language dealing with the external trade
requirements. To again synthesize the common el-
ements for both RTA forms, the exception is granted,
“provided that ... the duties and others regula-
tions of commerce ... shall not ... be higher or more
restrictive than ... prior to the formation” as to the
trade of the GATT parties.25
In this language there are differences between the
requirements for customs unions and free trade
areas that emerge where the process of forming
a common external tariff for a customs union is
bound to have external implications if any tariff
duty is increased against a non-member. Thus this
type of formation clearly can present raising new
barriers issues. For this, the 1994 Understanding
provided some detailed clarifications on customs
union formations on what must be assessed for du-
ties and some procedures for compensating adjust-
ments for the benefit of non-members.
1.2.6 Article XXIV, institutional provisions,
paragraphs 7 and 10
The Article as drafted also contains some control
provisions designed to ensure that the regional
exception is being accorded only to qualified agree-
ments. Even while the practice of reviewing Regional
Trade Agreements is not noteworthy for its success
in blocking the implementation of poorly qualified
RTAs, on paper the provisions appear quite solid.
The main institutional provisions are located in para-
graph 7. This establishes a requirement that parties
entering a Regional Trade Agreement “promptly
notify” the GATT contracting parties and make avail-
able information for the contracting parties to make
reports and recommendations as they may wish.
The primary information to be provided is that of a
“plan and schedule” for any interim agreement that
would render the formation “within a reasonable
length of time” (paragraph 5 (c) ). The primary control
provision in paragraph 7 allows the contracting par-
ties to find that the formation does not qualify with
the Article and then to make recommendations. The
provision from paragraph 7 reads as follows:
3
Interface between RTAs and WTO
module
“If, after having studied the plan and schedule ...
the Contracting Parties find that such agreement
is not likely to result in the formation of a cus-
toms union or of a free trade area within the pe-
riod contemplated ... the CONTRACTING PARTIES
shall make recommendations ...
The parties shall not maintain or put into force ...
such agreement if they are not prepared to modify
it in accordance with these recommendations”. 26
In addition, any substantial change to the plan or
schedule must also be communicated and the con-
tracting parties can then request consultation with
the regional members if the change “seems likely
to jeopardize or delay unduly the formation of the
customs union or of the free trade area”.
1.2.7 Paragraph 10 waiver
25 GATT Article XXIV, para.
An additional provision in the Article found in para-
5(a) for customs unions,
graph 10 requires that the parties obtain a waiver
GATT Article XXIV, para. 5(b)
based on a 2/3 majority for proposed agreements for free trade areas.
that do not comply with the rules of paragraphs 5 There is a difference for free
through 8 inclusive, and only if the ultimate forma- trade areas where the
higher duties shall not be
tion does actually result in a free trade area or a cus- “maintained”. For customs
toms union. This paragraph has been used in those unions, they may not be
cases where a GATT party is forming a preferential “imposed at the institution”.
trade agreement with another territory that is not
a contracting party of the GATT. As WTO member- 26 GATT Article XXIV,
ship now exceeds 150 countries and territories, this para.7(b).
provision does not come into use as frequently as it
may have a generation ago, but it is still raised in the
practice, for example with regard to an agreement
between Moldova (WTO member) and the Russian
Federation (observer status, not yet acceded).
1.2.8 Institutional changes by the
“Understanding” and the Committee on
Regional Trade Agreements
The provisions dealing with institutional aspects re-
ceived some treatment in the 1994 Understanding
in its section titled “Review of Customs Unions and
Free-Trade Areas”. Here the long-term practice of
conducting reviews by a working party was formal-
ized and a requirement was made that the work-
ing party shall submit a report to the Council on
Trade in Goods. The Council has the power to make
recommendations as it wishes. A working party
can also recommend a plan and schedule when
regional members do not provide one, and again
regional members may not implement the forma-
tion if they are not prepared to modify their ar-
rangements in accord with the recommendations.
The Understanding also clarified the “reason-
able length of time” referred to in paragraph 5(c)
to be that of ten years but for exceptional cases.
Where regional members believe that ten years
are insufficient they are required to provide a full
53
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explanation to the Council for trade in goods deal-
ing with the need for a longer period.
The institutional review practice was modified
again as a result of the Singapore Ministerial
Conference in 1996 with the establishment of the
Committee on Regional Trade Agreements (CRTA).
This created a standing and ongoing committee
within the WTO to receive information and review
and report to the Councils for goods as well as for
services (this is for RTAs under GATS Article V).
In essence the terms of reference governing the
activities of the CRTA are the following:
• To carry out examination of agreements and to
present its report for appropriate action;
• To consider how the required reporting on the op-
eration of such agreements should be carried out
and to make appropriate recommendations;
• To develop procedures to improve the examina-
tion process;
• To consider the system implications of such
agreements for the multilateral trading system
and the relationship between them, and to make
appropriate recommendations to the General
Council; and
rules. The earlier GATT working group did produce
reports and these were customarily adopted by the
General Council and published, but these also rarely
delivered any consensus opinion on the consistency
of a given agreement. Thus, they would normally
conclude with the statement that some members
felt that the agreement was consistent and that
other members were of the opinion that the agree-
ment was not consistent with the rules. These re-
ports are however quite valuable in understanding
the issues surrounding the terms and the way the
members view them.
It is clearly the case that there is longstanding dis-
agreement over the meaning of the terms of the
paragraphs in the Article. However, the require-
ment of consensus is also patently difficult where
the regional members are themselves participants
in the consensus process and are able to block a rec-
ommendation of inconsistency. (Another explana-
tion for the failure to conclude reports is found in
the structure of the WTO. Now that there is a more
binding dispute settlement system, and the possi-
bility for a dispute panel to measure the provisions
of an RTA to the WTO rules, it is possible that mem-
bers are seeking to avoid clear expressions regard-
ing the legality for their RTAs.)

27 WTO, Document WT/L/127,

• To carry out additional functions assigned by the
General Council.27
para. 1.
1.2.9 Examination and reporting practice
The examination record for the CRTA is active but
the reporting function to make findings on com-
patibility and recommendations for WTO Council
action is not. There remains a lack of consensus
on the underlying qualification provisions and the
Committee is commonly unable to reach consensus
on the consistency of the RTAs filed with the WTO
However, the answer to this aspect is not necessar-
ily turning to a majority voting procedure. In the first
instance majority voting would never be accepted by
WTO members since everything in the organization
is conducted according to consensus, even for those
cases where the rules provide otherwise. Moreover,
given the development of blocs of countries shar-
ing common interest (ACP, ASEAN, etc.), the process
of qualifying a single agreement would not likely be
trusted where bloc members were supporting with
sufficient votes to carry an agreement forward.

Box 4
The Article XXIV paradox
There is an additional reason why the review process does not result in clear recommendations on Article XXIV com-
patibility. This is what Haight referred to as the “Article XXIV paradox” (Haight 1972). GATT parties (now WTO mem-
bers) represent their territorial trading interests and voluntarily choose to be engaged in the process of examining
and reviewing Regional Trade Agreements. The rules for Article XXIV demonstrate that a very high degree of trade
liberalization needs to occur for a qualified RTA. While reviewing members are called upon by the rules to criticize
agreements that do not fully liberalize regional trade, their own territorial trading interests may also favor an agree-
ment that does not fully liberalize trade. To push for a strong compliance with the rules is somewhat inconsistent
with the trading interests of non-regional territories where their own producers may be displaced from a market by
a Regional Trade Agreement. Thus, at the same time they have to argue the systemic side of the equation (fully liber-
alized trade agreements are better for the system, partially liberalizing agreements should not be supported) while
also defending their own trading interests (a less liberalizing regional agreement is better for protecting our own
export interests to this regional market). The substantially all trade (SAT) requirement appears to have the purpose
of reducing the number of Regional Trade Agreements that can be formed in the system by making them harder to
form. Members agree in principle with this purpose and gave it even a recent expression (1994) in the Article XXIV
Understanding (Uruguay Round). However, when it comes down to the effects of any particular agreement on their
own trade, then this interest in preserving trade to the new regional grouping may also be evident.

54

1.2.10 Doha developments for Article XXIV
The work programme for the Doha Round of mul-
tilateral trade negotiations includes a provision
dealing with Article XXIV. The governing paragraph
reads:
“We also agree to negotiations aimed at clarify-
ing and improving disciplines and procedures
under the existing WTO provisions applying to
regional trade agreements. The negotiations shall
take into account the developmental aspects of
regional trade agreements”. 28
This work has proceeded in the Negotiating Group
on Rules which reports to the Trade Negotiations
Committee (TNC). There is a sequence to the ne-
gotiation work programme that has also been ad-
opted by the members in the Committee, accord-
ing to the chairman’s “Roadmap for Discussions
on RTAs’ Systemic Issues”. This document is not
public, so the future sequence of the discussions
is not entirely clear, though there are references in
the Chairman’s reports to what has been discus-
sed. One summation indicates that the headings
for discussion included coverage and neutrality
(roadmap headings one and two) and systemic
issues (heading number three).
It is also clear that there have been extensive discus-
sions under the coverage section and mainly dealing
with the term “substantially all trade” with the sub-
missions rotating around various tests for the quality
and quantity indicators that could be used to provide
a clarification for this term. A determination by the
members that they would mutually benefit from a
more specific test for trade coverage in an RTA can al-
ready be considered a major change from the histori-
cal point of view. If actual text resulted, this would be
a major accomplishment for these discussions.
1.2.11 New transparency mechanism
Another area that has actually yielded fruit is
that of transparency and reporting. Here, a draft
“Transparency Mechanism for Regional Trade
Agreements” forwarded by the Negotiating Rules
Committee in the summer of 2006 was adopted
by a Decision of the General Council in December
2006. This has important implications for the
functioning of the system in respect of RTAs. The
main features of the Decision include:
• Early announcement provisions upon com-
mencement of RTA negotiations and upon signa-
ture of an RTA;
• Notification requirements: As a rule notification
has to be made to the WTO not later than directly
3
Interface between RTAs and WTO
module
following RTA ratification and before preferential
treatment is commenced. Submissions are to in-
clude text, annexes, protocols, etc.;
• Factual presentation: Based primarily on the
data submitted, the WTO Secretariat will pre-
pare a factual presentation. This will not include
any value judgments and cannot be used as a
basis for dispute resolution;
• Formal review meeting: A single review meet-
ing based on the factual presentation and ques-
tions or comments generated by the members 28 WTO, Document WT/
regarding the RTA. This is based on a schedule of MIN(01)/DEC/1, para. 29.
circulation of the factual presentation and the
members’ questions and comments. All is pub-
lished on the WTO website, including the min-
utes of the meeting;
• Post-implementation review: RTA members are
obliged to provide a report at the end of the im-
plementation period documenting the liberal-
ization. WTO members have a right to exchange
views in the appropriate body or committee. A
summation is provided by the Secretariat and
posted on the website;
• Relevant bodies: The Committee on Regional
Trade Agreements shall be the implementing
body for GATT Article XXIV and GATS V RTA agree-
ments.The Committee on Trade and Development
(CTD) will be the responsible body for Enabling
Clause agreements (notified under para. 2(c)).
1.2.12 Developing country aspects
A key issue in the discussion was whether or not
developing country agreements notified accord-
ing to the Enabling Clause would be covered at all
by the Transparency Mechanism and if so, whether
treated in the CRTA or the Committee on Trade and
Development. (The issue of how developing coun-
try agreements are notified is discussed in some
further detail below, after an introduction to the
Enabling Clause provisions is made.)
Additional developing country issues in the RTA dis-
cussions have been frequently noted in the reports,
including the degree of reciprocity that should be
required between a developed and developing
country in the requirement to eliminate duties, and
the period of time that may be granted for imple-
mentation of a new RTA (whether a developing
country can be granted a longer implementation
period). Both of these issues raise the possibility of
incorporating special and differential treatment
considerations into the text of Article XXIV. These
questions are treated in some greater detail below
in the description of the individual terms and the
current issues and submissions to deal with them.
55
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Interface between RTAs and WTO
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Exercises and questions for discussion

1. Do you consider the failure of GATT and WTO to contain the growth of Regional Trade Agreements to be
caused by the drafting of Article XXIV, paragraphs 5 and 8, or by the institutional arrangements provided within
Article XXIV to control RTAs, or by the conduct and behavior of the membership in weakening the application
of the Article in practice?

2. Do you consider it positive or negative that the Article XXIV rules have not restricted more the growth of RTAs
in the trading system?

3. What changes might you suggest for the Article XXIV provisions?

4. The CRTA has been entrusted with the responsibility of forming recommendations on whether an RTA is
compatible with Article XXIV or GATS V provisions. How does the transparency mechanism appear to affect
that responsibility?

For further research

The Trade Negotiations Committee discussions (for the Doha Round) on RTAs and clarification of Article XXIV
are on the WTO website. One can review the country submissions and the summaries provided by the Chair
of the Committee. For the technical issue of substantially all trade, it is interesting to examine in some greater
detail the proposals being made and to compare them with the developing country proposals, including the
submission made by the ACP group for the negotiations.

29 Decision of 28 November
1979 (L/4903). The first GATT
waiver for GSP was made
in 1971.
1.3 The Enabling Clause
1.3.1 The vertical dimension
The Enabling Clause is the informal name for the
GATT Council Decision titled “Differential and
More Favourable Treatment, Reciprocity and Fuller
Participation of Developing Countries”.29 The
Decision makes provisions for developing coun-
tries in both a vertical and horizontal dimension.
It grants an effective exception from the most-
favored nation obligation for the implementation
and the maintenance of trade preferences in favor
of developing and least developed countries (the
vertical aspect) as well as providing for preferential
trading arrangements between developing coun-
tries (the horizontal dimension).
first the grant of exception from MFN for the GSP
arrangements for developing countries. Then there
is a second and distinct basis for the exception in
favor of the least developed among the develop-
ing countries. This means that a developed terri-
tory can maintain two distinct preferential regimes
that need not be validated according to Article
XXIV, but which still will receive an exception from
MFN. An example of this approach can be seen in
the European Communities’ EBA initiative which is
maintained for least developed countries, and then
the Communities’ GSP regime that is established for
all developing countries. The EBA regime is intended
to provide for better preferential access to the EC
market than the GSP does.
1.3.2 The horizontal dimension

It is by the Enabling Clause that the Generalized
System of Preferences is authorized. This allows
developed countries to install a system of non-
reciprocal preferences for the group of developing
countries. Each country establishing such a system
maintains its own list of preferential products and
its own system of qualification and graduation
whereby a developing country may either make
use of the preferential market access or be “gradu-
ated” back to the conventional MFN rates by ei-
ther market basis or by development level of the
country. Because GSP is non-reciprocal in nature, it
is also deemed, at least by most developed coun-
tries, to be tied to conditions for the receipt of the
preferences. This aspect of conditionality has been
controversial where the granting of preferences
has been tied to core labor rights, democracy or
human rights requirements.
This vertical dimension works in two ways. There is
The arrangements possible between developing
countries under the Enabling Clause form a wide
avenue for regional arrangements among them.
Unlike Article XXIV, the preferences exchanged need
not entirely eliminate duties nor need they elimi-
nate barriers to trade in respect of substantially all
the trade. This means that significant flexibility is
offered to countries that qualify and notify their ar-
rangements according to the Enabling Clause. The
provision in the clause that grants this exception
reads as follows:
“Regional or global arrangements entered into
amongst less-developed contracting parties for
the mutual reduction or elimination of tariffs
and, in accordance with criteria or conditions
which may be prescribed by the CONTRACTING
PARTIES, for the mutual reduction or elimina-
tion of non-tariff measures, on products im-
ported from one another” (para. 2(c)).

56

Under the transparency mechanism agreed upon
in the Doha negotiations, developing country hori-
zontal arrangements are definitely covered in the
early announcement, notification and reporting
procedures. (The Enabling Clause itself does require
that such arrangements be notified to the contract-
ing parties.) Besides this transparency aspect how-
ever, neither the contracting parties in the GATT nor
WTO members have ever established any criteria or
conditions for the substantive content of horizontal
Enabling Clause arrangements.
There are a number of issues raised by the Enabling
Clause provisions and their application. The follow-
ing describes the three most prominent ones.
1.3.3 Vertical arrangements: distinction
between Article XXIV agreements,
the Enabling Clause, and other
arrangements subject to WTO
waiver – the question of reciprocity
There is movement by a number of developing
countries to introduce a legal basis for asymmetry
in Article XXIV agreements. This would allow for
some degree of non-reciprocity between developed
and developing RTA parties so that the liberalizing
commitments of a developing regional member
could be lesser than that of a developed member.
The Enabling Clause clearly allows for non-reciproc-
ity (the GSP grantee need not liberalize at all). The
difference between the two is that the grantor’s
scheme under the Enabling Clause has to be ac-
corded to all developing countries, while an Article
XXIV agreement is between the RTA parties and not
extended to all other developing countries. Non-
reciprocal arrangements accorded to only a subset
of developing countries are understood to require
a GATT Article XXV waiver. This is where the body of
membership approves the MFN deviation which
is therefore protected against dispute resolution
complaints. Both the United States Caribbean Basin
Initiative and the EC-ACP Cotonou preferences are
accorded their legal status by a GATT waiver.
The difference between the regimes deals with the
selectivity of the group (discrimination) and the de-
gree of reciprocity required under the regime:
Box 5
Reciprocity in the WTO regimes
Article XXIV full reciprocity selective group self-declared regime with review
GSP no reciprocity all developing group self-declared regime
GATT waiver according to selective group permission required
agreement
3
Interface between RTAs and WTO
module
In proposing a degree of asymmetry for Article XXIV,
an issue raised for the Enabling Clause is whether
the degree of non-reciprocity permitted in Article
XXIV arrangements would tend to deplete the re-
maining value of the GSP. This also considers the
possible impact of these RTAs on developing coun-
try members who are left to rely only upon their
access via the GSP regimes. Since the RTAs would
be easier to form, there would be more of them,
and therefore more potential trade discrimination
against non-RTA members as a result. A more legal
issue is how the distinctiveness of the regimes not-
ed above is maintained if Article XXIV turns out with
loose non-reciprocity language that would blur the
distinction between the requirements applied to a
selective group (waiver) and non-reciprocity applied
on behalf of all (Enabling Clause).
Some GSP grantees have complained about the de-
gree of preference erosion in GSP as a result of RTAs
initiated by the grantor territories. This was a com-
monly heard complaint by developing countries
when the EC initiated a large number of Association
(FTA) agreements for the countries of Central and
Eastern Europe. Lower trade coverage requirements
for developing countries within Article XXIV ar-
rangements may generate additional preference
erosion to GSP benefits as a result.
1.3.4 Horizontal arrangement: risk of trade
diversion and exclusion of other
developing country participation
– observe notification record
Not all developing countries are equal and clearly
some are larger and have more strategic markets
than others. For the key developing country markets,
there is also a growth of South-South bilateral ar-
rangements and most of these are notified via the
Enabling Clause. While many economists recognize
the potential welfare gains that can be generated by
South-South trade, it is unclear how these arrange-
ments will affect other developing countries that
are not being accorded these preferences within
any particular arrangement.
In tandem with the Doha negotiations, a developing
country Global System of Trade Preferences (GSTP)
57
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module

was re-launched at the United Nations Conference
on Trade and Development (UNCTAD) XI Ministerial
in Brazil. While this round of negotiations has also
not yet come to fruition, the notion of key devel-
oping country markets making tariff cuts for the
benefit of all other developing countries might be
a superior outcome as compared to a large set of
bilateral South-South linkages generated by the
leading developing countries. The Enabling Clause
also covers this type of a global negotiation where
the same provision of paragraph 2(c) considers re-
gional or global arrangements.
condition is not met, then the preference will be
denied) or in the positive sense (if the condition is
met, then some extra preferential benefit will be
accorded). Most developing countries have histori-
cally opposed the imposition of conditions in GSP
arrangements, but the position of the grantors
has been that since the preferences are non-con-
ventional (not contractual within the negotiation
framework of the GATT schedules) and also non-
reciprocal, they are by their nature preferential gifts
which can be conditioned or withdrawn at the will
of the grantor.

1.3.5 Conditionality: positive and negative
in vertical GSP arrangements
GATT Article I MFN is required to be accorded to all
WTO members immediately and unconditionally.
This means that any benefit that is granted to the
product of one territory must be extended to the
“like products” of all other members, and that this
benefit cannot be made subject to the imposition
of any conditions. However, in GSP arrangements it
has become the common practice to attach condi-
tions on the receipt of GSP preferences. These can
be categorized in either the negative sense (if the
The system of GSP was negotiated under the aus-
pices of UNCTAD, and given its legal status first in
the GATT by a waiver (1971) and then by Decision
(1979). As such, it is a part of the GATT legal system
and framework. While no developed country can be
compelled to participate in GSP, once participation
is engaged, the terms of the Enabling Clause itself
impose certain legal requirements on the use of
preferences. A recent WTO Panel and Appellate Body
(AB) case dealing with conditions imposed by the EC
GSP system has ruled on the legality of conditional-
ity. This is a landmark case on the GSP system and
the legal requirements of the Enabling Clause.

Box 6
EC-GSP (European Communities – Conditions for the Granting of Tariff Preferences to
Developing Countries, Report of the Appellate Body, 7 April 2004, WT/DS246/AB/R)

The WTO Panel was established to consider India’s complaint against the European Communities’ Council Regulation
which grants certain tariff preferences to developing countries under the framework of the Generalized System of
Preferences. In addition to the tariff reductions accorded to all developing countries, the Regulation provided for
additional tariff reductions in respect to special incentives or arrangements for developing countries in respect to
labor rights, environmental protection, least developed countries, and raised here, for combating drug production
and trafficking (the Drug Arrangements).

India’s claim before the Panel was that the EC Drug Arrangements failed to accord most-favored nation treatment in
the meaning of GATT Article I (MFN), since some developing countries received additional tariff benefits while others
did not. The Panel found that India had the burden of proof of demonstrating a violation of GATT Article I; that India
had so demonstrated; that the EC carried the subsequent burden of establishing that the Drug Arrangements were
justified as an exception to MFN by paragraph 2(a) of the Enabling Clause; and that the EC had failed to demonstrate
that its provisions were so justified.

On Notice of Appeal the EC raised as its primary claim of error the legal relationship between GATT Article I.1 and the
Enabling Clause, and as a subsidiary claim, the Panel’s determination that the Drug Arrangements were not justified by
the Clause. For the first, the Appellate Body affirmed the Panel’s finding on the exceptional nature of the Enabling Clause
although modifying the burden of proof in how provisions of the clause should be identified and pled by a complainant.

30 As described in The second issue asks whether or not grantors can differentiate among developing countries in according different
the Decision of the preference levels for different grantees in order to recognize their special needs. This is the “conditionality issue”
CONTRACTING PARTIES
of 25 June 1971, relating and was treated by the Panel and the Appellate Body as a matter of interpretation of the term “non-discriminatory”
to the establishment as this is found in footnote 3 of the Enabling Clause. For reference, the paragraph and footnote from the Enabling
of “generalized, Clause read as follows:
non-reciprocal and
non-discriminatory
preferences beneficial “The provisions of paragraph 1 apply to the following: Preferential tariff treatment accorded by developed con-
to the developing tracting parties to products originating in developing countries in accordance with the Generalized System of
countries” (BISD 18S/24).
Preferences.” 30

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Box 6
EC-GSP (European Communities – Conditions for the Granting of Tariff Preferences to
Developing Countries, Report of the Appellate Body, 7 April 2004, WT/DS246/AB/R)
The Panel found that identical preferences were required for all developing countries, except for the limitations a
priori, (those limitations enunciated at the time the Enabling Clause was concluded) and the separate provisions
made in the Clause for the least developed countries.

The AB commenced its analysis by rejecting both the EC and the United States third party submissions claiming that
the non-discrimination term posed no actual legal obligation at all under the Enabling Clause requirements. This
argument asserted that the term merely described conditions of the 1971 Waiver Decision, rather than seeking to
obligate the grantors to avoid non-discriminatory treatment. The Appellate Body rejected this outright by reviewing
the term “in accordance” from the English text of the Clause, and as the French and Spanish texts used the terms
conformément and conformidad respectively. An obligation of non-discrimination was clearly evident from these
texts, and the term “in accordance” was consistent in this regard and also conveyed an obligatory meaning. However,
the AB reversed the Panel’s ruling that Clause and its footnote 3 did not permit differentiation among the group of
developing countries. Rather,

“It is simply unrealistic to assume that such development will be in lockstep for all developing countries at once,
31 EC/GSP, AB Report,
now and for the future”.31
para. 160.

This was found in the AB’s analysis of the WTO Agreement Preamble which recognizes the need for positive efforts
32 EC/GSP, AB Report,
on behalf of developing countries “commensurate” with the needs of their economic development, and the “respec-
para. 162.
tive needs and concerns at different levels of economic development”. Taken all together, paragraph 3(c) authorizes
grantors to respond positively to needs of developing countries that are “not necessarily common or shared by all
33 EC/GSP, AB Report,
developing countries”.32
para. 163.

With this ruling in hand, the Appellate Body then proceeded to outline the parameters for permitting differentiation
34 EC/GSP, AB Report,
in light of requirements of paragraph 3(c) of the Enabling Clause. First, the types of needs that can be incorporated
para. 164.
into differentiation are limited to development, financial and trade needs. Included, responsiveness to one of these
needs can not merely be based on an assertion by the grantor or the grantee, but,
35 EC/GSP, AB Report,
para. 165.
“must be assessed according to an objective standard. Broad-based recognition of a particular need, set out in
the WTO Agreement or in multilateral instruments adopted by international organizations, could serve as such a
standard”.33

Second, the treatment granted must be “positive” in the sense that there should be a sufficient nexus between the
preference granted and the likelihood that it will address the relevant development, financial or trade need.34 For
both, “only if a preference-granting country acts in the “positive” manner suggested, in “respon[se]” to a widely-
recognized “development, financial [or] trade need”, can such action satisfy the requirements of paragraph 3(c)”.
Third, preferences shall be made available to all beneficiaries that share the need.35

Exercises and questions for discussion

1. Consider the relationship between Article XXIV and the Enabling Clause provisions for GSP. Do you think that
non-reciprocity should be introduced formally into the Article XXIV text? If so, what type of provision would you
consider advisable and what impact would this provision have, if any, on the GSP system?

2. Consider the horizontal arrangements possible under the Enabling Clause. Do you think that the WTO mem-
bers should specify some criteria or parameters for South-South arrangements, or is it better to leave the provi-
sions “as is” in order to preserve the maximum flexibility for developing country arrangements?

3. What is your understanding of the term “non-discriminatory” as it is used in the Enabling Clause?

For further research

1. Following the EC-GSP case, the EC GSP system was reviewed and modified. A research question would evalu-
ate the system in light of the EC-GSP case and form an opinion as to the consistency of the current system with
the WTO case law.

2. Conditionality is permissible, according to the Appellate Body, where there is a widely recognized need.
Investigate the other conditional subjects that are being used in major GSP systems and determine if all of these
various types of conditions would conform to the AB’s stated criteria.

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1.4 GATS Article V
Like the GATT, the GATS is also a WTO framework
agreement for conducting multilateral liberaliza-
tion of trade in services, and establishing the rules
of the game for treatment of services and service
providers. The GATS has a general most-favored
nation provision (GATS Article II) and establishes
a means of categorizing trade in services accord-
ing to four modes of supply. For a particular type
of service (engineering services, for example), the
countries can schedule market access openings for
each mode as a function of a negotiation and com-
mitment within the GATS framework.
1.4.1 Modes of supply
Mode 1 covers traded services whereby the service it-
self is transmitted across the border without move-
ment of persons or capital. An example would be a
data processing transaction. Mode 2 refers to con-
sumption abroad where a service consumer crosses
the frontier of another territory to receive a service.
Tourism and educational services are examples of
this mode. Mode 3 refers to commercial presence
whereby a service provider establishes an opera-
tion in another territory in order to provide a service.
This mode can require investment and movement
of management personnel. Banking and retailing
services are examples of Mode 3. The final Mode 4
covers movement of service providers who are natu-
ral persons. Medical service providers or agriculture
labor are examples of Mode 4 movements.
1.4.2 Market access and national treatment
A commitment made in the GATS for a particular
service and mode of supply generates a require-
ment to eliminate quantitative restrictions on the
service or its providers (GATS Article XVI). In this
Article, there is a set list of quantitative restric-
tions that unless specifically retained as stated,
are deemed to be eliminated by the commitment.
They include indicators dealing with the number of
suppliers, the number of transactions, limitations
on the value of transactions, etc. They are also un-
derstood to be eliminated whether or not they are
technically imposed as border measures or whether
they are applied as domestic regulations within the
market.
A market access commitment further entails an
obligation to provide national treatment (GATS
Article XVII). Unlike the GATT, national treatment is
not a general obligation but taken up specifically as
a function of the negotiation process and its out-
come on individual commitments. National treat-
ment means that the foreign service or service sup-
plier will not receive less favorable treatment than
that provided to a like domestic service or service
60
supplier. Also as a matter of negotiation, it is pos-
sible within the GATS to impose conditions on the
market access commitment as well as conditions
upon national treatment. In this manner, GATS is
quite flexible in permitting countries to tailor the
domestic protection they wish to maintain for their
services and suppliers.
The GATS was established as a result of the Uruguay
Round, and for the purposes of concluding that ne-
gotiation round there was not a substantial negoti-
ation for market access commitments, but more the
presentation of members’ existing arrangements
in the form of their opening schedules. Meaningful
sectoral negotiations have been concluded since
then in the fields of basic telecommunication servic-
es and financial services. WTO members in the GATS
are in the process of the first full multilateral round
of negotiations which has also become connected
to the Doha Round of negotiations. (Technically, the
GATS negotiation is independent of the Doha Round,
since it was scheduled as a “built-in” endeavor from
the results of the Uruguay Round.)
1.4.3 GATS V provisions
It is within this context of a comprehensive trad-
ing framework that the GATS also provides for a re-
gional exception, numbered as GATS Article V and
titled “Economic Integration”. In many respects the
concept used for qualifying a GATS V agreement is
based on the mold established by Article XXIV of
the GATT. Thus, paragraph 1 provides the basic state-
ment of exception in that:
“This Agreement shall not prevent any of its
Members from being a party to or entering into
an agreement liberalizing trade in services be-
tween or among the parties to such an agree-
ment, provided that such an agreement ... ”.
The internal requirements are then stated, of which
there are two. First, the integration agreement must
have “substantial sectoral coverage” (and assumed-
ly providing market access for the sectors), and sec-
ond, it must provide for the absence or elimination
of substantially all discrimination, within the mean-
ing of national treatment.
Some explanation is beneficial for both of these re-
quirements. For the first one dealing with substan-
tial sectoral coverage, a footnote to that provision
states the following:
“This condition is understood in terms of number
of sectors, volume of trade affected and modes
of supply. In order to meet this condition, agree-
ments should not provide for the a priori exclu-
sion of any mode of supply”.

The a priori exclusion text is important for arrange-
ments being considered by developing countries,
and particularly as between developed and develop-
ing countries. There is a strong interest by develop-
ing countries in exploiting opportunities for Mode 4
service suppliers, i.e. temporary movement of labor,
which is a large source of repatriated remittances to
the developing country. Since this is a most sensitive
area for developed territories (in opening their labor
markets to foreign service suppliers), any agreement
going beyond the conventional disciplines and mar-
ket commitments of the GATS would have to con-
sider at least the potential for openings in Mode
4. It appears from the text that excluding Mode 4
outright in a GATS V agreement would be facially
unqualified for the exception in regard to any other
preferential services commitments being made. It is
also questionable whether a bare promise in an RTA
to consider Mode 4 arrangements at some unspeci-
fied point in the future would serve as a reasonable
provision in light of the footnote requirement.
1.4.4 GATS V and market access
GATS V does not recite GATS XVI (Market Access) as
a requirement, so perhaps it is arguable that GATS
V only requires national treatment to be accorded.
This might be a contradictive reading of the Article,
since the objective of a GATS V agreement is to lib-
eralize trade in services. However, there are also
subtleties to this question. If a measure was inter-
nally applied, a national treatment requirement
(only) would allow the maintenance of an internal
quantitative restriction (number of providers to be
licensed, for example), as long as that restriction
were also imposed on domestic service providers in
equal measure. A market access commitment how-
ever would require the elimination of the quantita-
tive restriction as applied to foreign providers, even
if it was non-discriminatory. This appears to be the
reading that is being adopted in a number of GATS V
RTAs being notified to the WTO where the parties re-
cite the market access restrictions from GATS Article
XVI that are to be eliminated with regard to the sub-
stantial sectoral coverage. For example, see United
States-Bahrain (United States Trade Representative
(USTR) website) and Australia-Thailand (Australian
Department of Foreign Affairs and Trade (DFAT)
website).
1.4.5 GATS V and national treatment
The second internal requirement is that for national
treatment. Within this provision there is a subhead-
ing indicating that the absence or elimination of
substantially all discrimination can be realized ei-
ther through the elimination of existing discrimi-
natory measures, and/or the prohibition of new or
more discriminatory measures. This is a somewhat
confusing construction that seems to suggest
3
Interface between RTAs and WTO
module
that a standstill provision might be possible which
would preserve existing discriminatory measures
(and not eliminate them), and that this type of ac-
tion would be able to qualify for the requirement.
It seems however that this reading would under-
mine the requirement itself to provide the absence
or elimination of discrimination. This text has not
received any clarification in the WTO, but the bet-
ter reading would be that discriminatory measures
need to be eliminated.
There is an external requirement for GATS V where-
by such agreements shall be designed to facilitate
trade between the parties and not to raise the over-
all level of barriers to trade in services to non-mem-
bers of the regional agreement (paragraph 4).
As in the GATS Article XXIV construction, there is also
a list of GATS Articles providing for measures that
need not be eliminated (or rendered non-discrimi-
natory). These are for measures permitted under:
Article XI: Payments and Transfers
Article XII: Restrictions to Safeguard the
Balance of Payments
Article XIV: General Exceptions
Article XIV bis: Security Exceptions
1.4.6 GATS V, special and differential
treatment (SDT) provisions
A significant difference between GATT and GATS
regional exception is that the GATS V provisions
contain flexibility for developing country members
with regard to regional integration agreements.
Paragraph 3 of the Article says that where develop-
ing countries are parties to an agreement, flexibility
“shall be” provided for the qualifying conditions, es-
pecially for those under Article 1(b) requiring nation-
al treatment. In addition, for agreements involving
only developing countries, “more favourable treat-
ment may be granted to juridical persons owned or
controlled by natural persons of the parties to such
an agreement”.
These flexibility provisions appear quite broad on
their face, and suggest that developing countries
have the opportunity to open their sectors either
more slowly than a developed partner in a GATS V
arrangement, or as likely, to not open sectors to for-
eign competition at all.
Referring back to the discussion on special and dif-
ferential treatment for RTAs in goods (GATT Article
XXIV), the SDT provisions in the GATS V text are
cited as an example of how an RTA text should be
allowed to provide for asymmetrical liberalization.
Unless the provisions in the GATS are read as ap-
plying to agreements where only developing coun-
try members are parties, this would clearly be an
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asymmetrical expression for national treatment. It
is also comparable to the situation of tariff barri-
ers in the GATT where except for the application of
the regional exception in an RTA, the parties have
no general obligation to eliminate their tariff bar-
riers. As only between developing countries, there
is an explanation for the GATS provision where the
Enabling Clause allows for partially preferential
exchanges and the GATS has no similar Enabling
Clause. We believe that the text in the GATS here
is not limited to only agreements between devel-
oping countries, as indicated by the textual differ-
ences between paragraph 3(a) “Where developing
countries are parties …” and 3(b) “… an agreement …
involving only developing countries …”.
Several GATS V agreements between developed
and developing countries have been notified to
the WTO, including United States-Morocco, United
States-Jordan, and Thailand’s agreements respec-
tively with Australia and New Zealand. (Developed
country agreements with Chile or Mexico may also
be considered as developing country agreements.)
It is difficult to determine whether any explicit
SDT treatment is being set out in the agreements
noted. All agreements maintain schedules with a
number of national treatment and market access
exceptions. One has to assume that the balance
of concessions reached in the agreements is the
result of what was mutually acceptable to the
parties, irrespective of SDT. There is no overriding
expression being found in the agreements that in-
voke the SDT text of the GATS V Article. There is no
indication that one party was led to grant greater
flexibility to the other as a result of the GATS SDT
text. This is not to say that such a context might
not have had a bearing on the negotiation frame-
work, but that the agreements do not evidence
that consideration on their face.
The types of restrictions that one can see in a GATS
V agreement are the same types of restrictions
that are evident in WTO members’ GATS schedules
generally. Thus, restrictions (or retaining the right
to impose restrictions) on the local certification,
residency or citizenship for cross-border trade and
investment are not so uncommon. Here is a typi-
cal example from the United States-Morocco trade
agreement (Annex II: Services/Investment, Non-
Conforming measures):
• “Sector: Communications – Radio and Tele-
vision Broadcasting Services and Cable Radio
and Television Services
• Obligations Concerned: National Treatment
(Article 10.3).
Performance Requirements (Article 10.8).
Senior Management and Boards of Directors
(Article 10.9).
Market Access (Article 11.4).
62
• Description: Cross-Border Services and Investment.
Morocco reserves the right to adopt or maintain
any measure pertaining to investment in facili-
ties for the transmission of radio and television
broadcasting and cable radio and television.
• Existing Measures: Dahir No. 1-03-22 of March
24, 2003 enacting Law No. 62-02, Dahir No. 1-02-
0212 of August 31, 2002.”
The overall approach is for the main trade agree-
ments provisions to accord market access and
national treatment generally, and then have an-
nexes to deal with the items that are not covered
by the agreement.
1.4.7 GATS V, institutional considerations
Generally, the institutional control provisions for
GATS V are fairly basic. Agreements have to be
notified to the Council on Trade in Services, and
they are then transmitted to the CRTA for review
and discussion. The Council can require periodic
reporting on the implementation of agreements,
and as similar for GATT Article XXIV agreements,
the Council may make recommendations to the
regional parties as it deems appropriate. As noted
in a previous section, GATS V agreements are sub-
ject to the new WTO transparency mechanism.
1.4.8 GATS Article V bis, Labour Markets
Integration Agreements
GATS Article V bis provides a separate exception
from other GATS obligations for members enter-
ing into agreements “establishing full integration
of the labor markets”. A footnote to this provision
states that typically such integration includes a
right of free entry for persons to the employment
markets of the parties and measures concerning
conditions of pay, employment and social ben-
efits. For the GATS exception to be available, the
Article states that such agreements must exempt
citizens of the parties from residency and work
permit requirements and that they must be noti-
fied to the Council on Trade in Services.
1.4.9 GATS Article VII, recognition
Service provider recognition is closely related to
the GATS regional exception and raised here for
the context that GATS VII provides for the larg-
er discussion of regionalism in services trade.
Recognition is made when one country recognizes
the education or experience obtained of a foreign
service provider for the purpose of meeting the
country’s authorization, licensing or certification
requirements. This can be accomplished unilater-
ally, but more likely by bilateral mutual recogni-
tion agreements. The act of recognizing one other
country’s service providers presents strong MFN
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issues where this treatment is not necessarily be-
ing accorded to the like service providers of other
WTO members. Article VII applies a sort of proce-
dure to ensure that when countries commence
bilateral recognition, there is a certain multilateral
control requiring recognition parties to promptly
notify their intent to form an agreement prior to
the commencement of negotiations, and then an
opportunity provided for other WTO members to
“indicate their interest in participating in the ne-
gotiations before they enter a substantive phase”
(GATS Article VII, para. 4(b)).
This Article VII text does not guarantee that anoth-
er WTO member can receive the benefits of recog-
nition. In any case dealing with certifications, there
would have to be a quality assessment evaluating
that the qualification system of the other country is
equivalent to that of the country granting recogni-
tion, and in this process there is a strong legitimate
interest to ensure that the country’s standards are
being essentially maintained and that consumers
are being adequately protected. However, at the
same time, Article VII states clear rights for other
WTO members to be given the opportunity to pres-
ent their case for joining contemplated bilateral
recognition agreements.
There is at least some anecdotal evidence to sug-
gest that where two parties wish to commence
bilateral recognition and bypass the procedures of
Article VII, they may choose to include recognition
within the provisions of their economic integra-
tion agreements as notified under Article V. 36 In
module
The legal question of whether recognition falls
within the regional exception of GATS V is complex
and not treated here in detail. However, to the ex-
tent we have discussed the requirements for GATS
V formations, we can see from those provisions
that national treatment is the primary require-
ment, i.e. that regional members accord each other
national treatment with regard to substantial sec-
toral coverage. This said, it would take an expan-
sive interpretation of what constitutes national
treatment for it to have a scope broad enough to
contemplate recognition, and if it did, then all WTO
members making a national treatment commit-
ment in their GATS schedules would also be obli-
gating themselves to providing for some degree of
recognition as a part of national treatment.
For example, if a country made a market access
commitment for road transport services, then
national treatment would not only require that
foreign lorries and their drivers have access to the
granting country’s system of certification on a non-
discriminatory basis (the right to obtain a domestic
license), but that the country must also go forward
to recognize the foreign licenses and certificates
held by the lorries and their drivers.
Recognition is an important subject area for devel-
oping countries that have an interest in obtaining
better market access for their service providers in
the developed markets. There are many services
sectors, both technical and professional, where
developing countries can successfully argue that
their domestic training and certification systems 36 “… within CTS

other words, they might seek to apply the regional are on a par with those of their developed trading discussions, a number of
Members had indicated
exception for these activities, which of course partners. While the interface between GATS Article that RAs were not notified
does not have a provision opening any possibil- VII and GATS Article V may be complex and not fully to the WTO because they
ity for other WTO members to accede to such an clarified, it is an area where developing countries were part of an economic
integration agreement
agreement. should seek clarification and participation. notified under GATS Article
V.” WT/TN/RL/M/15
(15.06.04), para. 22.
Exercises and questions for discussion
1. Comparing GATS Article V and GATT Article XXIV, it is somewhat interesting that GATS Article V has adopted
the same type of imprecise language that has caused so much difficulty for the GATT Article XXIV interpreta-
tions, “substantial sector coverage” and “substantially all discrimination”, for example. Was this a good idea or
should the drafters have attempted a different approach?

2. What example of discriminatory treatment on the basis of nationality for services and service suppliers can
you identify in your own national legal systems? What do you think would be the effect of eliminating these in
making a national treatment in the GATS, or within a GATS V arrangement?

3. What value for developing countries might be provided by entering labor market integration agreements
with other developing countries? Do you know of any examples of South-South labor market integration
agreements?

4. Labor market and service supplier access to developed countries provides a flow of remittances to the devel-
oping country. Most developing countries are seeking to have greater labor market access under the Mode 4
commitments in the GATS. However, there are also social issues for the developing countries involved, including
the question of “brain drain” and the resulting capacity of domestic services in essential areas such as health
care. Has your country taken a position on labor market access and if so, how were these different interests
reconciled?

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Exercises and questions for discussion

For further research

1. GATS Article V includes non-reciprocity provisions and GATT Article XXIV does not – a point made by develop-
ing countries arguing for Article XXIV non-reciprocity. A good research would compare the overall GATS provi-
sions for non-reciprocity to the GATT regime, including of course the Enabling Clause. A determination could
be formed as to whether there is an equivalent opportunity for non-reciprocity preferences between the two
regimes.

2. An inventory of recognition arrangements contained in GATS Article V agreements could be made by screen-
ing the notifications made and covered in the CRTA. There may also be comments in the CRTA minutes on the
subject of whether the GATS V exception includes recognition.

1.4.10 Summary of the WTO rules on Regional
Trade Agreements
Regional Trade Agreements are regulated in the
WTO both within the GATT (trade in goods) and
the GATS (trade in services). For goods, GATT Article
XXIV contains qualifying provisions for the estab-
lishment of customs unions, free trade areas, and
interim agreements leading to either one. For ser-
vices, GATS Article V provides for the establishment
of economic integration agreements and for labor
market integration arrangements. In addition, and
only for trade in goods, the Enabling Clause of 1979
allows for preferential arrangements between
(only) developing countries (BISD 26S/203.1979).
For these horizontal preferential arrangements,
paragraph 2(c) of the Enabling Clause provides for
regional or global arrangements entered into by
developing countries for the reduction or elimina-
tion of tariffs. Services agreements and arrange-
ments are also notified and reviewable. There are
no Enabling Clause provisions for preferential
services arrangements between developing coun-
tries, so all of these types of agreements are being
notified to the Council on Trade in Services or to
the CRTA, and then examined by the CRTA accord-
ing to the provisions of GATS V. GATS V allows for
flexibility in both North-South and South-South
agreements for developing countries, but there is
little review history and practice to date to provide
the parameters of what constitutes a qualified de-
veloping country services agreement.
2 Systemic issues
2.1 Article XXIV – internal requirements
2.1.1 Substantially all the trade
GATT and WTO members have had great difficulty
interpreting and applying the SAT term to any par-
ticular trade agreement submitted for their review.
It lacks precision on its face, and it is somewhat
obvious that the drafters intended for there to be
at least some flexibility in this requirement. One
memorable quip from Dam (1963) says that SAT
must mean more than “some of the trade” and at
the same time less than “all of trade”. This is obvi-
ously not very helpful in applying a discernible stan-
dard for the purpose of forming a recommendation
as to the consistency of an RTA with the Article XXIV
requirements. The lack of specificity in the term is
often blamed for the failure of GATT working groups
and the WTO CRTA to make recommendations on
the consistency of RTAs submitted for consideration.
This is true enough, except that it is also the case
that regional members in many instances have
benefited from this ambiguity, preferring this state
of affairs to that of legal certainty since the ambi-
guity allows for more flexibility to engage in RTAs
within the multilateral system.
2.1.1.1 Issues for SAT
Over the years there have been a number of RTA
reviews where the requirement was discussed at
length, and these boiled down to several areas for
consideration. One is whether the term refers to the
quantity of trade or to the quality of trade. In the cur-
rent discussions, most members would agree that
the term refers to both. The quantity aspect relates
either to the number (percentage) of tariff lines cov-
ered in a plan and schedule and/or to a measure-
ment of the volume of trade committed for elimina-
tion of duties. The quality aspect refers to whether
or not major sectors of trade are being committed
for liberalization. The difficulty in the current nego-
tiations appears to be finding a formula or an ap-
proach that strikes a balance between both of these
concepts such that can be applied as a ready test for
trade coverage in an RTA. The chair report from the
Rules Committee provides a summary of these dif-
ferent SAT factors under discussion and reveals also
the technical nature of this systemic issue:
“The main thrust of the discussions has to date
been on the clarification and calculation of SAT
and on RTAs transition period. The quantita-
tive elements of SAT have attracted most of the
Group’s attention through consideration of the
pros and cons of tests based on trade and on
tariff lines, their respective benchmarks, how to
combine them, the level of HS disaggregation for

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the calculations, the non-exclusion of ‘major sec- A second issue for the SAT asks, what trade does
tors’, and most recently the relationship of ‘other the term refer to. There have always been mem-
restrictive regulations of commerce’ with SAT. bers asserting that only the existing trade (sectors
between regional members actually being traded)
Views diverge among those members favoring a needs to be considered for liberalization. This of
trade based test, a tariff line test and a combined course excludes sectors that are not being traded
one; the latter one has received broader support, prior to the formation of an RTA due to high tariff
however, there too views differ on the weight to levels between the members.
attribute to each benchmark and on how to com-
bine them. Some members favor a more holistic A final issue is how the SAT term requires and
approach to SAT that would include consideration balances the trade reciprocity between regional
of ‘other restrictive regulations of commerce’ as members. This is to ask whether the degree of
well as preferential rules of origin. Qualitative elimination of barriers (by whatever criteria) has
benchmarks to complement the SAT evaluation to be the same for all members, or whether there is
have been referred to but most Participants favor some flexibility possible, and especially for devel-
postponing such discussion to a later stage of the oping country members entering an agreement
negotiations.” 37 with a developed partner. 37 TN/RL/15,
30 November 2005
Box 7
Non-reciprocity and the EC-ACP free trade areas
Although this question is discussed at some length in the current negotiations, this is quite an old issue. It was first
raised in the European Communities Overseas Association review in 1958, where the Communities and the former
colonies argued that the term should be read in light of the development articles contained in the GATT. The subse-
quent arrangements in the Lomé Convention expressly dropped the reciprocity requirement in the terms of that trade
agreement. In the early 1990s two GATT panel cases (EC-Bananas I and II, brought by the United States) were being
conducted on the question, when the EC raised the Article XXIV defense. These panels ruled that the requirement to
eliminate duties applied to all members of the RTA and that a free trade agreement declaring on its face that one
party was not required to eliminate duties was incompatible with Article XXIV, and the Article could therefore not
serve as a defense to a violation of most-favored nation. One of the panels noted that if non-reciprocity were permit-
ted within Article XXIV, this would seem to make redundant the provisions made by the contracting parties for the
general system of preferences, since that regime is clearly intended to operate on the basis of non-reciprocity.

These two rulings, although blocked from adoption, had a significant impact on the ACP group and its trade relations
with the EC. Following the panels, the Lomé preferential arrangements were then necessarily validated by a GATT/WTO
voting waiver. The temporary nature of the waiver has led the Community to seek to realign the ACP Lomé arrange-
ments into fully formed Article XXIV free trade areas. This is the ongoing process we know as the Economic Partnership
Agreements that are being negotiated at this time between the EC and the ACP group within the Cotonou framework.

2.1.1.2 Reciprocity and substantially all trade
A fairly certain legal conclusion is that a free trade
area agreement which provides for non-reciprocity
cannot be successfully raised in an Article XXIV de-
fense in a panel dispute. This is because the Article
provisions require the elimination of duties and
other restrictive regulations of commerce be made
between the members to the formation. This term
requires reciprocity where both parties are able by
their plan and schedule to eliminate duties and other
restrictive regulations of commerce on substantially
all trade. If there was to be a resulting text from the
Doha Round to clarify the meaning of this term this
would also affect the debate on reciprocity and po-
sition of developing countries in North-South RTAs.
It is possible that some degree of non-reciprocity
might be written in allowing for a developmen-
tal dimension in these agreements. A number of
countries including the ACP group have made
submissions to this argument. A number of the
proposals appear to be reciting something akin
to a 90 per cent coverage rate, as expressed by the
percentage of total tariff lines at the 6-digit level,
although there is no recorded consensus on this,
and the context of this figure varies significantly
depending upon which test or country submis-
sion one is discussing. (It is not always so clear
whether a proposal for covering trade by quan-
tity is addressed as a percentage of only existing
trade between partners or as a percentage of all
tariff lines, and thereby reaching some prospec-
tive trade otherwise subject to restrictive barriers.)
This is a complex negotiation discussion that
does show some progress at least in clarifying the
range of possibilities that could be used as indi-
cators for meeting the SAT requirement. Given
the status of the negotiations, it is impossible at

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this juncture to predict whether there will be any
outcome clarifying the term at all, and if so, what
elements will be in a potential final disposition. In
simple terms, it is impossible at this time to recite
any benchmark for “substantially all trade” that
would provide a legal indicator for what must
be undertaken in an Article XXIV arrangement.
It may well be in the strategic interest of developing
countries to not see any negotiated indicator for SAT
emerge, since the status quo does not provide a clear
means for disqualifying any agreement and there is
flexibility de facto in this current situation. However,
this approach as a strategy is also problematic if one
considers that the developed regional member is
also entitled to have this built-in flexibility caused
by the lack of SAT criteria. That means, as it has in
the past, that the sensitive sectors for trade, such
as agriculture products, might not be placed into
liberalization commitments. This is just to say that
the current situation by its nature grants flexibil-
ity both ways. Also to consider is that if developing
countries do wish to have an explicit developmen-
tal dimension introduced into the text of Article
XXIV, then it is somewhat difficult to benchmark
this new flexibility in the absence of some set pa-
rameter for substantially all trade in the first place.
As an example to show how flexibility might accom-
pany SAT criteria, let us say that SAT were simply de-
fined as “90 per cent of all six digit tariff lines”. Based
on this the development dimension text may state
that some lesser percentage (80 per cent?) need only
be liberalized. Another possibility is that the 90 per
cent could be met overall by the developed partner
liberalizing on more than 90 per cent and the devel-
oping partner liberalizing on less than 90 per cent.
The flexibility issue also appears to split developing
countries into two groups. One has some greater po-
tential to form RTAs with developed countries (the
ACP group negotiating in the EPA process for exam-
ple), and another group of developing countries that
do not have major North-South RTAs on the horizon.
To the extent that the Article XXIV incorporates de-
velopmental flexibility to provide lower rates of
trade coverage, North-South agreements will be
easier to form. From the perspective of a non-partic-
ipant, the overall impact is probably trade diverting,
but also continuing the path of eroding the current
level of preferences enjoyed by GSP beneficiaries.
2.1.2 Other restrictive regulations of commerce
2.1.2.1 Definition and scope of the term
While the expression substantially all the trade deals
with how much trade the ORRC term refers to, the
types of restrictive measures (other than tariff du-
ties) must be incorporated into a plan and schedule
66
for eventual elimination by the regional members.
There is a relationship between ORRC and SAT where
the type of ORRC measure permitted by the regional
members (because of its restrictive character, actu-
al or potential) might undermine the SAT require-
ment if and when it is applied by one member to
the trade with another member. This link between
the types of restrictions permitted by RTA members
and the SAT parameter has not been very well illu-
minated in the review practice, although it has been
raised on occasion, especially in reference to the use
of intra-regional safeguard clauses. While the ORRC
is also on the list of items to clarify in the Doha ne-
gotiations, it is not on top of the work programme,
and there is less submitted material to consider the
members’ positions for clarification. There is a po-
tentially complex discussion waiting in the wings
on the relationship between ORRC and regulatory
provisions incorporated in RTAs, such as food and
product standards, and a range of other regulatory
policies being included within RTAs such as compe-
tition and investment policies, and even extending
to provisions on labor, environment, human rights,
etc. Since all these policies are regulatory, there may
be a relationship between the ORRC term (duty to
eliminate ORRCs) and the types of regulatory policies
employed in RTAs. This subject is taken up later in the
section dealing with domestic regulation.
For now, what might the term be reasonably con-
sidered to include? One approach is simply to look
at how the drafters understood the requisites of a
normally functioning customs union. The customs
union example is raised because the term ORRC
was in the original Charter proposals and used for
customs unions prior to the inclusion of a free trade
area exception. From that view, members forming a
new customs territory by way of a customs union
would substitute their individual external commer-
cial policies in favor of a single external commercial
policy. The subject matter of this commercial policy
would include the states’ protectionist trade mea-
sures: tariff duties and restrictions on importation
other than duties and charges. Thus, quantitative
restrictions and trade defense measures such as
anti-dumping and safeguard actions would likely
be ORRCs since these restrictions would not likely
be employed as between customs union members
in a completed arrangement, just as they are not
employed within a customs territory in the form of
a single national market.
2.1.2.2 ORRC and trade defense measures
Since the ORRC text is identical for free trade
areas, one is confronted with the demanding re-
quirement that each party to an FTA would also
be required to eliminate the use of trade defense
measures between the members, something
which very few free trade areas have attempted.
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Box 8
ORRCs and trade measures
There are actually three identifiable positions in the GATT/WTO membership in respect of trade measures within
RTAs. One, as expressed above is that a finally formed RTA should not have recourse to the use of anti-dumping or
safeguard measures as between its members. This is based in part on the customs union example (how can trade
measures be maintained within a single customs territory?) but also on a reading of Article XXIV and its listing of
Articles XI-XV and XX. Since measures taken under those Articles are clearly ORRCs, the fact that the listing does not
include Article VI (anti-dumping) and Article XIX (safeguards/emergency measures) indicates that the drafters did
not intend a construction for allowing contingent trade measures in a completed RTA. This interpretation treats the
list of Article exceptions as exhaustive.

On the other end of the spectrum is a position that would argue that any trade measure taken against a non-regional
WTO member must also be taken against regional members (if the facts warrant imposition of the measure) since this
would otherwise cause severe trade diversion against non-regional members. This argument is based more on the para-
graph 4 expression of the Article that says regional members should not raise barriers to the trade of non-members, es-
sentially giving this text the reading of an obligation, or at least informing the meaning of paragraph 8 requirement.

The middle position which may be considered the leading position on this question is that anti-dumping and safe-
guard measures are definitely ORRCs, and can either be eliminated or not eliminated by the regional members in
their own determination. However, to the extent they are allowed within an RTA, they are subject in any case to the
SAT requirement. Thus, cumulatively with all other sectors not liberalized, in total the degree of trade that can be af-
fected must be that “insubstantial portion” that is allowed to be excluded from coverage under the SAT requirement.
This construction essentially says that it does not really matter what measures as ORRCs are entertained as long as
the SAT requirement is met by the plan and schedule and the following implementation maintained.

Given that very few free trade areas provide for the elimination of either anti-dumping or safeguard measures, this
middle road certainly reflects the continuous and overwhelming practice of WTO members in their RTA formations.
However, this construction is not without problems. The design of Article XXIV with its accommodation for interim
agreements and qualification of agreements based upon a plan and schedule seems to suggest that at the end of
an interim period an RTA will be in application that meets the SAT requirement. If it is the case that anti-dumping
and safeguard provisions can be invoked as between the members after the formation, then it is conceivable that an
agreement, after the interim period, could fall within the SAT requirement or not, and at any given moment in time.
Whether the flexibility introduced by this more dynamic construction would pass muster in a dispute panel case is
unknown. Similary, does the existence of strong safeguard clauses and anti-dumping clauses at the outset serve as an
indication that the parties cannot show that their plan and schedule will necessarily result in a completed formation
at the end of the interim period (or after).

2.2 Article XXIV external requirements:
ORC and “not on the whole higher nor
more restrictive”
Paragraph 5 external requirements include a varia-
tion between customs unions and free trade areas
reflecting the fact that an FTA is not required to
establish a common external tariff or commercial
policy. However, the intended effect of the different
provisions is the same, i.e. that the duties and other
regulations of commerce imposed at the institution
of a customs union or maintained in each territory
of a free trade area be not higher or more restrictive
to the trade of non-members. For customs union
the reference is drawn to the “general incidence
of the duties and other regulations of commerce
applicable” that “shall not on the whole be higher
or more restrictive” than those applicable in the
territories prior to the formation of the union. For
free trade areas the reference is drawn to “the cor-
responding duties and ORC existing in the same
The test is clearly more difficult for customs unions
than for free trade areas as for the latter there is no
reason to adjust any external tariff of the regional
members since no common tariff is required to be
established.
2.2.1 Definition and scope of ORC
The term “other regulations of commerce” has
received treatment in a WTO dispute panel case.
Here a broad definition was applied:
“More broadly, the ordinary meaning of the terms
‘other regulations of commerce’ could be under-
stood to include any regulation having an impact
on trade (such as measures in the fields covered
by WTO rules, e.g. sanitary and phytosanitary,
customs valuation, anti-dumping, technical bar-
riers to trade; as well as any other trade-related
domestic regulation, e.g. environmental stan-
dards, export credit schemes). Given the dynamic 38 Turkey-Textiles,

territories prior to the formation of the free trade nature of regional trade agreements, we consider Panel Report, WT/DS34/R,
para. 9.120.
area”. that this is an evolving concept”. 38

67
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For this panel, the term clearly encompasses not
only trade measures such as quantitative restric-
tions, but also regulatory activities undertaken in
an RTA. In addition, the term is not limited to only
those types of regulatory matters that are already
subject to WTO rules (environmental standards, for
example). This provides a broad field of play in con-
sidering the external effects of an RTA, as to whether
or not such measures or enactments undertaken
within an RTA may as a result be higher or more re-
strictive to non-members.
2.2.2 Higher or more restrictive
For the term “higher or more restrictive”, both the
Panel and the Appellate Body in the Turkey-Textiles
case recognized that this was essentially an eco-
nomic test in assessing not only what constitutes
“higher or more restrictive” but certainly in the cus-
toms union case where new external tariff duties
are being arranged and the effects on external trade
could only be assessed by an economic analysis of
the new overall tariff to the former tariffs of the con-
stituent territory members. The reference in para-
graph 5(a) to the “general incidence” and “on the
whole” for customs unions indicates that a forma-
tion is lawful when the overall situation in respect
of third country trade is not rendered worse off than
prior to the formation. Thus, some trade is going to
be negatively affected and some trade positively af-
fected by the tariff changes in the course of meeting
the requirement, and this is acceptable as long as
“on the whole” the external trade barriers are not
higher or more restrictive.
The mode assessment was addressed in some de-
tail by the 1994 Understanding. This provides that
the assessment to be made must be based on an
“overall assessment of weighted average tariff rates
and of customs duties collected”. The weighting
of the rates eliminates a prior practice of simple
averaging.
Consider an example on weighted average tariff
rates: Assume country A has a tariff duty of 10 per
cent and country B has a tariff duty of 30 per cent.
The parties draw a new customs union tariff by a
simple average (10 + 30 = 40, divided by two territo-
ries, equals 20 per cent). The new tariff duty rate of
20 per cent would have its strongest negative ex-
ternal effects in the case where the larger volume
of non-regional trade was directed to country A,
the lower tariff country. By trade-weighting these
duty rates by factoring the volume of trade, the ef-
fects on actual volumes can be considered in the
assessment.
68
Thus, as the 1994 Understanding provides, the as-
sessment shall also be made on import statistics for
a previous representative period, on a tariff line basis
in values and quantities, and broken down by WTO
country of origin. The Secretariat is responsible for
computing the weighted average rates taking into
account the actual applied tariff rate (rather than the
conventional bound rate which might be higher).
According to Article XXIV, para. 6, where the customs
union tariff is increased “inconsistently with the
provisions of Article II” (Schedules of Concessions),
the parties shall apply the procedures of GATT
Article XXVIII, titled “Modification of Schedules”. This
requires a consultation and negotiation in order to
arrange compensation for the affected party. For
this, the 1994 Understanding states that “due ac-
count shall be taken of reduction of duties on the
same tariff line made by other constituents of the
customs union upon its formation” Thus, the com-
pensation due to the exporting territory negatively
affected by an increase in the tariff of one regional
member must also take into account the benefit
accruing to the export territory by the decrease in
the tariff line of another regional member. However,
this offset appears by its own terms to be limited
to the same tariff line suggesting that the affected
exporter cannot be required to take into account
offsets (tariff reductions) from other product lines
where its trade can be expected to be increased.
There are also assessments to be made for the
other regulations of commerce that fall within the
categories of non-tariff barriers and the regula-
tory mechanisms installed in RTAs. For this the 1994
Understanding provides that for the assessment of
the incidence of other regulations of commerce for
“which quantification and aggregation are difficult,
the examination of individual measures, regula-
tions, products covered and trade flows affected
may be required”. This begs the question of whether
such examination is even possible for certain types
of regulatory policies, but the objective of making
an assessment is noted.
2.2.3 RTA measures violating GATT Articles
Overall, there is the consideration that any particu-
lar measure undertaken may not have to be exam-
ined for its “higher or more restrictive” character if
the measure in question is not necessary for the
completion of the formation in the first place. As a
result of the Turkey-Textiles Appellate Body report, a
legal basis to set a challenge against the external ef-
fects of an RTA external measure is recognized and a
test has been formulated.
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Box 9
Turkey-Textiles (Turkey – Restrictions on Imports of Textile and Clothing Products, Report of the Panel,
31 May 1999, WT/DS34/R, Report of the Appellate Body, 22 October 1999, AB-1995-5 WT/DS34/AB/R)

The Turkey-Textiles case is the leading WTO case on Regional Trade Agreements and clarified some (but not all) of the
provisions of Article XXIV. As well, the legal implications of the CRTA review procedure and particularly the role of pan-
els in RTA challenges were also addressed. Here we consider the test established to determine whether new restrictive
measures (ORC) imposed on the trade of non-members can be excused when undertaken by regional members as a
part of an Article XXIV formation. The case concerned a claim brought by India against Turkey, which had imposed
quantitative restrictions on Indian textiles. These quotas were not covered by the WTO Agreement on Textiles and
were ruled by the panel to be unlawful in contravention of GATT Article XI. As a defense, Turkey raised its responsi-
bilities for the completion of the EC-Turkey customs union. Since the EC maintained its own set of quotas on India’s
textile products (that were lawfully maintained under the Agreement on Textile and Clothing), in Turkey’s view the
imposition of its own quotas was necessary to complete the regional trade agreement. As a customs union, the re-
quirement of paragraph 8 provides that members shall apply substantially the same duties and other regulations of
commerce to the trade of non-members. Since Turkey had a legal right to form a customs union, it therefore had also
a legal right to impose an otherwise unlawful trade measure in order to form that union.

The panel ruled that any exception granted by Article XXIV could only be applied for a violation of most-favored
nation, and Article XXIV could never be used to validate an exception for an unlawful quantitative restriction. The
Appellate Body reversed on that point and ruled that in theory, the Article XXIV exception could be used to validate
any GATT Article violation. It then stated a two-part test for determining when a regional member could be excused
from imposing an otherwise GATT-unlawful measure to the trade of non-regional members. First,

“… that the measure at issue is introduced upon the formation of a customs union that fully meets the require-
ments of sub-paragraph 8(a) and 5(a) of Article XXIV.

Second, the party must demonstrate that the formation of that customs union would be prevented if it were not
allowed to introduce the measure at issue”.39 39 Turkey-Textiles, AB
Report, para. 58.

For the first test, since the Panel made no examination of the Turkey-EU customs union, rather basing its analysis on
the assumption that the union was in compliance with Article XXIV requirements, the AB could not undertake an
examination either. It did however leave a clear impression that such an undertaking would have to be made if an RTA
defense was raised and assumedly if the complainant raised challenges to the compatibility of the arrangement.

For the second part, Turkey could reasonably argue that because it had an obligation to apply substantially the same
duties and other regulations of commerce to the trade of non-members, it had no choice but to adopt the unlawful
external measures in forming the EC-Turkey customs union. On this, the Appellate Body noted that the quota prob-
lem was temporary (as a function of the Agreement on Textiles converting quotas into tariffs over time) and that the
trade problem for Turkey could be resolved in the interim by the use of origin certificates (i.e. textiles of Indian origin
moving through the Turkish territory to the Community would have an origin declaration and the Community could
maintain and apply its lawful restrictions to Indian trade).

2.3 Article XXIV – institutional considerations
and burden of proof
2.3.1 Dispute settlement evolution,
implications of the Turkey-Textiles case
The implications of the Turkey-Textiles case for
RTAs in the WTO are profound in any case where a
WTO member responds to an alleged violation of
a GATT Article by raising the exception accorded
by Article XXIV. In that instance, the dispute panel
not only has a basis, but is probably compelled to
determine whether or not the RTA meets the condi-
tions of Article XXIV in order to derive the exception.
This establishes once and for all the right (or duty)
of a dispute settlement panel to consider whether
or not an RTA is compatible with Article XXIV, irre-
spective of the CRTA’s remit to assess compatibility
of notified RTAs.
This marks a long evolution dealing with the rela-
tionship between dispute settlement panels and
RTAs through the times of the GATT and then the
WTO. In the earliest case of European Economic
Community-Citrus (unadopted, L/5776, 1986),
the panel found that it could not investigate the
conformity of an RTA with GATT Article XXIV be-
cause this function was especially provided for in
Article XXIV, paragraph 7. This paragraph places
the review of RTAs for their compatibility with the
Article within the realm of the contracting parties,
i.e. the political or legislative side of institutional

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arrangements rather than the arbitral or judicial
mechanism. In the second banana panel (unadopt-
ed, DS38/R, 1994), the panel’s ruling evolved where
it found it unacceptable that tariff preferences in-
consistent with MFN could escape examination by
a panel over the objections of other non-regional
GATT parties, and that the panel had to therefore
examine whether or not Article XXIV provisions ap-
plied to the trade agreement in question, at least
for their facial qualities, the actual provisions in the
trade agreement. This was a significant develop-
ment considering that the EC position in that case,
and essentially the EC common practice until this
ruling, was to assume that once notified, the excep-
tion was fully available to the regional members, in
the absence of a paragraph 7 recommendation to
amend or alter the provisions. Thus, in practice,
notification was all that was required to secure
the exception and “no recommendation” was
treated as approval for the purpose of securing
the legality of the preferences exchanged in the
RTAs.
In the Turkey-Textiles case, the evolution went an-
other step with a reversal of that panel’s approach
to the review made by the Appellate Body. At the
panel level, the ruling on the scope of review of an
RTA was that questions over the general conformity
with Article XXIV provisions were under the purview
of the WTO members (as according to paragraph 7
of Article XXIV). However, the legality of any specific
measure undertaken by a regional member would
be able to be examined by a dispute panel. In this
case, the EC-Turkey customs union itself had not
been challenged as non-conforming with Article
XXIV requirements and the panel’s approach was
to assume that the formation was qualified un-
der Article XXIV. (For the Turkey-EU customs union,
there was no working party or CRTA recommenda-
tion, as usual). For the Appellate Body, the question
of conformity with Article XXIV was not the exclu-
sive providence of the CRTA and the WTO members
acting in the Council. Recalling above the Turkey AB
“two-part test” for defending an otherwise inconsis-
tent measure, the first part asks whether the agree-
ment in question “fully meets the requirements” of
paragraphs 8 and 5. In a later portion of the report,
the AB refers to its treatment in a case concerning
the GATT Balance of Payments Committee (BOP)
where the respondent in that case had argued that
a panel had no right to review the legality of BOP
restrictions since the BOP Committee had been
granted that power. The AB rather saw a cumulative
right to assess compatibility, noting that paragraph
12 of Article XXIV granted the right of the Dispute
Settlement Understanding to be invoked “with re-
spect to any matters arising from the application
of those provisions of Article XXIV relating to cus-
toms unions…”. (This text was adopted by the 1994
Understanding.)
70
This ruling has a significant impact on the legal se-
curity of Regional Trade Agreements in those cases
(almost all cases) where there has not been any de-
finitive report or recommendation from the CRTA
as to the compatibility of an RTA with Article XXIV
requirements. In essence, the burden of proof has
been altered where previously regional parties held
that once notified, if the consensus procedures of
paragraph 7 did not result in a negative recommen-
dation or recommendation to alter the plan and
schedule, the RTA was essentially legally secure from
any later challenges. Arguably, the reverse is true
now. In the failure to obtain a positive recommen-
dation from the CRTA (and perhaps the governing
GATT or GATS Council), a regional member invok-
ing its Article XXIV defense must be in the position
(with the burden of proof) to demonstrate that its
agreement is lawfully qualified under Article XXIV
in a panel proceeding. Since there are no definitive
criteria yet established for the core terms such as
ORC and ORRC, one can sense that raising the Article
defense in any particular case could be a fairly high-
risk strategy and that some agreements might not
pass in a panel examination. Perhaps more impor-
tantly, it may appear that no respondent is anxious
to be the first party to have its RTA examined by a
panel.
Since the Turkey-Textile case in 1999, the defense
has yet to be raised directly on point, although a
line of regional safeguard cases have come close to
ruling on the defense. On these cases the question
has been whether regional members can suspend
the operation of a safeguard between them while
yet applying the safeguard to non-regional WTO
members. Since the WTO Safeguards Agreement
requires that the application of a lawful safeguard
be made upon all sources (i.e. non-discriminatory
application), the non-application in favor of a re-
gional member is a violation of the Safeguards
Agreement. With regard to whether that violation
can be excused the panel would have to consider
if the agreement in question met the qualification
of the Turkey-Textiles test. Thus far however, each
proceeding has been truncated by the failure of re-
gional members to match the injury examination
(examination of the territory sources) in a manner
parallel with application of the safeguard as to the
territory sources (for example Argentina-Footwear,
WT/DS121/AB/R).
Moreover, the Turkey-Textile AB ruling on the scope
of panel review may have also generated implica-
tions in the negotiation framework for the clarifica-
tion of Article XXIV. It is arguably the case that it is
not in the trade policy interests of WTO members
to have an absence of criteria determined for the
qualification of RTAs by the members, and to have
the process of reviewing RTAs remain essentially
dysfunctional in the WTO. Whatever benefit the

members derived from an absence of clarity and
procedures in the review process is possibly no lon-
ger effectively so beneficial.
2.3.2 Article XXIV – time for implementation
An additional element for Article XXIV is the time-
line for implementation. The Uruguay Round
Understanding already provides a rule for the im-
plementation period, within the clarifications for
Article XXIV, para. 5:
“The ‘reasonable length of time’ referred to in
paragraph 5(c) of Article XXIV should exceed 10
years only in exceptional cases. In cases where
member – parties to an interim agreement be-
lieve that 10 years would be insufficient they shall
provide a full explanation to the Council for Trade
in Goods of the need for a longer period”.
This existing statement places the burden on those
seeking to modify the implementation period to
provide the full explanation to the Council on Trade
in Goods (and not the CRTA). Since the Council oper-
ates on consensus, this text is not setting an approv-
al or voting procedure as in the manner of obtain-
ing a waiver. At the same time, the requirement to
provide a full explanation also suggests that there is
something more here than a purely self-declaratory
exercise by the regional members. Certainly there is
an intent underlying this to provide for some trans-
parency and control over agreements that take too
long to be implemented.
While it is not at all unreasonable to imagine that
longer implementation periods will be granted for
developing countries in Article XXIV qualification,
the length of time considered reasonable will not
be wide-open. It is unlikely that there is any broad
member support for 20-year periods, but there may
be support for 12 or 15-year periods. The factor of
stating a time period is also variable in that a nego-
tiated longer period could also be linked to the per-
centage of trade that would be allowed to remain
non-liberalized after the initial ten years. This is to
say that there may be more support for a 15-year
period where the remaining trade to be liberalized
is 10 or 20 per cent of the total as compared to 60 or
80 per cent of the total trade.
As in the SAT discussion above, the negotiations
in the WTO group have not progressed so far as to
clarify the possibility of longer periods, and there
is no recorded consensus that longer periods
should apply and be set into the Article XXIV text or
Understanding. To date, the best summation on this
issue remains contained in the chairman’s report
from November 2005.
3
Interface between RTAs and WTO
module
“With respect to RTAs’ transition period, there
appears to be convergence among Members on
what should be the maximum length allowed.
Views diverge, however, on the definition and
scope of application of the ‘exceptional cases’
that would allow the parties to an RTA to go be-
yond the transition period and, in particular, on
whether the exception should only be available to
developing countries. An additional issue being
considered is the relationship between RTAs’ tran-
sition period and the calculation of SAT, in particu-
lar the point in time during the implementation
of an RTA when the SAT test is to be applied.” 40 40 TN/RL/15,
30 November 2005.
The best possible outcome for a development di-
mension is probably the ACP opinion contained in 41 TN/RL/W/155,
its own submission from 2004 which proposes a 28 April 2004.
period of not less than 18 years for developing coun-
try implementation of a North-South RTA.41 There
is a relationship between the implementation pe-
riod discussion and the SAT requirement. We take
the view here that since Article XXIV clearly allows
interim agreements, SAT requirements cannot pos-
sibly apply at the beginning of an implementation
period but rather have to be completed according
to the plan and schedule at the completion of the
interim agreement.
If one takes the view that no results on either SAT or
developmental criteria for limited non-reciprocity
or for longer implementation periods will emerge
from this Doha Round, then perhaps the functional
approach can inform RTA members on implementa-
tion periods. On this aspect, Scollay (2005) provided
a recently composed overview of a number of RTAs
and finds that there has been some greater imple-
mentation flexibility being arranged among RTA
members than one perhaps assumed.
2.3.3 Implementation periods in practice
What is telling is the practice of North-South agree-
ments since the 1994 Understanding. Some of this
practice indicates that the ten-year rule is not be-
ing adjusted for both developed and developing
RTA members. Longer implementation periods
are clearly in play, noting Canada-Chile (18 years),
Canada-Costa Rica (15 years), and EU-Morocco and
EU-South Africa (12 years) (Scollay 2005, p. 7). One
North-North trade agreement pushes the outward
bounds for sure, that being United States-Australia
with an implementation over 18 years. Considering
that Canada and the United States are major play-
ers in the system, these longer implementing RTAs
provide some argument for longer periods in the
practice, although albeit, not an express legal basis
to deviate from the ten-year rule. Also to be thor-
ough, one should review the manner by which any
or all of these agreements have been disclosed and
discussed in the light of the Understanding text
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quoted above, i.e. what special circumstances have
been raised by these parties and how those factors
have been received in the CRTA.
The Scollay report goes on to outline tariff elimina-
tion as a percentage of total tariff lines for the sam-
pled agreements, and some of those findings, not
detailed here, are certainly relevant for RTA design.
Asymmetry in implementation is common in these
agreements and especially in the phasing out of tar-
iffs between a developed and developing partner. In
addition, several significant asymmetric reductions
occur after ten years of implementation. The EU-
South Africa agreement for example shows that 20
per cent of South Africa’s tariffs are eliminated af-
ter the ten-year period. For Canada-Chile, Chile has
eliminated tariffs after the ten-year period on 15 per
cent of its tariff lines (Scollay 2005, p.12).
However, what one does not confirm from this
study is any great trend to present final (imple-
mented) agreements with large resulting asymme-
try between the ultimate liberalized percentages
between the developed and developing partner.
Scollay (2005) indicates that on a ten-year and
80 per cent (final SAT coverage) rule, only the two
agreements of EU-South Africa and Canada-Costa
Rica would fail to meet the test on an individual
country basis, and both appear to be within the 90
per cent coverage rule on their longer implementa-
tion periods.
2.3.4 Notification of South-South agreements
under Article XXIV or the Enabling Clause
As between developing countries, the practice on
notifications to WTO has been to present the ar-
rangements (including customs union plans) under
the Enabling Clause provision recited above (rather
than Article XXIV), and to then notify the agree-
ments to the GATT (now WTO) Committee on Trade
and Development (CTD). The mandate of the CTD
clearly contemplates review of all matters relating
to the Enabling Clause, and this has been taken to
also suggest responsibility for the reporting and
disclosure of developing country regional preferen-
tial arrangements for trade in goods.
However, there have been questions in the practice
where the developing country arrangement also
contemplates the creation of a legal entity that
falls within the criteria and definitions of GATT
Article XXIV. There has been to date no Ministerial
Conference declaration or decision which clearly al-
locates these arrangements either to the purview
(and legal requirements) of Article XXIV or to the
Committee on Trade and Development and the
Enabling Clause.
Procedurally the distinction between purview of
either or both WTO Committees is more relevant
for the transparency and reporting requirements
that could apply to the process of review. On this,
the CRTA appears to adopt the review procedures of
the CTD when it also examines a developing coun-
try preferential arrangement that falls within the
terms of Article XXIV. In the current Doha Round dis-
cussion about a new transparency instrument for
Article XXIV notifications, there is also an ongoing
split in opinion between members on the question
of whether any new transparency and reporting re-
quirements should also apply to the horizontal agree-
ments notified according to the Enabling Clause. On
the basis of the new Transparency Mechanism, this
appears to be resolved in favor of equivalent trans-
parency for all agreements, Article XXIV, GATS V, and
Enabling Clause arrangements.
On substance the difference between CTD and/or
CRTA purview is potentially more important if the
developing country regional agreement seeks to
apply to the lower trade coverage requirements of
paragraph (c) of the Enabling Clause rather than
the paragraph 8 requirements of the Article XXIV
customs union definition. This issue can also arise
in a free trade area notification under the Enabling
Clause, but raises the potentially stronger third par-
ty reaction on a customs union formation, since in
this latter form there is a likely modification of ex-
ternal tariff rates to other WTO members, and there-
fore higher possibility of trade diversion and a direct
challenge by affected WTO members on the basis of
GATT Article I, MFN and GATT Article II, Schedules
and Concessions.

Box 10
MERCOSUR notification and review
The only modern example of how a developing country customs union has been treated is that of the MERCOSUR
notification and review; however, this was also prior to the WTO, the Uruguay Round Understanding on Article XXIV,
and the creation of the CRTA. Nevertheless, the MERCOSUR case is instructive as a Council for Trade in Goods Decision
was adopted to have the MERCOSUR examined as both to the requirements of the Enabling Clause and the provisions
of Article XXIV. The specialized terms of reference established for that examination reflect a compromise on this issue
and is quoted here:

“To examine the Southern Common Market Agreement (MERCOSUR) in the light of the relevant provisions of the
Enabling Clause and of the GATT 1994, including Article XXIV, and to transmit a report and recommendations to the

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Box 10
MERCOSUR notification and review
Committee on Trade and Development for submission to the General Council, with a copy of the report transmitted as
well to the Council for Trade in Goods. The examination in the Working Party will be based on a complete notification
and on written questions and answers” (recited in WT/REG/M/40, 31 August 2005). See also Legal Note on Regional
Trade Arrangements Under the Enabling Clause, WT/COMTD/W/114, 13 May 2003.

The most recent documents on record for this formation from 2005 indicate that both Committees remain involved
in the review of the formation with the CTD being responsible for the reporting function. The Secretariat provided its
calculations on the overall tariff rate changes created by the MERCOSUR in the form of a CTD document (WT/COMTD/1/
Add.15, 24 May 2005). The CRTA took note of that information in its chairman’s indication that this would also be dis-
cussed in the CRTA (WT/REG/M/40, 31 August 2005).

This duality of review and examination reflects the overlapping terms of reference for both the Committees where
the CTD has the power to review all arrangements under the Enabling Clause and the CRTA has the power to examine
arrangements under Article XXIV, GATS V, and also explicitly in its terms of reference, arrangements notified under
the Enabling Clause.

This is not a resolution that clearly determines whether or not the Enabling Clause overrides the substantive require-
ments for customs union formation under Article XXIV paragraph 8, especially for the question of how much trade
needs to be covered in the “elimination of duties” requirement. The opinion suggested here is that where a customs
union is being declared as such and a common external tariff is being applied to modify otherwise bound WTO tar-
iffs, most WTO members would insist that Article XXIV internal coverage requirements at least be assessed for this
formation, and that members, as usual, will then seek to reserve their rights in respect of the various GATT Article
obligations.

2.3.5 Developing country regional formations

and notification/review

For a number of developing country customs Table 6 shows the status of several of the arrange-
unions, this process has not yet been concluded. ments.

Table 6
Review process status for selected developing country customs unions, as of 19 February 2010

Agreement Date of entry Date of Related Type of Document series Status

into force notification provisions agreement
Factual
WAEMU/ Enabling Customs WT/COMTD/N/11
01.01.2000 27.10.1999 abstract in
UEMOA Clause union WT/COMTD/23
preparation
Factual
Enabling Free trade
COMESA 08.12.1994 04.05.1995 WT/COMTD/N/3 abstract
Clause agreement
distributed
Factual
Enabling Customs
MERCOSUR 29.11.1991 17.02.1991 WT/COMTD/1 abstract in
Clause union
preparation
GATT Customs Report
CARICOM 01.08.1973 14.10.1974 WT/REG92
Article xxIV union adopted
Factual
Enabling Customs WT/COMTD/N/21
ECOWAS 24.07.1993 06.07.2005 abstract in
Clause union WT/COMTD/54
preparation

Source: Derived from Regional Trade Agreements Information System, available at: http://rtais.wto.org/UI/PublicAllRTAList.aspx

All the above agreements except COMESA were
notified as customs unions. Whether this differ-
ence in the title of the arrangement might make
any arguable difference on the review criteria to
be applied is rather unknowable, but the better
argument is that form does not control substance
where the treaty of the parties states that the ob-
jectives include the formation of a customs union
rather than that of a free trade agreement. The ear-
lier Report of the Working Party on the Caribbean
Community and Common Market shows that this
arrangement was treated on the examination and
report as an interim agreement leading to the
formation of a customs union (L/4470, 2 February
1977). However, this review also predates the per-
manent 1979 GATT Council Enabling Clause.

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2.3.6 ASEAN-China FTA notification and other restrictive regulations of commerce

(except, where necessary, those permitted under
A more recent example of a preferential arrange- Article XXIV(8)(b) of the GATT) shall be eliminated
ment is found in the “Framework Agreement on on substantially all trade in goods between the
Comprehensive Economic Cooperation between parties”. Both the Framework Agreement and
the Association of South East Asian Nations and the ACFTA also include provisions beyond prefer-
the People’s Republic of China”. This was notified ential duty treatment, by covering investments,
in November 2004 under the Enabling Clause as a services, non-tariff barriers and cooperation on
preferential trade agreement. However, in the sub- various regulatory and customs related matters.
mitting documents the parties refer a number of Therefore, the EC believes that the recently con-
times to the completion of the FTA. The following is cluded FTA in goods should have been notified un-
taken from one submission: der GATT Article XXIV and be referred to the WTO
Committee on Regional Trade Agreements (CRTA).
“This notification is made pursuant to the Decision The EC strongly encourages the parties of the FTA
of 28 November 1979 under the GATT on Differential to take the necessary steps towards this end.” 43
and More Favourable Treatment, Reciprocity and
Fuller Participation of Developing Countries, also One wonders if the resolution on this question is
known as the Enabling Clause. simply a pure pro forma exercise. That being, for the
parties entering an arrangement to simply avoid the
The Agreement on Trade in Goods: linguistic trap that would raise Article XXIV, i.e. the
(i) provides for the establishment of a free trade use of the term free trade area or FTA. At the same
area in goods between China and the six origi- time, if the Enabling Clause is capable by its own
nal ASEAN member countries (ASEAN-6) by 2010 broad terms of covering any preferential arrange-
and Cambodia, Lao People’s Democratic Republic, ments formed between developing countries, then
42 WT/COMTD/N/20/Add.1,
Myanmar and Vietnam (CLMV) by 2015”. 42 what difference does it make what the regional par-
26 September 2005.
ties call their arrangements or what trade coverage
This apparent inconsistency has not escaped the they either include or omit in their agreements.44
43 WT/COMTD/51/Add.2,
purview of some other WTO members. As the EC
8 February 2006.
stated in its submission: For the EC-ACP Economic Partnership Agreements,
the Cotonou Agreement specifically dedicates these
44 Whether the EC’s point
“Moreover, the EC notes that the FTA parties, un- to be, “WTO compatible trading arrangements, re-
on all those matters
going “beyond preferential
der Article 3 of the Framework Agreement, have moving progressively barriers to trade between
duty treatment” makes any agreed that the ASEAN-China Free Trade Area them and enhancing cooperation in all areas rele-
argument for submitting (ACFTA) should conform with the level of ambi- vant to trade” (Cotonou, Article 36). Since the EC is a
under GATT Article XXIV
is another matter, but it does
tion required by GATT Article XXIV and notably developed territory, these will not be notified under
not seem to be correct in paragraph 8 of Article XXIV by stating:“In addition the Enabling Clause and therefore, if completed, will
part. For those aspects that to the Early Harvest Programme under Article 6 be treated under WTO law by a notification to the
are not at all trade in goods
(services and investment),
of this Agreement, and with a view to expedit- Council on Trade in Goods and for services, and then
the point of reference ing the expansion of trade in goods, the Parties be referred to the CRTA for examination under GATT
would be GATS Article V. agree to enter into negotiations in which duties Article XXIV and GATS Article V.
For those aspects dealing
with goods that are not
duty elimination, whether
the Enabling Clause can Exercises and questions for discussion
entertain those activities
is interesting. The clause 1. There are arguments for and against the completion of developing country customs unions. One argument
authorizes elimination or for it is that a completed customs union can develop a single and coherent external voice in trade negotia-
reduction of tariff measures
and non-tariff measures.
tions with more powerful territories. However, countries also lose sovereignty when they pool their commercial
The scope of that second policies. Do you think the ACP countries in the various developing country customs unions are better off going
term would have to be through to completion or remaining incomplete?
determined.
2. Customs unions are notoriously hard to complete administratively, and this is the case even for developed
countries. Are developing country customs unions “worth it”, and what factors do you think should be taken
into account in the decision to complete or not complete a customs union formation?

For further research

At the current time a lot of technical assistance and research is going into the various EPA regional systems
which are forming the negotiation groupings with the EC under the Cotonou framework. One area of research
would assess what minimum institutional features a developing country customs union should have in order
to render its trade objectives effective. This would look at voting procedures and dispute resolution, among
other possible aspects.

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3 Regulatory issues and RTAs

3.1 RTAs, domestic regulation and
harmonization
3.1.1 Domestic regulation in WTO
From the legal perspective, in WTO law the concept
of domestic regulation refers to activities that may
affect trade but that are not trade measures being
applied either upon importation or exportation.
They are internal in this respect. In GATT law the dis-
tinction between a measure applied internally and
one applied upon importation is quite critical since
it spells the difference between a prohibited quanti-
tative restriction (GATT Article XI), and a lawful exer-
cise of non-discriminatory internal regulatory treat-
ment (GATT Article III).45 The GATS also recognizes
raise some possible conditions (or exceptions) for
labor or human rights or for the environment.
Generally, the agreements are becoming more nu-
anced in tailoring to individual country situations
and more comprehensive both in WTO rule-refer-
encing (incorporating WTO rules), as well as treating
regulatory aspects not otherwise covered in WTO
annexed agreements. Some of the newer RTAs could
be said to reflect a sort of post-Doha character that
is indicative of the regulatory priorities that each
major player might prefer to see incorporated in the
multilateral trading system – if only WTO members
were more amenable to extending the multilateral
trading system into these regulatory domains.48
Determining the impact of a regulatory subject in 45 The internal measures

the concept of domestic regulation (see GATS Article an RTA is more than a matter of simply saying that are also subject to most-
favoured nation. A country
VI) as an internal activity distinct from imposing tax- the agreement refers to that subject (“this RTA has cannot provide one foreign
es or quantitative limitations on the importation of labor rights…”), which does not tell us very much source better regulatory
services at the border.46 The Trade-Related Aspects at all about what the parties have actually under- treatment than another
foreign source. See GATT
of Intellectual Property Rights (TRIPS) Agreement is taken and what effects that regulatory subject area Article I, para. 1 as it applies
inherently an exercise in domestic regulatory har- will have on the domestic regimes or the trade of to subject matters covered
monization where the agreement spells out the the regional parties. In order to get to that level of by GATT Article III, para. 2
and III, para. 4.
minimum requirements for each WTO member to analysis, a number of aspects have to be considered,
maintain in their domestic laws for insuring protec- including the following:
46 In the GATS there is
tion of intellectual property rights.
• The agreement’s preamble objectives and how the
an overlap between
market access and domestic
3.1.2 Regulatory activities in RTAs subject is related or not related to the trade obli- regulation where a market
gations of the regional members. access commitment

•
includes eliminating
The treatment of regulatory regimes within RTAs is The scope for the subject area (wide or narrow) quantitative restrictions
becoming the norm for regional endeavors. While and the standards it is seeking to apply. Is the that are internally applied.
European economic integration has been treating subject referencing to other international law However, there is a sphere
of internal regulatory
regulatory policies for many years, most RTAs have (ILO labor rights), seeking only to have domestic activity that is not
not historically placed much emphasis on either laws enforced, or establising a new independent captured by any market
eliminating “behind the border” barriers or arrang- regional standard? access commitment, for

•
ing common standards for domestic regulatory
treatment (harmonization). This generation of re-
gionalism may well be distinct from the previous
waves by the emphasis on positive regulatory har-
monization dealing with e.g. trade in goods, services
and investment (doing business in the market), as
example, the quality and
Are there any institutions being provided for deal- testing qualifications for
ing with the subject? Is there a special committee certifying service suppliers.
or commission being created to monitor and de-
velop the subject area, or is it just left to the tex- 47 The terms negative
tual reference in the agreement without any fur- and positive harmonization
ther action, development or oversight intended? are often used. The

•
first refers to eliminating
well as incorporating political and social norms for The dispute settlement provisions: If the subject a barrier and the second
the treatment of labor or the environment.47 area is not fulfilled, what can the other party do refers to establishing
about it? Do only state parties have a right of ac- a common norm for
treatment. Most authors
For both the United States and the EU, while their tion or is this extended also to private parties? Is would place the elimination
RTA approaches to regulatory issues appear to action possible within (or limited to) the domes- of discriminatory treatment
evolve, one can also detect different priorities of tic legal order, or is there an independent body in the category of negative
harmonization and
each party. The United States agreements seem to that will take up the complaint? Does the agree- view activities such as
set stronger standards for enforcement of intellec- ment use good offices or conciliation or does it go mutual recognition as
tual property rights and in some cases more fully further with an independent report and recom- acts of positive integration.

delineate rights for investment and investors. The mendations, or directives for remedial action?
United States consistently includes labor provisions • What final remedies can be established? Is 48 This refers to the Doha
Round treatment for the
in its RTAs. The EU agreements appear to have their it possible to invoke a safeguard or suspend a
so-called Singapore Issues.
regulatory focus on domestic competition (anti- trade concession, or are the subject area and For both competition policy
trust) laws, including distortionary state aids (sub- its remedies not ultimately linked to trade? If and investment, there are
sidies). With some other differences, both pay atten- a party fails to remedy, is there a right of coun- both elements of market
access considerations
tion to domestic technical barriers to trade (TBT) for tervailing action in the agreement, or is the only and domestic regulatory
products and food standards, and in varying degree action possible that of withdrawing from the treatment.

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agreement overall? Who can be made the ben-
eficiary of a remedy, only the states involved, or
also private parties, producers or consumers?
Surveying this way recognizes that a regulatory
subject is multi-faceted and allows us to describe
the shape of the subject area by viewing each of
the facets and how they relate to each other. It also
allows us to ultimately form an opinion on the de-
gree of bindingness of a subject and its possible
relationship to WTO rules regarding the qualifica-
tion of RTAs. Furthermore, in any given RTA, one does
not see a uniform treatment of the aspects noted
above for different subject areas. Thus, each RTA is
also multi-faceted in its overall treatment of regula-
49 On assessing the use tory subject areas.
of regulatory provisions
in North-South RTAs see
World Bank (2005). 3.1.3 WTO plus and WTO minus
The WTO plus label for regulatory integration in an
RTA is often coined, but not very helpful for setting a
description of the applicable legal regimes and their
consequences in WTO law. Domestic regulatory
norms are difficult enough to characterize. There are
different ways to structure and implement regula-
tions and different approaches to harmonize them
with the laws of other trading partners. The WTO
plus term as it is commonly used seems to suggest
that all regulatory endeavors taken up in an RTA are
better than what is provided by the WTO regime.
From a WTO legal view, a narrow perspective would
look at whether or not the plus regime was liberal-
izing trade or restricting it, since the purpose of an
RTA in the WTO should be to liberalize trade among
its members. Whether this occurs for any particular
regional regulatory activity is a question of fact and
we do not assume that just because an RTA treats a
regulatory subject, more trade rather than less will
result.
One also notes that the term is not precise where
some regulatory activities do supplement an exist-
ing WTO regime (or provision), while others deal with
subject areas not at all covered by WTO agreements.
For either, there may however be some resulting ef-
fect on the underlying WTO rights and obligations
of the regional partners. A better legal term than
WTO plus might refer to WTO modification where
an existing subject area in WTO is supplemented or
changed in the rights and obligations as they apply
between regional members. As suggested, this may
be trade enhancing or trade restricting depending
upon the activity. This also allows distinguishing
regulatory subjects included in RTAs that have no
bearing whatsoever upon the parties’ WTO rights
or obligations.
For a developing country regional member, this ad-
aptation of WTO law may include restricting certain
flexibilities that are otherwise provided in the WTO
76
agreements. In addition, what is plus can be viewed
from the broader perspective by asking whether
the new regulatory regimes reflect the regional
partner’s overall developmental objectives and
the allocation of resources and priorities in other
governmental areas. For example, if a poor coun-
try does not have the resources to achieve the UN
Millennium Development Goals, say for basic educa-
tion and providing for maternal health, does it make
developmental sense for this country to establish a
fully functional national competition law or intel-
lectual property regime? There is an argument that
economic development ultimately requires these
types of regimes, but there is also a basis for criti-
cism of some subject areas being included within
RTAs with developing countries.49
The interaction with Article XXIV of including do-
mestic regulatory policies within RTAs can be taken
up on several different levels. A first one is whether
the new regime or activity between the regional
members may somehow be negatively affecting
the non-discrimination rights of non regional WTO
members. This is the question of third party rights
and external legal effects. A second level deals with
the internal dimension in asking how the regime
installed between the regional members may ei-
ther liberalize or restrict trade, and how the regime
impacts the WTO rights and obligations of the
regional members. The first inquiry relates to the
Article XXIV and GATS V requirements. The second
relates to the position of countries in the WTO and
the interface between WTO and regionalism more
generally.
3.1.4 Regulation and Article XXIV – ORRC
For Article XXIV considerations it is necessary to
consider the scope of the term other restrictive reg-
ulations of commerce (ORRC), as this also may or
may not apply to domestic regulatory activities. We
understand that regional members have a duty to
eliminate ORRC to substantially all the trade. Thus,
if a non-tariff barrier (a product standard for ex-
ample) is trade restrictive, then whether or not it is
an ORRC would dictate whether or not the regional
members need to eliminate it as a part of their re-
gional formation. Further, if the measure is an ORRC
and is then eliminated and only in favor of the
other regional member (thus maintaining the
restriction against all other WTO members), that
activity may fall within the regional exception
(regional members shall eliminate ORRC). On the
other hand, if the liberalizing measure is not an
ORRC, then other WTO members should likely re-
tain their third party MFN rights to challenge the
selective treatment. The regional members would
not likely be able to claim the regional exception if
the regional measure undertaken is not within the
scope of ORRC.

For this there is little definitive guidance either
from the WTO members or from the dispute set-
tlement system. As discussed in a previous section,
the term ORRC clearly applies to trade importation
measures such as quantitative restrictions. GATT
Article XI is itself referenced in the list of Articles
in paragraph 8 of Article XXIV. For internal regula-
tions, we understand that regulatory measures
that restrict trade (inconsistent product standards
in the different RTA members, for example) can be
addressed by acts of harmonization (adopting the
same standard) or by acts of recognition (unilater-
al or mutual recognition of another country’s stan-
dards as being equivalent to one’s own standards).
To the extent that countries are including these
mechanisms within their RTAs, they will argue that
they are eliminating restrictive measures that fall
within the category of an ORRC and are thus en-
titled to fall with the Article XXIV exception.
However, it is conceptually difficult to extend the
definition of the ORRC term to consider all inter-
nally restrictive regulatory enactments. The impli-
cation of such a broad scope for the term would
be that if such harmonization and recognition
enactments are ORRC, then all regional members
commencing an RTA plan would also be required
to plan and schedule their elimination. This is a
far more ambitious economic integration than
the vast majority of RTAs have undertaken, and it
seems more likely that most members would ob-
ject to any interpretation that required extensive
harmonization of all the regulatory areas that
might affect intra-regional trade.
At the same time, there may be a basis to argue
that ORRC should cover internal measures that
are discriminatory against the imported prod-
ucts of a regional partner, in the sense of granting
more favorable treatment to domestic products
or less favorable treatment to imported products
from the regional partner. This is to suggest that
while trade importation barriers are required to be
eliminated, the ORRC term is likely broad enough
to prohibit internal discriminatory measures that
would be reconstituting these same trade barriers.
This view of ORRC would tend to re-enforce and
secure the legal effect of eliminating duties and
quantitative restrictions upon importation. This is
to say that ORRC can be viewed as requiring mem-
bers to eliminate violations of national treatment
between them.
If this reading of ORRC is correct, i.e. that for inter-
nal measures its scope is limited to internally dis-
criminatory laws, then this has implications for the
activities of regional harmonization and recogni-
tion if these regulatory devices are not extended
to the other WTO members. In the absence of any
other controlling provisions, one would suggest by
3
Interface between RTAs and WTO
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this that regional members cannot establish har-
monization approaches or recognition approaches
within their RTAs without triggering the MFN rights
of third parties.
3.1.5 Article XXIV and other Annex 1A
Agreements
An important caveat to this conclusion however
is that there are other provisions in the annexed
Agreements for goods that do grant some flexibil-
ity for members to engage in certain types of rec-
ognition activity, notably as found in the Technical
Barriers to Trade Agreement (for product standards)
and in the Sanitary and Phytosanitary Agreement
(for food safety standards). A detailed discussion of
how those provisions work to permit some selective
recognition between WTO members is beyond the
scope of this discussion. More relevant here is that
where those other Agreements accord these rights
and act as partial MFN exceptions, WTO members
can entertain these activities on a bilateral basis
irrespective of the requirements of Article XXIV. It
would seem irrelevant whether or not the activities
were provided for in a Regional Trade Agreement as
long as they are designed and operated with the
provisions of the TBT or SPS Agreements. If how-
ever their activities are extended beyond what is
accommodated in those agreements, then one
should consider that Article XXIV does not likely
grant an exception for these additional activities
that would be affecting other members’ rights in
the WTO.
For example, the TBT Agreement not only allows
but encourages members to recognize the confor-
mity assessment procedures of other members. TBT
Article 6.3 states that “Members are encouraged,
at the request of other Members, to be willing to
enter into negotiations for the conclusion of agree-
ments for the mutual recognition of results of each
other’s conformity assessment procedures.” These
conformity assessment procedures are the testing
mechanisms and the data that flows from them
that is used to determine whether products meet
national quality and safety standards. This right of
recognition appears to be granted and in a manner
that need not be extended to all other WTO mem-
bers as a matter of right. This probably accommo-
dates the consideration that not all national test-
ing systems operate at similar quality levels and
that assurances necessary to support this type of
recognition require a high degree of confidence
and administrative support between governmen-
tal agencies. However, there are probably limits to
how restrictively two countries can engage in this
type of recognition. One possibility is that if a rec-
ognition agreement is origin-based, this may not
be contemplated by the TBT Agreement provisions.
Origin-based would mean that only the products of
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50 International Convention
for the Protection
of Performers, Producers
of Phonograms and
Broadcasting Organizations
78
origin of the partner country would be allowed to
have its conformity assessment data recognized
by the other country. This would mean that prod-
ucts from a third country being tested in one of
the recognition partners would not be allowed
to have its data results recognized in the other
partner country. If this type of provision were
established it would probably be challenged by
a third country. As we interpret the ORRC term
above, placing this type of origin restriction into
a recognition provision within an RTA would not
grant it any additional claim for an exception
from MFN. The regional exception would argu-
ably not extend to provide a legal cover for this
type of discrimination.
3.2 WTO subject areas treated in RTAs
The purpose of this section is to briefly and selec-
tively identify some of the WTO considerations
of including particular regulatory subject areas
within RTAs. These are not the only WTO areas be-
ing treated by RTAs. RTAs can be found that also
include provisions for subsidies, trade facilitation,
government procurement, trade-related invest-
ment measures, just to name a few.
3.2.1 Product and food standards
All WTO members are required to abide by the SPS
(food safety standards) and TBT (product character-
istics standards) provisions that are contained in the
Annex 1A Agreements for goods. Both of these agree-
ments require members to adhere to international
standards (except where inappropriate due to the
factors listed in each agreement). This is a form of
harmonization applicable between WTO members
where the agreements give otherwise non-binding
international standards (set in international forums
such as Codex Alimentarius or ISO) a legal effect in
the WTO. Many developing countries support this
requirement since access to developed country
markets can be made far more difficult where they
apply inconsistent standards in different markets, or
where the national standards are set so high as to be
difficult for producers to meet them. One WTO panel
and Appellate Body case has ruled in favor of a de-
veloping country complainant that charged the EC
with the failure to apply an international standard
for sardine labeling (EC-Sardines, claim brought by
Peru).
While developed countries are bound to apply in-
ternational standards and developing countries
can rely upon them for their export trade, devel-
oping countries are not similarly required to apply
international standards for their own domestic
requirements. For the TBT Agreement example,
the developing country exception is fairly broad
in allowing developing countries to set their own
(non-conforming) product standards where the
international standard is not appropriate for their
development, financial and trade needs. As TBT
Article 12.4 states,
“Members therefore recognize that developing
country Members should not be expected to
use international standards as a basis for their
technical regulations or standards, including
test methods, which are not appropriate to their
development, financial and trade needs.”
An RTA can modify this WTO standards regime in
two possible ways. One is where regional mem-
bers agree to apply international standards (thus
waiving the provisions of TBT Article 12.4 allowing
the developing partner to set lower standards). A
second possibility is where the developed regional
partner is operating on non-conforming standards
(a standard stricter than an international stan-
dard) and where a developing regional member
acknowledges either formally or informally these
stricter standards for the purpose of trading with
the developed regional partner. While another
WTO member may choose to challenge these non-
conforming standards in a WTO case, it seems like-
ly that a regional partner who has acknowledged
these higher standards within an RTA context is
not likely to be making such a challenge.
3.2.2 Intellectual property (IP)
There is little question that RTA members occasion-
ally adopt World Intellectual Property Organization
(WIPO) treaty regimes in their RTAs that are not
covered by the WTO. The following agreements are
referenced from the United States-Jordan agree-
ment (United States-Jordan FTA, Article 41):
• Joint Recommendation Concerning Provisions on
the Protection of Well-Known Marks (1999);
• International Convention for the Protection of
New Varieties of Plants (1991) (UPOV);
• WIPO Copyright Treaty (1996) (WCT);
• WIPO Performances and Phonograms Treaty
(1996) (WPPT).
The WTO TRIPS Agreement only incorporates the
Paris Convention for the Protection of Industrial
Property (1967), the Berne Convention for the
Protection of Literary and Artistic Works (1971),
the Rome Convention (1961),50 and the Treaty
on Intellectual Property in Respect of Integrated
Circuits (1989).
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Box 11
RTA members’ rights of WTO modification – IP regimes

The question of whether developing countries should or should not be adopting these intellectual property (IP) re-
gimes in their North-South RTAs is more an economic question than a legal one. Whether parties can adopt these
regimes within their RTAs is a legal issue. For this, there is a strong basis in public international treaty law that par-
ties can freely modify their multilateral arrangements between themselves except in two cases, both set out in the
Vienna Convention on the Law of Treaties (1969), Article 41 (Modifications). First, where the multilateral treaty itself
provides for its own terms of modification, the multilateral treaty controls the members’ rights to modify. TRIPS does
not provide any provision governing regional activities, and it is also not likely that Article XXIV or GATS V would not
govern these incorporated WIPO regimes as long as they are not being applied by a regional member in a discrimina-
tory manner to other WTO members.

A second limitation to the right to modify a multilateral treaty is where the treaty is silent on the question, as it ap-
pears to be the case in the WTO for incorporating other IP obligations in an RTA. In that case the regional parties can
freely modify and engage in whatever activity they wish as long as they do not undermine the object and purpose of
the multilateral agreement or interfere with the treaty rights of third parties. On this point for WTO, there might well
be an MFN violation if the new regimes were installed for the benefit of another RTA member but not for the benefit
of all other WTO members. The TRIPS has its own MFN clause in Article 4. Since there is no regional exception in TRIPS,
this would probably be actionable by a third party WTO member.

A similar analysis is made in those cases where an RTA member may be modifying the rights or other flexibilities
maintained in the multilateral agreement, for example, if a developing country agreed to not invoke its rights to com-
pulsory licensing for the TRIPS public health declaration (now TRIPS as amended), or agreed to otherwise restrict its
rights of parallel importation where the TRIPS is overall silent on the question of exhaustion or rights. Whether or not
these modifications would be advisable for developing countries to assume in an RTA, the WTO regime does not have
a provision “preventing” this type of modification. It is not likely that these bilateral modifications would undermine
the overall object and purpose of the WTO. While it is a purpose of the WTO to ensure that developing countries are
granted certain flexibilities in the trade regimes, if a developing country decides in its RTA to ‘waive’ those flexibilities,
that would appear to be a choice that does not undermine the overall purpose of the WTO or the TRIPS Agreement.

3.3 RTA regulatory activities outside the WTO

3.3.1 Competition policy

Provisions on cartels and abusive monopolies have
long been a feature in EC RTAs and are increasingly
found in the North-South RTAs of other developed
countries. The provisions range from soft to hard in
their approaches. A soft provision would impose lit-
tle substantive obligation on the RTA member other
than to use its best endeavors to respond to compe-
tition policy problems that are affecting the trade
(or conduct of business) of the regional partner. A
more binding set of provisions might require the
establishment of a domestic enforcement agency
according to a timeline and then prescribe the min-
imum conditions for the proper functioning of the
national competition law and its application in the
domestic legal system. These may refer to rights of
complaint, procedural fairness, transparency as well
as ensuring national treatment for foreign firms to
have access to the national law and its remedies.
However, even in the stronger or more comprehen-
sive competition policy systems being implanted in
RTAs, there is not so much evolution for recourse or
dispute settlement mechanisms when countries
do not abide or fail to provide for the terms of the
agreement. Even where an RTA provides for dispute
settlement, the provisions relating to competition
policy are almost always excluded from dispute
settlement. This reflects the consideration that na-
tional competition authorities do not want their
individual case determinations being subject to
international dispute settlement in an RTA. Thus,
these provisions appear to function as meaningful
political expressions that are intended to be carried
out by the respective members in good faith, and
within the overall context of the RTA relationship
being established.
The development of competition policies within
South-South RTAs is also noteworthy. Since a num-
ber of developing country regional arrangements
concluded in the 1970s were based on the EC Rome
Treaty model (COMESA, CARICOM, WAEMU, for ex-
ample), these arrangements have been concluded
in the form of customs unions and common mar-
kets, and at least several of them contain competi-
tion policy chapters. While implementation of some
of these treaties has been slow over the subsequent
decades, there is some strong impetus to complet-
ing competition policy arrangements within these

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RTAs at the current time. Part of this comes from
the desire of the regional members to implant
competition remedies as hopeful substitutes
for intra-regional trade measures, such as anti-
dumping actions. Another impetus comes from
the European Community which is in the process
of negotiating Article XXIV compliant Economic
Partnership Agreements with identified regions in
the ACP group. From the EC perspective, regional
competition policy is pro-development.

Box 12
The Cotonou Agreement and competition
Article 45(2) of the Cotonou Agreement provides that the parties “undertake to implement national or regional rules
and policies” including the control or the prohibition of cartels which restrict competition and the prohibition of
abuse of dominant position either in the Community or the territory of the ACP states. The third paragraph indicates
that the parties agree to reinforce cooperation in this area for formulating effective competition laws with appropri-
ate national competition agencies capable of enforcement by both private and state enterprises.

3.3.2 WTO provisions on competition

Although the WTO does not directly regulate com-
petition laws, there are provisions in the GATT and
GATS that touch competition. GATT Article XI on pro-
hibiting quotas (restriction on importation and ex-
portation) can be brought into play for private firm
behavior where the state has acted to establish the
private restrictions placed on trade. This does not
mean a state has to take action to uncover monopo-
lies or cartels restricting trade, but rather that if the
state sets out inducements or guides the firms in
their restrictive behavior, this state action might fall
within the Article XI prohibition.
For the GATS, there is also the right to consult and
possibly take action where either a state-owned
monopoly or exclusive service provider is undermin-
ing one of the obligations of the GATS or a market
access commitment (GATS Article VIII). A more ex-
tensive set of obligations is undertaken by the WTO
members who have agreed to adopt the reference
paper provisions in basic telecommunication ser-
vices. In this sectoral agreement members agree to
address anti-competitive practices undertaken by
exclusive or monopoly telecom service providers.
3.3.3 Investment
Cross-border investment is regulated by the GATS
to the extent that investment is made across
borders for the purpose of supplying a service.
The GATS Mode 3 deals with commercial presence
and this includes the importation of investment
in order to establish a presence in the market to
deliver a service. Service suppliers established in
this manner are entitled to general most-favored
nation treatment. Only when the WTO member
makes a market access commitment (GATS Article
XVI) national treatment is required to be applied, i.e.
providing the same treatment to the established
service supplier that the country is providing to its
own service suppliers in that particular sector. What
GATS does not provide for or recite any international
law standards for is fair and equitable treatment, or
matters dealing with expropriation and standards
for compensation.
These aspects are normally taken up in bilateral
investment treaties (BITs) which apply to inves-
tor treatment generally (not just for services) and
which also provide for MFN and national treatment
provisions. These types of provisions can also be
taken up in an RTA, essentially providing the terms
of a bilateral investment treaty within a free trade
agreement. An example is the NAFTA, which has
a separate chapter on investment. In these cases,
there can be an interface on the interpretation of
these international law concepts within the con-
text of the parties’ free trade objectives. This would
be different than how a bilateral investment treaty
would be interpreted according to its narrower
investment objectives. This is not a settled area of
law, but there has been at least one NAFTA dispute
case (at the International Centre for Settlement of
Investment Disputes, ICSID) which interpreted the
concepts of expropriation and fair and equitable
treatment standards in light of the broader free
trade objectives of the regional parties. Arguably
these interpretations extended the customary in-
ternational law regarding the treatment of inves-
tors, and there has been some reaction even from
the developed country members to these types of
cases. For example, the United States model BIT now
provides that the concepts of “fair and equitable
treatment” and “full protection and security” be
governed by customary international law and “do
not require treatment in addition to or beyond that
which is required by that standard” (United States
model BIT, Article 5, para. 2).

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3.3.4 Labor and other public international
law standards
Where an RTA is formed and made entirely condi-
tional upon the regional parties’ abiding by certain
public international law standards, such as core
labor rights or human rights, then it does not ap-
pear that a WTO issue is raised. This is because par-
ties can terminate their entire agreement at their
own choosing and according to their own terms.
If an agreement is terminated, then assuredly the
regional member continues to retain all of its WTO
rights and obligations in any case.
Where an Article XXIV qualification issue could
arise is in the event that labor rights, for example,
were utilized in order to restrict the trade in a sec-
tor which fell within the liberalization schedules of
the regional members. This is similar to the use of
module
safeguard in its legal effect, but we treat this topic
under the rubric of trade conditionality. There is no
documented RTA (to the author’s knowledge) that
has installed sectoral conditionality for core labor
rights (or other social provisions) in an RTA.
A hypothetical example of such a condition can
be posed however. Assume that the parties have
a provision that allows them to terminate the
trade in any sector where it is documented (by
some investigatory process and an administra-
tive finding) that there has been a consistent
failure to apply a core labor right. This provision
would allow a “safeguard” to suspend the trade
of that sector. If that sector was a major traded
sector, then this action of termination could raise
the question of whether the agreement contin-
ued to meet its Article XXIV requirement to cover
substantially all the trade.

Exercises and questions for discussion

1. It appears from some North-South RTAs that developing countries are more willing to take on regulatory obli-
gations than they are willing to do so in the WTO, competition and investment provisions, being two examples.
What is your explanation for why this may be occurring?

2. Across the range of possibilities for including regulatory systems within RTAs, what methodology would you
suggest could be used to determine if a particular regulatory system was on balance beneficial or detrimental
to a developing country regional partner? Would this be primarily an economic, political or legal analysis? What
factors should be considered?

For further research

Select a single North-South trade agreement and identify the regulatory areas being treated in the agreement.
Then attempt the comparison to the WTO regimes in order to clarify the types of modifications that are being
made by the regional members.

4 Conclusion – the interface between

WTO and RTAs: What is the outlook?

It should be clear from the material in this module
that the relationship between the multilateral trad-
ing system and RTAs is rather profound. Terms such
as free trade area and economic integration agree-
ment are themselves the creation of the GATT and
WTO legal texts, as are the definitions we apply to
Regional Trade Agreements such as customs unions.
As discussed above, these legal concepts were devel-
oped by negotiators who were attempting to con-
strain and yet retain state flexibility to enter into
new preferential systems in the new multilateral
trading system. This said, the multilateral system
and the world of RTAs are intimately interconnected,
and will remain so as long as there is a multilateral
system and a legal regime in the WTO.
This relationship has also been most profound for
developing country members of the GATT and then
WTO. Much of the story of regionalism throughout
the history of the GATT related to the key North-
South trade agreements in the EC-ACP relation-
ship, from the time of the Overseas Association,
the Yaoundé Conventions, the Lomé Conventions,
and now the Cotonou framework. Throughout this
history there has always been a certain tension
between a group of selected developing countries
(the former European colonies) and the rest of the
developing country community. This relationship
also continues to play out in the current Doha nego-
tiation environment where special and differential
treatment in the form of lesser reciprocity require-
ments for Article XXIV is being discussed and is at
issue. Similarly, the relationship between Article
XXIV requirements and the Enabling Clause excep-
tions will remain at issue as long as there are de-
veloping countries that are not likely to become RTA
partners with major developed countries. For them
GSP remains the primary point of reference and the

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question of GSP preference erosion generated by
North-South RTAs will remain an issue.
One notable trend in the new generation of RTAs
is the increase in North-South RTAs by almost all
the developed country territories, including Japan,
Canada, the United States, and of the course the EU.
More of the RTAs are out of territory and for now,
one does not see a slowing down of this process of
tying major developing countries to the developed
markets by the use of RTAs. These agreements raise
obvious systemic issues for the multilateral trading
system, and it is probably a related phenomenon
that during this Doha Round of trade negotiations
all WTO members have commenced a serious dis-
cussion over the coverage requirements that should
be used to examine the compatibility of new RTAs.
While many also consider this RTA proliferation to
be a threat to the WTO system, there is another view
suggesting that it is the underlying security of the
WTO itself which makes these regional agreements
possible. If the agreements are generating real eco-
nomic development for the RTA members, so the
argument goes, then this is the vehicle of choice for
accomplishing the objectives of the members, and
so be it.
Similar is true for the trend evident in all RTAs of
treating more complex regulatory issues, including
competition and investment policy, and provisions
on services. These are new economic issues for many
developing countries and where the regimes are in
line with their own notions of sustainable econom-
ic development priorities, the RTA regimes appear
to arguably give a boost to regulatory streamlin-
ing and creating secure legal frameworks for trade
and investment. Since many of the regimes and the
RTAs containing them are of more recent vintage,
we have to conclude that the jury is still out on how
much effective investment and trade are gener-
ated by them, and how much the new regulatory
regimes are supported and implemented by techni-
cal assistance and capacity building.
While we can certainly suggest that these develop-
ments might be better to be occurring at the mul-
tilateral level rather than the regional level, these
choices have already been made, at least for now.
As a group within the WTO, developing countries
have largely rejected competition and investment
policy regimes, as “too much too fast”. This of course
does not prevent individual RTAs from taking up the
same subject areas, and here it appears that many
developing countries are more amenable, perhaps
with the trade-offs of better negotiated market ac-
cess and the absence of the WTO dispute settlement
applying to these RTA regulatory regimes.
The additional phenomenon of South-South RTAs,
especially between the larger and rapidly growing
developing countries, is likely to progress. It remains
unknown how comprehensive these agreements
may be in evolution. The Enabling Clause rules im-
pose little criteria with regard to sectoral coverage,
and for now the implications for other developing
countries that are not parties to those agreements
remain unclear. It is possible that within these
agreements there are elements that may gener-
ate strong regional development that could benefit
non-RTA members. At the same time, it is also pos-
sible that the agreements could be trade diverting,
and not only for developed territories. The WTO
Doha discussion is not addressing Enabling Clause
requirements for South-South agreements, and ar-
guably, this aspect is not within the terms of refer-
ence in the Doha work programme.

Readings

References

Dam, K. (1963). “Regional Economic Arrangements and the GATT, the Legacy of a Misconception”. University of Chicago Law Review,
Vol. 30, No. 4.

Evans, P. (2002). Liberalizing Global Trade in Energy Services, AEI Press, Washington D.C.

Gardner, R. (1980). Sterling-Dollar Diplomacy in Current Perspective, Columbia University Press, New York.

Haight, F. (1972). “Customs Unions and Free Trade Areas Under GATT: A Reappraisal”. Journal of World Trade Law, Vol. 6, No. 4, pp. 391-
404.

Hirschman, A. (1945). National Power and the Structure of Foreign Trade, University of California Press, Berkely. Expanded edition
(1980), University of California Press, Berkely.

Scollay, R. (2005). Substantially all Trade: Which Definitions are Fulfilled in Practice? An Empirical Investigation, Commonwealth
Secretariat, London.

Viner, J. (1950). The Customs Union Issue, Carnegie Endowment, New York.

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Whidden, H. (1945). Preferences and Discriminations in International Trade, Committee on International Policy, Carnegie Endowment
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Georgetown University, Washington, D.C.

World Bank (2005). Global Economic Prospects 2005: Trade, Regionalism, and Development, World Bank, Washington, D. C.

Further readings

Bartels, L. (2005). “The Legality of the EC Mutual Recognition Clause Under WTO Law”. JIEL, Vol. 8, No. 3, pp. 691-720.

Chase, K. (2006) “Multilateralism Compromised: The Mysterious Origins of GATT Article XXIV”. World Trade Review, Vol. 5, No. 1,
pp. 1-30.

Cottier, T. (2004). “The Legal Framework for Free Trade Areas and Customs Unions in WTO Law”. World Trade Institute and State
Secretariat for Economic Affairs, WTI/SECO workshop on regional integration.

Ethier, W. (1998). “Regionalism in a Multilateral World”. Journal of Political Economy, Vol. 106, No. 6, pp. 1214-1245.

Hudec, R. and Southwick, J. (1999). Regionalism and WTO Rules. In: Rodriguez et al., Eds. Trade Rules in the Making, OAS and Brookings,
Washington, D.C.

Lockhart, J. and Mitchell, A. (2005). Regional Trade Agreements Under GATT 1994: an Exception and Its Limits. In: Mitchell, A., Ed.
Challenges and Prospects for the WTO, Cameron May, London, pp. 217-252.

Mathis, J. (1998). “Mutual Recognition Agreements: Transatlantic Parties and the Limits to Non-tariff Barrier Regionalism in the WTO”.
Journal of World Trade, Vol. 32, No. 6, pp. 5-31.

Mathis, J. (2002). Regional Trade Agreements in the GATT/WTO. Article XXIV and the Internal Trade Requirement, T. M. C. Asser Press,
Den Hague.

Trachtman, J. (2003). “Toward Open Recognition? Standardization and Regional Integration Under Article XXIV of GATT”. JIEL, Vol. 6,
No. 2, pp. 459-492.

UNCTAD (2005). Multilateralism and Regionalism: The New Interface, ed. by Mashayekhi and Ito, UNCTAD/DITC/TNCD/2004/7,
New York and Geneva.

WTO (2003). Regional Trade Integration under Transformation, WTO Secretariat Seminar on Regional Trade Agreements, Geneva.

WTO (2005). The Future of the WTO: Addressing Institutional Challenges in the new Millennium, Report by the Consultative Board,
Geneva.

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