./.RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG/W/28
28 July 1998
(98-3007)
Committee on Regional Trade Agreements Original:  English
COMMUNICATION FROM JAPAN
"Other Regulations of Commerce" in Article XXIV:5 of the GATT
Following the paper by Australia (WT/REG/W/25), this paper presents some illustrative
examples which may be of help for the understanding of the issues with regard to regional trading
arrangements, especially the meaning of Article XXIV:5 ("other regulations of commerce … shall noton the whole be higher and more restrictive") and the possible impacts of regional trade
agreements (RTAs) on third countries.  This paper is not intended to set down a comprehensive list of
issues.
I. RULES OF ORIGIN
Two cases can be cited in which a change in the rules of origin as a result of an enlargement
of an RTA can have a restrictive effect on trade with a third country.
(i) We consider a case where Countries A and B were the members of an RTA.  The RTA had
regional  rules of origin, under which, if a company located in A produced products with
50 per cent local content in the region (A and/or B), the origin of the RTA was granted to the
products and the products were traded free of customs duties within the region.  When
Country C joined the RTA, however, new rules of origin were adopted.  The new rules raised
the local content ratio from 50 per cent to 60 pe r cent.  A foreign country company (x) located
in A had been using 50 per cent of contents from A and/or B, and had been exporting its
products to B without customs duties.  Under the new rules of origin, however, the foreigncompany (x) in A would have to use 60 per cent of contents from the region and reduce
imports of contents from home Country X to a 40 per cent level in order to meet the new rules
of origin.  In addition to the negative effects on the imports of contents from X, the
company (x) would have to bear the extra cost of technical adjustment so that its factory can
incorporate the local and foreign contents at a ratio of 60 to 40.  These rules can be consideredmore trade restrictive to third parties.
(ii) Countries C and D are members of an RTA which previously had rules of origin whereby if
product P (material or component of a product Q) were imported from third country X to the
region (C or D) and then converted or assembled to product Q, Q would have been givenorigin of either Country C or D.  Countries C and D changed the rules of origin when Country
E, which produces and exports product P to C and D, joined the RTA.  New rules of origin no
longer give origin to product Q converted in the region (C, D, E) from product P imported
from third country X.  As a result, manufacturers who manufacture product Q in the region
from product P imported from X have to change the country from which the manufacturersimport product P, from Country X to Country E in order to meet the new rules of origin.WT/REG/W/28
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II. COMPETITION POLICY AND ANTI-DUMPING MEASURES
Countries A and B form an RTA.  Under the RTA, A and B will not apply anti-dumping
measures against each other but might apply instead other common competition measures
(e.g. anti-predatory pricing measures) between them.  If the criteria and the conditions for applyinganti-dumping measures and competition policy measures are different from each other, Country B's
company (b) may export its products to A at a price 10 per cent below normal value, while like
products imported to A from third country X at a price 10 per cent below the normal value would
likely face imposition of anti-dumping duties.  Thus, the differential treatment is accorded to imports
from non-members to the RTA.
III. SAFEGUARDS
Countries A and B form an RTA and agree not to apply safeguard measures between
themselves unless the imports amount to a certain share of total imports.  An industry in A is seriously
injured by imports coming from B and third countr y X.  Country A applies safeguard measures only
to imports from X because the imports from B do not reach the threshold.  If imports from B alsocause the injury to A's industry, this measure is not consistent with non-discrimination disciplines.
IV. OBSERVATION
The cases illustrated above raise problems with Article XXIV:4 and 5 of the GATT.  They
show cases where the basic principle of non-di scrimination under Article I of the GATT is not
respected.  The provisions of Article XXIV:8 on the definition of an RTA should not be interpreted to
give the members of an RTA the right to introduce trade restrictive measures.  The Understanding on
the Interpretation of Article XXIV of the GATT 1994 (the Understanding) should also be strictly
observed.  The Understanding provides that the purpose of RTAs should be to facilitate trade and notto raise barriers to the trade and that RTAs should to the greatest possible extent avoid creating
adverse effects on the trade of other Members (preamble of the Understanding).  The Understanding
also provides that for the purpose of the overall assessment of the incidence of other regulations of
commerce (Article XXIV:5), for which quantification and aggregation are difficult, the examination
of "individual" measures, regulations, products covered and trade flows affected may be required
(paragraph 2).  All Members of the WTO could face the problems illustrated above because any WTO
Member may be a member of some RTAs, but is not a member of all RTAs.  It is a commonchallenge to all Members to ensure the non-discrimination principle of the WTO.
References:  "Rules of Origin in Regional Trade Agreements" by David Palmeter, and "The
Treatment of Dumping, Subsidies and Anti-Competitive Practices in Regional Trade Agreements" by
Jean-François Bellis, both in Regionalism and Multilateralism after the Uruguay Round.
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