 
 WORLD TRADE  
ORGANIZATION  RESTRICTED  
 WT/REG/M/15  
13 January 1998  
 (98-0084)  
  Committee on Regional Trade Agreements  
Fifteenth Session   
 
 
 
NOTE ON THE MEETINGS OF 27 NOVEMBER AND  
4-5 DECEMBER 1997  
Chairmen:  Mr. John Weekes (Canada), Mr. Claude Bo uah-Kamon (Côte d'Ivoire)  
and Mr. Jean -Marie Noirfalisse (Belgium)  
A. Adoption of the Agenda  
1. The Fifteenth Session of the Committee on Regional Trade Agreements (CRTA) was 
convened in Airgram WT O/AIR/735.  In opening the Session, the  Chairman  (Mr. J. -M. Noirfalisse) 
noted that he would be chairing the meeting for items A and B of the Agenda on 27 November, that 
Mr. C. Bouah -Kamon would be chairing for item E of the Agenda on 4 December, and that 
Mr. J. Weekes would be chairing for items C, D and F of th e Agenda on 5 December.  
2.  The representative of the European Communities  indicated that, under "Other Business", his 
delegation would raise the issue of MERCOSUR's recent increase in tariff rates by Brazil and 
Argentina, and also an issue relating to the  process whereby the Committee's examination reports 
were being formulated and drafted.  
3. The following Agenda was adopted:  
A. Adoption of the Agenda  
B. 1997 Report of the Committee to the General Council  
 C. Examination of the Enlargement of the European  Communities  
 D. Reporting on the Operation of Agreements  
 E. Systemic Implications of Agreements and Initiatives for the Multilateral Trading 
System and the Relationship Between Them:  
  I. "Other regulations of commerce"  
  II. "Substantially all the trade " 
 F. Other Business  
B. 1997 Report of the Committee to the General Council1 
4. The Committee adopted  the Draft Report (1997) of the Committee on Regional Trade 
Agreements to the General Council, as contained in document WT/REG/W/20, with paragraph 10 
deleted and a final sentence added to paragraph 11, reading:  "At the request of the Committee, the 
Secretariat prepared a list of RTAs notified to the GATT/WTO which are currently in force."  
 
1The 1997 Report of the Committee on Regional Trade Agreements to the General Council can be 
found in document WT/REG/3.  WT/REG/M/15  
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 C. Examination of the Enlargement of the European Communities  
5. Minutes for this examination are being circulated as a separate document.  
D. Reporting on the Operation of Agreements  
6. The Chairman  recalled that during the last Session the Committee had reverted to an informal 
mode to consider the revised Chairman's Infor mal Proposal on reporting.  In summing up that 
discussion, he had noted that a number of preliminary suggestions for improvement had been made.  
As to the basic approach of the paper, there had seemed to be broad support that the Committee 
should discharge  its mandate with respect to reporting obligations by building on the existing legal 
obligations with respect to the different types of agreements.  The Committee had decided that it was 
premature to redraft the Proposal, and that instead delegates should continue to raise points based on 
the version dated 31 October 1997.  In resuming discussion on this item, the Committee should focus 
on how procedurally to give effect to the various legal requirements that existed in this area.  He 
proposed that the Comm ittee shift into an informal mode again this Session, to facilitate discussion.  
As there was no objection, he then announced that the meeting would become informal.  
7. In reconvening the formal meeting, the Chairman  summarized the informal discussion, say ing 
it had been useful and the Committee had made progress.  He was encouraged that the Committee 
would likely be able to reach agreement early next year on recommendations about how to 
operationalize reporting requirements.  The Committee would be recomme nding that certain decisions 
be taken by the Council for Trade in Goods, the Council for Trade in Services and the Committee on 
Trade and Development.  A key element would have to be respecting the existing legal rights and 
obligations incorporated in the WTO texts.  The Committee was inviting the Secretariat to prepare a 
new draft reflecting the points made in the informal meeting, for consideration at the Committee's 
next meeting.  
E. Systemic Implications of Agreements and Initiatives for the Multilateral  Trading System and 
the Relationship Between Them  
8. The Chairman  recalled that two issues, "other regulations of commerce" and "substantially all 
the trade", had been identified as suitable for the Committee's first exchange of views within the 
framework for systemic discussions established during the September meeting.  At the last Session the 
Committee had begun considering these two issues, based on informal papers submitted by the 
delegations of Australia and Hong Kong, China (subsequently circulated a s formal documents 
WT/REG/W/18 and WT/REG/W/19, respectively), as well as on two documents prepared by the 
Secretariat on the issue of "other regulations of commerce" (WT/REG/W/17 and Add.1).  These 
documents were still before the Committee as bases for th e day's work.  In addition, concerning the 
question of "substantially all the trade", the Secretariat had recently produced two documents which 
reviewed the drafting history of the legal text (WT/REG/W/21) and the principal interpretations of 
this term dur ing the GATT years (WT/REG/W/21/Add.1).  A proposal for structuring further the 
debate on "other regulations of commerce" had recently been faxed to delegations, with the following 
four sub -topics suggested:  the relationship between the different parts of  Article XXIV, in particular 
paragraphs 4, 5 and 8; the relationship between Article XXIV and other GATT/WTO provisions; 
identification and analysis of measures or regulations covered by the term "other regulations of 
commerce"; and the difference between free-trade areas and customs unions.   WT/REG/M/15  
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 I. "Other regulations of commerce"  
9. The representative of Hong Kong, China  said that the proposed structure for discussion was 
acceptable, but he wished to point to the inter -relationship between the two concepts and to the 
inter-linkages between the sub -topics identified with respect to "other regulations of commerce".  It 
seemed that a strictly compartmentalized approach would not serve best, but his delegation would go 
along with the proposed structure so long as li nks could be drawn among different aspects of the 
topics.  At the same time, there was a need to address some general principles pertaining to all sub -
topics identified.  The representative of Argentina  said his delegation understood the logic of having 
an overview, but it seemed the discussion should be allowed to flow naturally.  If the idea was to 
revisit some of the ideas proposed during the preparations for the Singapore Ministerial Conference, it 
should be remembered that several delegations had oppos ed that approach, so revisiting this kind of 
debate would limit the possibilities of having a constructive discussion.  
10. The representative of the United States  recalled that in September the Committee had decided 
to put more structure into the debate be cause the Committee had been having "free for all" discussions 
for quite some time.  The rationale behind structuring the debate was to focus on specific issues 
without precluding discussion of linkages - it was just a way to focus work better, to allow mo re 
detailed treatment of issues.  This would help prevent repeated statements of positions.  She also 
noted that the Committee was mandated to consider Article XXIV - what it said, what it meant, what 
delegations might like it to mean, what it did not mean , and so forth.  In doing that, the Committee 
would do well to look beyond Article XXIV to some other related discussions that had taken place in 
the GATT/WTO.  She recalled that the terms of reference for the Committee included all regional 
trade agreemen ts (RTAs) and the three sets of provisions dealing with them.  Probably most relevant 
in this respect was the GATS negotiations on Article V, where the negotiators had looked at the 
provisions of GATT Article XXIV and tried to improve upon some of them in drafting that Article.  
There might also be some valuable history with respect to the Enabling Clause.  The minutes of the 
last meeting included a statement by one delegate objecting to a reference to the Enabling Clause; she 
hoped the Committee could disc uss the provisions of any article without prejudice to what provisions 
applied to what RTA.  
11. The representative of Argentina  said that the Committee should defer to the Committee on 
Trade and Development for treatment of issues relating to the Enabling Clause; that body might also 
decide to consider Article XXIV.  
12. The representative of the European Communities  said the matter was simpler than it 
appeared.  The Committee had had a fruitful discussion at its previous Session on the general structure 
and what might be called the exegesis, or explanation, of Article XXIV in architectural terms.  In 
particular, the Committee had discussed the relationship between paragraphs 4, 5 and 8 of 
Article  XXIV.  This had seemed to establish a shared framework for dis cussions.  He hoped to begin 
by looking at paragraph  4, addressing relevant systemic issues that had been discussed for some time 
already, so as to look at them in more detail.  This was a discussion of systemic issues and was by no 
means a negotiation pro cess at this stage, so the Committee needed to provide for an open discussion.  
He agreed that it might be beneficial to discuss Article XXIV in other Committees, if delegations 
wished to do so.  With reference to the discussion at the last Session on para graphs 4, 5, and 8 and 
their relationship with each other, he recalled that his delegation had set out three general points:  
First, Article  XXIV:4 provided a general recognition of the economic benefits of regional integration 
agreements, on the basis tha t the effects should not be to raise barriers to the parties' trade with third 
parties.  Against that background, Article XXIV:5 provided the rules governing the relationship 
between parties to an RTA on the one hand, and third parties on the other hand, w hich seemed to give 
effect to the requirement of paragraph 4 not to raise barriers to the trade of other contracting parties.  
Finally, paragraph  8 provided the internal discipline, or test, which an RTA needed to meet if it was to 
benefit from the fundame ntal derogation from other parts of the Agreement, as contained in the WT/REG/M/15  
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 opening sentence of paragraph  5.  To develop this thinking, perhaps the Committee should look at 
paragraph 4 to put it in the context of the general architecture of the Article as a who le.  His 
delegation viewed paragraph 4 as balancing two objectives, in that "the desirability of increasing 
freedom of trade by the development, through voluntary agreements, of closer integration between the 
economies of the countries parties to such agre ements" was recognized, as well as the idea that third 
parties also had legitimate interests, as expressed in the condition that "the purpose of a customs union 
or of a free -trade area should be to facilitate trade between the constituent territories and n ot to raise 
barriers to the trade of other contracting parties with such territories."  Thus, paragraph 4 set out the 
principle which was given effect in paragraph 5.  In providing the recognition of the desirability of 
economic integration and of the need  to preserve third -country interests, Article XXIV did not seem 
to support arguments based on trade creation or trade diversion.  Closer integration between the 
economies of RTA parties was achieved through customs unions or free -trade areas, the purpose o f 
which "should be to facilitate trade between the constituent territories".  The word "facilitate" was 
important, and it seemed to mean to "allow" or to "permit", but not to "ensure", to "mandate", or to 
"direct".  Facilitation of trade allowed trade to t ake place, but in a market economy it could do no 
more.  The raising of barriers was opposite to the concept of the facilitation of trade - in other words, 
it was the prevention of trade which would otherwise have taken place.  The drafters of the Article no 
doubt had had market economies in mind; the creation or diversion of trade in these circumstances 
remained a matter for economic forces, beyond the ability of RTA parties to control.  Trade creation 
or trade diversion as a test of the legitimacy of an R TA was not an argument that Article XXIV:4 
would support.  Also, it was appropriate to read Article XXIV as a whole.  Article XXIV:4 made it 
clear that the voluntary agreements leading to closer integration which were provided for were 
customs unions and f ree-trade areas.  The provisions of paragraphs 5 -9 provided the means by which 
the objectives described in paragraph 4 were to be achieved.  Thus, the Committee should conclude 
that Article XXIV:4 was an integral part of the provisions of Article  XXIV, and  that it did not support 
attempts to develop other tests for the conformity of RTAs with the rules of GATT 1994; all it did 
was to provide the general principles which appeared to be fully developed in the rules and 
requirements which followed in the rest of Article XXIV.  This perspective was relevant to the first of 
the four points for discussions set out in the Chairman's note, and it was an important piece of 
background explanation for the position taken by his delegation on a range of systemic issues.  
13. The representative of Australia  said that Article XXIV:4 at first impression appeared not to 
say much, and seemed to be in the nature of a preamble to what followed.  The paragraph set out 
certain economic aims and in its second part delved into the le gal aspects of RTAs.  While it was true 
that the paragraph in a way did make room for closer regional economic integration, it was 
nonetheless questionable to what extent this was still relevant in a world where there were so many 
RTAs.  At issue were trad e creation and trade diversion in a global system, whereas Article XXIV as 
a whole seemed to have been intended as applicable only to a relatively small number of situations.  
The drafting history did not shed light on this point.  The Committee needed to pay attention to the 
economic aspects of Article XXIV:4 and to the question of whether the paragraph created any rights 
or obligations; it probably did not, though it announced that further on in the Article such rights and 
obligations would be set out.  B y virtue of the paragraph's inclusion, it was an important part of the 
Article;  but ultimately, the meaning of Article XXIV did not seem to centre on what was contained in 
paragraph 4, which was more of a preamble than anything else.  
14. The representativ e of Hong Kong, China  clarified that under no circumstances had his 
delegation ever contemplated reopening the debate which had preceded the Singapore Ministerial 
Declaration.  He thanked the delegations of the EC and Australia for bringing the Committee 
immediately to the substance of its discussions.  At the time Article XXIV was conceived, the 
situation with respect to the existing RTAs was very different from that of today's world.  It was still 
the case, however, that this Article was to deal with exce ptional circumstances, as prescribed in its 
language.  The fact that there had been a proliferation of RTAs over the years did not alter the 
provisions' exceptional nature.  Such considerations would be relevant to other issues the Committee  WT/REG/M/15  
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 would discuss,  as well.  His delegation's position was further elaborated in WT/REG/W/19.  When he 
had used the word "linkages" in his previous intervention, he had been referring to the inter -
relationships between the four headings proposed; for instance, for him to ad dress paragraphs 4, 5 
and 8, he would need to go into the requirements of the twin concepts "substantially all the trade" and 
"other restrictive regulations of commerce", which perhaps could also be dealt with under the third 
heading.  On the first heading , his delegation wished to raise the question of whether the 
harmonization of trade regimes envisaged in Article XXIV for customs unions needed to be 
directional, i.e. whether the harmonization needed to be on the whole less restrictive.  This element 
pertained to the relationship between Article  XXIV:8 and 4.  In his delegation's view, harmonization 
did need to be directional, as Article XXIV:4 stated that the purpose of an RTA should not be "to raise 
barriers to the trade of other contracting parties with  such territories".  Reference of course ought to be 
made to the Understanding on the Interpretation of Article XXIV of GATT 1994 (the Understanding), 
which stated inter alia  that in the formation or enlargement of RTAs, "the parties to them should to 
the greatest possible extent avoid creating adverse effects on the trade of other Members".  The 
contention, then, was that the RTA should be directional towards a less -restrictive regime.  A related 
question, concerning the Article XXIV:5 requirement that dut ies and other regulations of commerce 
be on the whole less restrictive, was whether this referred to one broad requirement that duties and 
other regulations of commerce, lumped together, should be less restrictive, or that duties ought to be 
lower and othe r regulations of commerce ought to be less restrictive.  If the latter, the requirement 
would not be fulfilled merely by a lowering of duties, as the parties would have a parallel obligation at 
the same time to make other regulations of commerce less restr ictive.  
15. The representative of Argentina  said his delegation disagreed with the Australian position that 
Article XXIV:4 was not a substantive provision but instead was a preamble.  It seemed rather to be a 
strange kind of provision, since the contractin g parties recognized "the desirability" of RTAs, which 
apparently was more in the line of wishful thinking than a requirement.  It was important not to lose 
sight of the objective of the Committee's discussion.  The mandate from the Singapore Ministerial 
Conference and the mandate from the CRTA's terms of reference was to study whether or not there 
was a systemic problem.  Thus far there had been many interventions focusing on legal aspects of the 
language, but there had been no mention of "a problem".  Whe re was the systemic problem that the 
Committee was trying to identify, and how did Members wish to address the problem if there were 
one?  Regarding the assessment given by the representative of Hong Kong, China, the interpretation 
offered with respect to Article XXIV:5(a) was not acceptable.  The paragraph required that the duties 
and other regulations of commerce imposed at the institution of an RTA with respect to third -party 
trade should not on the whole  be higher or more restrictive than those which ha d been in place prior to 
then.  With reference to the background papers prepared by the Secretariat, he said the efforts were 
good but could be expanded.  His delegation agreed with the idea to structure analysis in a way that 
included the negotiating hist ory to see what the problems had been during the drafting, but the papers 
did not give a full account of the problems encountered during the Uruguay Round and what 
considerations lay behind the Understanding and GATS Article V.  The meetings of May 1990 sh ould 
be seen in light of the fact that the Round had been scheduled to end by 1991.  The negotiators at that 
time perhaps did not have sufficient evidence of the impact and workings of RTAs.  While the 
Committee now had much more evidence showing the concr ete problems which Members were 
encountering, its task was not of a legal nature.  An investigation into the practical problems Members 
had with the provisions of GATT 1994 and the Understanding should allow the Committee to 
determine if those problems des erved attention in the systemic context.  So far, nothing solid had 
come out of the process.  It might be better if the background papers showed not just the results of 
drafting, but also why it had not been possible to make more progress.  
16. The represen tative of the United States  said perhaps the representative of Argentina had just 
identified a systemic problem, in that there had been many discussions over the past 50 years 
concerning where delegations had problems with various provisions, primarily wit h Article XXIV, 
and what was striking was that the oldest documents as well as those from the Uruguay Round dealt WT/REG/M/15  
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 with the same issues.  Interestingly, the delegations' positions seemed not to have changed.  Perhaps it 
was dangerous to take too academic or  too legal a position on any GATT Article, considering the fact 
that negotiation results usually were not based on academic or legal considerations.  The 
Understanding contained a variety of concrete provisions that were directly related to several systemi c 
problems that delegations had had with customs unions, perhaps with one in particular.  
17. The Chairman  redirected the Committee's attention to the first sub -topic for discussion, i.e. 
the relationship between the different parts of Article XXIV, in part icular paragraphs 4, 5 and 8.  
18. The representative of Japan  said his delegation had submitted a paper on this sub -topic.  He 
recalled that the Committee's mandate included the rather broad charge to consider the systemic 
implications of RTAs and regional  initiatives for the multilateral trading system and the relationship 
between them, and make appropriate recommendations to the General Council.  His delegation saw 
disharmonies between RTAs and the multilateral trading system (MTS), and its paper referred  to 
some specific problems.  Attention to systemic problems would benefit all Members.  According to 
economic theory, parties to a closed regional market would in the long term lose competitiveness, and 
an open MTS would in the long run benefit all countri es, as all countries were having to deal with 
RTAs to which they were not party.  The introduction to his delegation's paper noted that the purpose 
or aim of the WTO was to maintain an open MTS and to enhance the MFN principle; the paper also 
noted that in  the Singapore Ministerial Declaration ministers reaffirmed the primacy of the MTS and 
renewed their commitment to ensure that RTAs were complementary to the MTS and consistent with 
WTO rules.  Since RTAs were of a preferential nature, it was important tha t their trade -creation 
effects exceeded their trade -diversion effects.  The representative of the EC had seemed to say that the 
determining factor in whether an RTA was trade -creating was the existence of a market economy; 
however, it was also necessary to  have a legal framework that facilitated trade creation.  The paper 
stressed the importance of looking at the Article XXIV:5 requirement not to raise barriers against 
third countries in the context of the entire set of WTO rules, including specific agreeme nts, such as 
those dealing with safeguards, anti -dumping and rules of origin.  As stated by the representative of 
Australia, Article  XXIV:4 served as a preamble to other paragraphs in the Article and as a guiding 
principle.  The paper also noted some speci fic examples of rules of origin and the extension of anti -
dumping duties and safeguards.  With regard to the list of exceptions in Article XXIV:8, his 
delegation's position, as stated at the last Session, was that the fact that Article XXI (security 
except ions) had not been included indicated that the list was not exhaustive; thus, this paragraph 
should be considered in the context of other provisions and the spirit of the WTO as a whole.  
Regarding the application of safeguards, it seemed there was discrim ination when RTA parties did not 
apply safeguards to each other.  As he had stated at the previous Session, a country needed safeguard 
measures when it was facing serious social and economic problems, so it seemed that an RTA party 
should apply safeguards on an MFN basis without discriminating between third countries and its RTA 
partners.  Finally, with respect to the Article XXIV:8(a)(ii) requirement that "substantially the same 
duties and other regulations of commerce" be applied by the members of an RTA to trade with third 
countries, the paper noted that the language did not require "exactly" the same but rather 
"substantially" the same duties and other regulations of commerce to be applied.  As the Hong Kong, 
China delegate had correctly pointed out, Art icle XXIV:4 and other WTO provisions provided a 
proper perspective or reference point.  
19. The representative of Australia  stressed that in the discussion of systemic issues, which at the 
moment was focused on legal issues, the Committee should not lose si ght of the economic 
underpinnings and the economic rationale for many of the WTO rules.  Several delegations had 
pointed out that the nature of the legal debate was not very different from the debate that had taken 
place over the years.  But as had also be en noted, the economic situation with regard to preferential 
trade agreements had changed greatly.  The Committee should bear this in mind in looking at issues.  
For instance, it seemed that everyone agreed that paragraph 4 of Article XXIV, while important , did 
not impose rights and obligations in the same way that paragraphs 5 and 8 did; however, it seemed  WT/REG/M/15  
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 Article XXIV:4 needed to be considered in the light of changed economic circumstances.  When 
Article XXIV:4 had been drafted, not many preferential trad e agreements had existed, whereas now 
there were many, and a much larger share of global trade was covered by such preferential 
arrangements.  So, even if the Committee were to conclude that the word "facilitate" did not convey 
much, it needed to ask how r elevant the provision was to today's scene.  The same was true regarding 
the assertion by the delegations of Hong Kong, China and Japan that it was important to consider 
whether the harmonization of other regulations of commerce should be directional or no t; in other 
words, this might not have been an important issue when the Article was drafted, but the proliferation 
of agreements caused this to be a much more important question today.  So, while the legal issues 
might not have changed, and while the Commi ttee was not considering possible changes to legal 
obligations, it should be remembered that the Singapore Ministerial Declaration called for the 
Committee to analyze whether the system of WTO rights and obligations as it related to RTAs needed 
to be furth er clarified.  It was part of the Committee's mandate to look at the economic underpinnings 
of WTO disciplines on regionalism.  As other delegations had pointed out, if the Committee ignored 
economics, progress would be difficult.  
20. The representative of  Korea  said his delegation supported the Australian point that the 
Committee needed to give attention to the underlying economics.  He thanked the delegation of Japan 
for its submission for the day's discussion.  With respect to the first sub -topic being d iscussed, he said 
that Article  XXIV:4 not only provided a guiding principle, but also complemented other paragraphs in 
a substantive way.  The preamble of the Understanding said that Members recognized "the 
contribution to the expansion of world trade that  may be made by closer integration between the 
economies of the parties to such agreements"; it then read:  "recognizing also that such contribution is 
increased if the elimination between the constituent territories of duties and other restrictive 
regulat ions of commerce extends to all trade, and diminished if any major sector of trade is excluded."  
Therefore, the contribution to the expansion of world trade was not automatically guaranteed through 
closer integration, and the coverage of an RTA had direct  relevance on potential expansion of world 
trade.  Since there was no agreement as to the meaning of the term "substantially all the trade", it 
seemed the examination of trade effects of RTAs was very important.  Paragraphs 5 -8 did not provide 
the automati c guarantee of this contribution but rather merely provided the internal and external 
mechanical tests for RTAs.  There was then the question, if paragraphs 5 -8 were satisfied, whether 
paragraph 4 was also satisfied.  His delegation was of the view that it  would be only partially 
satisfied.  Regarding the notion of a direct economic linkage between paragraph 4 and paragraphs 5 -8, 
it seemed the nature of paragraph 4 needed to be more clearly defined.  Paragraph 1 of the 
Understanding said that RTAs "...to be  consistent with Article XXIV, must satisfy, inter alia , the 
provisions of paragraphs 5, 6, 7 and 8 of that Article"; the words " inter alia " indicated that 
paragraphs  5-8 were not the only criteria.  Here again, the analysis of trade effects was important,  and 
the Committee should not limit too narrowly the legal reading of paragraph 4.  It was not just of a 
preambular nature, but it also complemented the other paragraphs in a substantive way.  Because the 
analysis of trade effects was relevant, it was impo rtant for the Committee to encourage RTA parties to 
provide trade statistics, even though not legally obliged to do so.  
21. The representative of Brazil  said his delegation was of the view that the question of trade 
diversion or trade creation was not part  of the test of conformity with Article XXIV, for good reason:  
economists would say it is not possible to determine trade effects objectively and accurately, as there 
were so many factors affecting trade (e.g., currency fluctuations or the marketing of pr oducts).  As the 
EC delegation had said, there was a basic assumption that RTAs entailed market economies.  The 
rules were designed to provide an objective test by looking at trade barriers.  The Understanding did 
not talk about trade diversion, but rather  it talked about the raising of barriers to third parties.  
22. The representative of Hong Kong, China  thanked the delegation of Japan for submitting its 
paper, which demonstrated the overlapping nature of the issues and sub -topics under discussion.  In 
particular, his delegation was convinced by the argument in point 3.1 of the Japanese paper that the WT/REG/M/15  
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 listing of exceptions in Article XXIV:8 could not be exhaustive, and that the treatment and 
interpretation of the exceptions list could not operate in a way t hat would compromise the validity of 
the MFN principle.  He endorsed the remarks by the representative of Korea regarding 
Article  XXIV:4, but said there did not seem to be a difference between that position and the one taken 
by the delegation of Australia.   His delegation supported the Australian statement that the Committee 
needed to look not only at legal aspects but also at economic aspects of systemic issues.  He also 
thanked the delegate of Argentina for emphasizing the language "on the whole" in Artic le XXIV:5(a).  
Was there only one "whole", covering both duties and other regulations of commerce, or were there 
two "wholes", referring to both duties, which were qualified by "higher", and other regulations, which 
were qualified by "restrictive"?  It see med there were two separate requirements.  In 
Article  XXIV:5(a), a key word was the "or" in the phrase "shall not on the whole be higher or more 
restrictive..."  The Analytical Index was informative in this respect.  As an example of the need to 
consider t he economic rationale underlying RTAs and WTO rules, he said that, with the formation of 
a customs union, the alignment of external policies might involve a lowering of duties but also an 
increase in the restrictiveness of other regulations; it was an open  question as to whether an RTA in 
this situation would satisfy the requirements of Article XXIV:4.  Bringing in the question of the 
meaning of "substantially", it seemed that Article  XXIV:8 did not require the alignment of the 
external regime to cover ever y sector, because the sole requirement was substantial, rather than total, 
harmonization.  
23. The representative of India  said that, as had been suggested by others, it was important that 
the Committee not lose sight of the primacy of the MTS.  His delegat ion agreed with the Japanese 
point about the need to enhance multilateral trade and to support the MFN principle in the context of 
the Singapore Ministerial Declaration.  While Article XXIV specifically provided for RTAs, it was 
equally important to rememb er that provision for these arrangements had been made in the overall 
context of the rules formulated to facilitate the growth of the MTS.  It was important to have a 
focused discussion of systemic issues and Article XXIV, but also to bear in mind the over all context, 
particularly in light of the fact that one of the major objectives of RTAs should be to facilitate and 
provide building blocks to the MTS, rather than act as mere derogations from the MFN principle.  
Regarding the relationship between differen t parts of Article XXIV, his delegation would call 
attention to the fact that paragraph 4 said the purpose of RTAs "should be to facilitate trade between 
the constituent territories and not to raise barriers to the trade of other contracting parties..."  T hese 
were broad guidelines under which other provisions of Article XXIV should be interpreted.  As the 
Australian delegate had said, this in effect seemed to be a preamble to Article XXIV.  While the 
acknowledged objective was to facilitate trade, RTAs at the same time were not to raise barriers with 
respect to third parties.  Therefore, where a particular measure taken by RTA parties facilitated intra -
trade without in any way being restrictive to third parties, there was no contradiction and no problem.  
However, as discussions in the past had revealed, when a measure ostensibly taken to facilitate intra -
trade was trade -restrictive for third parties, a contradiction arose.  Here the latter part of paragraph 4 
was relevant, in that it seemed to stipulate tha t the concern for not raising barriers should be 
overriding.  This reading was supported by the fact that Article XXIV itself needed to be seen in the 
context of the primacy of the MTS.  Consequently, in the event of a contradiction, in addition to 
examini ng the measure from the point of view of its consistency with other specific GATT provisions, 
it was also important to examine its consistency with this last sentence of paragraph 4.  For this 
reason, his delegation disagreed with the assertion that Articl e XXIV:4 did not support the 
development of other tests, such as those looking at trade creation or trade diversion.  Analysis of 
trade effects was difficult, and no exact conclusions could be reached; but this was a significant means 
of examining whether barriers to trade had been created.  Following up on the Australian argument 
about the need to view these issues in their economic context, here again, trade -creation or trade -
diversion effects of RTAs could not be disregarded.  Regarding the provisions of  Article XXIV 
paragraphs 5 and 8, the Committee in the previous Session had discussed the terms "other regulations 
of commerce" and "other restrictive regulations of commerce".  In providing protection to third parties 
after a customs union had come into f orce, Article XXIV:5(a) referred to duties and other regulations  WT/REG/M/15  
 Page 9 
 
 
 of commerce "maintained" while paragraph 5(b) referred to those "imposed" at the time of the 
agreement's institution.  It was important, in both the examination of RTAs and the consideration of 
systemic issues, that the Committee ensure that neither the duties nor the other regulations of 
commerce which might be maintained or imposed were higher or more restrictive than those 
prevailing beforehand.  
24. The representative of the United States  recalled that the WTO was an organization based on 
rights and obligations and in essence was a legal contract signed by all Members.  This was the 
principle behind the provisions being discussed and was particularly relevant to the question of their 
relatio nship.  Article XXIV and the other two sets of provisions pertaining to RTAs basically gave a 
Member the right to derogate from the requirements of Article I; at the same time, those provisions 
provided the obligations or conditions under which the derogat ion could be taken.  With respect to the 
focus on economic rationale, she stressed that in a legal organization, Members needed to focus on 
what they had committed themselves to legally.  Economics was not a sure science, and statistics 
could be manipulate d to "prove" all sorts of arguments.  The Korean delegation had noted that the 
Committee generally asked for statistics during an examination.  While interesting to have the 
statistics, it should be remembered that they did not prove much.  There was a ten dency in all 
countries to blame RTAs for problems and not to credit them for accomplishments, without respect to 
an RTA's real bearing on a situation.  This was something that should be treated delicately in an 
organization based on rights and obligations.   With respect to paragraphs 4, 5 and 8, there seemed to 
be a deliberate reason for their order:  paragraph 4 acknowledged why the contracting parties decided 
to allow this derogation, but at the same time it spelled out some limitations on RTAs.  A key wo rd in 
that paragraph was "should" - the language did not read:  " is to facilitate trade" and " will not  raise 
barriers"; rather, it spelled out the framework under which contracting parties could derogate.  There 
was no test in Article  XXIV:4, and it was ne ver intended that there should be one in it.  The first 
paragraph of the Understanding said that, to be consistent, an RTA had to satisfy the provisions of 
paragraphs 5, 6, 7 and 8.  These paragraphs were referred to because they contained the tests that h ad 
to be met in order to fulfil the guidance presented in paragraph 4.  Arguably, failing the tests of 
paragraphs 5, 6, 7 and 8 meant that an RTA party would also fail to meet the objective set out in 
paragraph 4.  But again, the tests were in paragraphs 5 , 8, 7 (which was basically a notification 
requirement) and 6 (which was a very specific requirement for customs unions and not free -trade 
areas).  
25. The representative of the European Communities  said he agreed with the approach set out by 
the United Sta tes representative.  He noted that the Committee had had two separate discussions, each 
worth considering separately.  First, it had had a discussion about the economic principles which 
ought to underpin sensible external commercial policy, and it had had a discussion about what 
Article  XXIV actually provided.  When considered separately, the two discussions brought 
agreement; but if the Committee mixed the two and tried to use Article XXIV as a foundation for the 
economic discussion, the discussion faltere d, because, as the United States representative had said, 
Article XXIV was a set of rights and obligations and part of an Agreement constructed from rights 
and obligations.  The key point made by his delegation earlier was that Article XXIV could not be 
used to support the argument that there ought to be an economic test applied in addition to the other 
rights and obligations contained in the Article in clearer terms.  The Committee had had its systemic 
discussion about Article XXIV because of the longstand ing difficulties to which its interpretation as a 
set of rights and obligations had given rise.  In response to the rhetorical question by the 
representative of Argentina as to where the problems had come from, he recalled that they had been 
identified in the checklist of systemic issues which had arisen during examinations; there had clearly 
been a long history of interpretational difficulties.  The questions arising with respect to trade creation 
and trade diversion and the general questions of economics might fall under the heading of "what the 
rules or rights and obligations ought to be", but the systemic discussion's starting point was a different 
question, i.e. "What did the Agreement actually say?"  In looking at paragraphs 4 -8 of Article XXIV, 
the Co mmittee should begin by asking what the Agreement clearly provided, teasing out the areas of WT/REG/M/15  
Page 10 
 
 
 difficulty where further thought was required.  To look at the economics would be to ask:  If the 
Committee were starting from a blank piece of paper, what sort of  agreement might it write?  While 
that exercise would possibly be interesting and instructive, it should not be confused with the core of 
the systemic discussion.  Again, Article XXIV:4 did not support economic arguments as a basis for 
evaluating actual pr eferential trade agreements in addition to the tests which were contained in the 
ensuing paragraphs in the Article; nor did Article  XXIV:4 support arguments based on directionalism, 
i.e. the idea that rather than resulting in just a stand -still, that RTAs should result in positive 
liberalization.  That might be a desirable policy, but it did not seem to be what the Agreement actually 
provided.  The Committee needed to separate its aspirations from its shared analysis and 
understanding of what was in fact in  the provisions.  The key words in XXIV:5(a) and (b) were the 
words "higher or more restrictive" - this entailed a standstill rather than a process of further 
liberalization.  Appeals to the spirit of the WTO did not address the question of what the Agreem ent 
actually said.  There might be a shared political understanding of what the future of the Organization 
ought to be, but this should be left distinct from the discussion of the set of rights and obligations that 
currently existed.  It was dangerous and intellectually loose to gloss over uncomfortable current 
interpretational difficulties by appealing to idealistic images of future trade liberalization.  There was 
also a danger in that the rights and obligations contained in the Agreement placed it upon M embers to 
take responsibility for their own external economic policies.  It would be wrong to construe 
Article  XXIV in such a way as to assume that wider responsibility.  So, there seemed to be consensus 
regarding what the Article said, and the Australian characterization of paragraph 4 as a preamble 
might be useful to bear in mind.  It was a preamble to what followed, not a preamble to something 
else.  The point about the Article not supporting other economic tests was to say that, if the paragraph 
were pr eambular, the principles were fully and completely developed in what followed and were not 
left open.  It would be dangerous to use the paragraph as a free -floating preamble to which more 
might be applied.  
26. The representative of Canada  commented that de legations had prepared well for the day's 
discussion.  His delegation would concur that Article XXIV:4 was more of an objective paragraph and 
did not in and of itself contain a test that RTAs needed to satisfy.  Perhaps overlooked was the fact 
that, not on ly did paragraph 4 put RTAs in the context of facilitating trade among the parties and not 
raising barriers to third parties, but also, as apparent in its first sentence, it recognized the legitimacy 
of RTAs as a means or instrument of trade liberalization .  This was central to ensuring that RTAs 
were truly building blocks to further liberalization on a global basis.  During the discussion so far, 
there had been a good deal of debate about trade creation and trade diversion, and his delegation 
would support  the view that these ideas were not part of fundamental legal tests of paragraph 4 of 
Article XXIV.  These were important economic principles, but they did not lend themselves to being 
part of a legal test, for the simple reason that it was very difficult to assess these effects with any 
thoroughness, as it required making a number of assumptions about the adjustment processes of 
economies.  Nevertheless, these were important economic principles, and the fact that the Committee 
gave attention to the trade s tatistics and the evolution of trade patterns did not necessarily mean there 
had been trade creation or diversion; rather, this information helped the Committee to understand how 
the economies were adjusting.  If there were a significant change in the trad e patterns, it might prompt 
further inquiry into the reasons behind the change, and perhaps that reason might factor into the 
precise legal test of paragraph 5 and the various measures encompassed in its expression "duties and 
other regulations of commerce ".  But in and of itself the trade creation or trade diversion test would 
not fit the more objective nature of paragraph 4 of Article XXIV.  His delegation subscribed to the 
idea that paragraph 5 was outward -looking and was the external condition, and that  paragraph 8 was 
inward -looking and involved the parties' relations among themselves.  However, his delegation would 
need to reflect more on the links between these two paragraphs.  For example, the elimination of 
"other restrictive regulations of commerce " in paragraph 8 could well be deemed by the parties to an 
RTA as necessary in order to facilitate trade within the constituent territories.  It was important to 
recognize that trade liberalization today depended increasingly on the removal of such "other 
restrictive regulations of commerce".  This was aimed at facilitating trade among the parties to an  WT/REG/M/15  
 Page 11 
 
 
 RTA.  The question then needing to be addressed was whether in doing so it had an impact in terms of 
"other regulations of commerce" in the sense of paragra ph 5.  In the past there had been no definitive 
view on this.  As the Secretariat's paper aptly pointed out, there was not even consensus on what the 
term "other regulations of commerce" encompassed; it might be that the reference in paragraph 5 to 
"other regulations of commerce" was more generic and broader than the reference in paragraph 8 to 
"other restrictive regulations of commerce".  But if one was broader, perhaps it encompassed the 
other, and there might be implications for third countries when some thing were done at the regional 
level.  An example that had been raised in the Japanese paper was the treatment of safeguard 
measures.  The point made by Japan was that, if elimination were done at the regional level, there 
could be a problem concerning th e MFN obligation.  At the same time, Members needed to recognize 
that the elimination of a safeguard measure in an RTA might be a means to facilitate trade among the 
constituent territories; under certain circumstances, that might be justified.  Similarly,  the use of anti -
dumping measures might be eliminated among RTA parties, but here perhaps there was a significant 
difference in that anti -dumping measures were in their very nature discriminatory, as they only 
applied to countries that were allegedly dumpi ng.  There was no MFN application of dumping duties - 
only the alleged dumping countries or exporters were targeted.  But if RTA parties among themselves 
were doing away with anti -dumping or were adopting a different mechanism to deal with price 
discrimina tion, in order to facilitate trade, would that necessarily have repercussions in the sense of 
paragraph 5?  The answer was not clear, and this deserved more consideration.  There might be a link 
between the two elements that would need to be further explor ed. 
27. The representative of Argentina  said he agreed with most of the arguments presented by the 
representatives of the United States, the European Communities and Canada, especially with respect 
to Article XXIV:4.  His delegation wished to comment on "o ther regulations of commerce", or other 
practices of trade, and how to interpret Article XXIV.  His delegation was of the view that 
Article  XXIV provided that the "before and after" trade effects on third parties due to the 
establishment of a free -trade ar ea or customs union should be neutral; anything more was not part of 
the contractual rights and obligations.  As had been asserted by the EC delegate, if Members confused 
desires with legal entitlements with respect to Article XXIV:4, there would be a prob lem.  As the 
United States representative had noted, the Understanding clarified how to address some of the 
aspects of paragraphs  5-8.  He then referred to the hypothetical question posed regarding what would 
happen if an RTA brought about lower tariffs bu t higher non -tariff restrictions.  For example, Japan's 
minimum access commitments under the Agreement on Agriculture gave market access 
improvements, but despite these it was apparently not possible to fill the skimmed -milk powder tariff -
rate-quota becaus e Japanese mothers preferred to breastfeed.  Thus, there were trade effects due to the 
workings of the market.  The market access opportunities provided to New Zealand or Australia were 
not minimum purchase requirements.  Or, for a customs union not comply ing with competition rules 
such as anti -dumping, safeguards or subsidies, there was an evolving contractual base as a touchstone 
for comparing the disciplines of that customs union.  In general, the level of consistency was more 
objective than the sole ide a of comparing before and after; within a period of contractual evolution, 
for example between two rounds, the test of consistency might be between the individual member of 
the customs union and the customs union as a whole, as an average, to see if the te st of neutrality can 
be passed.  The Japanese delegation had mentioned rules of origin in its paper.  Article 1 of the 
Agreement on Rules of Origin excluded preferential rules of origin.  Article XXIV was part of the 
MTS; it had been drafted 50 years ago a nd updated four years ago.  Points raised by the delegations of 
Korea and Japan brought in the effects of supply and demand in looking at whether RTAs were 
meeting the tests of Article XXIV paragraphs  5-8, and this seemed problematic.  In a dispute 
settlem ent case some Members suggested that during a recession there could be a reduction of 
demand, and if a domestic price were far higher than international prices, there would be incentive to 
import.  In his delegation’s view, one test of Article  XXIV consist ency was whether an RTA had a 
neutral effect on third parties.  The test would be an average, using the whole basket of tariffs and 
non-tariff trade measures to see if they were more restrictive or not.  WT/REG/M/15  
Page 12 
 
 
 28.  The representative of Switzerland  said Article X XIV was one of the articles constitutive of 
the MTS.  While an exception to the MFN principle, Article XXIV was an authorized exception 
agreed to by all the Members and reaffirmed by the Understanding.  The Understanding recognized 
that RTAs might serve to  strengthen the MTS.  Rather than considering RTAs as “outlaws”, the 
Committee was to concentrate on what the true meaning of the provisions of Article XXIV were.  It 
might also be interesting to compare and contrast provisions on RTAs found in the GATS an d in the 
Enabling Clause.  Regarding the conditions for an RTA to be WTO consistent, one condition spoke 
about the elimination of "duties and other restrictive regulations of commerce" for "substantially all 
the trade"; obviously these two concepts were li nked.  Those elements had to be viewed in their 
economic context, as this was a trade organization, but that economic context was changing every 
day.  Trade flows both among RTA parties and with third parties were also changing, and this could 
be seen as n atural creation and diversion of commerce.  The point was to take into account the 
dynamic dimension of trade.  This involved a number of questions, including the question of what 
trade was at issue, be it existing trade, potential trade, trade at the form ation of the RTA, trade at the 
completion of the RTA.  This was a complex issue and affected the assessment of conformity.  Most 
RTA parties believed that their RTAs met the WTO consistency tests.  Past working party 
examinations of RTAs often did not have  conclusions on the compatibility of an RTA with 
GATT/WTO rules; it seemed there were differences in interpretation for Article XXIV.  But this issue 
of compatibility was not raised in dispute settlement, despite the fact that a number of delegations 
stressed trade -diversion effects.  Maybe this meant that the economic facts did not support some of the 
arguments made in general discussions.  Also, there was the issue of raising barriers to third countries.  
The problem rested in the fact that the Membership  had never defined what “barriers” were.  Were 
they specific measures taken against third countries, or did they entail any change in the trade pattern 
detrimental to third parties, in which case trade flows would have to stay constant.  It seemed a barrie r 
was a specific measure taken by an RTA party against third parties.  Trade diversion could occur in 
the absence of such measures, simply as a result of the constitution of an RTA.  But it was very 
difficult to have an objective assessment of economic eff ects of RTAs.  These basic questions needed 
to be addressed before the Committee could make headway.  
29. The representative of Japan  said he agreed with the delegations of India and Korea that 
Article  XXIV:4 contained substantive provisions that complement ed other paragraphs of that Article.  
Otherwise, if the tests were only paragraphs 5 and 8, it would mean that an RTA meeting the tests of 
those two paragraphs would automatically satisfy paragraph 4; meanwhile, paragraphs 5 and 8 were 
vague and needed to be understood in the light of the substantive provisions of paragraph 4.  
Article  XXIV:4 needed to be viewed with other specific WTO Agreements to shed light on 
paragraphs  5 and 8, as WTO provisions had been taken on as a single undertaking.  As the 
repres entative of Switzerland had said, even if there were no intention to raise barriers to third 
countries, an RTA might do so even without applying measures.  Regarding the point by the 
delegations of the EC and Argentina that the market determined trade crea tion and trade diversion, he 
said consumers made judgments within the framework created by RTAs.  For example, if there were 
no duties or restrictive regulations among RTA members, but there were duties and restrictive 
regulations (e.g., standards or rules  of origin) against third parties, consumers’ decisions would be 
affected.  So the market was not the sole determiner.  Safeguards should be applied on an MFN basis 
because a country applying safeguards was facing serious economic, political or social prob lems.  
Regarding the point by the Canadian delegation that anti -dumping duties were discriminatory by 
nature, competition policy and RTAs should be explored.  If country  A and country B were parties to 
an RTA, and if country A imposed anti -dumping measures  more aggressively against third countries, 
there would be a discriminatory effect, and this should be minimized.  
30. The representative of Hong Kong, China  agreed that Article XXIV was an exception to the 
MFN principle and said that still, the application  of Article XXIV should not compromise the MFN 
rule itself - the Article XXIV exception was circumscribed and was to be invoked only in accordance 
with the provisions.  The Canadian delegation had described the Japanese view that the application of  WT/REG/M/15  
 Page 13 
 
 
 Article  XIX safeguards on a regional level might create a problem, but this did not seem to be an 
accurate portrayal of this aspect of the paper.  His understanding was that the application of 
Article  XIX on a regional basis might be permitted, and the question w as whether the invocation of 
Article XIX could be satisfied on a regional basis, as well.  Turning to the EC representative’s point 
that the Committee’s job was to look at the text of Article XXIV, he agreed in that it was important 
not to depart from the Article's language, but it was also important to take into account the economic 
rationale, as this constituted part of what the Article addressed.  He also disagreed with the EC 
position that Article XXIV was not direction setting; Article XXIV's requireme nt that RTAs should 
not be raising barriers to the trade of third parties did set a direction.  The wording which followed 
that provision in Article XXIV:5 was “accordingly”, which applied not only to that paragraph’s 
chapeau, but also to the indented lang uage.  The Analytical Index elaborated on the issue.  He 
disagreed with the contention by the delegation of Argentina that the net effect of Article XXIV 
should be neutral, as this was not necessarily what was meant by not raising barriers to the trade of 
third parties.  The Singapore Ministerial Declaration went beyond neutrality, as its penultimate 
sentence regarding regionalism endorsed the CRTA’s work and talked about liberalization.  
31. The representative of Australia  said the view had been expressed s everal times that 
Article  XXIV:4 was concerned with neutrality, but this was not a correct reading of the language.  
“Not to raise barriers” to the trade of third parties seemed more like a prohibition than an attempt to 
maintain neutrality; it put a ceili ng on what could be done.  Turning to Article XXIV paragraphs  5 and 
8, he said it was well known that paragraph 5 dealt with the relationship between RTA parties and 
non-parties.  The principle of equality of opportunity was to be preserved when an RTA was  created, 
at least as far as third parties were concerned.  As the representative of Brazil had said, it was difficult 
to assess whether there had been trade creation and trade diversion.  If conditions were denied to non -
parties, however, trade diversion would be the measurement of the effects of this denial.  As far as 
paragraph 8 was concerned, it seemed somewhat odd that, whereas delegations called for a literal 
reading of paragraph 4, here it was being argued that this paragraph was only indicative of a range of 
possible exceptions.  It seemed incorrect to argue for a strict reading of one paragraph but a loose 
reading of another.  
32. The representative of Argentina  said Article XXIV:4 had two sentences.  The first sentence 
represented contractual goals , not disciplines.  The second sentence was a recognition, not a 
provision.  Paragraph 5 did entail real provisions, and its call for neutrality was that RTA parties’ 
obligations under the GATT/WTO were not eroded by their forming an RTA.  In other words, the 
effect in terms of contractual obligations should be neutral.  The Understanding did not add to 
Article  XXIV, but rather brought precision on how to interpret provisions.  Paragraph 8 concerned a 
different issue altogether, as it had nothing to do with  third parties.  “Substantially all the trade” as 
envisaged in GATT 1947 was different from that in GATT 1994, because in GATT 1994, it was part 
of a single undertaking, and all provisions were mandatory.  With this, “substantially all the trade” 
meant all  sectors.  
33. The representative of Japan  clarified that his delegation saw Article XXIV paragraph 4 as 
containing disciplines and served as a guiding principle for understanding paragraphs 5 and 8.  
Paragraph  5 began with the word “accordingly”, so that p aragraph was closely linked.  As the 
delegates of India and Korea had said, paragraph 4 should be seen as complementing and providing 
guidance for paragraphs  5 and 8.  Noting that third countries would be affected by the automatic 
extension of anti -dumping  duties or safeguard measures during the enlargement of an RTA, he said he 
disagreed with the point that Article XXIV:8 was internal and had nothing to do with third countries.  
As a customs union instituted uniform disciplines in various areas, third coun tries would be affected.  
34. The representative of Argentina  agreed that an inaccurate implementation of WTO disciplines 
might affect third parties, but he was assuming that WTO disciplines would be implemented in an 
accurate way.  WT/REG/M/15  
Page 14 
 
 
 35. The representative of  Switzerland  said that paragraph 8 did not seem to exist solely for the 
internal workings of an RTA, but rather it defined what was meant by a customs union and a free -
trade area (FTA) as covered by Article XXIV.  If a series of instruments brought about a n RTA in line 
with paragraph 8, it would qualify to be covered by the other provisions of Article XXIV.  If so, such 
an RTA was allowed to derogate from the MFN principle.  His delegation did not agree that the 
meaning of “substantially all the trade” chan ged as a result of the single undertaking of the WTO 
Agreements.  Rather, this term applied to trade in goods the same way in 1947, 1995 and now.  While 
other sectors such as services had been included in the multilateral framework, this did not bear on th e 
term “substantially all the trade” which concerned trade in goods with respect to RTAs.  The fact that 
economic and legal contexts might have changed did not mean the interpretation of terms should 
change.  The problem lay in the fact that, in 1947, 1995  and now, there were different understandings 
of what the term meant.  
36. The representative of the European Communities  said the Australian delegation’s concept of 
equality of opportunity as a definition of the transition from Article XXIV paragraphs 4 to  5 deserved 
consideration.  He recalled his delegation’s assertion that paragraph 8 was an internal test that RTA 
parties needed to meet in order to benefit from the fundamental derogation of other provisions of the 
Agreement, as contained in the opening s entence of Article XXIV:5.  It was important to be consistent 
in the interpretation of paragraph 8; the intention seemed to be to provide a pragmatic discipline, with 
an implication of comprehensiveness, in that to benefit from the fundamental derogation, RTAs 
should aim for the highest level possible of liberalization of trade between them across the economies 
involved.  That comprehensive liberalization was borne out by the use of the word “economies”, 
rather than “sectors”, in paragraph 4.  This concept was captured by the approach taken in paragraph 
8.  It was also worth recalling that paragraph 8 attempted to do two entirely separate things in a 
consistent way:  it attempted to define an FTA, and it attempted to define a customs union.  It was 
only by b earing in mind the distinctions between these two different forms of RTAs that sense could 
be made of the similarity in approach taken by Article XXIV:8.  This point related to one made by the 
Japanese delegation concerning the effects of the formation of a customs union.  It seemed that 
Article  XXIV:8 indicated that, however unwelcome consequences might be, the right thing would be 
done if these provisions were followed.  The comprehensiveness called for in paragraph 8 meant that 
it was necessary to includ e anti-dumping, etc.  The counter -argument, i.e. that barriers which could be 
removed should rather be maintained, would compromise the concept of integration.  Either 
Article  XXIV:8 was strong, imposing the pragmatic discipline that RTA parties had to int egrate 
thoroughly if at all, or there would be a partial process.  The derogation in Article XXIV, as all 
derogations from general principles, needed to be viewed in a narrow and cautious way.  It would be 
improper to write measures into the list of except ions in paragraph 8.  It seemed that the underlying 
architecture of the Article was that, if RTA parties were to benefit from the derogation contained in 
the opening sentence of paragraph 5, they needed to meet the test in paragraph 8 (a) or (b).  In 
meeti ng that test, if RTA parties affected third parties, the effects should be considered in light of the 
provisions of paragraph 5, which said that the net effects should not be overall worse, that there 
should be equality of opportunity before and after, and  that the “not to raise barriers” test in paragraph 
4 should be met overall.  Here the Canadian point seemed appropriate, i.e. that it was difficult to look 
at the particular example of anti -dumping measures as if they were part of a wider Article I obliga tion, 
because they were not.  The list of exceptions in paragraph 8 referred neither to Article VI nor to 
Article XIX.  So, paragraph 8 should be interpreted in light of paragraph 5 and the principles in 
paragraph 4; this would be the only coherent interpr etation.  Another general interpretative point 
should be noted:  For interim agreements leading to FTAs, Article  XXIV:8(a) involved essentially a 
prospective test for FTAs, with the test set out applying at the end of the transition period.  The 
provision defined the FTA, not the steps along the way to its achievement.  There was a distinction in 
this respect between paragraphs 5 and 8, as the obligations in respect of an FTA in Article XXIV:5(b) 
applied equally to a completed FTA and to an interim agreemen t leading to the formation of an FTA.  
This was an important protection for the rights of third parties during the transition period, as the 
neutrality, or equality of opportunity, should apply to preserve third -party interests.  The Committee’s  WT/REG/M/15  
 Page 15 
 
 
 discussion  on “other regulations of commerce” as appearing in paragraph 5 needed to take this into 
account.  
37. The representative of Argentina  said his delegation supported the statement by the EC 
representative.  
38. The representative of Hong Kong, China  disagreed  with the comment by the representative of 
Argentina suggesting that “substantially all the trade” implied all sectors.  The dictionary meaning of 
“substantially” could only be understood to mean "not the whole"; the meaning might not be precise, 
but it co uld not mean "complete".  The Committee could explore whether the word should be 
understood in qualitative or quantitative terms, but until there was a collective interpretation, the 
Committee could not know what the term meant, other than "less than compl eteness".  Use of the 
word “substantially” allowed certain sectors not to be incorporated in the harmonization of a common 
regime; but there was no clear indication in the word as to how many sectors could be excluded.  The 
drafters had to have chosen the word for some reason; perhaps the Secretariat's Legal Affairs Division 
could consider the term in the context of the Vienna Convention.  But assuming that the word were 
redundant and “substantially all the trade” meant all sectors ought to be covered, if a  customs union 
excluded the agriculture sector, would that mean that customs union was per se illegal?  Looking at 
Article XXIV paragraph 8(a)(i) and (ii) and (b), if “substantially” were considered not to add 
meaning, so that “substantially all the trade”  meant “all the trade”, would it mean that the word 
“substantially” in the first line of paragraph 8(a)(ii) was also redundant, so that “substantially the 
same duties and other regulations of commerce” meant “the same duties and other regulations of 
commer ce”?  If that was the implication, did this mean any customs union having different duties and 
other regulations of commerce was per se illegal?  Regarding the invocation of Article XIX or 
Article  VI, he noted that there were disciplines concerning the app lication of safeguard and anti -
dumping measures and the maintenance of quantitative restrictions.  Also, the formation of an RTA 
necessarily created a new situation.  Given these factors, harmonization under Article XXIV could not 
be used to justify measur es which needed to be justified in regard to the new situation created by the 
formation of an RTA under Article XXIV.  In other words, an examination of the new situation 
arising from the creation of the RTA would have to be undertaken, involving both the party or parties 
originally maintaining that measure, and also the party which hitherto did not maintain that measure.  
This same requirement applied to anti -dumping and safeguard measures, and to the maintenance of 
quantitative restrictions with respect t o certain sectors (e.g., textiles).  If certain parties maintained 
quantitative restrictions before the creation of an RTA, and if that RTA was enlarged to include 
another party, the quantitative restrictions maintained by the original parties should not n ecessarily be 
extended to the new party.  In the case of Article VI or Article XIX, this could be done if a full 
examination was conducted as a result of which the extension of the measure to the new party was 
justified in accordance with WTO provisions.  The same would apply in the case of other quantitative 
restrictions.  
39. With regard to the question of whether Article XXIV:8 was internal or external, the 
representative of the United States  said she would argue it was the piece which governed the intern al 
regulations of the RTA, containing the definition of a customs union and an FTA.  Her delegation 
viewed paragraphs  5-8 as a package, all inter -related, even though paragraph 6 only applied to 
customs unions.  In the past there had been questions about w hat criteria an agreement had to satisfy, 
and these had been cleared up in the Understanding.  She was surprised by the discussion’s 
concentration on specific aspects of individual paragraphs, as she had expected a discussion on how 
these paragraphs relate d on a somewhat higher level.  The representative of Argentina suggested that 
the denominator of what “substantially all the trade” meant had changed from GATT 1947 with the 
introduction of GATT 1994; she could accept that argument in part.  The duties sid e of goods trade 
had not changed, but the addition of new rules on some sectors with the WTO, which had not existed 
previously, altered things somewhat, and the impact of this depended on what was being measured.  It 
had been interesting to hear the EC del egation’s arguments on what a customs union required, WT/REG/M/15  
Page 16 
 
 
 particularly in terms of adopting common external policies; that delegation had argued the reverse at 
other times, according to what interests were at stake in different situations.  On the tariff side,  there 
had been conflicts in the past over what the rules were in terms of individual barriers and overall 
barriers, and this was resolved in the Understanding, which addressed the Article XXIV:5(a) analysis 
dealing with general incidence.  Finally, with r espect to harmonization of regulations, if a customs 
union were trying to harmonize several different regulations at one level, the lowest common 
denominator was always legal and was the best approach.  
40. The representative of Australia  said the question of the list of Articles contained in 
Article  XXIV:8 was an important one.  The EC representative had drawn attention to the discipline 
that the list imposed on RTA parties.  The list in some way reflected the objective in Article XXIV:4 
of closer economic integration, and in that sense, Members should not try to escape the discipline it 
brought by saying it could be interpreted as one deemed fit at any given stage.  Some said the list 
could not be complete because Article XXI was not mentioned; but it was c lear that Article XXI was 
different in its ambit from other GATT Articles because it referred to security interests that a state or 
government might have.  This was reflected in the fact that Article XXI had been invoked on very few 
occasions.  This Articl e should not be the touchstone for determining if the list of exceptions in 
paragraph 8 was complete.  The Committee could make progress here by simply agreeing that the list 
of Articles contained in Article XXIV:8 was complete and enforceable.  
41. In resp onse to the EC delegation’s statement that Article XXIV:8 required customs unions to 
have a harmonized, uniform trade policy, the representative of Japan  said that his delegation’s paper 
emphasized the word “substantially” in the phrase “substantially the same duties and other regulations 
of commerce”, i.e. the phrase did not call for the parties to have completely the same duties and other 
regulations of commerce.  In considering the automatic extension of anti -dumping duties, safeguards 
or quantitative re strictions, the Committee should bear in mind the word “substantially”.  As the 
Hong  Kong, China paper had suggested, the guiding provisions were Article XXIV:4 and the WTO 
Agreement as a whole, which emphasized the MFN principle in numerous parts, includi ng in its 
Preamble.  His delegation disagreed with the Australian contention that Article XXI was too different 
to be considered with other Articles.  Again, the Japanese paper spelled out his delegation’s position 
on the nature of the list of exceptions i n paragraph 8.  
42. The representative of Argentina  said there was not a comparison of the commitments of a 
single Member before it became an RTA party with the new status under the RTA, i.e. there was no 
change in contractual obligations coming with the Me mber’s new status as an RTA party.  For 
example, a national list could be compared with a common external tariff (CET).  In the case of a 
tariff -rate quota or other non -tariff regulation, the comparison was the same, except for the fact that 
the single und ertaking under the WTO needed to be factored into the comparison.  Also, with 
reference to his delegation’s comment on the interpretation of the term “substantially all the trade” 
over time, he said that throughout the GATT’s existence there had been two “ Cinderella” sectors:  
textiles and agriculture.  When delegates had referred to “substantially all the trade”, they often did 
not count textiles and agriculture.  It would be odd if the delegation of Hong Kong, China did not 
want textiles to be considered part of “substantially all the trade”.  The comments by the delegate of 
Hong Kong, China seemed to entail a fundamental misconception, because the nature of contractual 
obligations did not change if a Member were part of a customs union.  There was a test to meet, but 
the nature of the Member’s contractual obligations remained the same.  The WTO Agreements 
contained contractual obligations, with Schedules giving market access commitments.  If Members 
were understanding these elementary concepts in a differe nt way, there was a problem.  
43. The representative of Canada  said his delegation read Article XXIV:8 as containing 
definitions, signalled by the words “shall be understood”.  These provisions mainly dealt with the 
internal regimes of customs unions or FTA s.  They essentially set a threshold for the accomplishment 
of an RTA, and that threshold was high, with “substantially all the trade” covered.  There was a  WT/REG/M/15  
 Page 17 
 
 
 logical economic explanation for this, just as there had been for not raising barriers to third par ties.  
When substantially all the trade was covered, the risk of adversely affecting one particular trading 
partner was tremendously diminished, as each Member had its own comparative advantage, 
concentrating on the export of certain products, so comprehen sive RTAs treated everyone essentially 
the same way.  The fact that an RTA met the test of Article XXIV:8 did not necessarily mean that it 
automatically met the other tests in Article XXIV.  As other delegations had said, paragraphs 4, 5 and 
8 were a packa ge and needed to be read together.  In that vein, it was also important to note that the 
provisions on customs unions in paragraph 8 were of direct relevance to third countries, i.e. the 
requirement that parties to a customs union were to apply substantial ly the same duties and other 
regulations of commerce to third parties.  It was clear that this had a bearing on third countries, even 
though the thrust of the paragraph was inward -looking.  Again, and perhaps more generically, for a 
customs union or an FTA , the way “restrictive regulations of commerce” or “regulations of 
commerce” were treated within an RTA might have incidental impacts on third countries.  The 
question was whether this incidental impact resulted in a breach of the obligation not to raise b arriers.  
It would be useful to consider the economic underpinnings from a longer -term, systemic standpoint, 
and to discuss these issues in a different context.  
44. The representative of the European Communities  wished to concentrate on some issues 
relatin g solely to customs unions.  As the representative from Canada had just said, Article XXIV:8 
was definitional.  Article XXIV:8(a) started with a somewhat radical definition, differing from most 
international law; the provision involved a reconstruction in operational terms of two or more customs 
territories, customs territories having been defined in Article XXIV:2.  This related to autonomy in the 
conduct of commercial affairs.  Article XXIV:8 then went on to talk about a merger, substituting one 
for two o r more, which was a radical reconstruction.  So, it was important to consider as background 
firstly, what happened within the customs union, and secondly, what happened in respect of the 
arrangements between the customs union and third parties.  It seemed that within the customs union 
the definition only made sense if Article XIX were not included in the list of exceptions in 
Article  XXIV:8(a)(i).  There could only be the continuation of safeguard measures in the long run, at 
the end of the transition perio d, in circumstances where it was not a proper customs union, as it did 
not make sense to maintain such a restriction within a customs union.  It was also worth recalling with 
respect to Article XXIV:8(a)(ii), which talked about the arrangement with respect  to third parties, that 
the idea that there would be a new regime or commercial policy vis -à-vis third countries was also 
captured in Article XXIV:5(a), where the word “imposed” was used.  The word “imposed” conjured 
up something new, as opposed to the wor d “maintained”, used in Article XXIV:5(b) with reference to 
an FTA, where there was continuity of the original customs territories.  So that suggested firstly that 
there needed to be genuine elimination of barriers within the customs union, and secondly th at the 
intention of the drafters had been that the external regime would reflect the substitution or new 
arrangement.  The concerns expressed in particular by the delegation of Japan regarding the 
continuation of anti -dumping measures over the transition p eriod needed to be considered in light of 
their temporary duration.  Once the customs union were fully in force, the process by which the anti -
dumping regime operated would reflect the substitution concept at the beginning of 
Article  XXIV:8(a).  The questi on was simply a matter of the way the transitional process was being 
carried out.  He then said the points made by the delegation of Hong Kong, China, had been 
interesting, the argument seeming to be that, despite the requirement in Article XXIV:8(a) to 
substitute a single customs territory for two or more customs territories, the obligations continued to 
subsist and operate at the level of the original customs territories.  That was a serious argument, but it 
appeared fundamentally incorrect.  It was only possible to read the definitional process and the 
definitional concept in Article XXIV:8(a) for a customs union in terms of the substitution of a single 
customs territory for two or more customs territories.  Seen against that process, it would be expected  
that, at the end of the transition period (which might be short), there would be, as 
Article  XXIV:8(a)(ii) said, substantially the same duties and other regulations of commerce applied to 
the trade of territories not included in the union.  It did not see m possible to construct 
Article  XXIV:8(a)(ii) in any other way than to provide for the substitution of a single customs WT/REG/M/15  
Page 18 
 
 
 territory for two or more, necessarily meaning substantially the same regulations of commerce, as that 
paragraph suggested.  In circumst ances where there was a substitution of a single customs territory for 
two or more customs territories, one would not likely be able to sustain the argument that, because 
Article XXI had not been included, the list of Articles between the brackets could no t be considered 
exhaustive.  It seemed that argument would only work in circumstances where it would be expected 
that duties and other regulations of commerce would be maintained; in the case of the substitution of a 
single customs territory for two or mor e customs territories, that was unlikely to be the case.  It also 
assumed that measures which would be justified if challenged under Article XXI (which created no 
rights and obligations) would not likely be in the form of a duty or other regulation of comm erce, 
within the general meaning used.  The same argument seemed to apply with respect to FTAs, as well.  
The Australian point here seemed correct, that the drafting history of Article XXI was a long and 
interesting one, the original draft having been comp leted by the United Nations Economic Committee 
in 1923.  The report of that Committee had said the provision was intended to capture the inherent 
rights of states.  
45. The representative of India  had a query regarding a previous intervention by the EC dele gate.  
He had mentioned a prospective test supposedly built into Article XXIV:8 and had said that, where 
there was a transition period, the test of Article XXIV:8(a) had to be met at the end of the formation 
of the RTA and not at an interim stage.  Did thi s prospective test concern the elimination of duties and 
other restrictive regulations of commerce between the RTA parties only, or was it also a prospective 
test of compliance with the requirement that the incidence of duties and other regulations of 
comm erce should not on the whole be higher to third parties?  If the latter, he would have some 
objections, because this could affect the protection given to third parties that the general incidence of 
duties and other regulations of commerce were not to be hi gher than what had existed before; in other 
words, it would mean that Members entering into a customs union could impose higher duties or 
measures which were more restrictive during this transition period.  
46. The representative of the European Communities  responded that it was clear Article XXIV:5 
applied to interim agreements, so the protection of third parties applied from the outset.  
47.  The representative of Japan  said with reference to the EC delegation’s point on substitution 
that parties to a cust oms union might view the requirement that they have substantially the same 
duties and other regulations of commerce as allowing them to raise barriers against third countries.  
Raising barriers in the name of “substitution” seemed inconsistent with the bas ic principles of 
Article  XXIV:4 and of the WTO as a whole.  As a single undertaking, the WTO Agreements, 
including the Agreement on Safeguards and the Agreement on Implementation of Article VI of the 
GATT 1994 [hereinafter the Agreement on Anti -Dumping], w ere signed onto by all WTO Members, 
and these Agreements contained precise provisions.  Each member of an RTA which was also a WTO 
Member had to abide by the provisions of all WTO Agreements.  The word “substitution” had been 
drafted in 50 years ago, where as the Agreement on Safeguards and the Agreement on Anti -Dumping 
had been agreed to more recently, so under international law the agreement more recently made had 
priority over the older agreement.  Regarding the idea that Article XXI was not related to ec onomics, 
he said he had been dealing with the office called the Economic Security Division, which was in 
charge of controlling the trade of materials that were used in the production of nuclear weapons.  
Security and trade were related, so a clear distinct ion between Article XXI and other provisions 
seemed unconvincing.  
48. Another representative of Hong Kong, China  summarized her delegations points as the 
following:  Harmonization could not be used to justify measures which needed to be justified in 
regard  to the new situation created by the formation of an RTA under Article XXIV.  In other words, 
an examination was called for regarding the new situation arising from the creation of an RTA, 
involving both the party/parties originally maintaining the measure , and the party/parties which 
hitherto did not maintain any such measure.  The same requirement applied to anti -dumping and  WT/REG/M/15  
 Page 19 
 
 
 safeguard measures and to the maintenance of quantitative restrictions on textiles.  Also, regarding 
some of the remarks as to wheth er the list of exceptions in Article XXIV:8 was exhaustive, she said 
her delegation’s stance was not inconsistent, in that it was against selectivity in the application of 
Article XIX.  In the footnote to the Agreement on Safeguards, there were two scenari os posed 
concerning the application of safeguard measures by a customs union, whether as a single unit or on 
behalf of a member state.  There seemed to be a distinction between two situations, and her delegation 
would say that if a measure was to be taken on behalf of the whole unit, then the domestic industries 
and the situation of injury had to be taken into consideration for the whole of the customs union and 
not just for one member state.  This was not an inconsistent position because her delegation vie wed 
Article XXIV as a derogation from the MFN principle, so any measures or actions taken in relation to 
an RTA notified under Article XXIV should not promote a further derogation from this important 
principle.  
49. The representative of Argentina  said his delegation was of the view that the last statement by 
the delegation of Hong Kong, China was fundamentally wrong.  His delegation shared the view of the 
EC delegation.  It seemed the delegation of Hong Kong, China was trying to replay a discussion that 
had taken place in the Working Group on Competition Policy and which was at present part of a 
matter undergoing dispute settlement.  Also, his delegation had said in the past that if there was a 
problem of consistency in the application of WTO provisions, it was not necessarily related to 
consistency with Article XXIV itself.  If a country was applying an anti -dumping measure 
improperly, this was not a breach of Article XXIV but rather of the Agreement on Anti -dumping or 
the Agreement on Subsidies and Counterv ailing Measures.  
50. The Chairman  suggested that the Committee progress with its discussion and move on to 
bullet two, i.e. the relationship between Article XXIV and other GATT/WTO rules.  The delegation of 
Hong  Kong, China had requested a legal opinion of  the scope of the word “substantial”; perhaps the 
Committee could ask the Secretariat to produce such an opinion shortly.  
51. The representative of Japan  said his delegation’s paper also touched upon this sub -topic.  
Going back to interventions by the dele gations of Argentina and Hong Kong, China, he noted that 
Article  XXIV was an exception to the MFN principle, which was the basic rule.  Given this 
exceptional nature, the Committee should view the Article as having a narrow construction.  
52. The representa tive of Korea  recalled that his delegation had commented on this second sub -
topic last Session.  He emphasized once again that the exceptional nature of Article XXIV did not 
give RTA parties additional rights.  He associated his delegation with the points made by the 
delegation of Hong  Kong, China concerning the extent of harmonization and the relationship between 
Article XXIV paragraphs 5 and 8.  In other words, although the definitions of RTAs in paragraph 8 
mainly dealt with internal disciplines, they no netheless affected third -parties’ trade interests.  In this 
regard, all the paragraphs of that Article should be viewed as a package, as suggested by the 
delegation of the United  States.  
53. With reference to the Korean statement that Article XXIV did not confer any additional rights 
on the Members that made use of it, the representative of the United States  said that the Article also 
did not deprive the Members of any of the rights of the WTO system.  This could be called a neutral 
application of rights an d obligations.  
54. The representative of the European Communities  said it was important to recall that the 
opening sentence of Article XXIV:5 referred to “the provisions of this Agreement”, not to any one or 
any defined number of particular provisions of t he Agreement.  Article XXIV was a derogation from 
the provisions of the Agreement, not just Article I.  Apart from that, he supported the statement just 
made by the representative of the United States.  WT/REG/M/15  
Page 20 
 
 
 55. The representative of Japan  said his delegation su pported the statement by the delegation of 
Korea, i.e. that the Committee should carefully scrutinize the suggestion that a customs union was 
allowed to raise barriers with respect to trade with third parties in specific areas through non -tariff 
regulation s of commerce so long as they were on the whole no more restrictive than the prior level.  
This position had also been included in his delegation’s paper.  His delegation was in favour of a 
contextual understanding which took into account the provisions of  other Agreements, e.g., the 
Agreement on Safeguards or the Agreement on Anti -dumping.  RTA parties did not obtain rights to 
apply restrictive measures other than those which they would have been able to apply if the union had 
not been established.  
56. The representative of Canada  said his delegation did not have a definitive view on this sub -
topic.  Article XXIV:5 contained the expression “other regulations of commerce”, and it would appear 
that this was rather generic.  The question of how Article XXIV re lated to other WTO Agreements 
had not been fully fleshed out anywhere.  The fact that Article XXIV was drafted well before many of 
these other provisions made the question even more complex.  In setting out the terms of reference for 
the first examination of an RTA under the WTO, however, Members had addressed this matter by 
saying that the examination should be conducted in light of the relevant provisions of the Agreements 
contained in Annex 1A of the WTO Agreement.  The conclusions of the report of the e xamination 
would be confined to reporting on consistency with the provisions of Article XXIV.  In coming up 
with that language, the Membership recognized that in discussing an RTA under Article XXIV, it was 
also necessary to look into what it meant for oth er WTO obligations, but that the consistency tests 
would be limited to the provisions of Article XXIV.  This did not resolve the fundamental question of 
whether these other provisions were implicated in Article XXIV through the term “other regulations 
of commerce” and became part of the key test of Article XXIV; how this was to be reconciled was 
uncertain and needed consideration.  
57. The representative of the United States  said that, in light of the statement just made by the 
Canadian representative, this was a ripe topic, but perhaps delegations were not ready to deal with it 
extensively.  There had been several statements that day regarding whether the list of exceptions in 
paragraph 8 were illustrative or exhaustive.  She would say illustrative.  She did  not accept the 
argument that Article XXI was too special to have relevance here.  In the GATS Article V 
negotiations, the drafters had dealt with this same question.  It would be useful, to the extent 
information was available, if the Secretariat could pr ovide information on what had happened there.  
58. The representative of Japan  said with respect to the coverage of “other regulations of 
commerce” that the Secretariat paper, document WT/REG/W/17/Add.1, referred to several aspects of 
this term.  His delega tion was of the view that duty remissions and duty drawbacks fell under this 
heading, as did restrictive rules of origin.  Perhaps his delegation should submit a paper with 
illustrations of restrictive rules of origin.  For example, when countries which pr eviously conferred 
origin for products having 50  per cent local content raised this level to 60  per cent in an RTA, third -
country factories established within the RTA had to buy more local parts from within the RTA, so 
imports from third countries would be  reduced.  
59. The representative of the United States  said it had been noted that the Agreement on Rules of 
Origin excluded preferential rules of origin.  The word “preferential” was key, as rules of origin in a 
regional agreement were not designed to deci de the country of origin for the purposes of an MFN 
tariff or a quota or something similar; what they concerned was intra -RTA trade and the eligibility for 
the preference, and in this sense they did not seem to be "other regulations of commerce" in the sen se 
of external trade.  Perhaps the Committee could consider this in more depth in the future.  
60. The representative of Korea  said the delegation of Japan had raised an important point which 
deserved further exploration by the Committee.  This point had be en raised by his delegation, as well, 
during the examination of an RTA.    WT/REG/M/15  
 Page 21 
 
 
 61. The representative of India  said with respect to “other regulations of commerce” that it might 
be easier to define what this term did not constitute than to define what it did.  Going back to the point 
that Article XXIV was a derogation, he said his delegation had accepted that it was a derogation from 
the MFN principle.  But it had just been suggested that the Article was a derogation in entirety; his 
delegation was of the view t hat the Article did not give this sort of blanket approval, and it should be 
viewed in the conditional setting indicated in paragraphs 5 and 8.  More importantly, there was no 
justification for “other regulations of commerce” to include any measures which would be GATT 
inconsistent, just as there would be no grounds for Members to make trade more restrictive to third 
parties.  Also, harmonization was often done within the context of other regulations of commerce.  
While his delegation agreed that the object ive of facilitating intra -trade perhaps could not be achieved 
without an accompanying harmonization of trade measures, particularly tariff barriers, it was 
important for the Committee to consider what had been mentioned regarding whether the 
harmonization should be uni -directional or whether it should be in such a direction that it did not lead 
to raising additional or more restrictive trade barriers, including other regulations of commerce, for 
third parties.  For example, if some parties to an existing RT A were applying certain restrictive trade 
measures, such as quantitative restrictions or tariff rate quotas for balance of payments reasons, it did 
not seem to be appropriate or justified for new parties joining the RTAs also to apply these trade 
restricti ve measures in the context of harmonization.  As contended by the United States delegation, in 
any process of convergence or harmonization, the least common denominator was always legal and 
perhaps was the best to adopt.  
62. With respect to the difference between customs unions and FTAs, the representative of 
Australia  said that what distinguished a customs union from an FTA was the fact that in the former 
case, two or more customs territories were combined into a single customs territory, with the 
conseque nce that the parties to a customs union applied a substantially common external approach to 
trade with third countries.  Article XXIV:8(a)(ii) made clear the expectation that the members of a 
customs union had to apply substantially the same duties and oth er regulations of commerce towards 
third countries.  This meant that they would make considerable progress toward a common 
commercial policy, but there was no obligation for them actually to achieve a completely common 
commercial policy.  In this vein, the  Committee needed to consider whether customs territories, which 
each had legal standing under the GATT, had a different sort of legal standing when combining into a 
new customs territory.  Was a new legal entity created with the formation of a customs uni on?  He 
was not speaking about the EC, as this was already a WTO Member in its own right, but rather he was 
speaking about customs unions more generally. Despite her protestations earlier regarding the legal 
sanctities of the WTO texts, the delegate of the  United States seemed to insist that the list of Articles 
found in Article XXIV:8 was incomplete; the list, however, did not say “and so forth” or “etc.”, and if 
that provision were the subject of a dispute, the dispute settlement panel would not be able t o find in 
favour of enlarging the list.  
II. “Substantially all the trade”  
63. The Chairman  called the Committee’s attention to the treatment of this issue in the documents 
presented by the delegations of Australia and Hong Kong, China, as well as the two S ecretariat notes.  
While delegations were familiar with this issue, this was the first time that the Committee was 
considering it in detail.  
64. The representative of the United States  recalled that at the last meeting it had been the feeling 
that this was  a complicated, sensitive subject regarding which positions were known, and that it would 
be quite helpful if the Secretariat would produce papers on the issue.  However, because the papers 
had only recently been distributed and because it was rather late in the day, it seemed advisable for the 
Committee to embark on this discussion at a later date.  WT/REG/M/15  
Page 22 
 
 
 65. The representative of Australia  said his delegation would be content to see the discussion on 
this issue opened, as it was a simple issue which had been dis cussed over the years in the 
examinations of the Treaty of Rome, the Stockholm Convention, and many others.  All Members 
needed to do was to decide what “substantially all the trade” meant in terms of Article XXIV.  This 
could be done easily, for example b y saying the term referred to a certain percentage of trade or to a 
certain number of chapters in the Harmonized System.  It could not be said to entail coverage of 
100 per cent of the trade, as “substantially all the trade” was clearly not the same as “al l trade”.  The 
Membership should avoid the difficulty of having a pseudo -legal inquiry into the meaning of this term 
and instead tackle the issue directly.  In the past the view had been put forth that “substantially all the 
trade” was 80 or 90 per cent of  trade, at least after the transition period.  But there was no reason not 
to say 95 per cent, which would truly be substantive.  In some cases, existing regulations or trade 
regimes prevented some types of trade almost altogether, so a figure of 90 per ce nt or whatnot would 
not mean much.  That is why some other measure, such as the number of chapters of the Harmonized 
System covered, might be more revealing, showing what sectors were excluded.  In that way, the 
Membership could have an idea of what sort o f trade would occur if the restrictions did not exist.  
This was offered as a constructive suggestion to enable the Committee to get to the bottom of the 
issue.  Like others, his delegation would not relish a discussion on all the possible meanings of 
“substantially all the trade”, but a discussion in terms of figures would clearly be helpful.  
66. The representative of the United States  said the Australian solution seemed rather academic, 
basically proposing another economic study of how much trade might ha ve occurred and the impact 
of restrictions.  That did not appear to be an appropriate answer.  The approach needed to involve both 
a qualitative and quantitative aspect.  The biggest danger of setting a quantitative figure for coverage 
was that, whatever t he percentage, the approach would essentially be giving a license to exclude a set 
amount of trade.  In negotiating RTAs, her delegation had started from the point that the best kind of 
agreement was one that was comprehensive, as this was the best way to capture efficiencies.  Yes, this 
came at a price, but this also seemed to be the best way to support the MTS, as RTA parties were not 
doing just the easy elements of liberalization but were doing all.  Her delegation consistently held the 
view that the exc lusion of an entire sector did not satisfy the WTO rules.  
67. With reference to the Australian delegation’s comments, the representative of Brazil  recalled 
that the Committee’s mandate was to identify the problems of the present rules; it was not to discus s 
what changes should be made to the rules.  In response to the idea of using the Harmonized System as 
the reference point for coverage, he said he could imagine an RTA excluding the one product that was 
significant in a country’s trade.  Perhaps this was why the language contained the broad term 
“substantially all the trade”.  
68. The Chairman  said the Committee would continue discussion of this topic at a later date.  
69. The Committee took note  of the comments made.  
F. Other Business  
70. The Chairman  recal led that the EC delegation had indicated its intention to introduce two 
matters under "Other Business".  The first one related to a recent development in the context of 
MERCOSUR, and the second one related to the form and format of the Committee's examinat ion 
reports.  
71. The representative of the European Communities  said the first item concerned MERCOSUR, 
regarding changes in Argentina's and Brazil's tariff rates.  There had been reports relating to the recent 
increases in the tariffs applied by Brazil an d Argentina.  While it was understandable for both of these 
parties to desire to maintain an appropriate framework for macroeconomic stability, there had been  WT/REG/M/15  
 Page 23 
 
 
 insufficient information provided on this development for WTO Members properly to consider the 
impact which it might have on their interests.  His delegation would therefore appreciate it if the 
delegations of Brazil and Argentina could provide information to the Committee or to another WTO 
body on the changes in these tariff rates.  
72. The representa tive of Korea  said the motivation on the part of Brazil and Argentina to 
increase their common external tariff (CET) was to help counter their fiscal and current account 
problems.  However, his delegation was concerned about the possible adverse impact whi ch this 
action would bring on trade liberalization efforts in the WTO.  His delegation was particularly 
concerned about the comprehensive nature of the measure, which covered almost all 8,500 products 
under the CET regime.  Given that a customs union shoul d be contributing to the continued process of 
trade liberalization on a regional basis, the imposition of such higher tariffs would represent a setback 
in the realization of that goal.  Therefore, his delegation was of the view that this measure was 
incons istent with Article  XXIV, inter alia  paragraph 4, which stated that a customs union or free -trade 
area should not raise barriers to the trade of other Members.  Furthermore, if the measure was to be 
taken by only two members of the customs union, there wou ld in effect be two CET regimes in 
MERCOSUR, which did not seem consistent with Article XXIV:5(a)(i).  The comprehensive increase 
in duties and the creation of two CET regimes represented significant changes in the operation of the 
customs union and could be a breach of Article XXIV.  In this regard, MERCOSUR was required to 
report these changes to the appropriate WTO bodies.  The Committee needed detailed information and 
more time for analysis and examination of these measures.  His delegation joined the E C delegation in 
requesting that the MERCOSUR parties provide information on the tariff increases through proper, 
written notification as soon as possible.  
73. The Chairman  reminded the Committee that under its Rules of Procedure, the Committee was 
not to e ngage in substantive discussion under "Other Business".  
74. The representative of the United States  said her delegation would echo the request for more 
detailed information.  She noted that this issue had also been raised in the Committee on Market 
Access and in the Council for Trade in Goods.  It would be sufficient for the MERCOSUR parties to 
supply the information to one body.  
75. The representative of Canada  said his delegation, too, would be interested in receiving more 
detailed information from the ME RCOSUR parties.  In particular, it would invite the MERCOSUR 
parties to submit any update of information to the CRTA via the Committee on Trade and 
Development, in terms of changes in bound rates that would require renegotiations.  Several pieces of 
materi al of that nature had been made available through the examination mechanism, and it was 
important that any additional relevant information also be provided.  
76. The representative of Japan  said his delegation appreciated the development effort in the 
MERCO SUR countries.  As had been said, the 3 per cent increase in the CET might not be consistent 
with the intent of Article XXIV, especially paragraph 4, and could give rise to concern regarding 
Article  II or Article XXIV:6.  His delegation supported the state ments by other delegations.  
77. The representative of Switzerland  said that his delegation was obviously interested in 
following the question but that it was confident that, in the course of the Article XXIV:6 consultations 
it had requested, MERCOSUR count ries would provide information to allow delegations to 
understand the situation.  
78. The representative of Uruguay  said on behalf of the MERCOSUR countries that he 
appreciated the active interest of delegations in the events in the MERCOSUR region.  The 
MERCOSUR delegates took the concerns seriously and would convey them to their respective 
authorities.  As it was not appropriate to go deeply into these matters under “Other Business”, it was WT/REG/M/15  
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 important to highlight that the measures mentioned were now being studied and would be considered 
at the level of the Council of the Common Market, which was to meet later this month in Montevideo.  
Depending on the decision that would result from that meeting, the appropriate communication to the 
WTO would be made at th e right time, following the practice of transparency shown by MERCOSUR 
throughout the examination process.  
79. The Committee took note  of the comments made.  
80. Regarding the second item under “Other Business”, the representative of the European 
Communitie s said the Committee was at the stage in its work where it was asking the Secretariat to 
prepare draft conclusions on a range of RTAs.  The process of informal consultations was about to 
start for a number of those drafts.  This was all welcome, but it see med the Committee should give the 
Secretariat support and guidance to develop these drafts in a way which would serve the Committee’s 
wider purposes.  Perhaps the Committee should hold an informal session to discuss the form and 
format of the conclusions s ections of examination reports.  
81.  The Chairman  said the Committee had always been mindful that a key element of its business 
was discharging Members’ legal obligation to examine RTAs to determine their compatibility with 
GATT Article XXIV or GATS Articl e V, and to conduct any examinations that the Committee on 
Trade and Development had decided the CRTA should undertake.  Since it had been established, the 
Committee had made significant progress in conducting those examinations, in no small measure 
becaus e of the active engagement of the Committee’s Vice Chairmen in presiding over the 
examinations.  The statistics were set out in the Committee’s 1997 Report to the General Council.  
The Committee had had 45 RTAs referred to it so far and had completed the f actual examinations of 
27, with the process far advanced for another 11.  The Chairs were now starting the process of 
elaborating the conclusions for 20 RTAs.  Under the Committee’s procedures, those conclusions were 
necessary to complete the examinations.   This matter deserved informal consultations and perhaps 
eventually full consideration in the Committee.  Based on the Committee’s experiences during 
examinations, there might be a number of different views regarding the sort of conclusions that should 
be made in respect of the different agreements.  Perhaps the Committee should convene in an informal 
mode for a brief discussion to set out some initial points; it might then hold informal discussions again 
later before taking the matter up formally.  
82. The representative of Uruguay  said his delegation had no problem discussing any subject the 
Chairman wanted to raise in informal meetings, but it would be helpful for delegations to receive 
information to reflect on before sitting in an informal meeting.  Oth erwise, delegations were placed in 
a position where they had to react to something that they had not previously considered.  He 
suggested that the EC delegation circulate a paper outlining its points prior to an informal meeting.  
83. The Chairman  said the point by the representative of Uruguay was valid.  He proposed that 
the Committee first ask the EC delegation to make the points it wished to express informally; 
delegations could comment immediately for information purposes if they wished to, though this was 
not to be an exchange of views or discussion.  
84. In reconvening the formal meeting, the Chairman  said that it was not necessary to summarize 
the informal discussion formally, but noted that the Vice Chairmen and he would conduct informal 
consultations  on the issue raised by the EC delegation.   WT/REG/M/15  
 Page 25 
 
 
 85. Raising another issue, the representative of Japan  requested the Secretariat to keep 
delegations informed about outstanding information to be supplied in the context of different RTA 
examinations.  
86. The Comm ittee took note  of the comments made.  
__________  