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33 N.C.J. Int'l L. & Com. Reg. 359, *
Copyright (c) 2008 North Carolina Journal of International Law & Com-
mercial Regulation, Inc.
North Carolina Journal of International Law & Commercial Regulation
Spring, 2008
33 N.C.J. Int'l L. & Com. Reg. 359
LENGTH: 38445 words
ARTICLE: Regional Trade Agreements in the Era of Globalization: A Legal Analysis
NAME: Mohammad F. Nsour+
BIO: + Mohammad Nsour is a lecturer and doctoral candidate at McGill University and a member
of the Faculty of Law. I acknowledge with appreciation that this article was fully funded by, and a
direct product of the Canadian Social Sciences and Humanities Research Council's project on re-
gional trade agreements at McGill University. I am deeply indebted to Professor Armand de Mestral
for his guidance and encouragement while I was working on this article. Indeed, the article would
have never been possible without Professor de Mestral's proactive personal and academic support. I
am also very grateful to my friends, Dr. Chadi El-Zammar who makes himself available for IT-
support me 24/7, and for Mark Glynn, who proof-read the original manuscript of this article. Fi-
nally, I thank the editors and staff of the North Carolina Journal of International Law and Commer-
cial Regulation, particularly Nicole Jones and Christina Simpson, for their professionalism and
dedication. Any errors, omissions and shortcomings remain mine alone.
SUMMARY:
... The AB upheld the Panel's decision with respect to the incompatibility of the safeguards with the
Agreement on Safeguards, yet it reversed certain findings and conclusions of the panel; those rever-
sals relate to the relationship between the Agreement on Safeguards and Article XIX of GATT 1994
on the one hand, and to the use of Article XXIV as a defense to impose the safeguards on the other.
... To this effect, Article XXIV:5 reads as follows: The provisions of this Agreement shall not pre-
vent...the formation of a customs union or of a free-trade area or the adoption of an interim agree-
ment necessary for the formation of a customs union or of a free-trade area; Provided that: (a) with
respect to a customs union, or an interim agreement leading to a formation of a customs union, the
duties and other regulations of commerce imposed at the institution of any such union or interim
agreement in respect of trade with contracting parties not parties to such union or agreement shall
not on the whole be higher or more restrictive than the general incidence of the duties and regula-
tions of commerce applicable in the constituent territories prior to the formation of such union or
the adoption of such interim agreement, as the case may be; (b) with respect to a free-trade area, or
an interim agreement leading to the formation of a free-trade area, the duties and other regulations
of commerce maintained in each of the constituent territories and applicable at the formation of
such free-trade area or the adoption of such interim agreement to the trade of contracting parties not
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33 N.C.J. Int'l L. & Com. Reg. 359, *
included in such area or not parties to such agreement shall not be higher or more restrictive than
the corresponding duties and other regulations of commerce existing in the same constituent territo-
ries prior to the formation of the free -trade area, or interim agreement as the case may be ... . ... To
explain how to evaluate the duties and ORCs before and after the formation of CUs, paragraph 2 of
the Understanding requires that the evaluation under Article XXIV:5(a) of the general incidence of
duties applied before and after the formation of a customs union "be based upon an overall assess-
ment of weighted average tariff rates and of customs duties collected" before and after the formation
of the CU. ... Nonetheless, it can be concluded that the condition of proving causation between the
injury to domestic goods and the injured country's GATT obligations can lead to the exclusion of
regional imports from the calculation of the injury if the country applying the safeguards wants to
exclude the regional imports from the measures. ... In light of the decisions of the Turkey - Tex-
tiles, United States - Line Pipe, and United States - Wheat Gluten cases, Article XXIV:5 is not a
defense to inconsistencies with other WTO agreements unless there is an evident relationship be-
tween the WTO, the agreement in question, and the GATT articles. ... However, the Enabling
Clause excludes RTAs among developing countries from many conditions mentioned in Article
XXIV such as the "substantially all the trade" requirement. ... Moreover, the members of the CRTA
debated the regulatory needs for CUs and FTAs as different modes of RTAs and noted that rules of
origin have been a particular subject of controversy, especially since it is not clear whether those
rules of origin could be classified as "other regulations of commerce" under Article XXIV:5(b).
TEXT:
[*360]
I. Introduction
Regional Trade Agreements (RTAs) are preferential trade arrangements that favor their members
by reducing trade barriers below the level of reduction under the multilateral system. n1 RTAs are an
exception from the rule of non-discrimination, which constitute the cornerstone of the multilateral
trade system. n2 The [*361] General Agreement on Trade and Tariffs (GATT) Article XXIV recog-
nizes that the aim of RTAs is to facilitate world trade; this goal is furthered by the inclusion of all
trade sectors and diminished by the exclusion of major ones. n3
RTAs, however, are gaining attention not only as they increase quantitatively, but also because
of the economic and legal challenges they produce. n4 Various economists have analyzed the eco-
nomic theory of RTAs and offered divergent opinions on the economic efficiency of RTAs. n5 How-
ever, the legal challenges that RTAs present have not received the same attention as the economic
challenges in empirical and theoretical scholarship. n6 This, in my judgment, results from many rea-
sons; first, there is a misconception that the issue of RTAs is an economic one, and the best way to
address it is through economic analysis; second, the strong political factors that are involved in
forming RTAs, and their key role after RTAs enter into force, give the impression that [*362]
forming RTAs is essentially the result of political and economic processes rather than a legal one;
third, the confusion that surrounds the applicable law on RTAs (GATT Article XXIV, GATS Arti-
cle V, the Enabling Clause, the Understanding on Article XXIV, and the Transparency Mechanism)
makes legal analysis challenging. It is particularly important to understand the economic theory of
RTAs before exploring their legal aspects. Finally, the case law on RTAs, particularly in the World
Trade Organization (WTO), is still evolving, which discourages legal scholars from adopting posi-
tions at this point in time.
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Thinking about RTAs as a legal challenge is no less important than analyzing their economic
and political impacts. For one, the WTO agreements, as all RTAs, are legal texts that are interpreted
pursuant to The Vienna Convention on the Law of Treaties. n7 Likewise, a legal examination is cru-
cial to analyze the relationship between the multilateral and regional trade orders; this analysis can-
not be done through a strictly economic lens. Moreover, as will be thoroughly illustrated in this arti-
cle, WTO panels have been very helpful in addressing controversial issues in RTAs, and arguably,
the legal analysis will be central to providing discipline to the high number of RTAs. In short, a
close legal examination is timely and worthy because it reveals that RTAs threaten the existence of
the WTO by offering alternative trade options to the global-based trading order.
This article seeks to clarify several legal issues posed by RTAs and set them in an analytical
framework. Part I describes why WTO Members are forming RTAs, and briefly reviews the eco-
nomic theory of RTAs. This part is important to define RTAs and why they have developed. Part II
identifies the types of RTAs that are recognized by the GATT. It should be noted, however, that
other forms of RTAs exist that offer deeper economic integration and were not mentioned by the
GATT. Part III focuses on the legal questions that RTAs present, particularly with respect to trade
in goods. It also analyzes the substantive and procedural conditions that are encompassed by the
relevant WTO rules. In doing so, Part III critically examines key provisions and terms in the WTO
law, in particular Article XXIV of the GATT. Perhaps [*363] most importantly, Part IV deals with
regionalism in services. In discussing both goods and services, WTO panel decisions will be regu-
larly analyzed. Finally, Part V outlines the efforts that have been made to address the challenges of
RTAs. This article concludes by arguing that serious efforts should be made on the regional and the
multilateral level to maintain a healthy multilateral system while at the same time ensuring that
RTAs adhere to the law pursuant to which they are established.
II. Motivations for Regionalization and the Economic Theories of RTAs
Many legal scholars have stated that RTAs are political phenomena. Commentators cite many over-
lapping reasons for the rise of RTAs. n8 First, "the excessive number of participants in the GATT" n9
in the WTO has made trade negotiations harder and more complex within the GATT as well as
within the WTO. n10 Second, the large gap between members' economies makes decision-making
even harder. n11 Third, major international trade players favor regionalism. n12 Fourth, empirical evi-
dence shows that regionalism is economically and politically beneficial. n13
Some commentators believe that the first two reasons are not as evident as the third and fourth
reasons. n14 Nonetheless, the first three reasons are still very popular justifications for crafting RTAs.
Countries have found it easier to associate with other countries with similar levels of economic and
political maturity. n15 [*364] It is also less difficult to negotiate with fewer countries on trade poli-
cies than it is to negotiate with dozens of WTO member-states. Further, concerns over a possible
failure of the multilateral trade negotiations have encouraged more countries to form their own
markets, n16 especially after the collapse of multilateral negotiations in Mexico in 2003 and the hard-
ships that the Doha Round is encountering. n17
As RTAs proliferate, justifications proliferate too. n18 States strive to strengthen their influence in
multilateral trade and international fora. n19 States view RTAs as an "insurance policy" should the
multilateral system fail and the "world slip into competing [and perhaps hostile] regional blocks." n20
For example, one of the reasons that encouraged Asian and Pacific countries to form the Asia-
Pacific Economic Cooperation (APEC) was to counter NAFTA's possible protectionist effects. n21
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Last but not [*365] least, other miscellaneous concerns are involved in the formation RTAs, in-
cluding politics, security (e.g. preventing illegal immigration), and environmental concerns. n22
Economists measure the merits of any RTA in two dimensions: first, the economic benefit that
members of an RTA acquire after the formation of the RTA (trade creation), and second, the eco-
nomic disadvantage that third parties and the parties themselves bear as a result of the formation of
RTAs (trade diversion). n23 The first dimension means that intra-regional trade has expanded, which
constitutes a positive consequence. n24 The second dimension refers to the loss of trade resulting
from the formation of an RTA, which is the negative dimension. n25 In fact, no RTA has solely trade
creation effects; trade diversion will result as a natural and normal consequence of trade creation.
Thus, the question in determining the conformity of an RTA to Article XXIV of the GATT is
whether trade creation outweighs trade diversion. n26
RTA opponents argue that RTAs present a grave challenge to the global economy and the multi-
lateral trade regime because they undermine "the widely-shared objectives of multilateral free
trade." n27 RTAs are stumbling blocks in the world economy because according to some economists,
"negotiators frequently seek to exclude from regional FTAs precisely those sectors that would be
most threatened by welfare-enhancing trade creation." n28 [*366] Put differently, RTA member-
states tend to protect "less-competitive or inefficient domestic industries ... from the rigors of wide
open global competition." n29 Similarly, some scholars view RTAs as a major setback for the multi-
lateral trade regime represented by the GATT because RTAs are "discriminatory" and can "be
viewed as a factor making for disintegration, rather than integration, within the world economy as a
whole." n30 For example, Mexican apparel can receive tariff-free treatment within NAFTA only if it
is produced with North American textiles and yarn. n31 In sum, some economists think that the main
damage of RTAs is the trade diversion that occurs at the expense of third parties. n32
On the other hand, other economists see that RTAs boost trade and increase trade specialization.
n33 The most cited example is the case of Mexico and NAFTA, whereby Mexico's trade benefits are
evident. n34 Those economists also use empirical research outcomes which prove the constructive
role of RTAs in the global economy. n35 Likewise, these economists argue that RTAs can be consid-
ered a "stepping-stone" towards an ultimate, and fully integrated global economy. n36 RTAs, accord-
ing to regionalists, can [*367] be a phase in which countries examine certain liberalization strate-
gies on a regional scale before applying them in a multilateral context. n37 In this light, other econo-
mists argue that RTAs do not necessarily enhance welfare, yet, they also may not be harmful. n38 In
other words, these economists approach the issue of RTAs on a case-by-case basis.
III. Regional Trade Agreements that are Recognized by Article XXIV
Article XXIV of the GATT mentions three types of RTAs: Free Trade Agreements (FTAs), Cus-
toms Unions (CUs), and interim agreements that lead to the formation of FTAs or CUs. n39 Neverthe-
less, RTAs can take different forms other than those mentioned under Article XXIV, such as Com-
mon Markets, n40 Economic Unions, n41 and Monetary Unions. n42
[*368]
A. Customs Unions
Article XXIV:8(a) defines a CU as "the substitution of a single customs territory for two or more
customs territories so that duties and other restrictive regulations of commerce...are eliminated with
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respect to "substantially all the trade' between parties." n43 Yet, the elimination does not have to be
absolute; n44 members of CUs may still exempt trade from liberalization when necessary in light of
GATT Articles XI, XII, XIII, XIV, XV, and XX. n45
Article XXIV:8(a) requires parties who form CUs to implement "substantially the same duties
and other regulation of commerce" to trade with other countries. n46 In other words, CUs are required
to have common external tariffs (CET) to be applied to all goods imported into the CU. n47 To mini-
mize the negative impact on third parties, Article XXIV:5 requires the new CET and the other regu-
lations of commerce not to be "higher or more restrictive" than they were "prior to the formation of
the free-trade area." n48 Otherwise, if the CETs cause an increase in any individual member's bound
tariffs, paragraph 6 indicates that Article XXVIII shall apply. n49
B. Free Trade Agreements
FTAs are trade agreements by which member-states eliminate internal trade barriers and tariffs. n50
FTA members maintain their [*369] original tariff-rates for non-member imports. n51 In this light,
Article XXIV identifies FTAs "a group of two or more customs territories in which the duties and
other restrictive regulations of commerce ... are eliminated on substantially all the trade between the
constituent territories in products originating in such territories." n52
Unlike CUs, FTAs do not have CETs. n53 FTAs enable each member to retain its trade policy
with third parties. n54 This characteristic eases economic integration with countries that do not have
common borders or are not even geographically close to each other. This fact partially explains why
FTAs are the most popular type of RTAs in the world.
One of the primary difficulties associated with FTAs is trade deflection. n55 In order to prevent
exploiting the zero tariff rate between FTA members by third parties, FTAs typically create "rules
of origin" to identify which products should be eligible for a tariff-free treatment. n56 Rules of origin
are the method by which goods that qualify to receive tariff-free treatment within the FTA [*370]
are identified. n57 Some commentators, however, are skeptical about the rules of origin since they can
be biased. n58
There are two main categories of rules of origin: preferential and non-preferential. n59 Preferential
rules of origin typically exist in RTAs to distinguish regional products from non-regional like prod-
ucts, thus offering them a preferential treatment. n60 Non-preferential rules of origin are used to de-
termine a product's country of origin for general purposes other than granting tariff preferences
"such as the application of duty rates to imports, antidumping or countervailing duties, country-of-
origin marking, or the implementation of country-specific quotas and voluntary export restraints." n61
The Agreement on Rules of Origin sets out general elements of rules of origin. n62 Article 2 of the
Agreement on Rules of Origin provides that rules of origin should be: (i) neutral, i.e., WTO mem-
bers ought not to exploit rules of origin to pursue non-trade policies such as security and environ-
mental policies, n63 (ii) non-discriminatory, n64 (iii) transparent, n65 predictable and subject to the due
process of law. n66 Alongside this, the agreement established the WTO Committee on Rules of Origin
(CRO), and the WTO Technical Committee on Rules of Origin (TCRO) to work on harmonizing
rules of origin. n67 It is crucial to note, nonetheless, that the Agreement on Rules of Origin covers
only non-preferential [*371] rules of origin and not preferential rules of origin. n68 Similarly, unlike
some RTAs that have rules of origin for investments and services, n69 the Agreement on Rules of
Origin does not cover services or investments. n70 The Agreement on Rules of Origin attempted to
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create a framework for harmonizing non-preferential rules of origin by setting timetables for this
purpose, but all deadlines were missed due to the large number of goods involved and the contro-
versial nature of some products such as textiles. n71
C. Interim Agreements
Building an RTA requires extensive coordination between the prospective members. RTA member-
countries are usually required to amend their domestic laws in response to increased integration. n72
Therefore, Article XXIV approves interim agreements as providing a transition period to forming
CUs or FTAs. Pursuant to Article XXIV:(5), the purpose of interim agreements is the formation of a
CU or an FTA. n73 Interim agreements shall "include a plan and schedule" that specifies how parties
will use the interim agreement to form their RTA "within a reasonable length of time." n74 Due to the
fact that "reasonable length of time" is a broad concept, the Understanding on Article XXIV sets out
that the reasonable length of time should not exceed ten years, unless "exceptional circumstances"
require otherwise. n75
Two main concerns arise from the issue of interim agreements. [*372] First, countries are not
reporting their interim agreements so that the WTO can examine their consistency with Article
XXIV (according to paragraph 7 (a) of Article XXIV). n76 Parties to RTAs sideline the whole con-
cept of interim agreements by stating that they will implement their RTA gradually over a period of
time that might exceed ten years. n77 Such schemes enable members of RTAs to overcome the notifi-
cation requirement to the WTO regarding the terms of their RTAs, and to have more leeway in de-
ciding the details of their agreements. n78 The second concern that arises is whether the conditions
applied to FTAs and CUs, particularly the requirements of Article XXIV:(5) and (8), also apply to
interim agreements. n79
IV. Legal Issues Posed by the Applicable Law
A. The Purpose of Regional Trade Agreements: Article XXIV:4 & 5
Article XXIV:5 states that "the provisions of [the GATT Agreement] shall not prevent, as between
the territories of contracting parties, the formation of a customs union or of a free-trade area." n80
This issue was discussed in an important case that dealt with Turkey's quotas which constituted a
wide range of quantitative restrictions on textiles and clothing, including those from India. n81 In the
Turkey - Restrictions on Imports of Textiles and Clothing Products case, India objected to Turkey's
quotas and claimed they were inconsistent with Articles XI and XIII of the GATT 1994, as well as
Article 2 of the Agreement on Textiles and [*373] Clothing (ATC). n82 In its defense, Turkey
claimed its quotas were justified measures in the formation of a CU with the European Union (EU)
and therefore conformed to Article XXIV of the GATT. n83 Turkey asserted that the quotas were
necessary in forming the CU with the EU, and that Article XXIV:8 specifically requires parties to
CUs to harmonize their customs policies. n84 The Panel found that Turkey's measures were inconsis-
tent with Articles XI and XIII of the GATT 1994, and consequently inconsistent with Article 2.4 of
the ATC. n85 The Panel also rejected Turkey's assertion that its measures were justified by Article
XXIV of GATT 1994. n86 The Appeals Board (AB) in this case upheld the Panel's decision, although
it differed in its reasoning. n87
In dealing with the meaning of "shall not prevent" in Article XXIV:5, the AB in the Turkey -
Textiles case clarified the meaning of "shall not prevent" by indicating that "the provisions of the
GATT 1994 shall not make impossible the formation" of an RTA. n88 The AB highlighted the cha-
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peau of Article XXIV by noting that inconsistent measures with the GATT's provision are permissi-
ble only to the extent necessary to form an RTA. n89 The AB went further to set up two conditions
that RTAs must fulfill when using the chapeau as a defense: first, RTA member-countries should
prove that their RTA has satisfied the requirements of Article XXIV:8(a) and 5(a), and second,
RTA members should show it would be impossible to form the RTA unless "the measure at issue is
introduced" upon the formation of the RTA. n90 It is not yet known whether this also applies to FTAs
since the Turkey - Textiles case dealt with a CU issue and not an FTA issue.
Article 3.2 of the Understanding on Rules and Procedures [*374] Governing the Settlement of
Disputes (DSU) n91 states that WTO agreements should be interpreted in accordance with the cus-
tomary rules of interpretation of public international law. With this in mind, Article XXIV:4 stipu-
lates that:
The contracting parties recognize the desirability of increasing freedom of trade by the develop-
ment, through voluntary agreements, of closer integration between the economies of the countries
parties to such agreements. They also recognize that the purpose of a customs union or of a free-
trade area should be to facilitate trade between the constituent territories and not to raise barriers to
the trade of other contracting parties with such territories. n92
The drafters of the GATT confirmed in paragraph 4 of Article XXIV that the trade liberalization
between the members of RTAs should not be at the expense of non-members. n93 The Understanding
on Article XXIV complemented this concept by recognizing the importance of RTAs in the global
economy, and the positive impacts of the liberalization of "all trade" between the members of an
RTA. n94 The Understanding asserted, however, that RTAs "should to the greatest possible extent
avoid creating adverse effects on the trade of other Members." n95 The drafters of Article XXIV and
the Understanding implied that full liberalization of trade is less trade-diverting than partial liberali-
zation. n96 Nonetheless, many economists such as Bhagwati argue that trade diversion will occur
even if RTA members adopt full-preference regimes. n97
The AB in the Turkey - Textiles case affirmed the obligation of facilitating trade and not raising
barriers by invoking Article [*375] XXIV:4, and by emphasizing that the Understanding "explic-
itly reaffirms this purpose," and states that in the formation or enlargement of a customs union, the
constituent members should "to the greatest possible extent avoid creating adverse affects on the
trade of other Members." n98 The AB report went further to state that paragraph 4 contains a "pur-
posive" obligation, and not an "operative" one. n99 This means that paragraph 4 should be taken into
account when interpreting any other paragraph of Article XXIV, including the chapeau of paragraph
5. n100 Consequently, the purpose of RTAs, according to Article XXIV, should be to expand trade
between the members of RTAs, and avoid, as much as possible, the negative consequences of RTAs
on third parties. n101
Some scholars argue that Article XXIV:4 highlights the economic framework of the whole arti-
cle by which the legal aspects should be understood. n102 Kenneth Dam argues in this regard that Ar-
ticle XXIV should be construed to provide for trade-creation standards by emphasizing that "para-
graph 4 sets forth what could be considered the principal rule." n103 This point of view was argued by
the representatives of several WTO members such as Australia and Korea in the fifteenth session of
the Committee of Regional Trade Agreements (CTRA). n104 Those members asserted that "Article
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XXIV:4 not only provided a guiding principle, but also complemented other paragraphs in a sub-
stantive way." n105 On [*376] the other side of the spectrum, the United States' representative argued
that "there was no test in Article XXIV:4, and it was never intended that there should be one." n106
She argued that the first paragraph of the Understanding provided that, to be consistent, an RTA had
to satisfy the provisions of paragraphs 5, 6, 7 and 8." n107 The EU representative strongly agreed with
the United States. n108
Finally, the AB in the Turkey - Textiles case stated that Article XXIV:4 "does not set forth a
separate obligation itself but, rather, sets forth the overriding and pervasive purpose for Article
XXIV which is manifested in operative language in the specific obligations that are found else-
where in Article XXIV." n109
B. Substantive Conditions
1.
"Substantially All the Trade": Article XXIV:8
To minimize affecting third parties, GATT Article XXIV:8 requires that RTA members must
eliminate trade restrictions with respect to "substantially all the trade" between the "constituent ter-
ritories" of the RTA. n110 Regarding CUs, Article XXIV:8(a) states that
Duties and other restrictive regulations of commerce (except where necessary, those permitted un-
der Articles XI, XII, XIII, XIV, XV, XX) are eliminated with respect to substantially all the trade
between the constituent territories of the union or at least with respect to substantially all the trade
in products originating in such territories ... . n111
Whereas regarding FTAs, Article XXIV:8(b) states that "duties and other restrictive regulations of
commerce (except where necessary, those permitted under Articles XI, XII, XIII, XIV, XV, XX)
are eliminated on substantially all the trade between the constituent territories in products originat-
ing in such [*377] territories ... ." n112 Article XXIV differentiates between "substantially all the
trade" in FTAs and in CUs. n113 In the case of CUs, duties and restrictions on trade ought to be elimi-
nated either with respect to substantially all the trade between the CU members, or with respect to
substantially all trade in goods originating within the CU borders. n114 On the other hand, FTAs are
only required to eliminate restrictions on substantially all the trade in products originating in the
FTAs' territories. n115 This differentiation reflects the nature of both CUs and FTAs; CUs are a more
advanced type of trade liberalization because trade barriers are eliminated irrespective of the origin
of goods (once they enter the CU). In Article XXIV:8(b) however, trade barriers should be elimi-
nated solely on goods originating in the FTA territories. n116
Debates have always revolved around whether "substantially all" should be understood in quali-
tative terms (exclusion of major sector) or quantitative ones (percentage of trade of the members
covered). n117 GATT working parties that were established to examine regional trade agreements, and
later the Committee on Regional Trade Agreements (CRTA), have not been able to arrive at a pre-
cise conclusion on the meaning and implications of "substantially all the trade." n118 To date, there is
no consensus on what percentage could be deemed "substantially," or "all the trade." n119
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Some WTO working parties, like Hong Kong and China SAR attempted to define "substantially
all the trade" through the percentage of trade covered. n120 However, the exact percentage has [*378]
never been agreed upon. n121 For instance, the EC delegation suggested in 1998 that "substantially all
the trade" entailed eighty percent of total trade volume. n122 Moreover, the EC delegation argued that
the wording of Article XXIV says "substantially all the trade" and not "substantially all the prod-
ucts," thus excluding a sector of trade is not inconsistent with Article XXIV. n123 This opinion met
different reactions. n124 Some members stressed that any percentage to determine the substantiality of
trade should be determined on a case-by-case basis because RTAs are all different from each other.
n125 Even if a percentage were agreed upon, an arithmetical calculation of it would be almost impos-
sible from an economic perspective. n126 On the other hand, those who argued that substantially all
the trade implies a qualitative approach, stressed that leaving out an entire sector cannot be consis-
tent with the requirements of Article XXIV to show a commitment to close economic integration. n127
Scholars have also attempted to provide accurate explanations when addressing the meaning of
"substantially all the trade." n128 Mathis, for instance, adopted a middle view "that would permit du-
ties together with other restrictive regulations to be counted together in determining whether sub-
stantially all trade was being covered by the agreement," while applying a strict view by contending
that duties are to be eliminated on all of the trade. n129 This imprecision in defining "substantially all
the trade" made it difficult for RTA parties or prospective RTA parties to prove the compatibility of
their RTA with the requirements of Article [*379] XXIV. n130 For example, in 1965 Australia and
New Zealand crafted an FTA that initially covered only half of the trade between them and consid-
ered this coverage compatible with Article XXIV. n131 Others argue that it is still hard to set a stan-
dard for what constitutes "substantially all the trade," and therefore, the best option is to have a
case-by-case approach. n132
Unfortunately, the Understanding of Article XXIV was not helpful in addressing the matter of
trade coverage. It merely noted that the contribution to the expansion of world trade through closer
integration between the relevant economies is diminished if any major sector of trade is excluded.
n133 In other words, it did not come with anything new and did not establish any obligations in this
regard.
The AB in the Turkey - Textiles case highlighted the meaning of "substantially" in two ways. n134
The AB adopted Dam's analysis when it remarked "that "substantially all the trade' is not the same
as all the trade;" yet it "is something considerably more than merely some of the trade." n135 The AB
also added that the term "substantially all" contains both qualitative and quantitative meanings by
finding that
The ordinary meaning of the term "substantially" in the context of sub-paragraph 8(a) appears to
provide for both qualitative and quantitative components. The expression "substantially the same
duties and other regulations of commerce are applied by each of the Members of the [customs] un-
ion" would appear to encompass both quantitative and qualitative elements, the quantitative aspect
more emphasized in relation to duties. n136
Likewise, the AB interpreted Article XXIV:8(a)(ii) (which [*380] requires CUs to have "substan-
tially the same" trade regulations with non-members) by declaring that although paragraph 8 of Ar-
ticle XXIV offers some degree of flexibility, "substantially the same regulations" demands "ap-
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proximating sameness," and not only a degree of comparability. n137 By the same token, the Panel in
the United States - Line Pipe case found that the United States had established a prima facia case
when it produced evidence that NAFTA eliminated duties in 97% of the parties' tariff lines, which
was unquestionably deemed substantially all trade. n138 Yet it should be noted that the interpretation
of Turkey - Textiles case applies only to CUs and not FTAs since the issue of the case was chiefly
the CU between Turkey and the EC.
2.
"Duties and Other Restrictive Regulations of Commerce": Article 8
Article XXIV:8 states that "duties and other restrictive regulations of commerce" (ORRCs) should
be eliminated on substantially all the trade between RTA partners. n139 Just like other Article XXIV
terms, disagreements exist on what constitute ORRCs. n140 One should note, however, that there is a
the difference between ORRC in paragraph 8 and "other regulations of commerce" (ORCs) men-
tioned in paragraph 5. n141 ORCs are more comprehensive than ORRCs because the term restrictive
"equates easily with border protective measures." n142 As a result, ORCs include "anything and every-
thing that affects the quality of [*381] external trade, whether or not the subject matter falls within
the WTO Agreements." n143 In other words, Article XXIV:8 does not encompass all regulations of
commerce that affect regional trade however small; rather, it covers those regulations that have di-
rect restrictive effects on the flow of goods between regional members. n144 The term ORCs will be
inspected thoroughly in the next section because it is part of paragraph 5 and has different implica-
tion than the ORRCs of paragraph 8.
The major issue in paragraph 8 is whether or not the listing of Articles XI (quantitative restric-
tions), XII (restrictions for balance of payments purposes), XIII (non-discriminatory administration
of quantitative restrictions), XIV (exceptions to the rules of non-discrimination), XV (exchange ar-
rangements), and XX (general exceptions) is exhaustive or only indicative. n145 Such a distinction is
important to know because for example, the distinction can help explain whether members can ex-
clude the application of safeguards and anti-dumping measures between the RTA members.
We first explore whether the listing of Article XXIV:8 is exhaustive or indicative. While we ex-
amine the arguments of those who believe that the list is indicative, we go back to the question of
safeguards and explore the safeguards issue in paragraph 8 as set forth in Part III: B (1). n146
A minority of commentators argue that in relation to ORRCs, Article XXIV is exhaustive, and
safeguards cannot be included in its meaning. n147 In other words, as long as safeguards are not men-
tioned in Article XXIV, this should be a sign that it is not ORRCs. If there is no "inter alia' refer-
ence, Article XXIV as drafted facially manifests an exclusive listing. n148 Those who argue this point
of view, such as Mathis, maintain that the list should be [*382] understood to be exhaustive as
long as there is no clear definition of what "substantially all the trade" is because this would permit
measures not mentioned in the list to be applied to the remainder of "substantially all the trade"
coverage. n149 This campaign raises a policy concern which is that "regional members can eliminate
internally troublesome sectors while discriminating against non-members for the balance of trade."
n150 Furthermore, scholars who adopt this point of view argue that excluding other articles such as
Article XIX makes sense because Article XIX is an emergency measure that might be taken in re-
sponse to unforeseen circumstances. n151 Those circumstances are typically rare and would be frozen
after the given circumstances cease, thus tariffs are returned to their original levels. n152
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Now we turn to the point of view that argues the listing is indicative. For example, does para-
graph 8 permit members of an RTA to apply safeguards to products originating in the RTA? After
considering the Turkey - Textile case, some commentators noted that the AB found that "the terms
of sub-paragraph 8(a)(i) offer "some flexibility' to the constituent members of a customs union
when liberalizing their internal trade"; those commentators then noted that this finding is very ra-
tional because it will permit applying safeguards between regional trade partners. n153 The AB, how-
ever, emphasized that the flexibility depends upon the condition that ORRCs be eliminated with re-
spect to substantially all internal trade. n154 Another point of view on this issue agrees that safeguards
are definitely ORRCs as long as they are within the insubstantial portion of the trade that is ex-
cluded for liberalization. n155 Nonetheless, this point of view was found to be [*383] weak because,
for example, Article XX permits members to prioritize concerns like health and public policy over
GATT obligations. n156 This point of view implies that Article XX of the GATT provides that "noth-
ing in this Agreement shall be construed to prevent the adoption or enforcement ... of measures a)
necessary to protect public morals ... [or] (f) imposed for the protection of national treasures of ar-
tistic, historic or archaeological value." n157 Thus, if paragraph 8 means that an Article XX measure
can only be applied to the "insubstantial" portion of trade, then "the interpretation would prevent the
adoption or enforcement of [Article XX] on "substantially all the trade,' contrary to Article XX." n158
Finally, there are those who argue that the list in paragraph 8 is indicative, stressing that Article VI,
just like Article XIX, is excluded from the list; hence, if the list were exclusive, "all intra-regional
anti-dumping and countervailing duties would also be prohibited." n159
The first jurisprudential opinion in this regard was adopted by the Panel in the Argentina-
Safeguard Measures on Imports of Footwear case. n160 In the Argentina-Footwear case, the EC com-
plained about provisional and definitive safeguard measures on imports of footwear. n161 The EC al-
leged that the safeguard measures violated Articles 2, 4, 5, 6, and 12 of the Agreement on Safe-
guards, and Article XIX of GATT 1994. n162 The Panel found that Argentina's safeguards were in-
consistent with the Agreement on Safeguards. n163 The AB upheld the Panel's decision with respect to
the incompatibility of the safeguards with the Agreement on Safeguards, yet it reversed certain find-
ings and conclusions of the panel; those reversals relate to the relationship [*384] between the
Agreement on Safeguards and Article XIX of GATT 1994 on the one hand, and to the use of Article
XXIV as a defense to impose the safeguards on the other. n164
The Argentina - Footwear case considered safeguards and anti-dumping duties as ORRCs. n165
The rationale for this argument was that "that the obligation of Article XXIV:8 to eliminate all du-
ties and other restrictions of commerce applies only to "substantially all" but not necessarily to "all"
trade between the constituent territories." n166 Article XIX also indicates that safeguard measures can
be modifications or withdrawals of concessions on imports. n167 Moreover, the Panel noted that foot-
note 1 of the Agreement on Safeguards mentioned Article XXIV:8, which could mean that safe-
guards could indeed be considered as ORRCs. n168 With regard to this, the Panel in Argentina -
Footwear case considered safeguards as ORRCs. n169 The AB however, reversed the finding of the
Panel on Article XXIV in general because it decided that this question was irrelevant to the case and
thus should not have been discussed. n170
A final point that merits attention is the meaning of the word "necessary" in paragraphs 8(a) and
(b) when those paragraphs state that "duties and other restrictive regulations of commerce (except
where necessary, those permitted under Articles XI, XII, XIII, XIV, and XX) are eliminated with
respect to substantially all the trade between RTAs' members." n171 No WTO panel thus far has de-
cided on when a necessity occurs that will allow recourse to [*385] the list of exceptions in para-
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graphs 8:(a) and (b). Some researchers have suggested in this regard that the necessity test of para-
graph 5 should be adopted. n172 Put differently, necessity in paragraph 8 can be specified by the ex-
tent that a formation or continuation of an RTA would be prevented if an ORRC mentioned were
eliminated. n173
3.
"ORCs" Not on the Whole Higher or More Restrictive: Article XXIV:5
The main objective of Article XXIV:5 is to ensure than RTAs do not negatively affect third parties.
n174 To this effect, Article XXIV:5 reads as follows:
The provisions of this Agreement shall not prevent...the formation of a customs union or of a free-
trade area or the adoption of an interim agreement necessary for the formation of a customs union or
of a free-trade area; Provided that:
(a) with respect to a customs union, or an interim agreement leading to a formation of a customs
union, the duties and other regulations of commerce imposed at the institution of any such union or
interim agreement in respect of trade with contracting parties not parties to such union or agreement
shall not on the whole be higher or more restrictive than the general incidence of the duties and
regulations of commerce applicable in the constituent territories prior to the formation of such union
or the adoption of such interim agreement, as the case may be;
(b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade
area, the duties and other regulations of commerce maintained in each of the constituent territories
and applicable at the formation of such free-trade area or the adoption of such interim agreement to
the trade of contracting parties not included in such area or not parties to such agreement shall not
be higher or more restrictive than the corresponding duties and other regulations of commerce exist-
ing in the same constituent territories prior to the formation of the free -trade area, or interim
agreement as the case may be ... . n175
[*386] The above paragraphs have generated intense discussions between GATT members in an
attempt to agree on how to examine "the general incidence of duties" and ORCs. n176 For instance,
the working parties explored the question of whether "the general incidents of duties" should be cal-
culated on a product-by-product basis or be based on a sector-by-sector assessment; if calculated on
a product by product basis, this would occur "after the creation of the CU vis-a-vis the general inci-
dence of duties applied by each of the CU's members before it enters into force. n177
To explain how to evaluate the duties and ORCs before and after the formation of CUs, para-
graph 2 of the Understanding requires that the evaluation under Article XXIV:5(a) of the general
incidence of duties applied before and after the formation of a customs union "be based upon an
overall assessment of weighted average tariff rates and of customs duties collected" before and after
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the formation of the CU. n178 To facilitate this calculation, the CU has the duty to provide the WTO
with the necessary data, so that the latter can calculate the weighted average tariffs according to Ar-
ticle XXIV:5(a) and to paragraph 2 of the Understanding. n179 Put differently, the words "on the
whole" and "general incidence" imply that the comparative examination should be based on the
overall effect of the ORCs, and not on individual ORCs. n180 If ORCs overall are more restrictive
than they were before the formation of the RTA, then Article XXIV cannot serve as a defense.
Notably, the AB in the Turkey - Textiles case was satisfied with the accuracy of the "economic
test" provided in the Understanding, n181 where that Understanding indicated that
before the agreement on this Understanding, there were different views among the GATT Contract-
ing Parties as to [*387] whether one should consider, when applying the test of Article XXIV:5(a),
the bound rates of duty or the applied rates of duty. This issue has been resolved by paragraph 2 of
the Understanding on Article XXIV, which clearly states that the applied rate of duty must be used.
n182
However, neither the Panel nor the AB in Turkey - Textiles case illustrated the role of the WTO
CRTA in conducting the calculation. n183 Furthermore, the Panel in the Turkey - Textiles case made a
significant step by defining ORCs in paragraph 5 as covering:
any regulations having an impact on trade such as measures in the fields covered by WTO rules,
e.g. sanitary and phytosanitary customs calculation, anti-dumping, technical barriers to trade; as
well as any other trade-related domestic regulation, e.g. environmental standards, export credit
schemes.
Given the dynamic nature of regional trade agreements, we consider that this is an evolving con-
cept. n184
This jurisprudential definition broadened the scope of ORCs beyond the meaning of Article XI
of the GATT (the elimination of quantitative restrictions introduced or maintained by countries on
the importation or exportation of products). n185 It should be emphasized nevertheless that although
this definition is broad, it is exclusive to the construction of ORCs in paragraph 5 and not in para-
graph 8, because otherwise CU members would have to harmonize all, not just substantially all,
trade-related regulations, which is beyond the requirements of Article XXIV. n186 Scholars argue in
this regard that rules of origin should be considered ORRCs and not ORCs since rules of origin are
measures taken upon or after the formation of RTAs (i.e. FTAs), and there is no pre-formation in
ORCs. n187 In other words, rules of origin limit the scope of trade liberalization and restrict it, thus
they have to [*388] comply with the "substantially all the trade requirement" in paragraph 8. n188 In
addition, both the Panel and the AB in the Turkey - Textiles case stipulated that "the effects of the
resulting trade measures and policies of the new regional trade agreement shall not be more trade
restrictive overall, than were the constituent countries' previous trade polices." n189
With respect to FTAs, Article XXIV:5(b) reaffirmed what was mentioned in paragraph (a). Ar-
ticle XXIV:5(b) added that the duties and ORCs of each individual FTA member-country imposed
on third parties "shall not be higher or more restrictive" after the formation of the FTA than they
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33 N.C.J. Int'l L. & Com. Reg. 359, *
were before the formation. n190 In other words, ORCs should be comprehensively examined before
and after the FTA enters into force. The complexities of paragraph (a) do not exist in paragraph (b)
since FTAs are not required to have a CET; rather, each member maintains its duties as those duties
were with third parties. n191
Another question that is imperative to consider is whether rules of origin are ORCs or ORRCs.
Scholars like Mathis opt for considering rules of origin as ORRCs because rules of origin play a
role in defining "substantially all the trade" in FTAs under Article XXIV:8. n192 Thus, as the repre-
sentative of Hong Kong, China SAR argued in a CRTA meeting, "the less stringent the preferential
rules of origin are for a RTA, the higher percentage of their members' intra-RTA trade will be in-
cluded towards meeting the [substantially all the trade] threshold." n193 Conversely, another opinion
indicates that rules of origin should be considered either ORCs or ORRCs in light of the RTA in
question and in accordance with the effects the rules of origin have on the regional members and
third parties. n194 However, it is necessary to adopt a feasible method to compare individual members'
tariff rates with [*389] the degree of protection which rules of origin produce. n195 In fact, such an
analogy is hard given the fact that measuring the restrictiveness of rules of origin is intractable.
Rules of origin are per se a challenge for free trade due to their complexity and variety. n196 Rules
of origin vary within the same jurisdiction; for instance, there are "fourteen different preferential
rules [of origin] in the European Communities, [and] six in the United States...." n197 Rules of origin
constitute another trade obstacle because: first, RTAs typically create loose rules of origin in order
to control the flow of trade; and second, rules of origin divert trade by diminishing non-regional in-
put in regional products. n198
In sum, both paragraphs 8(a)ii and 5(a) and (b) deal with the issue of CUs. Paragraph 8(a)(ii) re-
quires a substantial harmonization in ORCs with non-regional trade partners. n199 paragraph 5 (a) re-
quires RTAs to have their ex post ORCs to be no more restrictive than ex ante ORCs. n200
4.
"Reasonable Length of Time" Article XXIV:5(c)
Although Article XXIV did not impose specific conditions on interim agreements as it did with
CUs and FTAs, Article XXXIV:5 still requires interim agreements to "include a plan and schedule
for the formation of such a customs union or of such a free-trade area within a reasonable length of
time." n201 In connection with this, interim agreements do not have to liberalize "substantially all the
trade" between member-states. n202 Rather, Article XXIV deems interim agreements as a transition
phase until the FTA or the CU is fully implemented. n203 In other words, an [*390] interim agree-
ment must lead to a formation of either a CU or an FTA and shall not be a type of a preferential ar-
rangement that does not conform to the conditions of Article XXIV. n204
The meaning of "reasonable," however, was always controversial. n205 RTAs often exploited the
flexibility of the word "reasonable" to have an interim agreement for long periods of time with in-
substantial trade liberalization, such as the twenty-two year interim agreement of the European
Economic Community's (EEC) association agreement with Greece. n206 In this light, WTO members
agreed that a "reasonable length of time" should not exceed ten years unless exceptional circum-
stances require otherwise. n207 RTA members who believe that their interim agreements should ex-
ceed ten years have to provide an explanation of those exceptional circumstances to the WTO
Council on Trade in Goods. n208 Another challenge that the concept of interim agreements presents is
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that parties to RTAs do not typically illustrate how the RTA will be created through the "plan and
schedule" they adopt. n209
[*391]
C. Procedural Conditions
1. Notifying the CONTRACTING PARTIES: Article XXIV:7
The main objective of notification is to ensure that RTAs have fully complied with the require-
ments of Article XXIV. n210 In other words, if parties did not provide the WTO with their plans and
schedule to create an RTA, the WTO would not be able to verify the compatibility of the RTA in
question with the requirements spelled out in Article XXIV. In 1971, the GATT members agreed
that RTAs have the duty to report the developments of their agreements every two years. n211 Both
Article XXIV:7, and paragraph 11 of the Understanding stress that WTO members should notify the
WTO when they intend to form an RTA. Paragraph 11 of the Understanding, in particular, requires
WTO members to notify the WTO after they make substantial changes to their RTAs. n212 WTO
member-states also have the duty to explain how their interim agreements will lead to the formation
of CUs or FTAs. n213 The CRTA, in turn, issues reports on RTAs and updates the WTO's General
Council on the ongoing regional activities of members. n214
In July, 2006, the WTO's Negotiating Group on Rules approved a new transparency mechanism
for all RTAs. n215 The new transparency mechanism states that Members that are party to an RTA
must announce and notify the WTO of that RTA as soon as possible, and, for that purpose, define
clear timetables. n216 This [*392] transparency mechanism will be highlighted in Section I as one of
the institutional efforts the WTO has made to put RTAs in order. n217
2. Negotiations with Third Parties: Article XXIV:6
Article XXIV:6 requires CU members to enter into negotiations with third parties if the formation
of the CU affects those third parties. n218 The primary objective of the negotiations is to provide com-
pensatory adjustment in light of the change of duties after the formation of the CU. n219 Since GATT
Article XXVIII contains guidelines to balance the concessions among GATT members, n220 Article
XXIV:6 provides that the procedures set forth in Article XXVIII shall apply. n221
The Understanding affirmed the requirements of Article XXIV:6 and added that negotiations
should either start "before tariff concessions are modified or withdrawn upon the formation of a
customs union or an interim agreement leading to the formation of a customs union." n222 The Under-
standing, however, indicates that for affected parties, "due account shall be taken of reductions of
duties on the same tariff line made by other constituents of the customs union." n223 If those reduc-
tions were not satisfactory compensatory adjustment per se, third parties shall consider other offers
made by the CU. n224 Otherwise, if the CU and third parties do not reach an agreement, the latter can
retaliate. n225 Nevertheless, the Understanding emphasized that the negotiations should be conducted
in good faith n226 and these negotiations are to [*393] continue as long as it is possible to reach an
agreement. n227
Article XXIV:6 was discussed in the Turkey - Textiles case when India argued that "there was
no corresponding mechanism for renegotiation and compensation for members affected by the in-
troduction or the increase of quantitative restrictions which were otherwise WTO incompatible." n228
India emphasized that the increase of tariffs and duties was negotiable pursuant to Article XXIV:6,
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33 N.C.J. Int'l L. & Com. Reg. 359, *
and renegotiable under Article XXVIII, whereas the introduction of quantitative restrictions was
incompatible with the GATT unless an exception applies. n229 In other words, India called on the
Panel to read paragraph 6 separately from paragraph 5. Furthermore, India invoked paragraph 4 of
the Understanding on Article XXIV which deals only with the raising of tariff and duties, not quo-
tas. n230
Turkey argued that India's interpretation was at odds with Article XXIV:5(a), which includes
conditions for forming CUs, particularly where India claimed that regulations of commerce should
not on "the whole be more restrictive than the regulations of commerce applicable in the constituent
territories prior to the formation of the customs union." n231 Turkey explained that Article XXIV:5
did not require an evaluation of the overall incidence of regulations of commerce if, as India claims,
the regulations of commerce of the Turkey-EC CU could not "be determined by pre-existing restric-
tive measures applied by the European Communities." n232 Eventually, the Panel found that
by requiring an examination of changes in applied duties, the provisions of Article XXIV:5(a) are
made unambiguously distinct from those in Article XXIV:6, since the level of applied duties, unlike
bound tariffs, is not regulated in the WTO framework of rights and obligations. Since the analysis
of applied duties is a basic tool in appraising the impact of actual border barriers on trade opportuni-
ties, we consider that the requirement of an overall assessment of the incidence of duties [*394]
based on applied duties clearly points at the economic nature of the assessment under paragraph
5(a) ... . n233 Thus, in the adoption of the common external tariff of a customs union, compensation is
due if a pre-existing tariff binding is exceeded. n234
D. The Scope of Article XXIV: Article: XXIV:5
1. The Agreement on Safeguards
In general, GATT Article XIX permits members to depart temporarily from their obligations under
the GATT, and apply safeguards if "any product is being imported ... in such increased quantities
and under such conditions as to cause or threaten serious injury to domestic producers in that terri-
tory ... ." n235 The member intending to apply safeguards, however, ought to consult with members
affected by the measures. n236 If an agreement is not reached, the party seeking to implement emer-
gency measures shall be free to go ahead with the safeguards within 90 days. n237 In critical situations
in which damage would be difficult to repair, emergency measures may be implemented without
consultation. n238 In either case, the measures should be applied in a non-discriminatory manner.
The WTO Agreement on Safeguards came with additional rules on safeguards. n239 For example,
members who wish to apply safeguard measures have to notify the Committee on Safeguards of
their intended measures. n240 The Agreement on Safeguards also requires conducting national investi-
gations and tests before implementing the safeguard measures. n241 Moreover, the [*395] Agreement
on Safeguards prohibits grey area measures. n242
The AB in Argentina - Footwear dealt with safeguards and emphasized the importance of apply-
ing the conditions of safeguards. n243 The Panel in the Argentina - Footwear case held that safeguards
should satisfy two main conditions: first, "the developments which led to a product being imported
in such increased quantities and under such conditions as to cause serious injury to domestic pro-
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ducers must have been "unexpected;'" n244 second, the importing member has to demonstrate that it
"has incurred obligations under GATT 1994, including tariff concessions." n245 Another jurispruden-
tial condition, prohibiting parallelism in applying safeguards, will be highlighted below. Parallelism
in safeguards means excluding certain trading partners from the application of the safeguards, while
including the partners' imports from the injury's calculation. n246 Countries might want to exclude re-
gional imports from safeguards to maintain a positive political atmosphere with their regional part-
ners as well as to avoid trade retaliations. n247
The question of the relationship between Article XXIV and [*396] safeguards (i.e. the Agree-
ment on Safeguards) has several aspects. The first aspect is the relationship between the general
conditions of safeguards with RTAs. The second aspect is when to exclude regional imports from
safeguards measures. The third aspect is whether Article XXIV can be used as a defense when ap-
plying safeguards.
a. The General Conditions of Safeguards and RTAs
The Argentina - Footwear case considered the conditions that should be satisfied by a country
wanting to impose safeguards on imports. n248 With respect to the requirement that the surge in im-
ports, which causes or threatens to cause injury, one can conclude that it is a requirement which is
fulfilled all the time because "it is hard to imagine how a dispute could arise without [the existence
of] such an obligation ... ." n249 This means that such surge occurs by default once WTO Members
commit, pursuant to the WTO Agreements, to allow unimpeded flow of trade into their territory,
thus the question becomes whether the surge is threatening the domestic producers or is likely to
threaten them. Nonetheless, it can be concluded that the condition of proving causation between the
injury to domestic goods and the injured country's GATT obligations can lead to the exclusion of
regional imports from the calculation of the injury if the country applying the safeguards wants to
exclude the regional imports from the measures. More broadly, the injured party could exclude the
tariff concessions or obligations required by the GATT 1994. n250 In other words, before applying the
safeguards, a nexus between the injury on the domestic industry, GATT obligations and tariff con-
cessions should be established. This reading of the requirement echoes the AB's confirmation in the
Argentina - Footwear case that parallelism is prohibited when calculating the injury to the domestic
market. n251
An important question arises about the relationship between Article XXIV and safeguards: if
Article XXIV:8 permits the [*397] application of safeguard measures between regional partners,
can a country exclude regional goods from the safeguards? As noted, it is inconsistent with the legal
texts and the WTO jurisprudence to exclude regional imports from safeguards if they were included
in the calculation of injury (parallelism). n252 The question that will naturally arise, however, is
whether Article XXIV provides a defense if safeguards were exclusively applied to non-regional
imports, even if the regional imports were excluded from both the calculation and the measures.
Generally speaking, the AB in the Turkey - Textiles case set two conditions that must be satisfied to
recognize Article XXIV as a defense for violating other GATT articles in light of Article XXIV:5.
n253 First, the measure in question "is introduced upon the formation of a customs union that fully
meets the requirements of [Article XXIV:8(a) and 5(a)]"; n254 and second, the party wanting to depart
from the GATT obligations "must demonstrate that the formation of that customs union would be
prevented if it were not allowed to introduce the measure at issue." n255 However, some scholars
rightly argue that the two conditions set forth are hard to apply to the case of safeguards. n256 The first
concern is that safeguards are adopted as emergency measures when injury or threat of injury arises
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33 N.C.J. Int'l L. & Com. Reg. 359, *
after the formation of an RTA and not upon its formation. n257 The second reason is that proving that
an RTA's formation will be prevented unless the safeguards are activated is difficult (the necessity
test). n258 Thus the best way to address the legality of safeguards in RTAs is by determining whether
the RTA satisfies the conditions of Article XXIV:5 (i.e. restrictions on trade with third parties "shall
not on the whole be higher or more restrictive than the general incidence" of the duties and regula-
tions prior to the formation of RTAs), and Article XXIV:8 (i.e. the elimination [*398] of restric-
tions on "substantially all the trade" between regional members). n259 In other words, in light of Arti-
cle XXIV:5, safeguards should not, in principle, be easier to apply to third parties after the forma-
tion of the RTA vis-a-vis its pre-formation. Likewise, pursuant to Article XXIV:8, "substantially all
[regional] trade" should be liberated already before safeguards enter into force. n260
With respect to the requirement of there being unexpected developments that lead to an injury or
a threat of injury to the domestic market, one can argue that a WTO member should not include the
regional product in the calculation of the injury. This is because an increase in the regional importa-
tion after the country enters into an RTA is not an unexpected or unforeseen development that justi-
fies including the regional imports. Indeed, an increase in regional imports is a natural result of cre-
ating RTAs.
b. Article XXIV as a Defense
Footnote 1 of Article 2.1 of the Agreement on Safeguards discusses the use of safeguards by CUs
on behalf of all members of a CU or on behalf of a single member state. n261 Footnote 1 of Article 2.1
reads as follows:
A customs union may apply a safeguard measure as a single unit or on behalf of a member State.
When a customs union applies a safeguard measure as a single unit, all the requirements for the de-
termination of serious injury or threat thereof under this Agreement shall be based on the conditions
existing in the customs union as a whole. When a safeguard measure is applied on behalf of a mem-
ber State, all the requirements for the determination of serious injury or threat thereof shall be based
on the conditions existing in that member State and the measure shall be limited to that member
State. Nothing in this Agreement prejudges the interpretation of the relationship between Article
XIX and paragraph 8 of Article XXIV of GATT 1994. n262
[*399] Footnote 1 of Article 2.1 of the Agreement on Safeguards has been discussed in two WTO
cases. n263 First, in the Argentina - Footwear case, the AB examined facts showing that Argentina in-
terpreted the footnote of Article 2.1 of the Agreement on Safeguards to exclude Mercosur members
from Argentina's safeguard measures on footwear products. n264 The AB reversed the Panel's finding
and held that "the footnote only applies when a customs union applies a safeguard measure as a sin-
gle unit or on behalf of a Member State." n265 Accordingly, the AB found that Mercosur had not ap-
plied the safeguards measures at issue; rather, the measures had been imposed by Argentina on be-
half of itself. n266 Thus Argentina could not benefit from the defense of Article 2.1's footnote. n267 The
AB also ruled against Argentina's parallelism in applying the safeguards, because
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33 N.C.J. Int'l L. & Com. Reg. 359, *
Argentina's investigation, which evaluated whether serious injury or the threat thereof was caused
by imports from all sources, could only lead to the imposition of safeguard measurers on imports
from all sources. Therefore, we conclude that Argentina's investigation, in this case, cannot serve as
a basis excluding imports from other MERCOSUR member States from the application of the safe-
guard measures. n268
One might wonder, however, if excluding the regional imports violates Article 2.2 of the Agree-
ment on Safeguards which requires that "safeguards ... be applied to a product being imported irre-
spective of its source." n269 The answer is no if they were not included in the injury determination. n270
This answer rests on the remark that the AB in the United States - Line Pipe case made, that safe-
guards "may be applied only to the extent that they [*400] address serious injury attributed to in-
creased imports." n271 The AB, in highlighting this, emphasized that safeguards should only be a tool
to limit damages and not discriminate or create barriers on trade, while taking into consideration the
regional arrangement. n272
The AB in the Argentina - Footwear case did not base its ruling on the nature of the legal nexus
between Article XXIV and the Agreement on Safeguards because the AB believed that Argentina
did not raise the defense of Article XXIV in its arguments. n273 Rather, Argentina invoked Article
XXIV before the Panel by arguing that Article XXIV:8(a)(i) or (b) did not mention Article XIX
"among the exceptions from the requirement to abolish all duties and other restrictive regulations of
commerce on substantially all the trade between the constituent territories of a customs union or a
free trade area." n274
The other case that should be highlighted is the United States - Definitive Safeguards Measures
of Wheat Gluten Products from European Communities case. n275 The United States in this case ex-
cluded Canada's products from its safeguards investigation into wheat gluten products based on the
fact that Canada is a NAFTA member. n276 The United States argued before the AB that the Panel
had not taken into consideration footnote 1 of the Agreement on Safeguards, and accordingly de-
manded the AB to assess the legal relevance of footnote 1 to the Agreement on Safeguards and
GATT Article XXIV in regards to the issues raised in the case. n277 The AB rejected the United
States' argument, and affirmed the Panel's finding because the dispute "[did] not raise the issue of
whether, as a general principle, a member of a free-trade area can exclude imports from other mem-
bers of that free-trade area from the application of a safeguard measure." n278 As a result, the AB
ruled that the United States violated the Agreement on Safeguards by excluding NAFTA [*401]
members from safeguards without excluding them from the calculation of the injury. n279
The Panel in the United States - Definitive Safeguard Measures on Imports of Circular Welded
Carbon Quality Line Pipe from Korea case found that Article XXIV:5 can be used as a defense to
Article 2.2 of the Agreement on Safeguards. n280 This case revolved around a dispute over the United
States International Trade Commission's decision in 1999 which imposed safeguard measures on
imports of circular welded carbon quality line pipe. n281 The United States' measure consisted of a
duty increase for a period of three years, effective beginning March 1, 2000. n282 The first 9,000 short
tons of imports from each country, irrespective of their origin, were excluded from the duty in-
crease. n283 Canada and Mexico were entirely excluded from the safeguard measure. n284 The Panel
concluded that the U.S. line pipe measure imposed was done inconsistently with the GATT 1994
and/or the Safeguards Agreement. n285 The Panel asserted that there is a "close interrelation between
Article XIX and the Safeguards Agreement," and "thus if an Article XXIV defense is available for
Article XIX measures, by definition it must also be available for measures covered by the disci-
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plines of the Safeguards Agreement." n286 However, the AB in the U.S. - Line Pipe case reversed this
finding, and deemed it moot and of no legal effect, n287 because, according to the AB, a relationship
between Article 2.2 of the Agreement on Safeguards is not relevant unless two conditions apply. n288
The first condition is whether the regional excluded [*402] imported goods "are not considered in
the determination of serious injury." n289 The second condition is whether the WTO's investigation
concluded that there was proof that imported products from third parties produce serious injury by
themselves, and thus "satisfied the conditions for the application of a safeguard measure, as set out
in Article 2.1 and elaborated in Article 4.2." n290 The AB concluded that neither of these conditions
existed in the case, and as a result, the American exception made from safeguard measures in favor
of NAFTA products was not justified. n291 In holding this, the AB did not rule against the interpreta-
tion of the panel that a nexus exists between the Agreement on Safeguards (i.e. Article 2.2) and Ar-
ticle XXIV of the GATT. n292 Simultaneously, the AB's finding indicates that Article XXIV can be
connected to the Agreement on Safeguards solely after the principle of parallelism is satisfied. Con-
sequently, discriminatory safeguards in favor of regional imports fall under the jurisdiction of Arti-
cle XXIV.
c. When to Include Regional Imports in the Calculation of Injury
Excluding regional imports is not mandatory when the country wanting to apply safeguards is in
the course of investigating and ultimately determining the injury. n293 Article 2.1 of the Agreement on
Safeguards indicates that the product in question should merely be "imported ... in such increased
quantities ... and under such conditions as to cause or threaten to cause serious injury to the domes-
tic industry... ." n294 Accordingly, the said Article does not specify the origin of imports that are under
investigation. n295
[*403] The United States - Line Pipe case tackles this issue, addressing whether or not exclud-
ing regional imports is mandatory when the country wanting to apply safeguards is in the course of
investigating and ultimately determining the injury. n296 The AB report in the U.S. - Line Pipe case
emphasized that,
the question of whether Article XXIV of the GATT 1994 serves as an exception to Article 2.2 of the
Agreement of Safeguards becomes relevant in only two possible circumstances. One is when, in the
investigation by the competent authorities of a WTO Member, the imports that are exempted from
the safeguard measure are not considered in the determination of serious injury. n297
Hence, Article 2 of the Agreement on Safeguards can be understood, pursuant to the U.S. - Line
Pipe case, to give the option to either include all the regional and non-regional imports in the calcu-
lation of injury, provided that all imports, including the regional ones, will be subject to the safe-
guards, or exclude the regional imports from the calculation of the injury, thus excluding them from
the application of safeguards in light of the concept of parallelism. n298 The other case that echoes this
finding is the United States - Definitive Safeguard Measures on Imports of Certain Steel Products
case. n299 In the United States - Steel case, the United States imposed safeguard measures on certain
steel imports in the form of an increase in duties. n300 The United States, however, excluded steel im-
ports from Canada, Mexico, Israel and Jordan, pursuant to its FTAs with them, while considering
their steel imports in the injury calculation. n301 The United States argued that it was not required to
cite each step that the competent authority followed to recommend the safeguards and exclude FTA
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[*404] products. n302 The Panel rejected this argument and found that the competent authority should
establish that the products covered in the measure alone have caused serious injury to the domestic
industry. n303 Therefore, the Panel found that the United States violated the Agreement on Safeguards
which required them to prove that the non-exempt imports caused injury to the domestic industry.
n304 In this case, the AB agreed with the Panel when the Panel stated that imports excluded from the
calculation of injury must not be excluded from the safeguards pursuant to Article 4.2(b) of the
Agreement on Safeguards. n305 The Panel and the AB did not require that the regional imports be ex-
cluded from the safeguard measures; rather, it is possible to exclude regional imports from the safe-
guard measures provided that they are not considered in the original calculation of injury. n306
1. The Agreement on Textiles and Clothing
During the negotiations of the Uruguay Round, GATT members agreed to incorporate the regula-
tion of trade on textiles and clothing within the GATT's system. n307 Annex 1A of the WTO Agree-
ments encompasses the Agreement on Textiles which gradually ends the quantitative restrictions of
the Multi-Fiber Arrangement (MFA), n308 thus placing trade in textiles under the general rules of the
GATT, and, in particular, subject to MFA. n309 The Agreement on Textiles contained uniform multi-
lateral trading standards to replace the unilateral and bilateral quotas that had persisted under the
MFA. n310 In this light, the Agreement on [*405] Textiles provides that
this Agreement and all restrictions thereunder shall stand terminated on the first day of the 121st
month that the WTO Agreement is in effect, on which date the textiles and clothing sector shall be
fully integrated into GATT 1994. There shall be no extension of this Agreement. n311
Hence, over a ten year time span, the quantitative restrictions agreed upon under the MFA were
gradually phased out. n312 By the end of the ten year period, in 2005, the trade in textiles and clothing
were fully integrated within the GATT 1994. n313
The language of Article XXIV:5 indicates that it applies exclusively to inconsistencies in "this
Agreement" (the GATT Agreement). n314 The AB in the Turkey - Textiles case confirmed this under-
standing by stating that Article XXIV:5 is only an exception for inconsistencies with GATT provi-
sions. n315 The AB in the same case, however, departed from this point of view in deciding that Arti-
cle XXIV:5 was applicable as a defense for inconsistencies with Article 2.4 of the Agreement on
Textiles and Clothing. n316 The rationale of the AB is that Article 2.4 of the Agreement on Textiles
incorporated the GATT's provisions into its own provisions when it stated that "all such restrictions
maintained between GATT 1947 Contracting Parties, and in place on the day before such entry into
force, shall be governed by the provisions of this Agreement." n317
2. Does Article XXIV Cover Other Agreements?
In light of the decisions of the Turkey - Textiles, United States - Line Pipe, and United States -
Wheat Gluten cases, Article XXIV:5 is not a defense to inconsistencies with other WTO agreements
unless there is an evident relationship between the [*406] WTO, the agreement in question, and
the GATT articles. n318 Moreover, Article XXIV should not be a defense unless it is necessary for
RTA member-countries to violate certain provisions of another WTO agreement to form the RTA.
Furthermore, since other WTO agreements were incorporated together with the GATT into one re-
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gime, Annex 1A of the Agreement Establishing the World Trade Organization stated that if a con-
flict occurs between the GATT and other WTO agreements, the latter should prevail. n319 This means
that the other WTO agreement in question should be examined to see if it permits the application of
Article XXIV:5 to the provisions of the former.
E. The Relationship between the Paragraphs of Article XXIV
Paragraph 4 of Article XXIV paints the big picture. n320 As set forth earlier, paragraphs 5 to 9 en-
compass conditions that RTAs have to observe. n321 The question that should be answered is what the
relationship between those paragraphs is. Is the obligation spelled out in paragraph 4 fulfilled auto-
matically when the conditions of the subsequent paragraphs are satisfied? n322
The CRTA's discussions show that the parties were divided in answering this question. n323 The
first group, which included the EU, argued that when the conditions of paragraphs 6 to 9 are ful-
filled, the requirement of paragraph 4 is satisfied as a matter of [*407] fact. n324 In other words,
paragraph 4 is neither a substantive provision nor an independent cause of action. n325 The delegation
of Australia supported this reading, and maintained that paragraph 4 should be merely considered as
a preamble to the conditions that follow in subsequent paragraphs. n326 The second group contended
that if new measures are implemented as a result of an RTA, this would be an increase in trade bar-
riers against the language of paragraph 4. Thus paragraph 4 can be an independent cause of action
regardless of whether the conditions of the other articles are fulfilled. n327
Fortunately, the AB in the Turkey - Textiles case closed the gap between the two opinions by
holding that
paragraph 4 contains purposive, and not operative, language. It does not set forth a separate obliga-
tion itself but, rather, sets forth the overriding and pervasive purpose for Article XXIV which is
manifested in operative language in the specific obligations that are found elsewhere in Article
XXIV. n328
Similarly, in addressing paragraph 5, the AB links the term "accordingly" in paragraph 5 with para-
graph 4 by finding that
the text of the chapeau of paragraph 5 must also be interpreted in its context. In our view, paragraph
4 of Article XXIV constitutes an important element of the context of the chapeau of paragraph 5.
The chapeau of paragraph 5 of Article XXIV begins with the word "accordingly", which can only
be read to refer to paragraph 4 of Article XXIV, which immediately precedes the chapeau. n329
The linking paragraph 4 with other paragraphs is reminiscent of our earlier discussion with regard
to the objective that paragraph 4 confirms, which is to facilitate trade and not to raise barriers. n330 In
other words, the discrimination against WTO Members that is exceptionally permitted by para-
graphs 5 to 8 should also be examined to verify their consistency with paragraph [*408] 4. This is
implicitly maintained by the AB in the Turkey - Textiles case when it declared that Article XXIV
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can justify the adoption of a measure which is inconsistent with certain other GATT provisions only
if the measure is introduced upon the formation of a customs union, and only to the extent that the
formation of the customs union would be prevented if the introduction of the measure were not al-
lowed. n331
F. RTAs of Developing Countries: the Enabling Clause
In 1979, GATT parties adopted the Decision on Differential and More Favorable Treatment, Recip-
rocity, and Fuller Participation of Developing Countries (Enabling Clause). n332 The Enabling Clause
was designed to permit developed countries to offer preferential tariff treatment to the imports of
developing countries in order to introduce equivalent benefits to both of them. n333 Similar to Article
XXIV, the Enabling Clause permits preferential treatment for developing countries "notwithstand-
ing the provisions of Article I of the [GATT]." n334 Paragraph 2(a) of the Enabling Clause provides
that countries may extend tariff preferences to developing countries according to the Generalized
System of Preference (GSP) adopted in 1968. n335 In general, the Enabling Clause contains preferen-
tial treatment for developing countries such as reduced tariffs, n336 special treatment for the least de-
veloped countries, n337 and non-tariff measures governed by [*409] instruments negotiated under the
GATT. n338
Before exploring the regionalism question, it is worth examining the nature of the Enabling
Clause as seen by the AB in a relatively recent case, in which a question on the broadness of the
Enabling Clause was thoroughly examined. n339 In European Communities - Conditions for the
Granting of Tariff Preferences to Developing Countries case, India successfully launched a com-
plaint against the European Communities (EC) to challenge the conditionality of the voluntary pref-
erence scheme of the GSP. According to India, the scheme was incompatible with Article I of the
GATT. n340 India successfully argued that the EC's drug measures violated Article I of the GATT be-
cause they: (i) "discriminate between developing countries because they apply only to 12 develop-
ing countries;" (ii) were not beneficial to developing countries since "they created market access
opportunities for some of them at the expense of others;" and, (iii) were only beneficial to Europe
and not to developing countries. n341 The AB agreed with the Panel that the Enabling Clause is not a
legal obligation per se, rather, it "contains requirements that are "only subsidiary obligations, de-
pendent on the decision of the Member to take [particular] measures.'" n342 Consequently, the AB re-
jected the EC's argument that the Enabling Clause was not an exception since exceptions permit
Members to adopt measures to pursue objectives that are "not ... among the WTO Agreement's own
objectives." n343 The AB found that the Enabling Clause is "in the nature of an exception" to Article
I:1, n344 and takes precedent over it should a conflict arise between them. n345 The AB [*410] simulta-
neously reversed the Panel's finding that tariff preferences under the GSP should be identical for all
developing countries by holding that preferential treatment should respond positively to financial
and trade needs of each developing country. n346 The AB did not clarify, however, how an agreement
can be reached with respect to determining the needs of developing countries. n347 In other words, the
AB did not stipulate whether such determination should be made by the donor country, or the de-
veloping country, or both. n348 Neither the AB nor the Panel outlawed the idea of conditionalities that
are consistent and non-discriminatory. n349
The Enabling Clause established requirements for both developing and developed countries
when they form an RTA. n350 Paragraph 3(c) requires that preferential treatment for developing coun-
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tries "be designed ... to respond positively to the development, financial and trade needs of develop-
ing countries." n351 On the other hand, developed countries may not exploit preferences "to create un-
due difficulties for the trade of any other contracting parties." n352 Further developed countries may
not also seek concessions inconsistent with the needs of developing countries. n353 Equally, develop-
ing countries are expected to "participate more fully in the framework of rights and obligations un-
der the General Agreement." n354
The Enabling Clause asserts, just like Article XXIV:3, that the main purpose of RTAs of devel-
oping countries should be to facilitate trade without hindering trade with other members. n355 How-
ever, the Enabling Clause excludes RTAs among developing countries from many conditions men-
tioned in Article XXIV such [*411] as the "substantially all the trade" requirement. n356
Some commentators argue that the Enabling Clause is an exception to Article I of the GATT
and is not related to Article XXIV. n357 Paragraph 2 (c) states that
The Provisions of paragraph 1 apply to ...
(c) regional or global arrangements entered into amongst less-developed contracting parties for the
mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may
be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-
tariff measures, on products imported from one another. n358
The fact that this paragraph uses broader language to refer to RTAs (i.e. regional and global ar-
rangements) than Article XXIV, which primarily regulated CUs and FTAs, makes the Enabling
Clause an exception to Article I of the GATT and not to Article XXIV. n359 The Enabling Clause also
incorporates ambiguities that have not yet been clarified. n360 Nonetheless, the Enabling Clause im-
plied that this situation should not last if a given developing country's economic stance improves. n361
Moreover, there is no definition in the GATT of the term "developing countries." n362 In that light,
Jackson asserts that "(the) GATT and its Article XXIV, as well as the more ambiguous legal
framework of the 1979 [*412] Enabling Clause, are grossly inadequate for the tasks required of a
multilateral system to provide some sort of adequate supervision and discipline on certain of the
more dangerous tendencies of trading blocks." n363
V. Regionalism in the General Agreement on Trade in Services
After the Uruguay Round, services started to become an integral part of many RTAs, including ma-
jor ones like NAFTA. n364 Since the GATT only regulates trade in goods, trade in services is beyond
the scope of Article XXIV. n365 Similar to Article XXIV, Article V of the General Agreement on
Trade in Services (GATS) considered the issue of RTAs. n366 Article V provides:
[The provisions of the GATS] shall not prevent any of its Members from being a party to or enter-
ing into an agreement liberalizing trade in services between or among the parties to such an agree-
ment, provided that such an agreement
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a. has substantial sectoral coverage,[ n367] and
b. provides for the absence or elimination of substantially all discrimination, in the sense of Article
XVII, between or among the parties, in the sectors covered under subparagraph (a), through
[*413]
i. the elimination of existing discriminatory measures, and/or
ii. prohibition of new or more discriminatory measure, either at the entry into force of that agree-
ment or on the basis of a reasonable time-frame, except for measures permitted under Article XI,
XII, XIV and XIV. n368
In light of the text, we draw the following conditions that RTAs should observe when liberalizing
trade in services.
A.
"Substantial Sectoral Coverage"
Pursuant to paragraph 1(a) of Article V of the GATS, RTAs must have "substantial sectoral cover-
age" of the trade in services. n369 The footnote of paragraph 1 emphasizes that the RTA should ex-
clude a priori any mode of supply (i.e. cross-border supply, consumption abroad, commercial pres-
ence, and presence of natural persons). n370 As the case of the term "substantially" in Article XXIV,
the term "substantial" in "substantial sectoral coverage" is vague. It is not clear to what extent sec-
toral services ought to be liberalized to satisfy the requirement of substantial coverage. n371 Further-
more, the footnote of paragraph 1(a) constitutes a loose and flexible condition that can easily be
misconstrued. n372 In this sense, it is hard to apply the rules of trade in goods to trade in services to
specify the magnitude of trade coverage; the characteristics of trade in goods are different from
trade in services. For example, while the tariff concept is the backbone of trade in goods, tariffs do
not exist in trade in services. The only authoritative yet insufficient hint was provided by the Panel
in the Canada - Autos case, which stated that "the purpose of Article V is to allow for ambitious lib-
eralization to take place at a regional level, while at the same time guarding against undermining the
MFN obligation by engaging in minor preferential arrangements." n373
[*414]
B. Elimination of Discriminatory Measures
Paragraph 1(b) of the GATS states that RTAs should "provide for the absence or elimination of
substantially all discrimination." n374 Similarly, Article V:6 of the GATS provides that MFN and na-
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tional treatment principles apply to services as long as they engage in "substantive business opera-
tions" within the borders of the RTA. n375 In this light, the determination of the scope of the Article V
will depend on whether the list of paragraph 1(b) is exhaustive or indicative.
During the meeting of the CRTA in 1997, this issue was raised when the working parties were
examining NAFTA. n376 A party of members argued that the scope of permissible discrimination
should be examined after specifying the implications of the use of "and/or" mentioned in paragraph
1(b)(i) of the GATS. n377 Put differently, this point of view asserts that the "or" gives members the
freedom to choose between the elimination of existing discriminatory measures and the preservation
of the status quo. n378 Other members, led by the EC, argued that Article V cannot be interpreted
without reference to Article XVII (national treatment). n379 Paragraphs (i) and (ii) are not alternatives,
rather they are options that will be used to deal with the "substantially all discrimination" question
on a case-by-case basis. n380 Thus, paragraph 1(b) should be construed as a whole and in connection
with other applicable provisions (i.e. GATS Article XVII).
Due to the fact that the "reasonable timeframe" in Article V:1(b) was not defined anywhere in
the GATS, some scholars argue that it is possible to borrow the principles set forth in the Under-
standing on Article XXIV with regard to Article XXIV:5(c). n381 In other words, these scholars argue
that the [*415] reasonable timeframe in Article V:1(b) should also be ten years. n382 Again, opening
the door to apply the rules for goods to services should not happen automatically. A reasonable
timeframe for eliminating barriers to trade in services might not be the same as is required for trade
in goods. Services are liberalized by different regulatory mechanisms as compared with goods. Ser-
vices do not involve the reduction or modification of price-based measures; rather, they are liberal-
ized by the elimination or modification of regulations in the form of positive lists, negative lists, or
other hybrid methods. Consequently, declaring that a ten-year period is a reasonable length of time
might do more harm than good when dealing with services.
C.
"Barriers to trade"
Paragraph 4 of Article V is equivalent to paragraph 4 of Article XXIV: both emphasize that RTAs
should facilitate trade, and not raise barriers. n383 Article V:4 in particular mentions that the RTAs
should not raise the "overall level" of barriers to trade in services. n384 This reminds us of the term
"not on the whole higher" in Article XXIV:5(a) and (b). n385 The only way to benefit from the discus-
sions of Article XXIV in this regard is to determine the overall level of restrictions on services by
establishing a method to compare restrictions on services before and after the RTA enters into force.
D. Developing Countries
In contrast with Article XXIV, Article V of the GATS in paragraph 3(a) emphasizes that develop-
ing countries should be treated favorably. n386 This special treatment should be available "in accor-
dance with the level of development of the countries concerned, both overall and in individual sec-
tors and subsectors." n387
[*416]
E. Notification and Examination
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33 N.C.J. Int'l L. & Com. Reg. 359, *
Article V:7 requires RTAs to notify promptly the Council for Trade in Services about the economic
integration in services and any other modifications thereunder. n388 The CRTA will examine the ar-
rangements and the modifications and report back to the Council. n389 The Council may make rec-
ommendations as appropriate. n390 No timeframes are provided to organize the examination process
of arrangements in services, except the ninety-days advance notice that is stated in Article V:5 with
respect to GATS inconsistent modifications. n391 It should be noted, however, that RTAs that involve
services are covered by the new Transparency Mechanism, thus all deadlines and timeframes men-
tioned therein are applicable to GATS RTAs. n392
VI. Efforts for Discipline
A. Institutional Efforts
1. The Understanding
The Understanding was a good step forward in many ways. The Preamble of the Understanding
acknowledged the importance of RTAs to world trade and warned against the exclusion of major
sectors from liberalization in RTAs. n393 Moreover, the Preamble re-emphasized the role that the
Council for Trade of Goods plays in reviewing RTAs. n394 The Understanding clarified Article
XXIV:5 by stating that the calculation to assess "duties and other regulations of commerce applica-
ble before and after the formation" of a CU shall be based upon an overall assessment of [*417]
weighted average tariff rates as well as applied tariffs. n395 Likewise, it specified that "a reasonable
length of time" should be no more than ten years which can only be extended in exceptional cir-
cumstances. n396 Those RTAs wishing to have more than a ten-year interim agreement should provide
a convincing explanation. n397 The Understanding also demonstrated, while explaining Article
XXIV:6, that negotiations with third parties should commence before the CET is implemented. n398
As a practical matter, however, the Understanding has basically challenged the economic as-
pects of Article XXIV. The Understanding did not answer legal questions related to non-tariff barri-
ers or the environment n399 or tackle key terms in Article XXIV, n400 until the Turkey - Textiles case,
the term "substantially" had been a source of significant controversy for CUs. n401
2. The Committee on Regional Trade Agreements
As set forth earlier, Article XXIV:9 requires RTA member countries to produce all relevant infor-
mation. This requirement that should have helped the CTRA review the compatibility of the RTA in
question with the GATT and WTO agreements. n402 The CRTA, n403 a body created in 1996, has two
primary duties: first, to replace the working parties in reviewing the texts of RTAs under the GATT,
GATS, or the Enabling Clause and second, to make systemic studies on RTA-related concerns and
issues. n404 The [*418] CTRA reports to the Council of the WTO, which adopts the report and
makes recommendations. n405
The CRTA has discussed systematic issues, particularly related to Article XXIV. n406 In its meet-
ings, the CRTA discussed controversial phrases in Article XXIV such as "substantially all the trade"
with respect to the trade coverage discussed in Article XXIV:8, "the general incidents of duties and
other restrictive regulations of commerce" in Article XXIV:5, and "not on the whole higher or more
restrictive than the general incidence of commerce" in Article XXIV:5. n407 The CRTA tackled criti-
cal questions including how to calculate the general incidence of duties after and before the forma-
tion of CUs and what the impacts would be of measures other than tariffs, such as anti-dumping,
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preferential rules of origin, technical standards, subsidies, and countervailing measures, yet it also
recognized the complexity of the calculation. n408 The CRTA further highlighted key issues, such as
the relationship between Article XXIV and the Understanding on Article XXIV, and emphasized
that "Article XXIV [...] must satisfy, inter alia, the provisions of paragraphs 5, 6, 7 and 8 of that Ar-
ticle." n409
The CRTA discussed more than once the trade diversion that occurs in cases where a member of
an FTA maintains high levels or increases the levels of MFN protection, even within the bound tar-
iff rates. n410 Moreover, the members of the CRTA debated the regulatory needs for CUs and FTAs as
different modes of RTAs and noted that rules of origin have been a particular subject of contro-
versy, especially since it is not clear whether those rules of origin could be classified as "other regu-
lations of commerce" under Article XXIV:5(b). n411 Last but not least, the CRTA has [*419] always
been concerned about transparency, thus it suggested the statistics which should be provided when
fulfilling the notification requirement of Article XXIV:7. n412
The CRTA, however, faces many challenges in reviewing RTA reports. First, some WTO mem-
bers do not provide or delay providing accurate information about their RTAs. n413 Second, the large
number of RTAs makes it even harder for the CRTA to accurately review all of them in a timely
manner. n414 Third, the CRTA has never been specific and precise in its reports. n415 In other words, the
CRTA has on only one occasion recommended that a given RTA has not satisfied the conditions of
Article XXIV. This exception was in the case of the Czech Republic-Slovakia CU. n416 As a result,
WTO Members which are parties to RTAs have not taken the CRTA seriously, and they have pre-
sumed that RTAs are consistent with Article XXIV upon their formation and not upon their exami-
nation. n417 Last but not least, although rules of origin are a major topic in RTAs, the CRTA has not
sufficiently shed light on them. n418
Commentators like Mathis suggest that if parties do not disclose all information necessary to
enable the working groups to conduct an accurate review and analysis, RTAs may not argue that
[*420] Article XXIV:7 has been satisfied. n419 Moreover, Mathis suggests that an additional consen-
sus from the review group be obtained at the outset with respect to the sufficiency of the informa-
tion included in the plan and schedules. n420
B. The Transparency Mechanism
Clearly, the Transparency Mechanism was a result of the demise of the CRTA. After the ineffi-
ciency of the CRTA became a major setback for the WTO, its members agreed to implement a new
transparency mechanism for RTAs. n421 The CRTA could not issue reports on systematic issues. By
this, the CRTA created an impression that it was not capable of dealing with RTAs anymore, and
the dispute settlement system should deal with the RTAs that are inconsistent with the applicable
law. Thus, according to the Director General of the WTO, Pascal Lamy, the introduction of this
mechanism will help, at a critical juncture in the broader Doha round of negotiations, to break the
logjam in the WTO on RTAs, and to ensure that RTAs become "building blocks of, and not stum-
bling blocks to, world trade." n422
The Transparency Mechanism requires members to newly signed RTAs to provide the WTO
with basic information on the RTA and all relevant contact information, such as the timetables of
the liberalization of trade, preferably in an electronic exploitable method. n423 This step should be ful-
filled before the final ratification of the RTA takes place. Once the RTA is ratified, the Mechanism
requires that members of the newly formed RTA must notify the WTO "as early as possible." n424
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33 N.C.J. Int'l L. & Com. Reg. 359, *
The drafters correctly did not leave the meaning of "as early as possible" to [*421] speculation, but
rather, they defined it in the same paragraph to be upon the RTA's ratification and before the RTA
enters into force. n425 This notification must include all parts of the agreements, such as annexes, pro-
tocols, and all related schedules. n426 Once all parts of the agreement are available to the WTO, it
should start the examination process according to a precise timetable which does not exceed one
year after the date of notification. n427 To facilitate the factual examination that the CRTA is respon-
sible for at this stage, the Mechanism encourages RTA members to provide the CRTA with elec-
tronic versions of the agreements within ten weeks, or twenty weeks if the RTA involves only de-
veloping countries. n428 Similarly, the Mechanism encourages RTAs to fully disclose all relevant data
by stating that the WTO's factual presentation "shall not be used as a basis for dispute settlement
procedures or to create new rights and obligations for Members." n429 With this in mind, the WTO
should make all data provided by an RTA available for the member participating in the meeting
dedicated to the consideration of the RTA. n430 If the participating members have any questions or
comments, the WTO Secretariat should convey such information to the members of the RTA at
least four weeks before the meeting. n431 The Secretariat on its part coordinates the exchange to en-
sure that all information, questions, and answers are ready at least three working days before the
corresponding meeting. n432
The Transparency Mechanism also covers the post-implementation phase for all RTAs. n433 Sec-
tion D:14 of the Mechanism states that "the required notification of changes affecting the imple-
mentation of an RTA, or the operation of an already implemented RTA, shall take place as soon as
possible [*422] after the changes occur." n434 Unlike Section B:3, Section D:14 did not define "as
soon as possible." n435 However, in light of the Section B:3 interpretation that "as soon as possible"
indicates that member parties have the duty to notify the WTO upon the RTA's ratification and be-
fore the RTA enters into force, it is reasonable to conclude that subsequent changes should be re-
ported to the WTO before they enter into force. n436 This also applies to RTAs that are already in
force, thus any changes made to any RTA whose report was already adopted by the WTO should
comply with paragraphs D to G of the Mechanism, paragraphs that deal with the notification of sub-
sequent changes to RTAs. n437
The transparency mechanism is to be implemented on a provisional basis. n438 Members will re-
view, modify, and replace the provisional mechanism, as needed, with a permanent mechanism
adopted as part of the overall results of the Doha Round. n439 A thorough reading of Section H, how-
ever, will trigger a few questions. Section H reads as follows:
This Decision shall apply, on a provisional basis, to all RTAs. With respect to RTAs already noti-
fied under the relevant WTO transparency provisions and in force, this Decision shall apply as fol-
lows:
a. RTAs for which a working party report has been adopted by the GATT Council and those RTAs
notified to the GATT under the Enabling Clause will be subject to the procedures under Sections D
to G above.
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33 N.C.J. Int'l L. & Com. Reg. 359, *
b. RTAs for which the CRTA has concluded the "factual examination" prior to the adoption of this
Decision and those for which the "factual examination" will have been concluded by 31 December
2006, and RTAs notified to the WTO under the Enabling Clause will be subject to the procedures
under Sections D to G above. In addition, for each of these RTAs, the WTO Secretariat shall pre-
pare a factual abstract presenting the features of the agreement.
[*423]
c. Any RTA notified prior to the adoption of this Decision and not referred to in subparagraphs (a)
or (b) will be subject to the procedures under Sections C to G above. n440
With respect to paragraph a, it is not clear whether the drafters of this paragraph intended to include
RTAs that are also adopted by the WTO, just as it did with those adopted by the GATT council. n441
As the Mechanism itself emphasizes the role of the CRTA as the executive body that replaced the
GATT working parties who were dealing with the notification of RTAs, the drafters should have
made reference to the WTO instead of "the GATT Council." n442 Otherwise, a reader would conclude
that paragraph H:22:a applies only to RTAs adopted before 1995, and not to RTAs adopted by the
WTO. Put differently, the latter reading of Section H:22:a excludes RTAs adopted by the WTO
from reporting any changes to the WTO pursuant to paragraphs D to G of the Mechanism. Keeping
in mind that the majority of RTAs were founded after the WTO was created, Section H:22:a be-
comes meaningless if RTAs adopted by the WTO prior to the Mechanism did not have to notify the
WTO of changes to their agreements in accordance with the Transparency Mechanism.
It should also be noted as well that Section H:22:c requires all other RTAs that were notified to
the WTO, before the CRTA has started their factual examination, to comply with paragraphs C to G
of the Mechanism, thus they benefit from the new and expedited procedures of notification set forth
above. n443 They will also enjoy the fact that factual presentations will not "be used as a basis for dis-
pute settlement procedures or to create new rights and obligations for Members." n444 Parties of RTAs
under Section H:22:c will nevertheless have to comply with the new and expedited timetables and
provide the WTO with the required data, preferably in an electronic exploitable form.
Finally, it should be noted that the Transparency Mechanism does not refer to the dispute set-
tlement system's role in collaborating with the CRTA in enforcing the applicable law on [*424]
RTAs. The only mention of the dispute settlement system was in paragraph C:10, where it was
mentioned to assure the members that the "factual presentation shall not be used as a basis for dis-
pute settlement procedures or to create new rights and obligations for Members." n445
1. Judicial Intervention: the Impact of DSU
As the forgoing discussion reveals, the WTO era has witnessed the emergence of new jurispru-
dence on RTAs. Remarkable cases such as the Turkey - Textiles, Canada - Certain Measures Af-
fecting the Automotive Industry, Argentina - Footwear, United States - Line Pipe, and United States
- Wheat Gluten cases have played a key role in clarifying vague terms in Article XXIV. n446 In the
Canada - Autos case, for instance, Canada awarded a duty-free treatment to specified commercial
vehicles by certain manufacturers. n447 Canada justified this treatment by local regulations and
NAFTA. n448 The Panel noted in its decision that Canada's favorable treatment was not awarded only
to Mexico and the United States, but it was also awarded to non-NAFTA parties. n449 Accordingly,
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33 N.C.J. Int'l L. & Com. Reg. 359, *
the Panel stated that Article XXIV is no defense to justify measures granted to non-RTA members;
Canada did not appeal the Article XXIV issues. n450
In fact, one of the most evident Uruguay Round achievements is the reform in the dispute set-
tlement mechanisms, particularly in dealing with RTAs. n451 Formerly, GATT panels could not make
binding interpretations with respect to questions concerning RTAs, thus the decisions in some cases
that dealt with RTA issues were [*425] not adopted (i.e. Banana I and Banana II cases). n452 This
deficiency in the GATT judicial system could be attributed to two main factors: first, the GATT
dispute settlement system per se could not issue binding decisions because losing parties could
block the adoption of decisions and second, there was uncertainty regarding the jurisdiction of the
GATT panels on RTAs. n453
In the GATT 1947 era, GATT dispute settlement panels examined Article XXIV. In 1985, a
dispute arose between the United States and the EC regarding preferential treatment given by the
EC to some of its Mediterranean partners in violation of GATT Article I (MFN principle). n454 The
panel held that "examination -or re-examination - of Article XXIV agreements was the responsibil-
ity of the Contracting Parties." n455 Put differently, the panel was unpragmatic in reading Article
XXIV as it strictly interpreted the absence of a clear language giving it the authority to decide cases
related to Article XXIV thus indicating an absence of jurisdiction over Article XXIV disputes. n456
Instead, the Panel declared that the article only mentioned that the "Contracting [*426] Parties" are
responsible for observing the implementation of the article. n457 Undoubtedly, this formalistic ap-
proach not only showed the defects of Article XXIV, but it also showed the weakness of the GATT
dispute resolution mechanism.
The GATT dispute settlement dealt with other RTA related cases in the early 1990s: Bananas I
and II. n458 Neither of the decisions from Bananas I and II were ever adopted, therefore they had no
legal effect whatsoever. The reasoning in both cases is worth highlighting because of the pragmatic
analysis. In Banana I, n459 and II, n460 the facts revolved around EC restrictions on the importation of
bananas, while excluding bananas of certain African, Caribbean, and Pacific countries. Major ba-
nana exporters filed a complaint before the GATT dispute settlement panel claiming that the EC had
violated Article I of the GATT (MFN principle). n461 The EC argued that GATT panels should not
have jurisdiction to adjudicate Article XXIV matters in connection with its new measurements. n462
In both Bananas I and II, the panels correctly pointed out that Article XXIV disputes fall under the
jurisdiction of GATT panels. n463 The panels in both cases contended that the party which invokes
Article XXIV as a defense has the burden of proving that it has met the Article's requirements. n464
The aforementioned factors that were hindering the judicial role from being effective have dis-
appeared in the WTO era. The decisions of the WTO panels are binding, and both the Understand-
ing and the Turkey - Textiles case confirmed the authority of the WTO panels to adjudicate RTA
related cases and [*427] the authority of the CRTA and WTO Panels to examine. n465 Thus, most
recently, in Mexico - Tax Measures on Soft Drinks and Other Beverages, the United States com-
plained about certain tax measures imposed by Mexico on soft drinks and other beverages that use
any sweetener other than cane sugar. n466 The United States claimed that these taxes were inconsis-
tent with paragraphs 2 and 4 of Article III of the GATT. n467 Mexico argued, inter alia, that the WTO
should decline to adjudicate the case because the dispute should be taken by the United States to a
Chapter 20-NAFTA arbitral panel. n468 Mexico claimed that the arguments that were available to it
under the NAFTA dispute settlement system were not available under the WTO Agreements. n469
Simultaneously, according to Mexico, the United States would suffer no prejudice if the dispute
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33 N.C.J. Int'l L. & Com. Reg. 359, *
were heard by NAFTA's arbitral panels pursuant to NAFTA Article 301. n470 Mexico also contended
that if the WTO refused to grant its preliminary request, it would be unable to deliver a secure and
positive resolution to the dispute pursuant to Article 3.7 of the DSU. n471
The Panel refused to grant Mexico's request because, according to Article 11 of the DSU, n472 the
Panel did not have the discretion to deny hearing the case. The Panel emphasized that in [*428]
that context, the United States had a legal right to bring the case before a WTO panel. n473 Otherwise,
according to the Panel, declining to adjudicate the case would diminish the rights of the United
States as a complaining WTO member pursuant to Articles 3.2 and 19.2 of the DSU. n474 Thus the
Panel was not convinced by Mexico's arguments that the dispute is mostly linked to NAFTA as a
regional agreement because nothing in NAFTA precludes the United States from bringing a claim
before the WTO. n475 On appeal, the AB agreed with the Panel. n476
2. Suggested Proposals
Why should WTO Members consider reforms when dealing with the RTA issue? This author be-
lieves that first, rethinking the issue of regionalism will: protect third parties which, from an eco-
nomic perspective, have been impacted by trade diversion; and second, preserving the WTO as the
backbone of the global trade system will maintain its integrity. Hence, any formula of reform should
encompass a legal aspect and a constitutional aspect.
Both the legal and constitutional aspects of reform can be fulfilled through a three-phase solu-
tion. The first phase is orchestrating a conference on RTAs in which the WTO reminds its members
of the controversies that RTAs are generating by underscoring the adverse effects on the world
economy in general, on the WTO's dignity in the short term, and on its existence on the long run.
The WTO in such a conference should emphasize that it is a safety valve that once broken, will be
hard to fix or replace, thus WTO Members understand that racing to craft violating RTAs will affect
them all at some point. In such a conference, WTO Members should be invited to propose solutions
and share their perspectives on the issue of RTAs. Ironically, at the conference, the WTO should
encourage its members to think as a team to find solutions, and not exploit the meetings for negoti-
ating regional deals (as some WTO Members, including the United States did in Cancun). The con-
ference, should recommend inter alia, that the WTO forms a specialized committee - with adequate
[*429] representation of members - to draft an agreement on RTAs.
The second phase should be the drafting process of the agreement on RTAs within a defined
timetable. The drafting committee should take into account the members' contributions at the con-
ference, and seriously consider other scholarly suggestions. Equally fundamental is codifying the
opinions of the WTO Panels that have dealt with RTA cases, and, in particular, considering a trans-
formation of the legal interpretations of the Turkey-Textiles case on CUs into principles that can be
applied to interpret similar terms with respect to FTAs. The agreement must, moreover, provide a
legal frame work that unifies the applicable law (i.e. GATT Article XXIV, GATS Article V, the
Enabling Clause, the Understanding, and the Transparency Mechanism) into one comprehensive
legal instrument, thus abolishing the legal uncertainties that shadow the law and any contradictions
that might exist. This phase should not take more than two years.
Once WTO Members approve the agreement, the third phase starts; this phase should never end.
The third phase is monitoring the results and, specifically, the compliance with the new agreement.
The CRTA should be armed with the required human and technological resources to conduct this
new role. As will be revealed below, the CRTA should be proactive in this role, by having the
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33 N.C.J. Int'l L. & Com. Reg. 359, *
standing to require violating RTAs to bring their agreement into conformity with the applicable law
(the new agreement on RTAs). The WTO should also have the capacity to bring enforcement ac-
tions against RTAs for the violation(s) before the WTO DSB. It should be noted, nonetheless, that
nothing in the applicable law gives the right to the WTO CRTA nor to the DSB to terminate a vio-
lating RTA; the best the WTO can ask for before the DSB is to bring the RTA into conformity with
the applicable law, and suggest coercive measures in case of non-compliance. For this, Article
XXIV:6 (or its equivalent in the proposed agreement on RTAs) can serve as a starting point for
compensatory measures. n477
The legal aspect should provide a framework that provides for an improved coherence between
Article XXIV of the GATT, [*430] Article V of the GATS, the Enabling Clause, the Understand-
ing on Article XXIV, and the Transparency Mechanism. Furthermore, the legal aspect of reform
should offer clarifications of the controversial terms in the applicable law and explain the nexus be-
tween the applicable law and other WTO Agreements, such as the Agreement on Safeguards. In this
light, the legal aspect should encompass a clarification of all the problematic terms in the law.
Terms like "substantially all the trade," n478 "not on the whole higher or more restrictive," n479 "regula-
tions of commerce," n480 "other restrictive regulation of commerce" n481 (Article XXIV), and "sectoral
coverage" n482 (Article V of the GATS) and provide the different definitions to determine what each
term means for FTAs on one hand and for CUs on the other.
Particular attention should be directed towards the question of the rules of origin since the mul-
tiplicity and complexity of rules of origin are principal factors in fragmenting the world trade order.
Thus, a specific part in the proposed agreement on RTAs should be designated to provide general
principles of harmonization in the criteria of tariff concessions and in rules of origin.
On the other hand, the constitutional aspect should aim to organize the legal and hierarchal rela-
tionship between the WTO and RTAs. In other words, this entails minimizing the jurisdictional con-
flict between the WTO dispute settlement system and the regional systems. The constitutional as-
pect involves organizing the hierarchal relationship between multilateralism and regionalism. This
is a challenging task because, generally speaking, all treaties and international agreements are equal
under international law. n483 Furthermore, in dealing with conflict of treaties, one should investigate
which treaty is more specific (lex [*431] specialis) and which treaty is more recent (lex posterior)
to decide which one prevails. In the case of RTAs, this approach will not be sufficiently helpful be-
cause one should examine each RTA versus the WTO Agreements to decide which of those would
render the effort to provide a general and abstract law on the relationship between the WTO
Agreements and RTAs senseless.
Simultaneously, the constitutional reform does not entail assimilating the regional trade order
into the multilateral one since, as a matter of principle, mixing two legal "orders" generates disorder
because each order has its own principles and objectives. n484 Likewise, a complete segregation of
legal orders like regionalism and multilateralism generates disorder because both function in the
same international trade matrix. However, if both orders were to serve the same purpose, the result
would be positive. As Adam Smith metaphorically puts it when arguing against mixing orders:
The man of system ... seems to imagine that he can arrange the different members of a great society
with as much ease as the hand arranges the different pieces upon a chess-board. He does not con-
sider that the pieces upon the chess-board have no other principle of motion besides that which the
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33 N.C.J. Int'l L. & Com. Reg. 359, *
hand impresses upon them; but that, in the great chess-board of human society, every single piece
has a principle of motion of its own, altogether different from that which the legislature might chuse
(sic) to impress upon it. If those two principles coincide and act in the same direction, the game of
human society will go on easily and harmoniously, and is very likely to be happy and successful. If
they are opposite or different, the game will go on miserably, and the society must be at all times in
the highest degree of disorder. n485
The constitutional reform requires changes in both the legal norms of the WTO and in every RTA.
This means that the WTO should (perhaps in the new agreement on RTAs) include a part that ad-
dresses the conflicts between the WTO laws and the legal provisions of RTAs. RTAs for their part,
especially those which entered into force after the WTO Agreements took effect, n486 [*432] should
make amendments to their agreements to recognize WTO Agreements as prevailing laws in case of
conflict.
On the jurisdictional front, the DSB in the Mexico - Beverages case has already asserted, in
light of Article 23 of the DSU, that nothing can stop the WTO Panels from exercising jurisdiction
on disputes between regional members when a member of an RTAs brings claims to the WTO in its
capacity as a member of the WTO. n487 Even if a regional panel has issued a decision on the matter
presented to the DSB for settlement, the principle of res judicata would not be applicable to erode
the latter's jurisdiction since the DSB will be applying different laws (i.e. the WTO Agreements)
and not the legal text of the relevant RTA. n488 The WTO DSB, in light of Articles 13 and 11 of the
DSU, may use evidence from the regional litigation to proceed with settling the dispute pursuant to
the WTO law. n489 This also should be codified in the proposed agreement on RTAs.
Bringing the multilateral order and regional order into a coherent or at least a non-contrasting
form requires goodwill and bona fide resolve on the part of the WTO Members. Practically speak-
ing, one cannot totally depend on such goodwill to fix the status quo because, in practice, as long as
cooperation is voluntary, WTO Members will not react unless this reaction benefits them in any
economic or political respect. WTO Members should be mindful that chaotic RTAs generate legal
uncertainty in the international trade system and that they have already increased costs, and reduced
"the quantity and time horizon of foreign trade and investments." n490 Unless this is corrected, trade
patterns including multilateralism and regionalism will form spontaneous trade orders which pro-
duce international trade practices without [*433] coherence and consistency. This creates a frag-
mented multilateral trade order in which WTO Members tend to rest more on their regional ar-
rangements than the directed and properly structured multilateral trade order. n491
Assuming that goodwill exists, the constitutional and legal aspects of reform should introduce
rules that do not assume natural harmony, but rely on solidly grounded and enforceable rules capa-
ble of achieving an acceptable degree of harmonization between foreign trade and domestic laws
and policies. n492 In this light, one of the most basic, yet effective, tools to ensure enforceability of
rules is to agree on a legal liability mechanism that entails retaliation against violating RTAs (pact
sunt servanda). This requires a centralized body (i.e. the WTO) to have the capacity to sue violating
RTAs before the WTO Panels. Put differently, the WTO has to become not only the coordinator
between its members with respect to international trade, but it has also to step forward and be an
active player on the ground. This contributes to bringing the world trade back from a power oriented
system that relies on bilateralism and negotiation powers to a rule-oriented system with established
durable principles of law which reconcile the interests of all WTO Members, including those mem-
bers who are actively seeking WTO-compliant RTAs. n493
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33 N.C.J. Int'l L. & Com. Reg. 359, *
There have been constructive efforts to suggest reforms on the part of WTO Members and legal
scholars as highlighted above. All these efforts should be taken into consideration by the WTO. In
fact, such efforts have resulted in substantial and tangible achievements like the Understanding on
Article XXIV in the Uruguay Round. n494 For instance, since the Understanding stated [*434] that
interim agreements "should exceed ten years only in exceptional cases," the number of violating
RTAs to this requirement has been shrinking according to the WTO Secretariat report of 2002. n495
VII. Conclusions
This article has attempted to highlight the major legal questions that occur when examining RTAs
and their relationship with the WTO legal order. Although RTAs are an economic phenomenon in
the first place, their legal aspect should not be underestimated. A healthy legal interaction between
multilateralism and regionalism can ensure the integrity of the WTO, and simultaneously, can en-
able RTAs to be building blocks in the world trade order. However, so far there is no consensus on
what is the best way to reform the relevant rules to minimize the loopholes that members to RTAs
often exploit, albeit sometimes unintentionally.
The good news is that the WTO, and its members, are aware of the legal challenges that RTAs
present. In his speech in Bangalore in January 2007, Pascal Lamy, the Director-General of the
WTO, stressed that RTAs should not replace the multilateral system. n496 He went beyond the tradi-
tional approach of criticizing RTAs and argued that they are not an easier way of facilitating trade,
but rather, they complicate the trading environment by creating a web of incoherent rules, such as
the numerous different rules of origin. n497 In this light, he offers harmonizing rules of origin to sim-
plify regional trade and enhance the relationship between multilateralism and regionalism. n498 He
also shared with the participants the WTO's attempts to contain RTAs, such as the [*435] Trans-
parency Mechanism. n499
What is really puzzling is that those members who are meeting to discuss how to discipline
RTAs are those who are negotiating RTAs at a rapid pace. By the same token, those WTO Members
who form RTAs that are inconsistent with WTO rules are the same who agreed on the Transparency
Mechanism in 2006 to enhance notification and examination of RTAs. These facts will render the
attempts to accommodate RTAs in the multilateral system inefficient if the root cause of the prob-
lem is not addressed. In other words, unless Articles XXIV of the GATT and V of the GATS are
clarified in light of the latest developments, it would be hard to make significant progress. It is true
that the Understanding on Article XXIV was a remarkable step for clarifying, to some extent, the
vague terms, but still, neither Article XXIV nor the Understanding on Article XXIV mention issues
of emerging importance like investment and intellectual property, subjects that are increasingly be-
ing incorporated in RTAs.
It is crucial therefore to reform the applicable rules in a way that fosters cooperation between
the multilateral and regional regimes, while attempting simultaneously to minimize the competition
between them. This can be done both on the regional and multilateral level. On the regional level,
RTAs should include provisions or phrases in their preamble that affirm the importance of being
consistent with WTO laws. In this light, the true test for RTAs now is compliance with the Trans-
parency Mechanism. On the multilateral level, the WTO should consider having a clause that em-
phasizes the supremacy of the WTO system over RTA laws. This would be very useful when con-
flicts of law occur between a regional law and the multilateral one. The Transparency Mechanism is
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33 N.C.J. Int'l L. & Com. Reg. 359, *
also a test for the WTO; the WTO should consider having a CRTA that is adequately staffed and
equipped to deal with the increasing number of RTAs.
Legal Topics:
For related research and practice materials, see the following legal topics:
International Trade LawImports & ExportsCountervailing DutiesGeneral OverviewInternational
Trade LawImports & ExportsDuties, Fees & TaxesGeneral OverviewInternational Trade LawState
LegislationGeneral Overview
FOOTNOTES:
n1. See Armand de Mestral, NAFTA Dispute Settlement: Creative Experiment or Confu-
sion?, in Regional Trade Agreements and the WTO Legal System 359 (Lorand Bartels &
Federico Ortino eds., 2006) (examining NAFTA's dispute settlement proceedings vis-a-vis
the multilateral system).
n2. See General Agreement on Tariffs and Trade, Prologue, Oct. 30, 1947, 61 Stat. A-11, 55
U.N.T.S. 194 [hereinafter GATT].
n3. Id.
n4. See Jacob Viner, The Customs Union Issue, in Trading Blocs, Alternative Approaches to
Analyzing Preferential Trade Agreements 105, 107 (Jadish Bhagwati & Arvind Panagariya
eds., 1999) (Jacob Viner warned that RTAs, especially customs unions can have "trade diver-
sion" consequences. He defines "trade diversion" by arguing that
There will be other commodities which one of the members of the customs union will now
newly import from the other whereas before the customs union it imported them from a third
country, because that was the cheapest possible source of supply even after payment of duty.
The shift in the locus of production is now not as between the two member countries but as
between a low-cost third country and the other, high-cost, member country. This is a shift of
the type which the protectionist approves, but it is not one which the free-trader who under-
stands the logic of his own doctrine can properly approve.)
n5. See Pateriiza Tumbarello, Are Regional Trade Agreements Stumbling or Building
Blocks? Implications for Mekong-3 Countries, 5 (IMF Working Paper No.53, 2007) (describ-
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33 N.C.J. Int'l L. & Com. Reg. 359, *
ing the negative ramifications of trade diversion); see also Rymond Riezman, Can Bilateral
Trade Agreements Help Induce Free Trade?, 3, available at
http://www.biz.uiowa.edu/faculty/rriezman/papers/mvb12.pdf (citing scholars who favor re-
gionalism such as Nordstorm, Perroni and Whalley).
n6. Few books were written on the legal aspects of regionalism, so far among them are:
James H. Mathis, Regional Trade Agreements in the GATT/WTO, Article XXIV and the In-
ternal Trade Requirement (2002); and Regional Trade Agreements and the WTO Legal Sys-
tem 359 (2006).
n7. Sir Ian Sinclair, The Vienna Convention on the Law of Treaties (Manchester University
Press, 2d. ed., 1984).
n8. See, e.g., James H. Mathis, Regional Trade Agreements in the GATT/WTO, Article
XXIV and the Internal Trade Requirement 140 (2002) (citing Paul Krugman, Regionalism
Versus Multilateralism: Analytical Notes, in New Dimensions in Regional Integration 74-75
(Center for Economic Policy Research 1993)).
n9. Id.
n10. Id.
n11. Id.
n12. Id.
n13. See Riezman, supra note 5; see also John Whalley, Why Do Countries Seek Regional
Trade Agreements 2 (Nat'l Bureau of Econ. Research, Working Paper No. 5552, 1996) (high-
lighting political concerns for countries who form RTAs).
n14. Id.
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33 N.C.J. Int'l L. & Com. Reg. 359, *
n15. See Mathis, supra note 8, at 140 (arguing that the severely uneven distribution of wealth
among members make it difficult to reach decisions on controversial trade issues in the WTO,
unlike the case where countries negotiate with economically compatible partners).
n16. See, e.g., Melaku Geboye Desta, The Bumpy Ride Towards the Establishment of "a Fair
and Market Oriented Agricultural Trading System" at the WTO: Reflections Following the
Cancun Setback, 8 Drake J. Agric. L. 489 (2003) (discussing the collapse of Cancun's nego-
tiations); see also M. Ulric Killion, China's Foreign Currency Regime: The Kagan Thesis and
Legalification of the WTO Agreement, 14 Minn. J. Global Trade 43, 84 (2004) (stating that
the collapse of Cancun multilateral negotiations was because "countries could not come to a
consensus and nearly brought a collapse to the Doha Development Agenda").
n17. Desta, supra note 16.
n18. Other factors are coming to play when forming RTAs, such as maintaining security as
in the case of ASEAN. In 1971, ASEAN leaders signed the Zone of Peace, Freedom and Neu-
trality Declaration of November 27, 1971. See Zone of Peace, Freedom and Neutrality, 27
November, 1971, Indon.-Malay.-Phil.-Sing.-Thail., reprinted in 11 I.L.M. [Kuala Lumpur
Declaration].
n19. Bob Switky, The Importance of Trading Blocks: Theoretical Foundations, in The Politi-
cal Importance of Regional Trading Blocs 13, 18 (Bart Kerremans & Bob Switky eds., 2000).
By the same token, states might consider joining an RTA as a method to join a better RTA.
This was obvious in Latin America and Europe where:
In some of the Latin American arrangements ... a group of countries has more leverage in ac-
cession negotiations to NAFTA than would individual countries. In Eastern Europe after
1989, the prior regional negotiations between Hungry, Poland and Czechoslovakia helped in-
crease the leverage of each country vis-a-vis EU accession negotiations. Id.
n20. Id.
n21. Id. at 19.
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33 N.C.J. Int'l L. & Com. Reg. 359, *
n22. See Racing to regionalize: Democracy, Capitalism and Regional Political Economy 156
(Kenneth P. Thomas & Mary Ann Tetreault eds., 1999) (explaining the reflections of geopoli-
tics of eastern and western Europe on the citizenship policy of the EU).
n23. See Jacob Viner, The Customs Union Issue, in Trading Blocs, Alternative Approaches
to Analyzing Preferential Trade Agreements 105, 107 (Jadish Bhagwati & Arvind Panagariya
eds., 1999).
n24. Id.
n25. Id.
n26. Id. (explaining that the benefit or the harm to the international economy depends on
which dimension predominates, trade creation or trade diversion).
n27. Jadish Bhagwati, Regionalism and Multilateralism: an Overview, in New Dimensions in
Regional Integration 22, 46 (Jaime de Melo & Arvid Panagariya eds., 1993) (calling the phe-
nomenon of the proliferation of RTAs the spaghetti bowl phenomenon where RTAs create an
artifact production network of countries that would not be consistent with the principle of
economic efficiency).
n28. Jeffry Frankel, Regional Trading Blocs in the World Economic System 212 (1997).
n29. May T. Yeung et al., Regional Trading Blocs in the Global Economy: The EU and
ASEAN 19 (1999).
n30. David Henderson, International Economic Integration: Progress, Prospect and Implica-
tions, 68 Int'l Aff. 633, 644 (1992).
n31. Robert Hormats, Making Regionalism Safe, 73 Foreign Aff. 97, 104 (2004).
Page 40
33 N.C.J. Int'l L. & Com. Reg. 359, *
n32. Anne Krueger, Are Preferential Trading Arrangements Trade-Liberalizing or Protec-
tionist?, 13 J. Econ. Persp. 105, 107 (1999).
n33. See, e.g., Robert Zoellick, Unleashing the Trade Winds, Economist, Dec. 5, 2002.
n34. See, e.g., id.
n35. See, e.g., id.
n36. See id. The United States Representative Robert Zoellick asserted that
Whether the cause is democracy, security, economic integration or free trade, advocates of re-
form often need to move towards a broad goal step by step-- working with willing partners,
building coalitions, and gradually expanding the circle of cooperation. Just as modern busi-
ness markets rely on the integration of networks, we need a web of mutually reinforcing trade
agreements to meet diverse commercial, economic, developmental and political challenges.
The United States is combining this building-block approach to free trade with a clear com-
mitment to reducing global barriers to trade through the WTO. Id.
n37. Vincent Cable, Overview, in Trade Blocs? The Future of Regional Integration 1, 12
(Vincent Cable & David Henderson eds., 1994) (arguing that RTAs are a "useful laboratory
for new approaches to deeper integration which can be applied multilaterally").
n38. William Watson & Viet D. Do, Economic Analysis of Regional Trade Agreements,
http://www.mcgill.ca/files/economics/economicanalysisof.pdf (last visited Sept. 12, 2007).
n39. GATT, supra note 2, art. XXIV:4.
n40. See, e.g., Nicole Rothe, Freedom of Establishment of Legal Persons Within the Euro-
pean Union: An Analysis of the European Court of Justice Decision in the Uberseering Case,
53 Am. U.L. Rev. 1103 (2004) (analyzing the EU as a common market).
Page 41
33 N.C.J. Int'l L. & Com. Reg. 359, *
n41. Economic Unions combine members that share long-term economic missions. Eco-
nomic Unions incorporate common monetary policies, fiscal arrangements, and political
autonomy. They also have institutions with high-level capabilities and authorities to mange
the monetary, social, and legal harmonization efforts. See, e.g., Bryan Schwartz, Strengthen-
ing Canada: Challenges for Internal Trade & Mobility: Lessons from Experience: Improving
the Agreement of Internal Trade, 2 Asper Rev. Int'l Bus. & Trade L. 301 (2002) (discussing
Canada's trade and commercial policies as an Economic Union).
n42. See Joshua M. Wepman, Article 104(c) of the Maastricht Treaty and European Mone-
tary Union: Does Ireland Hold the Key to Success?, 19 B.C. Int'l & Comp. L. Rev. 247
(1996) (defining "Monetary Union").
n43. GATT, supra note 2, art. XXIV:8(a).
n44. Appellate Body Report, Turkey - Restrictions on Imports of Textile and Clothing Prod-
ucts, WT/D34/AB/R (Oct. 22, 1999) [hereinafter Turkey - Textiles AB Report]. (The Appel-
late Body agreed with the Panel that Article XXIV: 8 offers some flexibility, yet the AB
warned that this flexibility should not be abused.)
n45. GATT, supra note 2, art. XXIV:8(a).
n46. Id. art. XXIV:8(a)(ii).
n47. Id.
n48. Id. art. XXIV:5(a).
n49. Id. art. XXIV:6. Article XXVIII requires interested parties to negotiate the withdrawal
or modification of such duties in order to reach a compensatory arrangement for the affected
party. See generally Understanding on the Interpretation of Article XXIV of the General
Agreement on Tariffs and Trade 1994, Apr. 15, 1994; Marrakesh Agreement Establishing the
World Trade Organization, Annex 1A, Legal Instruments - Results of the Uruguay Round, 33
I.L.M. 1125, 1161 art. 4 (1994) [hereinafter Article XXIV Understanding].
Page 42
33 N.C.J. Int'l L. & Com. Reg. 359, *
n50. De Mestral, supra note 1.
n51. Raj Bhala & Kevin Kennedy, World Trade Law: the Gatt - Wto System, Regional Ar-
rangements, and U.S. Law 162 (1998).
n52. GATT, supra note 2, art XXIV: 8(b).
n53. See GATT, supra note 2, art XXIV: 8.
n54. Id.
n55. See Jonathan M. Cooper, NAFTA's Rule of Origin and Its Effect on the North Ameri-
can Automotive Industry, 14 Nw. J. Int'l L. & Bus. 442, 452 (1994); see also WTO Secre-
tariat, Regional Trade Integration Under Transformation (Apr. 26, 2002), 10, available at
http://192.91.247.23/english/tratop e/region e/sem april02 e/clemens boonekamp.doc [herein-
after WTO, Under Transformation] (explaining that the justification of having rules of origin
is to prevent trade deflection).
n56. See Agreement on Rules of Origins, Apr. 15, 1994, Marrakesh Agreement Establishing
the World Trade Organization, Annex 1A, Legal Instruments - Results of the Uruguay
Round, reprinted in H.R. Doc. No. 316, 103d Cong., 2d Sess. 1515 art. 1 (1994) [hereinafter
GATT Agreement on Rules of Origin]. The GATT Agreement on Rules of Origin defines
rules of origin as:
Those laws, regulations and administrative determinations of general application applied by
any Member to determine the country of origin of goods provided such rules of origin are not
related to contractual or autonomous trade regimes leading to the granting of tariff prefer-
ences going beyond the application of paragraph 1 of Article I of GATT 1994.
n57. See generally D. Palmeter, Rules of Origin in Customs Unions and Free Trade Areas, in
Regional Integration and the Global Trading System 326 (K. Anderson & R. Blackhurst eds.,
1993).
Page 43
33 N.C.J. Int'l L. & Com. Reg. 359, *
n58. A.O. Krueger , Free Trade Agreements as Protectionist Devices: Rules of Origin 8-12
(Nat'l Bureau of Econ. Research, Working Paper No. 4352, 1993).
n59. See Joseph A. LaNasa, Rules of Origin and the Uruguay Round's Effectiveness in Har-
monizing and Regulating Them, 90 Am. J. Int'l .L. 625, 626 (1996).
n60. Id.
n61. Lan Cao, Corporate and Product Identity in the Postnational Economy: Rethinking U.S.
Trade Laws, 90 Calif. L. Rev. 401, 463 (2002).
n62. See generally GATT Agreement on Rules of Origin, supra note 56.
n63. See id. art. 2(b) and (c).
n64. See id. art. 2(d).
n65. See id. art. 2(a).
n66. See id. art. 2(e) and (j).
n67. See id. art. 4.
n68. Org. for Econ. Co-operation and Dev. [OECD], Working Part of the Trade Comm., The
Relationship Between Regional Trade Agreements and Multilateral Trading System Rules of
Origin, at 6, TD/TC/WP(2002)17/Final (Apr. 11, 2002) [hereinafter OECD Rules of Origin].
n69. NAFTA, in its cross-border trade chapter, established flexible rules for services to enjoy
free movement within NAFTA's borders.
Page 44
33 N.C.J. Int'l L. & Com. Reg. 359, *
n70. See OECD Rules of Origin, supra note 68.
n71. Raj Bhala, International Trade Law: Theory and Practice 666 (Lexis Publishing 2d ed.
2001).
n72. Countries who sign FTAs with the US are required to amend, for example, their laws to
meet certain US requirements, such as intellectual property rights requirements. See Peter
Drahos, Expanding Intellectual Property's Empire: the Role of FTAs 7, available at
http://www.bilaterals.org/article.php3?id article=401.
n73. GATT, supra note 2, art. XXIV: 5(c).
n74. Id.
n75. See Article XXIV Understanding, supra note 49, P 3.
n76. See World Trade Organization, Negotiating Group on Rules, Compendium of Issues
Related to Regional Trade Agreements, P 55, WTO Doc. TN/RL/W/8/Rev.1 (Aug. 1, 2002),
available at http://www.wto.org/english/tratop e/ region e/region negoti e.htm [hereinafter
Regional Trade Agreements] (stating that "very few have expressly been notified as [interim
agreements]. As a consequence, many of the detailed provisions specifically devoted to this
type of RTA, both in Article XXIV and in the 1994 Understanding, have practically become
redundant").
n77. See id. P 57.
n78. See id.
n79. Id. P 57.
Page 45
33 N.C.J. Int'l L. & Com. Reg. 359, *
n80. GATT, supra note 2, art. XXIV:5.
n81. Turkey - Textiles AB Report, supra note 44.
n82. Id. § 24.
n83. See id.§§6-7.
n84. See id. § 10.
n85. Id. § 42.
n86. Id.
n87. Turkey - Textiles AB Report, supra note 44,§§64-66.
n88. Id. P 45.
n89. Id. P P 45-46.
n90. Id. P P 58-59.
n91. Understanding on Rules and Procedures Governing the Settlement of Disputes, Apr. 15
1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2 art. 16.4,
Legal Instruments - Results of the Uruguay Round, 1869 U.N.T.S. 401, 411, 33 I.L.M. 1125
(1994) [hereinafter DSU].
n92. GATT, supra note 2, art. XXIV:4.
Page 46
33 N.C.J. Int'l L. & Com. Reg. 359, *
n93. See id.
n94. See Article XXIV Understanding, supra note 49.
n95. Id.
n96. See generally GATT, supra note 2, art. XXIV; Article XXIV Understanding, supra note
49.
n97. Jagdish Bhagwati, Preferential Trade Agreements: The Wrong Road, 27 Law & Pol'y
Int'l Bus. 865, 868 n.5 (1996).
n98. Turkey - Textiles AB Report, supra note 44, P 57.
n99. Id.
n100. See id.
n101. See GATT, supra note 2 Article XXIV: 4. Article XXIV states that:
The contracting parties recognize the desirability of increasing freedom of trade by the devel-
opment, through voluntary agreements, of closer integration between the economies of the
countries parties to such agreements. They also recognize that the purpose of a customs union
or of a free-trade area should be to facilitate trade between the constituent territories and not
to raise barriers to the trade of other contracting parties with such territories.
n102. See, e.g., Kenneth Dam, The GATT, Law and International Economic Organization
276 (1970).
Page 47
33 N.C.J. Int'l L. & Com. Reg. 359, *
n103. Id.
n104. World Trade Organization, Comm. on Reg'l Trade Agreements, Note on the Meetings
of 27 November and 4-5 December 1997, P P 19-20, WT/REG/M/15 (Jan. 13, 1998) [herein-
after CRTA WT/REG/M/15].
n105. Id.
n106. Id. P 24.
n107. Id. P 24.
n108. Id.
n109. Turkey - Textiles AB Report, supra note 44, P 57.
n110. GATT, supra note 2, art. XXIV:8.
n111. Article XXIV:8 (a).
n112. Article XXIV: 8 (b).
n113. Article XXIV:8 (a) and (b).
n114. Article XXIV:8 (a).
n115. Article XXIV:8 (b).
Page 48
33 N.C.J. Int'l L. & Com. Reg. 359, *
n116. Id.
n117. Bhala supra note 71, at 625.
n118. See World Trade Organization, Comm. on Reg'l Trade Agreements, Note on the Meet-
ings of 16-18 and 20 February 1998, P 115, WT/REG/M/16 (Mar. 18, 1998) [hereinafter
CRTA WT/REG/M/16] (where New Zealand suggested the removal of the whole term of
"substantially" due to its ambiguity).
n119. Id.
n120. Id. P 111.
n121. See, e.g., id. § 131.
n122. Id.
n123. See European Free Trade Association, Examination of Stockholm Convention, L/1235
(June 4, 1960), GATT B.I.S.D. (9th Supp.) at 70 (1960).
n124. See generally The European Economic Community, Reports Adopted on 29 November
1957, P 30, L/778 (March 1958), GATT B.I.S.D. (6th Supp.) at 70 (1957).
n125. Id.
n126. See generally id.; see also S.J, Wei & J.A. Frankel, Open Versus Closed Blocs, in Re-
gionalism Versus Multilateral Trade Arrangements 123 (T. Ito & A. O. Kruger eds., 1997).
n127. CRTA WT/REG/M/16, supra note 118.
Page 49
33 N.C.J. Int'l L. & Com. Reg. 359, *
n128. Sunjoon Cho, Breaking the Barrier Between Regionalism and Multilateralism: A Per-
spective on Trade Regionalism, 42 Harv. Int'l L. J. 419, 436-37.
n129. Mathis, supra note 8, at 65.
n130. Sunjoon Cho, supra note 128, at 436-37.
n131. See Conclusions Adopted on 5 April 1966 (July 1966), GATT B.I.S.D. (14th Supp.) at
20, 22 (1966); Report of Working Party Adopted on 5 April 1966, L/2628 (July 1966), GATT
B.I.S.D. (14th Supp.) at 115, 115-16 (1966).
n132. Sunjoon Cho, supra note 128,.442-43 (2001) (highlighting the impracticability of
agreeing on one meaning of "substantially all the trade", and giving an example that EEC
countries proposed an 80% of liberalized trade to be considered "substantially all").
n133. See Article XXIV Understanding, supra note 49, introduction
n134. See Turkey - Textiles AB Report, supra note 44, P 48-50.
n135. See id. P 48.
n136. Id. P 49.
n137. Id. P 50 (overruling the panel's finding that substantially all the regulations means
"comparable with similar effects on third parties").
n138. See Panel Report, United States-Definitive Safeguard Measures on Imports of Circular
Welded Carbon Quality Line Pipe from Korea, P P 7.130, 7.144, WT/DS202/R (Mar. 8,
2002) [hereinafter United States - Line Pipe]. The AB, however, found that this issue is ir-
relevant, and the finding of the Panel in this respect has no legal effect. See Appellate Body
Page 50
33 N.C.J. Int'l L. & Com. Reg. 359, *
Report, United States - Definitive Safeguard Measures on Imports of Circular Welded Carbon
Quality Line Pipe from Korea, WT/DS202/AB/R (Mar. 8, 2002) [hereinafter United States -
Line Pipe AB Report].
n139. GATT, supra note 2, art XXIV:8(a)(i)-(b).
n140. See James Mathis, Other Restrictive Regulations of Commerce? in Regional Trade
Agreements and the WTO Legal System 359 (Lorand Bartels & Federico Ortino eds., 2006).
n141. GATT, supra note 2, art XXIV:5, art XXIV:8.
n142. Id. at 10.
n143. Id.
n144. Nicholas Lockhart & Andrew Mitchell, Regional Trade Agreements under GATT
1994: An Exception and its Limits, in Challenges and Prospects for the WTO 217, 237 (An-
drew Mitchell ed., 2005).
n145. Id.
n146. GATT, supra note 2, art. XXIV:8.
n147. See generally Mathis, supra note 140, 92-93 (arguing that Article XXIV:8, which deals
with ORRC should be interpreted to limit ORRC is limited in scope as the literal reading of
the text).
n148. Id. at 6.
n149. Id.
Page 51
33 N.C.J. Int'l L. & Com. Reg. 359, *
n150. Id.
n151. Michael Hart, GATT Article XXIV and Canada-United States Trade Negotiations, 1
R.I.B.L. 317, 333 (1987). Real life shows that safeguards are not rare anymore. The number
of safeguards disputes before the WTO alone is more than 30, as of March 1, 2006.
n152. See id.
n153. Joost Pauwelyn, The Puzzle of WTO Safeguards and Regional Trade Agreements, 7 J.
Int'l Econ. L. 109, 127 (2004).
n154. Id.
n155. Lockhart, supra note 144, at 240 (mentioning a strict interpretation of whether products
subject to ORRC listed in the brackets are part of "substantial or insubstantial portion of
trade").
n156. Id.
n157. Raj Bhala, International Trade Law Handbook 664 (Lexis Publishing 2001).
n158. Lockhart, supra note 144, at 241.
n159. Pauwelyn, supra note 153, at 127 n.42.
n160. See Panel Report, Argentina-Safeguard Measures on Imports of Footwear,
WT/DS121/R (Jan. 12, 2000) [hereinafter Argentina - Footwear Panel Report.]
Page 52
33 N.C.J. Int'l L. & Com. Reg. 359, *
n161. Id. P 5.149.
n162. Id. P 3.1.
n163. Id. P 9.1.
n164. Argentina - Footwear Panel Report, supra note 160, P P 8.96 & 97. The Panel Report
stated that "Although the list of exceptions in Article XXIV:8 of GATT clearly does not in-
clude Article XIX, in our view, that paragraph itself does not necessarily prohibit the imposi-
tion of safeguard measures between the constituent territories of a customs union or free-trade
area during their formation or after their completion." The AB Report did not reject this per
se, but found that this matter was irrelevant to the case. See Appellate Body Report, Argen-
tina-Safeguard Measures on Imports of Footwear, P 110, WT/DS121/AB/R (Jan. 12 2000)
[hereinafter Argentina-Footwear AB Report].
n165. Argentina - Footwear Panel Report, supra note 160, P P 8.96 & 8.97.
n166. Id.
n167. Id.
n168. Id. at 8.90
n169. Argentina - Footwear Panel Report, supra note 160.
n170. Argentina - Footwear AB Report, supra note 164.
n171. GATT, supra note 2, art. XXIV:8(a)-(b).
n172. Lockhart, supra note 144, at 240.
Page 53
33 N.C.J. Int'l L. & Com. Reg. 359, *
n173. Id.
n174. GATT, supra note 2, art XXIV:5(a)-(b).
n175. Id.
n176. Robert Hudec & James Southwick, Regionalism and WTO Rules: Problems in the
Fine Art of Discriminating Fairly, in Trade rules in the making: challenges in regional and
multilateral negotiations 47, 53 (Miguel R. Mendoza et al. eds., 1999).
n177. Id.
n178. See Article XXIV Understanding, supra note 49, P 2.
n179. Id.
n180. See id.
n181. Turkey - Textiles AB Report, supra note 44, P P 53-55.
n182. Turkey - Textiles AB Report, supra note 44, P P 53.
n183. Zakir Hafez, Weak Discipline: GATT Article XXIV and the Emerging WTO Jurispru-
dence on RTAs, 79 N.D. L. Rev. 879, 897 (2003).
n184. Panel Report, Turkey - Restrictions on Imports of Textile and Clothing Products, P
9.120, WT/D34/R (Oct. 22, 1999) [hereinafter Turkey - Textile Panel Report].
Page 54
33 N.C.J. Int'l L. & Com. Reg. 359, *
n185. Mathis, supra note 8, at 252.
n186. Id.
n187. Id. at 253.
n188. Id.
n189. Turkey - Textiles AB Report, supra note 44, P 55.
n190. GATT, supra note 2, art. XXIV:5(b).
n191. See Hafez, supra note 183, at 897.
n192. Mathis, supra note 8, at 168.
n193. World Trade Organization, Comm. on Reg'l Trade Agreements, Statement by the
Delegation of Hong Kong, China on Systemic Issues, WT/REG/W/27 (Jan. 4, 1998) [herein-
after CRTA WT/REG/W/27].
n194. Regional Trade Agreements, supra note 68, P 52.
n195. Mathis, supra note 8, at 168.
n196. Bhala, supra note 71, at 664.
n197. Id.
Page 55
33 N.C.J. Int'l L. & Com. Reg. 359, *
n198. OECD Rules of Origin, supra note 68, at 5.
n199. GATT, supra note 2, art. XXIV:8.
n200. GATT, supra note 2, art. XXIV:5.
n201. GATT, supra note 2, art. XXIV:5(c).
n202. WTO, SYNOPSIS OF "SYSTEMIC" ISSUES RELATED TO REGIONAL TRADE
AGREEMENTS WT/REG/W/37 available at http://www.wto.org/english/tratop e/region
e/wtregw37 e.doc
n203. Id. "Any interim agreement ... shall include a plan and schedule for the formation of
such a customs union or of such a free-trade area within a reasonable length of time."
n204. See id.
n205. See WTO, SYNOPSIS OF "SYSTEMIC" ISSUES RELATED TO REGIONAL
TRADE AGREEMENTS WT/REG/W/37, 18-19 available at
http://www.wto.org/english/tratop e/region e/wtreg w37 e.doc.
n206. See Association of Greece with the European Economic Community, Report adopted
on 15 November 1962, L/1829 (Mar. 1963), GATT B.I.S.D. (11th Supp.) at 149, 149-50
(1963).
n207. See Article XXIV Understanding, supra note 49, P 3.
n208. Id. An issue that is likely to appear if they notified the Council after the agreement en-
ters into force, particularly if the Council was not convinced of the RTAs' explanation for
Page 56
33 N.C.J. Int'l L. & Com. Reg. 359, *
having more than a 10-year period for an interim agreement. A similar issue is likely to ap-
pear if a CRTA found that a given RTA does not conform to the condition set forth in Article
XXIV. Typically, RTAs notify the Council of when their agreement has entered into force,
and the Council and the CRTA will have, on average two years to complete its review, how-
ever they will not be able to prevent violations from occurring during the review. Further, it
would be hard to modify the agreement after that because the parties may have spent years
negotiating it. See, e.g., Bhala, supra note 71, at 624 (noting that the WTO has never com-
pleted a review for any interim agreement, and the average time to review agreements is be-
tween three months and four years).
n209. Dam, supra note 102, at 282.
n210. See WTO, Report (1996) of the Committee on Regional Trade Agreements to the
General Council, WTO Doc. WT/REG/2, (June 11, 1996) (stating that one of the mandates of
the CRTA is to examine the compliance of RTAs to the applicable law).
n211. See Programme of Work of the Contracting Parties, Summing up by the Chairman,
L/3641 (Apr. 1972), GATT B.I.S.D. (18th Supp.) at 37, 38 (1972).
n212. See Article XXIV Understanding, supra note 49, P 11.
n213. GATT, supra note 2, art. XXIV:5(c).
n214. See generally Comm. on Reg'l Trade Agreements, Report of the Committee on Re-
gional Trade Agreements to the General Council, WT/REG/2 (June 11, 1996).
n215. See Negotiating Group on Rules, Transparency Mechanism for Regional Trade
Agreements, JOB(06)/59/Rev.5 (June 29, 2006) [hereinafter Transparency Mechanism]
(Draft Decision).
n216. Id.
n217. Id.
Page 57
33 N.C.J. Int'l L. & Com. Reg. 359, *
n218. GATT, supra note 2, art. XXIV:6.
n219. Id.
n220. See Panel Report, European Communities - Measure Affecting the Importation of Cer-
tain Poultry Products, P 215, WT/DS69/R (Mar. 12, 1998) [hereinafter European Communi-
ties - Measure Affecting].
n221. GATT, supra note 2, art. XXIV:6.
n222. Article XXIV Understanding, supra note 49, P 4.
n223. Id. P 5.
n224. Id.
n225. Id.
n226. Id. P 5.
n227. Article XXIV Understanding, supra note 49, P 5.
n228. Turkey - Textiles Panel Report, supra note 184, P 9.114.
n229. Id.
Page 58
33 N.C.J. Int'l L. & Com. Reg. 359, *
n230. Id.
n231. Id. P 9.115.
n232. Turkey - Textiles Panel Report, supra note 184, P 9.115.
n233. Id. P 9.118.
n234. Id. P 9.127.
n235. GATT, supra note 2, art. XIX:1(a).
n236. Id. art. XIX:2.
n237. Id. art. XIX: 3.
n238. Id. art. XIX: 2.
n239. See Agreement of Safeguards, Apr. 15, 1994, Marrakesh Agreement Establishing the
World Trade Organization, Annex 1A, Legal Instruments - Results of the Uruguay Round, 33
I.L.M. 112 (1994) [hereinafter Safeguards Agreement].
n240. Id. art 12.
n241. Id.
n242. See id. art. 11(b) (prohibiting gray area measures by stating that "a member shall not
seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any
other similar measures on the export or import side").
Page 59
33 N.C.J. Int'l L. & Com. Reg. 359, *
n243. Argentina - Footwear AB Report, supra note 164, P 86-97.
n244. Id. P 91.
n245. Id.
n246. The concept of parallelism comes from Articles 2.1 and 2.2 of the Safeguards Agree-
ment which states:
1. A Member may apply a safeguard measure to a product only if that Member has deter-
mined, pursuant to the provisions set out below, that such product is being imported into its
territory in such increased quantities, absolute or relative to domestic production, and under
such conditions as to cause or threaten to cause serious injury to the domestic industry that
produces like or directly competitive products. 2. Safeguard measures shall be applied to a
product being imported irrespective of its source.
Safeguards Agreement, supra note 239, arts. 2.1, 2.2.
n247. See, e.g., Charles Owen Verrill, NAFTA and the Steel Section 201 Safeguard Action
10 (May 28, 2003) (unpublished article) available at
http://www.wrf.com/docs/publications/11514.pdf (discussing why the United States excluded
NAFTA's steel imports from the safeguards measures in the United States - Steel case).
n248. Argentina-Footwear AB Report, supra note 164, P P 86-97.
n249. Alan Sykes, The Safeguards Mess: A Critique of WTO Jurisprudence, 2003 16 (Univ.
of Chi., John Olin Law & Economics Working Paper No. 187 (2d Series)).
n250. See Pauwelyn, supra note 153, at 112.
Page 60
33 N.C.J. Int'l L. & Com. Reg. 359, *
n251. See Argentina - Footwear AB Report, supra note 164, P P 103, 111.
n252. See supra text accompanying note 165.
n253. GATT, supra note 2, art. XXIV:5 ("Accordingly, the provisions of this Agreement
shall not prevent ... the formation of a customs union or of a free-trade area or the adoption of
an interim agreement necessary for the formation of a customs union or of a free-trade area ...
.").
n254. Turkey - Textiles AB report, supra note 44, P 58.
n255. Id.
n256. See, e.g., Pauwelyn, supra note 153, at 132.
n257. Id.
n258. Id. at 133.
n259. Id. at 135, quoting GATT, supra note 2, arts. XXIV:5, 8.
n260. Id.
n261. Safeguards Agreement, supra note 239, at n.1 (however, it does not mention FTAs).
n262. Id. at n.1.
Page 61
33 N.C.J. Int'l L. & Com. Reg. 359, *
n263. Argentina - Footwear AB Report, supra note 164; Appellate Body Report, United
States-Definitive Safeguards Measures of Wheat Gluten Products from European Communi-
ties, WT/DS166/AB/R (Dec. 22, 2000) [hereinafter United States - Wheat Gluten AB].
n264. Id. P P 106-08.
n265. Id.
n266. Id.
n267. Id.
n268. Id. P 113.
n269. Safeguards Agreement, supra note 239, art. 2.2.
n270. US - Line Pipe AB, supra note 138, P 260.
n271. Id.
n272. See id.
n273. Argentina - Footwear Panel Report, supra note 160, P 109.
n274. Id. at P 8.93.
n275. United States - Wheat Gluten AB, supra note 263.
Page 62
33 N.C.J. Int'l L. & Com. Reg. 359, *
n276. Id. P 2.
n277. Id. P 13.
n278. Id. P 99.
n279. Id. P 100.
n280. Safeguards Agreement, supra note 239 (expanding on how and when the safeguard
measures provided for in GATT art. XIX can be imposed. Article 2.2 of the Safeguards
Agreement requires safeguards to be applied in a non-discriminatory manner, irrespective of
the source of the product).
n281. United States - Line Pipe AB, supra note 138, P 2.
n282. Id. P 6.
n283. Id.
n284. Id.
n285. United States - Line Pipe, supra note 138, P 8.1.
n286. Id. at P 7.150.
n287. United States - Line Pipe AB, supra note 138, P 199.
n288. Id. P 198.
Page 63
33 N.C.J. Int'l L. & Com. Reg. 359, *
n289. Id.
n290. Id.
n291. Id.
n292. Id. P 51.
n293. United States - Line Pipe, supra note 138, P 198.
n294. Safeguards Agreement, supra note 239, art. 2.1.
n295. See Pauwelyn, supra note 153, at 115 (noting that Article 2.1 of the Agreement on
Safeguards only defines the limits of the investigation into the relevant import vis-a-vis the
imports, and the effect of such imports on the market without imposing restrictions regarding
"the origin of the increased imports that can or must be taken into account in an injury deter-
mination").
n296. United States - Line Pipe, supra note 138, P 181.
n297. Id. P 198.
n298. Id.
n299. See Appellate Body Report, United States - Definitive Safeguard Measures on Imports
of Certain Steel Products, WT/ DS259/AB/R (Nov. 10, 2003) [hereinafter United States -
Steel Products AB]; Report of the Panel, United States - Definitive Safeguard Measures on
Imports of Certain Steel Products, WT/DS248/R (Nov. 10, 2003)[hereinafter United States -
Steel Products].
Page 64
33 N.C.J. Int'l L. & Com. Reg. 359, *
n300. Id P 1.30.
n301. Id. P 1.37.
n302. Id. P 10.592.
n303. Id. P P 10.195-10.196.
n304. Id.
n305. See United States - Steel Products AB, supra note 299, P 450.
n306. Id.
n307. Agreement on Textiles and Clothing, Apr. 15, 1994, Marrakech Agreement Establish-
ing the World Trade Organization, Annex 1A, Legal Instruments - Results of the Uruguay
Round, 33 I.L.M. 112, art. 9 (1994) [hereinafter Agreement on Textiles].
n308. See Multi-Fiber Arrangement, Dec. 20, 1973, 25 U.S.T. 1001, T.I.A.S. No. 7840
[hereinafter Multi-Fiber Arrangement] (formerly the Arrangement Regarding International
Trade in Textiles). The Multi-Fiber Arrangement constituted an exception to MFN by which
countries were allowed to place quantitative restrictions on textiles.
n309. Agreement on Textiles, supra note 307.
n310. Id.
n311. Id.
Page 65
33 N.C.J. Int'l L. & Com. Reg. 359, *
n312. Id.
n313. Id.
n314. GATT, supra note 2, art. XXIV:5.
n315. Turkey - Textiles AB Report, supra note 44, at n.13 (mentioning that "that legal schol-
ars have long considered Article XXIV to be an "exception' or a possible "defense' to claims
of violation of GATT provisions").
n316. Agreement on Textiles, supra note 307.
n317. Id. art. 2.1; see also Turkey - Textiles AB Report, supra note 44, at n.13.
n318. Turkey - Textile Panel Report, supra note 184; United States - Line Pipe, supra note
138; United States - Wheat Gluten AB Report, supra note 263.
n319. General Interpretative Note to Annex 1A, Apr. 15, 1994, Marrakech Agreement Estab-
lishing the World Trade Organization, Annex 1A, Legal Instruments - Results of the Uruguay
Round, 33 I.L.M. 112; see also, e.g., Laurent A. Ruessmann, Reflections on the WTO Doha
Ministerial Conference: Putting the Precautions on the WTO in its place: Parameters for the
Proper Application of a Precautionary Approach and the Implications for Developing Coun-
tries in Light of the Doha WTO Ministerial, 17 Am. U. Int'l L. Rev. 905, 913 (2002) (under-
lining that according to Annex 1 A, the SPS Agreement takes precedent over the GATT in
case of conflict between the two agreements).
n320. GATT, supra note 2, art. XXIV:4.
n321. Id. P P 5, 6, and 9 contain the external requirements for forming RTAs; paragraph 7
contains the requirement of notification; and paragraph 8 encompasses the internal require-
ments for forming RTAs.
Page 66
33 N.C.J. Int'l L. & Com. Reg. 359, *
n322. Mathis, supra note 8, at 231.
n323. See CRTA, WT/REG/M/15, supra note 104.
n324. Id. P 12.
n325. Id.
n326. Id. P 13.
n327. Id.
n328. Turkey - Textile AB Report, supra note 44, P 57.
n329. Id. P 56.
n330. See supra notes 91-102 and accompanying text.
n331. Id. P 46.
n332. Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Par-
ticipation of Developing Countries, L/4903 (Nov. 28, 1979), GATT B.I.S.D. (26th Supp.) at
203 (1980) [hereinafter Enabling Clause].
n333. Id.
n334. Id. P 1.
Page 67
33 N.C.J. Int'l L. & Com. Reg. 359, *
n335. Footnote 3 of the Enabling Clause refers to the GSP system initiated at UNCTAD II.
The UNCTAD II participants adopted Resolution 21(II), "Recognizing unanimous agreement
in favor of the early establishment of a mutually acceptable system of generalized non-
reciprocal and non-discriminatory preferences which would be beneficial to the developing
countries." See Conference on Trade and Development, New Delhi, India, 1968, Report of
the United Nations Conference on Trade and Development on Its Second Session, Agenda
Item 11, at 38, U.N. Doc. TD/97/Annexes (1968).
n336. Enabling Clause, supra note 332, P 2(c).
n337. Id. P 2(d).
n338. Id. P 2(b).
n339. See Panel Report, European Communities - Conditions for the Granting of Tariff Pref-
erences to Developing Countries, WT/DS246/R (Dec. 1, 2003) [hereinafter European Com-
munities - Tariff Preferences]; Appellate Body Report, European Communities - Conditions
for the Granting of Tariff Preferences to Developing Countries, WT/DS246/AB/R (Apr. 7,
2004) [hereinafter European Communities - Tariff Preferences AB].
n340. European Communities - Tariff Preferences, supra note 339, P 4.8.
n341. Id. P 4.41.
n342. European Communities - Tariff Preferences AB, supra note 339, P 80.
n343. Id. P 93.
n344. Id. P 126.
Page 68
33 N.C.J. Int'l L. & Com. Reg. 359, *
n345. Id. P 101.
n346. Id. P 173.
n347. See European Communities - Tariff Preferences AB, supra note 339.
n348. Petros Mavroidis, The General Agreement on Tariffs and Trade, A commentary 249
(2005).
n349. See European Communities - Tariff Preferences AB, supra note 339, P 172.
n350. Enabling Clause, supra note 332, P 3.
n351. Id. P 3(c).
n352. Id. P 3(a).
n353. Id. P 5.
n354. Id. P 7.
n355. Enabling Clause, supra note 332, P 3.
n356. Id. P 2.
n357. Hanna Irfan & Gabreille Marceau, Is there a Necessity Test Within Article XXIV of
the GATT 1994? And if so, is it Applicable to RTAs Among Developing Countries, Covered
by the Enabling Clause? 6 (June 2005) (unpublished Paper Presented to the University of Ed-
inburgh School of Law on Regional Trade Agreements).
Page 69
33 N.C.J. Int'l L. & Com. Reg. 359, *
n358. Enabling Clause, supra note 332, P 2(c).
n359. Id. Another opinion which has not been adopted was raised by the dissent in the Indian
case against the EC where the dissenting Member argued that the Enabling Clause is not an
exception to Article I:1, because in the Enabling Clause the CONTRACTING PARTIES in
effect made the 1971 Waiver permanent, expanded the scope of authorized preferences to ad-
dress other aspects of the "system" developed within UNCTAD, and added several important
factors related to development and trade liberalization." See European Communities - Tariff
Preferences, supra note 339, P 9.2 (determining that the Enabling Clause is not an exception
to Article I:1 and that India has not made a claim under the Enabling Clause).
n360. Id.
n361. See European Communities - Tariff Preferences, supra note 339, P 7; see also Patrick
Low, Trading Free: The GATT and U.S. Trade Policy 151 (1993).
n362. Mavroidis, supra note 348, at 248.
n363. John Jackson, The World Trading System: Law and Policy of International Economic
Relations 172 (1997).
n364. Org. for Econ. Co-operation and Dev. [OECD], Working Party of the Trade Comm.,
The Relationship Between Regional Trade Agreements and Multilateral Trading System Ser-
vices, 5, TD/TC/WP(2002)27/Final (Oct. 9, 2002) [hereinafter OECD Trading System Ser-
vices].
n365. Panel Report, Canada - Certain Measures Affecting The Automotive Industry, P
10.271, WT/DS139/R (Feb. 11, 2002) [hereinafter Canada - Autos]. The panel recalled that
"Article V provides legal coverage for measures taken pursuant to economic integration
agreements, which would otherwise be inconsistent with the MFN obligation in Article II."
Page 70
33 N.C.J. Int'l L. & Com. Reg. 359, *
n366. General Agreement on Trade in Services, Apr. 15, 1994, Marrakech Agreement Estab-
lishing the World Trade Organization, Annex 1B, Legal Instruments-- Results of the Uruguay
Round, 33 ILM 1144 (1994) [GATS].
n367. The original footnote in the text states that "this condition is understood in terms of
number of sectors, volume of trade affected and modes of supply. In order to meet this condi-
tion, agreements should not provide for the a priori exclusion of any mode of supply."
n368. GATS, supra note 366.
n369. Id.
n370. See Bernard Hoekman & Michel Kostecki, The Political Economy of The World Trad-
ing System : The WTO and Beyond 250-51 (2001).
n371. GATS, supra note 366, art. V:1(a).
n372. Id.
n373. Canada - Autos, supra note 365, P 10.271.
n374. GATS, supra note 366, art. V:1 (b).
n375. Id. art. V:6.
n376. World Trade Organization, Comm. on Reg'l Trade Agreements, Examination of the
North American Free Trade Agreement, Note on the Meeting of 24 February 1997, P 14,
WT/REG4/M/4 (Apr. 16, 1997) [hereinafter CRTA WT/REG4/M/4].
n377. Id.
Page 71
33 N.C.J. Int'l L. & Com. Reg. 359, *
n378. Id.
n379. Id. P 19.
n380. Id.
n381. Peter Van den Bossche, The Law and Policy of the WTO, Text, Cases and Materials
665 (2005).
n382. Id.
n383. GATS, supra note 366, art. V:4 & art. XXIV:5.
n384. Id. at art. V:4.
n385. Id. at art. XXIV:5(a) and (b).
n386. Id. at art. V:3(a).
n387. GATS, supra note 366, art. V:3(a).
n388. Id. at art. V:7.
n389. Id. at art V:7(b).
n390. Id. at art. V:7(c).
Page 72
33 N.C.J. Int'l L. & Com. Reg. 359, *
n391. Id. at art. V:5.
n392. Id. at art. III.
n393. Article XXIV Understanding, supra note 49, at pmbl. (demonstrating that the "contri-
bution [of RTAs] is increased if the elimination between the constituent territories of duties
and other regulation of commerce extends to all trade, and diminished if any major sector of
trade is excluded").
n394. Id.
n395. Id. P 2.
n396. Id. P 3.
n397. Id.
n398. Id. P 5.
n399. Id.
n400. Article XXIV Understanding, supra note 49. For instance, the Understanding, did not
tackle the meaning of "substantially all the trade," "not on the whole higher or more restric-
tive," "other regulations of commerce," or "other restrictive regulation of commerce."
n401. Raj Bhala, The Forgotten Mercy: GATT Article XXIV:11 and Trade on the Subconti-
nent, 2002 N.Z. L. Rev. 301, 322 (2002).
Page 73
33 N.C.J. Int'l L. & Com. Reg. 359, *
n402. Id at art. XXIV:9.
n403. World Trade Organization, Comm. on Reg'l Trade Agreements, Decision of 6 Febru-
ary 1996, WT/L/127 (Feb. 7, 1996) [hereinafter CRTA WT/L/127].
n404. See WTO.org, Work of the Committee on Regional Trade Agreements,
http://www.wto.org/english/tratop e/region e/regcom e.htm (last visited Sept. 18, 2007).
n405. Id.
n406. See id.
n407. Turkey - Textiles AB Report, supra note 44, P P 9.189.
n408. World Trade Organization, Comm. on Reg'l Trade Agreements, Checklist for Systemic
Issues Identified in the Context of the Examination of the Regional Trade Agreements, Note
by the Secretariat, P 15, WT/REG/W/12 (Feb. 10, 1997) [hereinafter CRTA WT/REG/W/12].
n409. Understanding on Article XXIV, supra note 49, P 1.
n410. CRTA WT/REG/W/12 supra note 408, P 8.
n411. See SYNOPSIS OF "SYSTEMIC" ISSUES RELATED TO REGIONAL TRADE
AGREEMENTS WT/REG/W/37 (Mar. 2000), P 31.
n412. CRTA WT/REG/W/12, supra note 408 P 19.
n413. Hafez, supra note 183, at 899.
Page 74
33 N.C.J. Int'l L. & Com. Reg. 359, *
n414. See World Trade Organization, Comm. on Reg'l Trade Agreements, Report (2005) of
the Committee on Regional Trade Agreements to the General Council, WTO Doc.
WT/REG/15 (Nov. 3, 2005) [hereinafter CRTA WT/REG/15].
n415. See WTO, REPORT OF THE COMMITTEE ON REGIONAL TRADE AGREE-
MENTS TO THE GENERAL COUNCIL, Oct. 11, 1999, WT/REG/8, available at
http://docsonline.wto.org/GEN viewerwin-
dow.asp?D:/DDFDOCUMENTS/T/WT/REG/8.DOC.HTM ("The CRTA has only made pro-
gress on factual examination of RTAs without delivering substantive results").
n416. Peter Sutherland et al., Consultative Bd. to Director-General Supachai Panitchpakdi,
The Future of the WTO: Addressing Institutional Challenges in the New Millennium 1
(2005), P 77, available at http://www.wto.org/english/wtoe/10anniv e/ future wto e.pdf [Suth-
erland Report].
n417. See WTO, General Council - Minutes of Meeting (held on 18 and 19 July 2001), WTO
Doc. WT/GC/M/66. Issue 13 (a) (the chair of the Committee complaining about the ineffec-
tiveness of the CRTA).
n418. Mavroidis, supra note 348, at 246.
n419. Mathis, supra note 8, at 100. Mathis has built his conclusion on invoking the EEC -
Import Regime for Bananas case, DS38/R (1994), which found that the ECC cannot argue
that it duly notified the working groups of the Lome Convention because the ECC did not re-
quest to have the Lome Convention examined pursuant to Article XXIV:7.
n420. Id.
n421. See GATS, supra note 366, at art. III.
n422. WTO.org, Lamy Welcomes WTO Agreement on Regional Trade Agreements,
http://www.wto.org/english/news e/news06 e/rta july06 e.htm (last visited on Sept. 19, 2007)
(WTO 2006 News Item from July 10, 2006).
Page 75
33 N.C.J. Int'l L. & Com. Reg. 359, *
n423. See Transparency Mechanism, supra note 215, P A:1:b.
n424. Id. P B:3.
n425. See id.
n426. See id. P B:4.
n427. See id. P C:5.
n428. See id. P C:8.
n429. Transparency Mechanism, supra note 215, P C:10.
n430. Id. at P C:7(b).
n431. Id. at P at C:12.
n432. Id.
n433. Id. P D:14.
n434. Id. (emphasis added).
n435. Transparency Mechanism, supra note 215, P D:14.
Page 76
33 N.C.J. Int'l L. & Com. Reg. 359, *
n436. Id.
n437. See id. P H:22.
n438. Id.
n439. See id. P I.
n440. Id. P H.
n441. Transparency Mechanism, supra note 215, P H:22(a).
n442. Id.
n443. Id. at H:22(c).
n444. Id. P C:10.
n445. Id.
n446. Turkey - Textiles AB Report, supra note 44; Canada-Autos, supra note 346; Argentina
- Footwear, supra note 104; US - Line Pipe, supra note 138; US - Wheat Gluten AB Report,
supra note 263.
n447. Canada-Autos, supra note 346, at 5.162.
n448. Id.. at 7.42. The Canadian laws that the duty-free treatment was passed under were the
Canadian Customs Tariff, the Canadian Motor Vehicles Tariff Order 1998, and the Special
Remission Orders. See id. P P 2.1-2.33, 10,1-& 10.1-10.8.
Page 77
33 N.C.J. Int'l L. & Com. Reg. 359, *
n449. Id. at 7.44.
n450. Id.
n451. See Ministerial Declaration: Adopted on 14 November 2001, WTO Doc.
WT/MIN(01)/DEC/1, P 29 (Nov. 20, 2001), available at http://www.wto.org/english/thewto
e/minist e/min01 e/mindecl e.htm.
n452. See e.g., Report of Panel, European Community -- Tariff Treatment on Imports of Cit-
rus Products from Certain Countries in the Mediterranean Region, P 4.15, L/5776 (Feb. 7,
1985) (unadopted) (the Panel held that
The examination - or re-examination - of Article XXIV agreements was the responsibility of
the CONTRACTING PARTIES. In the absence of a decision by the CONTRACTING PAR-
TIES and without prejudice to any decision CONTRACTING PARTIES might take in the fu-
ture on such a matter, the Panel was of the view that it would not be appropriate to determine
the conformity of an agreement with the requirements of Article XXIV on the basis of a com-
plaint by a contracting party under Article XXIII:1(a)).
See also Panel Report, ECC-Member States' Import Regimes for Bananas, DS32/R (June 3,
1993)[hereinafter Import Regimes for Bananas I]; Panel Report, ECC-Member States' Import
Regimes for Bananas, DS38/R (Feb. 11, 1994)[hereinafter Import Regimes for Bananas II].
n453. See the Turkey - Textiles case, Panel Report, supra note 184, at 9.51 (denying that
there was any legal basis to prevent the WTO Panels to exercise their jurisdiction on Article
XXIV controversies).
n454. Report of Panel, European Community - Tariff Treatment on Imports of Citrus Prod-
ucts from Certain Countries in the Mediterranean Region, P 4.15, L/5776 (Feb. 7, 1985) (un-
adopted).
n455. Id.
Page 78
33 N.C.J. Int'l L. & Com. Reg. 359, *
n456. Id. at 59 (stating that Article XXIV is outside the scope of the dispute settlement
panel).
n457. See generally Hafez, supra note 183.
n458. Import Regimes for Bananas I, supra note 352 and Import Regimes for Bananas II, su-
pra note 452.
n459. Import Regimes for Bananas I, supra note 452.
n460. Import Regimes for Bananas II, supra note 452.
n461. The difference between Bananas I and II is that the complainants in Bananas II added
further grounds for their arguments such as that the EC's new measures are inconsistent with
its previous declarations. The EC response is also amended according to the complainants' ar-
guments. See id. P 34.
n462. See Bananas II, supra note 452, P 45.
n463. Import Regimes for Bananas I, supra note 452; Import Regimes for Bananas II, supra
note 452.
n464. Id.
n465. See Article XXIV Understanding, supra note 49, P 12; see also Turkey - Textiles AB
Report, supra note 44, P P 9.52, 9.53. The Panel noted that "the issue regarding the
GATT/WTO compatibility of a customs union, as such, is generally a matter for the CRTA
since ... it involves a broad multilateral assessment of any such custom union, i.e. a matter
which concerns the WTO membership as a whole."
Page 79
33 N.C.J. Int'l L. & Com. Reg. 359, *
n466. Panel Report, Mexico - Tax Measures on Soft Drinks and Other Beverages,
WT/DS308/R (Oct. 7, 2005).
n467. Id. at II:A(2.2).
n468. Id. at III:3.2.
n469. Id.
n470. Id. at C:4.107.
n471. Id. at E:4.163.
n472. Article 11 of the DSU provides that
[A] panel should make an objective assessment of the matter before it, including an objective
assessment of the facts of the case and the applicability of and conformity with the relevant
covered agreements, and make such other findings as will assist the DSB in making the rec-
ommendations or in giving the rulings provided for in the covered agreements.
DSU, supra note 91, art. 11.
n473. Mexico - Beverages Panel Report, supra note 466, P 7.1
n474. Id. P P 7.1 & 7.7.
n475. Id. P 7.11.
n476. Mexico - Beverage Appellate Body Report, supra note 466, P 57.
Page 80
33 N.C.J. Int'l L. & Com. Reg. 359, *
n477. Article XXIV:6 refers to Article XXVIII which allows modifications in tariffs and
schedules in order to provide for compensatory adjustments for the increases rate of duty as a
result of the creation of RTAs. See GATT, supra note 2, art. XXIV:6.
n478. GATT, supra note 2, art. XXIV: 8(a).
n479. Id. at art. XXIV:5(a) and (b).
n480. Id. art. XXIV: 8(a).
n481. Article XXIV Understanding, supra note 49.
n482. GATT, supra note 2, art. V:1(a).
n483. See Thomas Cottier & Marina Foltea, Constitutional Functions of the WTO and Re-
gional Trade Agreements, in Regional Trade Agreements and the WTO Legal System 359
(Lorand Bartels & Federico Ortino eds., 2006), supra notes 1, 43, 51 (explaining that "except
for the United Nations Charter under Article 103, none of [the international agreements] pre-
vails over another unless this is provided for by explicit treaty language either in a dominating
or a submissive treaty").
n484. See Adam Smith, The Theory of Moral Sentiment (1979).
n485. Id. P VI.II.42.
n486. RTAs that entered into force after 1995 might refer to the principle of lex posterior to
evade the effect of WTO Agreements in terms of conflict, thus it is critical to seal this loop-
hole from the outset.
Page 81
33 N.C.J. Int'l L. & Com. Reg. 359, *
n487. See Mexico - Tax Measures on Soft Drinks and Other Beverages, supra note 466.
n488. See Vaughan Lowe, Overlapping Jurisdiction in International Tribunals, 20 Australian
Y.B. on Int'l L. 203 (1999) (arguing that litigating a case under one treaty does not prohibit
litigating the case under another treaty).
n489. Article 13 of the DSU gives the DSB the authority to ask the parties to supply any
relevant information necessary to settle the dispute. Article 11 therefore requires the WTO
Panels to objectively assess all information, facts and evidence in this regard.
n490. Ernst-Ulrich Petersmann, Constitutional Functions and Constitutional Problems of In-
ternational Economic Law 9 (1991).
n491. See id. at 17. Petersmann divided international economic orders into "spontaneous"
and "directed". The spontaneous orders grow out of custom without initial overall design,
while directed refers to the economic trade regimes that are created by international agree-
ments. See generally, Sungjoon Cho, Defragmenting World Trade, 27 NW. J. INT'L L. &
BUS. 39 (2006) (outlining how a weak multilateral system vis-a-vis RTAs is not desired).
n492. See id. at 62 (citing Hume, Smith and Kant who do not assume that individual interests
are divergent and can only be reconciled by the observance of rules).
n493. See id. at 104 (explaining that a power-oriented system asserts powers by bilateral ne-
gotiations, unilateral threat which aims at maximizing the negotiation capacity, and compar-
ing it with a rule-oriented system which has sets of generally accepted rules that offer long
term stability and predictability).
n494. Article XXIV Understanding, supra note 49.
n495. World Trade Organization, Comm. on Reg'l Trade, Coverage, Liberalization Process
and Transitional Provisions in Regional Trade Agreements, Background Survey by the Secre-
tariat, 18, WT/REG/W/46 (Apr. 5, 2002) (revealing that, for many of the RTAs entering into
force in the latter half of the 1990s, "only in rare cases do transition periods exceed ten
years").
Page 82
33 N.C.J. Int'l L. & Com. Reg. 359, *
n496. Pascal Lamy, Speech at Confederation of Indian Industries Partnership Summit 2007,
Multilateral or bilateral trade agreements: which way to go? (Jan. 17, 2007) (transcript avail-
able at http://www.wto.org/english/news e/sppl e/sppl53 e.htm).
n497. See id.
n498. See id.
n499. Id.
---- End of Request ----
Print Request: Current Document: 7
Time Of Request: Monday, May 12, 2008 15:16:49
