WTO Members-parties and Regional Trade Agreements

'The Preamble of the Understanding on the Interpretation of Article XXIV of the GATT 1994 provides that Members recognize that 'the purpose of such agreements [customs unions and free-trade areas] should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other Members with such territories. Thus, there should be a balance between the interests of Members-parties to regional trade agreements and other WTO Members.' How is this balance safeguarded by WTO provisions? Has it been reflected in WTO jurisprudence and, if so, how?

About 90% of the Members of the WTO are participants of FTA and RTA (customs union and free trade areas). In the year 2000, the four FTAs (the EU, the NAFTA, the MERCOSUR and the ASEAN) occupied 64.5.4% of the total export trade and 69.5% of the total import trade of the world. This fact presents a challenge to the WTO and the multilateral trading system. Proliferation of bilateral and regional agreements may cause erosion of the disciplines of the WTO and thereby the effectiveness of the multilateral trading system may be weakened. But given the fact that there are more than 130 of such agreements and such agreements include important entities such as the European Union, the NAFTA, and the MERCOSUR, the WTO needs somehow to co-exist with them. The core issue is how to recognize the existence of FTA arrangements and yet to exert some disciplines on them so that they would not undermine the WTO principles

Since 1947, GATT has stated explicitly that the "contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements." At the same time, the multilateral trade regime also imposes certain conditions on such RTAs. Those conditions can be found in three different WTO sources: (1) In the area of trade in goods, RTAs are subject to GATT Article XXIV, complemented by an Understanding on its interpretation that was negotiated during the Uruguay Round; (2) in the area of trade in services, the legal foundation for RTAs is found in Article V of the General Agreement on Trade in Services (GATS); and (3) RTAs concluded among developing countries benefit from particular rules contained in paragraph 2(c) of the Decision on Differential and more Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries, also called the Enabling Clause.

The definition of a customs territory found in Article XXIV.2 which stipulated that it must be a territory with separate tariffs or other regulations of commerce are maintained with respect to such territory and such separate tariffs or other regulations are maintained for a substantial part of the trade of such territory with other territories. Furthermore must meet the standard of internal trade and external trade which is set forth in sub-paragraph 8(a) (i) and subparagraph 8(a) (ii) In sum, as a result of a customs union internal tariffs and trade barriers are eliminated as between the members and the members adopt a common external trade regime, relating to both duties and other regulations of commerce. Turkey-Textiles stipulated that members of a customs union are allowed some flexibility when liberalising their internal trade. However, with respect to the external standard the constituent members' flexibility is more limited and 'comparable trade regulations having similar effects' do not meet the standard of 'substantially the same', as required by subparagraph 8(a) (ii). Moreover, a free trade area is a group of two or more customs territories aimed at trade liberalisation within the territories of its constituents. However, the members of a free trade area remain free to maintain their own external trade policies. Therefore, a free trade area does not lead to the same degree of trade integration as a customs union, which has a common external policy. Article XXIV.8 (b) defines a free trade area as a group of two or more customs territories with duties and other trade restrictions are eliminated on substantially all the trade between the constituent territories in products originating in such territories and members of a free trade area retain the right to pursue their own external trade policies

Furthermore, the key substantive provisions of the GATT 1994 are Article XXIV: 4, Article XXIV:5 (a) ,(b) and (c), Article XXIV:6, and Article XXIV:(a) (i), (ii) and (b). In this context, Article XXIV: 4 declares a general principle 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. Additionally, Article XXIV: 5 sets out the conditions under which FTA can be formed. Article XXIV: 5 (a) provides that a customs union can be formed if the duties or other regulations imposed at the institution of such union with regard to commerce with outside parties shall not on the whole be higher or more restrictive than those applicable prior to the formation of such union. Article XXIV: 5 (b) provides the same conditions with regard to a free trade agreement. Furthermore ,Article XXIV: 6 states that, if a Member increases tariffs above the concession rate as a result of forming a customs union, it negotiate with other Members outside the union under Article XXVIII of the GATT 1994. And Article XXIV: 8 defines customs unions and free trade areas. ArticleXXIV:8 (a)(i) states that a customs union is an entity in which duties and restrictions of commerce are eliminated with respect to substantially all the trade between the members of the union except those restrictions permitted under Articles XI, XII, XIII, XIV, XV and XX. Article XXIV: 8 (a)(ii) states that a customs union establishes common tariffs and other restrictions of commerce with respect to commerce with Members that are outside parties to the union. Article XXIV:8 (b) provides the same requirements with respect to a free trade area except for the fact that there is no requirement equivalent to (ii) which applies to a customs union.

As argued by John H. Jackson, the leading legal scholar in the field, the WTO must be regarded as the constitutional charter governing world trade. It is a constitution that "imposes different levels of constraint on the policy options available to public and private leaders." In this context, the rules of GATT Article XXIV, GATS Article V and the Enabling Clause could be interpreted as setting the multilateral constitutional limits within which RTAs can maneuver. Thomas Cottier and Marina Foltea formulate this theoretical starting point as follows: "WTO principles and rules . . . assume the role of overriding, constitutional disciplines which structure the shape and contents of preferential agreements all with a view to supporting trade creation, as building blocks to trade regulation and liberalization, while at the same time avoiding unnecessary trade distortions and diversions." While the WTO's constitutional structure "has potential value for creating greater predictability, redressing unfair power imbalances, and preventing escalating international tensions," Jackson admits that there remain considerable reasons to be discontented with the "trade constitution" as it exists today. One of the areas of discontent is precisely the relationship between the WTO and the RTAs. The WTO provisions on RTAs have, indeed, proved to be ill-equipped to deal efficiently with the realities of RTAs. WTO rules permit both RTAs and trade remedies, even though they would otherwise violate core obligations or 'disciplines' imposed on WTO Members in order to liberalize trade and thereby improve national and global welfare. Thus, trade remedies are 'trade protection that you can get away with under the anti-dumping agreement', the SCM Agreement, and the Safeguards Agreement, and RTAs re ect 'discriminatory trade policy that you can get away with under article XXIV of the GATT 1994.

Furthermore in Turkey-Textiles the Appellate Body set forth two conditions that must be fulfilled to justify under Article XXIV a measure that is inconsistent with certain GATT provisions. The measure may be justified: only if the measure is introduced upon the formation of the 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 allowed. Besides it is not clear whether other restrictions are permitted as between members of the customs union, such as anti-dumping duties (Article VI), safeguard actions (Article XIX), general exceptions (Article XX) or security exceptions (Article XXI). In this context, it should be noted that footnote 1 to the Agreement on Safeguards when a customs union applies a safeguard measure as a single unit, all the requirements for the determination of serious injury or threat thereof should be based on the conditions existing in the customs union as a whole and when a safeguard measure is applied on behalf of a member 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. However, as the Appellate Body has held (for example in Argentina-Footwear) footnote 1 relates to the application of safeguard measures by a customs union only, and not by an individual state. It does not prejudge whether a member of a customs union can exclude other members of that customs union from the application of a safeguard measure. It explicitly provides that nothing in the Agreement on Safeguards prejudges the interpretation of the relationship between Article XIX and Article XXIV.8 of GATT 1994. Moreover in Argentina-Footwear the Appellate Body enhanced the concept of 'parallelism'. However, the problem whether Article XXIV may serve as an exception has not been definitely resolved. In US-Pipe Line the Appellate Body refused to state whether Article 2.2 of the Agreement on Safeguards permits a member to exclude imports originating in member states of a free-trade area from the scope of a safeguard measure, nor did it rule on the question whether Article XXIV of the GATT 1994 permits exempting imports originating in a partner of a free-trade area from a measure in departure from Article 2.2 of the Agreement on Safeguards.

Hence it is connoted that the mere existence of RTAs that reduce trade remedies is unlikely to lead to a reduction of trade remedies at the multilateral level. In addition, the provisions of RTAs including those that reduce trade remedies both reflect and influence how individual consumers, producers, importers and exporters operate from day to day. This issue deserves further scholarly attention, especially from a legal and economic perspective and drawing on the wealth of raw material available in the context of RTAs. Perhaps one day, the WTO will see its way towards replacing anti-dumping measures with competition disciplines, countervailing measures with WTO dispute settlement, and safeguards with a reformed regime. Understanding how trade remedies come to be reduced in RTAs, and the impact of such reduction, may ultimately assist in limiting trade remedies among WTO Members.