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WTO ANALYTICAL INDEX: GATT 1994 General Agreement on Tariffs and Trade 1994 |
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> General Agreement On
Tariffs And Trade 1994 |
XXV. Article XXIV back to top Article XXIV: Territorial Application - Frontier Traffic - Customs Unions and Free-trade Areas 1. The provisions of this Agreement shall apply to the metropolitan customs territories of the contracting parties and to any other customs territories in respect of which this Agreement has been accepted under Article XXVI or is being applied under Article XXXIII or pursuant to the Protocol of Provisional Application. Each such customs territory shall, exclusively for the purposes of the territorial application of this Agreement, be treated as though it were a contracting party; Provided that the provisions of this paragraph shall not be construed to create any rights or obligations as between two or more customs territories in respect of which this Agreement has been accepted under Article XXVI or is being applied under Article XXXIII or pursuant to the Protocol of Provisional Application by a single contracting party.
2. For the purposes of this Agreement a customs territory shall be understood to mean any territory with respect to which separate tariffs or other regulations of commerce are maintained for a substantial part of the trade of such territory with other territories.
3. The provisions of this Agreement shall not be construed to prevent:
(a) Advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic;
(b) Advantages accorded to the trade with the Free Territory of Trieste by countries contiguous to that territory, provided that such advantages are not in conflict with the Treaties of Peace arising out of the Second World War.
4. 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. 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.
5. Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, 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 existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and
(c) any interim agreement referred to in subparagraphs (a) and (b) 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.
6. If, in fulfilling the requirements of subparagraph 5 (a), a contracting party proposes to increase any rate of duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply. In providing for compensatory adjustment, due account shall be taken of the compensation already afforded by the reduction brought about in the corresponding duty of the other constituents of the union.
7. (a) Any contracting party deciding to enter into a customs union or free-trade area, or an interim agreement leading to the formation of such a union or area, shall promptly notify the CONTRACTING PARTIES and shall make available to them such information regarding the proposed union or area as will enable them to make such reports and recommendations to contracting parties as they may deem appropriate.
(b) If, after having studied the plan and schedule included in an interim agreement referred to in paragraph 5 in consultation with the parties to that agreement and taking due account of the information made available in accordance with the provisions of subparagraph (a), the CONTRACTING PARTIES find that such agreement is not likely to result in the formation of a customs union or of a free-trade area within the period contemplated by the parties to the agreement or that such period is not a reasonable one, the CONTRACTING PARTIES shall make recommendations to the parties to the agreement. The parties shall not maintain or put into force, as the case may be, such agreement if they are not prepared to modify it in accordance with these recommendations.
(c) Any substantial change in the plan or schedule referred to in paragraph 5 (c) shall be communicated to the CONTRACTING PARTIES, which may request the contracting parties concerned to consult with them if the change seems likely to jeopardize or delay unduly the formation of the customs union or of the free-trade area.
8. For the purposes of this Agreement:
(a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that
(i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and 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, and,
(ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union;
(b) A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.
9. The preferences referred to in paragraph 2 of Article I shall not be affected by the formation of a customs union or of a free-trade area but may be eliminated or adjusted by means of negotiations with contracting parties affected.* This procedure of negotiations with affected contracting parties shall, in particular, apply to the elimination of preferences required to conform with the provisions of paragraph 8 (a)(i) and paragraph 8 (b).
10. The CONTRACTING PARTIES may by a two-thirds majority approve proposals which do not fully comply with the requirements of paragraphs 5 to 9 inclusive, provided that such proposals lead to the formation of a customs union or a free-trade area in the sense of this Article.
11. Taking into account the exceptional circumstances arising out of the establishment of India and Pakistan as independent States and recognizing the fact that they have long constituted an economic unit, the contracting parties agree that the provisions of this Agreement shall not prevent the two countries from entering into special arrangements with respect to the trade between them, pending the establishment of their mutual trade relations on a definitive basis.*
12. Each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories. Ad Article XXIV: Paragraph 9 It is understood that the provisions of Article I would require that, when a product which has been imported into the territory of a member of a customs union or free-trade area at a preferential rate of duty is re-exported to the territory of another member of such union or area, the latter member should collect a duty equal to the difference between the duty already paid and any higher duty that would be payable if the product were being imported directly into its territory. Paragraph 11 Measures adopted by India and Pakistan in order to carry out definitive trade arrangements between them, once they have been agreed upon, might depart from particular provisions of this Agreement, but these measures would in general be consistent with the objectives of the Agreement. Members,
Having regard to the provisions of Article XXIV of GATT 1994;
Recognizing that customs unions and free trade areas have greatly increased in number and importance since the establishment of GATT 1947 and today cover a significant proportion of world trade;
Recognizing the contribution to the expansion of world trade that may be made by closer integration between the economies of the parties to such agreements;
Recognizing also that such contribution is increased if the elimination between the constituent territories of duties and other restrictive regulations of commerce extends to all trade, and diminished if any major sector of trade is excluded;
Reaffirming that the purpose of such agreements should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other Members with such territories; and that in their formation or enlargement the parties to them should to the greatest possible extent avoid creating adverse effects on the trade of other Members;
Convinced also of the need to reinforce the effectiveness of the role of the Council for Trade in Goods in reviewing agreements notified under Article XXIV, by clarifying the criteria and procedures for the assessment of new or enlarged agreements, and improving the transparency of all Article XXIV agreements;
Recognizing the need for a common understanding of the obligations of Members under paragraph 12 of Article XXIV;
Hereby agree as follows:
1. Customs unions, free-trade areas, and interim agreements leading to the formation of a customs union or free-trade area, to be consistent with Article XXIV, must satisfy, inter alia, the provisions of paragraphs 5, 6, 7 and 8 of that Article. Article XXIV:5 2. The evaluation under paragraph 5(a) of Article XXIV of the general incidence of the duties and other regulations of commerce applicable before and after the formation of a customs union shall in respect of duties and charges be based upon an overall assessment of weighted average tariff rates and of customs duties collected. This assessment shall be based on import statistics for a previous representative period to be supplied by the customs union, on a tariff-line basis and in values and quantities, broken down by WTO country of origin. The Secretariat shall compute the weighted average tariff rates and customs duties collected in accordance with the methodology used in the assessment of tariff offers in the Uruguay Round of Multilateral Trade Negotiations. For this purpose, the duties and charges to be taken into consideration shall be the applied rates of duty. It is recognized that for the purpose of the overall assessment of the incidence of other regulations of commerce for which quantification and aggregation are difficult, the examination of individual measures, regulations, products covered and trade flows affected may be required.
3. The "reasonable length of time" referred to in paragraph 5(c) of Article XXIV should exceed 10 years only in exceptional cases. In cases where Members parties to an interim agreement believe that 10 years would be insufficient they shall provide a full explanation to the Council for Trade in Goods of the need for a longer period. Article XXIV:6 4. Paragraph 6 of Article XXIV establishes the procedure to be followed when a Member forming a customs union proposes to increase a bound rate of duty. In this regard Members reaffirm that the procedure set forth in Article XXVIII, as elaborated in the guidelines adopted on 10 November 1980 (BISD 27S/26-28) and in the Understanding on the Interpretation of Article XXVIII of GATT 1994, must be commenced 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.
5. These negotiations will be entered into in good faith with a view to achieving mutually satisfactory compensatory adjustment. In such negotiations, as required by paragraph 6 of Article XXIV, due account shall be taken of reductions of duties on the same tariff line made by other constituents of the customs union upon its formation. Should such reductions not be sufficient to provide the necessary compensatory adjustment, the customs union would offer compensation, which may take the form of reductions of duties on other tariff lines. Such an offer shall be taken into consideration by the Members having negotiating rights in the binding being modified or withdrawn. Should the compensatory adjustment remain unacceptable, negotiations should be continued. Where, despite such efforts, agreement in negotiations on compensatory adjustment under Article XXVIII as elaborated by the Understanding on the Interpretation of Article XXVIII of GATT 1994 cannot be reached within a reasonable period from the initiation of negotiations, the customs union shall, nevertheless, be free to modify or withdraw the concessions; affected Members shall then be free to withdraw substantially equivalent concessions in accordance with Article XXVIII.
6. GATT 1994 imposes no obligation on Members benefiting from a reduction of duties consequent upon the formation of a customs union, or an interim agreement leading to the formation of a customs union, to provide compensatory adjustment to its constituents. Review of Customs Unions and Free-Trade Areas 7. All notifications made under paragraph 7(a) of Article XXIV shall be examined by a working party in the light of the relevant provisions of GATT 1994 and of paragraph 1 of this Understanding. The working party shall submit a report to the Council for Trade in Goods on its findings in this regard. The Council for Trade in Goods may make such recommendations to Members as it deems appropriate.
8. In regard to interim agreements, the working party may in its report make appropriate recommendations on the proposed time-frame and on measures required to complete the formation of the customs union or free-trade area. It may if necessary provide for further review of the agreement.
9. Members parties to an interim agreement shall notify substantial changes in the plan and schedule included in that agreement to the Council for Trade in Goods and, if so requested, the Council shall examine the changes.
10. Should an interim agreement notified under paragraph 7(a) of Article XXIV not include a plan and schedule, contrary to paragraph 5(c) of Article XXIV, the working party shall in its report recommend such a plan and schedule. The parties shall not maintain or put into force, as the case may be, such agreement if they are not prepared to modify it in accordance with these recommendations. Provision shall be made for subsequent review of the implementation of the recommendations.
11. Customs unions and constituents of free-trade areas shall report periodically to the Council for Trade in Goods, as envisaged by the CONTRACTING PARTIES to GATT 1947 in their instruction to the GATT 1947 Council concerning reports on regional agreements (BISD 18S/38), on the operation of the relevant agreement. Any significant changes and/or developments in the agreements should be reported as they occur. Dispute Settlement 12. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked with respect to any matters arising from the application of those provisions of Article XXIV relating to customs unions, free-trade areas or interim agreements leading to the formation of a customs union or free-trade area. Article XXIV:12 13. Each Member is fully responsible under GATT 1994 for the observance of all provisions of GATT 1994, and shall take such reasonable measures as may be available to it to ensure such observance by regional and local governments and authorities within its territory.
14. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked in respect of measures affecting its observance taken by regional or local governments or authorities within the territory of a Member. When the Dispute Settlement Body has ruled that a provision of GATT 1994 has not been observed, the responsible Member shall take such reasonable measures as may be available to it to ensure its observance. The provisions relating to compensation and suspension of concessions or other obligations apply in cases where it has not been possible to secure such observance.
15. Each Member undertakes to accord sympathetic consideration to and afford adequate opportunity for consultation regarding any representations made by another Member concerning measures affecting the operation of GATT 1994 taken within the territory of the former. (a) Committee on Regional Trade Agreements 611. Pursuant to Article IV:7 of the WTO Agreement, on 6 February 1996, the General Council decided to establish the Committee on Regional Trade Agreements.(845) With respect to the establishment of the Committee, and the rules of procedure for meetings of the Committee, see Chapter on WTO Agreement, paragraphs 225-237.(846) Also, with respect to the activities of the Committee concerning Article XXIV, see paragraph 629 below. 612. In 1979, the GATT Council adopted the Decision on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (the "Enabling Clause") to waive Article I of the GATT for certain arrangements, with respect to, inter alia, "[r]egional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs". With respect to the Enabling Clause, see paragraph 33 above. (c) Reference to GATT practice 613. With respect to GATT practice on this subject, see GATT Analytical Index, pages 53-59. 614. In Turkey - Textiles, the Appellate Body reviewed the Panel's finding that Article XXIV did not justify the imposition by Turkey of quantitative restrictions on imports of certain textile and clothing products from India upon the formation of a customs union with the European Communities. Although the key provision in this dispute was paragraph 5 of Article XXIV, the Appellate Body held that "paragraph 4 of Article XXIV constitutes an important element of the context of the chapeau of paragraph 5"(847): "According to paragraph 4, the purpose of a customs union is 'to facilitate trade' between the constituent members and 'not to raise barriers to the trade' with third countries. This objective demands that a balance be struck by the constituent members of a customs union. A customs union should facilitate trade within the customs union, but it should not do so in a way that raises barriers to trade with third countries. We note that [the preamble of] the Understanding on Article XXIV explicitly reaffirms this purpose of a customs union, 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'. Paragraph 4 contains purposive, and not operative, language. It 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 elsewhere in Article XXIV. Thus, the purpose set forth in paragraph 4 informs the other relevant paragraphs of Article XXIV, including the chapeau of paragraph 5."(848) (a) Reference to GATT practice 615. With respect to GATT practice on this subject, see GATT Analytical Index, page 796. 616. The Panel on Turkey - Textiles had found that Turkey could not justify a violation of Article XI by invoking Article XXIV:5, because Article XXIV:5, in the view of the Panel, does not apply to specific measures adopted on the occasion of the formation of a new customs union. Rather, the Panel found that Article XXIV:5 focuses on the overall effect of a regional agreement. As a result, the Panel concluded that there is no legal basis in Article XXIV:5(a) for the justification of individual quantitative restrictions which are otherwise incompatible with WTO law. Although the Appellate Body ultimately upheld that Turkey's measures could not be justified under Article XXIV, it modified the Panel's reasoning on Article XXIV:5. The Appellate Body began by emphasizing that the chapeau of Article XXIV:5 states that the provisions of GATT 1994 "shall not prevent" the formation of a customs union and that this meant "that the provisions of the GATT 1994 shall not make impossible the formation of a customs union": "[I]n examining the text of the chapeau to establish its ordinary meaning, we note that the chapeau states that the provisions of the GATT 1994 'shall not prevent' the formation of a customs union. We read this to mean that the provisions of the GATT 1994 shall not make impossible the formation of a customs union. Thus, the chapeau makes it clear that Article XXIV may, under certain conditions, justify the adoption of a measure which is inconsistent with certain other GATT provisions, and may be invoked as a possible 'defence' to a finding of inconsistency.(849)
Second, in examining the text of the chapeau, we observe also that it states that the provisions of the GATT 1994 shall not prevent 'the formation of a customs union'. This wording indicates that Article XXIV 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 allowed."(850) 617. The Appellate Body then indicated the two conditions under which a measure, otherwise incompatible with WTO law, could be justified by virtue of Article XXIV: "[I]n a case involving the formation of a customs union, this 'defence' is available only when two conditions are fulfilled. First, the party claiming the benefit of this defence must demonstrate that the measure at issue is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV. And, second, that party must demonstrate that the formation of that customs union would be prevented if it were not allowed to introduce the measure at issue. Again, both these conditions must be met to have the benefit of the defence under Article XXIV.
We would expect a panel, when examining such a measure, to require a party to establish that both of these conditions have been fulfilled. It may not always be possible to determine whether the second of the two conditions has been fulfilled without initially determining whether the first condition has been fulfilled. In other words, it may not always be possible to determine whether not applying a measure would prevent the formation of a customs union without first determining whether there is a customs union."(851) 618. The Appellate Body reiterated its findings from Turkey - Textiles, referenced in paragraphs 616-617 above, in its Report on Argentina - Footwear (EC), when it examined the Panel's finding that Argentina had violated Article 2 of the Agreement on Safeguards by including imports from all sources in its investigation of "increased imports" of footwear products into its territory but excluding other MERCOSUR member States from the application of the safeguard measures.(852) (ii) Reference to GATT practice 619. With respect to GATT practice on this subject, see GATT Analytical Index, page 798. 620. In Turkey - Textiles, the Appellate Body held that "Article XXIV can ... only be invoked as a defence ... to the extent that the measure [at issue] is introduced upon the formation of a customs union which meets the requirement in sub-paragraph 5(a)": "[I]n examining the text of the chapeau of Article XXIV:5, we note that the chapeau states that the provisions of the GATT 1994 shall not prevent the formation of a customs union 'Provided that'. The phrase 'provided that' is an essential element of the text of the chapeau. In this respect, for purposes of a 'customs union', the relevant proviso is set out immediately following the chapeau, in Article XXIV:5(a). ...
Given this proviso, Article XXIV can, in our view, only be invoked as a defence to a finding that a measure is inconsistent with certain GATT provisions to the extent that the measure is introduced upon the formation of a customs union which meets the requirement in sub-paragraph 5(a) of Article XXIV relating to the 'duties and other regulations of commerce' applied by the constituent members of the customs union to trade with third countries."(853) (ii) "General incidence" of duties 621. With respect to the requirements for a WTO-compatible customs union, the Appellate Body in Turkey - Textiles noted that the term "general incidence" of duties referred to the applied rates of duties: "With respect to 'duties', Article XXIV:5(a) requires that the duties applied by the constituent members of the customs union after the formation of the customs union 'shall not on the whole be higher ... than the general incidence' of the duties that were applied by each of the constituent members before the formation of the customs union. Paragraph 2 of the Understanding on Article XXIV requires that the evaluation under Article XXIV:5(a) of the general incidence of the duties applied before and after the formation of a customs union 'shall ... be based upon an overall assessment of weighted average tariff rates and of customs duties collected.'(854) Before the agreement on this Understanding, there were different views among the GATT Contracting Parties as to 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."(855) (iii) "other regulations of commerce" 622. With respect to the term "other regulations of commerce", the Appellate Body held in Turkey - Textiles: "With respect to 'other regulations of commerce', Article XXIV:5(a) requires that those applied by the constituent members after the formation of the customs union 'shall not on the whole be ... more restrictive than the general incidence' of the regulations of commerce that were applied by each of the constituent members before the formation of the customs union. Paragraph 2 of the Understanding on Article XXIV explicitly recognizes that the quantification and aggregation of regulations of commerce other than duties may be difficult, and, therefore, states that 'for the purpose of the overall assessment of the incidence of other regulations of commerce for which quantification and aggregation are difficult, the examination of individual measures, regulations, products covered and trade flows affected may be required.(856)'(857)" 623. The Appellate Body in Turkey - Textiles finally agreed with the Panel that the test for assessing whether a specific customs union is compatible with Article XXIV is an economic one: "We agree with the Panel that the terms of Article XXIV:5(a), as elaborated and clarified by paragraph 2 of the Understanding on Article XXIV, provide:
'... that the effects of the resulting trade measures and policies of the new regional agreement shall not be more trade restrictive, overall, than were the constituent countries' previous trade policies.'
and we also agree that this is:
'an 'economic' test for assessing whether a specific customs union is compatible with Article XXIV.'"(858) 624. In Canada - Autos, Canada invoked an Article XXIV exception with respect to a certain import duty exemption, which was found inconsistent with GATT Article I. The Panel, in a finding not reviewed by the Appellate Body, rejected this defence, noting that the import duty exemption was not granted to all products imported from the United States and Mexico and that it was also granted to products from countries other than the United States and Mexico: "We recall that in our analysis of the impact of the conditions under which the import duty exemption is accorded, we have found that these conditions entail a distinction between countries depending upon whether there are capital relationships of producers in those countries with eligible importers in Canada. Thus, the measure not only grants duty-free treatment in respect of products imported from the United States and Mexico by manufacturer-beneficiaries; it also grants duty-free treatment in respect of products imported from third countries not parties to a customs union or free-trade area with Canada. The notion that the import duty exemption involves the granting of duty-free treatment of imports from the United States and Mexico does not capture this aspect of the measure. In our view, Article XXIV clearly cannot justify a measure which grants WTO-inconsistent duty-free treatment to products originating in third countries not parties to a customs union or free trade agreement.
We further note that the import duty exemption does not provide for duty-free importation of all like products originating in the United States or Mexico and that whether such products benefit from the exemption depends upon whether they are imported by certain motor vehicle manufacturers in Canada who are eligible for the exemption. While in view of the particular foreign affiliation of these manufacturers, the exemption will mainly benefit products of the United States and Mexico, products of certain producers in these countries who have no relationship with such manufacturers are unlikely to benefit from the exemption. Thus, in practice the import duty exemption does not apply to some products that would be entitled to duty-free treatment if such treatment were dependant solely on the fact that the products originated in the United States or Mexico. We thus do not believe that the import duty exemption is properly characterized as a measure which provides for duty-free treatment of imports of products of parties to a free-trade area."(859) (c) Relationship with other paragraphs 625. In Turkey - Textiles, in interpreting the chapeau of paragraph 5, the Appellate Body considered that "paragraph 4 of Article XXIV constitutes an important element of the context of the chapeau of paragraph 5."(860) See paragraph 614 above. (d) Reference to GATT practice 626. With respect to GATT practice on this subject-matter, see GATT Analytical Index, Article XXIV, pages 798-810. (a) "Any contracting party ... shall promptly notify the Contracting Parties" (i) Reporting requirements in accordance with paragraph 11 of the Understanding 627. In November 1998, the Council for Trade in Goods, the Council for Trade in Services and the Committee on Trade and Development acted upon the recommendations adopted by the Committee on Regional Trade Agreements with respect to the required reporting on the operation of regional trade agreements.(861) Schedules for the submission of biennial reports were presented to the Committee on Regional Trade Agreements in December 1998 and February 2001.(862) 628. As of 31 December 2002, 259 regional trade agreements (RTAs) have been notified to the GATT/WTO.(863) Of these, 216 RTAs were notified under GATT Article XXIV, of which 133 are still in force today; 19 RTAs were notified under the Enabling Clause(864); (see paragraph 612 above), and 24 under GATS Article V.(865) (ii) Examination of agreements 629. On 6 February 1996, the General Council established the Committee on Regional Trade Agreements.(866) Under its terms of reference, the Committee on Regional Trade Agreements is mandated to examine RTAs referred to it by the Council for Trade in Goods.(867) With respect to the establishment and terms of reference of the Committee, see the Chapter on the WTO Agreement, paragraphs 230-233. 630. On 31 December 2002, the Committee had under examination a total of 129 RTAs. The examination of 105 of these RTAs had been referred to the Committee by the Council for Trade in Goods, 23 by the Council for Trade in Services and one by the Committee on Trade and Development. The Committee has not yet started the factual examination for 22 of those RTAs (see Annex III below); 26 RTAs are currently undergoing factual examination (see Annex II); for the remaining 79 RTAs enumerated in Annex I below, the factual examination is already complete.(868) 631. In Turkey - Textiles, the Appellate Body addressed the internal trade aspect of a customs union, as set forth in Article XXIV:8(a)(i): "Sub-paragraph 8(a)(i) of Article XXIV establishes the standard for the internal trade between constituent members in order to satisfy the definition of a 'customs union'. It requires the constituent members of a customs union to eliminate 'duties and other restrictive regulations of commerce' with respect to 'substantially all the trade' between them. Neither the GATT Contracting Parties nor the WTO Members have ever reached an agreement on the interpretation of the term 'substantially' in this provision. It is clear, though, that 'substantially all the trade' is not the same as all the trade, and also that 'substantially all the trade' is something considerably more than merely some of the trade. We note also that the terms of sub-paragraph 8(a)(i) provide that members of a customs union may maintain, where necessary, in their internal trade, certain restrictive regulations of commerce that are otherwise permitted under Articles XI through XV and under Article XX of the GATT 1994. Thus, we agree with the Panel 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 in accordance with this sub-paragraph. Yet we caution that the degree of 'flexibility' that sub-paragraph 8(a)(i) allows is limited by the requirement that 'duties and other restrictive regulations of commerce' be 'eliminated with respect to substantially all' internal trade."(869) 632. In Turkey - Textiles, the Appellate Body set out a two-prong test for assessing whether Article XXIV may justify a measure inconsistent with other WTO provisions: "First, the party claiming the benefit of this defence must demonstrate that the measure at issue is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV. And, second, that party must demonstrate that the formation of a customs union would be prevented if it were not allowed to introduce the measure at issue".(870) With respect to the second condition, Turkey argued that "had it not introduced the quantitative restrictions on textile and clothing products from India that are at issue, the European Communities would have 'exclud[ed] these products from free trade within the Turkey/EC customs union'"(871) The Appellate Body found that Turkey was not required to introduce the quantitative restrictions at issue: "As the Panel observed, there are other alternatives available to Turkey and the European Communities to prevent any possible diversion of trade, while at the same time meeting the requirements of sub-paragraph 8(a)(i). For example, Turkey could adopt rules of origin for textile and clothing products that would allow the European Communities to distinguish between those textile and clothing products originating in Turkey, which would enjoy free access to the European Communities under the terms of the customs union, and those textile and clothing products originating in third countries, including India. ... A system of certificates of origin would have been a reasonable alternative until the quantitative restrictions applied by the European Communities are required to be terminated under the provisions of the ATC. Yet no use was made of this possibility to avoid trade diversion. Turkey preferred instead to introduce the quantitative restrictions at issue.
For this reason, we conclude that Turkey was not, in fact, required to apply the quantitative restrictions at issue in this appeal in order to form a customs union with the European Communities."(872) (b) Reference to GATT practice 633. With respect to GATT practice on this subject-matter, see GATT Analytical Index, pages 820 and 824. 634. In Turkey - Textiles, the Appellate Body addressed the requirement contained in Article XXIV:8(a)(ii) that constituent members of a customs union apply "substantially the same" duties and other regulations of commerce to their external trade with third countries. The Appellate Body agreed with the Panel that the term "substantially the same" has both "qualitative and quantitative components": "Sub-paragraph 8(a)(ii) establishes the standard for the trade of constituent members with third countries in order to satisfy the definition of a 'customs union'. It requires the constituent members of a customs union to apply 'substantially the same' duties and other regulations of commerce to external trade with third countries. The constituent members of a customs union are thus required to apply a common external trade regime, relating to both duties and other regulations of commerce. However, sub-paragraph 8(a)(ii) does not require each constituent member of a customs union to apply the same duties and other regulations of commerce as other constituent members with respect to trade with third countries; instead, it requires that substantially the same duties and other regulations of commerce shall be applied. We agree with the Panel that:
'[t]he 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] union' would appear to encompass both quantitative and qualitative elements, the quantitative aspect more emphasized in relation to duties.'(873)"(874) 635. The Appellate Body in Turkey - Textiles further agreed with the Panel that the phrase "substantially the same" in Article XXIV:8(a)(ii) offered a "certain degree of flexibility". However, the Appellate Body objected to the standard of "comparable trade regulations having similar effects" developed by the Panel and held that this standard did not rise to the required standard of "sameness": "We also believe that the Panel was correct in its statement that the terms of sub-paragraph 8(a)(ii), and, in particular, the phrase 'substantially the same' offer a certain degree of 'flexibility' to the constituent members of a customs union in 'the creation of a common commercial policy.'(875) Here too we would caution that this 'flexibility' is limited. It must not be forgotten that the word 'substantially' qualifies the words 'the same'. Therefore, in our view, something closely approximating 'sameness' is required by Article XXIV:8(a)(ii).(876) We do not agree with the Panel that:
... as a general rule, a situation where constituent members have 'comparable' trade regulations having similar effects with respect to the trade with third countries, would generally meet the qualitative dimension of the requirements of sub-paragraph 8(a)(ii).(877)
Sub-paragraph 8(a)(ii) requires the constituent members of a customs union to adopt 'substantially the same' trade regulations. In our view, 'comparable trade regulations having similar effects' do not meet this standard. A higher degree of 'sameness' is required by the terms of sub-paragraph 8(a)(ii)."(878) (ii) Reference to GATT practice 636. With respect to GATT practice on this subject-matter, see GATT Analytical Index, page 827. 637. In Turkey - Textiles, the Panel found that the quantitative restrictions imposed by Turkey on imports from India of a number of textile and clothing products were inconsistent with Articles XI and XIII of GATT 1994 (and consequently with Article 2.4 of the Agreement on Textiles and Clothing). The Panel rejected Turkey's defence that Article XXIV:5(a) of GATT 1994 authorizes Members forming a customs union to deviate from the prohibitions contained in Articles XI and XIII of the GATT 1994 (and Article 2.4 of the Agreement on Textiles and Clothing).(879) The Appellate Body upheld the Panel's conclusion that "Article XXIV does not allow Turkey to adopt, upon the formation of a customs union with the European Communities, quantitative restrictions ... which were found inconsistent with Articles XI and XIII of GATT 1994 and Article 2.4 of the ATC".(880) However, the Appellate Body stressed that it was only finding that Turkey's quantitative restrictions at issue were not justified by Article XXIV but that it was not making a "finding on the issue of whether quantitative restrictions will ever be justified by Article XXIV".(881) See paragraphs 631-632 above. 638. See paragraph 637 above.
639. In Argentina - Footwear (EC), the Panel found that Argentina violated Article 2 of the Agreement on Safeguards by including imports from all sources in its investigation of "increased imports" of footwear products into its territory but excluding other MERCOSUR member States from the application of the safeguard measures. The Appellate Body reversed the Panel's finding, holding that footnote 1 to Article 2.1 of the Agreement on Safeguards applied to the facts of the case before it. The Appellate Body opined that "the footnote only applies when a customs union applies a safeguard measure 'as a single unit or on behalf of a member State"; in the case before it, the Appellate Body found, MERCOSUR had not applied the safeguards measures at issue (the measures had been imposed by the Argentine authorities).(882) 640. In US - Wheat Gluten, the Panel found that the United States had acted inconsistently with Articles 2.1 and 4.2 of the Agreement on Safeguards by including imports from all sources in its investigation, but excluding imports from Canada from the application of the safeguard measure. On appeal, the United States argued, inter alia, that the Panel erred in failing to assess the legal relevance of footnote 1 to the Agreement on Safeguards, and Article XXIV of the GATT 1994 to this issue. The Appellate Body held: "In this case, the Panel determined that this dispute does not raise the issue of whether, as a general principle, a member of a free-trade area can exclude imports from other members of that free-trade area from the application of a safeguard measure. The Panel also found that it could rule on the claim of the European Communities without having recourse to Article XXIV or footnote 1 to the Agreement on Safeguards. We see no error in this approach, and make no findings on these arguments."(883) 641. The Appellate Body in US - Line Pipe avoided ruling on 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". Nevertheless, the Appellate Body asserted that the latter question becomes relevant in two circumstances: "The question of whether Article XXIV of the GATT 1994 serves as an exception to Article 2.2 of the Agreement on 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. The other is when, in such an investigation, the imports that are exempted from the safeguard measure are considered in the determination of serious injury, and the competent authorities have also established explicitly, through a reasoned and adequate explanation, that imports from sources outside the free-trade area, alone, satisfied the conditions for the application of a safeguard measure, as set out in Article 2.1 and elaborated in Article 4.2."(884) 2. Agreement on Textiles and Clothing 642. In Turkey - Textiles, the Panel found that the quantitative restrictions imposed by Turkey on imports from India of a number of textile and clothing products were inconsistent with Articles XI and XIII of GATT 1994 and consequently with Article 2.4 of the Agreement on Textiles and Clothing. The Panel rejected Turkey's defence that Article XXIV:5(a) of GATT 1994 authorizes Members forming a customs union to deviate from the prohibitions contained in Article 2.4 of the Agreement on Textiles and Clothing (and Articles XI and XIII of GATT 1994).(885) The Appellate Body upheld the Panel's conclusion that "Article XXIV does not allow Turkey to adopt, upon the formation of a customs union with the European Communities, quantitative restrictions ... which were found inconsistent with Articles XI and XIII of GATT 1994 and Article 2.4 of the ATC".(886) However, the Appellate Body stressed that it was only finding that Turkey's quantitative restrictions at issue were not justified by Article XXIV but that it was not making a "finding on the issue of whether quantitative restrictions will ever be justified by Article XXIV".(887) In this regard, the Appellate Body recalled that Article 2.4 of the Agreement on Textiles and Clothing refers to the "relevant GATT 1994 provisions" as an exception to the prohibition of new restrictions to trade and that, therefore, "Article XXIV of GATT 1994 is incorporated in the ATC and may be invoked as a defence to a claim of inconsistency of Article 2.4 of the ATC, provided that the conditions set forth in Article XXIV for the availability of this defence are met."(888) 1. List of RTAs for which factual examinations have been completed
1. List of RTAs under factual examination
1. List of RTAs for which factual examination has not yet commenced
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