EXCEPTION IN ACCORDANCE WITH ARTICLE XXIV OF GATT “REGIONALISM” IN THE MULTILATERAL TRADING SYSTEM

The institution thereby established was notified to the WTO on 1 October 2009 as free trade area under GATT 1994 Article XXIV regarding the sectors on goods... The justification granted

HO CHI MINH CITY UNIVERSITY OF LAW

MANAGING BOARD

OF SPECIAL TRAINING PROGRAMS

BACHELOR’S THESIS REGULAR TRAINING PROGRAM COURSE 35 (2010 – 2014)

EXCEPTION IN ACCORDANCE WITH

ARTICLE XXIV OF GATT:

“REGIONALISM”

IN THE MULTILATERAL TRADING SYSTEM

HO CHI MINH CITY, 2014

AFFIRMATION

I hereby affirm that this thesis is my own work under the instruction of my supervisor, Dr Trần Thị Thùy Dương The research results have not been published anywhere else

Ho Chi Minh City, July 2014

Lê Ngọc Quỳnh Anh

LIST OF ABBREVIATIONS

ASEAN-Japan RTA Agreement on Comprehensive Economic Partnership among

Japan and the Member States of the Association of the Southeast Nations dated 03 April 2008

Enabling Clause Decision of 28 November 1979 on Differential and More

Favorable Treatment Reciprocity and Fuller Participation of Developing Countries

Japan-Vietnam RTA Agreement between Japan and the Socialist Republic of

Vietnam for an Economic Partnership dated 25 December

2008

US - Steel US – Certain Safeguard Measures Against the Import of

Certain Steel Products, WT/DS252

TABLES OF CONTENT LIST OF ABBREVIATIONS

INTRODUCTION 1

Chapter 1 THE LEGAL BACKGROUND FOR REGIONALISM IN TERMS AND IN DISPUTE SETTLEMENT PRACTICE – CONFORMITY OF VIETNAM’S REGIONAL COMMITMENTS 6

1.1 Substantive Requirements 6

1.1.1 Article XXIV of the GATT 1994 6

1.1.1.1 Scope of the Exception 6

1.1.1.2 Requirements of the Exception 13

1.1.2 The Enabling Clause 28

1.1.3 Article V of the GATS 30

1.2 Procedural Requirements 31

1.2.1 General Provisions 31

1.2.2 The Transparency Mechanism 34

CHAPTER 2 THE INTERFACE BETWEEN REGIONALISM AND MULTILATERALISM IN INTERNATIONAL TRADE 39

2.1 Different Approaches on the Interrelation between RTAs and WTO law 39

2.1.1 Interrelation between Different International Treaties 40

2.1.2 Interrelation between Different Sources of International Trade Law 45

2.2 The Fragmentation of International Trade Law 48

2.3 Recommendations for Vietnam in the Context of Regionalism in the Multilateral Trading System 54

2.3.1 Economic Aspect 55

2.3.2 Political Aspect 59

CONCLUSION 62 BIBLIOGRAPHY

INTRODUCTION

1 Background

The World Trade Organization (―WTO‖) is the only international organization that deals with the rules of trade between nations At its heart are agreements which established the multilateral trading system Although WTO Agreements are complicated, there are simple and fundamental principles that run throughout all of these documents Non-discrimination is a principle which characterizes the multilateral trading system One of the two contents is that a country should not discriminate between its trading partners With the view to enhance deeper economic integration among its members, justifiable deviations from the MFN obligation are granted to regional trade agreements (―RTAs‖) upon the fulfillments of certain requirements

In the WTO, RTAs are defined as trade agreements between two or more partners They include free trade agreements and customs unions Hence, RTAs create discriminatory treatment to a number of WTO members which are parties thereto by allocating them with more favorable trade preferences The nature of RTAs is therefore somewhat contrary to the non-discrimination of WTO However, considering the benefits that RTAs may bring to international trade relations provided that they are well mandated in a manner that reduces the negative effects of such conflicts, justification for RTAs concluded by WTO members was established Up to date, the legal framework for regional integration under WTO law basically composes of (i) GATT 1994 Article XXIV, (ii) GATS Article V, (iii) the Enabling Clause and, (iv) the Transparency Mechanism The framework, which is primarily made up of requirements to be satisfied by RTAs parties, has given rise to many debates on its lack

of clarity and failure to discipline the exception

In such a context, RTAs have continuously grown in number Although WTO members’ practice to form RTAs is not a new resurgence, the trend has just become so intensive recently As of 30 April 2014, 249 RTAs have been notified to the WTO, among which 176 entered or will enter into force no sooner than 1 January 2004 Almost all WTO members are parties to at least one RTA The proliferation of RTAs is currently characterized by the far broader coverage that goes beyond those negotiated

at the multilateral level, the overlapping membership and the tension over regional partners in terms of geography Vietnam has participated in 3 RTAs as individual with Japan, in ASEAN Free Trade Area and in the Global System of Trade Preferences among Developing Countries (GSTP) Under ASEAN membership, Vietnam is party to 5 more RTAs with China, India, Japan, Korea and Australia – New Zealand The coverage, type and mandatory under which RTAs are notified vary accordingly An additional number of 7 RTAs are being negotiated with the Trans-Pacific Partnership at the spotlight and one more is under research

cross-The present paper provides a systematical understanding on the legal framework for RTAs under WTO law with detailed and synthesized discussions on its elements The author also hopes to analyze the legal aspects of regionalism in the multilateral trading system and subsequently, to propose useful ideas as relevant recommendations for Vietnam

2 Literature Review

Much literature has been devoted to discuss the legal defects of GATT 1994 Article XXIV and their implications on practice of WTO members, of which the followings are the most typical:

(i) Lockhart, Nicolas JS and Andrew D Mitchell, Regional Trade Agreements

Under GATT 1994: An Exception and Its Limits in Andrew D Mitchell

(ed.), Challenges and Prospects for the WTO, London, Cameron May

2005;

(ii) Gupta, Sayatan, ―Changing Faces of International Trade: Multilateralism

to Regionalism‖, Journal of International Commercial Law and

Technology, Vol 3:4, 2008

Accordingly, proposals have been suggested with a view to tighten the disciplines for RTAs concluded by WTO members An example is:

(iii) Picker, Colin B., ―Regional Trade Agreement v the WTO: A Proposal for

Reform of Article XXIV to Counter This Institutional Threat‖, U Pa J

Int’l Econ L., Vol 2:2, 2006

Scholars have also evaluated RTAs as building blocks, stumbling blocks or stepping stones towards multilateralism One demonstrative working result is:

(iv) Leaf-Arcas, Rafael, ―Proliferation of Regional Trade Agreements:

Complementing or Supplementing Multilarealism?‖, Chicago Journal of

International Law, Vol.11:2, 2011

Nevertheless, not many studies have focused on other legal aspects of the issue Especially in Vietnam, discussions on regionalism often appear as part of a more general work rather than as a separate research

3 Purpose of the Research

The research has two purposes The first purpose is to fully analyze the legal framework for regionalism under WTO law with the main focus on GATT Article

XXIV It aims at providing detailed discussion on the substantive and procedural requirements for RTAs concluded by WTO members with a demonstration of Vietnam’s commitments under a specific RTA, namely the one with Japan The second purpose is to draw legal implications of the interface between regionalism and the multilateral trading system In doing so, the paper tries to explain the nature of conflicts between the two as well as describe the legal fragmentation incurred from the current wave of RTAs Based on such findings, the author hopes to propose useful ideas for Vietnam’s practice in negotiating and concluding RTAs

4 Research Delimitation

Regional trade agreements (RTAs) in the research shall be understood as agreements concluded between countries not necessarily belonging to the same geographical region which grant to their party preferential trade treatment of a discriminatory nature Regionalism shall have the meaning of intensified actions by WTO members to liberalize or facilitate trade through RTAs

The WTO legal mandate for RTAs composes of several provisions Due to limitation on capacity, time and material, the research will focus mainly on GATT Article 1994 Article XXIV as a justification for RTAs concerning the trade in goods For the same reason, the Japan-Vietnam RTA is chosen to be a demonstration for conformity assessment of Vietnam’s regional commitments as it is the only agreement notified under Article XXIV in which Vietnam participates as individual rather than under ASEAN membership

5 Research Methodology

In order to fulfill the purpose set out for the research, the writer uses a

combination of two methods for legal research The first one is legalistic research

method This method is used to achieve an analytical understanding of the provisions

of international treaties and other legal documents encompassed in the research process The contents of legal provision are interpreted and evaluated in a skeptical manner in order to provide a background on which further remarks and conclusions are

based on The second is empirical method This method is used to obtain knowledge

and data working on materials such as books, journals or research papers and on practical figures Information is collected, analyzed and synthesized to serve the research’s targets

6 Structure of the Research

The research is organized into three main parts The beginning provides a brief introduction on the research The first chapter will discuss WTO legal framework for regionalism in the multilateral trading system It will do so by breaking down the relevant provisions into elements which are arranged into smaller parts of the chapter

to fully discuss the substantive and procedural requirements that WTO law imposes on RTAs concluded by its members Subsequently, the second chapter will address the legal implications of regionalism, namely the interface between RTAs and the WTO as source of international trade law and the current fragmented trade regulation Such implications will finally followed by relevant recommendations for Vietnam

Chapter 1 THE LEGAL BACKGROUND FOR REGIONALISM IN TERMS AND IN DISPUTE SETTLEMENT PRACTICE –

CONFORMITY OF VIETNAM’S REGIONAL COMMITMENTS

The mandate for regionalism under WTO law will be analyzed as substantive and procedural requirements respectively As for substantive requirements, (i) GATT 1994 Article XXIV (―Article XXIV‖) together with the Understanding on the Interpretation

of Article XXIV of the GATT 1994 (―the Understanding‖), (ii) GATS Article V, (iii) the Enabling Clause will be discussed with the main focus on Article XXIV Concerning procedures, the Transparency Mechanism will be presented As for the conformity of Vietnam’s regional commitments, the Japan-Vietnam RTA1

is considered as mentioned earlier in Introduction

1.1 Substantive Requirements

1.1.1 Article XXIV of the GATT 1994

The article provides an exception for RTAs concerning trade in goods Two main contents will be discussed respectively, which are scope of the exception and requirements to be fulfilled

1.1.1.1 Scope of the Exception

The scope of exception will be broken down into RTAs, measures and WTO agreements covered for detailed analysis

a RTAs covered

1 The Agreement between Japan and the Socialist Republic of Vietnam for an Economic Partnership

(Japan-Vietnam RTA) was signed on 25 December 2008 and entered into force since 1 October 2009 The agreement

covers both trade in goods and services The institution thereby established was notified to the WTO on 1

October 2009 as free trade area under GATT 1994 Article XXIV regarding the sectors on goods

Since GATT 1994 cover obligations with respect to trade in goods, the exception provided therein should be understood as an exception for RTAs on trade in goods or

for parts of RTAs that deal with trade in goods Article XXIV:5 reads ―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; …‖ The justification granted under the article covers

RTAs establishing customs unions or free trade areas and interim agreements Thus, both fully pledged and interim RTAs could benefit

Of 249 RTAs in force notified to the WTO as of 30 April 2014, no single agreement is listed as interim This was also a common fact of the earlier period since

1995 and could probably be the very reason for Bartels’ comparative idea of de facto interim agreements, i.e agreements with an implementation period versus de jure

interim agreements.2 The distinction should be concerned as interim agreements are subject to an additional condition of reasonable length of time.3 In the Understanding,

it is stated that this period should exceed 10 years only in exceptional cases.4Furthermore, they are also bear more burden regarding procedural requirements, which will be presented later in the corresponding part

Regarding the limit for transitional period, the US argued that: ―Neither GATT

Article XXIV not the 1994 Understanding on Article XXIV requires that the transition periods to be limited to ten years Article XXIV does require, however, that the agreement eliminate tariffs on substantially all the trade Focusing, therefore, on that requirement, the Parties worked to negotiate as comprehensive an agreement as

2 Bartels, Lorand, ―Interim Agreements under Article XXIV of the GATT‖, World Trade Review (2009), printed

in United Kingdom, Vol.8:2, p.339

3 GATT Article XXIV:5(c)

4

The Understanding, explanation for ―reasonable length of time‖ at paragraph 3

possible…‖5 However, as set out in Article XXIV:8(a)(i) and (b), a custom union or free trade area have to fulfill the condition that duties ORRC are eliminated on substantially all trade Therefore, the economic institution existing within the transitional period of an RTA might not qualify For example, even though beef makes

up a significant part of Australia’s exports to the US, the Australia – US free trade agreement only fully eliminates US barriers to Australian beef exports after eighteen years.6

In recent development of the Transparency Mechanism, the General Council has

ignored the original distinction by omitting the term ―interim agreement‖ Concerning data required for notification in goods aspect, it is mentioned that ―when the agreement

is to be implemented by stages, a full listing of each party's preferential duties to be applied over the transition period‖.7 Hence, the transitional phase of an agreement by

stages has overlapped the original ―interim agreements‖ and their required reasonable

length of time

The conventional distinction holds certain role It reflected ―an important

protection for the rights of third parties during the transitional period, as the neutrality, or equality of opportunity, should apply to preserve third-party interest‖,

remarked by the EC and supported by Argentina.8 However, apart from that observation, there exists no significant commentary on the practice of treating the implementation phase of an agreement as a real customs union or free trade area Very

5 Committee on Regional Trade Agreements, Free Trade Agreement between the United States and Chile - Questions and Replies, WT/REG160/6, 17 March 2006, page 2

6 Bartels, Lorand, supra note 2, page 346

7 The Transparency Mechanism, Annex, paragraph 2 (emphasis added)

8 Committee on Regional Trade Agreements, Note on the Meeting of 27 November and 4-5 December 1997, WT/REG/M/1, 13 January 1998, remarks by EC, para 36, 37

little critical literature on RTAs in multilateral trading system addressed this issue.9The reason may be that no single member state remains a ―pure‖ third party Regionalism has been so intensified that each WTO member is now member to at least one RTA This concurrent membership will obviously lessen the ambition to pursuit a

clear set on this problem In short, ―interim agreements‖ currently appears as a ―dead

term‖ and therefore, will probably threaten WTO’s legitimacy

The Japan-Vietnam RTA entered into force on 1 October 2009 The end of implementation for Japan in 202410 exceeds 10 years and there is furthermore substantial back-loading of liberalization in year 2019 and 2024 Thus, at the time of becoming effective, the RTA was not yet to fully qualify as a free trade area as internal trade restrictions had not been eliminated on substantially all the trade between the RTA parties Nevertheless, it was still notified to the WTO as a free trade area rather than an interim agreement

b Measures covered

Although Article XXIV:5(a) literally states that the formation of customs unions and free trade agreements or the adoption of interim agreement could be justified, specific measures are paid with more attention as they directly affect third-party WTO members In dispute settlement practice, both the complaining and the responding party usually refer to Article XXIV in their argumentation on specified measures For

instance, in the case Turkey - Textiles,11 it was the quantitative import restriction on

import of nineteen textile and clothing products from India that was challenged In US

9

Bartels, Lorand, supra note 6, ―Much of the writng on regional trade agreements and their regulation in the

WTO has focused on the conditions applicable to fully pledged agreements.‖ on page 339 and, ―There has been little commentary within or outside the WTO on the systemic implications of this practice.‖ on page 344

10 Committee on Regional Trade Agreements, Factual Presentation on Economic Partnership Agreement

between Japan and Vietnam: Report by the Secretariat (Revision), WT/REG.275/1/Rev.1, 4 July 2011,

paragraphs 22 and 24

11

India was claimant The Appellate Body issued its report (WT/DS34/AB/R) on 22 October 1999

– Steel, the safeguard measures against the import of ten items of steel products to the

US from third parties were brought to the Dispute Settlement Body.12

However, there is no official statement whether this exception is applied solely to certain measures More obviously, the wording of the legal text reveals that it is the formation of customs unions/free trade areas or the adoption of interim agreements that matters Additionally, the possibility of bringing a general issue rather than a specific measure to question is secured by Article XXIII A WTO member can call upon the

dispute settlement mechanism if there is ―a failure of another contracting party to

carry out its obligations under this Agreement‖ or ―the existence of any other situation‖. 13

The requirements that parties to an RTA must satisfy create upon such parties the obligations of compliance Setting up a free trade area which fails to meet the requirements could probably be deemed a failure to carry out the obligations under the GATT 1994 In other words, a claim under article XXIII:1(a) can be filed when a Member is alleged to have acted inconsistently with a provision of the GATT 1994.14

Moreover, a claim could still be built with reference to ―the existence of any other

situation‖ When article XXIII:1(a) and (b) are proved to be inapplicable, a WTO

member of which benefit is being negatively affected could still make use of article

12 Complaint was made by the EU, Japan, Korea, China, Norway, Switzerland and New Zealand The Appellate Body was asked to issue eight separate reports with the same contents respectively corresponding to eight

complainant The reports dated 10 November 2003 See more in Ha, Thi Thanh Binh, Summary of Appellate

Rulings in US –Certain Safeguard Measures Against the Import of Certain Steel Products (WT/DS252/AB/R) in

Ho Chi Minh University of Law, WTO Case Law – A compilation of Significant WTO Cases and Rulings, Nhà

xuất bản Lao động – Xã hội, 2010

13 GATT 1994, article XXIII:1, sub-paragraphs a and b, emphasis added

14 Analytical Index, B Interpretation and Application of Article XXIII, 1 General, paragraph 959, In EC — Asbestos, Canada claimed that the French ban on the sale and imports of products containing asbestos nullified or impaired benefits accruing to it under Article XXIII:1(b) In response, the European Communities raised

preliminary objections, arguing on two grounds that the measure fell outside the scope of application of Article XXIII:1(b) The Panel rejected both objections In addressing the European Communities appeal against the Panel’s rejection of these preliminary objections, the Appellate Body explained the relationship between Articles XXIII:1(a) and XXIII:1(b)

XXIII:1(c) to take action.15 Hence, the discussion on measures covered herein should

be considered as part of the coverage of Article XXIV rather than the sole matter of the exception

subject-Through the establishment of the timing and necessity test of the Appellate Body

in Turkey - Textiles, it could be understood that a measure will be judicially accepted

provided that two conditions must be fulfilled.16 Although the Appellate Body did not explicitly state that the test applies solely to inconsistencies arising from the imposition

of external trade restrictions, the dispute at issue concerned a measure of external restriction, i.e Turkey’s quantitative restrictions on imports from India.17 However, it would be very impractical if parties to RTAs had to prove that the elimination of internal trade restrictions is necessary as such trade liberalization is the very reason for which WTO law has granted the exception being discussed

As for the first condition, the party applying the measure must demonstrate that such measure is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraph 8(a) and 5(a) of Article XXIV.18 It was intentionally

noted that such measure can only be justified if it is introduced ―upon the formation‖ of

a customs union.19 Therefore, measures added to the terms of an RTA anytime rather than that of the formation of a customs union would not fall within the scope of exception granted by Article XXIV In some situations, this limitation may create

Lockhart, Nicolas JS and Andrew D Mitchell, Regional Trade Agreements Under GATT 1994: An Exception

and Its Limits in Andrew D Mitchell (ed.), Challenges and Prospects for the WTO, London, Cameron May 2005,

page 224

18 Ibid., paragraph 58

19

Ibid., paragraph 46

difficulties for RTA parties as they will be incapable of predicting every specific measure, which can be later applied.20

The second condition leads to the necessity test The party applying the measure must demonstrate that the formation of the customs union and presumably, free trade area, would be prevented if it were not allowed to introduce the measure at issue.21 The

very purpose of exception granted under Article XXIV:4 is ―trade facilitation‖ amongst members and ―not trade restriction‖ between members and non-members

Hence, a balance between the two objectives should be reached If deeper integration can be achieved without the need to create restrictions regarding external trade, a

measure with discriminatory nature should not be allowed In Turkey - Textiles, as

noted by the Panel, there were alternatives that may be imposed by Turley and the EU

in order to restrict any trade restriction and that were consistent to Article XXIV:8(a)(i)

in order to achieve the customs union An origin certification system may be a proper alternative.22 Thus, the necessity test would result a negative answer if there were alternatives that are less trade restrictive than the measure at issue

c Agreements covered

By its wording, Article XXIV seems to provides exception for only infringements

of obligations under GATT 1994, as it says “…the provision in this Agreement shall

not prevent,…‖ in the chapeau of paragraph 5 and ―For the purpose of this Agreement‖

at the beginning of paragraph 8.23 However, the GATT 1994 covers trade in goods in general As a result, the possibility of extending the scope of article XXIV to WTO

20 Lockhart and Mitchell, supra note 17, page 223

21

Appellate Body Report, supra note 16, paragraph 58

22 Ha, Thi Thanh Binh, Summary of Appellate Report in Turkey – Quantitative restrictions on textiles and

clothing (WT/DS34/AB/R) in Ho Chi Minh University of Law, WTO Case Law – A compilation of Significant WTO Cases and Rulings, Nhà xuất bản Lao động – Xã hội, 2010, page 86

23

Emphasis added

other specific goods agreements exists and gives rise to quite a few concerns, especially in the case of the Safeguards Agreement

In general, other agreements that govern trade of goods are understood to have the nature of GATT 1994 specific legislations in the multilateral system For example, the Agreement on Textiles and Clothing covers trade in textiles and clothing and such products are goods As for the Safeguards Agreement, the legal frame for safeguard measures is applied to goods Thus, it is reasonable to argue that the exception under Article XXIV should be expanded to other WTO goods agreement However, it should

be noted that the contents of Article XXIV almost remain unchanged since the GATT

1947 era whereas the number and scope of other agreements on trade in goods have been gradually added by negotiators

In the absence of an express clarification on such expansion, panels and the Appellate Body cannot automatically apply the exception to all goods-related obligations It is demanded that there is a ―close interrelation‖ between GATT 1994

provisions and the specific agreement at issue In Turkey - Textiles, a close interrelation

was confirmed since, according to the Appellate Body, Article XXIV:5 could provide

an exception for an inconsistency with Article 2.4 of the Agreement on Textiles and

Clothing because Article 2.4 itself permits restrictions introduced under ―relevant

GATT 1994 provisions‖.24

1.1.1.2 Requirements of the Exception

Article XXIV:5 sets out the conditions on the level of external trade restrictions while Article XXIV:8 provides for the definitions of customs unions and free trade areas regarding internal trade liberalization, and external trade policy in case of

24 Lockhart and Mitchell, supra note 17, page 226

customs unions Therefore, the requirements will be discussed separately as internal and external

a Internal Requirements

Article XXIV:8 defines customs unions and free trade areas Regarding

intra-trade, the requirement for customs unions is as follows:

―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…‖25

For free trade areas, the corresponding requirement is that:

―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.‖26

There is a distinction regarding the origin of trading products between the constituent states For customs unions, there are two options Elimination of internal restrictions is required either on (1) substantially all the trade between the constituent parties or on (2) substantially all the trade in products originating from such territories The latter is more trade liberalizing as it ensures freedom for trade of goods irrespective of their origins.27 As for free trade areas, it is only demanded that restrictions are removed on substantially all the trade of goods that have intra-regional origin Apart from the above-mentioned difference, the requirement is similar for both customs unions and free trade areas The requirement can be approached based on its

25 GATT 1994 Article XXIV:8(a)(i)

26 GATT 1994 Article XXIV:8(b)

27

Lockhart and Mitchell, supra note 17, page 228

composing elements, which are: (i) duties and other restrictive regulations of commerce as the objects to be eradicated and (ii) substantially all the trade

(i) Elimination of “duties and other restrictive regulations of commerce”

There is no clear and detailed interpretation for ―duties and other restrictive

regulations of commerce‖ ―Duties‖ could be understood as boundaries As for the term

of ―other restrictive regulations of commerce‖ (―ORRC‖), a broad interpretation will

lead to higher level of free trade within the RTA.28 Generally, any regulations applied

to imported goods at borders amount to ORRC as they impede the free movements of such goods Hence, ORRC could be, including but not limited to, import bans, quantitative restrictions and administrative rules regulating importation

The coverage of ORRC that must be eliminated holds a relatively important role

in assessing the compliance of RTAs If through interpretation and practice, the scope

of exemption for ORRC that must be eliminated is enlarged, lower trade liberalization will come up as a result Vice versa, encompassing a broader range of ORRC will leads

to a stricter discipline as parties to RTAs will have to guarantee a higher level of trade liberalization amongst them upon the formation of such economic institution Article XXIV:8(a)(i) and (b) provide for several exemptions that could be maintained on substantially all the trade of an RTA by a list of ORRC in the brackets, i.e those permitted under Articles XI, XII, XIII, XIV, XV and XX Arguments have been raised regarding the nature of the list, or in other words, whether the list is exhaustive or illustrative Discussions also arise concerning the question whether trade remedies, i.e safeguard under Article XIX, anti-dumping or countervailing measures under Article

28 Ibid., page 231 The authors argue that ―Elimination of a broader range of restrictive regulations will result in

a higher level of liberalization within the RTA, in accordance with the purpose of the exception in Article

XXIV:5‖ and this argument was made up regarding both duties and ORRC

VI of GATT 1994, should also be considered ORRC because such measures are not in the bracketed list as those that could be maintained inside RTAs.29

For instance, safeguard measures are permitted under GATT 1994 Article XIX, provided that certain conditions are met However, this type of measures does not literally appears in the exemption list of Article XXIV:8(a)(i) and (b) Therefore, it is uncertain whether safeguards can still be maintained within trade in an RTA The exclusion of safeguards from the list could mean that they are simply not ORRC and consequently, they are not subject to the elimination requirement However, it could also be that safeguards are ORRC and the fact that they are excluded from the list simply means that they have to be removed on substantially all the trade between the RTA constituent territories.30 If so, when a party to an RTA takes Article XIX safeguard actions, it is entitled to exempt imports from the regional partners.31 The non-inclusion has also been approached in different distinct, and mutually exclusive, viewpoints but on the ground that safeguards are ORRC.32

As certainty about the scope of exception under Article XXIV concerning safeguards is still lacking, in dispute settlement practice, the panels and Appellate Body have avoided directly solving the question of whether Article XXIV:8 provides a justification for the discriminatory application of safeguard measures Instead, these judicial bodies shifted the emphasis to the relationship between the injury determination and the final implementation of such measures through the requirement

of parallelism, i.e the import of products from the source subject to the safeguard

29 Regarding safeguard measures, for example, see Pauwelyn, Joost, ―The Puzzle of WTO Safeguards and

Regional Agreements‖, Journal of International Economic Law, Vol 7:1, 2004, page 109-142

30 Lockhart and Mitchell, supra note 17, page 231 The authors’ rationale applies for trade remedies in general, including safeguards measures permitted under Article XIX

31 Leal-Acras, Rafael, ―Proliferation of Regional Trade Agreements: Complementing or Supplanting

Multilateralism?‖, Chicago Journal of International Law, Vol 11:2, 2011, page 606

32

WTO Negotiating Group on Rules, Compendium of Issues Related to Regional Trade Agreements –

Background Note by the Secrectariat (Revision), TN/RL/W/8/Rev.1 (1 August 2002) paragraph 74, 75

measures itself did qualify for the imposition of a safeguard measure.33 In practice,

―only a few agreements explicitly allow for the exclusion of RTA partners from a

global safeguard action; in other agreements, this exemption is implicit‖.34 The opportunity to apply trade remedies such as safeguards is criticized to be trade restrictive and therefore, contributes to the low liberalization of trade, especially in the case of bilateral and regional trade agreements in Asia The use of safeguards in intra-Asian RTAs is considered pullbacks that halt liberalization by removing preferences granted under such agreements. 35

In Japan-Vietnam RTA, Article 1636 provides for the elimination of duties together with duties reduction in accordance with a specific schedule in Annex 1 to the agreement.37 This removal of internal restrictions concerns trade in originating goods

of each party With respect to ORRC, Article 19 deals with non-tariff measures:

―Each Party shall not introduce or maintain any non-tariff measures on the importation

of any good of the other Party or on the exportation or sale for export of any goods destined for the other Party which are inconsistent with its obligations under the WTO Agreement‖

The wording could create confusion in interpreting the article It is obviously that non-tariff measures, which have the nature of trade restrictions, would not be allowed should they are inconsistent Thus, the parties maintained the chance to apply non-tariff measures that are consistent with GATT 1994 and other relevant agreements This possibly leads to at least two different ways of understanding

33

Ha, Thi Thanh Binh, Summary of Appellate Rulings in US –Certain Safeguard Measures Against the Import of

Certain Steel Products (WT/DS252/AB/R) in Ho Chi Minh University of Law, WTO Case Law – A compilation of Significant WTO Cases and Rulings, Nhà xuất bản Lao động – Xã hội, 2010, page 279.

Commercial, Financial and Economic Law and Policy Series, Edward Elgar Pub, 2011, page 136

36 Japan-Vietnam RTA, Article 16 – Elimination or Reduction of Customs Duties

The first one is that any non-tariff measure permitted under GATT 1994 would remain applicable on the trade between the two countries since they are WTO consistent Under this approach, even measures other than those listed in the brackets

of Article XXIV:8, i.e measures permitted under Article XI to XV and XX will not be subject to elimination For WTO member states or individuals holding the opinion that the bracketed list is exhaustive, this should be considered a violation of the internal requirement on internal trade liberalization because ORRC other than those in the exemption list are still maintained

The second way of understanding is based on the ground that the requirements to

of Article XXIV create an obligation of compliance to RTAs’ parties Consequently, the wording of Article 19 of Japan-Vietnam RTA established an obligation for the

contracting parties to remove the non-tariff measures accordingly so that ―duties and

other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories‖ This approach is more trade liberalizing and

therefore, will render the RTA more consistent with Article XXIV:8(b)

Safeguards are still allowed on the trade between the two countries and are regulated as bilateral safeguard measures in Article 20 of the relevant agreement However, there is a distinction between safeguards applied under GATT 1994 Article XIX38 and those as bilateral measures Hence, the chance to apply this kind of trade remedy is remained with regard to import increase attribute not only to WTO obligations but also to those incurred under the present agreement Regarding the bilateral safeguard, Article 20 provides the party against whose originating goods the measure is taken with the rights to compensation or suspension of tariff concession

38 Japan-Vietnam RTA, Article 20, paragraph 1; The parties have mutually agreed that safeguard measures applied in compliance with GATT 1994 Article XIX, Safeguard Agreement shall not be subject to the relevant Dispute Settlement Mechanism of the free trade area

which is substantially equivalent to the applied measure.39 Such potential application of safeguard and corresponding retaliation could create trade distortion between the two parties

(ii) Substantially all the trade

The meaning of the words ―substantially all the trade‖ has yielded many debates;

but yet, no clear definition has been mutually reached Likewise, not much development has been made by panels or the Appellate Body through their dispute

settlement practice In Turkey - Textiles, the Appellate Body addressed little guidance

on the issue by noting that ―substantially all the trade‖ is not the same as all the trade

but also is something considerably more than merely some of the trade.40 Accordingly,

it could only be concluded that the relevant amount of trade falls somewhere between some and all trade among the RTA parties.41 There are two main approaches among WTO members on this issue

The first one is the qualitative approach, which would require the elimination of restrictions with respect to every major sector of the economies of the RTA parties.42However, questions will be raised regarding how to decide what constitutes a major economic sector In addition, it will also be problematic to determine a complied elimination of restrictions in each sector or how many sectors should be counted as major A suggestion has been made that qualitative approach be adopted and operated

in conjunction with a quantitative criterion.43

39

Japan-Vietnam RTA, Article 20, paragraph 7(c)

40 Supra note 16, paragraph 48 (original emphasis)

41 Lockhart and Mitchell, supra note 17, page 230

42 Ibid., page 228

43

Ibid., page 229

The second one is the quantitative approach, which is based on a statistical threshold.44 The ground on which such threshold should be established also causes much confusion For example, the EEC-member countries proposed a long time ago

that ―a free trade area be considered as having been achieved for substantially all the

trade when the volume of liberalized trade reaches 80% of total trade‖.45 Thus, a defined percentage of liberalized trade is demanded based on the total trade between the RTA constituent territories The US, in order to prove that NAFTA complied with Article XXIV:8(b) submitted that NAFTA eliminated duties on 97 percent of the parties’ tariff lines, representing more than 99 percent of the trade among them in terms

of volume.46 In this case, a threshold is introduced also on the total number of tariff lines However, both the total trade base and the total number of tariff lines base are proved to be problematic

Regarding the total trade base, first of all, the calculation of total trade between parties to an RTA appears to be very complicated Moreover, a fixed percentage of all trade could be measures either as a proportion of total trade flowing between the parties or as a proportion of each party’s individual trade with the other.47

In an RTA where, for example, a member is another RTA itself, the complexity would be

multiplied as numerous trade flows exist Apart from the issue of ―all the trade‖, the measurement of trade to be liberalized to fulfill the element of ―substantially‖ would also ―be hardly accurate because such measurement is generally based on ex ante

44 Ibid., page 228

45

Gupta, Sayantan, ―Changing Faces of International Trade: Multilateralism to Regionalism‖, Journal of

International Commercial Law and Technology, Vol 3:4, 2008, p.267; and The European Economic Community,

Reports Adopted on 29 November 1957, L/778

46 Lockhart and Mitchell, supra note 17, page 230

47

Ibid., page 229

forecasts of unrealized transactions, such as increased import resulting from the formation of an RTA‖.48

In the case where threshold is set up based on the number of tariff lines criterion,

it might give a ―misleading impression‖ particularly when actual trade flows between

RTA partners are concentrated in a few tariff lines.49 A large number of tariff lines would not necessarily mean a corresponding large amount of actual trade between such partners Those few tariff lines would cover an enormous amount of mutual trade in reality Thus, the high level of economic integration between the RTA parties will not

be ensured

Since trade restrictions are required to be removed on ―substantially all the trade‖ between the RTA constituent territories, the existence of insubstantial mutual trade where restrictive regulations, tariff or non-tariff could be maintained It seems like RTA negotiators have paid a lot of attention to the tariff side Among various trade arrangements, non-binding tariff lines or tariff lines which are only subject to reduction are more frequently mentioned than the possibility to apply ORRC on such insubstantial trade

Japan-Vietnam RTA was notified to the WTO as free trade area and therefore will be subject to the internal requirement of Article XXIV:8(b) Under the agreement,

at the end of implementation of the agreement in 2025, 91.6% of Vietnam’s tariff lines will be duty free corresponding to 90.1% imports value from Japan.50 As for Japan’s commitments, by the end of implementation in 2024, 89.3% of tariff lines and 96.5%

48

Gupta, supra note 45, page 267

49 Lockhart and Mitchell, supra note 17, page 229

50 Committee on Regional Trade Agreements, Factual Presentation on Economic Partnership Agreement

between Japan and Vietnam: Report by the Secretariat (Revision), WT/REG.275/1/Rev.1, 4 July 2011, paragraph

24

of imports by value from Vietnam will be duty free.51 These percentages obviously cover large proportions of the base on which they were calculated However, it does

not necessarily mean the Japan-Vietnam RTA has liberalized ―substantially all the

trade‖ as required by Article XXIV:8(b)

It would be reasonable to conclude that the sector of agriculture was somehow put under the protection of Japan Japan has committed to removed duties concerning 89.3% tariff lines for imports from Vietnam However, broken down by the criterion of industrial and agriculture tariff lines, it is shown that only 61.7% of agricultural tariff lines are subject to elimination compared to the corresponding 95.9% regarding industrial tariff lines This was criticized to be a highly disproportionate liberalization between the two sectors and relatively unfair as Japan reached a lower percentage of agricultural tariff lines than Vietnam (61.7% versus the corresponding 92.9% of Vietnam). 52 Japan was questioned on this issue quite often in other RTAs to which it holds membership.53 However, as Japan was not a major market for Vietnam’s agricultural products, this sector might consequently form the insubstantial trade between the two countries As for the unequal percentages of agricultural tariff lines between Vietnam and Japan, officially there has been no relevant specific condition with respect to this issue under article XXIV Nevertheless, it’s worth considering the possibility that in the future and especially at the end of implementing period, agricultural imports from Vietnam might make up a larger proportion and become a

part of ―substantially all the trade‖ This is a problem particularly for free trade areas

with long implementing period

51

Ibid., paragraph 22

52 Committee on Regional Trade Agreements, Economic Partnership Agreement between Japan and Vietnam:

Questions and Replies, WT/REG.275/2, 10 June 2011 Both US and Australia raised questions on this issue

53 Crawford, Jo-Ann and C.L Lim, ―Cast light and the evil will go away: The Transparency Mechanism for

Regional Trade Agreements after three years‖, Journal of World Trade, Vol 43:2, 2011, page 391

An interesting point to be noticed is that although the ratio of liberalized import tariff lines of Japan is smaller than that of Vietnam, the proportion of imports liberalized by Japan is significantly larger in terms of value This is another example

for the ―misleading impression‖ of quantitative approach suggesting threshold on the

total of tariff lines Regarding trade volume, the figures revealed in the factual presentation are merely the proportions measured based on the each party’s individual trade with the other party For instance, the volume of liberalized imports from Vietnam and Japan were calculated separately rather than as a ratio on the aggregate trade volume of the two countries Also, it is noted by the US that, regarding Japan’s liberalization schedule, 53% of tariff lines in HS Section 1 (live animals and animal products) and 51% of tariff lines in HS Section IV (prepared food) still retain duty after full implementation in 2014.54 These internal trade restrictions would contribute to non-compliance with requirements of Article XXIV Under the qualitative approach, such duty retaining only matters should it occur in the major sectors of the RTA parties’ economies but then again, no definition or clarification has been made regarding what constitutes a major sector Eventually, it should also be noted that live animals account for 8.4% and prepared food, 3.5% in product composition of merchandise trade for Japan’s imports from Vietnam in the period of 2006-2008.55

In brief, it is demanded by Article XXIV that trade restrictions must be eliminated

on substantially all the trade between parties to RTAs However, due to the ambiguity

of the legal text, it is very difficult to determine the compliance of a given RTA

Concerning trade with WTO members that are RTAs non-members, there are two types of requirements for different purposes The first one is a common requirement

under Article XXIV:5 for RTAs regarding the negative effect on external trade The

other is the condition set forth under Article XXIV:8(a)(i), which an regional economic

institution must fulfill in order to be qualify as a customs union

(i) Requirement on the effect of RTAs on external trade

For the purpose of ―not to raise barriers to the trade of other contracting parties‖

of RTAs under Article XXIV:4, paragraph 5 of the article regulates 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;‖56

And:

―(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;‖57

The above sub-paragraphs deal with external restrictions that RTAs might impose

on third-party WTO members They were designed to put a limit on the level of restrictiveness concerning duties and ORC on the external trade of RTA parties There

are some substantive variations between the conditions for customs unions and free trades areas In other words, the precise character of this condition differs for customs unions and free trade areas58

Article XXIV and the Understanding provide no further explanation on ―other

regulations of commerce‖ (ORC) There is a broad understanding that these words

refer to all measures affecting the conduct of trade other than tariffs.59 Border measures applied to goods imported from third-party WTO members are ORC because such measures are imposed on or applied to external trade As for border measures that restrict exports from RTA parties to third-party WTO members, there remains controversy as border measures for exportation are usually understood to be applied by RTA parties on their own goods Therefore, it may be considered included in ―other regulations‖ under sub-paragraph 5(a) of Article XXIV as such regulations are imposed

in respect of ―trade with‖ WTO members not parties to RTAs but excluded under paragraph 5(b) because the corresponding term is ―trade of”

sub-Another idea is that RTA parties could impose two categories of measures that could probably constitute ORCs, which are: (1) border measures other than tariffs regulating the import of goods from and export of goods to third-party countries and, (2) internal or ―marketplace‖ measures.60 However, it is not very convincing to include marketplace measures as they are not directly imposed or applied on third parties to RTAs Certain marketplace measures introduced by RTA parties solely on goods originating within an RTA such as rules of origin or sanitary and phyto-sanitary measures, might also restrict external trade.61 For example, RTA partners apply lower

58 Lockhart and Mitchell, supra note 17, page 234

59

WTO Committee on Regional Trade Agreements, Synopsis of Systemic Issues Related to Regional Trade

Agreements: Note by the Secritariat, WT/REG/W/37 (2 March 2000), paragraph 31

60 Lockhart and Mitchell, supra note 17, page 235

61 WTO Committee on Regional Trade Agreements, Note on the Meeting of 6-7 and 10 July 1998,

WT/REG/M/18 (22 July 1998), paragraphs 40-46

sanitary standards on internal RTA trade while remaining the same standards on external trade (which means that there are no higher restrictions toward WTO contracting parties which are non-member to such RTA) However, this is indirect restrictive effect and there is no certainty that the legal text should be interpreted in

such a sense

Another complicated factor is the evaluation of ―before and after‖ restrictiveness For customs unions, the assessment concerns duties and ORC imposed as of ―after‖, against the general incidence of duties and other commerce applicable as of ―before‖ According to the Understanding, the general incidence of duties and charges shall be based upon an overall assessment of weighted average tariff rates and of customs duties collected Regarding ORC, it is noted that a similar assessment is not very possible due to the hardship of quantification and aggregation The Understanding, instead, provides for the examination of individual measures, regulations, products covered and trade flows affected.62

As for free trade areas, the assessment shall be realized on each external restriction maintained and applicable at the formation of a given free trade area against its corresponding one existing prior to such formation Since the legal test limits the evaluation to the corresponding restrictions before formation, questions would arise regarding the ones that are not corresponding At the formation, new restrictions would

be introduced and since there were no corresponding regulations previously, the

assessment would then be impractical

As for Japan-Vietnam RTA, Article XXIV:5(b) will apply In the text of the agreement, literally no provisions provide for a new regime of customs duties to be imposed on third-party imports Article 16 and Annex 1 concern solely the elimination

62

The Understanding, paragraph 2

and reduction of duties within the relevant free trade area As for Vietnam, there are also no implementing legal instruments that invoke a more restrictive plan in terms of

duties and charges toward trade of other WTO members

(ii) Requirement on external trade policy of customs unions

Article XXIV:8(a)(ii) imposes an obligation of compliance on parties to a

customs union as follows:

―…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;‖

―Duties and other regulations of commerce‖ here forms a coherent pair with

―duties and other regulations of commerce” of Article XXIV:5 (a) as both

sub-paragraphs deal with external trade restrictions of custom unions and there is literally

no difference between the two.63 However, it would be lacking to consider the scopes

of restrictions under the two sub-paragraphs identical Indeed, sub-paragraph 8(a)(ii) demands that members to customs union must harmonize their regulations on external

trade in order to achieve ―a common external trade regime‖ or ―a common commercial

policy‖.64 Hence, there would possibly be un-harmonized regulations accounting for

the insubstantially proportion as ―substantially the same‖ does not means ―the same‖ Back to sub-paragraph 5(a), briefly the ―general incidence‖ of regulations is subject to

the limit of restrictive level, which means that both harmonized and un-harmonized regulations applied to WTO third-party members shall be counted While Article

XXIV:8(a)(ii) governs harmonized regulations applied to all third-party countries,

Article XXIV:5(a) aims at all harmonized and un-harmonized regulations applied to

third-party WTO member countries

In order to create a common external trade regime, a WTO member that is party

to the relevant customs union may need to increase, for example, a certain duty beyond the bound rate committed in its Schedule of Concession in accordance with GATT

1994 Article II In the case where such circumstance arises, Article XXIV:6 provides for the launch of procedure set forth in Article XXVIII Thus, regarding the formation

of customs unions, RTAs partners are entitled to increase any rate of duty inconsistently with their commitments on the conditions that compensatory adjustment are given through negotiations Essentially, these negotiations are directed towards modification or withdrawal of concessions by affected WTO members.65 This may probably be the only reason for the distinction of requirements between customs unions and free trade areas under Article XXIV

In conclusion, it is required that RTAs must not create a higher level of restrictiveness towards external trade However, there is no expressed coverage for measures such as rules of origins or sanitary or phyto-sanitary measures, which may also create disguised barriers for trade of third-party WTO members For customs unions, common external trade policies are also demanded

1.1.2 The Enabling Clause

Another WTO rule that governs RTAs is paragraph 2(c) of the Enabling Clause The clause allows derogations from the MFN obligation in favor of developing countries provided that certain conditions are met Regarding the formation of RTAs,

the provision reads:

―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

65

GATT 1994, Article XXVIII:1 and Lockhart and Mitchell, supra note 17

mutual reduction or elimination of non-tariff measures, on products imported from one

another;‖

As can be seen, RTAs justified under the Enabling Clause shall be concluded amongst less-developed contracting parties This is an additional requirement on membership compared to GATT 1994 Article XXIV However, it does not imply that every RTA between less-developed WTO members shall be justified and notified solely under the Enabling Clause The achievement of the allowed discriminatory trade arrangements is the mutual reduction or elimination of tariffs and non-tariff measures Thus, the Enabling Clause requires a lower level of economic integration Under

GATT 1994 Article XXIV, trade restrictions shall be eliminated on ―substantially all

the trade‖

In addition, paragraph 3 of the clause also applies as substantive requirements

Under subs-paragraph 3(a), RTAs shall first ―be decided to facilitate and promote the

trade of developing countries and not to raise barriers to or create undue difficulties for the trade of any other contracting parties‖ The first component corresponds to

internal trade and should be interpreted in combination with paragraph 2(c) as discussed above, which means trade facilitation and promotion are to be obtained through the reduction or elimination of trade restriction The second component

addresses the level of external trade restrictiveness, which shall not amount to ―undue

difficulties‖ ―Undue difficulties‖ is not the same as ―difficulties‖ since the latter has a

larger coverage Consequently, using the former will suggest that any difficulties that

are not considered ―undue‖ shall be allowed However, the provision stays silent on a further demonstration for ―undue difficulties‖ Secondly, according to sub-paragraph 3(b), RTAs to be justified ―shall not constitute an impediment to the reduction or

elimination of tariffs and other restrictions to trade on an MFN basis‖ In other words,

such RTAs shall not in any way prevent the process of non-discriminatory trade

liberalization In short, the two requirements offer a greater level of flexibility than those in Article XXIV For example, regarding trade liberalization among the parties, they permit the exchange of preferences on a subset of products as well as partial reduction of other trade barriers.66

1.1.3 Article V of the GATS

GATS Article V provides the mandate for RTAs concerning trade in services As non-discrimination is also a basic principle for trade in services, GATS Article V was devoted to create a corresponding justification for relevant RTAs’ violations The ultimate purpose of such RTAs is set out as a basic principle under paragraph 4 of the

article whereby any agreement liberalizing trade in services ―shall be designed to

facilitate trade between the parties to the agreement‖ and ―shall not in respect of any Member outside the agreement raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement‖

Sub-paragraph 1(a) specifies that a regional economic integration agreement shall provide for substantial sectoral coverage This condition is understood in terms of number of sectors, volume of trade affected and modes of supply and that, such agreements should not provide for the a priori exclusion of any mode of supply

Regarding internal trade, sub-paragraph 1(b) adds that RTAs shall ―provide for the

absence or elimination of substantially all discrimination‖ between or among the

parties to such RTAs by means of elimination of existing discriminatory measures, and/or prohibition of new or more discriminatory measures The provision, similar to GATT Article XXIV, also creates a list of trade restrictions which can be maintained

66

Leaf-Arcas, supra note 31, page 607

within intra-regional trade The list is not bracketed and its word arrangement suggests

an exhaustive nature

Paragraph 2 and 3 provide some flexibility in evaluating the satisfaction of a given RTA on the requirements set forth in paragraph 1 More specifically, paragraph 2

states that ―consideration may be given to the relationship of the agreement to a wider

process of economic integration or trade liberalization among the countries concerned‖ Paragraph 3 provides a looser discipline for RTAs involving developing

countries and those involving only developing countries with respect to the absence or elimination of substantially all discrimination between the parties

It should be noticed that there is no corresponding justification for RTAs under the Agreement on Trade-Related Aspects of Intellectual Property Rights (―TRIPS‖) Therefore, any preferential treatment granted under RTAs should be available to other WTO members which are third parties to such RTAs on an MFN basis This is disadvantage to developing countries, which are usually forced to deeply commit in the relevant sector

1.2 Procedural Requirements

The obligation to notify certain information and developments of RTAs is provided for as procedural requirements The relevant provisions are GATT 1994 Article XXIV:7, GATS Article V:7, paragraph 4 of the Enabling Clause and the Transparency Mechanism

1.2.1 General Provisions

According to GATT 1994 Article XXIV:7(a) and paragraph 7 of the Understanding, upon its decision to enter into RTAs, contracting parties shall notify

other WTO members Such notifications shall compose of information on the relevant RTAs and shall be examined by a working party This working party then will make a report with its findings to submit to the Council for Trade in Goods The Council for Trade in Goods may make recommendations where it deemed appropriate This mechanism is applied to both full and interim agreements

Interim agreements are subject to more complicated procedures Sub-paragraph (b) of Article XXIV:7 demands that the other WTO contracting parties shall make recommendations based on the plan and schedule included in the agreement together with the information as mentioned in sub-paragraph (a) if they find that: (1) the interim agreement is not likely to result in a customs union or free trade area in the proposed period or, (2) the period is not reasonable In the case where an interim agreement notified does not include plan and schedule, the working party shall recommend such a plan and schedule in its report If the contracting parties to such agreement are not willing to modify it in compliance with the above-mentioned recommendations, they shall not maintain or put into force such agreement

Moreover, according to paragraph 8 of the Understanding, the working party may make recommendations to an interim agreement on the proposed timeframe and on measures required to complete the relevant formation of the customs union or free trade area in its report and may provide for further review if necessary Thus, both the Council and the working party are entitled to make recommendations for interim agreements In addition, interim agreements may also be subject to further review upon the assessment of the working party

Member parties to an interim agreement have to communicate substantially changes in the plan and schedule in that agreement to other WTO contracting parties and if the changes seem likely to jeopardize or delay unduly the formation of the