Safeguard measures in regional trade agreements legal issues and recommendations for vietnam

ABBREVIATION LIST AANZFTA Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area AKFTA Agreement Establishing the Vietnam-Korea Free Trade Area AKTIGA ASEAN-Korea Agreeme

HO CHI MINH CITY UNIVERSITY OF LAW

-*** - MANAGING BOARD OF THE ADVANCED COURSES

ĐOÀN THANH BÌNH

SAFEGUARD MEASURES IN REGIONAL TRADE AGREEMENTS – LEGAL ISUES AND RECOMMENDATIONS FOR VIETNAM

BACHELOR OF LAW THESIS Faculty: International Law Academic year: 2012 - 2016

HO CHI MINH CITY

2016

HO CHI MINH CITY UNIVERSITY OF LAW

-*** - MANAGING BOARD OF THE ADVANCED COURSES

ĐOÀN THANH BÌNH

SAFEGUARD MEASURES IN REGIONAL TRADE AGREEMENTS – LEGAL ISUES AND RECOMMENDATIONS FOR VIETNAM

BACHELOR OF LAW THESIS Faculty: International Law Academic year: 2012 - 2016

Supervisor: LLM Nguyễn Thị Lan Hương Student in charge: Đoàn Thanh Bình

Student code: 1253801012270 Class: CLC 37A

HO CHI MINH CITY

2016

ACKNOWLEDGEMENTS

I would like to express my gratitude to my supervisor, Ms Nguyen Thi Lan Huong for her dedicated support of my research Without her wise guidance, patience, and encouragement, it would not be possible for me to complete this thesis

I am also grateful to the faculty and staff of Ho Chi Minh University of Law for the wonderful academic environment they have been provided during the last four years of my undergraduate study

I would also like to thank my friends and classmates who always support me Last but not least, I would like to thank my beloved family for their unconditional love and sacrifices throughout the years

ABBREVIATION LIST

AANZFTA Agreement Establishing the ASEAN-Australia-New Zealand

Free Trade Area

AKFTA Agreement Establishing the Vietnam-Korea Free Trade Area AKTIGA ASEAN-Korea Agreement on Trade in Goods

CRTA Committee on Regional Trade Agreements

DSU Understanding on Rules and Procedures Governing the

Settlement of Disputes EVFTA European Union-Vietnam Free Trade Agreement

GATT General Agreement on Tariffs and Trade 1994

MERCOSUR Mercado Común del Sur

METI Ministry of Economy, Trade and Industry

NAFTA North American Free Trade Area

ORRCs Other restrictive regulations of commerce

SAT Substantially all the trade

TPP Trans-Pacific Partnership

USITC United States International Trade Commission

TABLE OF CONTENTS

INTRODUCTION 3

CHAPTER 1 LEGAL FRAMEWORK FOR SAFEGUARD MEASURES IN REGIONAL TRADE AGREEMENTS 8

1.1 WTO rules for safeguard measures and regional trade agreements 8

1.1.1 WTO rules for safeguard measures 8

1.1.2 WTO rules on regional trade agreements 12

1.2 Legal status of safeguard measures in regional trade agreements 17

1.2.1 WTO review of regional trade agreements 17

1.2.2 Permission versus elimination of safeguard measures in RTAs under GATT Article XXIV:8 20

Conclusions 27

CHAPTER 2 LEGAL ISSUES OF SAFEGUARD MEASURES IN REGIONAL TRADE AGREEMENTS 28

2.1 Safeguard measures excluding regional imports 28

2.1.1 Parallelism requirement 28

2.1.2 Non-attribution requirement 31

2.1.3 Proportionality requirement 33

2.1.4 Article XXIV as justification 35

2.2 Safeguard measures applying to regional imports 40

2.2.1 RTA tariff concessions as unforeseen developments 41

2.2.2 GATT obligations incurred and regional imports 43

2.3 Safeguard measures in Vietnam’s RTAs and recommendations 49

2.3.1 Safeguard provisions in Vietnam‟s RTAs 49

2.3.2 Recommendations 52

Conclusions 56

CONCLUSIONS 57 BIBLIOGRAPHY i

INTRODUCTION

1 Necessity of the study

In Vietnam, safeguard measures (SGs) have been widely considered as a useful means of protection for domestic firms by both the academia and the public There is evidence that Vietnamese firms have tended to be more active in utilising SGs to protect themselves from foreign competition There have also been many discussions in the country on how to improve domestic firms‟ capacity to take SG actions, particularly when Vietnam has committed to deep tariff concessions in several regional trade agreements (RTAs) (all of them belongs to the category of free trade areas) The conclusion of RTAs with deep and extensive tariff concessions has exposed Vietnamese businesses to economic shocks from import surges Thus, the need of firms for SGs to remedy or prevent injury from RTA imports is understandably growing; yet little is discussed in the Vietnamese legal literature with respect to SGs in the context of regional trade

SGs and RTAs are undoubtedly complicated topics On the one hand, SGs are an exception to the World Trade Organization‟s (WTO) market access principle and, unlike anti-dumping and countervailing measures, SGs are required to be non-discriminatory On the other hand, RTAs share the same trade liberalisation objective with the WTO, yet are a direct exception to the principle of Most-Favoured-Nation (MFN) When these two contrasting legal exceptions come into interaction, conflicts unsurprisingly arise There has been a controversy over the relationship between Article XIX of the General Agreement on Tariffs and Trade of

1994 (GATT) together with the Agreement on Safeguards (ASG) and Article XXIV

of the GATT The first two require SGs to be non-discriminatory in principle, while the third allows RTAs to discriminatorily eliminate trade barriers (presumably including SGs) between participants In practice, there are several RTAs prohibiting the application of SGs in their internal trade and/or requiring the exclusion of RTA parties from the scope of WTO SGs once these measures are applied Such RTAs

are incompatible with the non-discrimination principle of SGs under GATT Article XIX and the ASG, yet whether Article XXIV can be a defence for such violations is unclear Besides, as the WTO safeguard mechanism was designed to remedy injurious imports resulting from GATT obligations, there may be legal conflicts between multilateral and regional rules when these measures are applied to imports from RTAs

The complex legal reality entails the risk of WTO inconsistencies and disputes, and may also cause difficulties and confusions for the party applying SGs, especially developing countries lacking resources and experience such as Vietnam Such a background prompts the need to examine more closely the relevant multilateral and regional trade rules Therefore, this thesis provides an attempt to examine the issues identified in the literature as well as other potential legal uncertainties to give preliminary recommendations for the problems

- Pauwelyn, Joost (2004), “The Puzzle of WTO Safeguards and Regional

Trade Agreements”, Journal of International Economic Law, 7(1), pp 109-142

This paper is probably one the most insightful works on the topic Pauwelyn comprehensively examines the legal issues surrounding the application of SGs in the regional trade context He concludes that, among other things: (i) GATT Article XIX requires WTO Members to exlude imports from RTA parties from the scope of investigation; (ii) Once RTA imports are excluded, their injurious effect shall not be attributed to non-RTA imports; (iii) WTO SGs shall be applied to imports from all sources but only to the extent necessary to offset injury from non-RTA imports; (iv) The Appellate Body‟s “parallelism” requirement may lead to absurd legal consequences and complicates the problem more than resolves it; (v) GATT Article

XXIV:8 does not per se prohibited SGs on within an RTA; (vi) GATT Article

XXIV can provide justification for both GATT Article XIX and the ASG; (vii) The

Appellate Body‟s rulings on Turkey – Textiles does not provide justification under

GATT Article XXIV for the practice of excluding RTA imports from WTO SGs; and (viii) The Appellate Body‟s requirements for GATT Article XXIV justification

in Turkey – Textiles are not supported by the text and the spirit of this provision In

addition, Pauwelyn suggests his alternative interpretation of GATT Article XXIV which allows for the exclusion of RTA imports from SGs He also provides a thorough list of SG options available and their WTO-consistency when a WTO Member is also a party to an RTA The drawback of work is perhaps the author‟s

disregard for the narrow scope of the Appellate Body‟s ruling on Turkey – Textiles

- Estrella, Angela T Gobbi & Horlick, Gary N (2006), “Mandatory Abolition of Anti-dumping, Countervailing Duties and Safeguards in Customs Unions and Free-Trade Areas Constituted Between World Trade Organization Members: Revisiting a Long-Standing Discussion in Light of the Appellate Body's

Turkey – Textiles Ruling”, Journal of World Trade, 40(5), pp 909-944 In this

article, Estrella and Horlick provide a thorough review of the interpretation of GATT Article XXIV with respect to trade remedies and argue that trade remedies (including SGs) must be totally abolished in intra-RTA trade in light of the

Appellate Body‟s rulings on Turkey – Textiles

- Lee, Yong-Shik (2014), Safeguard Measures in World Trade - The Legal Analysis (3rd ed.), Edward Elgar In this monograph, Lee provides a comprehensive

legal analysis of SGs under GATT Article XIX, the ASG, and also the General Agreement on Trade in Services He also provides some analyses of national rules

on SGs and SGs in RTAs He identifies two potential conflicts between RTA SGs and WTO SGs: when a WTO Member applies an RTA SG to the extent exceeding the MFN bound tariff rate and when a WTO Member exclude RTA imports from its WTO SG

- Talanov, Vladimir (2011), WTO Compatibility of Regional and Bilateral Emergency Actions – Implications for the CIS Countries, Master of International

Law and Economics Thesis, World Trade Insitute Although the main thesis topic is bilateral safeguard measures, Talanov provides insights on the meaning of GATT Article XXIV:8 with regards to SGs in general, the main approaches to bilateral safeguard measures in RTAs, the use of bilateral safeguard measures in the CIS countries, and rules on special emergency actions He argues that GATT Article XXIV:8 does not prohibit SGs in RTAs, which is relevant to this thesis

3 Aims of the study

The aims of the study are to (i) clarify the basic legal framework of SGs in RTAs, (ii) identify and analyse important legal issues regarding SGs in RTAs, and (iii) provide preliminary recommendations for Vietnam‟s trade governance

4 Delimitation

There are some necessary limitations to the scope of this thesis: Firstly, only SGs for trade in goods are examined SGs for trade in services are an interesting topic but as they belong to a different field, they need not be examined in this thesis Secondly, due to limited time and resources, the thesis will not examine the Enabling Clause, which is one of the main legal bases for RTAs Thirdly, as the thesis mainly aims to provide recommendations for Vietnam, which has not been and will not likely to be a part of a customs union in the near future, rules which specificly relate to customs unions will not be studied Fourthly, special safeguard measures (SGs for textiles, agriculture and China) will not be covered Besides, bilateral safeguard measures, also an interesting topic, are only studied to a limited extent in this thesis

5 Methodology

As the aims of the thesis are associated with legal issues existing in the interplay between SGs and RTAs, the thesis mainly employs legal analytical methods to describe WTO law, including text of WTO agreements and WTO

“jurisprudence” which is reflected in Panel and Appellate Body Reports In addition, analytical methods are also used to form recommendations for Vietnam

6 Structure of the thesis

Besides the introductory parts and conclusions, the contents of the thesis will

be as follows: Chapter 1 describes the relevant theoretical background to SG in RTAs, including WTO rules on SGs and WTO rules on RTAs, and the current discipline of the WTO on SGs in regional trade It also provides an analysis of GATT Article XXIV:8 regarding the abolition of SGs in intra-RTA trade Chapter 2 reviews the two main issues of the topic: the practice of excluding RTA imports from SGs and the right to impose SGs on RTA imports Subsequently, Chapter 2 gives some recommendations regarding Vietnam‟s trade governance, with a view to several RTAs it has participated in

CHAPTER 1 LEGAL FRAMEWORK FOR SAFEGUARD MEASURES

IN REGIONAL TRADE AGREEMENTS

SGs and RTAs are both complicated topics in WTO law The interplay between these two institutions draws attention when many RTAs contain rules on the application of SGs Before conducting research on further issues on the topic, the thesis will firstly present (i) the rules for SGs and (ii) RTAs under WTO law in brief, and (iii) examine the legality of SGs in RTAs

1.1 WTO rules for safeguard measures and regional trade agreements

1.1.1 WTO rules for safeguard measures

Trade agreements normally do not comprise only commitment but also flexibility, i.e rules permitting parties to deviate from their obligations under specified circumstances.1 SGs are a form of flexibility: they are temporary trade restrictions to prevent increases in imports from causing injury to competing domestic industries.2 Unlike anti-dumping and countervailing measures, SGs do not necessarily target “unfair” trade practices, i.e dumping and trade-related subsidies, but rather mere increases in imports which are normal phenomena in international trade.3

Being pure trade restrictions, SG seems to be contrary to both free trade theory4 and one of the WTO‟s primary objectives as contributing to “the substantial reduction of tariffs and other barriers to trade.”5 Yet the main rationales for the WTO‟s permission of SGs vary, ranging from economic to political reasons:

Firstly, increases in imports and foreign competition may force domestic industries

to restructure or close down.6 Temporary protection along with an effective liberalisation plan may give domestic industries opportunities to regain their competitiveness and be able to compete with foreign firms again once the measures are terminated.7 Secondly, temporary protection may not only postpone the pace of

firms‟ contraction but also reduce “adjustment costs”, e.g the costs of temporary unemployment.8 Thirdly, the inclusion of SGs as one form of flexibility for trade

liberalisation commitments “encourages cautious countries to enter into a greater number of tariff bindings than would otherwise be the case.”9 With SGs in place, governments would be either better able to persuade their domestic political forces

to accept further liberalisation of trade10 or more enthusiastic to liberalise trade deeper

The WTO provides the legal framework for SGs in two main sources: Article XIX of the General Agreement on Tariffs and Trade of 1994 (GATT) and the Agreement on Safeguards (ASG).11 The latter was concluded at the GATT Uruguay Round to, among other things, “clarify and reinforce the disciplines of GATT 1994, and specifically those of its Article XIX” and “re-establish multilateral control over safeguards and eliminate measures that escape such control.”12

Article XIX:1(a), which was identical to the same article in the General Agreement on Tariffs and Trade 1947, provides WTO Members with the right to impose SGs:

“If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that

6 Lee, Yong-Shik (2014), Supra note 4, Edward Elgar, p.11

7

Lee (2014), Supra note 4, p 13

8 Mavroidis, Petros C et al (2008), The Law and Economics of Contingent Protection in the WTO,

Edward Elgar, pp 468-471

9 Dam, Kenneth (1970), The GATT: Law and International Economic Organization, University of Chicago Press, p 106, citation from Trebilcock, Michael J & Howse, Robert (2005), The Regulation of International Trade Law (3rd ed.), Routledge, p 340

10 Lee (2014), Supra note 4, p 21

11 For a comprehensive research on WTO regulations on SGs, see Lee (2014), Supra note 4

12

Preamble, the ASG

contracting party in such increased quantities and under such conditions as

to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.”13

Article 2.1 of the ASG clarifies the conditions for the application of SGs: such measures are to be imposed only when (i) there are increased imports into the territory of a WTO Member that (ii) cause or threaten to cause (iii) serious injury to

a competing domestic industry.14

The increased quantities of imports can be either absolute or relative to domestic production.15 “Serious injury” is understood as “a significant overall impairment in the position of a domestic industry”,16 whereas “threat of serious injury” is “serious injury that is clearly imminent.” A determination of the existence

of a threat of serious injury must be based on facts and not merely on allegation, conjecture or remote possibility.17

To determine whether increased imports have caused or are threatening to cause serious injury, the ASG requires competent authorities to “evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry, in particular, the rate and amount of the increase in imports of the product concerned in absolute and relative terms, the share of the domestic market taken by increased imports, changes in the level of sales, production, productivity, capacity utilization, profits and losses, and employment.”18 The ASG also requires “[w]hen factors other than increased imports are causing injury to the domestic industry at the same time, such injury

16 Article 4.1(a) of the ASG

17 Article 4.1(b) of the ASG

18

Article 4.2(a) of the ASG

shall not be attributed to increased imports” (the so-called non-attribution

requirement).19 These determinations must be subject to procedural requirements elaborated in Article 3 of the ASG

WTO case law has confirmed that both Article XIX and the ASG must be applied to SGs imposed after the entry into force of the WTO Agreement20 and the phrase “unforeseen developments” and “the effect of the obligations incurred […] under [GATT]” in the first clause of GATT Article XIX shall be

“prerequisites” or “circumstances” for SG application,21

making the imposition of SGs more difficult

As the law requires, SGs must, in principle, be applied to “a product being imported irrespective of its source” (i.e., non-discriminatorily according to the most-favored-nation (MFN) principle)22 except (i) when SGs are in form of allocated quotas among supplying countries23 and (ii) when imports from developing countries only amout to a specified “negligible” level that shall be excluded from the SGs.24

Article 5.1 of the ASG stipulates that SGs shall be applied “only to the extent necessary to remedy or prevent serious injury to domestic industries and to facilitate adjustment.”25 The maximum duration of any SG is four years26 unless it is extended through a new investigation determining that it is necessary to prevent or remedy serious injury and there is evidence that the affected industry is adjusting.27

19 Article 4.2(b) of the ASG

20 Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, para 84 See also Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, paras

76–77

21 Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, para 92 See also Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, para

85

22 Article 2.2 of the ASG

23

Article 5.2 of the ASG

24 Article 9 of the ASG

25 Article 5.1 of the ASG

26 Article 7.1 of the ASG

27

Article 7.2 of the ASG

The ASG also allows Members to apply provisional SGs “in critical circumstances where delay would cause damage which it would be difficult to repair”28

if the preliminary determination shows that there is “clear evidence that increased imports have caused or are threatening to cause serious injury.”29Provisional SGs shall not exceed 200 days.30

The total period of a SG application (including provisional, initial and extended periods) cannot exceed eight years.31 In addition, SGs in place for more than one year must be progressively liberalised at regular intervals during the period

in which the measure is applied Any measure applied for more than three years must be reviewed, and if appropriate, the Member applying the measure must withdraw it or increase the pace of its liberalisation.32

A WTO Member imposing SGs must compensate Members whose trade is affected In other words, it must maintain “a substantially equivalent level of concessions and other obligations with respect to affected exporting Members.”33The compensations shall be agreed on by the affected Members Without such an agreement on compensation within 30 days of consultation, the affected exporting Members may suspend substantially equivalent concessions and other obligations (i.e., retaliate) unless the Council for Trade in Goods disapproves.34 The right to retaliate (if there is no agreement on compensation) shall not be exercised for the first three years of the SG application if the measure has been taken as a result of an absolute increase in imports and conforms to the provisions of the ASG.35

1.1.2 WTO rules on regional trade agreements

One of the cornerstones of the WTO is the MFN principle, which requires a Member not to treat another Member in a manner less advantageous than any other

Article 7.3 of the ASG

32 Article 7.4 of the ASG

33 Article 8.1 of the ASG

34 Article 8.2 of the ASG

35

Article 8.3 of the ASG

Members.36 However, Article XXIV of the GATT allows a subgroup of WTO Members to establish RTAs, in which they can grant trade preferential treatment to each other without extending such preferences to other Members.37 Thus, RTAs are

a direct exception to the MFN principle although they share the same trade liberalisation objective with the WTO.38

GATT Article XXIV distinguishes between two kinds of RTAs The first type is free trade areas (FTAs) in which parties would remove trade barriers among themselves but maintain their individual national trade policies towards third parties.39 The other type is customs unions (CUs) A CU has the above characteristic of an FTA but it requires further that constituent territories adopt a common external trade policy, including a common external tariffs system.40

Article XXIV:4 of the GATT states the purpose of RTAs as “to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.”41

This objective is further explained in Understanding on the Interpretation of Article XXIV of the GATT 1994 (Understanding on Article XXIV),42 in which WTO Members recognise (i) “the contribution to the expansion of world trade” that may be made through the establishment of CUs and FTAs, (ii) that the expansion of world trade “is increased” if internal trade restrictions within an RTA are eliminated for “all trade” and “diminished if any major sector of trade is excluded”, and (iii) that the establishment of an RTA “should to the greatest extent possible avoid creating adverse effects on the trade of other Members.”43

39 Article XXIV:8(b) of the GATT

40 Article XXIV:8(a) of the GATT

41

Article XXIV:4 of the GATT

42 See Mitchell, Andrew D & Lockhart, Nicolas J.S., “Legal Requirements for PTAs under the

WTO” in Lester, Simon & Mercurio, Bryan (eds) (2009), Bilateral and Regional Trade Agreements - Commentary and Analysis, Vol 2, Cambridge University Press, p 84

43

Preamble, Understanding on the Interpretation of Article XXIV of the GATT 1994

Subsequent paragraphs of Article XXIV:4 provide the fundamental test of an RTA‟s legality in light of this purpose: Article XXIV:5 prohibits RTAs to raise barriers to third parties (the so-called external requirement) and Article XXIV:8 requires them to create a deeper integration among the parties (the so-called internal requirement) In specific, Article XXIV:5 states that all of the other provisions of the GATT shall not “prevent the formation of a CU or of an FTA, or an interim agreement necessary for the formation of a CU or an FTA”, between the territories

of WTO Members, provided that external “duties and other regulations of commerce” are not “on the whole […] higher or more restrictive” than the “general incidence” (for CUs) or than the “corresponding duties and other regulations of commerce existing” (for FTAs) prior to the formation.44

This provision minimises the discriminatory impact of RTAs on non-parties by requiring the participants of

RTAs to keep the status quo with regard to trade restrictions existed prior to the

formation of RTAs.45 Article XXIV:8, on the other hand, requires that duties and

“other restrictive regulations of commerce” (ORRCs), except, where necessary, those permitted under GATT Articles XI, XII, XIII, XIV, XV and XX, to be eliminated with respect to “substantially all the trade” (SAT) between RTA constituent territories.46 The function of Article XXIV:8 is obviously to make sure RTA “facilitate trade between the constituent territories”, yet there have been different views among Members on how this provision shall be applied

There are two current available mechanisms to review the consistency of an RTA with WTO rules:

Firstly, there is a review authority of the Committee on Regional Trade

Agreements (CRTA) The Understanding on Article XXIV requires that:

“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

44

Article XXIV:5 of the GATT

45 Matsushita, Mitsuo, & Lee, Y.S (2008), “Proliferation of Free Trade Agreements and Some

Systemic Issues - In Relation to the WTO Disciplines and Development Perspectives”, Law and Development Review, 1(1), p 33

46

Article XXIV:8 of the 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.”47

Since 1996, such notifications has been examined by the CRTA, which was created by the WTO General Council to replace individual working parties The main functions of the CRTA are (i) examining RTAs with respect to whether they are compatible with WTO requirements and (ii) examining how RTAs may affect the multilateral trading system, and what the relationship between regional and multilateral arrangements might be.48 The CRTA reports to the Council for Trade in Goods, which then makes a recommendation to the Members concerning the WTO-consistency Disagreement among Members on how to interpret the legality criteria for RTAs has rendered the reports of the CRTA incomplete.49 In fact, Members‟ consensus on the consistency of RTAs has been reached in only one case by a working party before the formation of the CRTA: the CU between the Czech Republic and the Slovak Republic after the dissolution of Czechoslovakia.50

Secondly, WTO Members may challenge the consistency of an RTA through

proceedings under the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) With regards to the DSU, the Understanding on Article XXIV GATT, at paragraph 12, states:

“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 a free trade area.”51

The Understanding on Article XXIV seems to grant a broad review jurisdiction to WTO dispute settlement bodies: on any matters arising from the application of Article XXIV However, this power has not been fully exercised In practice, Panels and the Appellate Body (AB) have frequently avoided ruling on the consistency of RTAs with GATT Article XXIV, probably due to a concern for

clashing with the CFTA‟s authority As was stated by the Panel in Turkey – Textiles,52 the examination of GATT-consistency is “a very complex undertaking” requiring consideration by the CRTA “from the economic, legal and political perspectives of different Members, of the numerous facets of a regional trade agreement.”53 The Panel simply presumed that the EC – Turkey CU satisfied GATT Article XXIV without further analysis.54 The AB refused to review the Panel‟s assumption since it was not appealed.55 In US – Line Pipe,56 the US submitted that

the North America Free Trade Agreement (NAFTA) eliminated duties on 97 per cent of the parties‟ tariff lines, representing more than 99 per cent of the trade volume among participants to prove that the NAFTA complied with Article XXIV:8(b).57 After reviewing the evidence, and without offering any views on the meaning of “substantially all the trade”, the Panel held that the US had established a

prima facie case that the NAFTA met the definition of an FTA under Article

51 Para 12, DSU

52 Turkey – Restrictions on Imports of Textile and Clothing Products (DS34)

53

Panel Report, Turkey – Restrictions on Imports of Textile and Clothing Products, WT/DS34/R,

adopted 19 November 1999, para 9.52

54 Ibid, paras 9.53-9.56

55 Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products,

WT/DS34/AB/R, adopted 19 November 1999, para 60

56 United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea (DS202)

57 Panel Report, United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/R, adopted 8 March 2002, para 7.142

XXIV:8(b).58 However, the AB took the view that it need not address this finding and declared the Panel‟s ruling to be of no legal effect.59

1.2 Legal status of safeguard measures in regional trade agreements

In RTAs, SGs may be included in two primary forms: “global” safeguard measures (GSGs),60 which are essentially WTO SGs, and “bilateral” or “regional” SGs (BSGs) which aim at remedying injury resulting from regional trade liberalisation BSGs, at first blush, seem to be a wholly internal issue at the discretion of the RTA parties However, BSGs are necessarily forms of trade barriers, thus needing to pass the trade liberalisation requirements of RTAs in WTO rules According to a study on 74 RTAs,61 39.2% of the RTAs provide rules for GSGs, 60.8% remain silent on the subject, while none of the RTAs disallows GSGs

At the same time, up to 87.8% of the RTAs contain rules regarding BSGs while only 6.8% disallowed BSGs, the other 5.4% provide no rules

1.2.1 WTO review of regional trade agreements

As mentioned above, WTO Members are able to check an RTA‟s consistency in general, and thus the consistency of RTA safeguard mechanisms through two institutions: the CRTA and the DSB (via two other bodies: Panels and the Appellate Body) Unfortunately, both the CRTA and DSB have provided no definite answer regarding the legality of SGs in RTAs

The inclusion of SGs in RTAs has been an important subject of debate among WTO Members The main question is whether SGs are to be eliminated with respect to substantially all the trade within RTAs according to GATT Article XXIV:8 SGs has been referred to in some “systemic issues” of RTA regulations as

58 Ibid

59 Ibid

60 From this point, “safeguard measures”, “safeguards”,

“SGs” and “GSGs” will be used to denote WTO safeguard measures Bilateral safeguard measures will be refered directly or as “BSGs”

61 Teh, Robert et al., “Contingent Protection Rules in Regional Trade Agreements” in Bagwell, Kyle

W & Mavroidis, Petros C (eds) (2011), Preferential Trade Agreements – A Law and Economics Analysis,

Cambridge University Press, p 77

listed by the CRTA.62 In its works, the CRTA has only gathered different and conflicting views of Members and not provided a final answer Concerning SGs in

RTAs, the CRTA noted “[t]he fact that neither GATT Article XIX nor Article VI [is] cited in [the exceptions] list in [Article XXIV:8(a) and (b)] has given rise to the general question of whether safeguard and anti-dumping measures should be considered as „other restrictive regulations of commerce‟” and thus subject to

elimination but never attempted to give an answer.63

Interestingly, the only exception where an RTA was reviewed as consistent with Article XXIV (the Agreement Establishing the Czech Republic–Slovakia Customs Union) retained the right to invoke anti-dumping measures (ADs) and did not mention SGs in its text With regards to ADs, Article 13 of the Agreement Establishing the Customs Union between the Czech Republic and the Slovak

Republic stipulates: “If a Contracting Party finds that dumping within the meaning

of Article VI of the General Agreement on Tariffs and Trade is taking place in trade with the other Contracting Party, it may take appropriate measures against such practices in accordance with the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade.”64 The fact that this CU was officially considered as being consistent with Article XXIV suggests two clues: (i) that the

inclusion of anti-dumping measures in RTAs is consistent with GATT Article

XXIV; however, it is not clear whether the practice can be extended to SGs as another type of trade remedies; (ii) that the silence on SGs (the agreement contained neither retainment nor abolition of SGs in CU internal trade) of the Agreement is not, again, a prohibited approach Such absence of SG provisions can have at least

two meanings Firstly, it can be inferred from the silence that SGs are allowed be retained in CUs, since “given that all three trade remedy provisions are governed

62 See, for example: WTO Secretariat (1997), Annotated Checklist of Systemic Issues, WT/REG/W/16; WTO Secretariat (2002); Compendium of Issues Related to Regional Trade Agreements, WTO Doc TN/RL/W/8/Rev.1; WTO Secretariat (2000), Synopsis of “Systemic” Issues Related to Regional Trade Agreements, WT/REG/W/37

63 See Ibid, paras 37-38, 72-73

64 Article 13, Agreement Establishing the Customs Union between the Czech Republic and the Slovak Republic

by existing GATT/WTO agreements, RTAs with no additional language and provisions simply fall back to their preexisting WTO commitments, […] the status quo is WTO rules.”65 Therefore, SGs in RTAs are allowed to be maintained

Secondly, the silence simply means that SGs are not to permitted to be applied with

the CU, since if the parties had intended to allow SGs, they would have included a provision similar to the article on ADs In any case, the working party‟s view is not clear on SGs in RTAs Moreover, all of these implications cannot be considered as the CRTA‟s view As can be seen in the above paragraph, the CRTA has obviously taken a reserved approach

On the other track of RTA review, the DSB, reported to by the AB and Panels about each dispute between Members, as mentioned, avoided reviewing the consistency of RTAs with GATT Article XXIV, due to a concern that such authority may be at the hand of the CRTA In several cases66 brought to the DSB regarding non-applications of SGs to RTA members, though ruling that the measures are inconsistent on different grounds, Panels and the AB effectively avoided ruling on whether such practice can be justified by Article XXIV, as a ground for abolishing safeguards in intra-RTA trade.67 Typically, the Panel in

Argentina – Footwear68 addressed the question and came to the conclusion that Article XXIV does not prohibit CU members from imposing SGs on each other.69

On appeal, the Appellate Body reversed the Panel‟s ruling in this respect, avoiding ruling on Article XXIV, as it was of the view that, in the absence of any Article XXIV defence by Argentina, the Panel was not justified in considering the

67 These non-applications and the related rulings will be further discussed in Chapter 2

68 Argentina – Safeguard Measures on Imports of Footwear (DS121)

69 Panel Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/R, adopted

12 January 2000, para 8.97

relevance and scope of Article XXIV.70 The AB and Panels in subsequent cases also refused to rule on whether Article XXIV can justify non-applications of SGs to RTA members Thus, the answer for the legal status of SGs in RTAs is unlikely to

be found in the current WTO jurisprudence

Perhaps, as long as Members do not reach consensus on the discipline of RTAs, the uncertainty in the legality of SGs in RTAs still remains In such a case, Members should rely on the legal text in force to either comply with or utilise such

rules bona fide Therefore, the next section will attempt to analyse GATT Article

XXIV:8 regarding the legality of SGs in RTAs

1.2.2 Permission versus elimination of safeguard measures in RTAs under GATT Article XXIV:8

According to GATT Article XXIV:8, an RTA must eliminate duties and ORRCs (with some exceptions) to substantially all the trade among its members (internal requirement) To date, WTO Members have seemed reluctant to agree on the meaning of the internal requirement with respect to the inclusion (and abolition)

of SGs in regional trade A footnote to Article 2.1 of the ASG states that “Nothing

in this Agreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV of GATT 1994”, showing that Members at the

Uruguay Round reserved the issue for future resolution The issue is, indeed, well reserved since there has been no definite answer to the legal status of SGs in RTAs

- The nature of the exceptions list

Article XXIV:8 states that duties and ORRCs must be eliminated on substantially all the trade within an RTA, but measures under GATT Articles XI, XII, XIII, XIV, XV, and XX are exempted from the obligation, and can be maintained where necessary among RTA members SGs, allowed under GATT Article XIX, are not included in the exceptions It seems that SGs, therefore, cannot

be maintained in RTAs However, the nature of the exceptions list is “exhaustive”

70 Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear,

WT/DS121/AB/R, adopted 12 January 2000, para 110

or merely “illustrative” is unclear and has invoked different views among the Members If the exceptions are illustrative, RTA parties are able to maintain trade restrictions other than those listed exceptions in their internal trade If the list is exhaustive, unlisted trade restrictions such as SGs must be eliminated on trade within RTA parties

The view opposing the exhaustiveness of the exceptions list is asserted by some WTO Members71 and commentators.72 They argue that the list is merely illustrative since it does not include the security exceptions contained in Article XXI of the GATT, which are too critical for the Members to waive The exceptions list also misses out the exception of the balance of payments set out in Article XVIII.B A scholar observes that this Article serves a very similar purpose with some of the listed exceptions, in particular, Articles XII, XIV, and XV and there is

no logical purpose for excluding Article XVIII.B but including the others.73 The absence of Article VI (on anti-dumping and countervailing measures) and Article XIX (on SGs) also invokes discussions among Members.74

Other Members and commentators hold the view that the exceptions list is exhaustive With regards to the security exceptions, Article XXI contains strong

language, stating that “Nothing in this Agreement […] shall prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests.”75 It seems that “nothing in this Agreement” includes Article XXIV of the GATT Therefore, irrespective of the exhaustiveness of the exceptions list, a WTO Member still may apply the security exceptions to its RTA

71

WTO Secretariat (2002), Supra note 62, para 75

72 For example, see Pauwelyn, Joost (2004), “The Puzzle of WTO Safeguards and Trade

Liberalization”, Journal of International Economic Law, 7(1), pp 126-127; Ahn, Dukgeun (2008), “Foe or Friend of GATT Article XXIV – Diversity in Trade Remedy Rules”, Journal of International Economic Law, 11(1), pp 120-121

73 Choi, Won-Mog (2003), “Regional Economic Integration in East Asia - Prospect and

Jurisprudence”, Journal of International Economic Law, 6(1), p 66

74 Ibid, p 65

75

Article XXI of the GATT

partners.76 However, such explanation may be undermined by the fact that GATT Article XX also contains the similar language.77

The negotiation history of the GATT can provide some clues on the issue: the structure of the exceptions list in Article XXIV:8 of the GATT originated from the provisions in Chapter IV (on commerce) of the International Trade Organization Charter, while the security exceptions belonged to Chapter IX which is applicable

to all the other chapters (including Chapter IV).78 Therefore, the inclusion of Article XXI in the list is not necessary and it can be interpreted based on the negotiation history79 that the exceptions list is exhaustive

- Safeguard measures as “other restrictive regulations of commerce”

WTO Members have frequently discussed the words “duties and ORRCs”, without reaching any agreement on their meaning Similarly, no Panel or AB

Reports to date have interpreted these words The Panel in Argentina – Footwear

only assumed that SGs fall into the category of “duties and ORRCs” under Article XXIV:8.80 The AB reversed the Panel‟s findings;81 however, this interpretation was not examined nor rebutted by the AB.82

It appears at first sight that SGs can be listed as “duties” according to Article XXIV:8 Although SGs can, in reality, be in the form of duties, it is not the case when one interprets the term “duties” in Article XXIV:8 As pointed out by Estrella

76 Choi (2003), Supra note 73, p 66 Estrella, Angela T Gobbi & Horlick, Gary N (2006),

“Mandatory Abolition of Anti-dumping, Countervailing Duties and Safeguards in Customs Unions and Trade Areas Constituted Between World Trade Organization Members: Revisiting a Long-Standing

Free-Discussion in Light of the Appellate Body's Turkey – Textiles Ruling”, Journal of World Trade, 40(5), p

939

77 Talanov, Vladimir (2011), WTO Compatibility of Regional and Bilateral Emergency Actions - Implications for the CIS Countries, Master of International Law and Economics Thesis, World Trade

Insitute, p 13 See also Article XX of the GATT (the last clause in the chapeau of GATT Article XX reads:

“nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures […].”

78

Estrella & Horlick (2006), Supra note 76, p 940

79 Article 32 of the Vienna Convention on the Law of Treaties provides that: “Recourse may be had

to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31,

or to determine the meaning when the interpretation according to article 31: (a) Leaves the meaning ambiguous or obscure; or (b) Leads to a result which is manifestly absurd or unreasonable.”

80 Panel Report, Argentina – Footwear, Supra note 69, paras 8.96–8.97

81 Appellate Body Report, Argentina–Footwear, Supra note 70, para 110

82

Mitchell & Lockhart (2009), Supra note 42, at footnote 70, p 98

and Horlick, the French and the Spanish versions of Article XXIV:8 of the GATT respectively use the terms “droits de douane”and “derechos de aduana”, which mean “customs duties”, as the equivalent to the term “duties” used in the English version SGs are thus not embraced by the term “duties” of Article XXIV:8.83 At this point, whether the phrase ORRCs includes SGs should be examined

The phrase ORRCs is comparable with “other regulations of commerce” in Article XXIV:5 which is interpreted by the Panel without being reviewed by the AB

in Turkey – Textiles as “any regulation of commerce having an impact on trade.”84

This correspondence suggests a starting point for the interpretation of ORRCs as

“any regulation of commerce having a restrictive impact on trade.”85 However, some commentators notice that the text of Article XXIV:8(a)(i) and (b) also refers

to the elimination of duties and ORRCs with respect to “the trade” between the RTA parties and the Understanding on Article XXIV also refers to the “elimination between the constituent territories of duties and other restrictive regulations of commerce.”86 This suggests that the regulations to be eliminated under Article XXIV:8 are those restricting the cross-border movement of goods between the RTA parties.87 In sum, ORRCs are “border measures having a restrictive impact on trade.” Obviously, SGs are border measures which have trade-restrictive impacts, thus falling into the category of ORRCs and are subject to the elimination scope of GATT Article XXIV:8

- Safeguard measures are eliminated with respect to “substantially all the trade” within RTAs

Even if one takes the position that the exceptions list is exhaustive, it is not certain that SGs must be totally eliminated in RTAs It is worth quoting this ruling

of the Appellate Body on Turkey – Textiles in a context concerning CUs:

83

Estrella & Horlick (2006), Supra note 76, p 917

84 Panel Report, Turkey – Textiles, Supra note 53, para 9.120

85 Estrella & Horlick (2006), Supra note 76, p 918

86 Mitchell & Lockhart (2009), Supra note 42, p 97

87

Estrella & Horlick (2006), Supra note 76, p 918

“It is clear 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 subparagraph 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 subparagraph.”88

Obviously, “substantially all the trade” is noted by the AB as neither an absolute requirement such as “all the trade” nor the modest “merely some of the trade” level As the SAT requirement offers flexibility, Members have the freedom

to remove trade barriers to a level between substantially all the trade and all the trade

There are two prevailing (not mutually exclusive) views among Members of the SAT requirement, namely, the (i) quantitative and (ii) qualitative approaches Some WTO Members take the quantitative approach, arguing that “substantially all the trade” requires that a certain percentage of trade (e.g., eighty percent) be covered by an RTA trade liberalisation scheme.89 Other Members propose a qualitative approach in which Article XXIV:8 requires no trade sector (or at least no major sector) is to be kept out of intra-RTA trade liberalisation; so that it can prevent RTAs from totally excluding a whole sector (e.g agricultural sector) from liberalisation.90

88 Appellate Body Report, Turkey – Textiles, Supra note 55, para 48

89 WTO Secretariat (2002), Supra note 62, para 68

90

Ibid

Some commentators91 suggest that the degree of flexibility offered in Article XXIV:8 should be wide enough to include the possibility for intra-regional safeguards With regard to the quantitative approach, neither the CRTA nor the AB and the Panels has specified a definite percentage of trade required to be liberalised The impact of SGs in percentage terms can vary and thus the consistency of SGs depends on the scope and extent of the particular measure Only if such SGs imposed on a significant percentage of the trade could the question arise of whether the remaining free trade qualifies as “substantially all the trade.” As for the qualitative approach, it is unlikely that a SG can cover a whole sector of the trade.92SGs, by nature, are also temporary restrictions; therefore, their impact on the liberalisation process are also limited in terms of time Therefore, SGs may either

be consistent with or violate the SAT requirement, but the latter is highly unlikely Article XXIV:8 provides some flexibility for the inclusion of SGs in RTAs In other

words, SGs are not prohibited per se by Article XXIV:8

However, some commentators argue that Article XXIV:8 requires total abolition of SGs in RTAs Article XXIV:8 requires duties and ORRCs to be

“eliminated” “with respect to SAT” but not “substantially eliminated”; therefore, SGs, being a threat to the SAT requirement, shall be completely eliminated.93Talanov criticises this approach as “too focused on the linguistic details of the provision” and “contrary to the intentions of the drafters of provision.”94 The negotiations history of Article XXIV:8, also sheds light on the SAT requirement regarding SGs and other types of trade remedies Talanov points out a researcher‟s observation that the SAT rule was “purposely drafted to preserve trade remedies in the US – Canada bilateral trade”, leading to “free trade areas” requiring not totally

91 Pauwelyn (2004), Supra note 72, p 127 Choi, Won-Mog (2011), “FTAs and Safeguard Norms – Their Variation and Compatibility”, Asian Journal of WTO & International Health Law and Policy, 6(1), p

93

92 Talanov (2011), Supra note 77, p 18

93 Estrella & Horlick (2006), Supra note 76, pp 934-938

94

Talanov (2011), Supra note 77, p 19

but rather “substantially” free trade.95 This evidence suggests that trade remedies were intended to be preserved in RTAs as being subject to, rather than a violation

of, the SAT requirement With regard to the rather ambiguous Article XXIV:8, recourse to such negotiation history may supplement its interpretation according to Article 32 of the Vienna Convention on the Law of Treaties.96

Moreover, the legal consequences of the linguistic interpretation, once adopted, are not total abolition of SGs in intra-RTA trade as it may seem If SGs are

to be eliminated with respect to substantially all the trade within an RTA, arguably, SGs can still be applicable on an “insubstantial proportion of trade” If one takes the quantitative approach to SAT as a guideline, the right to take SG actions can be preserved on, for example, ten per cent of the trade; or if one follows the qualitative approach, SGs can be retained in no more than the lesser of a trade sector Thus, in order to be consistent with such interpretation of the SAT requirement, the SG provision of an RTA can limit SGs to no more than parts of a sector in intra-RTA trade or require members not to impose SGs to the extent violating the SAT requirement; or RTA members can obviously comply with the SAT requirement without drafting such provisions, as long as the SGs imposed do not cover a substantial percentage or sector of regional trade

To sum up, GATT Article XXIV:8 does not prohibit SGs per se in

intra-RTA trade and allows intra-RTA parties to either apply or abolish SGs between

themselves depending on the circumstances they face SGs, as a form of ORRCs,

shall be applied within a RTA as long as the “substantially all the trade” requirement is met

Conclusions

The Chapter above has reviewed the legal framework for SGs in RTAs and analysed the legality of such measures in light of GATT Article XXIV:8 Currently, there is no authoritative answer or guidance from WTO Members regarding whether SGs are to be abolished or permitted within RTAs This thesis has analysed

and concluded that GATT Article XXIV:8 does not prohibit SGs in RTAs per se,

rather Members have the right to retain SGs as long as duties and ORRCs are eliminated with respect to substantially all intra-RTA trade

CHAPTER 2 LEGAL ISSUES OF SAFEGUARD MEASURES IN

REGIONAL TRADE AGREEMENTS

The proliferation of RTAs in addition to the WTO multilateral trading system has caused Members to assume two distinct sets of rights and obligations

On the one hand, WTO Members are allowed to apply SGs, a mechanism designed

to prevent injurious imports resulting from GATT obligations On the other hand, RTA parties are committed to tariff concessions on a preferential basis, which normally results in RTA import increases This reality leads to legal uncertainties regarding both SG excluding or applying to RTA imports

2.1 Safeguard measures excluding regional imports

Some RTAs provide parties the right or obligation to exclude RTA imports

from WTO SG application as long as these imports are not a substantial cause of injury.97 Such “selective” application of SGs in RTA-related context is a practice challenged in several cases before the WTO In these cases, defendants invoked GATT Article XXIV as a defence for selective SGs However, WTO Panels and the

AB have avoided directly deciding on whether Article XXIV can justify such practice, while ruled all challenged measures as WTO-inconsistent on other grounds

2.1.1 Parallelism requirement

Both the North America Free Trade Agreement (NAFTA) and the CU

Mercado Común del Sur (MERCOSUR) requires members to exclude other parties

from the scope of GSGs if imports from those parties do not substantially cause injury to the domestic industry.98 The practice of excluding RTA imports in these

RTAs have been brought up to the WTO DSB in Argentina – Footwear, US –

97 Two RTAs to which Vietnam is a party contain this type of provisions: the Trans-Pacific Partnership (TPP) and the Vietnam-Korea Free Trade Agreement (VKFTA) These RTAs will be discussed later in this thesis Other RTAs, such as the North America Free Trade Agreement (NAFTA) at Article 802(1), impose on parties an obligation to exclude intra-RTA imports from the scope of WTO SGs

98 For the NAFTA, see Article 802(1) of the NAFTA For the MERCOSUR, see The Treaty of Asuncion and the Common Regulation, adopted by Decision 17/96 of the Common Market Council, citation

from Ahn (2008), Supra note 72, p 116