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Roadmap for WTO negotiations on Art. XXIV GATT

The WTO rules for bilateral agreements, set by Art. XXIV of GATT are currently under re-negotiation in the WTO. Below is an internal informal WTO discussion paper on these negotiations.

This is an invitation to discuss this paper on the Forum on this website on "bilateralism".

At the beginning of February 2006 the chair of the WTO negotiations on rules presented an informal "roadmap" for Art XXIV GATT negotiations. This road map actually is a set of questions that WTO members should look into.

Art. XXIV of GATT sets the conditions for bilateral and regional free trade negotiations (FTAs). The ACP countries want to see it changed so that it will become more flexible and so that special and differential treatment (less coverage, longer transition periods) is foreseen for developing countries in FTAs between developed and developing countries.

The problem with this roadmap is that it opens up every thorny question about the WTO rules applying to FTAs; how much should they cover, how long should time periods be, which coverage test should be apllied, etc. Apparently what it aims for is first to define every aspect of FTAs and then indicate how much less is required for developing countries.

The approach is rather frightening. If all these issues are under examination, then all the flexibility that currently exists de facto under Art. xxiv, because of its vagueness, is gone. This would make FTA’s more difficult to negotiate in general (which might be a good thing) but also more stringent and ambitious (with is a bad thing).

Once all the issues are fixed, is there a possibility that the flexibilities that will be allowed for developing countries, will go further than the de facto flexibilities that are there now because of the vagueness of Art. XXIV? The risk is that what one might end up with is less flexibility.

If so, then instead of opening this box of Pandora, it might be better to never mention a revision of Art. xxiv again....

FTA-watchers should get their senses together on this, as EU-ACP campaigners for instance are supporting ACP countries in their demand to get more flexibility into Art XXIV.

Here is the informal "Roadmap for the current ART. XXIV negotiations at the WTO":

THE “SUBSTANTIALLY ALL THE TRADE” REQUIREMENT
AND TRANSITIONAL PERIODS IN REGIONAL TRADE AGREEMENTS

Informal Roadmap by the Chairrnan
Revision

A. THE “SUBSTANTIALLY ALL THE TRADE” (SAT) REQUIREMENT

1. Ex-ante assessmen of coverage
The ex-ante assessrnent is conducted upon notification of the agreement, on the basis of RTA liberalization cornmitments scheduled to be implernented by the end of the envisaged transition period (for maximum length of the transition period, see B below)

2. Ex-post assessment of coverage

• a) Should any possible differences between the RT ‘s scheduled liberalization commitmenty and the trade liberalization actually achieved at the end of iransition period be accounted for? 1f so, through which mechanism?
• b) Should “review clauses” be accounted for? If so, how?

3. Definition of coverage for the purpose of the assessment

• a) When should a product be considred as covered in terms of RTA’s tariff concessions? Should partial liberalization commitmenis such as tariff reductions, tariff-rate quotas, seasonal restrictions and special sectoral safeguards be considered for the purposes of coverage of en RTA? If so, how?
• b) How could “other restrictive regulations of commerce” (‘ORRC’s,) be factored into the assesment?
  • (i) How could products or tariff lines which remain subject to ORRCs be dealt with?
  • (ii) How could preferential mies ‘of origin be taken into account? Should the difference between the trade value coverage of the RTA based on MFN versus preferential rules of origin rules be measured’? if so, how?
• c) Should the calculations of coverage be made for the RTA as a whole? 1f so, should it be based on a combined simple or trade-weighted average? How could allowance be made for:
  • (i) unequal level of trade liberalization commitments among the RTA parties; or
  • (ii) possible differentiated benchmarks for developing cointry parties?

4. Methodology to assess coverage against quantitative benchmarks

• a) How to calculate coverage in terms of tariff lines?
  • (i) At the tariff coding level of the RTA tariff concessions?
  • (ii) At a standardized HS six-digit level for all RTAs? Should the elimination of duties at a higher level of disaggregation be then accounted for?’ If so, how? (See Annex)

• b) How to calculate coverage in terms of trade flows?
  To be based on the most recently available [three?]-year average of imports between the parties prior to the agreement’s entry into force.
  • (i) At the tariff coding level of the RTA tariff concessions?
  • (ii) At a standardized HS six-digit level for all RTAs? In the case of not entirely liberalized six-digit tariff lines, which imports under that line should be counted in the calculation’ (See Annex)

• c) Linking the tariff line test to the trade flow test
  • (i) Tariff line test complemented with a trade flow test?
  • (ii) Simple or weighted average of coverage percentages in terms of tariff lines and trade flows?

• d) How to incorporate the non-exclusion of “major sectors” from RTA liberalization into the coverage assesment? What can be considered as a “major sector”?

• e) How can the concept of “highly traded produets” he factored into the coverage assessment? How to define “highly traded products”?

• f) Relevance of different trade-related indicators to the assessment:
  • (i) tariff treatment of each party’s top (XX) exports under the RTA, in comparison to MFN treatment;
  • (ii) comparison between the average preferential tariff rates applied among the RTA partners before the implementation of the RTA and those scheduled to be applied after full implementation;
  • (iii) comparison of each party’s 30 highest base preferential tariff rates at the date of entry into force and sheduled for the end of the transition period vis-a-vis the 30 highest MFN-applied tariff rates;
  • (iv) comparison of the number of tariff lines in a party’s tariff schedule one or two years before the launch of RTA negotiations to the number of tariff lines at the date of entry into force;
  • (v) ascertaining the percentage of trade covered by tariff-rate quotas upon entry into force, at an intermediary point, such as ten years, and at full implementation;
  • (vi) considering the tariff-rate-quota parameters initially and over the phase-in period to asccrtain whether, for example, the initial within-quota tariff rate was set at zero, the within-quota volumes expanded over time, and the over-quota rate was eliminated?

B. TRANSITION PERIODS

The maximum length of the transition period for the purposes of the assessment of the SAT requirement is understood to be 10 years, unless the “exceptional cases” provision is invoked.

• a) Should there be an illustrative, non-exhaustive list of circumstances qualfying as “exceptional cases”?
• b) Scope of application of “exceptional ceses “provision

C. OTHER ISSUES

1. At what level should the quntitative beochmarks for covcrage in terms of tariff Iines and/or trade flows and trade-reated indicators be set? Would different benchmarks apply to developing countries participating in RTAs?
2. To ensure that RTAs’ liberalization commitments are not back loaded at the end of the transition period, should the assessment of SAT be complemented by an “initial benchmark” at entry into force of the RTA?

ANNEX

Some illustrative examples

1. If coverage calculations are to be made at a standardized HS six-digit level for all RTAs, an issue is whether the elimination of duties al a higher level of disaggregation should receive any consideration. When a six-digit tariff line is not fully liberalized, should that tariff line, or imports under that tariff line, be:

• (a) excluded from the SAT calculation; or
• (b) included, on the basis of a given share of liberalized (6+)-digit lines, or imports, per six-digit line; or
• (c) partially included, in parallel with the weight of liberalized (6+)-digit lines, or imports, per sixdigit line?

2. One additional guestion to be considered in this context is whether some parallelism should be kept in the methods used to calculate coverage in terms of tariff mes and trade flows.

3. The following example may clarify the points above. It assumes that the universe of 6-digit tariff lines for an RTA party is 2: xxxxxx and yyyyyy, with imports from the RTA partner of $400 and $600, respectively. The 6-digit tarifflines are not fully liberalized, though liberalization takes place at the (6+)-digit level, and 3-year average imports from the partner are available at such (6+)-digit tariff level:

4. Calculations according to paragraph 1(a) above yield in that example a 0% coverage, both in terrns of tariff lines and in terms of trade flows.

5. Calculations according to paragraph 1(b) would depend on the kind of proportion used. For exampfe, if the six-digit line was to be considered free when more than half its composing (6+)-digit lines, or corresponding imports, were liberalized, the calculations would yield a 50% coverage in terms of tariff lines [xxxxxx NO; yyyyyy YES] and a 33.3% coverage in terms of trade flows [xxxxxx YES and yyyyyy NO = $400/$1200].

6. Calculations according to paragraph 1(c) would be as follows: 42,5% coverage [xxxxxx al 25% + yyyyyy at 60%] in terms of tariff lines 45% coverage [xxxxxx at $250/$400+ yyyyyy at $300/$800] in terms of trade flows.

7. A straight calculaüon at the (6+)-digit tanif coding level of the RTA tanff concessions would yield a 44.4% coverage [4/9] in terms of tariff lines, and a 45.8% coverage xxxxxx at $250 + yyyyyy at $300 / $1200] in terms of trade flows.

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