Q3 Enabling clause Regional Trade Areas Flashcards
What means to lower tariffs to 50% of goods they exchange?
If they change tables, shoes, jackets and cars, they lower 50% of tariffs on these products
What kind of agreement you will try to conclude?
Regional trade agreement (RTA) under requirements of article 24 and the enabling clause (because they are developing countries)
Which categories of RTA exists?
Free trade area- Art. 24.8.b) GATT
“A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce […] are eliminated on substantially all the trade between the constituent territories in products originating in such territories.”
Customs union Art. 24.8 a) GATT
All the duties and other restrictive regulations of commerce 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.
Which are the rights the WTO members if they want to lower tariffs to 50% of goods they exchange?
1- To create a Regional Trade agreement. Art. 24(5), the provisions of this Agreement shall not prevent the contracting parties to form a customs union or of a free-trade area.
2- To depart from the MFN, enjoying a mutual preferential treatment without having to extend such better treatment to all members.
Which are the obligations of the WTO members if they want to lower tariffs to 50% of goods they exchange?
1- Not raise barrier to third-party- Art.24(4) of the GATT, Purpose of a RTA is to facilitate trade between the constituent territories and not to raise barriers to the trade of other Members not in such RTA.
2- Not modify WTO rights and obligations – (Peru – Additional Duties (AB) - WTO rights and obligations shall not be modified by bilateral agreements. RTA is intended for the members to make more concessions, not to backtrack.
3- Obligation of notification and enhance transparence
Art 24(7) of GATT, upon deciding to create an FTA or CU, country A and B have to notify all WTO members and they can get recommendations which should take into account and modify in their RTA proposal. However, this never worked because of the consensus requirement. Then, the proposal is presented to the Secretariat who gives out a factual presentation. Member states that disagree can sue. Country A and country B are supposed to inform the secretariat of WTO about this negotiation of formation the RTA as soon as possible.
4- Obligation to compensate if want to raise the tariff
Compensation in accordance with the procedure set forth in Art 28.
5- Obligation of Parallelism – (US – Steel safeguards (AB))-If one member of the RTA wants to apply a safeguard measure, should impose this safeguard to all members, including the RTA other country.
Conditions to create RTA by developing countries
- RTA meets criteria of Art. 24 par. 5 (a) or (b)of the GATT and par.2(c) of the Enabling clause
They must respect a “before and after” test. Art. 24 par. 5 (a) or (b)of the GATT, duties and other regulations of commerce imposed to contracting members not parties to such RTA shall not on the whole be higher or more restrictive than that of prior to the formation of such RTA.
The enabling clause allows less-developed Contacting Parties to enter into regional or global arrangements amongst themselves for the mutual reduction or elimination of tariffs. - The measure is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 5(a) and 8(a) of Article 24.
- Such measure should be necessary for the formation of the RTA – No alternative way.
Conditions for Applying the Enabling Clause
Any differential and more favourable treatment under the Enabling Clause:
1. Shall be designed 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 Contacting Parties;
2. shall not constitute an impediment to the reduction or elimination of tariffs and other restrictions to trade on a most-favoured-nation basis; and,
3. shall in the case of such treatment accorded by developed Contacting Parties to developing countries be designed and, if necessary, modified, to respond positively to the development, financial and trade needs of developing countries.
In addition, any Member taking action to introduce, modify or withdraw from an agreement providing such favourable treatment shall notify the Members and afford adequate opportunity for prompt consultations
Your answer will be different if Country B was a developed country?
Yes. Reason: if country B is a developed country, the conditions of formation the RTA would not apply the Enabling Clause since it is only applicable between or among the developing countries.
In this situation, they have to follow more strict conditions set by art 24(8)(a) or(b) of the GATT, which both requires 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 country A and country B. In our case only applies to 50% of products, it won’t be permitted.
If they want to create a CU, they should also harmonize tariff levels and regulation on external trade
Which are the leading cases to answer this question?
- Turkey Textile (AB)
- Peru Additional duties
- US – Steel safeguards (AB)
Why applies Turkey Textile (AB)?
When we talked about conditions to form a FTA and derive from the MFN principle:
In Turkey - Textiles, the Appellate Body reviewed the Panel’s finding that Article 24 did not justify the imposition by Turkey of quantitative restrictions on imports of certain textile and clothing products from India upon the formation of a customs union with the European Union.
According to the Chapeau of Article 24:5, the provisions of the GATT 1994 shall not prevent, as between the territories of contracting parties, the formation of RTAs that comply with the requirements provided therein.
In this regard, the Appellate Body held in this case that Article 24 can justify the adoption of a measure which is inconsistent with certain other GATT 1994 provisions only if:
(i) The measure is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 5(a) and 8(a) of Article 26; and,
(ii) only to the extent that the formation of the customs union would be prevented if the introduction of the measure were not allowed.
Why applies Peru Additional duties?
When we talked about obligations of Members in RTA, one obligation not modify WTO rights and obligations. Peru and Guatemala formed a FTA in which they’ve agreed that they won’t do dispute settlement under WTO but settle by themselves. The right to resort to dispute settlement mechanism is a fundamental right of the WTO and cannot be relinquished bilaterally.
Why applies US – Steel safeguards (AB)?
When we talked about obligations of Members in RTA, one obligation is parallelism. If one member of the RTA wants to apply a safeguard measure, should impose this safeguard to all members, including the RTA other country. In this case the AB said that Member may not exclude imports from free-trade area partners from the application of the resulting safeguard measure.
Which are the specialities of FTA area with enabling clause?
Lower requirements and flexibilities for formation of RTA, for example:
1) There is no requirement of “substantially all the trade”, don’t need to cover all the trade area, can be made on some products.
2) The RTA can either eliminate or only reduce tariffs and non-tariff measures
Enabling clause
The Enabling Clause called the “Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries”, was adopted under GATT in 1979.
The Enabling Clause exempts Members from complying with Article I:1 of the GATT (MFN) and it authorises and encourages Members to grant enhanced market access to products from developing countries/LDCs.
The Enabling Clause is also the legal basis for regional arrangements among developing countries and for the Global System of Trade Preferences (GSTP), under which a number of developing countries exchange trade concessions among themselves.
Paragraph 2 of the Enabling Clause identifies four types of preferential arrangements:
a) Preferential treatment from developed to developing countries under the GSP.
b) Differential treatment with respect to non-tariff measures under the auspices of the GATT.
c) Regional/global arrangements among developing countries for mutual reduction of tariffs.
d) Special treatment of the LDCs in the context of general or specific measures in favour of developing countries.
