RESTRICTEDWORLD TRADE
ORGANIZATIONWT/REG/M/19
16 October 1998
(98-3990)
Committee on Regional Trade Agreements
Nineteenth Session
NOTE ON THE MEETINGS OF 23 –24 SEPTEMBER 1998
Chairmen:  Mr. Jean-Marie Noirfalisse (Belgium) and Mr. Chul-Ki Ju (Korea)
A. Adoption of the Agenda
1. The Nineteenth Session of the Committee on Regional Trade Agreements (CRTA) met on
23 and 24 September 1998, as convened in Airgram WTO/AIR/915/Rev.1.
2. The following Agenda was adopted:
A. Adoption of the Agenda
B. Election of Officers
C. Observership of Inter-Governmental Organizations
D. Reporting on the Operation of Agreements
E. Systemic Implications of Agreements and Initiatives for the Multilateral
Trading System and the Relationship Between Them
F. Examination of Regional Trade Agreements:
I: System of European Cumulation of Origin
V: Treaties Establishing the European Union, Services
VI. Free Trade Agreement between Canada and Chile
VII. Free Trade Agreement between Romania-and Moldova
G. Other Business
3. The Chairman said that the proposed Agenda was slimmer than originally planned.  Due to
the late arrival of documentation, the examinations of the free trade agreements (FTAs) between the
following countries had been postponed: Estonia-Sl ovenia;  Latvia-Slovenia;  Slovenia-Lithuania;
Czech Republic-Latvia;  Czech Republic -Lithuania;  Slovak Republic-Latvia;
Slovak Republic-Lithuania; and Poland-Lithuania.  He said that at the end of the Session,
Chairman Noirfalisse would circulate a revised Proposed Schedule which would accommodate these
changes   and would address the issue of the late  arrival of documentation under "Other Business".
Additionally, Chairman Noirfalisse would sum up the understanding reached at the next day's
informal meeting on CEFTA and would make a statement on the timing of the submission ofdocumentation for examinations.  He would also invite  delegations to offer their views on the timing,
frequency and length of the Committee's Sessions, so that these views might be taken into account in
planning meetings for the next year.
B. Election of Officers
4. In taking up Agenda Item B, Election of Offi cers, the Chairman noted that on 4 August 1998,
Chairman Noirfalisse had sent a fax to all delegations indicating that, having held informal
consultations, he wished to propose that the Committee elect Mr. Carlos Pérez del Castillo of Uruguay
as Vice-Chairman, as a successor to Mr. Eladio Loizaga Caballero of Paraguay.  He recalled that theWT/REG/M/19
Page 2
fax had indicated that "in the absence of any obje ctions by 31 August 1998, this appointment shall be
considered approved by the Members of the CRTA.  The formal appointment will take place at the
Committee meeting on 23 September 1998."  As no objections had been raised, he proposed that the
Committee appoint Mr. Castillo to the position of Vice-Chairman.  It was so agreed.
C. Observership of Inter-Governmental Organizations
5. The Chairman recalled that during the last Session of the Committee it had been noted that,
while the CRTA had already granted observer status to six inter-governmental bodies – namely the
European Free Trade Association (EFTA), the Food and Agriculture Organization (FAO), the
International Monetary Fund (IMF), the Organization of American States (OAS), the United Nations
Conference on Trade and Development (UNCTAD) and the World Bank – the decision was pending
on the other requests for observership.  Because it had been more than a year since the Committee'slast substantive discussion on the matter, it seemed appropriate to invite delegations to offer some
views on the subject.  The representative of Uruguay had indicated that he would make a statement in
his capacity as coordinator of GRULAC in sup port of the participation of the Latin American
Integration Association (LAIA).  This communi cation had not yet been received, but would be
circulated to all delegations once it was available.  He proposed that the Committee take up this issueagain at its next meeting.
D. Reporting on the Operation of Agreements
6. Turning to Item D of the Agenda, Reporting on the Operation of Agreements, the Chairman
reminded the Committee that it had taken more than two years to arrive at recommendations to the
Council for Trade in Goods, the Council for Trade in Services and the Committee on Trade and
Development, which had been agreed upon at th e Sixteenth Session of the Committee.   These
recommendations were contained in documen ts WT/REG/4, WT/REG/5 and WT/REG/6,
respectively.  The Committee would recall that some outstanding points had to be resolved before
these recommendations were transmitted to the relevant bodies.  He reminded the Committee that inMarch the Secretariat had circulated an Informal Note entitled "Submission of Biennial Reports on the
Operation of Regional Trade Agreements" with a proposed schedule for the submission of such
reports in 1999.  Then, in an informal meeting in the Spring, the Committee had discussed the
scheduling question, as well as the need to avoid duplication.  At that meeting, the Committee had
been informed that the EC delegation needed time to consider the practical implications of such an
exercise before the recommendations were transmitted to the relevant bodies.  At the Committee's last
two Sessions, the EC representative had indicated that his delegation needed additional time to discussthe practicalities involved with the Secretariat, various Members and the EC Member States.  He
requested the EC representative to update the Committee on any progress made in this regard.
7. The representative of the European Communities expressed his appreciation for the patience
shown by the Committee during his delegation's deliber ations on this matter over the past few months.
His delegation was now happy to join the consensus to submit the recommendations on to theappropriate bodies.  He explained the context in which this issue had been reviewed by his delegation
and some of the concerns it had had to consider.  His delegation was appreciative of the efforts made
by the Secretariat for elaboration on the practicalities involved which were presented in the Informal
Note which was entitled "Submission of Biennial  Reports on the Operation of Regional Trade
Agreements".  He emphasized that his delegation took its obligations under the WTO Agreementsvery seriously, including those related to notification; thus, the importance of considering the practical
implications of the reporting mechanism.  His delegation was in a special position vis-à-vis
obligations on the reporting on the operation on agreements due to the fact that the European
Communities was itself a Member of the WTO, and as a Member, could not report on itself under an
obligation covering Agreements between Members.  The level of economic integration which hadbeen achieved by the EC was considerable and probably exceeded that achieved by any other regionalWT/REG/M/19
Page 3
agreement which had been examined by the CRTA or by previous GATT Working Parties.  The
extent of this economic integration was reflected in the EC's Membership of the WTO.  He drew the
Committee's attention to the exceptional degree of transparency which was already provided as far as
EC trade policy and external economic relations were concerned by the biennial review of these
matters under the Trade Policy Review Mechanism (TPRM).  His delegation proposed to forward its
Trade Policy Review documentation, which included both the material provided by the EC as well as
the factual information which was presented in the Secretariat's report, to the Chairman of the CRTA
so that it could be distributed to Members of the CRTA as a way of facilitating the process on
reporting on the operation of the European Communities.
8. The Chairman said that the Committee would take note of the constructive comments made
by the representative of the European Communities.
9. The Committee agreed to submit the recomme ndations contained in documents WT/REG/4-6
to the relevant bodies.
E. Systemic Implications of Agreements and Initiatives for the Multilateral Trading System and
the Relationship between them
10. The Chairman said that there were four sub-items for consideration under this agenda item:
the Communications from Australia;  the Inventory of Non-Tariff Provisions in Regional Trade
Agreements;  the Statement by the Delegation of Hong Kong, China on Systemic Issues;  and the
Communications from Japan.  Turning to the communications from Australia, documents
WT/REG/W/22 and Add.1., he asked if any delegation had comments, given that the Committee had
had the opportunity to discuss these documents in previous meetings.
- Communications from Australia
11. The representative of Hong Kong, China said that his delegation had a non-paper that it
wished to distribute on this subject.  The Committee had held a number of discussions on a variety of
systemic issues to date and experience derived from these discussions, as well as during theexamination of individual regional trade agreements, had shown that there was still a lot of work to be
done.  In order to facilitate the future work of the CRTA, his delegation proposed that a stock-taking
exercise be undertaken and, in this connection, wished to share an illustrative list (contained in the
non-paper being distributed) of elements of the GATT 1994 which required clarification.  He noted
that this was a non-paper, which had no status in the context of the Committee;  and it had been
distributed for the purpose of promoting further discussion in the CRTA on systemic issues: most of
the issues contained in the list had already been raised before, although discussion on some of theissues might not have gone very far.  The elemen ts identified in the list were not meant to be
exhaustive and his delegation was mindful that there might be additional elements to be included,
both by his delegation and others, during the process.  Finally, the non-paper was by its nature without
prejudice to the positions of any delegation, including his own.  He wished to highlight his
delegation's suggestion to initiate discussions on the systemic issues identified from the GATS, onwhich his delegation would submit a discussion paper at the next meeting.
12. The representative of New Zealand said he had a few comments on the Australian papers,
WT/REG/W/22 and Add.1.  His delegation continued to hold the view that the Committee needed to
move forward in providing greater clarity to the "s ubstantially-all-the-trade" requirement.  There had
been much discussion of this requirement, reflecting differing views of how it should be interpreted.It was his delegation's view that the Committee was close to reaching consensus that a predictable
formula needed to be applied in future to provid e guidance as to whether this requirement had been
met in individual cases.  His delegation had been inte rested to explore the idea, set out in the original
Australian paper, of coverage of 95 per cent of HS tariff lines, coupled with an assessment whichWT/REG/M/19
Page 4
would take into account both the qualitative and quantitative aspects bearing on the issue of
"substantially all the trade" (as set out in the Addendum).  From his delegation's perspective, the ideas
set out in the Australian paper were worth maintaining on the Committee's agenda and he hoped to
explore them in greater depth in future.  His delegation welcomed the list of issues presented in
Hong Kong, China's non-paper and did not seek, at this stage, to prejudge conclusions on them.However, he was of the opinion that the Committee's discussions thus far, in particular during the
current year, had highlighted the need for clarification, even if agreement had not been reached on a
number of issues related to the interpretation of Article XXIV and related provisions.  Thus, his
delegation supported the need for a stock-taking exercise, especially in the context of the report to be
submitted to the General Council.
13. The representative of India said that the Committee had had a substantial discussion on
"substantially all the trade" and the closest that it had come to a complete and, in the view of his
delegation, practical proposal was the Australian one.  His delegation, in principle, supported the
suggestion made by the Australian delegation in its initial paper.  Further, he supported the proposal
made by the representative of New Zealand that this paper be kept on the Agenda for further
discussion.  He had one suggestion to make concerning the Australian paper.  While in its infancy as
far as regional trade agreements were concerned and lacking the experience of other Members, hisdelegation considered it important that there was leverage for exceptions that might arise in certain
cases, especially in the context of RTAs between developing countries, where either a longer
transition period might be required or where certain sectors might require a minor deviation from the
rules.  The non-paper submitted by the delegation of Hong Kong, China allowed the Committee to
focus on one important aspect of its future work, namely the manner in which it proposed to report tothe General Council or to conclude.  It was his delegation's view that various issues had been touched
upon in the past and that the Committee had moved onto dealing with the next issue without really
deciding upon the best manner to move forward.  He agreed with the representative of New Zealand
that even although there might not be agreement on various issues, given delegations' different
perspectives, it was still important to agree on the areas which required clarification and on themethodology which might be used to remove the uncertainties and proceed.  The non-paper from
Hong Kong, China was a good starting-point as it put together the various issues which had emerged
in the context of Article XXIV which might require clarification.
14. The representative of Japan said his delegation appreciated the efforts made by Hong Kong,
China in its non-paper to summarize the Committee's discussion over the past two years.  He
emphasized that this was not an exhaustive list, but rather a list of items on which the Committee had
focused thus far and which could be added to in the future.  Paragraph 6, Other Areas of Interest,stated that consideration could be given to areas which were not explicitly covered by Article XXIV.
This was an important point.  The Committee had discussed issues which were closely linked to
Article XXIV and while this was important for the time being, Item 1(d) of the Committee's terms of
reference was "to consider the systemic implications of RTAs for the multilateral trading system and
the relationship between them".  This was a broad mandate and the scope was not limited tointerpretation of Article XXIV.  As stated in Hong Kong, China's non-paper, it would also be
appropriate to initiate further work on other rules relevant to RTAs, in particular GATS Article V.
Thus far, the Committee had discussed the services pr ovisions of individual agreements in detail and
was nearing the completion of this work, but the systemic issues concerning GATS V had not yet
been fully discussed.  His delegation had tabled a non-paper dealing with the interpretation ofGATS V:1 about a year ago, which it intended to distribute as an official document.  In future, the
Committee should try to go beyond issues which were closely linked to Article XXIV and GATS
Article V.  For instance, Article XXIV:4 stated th at the purpose of an RTA was to facilitate trade
between members of RTAs.  While the meaning of "to facilitate trade", was, in effect, the trade
creation effects, such effects were difficult to calculate.  Perhaps the Secretariat could examine themethodology of calculating trade creation effects to determine if trade had increased or decreased
after the formation of an RTA, bearing in mind that there were some factors which were not related toWT/REG/M/19
Page 5
the formation of RTAs, but which could contribute to an increase in trade.  This was a difficult
theoretical issue which was worthy of examination in the future.  Another potential area of
examination was how to define to what extent a margin of difference or discrimination could be
allowed when an RTA was formed.  Parties to RTAs might argue that this was legal, as Article XXIV
allowed Parties to discriminate between RTA Members and non-Members.  A margin of preferencecould include not just differences in tariffs, but also a margin of preference in non-tariff issues, like
standards.
15. Referring to the Australian proposal to define coverage in terms of 95 per cent of tariff lines,
the representative of Japan stated that this seemed to be a good idea, but only if trade volume was also
considered.  If the Committee agreed on the 95 per cent target, and thus allowed 5 per cent of tariff
lines to be excluded, this five per cent should be subject to examination.   If the trade volume of the
excluded sectors was, for example, 30 or 40 per cen t, then would it be appropriate to allow tariff-line
coverage of 95 per cent?  As stated by the representative of New Zealand, the qualitative aspects of
trade volume should be examined, in addition to tariff lines.  If the Committee were to adopt the
95 per cent target, it should examine trade volume statistics for the 5 per cent of trade excluded in
terms of tariff lines.
16. The representative of Canada said that her delegation saw merit in trying to provide greater
definition to this key concept of Article XXIV and agreed that the bar should be set as high as
possible.  However, she saw some practical difficulties with the proposal and agreed with the
representatives of Japan and New Zealand who had argued that tariff-line coverage would not be
sufficient, given that much trade could occur within the 5 per cent of tariff lines excluded.  The
Committee needed to be mindful of the impact of setting a specific numerical or quantitative thresholdwhich might have the unintended effect of encouraging a race down to that level.  It was her
delegation's view that prospective RTA Members should aim at the maximum possible coverage.
Turning to the non-paper submitted by Hong Kong, China, she underlined the importance of systemic
issues and their discussion for the progress of the Committee.  It was her delegation's view that the
difficulty in achieving an agreement among parties in the systemic discussion should not prevent theconclusion of RTAs under examination, as this was a completely separate process.  It was imperative
that conclusions be reached and reflected in the final reports of RTA examinations on the basis of
existing definitions and understandings of the relevant WTO provisions.  The NAFTA provided a
good example of a report for which all efforts had been made to take into account Members' concerns
and preferences and where disagreements had been acknowledged.  Moreover, the structure and
presentation of the report highlighted the areas where further systemic work was ongoing.  The
completion of examinations should not depend upon the discussions on systemic issues for whichthere were no timelines, but rather should reflect the discussion during the examination process.
17. The representative of the United States said he had similar concerns to those just voiced by
the Canadian representative.  These concerns were due to the delay in the Committee's work on the
examinations, pending the outcome of work on systemic issues.  He noted that, not only was the
NAFTA report being held up because of the systemic discussion, but there were still 50 agreementswhich had not been examined and many which had not even been notified.  The Committee needed to
balance the discussion of systemic issues with the entirely separate work of examinations.  His
delegation was mindful of the issues being addressed here and the Committee had strived in the
NAFTA report to highlight those issues which were being discussed in the systemic debate.
18. The representative of the European Communities said he had three points to make.  Firstly, he
was grateful to the delegation of Hong Kong, China for the circulation of its non-paper.  It merited
reflection and the way in which it presented some of the issues that the Committee had been dealing
with were useful.  Secondly, he wanted to echo the points just made by the delegations of Canada and
the United States as regards the need for the Committee to make progress in completing reports of
examinations.  The difficulties which the Committee was familiar with on the systemic side might notWT/REG/M/19
Page 6
lend themselves to being resolved as quickly as desired.  There was a way to deal with systemic
issues, which were important, but not yet fully resolved, in the reports.  Indeed, the approach which
had been taken in the draft report on NAFTA was one which could be of general application to other
draft reports which were in front of the Committee at the moment.  Thirdly, as regards Australia's
paper, his delegation had already responded to the suggestion of a tariff-line test, either as areplacement or a complement to a trade-coverage test.  There were practical difficulties as regards the
distribution of trade across lines and there were issues to take into account as regards the actual
structure of tariffs.  Even at the simplest le vel, the Harmonised System contained 24 two-digit
Chapters dealing with agricultural products, which was roughly a quarter of the total number of
Chapters.  This was roughly the same at the four, six and eight digit levels.  Simply using the same
figure discussed in terms of trade volume might not therefore be appropriate, given the structure of the
Harmonised System and Members' tariff schedules.  He echoed the comments made by the Canadianrepresentative that the idea of setting a figure at the minimum could have the effect of prompting
parties to reach that point and go no further, which was not something to be welcomed.  Finally, on
the idea of a tariff-line test, experience had shown that it had not been easy for GATT
contracting parties or WTO Members to reach a common consensus on what a quantitative figure
should be in terms of trade volume.  That experience might point to the fact that it would not be easyto do the same for tariff lines either.  However, his delegation would be willing to participate in the
further exploration of this issue, should the Committee decide to follow this route.
19. In response to the points made by the Canadian representative on the Australian and
Hong Kong, China papers, the representative of India said that the insinuation that the finalisation of
some of the examination reports was related to the systemic debate was not correct.  It was his
delegation's view that both tracks were equally important.  Just as the Canadian delegation was
concerned about the delay in the finalisation of examination reports, his delegation was equally
concerned that the systemic debate should not be delayed.  One of the main reasons why the
Committee had not been able to reach a satisfactory conclusion on various RTAs under examination
was because of the lack of clarity in Article XXIV.  It was without doubt an accepted fact that if theCommittee was not clear what "substantially all the trade" meant or what constituted "other
regulations of commerce", it was difficult to judge some of the steps which had been taken, either
when an existing RTA had expanded or when a new RTA had been formed.  His delegation was
concerned that the systemic debate was not progressing satisfactorily and it was imperative that both
tracks should proceed expeditiously.  The representative of Japan supported the representative of
India's comments.
20. The representative of Hong Kong, China said that his delegation agreed that it was important
to make progress on both the examination of indivi dual RTAs and on the debate on systemic issues.
The NAFTA draft report and conclusions made significant references to systemic issues.  There were
some areas of Article XXIV where Members had doubts about interpretation and it was important that
systemic issues be clarified as they had a bearing on the rights and obligations of each WTO Member.
This was a paramount concern, because if some RTAs did not meet the requirements ofArticle XXIV, this would lead to an imbalance of the rights and obligations which had been achieved
under the Uruguay Round.  In that connection, he wished to express his support for the concerns
raised by other delegations that the Committee should make progress on systemic issues.  He
underlined the importance of each Member being engaged in this process and contributing positively
to work in this area.
21. The representative of Hungary welcomed Add.1 of the Australian paper and shared the
concerns of other delegations that the Committee had to be careful in its consideration of quantitative
elements.  His delegation also shared the view that the review exercise and the systemic debate were
important.  However, he wanted to make it clear that any results of the discussion on systemic issues
would have a bearing only on agreements yet to be concluded.WT/REG/M/19
Page 7
22. The representative of Romania said his delegation was grateful to the delegations of Australia
and Hong Kong, China for their papers and comments on a number of issues under review under the
general topic of systemic issues, without prejudice to the final outcome of the Committee's
discussions.  His delegation supported some of the observations made by other delegations regarding
the relationship between the systemic debate, which was a fairly complex exercise with no set time-limit, and the review of individual agreements.  There was a certain relationship between the two
processes, but one should not be conditional upon the other; the Committee should move forward
independently in both directions.  The main objective was to avoid a lack of consensus on the
conformity of RTAs to the WTO rules, which was due to a lack of clarity in the provisions of
Article XXIV.  It was his delegation's view that the provisions should be interpreted and set out
specifically in an amendment to the WTO Agreem ent.  Hence the importance of the discussion on
systemic issues which would have an impact on the understanding and future application of thisArticle of the Agreement.  Until the WTO Agreem ent set out specific procedures regarding the
adoption of amendments to the Article and procedures regarding the legal application of these
amendments and their incorporation into the Agreement, the Committee should seek utmost clarity in
the reading and interpretation of Article XXIV and in the review of RTAs.  In conclusion, he
recommended that the Committee pursue and finalise the review of RTAs, whilst at the same timecontinuing the ongoing discussion on systemic issues until such time as the necessary conclusions had
been drawn and the Committee was in a position to make relevant proposals regarding the WTO
Agreement.  He shared the view of the Hungarian representative that the outcome of the systemic
discussion would apply only to those agreements which were concluded with regard to the
interpretation of Article XXIV.
- Inventory of Non-Tariff Provisions in Regional Trade Agreements (WT/REG/W/26)
23. The representative of Hong Kong, China said that his delegation had made initial comments
regarding this document in the last meeting.  As the document (WT/REG/W/27) submitted by his
delegation indicated, the inventory was a fresh area that required further study and his delegationwould like to revert to it at a future time.
24. The representative of Canada said her delegation was still considering possible follow-up
steps and was particularly interested in looking at further work on trade remedies.  She hoped to
circulate a non-paper in the coming weeks for future consideration.
25. The representative of the United States asked about Table I.3 dealing with cumulation in rules
of origin (page 5 of the English language version).  It was not clear from this table how many RTAs
provided for diagonal cumulation.  Perhaps this could be shown as a separate column?  Arepresentative of the Secretariat replied that the column entitled Bilateral and Diagonal referred to
agreements which had the possibility for both diagonal and bilateral cumulation.  This column shouldhave come first with a separate column showing those agreements which provided only for bilateral
cumulation.
26. The representative of the United States said that it seemed that there were 22 RTAs which
provided for diagonal as well as bilateral cumulation.  The representative of the Secretariat replied
that 43 RTAs allowed for diagonal cumulation and all those which had diagonal cumulation also had
bilateral cumulation.  There were 21 RTAs which allowed for bilateral cumulation only.  Thus, a total
of 64 RTAs allowed for cumulation.
27. The representative of New Zealand said that the issue of harmonisation of SPS measures and
the effects that this might have in an RTA context were worthy of further consideration.  The SPS
Agreement promoted international harmonisation, but difficulties could arise to third countries where
harmonisation efforts did not take account of particular risks that might be an issue in one country but
not in another which was not a member of an RTA.  His delegation thought that this issue should beWT/REG/M/19
Page 8
explored further as there could be some inadvertent barriers created to third countries in relation to
harmonisation efforts which were pursued under the framework of RTAs.
28. The representative of Venezuela said that the Secretariat's paper was a valuable contribution
to the Committee's work.  The first thing he had noted about the paper was the division between pre
and post-1990 agreements, which showed that there had been a turning-point when regionalagreements should have been less attractive, especially at a time when many of the Members of the
WTO were in the accession process.  His delegation's first concern was – and the Secretariat was
aware of it, given that his delegation was embarking on the negotiation of various regional integration
processes in Latin America – related to dispute settlement procedures.  According to the Secretariat's
paper, a number of RTAs had established dispute settlement mechanisms while maintaining the
option of resorting to either the RTA mechanism or to WTO dispute settlement procedures.  This
seemed relevant and he wondered if the Secretariat could comment on it and explain, in particular, ifthis was a trend.  If it was a trend, it opened a door for reflection on the issue of the relationship
between agreements and dispute settlement issues.
29. A representative of the Secretariat replied that, given that only 4 RTAs had elected to have a
"choice of forum", this did not seem to be a trend.  She would review the data to determine which
RTAs included the option of "choice of forum" and then respond in more detail.
- Statement by the Delegation of Hong Kong, China on Systemic Issues
(WT/REG/W/27)
30. The representative of Korea said that Hong Kong, China's paper would provide a useful basis
for the Committee's consideration of the requirement of "substantially all the trade".  His delegation
found it a refreshing idea to introduce the concept of preferential rules of origin to the "substantially-
all-the-trade" requirement, given that such rules had been considered up to this point only in the
context of "other regulations of commerce".  He requested clarification as to how exactly it was
proposed to use preferential rules of origin in measuring whether certain RTAs met the "substantially-
all-the-trade" requirement.  Was it proposed as the single standard in the test of "substantially all thetrade"; or as a complementary standard which might be combined with other standards, such as the
tariff-line test or the-trade volume test; or was it merely something that RTA Parties should take into
account when concluding agreements?
31. In response to the questions raised by the representative of Korea, the representative of
Hong Kong, China clarified that his delegation di d not yet have a firm view regarding the use of
preferential rules of origin in determining whethe r the criterion of "substantially all the trade" had
been met.  It was still open to ideas and would like to take up this issue again when the Committeeengaged in a more detailed analysis of the "substantially-all-the-trade" issue.  It was his delegation's
view that this would not be the sole criterion used to determine the test of "substantially all the trade".
Trade volume and tariff line coverage had also been suggested as criteria.  This was a complicated
issue on which his delegation was still reflecting.
32. The representative of India said that the use of  preferential rules of origin in RTAs was fairly
widespread and that a large number of RTAs in the Secretariat's report contained such rules.  It would
be useful to have further information in this area, particularly with a view to ascertaining the possible
differences between preferential rules and ordinary rules of origin.  Such a differentiation would help
the Committee to understand the methodology and terms used for origin determination and the kind of
trade-restrictiveness that such origin determination might have.  It was also important to examine howMembers who were party to a number of RTAs administered the different sets of preferential and
non-preferential rules, as such an examination w ould perhaps reveal the complications and potential
trade-restrictive effects of such arrangements.  However, his delegation agreed with the position of the
delegation of Hong Kong, China as stated in its paper, that rules of origin only determined origin andWT/REG/M/19
Page 9
preferential rules of origin, at best, could be said to be exactly that, i.e. preferential in nature.  Thus
preferential rules of origin should be regarded only as special local-content rules applicable in certain
trading arrangements for the purpose of granting preferential treatment.  This was an area that
required more detailed examination and he would welcome the opportunity to revisit it.
33. The representative of Japan agreed with previous speakers that Hong Kong, China's paper
raised some complicated issues which his delegation would like to revisit in the future.  The method
used to calculate substantial coverage was trade which was covered by the RTA divided by total
internal trade.  If trade covered by the RTA was A and total internal trade was B, then trade coverage
would be A divided by B.  If rules of origin were considered, then figure A might change.  If figure A
was trade which met preferential rules of origin and these rules were very strict, then A would be
small and coverage might be reduced.  Hong Kong , China's paper gave fresh ideas regarding the
calculation of this coverage.  If there was a case where coverage in terms of tariff lines was very high,for example 99 or 100 per cent, this figure might be reduced if stringent preferential rules of origin
were taken into account.  If a third-country company had invested in an RTA country and was subject
to high local-content ratios, the third-country company inside the RTA might face difficulties.  The
Hong Kong, China paper shed some light on this issue, which his delegation would like to explore
again in the future.
- Communication from Japan (WT/REG/W/28 and 29)
34. The representative of Japan said that document WT/REG/W/28 was a summary of the
statement he had made during the Committee's last Session in July.  It represented cases of rules of
origin which were already familiar.  The first case concerned the raising of local-content ratios, for
example from 50 per cent to 60 per cent.  The second case dealt with RTAs that required that certainparts or materials originate from within the RTA rath er than from third countries.  With this sort of
introduction of rules third-countries' imports might be affected.  As regards the cases dealing with
competition and anti-dumping, these were new topics which he hoped the Committee would explore
further.  Safeguard issues were already familiar to the Committee.  Some RTAs did not apply
safeguards among RTA members, but only to third countries, which might affect the competitivenessof third-country products.  RTAs should not raise barriers against third countries as a result of the
formation of an RTA.  It was his delegation's view that RTAs did not have the automatic right to
establish new barriers.  The second paper, WT/REG/W/29, was the reproduction of a non-paper which
his delegation had presented in December 1997.
35. In reference to the Section on Rules of Origin contained in document WT/REG/W/28, the
representative of Korea recalled that his delegation had submitted a non-paper on preferential rules of
origin during the Committee's last meeting in July.  The thrust of this non-paper was that preferential
rules of origin must be considered as other regulations of commerce.  Japan's paper indicated that the
introduction of new or more stringent preferential rules of origin usually increased trade barriers to
third countries.  His delegation had also pointed out the adverse effects of preferential rules of origin
on investment from third countries and had tried to provide some legal background for this.  He hoped
that Members would take these points into consideration when the issue of "other regulations ofcommerce" was discussed.
36. The representative of India expressed his appreciation for Japan's papers.  While he was not in
a position to offer detailed comments, his delegation entirely agreed with the emphasis which had
been given in the introduction to the second paper (WT/REG/W/29).  This drew attention to the fact
that RTAs were permissible derogations and, while their basic intention was that they should act asbuilding blocks to the multilateral system, it was important to ensure that they did not create barriers
or other restrictive regulations of commerce to the trade of third countries.  In his delegation's view
this was a sort of preamble to Article XXIV and it agreed, in principle, with the conclusion drawn by
the delegation of Japan that it would not be appropriate for members of FTAs or customs unions toWT/REG/M/19
Page 10
automatically take safeguard or anti-dumping measures when none existed earlier, simply on joining
an RTA where such action might be in place.  His delegation would like to revisit these issues in
future.
37. The representative of Hong Kong, China said that his delegation would provide feedback on
Japan's papers at a later juncture.  A general observation about the two papers was whether a WTO
Member, when becoming a party to an RTA, should necessarily seek to derogate its obligations under
the GATT and other WTO Agreements.  This was a fundamental issue and there had been dispute
cases as to whether Article XXIV was a shelter for a WTO member to claim derogations from other
obligations.  He hoped to revisit the fundamental issue of the relationship between Article XXIV and
other WTO Agreement provisions at a later stage.  While there had been discussions in the past along
these lines, his delegation was of the view that a more consolidated and focused approach to this issue
would be helpful.
38. The Chairman said that the Committee would revert to these issues at a later meeting.
F. Examination of Regional Trade Agreements
39. Minutes for the examinations under items D.I to D.VII are being circulated as separate
documents.
G. Other Business
40. The Chairman said he wanted to offer a few words on the timing of the arrival of
documentation for examinations.  The Airgram for this Session had had to be revised and eleven
examinations that had been scheduled for the Session had been deleted.  This was due to the simplefact that the parties had not submitted information sufficiently in advance of the meeting.  This had
been a recurring problem and he had tried in the past to come up with different formulations for
dealing with it.  He recalled that in his statement to the General Council on 15 July, he had issued a
call for delegations to contribute actively to improving the Committee's work, and that this call had
been widely supported by Members.  Active contribution required the timely submission ofinformation essential to the Committee's work.  With this in mind, he proposed that from this point
onwards, all papers relating to an examination be  submitted one month in advance of the meeting in
which an examination was foreseen.  A revised Chairman's Proposed Schedule of Examinations for
the 20
th Session was now being circulated;  for those Agreements on which preliminary information
was lacking, he would send a communication to the parties indicating what needed to be supplied.
For the next Session, documentation would need to be provided by the parties before the end
of October.  He added that the Committee already had a full plate for its next Session as it would havethe following items on its Agenda: the examination of approximately 25 agreements; the
consideration of additional documentation from the Secretariat for the Committee's systemic work;
and agreement on a Report to the General Counci l, which would contain an assessment of the
Committee's progress in fulfilling its mandate, as stressed at the meeting of the General Council on
15 July.  In thinking beyond the Committee's next Session, he invited all delegations to give theirviews on the timing, frequency and length of the Committee's Sessions, so that these views might be
taken into account in planning meetings for the next year.  If any delegation had written comments, he
asked that they be submitted to the Secretariat as soon as possible.
41. The representative of the European Communities said that his delegation agreed with the
rationale and spirit in which the suggestion had been made for improvements in the Committee's
method of work and agreed that discussions on examinations should be properly prepared so that the
full benefit of meetings could be achieved.  He wanted to offer comments on the examination process
just taken place where some of the documentation had not been available two weeks before the
meeting (which was the Committee's current rule).  The Committee had continued examination of oneWT/REG/M/19
Page 11
Agreement, Canada-Chile, notwithstanding the fact that the documentation had not been submitted
within the current deadline.  Thus, strict application of the rules might not be in the Committee's
interest.  Other items had been removed from the Agenda, including items where documents had
become available in the last fortnight and items where the documents were still not ready.  There had
been discussion on the Treaties Establishing the European Union where the document was not yetready, but where, nonetheless, the Committee had managed to advance the process. Although he
agreed that rigid procedural rules were a good pr actice and would likely contribute to the efficient
working of the Committee, he wondered if they would help in all circumstances,.  At times, a useful
discussion could take place, even in the absence of a document or in the presence of a document
which had appeared shortly before the meeting.  As a regular and committed participant in the
Committee and as a Member of an RTA, he supported any steps that the Committee could take to
ensure that its time was used as productively as possible.  While he appreciated the necessity of timelysubmission of documents, he  was aware, from personal experience, of the difficulties of producing
documents within the required time scale.
42. The representative of the United States said that his delegation shared many of the concerns
expressed by the Chairman and knew that the Secretariat was under pressure to turn around
documents at a late date prior to examinations.  However, he was also sympathetic to the viewsexpressed by the representative of the European Communities that a balance needed to be struck
between rigid rules and flexibility in order to generate a more efficient process.  At the present time,
he was not sure that the process would be made more efficient by advancing the date of submission of
documents.  While his capital would appreciate having documents two weeks earlier, he thought that
the Chairman's message about rigidity and his inte ntion to follow up on his statement made to the
General Council had come across clearly.  He recommended that the Committee stick with the two-
week rule before seeing if it was necessary to tighten it up.
43. The Chairman emphasized the need for the Committee to devote its time to substantive rather
than procedural issues.
44. The Committee took note of the comments made.
__________