WORLD TRADE
ORGANIZATIONTN/RL/W/114
6 June 2003
(03-2958)
Negotiating Group on Rules Original:  English
DISCUSSION PAPER ON REGIONAL TRADING ARRANGEMENTS
Communication from India
The following communication, dated 6 June 2003, has been received from the Permanent
Mission of India.
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I. INTRODUCTION
1. The WTO’s Annual Report for 2002 (WT/TPR/OV/8) has noted that the surge in RTAs has
continued unabated since the early 1990s.  Some 250 RTAs have been notified to the GATT/WTO
upto June 2002, of which over 170 RTAs are currently in force.  It is also indicated that by end of
2005, the total number of RTAs might well approach 300.
2. The multilateral framework for international trade under the WTO rule based system needs to
be strengthened by addressing issues of concern emerging on account of formation of such a large
number of RTAs including their impact on development. Though RTAs are an alternative window of
trade liberalisation  as well as an alternative framework of development between more limited sets of
countries or economies, it is important that they complement multilateral trade liberalisation and not
create complications for that goal or occur at the cost of trade or development  of countries not
members of particular RTAs. In this context, it is important to emphasise the basic principle of RTAs
as enshrined in Article XXIV (4) of GATT 1994 that they are meant to facilitate trade between the
constituent territories and not to raise barriers to the trade of other Members.  Seen in this backdrop, it
becomes important to examine the legal framework of RTAs in the light of the mandate of the Doha
Ministerial Declaration. The present submission is limited to  GATT Article XXIV , and the  review
mechanisms provided under the Committee on Regional Trade Agreements (CRTA).
3. Para 29 of the Doha Ministerial Declaration reads as follows: “We also agree to negotiations
aimed at clarifying and improving disciplines and procedures under the existing WTO provisions
applying to regional trade agreements.  The negotiations shall take into account the developmentalaspects of regional trade agreements.” While discussions are already taking place in the Negotiating
Group on Rules (NGR) on transparency issues, the underlying systemic issues have not been
substantially visited, which will be the purpose of this submission.
4. Some areas of concern in the existing disciplines and procedures relating to RTAs and
suggested means of addressing them are highlighted below.  Several issues that arise today on account
of deep integration of existing RTAs may require further clarification of GATT Article XXIV as this
Article was originally developed essentially to take care of market access barriers at the border in line
with the GATT framework.  The ‘developmental aspects’ of RTAs is the underlying principle of the
proposals suggested below.TN/RL/W/114
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II. SUBSTANTIALLY ALL THE TRADE
5. Formation of a RTA should be welfare enhancing for the participants.  Meaningful welfare
gains require closer integration between the economies of the participants i.e. the RTA extends to as
large a proportion of the trade as possible.  We have seen, however, that even RTAs between
developed countries formed under GATT Article XXIV still leave out sectors like agriculture fromintegration .  This limits trade creation and consequently the welfare gain to participants.
6. Keeping in view the above, Members may like to define “substantially all the trade” for
purpose of GATT Article XXIV in terms of both (i) a threshold limit of the HS tariff lines at the six-
digit level; and (ii) the trade flows at various stages of implementation of the RTA.
III. RTAS UNDER ENABLING CLAUSE
7. Certain proposals have been made to bring the RTAs signed under the Enabling Clause
between developing countries within the ambit of  GATT Article XXIV transparency mechanism, that
is, to subject such agreements to review under the CRTA. This is an issue of great concern.   It is
important to emphasise that the 1979 Decision on Differential and More Favourable Treatment,
Reciprocity and Fuller Participation of Deve loping Countries (more commonly known as the
Enabling Clause) is a codification of the concept of “Differential and More Favourable Treatment” for
developing countries as well as of the principle of  non-reciprocity in trade negotiations. Paragraph 44
of the Doha Ministerial Declaration has reaffirmed that the provisions for special and differential
treatment are an integral part of the WTO Agreem ents. In this light, any attempt to dilute the
provisions of the Enabling Clause would be contrary to the spirit of the WTO framework as well as ofthe Doha Ministerial Declaration.
8. The character of the Enabling Clause should not be altered in any way as it is inextricably
linked to the development needs of the developing countries. The development dimension of the
Enabling Clause is that while developing countries seek greater economic integration with othercountries, they also need to have enough policy space to be able to adjust to greater competition in the
domestic markets or to calibrate their market liberalisation to their individual level of development. It
also provides them flexibility in making stru ctural adjustments, a mechanism to build public
consensus for trade liberalisation led reforms and also a laboratory to learn the lessons of market
opening without paying a prohibitive price in term s of social and economic upheavals, that may, at
times, be paid when such an opening up is at the multilateral level.
9. The moot point is what is sought to be achieved by suggesting a change in the procedure for
examination of RTAs under the Enabling Clause . Is it a precursor to applying more rigorous
disciplines of GATT Article XXIV? Keeping in view the legal basis of the Enabling Clause as
elaborated in Para 7,  this would not be the mandate of the present negotiation. Notification and
examination of Enabling Clause RTAs in the CRTA would cast enormous additional burden ondeveloping countries, which would not be justified in view of the relatively small share of world trade
covered under such RTAs. On account of these reasons, it is not advisable to change the notification
requirement of RTAs under the Enabling Clause and the existing system of notifying such RTAs to
the Committee on Trade and Development (CTD) should continue.
IV. TRANSPARENCY OF RTAS FORMED UNDER GATT ARTICLE XXIV
10. The substantial  growth of RTAs formed under GATT Article XXIV  and the inability of the
CRTA to effectively examine them indicates an urgent need to clarify the principles concerning
notification and examination of such  RTAs.  There is a need for a clarification regarding the time of
notification.  It would be appropriate to have a two- step process of notification of an RTA.  An outline
of the new Agreement could be notified to the WTO at the time of signature of the RTA, but prior toTN/RL/W/114
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its ratification, and a second notification could be made after a RTA’s ratification, but before its entry
into force.  The second notification could be a full and detailed notification.  Such a process would
address the legal problems faced by those countries that cannot notify an RTA before its ratification
by the parties to an Agreement.  It would be important to ensure that the initial notification
requirement should not be very burdensome and it could largely be based on the publicannouncements made.  The first of the two-step notification could act as a kind of database and a
monitoring mechanism for receiving a detailed notifi cation later on.  It would also be useful to define
a time frame for notifying changes to an RTA.  One guiding principle on this issue could be the
existing provision in Article 5.1 of the Agreemen t on Import Licensing Procedures which sets a time
frame of 60 days for notifying changes made in import licensing procedures.
11. Keeping in view the increasingly  comprehensive and complex character of  RTAs, it would be
useful if WTO Members can be made familiar with the various provisions of an RTA at as early a
stage as possible of its establishment and could also be presented with an analysis of its impact on the
multilateral trading system.  This can be achieved through a prior factual analysis of the RTA by the
WTO Secretariat.  Such an analytical report would help all Members to better understand the
functioning of the concerned regional trading arrangement and thus enable them to participate moreconstructively in the examination exercise.  The WTO Secretariat could compile such an analysis on
the basis of information provided by RTA Members as well as information available in the public
domain like research papers of reputed institutions. Given concerns of some Members regarding use
of information available in public domain, it would be useful to further discuss the scope of materials
to be used from public domain.  In addition to the initial review, there could be a fixed periodicity of
summary review of existing RTAs depending on the share of their trade on lines of the present Trade
Policy Review Mechanism (TPRM). To avoid undue burden to the RTA members, there should be a
sufficiently large time gap between two such reviews. To enable the WTO Secretariat to carry out
such regular assessment of RTAs based on the share of the trade flows, there should be a requirement
for RTA Members to submit data concerning trade.  This could help in understanding at a broaderlevel as to whether the RTA has served or is serving to create overall expansion of trade and fuller use
of resources.
V. RTAS AND PREFERENTIAL RULES OF ORIGIN
12. A systemic issue is whether Preferential Rules of Origin (PRO) can be considered as “other
regulations of commerce” (ORCs) under GATT Article XXIV:5. PROs under FTA, in a way, serve
the same purpose as common tariff in the customs union, that is, to regulate the entry of goods in theRTA and in that sense they can be understood as a regulation of commerce.
13. It is recognised that a complete harmonisation of preferential rules of origin would neither be
practicable nor desirable as such preferential rules of origin are often derived from production and
trade structures in place between the RTA members and are designed to meet certain specificrequirements as identified by the RTA parties. It is also understood that harmonisation of preferential
rules of origin would require a re-negotiation of the WTO Agreement on Rules of Origin as presently
preferential rules of origin are kept out of the ambit of the harmonisation exercise- even the
experience of harmonising the non-preferential rules of origin under the ARO has been highly
disappointing till date.
14. Nevertheless, some of the existing provisions of preferential rules of origin have significant
trade diversionary effect or create barriers to trade of non-RTA Members. One such identified element
is the requirement in some PROs that the raw materials used for the next stage product conversion
taking place in a RTA Member country should be sourced from one of the RTA Member countries.For instance, there is a requirement in the PRO of a major RTA that  for a large category of fabrics,
made-up articles and apparels to get the benefit of preferential tariff under that RTA, these should
contain yarn or fibre made in a RTA  Member country.  The implication is that a third country whichTN/RL/W/114
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has an export market, of say fabrics, to one of this RTA  Member country would be required to use
yarn sourced from a RTA  Member country, as otherwise, the processor of the fabric (into made-ups or
apparels) located in the RTA Member country would not be able to avail the preferential tariff benefit
for its manufactured goods (made-ups or apparels) when exported to another Member of this RTA.
15. The effect of such rules for non-RTA Members is very harmful, particularly for such
countries, which enjoy a traditional market access for fabrics in such countries.  Certain countries
might be located far away from the RTA  Member countries and would thus incur much higher cost
for importing raw materials like yarn, from a RTA  member country, and then processing and
exporting the final product to the same RTA  Member country.  As a result, the final product of the
non- RTA Member becomes un-competitive vis-à-vis the production carried out in RTA  Member
countries.  This also causes investment diversion as, to avoid the problems of meeting such complexrule of origin, manufacturers would  set up manufacturing bases for intermediate raw materials within
or near the RTA  Member countries.
16. Another complex origin rule identified in a RTA  is that  for clothing and coats to be entitled to
the benefit of preferential tariff, linings should originate from the fabric stage from one of the RTAMember countries.  Such rules appear to go far beyond the requirement of substantial transformation
envisaged under value addition criteria.  Such requirements, in fact, would also appear to attract the
provision of TRIMS as it, in effect, imposes a 100% local content requirement for some inputs.  It
would be useful for Members  to identify and compile  such anomalous and trade restrictive PROs.
17. It is suggested  that the value addition norms of PROs for RTAs between developed countries
should  not be less stringent than the value addition norm provided under GSP scheme operated by any
of the developed country, which is a member of the FTA. This would ensure similar market access
conditions for goods of GSP beneficiary developing countries vis-à-vis goods of developed country
RTA members.
18. Another area of concern in existing PROs is the prevalence of a  system of diagonal
cumulation between various RTAs or for some countries vis-à-vis an RTA  without any formal
agreement as understood under GATT Article XXIV. Such methods of better market access to some
countries that are not Members of an RTA to the exclusion of other countries do not appear to be in
conformity with Article XXIV:4 and XXIV:5 of GATT 1994.
19. In view of this, it would be useful to arrive at an understanding that rules of origin are other
regulations of commerce and that they should meet the criteria set forth in GATT Article XXIV:4 and
XXIV:5, namely, that they shall not raise barriers to trade of non-Members of RTAs.  Certain tests
can be set to meet this criteria like tests of proportionality, least-trade restrictiveness and non-violation
of fundamental provisions of GATT, including GAT T Article III:4.  Some specific criteria would be
included to meet these tests like: (a) there should be no requirement that the raw material used for
next stage product conversions should be 100% originating in a RTA Member country; (b) there
should be no insistence for use of particular originating items to give origin to a product (like fabrics
for apparel, lining for coat); value addition norms of PROs for RTAs between developed countries
should not be less stringent than the value addition norms provided under GSPs provided bydeveloped country RTA Member; system of diagonal cumulation would not be adopted by RTA
Members.
20. As PROs are very important aspect of RTAs, its examination should be given a prominent
place in the scheme of examination of RTAs.TN/RL/W/114
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VI. RTAS AND REGULATIONS RELATING TO SANITARY AND PHYTOSANITARY
MEASURES (SPS) AND TECHNICAL BARRIER TO TRADE INCLUDING
STANDARDS (TBT)
21. The GATT Article XXIV:4 recognises that the purpose of a customs union or of a free trade
area is to facilitate trade between the constituent te rritories and not to raise barriers to the trade of
other contracting parties with such territories.  However, putting the provisions for harmonisation of
rules of recognition for SPS/TBT measures between the RTA Members on a fast track procedure or a
simplified procedure, acts as barriers to exports for non-RTA Members.  Such fast track procedures
are not followed for the non-RTA members and, therefore, their goods are denied market access till
such time as the normal and time taking procedure for non-members are complied with. The
additional time and costs involved for the non-RTA members is a market access barrier because such
factors add to the cost of the exported product.
22. RTAs often involve mutual recognition of each other’s certification agencies, standardizing
bodies and in some cases mutual recognition of standard s (MRA).  It is recognised that this facilitates
trade amongst the RTA Members. However, it would be desirable to extend similar opportunity for
mutual recognition of standards, conformity assessment systems, certification bodies to non-RTAMembers if they request for similar arrangements.  There appears no justification to deny such
recognition opportunity on MFN basis to the non-RTA members.  Provision of such an opportunity on
MFN basis could be facilitated by arriving at an understanding that the norms and procedures under
which the standardizing bodies and certification agencies are mutually recognized between RTA
Members would be notified to CRTA or CTD as the case may be.  A further understanding could bereached that the RTA members shall afford adequate opportunity for other interested Members to
negotiate their accession to such an MRA or arrangement or to negotiate comparable ones with them
within similar time frame and similar simplified procedures as existing for the RTA members.  Such a
provision could be formulated in line with the language as in Para 2 to 5 of GATS Article VII.   
23. There does not appear any legal basis for permitting any derogation for MRAs between RTA
Members.  In an article by Joel P. Trachtman presented during the WTO Seminar on ‘Regionalism
and WTO’ during April 2002
1 it has been argued that it would be difficult to justify maintenance of
such mutual recognition agreement under GATT Article XXIV:8 on the ground that this is required in
view of the requirement of elimination of “other restrictive regulations of commerce” (ORRC) for
formation of a customs union or a free trade area. It can be argued that TBT/SPS measures are not
ordinarily “restrictive” or “regulations of commerce” because they are not intended, as duties are, toreduce market access.  If we regard all TBT/SPS measures as ORRC, it would lead to a rather
untenable conclusion that Article XXIV:8 (a) (i) and Article XXIV:8 (b) would require elimination of
SPS and TBT measures.  A more rational inference would, therefore, be that only a sub-category of
TBT/SPS measures can be regarded as ORRCs; namely those that are either discriminatory or
unnecessary.  Hence, it cannot be argued that harmonisation of standards or conformity assessmentprocedures per se  are a pre-condition for formation of RTAs and hence, a permitted derogation.
VII. RTAS AND TRADE DEFENCE MEASURES
24. The primacy of the  WTO rules in the area of trade defence measures, namely, for anti-
dumping, countervailing and safeguard measures should be maintained.  In particular, it is importantto highlight the MFN character of the safeguard duties as provided for in Article 2 of the WTO
Agreement on Safeguards.  The provisions of GATT Article XXIV do not appear to permit any
                                                     
1 Toward Open Recognition? Standardization and Regional Integration under Article XXIV of GATT:
Prepared for WTO Seminar on The Changing Architecture of the Global Trading System: Regionalism and theWTO: Joel P. Trachtman  April 22, 2002TN/RL/W/114
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derogation from the principle of MFN treatment for safeguard measures.  It would be useful to affirm
this principle in the results of the present negotiation so that there is no scope of adopting a differing
interpretation on this issue and thereby  keep members of an FTA or a Customs Union out of the
purview of a safeguard action if it is initiated by one of the members of the FTA or the Customs
Union.  Another issue that could be addressed is derogation from the standards of safeguardinvestigation for taking action only against RTA Members.  One way to address this issue could be to
arrive at an understanding that such a derogation could be permitted when tariffs are increased from
preferential level upto the MFN level, that is, preferences were suspended between regional parties,
while the disciplines of the WTO Agreement on Safeguard would apply for raising duty above the
MFN level.
25. Similarly, it would be useful to arrive at an understanding that in the application of
regulations governing imposition of anti-dumping or countervailing duties between the RTA
members, the parameters set for injury determina tion, or the time frame set for imposition of duties
would not be different from that provided for in the relevant WTO Agreements. This would help to
have harmonised WTO and RTA rules in the area of trade defence measures and would thus
strengthen the multilateral rules in this important area.
VIII.  GRAND FATHERING OF EXISTING RTAS
26. During the negotiation some countries have  suggested to grand father the existing RTAs and
to apply the results of the negotiation under the Doha mandate from a future date.  This is a matter of
concern.  Given the fact that the maximum proliferation of RTAs has taken place during 1990s andthat this trend continues unabated during this decade, it would be extremely important to analyse the
impact of such RTAs on the multilateral trading system by applying the results of the negotiation on
improvement and clarification of provisions of RTAs which hopefully would include improved
transparency clauses.  If the results of negotiation are not applied to the existing RTAs, it would lead
to an abnormal situation where the fruits of the efforts of negotiation would only be available for thefuture RTAs whereas the Members’ proposal for clarification of GATT Article XXIV is based on
their experiences with the existing RTAs.  It is, therefore, felt that the suggestion of grand fathering
the existing RTAs is in general not a correct proposition keeping in view the overall purpose of these
negotiations.
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