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UNDERSTANDING ONTHE INTERPRETATION OFARTICLE XXIV
OFTHE GENERAL AGREEMENT ONTARIFFS AND TRADE 1994
Members,
Having regard totheprovisions ofArticle XXIV ofGATT 1994;
Recognizing thatcustoms unions andfreetrade areas havegreatly increased innumber and
importance since theestablishment ofGATT 1947 andtoday cover asignificant proportion ofworld
trade;
Recognizing thecontribution totheexpansion ofworld trade thatmaybemade bycloser
integration between theeconomies oftheparties tosuchagreements;
Recognizing alsothatsuchcontribution isincreased iftheelimination between theconstituent
territories ofduties andother restrictive regulations ofcommerce extends toalltrade, anddiminished
ifanymajor sector oftrade isexcluded;
Reaffirming thatthepurpose ofsuchagreements should betofacilitate trade between the
constituent territories andnottoraisebarriers tothetrade ofother Members withsuchterritories;
andthatintheirformation orenlargement theparties tothem should tothegreatest possible extent
avoid creating adverse effects onthetrade ofother Members;
Convinced alsooftheneedtoreinforce theeffectiveness oftheroleoftheCouncil forTrade
inGoods inreviewing agreements notified under Article XXIV, byclarifying thecriteria andprocedures
fortheassessment ofneworenlarged agreements, andimproving thetransparency ofallArticle XXIV
agreements;
Recognizing theneed foracommon understanding oftheobligations ofMembers under
paragraph 12ofArticle XXIV;
Hereby agree asfollows:
1. Customs unions, free-trade areas, andinterim agreements leading totheformation ofacustoms
union orfree-trade area, tobeconsistent withArticle XXIV, mustsatisfy, interalia,theprovisions
ofparagraphs 5,6,7and8ofthatArticle.
Article XXIV:5
2. Theevaluation under paragraph 5(a)ofArticle XXIV ofthegeneral incidence oftheduties
andother regulations ofcommerce applicable before andaftertheformation ofacustoms union shall
inrespect ofduties andcharges bebased upon anoverall assessment ofweighted average tariff rates
andofcustoms duties collected. Thisassessment shallbebased onimport statistics foraprevious
representative period tobesupplied bythecustoms union, onatariff-line basis andinvalues and
quantities, broken down byWTO country oforigin. TheSecretariat shallcompute theweighted average
tariff ratesandcustoms duties collected inaccordance withthemethodology usedintheassessment
oftariffoffers intheUruguay Round ofMultilateral Trade Negotiations. Forthispurpose, theduties
andcharges tobetaken intoconsideration shallbetheapplied ratesofduty. Itisrecognized thatfor
thepurpose oftheoverall assessment oftheincidence ofother regulations ofcommerce forwhich
quantificationandaggregationaredifficult,theexaminationofindividualmeasures,regulations,products
covered andtrade flows affected mayberequired.Page34
3. The"reasonable length oftime" referred toinparagraph 5(c)ofArticle XXIV should exceed
10years onlyinexceptional cases. Incases where Members parties toaninterim agreement believe
that10years would beinsufficient theyshallprovide afullexplanation totheCouncil forTrade in
Goods oftheneedforalonger period.
Article XXIV:6
4. Paragraph 6ofArticle XXIV establishes theprocedure tobefollowed when aMember forming
acustoms union proposes toincrease abound rateofduty. Inthisregard Members reaffirm thatthe
procedure setforthinArticle XXVIII, aselaborated intheguidelines adopted on10November 1980
(BISD 27S/26-28) andintheUnderstanding ontheInterpretation ofArticle XXVIII ofGATT 1994,
mustbecommencedbeforetariffconcessionsaremodifiedorwithdrawnupontheformationofacustoms
union oraninterim agreement leading totheformation ofacustoms union.
5. These negotiations willbeentered intoingood faith withaview toachieving mutually
satisfactorycompensatoryadjustment.Insuchnegotiations,asrequiredbyparagraph6ofArticleXXIV,
dueaccount shallbetaken ofreductions ofduties onthesame tariff linemade byother constituents
ofthecustoms union upon itsformation. Should suchreductions notbesufficient toprovide the
necessary compensatory adjustment, thecustoms union would offer compensation, which maytake
theform ofreductions ofduties onother tariff lines. Such anoffershallbetaken intoconsideration
bytheMembers having negotiating rights inthebinding being modified orwithdrawn. Should the
compensatory adjustment remain unacceptable, negotiations should becontinued. Where, despite such
efforts, agreement innegotiations oncompensatory adjustment under Article XXVIII aselaborated
bytheUnderstanding ontheInterpretation ofArticle XXVIII ofGATT 1994cannot bereached within
areasonable period fromtheinitiation ofnegotiations, thecustoms union shall, nevertheless, befree
tomodify orwithdraw theconcessions; affected Members shallthenbefreetowithdraw substantially
equivalent concessions inaccordance withArticle XXVIII.
6. GATT1994imposesnoobligationonMembersbenefitingfromareductionofdutiesconsequent
upontheformation ofacustoms union, oraninterim agreement leading totheformation ofacustoms
union, toprovide compensatory adjustment toitsconstituents.
Review ofCustoms Unions andFree-Trade Areas
7. Allnotifications made under paragraph 7(a)ofArticle XXIV shallbeexamined byaworking
party inthelightoftherelevant provisions ofGATT 1994andofparagraph 1ofthisUnderstanding.
Theworking party shallsubmit areport totheCouncil forTrade inGoods onitsfindings inthisregard.
TheCouncil forTrade inGoods maymake suchrecommendations toMembers asitdeems appropriate.
8. Inregard tointerim agreements, theworking party mayinitsreport make appropriate
recommendations ontheproposed time-frame andonmeasures required tocomplete theformation
ofthecustoms union orfree-trade area. Itmayifnecessary provide forfurther review oftheagreement.
9. Memberspartiestoaninterimagreementshallnotifysubstantialchangesintheplanandschedule
included inthatagreement totheCouncil forTrade inGoods and,ifsorequested, theCouncil shall
examine thechanges.
10. Should aninterim agreement notified under paragraph 7(a)ofArticle XXIV notinclude aplan
andschedule, contrary toparagraph 5(c)ofArticle XXIV, theworking party shall initsreport
recommend suchaplanandschedule. Theparties shallnotmaintain orputintoforce, asthecase
maybe,suchagreement iftheyarenotprepared tomodify itinaccordance withtheserecommendations.
Provision shallbemade forsubsequent review oftheimplementation oftherecommendations.Page35
11. Customs unions andconstituents offree-trade areas shallreport periodically totheCouncil
forTrade inGoods, asenvisaged bytheCONTRACTING PARTIES toGATT 1947intheirinstruction
totheGATT 1947Council concerning reports onregional agreements (BISD 18S/38), ontheoperation
oftherelevant agreement. Anysignificant changes and/or developments intheagreements should
bereported astheyoccur.
Dispute Settlement
12. Theprovisions ofArticles XXII andXXIII ofGATT 1994 aselaborated andapplied bythe
DisputeSettlementUnderstandingmaybeinvokedwithrespecttoanymattersarisingfromtheapplication
ofthose provisions ofArticle XXIV relating tocustoms unions, free-trade areas orinterim agreements
leading totheformation ofacustoms union orfree-trade area.
Article XXIV:12
13. Each Member isfullyresponsible under GATT 1994 fortheobservance ofallprovisions of
GATT 1994, andshalltakesuchreasonable measures asmaybeavailable toittoensure suchobservance
byregional andlocalgovernments andauthorities within itsterritory.
14. Theprovisions ofArticles XXII andXXIII ofGATT 1994 aselaborated andapplied bythe
Dispute Settlement Understanding maybeinvoked inrespect ofmeasures affecting itsobservance taken
byregional orlocalgovernments orauthorities within theterritory ofaMember. When theDispute
SettlementBodyhasruledthataprovisionofGATT1994hasnotbeenobserved,theresponsibleMember
shalltakesuchreasonable measures asmaybeavailable toittoensure itsobservance. Theprovisions
relating tocompensation andsuspension ofconcessions orother obligations apply incases where it
hasnotbeenpossible tosecure suchobservance.
15. EachMemberundertakestoaccordsympatheticconsiderationtoandaffordadequateopportunity
forconsultation regarding anyrepresentations made byanother Member concerning measures affecting
theoperation ofGATT 1994 taken within theterritory oftheformer.