Negotiations
on Rules with regard to Regional Trade Agreements1
Stephen N. Karingi and Rémi Lang
Prepared for presentation during the retreat for African Ambassadors and Negotiators based in Geneva on Development Benchmarks for the Hong Kong Ministerial
5-6 November 2005,
Lausanne, Switzerland
Trade and Regional Integration Division
Context
African countries are involved in RTAs among themselves, but also with non-African nations. The on-going WTO negotiations on RTAs are critical to establishing the conditions under which the Economic Partnership Agreements with the EU will have to be shaped. In particular, the future EPAs will have to be made compatible with Article XXIV of the GATT, which is the current WTO negotiations are set to clarify. There is therefore a great deal of uncertainty concerning rules for WTO compatibility of RTAs, especially with regard to the degree of asymmetry that will be allowed. Some of the contentious points of the current WTO negotiations on Article XXIV are the interpretation of the "substantially all of the trade" provision (Art. 24-5), and the length of the transitional period. WTO rules on RTA are all the more important in the context of EPAs as one of the main advantages of the future EPA system should be the increased legal security and legal predictability that they should confer.
African countries should seek additional flexibilities under RTA WTO-compliance rules, in order to preserve adequate policy space for their development strategies. It should be noted that Article V of GATS does provide some additional flexibilities to developing countries in RTAs that involve services.
Moreover, paragraph 29 of the Doha Declaration emphasises the need through ongoing negotiations to redress the imbalance between S&D in Article V of GATS and its absence in the Article XXIV of GATT. The paragraph 29 states that: "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 developmental aspects of regional trade agreements2."
Such additional flexibilities can be achieved in compliance with the Article XXIV core principle of open-trade regionalism i.e. preferential regional trade agreements should not create additional obstacles to trade with third parties. In addition, additional flexibilities could follow a variable geometry pattern, and be directly linked to development levels of participating countries in RTAs. This brief outlines some elements aimed at ensuring that the end results that African countries obtain from negotiations on Article XXIV (paragraph 29 of the Doha Declaration), are deemed as a success in development terms.
Enabling Clause:
In the case of on-going negotiations, for the outcome to be development friendly, the following needs to be reflected or implied in the agreement text:
The flexibilities offered to developing countries by the Enabling Clause in South-South Trade should be reaffirmed.
The legal validity of the Enabling Clause should be reconfirmed. In particular, the only criteria for evaluation of conformity of RTAs notified under the Enabling Clause should be those of the Enabling Clause.
Article XXIV of the GATT:
There are procedure issues in relation to notification and examination of RTAs. In this regard, the following two benchmarks should guide the outcome document aimed at ensuring RTAs involving African countries and developed countries are development tools:
The notifications procedures are clear and easy to comply with. Special and Differentiated treatment ought to be granted to developing and Least Developed countries in terms of notification procedures. Such procedures should be made less burdensome and costly for Developing and Least Developed Countries.
Developmental benchmarks should be clearly articulated and captured on systemic issues. The outcome document should be faithful to the following ideas:
The Substantially all of the Trade criterion for WTO compatibility of RTAs is to be interpreted taking into account the differences in developmental level of parties.
Coverage of trade with regard to the Substantially all of the Trade criteria should be asymmetrical between parties to a RTA, in accordance with differences in their development level. Substantial asymmetry shall be authorised in accordance with the gap in development levels of parties.
The share of imports that developing countries should liberalise under RTAs with developed parties will not be determined by a pre-set numerical benchmark but rather will have to be justified by the development policies of the concerned developing party.
The burden and costs for justification for such asymmetry will be limited in order to take into account the limited capacities of the developing party.
LDCs involved in RTAs are exempted from specific commitments on the coverage of trade to be liberalised, both in quantitative and qualitative terms.
By the same token, Custom Unions that include at least one LDC member should be granted a lower coverage of trade to be liberalised, in accordance with the development strategies of their members.
Developing countries should be allowed to exclude major sectors from the coverage of trade liberalization if required by their development strategy.
The rules negotiations are also touching on issues related to Other Restrictive Regulations of Commerce (ORRCs). In order to ensure that the outcome document of the negotiations is faithful to development concerns, the following benchmarks should form a good guide of success:
African countries are generally supportive of dismantling ORRCs in the context of RTAs. However, developing countries should be granted special flexibility in safeguards and countervailing measures for protection of sectors in accordance with their development strategies.
In the case of RTAs constituted of both developed and developing members, the developing party should be granted a significant asymmetry in the application of safeguard measures. Such flexibility for safeguards in favour of developing members should hold both for the transitional and post-transitional periods.
The "parallelism principle" in safeguards should systematically not apply to Least Developed Countries part of a RTA with a developed country3.
Transitional period of an RTA is a development issue. Given the variations in levels of development, transition arrangements of an RTA should reflect these differences. As such, the final outcome of the renegotiations of Article XXIV should capture the following:
Article XXIV 5-8 provisions apply to RTAs only after the expiration of the transition period.
Transition periods for agreements involving both developing and developed countries should be allowed to extend to a minimum of 18 years for the developing party. Under circumstances where their development strategies require it, developing countries may be granted sufficiently longer transitional period.
With respect to dispute settlement and WTO rules on RTAs, the outcome document should incorporate the following benchmarks to ensure a developmentally positive result:
The Dispute Settlement Mechanism may spell further understanding with regard to RTAs compatibility with the WTO set of rules. However, the provisions of WTO legislation on Regionalism and preferences, including the Developmental aspect, should strictly limit such jurisprudence. Such jurisprudence shall in no case override the operations and prerogative of the CRTA.
When a third party seeks compensations against a RTA involving both developed and developing countries, only compensations that minimise the costs at the expense of the developing party shall be authorised.
1 The views expressed are those of the authors and do not necessarily reflect those of the United Nations.
3 Therefore when a developed country applies a safeguard measures, LDCs members of a RTA with this Developed country should be automatically exempted from this safeguard measure.