ESCAP/ITD/DTN/WTO Capacity Building for Free Trade Agreement Negotiations 20 – 24 August 2012

1. Regional Trade Agreements & the WTO ESCAP/ITD/DTN/WTO Capacity Building for Free Trade Agreement Negotiations 20 – 24 August 2012 Bangkok, Thailand Roberto Fiorentino

2. RTAs and the WTO Objectives: • Explain the WTO framework that applies to RTAs • Provide and overview of the various approaches to RTAs negotiations Programme: • WTO rules and procedures related to RTAs • WTO monitoring and transparency of RTAs • Facts, figures and landscape of RTAs

3. WTO framework on RTAs WTO and RTAs: roles and functions • Body of Rules • Sets out the rules and procedures for Members engaging in RTAs • Forum for trade negotiations • Negotiations of WTO rules and procedures applying to RTAs • Monitoring and Transparency • Notifications and consideration of RTAs • Compliance with WTO rules and DS

4. WTO framework on RTAs WTO rules and procedures related to RTAs

5. Annex IC - TRIPS Agreement Subsidies & Couterv. M Safeguards Annex III - TPR Mechanism Import Licensing Rules of Origin PSI Agriculture Antidumping (GATT VI) SPS TBT TRIMs Customs valuation (VII) Textiles and Clothing List of MFN Exemptions Annex II - DS Understanding The Multilateral Trade Legal Texts Marrakesh Agreement Annex IB - GATS Annex IA - GATT 1994 Decisions, Declarations Schedule of Tariff Concessions List of specific commitments

6. WTO: a body of rules A cross-cutting and consistent architectural approach underpinning the MTS • Disciplines and basic principles • Aimed at facilitating market access (e.g. tariff bindings) and countering trade discrimination (e.g. MFN & National Treatment) • Attenuated or modulated by a complex system of exceptions and derogations

7. WTO: a body of rules The Rights (derogations and exceptions) • WTO agreements grant to WTO Members the possibility to derogate from the basic principles, under specific circumstances and specific conditions • These rights constitute therefore derogations to or exceptionsfrom the basic principles • One of these exceptions is Regional Integration

8. Annex IB - GATS Annex IA – GATT 1994 WTO Provisions on RTAs RTAs in services All RTAs RTAs in goods Transparency Mechanism for RTAs Article XXIV + Understanding Article V Decisions, Declarations Enabling Clause

9. WTO Provisions on RTAs • What is an RTA in the WTO context? • An exception to the MFN principle • The WTO provides for a series of conditional exceptions which Members can invoke when departing from their MFN commitment : • Since 1947 → Article XXIV of the GATT • Since 1979 → “Enabling Clause" • Since 1994 → Understanding on GATT Article XXIV • Since 1994 → GATS Article V

10. WTO Provisions on RTAs • The purpose of an RTA is to facilitate tradeamong the parties to the agreement • An RTA must not raise barrierstowards third parties higher than those existing before the formation of the RTA • An RTA must provide for mutual/reciprocaltrade concessions The RTA exceptions are based on common principles*: *GATT Art. XXIV:4; “Enabling Clause” para. 3(a); GATS Art. V:4

11. WTO Provisions on RTAs • Free Trade Areas (FTA) • Customs Unions (CU) It also provides for: • Interim agreements • GATT Article XXIV + the Understanding Provides for the establishment of two types of preferential trade arrangements:

12. WTO Provisions on RTAs • Substantial trade liberalizationamong the parties to the agreement (Article XXIV:8) • Neutrality vis-à-vis other WTO Membersnot party to the agreement (Article XXIV:5) • GATT Article XXIV + the Understanding Establishes two conditions with which RTA parties must comply in order to benefit from the exception provided :

13. WTO Provisions on RTAs • GATT Article XXIV + the Understanding Some questions about these criteria: • What is the meaning of “substantially” and “ORRCs” (XXIV:8(a)(i) & (b))?

14. WTO Provisions on RTAs • How can compliance with the criterion of “trade policy neutrality” vis-à-vis non-parties be assessed? Standstill in MFN (applied) duties and “other regulations of commerce” (Article XXIV:5(b)) Parties to a Free Trade Area On average, no increase in applied MFN duties (Article XXIV:5(a)) Possible individual analysis of “other regulations of commerce” Parties to a Customs Union

15. WTO Provisions on RTAs Committee on Regional Trade Agreements (Extract from WTO Document WT/REG231/1 - 3 October 2008) SOUTHERN AFRICAN CUSTOMS UNION Weighted Average Tariff Rates and Customs Duties Collected Note by the Secretariat 1.In the context of "[t]he evaluation under paragraph 5(a) of Article XXIV of the general incidence of the duties and other regulations of commerce applicable before and after the formation of a customs union", paragraph 2 of the Understanding on the Interpretation of Article XXIV of the GATT 1994 (the Understanding) directs the Secretariat to calculate "the weighted average tariff rates and customs duties collected" and elaborates on the approach to be used. Results of the calculations 2.Major parameters underlying the results are shown below: : 3.The mandated calculations for the SACU, according to the described methodology and on the basis of available data, brought out the following results:

16. WTO Provisions on RTAs • GATT Article XXIV + the Understanding • With respect to a Customs Union, Article XXIV also provides that: • Tariffs and other trade measures are substantially harmonized among the parties (Article XXIV:8(a)(ii)) • If in doing so a party breaks its MFN bindings then: • The Customs Union has to enter into a re-negotiation of tariff bindings with interested Members (Article XXIV:6) • In accordance with the procedures set out in paragraphs 4 to 6 of the Understanding :

17. WTO Provisions on RTAs • GATT Article XXIV + the Understanding “Interim agreements” must: • Lead to either a free-trade areaor a customs union. • Contain a plan and schedule (Article XXIV:5(c)) • Achieve that aim through a maximum transition period of 10 years, except for exceptional circumstances (para 3 of Understanding) • Include any WTO recommended modification (para 10 of Understanding)

18. WTO Provisions on RTAs • The Enabling Clause • “Paragraph 2(c)” provides for: • Preferential regional or global arrangements among developing countries; • Containing mutualtrade concessions; • Regarding reduction or elimination of duties; • Reduction or elimination of non-tariff measures may be subject to WTO criteria and conditions

19. Enabling Clause vs. Art. XXIV • Common aspects • Goods only – (Only GATS covers trade in services) • Reciprocity – (All parties to the RTA to exchange concessions) • Neutrality criterion – (RTA not to raise barriers to 3rd parties) • Differences • Enabling Clause only an option for developing countries • Reduction OR elimination of tariffs (Enabling Clause) vs. elimination of duties (GATT XXIV)... • ...and reduction OR elimination of NTBs vs. elimination of ORRCs

20. WTO Provisions on RTAs • GATS Article V Provides for two types of preferential agreements on trade in services: Economic Integration Agreements (EIA); And EIAs implemented on the basis of a time-frame (V.7(a))

21. WTO Provisions on RTAs Establishes two main conditions: • Trade liberalization among the parties must cover a broad range of services activities (V:1) • Neutrality vis-à-vis other WTO Members not party to the agreement (V:4) • GATS Article V

22. WTO Provisions on RTAs Article V:1 – internal requirement • Substantial sectoral coverage; • No a priori exclusion of any modes of supply; • In the sectors covered, absence or elimination of substantially all discrimination in the sense of national treatment (V:1(b)) • GATS Article V

23. WTO Provisions on RTAs • GATS Article V: S&D • EIAs among developed and developing countries: • Flexibility for the developing countries parties with respect to the requirement of substantial sectoral coverage (para V:3a) • EIAs among developing countries: • Preferences may be granted to services suppliers of the parties (para V:3b)

24. WTO Provisions on RTAs • So which provision applies? GATT XXIV Enabling clause GATT XXIV GATT XXIV GATS V GATS V GATS V All RTAs must be notified!!!

25. WTO framework on RTAs Forum for trade negotiations

26. Forum for Trade Negotiations Multilateral negotiations on WTO rules and procedures relating to RTAs Doha Ministerial Declaration (14 November 2001) contains two references to RTAs: Recognize the WTO as unique forum for global trade rule-making and liberalization and ... RTAs’ role in trade liberalization and development Para 4 Preamble Para 29 Negotiating mandate Calls for negotiations to clarify and improve WTO rules and procedures on RTAs ... taking into account RTAs’ developmental aspects

27. Forum for Trade Negotiations • Why negotiate WTO rules & procedures on RTAs? • Lack of transparency: • WTO/RTA provisions were vague with respect to transparency procedures • Failure to comply with notification obligations and lack of data • Systemic concerns: • Proliferation of RTAs • Institutional deadlock: • No effective WTO surveillance mechanism of RTAs • No consistency assessment of the RTAs in force

28. WTO procedures on RTAs DDA negotiations on RTAs: two track approach Issues of a Procedural nature: • Improve RTA Transparency • Improve procedures for the consideration and surveillance of RTAs by the WTO Systemic questions: • Clarify and improve existing WTO rules on RTAs

29. WTO procedures on RTAs DDA negotiations on RTAs: state of play RTA Transparency: • Review of the Mechanism - § 23 of WT/L/671 • Permanent application (Single Undertaking) • Database on RTAs - http://rtais.wto.org Systemic Issues: • On-going process but little progress

30. WTO framework on RTAs Monitoring, Transparency & Review

31. WTO procedures on RTAs • Monitoring and Transparency • Notifications and consideration of RTAs • Conformity • Compliance with WTO rules and DS

32. WTO: institutional structure MinisterialConference Appellate Body TPRB General Council DSB DS Panels Trade Neg. Committee NGR: MA, Rules, TF Special Sessions: Services, TRIPS, DSB, Ag. CTD, TEC TRIPS Council Goods Council Services Council Committees CTD CTE CRTA BOP Budget Working Groups Committees Committees Director-General Secretariat

33. WTO/RTA: institutional structure MinisterialConference Appellate Body TPRB General Council DSB DS Panels Committees CRTA CTD • RTAsnotifiedunder: • GATT Article XXIV • GATS Article V are reviewed by the • RTAsnotifiedunder: • The Enabling Clause

34. WTO procedures on RTAs Monitoring and Transparency

35. WTO procedures on RTAs Objectives of the Transparency Mechanism: • Clarifies and strengthens existing transparency provisions • Introduces new procedures to enhance transparency • Outlines specific guidelines for the provision of RTA data • Charges the WTO Secretariat with a transparency role with respect RTAs notified to the WTO • Establishes a new database on RTAs

36. WTO procedures on RTAs • Monitoring and Transparency • Steps of the process

37. WTO procedures on RTAs • Monitoring and Transparency: Notification • What? • Full text RTA including annexes and protocols • Schedules • When? • At the latest before the application of the preferential treatment • By whom? • Parties to the RTA (jointly or individually) • How? • Goods: Article XXIV (CRTA) or Enabling Clause (CTD) • Services: Article V GATS (CRTA) • Notification template

38. Notification template WTO procedures on RTAs Document symbol: WT/REG/16 http://www.wto.org/english/tratop_e/region_e/trans_mecha_e.htm

39. WTO procedures on RTAs Monitoring and Transparency: process • G/L/834 • WT/COMTD/63 • S/L/310 Notification Before application of preferential treatment • 10 wks after notification • 20 wks (RTAs among developing countries only) Schedules, trade and tariff data, RoO, etc. as in Annex to WT/L/671 Provision of Data Max 1 year Circulation to Members Factual Presentation (by WTO Secretariat) Written questions and replies CRTA (CTD) Meeting

40. Factual Presentations completed (126) WTO procedures on RTAs • Factual Presentations: to be done (107) / on hold (4)

41. WTO/RTAs database WTO RTAs database: Mandate – (Para 21 of WT/L/671) • The aim is to provide an RTA Information System (RTA-IS), to store, maintain, analyse and disseminate information on RTAs • Enhance the transparency and accessibility of information on RTAs through its dissemination on the WTO website • Provide statistical indicators for RTA analysis • Long term goal to provide up to date information, including data on trade and tariffs covered by individual agreements • URL address: http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx

42. WTO procedures on RTAs • Conformity In order to benefit from the derogation to MFN the RTA must be in conformity with the requirements contained in… Any disputes on RTA ?

43. Landscape of RTAs Facts, figures and approaches to RTAs

44. Free Trade Area Partial Scope Which RTA is best for me? a group of two or more customs territories that have eliminated all or most tariff and non-tariff measures affecting trade among themselves. Participating countries continue to apply their existing tariffs on external goods.

45. Formation of a FTA Country A Uniform MFN tariff of 6% Country A & B sign a FTA • Tariffs are eliminated on most goods • Each party maintains its tariff structure • A Roo regime is put in place • Reciprocal concessions (possible asymmetrical implementation) • Negative list approach (in most cases) • Beyond tariff concessions A 0% duties B Country B Variable MFN 0–30 %

46. Customs Union Free Trade Area Partial Scope Which RTA is best for me? a group of two or more customs territories that have eliminated all or most tariff and non-tariff measures affecting trade among themselves. Participating countries replace their individual MFN tariffs with a single tariff applied to third countries.

47. Formation of a CU Country A Uniform MFN tariff of 6% Country A & B sign a CU • Tariffs are eliminated on most goods • A common external tariff is adopted • A mechanism to share customs revenues is devised • A temporary Roo regime may be put in place • Compensation is paid to third countries if bound MFN rates are raised A 0% duties CET 5 – 10 % B Country B Variable MFN 0–30 %

48. Economic Union Common Market Customs Union Free Trade Area Partial Scope Which RTA is best for me? More economic and political integration WTO Legal Provisions

49. Global RTA Landscape

50. Why so many RTAs? Some economic & political motivations • slow progress on multilateral agenda • policy of additive regionalism (Chile, Singapore, Mexico...) • access to markets in areas other than goods • more secure access to developed markets than unilateral programs (GSP, AGOA, Cotonou, EBA) • facilitate trade among neighboring countries • support foreign policy goals, including development • framework for regional cooperation