Designing a WTO-consistent Customs Union: Select WTO Obligations in the Context of GATT Art. XXIV

Designing a WTO-consistent Customs Union: Select WTO Obligations in the Context of GATT Art. XXIV

Submitted to the Permanent Mission of the Russian Federation to the United Nations Office and Other International Organizations in Geneva by Mikella HURLEY & Marina MURINA.

Executive Summary

This memorandum addresses the relationship between Article XXIV of the GATT 1994, which governs the implementation of preferential trade agreements (PTAs), and certain other substantive obligations within the WTO Covered Agreements, namely: 1) the freedom of transit in goods (as reflected in Art. V of the GATT); 2) trade remedies, namely: safeguards measures (as reflected in Art. XIX of the GATT and the Agreement on Safeguards); antidumping measures (as reflected in Art. VI of the GATT and the Anti-dumping Agreement), and countervailing duties (as reflected in Art. VI of the GATT and the Agreement on Subsidies and Countervailing Measures), and 3) certain non-tariff barriers (as reflected in Article XX of the GATT, as well as in the Agreements on Sanitary and Phytosanitary Measures and Technical Barriers to Trade). Although the findings have a general relevance for all PTAs, the legal analysis of this study focuses on relevant issues for customs unions (CU).

Art. XXIV of the GATT operates as an exception that allows Members the flexibility to engage in certain WTO-inconsistent practices, provided that a series of requirements are fulfilled. For example, once a PTA meets the definitional terms set out in Art. XXIV, its parties are able to reduce their tariffs below the MFN level afforded to other WTO Members, even though such action technically violates Art. I of the GATT. But Art. XXIV presents a number of interpretive challenges. For instance, the Art. XXIV does not set out the limits of its application as a defense, and it is unclear whether it could prevail over all WTO obligations, or just a handful. Rather, Art. XXIV only describes the “threshold” of internal liberalization that a PTA must achieve in order to qualify for the exception. Defining this internal liberalization threshold presents a further difficulty. Neither Art. XXIV nor its associated jurisprudence provides a clear indication of precisely what restrictions must be eliminated for PTA members, and for what quantity of trade. This study attempts to provide the best possible guidance on these questions, with specific regard to the three areas mentioned above.

As a starting point for analysis, this study sets out a hypothetical scenario where a CU party (“Member A”) enacts a measure generally applicable to all WTO members and wishes to determine whether it i) must exempt CU partners from the application of a measure, ii) may exempt its CU partners from this measure; or iii) must apply the measure to all its trading partners on non- discriminatory basis.

Overview of the memo

General findings on GATT Art. XXIV: Section 1 provides an overview of both the “internal” and “external” trade requirements for a CU to qualify for the Art. XXIV exception, and offers some proposed findings on the meaning of key elements. In particular, Section 1 explores the definition of “other restrictive regulations of commerce” and discusses the nature of the exceptions list to the internal trade requirement of Art. XXIV:8(a)(i). It also discusses whether a CU, as defined under Art. XXIV:8 comprises a “single customs territory” after its formation, or rather remains multiple customs territories within a union. The proposed findings in Section 1 serve as the basis for analysis in each of the three issue areas addressed in this study.

GATT Art. XXIV and Transit Measures: Section 2 analyzes Art. V transit measures in light of the internal trade requirement of Art. XXIV:8(a)(i). We argue that the hypothetical “Member A” is not likely under an obligation to eliminate legitimate transit charges, regulations and formalities for its intra-CU trade in order to meet the internal trade requirement of Art. XXIV:8(a)(i) of the GATT. However, we further submit that Member A may be able to eliminate such measures for its CU parties, provided that the goods in transit are bound for final sale within the constituent territories of the CU.

Section 2 also provides an analysis of transit and transport measures within 18 existing PTAs. It is notable that the majority of these agreements do not appear to accord any special treatment to PTA members in terms of transit requirements.

GATT Art. XXIV and trade remedies: Section 3 analyzes trade remedy measures (safeguards, anti- dumping and countervailing duties) in light of the internal trade requirement of Art. XXIV:8(a)(i). Section 3 also provides an analysis trade remedy provisions within 18 existing PTAs, and considers whether the provisions therein could constitute “subsequent practice”, clarifying whether or not trade remedies are subject to the internal trade requirement of Art. XXIV:8(a)(i).

The authors submit that Member A is likely obligated to eliminate trade remedies for “substantially all trade” with its CU parties in order to meet the internal trade requirement of GATT Art.

XXIV:8(a)(i). However, a number of residual questions remain, and it is not possible to provide a definitive answer on this point. However, at least for the “insubstantial” portion of trade, it would appear that Member A has the flexibility to chose whether to apply trade remedies or not.

GATT Art. XXIV and non-tariff barriers: Finally, Section 4 analyzes non-tariff barriers (GATT XX, SPS, and TBT measures) in light of the internal trade requirement of Art. XXIV:8(a)(i). The authors submit that Member A is not obligated to exempt its CU parties from the application of GATT Art. XX, SPS and TBT measures. In fact, it appears that Member A must apply these measures to CU-parties if it wishes to maintain them for other WTO Members. Failure to apply such measures to CU trade would very likely constitute arbitrary and unjustifiable discrimination, and thereby undermine the very basis of the measure itself. However, Member A may have other legitimate options to limit the restrictive impact of its SPS and TBT measures for its CU partners, particularly if all CU parties adopt equivalent measures that achieve the same level of protection.

Section 4 also provides an analysis non-tariff measures within 18 existing PTAs, and notes that none appear to afford the discriminatory treatment of PTA parties.


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