Regional Trade Agreements (RTAs) in the WTO system General points and a few selected issues Jan Bohanes (ACWL) - Kaliningrad International Forum on WTO Law March 2015

Presentation overview RTAs in the WTO system – general points – Policy – Law Selected legal issues – Trade remedies (in particular anti-dumping) in RTAs – RTAs of WTO Members with non-WTO Members – Significance of RTA law in WTO dispute settlement (Where relevant, references to EEU)

Presentation overview RTAs in the WTO system – general points – Policy – Law Selected legal issues – Trade remedies (in particular anti-dumping) in RTAs – RTAs of WTO Members with non-WTO Members – Significance of RTA law in WTO dispute settlement (Where relevant, references to EEU)

RTAs in the WTO system – general points (1) The multilateral system envisaged RTAs from the very outset; however, recent proliferation of RTAs A total of 446 RTAs notified to date (goods, services and accessions), of which 259 in force Current trend labelled as “mega-RTAs” (e.g. TTIP, TPP) Nota bene: The term “regional trade agreements” is misleading, because many RTAs are not within the same region – However, the term is used regardless of its inaccuracy

RTAs in the WTO system– general points (2) RTAs as building blocks vs. stumbling blocks? RTAs allow for quicker and deeper integration; political dimension DG Azevêdo: However, certain issues may be better tackled at the multilateral level, e.g.: – Trade facilitation – Subsidies – Telecoms and financial regulation DG Azevêdo: RTAs tend to deepen existing trading relationships, the multilateral system helps create trade relationships

RTAs in the WTO system – general points (3) Regional trade agreements (RTAs) come in two variations – Free trade areas (FTAs) – Customs Unions (CUs) – Both reduce or eliminate trade restrictions between their members; in addition, CUs are to have a substantially harmonized customs regime – (FTAs and CUs do not have WTO membership status!)

Country A FTA between Country A and Country B Eliminate restrictions on “substantially all” trade between A and B Country B

Country A CU between Country A and Country B Eliminate restrictions on “substantially all” trade between A and B Country B Create a common external customs regime (“substantially the same duties”)

RTAs in the WTO system – goods trade Any RTA violates the MFN principle, it therefore requires a legal justification – In goods trade, this justification is supplied by Article XXIV of the GATT 1994 – In services trade, this justification is supplied by Article V of the GATS – No corresponding provision in the TRIPS Agreement

RTAs in the WTO system – goods trade Under Article XXIV of the GATT 1994, both FTAs and CUs require elimination of internal trade restrictions on “substantially all trade” – In addition, CU require “substantially the same duties and other regulations of commerce” to external trade – These legal standards ensure that FTAs and CUs reflect genuine liberalization, but also confer a degree of flexibility Developing countries can choose to form RTAs under the “Enabling Clause” which does not require the elimination of trade barriers on “substantially all trade” (easier to satisfy)

RTAs (goods) notified to the WTO and in force Total 446 RTAs notified to the WTO to date (goods, services and accessions), of which 259 in force (Source: WTO) Of those in force, approx. 85% under Article XXIV and 15% under the Enabling Clause – Some of the FTAs notified to the WTO under the Enabling Clause: ASEAN – China (2005), Mercosur – India (2009), ASEAN (1992), Mercosur (1991), ASEAN – Korea (2010), India – Korea (2010) – Eurasian Economic Union notified under Article XXIV GATT and V GATS

Formation or expansion of customs unions may require “compensation” When one of the Members must increase its tariffs to ensure a harmonized CU-wide customs tariff, the need for compensation will arise – E.g. Armenia’s accession to the EEU Customs Union – Average tariff 9 per cent New Member of CU – average tariff binding of 4 per cent An increase means that A’s trading partners are entitled to “compensation” OR

RTAs under WTO law – services trade Under Article V of the GATS, members of an “economic integration” agreement must ensure – absence or elimination of substantially all discrimination – with a substantial sector coverage No distinction between FTAs and CUs as in the goods sector

Presentation overview RTAs in the WTO system – general points – Policy – Law Selected legal issues – Trade remedies (in particular anti-dumping) in RTAs – RTAs of WTO Members with non-WTO Members – Significance of RTA law in WTO dispute settlement (Where relevant, references to EEU)

Trade remedies in RTAs May RTAs maintain the right of Members to impose trade remedies on each other? Article XXIV allows certain measures despite the requirement to eliminate trade restrictions; Articles VI or XIX not mentioned In practice, RTAs either: – Maintain right to impose trade remedies (ADs, CVDs and safeguard measures) – Restrict or eliminate the right altogether E.g. in case of ADs – 90 % of all RTAs maintain the right to impose AD duties – 3 % restrict in various ways – 7 % prohibit altogether

Eurasian Economic Union Article 28 of the EEU Treaty Within the functioning of the internal market in mutual trade of goods the member State shall not apply import and export customs duties (other duties, taxes and charges having equivalent effect), non-tariff measures, special safeguard, antidumping and countervailing measures, except otherwise provided in this Treaty.

RTAs with non-WTO Members (1) Some RTAs include both WTO and non-WTO Members. Permissible? Article XXIV:7 refers to FTAs and CUs “as between the territories of contracting parties” – “contracting parties” is the old manner of saying “WTO Members” – Article V of the GATS is differently worded and permits RTAs with non-Members – Article XXIV:10 moreover envisages an authorization procedure for RTAs that “do not fully comply with the requirements of paragraphs 5 to 9”

RTAs with non-WTO Members (2) All this suggests that RTAs between WTO Members and non-WTO Members do not benefit from the legal justification under Article XXIV, unless: explicit authorization under XXIV:10; or waiver However, this aspect has been ignored in practice: – Article XXIV:10 has not been used – Large number of RTAs in force of WTO Members with non-WTO Members, incl. EEU

Can RTA law be invoked before a WTO panel? E.g. can an RTA be invoked to justify a violation of WTO law? – Substantive? WTO panels apply only WTO law – Citing action of a supranational institution? Can an RTA dispute settlement provision or action taken under the RTA be invoked to avoid the jurisdiction of a WTO Panel? – “Renouncing” the right to a WTO dispute? Can RTA law otherwise be used before a WTO panel? – E.g. as a tool of interpretation?