Exception in accordance with article xxiv of gatt regionalism in the multilateral trading system

HO CHI MINH CITY UNIVERSITY OF LAW
MANAGING BOARD
OF SPECIAL TRAINING PROGRAMS

BACHELOR’S THESIS
REGULAR TRAINING PROGRAM
COURSE 35 (2010 – 2014)

EXCEPTION IN ACCORDANCE WITH
ARTICLE XXIV OF GATT:
“REGIONALISM”
IN THE MULTILATERAL TRADING SYSTEM
Student

: LÊ NGỌC QUỲNH ANH

Student ID : 1055050010
Class

: CLC35

Supervisor : Dr. TRẦN THỊ THUỲ DƯƠNG

HO CHI MINH CITY, 2014


AFFIRMATION
I hereby affirm that this thesis is my own work under the instruction of my
supervisor, Dr. Trần Thị Thùy Dương. The research results have not been published
anywhere else.
Ho Chi Minh City, July 2014

Lê Ngọc Quỳnh Anh


LIST OF ABBREVIATIONS
ASEAN

The Association of South-East Asia Nations

ASEAN-Japan RTA

Agreement on Comprehensive Economic Partnership among
Japan and the Member States of the Association of the
Southeast Nations dated 03 April 2008

Enabling Clause

Decision of 28 November 1979 on Differential and More
Favorable Treatment Reciprocity and Fuller Participation of
Developing Countries

GATT 1994

General Agreement on Tariffs and Trade 1994

GATS

General Agreement on Trade in Services 1994

Japan-Vietnam RTA

Agreement between Japan and the Socialist Republic of
Vietnam for an Economic Partnership dated 25 December
2008

MFN

Most-favored-nation

NAFTA

North America Free Trade Area

ORC

Other regulations of commerce

ORRC

Other restrictive regulations of commerce

RTA

Regional Trade Agreement

Transparency

General Council Decision on the Transparency Mechanism for

Mechanism

Regional Trade Agreements 2006, WT/l/671

Turkey – Textiles

Turkey – Quantitative Restrictions on Textile and Clothing
Products, WT/DS34

The US

The United States of America

US - Steel

US – Certain Safeguard Measures Against the Import of
Certain Steel Products, WT/DS252

WTO

World Trade Organization


TABLES OF CONTENT
LIST OF ABBREVIATIONS
INTRODUCTION .......................................................................................................... 1
Chapter 1. THE LEGAL BACKGROUND FOR REGIONALISM IN TERMS
AND IN DISPUTE SETTLEMENT PRACTICE – CONFORMITY OF
VIETNAM’S REGIONAL COMMITMENTS ........................................................... 6
1.1.

Substantive Requirements .................................................................................. 6

1.1.1.

Article XXIV of the GATT 1994 ................................................................ 6

1.1.1.1.

Scope of the Exception ......................................................................... 6

1.1.1.2.

Requirements of the Exception ........................................................... 13

1.1.2.

The Enabling Clause .................................................................................. 28

1.1.3.

Article V of the GATS ............................................................................... 30

1.2.

Procedural Requirements .................................................................................. 31

1.2.1.

General Provisions ..................................................................................... 31

1.2.2.

The Transparency Mechanism ................................................................... 34

CHAPTER 2. THE INTERFACE BETWEEN REGIONALISM AND
MULTILATERALISM IN INTERNATIONAL TRADE ....................................... 39
2.1.

Different Approaches on the Interrelation between RTAs and WTO law ....... 39

2.1.1.

Interrelation between Different International Treaties .............................. 40

2.1.2.

Interrelation between Different Sources of International Trade Law........ 45

2.2.

The Fragmentation of International Trade Law ............................................... 48

2.3. Recommendations for Vietnam in the Context of Regionalism in the
Multilateral Trading System ....................................................................................... 54
2.3.1.

Economic Aspect ....................................................................................... 55

2.3.2.

Political Aspect .......................................................................................... 59

CONCLUSION ............................................................................................................. 62
BIBLIOGRAPHY


1

INTRODUCTION
1.

Background

The World Trade Organization (―WTO‖) is the only international organization
that deals with the rules of trade between nations. At its heart are agreements which
established the multilateral trading system. Although WTO Agreements are
complicated, there are simple and fundamental principles that run throughout all of
these documents. Non-discrimination is a principle which characterizes the multilateral
trading system. One of the two contents is that a country should not discriminate
between its trading partners. With the view to enhance deeper economic integration
among its members, justifiable deviations from the MFN obligation are granted to
regional trade agreements (―RTAs‖) upon the fulfillments of certain requirements.
In the WTO, RTAs are defined as trade agreements between two or more
partners. They include free trade agreements and customs unions. Hence, RTAs create
discriminatory treatment to a number of WTO members which are parties thereto by
allocating them with more favorable trade preferences. The nature of RTAs is therefore
somewhat contrary to the non-discrimination of WTO. However, considering the
benefits that RTAs may bring to international trade relations provided that they are
well mandated in a manner that reduces the negative effects of such conflicts,
justification for RTAs concluded by WTO members was established. Up to date, the

legal framework for regional integration under WTO law basically composes of (i)
GATT 1994 Article XXIV, (ii) GATS Article V, (iii) the Enabling Clause and, (iv) the
Transparency Mechanism. The framework, which is primarily made up of
requirements to be satisfied by RTAs parties, has given rise to many debates on its lack
of clarity and failure to discipline the exception.


2

In such a context, RTAs have continuously grown in number. Although WTO
members’ practice to form RTAs is not a new resurgence, the trend has just become so
intensive recently. As of 30 April 2014, 249 RTAs have been notified to the WTO,
among which 176 entered or will enter into force no sooner than 1 January 2004.
Almost all WTO members are parties to at least one RTA. The proliferation of RTAs is
currently characterized by the far broader coverage that goes beyond those negotiated
at the multilateral level, the overlapping membership and the tension over crossregional partners in terms of geography. Vietnam has participated in 3 RTAs as
individual with Japan, in ASEAN Free Trade Area and in the Global System of Trade
Preferences among Developing Countries (GSTP). Under ASEAN membership,
Vietnam is party to 5 more RTAs with China, India, Japan, Korea and Australia – New
Zealand. The coverage, type and mandatory under which RTAs are notified vary
accordingly. An additional number of 7 RTAs are being negotiated with the TransPacific Partnership at the spotlight and one more is under research.
The present paper provides a systematical understanding on the legal framework
for RTAs under WTO law with detailed and synthesized discussions on its elements.
The author also hopes to analyze the legal aspects of regionalism in the multilateral
trading system and subsequently, to propose useful ideas as relevant recommendations
for Vietnam.
2.

Literature Review

Much literature has been devoted to discuss the legal defects of GATT 1994
Article XXIV and their implications on practice of WTO members, of which the
followings are the most typical:


3

(i)

Lockhart, Nicolas JS and Andrew D Mitchell, Regional Trade Agreements
Under GATT 1994: An Exception and Its Limits in Andrew D Mitchell
(ed.), Challenges and Prospects for the WTO, London, Cameron May
2005;

(ii)

Gupta, Sayatan, ―Changing Faces of International Trade: Multilateralism
to Regionalism‖, Journal of International Commercial Law and
Technology, Vol. 3:4, 2008.

Accordingly, proposals have been suggested with a view to tighten the disciplines
for RTAs concluded by WTO members. An example is:
(iii)

Picker, Colin B., ―Regional Trade Agreement v. the WTO: A Proposal for
Reform of Article XXIV to Counter This Institutional Threat‖, U. Pa. J.
Int’l Econ. L., Vol. 2:2, 2006.

Scholars have also evaluated RTAs as building blocks, stumbling blocks or
stepping stones towards multilateralism. One demonstrative working result is:

(iv)

Leaf-Arcas, Rafael, ―Proliferation of Regional Trade Agreements:
Complementing or Supplementing Multilarealism?‖, Chicago Journal of
International Law, Vol.11:2, 2011.

Nevertheless, not many studies have focused on other legal aspects of the issue.
Especially in Vietnam, discussions on regionalism often appear as part of a more
general work rather than as a separate research.
3.

Purpose of the Research

The research has two purposes. The first purpose is to fully analyze the legal
framework for regionalism under WTO law with the main focus on GATT Article


4

XXIV. It aims at providing detailed discussion on the substantive and procedural
requirements for RTAs concluded by WTO members with a demonstration of
Vietnam’s commitments under a specific RTA, namely the one with Japan. The second
purpose is to draw legal implications of the interface between regionalism and the
multilateral trading system. In doing so, the paper tries to explain the nature of
conflicts between the two as well as describe the legal fragmentation incurred from the
current wave of RTAs. Based on such findings, the author hopes to propose useful
ideas for Vietnam’s practice in negotiating and concluding RTAs.
4.

Research Delimitation

Regional trade agreements (RTAs) in the research shall be understood as
agreements concluded between countries not necessarily belonging to the same
geographical region which grant to their party preferential trade treatment of a
discriminatory nature. Regionalism shall have the meaning of intensified actions by
WTO members to liberalize or facilitate trade through RTAs.
The WTO legal mandate for RTAs composes of several provisions. Due to
limitation on capacity, time and material, the research will focus mainly on GATT
Article 1994 Article XXIV as a justification for RTAs concerning the trade in goods.
For the same reason, the Japan-Vietnam RTA is chosen to be a demonstration for
conformity assessment of Vietnam’s regional commitments as it is the only agreement
notified under Article XXIV in which Vietnam participates as individual rather than
under ASEAN membership.
5.

Research Methodology

In order to fulfill the purpose set out for the research, the writer uses a
combination of two methods for legal research. The first one is legalistic research


5

method. This method is used to achieve an analytical understanding of the provisions
of international treaties and other legal documents encompassed in the research
process. The contents of legal provision are interpreted and evaluated in a skeptical
manner in order to provide a background on which further remarks and conclusions are
based on. The second is empirical method. This method is used to obtain knowledge
and data working on materials such as books, journals or research papers and on
practical figures. Information is collected, analyzed and synthesized to serve the

research’s targets.
6.

Structure of the Research

The research is organized into three main parts. The beginning provides a brief
introduction on the research. The first chapter will discuss WTO legal framework for
regionalism in the multilateral trading system. It will do so by breaking down the
relevant provisions into elements which are arranged into smaller parts of the chapter
to fully discuss the substantive and procedural requirements that WTO law imposes on
RTAs concluded by its members. Subsequently, the second chapter will address the
legal implications of regionalism, namely the interface between RTAs and the WTO as
source of international trade law and the current fragmented trade regulation. Such
implications will finally followed by relevant recommendations for Vietnam.


6

Chapter 1. THE LEGAL BACKGROUND FOR REGIONALISM IN
TERMS AND IN DISPUTE SETTLEMENT PRACTICE –
CONFORMITY OF VIETNAM’S REGIONAL COMMITMENTS
The mandate for regionalism under WTO law will be analyzed as substantive and
procedural requirements respectively. As for substantive requirements, (i) GATT 1994
Article XXIV (―Article XXIV‖) together with the Understanding on the Interpretation
of Article XXIV of the GATT 1994 (―the Understanding‖), (ii) GATS Article V, (iii)
the Enabling Clause will be discussed with the main focus on Article XXIV.
Concerning procedures, the Transparency Mechanism will be presented. As for the
conformity of Vietnam’s regional commitments, the Japan-Vietnam RTA1 is
considered as mentioned earlier in Introduction.

1.1. Substantive Requirements
1.1.1.

Article XXIV of the GATT 1994

The article provides an exception for RTAs concerning trade in goods. Two main
contents will be discussed respectively, which are scope of the exception and
requirements to be fulfilled.
1.1.1.1.

Scope of the Exception

The scope of exception will be broken down into RTAs, measures and WTO
agreements covered for detailed analysis.
a. RTAs covered
1

The Agreement between Japan and the Socialist Republic of Vietnam for an Economic Partnership (JapanVietnam RTA) was signed on 25 December 2008 and entered into force since 1 October 2009. The agreement
covers both trade in goods and services. The institution thereby established was notified to the WTO on 1
October 2009 as free trade area under GATT 1994 Article XXIV regarding the sectors on goods.


7

Since GATT 1994 cover obligations with respect to trade in goods, the exception
provided therein should be understood as an exception for RTAs on trade in goods or
for parts of RTAs that deal with trade in goods. Article XXIV:5 reads ―provisions of
this Agreement shall not prevent,…, the formation of a customs union or of a free-trade
area or the adoption of an interim agreement necessary for the formation of a customs
union or of a free-trade area; …‖. The justification granted under the article covers

RTAs establishing customs unions or free trade areas and interim agreements. Thus,
both fully pledged and interim RTAs could benefit.
Of 249 RTAs in force notified to the WTO as of 30 April 2014, no single
agreement is listed as interim. This was also a common fact of the earlier period since
1995 and could probably be the very reason for Bartels’ comparative idea of de facto
interim agreements, i.e. agreements with an implementation period versus de jure
interim agreements.2 The distinction should be concerned as interim agreements are
subject to an additional condition of reasonable length of time.3 In the Understanding,
it is stated that this period should exceed 10 years only in exceptional cases.4
Furthermore, they are also bear more burden regarding procedural requirements, which
will be presented later in the corresponding part.
Regarding the limit for transitional period, the US argued that: ―Neither GATT
Article XXIV not the 1994 Understanding on Article XXIV requires that the transition
periods to be limited to ten years. Article XXIV does require, however, that the
agreement eliminate tariffs on substantially all the trade. Focusing, therefore, on that
requirement, the Parties worked to negotiate as comprehensive an agreement as

2

Bartels, Lorand, ―Interim Agreements under Article XXIV of the GATT‖, World Trade Review (2009), printed
in United Kingdom, Vol.8:2, p.339.
3
GATT Article XXIV:5(c).
4
The Understanding, explanation for ―reasonable length of time‖ at paragraph 3.


8

possible…‖5 However, as set out in Article XXIV:8(a)(i) and (b), a custom union or

free trade area have to fulfill the condition that duties ORRC are eliminated on
substantially all trade. Therefore, the economic institution existing within the
transitional period of an RTA might not qualify. For example, even though beef makes
up a significant part of Australia’s exports to the US, the Australia – US free trade
agreement only fully eliminates US barriers to Australian beef exports after eighteen
years.6
In recent development of the Transparency Mechanism, the General Council has
ignored the original distinction by omitting the term ―interim agreement‖. Concerning
data required for notification in goods aspect, it is mentioned that ―when the agreement
is to be implemented by stages, a full listing of each party's preferential duties to be
applied over the transition period‖.7 Hence, the transitional phase of an agreement by
stages has overlapped the original ―interim agreements‖ and their required reasonable
length of time.
The conventional distinction holds certain role. It reflected ―an important
protection for the rights of third parties during the transitional period, as the
neutrality, or equality of opportunity, should apply to preserve third-party interest‖,
remarked by the EC and supported by Argentina.8 However, apart from that
observation, there exists no significant commentary on the practice of treating the
implementation phase of an agreement as a real customs union or free trade area. Very

5

Committee on Regional Trade Agreements, Free Trade Agreement between the United States and Chile Questions and Replies, WT/REG160/6, 17 March 2006, page 2.
6
Bartels, Lorand, supra note 2, page 346.
7
The Transparency Mechanism, Annex, paragraph 2 (emphasis added).
8
Committee on Regional Trade Agreements, Note on the Meeting of 27 November and 4-5 December 1997,
WT/REG/M/1, 13 January 1998, remarks by EC, para. 36, 37.

9

little critical literature on RTAs in multilateral trading system addressed this issue. 9
The reason may be that no single member state remains a ―pure‖ third party.
Regionalism has been so intensified that each WTO member is now member to at least
one RTA. This concurrent membership will obviously lessen the ambition to pursuit a
clear set on this problem. In short, ―interim agreements‖ currently appears as a ―dead
term‖ and therefore, will probably threaten WTO’s legitimacy.
The Japan-Vietnam RTA entered into force on 1 October 2009. The end of
implementation for Japan in 202410 exceeds 10 years and there is furthermore
substantial back-loading of liberalization in year 2019 and 2024. Thus, at the time of
becoming effective, the RTA was not yet to fully qualify as a free trade area as internal
trade restrictions had not been eliminated on substantially all the trade between the
RTA parties. Nevertheless, it was still notified to the WTO as a free trade area rather
than an interim agreement.
b. Measures covered
Although Article XXIV:5(a) literally states that the formation of customs unions
and free trade agreements or the adoption of interim agreement could be justified,
specific measures are paid with more attention as they directly affect third-party WTO
members. In dispute settlement practice, both the complaining and the responding party
usually refer to Article XXIV in their argumentation on specified measures. For
instance, in the case Turkey - Textiles,11 it was the quantitative import restriction on
import of nineteen textile and clothing products from India that was challenged. In US
9

Bartels, Lorand, supra note 6, ―Much of the writng on regional trade agreements and their regulation in the
WTO has focused on the conditions applicable to fully pledged agreements.‖ on page 339 and, ―There has been
little commentary within or outside the WTO on the systemic implications of this practice.‖ on page 344.

10
Committee on Regional Trade Agreements, Factual Presentation on Economic Partnership Agreement
between Japan and Vietnam: Report by the Secretariat (Revision), WT/REG.275/1/Rev.1, 4 July 2011,
paragraphs 22 and 24.
11
India was claimant. The Appellate Body issued its report (WT/DS34/AB/R) on 22 October 1999.


10

– Steel, the safeguard measures against the import of ten items of steel products to the
US from third parties were brought to the Dispute Settlement Body.12
However, there is no official statement whether this exception is applied solely to
certain measures. More obviously, the wording of the legal text reveals that it is the
formation of customs unions/free trade areas or the adoption of interim agreements that
matters. Additionally, the possibility of bringing a general issue rather than a specific
measure to question is secured by Article XXIII. A WTO member can call upon the
dispute settlement mechanism if there is ―a failure of another contracting party to
carry out its obligations under this Agreement‖ or ―the existence of any other
situation‖. 13
The requirements that parties to an RTA must satisfy create upon such parties the
obligations of compliance. Setting up a free trade area which fails to meet the
requirements could probably be deemed a failure to carry out the obligations under the
GATT 1994. In other words, a claim under article XXIII:1(a) can be filed when a
Member is alleged to have acted inconsistently with a provision of the GATT 1994.14
Moreover, a claim could still be built with reference to ―the existence of any other
situation‖. When article XXIII:1(a) and (b) are proved to be inapplicable, a WTO
member of which benefit is being negatively affected could still make use of article
12

Complaint was made by the EU, Japan, Korea, China, Norway, Switzerland and New Zealand. The Appellate
Body was asked to issue eight separate reports with the same contents respectively corresponding to eight
complainant. The reports dated 10 November 2003. See more in Ha, Thi Thanh Binh, Summary of Appellate
Rulings in US –Certain Safeguard Measures Against the Import of Certain Steel Products (WT/DS252/AB/R) in
Ho Chi Minh University of Law, WTO Case Law – A compilation of Significant WTO Cases and Rulings, Nhà
xuất bản Lao động – Xã hội, 2010.
13
GATT 1994, article XXIII:1, sub-paragraphs a and b, emphasis added.
14
Analytical Index, B. Interpretation and Application of Article XXIII, 1. General, paragraph 959, In EC —
Asbestos, Canada claimed that the French ban on the sale and imports of products containing asbestos nullified or
impaired benefits accruing to it under Article XXIII:1(b). In response, the European Communities raised
preliminary objections, arguing on two grounds that the measure fell outside the scope of application of Article
XXIII:1(b). The Panel rejected both objections. In addressing the European Communities appeal against the
Panel’s rejection of these preliminary objections, the Appellate Body explained the relationship between Articles
XXIII:1(a) and XXIII:1(b).


11

XXIII:1(c) to take action.15 Hence, the discussion on measures covered herein should
be considered as part of the coverage of Article XXIV rather than the sole subjectmatter of the exception.
Through the establishment of the timing and necessity test of the Appellate Body
in Turkey - Textiles, it could be understood that a measure will be judicially accepted
provided that two conditions must be fulfilled.16 Although the Appellate Body did not
explicitly state that the test applies solely to inconsistencies arising from the imposition
of external trade restrictions, the dispute at issue concerned a measure of external
restriction, i.e. Turkey’s quantitative restrictions on imports from India.17 However, it
would be very impractical if parties to RTAs had to prove that the elimination of
internal trade restrictions is necessary as such trade liberalization is the very reason for

which WTO law has granted the exception being discussed.
As for the first condition, the party applying the measure must demonstrate that
such measure is introduced upon the formation of a customs union that fully meets the
requirements of sub-paragraph 8(a) and 5(a) of Article XXIV.18 It was intentionally
noted that such measure can only be justified if it is introduced ―upon the formation‖ of
a customs union.19 Therefore, measures added to the terms of an RTA anytime rather
than that of the formation of a customs union would not fall within the scope of
exception granted by Article XXIV. In some situations, this limitation may create

15

Annex 2 of the WTO Agreement - Understanding on Rules and Procedures Governing the Settlement of
Dispute, Article 26.2.
16
Appellate Body Report, WT/DS34/AB/R, paragraph 58.
17
Lockhart, Nicolas JS and Andrew D Mitchell, Regional Trade Agreements Under GATT 1994: An Exception
and Its Limits in Andrew D Mitchell (ed.), Challenges and Prospects for the WTO, London, Cameron May 2005,
page 224.
18
Ibid., paragraph 58.
19
Ibid., paragraph 46.


12

difficulties for RTA parties as they will be incapable of predicting every specific
measure, which can be later applied.20
The second condition leads to the necessity test. The party applying the measure

must demonstrate that the formation of the customs union and presumably, free trade
area, would be prevented if it were not allowed to introduce the measure at issue. 21 The
very purpose of exception granted under Article XXIV:4 is ―trade facilitation‖
amongst members and ―not trade restriction‖ between members and non-members.
Hence, a balance between the two objectives should be reached. If deeper integration
can be achieved without the need to create restrictions regarding external trade, a
measure with discriminatory nature should not be allowed. In Turkey - Textiles, as
noted by the Panel, there were alternatives that may be imposed by Turley and the EU
in order to restrict any trade restriction and that were consistent to Article XXIV:8(a)(i)
in order to achieve the customs union. An origin certification system may be a proper
alternative.22 Thus, the necessity test would result a negative answer if there were
alternatives that are less trade restrictive than the measure at issue.
c. Agreements covered
By its wording, Article XXIV seems to provides exception for only infringements
of obligations under GATT 1994, as it says “…the provision in this Agreement shall
not prevent,…‖ in the chapeau of paragraph 5 and ―For the purpose of this Agreement‖
at the beginning of paragraph 8.23 However, the GATT 1994 covers trade in goods in
general. As a result, the possibility of extending the scope of article XXIV to WTO

20

Lockhart and Mitchell, supra note 17, page 223.
Appellate Body Report, supra note 16, paragraph 58.
22
Ha, Thi Thanh Binh, Summary of Appellate Report in Turkey – Quantitative restrictions on textiles and
clothing (WT/DS34/AB/R) in Ho Chi Minh University of Law, WTO Case Law – A compilation of Significant
WTO Cases and Rulings, Nhà xuất bản Lao động – Xã hội, 2010, page 86.
23
Emphasis added.
21

13

other specific goods agreements exists and gives rise to quite a few concerns,
especially in the case of the Safeguards Agreement.
In general, other agreements that govern trade of goods are understood to have
the nature of GATT 1994 specific legislations in the multilateral system. For example,
the Agreement on Textiles and Clothing covers trade in textiles and clothing and such
products are goods. As for the Safeguards Agreement, the legal frame for safeguard
measures is applied to goods. Thus, it is reasonable to argue that the exception under
Article XXIV should be expanded to other WTO goods agreement. However, it should
be noted that the contents of Article XXIV almost remain unchanged since the GATT
1947 era whereas the number and scope of other agreements on trade in goods have
been gradually added by negotiators.
In the absence of an express clarification on such expansion, panels and the
Appellate Body cannot automatically apply the exception to all goods-related
obligations. It is demanded that there is a ―close interrelation‖ between GATT 1994
provisions and the specific agreement at issue. In Turkey - Textiles, a close interrelation
was confirmed since, according to the Appellate Body, Article XXIV:5 could provide
an exception for an inconsistency with Article 2.4 of the Agreement on Textiles and
Clothing because Article 2.4 itself permits restrictions introduced under ―relevant
GATT 1994 provisions‖.24
1.1.1.2.

Requirements of the Exception

Article XXIV:5 sets out the conditions on the level of external trade restrictions
while Article XXIV:8 provides for the definitions of customs unions and free trade
areas regarding internal trade liberalization, and external trade policy in case of

24

Lockhart and Mitchell, supra note 17, page 226.


14

customs unions. Therefore, the requirements will be discussed separately as internal
and external.
a. Internal Requirements
Article XXIV:8 defines customs unions and free trade areas. Regarding intratrade, the requirement for customs unions is as follows:
―duties and other restrictive regulations of commerce (except, where necessary, those
permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to
substantially all the trade between the constituent territories of the union or at least with
respect to substantially all the trade in products originating in such territories…‖25

For free trade areas, the corresponding requirement is that:
―duties and other restrictive regulations of commerce (except, where necessary, those
permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially
all the trade between the constituent territories in products originating in such
territories.‖26

There is a distinction regarding the origin of trading products between the
constituent states. For customs unions, there are two options. Elimination of internal
restrictions is required either on (1) substantially all the trade between the constituent
parties or on (2) substantially all the trade in products originating from such territories.
The latter is more trade liberalizing as it ensures freedom for trade of goods
irrespective of their origins.27 As for free trade areas, it is only demanded that
restrictions are removed on substantially all the trade of goods that have intra-regional
origin. Apart from the above-mentioned difference, the requirement is similar for both

customs unions and free trade areas. The requirement can be approached based on its

25

GATT 1994 Article XXIV:8(a)(i).
GATT 1994 Article XXIV:8(b).
27
Lockhart and Mitchell, supra note 17, page 228.
26


15

composing elements, which are: (i) duties and other restrictive regulations of
commerce as the objects to be eradicated and (ii) substantially all the trade.
(i)

Elimination of “duties and other restrictive regulations of commerce”

There is no clear and detailed interpretation for ―duties and other restrictive
regulations of commerce‖. ―Duties‖ could be understood as boundaries. As for the term
of ―other restrictive regulations of commerce‖ (―ORRC‖), a broad interpretation will
lead to higher level of free trade within the RTA.28 Generally, any regulations applied
to imported goods at borders amount to ORRC as they impede the free movements of
such goods. Hence, ORRC could be, including but not limited to, import bans,
quantitative restrictions and administrative rules regulating importation.
The coverage of ORRC that must be eliminated holds a relatively important role
in assessing the compliance of RTAs. If through interpretation and practice, the scope
of exemption for ORRC that must be eliminated is enlarged, lower trade liberalization
will come up as a result. Vice versa, encompassing a broader range of ORRC will leads

to a stricter discipline as parties to RTAs will have to guarantee a higher level of trade
liberalization amongst them upon the formation of such economic institution. Article
XXIV:8(a)(i) and (b) provide for several exemptions that could be maintained on
substantially all the trade of an RTA by a list of ORRC in the brackets, i.e. those
permitted under Articles XI, XII, XIII, XIV, XV and XX. Arguments have been raised
regarding the nature of the list, or in other words, whether the list is exhaustive or
illustrative. Discussions also arise concerning the question whether trade remedies, i.e.
safeguard under Article XIX, anti-dumping or countervailing measures under Article

28

Ibid., page 231. The authors argue that ―Elimination of a broader range of restrictive regulations will result in
a higher level of liberalization within the RTA, in accordance with the purpose of the exception in Article
XXIV:5‖ and this argument was made up regarding both duties and ORRC.


16

VI of GATT 1994, should also be considered ORRC because such measures are not in
the bracketed list as those that could be maintained inside RTAs.29
For instance, safeguard measures are permitted under GATT 1994 Article XIX,
provided that certain conditions are met. However, this type of measures does not
literally appears in the exemption list of Article XXIV:8(a)(i) and (b). Therefore, it is
uncertain whether safeguards can still be maintained within trade in an RTA. The
exclusion of safeguards from the list could mean that they are simply not ORRC and
consequently, they are not subject to the elimination requirement. However, it could
also be that safeguards are ORRC and the fact that they are excluded from the list
simply means that they have to be removed on substantially all the trade between the
RTA constituent territories.30 If so, when a party to an RTA takes Article XIX
safeguard actions, it is entitled to exempt imports from the regional partners. 31 The

non-inclusion has also been approached in different distinct, and mutually exclusive,
viewpoints but on the ground that safeguards are ORRC.32
As certainty about the scope of exception under Article XXIV concerning
safeguards is still lacking, in dispute settlement practice, the panels and Appellate
Body have avoided directly solving the question of whether Article XXIV:8 provides a
justification for the discriminatory application of safeguard measures. Instead, these
judicial bodies shifted the emphasis to the relationship between the injury
determination and the final implementation of such measures through the requirement
of parallelism, i.e. the import of products from the source subject to the safeguard
29

Regarding safeguard measures, for example, see Pauwelyn, Joost, ―The Puzzle of WTO Safeguards and
Regional Agreements‖, Journal of International Economic Law, Vol. 7:1, 2004, page 109-142.
30
Lockhart and Mitchell, supra note 17, page 231. The authors’ rationale applies for trade remedies in general,
including safeguards measures permitted under Article XIX.
31
Leal-Acras, Rafael, ―Proliferation of Regional Trade Agreements: Complementing or Supplanting
Multilateralism?‖, Chicago Journal of International Law, Vol. 11:2, 2011, page 606.
32
WTO Negotiating Group on Rules, Compendium of Issues Related to Regional Trade Agreements –
Background Note by the Secrectariat (Revision), TN/RL/W/8/Rev.1 (1 August 2002) paragraph 74, 75.


17

measures itself did qualify for the imposition of a safeguard measure.33 In practice,
―only a few agreements explicitly allow for the exclusion of RTA partners from a
global safeguard action; in other agreements, this exemption is implicit‖.34 The
opportunity to apply trade remedies such as safeguards is criticized to be trade

restrictive and therefore, contributes to the low liberalization of trade, especially in the
case of bilateral and regional trade agreements in Asia. The use of safeguards in intraAsian RTAs is considered pullbacks that halt liberalization by removing preferences
granted under such agreements. 35
In Japan-Vietnam RTA, Article 1636 provides for the elimination of duties
together with duties reduction in accordance with a specific schedule in Annex 1 to the
agreement.37 This removal of internal restrictions concerns trade in originating goods
of each party. With respect to ORRC, Article 19 deals with non-tariff measures:
―Each Party shall not introduce or maintain any non-tariff measures on the importation
of any good of the other Party or on the exportation or sale for export of any goods
destined for the other Party which are inconsistent with its obligations under the WTO
Agreement‖

The wording could create confusion in interpreting the article. It is obviously that
non-tariff measures, which have the nature of trade restrictions, would not be allowed
should they are inconsistent. Thus, the parties maintained the chance to apply non-tariff
measures that are consistent with GATT 1994 and other relevant agreements. This
possibly leads to at least two different ways of understanding.
33

Ha, Thi Thanh Binh, Summary of Appellate Rulings in US –Certain Safeguard Measures Against the Import of
Certain Steel Products (WT/DS252/AB/R) in Ho Chi Minh University of Law, WTO Case Law – A compilation of
Significant WTO Cases and Rulings, Nhà xuất bản Lao động – Xã hội, 2010, page 279.
34
Supra note 32, footnote 47.
35
Mercurio, Bryan, Bilateral and Regional Agreements in Asia: A Sceptic’s View, in Buckley, Ross P. and
Richard Weixing Hu and Douglas W. Arner, East Asia Economic Integration: Law, Trade and Finance, Asian
Commercial, Financial and Economic Law and Policy Series, Edward Elgar Pub, 2011, page 136.
36
Japan-Vietnam RTA, Article 16 – Elimination or Reduction of Customs Duties.

18

The first one is that any non-tariff measure permitted under GATT 1994 would
remain applicable on the trade between the two countries since they are WTO
consistent. Under this approach, even measures other than those listed in the brackets
of Article XXIV:8, i.e. measures permitted under Article XI to XV and XX will not be
subject to elimination. For WTO member states or individuals holding the opinion that
the bracketed list is exhaustive, this should be considered a violation of the internal
requirement on internal trade liberalization because ORRC other than those in the
exemption list are still maintained.
The second way of understanding is based on the ground that the requirements to
of Article XXIV create an obligation of compliance to RTAs’ parties. Consequently,
the wording of Article 19 of Japan-Vietnam RTA established an obligation for the
contracting parties to remove the non-tariff measures accordingly so that ―duties and
other restrictive regulations of commerce are eliminated on substantially all the trade
between the constituent territories‖. This approach is more trade liberalizing and
therefore, will render the RTA more consistent with Article XXIV:8(b).
Safeguards are still allowed on the trade between the two countries and are
regulated as bilateral safeguard measures in Article 20 of the relevant agreement.
However, there is a distinction between safeguards applied under GATT 1994 Article
XIX38 and those as bilateral measures. Hence, the chance to apply this kind of trade
remedy is remained with regard to import increase attribute not only to WTO
obligations but also to those incurred under the present agreement. Regarding the
bilateral safeguard, Article 20 provides the party against whose originating goods the
measure is taken with the rights to compensation or suspension of tariff concession

38

Japan-Vietnam RTA, Article 20, paragraph 1; The parties have mutually agreed that safeguard measures
applied in compliance with GATT 1994 Article XIX, Safeguard Agreement shall not be subject to the relevant
Dispute Settlement Mechanism of the free trade area.


19

which is substantially equivalent to the applied measure.39 Such potential application of
safeguard and corresponding retaliation could create trade distortion between the two
parties.
(ii)

Substantially all the trade

The meaning of the words ―substantially all the trade‖ has yielded many debates;
but yet, no clear definition has been mutually reached. Likewise, not much
development has been made by panels or the Appellate Body through their dispute
settlement practice. In Turkey - Textiles, the Appellate Body addressed little guidance
on the issue by noting that ―substantially all the trade‖ is not the same as all the trade
but also is something considerably more than merely some of the trade.40 Accordingly,
it could only be concluded that the relevant amount of trade falls somewhere between
some and all trade among the RTA parties.41 There are two main approaches among
WTO members on this issue.
The first one is the qualitative approach, which would require the elimination of
restrictions with respect to every major sector of the economies of the RTA parties.42
However, questions will be raised regarding how to decide what constitutes a major
economic sector. In addition, it will also be problematic to determine a complied
elimination of restrictions in each sector or how many sectors should be counted as
major. A suggestion has been made that qualitative approach be adopted and operated
in conjunction with a quantitative criterion.43

39

Japan-Vietnam RTA, Article 20, paragraph 7(c).
Supra note 16, paragraph 48 (original emphasis).
41
Lockhart and Mitchell, supra note 17, page 230.
42
Ibid., page 228.
43
Ibid., page 229.
40


20

The second one is the quantitative approach, which is based on a statistical
threshold.44 The ground on which such threshold should be established also causes
much confusion. For example, the EEC-member countries proposed a long time ago
that ―a free trade area be considered as having been achieved for substantially all the
trade when the volume of liberalized trade reaches 80% of total trade‖.45 Thus, a
defined percentage of liberalized trade is demanded based on the total trade between
the RTA constituent territories. The US, in order to prove that NAFTA complied with
Article XXIV:8(b) submitted that NAFTA eliminated duties on 97 percent of the
parties’ tariff lines, representing more than 99 percent of the trade among them in terms
of volume.46 In this case, a threshold is introduced also on the total number of tariff
lines. However, both the total trade base and the total number of tariff lines base are
proved to be problematic.
Regarding the total trade base, first of all, the calculation of total trade between
parties to an RTA appears to be very complicated. Moreover, a fixed percentage of all

trade could be measures either as a proportion of total trade flowing between the
parties or as a proportion of each party’s individual trade with the other. 47 In an RTA
where, for example, a member is another RTA itself, the complexity would be
multiplied as numerous trade flows exist. Apart from the issue of ―all the trade‖, the
measurement of trade to be liberalized to fulfill the element of ―substantially‖ would
also ―be hardly accurate because such measurement is generally based on ex ante

44

Ibid., page 228.
Gupta, Sayantan, ―Changing Faces of International Trade: Multilateralism to Regionalism‖, Journal of
International Commercial Law and Technology, Vol. 3:4, 2008, p.267; and The European Economic Community,
Reports Adopted on 29 November 1957, L/778.
46
Lockhart and Mitchell, supra note 17, page 230.
47
Ibid., page 229.
45


21

forecasts of unrealized transactions, such as increased import resulting from the
formation of an RTA‖.48
In the case where threshold is set up based on the number of tariff lines criterion,
it might give a ―misleading impression‖ particularly when actual trade flows between
RTA partners are concentrated in a few tariff lines.49 A large number of tariff lines
would not necessarily mean a corresponding large amount of actual trade between such
partners. Those few tariff lines would cover an enormous amount of mutual trade in
reality. Thus, the high level of economic integration between the RTA parties will not

be ensured.
Since trade restrictions are required to be removed on ―substantially all the trade‖
between the RTA constituent territories, the existence of insubstantial mutual trade
where restrictive regulations, tariff or non-tariff could be maintained. It seems like
RTA negotiators have paid a lot of attention to the tariff side. Among various trade
arrangements, non-binding tariff lines or tariff lines which are only subject to reduction
are more frequently mentioned than the possibility to apply ORRC on such
insubstantial trade.
Japan-Vietnam RTA was notified to the WTO as free trade area and therefore
will be subject to the internal requirement of Article XXIV:8(b). Under the agreement,
at the end of implementation of the agreement in 2025, 91.6% of Vietnam’s tariff lines
will be duty free corresponding to 90.1% imports value from Japan.50 As for Japan’s
commitments, by the end of implementation in 2024, 89.3% of tariff lines and 96.5%

48

Gupta, supra note 45, page 267.
Lockhart and Mitchell, supra note 17, page 229.
50
Committee on Regional Trade Agreements, Factual Presentation on Economic Partnership Agreement
between Japan and Vietnam: Report by the Secretariat (Revision), WT/REG.275/1/Rev.1, 4 July 2011, paragraph
24.
49