Beijing Law Review
2010. Vol.1, No.1, 7-13
Copyright © 2010 SciRes.
Preferential Trade Agreements and the Law and
Politics of GATT Article XXIV
Amin Alavi
Centre for International Business Law, Aarhus University, Denmark.
Recei ved November 11th, 2010; revised D ecemb er 1st, 2010; accepted December 12th, 2010.
The tasks Preferential Trade Agreements (PTAs) perform are expressed in their scope and covered issues, thus
in order to be WTO compatible these aspects of PTAs should comply with the relevant WTO rules. This paper
examines which aspects of PTAs can violate these rules and therefore can be challenged before the WTO Dis-
pute Settlement Body, who may initiate such cases and why there hasn´t been more cases dealing with this im-
portant issue.
Keywords: WTO, PTAs, GATT Art. XXIV, WTO Dispute Settlement
Preferential Trade Agreements (PTAs)1 have always been an
integral feature of the international trading system. But al-
though it should be expected that they and their - most likely
negative economic effect on their partiesexternal trade
would be a subject of multilateral concern, in fact, not only the
relevant GATT/WTO rules, most importantly GATT Art.
XXIV (hereinafter the Article), are imprecise, but the multilat-
eral monitoring of statespractice in this regard is also quite
lax.2 However, since only few WTO cases concern PTAs and
the Article, it could be assumed that GATT/WTO members are
quite satisfied with the situation and see no need to clarify the
relevant WTO rules nor to verify PTAsconformity with these
rules. An example in this regard is the WTO case EC – Selected
Customs Matters brought by the US, which was based on
GATT Art. X on publication and administration of trade regu-
lation and not the Article, which is arguably the more direct
reference to the matters in that dispute. In their analyses of the
case, Hoekman and Mavroidis argue that “Aside from the stan-
dard hypothesis of the ‘glass house’ syndrome worries about
precedent-setting and possible ‘retaliation’ it is difficult to
understand why these provisions were not invoked” (Hoekman
et al., 2009). Commenting this explanation, Pauwelyn blames
the situation on the flexibilities of the Article, which make it
hard to invoke in cases and as a result final rulings would be
highly unpredictable (Pauwelyn, 2009). However, like in any
other international agreement, flexibilities and impre-ciseness
are an integral part of the WTO. As an example, GATT Art. VI
on Anti-Dumping and Countervailing Duties also includes
flexibilities and imprecise formulations. But this has not
stopped countries from invoking Art. VI and unlike the few
rulings on the Article, the panels and Appelllate Bodys rulings
on Art. VI have in fact clarified various aspects of it. So, why
do countries seem not to be interested in clarifying the Article
or monitoring its application? Why do countries not initiate
more cases on the Article? And more importantly which aspects
of PTAs can be in violation of the relevant WTO rules and
subject of a challenge?
Why PTAs?
As it is stated in the preamble of the Marrakesh Agreement,
the WTO and its agreements are “reciprocal and mutually ad-
vantageous arrangements directed to the substantial reduction
of tariffs and other barriers to trade and to the elimination of
discriminatory treatment in international trade relations”. The
general norm in this regard is the Most Favoured Nation
Treatment. But as an alternative norm, the Article and its re-
lated “Understanding on the Interpretation of Article XXIV of
the General Agreement on Tariffs and Trade 1994” (hereinafter
the Understanding) permit WTO members to offer some mem-
bers better-th an -MFN treatment, if they follow some generally
drafted procedures and fulfill certain criteria.3 The reason for
allowing this alternative is stated in para. 4 of the Article: “The
contracting parties recognize the desirability of increasing
freedom of trade by the development, through voluntary
agreements, of closer integration between the economies of the
countries parties to such agreements. They also recognize that
the purpose of a customs union or of a free-trade area should be
to facilitate trade between the constituent territories and not to
raise barriers to the trade of other contracting parties with such
Bhagwati has suggested that historic accounts show that “few
thought this exception would be used except under rare circum-
stances, as it was thought that having to go the whole way to-
ward virtually free trade and extending to nearly all commodi-
ties would discourage the resort to Article XXIV” (Bhagwati,
2008). But the growing number of PTAs suggests other-wise
(see Figure 1.). In fact some recent works show that the original
purpose of the Article was to satisfy UKs demands for flexibil-
*This paper is part of the project ”WTO law and EU law:
Legal conflict
and integration” funded by the Danish Social Science Research
1Also called Regional Trade Agreements or RTAs.
2For a more detailed analyses of the Article see Lockhart et al.
and Islam et al. (2009)
3The Enabling Clause has a similar function for trade-
relation with and
between developing countries.
ity in conducting trade with its traditional trading partners; to
assist European integration; and to allow the establishment of
US-Canada PTA (Chase, 2006). This suggests that the Article
was not meant to restrict states’ - at least the main states’ - right
to establish PTAs, but, as the article itself states, to allow them
to shape their external trade policies and to meet their needs. In
other wordsthe Article makes better sense as a political and
permissive statement than as a legal and restrictive provision.
In theory and as it is officially stated, there need not to be
any conflict between the WTO as the multilateral system and
the PTAs. In fact, the introductory text to the WTO writes “of-
ten [PTAs] can actually support the WTO’s multilateral trading
system. [PTAs] have allowed groups of countries to negotiate
rules and commitments that go beyond what was possible at the
time multilaterally. In turn, some of these rules have paved the
way for agreement in the WTO” (WTO, 2007). Nevertheless,
most scholars and observers regard PTAs as a threat to multi-
lateralism and a cause for concern (Bartels et al. 2006; Whalley,
Regardless of this discussion, and in parallel with multilat-
eral negotiations in the WTO, many countries have been en-
gaged in bilateral and/or regional negotiations towards estab-
lishment of PTAs (see Figure 1.). So it is safe to say that, mul-
tilateralism as embodied in the WTO has not made PTAs su-
perfluous. Why? The answer is found in the tasks PTAs per-
form. In short, they fulfill stateswish to control their actions
and maintain their autonomy and ability to shape their external
trade policies. Many reasons can be given for this. First, it is
assumed that negotiations are easier conducted among fewer
countries, which in principle have common interests, than under
the multilateral umbrella of the WTO where all 153 members
with their very divergent interests have to agree on a result
before the negotiations are concluded. Second, countries can
use PTAs in a broader context: as an element in their overall
economic, cultural, historical, military and/or political relations.
In short, while in a multilateral setting, trade agreements con-
centrate on trade, in PTAs trade can be used as a mean to
achieve other goals. Accordingly, they can be designed as an
element of countriesoverall external relations. An example of
such situations is EPAs where trade is seen as a tool to further
development of ACP countries. Third and the most important
reason is that countries can design PTAs to cover issues that are
not part of the WTO, for example investment and competition,
and make more specific rules on issues that are already covered
by the WTO, for example safeguard measures.
Non- WTO Issues
The WTO agreements cover those issues that the member
states have been willing and able to agree upon. Thus those
issues that are not covered by the WTO are in theory ‘unregu-
lated’. This is especially the case if the issues do not affect
trade or are generally regarded as separate and not related to
trade in goods, for example investment or competition law. In
such cases, they can be included in the PTAs which are volun-
tary agreements between states. For example Art. 62 of the
CARIFORUM EPA under its Title on Investment states that
“In pursuance of the objectives of this Title, the Parties shall
enter into further negotiations on investment and trade in ser-
vices no later than five years from the date of entry into force of
this Agreement with the aim of enhancing the overall commit-
ments undertaken under this Title.”
Figure 1.
Number of PTAs - Source: WTO Secretariat.
But if the issues have direct affect on trade without being
clearly covered by the WTO for example standards or concern
for environment the situation is much trickier. In theory, such
issues should be seen in light of the relevant WTO rules, e.g.
SPS, TBT agreement or GATT Art. III or XX. But here again,
since PTAs are voluntary agreements they can - and most often
do - address such issues without referring to the WTO. As an
example, under its Title on Tourism, Art. 116 of the CARI-
FORUM EPA states that:
“The Parties and the Signatory CARIFORUM States shall
encourage compliance with environmental and quality stan-
dards applicable to tourism services in a reasonable and object -
tive manner, without constituting unnecessary barriers to trade,
and shall endeavour to facilitate the participation of the Signa-
tory CARIFORUM States in relevant international organiza-
tions setting environmental and quality standards applicable to
tourism services.”
WTO Issues
PTAs also address issues that are already covered by the
WTO either as specific provisions for example on anti-dumping,
subsidies and safe-guards or general principles of the WTO for
example dispute settlement and Most Favoured Nation rules.
On the first type of issues, the relevant reference point is para. 8
of the Article, which instructs PTA signatories to eliminate
“duties and other restrictive regulations of commerce (except,
where necessary, those permitted under Articles XI, XII, XIII,
XIV, XV and XXX)”. But the Article does not state whether
the exceptions list is exclusive or not. As Gobbi and Horlick
write “the absence of Articles V and XIX of the GATT in the
exceptions list has raised the question of whether this provision
mandates or allows abolition of trade remedies within customs
unions and FTAs” (Gobbi et al. 2006). Based on the Ap- pellate
Body´s Ruling in Turkey Textiles, Gobbi and Horlick argue
that the list is exclusive, and accordingly at least within that
portion of trade in a PTA which can be regarded as ‘substan-
tially all the trade’ they are mandated to abolish safeguard and
anti-dumping measures.
Against this argument, it can be stated that in ideal situations
where PTAs have harmonized and removed trade barriers and
cover all or at least substantially all the trade between the par-
ties, for example in the EU, punitive duties would be unneces-
sary. But most PTAs are not ideal and these duties are not nor-
mal duties either. They are meant to neutralize specifically
identified unfair practice of other states and exporters. Thus
they cannot be compared to Art. XX or Balance of Payment
situations. Nevertheless, this does not mean that such duties can
be applied within PTAs. But regardless of this discussion, it is
de facto up to PTA parties to decide whether such instruments
should be allowed in PTAs or not and in most cases they are
allowed. As an example, Art. 25.2 of the CARIFORUM EPA
permits CARIFORUM states and the EU to impose safeguard
measures against each other if the imported good in question
“cause or threaten to cause:
(a) serious injury to the domestic industry producing like or
directly competitive products in the territory of the importing
Party; or
(b) disturbances in a sector of the economy, particularly
where these disturbances produce major social problems, or
difficulties which could bring about serious deterioration in the
economic situation of the importing Party, or
(c) disturbances in the markets of like or directly competitive
agricultural products (1) or in the mechanisms regulating those
Apart from more specific WTO issues, recent PTAs also ad-
dress those issues that can be regarded as the general principles
of the WTO law, most importantly WTO’s Dispute Settlement
Mechanism (DSM). As an example Art. 24.10 of the CARI-
FORUM EPA on safeguard measures states that “safeguard
measures adopted under the provisions of this Article shall not
be subject to WTO Dispute Settlement provisions.” Instead it
has established a ‘CARIFORUM-EC Trade and Development
Committee’ to review such measures and issue recommenda-
tion on their legality. The question that should be asked here is
whether PTAs can suspend such fundamental WTO provisions
such as the DSM or not.
A rather theoretical answer to this question depends on the
status of the WTO within international trade law, which brings
in Art. 30 of the Vienna Convention on the Law of Treaties.4
More specifically, if the WTO is regarded as a contractual type
of agreement between its signatories, then states are free to
design and sign other agreements and commit themselves to
both agreements. But if the WTO is seen as a type of interna-
tional standard on how trade relation and regulation shall be
conducted, then the signatories are bound by its provisions and
cannot suspend it in subsequent treaties. The real nature of the
WTO shall be found somewhere between these two poles. And
although GATT started as a contract between its CON-
TRACTING PARTIES, it has developed to an international
agreement which covers almost all countries and most of inter-
national trade, thus it is moving closer to the other pole, namely
an international standard type of agreement.5
On a rather practical level the answer depends on which per-
spective is applied: PTA or the WTO perspective: seen from a
PTA perspective, such suspension is desirable since it will limit
forum shopping between the available dispute settlement or-
gans and hereby conflicting rulings of these organs can be
avoided. However, in most cases, for example NAFTA and
MERCOSUR, PTA parties can choose between the WTO DSM
and the PTAs own dispute settlement organ. Even in the EPAs
the normal norm is that parties can chose between the two, but
they cannot have simultaneous proceedings (CARIFORUM
EPA Art. 222.2).
What can be Challenged?
Seen from a WTO perspective, on the other hand, DSU Art.
23 states that members ‘shall’ recourse to the DSM if they
“seek the redress of a violation of obligation or other nullifica-
tion or impairment of benefits under the covered agreements or
an impediment to the attainment of any objective of the covered
agreement”. This article makes two points: first the conflict
between the two dispute settlement organs will arise in those
issues that are covered by the WTO and the PTA. And second,
seen from the DSU perspective, it regards itself as the main
organ. However, DSU Art. 3.1 states that members shall con-
sider “whether actions under these procedures would be fruit-
4On this topic see Sinclair (1973: 62-69 ).
This development is reflected in the growing literature on the
constitutional aspects of the WTO law (see e.g., Cass 2005).
ful”. This opens the doors for states not only to consider
whether they should initiate a case, but also which forum is
better equipped to settle their dispute. There is of course noth-
ing particular about this permission, since it only confirms the
normal practice of states, which not only take into account the
legal merits of their case and its possible outcome, but also their
available resources, and the economic aspects and political
consequences of any potential case.
In any case, the conflict between the WTO and PTA is only
material in situations where the issue is covered by the PTA
and the WTO and if it affects non-parties to PTAs. This is be-
cause it is very unlikely that parties to PTAs will challenge
P TAslegality and their legal standing vis-à-vis the WTO. On
this background, it is important to examine which aspects of
PTAs can be challenged before the DSB. To answer this ques-
tion it is necessary to describe the three types of PTAs and their
differences. This is because although the three forms of PTAs
have some common features, they differ in some central pro-
cedural and substantive aspects, which can be challenged. PTAs
can be Costumes Unions (CUs), Free trade Areas (FTAs) or an
Interim Agreements (IAs) leading to either a CU or a FTA.
According to para. 8 of the Article FTAs differ from CUs on
two substantive accounts. First, while the constituent territories
and states of a FTA are not required to establish a common
external tariffs regime on goods from non-parties, members of a
CU are required to do so. And second, while FTAs only cover
trade in goods that are originated in the constituent territories,
CUs may cover other goods as well.
The main differences between IAs and the other two types,
on the other hand, are procedural.6 First, IAs operate with gra-
dual elimination of duties and other restrictive regulations of
commerce.7 The normal meaning of elimination is removal or
getting completely rid of something, here duties and other re-
strictive regulations of commerce between parties to PTAs.
Thus, the Article defines two ways of establishing PTAs: im-
mediate in form of CUs and FTAs and gradual in form of IAs.
But a contextual reading of the Article in light of its purpose
which is stated in para. 4 indicates that CUs and FTAs need not
be established immediately but have to be concluded within a
shorter time than IAs. This mirrors the real world of trade pol-
icy, in which only in very few cases elimination of duties - let
alone other restrictive regulations can happen overnight and
most CUs and FTAs operate with implementation periods.8
During the Uruguay Round the issue of how long transitional
periods IAs can use was raised and the relevant part of para. 3
of the Understanding states 10 years as the ‘reasonable length
of time’. However, not only ‘reasonable length of time’ is an
imprecise statement, para. 5c of the Understanding also states
that in ‘exceptional cases’ a longer implementation period can
be applied. Thus, due to lack of any instructions, it is de facto
up to the parties to decide whether their situation constitutes an
‘exceptional’ case and if so what a reasonable length of time
should be.
The second difference between IAs and the other two types
of PTAs is that IAs have to follow certain notification proce-
dures which in fact amount to a ratification process. According
to GATT Article XXIV.7.a, all three types of PTAs must
‘promptly’ be notified to the CONTRACTING PARTIES.9
Once notified, Para. 7 of the Understanding states that the PTAs
“shall be examined by a working party in the light of the rele-
vant provisions of GATT 1994 and of paragraph 1 of this Un-
derstanding. The working party shall submit a report to the
Council for Trade in Goods on its findings in this regard. The
Council for Trade in Goods may make such recommendations
to Members as it deems appropriate”. In 2006, the General
Council of the WTO established the transparency mechanism
for PTAs to review the notified PTAs.
If a PTA is notified as an IA, in addition to the above men-
tioned general assessment process, the Council for Trade in
Goods also has to examine the IA´s transition period and assess
whether the agreement will actually result in a CU or a FTA
after the period has passed. In this regard the text of GATT
Article XXIV.7.b. amounts to actual approval of those IAs that
are under review:
If, after having studied the plan and schedule included in an
interim agreement referred to in paragraph 5 in consultation
with the parties to that agreement and taking due account of the
information made available in accordance with the provisions
of subparagraph (a), the CONTRACTING PARTIES find that
such agreement is not likely to result in the formation of a cus-
toms union or of a free-trade area within the period contem-
plated by the parties to the agreement or that such period is not
a reasonable one, the CONTRACTING PARTIES shall make
recommendations to the parties to the agreement. The parties
shall not maintain or put into force, as the case may be, such
agreement if they are not prepared to modify it in accordance
with these recommendations.
On this background, it should be stated here that states
treatment of PTAs in the GATT and the WTO has de facto
removed the procedural difference between CUs, FTAs and IAs.
As an example, the CARIFORUM EPA is notified as a FTA,
although it operates with a transitional period of at least 10
years (see Tables 1 and 2). Furthermore, till now, none of the
assessment processes has been concluded (WTO , 2006).
This can be traced back to late 1950s, when the EEC was no-
tified to the GATT. GATT documents on the discussions be-
tween contracting parties show that the EEC notification raised
many critical questions mainly regarding its timeframe and
whether the formation of EEC would have negative impact on
trade with non EEC-countries.10 Citing Snape, Hoekman writes,
when “it was made clear by the original six EEC Member
States that a GATT finding that the EEC violated Article XXIV
of the GATT could well result in their withdrawal from GATT”
the assessment of the EEC stopped and GATT contracting par-
ties made a conscious political decision “not to closely scruti-
nize the formation of the EEC” (Hoekman et al,. 1995). As a
consequence, by accepting that a full examination is not re-
quired, GATT, and now WTO members have allowed PTAs to
enter into force without fulfilling all GATT requirements. The
lack of any cases on the procedural aspects of PTAs supports
this conclusion. However, this does not mean that the situation
will remain so. As an example, CARIFORUM EPA can be
challenged on two procedural grounds: first that it is not an
FTA but an IA and second it has not been notified properly. But
if such challenges are initiated it will necessarily question the
6On IAs see Bartels. (2009 )
7GATT Art. XXIV.8.a.i and XXIV.8.b.
See WTO document WT/REG/W/46 Annex 5 for a statistics on the
applied transition times in the existing PTAs.
9In the WTO, the Committee on Regional Trade Agreements under
Council for Trade in Goods is the organ that shall be notified.
10See for example GATT document L/732.
Table 1.
Liberalisation schedules agreed in initialled interim agreements (cumulative value of imports from the EU, to be liberalized by the specified year).
2008 2010 2012 2013 2017 2018 2022 2023 2033 total
Fiji 24% 37% 78% 81.5% 81.5%
Papua New Guinea 88.1% 88.1%
EAC 64% 80% 82% 82%
Comoros 21.5% 80.6% 80.6%
Madagascar 37% 80.7% 80.7%
Mauritius 24.5 % 53.6% 95.6% 95.6%
Seychelles 62% 77% 97.5% 97.5%
Zimbabwe 45% 80% 80%
Botswana, Lesotho,
Namibia, Swaziland 86% 86% + 47 tariff lines
Cote d'Ivoire
Table 2.
Liberalisation schedules agreed in initialled interim agreements (cumulative percentage of tariff lines, to be liberalized by the specified year). Source:
http://www.acp-eu-trade.or g.
2008 2010 2013 2015 2017 2018 2022 2023 2033 total
9% a
22% a
62% a
80% a
80% a
Papua New Guinea
82.1% a
82.1% a
74% a
26% a
73% a
96.6% a
96.6% a
Botswana, Lesotho,
Namibia , Swaziland 86% a 44 b 3 b 86% a + 47 tariff lines
100 b
Cote d'Ivoire
83.9% a
88.7% a
88.7% a
72.81% a
80.01% a
80.01% a
85.1 % a
90.7 % a
90.7% a
acumulative percentage of tariff lines; badditional number of tariff lines to be liberalised by the specified year
PTA as such. Thus, it is most likely that such challenges will be
regarded as last resort and will only be raised by non-parties
against major PTAs.
PTAs can also be challenged based on their substantive rules.
Here, the most general line of challenge will question whether
PTAs as such relate to the ‘substantially all the trade’ require-
ment. But as with many other aspects of the Article, countries -
as well as researchers - offer different views on how this phrase
shall be understood. As the Appellate Body in Turkey Textile
writes “neither the GATT CONTRACTING PARTIES nor the
WTO Members have ever reached an agreement on the inter-
pretation of the term ‘substantially’ in this provision. It is clear,
though, that ‘substantially all trade’ is not the same as all the
trade, and also that ‘substantially all trade’ is something con-
siderably more than merely some of the trade”.11
The EU has argued that ‘substantially all trade’ means 90%
of volume of trade between the parties. As an example a
press-release issued by the DG-Trade on the EPAs states that
“to be WTO-compatible trade agreements have to liberalise a
certain minimum of trade between trading partners. The EU
believes the benchmark for WTO compatibility in this case
should be 100% liberalisation of EU Trade and at least 80% of
ACP trade over 15 years, with the majority of this in 10 years.
This represents the most generous interpretation of WTO rules
ever applied a more normal starting point would be 90% or
more of trade in 10 years with no differences in the scope of
liberalisation between the partn e rs” (DG-Tra de , 2007). Another
example is the EU-South Africa FTA, under which the EU
provides 95% of South African exports improved access to its
markets, while South Africa does so for 86% of EU exports.
The remaining 10% of trade between the parties which is not
covered in a PTA can, according to the EU, include whole sec-
tors and goods, for example the EPAs do not include the EU
importation of sugar and rice.12 An alternative view is stated by
the US, who argues that ‘substantially all trade’ covers all sec-
tors and products, leaving open the possibility of having some
limits within them. The difference is that according to the US,
all product groups shall be covered by a PTA, whereas the EU
would exclude some products from the list.13 Regardless of this
debat e, there is an agreement that ‘substantially all the trade’
11Appellate Body Report, Turkey – Textile, para 48.
During the EPA negotiations and in line with recommendations by
most commentators, many ACP countries are in the process of defining
which product groups should be exempted from reciprocal liberaliza-
tion. Whether this list will be accepted by the EU,
or become subject of
further disagreement, time will show.
13Since the Doha negotiations are not concluded, there is no consensus
on this issue.
covers two elements: qualitative and quantitative (Lockhart et
al., 2005). Qualitative element refers to the volume of trade
between the parties, and quantitative element refers to number
of tariff lines which are traded between the parties. Accordingly,
seen in connection with the speed of liberalization under
CUs/FTAs vis-à-vis IAs, it means that under IAs, countries
have 10 years - or more - to liberalize a substantial number of
their tariff-lines as well as the actual volume of their trade.
But, non-parties to a PTA can also base their case on para 4
of the Article if they can show that the PTA in question has
harmed their trade with its PTA signatories. In this regard, in
the most important case on the Article, Turkey Textiles, the
Appellate Body agreed with the panel that “an ‘economic’ test
for assessing whether a specific customs union is compatible
with Article XXIV” can be performed.14 It should be stated
here ‘economic test’ is not a standard procedure or a recognized
economic model, but presumably it is any model or test which
measures the economic impact of a PTA or its specific rules on
trade with non-parties. Whether the test shall include the whole
volume of the trade, or can be done on a single product is not
clear. But in the case of former, the dispute will question the
CU as such, while in the latter case, the issue at hand will be on
specific duties or regulatory measures on the addressed prod-
ucts. It should also be stated that since FTAs do not operate
with same external tariffs, as CUs do, the test cannot be based
on volume of trade with FTAs as a whole, but with each single
FTA party.
Potential cases can also be based on para. 5 of the Article
which states that “the provisions of this Agreement shall not
prevent … the formation of a [PTA]; Provided that” CUs’ du-
ties and other regulations of commerce with non-parties “shall
not on the whole be higher or more restrictive than the general
incidence of the duties and regulations of commerce applicable
in the constituent territories prior to the formation of such
[PTAs]”. And in the case of FTAs and IAs leading to formation
of FTAs, para.5b states that the duties and other regulations of
commerce with non-parties imposed at the institution of the
FTAs “shall not be higher or more restrictive than the corre-
sponding duties and other regulations of commerce existing in
the same constituent territories prior to the formation of the
fre e-trade area, or interim agreement as the case may be”. Ac-
cordingly, PTAs can be challenged on one main issue: higher or
more restrictive ‘duties and other regulations of commerce’
upon their institution. Whether this is the case depends on
which type of PTAs the agreement is. Accordingly, in the case
of CUs para. 2 of the Understanding states that the evaluation
should be based on “an overall assessment of weighted average
tariff rates and of customs duties collected”.
In the case of FTAs it is a direct comparison of duties and
other regulation before and after the establishment of FTAs.
Thus it is easier to use the article against FTAs. Nevertheless,
in Turkey Textiles case, para. 5 was used as a defense and
regarding a CU. The final ruling in the case found that as an
exception, the Article can be used as a defense and its success
can be assessed by a ‘necessity test’. According to this test
“Article XXIV can justify the adoption of a measure which is
inconsistent with certain other GATT provisions only if the
measure is introduced upon the formation of a customs union,
and only to the extent that the formation of the customs union
would be prevented if the introduction of the measure were not
allowed. ” 15
Non-parties can also challenge specific practice of PTAs and
their members. In this regard an example is given in Argentina
Footwear on the application of safeguard measures within a
CU. Here, Appellate Body writes:
“We conclude that Argentina, on the facts of this case, can-
not justify the imposition of its safeguard measures only on
non-MERCOSUR third country sources of supply on the basis
of an investigation that found serious injury or threat thereof
caused by imports from all sources, including imports from
other MERCOSUR member States. However, as we have stated,
we do not agree that the Panel was dealing, on the facts of this
case, with a safeguard measure applied by a customs union on
behalf of a member State. And we wish to underscore that, as
the issue is not raised in this appeal, we make no ruling on
whether, as a general principle, a member of a customs union
can exclude other members of that customs union from the
application of a safeguard measure.”16
Similar rulings are issued in United States Line Pipe and
most recently in Brazil - Retreaded Tyres.
Finally, PTA partiesactions can also be challenged by
themselves, if they violate their WTO obligation, for example
in relation with anti-dumping or subsidy measures. This relates
back to our discussion above on whether PTAs can suspend
their parties´ WTO obligations. Thus it is important to monitor
such provisions.
The underlying puzzle this paper aimed to address is the re-
lation between PTAs and the WTO. In this regard, it can be
asked why there has not been more cases questioning the PTAs
compatibility with the WTO. Two answers were given in the
fir st section, namely, the so called ‘glashouse effect’ and the
rules´ flexible nature. Furthermore, the above analyses showed
two more reasons. First, PTAs can in fact be challenged on
three fronts: multilateral: during the notification/assessment
process, bi- or plurilateral: between interested parties and PTA
parties; and finally before the DSB. In other words, state prac-
tice and the Article´s ambiguities are not the only reasons why
there has not been more cases. If WTO members find a reason
to complain against a PTA, they do not necessarily need to
bring a case before the DSB. They can use the assessment
process as a common judiciary forum. The problem here is that
it is not a neutral and legalized organ as the DSB, but a political
negotiations forum. And as such it lacks the exact instruction
on how the assessment process should proceed. In this regard,
the newly established Transparency Mechanism can provide the
institutional support to a stronger review of the PTAs. But
knowing that the assessment process can generate important
information, which can be used by the WTO members to mod-
ify PTAs or neutralize their negative impact, it should be more
specific and detailed. In particular, the assessment process
should examine those aspects of PTAs which can be regarded
as suspension of parties´ WTO obligations, most importantly
14WTO Appellate Body Report, Turkey Textile WT/DS/AB/R, adopted
21 March 1996, para 55.
15Appellate Body Report on Turkey — Textiles, para. 46.
16WTO Appellate Body Report, Argentina Footwear
, WT/DS121/AB/
R, adopted 6 April 1998, para. 114.
PTAs´ dispute settlement procedures, and those non-WTO is-
sues that have an impact on the parties´ internal and external
This brings us to the second reason for the inactivity of the
WTO´s DSM. Namely, in many cases either de jure and/or the
facto PTAs prohibit their parties to use the DSM. As it was
showed above, it is not clear whether such suspensions are
permitted or not. But not only the very states who can ask for a
clarification are prohibited from doing so but they have also
voluntarily signed to PTAs. Thus, it is highly unlikely that an
answer will ever be given to this question. Having said that,
small and less-powerful states are not fully able to resist pres-
sure from more powerful states. In such situations, powerful
states are in a better position to determine which issues should
be covered by PTAs and how deep PTAs shall be without
meeting meaningful resistance from their less powerful partners
who in many cases are dependent on aid from their powerful
partners and/or need access to their markets. Multilateral rules,
institutions and stronger monitoring of PTAs could in this re-
gard neutralize the power asymmetry between the negotiating
parties. In fact although the current WTO provisions are quite
flexible, they establish standard for notification, review and
approval of the PTAs, which are unfortunately not always fol-
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