Jacobs University Bremen International Trade Law - Lecture 4: RTAs, PTAs and Duties

JUB International Trade Law
Scope of the Lecture 4
and Seminar
Spring Term 2011
Dr. Carsten Weerth BSc (Glasgow)

Lecture by Dr. Carsten Weerth BSc (Glasgow)
JUB Int. Trade Law Lecture 4
Part A. Global Trade and Customs Law
● Lecture 4 contains the following topics:
● Are duties still important? –
● Article XXIV GATT,
● Customs Unions and Free Trade Agreements,
● Regional Trade Agreements (RTAs) and
Preferential Trade Agreements (PTAs).

Do you remember Article I GATT from lect. 1?
"1. With respect to customs duties and charges of any kind imposed
on or in connection with importation or exportation or imposed on the
international transfer of payments for imports or exports, and with
respect to the method of levying such duties and charges, and with
respect to all rules and formalities in connection with importation and
exportation, and with respect to all matters referred to in paragraphs 2
and 4 of Article III,* any advantage, favour, privilege or immunity
granted by any contracting party to any product originating in or
destined for any other country shall be accorded immediately and
unconditionally to the like product originating in or destined for the
territories of all other contracting parties.
2. The provisions of paragraph 1 of this Article shall not require
elimination of any preferences in respect of import duties or charges
[...]"

So that means that preferences are allowed – but
what are they?
● Preferential Trade Agreements (PTAs) are
bilateral or multilateral agreements that are
allowing the importation of goods with
preferential treatment, that is a lower than the
most-favoured-nations customs duty...
● Regional Trade Agreements (RTAs) are
bilateral or multilateral agreements that are
allowing the trade in-between the states without
duties...

Both concepts (PTAs and RTAs) are endangering
the overall rule of the WTO/GATT-system which is
known as Globalization by the so called
Regionalization...
● More than 400 RTAs or PTAs are in force and
about 100 more are being negociated...
● The overall rule of the WTO/GATT-legal
framework is thereby in danger also from
agreements of its members...
● Whereas the WTO-negociations are not
successful more and more RTAs/PTAs are
signed...

Regional integration is allowed by Art. XXIV GATT
because it was thougth that it would facilitate free trade...
"Article XXIV Territorial Application - Frontier Traffic -
Customs Unions - and Free-trade Areas
1. The provisions of this Agreement shall apply to the
metropolitan customs territories of the contracting parties
and to any other customs territories in respect of which
this Agreement has been accepted under Article XXVI or
is being applied under Article XXXIII or pursuant to the
Protocol of Provisional Application. Each such customs
territory shall, exclusively for the purposes of the
territorial application of this Agreement, be treated as
though it were a contracting party; [...]"

Article XXIV contn.
"2. For the purposes of this Agreement a customs territory
shall be understood to mean any territory with respect to
which separate tariffs or other regulations of commerce are
maintained for a substantial part of the trade of such territory
with other territories.
3. The provisions of this Agreement shall not be construed to
prevent:
(a) Advantages accorded by any contracting party to adjacent
countries in order to facilitate frontier traffic;
(b) Advantages accorded to the trade with the Free Territory
of Trieste by countries contiguous to that territory, provided
thatsuch advantages are not in conflict with the Treaties of
Peace arising out of the Second World War. [...]"

Article XXIV contn.
4. 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 territories.
5. Accordingly, the provisions of this Agreement shall not
prevent, as between the territories of contracting parties, 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 freetrade area; [...]"

Article XXIV contains three important customs principles:
Customs Territory, Customs Union and Free-Trade Area
Defitions are contained in para. 2 and 9.
Examples for a Customs Territory: Andorra or Norway
Example for a Customs Union: The European Union (EU)
Example for a Free-Trade Area: North American Free Trade
Area (NAFTA)
[see handout for lect. 4]

Explanations of
Customs Territory, Customs Union and Free-Trade Area
Customs Territory: the territory that belongs to a country –
entering that territory means that a duty is due, e.g. The
German island of Helgoland does not belog to the EU
customs territory...
Free-Trade Area: Countries are agreeing not to charge duties
for internal trade but still apply their national customs tariffs
and theryby charge duties for imports from the outside...
Customs Union: Countries are charging a similar duty for
imports from third countries but no duties in internal trade...

Multilateralsim vs. Regionalism - more and more RTAs
Between 1958 and 2005 141 RTAs concerning the trade in
goods were indicated to the GATT Secretariat (since 1995 the
WTO Secretariat) – from 1958 to 1989 25 RTAs were
founded, from 1990 to 2005 116 RTAs were founded....
The WTO is forecasting about 400 active RTAs in 2010...
380 RTAs have been notified to the WTO/GATT up to Juli
2007, of which up to September 2008 321 were notified
under Art. XXIV GATT and 27 under the enabling clause – so
that 348 were notified of which 205 were in force. Of these
RTAs, Free Trade Agreements (FTAs) and partial scope
agreements account for over 90 percent, while Customs
Unions (CUs) account for less than 10 percent.

Multilateralsim vs. Regionalism - more and more PTAs
More and more RTAs are concerning tariff reductions
(Preferential Trade Agreements, PTAs). Only 18 out of 141
RTAs have been negotiated between Industrial countries, 36
RTAs between Industrial states and developing states, 30
RTAs between developing states and 42 RTAs between
intermediate economies. Europe has the biggest amount of
all RTAs. About all WTO-Members are member of more than
one RTA, with a mean of six RTAs per WTO-Member state.
Some WTO-Member states are contracting parties in up to
ten PTAs (the so called “overlapping membership”, also
called “noodle bowl” or “spaghetti bowl”), which results in a
difficult position regarding the overall liberation of world trade
– ...

Multilateralsim vs. Regionalism - more and more PTAs
the basically always applicable rule of most favored nations
(MFN) according to Article I para. 1 GATT is under these
conditions applicable from the most WTO-Member states
against the fewest trading partners (Article I para. 2 - 4
GATT).
The amount of trade performed under PTAs in the world was
between 1988 to 1992 40 percent of all world trade and
between 1993 to 1997 42 percent overall – the European
Communities had a part of about 70 percent of all PTA-trade
(the whole Americas – north and south – had a part of 25
percent in between 1993 to 1997), whereas Asia and Oceania
had a very small amount of only four percent of PTA-based
world trade...

Multilateralsim vs. Regionalism – Scope of RTAs
The coverage and depth of preferential treatment varies
from one RTA to another – modern RTAs, and not
exclusively those linking the most developed economies,
tend to go far beyond tariff-cutting exercises, e.g. they
provide for increasingly complex regulations governing
intra-trade, such as safeguard provisions, customs
administration, standards, and they often also provide for
the preferential regulatory framework for mutual service
trade (the most sophisticated RTAs go beyond traditional
trade policy mechanisms, to include regional rules on
investment, competition, environment and labour).

Multilateralsim vs. Regionalism – Problems of RTAs
RTAs can complement the multilateral trading system, help to
build and strengthen it (therefore art. XXIV GATT allows
them), but by their very nature RTAs are discriminatory,
because they are a departure of the MFN principle of Art. I
para. 1 GATT. Their effects on global trade and economic
growth are not clear given that de regional economic impact
of RTAs is ex ante inherently ambiguous: Though RTAs are
designed to the advantage of signatory (participating)
countries, expected benefits may be undercut if distortions in
resource allocation, as well as trade and investment
diversion, potentially present in any RTA process, are not
limited, if not eliminated altogether.

Multilateralsim vs. Regionalism – Problems of RTAs
Developing countries are not equally fit to negotiate RTAs
with developed economies due to the lack of expertise in
research and administrations – a negative effect that
should be addressed by help of the WTO or other
international organizations in order to organize technical
assistance. (FTA = Free-Trade Agreemment)
List of FTAs the major FTAs/CUs have negotiated
Major FTA/CU Number of FTAs
EC 21
EFTA 13 [more data see handout]

Multilateralsim vs. Regionalism – some findings
None of the least developed countries has negotiated a
bilateral RTA in force (see table 2).
Seven least developed countries are Member States of the
SADC (see table 1), two least developed countries are
Member states of the PAFTA (see table 1).
Only six out of 123 RTAs of the trade in goods are Customs
Unions (5 %) whereas 118 RTAs are FTAs (95 %).
Two European RTAs have negotiated several bilateral
agreements: the EC has 21 FTAs, the EFTA has 13 FTAs
(see table 2).

Mexico is the single nation with most FTAs (10 bilateral
agreements with single states and the NAFTA-Membership),
followed by Turkey (10 bilateral agreements with single states
and the EC / EFTA) and the United States (seven bilateral
agreements with single states and the NAFTA-Membership
and the agreement Dominican Republic / Central America /
United States) (see table 4).
Table 5 shows the share of imports from FTAs and CUs in the
year 2005 as percentage according to their total import in
order of geographical distribution (regions and continents).
About 43 percent of the imports of the world (10,718.6 billion
US$) occurred among FTAs and CU member countries.

In the case of European countries almost 70 percent of
imports came from FTA or CU member states. The EC had a
share of about 71 percent, the EFTA a share of 78 percent
and the CIS a share of 31 percent.
The American countries had a share of 39 percent of imports
from FTAs or CUs: NAFTA had a share of 39 percent, CACM
of 63 percent, CARICOM of 8 percent and MERCUSUR of 20
percent.
The African countries had a share of 44 percent of imports
from FTAs or CUs, the SADC had a share of 38 percent.
The Middle east had a share of 32 percent, the Pan-Arab FTA
of 28 percent and Israel of 62 percent.

Asia had the smallest amount of imports from FTAs or CUs
(overall 10 percent) [%]: of which account for
China 1.9, Hong Kong 45, Macao 43, India 0.4, Japan 5,
Republic of Korea 4, Malaysia 15, Singapore 19, Sri Lanka 21
and Thailand 3.
In Oceania Australia and New Zealand had a joined share of
27 percent...

Table 6 shows the distribution of country groups with different
levels of shares of imports from FTA and CU Member states
in terms of total import value in the year 2005.
In the case of 30 countries more than 70 % of the total import
value came from member states of FTAs and CUs (for the
purpose of this result member states of FTAs and CUs were
counted separately).
For 57 countries over 50 % of total imports came from
member states of FTAs and CUs.

Multilateralsim vs. Regionalism – results
We have learned that though there is the
multilateral trade order of the WTO and the saying
that it rules the world [trade] more and more CUs,
FTAs, RTAs and PTAs are signed.
The negociation process of the WTO Doha round
has not been successful since 2000.
About 400 RTAs are in force and indicated to the
WTO-Secretariat... Regionalism rules now!

Are duties still important?
Some scholars and practitioners are reasoning
that (out of the view of Europe) duties are not
important any more. Is that true???
Possibly other regions of the world have different
views on the matter!
However one must keep in mind, that the
foundation of GATT resulted in many duty-
reduction rounds – do you remember lecture 1?

Are duties still important?
History and success of the GATT: Tariffs rates have been very high
when the GATT was founded in 1947. During eight successful
GATT-negotiations these tariff-rates were reduced strongly (the
mean of the reductions were as the following).
1. Genf (1947): - 19 %;
2. Annecy (1949) - 2 %;
3. Torquay (1950 – 51) - 3 %;
4. Geneve (1955 - 56) - 2 %;
5. Geneve (1961 – 62 “Dillon-Round“) - 7 %;
6. Geneve (1964 – 1967 “Kennedy-Round“) - 35%;
7. Geneve (1973 - 1979 “Tokyo-Round“) - 33 %;
8. Uruguay (1986 - 1994) - 40 %;
Further WTO/GATT-negotiations were not successful, yet:
9. Seattle (1999) and until 2010
10. Doha (2001 - 2010).

Jacobs University Bremen International Trade Law - Lecture 4: RTAs, PTAs and Duties

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Jacobs University Bremen International Trade Law - Lecture 4: RTAs, PTAs and Duties