GATT and the European Community : A Formula for Peaceful Coexistence

This article addresses the relationship between the GATT, the European Community and other RTAs as and when trade in services and other 'new areas' are incorporated into the GATT framework. The article first discusses the conceptual justifications for RTAs (as an alternative to utopian global free trade) in order to provide background for considering whether the privileges accorded RTAs under the existing GATT framework should be extended to new areas and, if so, how far. It is observed that 'state of the art' tools of economic analysis do not provide adequate guidance as to the global welfare costs or benefits of RTAs so as to enable trade policy-makers to determine in advance their impact on global welfare, and that more subjective modes of analysis must be looked to for answers. The article then describes the GATT's historic tolerance of RTAs and how that tolerance is legislatively embodied in the General Agreement. It is noted that the existing (and controversial) formula providing a limited waiver for RTAs with respect to the GATT Most Favored Nation (“MFN”) principle (and trade in goods) cannot be readily transported and applied to the National Treatment principle and trade in services (with which the Uruguay Round negotiations are concerned). The EC's proposal for a new RTA waiver in its draft GATT Services Code proposal is analyzed and is found to be both unworkable and unwise. This article proposes a new formula for a GATT waiver or exemption which would be applicable to the EC and other RTAs. The new formula would rely on the concept of 'necessity' as a basis for the evaluation of RTA conduct which derogates from the general rules of the GATT. While certain guideposts may be provided to decision- makers with respect to the application of the proposed RTA waiver formula, it is clear that the myriad of contexts in which RTA derogations may arise will require the development of a new body (or common law) of interpretive decisions concerning RTA derogations - some of which, such as RTA measures designed for the primary purpose of providing unfair comparative advantages to local industry, will involve bright lines distinguishing the 'necessary' from the “merely convenient,” and others of which will involve careful balancing of interests. This article then focuses specifically on the telecommunications sector of the services trade to provide a concrete reference point or 'case study' of potential RTA discriminations. Attention is focused on a particular RTA - the European Community - and its actions both with respect to liberalizing its internal telecommunications sector and its position in the GATT services/telecommunications negotiations. An attempt is made to apply both the EC's proposed RTA waiver and the formula proposed in this article to prospective EC conduct in its telecommunications sector. The results of this application illustrate the difficulties inherent in the EC formula as well as the elements of subjectivity inherent in the formula proposed in this article. Whatever waiver formula is adopted in the Uruguay Round negotiations, the discussion in this article will hopefully serve to illuminate the consideration of RTA actions within the new GATT framework as the new formula is implemented. Succinctly stated, the central issue in this article is whether RTAs should be permitted to adopt rules which derogate from the National Treatment principle of the GATT in the application of new agreements covering trade in services and other 'new areas,' and therefore be allowed to discriminate in favor of member country enterprises for reasons having to do with the formation or maintenance of the RTAs. If so, by what legal standard should such derogations be evaluated? As the article will make clear, this issue is not a mere abstraction. The EC clearly has in mind that it will be enabled to liberalize its internal market for the benefit of domestic service providers without extending the benefits of that liberalization directly to non-Member State enterprises. Such discrimination would necessarily involve derogations from the National Treatment principle to which parties to a new GATT Services Code would otherwise be subject