Regional Trade Agreements Under GATT 1994 : An Exception and its Limits

In this chapter, the authors examine the nature of the exception for regional trade agreements (RTAs) under Article XXIV:5 of GATT 1994. This exception, which aims to maximize the internal trade-liberalizing effects of an RTA while minimizing its external trade-restricting effects, applies specifically to measures adopted upon the formation of customs unions and free-trade areas. It can be used to justify a departure from other provisions of GATT 1994 (such as the obligation to provide most-favored-nation treatment to all WTO Members under Article I) and, in certain circumstances, the provisions of other WTO agreements. However, the exception is subject to detailed conditions. In particular, in broad terms, the restrictions that parties to an RTA impose on trade within the RTA must be eliminated, while restrictions on trade outside the RTA should not be higher than before the RTA was formed. In the case of a customs union, external trade restrictions should be substantially harmonized. In determining whether a given RTA meets these conditions, several questions arise, many of which are yet to be fully explored in dispute settlement or resolved by negotiation among the WTO Membership