The Southern African Development Community (SADC) Trade Legal Instruments Compliance with Certain Criteria of GATT Article XXIV

Article XXIV of the General Agreement on Tariffs and Trade (GATT) lays down the legal principles with which regional trade agreements have to conform. Based on these principles, WTO members have the mandate to determine the legality of Regional Trade Agreements (RTAs) under the GATT. Article XXIV permits both regional and bilateral preferential trade agreements leading to the formation of customs unions and free trade areas, and seeks to integrate them in the multilateral trading system envisioned for the world. SADC is an RTA created under this Article. Notwithstanding the controversies surrounding the provisions and interpretation of Article XXIV, this paper seeks to establish the extent to which the SADC Protocol on Trade and free trade area comply with WTO rules. An analysis of selected Article XXIV provisions and the SADC Trade Protocol provisions will be undertaken in trying to establish this compliance.

elastic. 10 This means that it can be stretched to undesirable limits. It is also 'unusually complex' and is branded 'a failure, if not a fiasco '. 11 It is difficult to understand and its application also produces complex results. The meaning also in products originating in such territories, and, (ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union; (b) A free-trade area shall be understood to mean a group of two or more customs territories in which the 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. 3 Hereafter referred to as "MFN". Under the MFN Principle WTO members cannot normally discriminate between their trading partners. If one member grants to another a special favour (such as a lower customs duty rate for one of their products) that member has to do the same for all other WTO members. 4 See Doha Ministerial Meeting 2001: Briefing notes WTO Website http://www.wto.org/english/thewto_e/minist_e/min01_e/brief_e/brief20_e.htm accessed 20 May 2011. The interpretation's main principle is that the purpose of an RTA should be to facilitate trade between the constituent countries and not to raise barriers to the trade of other WTO members not parties to the RTA. This understanding has made it clear that a question as to whether Article XXIV is being followed by any member when it forms a Preferential Trade Area (SADC is one) can be brought before the Dispute Settlement Body. This clarification is vital as the examination of PTAs by contracting parties during the GATT years could not yield any noticeable result in ensuring their consistency with GATT rules. tool in regulating the growing contentious relationship between regionalism that manifests itself in FTAs and customs unions vis-a-vis the multilateral trading system as championed by the WTO.

Regionalism vs. Multilateralism
The question of whether RTAs have functioned as 'building blocks or 'stumbling blocks' in the multilateral process has been subjected of too much debate in recent years. Those believing in the negative effects of the regionalism drive point out its potential to fragment multilateralism. The argument is that when these blocks expand, their market power and influence is widespread, providing an incentive to use trade policy to restrict imports. This argument identifies customs unions and FTAs as the potential trade blocks that can cause this adverse effect. However, there is no evidence to date that suggest RTAs have pursued this incentive to raise external barriers. The sudden increase of RTAs has also led to the establishment of parallel and overlapping dispute settlement forums between the RTAs and the WTO.
RTAs have the potential to build up jurisprudence conflicting with that of the WTO.
However the existence of a relationship between regionalism and multilateralism is very important for global trade governance. It can be argued that RTAs, by moving at a faster pace than WTO rules while sharing the WTO's goals, strengthens the latter.
It also has to be realised that RTAs, being small in nature, can be more effective in tackling new areas such as services, investment, intellectual property protection, cooperation in competition policy, technical standards and government procurement than multilateral rule-making. These so called new generation issues are the core issues deadlocking the Doha Development Agenda. 12 Bhagwati Regionalism and Multilateralism 22. 13 Haight 'Customs Unions and Free Trade Areas'. 1-35

Importance of WTO rules for regional integration
From the outset it is worth noting that in international law there is no hierarchy among treaties, except for the supremacy of the Charter of the United Nations over any other international agreement, as expressly provided for in Article 103 of the Charter. 14 Given this basis, one may argue that in the event of conflict between any rules of the WTO and the RTA, there is no clear-cut hierarchy among them since both belong to the same category of international treaties. Accordingly, their relationship would be determined in the light of Article 30 of the Vienna Convention.
However, the fallacy in the approach of resorting to Article 30 and equating similar status to RTAs and WTO rules would be evident if we take into account the Therefore the argument is tenable that Article 41(1) implies that the WTO rules are inherently of a higher rank than RTAs. 16 What this means is that RTAs are subservient to the rules of the WTO in the same manner as ordinary legislation of parliament in a domestic legal context would be to provisions of the constitution. 17 The fact that this debate exists highlights how important it is that WTO rules governing the establishment of RTAs should neutralise their adverse systemic effects on the multilateral trading system. Article XXIV has opened the space where RTAs could blossom and enter into competition with the multilateral system. The focus will now be directed on a number of rules by which RTAs have to abide before WTO approval for such arrangements is granted. At the same time an analysis of some of the controversies around these rules is undertaken.

Selected criteria to be met by SADC and other RTAs in a similar position
The selected prescribed criteria of Art XXIV to be discussed include the notification trade requirement, and the prescribed transitional period. These will be discussed in detail below. The need for notification of a FTA, customs union or interim agreement to the WTO is clearly stated and emphasised. 29 The required notification of an RTA by members that are party to it shall take place as early as possible. As a rule, it will occur no later than directly following the parties' ratification of the RTA or any party's decision on application of the relevant parts of an agreement, and before the application of preferential treatment between the parties. The weakness of this provision is that no adequate guidance is given as to when notification should be made to the WTO. It has been customary since the 1950s for WTO members to notify the WTO after the RTA they formed has been adopted in Member States legislative system. This procedure is logical given that it removes the risk of the regional arrangement being rejected by domestic legislatures after it has obtained the approval of the WTO.

The Notification requirement
However, notification of an RTA does not equate with approval.
The WTO Council is against this practice. 30 It insists that prompt notification requires that Member States of the regional organisation promptly notify the WTO of the arrangement after it has been signed by all contracting parties. This has to be done so that such an arrangement can be on the agenda of the Council's first meeting after the signing of the regional arrangement; however, Article XXIV of GATT, paragraphs 7 and 23 of the Transparency Merchanism. In notifying their RTA, the parties shall specify under which provision(s) of the WTO agreement it is notified. They will also provide the full text of the RTA and any related schedules, annexes and protocols, in one of the WTO official languages; if available, these shall also be submitted in an electronically exploitable format. Reference to related official Internet links shall also be supplied.  Reasons for the delayed notification could be that some SADC Members were unhappy that the Protocol on trade provides no favourable solution to the problems faced by the region. They were afraid of industrial polarisation and trade diversion.
Despite these suggested reasons notification is a requirement that has to be fulfilled 'as early as possible'... no later than directly following the parties ratification of the RTA or any party's decision on application of the relevant parts of an agreement, and 'before' the application of preferential treatment between the parties. In practice this means that WTO Members have to be informed before the implementation of the See note 14 above for clarity. The purpose of notification is also to allow other WTO members to be informed about the creation of an RTA that may impact on their trade relations with the members of such an RTA; for example the effects of trade diversion whereby efficient export suppliers outside the customs union are replaced by inefficient suppliers within the customs union. The period of 4 years between the signing of the protocol and its notification defeats the purpose of such notification.
Prompt notification of subsequent changes in the SADC RTA has not been done; hence in practical terms SADC is in violation of the notification requirement because some years have passed without notification of the proposed customs union. 36 This is not just unique to SADC. The obligation for notification has not been complied with in a systematic manner by WTO Members and Crawford 37 notes that; While the wording of GATT Article XXIV suggests that an RTA should be notified before the entry into force of the RTA, notifications are generally received after entry into force, in some cases months or even years after.

Article XXIV: 5(a) Neutrality of trade restrictiveness requirement.
This Article refers to customs unions. According to it, the 'duties and other regulations of commerce' imposed at the institutions of any such union...in respect of trade with contracting parties not parties to such union or arrangement shall not on the whole be higher or more restrictive than the general incidence of duties and regulations of commerce applicable in the constituent territories prior to the formation of such union...'. In cases of FTAs, Article XXIV: 5(b) makes the same requirement for the trade policy of each of the countries which are party to such an agreement.
According to the 1994 Understanding tariffs and duties evaluation should be based on an overall assessment of weighted average tariff rates and of customs union duties collected. This calculation is done by the WTO Secretariat based on import statistics for a previous representative period on a tariff line basis using the methodology used to compute the tariff offers in the Uruguay Round negotiations. It is critically important that the duties and charges taken into consideration should be applied rates of duty. Individual examination for non-tariff measures should be undertaken to assess whether their overall trade restrictiveness has increased or decreased.

36
If the transparency mechanism is strictly complied with the whole plan to establish an FTA (2008) or customs union (2010)  The duties and other regulations of commerce imposed at the institution of a customs union in respect to trade with WTO members not part to such union…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 union. 40 The duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of an FTA to trade of WTO members not included in such area…shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the FTA. 41 This relates to ORCs relevant to sub-paragraphs 5(a) 5 (b) and 8(a) (ii) of Article XXIV, these measures being applied to external trade. Examples are custom duties and similar charges, import prohibitions, quantitative restrictions and administrative rules regulating importation. Administrative rules include rules of origin used to distinguish between imports of goods originating in an RTA party and those originating in a third country. Border measures that restrict exports from RTA parties to third countries are more problematic. that such measures are generally applied by RTA parties to their own goods when destined for third country markets and therefore cannot be described as being applicable or applied to the trade of third countries within the meaning of Article XXIV:5 (b) and 8 (a) (ii).
With this provision GATT wanted to make sure that trade liberalisation continues even within the confines of an exception that created RTAs. This requirement concerns in principle the trade diversion effects to non members of the RTA. It has also been controversial. Preferential treatment provided to a partner country in an RTA leads to a reduction of demand for products from non-member countries even though external tariffs are not raised. Besides the compensation in the case of raising external tariff rates, the GATT fails to address such trade diversion and ignores the impacts such arrangements might have on outsiders even when they do not raise external tariffs.
McMillan 43 has proposed one way to effectively avoid trade diversion. He suggests that any RTAs have to design external barriers, so that the volume of trade with the outside remains at least at the old level. With agreements leading to FTA or customs unions which inherently contain preferential market access provisions to member countries, this would be made possible by a corresponding reduction of external barriers. Like this proposal is the one raised by Bhagwati, 44 suggesting that the lowest pre-union tariff be adopted as a common external tariff. 45 By eliminating the effects of trade diversion, this proposal would confine the effects of preferential agreements to trade creation, leading to the improvement of welfare for the countries involved.
Furthermore another merit of McMillan's proposal is that its implementation would provide the members of RTAs with an incentive to continue expanding membership 43 McMillan 'Does Regional Integration Foster Open Trade' 1-30 44 Bhagwati (note 13 above) p3 45 Adopting this rule would make countries with low tariffs less attractive partners for a CU, and would thus lead to a reduction in the number of RIAs. However, high tariff countries will also be inclined to form CUs, strengthening the trade diversion effect. It will be interesting to follow what situation will arise in SADC where a proposed CU is due in 2010. Some SADC countries still have high tariffs while others have gone as low as zero. SACU tariffs, by virtue of its being a CU, are very low, while Mauritius has even fewer tariffs. If this rule were to be followed, the lowest tariffs that would have to be adopted for the SADC CU would be those of Mauritius. This is unlikely since some SADC members still rely heavily on tariffs for revenue. In the final analysis, therefore, outsiders could gain from increased imports induced by higher income generated by these dynamic effects, even though in the short term they might lose as a result of trade diversion. in the elimination of duties and non-tariff barriers on 'substantially all the trade'. As will be shown in the next section, this provision has proved to be one of the most contentious and difficult to define.

Fulfilling the 'Substantially all trade' requirement
The elimination of tariffs on substantially all trade is a requirement that has openly been questioned. This notion needs clarification because it is not clearly defined how much 'all' is 'substantially' all. This ambiguity is likely to lead to loopholes, thereby contributing to exclusion in related agreements of sensitive sectors such as agriculture and steel. To avoid this kind of loophole, it is suggested that the notion be changed into a phrase that requires liberalisation of 'all the trade'. Setting a certain percentage, for instance 80% percent or 90% of liberalisation across all sectors can also be considered as alternative to the 'all the trade' requirements.
What this means is that there is a need to clarify and specify the 'substantially all trade' requirement. The two suggestions of reform discussed above will contribute to successfully mitigating the regionalist tendency of the current world economy, but they also entail shortcomings. The suggestions of Bhagwati, for instance, seem to be union or at least with respect to substantially all the trade in products originating in such territories. For FTAs, the corresponding requirement is contained in Article XXIV:8 (b) referring to duties and other restrictive regulations of commerce (except where necessary, those permitted under Article XI,XII,XIII,XIV,XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories. too ambitious and idealistic and it is also uncertain that a total elimination of trade restrictions will increase overall welfare. 64 In regions like SADC and many other African RTAs where intra-regional trade is significantly low, the removal of tariffs would not result in the increase of welfare. If adopted by the WTO, Bhagwati's suggestion could also be expected to give rise to unfair treatment between the existing and new regionalism. On the other hand, it considers only the liberalisation of RTAs and includes insufficient consideration of deep integration, which is one of the main effects of regional economic integration.

Selected WTO jurisprudence on the meaning of 'substantially all trade'
Appellate body panels have been called to interpret this term in dispute settlement.
Up to now no panel has provided a satisfactory and detailed interpretation. A few cases will be described here in showing this trend. In theTurkey-Textiles case; the Appellate body's interpretation was that 'substantially all trade' is not the same as all trade but that 'it is something considerably more than merely some of trade '. 65 This interpretation means that the relevant amount of trade falls somewhere between some and all trade among the RTA parties. In the case involving the US-Line Pipe, If the panels and Appellate Body are left to decide on this notion they are likely to develop a flexible test premised on dividing the term into two. Firstly 'substantial' will be taken to indicate that the elimination of internal restrictions must cover a very considerable proportion of the trade between the parties. Secondly, the phrase 'all trade' will be used in identifying the broad base against which internal liberalisation is to be measured. This will ultimately lead to the panels' reaching a conclusion based on the specific facts at issue, each case being decided on the facts at hand. This jurisprudence could lead to an interpretation of what amount to 'substantially all trade' in SADC.

Application of the 'Substantially all Trade' (SAT) interpretation in SADC
In trying to fulfill the requirements listed above, the SADC Trade Protocol has made In accordance with this provision SADC Member States like Angola and the DRC did not join the FTA at its launch; they sought additional time to adjust to the low tariffs since their economies depended heavily on tariffs for revenue. 73 Article 3 (e), SADC Protocol on Trade. A Trade Negotiating Forum was responsible for negotiating the process and method of eliminating barriers to trade and the criteria to be followed for listing products for special consideration. Revenue losses can arise as a direct effect of adopting a different tariff structure and in particular as a result of agreeing to apply no import tariffs to intra-group trade.
Further problems are envisaged, in that trade volume in one sector is not the result of one single factor; trade impediments may also influence trade relations.
Consequently, it will not be easy to identify the product lines for which tariffs should be eliminated to reach the specified percentage. Additionally, shifts in demand and supply may affect the trade flows differently, which would also make it quite impossible to reach the exact value of the 80 to 90 percent for all trade. This situation has manifested itself in SADC as illustrated hereunder.
The 85 percent duty-free threshold was the target SADC set before launching the   In finalising the discussion on the debate on 'substantially all trade', the merits and shortcomings of the suggested interpretations give rise to constructive ambiguity.
This prevents countries from applying selective and/or sectoral liberalisation in just a few areas. This effect is expected also to strengthen if the international organisation, which possesses the power to make rules and enforce them, has enough authority to judge on it. Therefore, it seems that the problem currently being experienced is not the ambiguity incorporated in the 'substantially all trade' requirement, but that there is yet to be found an appropriate governance system for regionalism to prevent the misuse of the existing rules. 86 Furthermore even though the DSB of the WTO can always be used, Members have shied away from using it for a variety of reasons, not least the fact that virtually all WTO members are engaged in RTAs and any resulting jurisprudence may have negative effects on their own arrangements. This form of governance will be ideally relevant at both multilateral level (WTO) and regionally (SADC and any other RTA) RTAs will have to find a better formula for the interpretation of 'substantially all trade', an interpretation that balances trade liberalisation equally both within and outside the RTA.

The prescribed transitional period
Another unclear aspect of the WTO Article XXIV rules on RTAs pertains to the length of the transition period for interim agreements. Liberalisation within RTAs is commonly achieved by gradual tariff reduction. In such a circumstance, the interim agreement must include a plan or a schedule for the finalisation of the customs union 85 Kruger  That the Committee on Regional Trading Arrangement (CRTA) which had been established within the WTO can take up this task needs still to be proved.

Compliance with transitional period in SADC
SADC has complied with the implementation of a transitional period. SADC implemented the FTA after 8 years of phased tariff reduction, which is two years The current arrangements on RTAs thus leave some degree of flexibility for transition periods longer than 10 years. However, the absence of any agreed definition of 'exceptional cases' and 'full explanation' leaves a high degree of uncertainty, which could jeopardise the legal security conferred by this flexibility. In existing North-South RTAs, transition periods sometimes exceed 10 years. For example, the Tunisia Euro-med agreement allows Tunisia up to 12 years to liberalise, 87 and South Africa is granted the same timeline to finalise its opening. 88 Egypt was granted 15 years to liberalise some products under its Euro-med agreements. 89 Finally, in its agreement with Canada, Chile was given 19.5 years to achieve its liberalisation. 90 Even though it was the members who granted themselves these long transition periods, the WTO neither endorsed nor prohibited the decision.
This, therefore, remains a grey area. Prior to the Cotonou Agreement, there were four successive conventions between the fifteen EU countries and the seventy-one countries in the ACP. These were Lome 1, concluded on 28 February 1975 for a period of five years, which was renewed by Lome II , Lome III (1985-90) and Lome IV (1990IV ( -2000 substantially lower than the normal MFN rate applied to the goods originating in the beneficiary countries. 94 EPAs are considered north to south RTAs and hence compliance with the WTO is required. An earlier discussion showed that EPAs came into being as a measure designed to make trade between ACP countries and the EU WTO compliant. The EPAs sought to replace the Cotonou trade waiver, 95 which was not based on reciprocity since it gave the ACP preferential treatment for exports into the EU market but did not require the ACP countries to grant preferential treatment to the EU. 96

Transitional period in the context of Economic Partnership Agreements
It is very likely that ACP countries will need long transition periods in the EPA process. In fact, ACP countries in their submission on RTAs to the WTO have requested that periods of at least 18 years be allowed. A long transition period would be crucial for them in the context of EPAs and other future RTAs in order to that they should have enough time for their industries to adapt to radically increased competition, as well as to introduce necessary measures to compensate for heavy tariff revenue loss. Finally, long transition periods will also be necessary to enable African countries to achieve regional integration prior to opening their trade to the EU, e.g. SADC's Regional Indicative Strategic Development Plan (RISDP) and the African Economic Community's 2028 goals. The modalities for transition periods are also unclear. What legal regime should be applied during the transition agreement?
Are interim agreements subjected to some of the obligations of Article XXIV (5)

Conclusion
In finalising this discussion, it is important to note that the implementation of Article XXIV has not worked well in practice. In the 47-year history of the GATT, only one working party determined that a regional trading arrangement had satisfied the provisions of Article XXIV; 97 yet none were found to be incompatible with GATT Rules. To emphasise the challenges of Article XXIV, a former GATT Deputy Director General complained that of all the GATT Articles, this is one of the most abused, and those abuses are among the least noted. 98 Additionally the Leutwiler Group 1985 report to the GATT Director General similarly noted that the exceptions and ambiguities which have thus far been permitted have seriously weakened the trade rules. They have set a dangerous precedent for further special deals, fragmentation of the trading system, and damage to the trade interests of non-participants. GATT rules on customs unions and free trade areas should be examined, redefined so as to avoid ambiguity, and more strictly applied. 99 From this analysis it is clear that the GATT Article XXIV rules are very elastic and vague. WTO rules on RTAs have largely been futile for the reason that they can be interpreted in various ways. 100 Further findings show that treaty obligations that are imposed by general and equivocal wordings and provide ample scope of interpretation are always likely to be less complied with by states than those obligations that are imposed by precise and unequivocal wording. 101 Understanding why the GATT sanctioned the formation of RTAs and imposed so little discipline on their formation requires further examination that goes beyond the scope of this paper. If non-compliance with Article XXIV provisions is commonplace, then that could well signal that the treaty provisions themselves are defective to some extent. It is doubtful that the drafters of Article XXIV fully appreciated its long term challenges. Even though this problem has been well documented, the call for reform has been resisted simply because of the fear of compromising the already delicate relationship between regionalism and multilateralism. The WTO rules relating to RTAs should therefore be clarified if they 97 This was the 1993 customs union between the Czech and Slovak Republics, two countries that had been joined together as an independent state for the previous 75 years. See   ZIMRA charging 85% import duty for used cars yet we don't manufacture any cars hence no local industry to protect. Available on: http://www.zimtreasury.org/talk-to-