1. Topic 2-1 Overview of FTA – Economic Integration, Proliferation, General Contents and WTO Context
Professor Chang-fa Lo

2. What is FTA anyway? Free trade agreement; free trade area
An agreement between economies/countries
About further trade liberalization
But...
It could be about many more, such as further IP protection, investment...

3. Commonly seen contents in recent FTAs
Preamble
1. Initial Provisions and Definitions
2. National Treatment and Market Access for Goods
3. Agriculture
4. Textiles and Apparel
5. Pharmaceuticals and Medical Devices
6. Rules of Origin and Origin Procedures
7. Customs Administration and Trade Facilitation
8. Sanitary and Phytosanitary Measures
9. Technical Barriers to Trade
10. Trade Remedies
11. Investment
12. Cross-Border Trade in Services
13. Financial Services
14. Telecommunications
15. Electronic Commerce
16. Competition-Related Matters
17. Government Procurement
18. Intellectual Property Rights
19. Labor
20. Environment
21. Transparency
22. Institutional Provisions and Dispute Settlement
23. Exceptions
24. Final Provisions

4. Some concepts of regional arrangements
Some terms:
RTA (regional trade agreement);
PTA (preferential trade agreement);
FTA (free trade agreement);
TPP (Trans-Pacific Partnership; currently 12 countries); RCEP (Regional Comprehensive Economic Partnership; 16 countries); NAFTA; AFTA; CEPA; ECFA
Customs union;
Mercosur or Mercosul; EU
interim agreement
Leading to FTA or CU

5. Some concepts of regional arrangements
Levels of economic integration:
Economic Union
Common Market
Customs Union
FTA
different names: FTA (e.g. NAFTA), CEPA, ECFA…
Sometimes it is also called PTA
Preferential trade arrangements (PTAs): e.g. GSP (Generalized System of Preferences)
Level of integration

6. Some general points about regional integration
Regionalism vs. Multilateralism
Conflict: stumbling block?
Mutually supportive: building block?
Coordination?
Undermining it?
Multilateral System
RTAs
Supporting it?

7. Some general points about regional integration
Trade effects
Trade creation
Trade diversion
FTA

8. Some general points about regional integration
Two trends: First
Proliferation:
As of 1 February 2016, some 625 notifications of RTAs (counting goods, services and accessions separately) had been received by the GATT/WTO. Of these, 419 were in force. These WTO figures correspond to 454 physical RTAs (counting goods, services and accessions together), of which 267 are currently in force.

9. Some general points about regional integration
Two trends: Second
WTO-plus
Investment
Environment
Labor
Competition
Government procurement
Intellectual property
Others (e.g. Conflict in dispute settlement? AD? SG?)

10. Rules: WTO Governance of RTAs
Three main bases for WTO members to conclude FTAs
GATT 1994 Article XXIV
Enabling Clause
GATS Article V

11. Meaning of CU under GATT XXIV
8.  For the purposes of this Agreement:
(a)   A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that
(i)    duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade 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;
Externally: Single customs territory
Internally: Eliminated (SAT)

12. CU Eliminated (SAT) Single customs territory
(Substantially same duties and reg.)
Eliminated (SAT)

13. Meaning of FTA under GATT XXIV
(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.
Internally: Eliminated (SAT)

14. FTA Separate customs territory Separate customs territory
Eliminated (SAT)

15. Difficult question:
decision on “substantially all trade”
Qualitative or quantitative
How much
Meaning of the wording in the parenthesis “(except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX)”

16. Requirements
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 free-trade area; Provided that:
(a)  with respect to a customs union, or an interim agreement leading to a formation of a customs union, the duties and other regulations of commerce imposed at the institution of any such union or interim agreement in respect of trade with contracting parties not parties to such union or agreement 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 or the adoption of such interim agreement, as the case may be;

17. not on the whole be higher or more restrictive
comparison
not on the whole be higher or more restrictive CU
Previous policy
Common policy

18. (b)    with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement 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 free-trade area, or interim agreement as the case may be; and

19. Not be higher or more restrictive
comparison
Not be higher or more restrictive
FTA
Previous policy
Current policy

20. (c)    any interim agreement referred to in subparagraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free- trade area within a reasonable length of time.

21. 6.  If, in fulfilling the requirements of subparagraph 5 (a), a contracting party proposes to increase any rate of duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply. In providing for compensatory adjustment, due account shall be taken of the compensation already afforded by the reduction brought about in the corresponding duty of the other constituents of the union.

22. not on the whole be higher or more restrictive
comparison
It is possible that some common tariffs could be higher than the tariffs of a party: compensation to the affected WTO Member
Previous chicken tariff: 5%
Common tariff: 10%
not on the whole be higher or more restrictive CU
Previous policy
Affected country
Common policy
compensation

23. 7.   (a)    Any contracting party deciding to enter into a customs union or free- trade area, or an interim agreement leading to the formation of such a union or area, shall promptly notify the CONTRACTING PARTIES and shall make available to them such information regarding the proposed union or area as will enable them to make such reports and recommendations to contracting parties as they may deem appropriate.

24. Enabling Clause Decision of 28 November 1979 (L/4903)
GSP: exception to Art. I
Decision of 28 November 1979 (L/4903)
Following negotiations within the framework of the Multilateral Trade Negotiations, the CONTRACTING PARTIES decide as follows:
1. Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties.
2. The provisions of paragraph 1 apply to the following:
a) Preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences,

25. PTA: exception to Art. I
b) Differential and more favourable treatment with respect to the provisions of the General Agreement concerning non-tariff measures governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT;
c) Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on products imported from one another;
d) Special treatment on the least developed among the developing countries in the context of any general or specific measures in favour of developing countries.

26. GATS Article V (Economic Integration)
1.  This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:
(a) has substantial sectoral coverage, and 
(b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through:
(i) elimination of existing discriminatory measures, and/or
(ii) prohibition of new or more discriminatory measures,
either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis.

27. GATS Article V (Economic Integration)
Separate territory
Economic Integration
Or a single territory for GATS purpose
elimination of substantially all discrimination

28. Procedural problems
For instance, RTAs are subject to the Committee on Regional Trade Agreements (CRTA) examination after they are notified with other WTO bodies and referred to the CRTA. WTO statistics show that the number of RTAs being notified to the WTO is very high.
However, it is equivalently notable that there has been no TRA having gone through the examination and received from the CRTA the recognition of the consistency of the RTA with the WTO rules. It is considered one of the problematic areas with regard to RTAs under the WTO.