WTO Rules on Free Trade Agreements

A free trade agreement is a regional arrangement in which parties remove trade barriers among themselves while retaining their own trade policies towards non-parties. WTO law permits such regional trade agreements as qualified departures from most-favoured-nation treatment, subject to specified conditions.

WTO provisions permitting such agreements

• For trade in goods, Article XXIV of GATT 1994 permits free-trade areas, customs unions and interim agreements leading to either form.
• For trade in services, Article V of GATS permits agreements that liberalise trade in services among their parties.
• The 1979 Enabling Clause, particularly paragraph 2(c), permits regional or global arrangements among developing countries for the mutual reduction or elimination of tariffs and, under prescribed conditions, non-tariff measures.

Conditions attached to these exceptions

These provisions seek to ensure that regional liberalisation facilitates trade among the parties without creating greater barriers for other WTO members.

• Under GATT Article XXIV, duties and other restrictive trade regulations must be eliminated on substantially all trade among the parties; external barriers must not become higher or more restrictive overall.
• An interim agreement under GATT Article XXIV must contain a plan and schedule for forming the free-trade area or customs union within a reasonable period.
• Under GATS Article V, an agreement must have substantial sectoral coverage and provide for the absence or elimination of substantially all discrimination among its parties.
• A services agreement must not raise the overall level of barriers faced by service suppliers from non-participating WTO members.

Notification and WTO scrutiny

WTO members must notify regional trade agreements for transparency and examination. Agreements under GATT Article XXIV and GATS Article V are handled by the Committee on Regional Trade Agreements, while goods agreements notified under the Enabling Clause are considered by the Committee on Trade and Development.