WTO Rules on Regional Trade Agreements

WTO rules permit members to give one another preferential trade treatment through regional trade agreements, provided specified conditions are met. These agreements are exceptions to most-favoured-nation treatment, the general rule that a trade advantage granted to one WTO member must be extended to other members.

GATT Article XXIV: Agreements covering goods

Article XXIV of GATT 1994 permits customs unions, free-trade areas and interim agreements leading to their formation.

• In a free-trade area, members eliminate duties and other restrictive trade regulations on substantially all trade between them, subject to specified exceptions, while retaining separate external trade policies.
• A customs union additionally requires members to apply substantially the same duties and other trade regulations to non-members.
• The agreement must cover substantially all trade, rather than merely selected products; Article XXIV does not prescribe a fixed numerical percentage.
• External trade barriers must satisfy safeguards against becoming more restrictive for non-members; for a customs union, the comparison concerns their overall incidence.
• An interim agreement must include a plan and schedule for forming the free-trade area or customs union within a reasonable period.

The Enabling Clause: Preferences among developing countries

The 1979 Enabling Clause, formally the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, provides a separate basis for preferential trade arrangements.

• Paragraph 2(c) permits regional or global arrangements among developing-country members for the mutual reduction or elimination of tariffs on goods.
• This route allows developing countries to exchange preferences without satisfying Article XXIV's substantially-all-trade requirement.
• Such arrangements must facilitate developing countries' trade and must not raise barriers to, or create undue difficulties for, the trade of other members.

GATS Article V: Agreements covering services

Article V of GATS permits economic integration agreements liberalising trade in services among their parties.

• An agreement must have substantial sectoral coverage and provide for the absence or elimination of substantially all discrimination between the parties in the sectors covered.
• It must not raise the overall level of barriers facing non-members in the relevant services sectors or subsectors.
• The provision allows flexibility for developing countries, taking account of their level of development.

Notification and scrutiny

Members must notify these arrangements to the WTO under the applicable provisions. Notification enables transparency and scrutiny; it does not by itself establish that an agreement complies with WTO rules.