US embassy cable - 05GENEVA1384

UNCLAS SECTION 01 OF 02 GENEVA 001384 
 
SIPDIS 
 
PASS USTR FOR ALLGEIER, DWOSKIN 
STATE/EB/OT FOR CRAFT 
USDA/FAS/ITP FOR SHEIKH, MTND/HENKE, FAA/SE/WILSON 
USDOC FOR ALDONAS, SPETRINI, JACOBS 
 
E.O. 12958: N/A 
TAGS: ETRD, WTRO, USTR, Trade 
SUBJECT:  MAY 2005 MEETING OF THE RULES NEGOTIATING GROUP TO 
DISCUSS REGIONAL TRADE AGREEMENTS 
 
SUMMARY 
1.  On 17-18 May 2005, the Rules Negotiating Group met to discuss 
potential clarifications of substantive disciplines of regional 
trade agreements ("systemic issues") and a draft Chairman's text 
setting out possible reforms to improve the WTO's review of the 
agreements ("transparency").  In the context of transparency, the 
Group held a second discussion of the Secretariat's draft "mock" 
presentation of a services agreement, to assist Members to 
envision a possible future format for Secretariat-prepared 
factual reports of services agreements.  The next meetings of the 
Rules Group dedicated to regional trade agreements were scheduled 
for 13-14 June and 11-12 July 2005.  End Summary. 
SYSTEMIC ISSUES 
2.  The meeting began with a formal discussion of two Australian 
papers on "systemic" issues. (TN/RL/W/173/Rev.1 and TN/RL/W/180) 
Australia reiterated its four proposed criteria for determining 
whether free trade agreements and customs unions eliminate duties 
on "substantially all trade" (SAT) in accordance with GATT rules: 
(1) a required minimum tariff line coverage (70 percent at date 
of entry into force and 95 percent at final implementation); (2) 
a "highly traded products" test (prohibiting exclusion of any 
product comprising more than 0.2 percent of bilateral trade, or 
any one of an RTA partners' top 50 exports); (3) consideration of 
"but for" trade (products that would be traded, "but for" 
prohibitive tariffs); and (4) a maximum phase-out period of 10 
years for duty elimination. 
3.  The Australian papers stimulated good engagement from 
Members, but there was little explicit support for the details 
contained within the proposals.  Members split on the issue of 
the ten-year phase-out period, with Costa Rica, Barbados, the 
United States, and others emphasizing that additional time may 
sometimes be necessary to ensure comprehensive coverage.  Many 
Members, including China, Egypt, Costa Rica, Malaysia, Barbados, 
Kenya and Zimbabwe, focused their remarks on concerns over 
treatment of developing countries, reiterating the need for 
special and differential treatment. 
4.  The United States cited six additional possible "evaluative 
criteria" for assessing satisfaction of the substantially all 
trade requirement.  It also voiced concerns about Australia's 
reliance on 6-digit tariff lines to evaluate percentage coverage, 
the imposition of a test based upon trade coverage at the time of 
entry into force, the "highly-traded products" test, and a strict 
10-year phase in period, rather than the 15 years that the United 
States and others have needed to maximize coverage at the time of 
final implementation. 
5.  Norway, as on previous occasions, took the most overtly 
negative position, insisting that further elaboration on the 
complementary obligation to eliminate "other restrictive 
regulations of commerce" was a precondition for progress on the 
SAT criterion, based partly on the notion that preferential rules 
of origin can undermine the SAT test.  Switzerland opined that 
the 95 percent test, in effect, required duty-free treatment for 
all, not just "substantially all," trade.  New Zealand supported 
Australia's 95 percent tariff line test, but suggested that a 
single test was not sufficient, and suggested that a minimum 
percentage of trade flow also should be required.  New Zealand 
and some other Members also supported the 10- year phase-out 
rule. 
6.  Brazil appreciated the introduction of the "but for" test, 
but voiced concern about the highly-traded products test, 
because, for some small countries, such a threshold could 
effectively cover all trade.  In addition, Brazil and India 
agreed with the United States in questioning Australia's proposed 
use of 6-digit tariff lines for determining tariff line coverage. 
Barbados cited international principles of treaty interpretation 
to oppose Australia's view that regional agreements that had not 
been specifically notified to the WTO as "interim agreements" 
were not entitled to be phased in over ten or fifteen years. 
7.  The Rules Group also discussed a paper from the European 
Communities on systemic issues (TN/RL/W/179).  This paper appears 
to make significant changes in the EC position in a few areas. 
Notably, for the first time in 30 years, the EC accepts tariff 
line coverage as one possible criterion for evaluating 
substantially all trade, in combination with recent trade flow 
data. The EC paper also states that no subset of regional trade 
agreements (e.g., Enabling Clause agreements) can, a priori, be 
excluded from the Rules Group's discussion, and argues that 
Members should avoid drafting new rules to protect the lowest 
common denominator, (i.e., those RTAs with the least trade 
coverage). 
8.  On the issue of a combined average minimum tariff and trade 
coverage, Switzerland thought the EC submission needed further 
consideration.  Chile and Colombia voiced limited support, but 
Australia noted that it would tend to facilitate the exclusion of 
a major sector (such as agriculture).  The United States heralded 
the changes in the EC position on tariff line coverage, agreed 
with its ambitious aspects, but questioned why an average of 
tariff line coverage and trade flow coverage was necessarily 
better than each factor being assessed independently. 
9.  On development, the European Communities claimed there was a 
"lack of coherence" given that some developing countries had 
negotiated RTAs under GATT disciplines, while other developing 
countries, often having larger economies, negotiated their 
agreements under the Enabling Clause.  The EC argued that the 
size of the economies of the developing country parties, and the 
potential affect on third parties, should determine whether 
regional agreements between developing countries should be 
examined pursuant to GATT Article XXIV or the Enabling 
Clause.  By suggesting "we won't change it if you don't use 
it," the EC is trying to recruit support of smaller developing 
countries against the larger developing countries.  The EC made 
an obvious effort to permit its future agreements with the 
Africa, Caribbean and Pacific countries to be subject to easier 
disciplines than those that currently apply to agreements between 
developed and developing countries.   Barbados welcomed the EC's 
proposal to consider different levels of development, but Costa 
Rica and China rejected it entirely, with Costa Rica arguing that 
developed countries have a responsibility to insist that 
developing country RTA partners meet GATT standards.  Many 
delegations were interested in seeing further development of the 
ideas in the EC paper. 
TRANSPARENCY 
10.  The discussion of the Chair's latest draft note on 
transparency was held in informal mode.  In both the general 
discussion and in the section-by-section discussion, many Members 
focused on how new transparency rules would address agreements 
between developing countries notified pursuant to the so-called 
Enabling Clause, rather than under the GATT disciplines.  Chile 
noted that the discussion concerned transparency rules for 
Enabling Clause agreements, not a change to the substantive 
rules.  The section-by-section discussion was fairly technical. 
When addressing what information would be notified, most Members 
agreed that all data should be provided electronically.  The EC 
caused a stir by asking for the insertion of brackets in the 
draft text, with respect to the provision of information relating 
to tariff rate quotas, suggesting that it might not be willing or 
able to submit such information during an examination conducted 
by the Committee on Regional Trade Agreements (CRTA).  The Chair 
concluded the discussion by reminding the delegates that the Note 
was a work in progress and by noting that he hoped to have a 
revision ready by the June 2005 meeting. 
11.  The Rules Group also discussed the Secretariat's Mock 
Presentation of a services agreement, which attempted to 
demonstrate how the Secretariat might undertake new 
responsibilities in the CRTA examination under the transparency 
reforms contemplated in the Chair's Note.  Introductory remarks 
noted the difficulty in obtaining data on trade in services, and 
a request was made (and supported by many Members) for a 
representative of the WTO's statistics bureau to attend the next 
meeting to discuss services statistics. 
12.  A few Members, including Chile, noted that it was not 
possible in every instance to rely on current voluntary 
classification tools, such as the UN CPC and the WTO 
Secretariat's W/120, when examining coverage in services 
 
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agreements.  Most services agreements apply a negative list 
approach (all services sectors covered, unless specifically 
exempted) and the parties may choose to use domestic 
Classifications or one of the parties may use the CPC.  Hong Kong 
China insisted that some kind of standard form should be used for 
analyzing coverage for all agreements, so that there could be 
"comparability" between agreements.  The United States and Canada 
noted that comparability was not the appropriate reference for 
the determination of compliance of services agreements with WTO 
requirements.  Moreover, if an agreement had not been negotiated 
pursuant to a different format, it would be distortive for the 
Secretariat to try to fit a square peg in a round hole.  Canada 
 
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recalled that Members are required to examine RTAs in accordance 
with GATS Article V, not against commitments under the GATT.  The 
United States reiterated the purpose of the Secretariat 
presentation is to provide further transparency concerning what 
is contained in the agreements, not to engage in judgment calls. 
Malaysia ventured to suggest that this discussion should 
preliminarily be taking place in the Council for Trade in 
Services.  The United States expressed appreciation for the 
Secretariat's ability to remain factual and objective in most 
 
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parts of the draft, but also pointed out examples of where that 
may not have been the case.  The United States recalled 
difficulties highlighted by the Secretariat with the use of the 
available classification tools and the need for Members to assist 
the Secretariat by supplying data and information on their 
domestic services regimes.  Deily