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World Trade Organization Toolkit

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Regional Arrangements

The GATT allows countries to enter into regional arrangements and create regional trading blocks. This constitutes a clear departure from the MFN principle included in Article I of the GATT. Such arrangements have by definition the effect of granting a more favourable trade treatment among its constituent Members than to other WTO trading partners. The European Union and the North American Free Trade Agreement (NAFTA) are examples of such regional trading blocks.

Since regional arrangements constitute a clear departure from the fundamental principle of the MFN principle, they are subject to strict conditions. Article XXIV of the GATT provides that regional arrangements are permitted provided two conditions are fulfilled.

First, the regional arrangement must result in the creation of a Customs Union or a Free Trade Area. In other words, duties and other restrictions on trade must be eliminated with respect to substantially all trade between the constituent members of the regional trading block.

Second, the general incidence of the duties after the formation of such an arrangement cannot be higher than the average levels of duties prevailing on the part of member countries to such an arrangement prior to its formation. In other words, WTO Members cannot be prejudiced by the fact that other WTO Members create a regional trading block.

One striking feature of the history of the GATT/WTO is the increasing number of regional arrangements under Article XXIV of the GATT. According to the WTO Secretariat, there were as of 13 October 2003, more than 100 regional trade arrangements notified to the GATT/WTO.

On the one hand, regional arrangements may be regarded as an obstacle to the development of a harmonious multilateral and worldwide system of trade rules. On the other hand, regional trading liberalisation may be viewed as a preliminary step towards the development of the worldwide system of trade rules.

As noted during a WTO Conference of 14 November 2003 on Regional Trade Agreements (RTAs) and the WTO, "as the number and scope of [those regional arrangements] expand to include complex regulatory trade provisions, trade in services and investment-based activity the importance of improving the formal and substantive links between RTAs and the multilateral trading system is becoming more apparent." As a result, Members agreed in the Doha Declaration to promote the transparency of those RTAs.

Besides regional arrangements authorised under Article XXIV of the GATT, another form of regional arrangement is authorised under the "enabling clause". That clause authorises developing countries notwithstanding the MFN principle, to accord differential and more favourable treatment to developing countries without granting the same treatment to other Members. The "enabling clause" refers to a Decision adopted by the GATT Contracting Parties in 1979. It continues to apply as part of the GATT 1994 under the WTO.

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