GATT and the European Community: A Formula for Peaceful Coexistence

This article addresses the relationship between the GATT, the European Community and other RTAs as and when trade in services and other “new areas” are incorporated into the GATT framework. The article first discusses the conceptual justifications for RTAs (as an alternative to utopian global free trade) in order to provide background for considering whether the privileges accorded RTAs under the existing GATT framework should be extended to new areas and, if so, how far. It is observed that “state of the art” tools of economic analysis do not provide adequate guidance as to the global welfare costs or benefits of RTAs so as to enable trade policy-makers to determine in advance their impact on global welfare, and that more subjective modes of analysis must be looked to for answers. The article then describes the GATT’s historic tolerance of RTAs and how that tolerance is legislatively embodied in the General Agreement. It is noted that the existing (and controversial) formula providing a limited waiver for RTAs with respect to the GATT Most Favored Nation (“MFN”) principle (and trade in goods) cannot be readily transported and applied to the National Treatment principle and trade in services (with which the Uruguay Round negotiations are concerned). The EC’s proposal for a new RTA waiver in its draft GATT Services Code proposal is analyzed and is found to be both unworkable and unwise. This article proposes a new formula for a GATT waiver or exemption which would be applicable to the EC and other RTAs. The new formula would rely on the concept of “necessity” as a basis for the evaluation of RTA conduct which derogates from the general rules of the GATT. While certain guideposts may be provided to decision-makers with respect to the application of the proposed RTA waiver formula, it is clear that the myriad of contexts in which RTA derogations may arise will require the development of a new body (or common law) of interpretive decisions concerning RTA derogations – some of which, such as RTA measures designed for the primary purpose of providing unfair comparative advantages to local industry, will involve bright lines distinguishing the “necessary” from the “merely convenient,” and others of which will involve careful balancings of interests.