Regional Trade Agreements in the WTO framework: the case of the ACP-EC relationship

Occasionally, we will make reference to economic studies, but only to the extent 
necessary to clarify some aspects of our analysis. It will suffice here to say that, in 
the WTO arena, despite the lack of agreement among scholars and policy-makers 
about its consequences, regionalism has been generally tolerated as an exception to 
the Most Favoured Nation Clause (MFN) for two basic reasons: first, it is thought 
to expand trade (in fact, the preamble to the Understanding on the Interpretation of 
Article XXIV of the General Agreement on Tariffs and Trade 1994 states that this 
exception to MFN reflects a recognition by WTO Members of “the contribution to 
the expansion of world trade that may be made by closer integration between the 
economies  of  the  parties  to  such  agreements”.);  and  second,  regional  trade 
agreements can serve as building blocks for further multilateral liberalization2. 
Both arguments have been opposed3: nonetheless, it can be generally said that the 
rationale  for  the  discipline  of  preferential  trade  arrangements  in  the  GATT 
framework  is  that  such  arrangements  are  supposed  to  facilitate  trade 
liberalization  among  members,  as  well  as  lead  governments  to  oppose 
protectionism at both the regional and the multilateral levels4. After all, GATT 
Article XXIV itself sets this principle out,  by enunciating that the purpose of 
regional trade agreements  should be to facilitate trade between the constituent 
territories, and not to raise barriers to trade of other GATT contracting parties 
with such territories.
The “special relationship” between the ACP States and the EC is,  for several 
reasons, an interesting example of preferential trade regime. 
It is evident at a glance that the purposes of such a regime go far beyond the 
simple facilitation of trade between the parties, since among its objectives we 
also find the economic development of ACP countries, their gradual inclusion 
into the world economy, the promotion of human rights, democracy, rule of law. 
2
 See World Trade Report 2007,  pp. 138 
3
 See, for instance, Sungjoon Cho, Defragmenting World Trade, Northwestern Journal of International 
Law &Business, 27: 39 (2006), 39-88
4
 Chad Damro,  The Political Economy of Regional Trade Agreements, in Lorand Bartels and Federico 
Ortino (editors) Regional Trade Agreements and the WTO Legal System, Oxford: Oxford University Press 
(2006), p. 24
4
The EC aid and trade policy towards  the  ACP States,  aimed at  pursuing the 
objectives  we  just  sketched  out,  has  been  based  for  a  long  time  on  non-
reciprocity and discrimination against non-ACP developing countries. 
As we will  see later  on in the dissertation,  this  profile  of  the  ACP-EC trade 
relationship  was  successfully  challenged before  the  WTO Dispute  Settlement 
Body in many occasions. Thus, the ACP-EC trade relationship can be considered 
a good example of how the WTO is coping with the question of the increasing 
number of preferential schemes in force today. This is a serious matter, entailing 
systemic problems that may affect the very foundations of the GATT/WTO legal 
system,  notably  the  most  favoured  nation  clause  and  the  principle  of  non-
discrimination5.
With a view to broaching the delicate subject of regional trade agreements, we 
will outline,  first  and foremost, the current discipline of “regionalism”6 in the 
WTO legal system, highlighting its strengths and weaknesses. This is indeed a 
cross-cutting subject, since it touches many different aspects of the WTO law and 
institutional machinery, from trade in goods to trade in services, from the way in 
which WTO tackles the question of economic underdevelopment (and the one of 
special  and  differential  treatment  for  developing  countries)  to  the  role  and 
attributions of the Dispute Settlement Body; in this respect, particular attention 
will  be  paid  to  the  role  of  the  DSB  as  regards  the  review  (in  terms  of 
GATT/WTO compatibility) of regional trade arrangements.
The actual functioning of the review mechanisms available within the WTO legal 
framework will be illustrated in Chapters II and III, whose purpose is to show 
how the problem of WTO inconsistency has evolved throughout the history of 
the controversial trade relationship between the European Community and the 
African, Caribbean and Pacific States.
5
 On regional trade agreements as a “serious” (because of its permanent nature) exception to the MFN 
clause see T.N Srinivasan,  Nondiscrimination in GATT/WTO: was there anything to begin with and is  
there anything left? World Trade Review (2005), 4: 1, 69–95
6
 For a definition of regionalism to the purposes of this dissertation, see Chapter I Par. 1
5
In  Chapter  II,  we  will  examine  the  trade  regime  established  by  the  Lomé 
Convention, that has disciplined such relationship for twenty-five years, focusing 
in particular on the so-called “banana dispute”, which started in 1993 and whose 
sequels stretch out to the days in which we are writing. 
We will successively deal with the transition from the Lomé Convention to the 
Partnership Agreement signed in Cotonou in 2000, and with the problems posed 
by the strict timetable established by the seven-years waiver which was conceded 
by the WTO members in order to facilitate such transition.
 Our intention is to show how the issue of WTO compatibility has been, since 
late  1990s,  a  top  priority  for  the  European  Community,  and  how  WTO 
compatibility is actually dealt with by the Cotonou Partnership Agreement.
The  main  features  of  the  Economic  Partnership  Agreements  (EPAs),  which, 
according to the Cotonou Partnership Agreement, should be the instruments to 
project the ACP-EC relationship in the new century, by harmonizing it with the 
multilateral rules currently in force, will be dealt with in Chapter III. 
We will try to analyze, from both a formal and a substantial point of view, all the 
problematic issues raised by these agreements, some of which have been already 
initialled.
It is important to underscore that the EC-ACP relationship will be analyzed in its 
trade-related aspects and that, as a consequence, the development dimension of 
the relationship, despite its paramount importance, will not be the object of an in-
depth analysis. 
However, it is  also important to recall that, as well-known, the performance of 
the  ACP States  in  terms  of  trade  expansion  and  economic  growth  since  the 
signature of the first Lomé Convention, in 1975, has been disappointing to say 
the  least,  and  that  thirty-nine  out  of  seventy-nine  ACP  States  are  currently 
classified as least developed countries (LDC). Therefore, when considering the 
new trade regime introduced by the EC towards its former colonies, we will need 
to bear in mind that it is bound to have an important impact on the ACP States in 
terms of economic development. 
6
In this sense, we have asked ourselves a first question: is the path indicated by 
the Cotonou Partnership agreement actually leading to a WTO-compatible trade 
regime,  though  somehow  preserving  the  “special”  nature  of  the  ACP-EC 
relationship? The answer is probably “yes”, but, as will be made clear in Chapter 
III, the problem with EPAs is that, if on the one hand they are likely to solve the 
issues of WTO compatibility that in the past years have caused so many troubles 
to the EC and its commercial partners in the WTO arena, on the other hand they 
will raise new problems. In particular, it is very unlikely that the new ACP-EC 
partnership will succeed in enhancing regional integration within the ACP group 
of States as an instrument of economic development.
The  analysis  of  the Cotonou  Partnership  Agreement,  which  clearly  aims  at 
securing  the  ACP-EC trade  regime  to  the  WTO legal  framework,  offers  the 
occasion  of  asking  another  question:  what  happens  when  the  discipline  of 
regional trade agreements in the WTO/GATT legal system interlaces with the 
question  of  special  and  differential  treatment,  or,  more  generally,  with 
development issues? As we will  see,  the current GATT discipline of regional 
trade  agreements  does  not  contemplate  special  and  differential  treatment 
provisions for developing countries whereas they enter a customs union or a free 
trade area with developed countries. We will therefore offer a synthetic review 
and a provisional assessment of the principal proposals for the inclusion in the 
GATT  of  special  and  differential  treatment  in  “North-South”  regional 
agreements.
7
8
CHAPTER I
REGIONALISM IN THE WTO LEGAL SYSTEM
1.  Regionalism  in  international  trade  law  :  definition  and  historical 
evolutions
As anticipated in the introduction, one of the objectives of the present work is to 
assess the main legal issues related to regionalism in the WTO system, focusing 
in particular on the case of the relationship between the European Community7 
and  the  group  of  Africa,  Caribbean  and  Pacific  countries.  This  chapter  will 
therefore deal with the main theoretical issues raised by the phenomenon under 
examination, in order to provide us with the analytical tools needed to proceed 
with an in-depth analysis of the EC-ACP trade relationship.
As a starting point, we need  to come to a clear and understandable definition of 
what it is actually meant here by the word “regionalism”.
The term might  indeed result  misleading;  in  fact,  as  we will  see  in  the  next 
paragraph,  GATT Article  XXIV does  not   discipline  “regionalism”  as  such: 
instead, it makes reference to “customs unions”/“customs territories” and to “free 
trade areas”. 
Thus, when talking about regionalism in the GATT/WTO system, we refer to 
such  preferential  schemes,  which  deviate  from  the  principle  of  non-
discrimination,  and  we  will  indiscriminately  make  use  of  terms  such  as 
7
 We have chosen, for what concerns the scope of this dissertation, to  make reference to the “European 
Community” (EC)  rather than to the “European Union” (EU) in the light of the fact that the EC (the EU’s 
“first pillar” as first provided for by the Maastricht Treaty) and not the EU, is, together with its Member 
States, a Contracting Party of the WTO agreements. As regards the years preceding the entry into force of 
the  Maastricht  Treaty,  we  will  resort  to  the  original  denomination,  “European  Economic 
Community” (EEC).
9
“preferential  schemes”,  “regional  integration  arrangements”,  “regional  trade 
agreements” and so on.
 As Srinivasan notes,  the majority of these schemes involve countries that are 
close geographically, and, in this sense, “regional integration” is an appropriate 
term to describe them8. The use of this expression  is also well-established in the 
WTO context, as exemplified by the WTO General Council’s Decision creating a 
Committee  for  Regional  Trade Agreements9.  In  fact,  the text  of  the  Decision 
specifies  that  “the  term ‘agreements’  (…)  refers  to  all  bilateral,  regional,  and 
plurilateral trade agreements of a preferential nature”. 
Notably,  preferential  trade agreements may aim at  realizing different stages of 
integration: the first step towards regional integration is the institution of a  Free 
Trade Area (FTA), meaning that all tariff barriers to trade are eliminated among 
the member states, each of which can maintain its tariff schemes as for trade with 
third countries. Free Trade Agreements are extremely diffused, and account for the 
90% of the agreements concluded under GATT Article XXIV, GATS Article V 
and the Enabling Clause .
The second stage is the creation of a  Customs Union (CU): all tariff barriers are 
eliminated among members, and a common external tariff is introduced for trade 
with third countries. CUs account for approximately the 10% of the total regional 
agreements signed within the WTO legal framework. 
Proceeding  with  our  brief  analysis  of  the  various  existing  forms  of  regional 
integration,  a  Common Market not  only  brings  tariffs  among  members  down, 
establishing a  common external  tariff,   but  also  allows  the  free  circulation  of 
persons  and capitals  across  national  borders.  Finally,  an  Economic Union  is  a 
Common Market also entailing fiscal and monetary harmonization.  As in the case 
of the European Union, an Economic Union might be the prelude to a genuine 
political union.
8
 T.N. Srinivasan, Regionalism and the WTO: Is Non-discrimination Passé? In Anne O. Krueger (edited 
by) The WTO as an International Organisation, Chicago: University of Chicago Press (1998), p. 333
9
 COMMITTEE ON REGIONAL TRADE AGREEMENTS, Decision of 6 February 1996, WT/L/127. 
The role of the Committee will be examined more in detail in par. 2.2 of this chapter.
10
Regionalism, in the meaning we just outlined, has become, over time, a major 
feature of the multilateral trading system. We do not aim to enter the debate on 
whether the trend towards regional economic integration is likely to undermine 
multilateralism  in  world  trade,  rather  than  enhance  it10 :   we  shall  confine 
ourselves to taking note of the fact that, since the 1980s, “the emphasis of the 
world  trading  regime  has  shifted  from one  in  which  trade  relations  between 
nations were almost entirely multilateral to one in which the open multilateral 
system coexists with a series of preferential arrangements”11.
According to the last report of the Committee on Regional Trade Agreements, as 
of 1 November 2007, 385 regional trade agreements have been notified to the 
GATT or WTO, 197 of which are currently in force.  Of the agreements in force, 
125 were notified under GATT Article XXIV;  22 under the Enabling Clause, 
and 50 under GATS Article V12. As Chart 1 clearly shows, the phenomenon has 
dramatically  increased  in  the  years  following  the  conclusion  of  the  Uruguay 
Round, and the positive trend is likely to continue. 
 This could indeed reflect the view that regional trade agreements  are thought to 
be an acceptable “second best” option for liberalizing trade, especially when long 
and  uncertain  negotiations  are  in  progress,  as  happened  in  the  years  that 
preceded the Uruguay Round and as it is happening today, with the Doha Round 
of  negotiations  still  at  a  stalemate  and a rising wave of  “new protectionism” 
undermining the faith in the multilateral trading system. 
It is important to recall that, in  the first years following the entry into force of 
GATT, most of the preferential trade agreements were truly regional, involving 
10
 For  a  comprehensive  account  of  such a debate,  see,  among the others,  Jagdish  Bhagwati;  Arvind 
Panagariya,  -  The Theory of Preferential Trade Agreements: Historical Evolution and Current Trends, 
The American Economic Review, Vol. 86, No. 2, Papers and Proceedings of the Hundredth and Eighth 
Annual Meeting of the American Economic Association San Francisco, CA, January 5-7, 1996. (May, 
1996), pp. 82-87  or Paul Krugman,  Regionalism versus Multilateralism: Analytical Notes, in Jaime De 
Melo and Arvind Pangariya (ed. by)  New Dimensions in Regional Integration, Cambridge: Cambridge 
University Press, 58-84
11
 Anne O. Krueger, “Are Preferential Trading Arrangements Trade-Liberalizing or Protectionist?” in The 
Journal of Economic Perspectives, Vol. 13, No. 4. (Autumn, 1999), p.109.
12
 Report (2007) of the Committee on Regional Trade Agreements to the General Council, 3 December 
2007 , Doc. WT/REG/18, par. 4
11
countries  which  were  geographically  contiguous  (i.e.  as  in  the  case  of  the 
European  Coal  and  Steel  Community,  or  of  the  European  Free  Trade 
Agreement).  In  more  recent  years,   intra-regional  preferential  agreements 
proliferated, also aiming at  integrating countries which are very heterogeneous 
as for geographic situation and level of economic development.
Chart  1 Regional  trade  agreements  notified  to  the  GATT/WTO (1948-2007),  including  inactive  regional  trade 
agreements, by year of entry into force.
Source: WTO secretariat, http://www.wto.org/english/tratop_e/region_e/regfac_e.htm
In any case, regionalism, in a broad sense, is not new as a phenomenon, dating 
back at least to the 19th century (i.e. the German Zollverein formed in 1834).
 However, the focus here will be on regional trade agreements created after World 
War II, in particular after the failure of the International Trade Organization.
In the period considered,  regionalism has constantly remained a major feature of 
the  international  trading  system,  though  developing,  as  many  scholars  noted, 
through several “waves” of diverse intensity, the first of which coincided with the 
creation of the European Economic Community in 1957 and of the European Free 
Trade  Area  in  1960.  In  this  phase,  regionalism  also  interested  the  newly 
12