The meaning of 'substantially all the trade' in article XXIV of the GATT and 'substantial sectoral coverage' in article V of the GATS

Abstract

There has been an increase in the emergence and reach of custom territories in the form of regional or preferential trade agreements (RTA/PTAs). As of 01 January 2024 361 RTAs relating to trade in goods are in force and about 594 have been notified to the World Trade Organisation (WTO). Economic integration through RTAs has allowed traders from many countries to access the global market and function competitively. More so, economic integration contributes to increasing gross domestic product (GDP), developing new markets and attract new investments. Typically, RTAs provide their Members a trade advantage and are, thus, inconsistent with the Most Favoured Nation (MFN) principle. The WTO establishes an exception for such inconsistencies, provided the RTA in question meets specific requirements. Among these requirements, an RTA must cover 'substantially all trade' in terms of art. XXIV:8 of the General Agreement on Tariffs and Trade 1994 (GATT) and 'substantial sectoral coverage' in terms of art. V:1(a) of the General Agreement on Trade in Services (GATS). These terms have been inconsistently determined and applied by WTO Members, with no sight of a standard definition. Therefore, the purpose of this research report is to determine the definition for the requirements 'substantially all trade' and 'substantial sectoral coverage'. I approach this by first unpacking the purpose and background of RTAs and defining key concepts like FTAs and CUs. Second, I discuss the foundational MFN principle. I then discuss the legal requirements for invoking exceptions to the MFN principle for RTAs. Then I explore what substantially all the trade in art. XXIV of GATT and substantial sectoral coverage in art. V of GATS means. Finally, I determine a standard definition for both requirements.