GATT Article XXIV:5 refers to the "formation" of a customs union or a free-trade area:
the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area
The Uruguay Round Understanding on the Interpretation of Article XXIV adds the following about the "operation" of customs unions and free-trade areas:
11. Customs unions and constituents of free-trade areas shall report periodically to the Council for Trade in Goods, as envisaged by the CONTRACTING PARTIES to GATT 1947 in their instruction to the GATT 1947 Council concerning reports on regional agreements (BISD 18S/38), on the operation of the relevant agreement. Any significant changes and/or developments in the agreements should be reported as they occur.
NAFTA was already "formed" in the early 1990s, so arguably the NAFTA renegotiation does not involve the "formation" of a free-trade area. Instead, it seems to me, the renegotiation is likely to involve "significant changes and/or developments" in the existing agreement, pursuant to paragraph 11 of the Understanding.
But what are the rules that apply to "significant changes and/or developments" (other than simply reporting them)? Can the parties make the free-trade area slightly less free, as the U.S. is pushing in the NAFTA renegotiation (and with the KORUS FTA amendment and modification)? What, if any, constraints apply here? Article XXIV:8(b) says:
A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.
And Article XXIV:5(b) says:
with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free-trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be;
Are there any changes the U.S. is proposing in the NAFTA renegotiation that could bump up against these obligations? How about the suggestion that certain automobile trade will be done under tariffs that are higher than existing MFN rates?
This isn't the first FTA to be updated, so I suspect there is a bit of WTO experience with this, but I don't know anything about it.
