The creation of free trade zones is seen as an exception to the most privileged principle of the World Trade Organization (WTO), since the preferences of the parties to the exclusive granting of a free trade area go beyond their accession obligations. [9] Although GATT Article XXIV authorizes WTO members to establish free trade zones or to conclude interim agreements necessary for their establishment, there are several conditions relating to free trade zones or interim agreements leading to the creation of free trade zones. 10. Contracting parties may adopt by a two-thirds majority of proposals that do not fully meet the requirements of paragraphs 5 to 9, provided that they lead to the establishment of a customs union or free trade area within the meaning of this article. 11. The unions and the constituent elements of free trade areas regularly report to the Goods Trade Council, as provided for by the Contracting PARTIES at the 1947 GATT in their instruction to the 1947 GATT Council on Regional Agreement Reports (BISD 18S/38) on the functioning of the agreement in question. Any substantial changes and/or developments in the agreements should be notified as soon as they occur. Officials will often talk about the extent of coverage by boasting about including tariff lines, i.e. “this agreement covers 65% of tariffs from the first day of the agreement, which will increase to 90% of coverage if fully implemented.” 9.

The parties to the interim agreement notify the Trade in Goods Council of substantial changes to the plan and timetable contained in this agreement and, upon request, the Commission reviews the amendments. The concept of free trade is the opposite of trade protectionism or economic isolationism. 5. These negotiations are initiated in good faith in order to achieve a satisfactory compensatory adjustment for both parties. These negotiations, as requested by Article XXIV, paragraph 6, take due account of tariff reductions made by other elements of the customs union when it was created on the same customs line. If these reductions are not sufficient to ensure the necessary compensatory adjustment, the customs union would propose countervailing measures that may take the form of tariff reductions on other tariff lines. Such an offer is taken into account by members who have binding bargaining rights over the amendment or withdrawal. If the compensatory adjustment remains unacceptable, negotiations should continue. If, despite these efforts, it is not possible to reach an agreement in the negotiations on the adjustment of the compensation under Article XXVIII in accordance with Article XXVIII, as established in the agreement on the interpretation of Article XXVIII of the 1994 GATT, the customs union may be free to amend or withdraw concessions; The members concerned are then free to withdraw substantially equivalent concessions under Article XXVIII. It should be noted that with regard to the qualification of the original criteria, there is a difference in treatment between inputs originating and outside a free trade agreement. Inputs originating from a foreign party are normally considered to originate from the other party when they are included in the manufacturing process of that other party. Sometimes the production costs generated by one party are also considered to be those of another party.

Preferential rules of origin generally provide for such a difference in treatment in determining accumulation or accumulation. This clause also explains the impact of a free trade agreement on the creation and diversion of trade, since a party to a free trade agreement is encouraged to use inputs from another party to allow its products to originate. [22] There are pros and cons of trade agreements.