PART III ARTICLE XXIV TERRITORIAL APPLICATION - FRONTIER TRAFFIC - CUSTOMS UNIONS AND FREE TRADE AREAS I. TEXT OF ARTICLE XXIV, INTERPRETATIVE NOTE AD ARTICLE XXIV AND UNDERSTANDING ON THE INTERPRETATION OF ARTICLE XXIV OF THE GATT 1994 ................................................................................... 790 II. INTERPRETATION AND APPLICATION OF ARTICLE XXIV .................................................................................. 794 A. SCOPE AND APPLICATION OF ARTICLE XXIV .................................................................................................... 794 1. Paragraphs 1 and 2: “customs territory” .............................................................................................. 794 2. Paragraph 3: “frontier traffic” ............................................................................................................ 795 3. Paragraph 4 .................................................................................................................................... 796 (1) Relationship between paragraph 4 and paragraphs 5 to 9 ................................................................ 796 (2) Free-trade areas between territories not producing the same products ................................................ 797 (3) “not to raise barriers to the trade of other contracting parties” ........................................................ 797 4. Paragraph 5 .................................................................................................................................... 798 (1) “as between the territories of contracting parties” .......................................................................... 798 (a) Agreements between contracting parties and States or governments other than contracting parties ......... 798 (b) Free trade areas between independent and dependent territories ................................................... 799 (c) Free trade areas between developed and developing countries ..................................................... 799 (2) “the duties and other regulations of commerce imposed at the institution of any such union/maintained in each of the constituent territories” .................................................................. 800 (a) Variable levies ................................................................................................................. 800 (b) Quantitative restrictions ...................................................................................................... 800 (c) “Other regulations of commerce” .......................................................................................... 801 (d) Rules of origin ................................................................................................................. 801 (3) “shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories” ..................................................... 803 (a) “on the whole” ................................................................................................................. 803 (b) “the general incidence” ...................................................................................................... 803 (c) “applicable”: use of bound or applied duty rates in comparison of tariff rates .................................. 805 (d) Other issues concerning methodology for comparison of duty rates ................................................ 807 (4) “any interim agreement … shall include a plan and schedule for the formation of such a customs union or of such a free-trade area” ............................................................................................. 807 (5) “within a reasonable length of time” ........................................................................................... 808 5. Paragraph 6 .................................................................................................................................... 810 (1) “the procedure set forth in Article XXVIII shall apply” .................................................................. 810 (a) Application of Article XXVIII procedures ................................................................................ 810 (b) Conciliation and arbitration ................................................................................................. 811 (c) Application of Article XXVIII:3, including time-limits ................................................................. 812 (2) “compensatory adjustment” ....................................................................................................... 812 (a) Methods of calculation and negotiation .................................................................................. 812 (b) “Reverse compensatory adjustment”....................................................................................... 812 (c) Effect of Article XXIV:6 negotiations ...................................................................................... 813 6. Paragraph 7 .................................................................................................................................... 814 (1) “Any contracting party … shall promptly notify the CONTRACTING PARTIES” ...................................... 814 (a) Notification of agreements under Article XXIV ......................................................................... 814 (b) Procedures for examination of agreements under Article XXIV ...................................................... 814 (c) Periodic reporting ............................................................................................................ 815 (2) “the CONTRACTING PARTIES shall make recommendations” .................................................................. 816 (a) Powers of the CONTRACTING PARTIES under paragraph 7 .............................................................. 816 (b) Practice under paragraph 7 ................................................................................................. 817 (c) Legal status of agreements in the absence of recommendations ..................................................... 818 7. Paragraph 8 .................................................................................................................................... 820 (1) “duties and other restrictive regulations of commerce … are eliminated” ........................................... 820 (a) “regulations of commerce” .................................................................................................. 820 (b) Charges on imports other than customs duties .......................................................................... 820 (c) Duties in the context of free-trade areas between market economy and centrally-planned economy countries ........................................................................................................................ 821 (d) Quantitative restrictions ..................................................................................................... 822 790 ANALYTICAL INDEX OF THE GATT (2) “except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX” .................. 822 (3) “with respect to substantially all the trade” .................................................................................. 824 (a) Quantitative criteria ......................................................................................................... 824 (b) Qualitative criteria and sectoral exclusions ............................................................................. 825 (c) Reverse preferences and one-way free-trade areas ..................................................................... 826 (4) “substantially the same duties and other regulations of commerce are applied …” .............................. 827 8. Paragraph 9: Historical preferences and customs unions or free-trade areas ................................................ 828 9. Paragraph 10 ................................................................................................................................... 829 (1) Formation of customs unions and free trade areas with non-GATT contracting parties ......................... 829 (2) “by a two thirds majority” ........................................................................................................ 829 10. Paragraph 11: Arrangements between India and Pakistan ....................................................................... 829 11. Paragraph 12: “observance of the provisions of this Agreement by … regional and local governments and authorities” ................................................................................................................................... 830 (1) Purpose and scope of paragraph 12 ............................................................................................ 830 (2) “reasonable measures” ............................................................................................................. 833 (3) “regional and local governments and authorities” .......................................................................... 836 B. RELATIONSHIP BETWEEN ARTICLE XXIV:4-11 AND OTHER GATT PROVISIONS ........................................................ 836 1. Article XI ..............................................................................................................................