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XVI. Article XIV back to top
A. Text of Article XIV
Article XIV*: Exceptions to the Rule of
Non-discrimination
1.
A contracting party which applies restrictions
under Article XII or under Section B of Article XVIII may, in the
application of such restrictions, deviate from the provisions of Article
XIII in a manner having equivalent effect to restrictions on payments
and transfers for current international transactions which that
contracting party may at that time apply under Article VIII or XIV of
the Articles of Agreement of the International Monetary Fund, or under
analogous provisions of a special exchange agreement entered into
pursuant to paragraph 6 of Article XV.*
2.
A contracting party which is applying
import restrictions under Article XII or under
Section B of Article
XVIII may, with the consent of the CONTRACTING PARTIES, temporarily
deviate from the provisions of Article XIII in respect of a small part
of its external trade where the benefits to the contracting party or
contracting parties concerned substantially outweigh any injury which
may result to the trade of other contracting parties.*
3.
The provisions of Article XIII shall not
preclude a group of territories having a common quota in the
International Monetary Fund from applying against imports from other
countries, but not among themselves, restrictions in accordance with the
provisions of Article XII or of
Section B of Article XVIII on condition
that such restrictions are in all other respects consistent with the
provisions of Article XIII.
4.
A contracting party applying import
restrictions under Article XII or under
Section B of Article XVIII shall
not be precluded by Articles XI to
XV or Section B of Article XVIII of
this Agreement from applying measures to direct its exports in such a
manner as to increase its earnings of currencies which it can use
without deviation from the provisions of Article
XIII.
5.
A contracting party shall not be precluded
by Articles XI to XV, inclusive, or by
Section B of Article XVIII, of
this Agreement from applying quantitative restrictions:
(a) having equivalent effect to exchange
restrictions authorized under Section 3 (b) of Article VII of the
Articles of Agreement of the International Monetary Fund, or
(b) under the preferential arrangements
provided for in Annex A of this Agreement, pending the outcome of the
negotiations referred to therein.
B. Text of Notes Ad Article XIV
Ad Article XIV: Paragraph 1
The provisions of this paragraph shall not be
so construed as to preclude full consideration by the CONTRACTING
PARTIES, in the consultations provided for in paragraph 4 of Article XII
and in paragraph 12 of Article XVIII, of the nature, effects and reasons
for discrimination in the field of import restrictions.
Paragraph 2
One of the situations contemplated in
paragraph 2 is that of a contracting party holding balances acquired as
a result of current transactions which it finds itself unable to use
without a measure of discrimination.
C. Interpretation and Application of Article
XIV
692.
Paragraph 3 of the IMF–WTO Agreement
referred to in paragraph 694 below requires the IMF to inform the WTO
regarding any IMF decisions authorizing exchange restrictions,
discriminatory currency arrangements or multiple currency practices
pursuant to Articles VI or VIII of the IMF Articles of Agreement.
Communications from the IMF to this effect are circulated in the WT/TF/IMF
series.
693.
See GATT Analytical Index.
XVII.
Article XV
back to top
A. Text of
Article XV
Article XV: Exchange Arrangements
1.
The CONTRACTING PARTIES shall seek
co-operation with the International Monetary Fund to the end that the
CONTRACTING PARTIES and the Fund may pursue a co-ordinated policy with
regard to exchange questions within the jurisdiction of the Fund and
questions of quantitative restrictions and other trade measures within
the jurisdiction of the CONTRACTING PARTIES.
2.
In all cases in which the CONTRACTING
PARTIES are called upon to consider or deal with problems concerning
monetary reserves, balances of payments or foreign exchange
arrangements, they shall consult fully with the International Monetary
Fund. In such consultations, the CONTRACTING PARTIES shall accept all
findings of statistical and other facts presented by the Fund relating
to foreign exchange, monetary reserves and balances of payments, and
shall accept the determination of the Fund as to whether action by a
contracting party in exchange matters is in accordance with the Articles
of Agreement of the International Monetary Fund, or with the terms of a
special exchange agreement between that contracting party and the
CONTRACTING PARTIES. The CONTRACTING PARTIES in reaching their final
decision in cases involving the criteria set forth in paragraph 2 (a) of
Article XII or in paragraph 9 of Article XVIII, shall accept the
determination of the Fund as to what constitutes a serious decline in
the contracting party’s monetary reserves, a very low level of its
monetary reserves or a reasonable rate of increase in its monetary
reserves, and as to the financial aspects of other matters covered in
consultation in such cases.
3.
The CONTRACTING PARTIES shall seek
agreement with the Fund regarding procedures for consultation under
paragraph 2 of this Article.
4.
Contracting parties shall not, by exchange
action, frustrate* the intent of the provisions of this Agreement, nor,
by trade action, the intent of the provisions of the Articles of
Agreement of the International Monetary Fund.
5.
If the CONTRACTING PARTIES consider, at any
time, that exchange restrictions on payments and transfers in connection
with imports are being applied by a contracting party in a manner
inconsistent with the exceptions provided for in this Agreement for
quantitative restrictions, they shall report thereon to the Fund.
6.
Any contracting party which is not a member
of the Fund shall, within a time to be determined by the CONTRACTING
PARTIES after consultation with the Fund, become a member of the Fund,
or, failing that, enter into a special exchange agreement with the
CONTRACTING PARTIES. A contracting party which ceases to be a member of
the Fund shall forthwith enter into a special exchange agreement with
the CONTRACTING PARTIES. Any special exchange agreement entered into by
a contracting party under this paragraph shall thereupon become part of
its obligations under this Agreement.
7.
(a) A special exchange agreement between a
contracting party and the CONTRACTING PARTIES under paragraph 6 of this
Article shall provide to the satisfaction of the CONTRACTING PARTIES
that the objectives of this Agreement will not be frustrated as a result
of action in exchange matters by the contracting party in question.
(b)
The terms of any such agreement shall not
impose obligations on the contracting party in exchange matters
generally more restrictive than those imposed by the Articles of
Agreement of the International Monetary Fund on members of the Fund.
8.
A contracting party which is not a member
of the Fund shall furnish such information within the general scope of
section 5 of Article VIII of the Articles of Agreement of the
International Monetary Fund as the CONTRACTING PARTIES may require in
order to carry out their functions under this Agreement.
9.
Nothing in this Agreement shall preclude:
(a)
the use by a contracting party of exchange
controls or exchange restrictions in accordance with the Articles of
Agreement of the International Monetary Fund or with that contracting
party’s special exchange agreement with the CONTRACTING PARTIES, or
(b)
the use by a contracting party of
restrictions or controls in imports or exports, the sole effect of
which, additional to the effects permitted under Articles XI, XII,
XIII
and
XIV, is to make effective such exchange controls or exchange
restrictions.
B. Text of Note Ad Article XV
Ad Article XV: Paragraph 4
The word “frustrate” is intended to
indicate, for example, that infringements of the letter of any Article
of this Agreement by exchange action shall not be regarded as a
violation of that Article if, in practice, there is no appreciable
departure from the intent of the Article. Thus, a contracting party
which, as part of its exchange control operated in accordance with the
Articles of Agreement of the International Monetary Fund, requires
payment to be received for its exports in its own currency or in the
currency of one or more members of the International Monetary Fund will
not thereby be deemed to contravene
Article XI or Article XIII. Another
example would be that of a contracting party which specifies on an
import licence the country from which the goods may be imported, for the
purpose not of introducing any additional element of discrimination in
its import licensing system but of enforcing permissible exchange
controls.
C. Interpretation and Application of Article
XV
1. Article XV:1: “cooperation with the
International Monetary Fund”
694.
At its meeting on the 8, 9 and 13
November 1996, the General Council approved(973) an Agreement between the
International Monetary Fund and the World Trade Organization. This
Agreement, signed on 9 December 1996, was accompanied by a letter from
the Managing Director of the IMF and an agreed commentary on provisions
of the Agreement.(974)
2. Article XV:2: Consultation with the Fund
(a) Participation by the Fund in
balance-of-payments consultations
695.
Paragraph 4 of the IMF–WTO Agreement
referred to above provides as follows:
“The Fund agrees to participate in
consultations carried out by the WTO Committee on Balance-of-Payments
Restrictions on measures taken by a WTO member to safeguard its balance
of payments. For these consultations, existing procedures for Fund
participation shall continue and may be adapted as appropriate in
accordance with paragraph 14 below.”(975)
696.
The Agreed Commentary on this provision
provides:
“Comment: The consultations would
take place as requested by the WTO for the operation of its rules on
trade-related measures taken for balance of payments reasons. This
provision makes permanent the provisional agreement contained in a
December 1994 exchange of letters between the Fund and the Chairman of
the GATT Committee on Balance of Payments to apply to the WTO the
procedures that existed vis-à-vis the GATT and to extend such
procedures to services.
Under existing procedures, the WTO Secretariat
and the Fund’s staff coordinate so that the timing of the
consultations will be suitable to the consulting Member and the
institutions, with a view to ensuring that the Fund is in a position to
provide the requisite information. The Fund provides to the WTO
Committee on Balance-of-Payments Restrictions the most recent RED,
subject to consent of the member, and supplementary background
information (in cases where the RED may require updating) and a
statement on the Member’s balance of payments situation and external
reserve position, which are approved by the Board, normally on a lapse
of time basis. The Fund’s staff receives and comments on a background
document that the WTO Secretariat prepares based in part on the Article
IV Consultation Report and background papers that it receives routinely
from the Fund (see paragraph 12 on provision of documents). The Fund’s
representative participates in the discussions and is available to
answer questions raised by Committee members.”(976)
697.
See also the discussion of
balance-of-payments consultations below at the end of the material on
Article XVIII.
(b) Consultation with the Fund in the context
of dispute settlement
698.
Paragraph 8 of the IMF–WTO Agreement
referred to in paragraph 694 above provides as follows:
“Each organization may communicate its views
in writing on matters of mutual interest to the other organization or
any of its organs or bodies (excluding the WTO’s dispute settlement
panels) and such views shall become part of the official record of such
organs and bodies. The Fund shall inform in writing the relevant WTO
body (including dispute settlement panels) considering exchange measures
within the Fund’s jurisdiction whether such measures are consistent
with the Articles of Agreement of the Fund.”(977)
699.
The Agreed Commentary on this provision
provides:
“Comment: This provision allows each
organization to communicate its views to any organ or body of the other
organization (other than the bodies specifically excluded). While these
communications may cover all matters, in practice, they are expected to
be used only for purposes of communicating views on important matters of
policy and/or jurisdiction. As the views communicated would be views of
the organization, they would be approved by the appropriate
institutional body before their transmittal. The provision also requires
that such views be included in the official record of the relevant body
or organ, which means they must be noted, but are not binding on the
other party.
Also, under this provision, the Fund is
required to inform a WTO body considering exchange measures within the
Fund’s jurisdiction (including a dispute settlement panel) whether
such measures are consistent with the Fund’s Articles as is relevant
for the application of certain provisions in the related agreements (GATT Article XV and
GATS Article XI; see also comment on paragraph 3
above).
The scope of this communication is limited to
jurisdictional matters and would not include views on policy matters. As
the provision of ‘information’ will implement the requirement of
consultation with the Fund on consistency of exchange measures with the
Fund’s Articles, these communications will have official status in the
proceedings, which could mean that they will be recorded, for instance,
in the reports of the panels to the Dispute Settlement Body.”(978)
700.
In the dispute on Argentina — Textiles
and Footwear, Argentina asserted that a 3 per cent ad valorem
statistical tax on imports was imposed for fiscal performance purposes
so as to obtain IMF financing to deal with a financial crisis. In
response to Argentina’s claim that the Panel had erred by failing to
consult with the IMF, the Appellate Body found that while “it might
perhaps have been useful for the Panel to have consulted with the IMF on
the legal character of the relationship or arrangement between Argentina
and the IMF in this case”, the panel did not abuse its discretion by
not seeking information or an opinion from the IMF:
“The only provision of the WTO Agreement
that requires consultations with the IMF is Article XV:2 of the
GATT 1994. This provision requires the WTO to consult with the
IMF when dealing with ‘problems concerning monetary reserves, balances
of payments or foreign exchange arrangements’. However, this case does
not relate to these matters… .
As in the WTO Agreement, there are no
provisions in the Agreement Between the IMF and the WTO that require
a panel to consult with the IMF in a case such as this. Under paragraph
8 of this latter Agreement, in a case involving ‘exchange measures
within the Fund’s jurisdiction’, the IMF ‘shall inform in writing
the relevant WTO body (including dispute settlement panels) … whether
such measures are consistent with the Articles of Agreement of the Fund.’
This case does not, however, involve ‘exchange measures within the
Fund’s jurisdiction’. Paragraph 8 also provides that the IMF ‘may
communicate its views in writing on matters of mutual interest to the [WTO]
or any of its organs or bodies (excluding the WTO’s
dispute settlement panels) …’ (emphasis added). Evidently, the
IMF has not been authorized to provide its views to a WTO dispute
settlement panel on matters not relating to exchange measures within its
jurisdiction, unless it is requested to do so by a panel under Article
13 of the DSU.”(979)
701.
The Panel in India — Quantitative
Restrictions submitted questions to the IMF by a letter, “having
regard to Article 13 of the DSU and to
Article XV:2 of the GATT 1994.”(980)
The Panel Report records that the Panel found that “whatever the
interpretation of Article XV:2 of GATT 1994,
Article 13.1 of the DSU
entitles the Panel to consult with the IMF in order to obtain any
relevant information relating to India’s monetary reserves and
balance-of-payments situation which would assist us in assessing the
claims submitted to us.” The Panel took this information into account
in assessing the claims before it.(981)
702.
The Panel Report on India —
Autos discusses the issue of consultation with the IMF in that case:
“India has also indicated that it would
expect the Panel to consult with the IMF in determining India’s
balance-of-payments situation as of the dates of each claimant’s
request for establishment of this Panel. The Panel does not rule on
whether consultation with the IMF is compulsory or not before the final
factual resolution by a panel of a balance-of-payments matter, where
there is conflicting evidence presented. Whatever the proper view as to
this question, such a consultation could not be used as a total
substitute for asserting and providing a prima facie case as to a
defence under Article XVIII:B, and in the absence of any indication of
how the measures might fall within the terms foreseen in that provision.
It is clear that a panel’s fact finding mandate should not be utilized
so as to make out a prima facie case where that is not achieved
by the relevant party. At an appropriate stage in proceedings,
consultation of appropriate international experts or authorities could
be helpful in establishing whether one of the specific situations
foreseen in Article XVIII:B applied to India’s situation. As stated by
the India — Quantitative Restrictions panel, such
consultation could ‘assist in assessing the claims submitted’ to the
Panel. However, the arguments presented did not even lead the Panel to
that point.”(982)
703.
The Panel in Dominican Republic — Import and Sale of Cigarettes examined, inter alia, a
“foreign exchange fee” of 10 per cent ad valorem on all
imports. The Dominican Republic argued that this measure was an exchange
restriction justified under Article XV:9(a), and that it had been
approved by the IMF as part of a stand-by arrangement with the IMF, and
therefore was in accordance with the IMF Articles of Agreement. The
Panel requested information from the IMF on the following two issues:
“(i) how the foreign exchange fee is being implemented by the
Dominican Republic; (ii) whether the foreign exchange fee as currently
applied by the Dominican Republic is an ‘exchange control’ or ‘exchange
restriction’ under the Articles of Agreement of the IMF.”(983) The
letter by the Panel to the IMF and the IMF’s communication to the
Panel are both attached to the Panel Report.(984)
(c) “findings of statistical and other facts
presented by the Fund”
704.
The Panel Report on India — Quantitative
Restrictions records that the parties to that dispute had divergent
views on the role of the IMF. The United States argued that Article XV:2
required the WTO (including panels) to consult with the IMF, and to
accept as dispositive the IMF’s determinations of fact on the matters
of fact specified in Article XV:2 including whether India factually met
the criteria in Article XVIII:9 based on the facts of its
balance-of-payments and reserve situation. India argued that Article
XV:2 required the WTO to accept certain IMF determinations “in
reaching their final decision”, only the WTO could take final
decisions on the status of restrictions in the WTO. The Panel refrained
from deciding the extent to which panels must consult with the IMF or
consider IMF determinations as dispositive, and noted:
“[W]hether or not the provisions of Article
XV:2 extend to panels, the Panel has the responsibility of making an
objective assessment of the facts of the case and the conformity with
GATT 1994, as incorporated into the WTO Agreement, of the Indian
measures at issue, in accordance with Article 11 of the DSU.”(985)
705.
The Panel Report on Dominican Republic — Import and Sale of Cigarettes states that the Panel made its
own factual finding regarding the nature of the 10 per cent fee imposed
by the Dominican Republic, based on its examination of the measure as
currently applied and its interpretation of Article XV:9(a) below at
paragraph XX, and considering the IMF’s communication to the Panel:
“The Panel fully agrees with the opinion of
the IMF. For the reasons set out above by the Panel and considering the
opinion expressed by the IMF, the Panel finds that the foreign exchange
fee measure as it is currently applied by the Dominican Republic does
not constitute an ‘exchange restriction’ within the meaning of
Article XV: 9(a) of the GATT 1994.”(986)
3. Article XV:6: special
exchange
agreements
706.
The Working Party Report on the Accession
of Chinese Taipei, which is not a member of the Fund, notes that “in
order to comply with GATT 1994 Article XV, Chinese Taipei had negotiated
a Special Exchange Agreement.”(987) The Protocol of Accession of Chinese
Taipei provides that the Special Exchange Agreement annexed thereto
forms an integral part of that Protocol.(988)
4.
Article
XV:9(a)
(a) “exchange controls or exchange
restrictions”
707.
The Panel in Dominican Republic — Import and Sale of Cigarettes found that Article XV:9(a) is
an exception or an affirmative defence, and therefore the party invoking
this exception “bears the burden to establish: (i) that the foreign
exchange fee measure is an ‘exchange control or exchange restriction’
within the meaning of Article XV:9(a); and (ii) that the measure is ‘in
accordance with’ the Articles of Agreement of the International
Monetary Fund”, as required by Article
XV:9(a).(989)
708.
The same Panel took note of a 1960
Decision of the Executive Directors of the Fund that the criterion for
determining whether a measure is an “exchange restriction” is “whether
it involves a direct governmental limitation on the availability or use
of exchange as such”, and decided to apply this criterion to the
measure before it.(990) Interpreting this criterion, the Panel found:
“[T]he ordinary meaning of ‘direct
limitation on availability or use of exchange … as such’ means a
limitation directly on the use of exchange itself, which means the use
of exchange for all purposes. It cannot be interpreted in a way
so as to permit the restriction on the use of exchanges that only
affects importation. To conclude otherwise would logically lead to the
situation whereby any WTO Member could easily circumvent obligations
under Article II:1(b) by imposing a foreign currency fee or charge on
imports at the customs and then conveniently characterize it as an ‘exchange
restriction’. Such types of measures would seriously discriminate
against imports while not necessarily being effective in achieving the
legitimate goals under the Articles of Agreement of the IMF… . because
the fee as currently applied is imposed only on foreign exchange
transactions that relate to the importation of goods, and not on other
types of transactions, it is not ‘a direct limitation on the
availability or use of exchange as such.’”(991)
(b) “in accordance with the Articles of
Agreement of the International Monetary Fund”
709.
Paragraph 3 of the IMF–WTO Agreement
referred to in paragraph 694 above provides regarding IMF decisions
authorizing exchange restrictions, discriminatory currency arrangements
or multiple currency practices pursuant to Articles VI or VIII of the
IMF Articles of Agreement:
“The Fund shall inform the WTO of any
decisions approving restrictions on the making of payments or transfers
for current international transactions, decisions approving
discriminatory currency arrangements or multiple currency practices, and
decisions requesting a Fund member to exercise controls to prevent a
large or sustained outflow of capital.”(992)
710.
The Agreed Commentary on this provision
provides as follows:
“Comment: This information on Fund
decisions is relevant to the implementation of GATT and GATS because of
certain consequences under these Agreements when a measure is consistent
with the Fund’s Articles (Article XV of GATT 1994 and
Article XI of
the GATS). Additionally, under the GATS, members are allowed to impose
controls on capital transactions related to their scheduled commitments
under certain circumstances, including if such controls are imposed at
the request of the Fund. In practice, the Fund’s authority to request
capital controls (Article VI, Section 1(a) of the Fund’s Articles) has
never been used.
Non-approval of exchange measures that
constitute restrictions under the Fund’s Articles (and may be subject
to consultation on their trade implications under WTO
balance-of-payments provisions or action under WTO dispute settlement)
would not be separately notified to the WTO. Information on these
measures, however, is contained in staff reports on Article IV
Consultations, which the WTO Secretariat will receive (see paragraph
11); additionally, the Fund’s staff would be ready to respond to the
Secretariat’s requests for clarifications on their status.”(993)
711.
Communications from the IMF pursuant to
Paragraph 3 of the IMF–WTO Agreement are circulated in the WT/TF/IMF
series.(994)
712.
The Panel Report on Dominican Republic — Import and Sale of Cigarettes notes the Panel’s agreement
with the IMF’s statement that because the measure at issue did not
constitute an exchange restriction, “the issue of its consistency or
inconsistency with the Fund Articles … does not arise”. The Panel
also found that an IMF decision cited by the Dominican Republic did not
constitute a legal basis for the application of the foreign exchange fee
measure, and that the Dominican Republic had not demonstrated that this
fee was applied “in accordance with” the IMF Articles of Agreement.(995)
5. GATT
practice
713.
See GATT Analytical Index.
XVIII.
Article XVI back to top
A. Text of
Article XVI
Article XVI*: Subsidies
Section A —
Subsidies in General
1. If any contracting party grants or
maintains any subsidy, including any form of income or price support,
which operates directly or indirectly to increase exports of any product
from, or to reduce imports of any product into, its territory, it shall
notify the CONTRACTING PARTIES in writing of the extent and nature of
the subsidization, of the estimated effect of the subsidization on the
quantity of the affected product or products imported into or exported
from its territory and of the circumstances making the subsidization
necessary. In any case in which it is determined that serious prejudice
to the interests of any other contracting party is caused or threatened
by any such subsidization, the contracting party granting the subsidy
shall, upon request, discuss with the other contracting party or parties
concerned, or with the CONTRACTING PARTIES, the possibility of limiting
the subsidization.
Section B — Additional Provisions on Export
Subsidies*
2. The contracting parties recognize that the
granting by a contracting party of a subsidy on the export of any
product may have harmful effects for other contracting parties, both
importing and exporting, may cause undue disturbance to their normal
commercial interests, and may hinder the achievement of the objectives
of this Agreement.
3. Accordingly, contracting parties should
seek to avoid the use of subsidies on the export of primary products.
If, however, a contracting party grants directly or indirectly any form
of subsidy which operates to increase the export of any primary product
from its territory, such subsidy shall not be applied in a manner which
results in that contracting party having more than an equitable share of
world export trade in that product, account being taken of the shares of
the contracting parties in such trade in the product during a previous
representative period, and any special factors which may have affected
or may be affecting such trade in the product.*
4. Further, as from 1 January 1958 or the
earliest practicable date thereafter, contracting parties shall cease to
grant either directly or indirectly any form of subsidy on the export of
any product other than a primary product which subsidy results in the
sale of such product for export at a price lower than the comparable
price charged for the like product to buyers in the domestic market.
Until 31 December 1957 no contracting party shall extend the scope of
any such subsidization beyond that existing on 1 January 1955 by the
introduction of new, or the extension of existing, subsidies.*
5. The CONTRACTING PARTIES shall review the
operation of the provisions of this Article from time to time with a
view to examining its effectiveness, in the light of actual experience,
in promoting the objectives of this Agreement and avoiding subsidization
seriously prejudicial to the trade or interests of contracting parties.
B. Text of Notes Ad Article XVI
Ad Article XVI
The exemption of an exported product from
duties or taxes borne by the like product when destined for domestic
consumption, or the remission of such duties or taxes in amounts not in
excess of those which have accrued, shall not be deemed to be a subsidy.
Section B
1. Nothing in
Section B shall preclude the use
by a contracting party of multiple rates of exchange in accordance with
the Articles of Agreement of the International Monetary Fund.
2. For the purposes of
Section B, a “primary
product” is understood to be any product of farm, forest or fishery,
or any mineral, in its natural form or which has undergone such
processing as is customarily required to prepare it for marketing in
substantial volume in international trade.
Paragraph 3
1. The fact that a contracting party has not
exported the product in question during the previous representative
period would not in itself preclude that contracting party from
establishing its right to obtain a share of the trade in the product
concerned.
2. A system for the stabilization of the
domestic price or of the return to domestic producers of a primary
product independently of the movements of export prices, which results
at times in the sale of the product for export at a price lower than the
comparable price charged for the like product to buyers in the domestic
market, shall be considered not to involve a subsidy on exports within
the meaning of Paragraph 3 if the CONTRACTING PARTIES determine that:
(a) the system has also resulted, or is so
designed as to result, in the sale of the product for export at a price
higher than the comparable price charged for the like product to buyers
in the domestic market; and
(b) the system is so operated, or is
designed so to operate, either because of the effective regulation of
production or otherwise, as not to stimulate exports unduly or otherwise
seriously to prejudice the interests of other contracting parties.
Notwithstanding such determination by the
CONTRACTING PARTIES, operations under such a system shall be subject to
the provisions of paragraph 3 where they are wholly or partly financed
out of government funds in addition to the funds collected from
producers in respect of the product concerned.
Paragraph 4
The intention of paragraph 4 is that the
contracting parties should seek before the end of 1957to reach agreement
to abolish all remaining subsidies as from 1 January 1958; or, failing
this, to reach agreement to extend the application of the standstill
until the earliest date thereafter by which they can expect to reach
such agreement.
C. Interpretation and Application of Article
XVI
1. Article XVI:1
714.
The Panel in US — Upland
Cotton found that because the term “serious prejudice” is used
in Articles 5(c) and 6.3(c) of the SCM Agreement “in the same sense”
as in Article XVI:1 of GATT 1994, its findings of “serious prejudice”
under SCM Articles 5(c)/6.3(c) would also be conclusive for a finding of
“serious prejudice” under GATT Article XVI:1:
“There is an explicit textual linkage
between Article 6.3(d) and
Article 5(c) of the SCM Agreement: the
chapeau of Article 6.3 states that ‘[s]erious prejudice in the sense
of paragraph (c) of Article 5 may arise where one of the following
[including the elements in Article 6.3(d)] apply …’.
Following that cross-reference to Article
5(c), we see that footnote 13 to Article 5(c) explicitly refers to
Article XVI:1 of the GATT 1994. It states: ‘The term “serious
prejudice to the interests of another Member” is used in this
Agreement in the same sense as it is used in paragraph 1 of Article XVI
of GATT 1994, and includes threat of serious prejudice.’
As the term ‘serious prejudice’ in both
provisions of the two agreements is used ‘in the same sense’, our
findings of ‘serious prejudice’ under Articles
5(c)/6.3(c) of the SCM
Agreement would also be conclusive for a finding of ‘serious
prejudice’ under Article XVI:1 of the GATT 1994. That is, if
the terms ‘serious prejudice’ are used ‘in the same sense’ in
the two provisions, a finding of ‘serious prejudice’ under Article
5(c) must necessarily also constitute a finding of ‘serious prejudice’
also for the purposes of Article XVI:1. In addition, the remedies
available under Part III of the SCM Agreement are at least as
effective as those that would be available under Article 19.1 of the DSU
in respect of an infringement of Article XVI:1 of the GATT
1994.”(996)
2. Article XVI:3
715.
The Panel in US — Upland
Cotton found that “the text of Article XVI:3 itself indicates that
the provision is limited to ‘export subsidies’ and does not address
rights and obligations of Members relating to other types of subsidies”(997)
and that it did “not believe that it is appropriate to apply a
separate or different definition of ‘export subsidies’ under Article
XVI:3 than that which is now applicable for the purposes of Articles
3.3, 8, 9,
10 and 1(e) of the Agreement on Agriculture and
Article 3.1(a) of the SCM Agreement.”(998) Based on the ordinary
meaning of the text of Article XVI:3 read in its context and in light of
the object and purpose of the Agreement on Agriculture and the SCM
Agreement, as confirmed by the drafting history of the Tokyo Round
Subsidies Code, the Panel found that “Article XVI:3 applies only to
export subsidies as that term is now defined in the Agreement on
Agriculture and the SCM Agreement”.(999)
3. Article XVI:4
716.
In US — FSC, the
Appellate Body discussed the relationship between Article XVI:4 of GATT
1994 and the SCM Agreement in interpreting Article 3.1(a) of the SCM
Agreement. See the Chapter on the SCM Agreement.
4. Agreement on Agriculture
717.
See the Chapter on the Agreement on
Agriculture. The Panel in US — Upland Cotton noted as
follows regarding the relationship between Article
XVI, the SCM
Agreement and the Agreement on Agriculture:
“ … Article 21.1 of the Agreement on
Agriculture stipulates: ‘The provisions of GATT 1994 and of other
Multilateral Trade Agreements in Annex 1A of the WTO Agreement shall
apply subject to the provisions of [the Agreement on Agriculture].’
Accordingly, the provisions of the SCM Agreement and the GATT 1994 apply
subject to the provisions of the Agreement on Agriculture. In the event
of a conflict between the provisions of the Agreement on Agriculture and
a provision of the GATT 1994 or another covered agreement pertaining to
multilateral trade in goods in Annex 1A of the WTO
Agreement, the rights
and obligations in the Agreement on Agriculture would prevail to the
extent of that conflict.”(1000)
5. SCM Agreement
718.
See the Chapter on the SCM Agreement.
6. GATT practice
719.
For GATT practice on Article XVI.
XIX. Article XVII
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A. Text of
Article XVII
Article XVII: State Trading Enterprises
1* (a) Each contracting party undertakes that
if it establishes or maintains a State enterprise, wherever located, or
grants to any enterprise, formally or in effect, exclusive or special
privileges,* such enterprise shall, in its purchases or sales involving
either imports or exports, act in a manner consistent with the general
principles of nondiscriminatory treatment prescribed in this Agreement
for governmental measures affecting imports and exports by private
traders.
(b) The provisions of
subparagraph (a) of this
paragraph shall be understood to require that such enterprises shall,
having due regard to the other provisions of this Agreement, make any
such purchases or sales solely in accordance with commercial
considerations,* including price, quality, availability, marketability,
transportation and other conditions of purchase or sale, and shall
afford the enterprises of the other contracting parties adequate
opportunity, in accordance with customary business practice, to compete
for participation in such purchases or sales.
(c) No contracting party shall prevent any
enterprise (whether or not an enterprise described in subparagraph (a)
of this paragraph) under its jurisdiction from acting in accordance with
the principles of subparagraphs (a) and (b) of this
paragraph.
2. The provisions of paragraph 1 of this
Article shall not apply to imports of products for immediate or ultimate
consumption in governmental use and not otherwise for resale or use in
the production of goods* for sale. With respect to such imports, each
contracting party shall accord to the trade of the other contracting
parties fair and equitable treatment.
3. The contracting parties recognize that
their enterprises of the kind described in paragraph 1 (a) of this
article might be operated so as to create serious obstacles to trade;
thus negotiations on a reciprocal and mutually advantageous basis
designed to limit or reduce such obstacles are of importance to the
expansion of international trade.*
4. (a)
Contracting parties shall notify the
CONTRACTING PARTIES of the products which are imported into or exported
from their territories by enterprises of the kind described in paragraph
1 (a) of this article.
(b) A contracting party establishing,
maintaining or authorizing an import monopoly of a product, which is not
the subject of a concession under Article
II, shall, on the request of
another contracting party having a substantial trade in the product
concerned, inform the CONTRACTING PARTIES of the import mark-up* on the
product during a recent representative period, or when it is not
possible to do so, of the price charged on the resale of the product.
(c) The CONTRACTING PARTIES may, at the
request of a contracting party which has reason to believe that its
interests under this Agreement are being adversely affected by the
operations of an enterprise of the kind described in paragraph 1
(a),
request the contracting party establishing, maintaining or authorizing
such enterprise to supply information about its operations related to
the carrying out of the provisions of this Agreement.
(d) The provisions of this paragraph shall not
require any contracting party to disclose confidential information which
would impede law enforcement or otherwise be contrary to the public
interest or would prejudice the legitimate commercial interests of
particular enterprises.
B. Text of Notes Ad Article XVII
Ad Article XVII: Paragraph 1
The operations of Marketing Boards, which are
established by contracting parties and are engaged in purchasing or
selling, are subject to the provisions of sub-paragraphs
(a) and
(b).
The activities of Marketing Boards which are
established by contracting parties and which do not purchase or sell but
lay down regulations covering private trade are governed by the relevant
Articles of this Agreement.
The charging by a state enterprise of
different prices for its sales of a product in different markets is not
precluded by the provisions of this Article, provided that such
different prices are charged for commercial reasons, to meet conditions
of supply and demand in export markets.
Paragraph 1 (a)
Governmental measures imposed to ensure
standards of quality and efficiency in the operation of external trade,
or privileges granted for the exploitation of national natural resources
but which do not empower the government to exercise control over the
trading activities of the enterprise in question, do not constitute “exclusive
or special privileges”.
Paragraph 1(b)
A country receiving a “tied loan” is free
to take this loan into account as a “commercial consideration” when
purchasing requirements abroad.
Paragraph 2
The term “goods” is limited to products as
understood in commercial practice, and is not intended to include the
purchase or sale of services.
Paragraph 3
Negotiations which contracting parties agree
to conduct under this paragraph may be directed towards the reduction of
duties and other charges on imports and exports or towards the
conclusion of any other mutually satisfactory arrangement consistent
with the provisions of this Agreement. (See paragraph 4 of Article II
and the note to that paragraph.)
Paragraph 4 (b)
The term “import mark-up” in this
paragraph shall represent the margin by which the price charged by the
import monopoly for the imported product (exclusive of internal taxes
within the purview of Article III, transportation, distribution, and
other expenses incident to the purchase, sale or further processing, and
a reasonable margin of profit) exceeds the landed cost.
C. Understanding on the Interpretation of
Article XVII of the General Agreement on Tariffs and Trade 1994
Members,
Noting that Article XVII provides for
obligations on Members in respect of the activities of the state trading
enterprises referred to in paragraph 1 of Article
XVII, which are
required to be consistent with the general principles of
non-discriminatory treatment prescribed in GATT 1994 for governmental
measures affecting imports or exports by private traders;
Noting further that Members are subject to
their GATT 1994 obligations in respect of those governmental measures
affecting state trading enterprises;
Recognizing that this Understanding is
without prejudice to the substantive disciplines prescribed in Article
XVII;
Hereby agree as follows:
1. In order to ensure the transparency of the
activities of state trading enterprises, Members shall notify such
enterprises to the Council for Trade in Goods, for review by the working
party to be set up under paragraph 5, in accordance with the following
working definition:
“Governmental and non-governmental
enterprises, including marketing boards, which have been granted
exclusive or special rights or privileges, including statutory or
constitutional powers, in the exercise of which they influence through
their purchases or sales the level or direction of imports or exports.”
This notification requirement does not apply
to imports of products for immediate or ultimate consumption in
governmental use or in use by an enterprise as specified above and not
otherwise for resale or use in the production of goods for sale.
2. Each Member shall conduct a review of its
policy with regard to the submission of notifications on state trading
enterprises to the Council for Trade in Goods, taking account of the
provisions of this Understanding. In carrying out such a review, each
Member should have regard to the need to ensure the maximum transparency
possible in its notifications so as to permit a clear appreciation of
the manner of operation of the enterprises notified and the effect of
their operations on international trade.
3. Notifications shall be made in accordance
with the questionnaire on state trading adopted on 24 May 1960 (BISD
9S/184–185), it being understood that Members shall notify the
enterprises referred to in paragraph 1 whether or not imports or exports
have in fact taken place.
4. Any Member which has reason to believe that
another Member has not adequately met its notification obligation may
raise the matter with the Member concerned. If the matter is not
satisfactorily resolved it may make a counter-notification to the
Council for Trade in Goods, for consideration by the working party set
up under paragraph 5, simultaneously informing the Member concerned.
5. A working party shall be set up, on behalf
of the Council for Trade in Goods, to review notifications and
counter-notifications. In the light of this review and without prejudice
to paragraph 4(c) of Article XVII, the Council for Trade in Goods may
make recommendations with regard to the adequacy of notifications and
the need for further information. The working party shall also review,
in the light of the notifications received, the adequacy of the
above-mentioned questionnaire on state trading and the coverage of state
trading enterprises notified under paragraph 1. It shall also
develop an illustrative list showing the kinds of relationships between
governments and enterprises, and the kinds of activities, engaged in by
these enterprises, which may be relevant for the purposes of Article
XVII. It is understood that the Secretariat will provide a general
background paper for the working party on the operations of state
trading enterprises as they relate to international trade. Membership of
the working party shall be open to all Members indicating their wish to
serve on it. It shall meet within a year of the date of entry into force
of the WTO Agreement and thereafter at least once a year. It shall
report annually to the Council for Trade in Goods.
(footnote original) 1 The
activities of this working party shall be coordinated with those of the
working group provided for in Section III of the Ministerial Decision on
Notification Procedures adopted on 15 April 1994.
D. Interpretation and Application of Article
XVII
1. General
(a) State trading enterprises
720.
Noting that the Livestock Products
Marketing Organization (LPMO), Korea’s state trading agency for meat,
had exclusive rights of import for its 30 per cent share of Korea’s
beef import quotas, the Panel in Korea — Various Measures on
Beef, in a statement not reviewed by the Appellate Body, stated:
“Based on the panel findings in the Canada — Marketing Agencies (1988) case, the Panel considers that to
the extent that LPMO fully controls both the importation and
distribution of its 30 per cent share of Korean beef quota, the
distinction normally made in the GATT between restrictions affecting the
importation of products (i.e. border measures) and restrictions
affecting imported products (i.e. internal measures) loses much
of its significance.”(1001)
721.
The Panel in Canada — Wheat
Exports and Grain Imports found generally regarding Article XVII:
“[S]ubparagraph (a) of Article XVII:1
imposes an obligation on Members establishing or maintaining STEs… .
In Article XVII:1(a), Members therefore formally guarantee, pledge, or
promise that their STEs shall act in the prescribed manner. That
subparagraph (a) should be understood as imposing a legal obligation on
Members using STEs is also supported by another consideration. If
subparagraph (a) did not impose a legal obligation on Members, Members
could create and use STEs to evade disciplines imposed by the GATT 1994
on governmental measures affecting imports or exports by private
traders, since Members could not be brought to task in the event that
their STEs did not abide by the disciplines imposed by Article
XVII:1.”(1002)
722.
The Appellate Body in Canada — Wheat
Exports and Grain Imports also related Article XVII to other
complementary WTO obligations:
“[E]ven in 1947, the negotiators of the GATT
created a number of complementary requirements to address the different
ways in which STEs could be used by a contracting party to seek to
circumvent its obligations under the GATT. The existence of these other
provisions of the GATT 1994 also supports the view that Article XVII was
never intended to be the sole source of the disciplines imposed on STEs
under that Agreement. This is also consistent with the view that Article
XVII:1 was intended to impose disciplines on one particular type of STE
behaviour, namely discriminatory behaviour, rather than to constitute a
comprehensive code of conduct for STEs. Moreover, as the Panel observed,
since the conclusion of the Uruguay Round, a number of additional
obligations, under different covered agreements, operate to further
constrain the behaviour of STEs.”(1003)
(b) Note Ad Articles XI, XII, XIII, XIV
and XVIII
723.
See also the discussion at paragraphs 621–622
above concerning the Note Ad Articles XI, XII, XIII, XIV and
XVIII, which clarifies that the terms “import restrictions” or “export
restrictions” used in the listed provisions include “restrictions
made effective through state-trading operations”.
2. Article XVII:1(a)
(a) General: State trading enterprises
724.
The Appellate Body Report on Canada — Wheat Exports and Grain Imports found regarding Article
XVII:1(a)
“Subparagraph (a) of Article XVII:1 …
recognizes that Members may establish or maintain State enterprises or
grant exclusive or special privileges to private enterprises, but
requires that, if they do so, such enterprises must, when they are
involved in certain types of transactions (‘purchases or sales
involving either imports or exports’), comply with a specific
requirement. That requirement is to act consistently with certain
principles contained in the GATT 1994 (‘general principles of
nondiscriminatory treatment … for governmental measures affecting
imports or exports by private traders’). Subparagraph (a) seeks to
ensure that a Member cannot, through the creation or maintenance of a
State enterprise or the grant of exclusive or special privileges to any
enterprise, engage in or facilitate conduct that would be condemned as
discriminatory under the GATT 1994 if such conduct were undertaken
directly by the Member itself. In other words, subparagraph (a) is an
‘anti-circumvention’ provision.”(1004)
(b) “general principles of
non-discriminatory treatment”
725.
The Panel in Korea — Various
Measures on Beef, in a finding not reviewed by the Appellate Body,
described the legal status of Article XVII:1(a) in the GATT framework in
the following terms:
“Article XVII.1(a) establishes the general
obligation on state trading enterprises to undertake their activities in
accordance with the GATT principles of nondiscrimination. The Panel
considers that this general principle of non-discrimination includes at
least the provisions of Articles I and
III of GATT.”(1005)
726.
In Canada — Wheat Exports and
Grain Imports, the Appellate Body held that Article XVII:1(a) sets
out an obligation of non-discrimination, and Article XVII:1 (b)
clarifies the scope of that obligation: as discussed below, “panels
must identify the differential treatment alleged to be discriminatory
under subparagraph (a) in order to ensure that they are undertaking a
proper inquiry under subparagraph (b).”
727. The Appellate Body Report in that case
found regarding the non-discrimination requirement in Article XVII:1(a)
that “This requirement, which lies at the core of subparagraph
(a), is
a requirement that STEs not engage in certain types of discriminatory
conduct” (1006)
and that “through its reference to the ‘general
principles of non-discriminatory treatment prescribed in this Agreement
for governmental measures affecting imports or exports by private
traders’, Article XVII:1 imposes an obligation on Members not to use
STEs in order to discriminate in ways that would be prohibited if
undertaken directly by Members.”(1007) Consequently, “ … determining
the consistency or inconsistency of an STE’s conduct with Article
XVII:1 will involve an examination of both differential treatment
and of commercial considerations.”(1008)
(c) GATT practice
728.
With respect to GATT practice under
Article XVII:1.
3. Article XVII:1(b)
(a) “the provisions of subparagraph (a) …
shall be understood to require”
729.
The Appellate Body Report on Canada — Wheat Exports and Grain Imports interpreted this phrase, and
Article XVII:1(b), as follows:
“This phrase makes it abundantly clear that
the remainder of subparagraph (b) is dependent upon the content of
subparagraph (a), and operates to clarify the scope of the requirement
not to discriminate in subparagraph (a)… .
Subparagraph (b) also refers to ‘such
enterprises’, which can mean only the STEs defined in subparagraph
(a). In addition, subparagraph (b) twice refers to ‘such
purchases or sales’. It is clear that the word ‘such’ in this
phrase must refer to the purchases and sales identified in subparagraph
(a), namely the ‘purchases or sales [of STEs] involving either imports
or exports’… .”(1009)
“…Subparagraph (b) sets forth two specific
conditions with which an STE must comply if allegedly discriminatory
conduct falling, prima facie, within the scope of subparagraph
(a) is to be found consistent with Article
XVII:1. Yet, in order to know
whether the conditions in (b) are satisfied, a panel must know what
constitutes the conduct alleged to be inconsistent with the principles
of nondiscriminatory treatment in the GATT 1994. A panel will need to
identify at least the differential treatment at issue. The outcome of an
assessment under subparagraph (b) of whether the differential treatment
is consistent with commercial considerations may depend, in part, upon
whether the alleged discrimination relates to pricing, quality, or
conditions of sale, and whether it is discrimination between export
markets or some other form of discrimination.
… we are not suggesting that panels
are always obliged to make specific factual and legal findings with
respect to each element of a claim of discrimination under subparagraph
(a) before undertaking any analysis under subparagraph
(b).
Rather, because a panel’s analysis and application of subparagraph (b)
to the facts of the case is, like subparagraph (b) itself, dependent on
the obligation set forth in subparagraph (a), panels must identify the
differential treatment alleged to be discriminatory under subparagraph
(a) in order to ensure that they are undertaking a proper inquiry under
subparagraph (b).” (1010)
(b) “solely in accordance with commercial
considerations”
730.
In Korea — Various Measures
on Beef, the Panel discussed the general character of Article
XVII:1(b). See paragraph 734 above.
731.
In Canada — Wheat Exports and
Grain Imports, the Appellate Body clarified the Panel’s approach
to “commercial considerations”:
“[T]he Panel’s interpretation of the term
‘commercial considerations’ necessarily implies that the
determination of whether or not a particular STE’s conduct is
consistent with the requirements of the first clause of subparagraph (b)
of Article XVII:1 must be undertaken on a case-by-case basis, and must
involve a careful analysis of the relevant market(s). We see no error in
the Panel’s approach; only such an analysis will reveal the type and
range of considerations properly considered ‘commercial’ as regards
purchases and sales made in those markets, as well as how those
considerations influence the actions of participants in the market(s).
At the same time, our interpretation of the
relationship between subparagraphs (a) and (b) of Article XVII:1
necessarily implies that the scope of the inquiry to be undertaken under
subparagraph (b) must be governed by the principles of subparagraph
(a).
In other words, a panel inquiring whether an STE has acted solely in
accordance with commercial considerations must undertake this inquiry
with respect to the market(s) in which the STE is alleged to be engaging
in discriminatory conduct. Subparagraph (b) does not give panels a
mandate to engage in a broader inquiry into whether, in the abstract,
STEs are acting ‘commercially’. The disciplines of Article XVII:1
are aimed at preventing certain types of discriminatory behaviour. We
see no basis for interpreting that provision as imposing comprehensive
competition-law-type obligations on STEs, as the United States would
have us do.”(1011)
“…we cannot accept that the first clause
of subparagraph (b) would, as a general rule, require STEs to refrain
from using the privileges and advantages that they enjoy because such
use might ‘disadvantage’ private enterprises. STEs, like private
enterprises, are entitled to exploit the advantages they may enjoy to
their economic benefit. Article XVII:1(b) merely prohibits STEs from
making purchases or sales on the basis of noncommercial considerations.”(1012)
(c) “adequate opportunity … to compete for
participation in such purchases or sales”
732.
In Canada — Wheat Exports and
Grain Imports, the Appellate Body also clarified the meaning of this
phrase:
“[T]he second clause of subparagraph (b)
refers to purchases and sales transactions where: (i) one of the parties
involved in the transaction is an STE; and (ii) the transaction involves
imports to or exports from the Member maintaining the STE. Thus, the
requirement to afford an adequate opportunity to compete for
participation (i.e., taking part with others) in ‘such’
purchases and sales (import or export transactions involving an STE)
must refer to the opportunity to become the STE’s counterpart in the
transaction, not to an opportunity to replace the STE as a
participant in the transaction… . Thus, in transactions involving two
parties, one of whom is an STE seller, the word ‘enterprises’ in the
second clause of Article XVII:1(b) can refer only to buyers.(1013)
(d) GATT practice
733.
With respect to GATT practice under
Article XVII:1.
4. Relationship between Article XVII:1(a) and
XVII:1(b)
734.
The Panel in Korea — Various
Measures on Beef, examining the conduct of the Korean state trading
agency for beef imports, examined the relationship between these two
paragraphs and held that a violation of either paragraph would suffice
to show a violation of the other:
“[T]he terms ‘general principle of
non-discrimination treatment prescribed in this Agreement’ (Art.
XVII:1(a)) should be equated with ‘make any such purchases or sales
solely in accordance with commercial considerations’ (Art.
XVII:1(b)).
The list of variables that can be used to assess whether a state-trading
action is based on commercial consideration (prices, availability etc…
. ) are to be used to facilitate the assessment whether the
state-trading enterprise has acted in respect of the general principles
of non-discrimination. A conclusion that the principle of
non-discrimination was violated would suffice to prove a violation of
Article XVII; similarly, a conclusion that a decision to purchase or buy
was not based on ‘commercial considerations’, would also suffice to
show a violation of Article XVII.”(1014)
735.
However, in Canada — Wheat
Exports and Grain Imports, the Appellate Body found that Article
XVII:1(a) “sets out an obligation of non-discrimination, and [Article
XVII:1(b)] clarifies the scope of that obligation.” (1015)
The Appellate
Body thus reversed the Panel findings of independent breach of Article
XVII:1(b), because the Panel’s failure to first identify
discriminatory conduct prior to examining conformity with Article
XVII:1(b) was an error of law. The Appellate Body held:
“It follows that, logically, a panel cannot
assess whether particular practices of an allegedly discriminatory
nature accord with commercial considerations without first identifying
the key elements of the alleged discrimination. We emphasize that we are
not suggesting that panels are always obliged to make specific
factual and legal findings with respect to each element of a claim of
discrimination under subparagraph (a) before undertaking any
analysis under subparagraph (b). Rather, because a panel’s analysis
and application of subparagraph (b) to the facts of the case is, like
subparagraph (b) itself, dependent on the obligation set forth in
subparagraph (a), panels must identify the differential treatment
alleged to be discriminatory under subparagraph (a) in order to ensure
that they are undertaking a proper inquiry under subparagraph
(b).
For these reasons, we are of the view that a
failure to identify any conduct alleged to constitute
discrimination contrary to the general principles of the GATT 1994 for
governmental measures affecting imports or exports by private traders before
undertaking an analysis of the consistency of an STE’s conduct with
subparagraph (b) of Article XVII:1 would constitute an error of law. Had
the Panel in this case simply ignored the issue of possible
discrimination within the meaning of Article XVII:1(a) and passed
immediately to its analysis under subparagraph
(b), we would have no
difficulty — based on our analysis above of the relationship between
the two provisions — concluding that the Panel erred in its
interpretative approach. Yet this does not appear to us to be what the
Panel did….”(1016)
5. Article XVII:4
(a) Notification requirements
736. At its meeting of 20 February 1995, the
Council for Trade in Goods decided that “all new and full
notifications dealt with under Article XVII of GATT 1994 and
paragraph 1 of the Understanding on the Interpretation of Article XVII
of GATT 1994, should be submitted not later than 30 June in every
third year after 1995 and that the updating notifications due in each of
the two intervening years should be submitted not later than 30 June of
the respective year.”(1017) The Council for Trade in Goods then
clarified that the deadlines for future notifications would be
established by the Working Party on State Trading Enterprises itself.(1018)
737.
See paragraph 740 below regarding the
questionnaire used as a basis for notifications.
(b) GATT practice
738.
On GATT practice regarding notifications
of state trading.
6. Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and Trade 1994
(a) Paragraph 1
739.
With respect to the notification
requirements set forth in paragraph 1 of the Understanding, see
paragraph 736 above.
(b) Paragraph 3
740.
At its meeting of 21 April 1998, the
Council for Trade in Goods approved a revised questionnaire to be used
as a basis for notifications on state trading.(1019)
(c) Paragraph 5
(i) Working Party on State Trading Enterprises
741.
As mandated in paragraph 5, the Council
for Trade in Goods established a Working Party on State Trading
Enterprises at its meeting of 20 February 1995, “to carry out the
tasks described in paragraph 5 of the Understanding on the
Interpretation of Article XVII of GATT 1994”.(1020) The Working Party
reports annually on its work.(1021)
742.
On 26 November 2003, the Council for
Trade in Goods adopted a recommendation modifying the frequency of state
trading notifications(1022) so that new and full notifications on state
trading are now due every two years instead of every three years, but
there is no requirement to update notifications in the intervening
years. This new frequency of notifications was implemented for a trial
phase of four years ending 30 June 2008, extended for two years, and
then extended again until 30 June 2012.(1023)
(ii) “an illustrative list”
743. At its meeting of 15 October 1999, the
Council for Trade in Goods completed the mandate of paragraph 5 by
adopting an illustrative list, prepared by the Working Party, “showing
the kinds of relationships between governments and enterprises, and the
kinds of activities, engaged in by these enterprises, which may be
relevant for the purposes of Article XVII”.(1024) The illustrative list
states that “[t]his list in no way affects the rights and obligations
of Members under the Understanding and under Article XVII of GATT 1994
and its Interpretive Notes.”(1025) To assist this work, the Secretariat
prepared and circulated a background note by the Secretariat, entitled
“Operations of State Trading Enterprises as they Relate to
International Trade.”(1026)
7. Relationship with other GATT provisions
(a) Article I
744.
The Panel in Korea — Various
Measures on Beef touched on the relationship between Articles I and
XVII. See paragraph (a) above.
(b) Article II
745.
In Korea — Various Measures
on Beef, after finding that the practice of the Korean state trading
agency for beef of according different treatment to grass-fed beef and
grain-fed beef was inconsistent with GATT Articles II:1(a) and
XI, the
Panel exercised judicial economy with respect to claims concerning the
consistency of that practice with Articles III:4 and
XVII.(1027)
746.
On GATT practice on this issue, see the GATT
Analytical Index.
(c) Article III
747.
The Panel in Korea — Various
Measures on Beef discussed the relationship between Articles III and
XVII. See paragraph (a) above.
748.
On GATT practice on this issue, see the GATT
Analytical Index.
(d) Article XI
749.
Exercising judicial economy, the Panel in
Korea — Various Measures on Beef did not examine claims
regarding certain practices of the Korean state trading agency for beef
under Articles III:4 and XVII, after it had found a violation of
Articles XI and II:1(a) with respect to that practice. See also
paragraph 745 above.
750.
In Korea — Various Measures
on Beef, the Panel addressed the practice of the Korean state
trading agency which controlled a 30 per cent share of Korea’s import
quotas for certain products. See paragraph 720 above.
751.
With respect to the Note Ad
Articles XI, XII, XIII, XIV and XVIII, see paragraph 723 above.
752.
With respect to GATT practice on this
issue, see the GATT Analytical Index.
8. Relationship with other WTO Agreements
(a) Agreement on Agriculture
753.
Footnote 1 to Article 4.2 of the
Agreement on Agriculture sets forth that “any measures of the kind
which have been required to be converted into ordinary customary duties”
under that Agreement, include “quantitative import restrictions,
variable import levies, minimum import prices, discretionary import
licensing, non-tariff measures maintained through state-trading
enterprises …”. In Korea — Various Measures on Beef,
the Panel found, and the Appellate Body agreed, that Korea was in
violation of Article 4.2 of the Agreement on Agriculture and
Article XI
of the GATT in that despite the demand for imported beef, the Korean
state trading agency for beef imports suspended its tenders for beef of
foreign origin, and refused to sell imported beef from its stock, during
a certain period of time. See Article 4.2 of the Chapter on the
Agreement on Agriculture. In this context, the Appellate Body stated:
“Since the Panel has already reached the
conclusion that the above measures are inconsistent with Article XI and
the Ad Note to Articles XI, XII, XIII, XIV and XVIII relating to
state-trading enterprises, the same measures are necessarily
inconsistent with Article 4.2 of the Agreement on Agriculture and
its footnote referring to non-tariff measures maintained through
state-trading enterprises.”(1028)
XX. Article XVIII
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A. Text of
Article XVIII
Article XVIII*: Governmental Assistance to
Economic Development
1. The contracting parties recognize that the
attainment of the objectives of this Agreement will be facilitated by
the progressive development of their economies, particularly of those
contracting parties the economies of which can only support low
standards of living* and are in the early stages of development.*
2. The contracting parties recognize further
that it may be necessary for those contracting parties, in order to
implement programmes and policies of economic development designed to
raise the general standard of living of their people, to take protective
or other measures affecting imports, and that such measures are
justified in so far as they facilitate the attainment of the objectives
of this Agreement. They agree, therefore, that those contracting parties
should enjoy additional facilities to enable them (a) to maintain
sufficient flexibility in their tariff structure to be able to grant the
tariff protection required for the establishment of a particular
industry* and (b) to apply quantitative restrictions for balance of
payments purposes in a manner which takes full account of the continued
high level of demand for imports likely to be generated by their
programmes of economic development.
3. The contracting parties recognize finally
that, with those additional facilities which are provided for in
Sections A and B of this Article, the provisions of this Agreement would
normally be sufficient to enable contracting parties to meet the
requirements of their economic development. They agree, however, that
there may be circumstances where no measure consistent with those
provisions is practicable to permit a contracting party in the process
of economic development to grant the governmental assistance required to
promote the establishment of particular industries* with a view to
raising the general standard of living of its people. Special procedures
are laid down in Sections C and D of this Article to deal with those
cases.
4. (a)
Consequently, a contracting
party, the economy of which can only support low standards of living*
and is in the early stages of development,* shall be free to deviate
temporarily from the provisions of the other Articles of this Agreement,
as provided in Sections A, B
and C of this Article.
(b) A contracting party, the economy of
which is in the process of development, but which does not come within
the scope of subparagraph (a) above, may submit applications to the
CONTRACTING PARTIES under Section D of this
Article.
5. The contracting parties recognize that the
export earnings of contracting parties, the economies of which are of
the type described in paragraph 4 (a) and (b) above and which depend on
exports of a small number of primary commodities, may be seriously
reduced by a decline in the sale of such commodities. Accordingly, when
the exports of primary commodities by such a contracting party are
seriously affected by measures taken by another contracting party, it
may have resort to the consultation provisions of Article XXII of this
Agreement.
6. The CONTRACTING PARTIES shall review
annually all measures applied pursuant to the provisions of Sections C
and D of this Article.
Section A
7. (a)
If a contracting party coming within
the scope of paragraph 4 (a) of this Article considers it desirable, in
order to promote the establishment of a particular industry* with a view
to raising the general standard of living of its people, to modify or
withdraw a concession included in the appropriate Schedule annexed to
this Agreement, it shall notify the CONTRACTING PARTIES to this effect
and enter into negotiations with any contracting party with which such
concession was initially negotiated, and with any other contracting
party determined by the CONTRACTING PARTIES to have a substantial
interest therein. If agreement is reached between such contracting
parties concerned, they shall be free to modify or withdraw concessions
under the appropriate Schedules to this Agreement in order to give
effect to such agreement, including any compensatory adjustments
involved.
(b) If agreement is not reached within sixty
days after the notification provided for in subparagraph (a)
above, the
contracting party which proposes to modify or withdraw the concession
may refer the matter to the CONTRACTING PARTIES which shall promptly
examine it. If they find that the contracting party which proposes to
modify or withdraw the concession has made every effort to reach an
agreement and that the compensatory adjustment offered by it is
adequate, that contracting party shall be free to modify or withdraw the
concession if, at the same time, it gives effect to the compensatory
adjustment. If the CONTRACTING PARTIES do not find that the compensation
offered by a contracting party proposing to modify or withdraw the
concession is adequate, but find that it has made every reasonable
effort to offer adequate compensation, that contracting party shall be
free to proceed with such modification or withdrawal. If such action is
taken, any other contracting party referred to in subparagraph (a) above
shall be free to modify or withdraw substantially equivalent concessions
initially negotiated with the contracting party which has taken the
action.*
Section B
8. The contracting parties recognize that
contracting parties coming within the scope of paragraph 4 (a) of this
Article tend, when they are in rapid process of development, to
experience balance of payments difficulties arising mainly from efforts
to expand their internal markets as well as from the instability in
their terms of trade.
9. In order to safeguard its external
financial position and to ensure a level of reserves adequate for the
implementation of its programme of economic development, a contracting
party coming within the scope of paragraph 4 (a) of this Article may,
subject to the provisions of paragraphs 10 to
12, control the general
level of its imports by restricting the quantity or value of merchandise
permitted to be imported; Provided that the import restrictions
instituted, maintained or intensified shall not exceed those necessary:
(a) to forestall the threat of, or to stop, a
serious decline in its monetary reserves, or
(b) in the case of a contracting party with
inadequate monetary reserves, to achieve a reasonable rate of increase
in its reserves.
Due regard shall be paid in either case to any
special factors which may be affecting the reserves of the contracting
party or its need for reserves, including, where special external
credits or other resources are available to it, the need to provide for
the appropriate use of such credits or resources.
10. In applying these restrictions, the
contracting party may determine their incidence on imports of different
products or classes of products in such a way as to give priority to the
importation of those products which are more essential in the light of
its policy of economic development; Provided that the
restrictions are so applied as to avoid unnecessary damage to the
commercial or economic interests of any other contracting party and not
to prevent unreasonably the importation of any description of goods in
minimum commercial quantities the exclusion of which would impair
regular channels of trade; and Provided further that the
restrictions are not so applied as to prevent the importation of
commercial samples or to prevent compliance with patent, trade mark,
copyright or similar procedures.
11. In carrying out its domestic policies, the
contracting party concerned shall pay due regard to the need for
restoring equilibrium in its balance of payments on a sound and lasting
basis and to the desirability of assuring an economic employment of
productive resources. It shall progressively relax any restrictions
applied under this Section as conditions improve, maintaining them only
to the extent necessary under the terms of paragraph 9 of this Article
and shall eliminate them when conditions no longer justify such
maintenance; Provided that no contracting party shall be required
to withdraw or modify restrictions on the ground that a change in its
development policy would render unnecessary the restrictions which it is
applying under this Section.*
12. (a)
Any contracting party applying
new restrictions or raising the general level of its existing
restrictions by a substantial intensification of the measures applied
under this Section, shall immediately after instituting or intensifying
such restrictions (or, in circumstances in which prior consultation is
practicable, before doing so) consult with the CONTRACTING PARTIES as to
the nature of its balance of payments difficulties, alternative
corrective measures which may be available, and the possible effect of
the restrictions on the economies of other contracting parties.
(b) On a date to be determined by them*
the CONTRACTING PARTIES shall review all restrictions still applied
under this Section on that date. Beginning two years after that date,
contracting parties applying restrictions under this Section shall enter
into consultations of the type provided for in subparagraph (a) above
with the CONTRACTING PARTIES at intervals of approximately, but not less
than, two years according to a programme to be drawn up each year by the
CONTRACTING PARTIES; Provided that no consultation under this
subparagraph shall take place within two years after the conclusion of a
consultation of a general nature under any other provision of this
paragraph.
(c) (i)
If, in the course of
consultations with a contracting party under subparagraph (a) or
(b) of
this paragraph, the CONTRACTING PARTIES find that the restrictions are
not consistent with the provisions of this Section or with those of
Article XIII (subject to the provisions of Article
XIV), they shall
indicate the nature of the inconsistency and may advise that the
restrictions be suitably modified.
(ii) If, however, as a result of the
consultations, the CONTRACTING PARTIES determine that the restrictions
are being applied in a manner involving an inconsistency of a serious
nature with the provisions of this Section or with those of Article XIII
(subject to the provisions of Article XIV) and that damage to the trade
of any contracting party is caused or threatened thereby, they shall so
inform the contracting party applying the restrictions and shall make
appropriate recommendations for securing conformity with such provisions
within a specified period. If such contracting party does not comply
with these recommendations within the specified period, the CONTRACTING
PARTIES may release any contracting party the trade of which is
adversely affected by the restrictions from such obligations under this
Agreement towards the contracting party applying the restrictions as
they determine to be appropriate in the circumstances.
(d) The CONTRACTING PARTIES shall
invite any contracting party which is applying restrictions under this
Section to enter into consultations with them at the request of any
contracting party which can establish a prima facie case that the
restrictions are inconsistent with the provisions of this Section or
with those of Article XIII (subject to the provisions of
Article XIV)
and that its trade is adversely affected thereby. However, no such
invitation shall be issued unless the CONTRACTING PARTIES have
ascertained that direct discussions between the contracting parties
concerned have not been successful. If, as a result of the consultations
with the CONTRACTING PARTIES no agreement is reached and they determine
that the restrictions are being applied inconsistently with such
provisions, and that damage to the trade of the contracting party
initiating the procedure is caused or threatened thereby, they shall
recommend the withdrawal or modification of the restrictions. If the
restrictions are not withdrawn or modified within such time as the
CONTRACTING PARTIES may prescribe, they may release the contracting
party initiating the procedure from such obligations under this
Agreement towards the contracting party applying the restrictions as
they determine to be appropriate in the circumstances.
(e) If a contracting party against
which action has been taken in accordance with the last sentence of
subparagraph (c) (ii) or (d) of this
paragraph, finds that
the release of obligations authorized by the CONTRACTING PARTIES
adversely affects the operation of its programme and policy of economic
development, it shall be free, not later than sixty days after such
action is taken, to give written notice to the Executive Secretary(1) to
the Contracting Parties of its intention to withdraw from this Agreement
and such withdrawal shall take effect on the sixtieth day following the
day on which the notice is received by him.
(footnote original)
1 By the Decision
of 23 March 1965, the CONTRACTING PARTIES changed the title of the head
of the GATT secretariat from “Executive Secretary” to “Director-General”.
(f) In proceeding under this paragraph,
the CONTRACTING PARTIES shall have due regard to the factors referred to
in paragraph 2 of this Article. Determinations under this paragraph
shall be rendered expeditiously and, if possible, within sixty days of
the initiation of the consultations.
Section C
13. If a contracting party coming within the
scope of paragraph 4 (a) of this Article finds that governmental
assistance is required to promote the establishment of a particular
industry* with a view to raising the general standard of living of its
people, but that no measure consistent with the other provisions of this
Agreement is practicable to achieve that objective, it may have recourse
to the provisions and procedures set out in this Section.*
14. The contracting party concerned shall
notify the CONTRACTING PARTIES of the special difficulties which it
meets in the achievement of the objective outlined in paragraph 13 of
this Article and shall indicate the specific measure affecting imports
which it proposes to introduce in order to remedy these difficulties. It
shall not introduce that measure before the expiration of the time-limit
laid down in paragraph 15 or 17, as the case may be, or if the measure
affects imports of a product which is the subject of a concession
included in the appropriate Schedule annexed to this Agreement, unless
it has secured the concurrence of the CONTRACTING PARTIES in accordance
with provisions of paragraph 18; Provided that, if the industry
receiving assistance has already started production, the contracting
party may, after informing the CONTRACTING PARTIES, take such measures
as may be necessary to prevent, during that period, imports of the
product or products concerned from increasing substantially above a
normal level.*
15. If, within thirty days of the notification
of the measure, the CONTRACTING PARTIES do not request the contracting
party concerned to consult with them,* that contracting party shall be
free to deviate from the relevant provisions of the other Articles of
this Agreement to the extent necessary to apply the proposed measure.
16. If it is requested by the CONTRACTING
PARTIES to do so, *the contracting party concerned shall consult with
them as to the purpose of the proposed measure, as to alternative
measures which may be available under this Agreement, and as to the
possible effect of the measure proposed on the commercial and economic
interests of other contracting parties. If, as a result of such
consultation, the CONTRACTING PARTIES agree that there is no measure
consistent with the other provisions of this Agreement which is
practicable in order to achieve the objective outlined in paragraph 13
of this Article, and concur* in the proposed measure, the contracting
party concerned shall be released from its obligations under the
relevant provisions of the other Articles of this Agreement to the
extent necessary to apply that measure.
17. If, within ninety days after the date of
the notification of the proposed measure under paragraph 14 of this
Article, the CONTRACTING PARTIES have not concurred in such measure, the
contracting party concerned may introduce the measure proposed after
informing the CONTRACTING PARTIES.
18. If the proposed measure affects a product
which is the subject of a concession included in the appropriate
Schedule annexed to this Agreement, the contracting party concerned
shall enter into consultations with any other contracting party with
which the concession was initially negotiated, and with any other
contracting party determined by the CONTRACTING PARTIES to have a
substantial interest therein. The CONTRACTING PARTIES shall concur* in
the measure if they agree that there is no measure consistent with the
other provisions of this Agreement which is practicable in order to
achieve the objective set forth in paragraph 13 of this
Article, and if
they are satisfied:
(a) that agreement has been reached
with such other contracting parties as a result of the consultations
referred to above, or
(b) if no such agreement has been
reached within sixty days after the notification provided for in
paragraph 14 has been received by the CONTRACTING PARTIES, that the
contracting party having recourse to this Section has made all
reasonable efforts to reach an agreement and that the interests of other
contracting parties are adequately safeguarded.*
The contracting party having recourse to this
Section shall thereupon be released from its obligations under the
relevant provisions of the other Articles of this Agreement to the
extent necessary to permit it to apply the measure.
19. If a proposed measure of the type
described in paragraph 13 of this Article concerns an industry the
establishment of which has in the initial period been facilitated by
incidental protection afforded by restrictions imposed by the
contracting party concerned for balance of payments purposes under the
relevant provisions of this Agreement, that contracting party may resort
to the provisions and procedures of this Section; Provided that
it shall not apply the proposed measure without the concurrence* of the
CONTRACTING PARTIES.*
20. Nothing in the preceding paragraphs of
this Section shall authorize any deviation from the provisions of Articles
I, II
and XIII of this Agreement. The provisos to
paragraph 10
of this Article shall also be applicable to any restriction under this
Section.
21. At any time while a measure is being
applied under paragraph 17 of this Article any contracting party
substantially affected by it may suspend the application to the trade of
the contracting party having recourse to this Section of such
substantially equivalent concessions or other obligations under this
Agreement the suspension of which the CONTRACTING PARTIES do not
disapprove;* Provided that sixty days’ notice of such
suspension is given to the CONTRACTING PARTIES not later than six months
after the measure has been introduced or changed substantially to the
detriment of the contracting party affected. Any such contracting party
shall afford adequate opportunity for consultation in accordance with
the provisions of Article XXII of this
Agreement.
Section D
22. A contracting party coming within the
scope of subparagraph 4 (b) of this Article desiring, in the interest of
the development of its economy, to introduce a measure of the type
described in paragraph 13 of this Article in respect of the
establishment of a particular industry* may apply to the CONTRACTING
PARTIES for approval of such measure. The CONTRACTING PARTIES shall
promptly consult with such contracting party and shall, in making their
decision, be guided by the considerations set out in paragraph
16. If
the CONTRACTING PARTIES concur* in the proposed measure the contracting
party concerned shall be released from its obligations under the
relevant provisions of the other Articles of this Agreement to the
extent necessary to permit it to apply the measure. If the proposed
measure affects a product which is the subject of a concession included
in the appropriate Schedule annexed to this Agreement, the provisions of
paragraph 18 shall apply.*
23. Any measure applied under this Section
shall comply with the provisions of paragraph 20 of this
Article.
B. Text of Notes Ad Article XVIII
Ad Article XVIII
The CONTRACTING PARTIES and the contracting
parties concerned shall preserve the utmost secrecy in respect of
matters arising under this Article.
Paragraphs 1 and 4
1. When they consider whether the economy of a
contracting party “can only support low standards of living”, the
CONTRACTING PARTIES shall take into consideration the normal position of
that economy and shall not base their determination on exceptional
circumstances such as those which may result from the temporary
existence of exceptionally favourable conditions for the staple export
product or products of such contracting party.
2. The phrase “in the early stages of
development” is not meant to apply only to contracting parties which
have just started their economic development, but also to contracting
parties the economies of which are undergoing a process of
industrialization to correct an excessive dependence on primary
production.
Paragraphs 2, 3, 7, 13 and 22
The reference to the establishment of
particular industries shall apply not only to the establishment of a new
industry, but also to the establishment of a new branch of production in
an existing industry and to the substantial transformation of an
existing industry, and to the substantial expansion of an existing
industry supplying a relatively small proportion of the domestic demand.
It shall also cover the reconstruction of an industry destroyed or
substantially damaged as a result of hostilities or natural disasters.
Paragraph 7 (b)
A modification or withdrawal, pursuant to
paragraph 7 (b), by a contracting party, other than the applicant
contracting party, referred to in paragraph 7
(a), shall be made within
six months of the day on which the action is taken by the applicant
contracting party, and shall become effective on the thirtieth day
following the day on which such modification or withdrawal has been
notified to the CONTRACTING PARTIES.
Paragraph 11
The second sentence in paragraph 11 shall not
be interpreted to mean that a contracting party is required to relax or
remove restrictions if such relaxation or removal would thereupon
produce conditions justifying the intensification or institution,
respectively, of restrictions under paragraph 9 of Article
XVIII.
Paragraph 12 (b)
The date referred to in paragraph 12 (b) shall
be the date determined by the CONTRACTING PARTIES in accordance with the
provisions of paragraph 4 (b) of Article XII of this
Agreement.
Paragraphs 13 and 14
It is recognized that, before deciding on the
introduction of a measure and notifying the CONTRACTING PARTIES in
accordance with paragraph 14, a contracting party may need a reasonable
period of time to assess the competitive position of the industry
concerned.
Paragraphs 15 and 16
It is understood that the CONTRACTING PARTIES
shall invite a contracting party proposing to apply a measure under
Section C to consult with them pursuant to paragraph 16 if they are
requested to do so by a contracting party the trade of which would be
appreciably affected by the measure in question.
Paragraphs 16, 18, 19 and 22
1. It is understood that the CONTRACTING
PARTIES may concur in a proposed measure subject to specific conditions
or limitations. If the measure as applied does not conform to the terms
of the concurrence it will to that extent be deemed a measure in which
the CONTRACTING PARTIES have not concurred. In cases in which the
CONTRACTING PARTIES have concurred in a measure for a specified period,
the contracting party concerned, if it finds that the maintenance of the
measure for a further period of time is required to achieve the
objective for which the measure was originally taken, may apply to the
CONTRACTING PARTIES for an extension of that period in accordance with
the provisions and procedures of Section C or D, as the case may be.
2. It is expected that the CONTRACTING PARTIES
will, as a rule, refrain from concurring in a measure which is likely to
cause serious prejudice to exports of a commodity on which the economy
of a contracting party is largely dependent.
Paragraphs 18 and 22
The phrase “that the interests of other
contracting parties are adequately safeguarded” is meant to provide
latitude sufficient to permit consideration in each case of the most
appropriate method of safeguarding those interests. The appropriate
method may, for instance, take the form of an additional concession to
be applied by the contracting party having recourse to Section C or
D during such time as the deviation from the other Articles of the
Agreement would remain in force or of the temporary suspension by any
other contracting party referred to in paragraph 18 of a concession
substantially equivalent to the impairment due to the introduction of
the measure in question. Such contracting party would have the right to
safeguard its interests through such a temporary suspension of a
concession; Provided that this right will not be exercised when,
in the case of a measure imposed by a contracting party coming within
the scope of paragraph 4 (a), the CONTRACTING PARTIES have determined
that the extent of the compensatory concession proposed was adequate.
Paragraph 19
The provisions of
paragraph 19 are intended to
cover the cases where an industry has been in existence beyond the “reasonable
period of time” referred to in the note to paragraphs 13 and
14, and
should not be so construed as to deprive a contracting party coming
within the scope of paragraph 4 (a) of Article XVIII, of its right to
resort to the other provisions of Section C, including
paragraph 17,
with regard to a newly established industry even though it has benefited
from incidental protection afforded by balance of payments import
restrictions.
Paragraph 21
Any measure taken pursuant to the provisions
of paragraph 21 shall be withdrawn forthwith if the action taken in
accordance with paragraph 17 is withdrawn or if the CONTRACTING PARTIES
concur in the measure proposed after the expiration of the ninety-day
time limit specified in paragraph 17.
C. Understanding on the Balance-of-Payments
Provisions of the General Agreement on Tariffs and Trade 1994
Members,
Recognizing the provisions of
Articles XII
and XVIII:B of GATT 1994 and of the Declaration on Trade Measures Taken
for Balance-of-Payments Purposes adopted on 28 November 1979 (BISD
26S/205–209, referred to in this Understanding as the “1979
Declaration”) and in order to clarify such provisions(1).
(footnote original) 1 Nothing in
this Understanding is intended to modify the rights and obligations of
Members under Articles XII or XVIII:B of GATT
1994. The provisions of
Articles XXII and XXIII of GATT 1994 as elaborated and applied by the
Dispute Settlement Understanding may be invoked with respect to any
matters arising from the application of restrictive import measures
taken for balance-of-payments purposes.
Hereby agree as follows:
Application of Measures
1. Members confirm their commitment to
announce publicly, as soon as possible, time-schedules for the removal
of restrictive import measures taken for balance-of-payments purposes.
It is understood that such time schedules may be modified as appropriate
to take into account changes in the balance-of-payments situation.
Whenever a time-schedule is not publicly announced by a Member, that
Member shall provide justification as to the reasons therefor.
2. Members confirm their commitment to give
preference to those measures which have the least disruptive effect on
trade. Such measures (referred to in this Understanding as “price-based
measures”) shall be understood to include import surcharges, import
deposit requirements or other equivalent trade measures with an impact
on the price of imported goods. It is understood that, notwithstanding
the provisions of Article II, price-based measures taken for
balance-of-payments purposes may be applied by a Member in excess of the
duties inscribed in the Schedule of that Member. Furthermore, that
Member shall indicate the amount by which the price-based measure
exceeds the bound duty clearly and separately under the notification
procedures of this Understanding.
3. Members shall seek to avoid the imposition
of new quantitative restrictions for balance-of-payments purposes
unless, because of a critical balance-of-payments situation, price-based
measures cannot arrest a sharp deterioration in the external payments
position. In those cases in which a Member applies quantitative
restrictions, it shall provide justification as to the reasons why
price-based measures are not an adequate instrument to deal with the
balance-of-payments situation. A Member maintaining quantitative
restrictions shall indicate in successive consultations the progress
made in significantly reducing the incidence and restrictive effect of
such measures. It is understood that not more than one type of
restrictive import measure taken for balance-of-payments purposes may be
applied on the same product.
4. Members confirm that restrictive import
measures taken for balance-of-payments purposes may only be applied to
control the general level of imports and may not exceed what is
necessary to address the balance-of-payments situation. In order to
minimize any incidental protective effects, a Member shall administer
restrictions in a transparent manner. The authorities of the importing
Member shall provide adequate justification as to the criteria used to
determine which products are subject to restriction. As provided in
paragraph 3 of Article XII and paragraph 10 of Article XVIII, Members
may, in the case of certain essential products, exclude or limit the
application of surcharges applied across the board or other measures
applied for balance-for-payments purposes. The term “essential
products” shall be understood to mean products which meet basic
consumption needs or which contribute to the Member’s effort to
improve its balance-of-payments situation, such as capital goods or
inputs needed for production. In the administration of quantitative
restrictions, a Member shall use discretionary licensing only when
unavoidable and shall phase it out progressively. Appropriate
justification shall be provided as to the criteria used to determine
allowable import quantities or values.
Procedures for Balance-of-Payments
Consultations
5. The Committee on Balance-of-Payments
Restrictions (referred to in this Understanding as the “Committee”)
shall carry out consultations in order to review all restrictive import
measures taken for balance-of-payments purposes. The membership of the
Committee is open to all Members indicating their wish to serve on it.
The Committee shall follow the procedures for consultations on
balance-of-payments restrictions approved on 28 April 1970 (BISD 18S/48–53,
referred to in this Understanding as “full consultation procedures”),
subject to the provisions set out below.
6. A Member applying new restrictions or
raising the general level of its existing restrictions by a substantial
intensification of the measures shall enter into consultations with the
Committee within four months of the adoption of such measures. The
Member adopting such measures may request that a consultation be held
under paragraph 4(a) of Article XII or
paragraph 12(a) of Article XVIII
as appropriate. If no such request has been made, the Chairman of the
Committee shall invite the Member to hold such a consultation. Factors
that may be examined in the consultation would include, inter alia, the
introduction of new types of restrictive measures for
balance-of-payments purposes, or an increase in the level or product
coverage of restrictions.
7. All restrictions applied for
balance-of-payments purposes shall be subject to periodic review in the
Committee under paragraph 4(b) of Article XII or under
paragraph 12(b)
of Article XVIII, subject to the possibility of altering the periodicity
of consultations in agreement with the consulting Member or pursuant to
any specific review procedure that may be recommended by the General
Council.
8. Consultations may be held under the
simplified procedures approved on 19 December 1972 (BISD 20S/ 47–49,
referred to in this Understanding as “simplified consultation
procedures”) in the case of least-developed country Members or in the
case of developing country Members which are pursuing liberalization
efforts in conformity with the schedule presented to the Committee in
previous consultations. Simplified consultations procedures may also be
used when the Trade Policy Review of a developing country Member is
scheduled for the same calendar year as the date fixed for the
consultations. In such cases the decision as to whether full
consultation procedures should be used will be made on the basis of the
factors enumerated in paragraph 8 of the 1979 Declaration. Except in the
case of least-developed country Members, no more than two successive
consultations may be held under simplified consultation procedures.
Notification and Documentation
9. A Member shall notify to the General
Council the introduction of or any changes in the application of
restrictive import measures taken for balance-of-payments purposes, as
well as any modifications in time-schedules for the removal of such
measures as announced under paragraph 1. Significant changes shall be
notified to the General Council prior to or not later than 30 days after
their announcement. On a yearly basis, each Member shall make available
to the Secretariat a consolidated notification, including all changes in
laws, regulations, policy statements or public notices, for examination
by Members. Notifications shall include full information, as far as
possible, at the tariff-line level, on the type of measures applied, the
criteria used for their administration, product coverage and trade flows
affected.
10. At the request of any Member,
notifications may be reviewed by the Committee. Such reviews would be
limited to the clarification of specific issues raised by a notification
or examination of whether a consultation under paragraph 4(a) of Article
XII or paragraph 12(a) of Article XVIII is required. Members which have
reasons to believe that a restrictive import measure applied by another
Member was taken for balance-of-payments purposes may bring the matter
to the attention of the Committee. The Chairman of the Committee shall
request information on the measure and make it available to all Members.
Without prejudice to the right of any member of the Committee to seek
appropriate clarifications in the course of consultations, questions may
be submitted in advance for consideration by the consulting Member.
11. The consulting Member shall prepare a
Basic Document for the consultations which, in addition to any other
information considered to be relevant, should include: (a) an overview
of the balance-of-payments situation and prospects, including a
consideration of the internal and external factors having a bearing on
the balance-of-payments situation and the domestic policy measures taken
in order to restore equilibrium on a sound and lasting basis; (b) a full
description of the restrictions applied for balance-of-payments
purposes, their legal basis and steps taken to reduce incidental
protective effects; (c) measures taken since the last consultation to
liberalize import restrictions, in the light of the conclusions of the
Committee; (d) a plan for the elimination and progressive relaxation of
remaining restrictions. References may be made, when relevant, to the
information provided in other notifications or reports made to the WTO.
Under simplified consultation procedures, the consulting Member shall
submit a written statement containing essential information on the
elements covered by the Basic Document.
12. The Secretariat shall, with a view to
facilitating the consultations in the Committee, prepare a factual
background paper dealing with the different aspects of the plan for
consultations. In the case of developing country Members, the
Secretariat document shall include relevant background and analytical
material on the incidence of the external trading environment on the
balance-of-payments situation and prospects of the consulting Member.
The technical assistance services of the Secretariat shall, at the
request of a developing country Member, assist in preparing the
documentation for the consultations.
Conclusions of Balance-of-Payments
Consultations
13. The Committee shall report on its
consultations to the General Council. When full consultation procedures
have been used, the report should indicate the Committee’s conclusions
on the different elements of the plan for consultations, as well as the
facts and reasons on which they are based. The Committee shall endeavour
to include in its conclusions proposals for recommendations aimed at
promoting the implementation of Articles XII and
XVIII:B, the 1979
Declaration and this Understanding. In those cases in which a
time-schedule has been presented for the removal of restrictive measures
taken for balance-of-payments purposes, the General Council may
recommend that, in adhering to such a time-schedule, a Member shall be
deemed to be in compliance with its GATT 1994 obligations. Whenever the
General Council has made specific recommendations, the rights and
obligations of Members shall be assessed in the light of such
recommendations. In the absence of specific proposals for
recommendations by the General Council, the Committee’s conclusions
should record the different views expressed in the Committee. When
simplified consultation procedures have been used, the report shall
include a summary of the main elements discussed in the Committee and a
decision on whether full consultation procedures are required.”
D. Interpretation and Application of Article
XVIII
1. Article XVIII:B
(a) General
754.
The Panel in India — Quantitative
Restrictions, in a finding not addressed by the Appellate Body,
explained the function of Article XVIII:B within the GATT
framework. The Panel distinguished the conditions for taking
balance-of-payments measures under Article XVIII from those applicable
under Article XII of GATT and considered
paragraphs 2, 4(a),
8
and 11 of Article XVIII:
“It is clear from these provisions that
Article XVIII, which allows developing countries to maintain, under
certain conditions, temporary import restrictions for balance-of
payments purposes, is premised on the assumption that it ‘may be
necessary’ for them to adopt such measures in order to implement
economic development programmes. It allows them to ‘deviate
temporarily from the provisions of the other Articles’ of GATT 1994,
as provided for in, inter alia, Section
B. These provisions
reflect an acknowledgement of the specific needs of developing countries
in relation to measures taken for balance-of-payments purposes. Article
XVIII:B of GATT 1994 thus embodies the special and differential
treatment foreseen for developing countries with regard to such
measures. In our analysis, we take due account of these provisions. In
particular, the conditions for taking balance-of-payments measures under
Article XVIII are clearly distinct from the conditions applicable to
developed countries under Article XII of GATT
1994.(1029)
We also find that while Article XVIII:2
foresees the possibility that it ‘may’ be ‘necessary’ for
developing countries to take restrictions for balance-of-payments
purposes, such measures might not always be required. These restrictions
must be adopted within specific conditions ‘as provided in’ Section
B of Article XVIII. The specific conditions to be respected for the
institution and maintenance of such measures include Article
XVIII:9,
which specifies the circumstances under which such measures may be
instituted and maintained, and Article XVIII:11 which sets out the
requirements for progressive relaxation and elimination of
balance-of-payments measures.”
(b) Jurisdiction of panels
755.
In India — Quantitative
Restrictions, the Appellate Body reviewed the Panel’s finding that
India’s import restrictions for balance-of-payments reasons were
inconsistent with Article XI:1 and that India was not entitled to
maintain these balance-of-payments restrictions under the terms of Note Ad
Article XVIII:11. India argued that panels have no authority to examine
Members’ justifications of balance-of-payments restrictions, because
footnote 1 to the Understanding on the Balance-of-Payments Provision of
the GATT 1994 (the “BOP Understanding”) provides that the DSU may be
invoked in respect of matters relating to the specific use or purpose of
a balance-of-payments measure or to the manner in which a
balance-of-payments measure is applied in a particular case, but
not with respect to the question of balance-of-payments justification
of these measures. Rejecting this argument, the Appellate Body stated as
follows:
“Any doubts that may have existed in the
past as to whether the dispute settlement procedures under Article XXIII
were available for disputes relating to balance-of payments restrictions
have been removed by the second sentence of footnote 1 to the BOP
Understanding, …
In our opinion, this provision makes it clear
that the dispute settlement procedures under Article XXIII, as
elaborated and applied by the DSU, are available for disputes
relating to any matters concerning balance-of-payments
restrictions.
…
We note India’s arguments relating to the
negotiating history of the BOP Understanding. However, in the
absence of a record of the negotiations on footnote 1 to the BOP
Understanding, we find it difficult to give weight to these
arguments… .
Therefore, in light of footnote 1 to the BOP
Understanding, a dispute relating to the justification of balance-of
payments restrictions is clearly within the scope of matters to which
the dispute settlement provisions of Article XXIII of the GATT
1994, as
elaborated and applied by the DSU, are applicable.”(1030)
756.
The Appellate Body also found that
permitting panel review of balance-of-payments restrictions would not
render redundant the competence of the BOP Committee and the General
Council under GATT Article XVIII and the
Understanding on the
Balance-of-Payments Provisions of the GATT 1994:
“Recourse to the dispute settlement
procedures does not call into question either the availability or the
utility of the procedures under Article XVIII:12 and the BOP
Understanding. On the contrary, if panels refrained from reviewing
the justification of balance-of-payments restrictions, they would
diminish the explicit procedural rights of Members under Article XXIII
and footnote 1 to the BOP Understanding, as well as their
substantive rights under Article XVIII:11.
We are cognizant of the competence of the BOP
Committee and the General Council with respect to balance-of-payments
restrictions under Article XVIII:12 of the GATT 1994 and the BOP
Understanding. However, we see no conflict between that competence
and the competence of panels. Moreover, we are convinced that, in
considering the justification of balance-of payments restrictions,
panels should take into account the deliberations and conclusions of the
BOP Committee, as did the panel in Korea — Beef.
We agree with the Panel that the review by
panels of the justification of balance-of-payments restrictions would
not render redundant the competence of the BOP Committee and the General
Council. The Panel correctly pointed out that the BOP Committee and
panels have different functions, and that the BOP Committee procedures
and the dispute settlement procedures differ in nature, scope, timing
and type of outcome.”(1031)
757.
Further, in response to India’s
argument that while panels did not lack jurisdiction with respect to
balance-of-payments restrictions, they should nevertheless exercise
judicial restraint, the Appellate Body stated:
“India clarified its claim of legal error by
stating that although panels, in principle, have competence to review
any matters relating to balance-of-payments restrictions, they should
exercise judicial restraint with respect to these matters… .
…
[W]e note that, if the exercise of judicial
restraint were to lead in practice, as India seems to suggest, to
panels refraining from considering disputes regarding the justification
of balance-of-payments restrictions, such exercise of judicial restraint
would, as discussed above, be inconsistent with Article XXIII of the
GATT 1994, as elaborated and applied by the DSU, and footnote 1 to the BOP
Understanding.”(1032)
(c) Right to maintain balance-of-payments
measures
758.
In India — Quantitative
Restrictions, India argued before the Panel that it had the right to
maintain balance-of-payments measures until the BOP Committee or the
General Council advised it to modify these measures under Article
XVIII:12 or established a time-period for their removal under paragraph
13 of the BOP Understanding. The Panel, in a finding not specifically
addressed by the Appellate Body, disagreed:
“We note at the outset that there is no
explicit statement in Article XVIII:B or the 1994 Understanding that
authorizes a Member to maintain its balance-of-payments measures in
effect until the General Council or BOP Committee acts under one of the
aforementioned provisions. Article XVIII:B, however, addresses the issue
of the extent to which balance-of-payments measures may be maintained.
Article XVIII:11, which is analysed in more detail in Part G below,
specifies that a Member:
’shall progressively relax any restrictions
applied under this Section [i.e., Article XVIII:B] as conditions
improve, maintaining them only to the extent necessary under the terms
of paragraph 9 of this Article [XVIII] and shall eliminate them when
conditions no longer justify their maintenance.’
The obligation of Article XVIII:11 is not
conditioned on any BOP Committee or General Council decision. If we were
to interpret Article XVIII:11 to be so conditioned, we would be adding
terms to Article XVIII:11 that it does not contain.
Moreover, the obligation in Article XVIII:11
requires action by the individual Member. It is qualified only by a
proviso and Ad Note (which we discuss in Part G and which are not
relevant here) and it is not made subject to the accomplishment of other
procedures. In light of the unqualified nature of the Article XVIII:11
obligation, it would be inconsistent with the principle pacta sunt
servanda to conclude that a WTO Member has a right to maintain
balance-of-payments measures, even if unjustified under Article XVIII:B,
in the absence of a Committee or General Council decision in respect
thereof. Thus, we find that India does not have a right to maintain its
balance-of-payments measures until the General Council advises it to
modify them under Article XVIII:12 or establishes a time-period for
their removal under paragraph 13 of the 1994
Understanding.”(1033)
759.
In India — Quantitative
Restrictions, India further argued that Article XVIII:12(c)(i) or
(ii) confirms the existence of a “right to a phase-out” for measures
which no longer meet the criteria set out in Article
XVIII:9, by
providing for a “specified period of time” to be granted to secure
compliance with the relevant provisions when an inconsistency has been
identified. In this context, India also claimed that paragraphs 1 and
13
of the Understanding provide an incentive for Members to present a
time-schedule for removal even when there are no current
balance-of-payments difficulties within the meaning of Article
XVIII:9,
thereby confirming the existence of a “right” to a phase-out even in
the absence of current balance-of-payments difficulties within the
meaning of Article XVIIII:9. The Panel rejected India’s arguments:
“The text of paragraph 13 of the
Understanding itself does not specify whether the balance-of-payments
difficulties which justified the imposition of the measures should still
be in existence when a time schedule is presented for their elimination.
However, the notion of presentation of a time schedule, starting when
the balance-of-payments difficulties still exist, is consistent with the
temporary nature of balance-of-payments measures and with the
requirement for their gradual elimination. Also, the time-schedules
referred to in paragraphs 1 and 13 of the 1994 Understanding are the
same and paragraph 1 specifies that ‘such time-schedules may be
modified as appropriate to take into account changes in the
balance-of-payments situation.’ This suggests that a time-schedule
would have to be presented before the balance-of-payments difficulties
disappear, otherwise, the reference to ‘take into account changes in
the balance-of-payments situation’ would become redundant.
This does not mean that the General Council
has no margin of discretion in deciding whether or not to accept a
time-schedule that would provide protection to the Member concerned. We
have seen that the Ad Note suggests also that measures could, under
certain circumstances, be maintained for a time when balance-of-payments
difficulties which initially justified their institution are no longer
in existence. In addition, paragraph 13 of the 1994 Understanding
provides that ‘the General Council may recommend that, in adhering to
such a time-schedule, a Member may be deemed to be in compliance
with its GATT 1994 obligations’ (emphasis added). There is no clear
evidence that this phrase has to be interpreted as covering only
situations under which a phase-out period would exactly coincide with
the gradual disappearance of balance-of-payments difficulties.
In light of the above, we conclude that the
procedure for submission and approval of a time-schedule incorporated in
the 1994 Understanding, which is specific to the Committee
consultations, does not give WTO Members a ‘right’ to a phase-out
period which a panel would have to protect in the absence of
balance-of-payments difficulties in the sense of Article XVIII:B.(1034)
Even assuming that such a ‘right’ could be recognized under
paragraph 13 of the 1994 Understanding, such a recognition would in any
case require a prior decision of the General Council.”(1035)
(d) Burden of proof regarding measures
justified by Article XVIII:B
760.
The Panel Report in India — Quantitative
Restrictions applied the general rules on burden of proof to
balance-of-payments measures as follows:
“In all instances, each party has to provide
evidence in support of each of its particular assertions. This implies
that the United States has to prove any of its claims in relation to the
alleged violation of Article XI:1 and
XVIII:11. Similarly, India has to
support its assertion that its measures are justified under Article
XVIII:B. We also view the rules stated by the Appellate Body as
requiring that the United States as the complainant cannot limit itself
to stating its claim. It must present a prima facie case that the Indian
balance-of-payments measures are not justified by reference to Articles
XI:1 and XVIII:11 of GATT 1994.”(1036)
761. In India — Autos, India
asserted a defence under Article XVIII:B to the extent of any violation
of Article XI. India presented no evidence regarding its
balance-of-payments situation, and argued that the burden was on the
complainants to establish that its measures were not justified on
balance-of-payments grounds. The Panel rejected this argument, and found
that “the burden is on India in relation to this defence. To
successfully assert this defence it must at a minimum, present a prima
facie case that these measures can be considered to be maintained
under Article XVIII:B.”(1037) The Panel ruled that India failed to make
such a prima facie case, because India presented no information
on its actual balance-of-payments situation during the relevant period,
and did not explain how it had met the substantive conditions of Article
XVIII:9. The Panel declined to consult with the IMF because “the
arguments presented did not even lead the Panel to that point.”(1038)
(e) GATT practice
762.
On GATT practice under Article XVIII:B.
2. Article XVIII:9
(a) General
763.
In India — Quantitative
Restrictions, the Panel decided that in its evaluation of the
situation of India’s monetary reserves under Article
XVIII:9, it would
need to examine the facts existing on the date of its establishment. The
Panel gave both legal and practical reasons for not focusing on the
situation existing at a later point in time:
“With respect to the date at which India’s
balance-of-payments and reserve situation is to be assessed, we note
that practice, both prior to the WTO and since its entry into force,
limits the claims which panels address to those raised in the request
for establishment of the panel, which is typically the basis of the
panel’s terms of reference (as is the case here).(1039) In our opinion,
this has consequences for the determination of the facts that can be
taken into account by the Panel, since the complainant obviously bases
the claims contained in its request for establishment of the panel on a
given set of facts existing when it presents its request to the DSB.
In the present situation, the United States
primarily seeks a finding that, at the latest on the date of
establishment of the Panel (18 November 1997), the measures at issue
were not compatible with the WTO Agreement and were not justified under
Article XVIII:11 of GATT 1994. Therefore, it would seem consistent with
such a request and logical in the light of the constraints imposed by
the Panel’s terms of reference to limit our examination of the facts
to those existing on the date the Panel was established.
This result is also dictated by practical
considerations. The determination of whether balance-of-payments
measures are justified is tied to a Member’s reserve situation as of a
certain date. In fixing that date, it is important to consider that the
relevant economic and reserve data will be available only with some
time-lag, which may vary by type of data. This is unlikely to be a
problem if the date of assessment is the date the panel is established,
since the first written submission is typically filed at least two (and
often more) months after establishment of a panel. However, using the
first or second panel meetings as the assessment date is more
problematic since data might not be available and, if the date of the
second panel meeting were chosen, it could significantly reduce the
utility of the first meeting.
We note that, in the case on Korea — Beef,
the panel relied on the conclusions of the BOP Committee reached before
its establishment, but also considered ‘all available information’,
including information related to periods after the establishment of the
panel.(1040) In this case, the parties and the IMF have supplied
information concerning the evolution of India’s balance-of-payments
and reserve situation until June 1998. To the extent that such
information is relevant to our determination of the consistency of India’s
balance-of-payments measures with GATT rules as of the date of
establishment of the Panel, we take it into account.(1041)”(1042)
(b) Adequacy of reserves
764.
In India — Quantitative
Restrictions, the Panel examined whether the Indian
balance-of-payments measure met with the conditions set out in
subparagraph (a) of Article XVIII:9. The Panel first made a general
statement about its analytical approach and then held that it would
consider the “adequacy” of India’s reserves for the purposes of
both Articles XVIII:9(a) and XVIII:9(b):
“The issue to be decided under Article
XVIII:9(a) is whether India’s balance-of-payments measures exceeded
those ‘necessary … to forestall the threat of, or to stop, a serious
decline in monetary reserves’. In deciding this issue, we must weigh
the evidence favouring India against that favouring the United States
and determine whether on the basis of all evidence before the Panel, the
United States has established its claim under Article XVIII:11 that
India does not meet the conditions specified in Article
XVIII:9(a).
…
The question before us is whether India was
facing a serious decline or threat thereof in its reserves (Article
XVIII:9(a)) or had inadequate reserves (Article
XVIII:9(b)). In
analysing India’s situation in terms of Article
XVIII:9(a), it is
important to bear in mind that the issue is whether India was facing or
threatened with a serious decline in its monetary reserves.
Whether or not a decline of a given size is serious must be related to
the initial state and adequacy of the reserves. A large decline need not
necessarily be a serious one if the reserves are more than adequate.
Accordingly, it is appropriate to consider the adequacy of India’s
reserves for purposes of Article XVIII:9(a), as well as for
Article XVIII:9(b).”(1043)
765.
The Panel in India — Quantitative
Restrictions then considered information supplied by the
International Monetary Fund (IMF), which indicated the level of reserves
which could be considered “adequate” for India:
“In this connection, we recall that the IMF
reported that India’s reserves as of 21 November 1997 were US$25.1
billion and that an adequate level of reserves at that date would have
been US$16 billion. While the Reserve Bank of India did not specify a
precise level of what would constitute adequacy, it concluded only three
months earlier in August 1997 that India’s reserves were ‘well above
the thumb rule of reserve adequacy’ and although the Bank did not
accept that thumb rule as the only measure of adequacy, it also found
that ‘[b]y any criteria, the level of foreign exchange reserves
appears comfortable’. It also stated that ‘the reserves would be
adequate to withstand both cyclical and unanticipated shocks’.
…
Turning now to the question of whether India
was facing a serious decline or threat thereof in its reserves, it is
appropriate to consider the evolution of its reserves in the period
prior to November 1997. As noted above, as of 31 March 1996, India’s
reserves were US$17 billion; as of 31 March 1997, India’s reserves
were US$22.4 billion. We note that at the time of the BOP Committee’s
consultations with India in January and June 1997, the IMF reported that
India did not face a serious decline in its reserves or a threat
thereof. As of 21 November 1997, India’s reserves had risen to US$25.1
billion and the IMF continued to be of the view that India did not face
a serious decline in its reserves or a threat thereof. In our view, in
light of the foregoing evidence, and taking into account the provisions
of Article XV:2, as of the date of establishment of the Panel, India was
not facing a serious decline or a threat of a serious decline in
monetary reserves as those terms are used in Article
XVIII:9(a). In the
event that it might be deemed relevant to add support to our findings
concerning India’s reserves as of November 1997, we have also examined
the evolution of India’s reserves after November 1997. We note that
India’s reserves fluctuated around the November level in subsequent
months, falling to a low of US$23.9 billion in December 1997 and rising
to a high of US$26.2 billion in April 1998. They were US$24.1 billion as
of the end of June 1998.”(1044)
(c) “restricting the quantity or value of
merchandise permitted to be imported”: quantitative versus price-based
balance-of-payments measures
766.
Although Articles XII:1 and
XVIII:9
originally provided only for balance-of-payments measures in the form of
quantitative restrictions on imports, the Understanding on the
Balance-of-Payments Provisions of the GATT 1994 provides, inter alia:
“2. Members confirm their commitment to give
preference to those measures which have the least disruptive effect on
trade. Such measures (referred to in this Understanding as ‘price-based
measures’) shall be understood to include import surcharges, import
deposit measures or other equivalent trade measures with an impact on
the price of imported goods. It is understood that, notwithstanding the
provisions of Article II, price-based measures taken for
balance-of-payments purposes may be applied by a Member in excess of the
duties inscribed in the Schedule of that Member. Furthermore, that
Member shall indicate the amount by which the price-based measure
exceeds the bound duty clearly and separately under the notification
procedures of this Understanding.
3. Members shall seek to avoid the imposition
of new quantitative restrictions for Balance-of-Payments purposes
unless, because of a critical Balance-of-Payments situation, price-based
measures cannot arrest a sharp deterioration in the external payments
position. In those cases in which a Member applies quantitative
restrictions, it shall provide justification as to the reasons why
price-based measures are not an adequate instrument to deal with the
Balance-of-Payments situation. A Member maintaining quantitative
restrictions shall indicate in successive consultations the progress
made in significantly reducing the incidence and restrictive effect of
such measures. It is understood that not more than one type of
restrictive import measure taken for Balance-of-Payments purposes may be
applied on the same product.”
767.
Concerning the treatment under the GATT
1947 of balance-of-payments surcharges and other price-based
balance-of-payments measures.
3. Article XVIII:11
(a) Burden of proof
768.
In India — Quantitative
Restrictions, citing its statement in US — Wool Shirts
and Blouses(1045), the Appellate Body agreed with the Panel that it is
for the responding party to demonstrate that the complaining party
violated its obligation not to require the responding party to change
its development policy:
“The proviso precludes a Member, which is
challenging the consistency of balance-of-payments restrictions, from
arguing that such restrictions would be unnecessary if the developing
country Member maintaining them were to change its development policy.
In effect, the proviso places an obligation on Members not to require a
developing country Member imposing balance-of-payments restrictions to
change its development policy.
…
We consider that the invocation of the proviso
to Article XVIII:11 does not give rise to a burden of proof issue
insofar as it relates to the interpretation of what policies may
constitute a ‘development policy’ within the meaning of the proviso.
However, we do not exclude the possibility that a situation might arise
in which an assertion regarding development policy does involve a burden
of proof issue. Assuming that the complaining party has successfully
established a prima facie case of inconsistency with Article
XVIII:11 and the Ad Note, the responding party may, in its defence,
either rebut the evidence adduced in support of the inconsistency or
invoke the proviso. In the latter case, it would have to demonstrate
that the complaining party violated its obligation not to require the
responding party to change its development policy. This is an assertion
with respect to which the responding party must bear the burden of
proof. We, therefore, agree with the Panel that the burden of proof with
respect to the proviso is on India.”(1046)
769.
On the issue of the allocation of the
burden of proof with respect to the Ad Note to the United States,
India argued that the Panel had not applied the rules in accordance with
the principles laid down by the Appellate Body in EC — Hormones.
Specifically, India objected to the fact that the Panel had taken into
account the responses of India in its assessment regarding whether the
United States had made a prima facie case. The Appellate Body did
not share India’s view:
“We do not interpret the … statement as
requiring a panel to conclude that a prima facie case is made
before it considers the views of the IMF or any other experts that it
consults. Such consideration may be useful in order to determine whether
a prima facie case has been made. Moreover, we do not find it
objectionable that the Panel took into account, in assessing whether the
United States had made a prima facie case, the responses of India
to the arguments of the United States. This way of proceeding does not
imply, in our view, that the Panel shifted the burden of proof to India.”(1047)
(b) Note Ad Article XVIII:11
(i) General
770.
The Panel in India — Quantitative
Restrictions, in a finding not reviewed by the Appellate Body,
addressed the question whether Note Ad Article XVIII:11 permitted
India to maintain balance-of-payments restrictions which did not meet
the requirements of Article XVIII:9. India argued that it should not be
required to remove its quantitative restrictions immediately, even if it
were found that it currently did not experience balance-of-payments
difficulties within the meaning of Article
XVIII:9, because immediate
removal would create the conditions for their reinstitution within the
meaning of Note Ad Article XVIII:11. The Panel held that three
questions had to be addressed in this context: namely (a) whether the Ad
Note covered situations where the conditions of Article XVIII:9 were no
longer met; (b) what conditions must be met in order to allow for the
maintenance of measures under the Ad Note; and (c) whether these
conditions were met in the present case. With respect to the first
question — namely, whether the Ad Note covered situations where
the conditions of Article XVIII:9 were no longer met — the Panel
considered the wording of the Ad Note:
“It seems clear to us that the use of the
word ‘respectively’ in this provision allows the sentence to be read
to refer to two situations, so that the second sentence of paragraph 11
should not be interpreted to mean (i) that a Member is required to relax
restrictions if such relaxation would thereupon produce conditions
justifying the intensification of restrictions under paragraph 9 of
Article XVIII or (ii) that a Member is required to remove restrictions
if such removal would thereupon produce conditions justifying the
institution of restrictions under paragraph 9 of Article XVIII.
The ordinary meaning of the words therefore
suggests that the Ad Note could cover situations where the conditions of
Article XVIII:9 are no longer met but are threatened. This would make it
possible for a developing country having validly instituted measures for
balance-of-payments purposes and whose situation has sufficiently
improved so that the conditions of Article XVIII:9 are no longer
fulfilled, not to eliminate the remaining measures if this would result
in the reoccurrence of the conditions which had justified their
institution in the first place.”(1048)
771.
Having found that the ordinary meaning of
the words of Note Ad Article XVIII:11 could extend to situations
where the conditions of Article XVIII:9 no longer exist, but are
threatened, the Panel considered also the context of the Ad Note
and the notion of “gradual relaxation”:
“This appears consistent with the context of
the provision, in particular with the general requirement of gradual
relaxation of measures as balance-of-payments conditions improve, under
Article XVIII:11. The notion of ‘gradual relaxation’ contained in
Article XVIII:11 should itself be read in context, together with
Article XVIII:9. Article XVIII:9 requires that the measures taken shall not ‘exceed
those necessary’ to address the balance-of-payments situation
justifying them. The institution and maintenance of balance-of-payments
measures is only justified at the level necessary to address the
concern, and cannot be more encompassing. Paragraph
11, in this context,
confirms this requirement that the measures be limited to what is
necessary and addresses more specifically the conditions of evolution of
the measures as balance-of-payments conditions improve: at any given
time, the restrictions should not exceed those necessary. This implies
that as conditions improve, measures must be relaxed in proportion to
the improvements. The logical conclusion of the process is that the
measures will be eliminated when conditions no longer justify them.
The Ad Note clarifies that the relaxation or
removal should not result in a worsening of the balance-of-payments
situation such as to justify strengthened or new measures. It thus seeks
to avoid a situation where a developing country would be required to
remove the measures, foreseeing that in doing so, it will create the
conditions for their reinstitution. In light also of the need to restore
equilibrium of the balance-of-payments on a sound and lasting basis,
acknowledged in the first sentence of Article
XVIII:11, it appears that
removal should be made when the conditions actually allow for it. In
this sense, we can agree with India that the developing country Member
applying the measures is not required to follow a ‘stop-and-go’
policy. It is worth noting, however, that in circumstances where the
balance-of-payments situation has gradually improved, if measures have
been gradually relaxed as conditions improved under the terms of Article
XVIII:11 and maintained only to the extent necessary under the terms of
Article XVIII:9, it could be anticipated that only a minor portion of
the measures initially instituted would remain to be removed by the time
the balance-of-payments conditions have improved to the extent that the
country faces neither a serious decline in monetary reserves or a threat
thereof, or inadequate reserves. The elimination of these measures would
thus constitute the final stage of a gradual relaxation and elimination.
We therefore conclude that the Note Ad Article
XVIII:11 could apply to both situations where balance-of-payments
difficulties still exist and when they have ceased to exist but are
threatened to return. It is therefore possible for India to invoke the
existence of such risk in order to justify the maintenance of the
measures. However, this possibility is available only to the extent that
the conditions foreseen in the Ad Note are fulfilled. We must therefore
determine what these conditions are before examining whether they are
fulfilled in this instance.”(1049)
772.
Having answered the first of the three
questions listed in paragraph 770 above, the Panel then turned to the
second question, namely which conditions had to be satisfied for a
measure to be justified in the light of the Note Ad Article
XVIII:11, although the conditions under Article XVIII:9 were no longer
met. The Panel gave the following overview:
“Three elements thus appear to be
contemplated in this text:
(i) that conditions justifying the
intensification or institution, respectively, of restrictions under
paragraph 9 of Article XVIII would occur
(ii) that the relaxation or removal of the
measures would produce occurrence of these conditions
(iii) the relaxation or removal would thereupon
produce these conditions.”(1050)
(ii) “would thereupon produce”
773.
In its analysis of the conditions which a
balance-of-payment measure, imposed by a developing country, had to
comply with in the light of the Note Ad Article
XVIII:11, the Panel in India — Quantitative Restrictions first addressed the term “would
thereupon produce”:
“We agree with the Panel that the Ad Note,
and, in particular, the words ‘would thereupon produce’, require a causal
link of a certain directness between the removal of the
balance-of-payments restrictions and the recurrence of one of the three
conditions referred to in Article XVIII:9. As pointed out by the Panel,
the Ad Note demands more than a mere possibility of recurrence of one of
these three conditions and allows for the maintenance of
balance-of-payments restrictions on the basis only of clearly identified
circumstances. In order to meet the requirements of the Ad Note, the
probability of occurrence of one of the conditions would have to be
clear.”(1051)
774.
With respect to the term “thereupon”
in the phrase “would thereupon produce”, the Appellate Body in India — Quantitative Restrictions rejected India’s argument that
the Panel had erred in interpreting the term “thereupon” contained
in Note Ad Article XVIII:11 to signify “immediately”:
“We also agree with the Panel that the Ad
Note and, in particular, the word ‘thereupon’, expresses a notion
of temporal sequence between the removal of the balance-of-payments
restrictions and the recurrence of one of the conditions of Article
XVIII:9. We share the Panel’s view that the purpose of the word ‘thereupon’
is to ensure that measures are not maintained because of some distant
possibility that a balance-of-payments difficulty may occur.
…
We recall that balance-of-payments
restrictions may be maintained under the Ad Note if their removal or
relaxation would thereupon produce: (i) a threat of a serious decline in
monetary reserves; (ii) a serious decline in monetary reserves; or
(iii) inadequate monetary reserves. With regard to the first of these
conditions, we agree with the Panel that the word ‘thereupon’ means
‘immediately’.
…
We agree with the Panel that it would be
unrealistic to require that [the two other conditions, i.e.] a serious
decline or inadequacy in monetary reserves should actually occur within
days or weeks following the relaxation or removal of the
balance-of-payments restrictions. The Panel was, therefore, correct to
qualify its understanding of the word ‘thereupon’ with regard to
these two conditions. While not explicitly stating so, the Panel in fact
interpreted the word ‘thereupon’ for these two conditions as meaning
‘soon after’. This is also one of the possible dictionary meanings
of the word ‘thereupon’. We are of the view that instead of using
the word ‘immediately’, the Panel should have used the words ‘soon
after’ to express the temporal sequence required by the word ‘thereupon’.”
(1052)
(c) Proviso to Article XVIII:11
775.
In India — Quantitative
Restrictions, the Appellate Body rejected India’s argument that,
contrary to the proviso to Article VIII:11, the Panel required India to
change its development policy by holding that India could manage its
balance-of-payments situation using macroeconomic policy instruments
alone, without maintaining quantitative restrictions:
“[W]e are of the opinion that the use of
macroeconomic policy instruments is not related to any particular
development policy, but is resorted to by all Members regardless of the
type of development policy they pursue. The IMF statement that India can
manage its balance-of-payments situation using macroeconomic policy
instruments alone does not, therefore, imply a change in India’s
development policy.
…
We believe structural measures are different
from macroeconomic instruments with respect to their relationship to
development policy. If India were asked to implement agricultural reform
or to scale back reservations on certain products for small-scale units
as indispensable policy changes in order to overcome its
balance-of-payments difficulties, such a requirement would probably have
involved a change in India’s development policy.”(1053)
4. Article XVIII:12
(a) Article XVIII:12(c)
776.
The Panel in India — Quantitative
Restrictions discussed Article XVIII:12(c)(i) and
(ii) in rejecting
India’s argument that panels have no authority to evaluate Members’
balance-of-payments justifications. See the excerpt referenced in
paragraph 758 above.(1054)
777.
Further, the Panel rejected India’s
argument that Article XVIII:12(c)(ii) confirms the existence of a right
to a phase-out for measures no longer justified by current
balance-of-payments difficulties, stating as follows:
“We note that Article
XVIII.12(c)(ii),
provides a specific mechanism in order for the BOP Committee to address
possible violations of the provisions of, inter alia, Article
XVIII:B and provides for a period of time to be granted to the Member in
order to implement the requirement to remove or modify the inconsistent
measures. In the situation envisaged by Article
XVIII:12(c)(ii), a
period of time is granted when an inconsistency with the provisions of
either Article XVIII:B or Article XIII has been identified. The period
of time which is allocated to the Member in order to bring its measures
into conformity is thus comparable, but not identical, to an
implementation period of the sort provided for in Article 21.3 of the
DSU. However, this specific mode of determination of the ‘implementation’
period applies to procedures initiated under Article
XVIII:12(c), which
is not the procedure under which this Panel is acting. We consider the
issue of whether a phase-out would be appropriate in this case in our
suggestions in respect of implementation, where we note this provision
of Article XVIII:12(c)(ii).”(1055)
5. Article XVIII:C
778. Secretariat Notes of July and September
2002, prepared in connection with a review of Article
XVIII, discuss the
three instances when Article XVIII:C had been invoked from 1995 through
July 2002, and the use of Article XVIII:C under the GATT 1947.(1056)
6. Understanding on the Balance-of-Payments
Provisions of the General Agreement on Tariffs and Trade 1994
(a) General
779.
The Panel in India — Quantitative
Restrictions, in a finding not addressed by the Appellate Body,
explained the legal status of the BOP Understanding in relation to GATT
Articles XII and XVIII:
“[The text of Article XVIII:B] should now be
read in light of the 1994 Understanding, which clarifies the provisions
of Articles XII and XVIII:B and of the 1979 Decision. The 1994
Understanding, which refers to the procedures for balance-of-payments
consultations adopted in 1970 (‘full consultation procedures’) and
1972 (’simplified consultation procedures’) as well as the 1979
Decision, contains provisions on the application of balance-of-payments
measures, as well as provisions relating to the procedures for
balance-of-payments consultations and their conclusion, but it does not
explicitly refer to Articles XVIII:12(c) and (d).”(1057)
(b) Invocation and disinvocation of Articles
XII and XVIII:B
780.
A table below lists invocations and
disinvocations of Articles XII and XVIII:B since entry into force of the
WTO Agreement. A similar table at pages 394–395 of the GATT
Analytical Index lists invocations and disinvocations of Articles
XII and XVIII:B, and records of balance-of-payments consultations, from
1979 through 1994.
| Member |
Consultations |
Measures |
References |
| Bangladesh |
1995(S), 1997 (S), 1999(S), 2000, 2001,
2002, 2004, 2007 |
QRs remained on a few items as of 2007;
remaining items liberalized 2007–10 |
BOP/R/223;
WT/BOP/R/28,
42,
46,
50,
57,
58,
60, 64, 76,
86,
94; WT/BOP/N/54, 60–64, 73;
WT/BOP/S/1, 9,
12–14 |
| Brazil |
1995 |
Import quota on motor vehicles
introduced June 1995, eliminated effective 27 October 1995 |
WT/BOP/R/7; WT/BOP/N/4; WT/GC/M/8 |
|
Bulgaria (Art. XII) |
1997, 1998 |
5% import surcharge introduced Jun.
1996, reduced 1998, eliminated Jan. 1999 |
WT/BOP/R/34, 43; WT/BOP/N/18, 30, 37, 38 |
|
Czech Republic (Art. XII) |
1997 |
Import deposit scheme introduced Apr.
1997, eliminated Aug. 1997, Art. XII disinvoked |
WT/BOP/R/30, 33, 38; WT/BOP/N/19 +Add.1,
29 |
|
Ecuador |
2007, 2010 |
QRs applied in 2009, gradually replaced
by price-based measures 2009; all BOP measures removed Jul. 2010 |
WT/BOP/R/91, 94, 97, 99, 100;
WT/BOP/N/65 +Add.1, 67, 69, 70, 72, 74–77; WT/BOP/S/15 |
|
Egypt |
1995(S) |
Disinvoked Article XVIII:B as from 30
June 1995 |
BOP/R/225;
BOP/324; BOP/W/161 |
|
Hungary (Art. XII) |
1995, 1996 |
Import surcharge introduced March 1995,
reduced in 1996, eliminated July 1997 |
WT/BOP/R/3, 17, 20, 30, 38;
WT/BOP/N/2,
12, 17,
23, 26 |
|
India |
1995, 1997 |
Discretionary import licensing |
WT/BOP/R/11, 22, 32; WT/BOP/N/11, 24;
WT/DS90/R; WT/DS90/AB/R |
|
Israel |
|
Disinvoked BOP provisions Sept. 1995 |
WT/BOP/R/5; WT/BOP/N/3 WT/BOP/R/13, 18,
25,
35, 41; |
|
Nigeria |
1996, 1997, 1998 |
Import prohibitions |
WT/BOP/N/20, 27, 32, 44, 45 WT/BOP/R/27,
36, 39, 51, 56; |
|
Pakistan |
1997, 2000 |
QRs invoked 1997; phased out 2002 |
WT/BOP/N/14, 31, 40, 51, 53, 57,
59 |
|
Philippines |
1995(S) |
QRs since GATT accession in 1980; eliminated on most agricultural products 1996 |
BOP/312 + Adds.,
WT/BOP/W/10;
WT/BOP/R/9, WT/BOP/N/9 |
|
Poland
(Art. XII) |
1995
|
Import surcharge introduced Dec. 1992,
eliminated 1 Jan. 1997 |
BOP/R/228; WT/BOP/R/16;
WT/BOP/N/6,
8, 16 |
|
Romania
(Art. XII) |
1999, 2000
|
Import surcharge introduced Oct. 1998,
eliminated Jan. 2001 |
WT/BOP/R/45, 49, 53;
WT/BOP/N/41, 42, 48, 50, 56 |
|
Slovak Republic
(Art. XII) |
1995, 1997, 1999, 2000 |
Import surcharge introduced 1994,
reduced July 1996, eliminated 1 Jan. 1997, reintroduced
Aug. 1997, abolished Oct. 1998; import surcharge introduced June 1999 abolished
Jan. 2001 |
WT/BOP/R/4, 15, 24, 30, 36, 40,
48, 49,
52; WT/BOP/N/1, 15, 21, 28, 33, 35, 39,
46 +Adds. 1–2,
47, 49, 52, 55 |
|
South Africa |
1995 |
Import surcharge removed Oct. 1995; disinvoked BOP provisions Oct. 1995
Import licensing; partially liberalized 1996. Art. |
WT/BOP/R/1; WT/BOP/N/5 |
|
Sri Lanka |
1995 |
XVIII:B disinvoked May 1998 |
WT/BOP/R/8; WT/BOP/N/13, 36 |
|
Tunisia |
1996 |
QRs on motor vehicles; liberalization completed 2001 |
WT/BOP/R/14, 31;
WT/BOP/S/2;
WT/BOP/N/10, 25, 34, 43, 58 |
|
Turkey |
1995(S) |
Import charges pre-dating WTO;
eliminated 1 Jan. 1997 |
WT/BOP/R/6, 16; WT/BOP/4;
WT/BOP/W/6; WT/BOP/N/7, 22 |
|
Ukraine |
2007 |
15% import surcharge on some
products
for up to 6 months, introduced Mar.
2009, discontinued Sept. 2009 |
WT/BOP/R/93, 94; WT/BOP/N/66, 68, 71;
WT/BOP/S/16 |
(c) Footnote 1
781.
The Appellate Body, in India — Quantitative
Restrictions, referred to footnote 1 of the BOP Understanding in
considering a panel’s authority to examine the conformity with the WTO
Agreement of Members’ measures taken for balance-of-payments purposes.
See the excerpts referenced in paragraphs 755–757
above.
(d) Paragraph 1
782.
In India — Quantitative
Restrictions, India argued that paragraphs 1 and
13 of the
Understanding provide an incentive for Members to present a
time-schedule for removal even when there are no current
balance-of-payments difficulties within the meaning of Article
XVIII:9,
thereby confirming the existence of a “right” to a phase-out even in
the absence of current balance-of-payments difficulties within the
meaning of Article XVIIII:9. The Panel rejected this argument. See the
excerpt referenced in paragraph 759 above.
(e) Paragraph 5
(i) Committee on Balance-of-Payments
Restrictions
Establishment of Committee
783.
At its meeting of 31 January 1995, the
General Council established the WTO Committee on Balance-of-Payments
Restrictions.(1058)
Terms of reference
784.
At its meeting of 31 January 1995, the
General Council adopted the following terms of reference for the
Committee on Balance-of-Payments Restrictions:
“(a) to conduct consultations, pursuant to
Article XII:4, Article XVIII:12 and the Understanding on the
Balance-of-Payments Provisions of the General Agreement on Tariffs and
Trade 1994, on all restrictive import measures taken or maintained for
balance-of-payments purposes and, pursuant to Article XII:5 of the
General Agreement on Trade in Services, on all restrictions adopted or
maintained for balance-of-payments purposes on trade in services on
which specific commitments have been undertaken; and
(b) to carry out any additional functions
assigned to it by the General Council.”(1059)
Rules of procedure
785.
At its meeting of 13 and 15 December
1995, the General Council approved the rules of procedure adopted by the
Committee on the Balance-of-Payments Restrictions.(1060)
Observer status
786.
At its meeting of 13 and 15 December
1995, the General Council took a decision with respect to participation
in the meetings of the Committee on the Balance-of-Payments
Restrictions.(1061)
(f) Paragraph 9
787.
At its meeting of 21 October 1996, the
Committee on the Balance-of-Payments Restrictions adopted the format for
the annual notification mandated under Paragraph 9 of the
Understanding.(1062) In order for the Committee on the Balance-of-Payments
Restrictions to have a basis for the following year’s schedule of
consultations, it was proposed that notifications be completed and
submitted to the Secretariat annually by 15 November.(1063)
(g) Paragraph 13
(i) Conclusions
788.
In some instances, the Committee has
recommended that a Member that had presented a time schedule for
phase-out of BOP restrictions and was adhering to the schedule should be
deemed to be in conformity with its GATT 1994 obligations.(1064) In some
instances, the Committee has concluded that measures taken by a Member
were not justified by its balance-of-payments situation and had not been
applied in a manner consistent with the requirements set forth in the
GATT 1994 and the Understanding.(1065)
789. In India — Quantitative
Restrictions, India argued that paragraphs 1 and
13 of the
Understanding provide an incentive for Members to present a
time-schedule for removal even when there are no current
balance-of-payments difficulties within the meaning of Article
XVIII:9,
thereby confirming the existence of a “right” to a phase-out even in
the absence of current balance-of-payments difficulties within the
meaning of Article XVIIII:9. The Panel rejected this argument. See the
excerpt referenced in paragraph 759 above.
(ii) Reporting by the Committee
790.
The Committee on Balance-of-Payments
Restrictions submits reports on specific consultations in the WT/BOP/R
series, as well as an annual report on its activities(1066) as required by
the General Council.(1067)
7. Relationship with other GATT provisions
(a) Article II
791.
The Understanding on the
Balance-of-Payments Provisions of the GATT 1994 provides in its
paragraph 2 for an exception from Article II:1(b) for “price-based
measures taken for balance-of-payments purposes”:
“Members confirm their commitment to give
preference to those measures which have the least disruptive effect on
trade. Such measures (referred to in this Understanding as ‘price-based
measures’) shall be understood to include import surcharges, import
deposit measures or other equivalent trade measures with an impact on
the price of imported goods. It is understood that, notwithstanding the
provisions of Article II, price-based measures taken for
balance-of-payments purposes may be applied by a Member in excess of the
duties inscribed in the Schedule of that Member… .”
(b) Articles XI, XIII, XIV and XVII
792.
The Panels on India — Quantitative
Restrictions and Korea — Various Measures on Beef
discussed the interpretation and application of Note Ad Articles
XI, XII, XIII, XIV and XVIII, which clarifies that the terms “import
restrictions” or “export restrictions” as used in these Articles
include “restrictions made effective through state-trading operations”.
See paragraphs 621–622 above.
(c) Article XII
793.
In India — Quantitative
Restrictions, the Panel explained the relationship between Articles
XII and XVIII:B in clarifying the function of
Article XVIII:B. See
paragraph 754 above.
(d) GATT practice
794.
On GATT practice regarding the
relationship between Article XVIII and other
Articles.
Footnotes:
973.
WT/L/194 and Add.1–2; WT/GC/M/16, section 7. back to text
974.
WT/L/195; Agreement and accompanying letter from IMF Managing Director
in Annex I; Agreed Commentary in Annex III.
back to text
975.
WT/L/195, p. 3.
back to text
976.
WT/L/196, p. 13. back to text
977.
WT/L/195, p. 4. back to text
978.
WT/L/195, p. 17.
back to text
979.
Appellate Body Report, Argentina — Textiles and
Apparel, paras. 84–85. back to text
980.
Panel Report, India — Quantitative Restrictions,
para. 5.12. back to text
981.
Panel Report, India — Quantitative Restrictions,
para. 5.12. back to text
982.
Panel Report, India — Autos, para. 7.294.
back to text
983.
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, paras. 7.139–7.142. back to text
984.
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, Annexes C and D. back to text
985.
Panel Report, India — Quantitative Restrictions,
paras. 5.11, 5.13. back to text
986.
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, para. 7.145. back to text
987.
WT/MIN(01)/4, para. 10.
back to text
988.
WT/L/433 (text of Special Exchange Agreement in Annex II).
back to text
989.
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, para. 7.131. back to text
990.
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, para. 7.132. back to text
991.
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, para. 7.137. back to text
992.
WT/L/195, p. 3.
back to text
993.
WT/L/195, p. 12.
back to text
994. See also
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, para. 7.148, referring to these notices. back to text
995.
Panel Report, Dominican Republic — Import and Sale
of Cigarettes, paras. 7.150, 7.154. back to text
996.
Panel Report, US — Upland Cotton,
paras.
7.1473–7.1475. back to text
997.
Panel Report, US — Upland Cotton,
para. 7.997.
back to text
998.
Panel Report, US — Upland Cotton,
para. 7.1005.
back to text
999.
Panel Report, US — Upland Cotton,
para.
7.1016; discussion at paras. 7.996–7.1015. back to text
1000.
Panel Report, US — Upland Cotton,
para.
7.657. back to text
1001.
Panel Report, Korea — Various Measures on Beef,
para. 766. back to text
1002.
Panel Report, Canada — Wheat Exports and Grain
Imports, para. 6.39. back to text
1003.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, para. 98. back to text
1004.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, paras. 85. back to text
1005.
Panel Report, Korea — Various Measures on Beef,
para. 753. In support of its proposition, the Panel went on to refer to
the following two GATT Panel Reports: (i) Panel Report, Canada — Provincial Liquor Board (EC), para. 4.26; and Panel Report, Canada
— Provincial Liquor Board (US), para. 5.15. back to text
1006.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, para. 87. back to text
1007.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, para. 97. back to text
1008.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, para. 94. back to text
1009.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, paras. 89–90. back to text
1010.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, paras. 110–111. back to text
1011.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, paras. 144–145. back to text
1012.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, para. 149. back to text
1013.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, para. 157. back to text
1014.
Panel Report, Korea — Various Measures on Beef,
para. 757. back to text
1015.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, para. 100. back to text
1016.
Appellate Body Report, Canada — Wheat Exports
and Grain Imports, paras. 110–112. In this case, the Appellate Body
found that the Panel had not ignored subparagraph (a) of Article XVII
and therefore had not erred. back to text
1017.
G/C/M/1, paras. 5.6–5.7.
back to text
1018.
G/C/M/1, para. 5.5. The Working Party accordingly set forth
the following deadlines: (i) 30 June 1995 for the 1995 notifications (G/STR/N/1);
(ii) 30 September 1998 for the 1998 new and full notifications (G/STR/N/4);
and (iii) 29 June 2001 for the 2001 new and full notifications (G/STR/N/7).
back to text
1019.
G/C/M/33, section 3. Text of approved questionnaire: G/STR/3.
back to text
1020.
G/C/M/1, subsection 5(A).
back to text
1021. Annual reports 1995–2010:
G/L/35;
G/L/128; G/L/198;
G/L/281; G/L/335;
G/L/418;
G/L/491; G/L/591; G/L/660;
G/L/716;
G/L/749;
G/L/788;
G/L/829;
G/L/857;
G/L/898;
G/L/934. back to text
1022.
G/STR/5.
back to text
1023.
G/STR/7, extended by the CTG on 5 July 2010.
back to text
1024.
G/C/M/41, section 3. Text of adopted illustrative list:
G/STR/4.
back to text
1025.
G/STR/4, para. 4.
back to text
1026.
G/STR/2.
back to text
1027.
Panel Report, Korea — Various Measures on Beef,
para. 780. back to text
1028.
Panel Report, Korea — Various Measures on Beef,
para. 768. back to text
1029. (footnote original) In particular, the conditions to
be met for the institution of balance-of-payments measures are different
in Article XVIII:9 and Article
XII, and an Ad Note which applies to the
conditions for progressive relaxation and elimination of restrictions
under Article XVIII:11 has no analogue in Article
XII. back to text
1030.
Appellate Body Report, India — Quantitative
Restrictions, paras. 87–88 and 94–95. Following these
paragraphs, in support of this finding, the Appellate Body referred to
Panel Report, Korea — Beef (US), paras. 117–118. Also,
the Appellate Body rejected the argument that India presented referring
to Panel Reports on EC — Citrus; EC — Bananas I;
and Korea — Beef (US).
Appellate Body Report, India — Quantitative
Restrictions, para. 100. back to text
1031.
Appellate Body Report, India — Quantitative
Restrictions, paras. 102–104. In this regard, see also the Panel’s
finding referenced in para. 758 of this Chapter. back to text
1032.
Appellate Body Report, India — Quantitative
Restrictions, paras. 106 and 108. back to text
1033.
Panel Report, India — Quantitative Restrictions,
paras. 5.78–5.80. back to text
1034. (footnote original) As we note in our suggestions for
implementation, a phase-out period typically has been negotiated (see
text accompanying footnotes 366–368). back to text
1035.
Panel Report, India — Quantitative Restrictions,
paras. 5.233–5.235. back to text
1036.
Panel Report, India — Quantitative Restrictions,
para. 5.119. back to text
1037.
Panel Report, India — Autos, para. 7.288.
back to text
1038.
Panel Report, India — Autos, paras. 7.289–7.293,
7.294. back to text
1039. (footnote original)
Appellate Body Report on EC — Bananas III, para. 143 and Appellate Body Report on India — Patent (US), paras. 87–89. back to text
1040. (footnote original) Panel Report on Korea — Beef
(US), paras. 122–123. back to text
1041. (footnote original) We note for instance that such
information might be relevant to an examination of the existence of a
threat of serious decline in monetary reserves under Article XVIII:9 or
to an examination of the conditions contemplated in the Note Ad Article XVIII:11.
back to text
1042.
Panel Report, India — Quantitative Restrictions,
paras. 5.160–5.163. back to text
1043.
Panel Report, India — Quantitative Restrictions,
paras. 5.169 and 5.173. back to text
1044.
Panel Report, India — Quantitative Restrictions,
paras. 5.174 and 5.177. back to text
1045.
Appellate Body Report, US — Wool Shirts and
Blouses, p. 14. With respect to burden of proof in general, see
Chapter on DSU. back to text
1046.
Appellate Body Report, India — Quantitative
Restrictions, paras. 134 and 136. back to text
1047.
Appellate Body Report, India — Quantitative
Restrictions, para. 142. With respect to the burden of proof in
general, see also the Chapter on DSU. back to text
1048.
Panel Report, India — Quantitative Restrictions,
paras. 5.188–5.189. back to text
1049.
Panel Report, India — Quantitative Restrictions,
paras. 5.190–5.192. back to text
1050.
Panel Report, India — Quantitative Restrictions,
para. 5.194. back to text
1051.
Appellate Body Report, India — Quantitative
Restrictions, para. 114. back to text
1052.
Appellate Body Report, India — Quantitative
Restrictions, paras. 115, 117 and 119. back to text
1053.
Appellate Body Report, India — Quantitative
Restrictions, paras. 126 and 128. back to text
1054. With respect to the relevant finding of the
Appellate Body in
India — Quantitative Restrictions, see the excerpts
referenced in para. 755 of this Chapter. back to text
1055.
Panel Report, India — Quantitative Restrictions,
para. 5.227. back to text
1056. Secretariat Note:
WT/COMTD/39 and
Add.1. Notifications:
WT/L/32;
WT/COMTD/N/8 and
Corr.1;
G/C/7. back to text
1057.
Panel Report, India — Quantitative Restrictions,
para. 5.48. back to text
1058.
WT/GC/M/1, section 7.A.(1).
back to text
1059.
WT/GC/M/1, section 7.A.(1); see adopted terms of reference
in WT/L/45. back to text
1060.
WT/GC/M/1, section 4. I. (a); see approved rules of procedure
in WT/BOP/10. back to text
1061.
WT/GC/M/1, section 2.
back to text
1062.
WT/BOP/14.
back to text
1063.
WT/BOP/14.
back to text
1064. See
WT/BOP/R/55;
WT/BOP/R/37.
back to text
1065. See
WT/BOP/R/96.
back to text
1066. Annual reports 1995–2010:
WT/BOP/R/10,
19,
37,
44,
47,
55,
59,
67,
70,
72,
74,
81,
85,
88,
90,
96,
101. back to text
1067.
WT/L/105, section 2.
back to text
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