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World Trade

6 April 1999
Original: English

India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products

Report of the Panel

The report of the Panel on "India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products" is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 6 April 1999 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report, an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel, and that there shall be no ex parte communications with the panel or Appellate Body concerning matters under consideration by the panel or Appellate Body.

Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by concensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current status of the panel Report is available from the WTO Secretariat.

Table of Contents

I. Introduction
II. Factual Aspects

A. Consultations in the Committee on Balance-of Payments Restrictions
B. Quantitative Restrictions
1. Legal basis under domestic law for import restrictions and import licensing
2. Licensing régime
III. Claims and Main Arguments
A. Scope of the Complaint
B. Article XI:1
1. United States
2. India
3. Nullification and Impairment
C. Article 4.2 of the WTO Agreement on Agriculture
D. Article XVIII:B
1. Competence of the Panel
2. Burden of Proof
3. Article XVIII:9, XVIII:11 and the Note Ad Article XVIII:11
4. Removal of Restrictions According to Article XVIII:11, Article XVIII:12(c)(ii) and Paragraph 13 of the Understanding
5. Article XVIII:B: Special and Differential Treatment
6. Article XVIII:10 and the 1994 Understanding
7. Arguments drawn from Consultations in the Committee on Balance-of-Payments Restrictions
8. Additional Evidence
9. Consultations with the International Monetary Fund
E. Article XIII:2(a) and the Import Licensing Agreement
IV. Interim Review
A. Comments by the United States
B. Comments by India
1. Review of the balance-of-payments justification of India's measures
2. Immediate removal of the measures and consequence thereof
3. Other specific comments
V. Findings
A. Facts Leading to the Dispute
B. Rulings Made by the Panel in the Course of the Proceedings
1. Request by India for sufficient time to prepare and present its argumentation, pursuant to Article 12.10 of the DSU
2. Consultation with the International Monetary Fund
C. Scope of the Complaint
1. Claims of violation of Article XIII of GATT and of Article 3 of the Agreement on Import Licensing Procedures
2. Provisions of Article XVIII:B other than Article XVIII:11
3. Phase-out period
D. Competence of the Panel
1. The issue: are panels competent to review the justification of balance-of-payments measures under Article XVIII:B?
2. Surveillance and review of balance-of-payments measures prior to the entry into force of the WTO
3. Applicable provisions under the WTO Agreement
4. Competence of panels to review the justification of measures taken under Article XVIII:B
5. Conclusion
E. Burden of Proof with Respect to the Claims
F. Article XI:1
1. India's import licensing system for products on the "Negative List of Imports"
2. Canalization of imports through government agencies
3. The Special Import Licence (SIL) system
4. The Actual User requirement
5. Summary
G. Article XVIII:B of GATT 1994
1. Special and differential treatment
2. Is India experiencing balance-of-payments difficulties within the meaning of Article XVIII:9?
3. Is India entitled under the Ad Note to Article XVIII:11 to maintain measures for balance-of-payments purposes when the conditions contemplated in Article XVIII:9 are no longer met?
4. Is India entitled to maintain its balance-of-payments measures on the basis of the proviso to Article XVIII:11?
5. Right to maintain balance-of-payments measures until they are found to be inconsistent by the General Council and the right to a phase-out of balance-of-payments measures
6. Conclusion
H. Article 4.2 of the Agreement on Agriculture
I. Article XIII of GATT 1994
J. Nullification or Impairment
VI. Conclusions and Recommendations
VII. Suggestions for Implementation

    I. Introduction

  1. On 16 July 1997, the United States requested consultations with India, pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article XXII:1 of the GATT, Article 19 of the Agreement on Agriculture (to the extent it incorporates by reference Article XXII of the GATT), and Article 6 of the Agreement on Import Licensing Procedures (to the extent it incorporates by reference Article XXII of the GATT), concerning quantitative restrictions maintained by India on the importation of a number of agricultural, textile and industrial products (WT/DS90/1). The United States considered that the quantitative restrictions maintained by India, including, but not limited to, those tariff lines notified in Annex I, Part B of WT/BOP/N/24, appeared to be inconsistent with India's obligations under Article XI:1 and XVIII:11 of the GATT 1994, Article 4.2 of the Agreement on Agriculture and Article 3 of the Agreement on Import Licensing Procedures. At the same time, Australia, Canada, the European Communities, New Zealand and Switzerland requested consultations with India on these quantitative restrictions (WT/DS91/1; WT/DS92/1; WT/DS93/1; WT/DS94/1; WT/DS96/1) on the basis of similar claims to those set forth by the United States. 1 Subsequently, Japan, the European Communities, Canada, Australia, Switzerland and New Zealand asked to join in the consultations requested by the United States (WT/DS90/2, WT/DS90/3, WT/DS90/4, WT/DS90/5, WT/DS/90/6, WT/DS/90/7). The United States and India formally consulted on these measures in Geneva on 17 September 1997, and Japan participated as an interested third party under Article 4.11 of the DSU.
  2. On 3 October 1997, the United States requested that the WTO Dispute Settlement Body ("DSB") establish a panel to examine this dispute. 2 In its request, the United States considered that quantitative restrictions maintained by India, including, but not limited to, the more than 2,700 agricultural and industrial product tariff lines notified to the WTO in Annex I, Part B of WT/BOP/N/24 dated 22 May 1997, appeared to be inconsistent with India's obligations under Articles XI:1 and XVIII:11 of GATT 1994 and Article 4.2 of the Agreement on Agriculture. Furthermore, the import licensing procedures and practices of the Government of India are inconsistent with fundamental WTO requirements as provided in Article XIII of GATT 1994 and Article 3 of the Agreement on Import Licensing Procedures. The DSB established the panel on 18 November 1997, with the following terms of reference:
  3. "To examine, in light of the relevant provisions of the covered agreements cited by the United States in WT/DS90/8, the matter referred to the DSB by the United States in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

  4. On 10 February 1998, the United States requested the Director-General to determine the composition of the Panel, pursuant to paragraph 7 of Article 8 of the DSU. On 20 February 1998, the Director-General accordingly composed the Panel (WT/DS90/9) as follows:

    Chairman:Ambassador Celso Lafer
    Members:Professor Paul Demaret
    Professor Richard Snape

  5. The Panel met with the parties on 7 May and 22 and 23 June 1998 and submitted its report to the Parties on 11 December 1998.
  6. II. Factual Aspects

    A. Consultations in the Committee on Balance-of Payments Restrictions

  7. At the time the Panel was established, India maintained quantitative restrictions on imports of products falling in 2,714 tariff lines at the eight-digit level of HS96 for which it claimed balance-of-payments justification. These restrictions had been notified to the Committee on Balance-of-Payments Restrictions in May 1997 in the course of consultations being held with India. The restrictions that are within the scope of the dispute appear in Annex I, Part B of WT/BOP/N/24. A previous notification had been made in July 1996 (WT/BOP/N/11 and Corr.1) and included quantitative restrictions maintained for both balance of payments and other reasons. 3
  8. India had been consulting under Article XVIII:B in the Committee on Balance-of-Payments Restrictions regularly since 1957. 4 During the simplified consultations held on 15 November 1994, the Committee appreciated the courage and sagacity with which India had carried out its economic reform program. It encouraged India to continue implementing its import liberalization programme. The Committee noted that, if the balance of payments showed sustained improvement, India's aim was to move to a regime by 1996-1997, in which import licensing restrictions would only be maintained for environmental and safety reasons. Members of the Committee welcomed the significant improvement in India's balance-of-payments situation since the last consultation but recognized that it remained volatile. 5
  9. Full consultations were begun in December 1995, and first resumed on 20-21 January 1997 During the consultations held on 6 and 8 December 1995, the Committees commended India for the wide-scale economic reforms and comprehensive stabilization programme over the past four years, which had resulted in robust economic recovery. The reforms, which included a considerable measure of trade and financial liberalization, exchange rate unification and a move to current account convertibility, had contributed to a large increase in the share of trade in India's GDP. The Committees noted that, since 1992, rapid export growth and capital inflows had been the source of the turnaround in India's external sector and the steady increase in the level of foreign exchange reserves. However, they took note that, in recent months, there had been a deterioration in the trade balance, investment inflows had slowed and the foreign exchange reserves had declined. In addition, the fiscal deficit and the level of indebtedness remained high. The Committees recalled India's stated aim to move, by 1996-97, to a trade régime under which quantitative restrictions are retained only for environmental, social, health and safety reasons, provided sustained improvement was shown in its balance-of-payments. They also took note of the statement by the IMF that, with continued prudent macro-economic management, the transition to a tariff-based import régime with no quantitative restrictions could reasonably be accomplished within a period ot two years. The Committees noted that, since the last full consultation, there had been considerable liberalization of India's import régime, including a gradual increase in the number of consumer items which were freely importable; yet almost one-third of tariff lines at eight-digit level under the HS Classification remained subject to quantitative restrictions. The Committees noted the view expressed by India that, in the context of a deteriorating balance-of-payments situation, it would be neither prudent nor feasible to consider the general lifting of quantitative restrictions on imports at this stage. Many Members supported India's continued use of import restrictions under Article XVIII:B for balance-of-payments reasons in view of the uncertainty and fragility they perceived in India's balance-of-payments position, and they felt that liberalization and structural reform policies should continue at a pace and sequence suited to Indian conditions. Many other Members stated that India's balance-of-payments position was comfortable, that India did not currently face the threat of a serious decline in foreign exchange reserves as set out in Article XVIII, paragraph 9, and that therefore India was not justified in its continued recourse to import restrictions for balance-of-payments reasons. Many Members stated that the continued use of quantitative restrictions was inconsistent with paragraphs 1, 2, 3, 4 and 9 of the Understanding and asked India to present a firm time-table for the phasing out of the restrictions, and further information required, before the resumption of the consultations. Others, in the light of the ongoing liberalization, did not share these views. In the light of the above considerations, the Committees welcomed India's readiness to resume the consultations in October 1996, and to notify to the WTO all remaining restrictions maintained for balance-of-payments purposes soon after the announcement of the 1996/97 Export-Import Policy.
  10. In its resumed consultations with India, in January 1997, the Committee took note of the positive developments in India's economic situation since 1995. The Committee welcomed the Indian authorities' continued commitment to economic reform and liberalization and noted India's progressive removal of quantitative restrictions notified under Article XVIII:B. The Committee noted the statement of the IMF that India’s current monetary reserves were not inadequate and were not threatened by a serious decline. 6 The IMF also expressed the view that the import restrictions could be removed within a relatively short period of time. However, India cautioned that its balance-of-payments needed close monitoring and that the abrupt removal of import restrictions notified under Article XVIII:B could undermine the stability of its economy and the reform process. The Committee agreed to resume the consultations with India at the beginning of June 1997 to consider a proposal from India on a time-schedule for the elimination of its remaining import restrictions notified under Article XVIII:B and to conclude the consultations consistently with all relevant WTO balance-of-payments provisions. 7
  11. On 19 May 1997, India notified the Committee of the import restrictions under Article XVIII:B that were being maintained under its Export-Import Policy for 1997-2002. 8 At the same time India notified a time-schedule for the removal of its remaining import restrictions pursuant to paragraph 11(d) of the 1994 Understanding. This plan contained a time-schedule of nine years from 1 April 1997 to 31 March 2006, divided into three equal phases. The notification also included a list of products in respect of which quantitative restrictions on imports maintained under Article XVIII:B were removed by India since its last notification of July 1996, as well as the import policy changes announced on 1 April 1997 under its annual Export-Import Policy for 1997-1998.
  12. On 10-11 June 1997, the Committee resumed its consultations with India to discuss the plan. The representative of the IMF noted that his answers to the questions posed during the January 1997 consultation on India's balance-of-payments situation had not changed during the interim period. At that meeting all Members expressed their appreciation of India’s commitment to eliminate the import restrictions over a period of time and commended India on the comprehensiveness, transparency and timeliness of the plan. Many Members however voiced concern about the length of the time-schedule; some agreed that India should adopt a cautious approach, others encouraging an acceleration of the phase out. Some Members considered that India's balance-of-payments situation no longer justified continued recourse to Article XVIII:B. In this meeting India offered to revise the phase-out plan to seven years. Since no consensus on the revised proposal on the time-schedule could be reached, the Chairman suspended the meeting to permit further reflection.
  13. When the Committee reassembled on 30 June 1997, India submitted a plan containing a time-schedule of seven years, under which most of the import restrictions would be eliminated in two phases of a length of three years each and a number of items of high sensitivity or bound at very low rates of duty would be eliminated during the third phase, reduced from three years to one year. However, since no consensus on the revised proposal on the time-schedule could be reached, the Chairman closed the meeting on 1 July 1997, noting that the report of the Committee to the General Council would record the views expressed in the Committee.
  14. The reports of the Committee of the consultations (WT/BOP/R/11; WT/BOP/R/22 and WT/BOP/R/32) were adopted by the General Council.

To continue with Quantitative Restrictions

1 Switzerland did not refer to Article 4 of the Agreement on Agriculture in its request.

2 WT/DS90/8, 6 October 1997.

3 According to India, as of 13 April 1998, the number of items on which there were import restrictions had been reduced to 2,296 HS lines at the 8-digit level.

4 BISD 8S/74.

5 GATT document BOP/R/221, 1 December 1994.

6 WT/BOP/R/22, para.15.

7 Ibid.

8 WT/BOP/N/24, Annex I, Part B.