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World Trade
Organization

WT/DS90/R
6 April 1999
(99-1329)
Original: English

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

Report of the Panel

(Continued)


    (a) Import licensing as an import restriction

  1. The United States noted that the measures that were the subject of this dispute were "restrictions other than duties, taxes or charges" as defined in Article XI:1. It pointed out that the GATT had on many occasions recognized that discretionary or non-automatic import licensing constituted a quantitative restriction on trade under Article XI:1. Under the WTO, the panel on "EC - - Regime for the Importation, Sale and Distribution of Bananas" recognized that "Past GATT panel reports support giving the term �restriction� [in Article XI:1] an expansive interpretation." 28
  2. The United States claimed that an early precedent had appeared in the 1950 Working Party Report on a "Notification by Haiti under Article XVIII." The text of Article XVIII:12 as it existed in 1950 permitted a contracting party to maintain certain protective measures which would not otherwise be permitted by the GATT, if the GATT CONTRACTING PARTIES examined the measures and concurred with a release. 29 Under this provision, Haiti had notified a law which, inter alia, provided for discretionary import licensing of imports of various tobacco products. The working party found that "in so far as the law establishing the Régie provided that the importation of tobacco, cigars and cigarettes should be subject to licences issued by a government authority and that licences should be issued at the discretion of that authority in the light of market requirements, there was an element of restriction in the measure which was contrary to Article XI of the General Agreement". 30 The CONTRACTING PARTIES then, by a formal decision on 27 November 1950, granted a release from the provisions of Article XI "for the maintenance of the measure in so far as it requires importers to obtain an import permit". 31
  3. The United States further mentioned that in 1950, the CONTRACTING PARTIES examined the application of the GATT to quantitative restrictions used for commercial, protective or bargaining purposes. The resulting report on "The Use of Quantitative Restrictions for Protective and other Commercial Purposes" was approved unanimously by the CONTRACTING PARTIES acting jointly under Article XXV:1. 32 This report refered to import licensing as an import restriction. 33
  4. The United States stated that the 1978 Panel on "EEC - Programme of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables" found that a non-automatic licensing system denying licenses for imports below certain minimum prices was a "restriction" within the meaning of Article XI:1. 34 Similarly, the Panel on "Japan - Trade in Semi-Conductors" examined an export licensing system in the light of Article XI:1, and found that "this wording [of Article XI:1] was comprehensive; it applied to all measures instituted or maintained by a contracting party prohibiting or restricting the importation, exportation or sale for export of products other than measures that take the form of duties, taxes or other charges." 35
  5. The United States considered that the import licensing regime generally applicable for imports of restricted items, or for imports by private firms of canalized imports, was totally discretionary. Both the normal discretionary import licensing regime and the SIL regime were "non-automatic import licensing" as defined under the Agreement on Import Licensing Procedures (import licensing where the approval of the application is not granted in all cases, and/or which is administered in such a manner as to have restricting effects on imports). Approval was not granted in all cases; no licence was accorded by right, nor did the Indian authorities provide any criteria for how licence applications would be evaluated. Furthermore, persons who did not export could not apply for, or be granted, an import licence. The licensing procedures were administered in such a manner as to have restrictive effects on the imports in question. After all, the products in question were subject to these licensing procedures because they were listed on the Negative List of Imports.
  6. (i) Restriction of items through discretionary licensing

  7. The United States recalled that in India�s December 1995 full consultations in the Committee on Balance-of-Payments Restrictions, several Members had specifically requested India to provide a notification explaining the administration of specific restrictions and the criteria for granting import licences. 36 To date India had provided no such notification. When the United States had asked India, during the consultations in this dispute, what criteria were used to evaluate granting a licence for a restricted product, the Indian Government had responded simply that "The applications for import licences under this category are placed before a Special Licensing Committee for consideration. The Committee consists of representatives of technical authorities and administrative Ministries and decides cases on merits." 37 Similarly, India had stated in response to a question from the EC in the Committee on Import Licensing that "The licensing authority may take the assistance and advice of a Special Licensing Committee which is headed by the DGFT and consists of representatives of technical authorities and Department(s) with administrative responsibility for the item under consideration. Applications for the granting of import licences are considered on merit. General rules, where applicable, are prescribed in a Public Notice." 38 In spite of repeated requests to the Indian Government, the United States noted that it had been unable to obtain any concrete information on which types of imports of restricted products the Indian authorities actually considered to have "merit" or what factors the Indian Government actually evaluated to determine whether a licence application had "merit".
  8. For the United States, the Indian Government had also not provided any information on the total amount of licences or total amount of imports that would be authorized in a given future period. In years past, government experts would determine semi-annually the amount of foreign exchange available, and imports would be allocated against that amount. The United States considered that the size of India�s reserves at present, and the fundamental change in the direction of India�s economic, trade and development policy since 1991, had made such an approach obsolete. But the Government�s withholding of any information concerning how many imports it would permit created a continuing commercial uncertainty for all importers and for India�s trading partners.
  9. Thus, according to the United States, the generally applicable import licensing process was a complete black box for the importer and for the foreign exporter. No information was provided on the Government�s sectoral priorities with respect to products or on what its views of "merit" might be. All that the United States knew was that the Indian licensing authority generally refused to grant import licences for "restricted" items when it was considered prejudicial to the state�s interest to do so. 39
  10. The United States added that the broad definition of "consumer goods," and the fact that some goods were only restricted if they were consumer goods, created considerable confusion, commercial uncertainty and distortion of trade. For instance, monosodium glutamate (MSG) did not appear in the Negative List of Imports and was therefore freely importable under the 1992-1997 Export and Import Policy. However, on 1 November 1996 the DGFT issued a clarification that MSG was freely importable only in bulk; if it was put up in consumer packs MSG became a "consumer good" under the Negative List, and all imports were subject to discretionary import licensing. 40 Thus, arbitrarily-chosen characteristics of a product such as its package size could unexpectedly change the import regime applicable to trade in that product. The 1996 study on Liberalisation of Indian Imports of Consumer Durables by the Export-Import Bank of India had noted that the only two commonly-used consumer durable goods that were freely importable were cameras and nail cutters. 41
  11. (ii) Canalization

  12. The United States noted that the import restrictions on canalized products, implemented through canalization, were among those restrictions for which India claimed balance-of-payments justification. In 1996/97, petroleum products accounted for 78% of canalized imports followed by edible oils at 12%. 42
  13. India�s most recent notification concerning state trading noted that "Import of cereals and edible oils was undertaken on the advice of Government from time to time. Government is guided by a number of factors including the balance of payments and domestic production and prices situation." 43 For the United States, this indicated that protection of domestic production was also a strong motive in maintenance of these restrictions, and that these restrictions might amount to outright prohibition of imports in some instances.
  14. Table 1

    Imports of canalized items during 1992-95

    Quantity: 000 tonnes; Value: RS. Crores

    S.I. No.

    Name of item

    1992-1993

    1993-1994

    1994-1995

    Quantity

    Value

    Quantity

    Value

    Quantity

    Value

    1

    Crude oil

    27,247

    10,685.36

    30,822

    10,688.52

    27,319

    10,316.03

    2

    Aviation turbine fuel

    -

    -

    -

    -

    78

    51.31

    3

    Furnace oil

    -

    -

    -

    -

    267

    91.62

    4

    High-speed diesel

    7,159

    3,691.34

    7,535

    4,174.97

    8,637

    4,360.09

    5

    Urea

    1,863

    731.68

    2,755

    824.3

    2,951

    1,546.9

    6.

    Cereals

    a Wheat

    2,599

    n.a.

    476

    n.a.

    -

    -

    b. Rice

    86

    n.a.

    56

    n.a.

    -

    -

    "Note: Even though canalized, no import of motor spirit and bitumen took place during the last three years. The Hundustan Vegetable Oils Corporation Ltd., even though a canalized agency for import of certain oils and oilseeds as indicated in Annex 1, was not authorized to import any of these items during the last three years. Also, since the State Trading Corporation of India (STC), the canalizing agency for import of certain oils and oilseeds, does not deal with any of these canalized items, no information on these items is included in this statement."

    Source: (For table and note: G/STR/N/1/IND, Annex 2. One crore rupees = Rs. 10 million (approx. US$250,000).)

  15. Table 1 above and the notes thereto demonstrated that canalization resulted in zero imports in 1992-95 for the edible oils and oilseeds canalized through the Hindustan Vegetable Oils Corporation, and zero imports of wheat and rice during 1994-95. While India�s notification on state trading (dated January 1996) stated that "The State Trading Corporation of India Ltd., which was a major State Trading Enterprise does no longer deal with any canalized item of import/export", 44 India�s notification of all quantitative restrictions including those operated through canalization (dated June 1997) still asserted that some imports were canalized through the State Trading Corporation, in some cases exclusively. 45 As the United States understood, if the STC was the sole authorized importer of a product, but was not importing (i.e. for palm stearin, excluding crude palm stearin; palm kernel oil; and tallow amines of all types), then no imports were taking place and canalization amounted to an import ban. If the STC and the Hindustan Vegetable Oils Corporation together were the sole authorized importers of a product but did not deal with it or were not authorized to import it (i.e. for coconut oil, RBD palm oil and RBD palm stearin), again no imports were taking place and canalization amounted to an import ban.
  16. While the Director General of Foreign Trade was legally authorized to grant import licences for a canalized product to entities other than the designated state-trading agency, 46 such licences are only granted on the basis of a "No Objection Certificate" issued by the state-trading agency concerned. 47 The United States said it had been informed in consultations by India that from 1 April to 15 September 1997, no such licence was issued to any non-governmental entity. For this reason, although the Special Import Licence regime was in theory available for imports of certain petroleum products canalized through the Indian Oil Corporation Ltd., 48 it did not appear to be actually utilized by non-governmental entities. Special Import Licences were otherwise not available for canalized imports.
  17. The United States argued that the import restrictions maintained by India through "canalization" of imports through state trading ("canalizing") agencies were also "restrictions" within the purview of Article XI:1. As the Note Ad Articles XI, XII, XIII, XIV and XVIII stated, "Throughout Articles XI, XII, XIII, XIV and XVIII, the terms 'import restrictions' or 'export restrictions' include restrictions made effective through state-trading operations."
  18. The United States recalled that it was well-established under the GATT 1947 that import restrictions were no less subject to Article XI:1 because they might be run through state trading. The Haitian import restrictions referred to above were maintained through a tobacco monopoly. 49 As another example, a 1961 working party examined residual import restrictions maintained by Italy; certain items were controlled by state-trading agencies operating under Article XVII. The working party report recorded: "Insofar as the State-trading operation had the effect of restricting imports, the Italian authorities fully recognized that, by virtue of the interpretative notes ad Articles XI, XII, etc. in Annex I to the General Agreement, it constituted an import restriction within the purview of Article XI". 50 In the 1987-88 dispute concerning Japanese import restrictions on various agricultural products, the panel firmly rejected Japan�s argument that Article XI:1 did not apply to import restrictions made effective through state trading:
  19. "The Panel examined this contention and noted the following: Article XI:1 covers restrictions on the importation of any product, �whether made effective through quotas, import ... licences or other measures�. The wording of this provision is comprehensive, thus comprising restrictions made effective through an import monopoly. This is confirmed by the note to Articles XI, XII, XIII, XIV and XVIII, according to which the term �import restrictions� throughout these Articles covers restrictions made effective through state-trading operations. The basic purpose of this note is to extend to state-trading the rules of the General Agreement governing private trade and to ensure that the contracting parties cannot escape their obligations with respect to private trade by establishing state-trading operations. This purpose would be frustrated if import restrictions were considered to be consistent with Article XI:1 only because they were made effective through import monopolies. . . . . The Panel found for these reasons that the import restrictions applied by Japan fell under Article XI independent of whether they were made effective through quotas or through import monopoly operations." 51

  20. The United States noted that the 1988 panel report on "Canada - Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies" had found that practices of Canadian provincial liquor boards systematically discriminating against imported beverages "should be considered as restrictions made effective through �other measures� contrary to the provisions of Article XI:1". 52 Furthermore, in the 1989 panel report on the U.S. complaint concerning "Korea - Restrictions on Imports of Beef," that panel found that the Korean import restrictions, administered through a state-trading entity, violated Article XI:1. 53 Finally, India had conceded that the "canalization" restrictions within the scope of this dispute were "restrictions" within the purview of Article XI:1, by notifying them as balance-of-payments import restrictions in WT/BOP/N/24.
  21. The United States argued that, to the extent that the import licensing or canalization had banned or would ban imports of any product, through the refusal of the DGFT and the relevant licensing authorities to issue licences or through a ban on imports by canalizing agencies, India�s import regime constituted not just a restriction but a prohibition on imports.
  22. (iii) Restrictions of items through special import licensing

  23. The United States contended that the Special Import Licence (SIL) regime was a non-automatic import licensing procedure as well and was equally in violation of Article XI:1. SILs were issued to Indian exporters, who could resell them at a profit to importers. But they could only be used for imports of a few products. SIL-eligible products included only 10% of the HS lines subject to restrictions, and in some cases only selected products within those lines. In the case of SILs, approval of licence applications was not granted in "all cases": only certain exporters might be granted approval for SILs, and only those exporters, or "actual users" to whom the exporters had transferred the SILs, might use them to import designated goods.
  24. The United States referred to the Export-Import Bank of India�s 1996 report on Liberalisation of Indian Imports of Consumer Durables which had shown that very few consumer durables could be imported through SILs; most types of consumer durables produced in India in substantial amounts were excluded from the list and were subject to the generally applicable discretionary import licensing regime (which was a de facto ban on imports, or close to it). For instance, household refrigerators were made in India and could not be imported through SILs; the only refrigerators that could be imported through SILs were those above 300 litres capacity. 54
  25. Estimates of the premium for brokered SILs ranged from 4% to 15%. 55 This premium amounted to a burden the importer must bear in addition to the tariff and, in the view of the United States, indicated that the volume of SILs granted was substantially below the pent-up demand for imports. The Export-Import Bank had found that the major determinant of additions to the SIL list had been maintenance of the resale premium for SILs as an incentive to exporters, not liberalization of consumer goods imports. 56 Even with SILs, imports of consumer durables had been extremely small: the Bank study found that in 1993/94, imports of household refrigerators amounted to only 556 units total; only 34 washing machines were imported, 29 vacuum cleaners, 10 microwave ovens, 100 colour TV sets, 284 motor cars, and 28 two-wheelers, for the entire population of India. 57
  26. The United States noted that access to SILs was also limited in many cases to high-value products, to eliminate any imports that would compete with domestic products. For instance, lipstick (item 330410.00) could be imported under SIL, but only if the c.i.f. value of each unit was US$10 or above. The availability of SILs was also selective by sector. Poultry, fish, almost all dairy products, french-fried potatoes, coffee, pet food, fresh fruit and other such agricultural products were treated as consumer goods ineligible for SIL imports, and thus imports were in effect banned or severely restricted. As of 1 April 1997, approximately 10% of total lines at the HS eight-digit level could be imported through a Special Import Licence; of the total lines eligible for import under SIL, only 14.6% were agricultural products including fisheries, 29.6% were textile and clothing products and 55.8 were other industrial products. 58 Thus, hardly any agricultural products were eligible to be imported under SIL. The severe limits on this programme largely prevented its ostensible benefits from reaching the Indian consumer.
  27. The United States concluded that the SIL regime was trade-restrictive and trade-distorting. The United States considered that SILs were administered in such a manner as to have restricting effects on imports; the quota premium for purchase of SILs (with estimates ranging from 4% to 15%) testified to the trade-restricting effect of the SIL regime. Import licences were conditioned on export performance -- even on targeting of exports toward certain parts of the world. Finally, the SIL regime certainly did not amount to an automatic import licensing procedure for the tariff items importable with SILs.
  28. (iv) The "Actual User" condition

  29. The United States argued that the "Actual User" condition attached to import licences was also a quantitative restriction on imports, and would independently violate Article XI:1 even if the licences in question were otherwise automatic import licences. As noted above (paragraph 3.16), denial of licences for imports below certain minimum import prices constituted an import restriction within the meaning of Article XI:1, and denial of permission to export below minimum export prices constituted an export restriction. Similarly, the "Actual User" condition denied a license for imports by intermediaries. This measure would eliminate most consumer goods imports into India even if those imports were not already subject to a de facto ban. If the "Actual User" condition was not inconsistent with Article XI:1, then any WTO Member -- not just India -- could limit imports by enacting similar provisions in its law.
  30. The United States pointed out that while import intermediaries were treated as normal participants in the economy in all of India�s developed trading partners, and in the United States and the EC such intermediaries had actively developed the market for imports from India, in India the import intermediary was excluded from importing by the government�s import licensing regime. The "Actual User" condition itself constituted a quantitative restriction on imports. The WTO Secretariat had noted that the "Actual User" condition "further impede[s] foreign competition on the Indian market." 59 A 1992 World Bank study on India�s trade regime observed that the "Actual User" policy would prevent most consumer goods imports even if the ban on such imports were lifted. 60
  31. The United States cited the example of newsprint imports which illustrated the real-world impact of the "Actual User" condition imposed on import licences. The Impex Times, a small semi-monthly newspaper specializing in news about India�s import and export regime, was published in New Delhi by a retired Joint Chief Controller of Imports and Exports. Newsprint had been freely importable, but was then brought under control, and import licences were made subject to the "Actual User" restriction. The publisher of this newspaper noted "the difficulties which small actual users have to face in importing for themselves. In the first instance, they do not know the technique of import. Secondly, they do not have the financial resources to import their requirements covering a longer period because import of small quantities at a time is both uneconomical and troublesome. Moreover, it is also uneconomic to store imported quantities in go-downs and pay bank interest." 61

To continue with India


28 Panel Report on EC � Regime for the Importation, Sale and Distribution of Bananas, WT/DS27//R/USA, adopted on 25 September 1997, para. 7.154, citing Panel Report on Japan - Trade in Semiconductors, adopted on 4 May 1988, BISD 35S/116, 153, paras. 104-105; Panel Report on EEC - Programme of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables, adopted on 18 October 1978, BISD 25S/68, 98-100, para. 4.9.

29 BISD I/46, Art. XVIII:12.

30 GATT/CP.5/25, adopted on 27 November 1950, BISD II/87.

31 "Release granted to Haiti under Article XVIII, Paragraph 12 relating to the Import of Tobacco", Decision of 27 November 1950, BISD II/27.

32 GATT document GATT/CP.4/33, adopted on 3 April 1950, republished as "The Use of Quantitative Restrictions for Protective and other Commercial Purposes," Sales No. GATT/1950-3.

33 Ibid., p. 7, paras. 5-7.

34 Panel Report on EEC - Programme of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables, adopted on 18 October 1978, BISD 25S/68, 98-100, para. 4.9.

35 Panel Report on Japan - Trade in Semiconductors, adopted on 4 May 1988, BISD 35S/116, 153, para. 104.

36 WT/BOP/R/11, "Report on the Consultations with India," 23 January 1996, para. 20

37 Handbook paragraph 5.30 states that "The licensing committee will consist of representatives of technical authorities and Departments/Ministries concerned."

38 G/LIC/Q/IND/2, 20 January 1997.

39 In this connection, the United States called attention to "Consultation with India (Simplified Procedures): Background Paper by the Secretariat", GATT Document BOP/W/159, 31 October 1994, para. 8.

40 "Grievances Column: An importer suffers due to lack of transparency in import policy," Impex Times 24 August 1997. The Impex Times is a semimonthly newsmagazine specializing in India�s import licensing policy, published by a retired Joint Chief Controller of Imports and Exports. The article notes the experience of an importer who contracted for imports of MSG in consumer packs, which was shipped before the clarification letter; the import was treated as unauthorized by customs and the importer was fined an amount equivalent to the value of the goods.

41 Export-Import Bank of India, Liberalization of Indian Imports of Consumer Durables, February 1996, p. 16.

42 WT/TPR/S/33, p. 66, para. 65.

43 G/STR/N/1/IND, 31 January 1996, para. 3 (emphasis added)

44 Ibid., p. 9.

45 WT/BOP/N/24, p. 117-118: see indications with respect to symbols "MMTC, STC, IPL/BOP-XVII, XVIII:B", "STC/BOP-XVII, XVIII:B" and "STC, HVOC/BOP-XVII, XVIII:B".

46 Export and Import Policy, Article 4.8.

47 WT/TPR/S/33, p. 66, para. 64.

48 Items 271000.01 (aviation gasoline); 271000.02 and 271000.11 (jet fuel and kerosene jet fuel); ex 271000.39 (furnace oil); 271320.00 (petroleum bitumen) in WT/BOP/N/24 p. 50, where "SIL/IOC/BOP-XVII-XVIII:B" is indicated.

49 BISD II/87, Op. Cit.

50 Report of the Working Party under Article XXII:2 on "Italian Restrictions Affecting Imports from the United States and Certain other Contracting Parties," L/1468, adopted on 16 May 1961, BISD 10S/117, 119, para. 7. The Italian government asserted that the state monopoly on these products was protected by the Protocol of Provisional Application (recognizing that the restrictions were otherwise inconsistent with the GATT).

51 Panel Report on Japan - Restrictions on Imports of Certain Agricultural Products, L/6253, adopted on 22 March 1988, 35S/163, 229, para. 5.2.2.2. For findings applying this rule to individual products see paragraphs 5.3.1.1 and 5.3.9 of the same report.

52 Panel Report on Canada � Import Distribution and Sale of Alcoholic Drinks to Canadian Provincial Marketing Agencies, L/6304, adopted on 22 March 1988, BISD 35S/37, 89, para. 4.24.

53 Panel Report on Korea � Restrictions on Imports of Beef (hereafter � Korea�Beef) L/6503, adopted on 7 November 1989, BISD 36S/268, 301-302, paras. 113, 115.

54 Export-Import Bank of India, Liberalization of Indian Imports of Consumer Durables, Occasional Paper No. 44, February 1996. Refrigerators and refrigerator-freezers: see items 8418210.00-841829.00, in ITC (HS) Classifications and WT/BOP/N/24.

55 In meetings with a U.S. government delegation in New Delhi in 1997, DGFT officials estimated the premium at 8 to 15%. A recent article in the Economic Times estimates the premium at 4% (Ajoy K. Das, "Exporters in jitters over BJP stand on QRs", Economic Times, 9 March 1998). The U.S. Embassy in New Delhi inquired on 30 March 1998 to a local firm which purchases SILs and determined that the rate as of that date was 6 to 8% (6% for larger amounts); the SIL premium rate varies daily in this range.

56 Export-Import Bank of India (1996), Op. Cit. p. 17-18.

57 Ibid., Table 1.3, p. 23 (based on DGCIS Monthly Statistics of the Foreign Trade of India).

58 WT/TPR/S/33, Op. Cit. p 65, para. 63.

59 BOP/W/159, 31 October 1994, para. 8.

60 M. Ataman Aksoy, The Indian Trade Regime, World Bank Policy Research Working Paper No. WPS 989 dated October 1992, p. 8.

61 Impex Times, 10 May 1997, p. 7.