6 April 1999
India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products
Report of the Panel
C. Article 4.2 of the WTO Agreement on Agriculture
- The United States claimed that the quantitative restrictions or prohibitions at issue violate Article 4.2 of the WTO Agreement on Agriculture.
- The United States stated that, of the 2,714 HS lines listed as subject to quantitative restrictions in Annex II, Part B of India’s 1997 notification of quantitative restrictions, 710 (26%) were products covered by the Agreement on Agriculture.
76 Since processed food, fresh fruits and vegetables, coffee, poultry, and many other agricultural products were "consumption goods which could directly satisfy human needs without further processing", India’s ban on imports of consumer goods also served as a form of agricultural protectionism During the negotiation of the WTO Agreement on Agriculture, the participants in the Uruguay Round of multilateral trade negotiations agreed to eliminate their non-tariff barriers to trade in agricultural products and to replace them by tariffs, which would be subject to reduction over time. To safeguard this achievement, Article 4.2 of the Agreement on Agriculture provided that "[m]embers shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties ... ". Footnote 1 to Article 4.2 clarified that "These measures include quantitative import restrictions . . . discretionary import licensing, non-tariff measures maintained through state-trading enterprises . . . and similar border measures other than ordinary customs duties, whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement." Since the IMF had conclusively found that there was no balance-of-payments necessity for these import restrictions, with respect to these items, India was in violation of its obligations under Article 4.2. With respect to nullification and impairment, the United States considered that the points made in Section 3 above, applied equally to the Agreement on Agriculture.
- India referred to the note to Article 4:2 which stated that:
"These measures include import restrictions,..., whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement."
This note thus made it clear that Article 4:2 did not extend to measures maintained under the balance-of-payments provisions. The question of the consistency of India’s import restrictions with Article 4:2 of the Agreement on Agriculture thus depended on their consistency with Article XVIII:B of the GATT, and the legal status of India’s import restrictions under the Agreement on Agriculture was consequently identical to that under the GATT. India’s claim that its import restrictions were consistent with Article XVIII:B should therefore be understood by the Panel as including the claim that they were consistent with the Agreement on Agriculture.
D. Article XVIII:B
1. Competence of the Panel
- India claimed that the Committee and the General Council have the exclusive authority to determine whether a time-schedule for the removal of import restrictions is consistent with Article XVIII:11 of the GATT. India argued that:
- according to Articles XV:2 and XVIII:12 of the GATT and paragraphs 5-13 of the 1994 Understanding the final decision on the justification of import restrictions rests with the Committee and the General Council;
- Articles 3:2 and 11 of the DSU do not permit panels to reach the final decision on the legal status of a time-schedule for the removal of import restrictions;
- the footnote to the 1994 Understanding, by its express terms, limits the right to invoke the dispute settlement procedures to mattes arising from the application of import restrictions and does not modify a Member's right to a determination of the justification of its import restrictions in accordance with the provisions of Article XVIII:B;
- the terms of the footnote to the 1994 Understanding and the identical terms in the Understanding on Article XXIV are designed to settle long-standing controversies on the relationship between the special review procedures of Articles XVIII:B and XXIV and the general dispute settlement procedures under Article XXIII; and
- decision-making authority deliberately assigned to WTO bodies composed of Members cannot be reassigned to the dispute settlement process without understanding the proper functioning of the WTO legal system."
(a) The relationship between Article XVIII:B and Article XXIII
- India argued that according to Articles XV:2 and XVIII:B of the GATT and the 1994 Understanding, the main steps in the procedures for the examination of balance-of-payments measures are the following:
- A Member introducing or intensifying import restrictions for balance-of-payments purposes shall promptly notify them to the WTO.
- The import restrictions notified are subject to consultation in the Committee. 78
- The Committee consults with the IMF on the financial aspects of the consultations and accepts the determination of the IMF on those aspects. 79
- The Committee reports on its consultations to the General Council of the WTO. 80
- If the Committee and the General Council find the import restrictions to be inconsistent with Article XVIII:B they "shall indicate the nature of the inconsistency and may advise that the restrictions be suitably modified", and if the inconsistency is of a serious nature, they shall "so inform the Member applying the restrictions" and make "appropriate recommendations for securing conformity with such provisions within a specified period".81
According to India, these rules and procedures left no room for doubt that import restrictions maintained for balance-of-payments purposes do not require the affirmative approval of the General Council and that a Member having duly notified its import restrictions under Article XVIII:B may maintain them until the General Council advises the Member of the need to modify them or until the end of the period for their removal specified by the General Council.
- India added that this conclusion was confirmed by the fact that the United States proposed in 1954 to amend the GATT's balance-of-payments provisions to require the affirmative approval of import restrictions by the CONTRACTING PARTIES. According to this proposal, Article XII of the GATT would have been redrafted as follows:
- Notwithstanding the provisions of paragraph 1 of Article XI, any contracting party may restrict the quantity or value of merchandise permitted to be imported, to the extent necessary to safeguard its external financial position and balance of payments, subject to the provisions of the following paragraphs of this Article.
- (a) Subject to sub-paragraph (b) of this paragraph, no contracting party may maintain, institute, or intensify restrictions under this Article without the approval of the CONTRACTING PARTIES.
(b) Any party maintaining such restrictions on [effective date] shall immediately consult with the CONTRACTING PARTIES with a view to obtaining approval for their continuation….82
However, India pointed out that the Working Party which examined the United States' proposal concluded that it would not find general acceptance 83 and it was therefore rejected. Accordingly, the United States was effectively requesting the Panel to do what it failed to get incorporated in the balance of payments disciplines of the GATT. The United States had argued before the Panel that a Member must be found to have violated Article XVIII:B unless it succeeds in demonstrating the consistency of its import restrictions with that provision. But, by arguing that the examination of the conformity of the import restrictions can be moved from the Committee and the General Council to a panel and that the burden of proof falls on the Member invoking the balance-of-payments provisions, the United States was effectively attempting to force Members resorting to Article XVIII:B to obtain the approval of their import restrictions by a panel. India summarized its views on this issue in the terms used by the United States in the Wool Shirts case: the Panel should reject the United States' argumentation as "a blatant attempt to effectively amend the GATT 1994 and other WTO agreements through litigation"."
- India also contended that the legal claims made by the United States were not founded on the principles of interpretation of the Vienna Convention on the Law of Treaties (1969) (hereafter "Vienna Convention") applied by the Appellate Body, that is on the terms of the GATT and the Understanding on the Balance-of-Payments Provisions of the GATT 1994, (hereafter "1994 Understanding") as interpreted in their context and in the light of their objectives. The claims were also inconsistent with the principle set out in Article XVI:1 of the Marrakesh Agreement Establishing the World Trade Organization (hereafter "WTO Agreement"), according to which the Panel "shall be guided by the decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947 and the bodies established in the framework of the GATT 1947." India argued that acceptance of the arguments of the United States would result in making whole paragraphs of Article XVIII:B and whole sections of the 1994 Understanding redundant, altering fundamentally the negotiated balance reflected in the text of Article XVIII:B and the 1994 Understanding. It would also be a serious deviation from practices consistently followed under the GATT 1947 and result in transferring without any basis the authority to determine the legal status of import restrictions from the Committee and the General Council to the IMF and panels. Moreover, acceptance of the arguments of the United States had serious systemic implications with respect to such highly controversial matters as the question of the proper forum for determining the consistency of regional trade agreements with Article XXIV.
- According to India, Article XVIII:B and the 1994 Understanding stipulated that the final decision on the legal status of import restrictions notified under Article XVIII:B was to be made by the General Council upon a recommendation by the Committee. It was that final decision which determined the legal status of the import restrictions under the GATT and consequently the rights and obligations between Members in respect of such import restrictions. In India's view, according to Article XVIII:B, balance of payments restrictions did not require the affirmative approval of the General Council; a Member having duly notified its import restrictions under Article XVIII:B might maintain them until the General Council advised the Member of the need to modify them or until the end of the period for their removal specified by the General Council. The request by the United States to rule that the import restrictions maintained by India under Article XVIII:B were inconsistent with India’s obligations was therefore essentially a request that the Panel disapprove the import restrictions and thereby render them illegal. India considered that a panel could not make such a determination because it would be beyond its competence.
- India referred to Article 11 of the DSU which stated that the Panel must make "an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements" and, according to Article 3:2 of the DSU, the Panel "cannot add to or diminish the rights and obligations provided in the covered agreements". The Panel would have to determine the legality of the import restrictions under India’s obligations as of the date on which the United States submitted this request, i.e., before the Committee had made a recommendation on India’s time schedule for the removal of its import restrictions. Accordingly, the Panel could not determine that they were illegal by substituting its own ruling for the final decision referred to in Articles XV:2 and XVIII:12.
- India cited numerous provisions in the WTO agreements that assigned the task of determining the legal status of a measure to WTO bodies other than panels:
The task of determining whether a subsidy notified as a non-actionable subsidy under Article 8.3 of the Agreement on Subsidies and Countervailing Measures met the criteria under Article 8.4 and 8.5 of that Agreement had been to the Committee on Subsidies and Countervailing Measures and a special arbitration body. A finding of the Committee or the arbitration body was binding on all Members and should therefore also determine for panels whether or not a subsidy was actionable. If a panel were to reverse or pre-empt such a finding in the normal dispute settlement procedures, it would arrogate to itself the competence of the Committee or arbitration body.
The task of determining whether a Member had a principal supplying interest within the meaning of the provisions for the renegotiation of tariffs had been assigned to the General Council in Article XXVIII:1 of the GATT. The decision of the General Council - or the failure of the General Council to take a decision on the principal supplier status of a Member – could not be reversed by a panel. 84
According to Article V of the General Agreement on Trade in Service ("GATS") Members could enter into a regional economic integration agreement. Such an agreement must be notified. The Council on Trade in Services could establish a working party to examine such an agreement and, based on the report of the working party, "the Council may make recommendations to the parties as it deems appropriate". 85 These procedures were also designed to determine the legal status of such agreements in relation to all Members on the basis of the evaluation of a body composed of the representatives of the Members.
- For India, the decision of the drafters of the WTO agreements to submit the determination of the legal status of certain measures to separate procedures and bodies specifically established for that purpose furthered the objectives of the WTO. This was because issues such as the determination of the legal status of a subsidy notified as non-actionable should be made definitively and in a manner binding for all Members by a body with expertise in that field, whose decisions should not be challengeable in disputes between two Members. Similarly, the determination as to whether a free trade area or a customs union agreement met the criteria of Article XXIV of the GATT or Article V of the GATS required a broad economic and political assessment that was best made by the representatives of the Members meeting in the Committee on Regional Trade Agreements. India believed it would be inappropriate for panels to conduct that evaluation, and the only two GATT panels that had been asked to examine such agreements in the light of Article XXIV had both refused to conduct such an evaluation. 86 The decision on whether or not to approve import restrictions notified under the balance-of-payments provisions of the GATT or a time-schedule for the removal of such import restrictions was not a technical, legal matter that could reasonably be resolved through judicial fiat. The Members had agreed on provisions that assigned the task of determining the legal status of a range of politically delicate matters to specialized bodies acting under particular procedures. These provisions reflected an assessment of the WTO membership that such matters should not be decided by panels settling a dispute between two Members, and that assessment must be respected by panels.
- According to India, if the arguments of the United States in the present case were to be accepted, it would lead to panels resolving all matters arising under the WTO agreements. On a correct construction of the provisions of the WTO Agreements, however, not all decisions could be taken by panels. Many decisions on trade policy matters that Members of the WTO took under their domestic law - such as the decision to impose safeguard measures or to grant adjustment assistance - were taken by specialized agencies with broad discretion. Just as the domestic courts respected the competence and discretionary powers of such agencies, so must WTO panels respect the competence and discretionary powers of the specialized bodies established under the WTO agreements. If the legal status of a subsidy, a regional trade agreement or a balance-of-payments restriction had been determined by the competent WTO body, panels could not reverse that determination; if the competent WTO body had not yet made its determination, panels could not step in and pre-empt that determination.
- India further argued that, under the GATT 1947, all decision-making power, including the authority to adopt panel reports, rested with the CONTRACTING PARTIES. There was therefore no reason to fear contradictions between panel rulings and other decisions adopted by the CONTRACTING PARTIES. Under the WTO, however, panels and the Appellate Body made their findings and recommendations independently of the other organs of the WTO. If the competence assigned expressly to bodies composed of representatives of Members were assigned to the dispute settlement process, conflicting decisions could therefore easily arise. In the present case, such an inconsistency could not be excluded. According to Article IV:1 of the WTO Agreement, the General Council "shall have the authority to take decisions on all matters under any of the Multilateral Trade Agreements, if so requested by a Member". If the General Council could not arrive at a consensus, it should decide according to Article IX:1 of the WTO Agreement the matter by a majority of the votes cast. If this were to occur, a conflict between a ruling by the Panel and the determination of the General Council could occur, a conflict which could not but undermine the credibility and acceptability of the WTO legal system. This would be the inevitable consequence of accepting the arguments of the United States in this dispute.
- For India, the complaint of the United States, though formally directed against India, was in substance a complaint about the failure of a WTO body to take a decision sought by the United States. However, just as Members of the WTO could not complain under the procedures of the DSU about the failure of the General Council to grant a waiver or to declare a Member a principal supplier under Article XXVIII, they could not complain about the failure of the General Council to take a decision disapproving import restrictions maintained under Article XVIII:B. The DSU served to settle disputes between Members of the WTO, not between Members of the WTO and the organs of the WTO, and that the United States' attempts to defend its "alternative routes" theory served only to hide the fact that its complaint constitutes in legal terms a complaint about the failure of a WTO body to take a decision along the lines desired by the United States. India, therefore, requested that the Panel should refrain from making its own assessment of the balance-of-payments justification of India's remaining import restrictions, and should take into account the fact that during fifty years no panel had ever decided what the United States had requested of this Panel.
- According to India, there was no legal vacuum if the balance-of-payments justification was determined by bodies composed of Members rather than by panels. For fifty years balance-of-payments measures had been examined by bodies composed of government representatives and not panels. This well-established precedent had served the system well. The consulting country could not prevent a final decision on its import restrictions by the Committee because any issue that was unresolved in the Committee could be submitted to a vote by the General Council. The consensus-making process in the Committee took place in the shadow of a potential vote and had so far always succeeded. The negotiators of the 1994 Understanding rejected the proposal to empower panels to examine the balance-of-payments justification of measures notified under Articles XIII and XVIII. Their assessment was that an examination of these matters by bodies composed of government representatives was consistent with the WTO system. Panels must respect that assessment. India believed that it would not serve the WTO system well if balance-of-payments matters, which raised not only technical but also delicate political matters, were submitted to the rigidities of an adjudication process.
- The United States countered that Members were free to resort to dispute settlement under Article XXIII with respect to any matters relating to Article XVIII:B. This conclusion followed from the text of the WTO Agreement and the decisions taken by and other practice of the GATT 1947 CONTRACTING PARTIES, and was confirmed by the limited available drafting history.
- The United States recalled that the text of neither Article XII nor Article XVIII:B prohibited recourse to dispute settlement under Article XXIII. Nor did the text of Article XXIII contain any such prohibition. In fact, Article XVIII (as a part of the GATT 1994) was among the WTO Provisions that had been made subject to the DSU as set forth in Appendix I to the DSU and for which no special and additional provisions were found in Appendix 2 of the DSU. Article 1 of the DSU provided that the DSU's normal rules were to apply with respect to all disputes brought under the consultation and dispute settlement provisions of the agreements listed in Appendix 1, subject only to the "special and additional" provisions listed in Appendix 2 to the DSU. Appendix 1 listed the Multilateral Trade Agreements on Goods, which includes GATT 1994; however, the DSU's drafters, including India, did not provide the broad carve-out from dispute settlement that India now asserted existed. To the knowledge of the United States, no carve-out for BOP measures had even been discussed – let alone agreed – during the dispute settlement negotiations of the Uruguay Round. Quite the reverse was true: Footnote 1 to the 1994 Understanding confirmed the right of recourse to Article XXIII, and Appendix 2 of the DSU explicitly did not list consultations under Article XVIII:12 as a special or additional rule.
To continue with The relationship between Article XVIII:B and Article XXIII
76 The product scope of the Agreement on Agriculture is defined by Annex 1 thereof.
77 Paragraph 3 of the 1979 Declaration and paragraph 9 of the 1994 Understanding.
78 Paragraph 5 of the 1994 Understanding.
79 Article XV:2.
80 Paragraph 13 of the 1994 Understanding.
81 Article XVIII:12 (c)(i) and (ii).
82 GATT 1947 document W.9/73, dated 6 December 1954 (emphasis added).
83 BISD 3/171.
84 India referred to the 1992 request by Argentina for the establishment of a panel to determine its principal supplying interest in respect of soybean exports to the EC. The EC responded by stating that "Argentina's recourse to the dispute settlement mechanism in this case was inappropriate and improper" since this was not a dispute between Argentina and the EC but between Argentina and the CONTRACTING PARTIES (C/M/260, page 28). The panel was not established.
85 Article V:7(c) of the GATS.
86 India referred to: Panel Report on European Community - Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, hereafter EC-Citrus), GATT document L/5776, page 81 (circulated on 7 February 1985, not adopted); report of the Panel on EEC - Member States’ Import Regimes for Bananas, (hereafter Bananas I), GATT document DS32/R, pages 80-82 (circulated on 3 June 1993, not adopted).