6 April 1999
India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products
Report of the Panel
2. Burden of Proof
- The United States considered that it was up to India to provide evidence that it met all the provisions of XVIII:B and that the only burden on the United States to sustain its complaint under Article XVIII:11 was that there was no balance-of-payments justification for the measures maintained. In the view of the United States, a party invoking the balance-of-payments exception of Article XVIII:9 had the burden of establishing that the requirements of this exception were fulfilled. The only GATT panel that had examined an Article XVIII:B claim, the 1989 panel on Korea - Beef, had found explicitly that "Article XI:1 did not permit the use of either import restrictions or import prohibitions; exemptions from this general proscription had to be specifically justified under other provisions of the General Agreement."
126 Thus, if India wished to rely on Article XVIII:9 to excuse itself from the general prohibition on quantitative restrictions in Article XI:1, it was up to India to put forward evidence and legal argument sufficient to demonstrate that all the requirements of Article XVIII:9 had been met. If India wished to invoke Article XVIII:B to claim justification of the quantitative restrictions at issue, it must make such a claim as an affirmative defense. To sustain such a defense India would have to put forward evidence and legal argument sufficient to demonstrate inter alia, that its import restrictions did not "exceed those necessary" to "forestall the threat of, or to stop, a serious decline in its monetary reserves" or (if India’s monetary reserves were in fact inadequate) to "achieve a reasonable rate of increase in its reserves".
- The United States requested the Panel to make a finding that India had not furnished factual material that met India's burden of proof.
India cited the WTO dispute on United States - Measure Affecting Imports of Wool Shirts and Blouses from India (Wool Shirts), in which India had argued that the United States, as the party invoking Article 6 of the Agreement on Textiles and Clothing ("ATC"), had to prove that its safeguard action was consistent with Article 6 because the provision was an exception from the general prohibition of import restrictions contained in Article XI of the GATT. The United States had opposed India’s contention, arguing that it constituted nothing but "a blatant attempt to effectively amend the GATT 1994 and other WTO agreements through litigation". The Appellate Body had ruled in favour of the United States on the issue as follows:
The transitional safeguard mechanism provided in Article 6 of the ATC is a fundamental part of the rights and obligations of WTO Members . . . .Consequently, a party claiming a violation of a provision of the WTO Agreement by another Member must assert and prove its claim. In this case, India claimed a violation by the United States of Article 6 of the ATC. We agree with the Panel that it, therefore, was up to India to put forward evidence and legal argument sufficient to demonstrate that the transitional safeguard action by the United States was inconsistent with the obligations assumed by the United States under Articles 2 and 6 of the ATC. 127
- In India's view, the United States could not claim in these proceedings that the principle it defended so vigorously in the Wool Shirts case did not extend to GATT balance-of-payments provisions. The distribution of the burden of proof could not be different when Article 6 of the ATC was invoked by developed country Members than when Article XVIII:B of GATT 1994 was invoked by developing country Members. India’s point was that the burden of proof issues in the Wool Shirts case and the present case were the same and that the principle applied by the Appellate Body in Wool Shirts should govern the Panel’s consideration of the present case.
- In response to India's arguments based on the Wool Shirts case, the United States stated that Articles XX and XVIII:B were similar in that both constituted affirmative defences to a general prohibition on quantitative restrictions in Article XI:1. As the Appellate Body had pointed out in the Wool Shirts case, a Member relying on Article XX or Article XI:(2)(c)(i) as a basis for not complying with its obligations under Article XI:1 bore the burden of establishing that its non-compliance was justified under those Articles. 128 A quantitative restriction sought to be justified under Article XVIII:B was a quantitative restriction that "deviate[s] temporarily" 129 from the requirements of Article XI:1 and that -- apart from the affirmative defense provided by Article XVIII:B -- would otherwise be in violation of Article XI:1. Article 6 of the Agreement on Textiles and Clothing ("ATC") was negotiated as a integral part of the carefully drawn balance of rights and obligations contained in that agreement. As a result, the Appellate Body held that with respect to Article 6 of the ATC, the burden of proof rested with the Member alleging a violation of that Article. 130
India recalled that the Appellate Body had noted that Article 6 was "carefully negotiated language . . . which reflects an equally carefully drawn balance of rights and obligations of Members . . ." and "that balance must be respected". 131 India noted further that the provisions of the GATT permitting a WTO Member to impose import restrictions to safeguard its external financial position were a fundamental part of the rights and obligations of WTO Members. They contained carefully negotiated language reflecting a carefully drawn balance of rights and obligations of Members, and that balance must also be respected. India contended that the ruling of the Appellate Body on Section 6 of the ATC which permits import restrictions to safeguard the textiles industry applied equally to the provisions of Article XVIII:B which permit import restrictions to safeguard the external financial position of developing country Members.
- India argued that the United States must assert and demonstrate that India's plan was inconsistent with India's obligations under Article XVIII:11 of the GATT. Article XVIII:B itself clarified on whom the burden should be cast. The Committee had never made a finding that India's import restrictions were inconsistent with Article XVIII:B or that India's import restrictions did not have any justification under Article XVIII:B. In this situation, the special dispute settlement provisions set out in Article XVIII:12(d) provided that a Member could bring a complaint only if it "can establish a prima facie case that the restrictions are inconsistent" with Article XVIII:B. India saw no reason to distribute the burden differently under the general dispute settlement provisions of Article XXIII. For India, the burden of proof was an academic issue in light of Article XVIII:12(d) which specifically placed the burden of establishing a prima facie case on the complainant. India's import restrictions were consistent with Article XVIII:B until the General Council found otherwise. The only way for the United States to meet its burden of proof was to demonstrate that the General Council did so. According to Article XVIII:11 and the note thereto, India could progressively relax its import restrictions as long as their sudden removal would not jeopardize its external financial position within the framework of its existing policies. The United States had provided no evidence that these conditions were met. In India's view, the IMF statement did not support the United States' position because the elimination of import restrictions "within a relatively short time-period" according to the IMF would only be possible if India were to change simultaneously its macro-economic policies, which India was clearly not obliged to do given the proviso in Article XVIII:11. Nor did the competence of the IMF extend to all matters required to be taken into account by the Committee.
- Therefore, the Panel should reject the United States’ assertion that India bore the burden of proving that its import restrictions were consistent with Article XVIII:B.
- As far as the United States was concerned, whether India or the United States had the burden of proof was, in this case, a moot point; the facts conclusively established that India did not meet the requirements for continuing to maintain the challenged measures. The International Monetary Fund had found and determined that India’s monetary reserves were not only adequate but "comfortable", and had found that India was not faced with a threat of serious decline in its monetary reserves. Under Article XV:2, these findings must be accepted by the Panel. It followed that India’s quantitative restrictions on imports were not "necessary" to achieve a reasonable rate of increase in India’s reserves. Therefore India legally could not demonstrate its conformity with the conditions for invocation of Article XVIII, and India’s import restrictions were not excused from the prohibition on import restrictions in Article XI:1.
- The United States requested the Panel to make an alternative conditional finding that even if the burden of proof were on the United States to make a prima facie case that India no longer had any justification for maintaining these measures under Article XVIII:B, the United States would have met this burden.
- India noted that the United States had claimed, as a matter of law, it did not have to prove that the removal of India's restrictions would not produce conditions justifying the reintroduction of import restrictions as required by the interpretative note Ad Article XVIII:11. According to the United States, this was because an analysis of the ordinary meaning of the Article XVIII:11, the note to Article XVIII:11, and Article XVIII:9, read in their context and in the light of the object and purpose of Article XVIII:B showed that the note to Article XVIII:11 imposed no requirements apart from those already contained in paragraphs (a) and (b) of the proviso to Article XVIII:9. India maintained, however, that the United States was required, as a matter of law, to establish a prime facie case that India's balance-of-payments and monetary reserves situation would not be adversely affected by the removal of its restrictions in a manner that might require it to reintroduce import restrictions under Article XVIII:B.
- India contended that this interpretation accorded by the United States to the second sentence of Article XVIII:11 and the interpretative note was fundamentally inconsistent with the customary rules of treaty interpretation contained in Article 31 of the Vienna Convention on the Law of Treaties. The context of the term "conditions" in the second sentence of Article XVIII:11 were intended to refer both to the limitations contained in Article XVIII:9 and the condition relating to equilibrium in its balance of payments on a sound and lasting basis referred to in the first sentence of Article XVIII:11. This approach to interpreting the term "conditions" was consistent with Article XVIII:9 which provided that a Member might impose import restrictions in order to safeguard its balance of payments. In addition, it was also consistent with the overall object and purpose of Article XVIII:B as set forth in Article XVIII:2, i.e., to facilitate the economic development of less-developed country Members.
- India argued that both the Committee and the panel in "Korea Beef" took exactly the same approach to interpretation of the requirement of the second sentence of Article XVIII:11 "when conditions no longer justify such maintenance". Thus, the report of the panel recorded that:
"At the full consultation in the Balance-of-Payments Committee with Korea in November 1987, "[t]he prevailing view expressed in the Committee was that the current situation and outlook for the balance of payments was such that import restrictions could no longer be justified under Article XVIII:B"."
According to the Korea Beef panel, therefore, the term "conditions" referred not only to (i) the monetary reserves situation, and (ii) the balance-of-payments situation, but also to (iii) other economic indicators. The requirements of the Note Ad Article XVIII:11 were not at issue in "Korea Beef". The note to Article XVIII:11 made it clear that the requirement of removal of the import restrictions also requires a determination that "the removal of the import restrictions themselves would not lead to a fresh threat to its reserves or balance of payments situation". However, subparagraphs (a) and (b) of the proviso to Article XVIII:9 plainly contemplate threats or conditions that pre-exist and are independent of the institution of import restrictions. Based on the above analysis, India considered that the United States was required to advance evidence proving each of the following:
- Under the second sentence of Article XVIII:11, India's balance-of-payments situation no longer justifies the maintenance of import restrictions.
- Under Article XVIII:9(a), India's monetary reserves currently do not face a serious decline or a threat of one at least in the medium term. Unlike in the case of Article XII:2(a), even a medium term threat is sufficient in the case of Article XVIII:9(a) because the latter omits the word "imminent".
- Under Article XVIII:9(b), India's monetary reserves are not inadequate in relation to its programme of economic development.
- Under Article XVIII:11, the immediate elimination of India's import restrictions will not produce conditions requiring it to institute import restrictions again under Article XVIII:9.
- Based on the Appellate Body rulings in Wool Shirts and again in EC Hormones, in order to make a prime facie case, the complaining party must adduce evidence (as well as arguments) that would require the Panel to rule, as a matter of law, in its favour. 132 In this case, this meant that the United States must adduce evidence that would require the Panel to conclude that India's balance of payments and reserves situation did not meet each of the criteria set forth above. India considered that the evidence submitted by the United States, as a matter of law, could not discharge its burden of meeting the above four legal criteria in Article XVIII:11 to prove that India's balance of payments and reserves situation no longer entitled India to maintain import restrictions in accordance with its time-schedule.
- India added that this evidence must be sufficient to overcome three presumptions in favour of India's residual import restrictions arising out of the text of Article XVIII:B:
First, Article XVIII:8 presumes that less-developed country Members "tend, when they are in rapid process of development, to face balance of payments difficulties…."
Second, Article XVIII:12(f) required the CONTRACTING PARTIES to take into account the factors referred to in Article XVIII:2 which includes the presumption that (I) the import restrictions of a less-developed country Member invoking Article XVIII:B "may be necessary… in order to implement programmes and policies of economic development designed to raise the general standard of living of [its] people and that such [import restrictions] are justified insofar as they facilitate the achievement of the objectives of the [GATT 1994]" and (ii) the less-developed country Member invoking Article XVIII:B "should enjoy additional facilities to enable them… to apply [import] 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."
Third, Article XVIII:12(b) placed an affirmative obligation on the CONTRACTING PARTIES to review its import restrictions during consultation and, under Article XVIII:12(c), to inform a Member it its import restrictions were inconsistent with Article XVIII:B and advise or recommend how to bring its import restrictions into conformity with Article XVIII:B. In the case of India, the Committee's Report on Consultations with India reflected that the CONTRACTING PARTIES had, in fact, held these consultations and that they had not concluded that India's import restrictions lacked justification under Article XVIII:11. This raised a presumption that India's import restrictions were consistent with Article XVIII:11.
India submitted that the evidence adduced by the United States could not overcome these presumptions in India's favour.
- The United States did not agree that India had correctly described what needed to be shown. For the United States,
ticle XVIII:9, Article XVIII:11 and the Note Ad Article XVIII:11 set out the relevant issues. The United States considered that the evidence it had presented addressed the four points made by India in paragraph 3.149. The IMF determinations addressed each of those points. For example, the IMF's determinations clearly included a consideration of the medium term. Both the IMF and the Reserve Bank of India were well-informed about India's development program, and their views that reserves were adequate and not under threat of serious decline must be understood to include a consideration of that program. However, if the Panel did not agree that the IMF's statements were sufficient with respect to the factual question of whether India had balance-of-payments difficulties within the meaning of Article XVIII:B, the United States requested a conditional alternative finding that the additional evidence the United States had presented corroborated the IMF's determinations. It made this request in light of a possible appeal of the Article XV:2 issue.
3. Article XVIII:9, XVIII:11 and the Note Ad Article XVIII:11
- The United States claimed that India had no balance-of-payments justification under Article XVIII:B for the maintenance of import restrictions and India was required to remove the measures at issue based on an analysis of the relevant text of Article XVIII:B.
- The United States recalled that the basis for invocation of Article XVIII:B was Article XVIII:4 of the GATT: "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 [the GATT] as provided in [Article XVIII:B]." Thus, Article XVIII:B was a narrow and temporary exception to the general prohibition on quantitative restrictions in Article XI:1. The Appellate Body had recognized the exceptional nature of Article XVIII, finding that "certain provisions of the GATT 1994, such as Articles XII, XIV, XV and XVIII, permit a WTO Member, in certain specified circumstances relating to exchange matters and/or balance of payments, to be excused from certain of its obligations under the GATT 1994." 134 The temporary nature of the Article XVIII:9 exception was demonstrated by the large number of disinvocations of Article XVIII:B which had taken place in recent years. 135 This exception allowed WTO members to impose such measures on a temporary basis, in a very limited set of circumstances. It did not provide carte blanche for India to continue fifty years of protectionist import restrictions particularly after the IMF had determined that India has "no threat of a serious decline in its monetary reserves".
- The United States recalled the provisions of Article XVIII:9:
... 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. 136
The proviso in Article XVIII:9 made clear that any measures taken for balance-of-payments reasons must meet two tests. The first test was that there must be balance-of-payments difficulties that fall within the requirements of subparagraph (a) or subparagraph (b). That is, there must be a serious decline in reserves; or the threat of a serious decline in reserves; or inadequate monetary reserves that were increasing at less than a reasonable rate. The second test was that the balance-of-payments measure must be "necessary" to meet the particular balance-of-payments difficulties that the Member concerned was facing.
- The United States contended that Article XVIII:B did not give India the right to "phase out" its quantitative restrictions beyond the time when its balance-of-payments difficulties had ended. Article XVIII:11 allowed for progressive relaxation of balance-of-payments measures as the balance-of-payments situation improved; but this progressive relaxation was required to take place only during the period when the conditions of Article XVIII:9 were still met, not afterwards. The concept of a "phase out" after that period was entirely absent from Article XVIII:B. Article XVIII:11 provided that:
"[The contracting party concerned] 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. 137
- The text of Article XVIII:11 closely paralleled that used in Article XII:2(b) for developed countries. The term "phase-out" appeared nowhere in the text of either provision. Once there was no balance-of-payments justification for restrictions, they must be "eliminated." The "progressive relaxation" provided under Article XVIII:11 and Article XII:2(b) was for those measures which were still justified by balance-of-payments needs.
The Note Ad Article XVIII:11 (the "Ad Note") stated:
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. 138
- The United States contended that this Ad Note was explicitly tied to the requirements of Article XVIII:9 .
- In the view of the United States, the text of Article XVIII:9, 11 and the Ad Note confirmed that India must remove its quantitative restrictions based on a balance-of-payments justification when that justification no longer existed. The phrases "shall not exceed" in paragraph 9 and "shall eliminate them when conditions no longer justify such maintenance" in paragraph 11 must be read together since "such maintenance" referred to the words "maintaining them only to the extent necessary under the terms of paragraph 9". Similarly, paragraphs 9 and 11 must be read with the Ad Note, which provided instruction on how these two paragraphs should not be interpreted. The Ad Note would not require the immediate removal or elimination of restrictions if such relaxation would cause conditions set forth in paragraph 9, i.e., either a threat or an actual serious decline in monetary reserves, or prevent a contracting party with inadequate reserves from achieving a reasonable rate of increase in its reserves. These three provisions of Article XVIII:B stated an absolute obligation on the part of India to correlate its measures to its reserve position: if its reserve situation met either subparagraph (a) or (b) of the proviso in paragraph 9 and quantitative restrictions were necessary to address that situation, then India might institute and maintain quantitative restrictions. But even in such a case, India might institute and maintain such quantitative restrictions only to the extent that they were necessary to meet subparagraph (a) or (b) of the proviso. Whenever India’s reserve situation was not in one of the situations described in subparagraph (a) or (b) of the proviso to paragraph 9, then quantitative restrictions could not be "necessary" to address the situation.
To continue with Article XVIII:9, XVIII:11 and the Note Ad Article XVIII:11
126 L/6503, adopted on 7 November 1989, BISD 36S/268, 301, Op. Cit., para. 112. See also Appellate Body Report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, Op. Cit., p. 16 ("Articles XX and XI:(2)(c)(i) are limited exceptions from obligations under certain other provisions of the GATT 1994, not positive rules establishing obligations in themselves. They are in the nature of affirmative defences. It is only reasonable that the burden of establishing such a defence should rest on the party asserting it."); United States - Section 337 of the Tariff Act of 1930, BISD 36S/345, adopted November 7, 1989, para. 5.9 ("Article XX(d) thus provides for a limited and conditional exception from obligations under other provisions."); United States - Prohibition on Imports of Tuna and Tuna Products from Canada, BISD 29S/91, adopted February 22, 1982, para. 4.8; United States – Restrictions on Imports of Tuna, BISD 39S/197, para. 5.22 ("previous panels had established that Article XX was a limited and conditional exception from obligations under other provisions of the General Agreement, and not a rule establishing obligations in itself. Therefore, the practice of panels has been to interpret Article XX narrowly . . . ."); Canada - Administration of the Foreign Investment Review Act, L/5504, adopted on 7 February 1984, BISD 30S/140, 164, para. 5.20; Japan - Restrictions on Imports of Certain Agricultural Products, L/6253, adopted 2 February 1988, BISD35S/163, 227, para. 220.127.116.11.
127 Appellate Body report on United States – Measure Affecting Imports of Wool Shirts and Blouses from India, (hereafter Wool Shirts), WT/DS33/AB/R, 25 April 1997, p. 16
128 WT/DS33/AB/R, Op. Cit. p. 16.
129 Article XVIII:4(a).
130 WT/DS33/AB/R, Op. Cit. p. 16.
131 Ibid., p. 16.
132 WT/DS33/AB/R, p. 14; also Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, para. 104.
133 Article 31(1) of the Vienna Convention on the Law of Treaties (the "Vienna Convention") provides that "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."
134 Appellate Body Report on Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, AB-1998-1, WT/DS56/AB/R, para. 73 (emphasis added).
135 The Analytical Index/Guide to GATT Law and Practice (1995 ed.) lists disinvocations by Argentina, Brazil, Colombia, Ghana, Greece, Korea, Peru and Portugal (p. 395) and Spain (p. 431). In addition, since 1995 Egypt, Turkey and the Philippines have disinvoked Article XVIII and Israel and South Africa (which did not specify whether they consulted under Article XII or XVIII) have also disinvoked the GATT balance-of-payments provisions.
136 Article XVIII:9 (emphasis added).
137 Article XVIII:11 (emphasis added).
138 Note Ad Article XVIII:11 (emphasis added).