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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)


    (d) Article XXII consultations

  1. India made reference to the Article XXII consultations held subsequent to the impasse in the Committee. Canada, Switzerland, European Communities, Australia, New Zealand and the United States had initiated action against India under the dispute settlement procedures and requested consultations with India. Japan had been a third party in these consultations. During these consultations, India had arrived at a mutually agreed solution with all the Members that had initiated consultations under Article XXII of the GATT except the United States on the basis of a six-year time-schedule for removal of its import restrictions, by suitably front loading some of the products of interest to these Members of the WTO and thereby improving its phase-out plan.
  2. In July 1997, the United States211, Australia212, Canada213, New Zealand214, Switzerland 215 and the European Communities 216 requested consultations with India under Article 4 of the DSU regarding the import restrictions notified under Article XVIII:B. Japan requested to be joined as an interested third party in the consultations with the United States 217 as well as with each of the other Members that requested consultations. India agreed in letters bilaterally exchanged in November 1997 with Australia, Canada, European Communities, Japan, New Zealand, and Switzerland to a time-schedule of six years, divided into three phases covering the periods 1 April 1997 to 31 March 2000, 1 April 2000 to 31 March 2002 and 1 April 2002 to 31 March 2003. Each of the agreements contains a clause according to which "India intends, upon reaching bilateral solutions with the trading partners which have requested consultations under GATT Article XXII, to seek multilateral accommodation for its revised phase out plan" and that the Member concerned "will cooperate with India in this regard". The time-schedule for the removal of India’s remaining import restrictions according to the phase-out plan announced originally, and as further improved through these mutually agreed solutions, is summarized in the following table.
  3. Phase

    Dates

    Number of HS-items to be removed

    Percent of HS-items to be removed

    I

    1 April 1997 to31 March 2000

    1,143

    42

    II

    1 April 2000 to 31 March 2002

    1,147

    43

    III

    1 April 2002 to 31 March 2003

    424

    15

    TOTAL

    2,714

    100

  4. India said that in the consultations preceding the establishment of this Panel as well as subsequent to the establishment of the Panel it had attempted to achieve a settlement with the United States, just as it did with some of its other trading partners, by adjusting the six-year time-schedule in such a way as to front-load a number of products of interest to the United States and by reducing the number of items that would be liberalized in the third phase (i.e. the sixth year) to a minimum. India also pointed out that the United States would also benefit from the mutually agreed solutions India had arrived at with other trading partners. However, the United States insisted on more and more "front-loading" of items of export interest to United States enterprises without clearly indicating the final goal post. During the final stages of bilateral contacts, it became clear to India that the United States, while showing some flexibility by not rejecting outright the idea of a six-year time-schedule, was not agreeing to the actual six-year phase-out plan proposed by India with a structure of 3+2+1 years, even after it was further front-loaded as desired by the United States (i.e. in addition to the front-loading done as a result of mutually agreed solutions with other trading partners, which was obviously available to US also because of MFN principle). India believed that this was because of the United States' assumption that even India’s improved six-year phase-out plan would result in the bulk of the priorities of the United States being liberalized on a longer time-line than what the United States thought it could achieve through dispute settlement. India felt that the United States approach implied that the length of the time-schedule for the removal of import restrictions that had been maintained legally for almost 50 years would be determined by the provisions of the DSU which relate to illegal measures and consequently envisage prompt removal of illegal measures, rather than by the Committee on Balance-of-Payments Restrictions and the General Council. India stated that it could not either agree to or acquiesce with this approach.
  5. India concluded that in the light of the deliberations of the Committee on Balance-of-Payments Restrictions, as well as the agreement that India had reached with those WTO Members who had requested consultations with it under the dispute settlement procedures (other than the United States), the Panel could presume safely that the prevailing view in the Committee on Balance-of-Payments Restrictions would be that India's phase-out plan was consistent with its obligations under Article XVIII:B of the GATT. India also believed that the vast majority of the WTO’s General Council could be expected to approve India’s phase-out plan for removing its import restrictions as required under paragraph 13 of the 1994 Understanding.
  6. The United States argued that India had presented a picture of its consultations with the United States and other Members which was irrelevant and inadmissible in any panel proceeding, outside the terms of reference of this Panel, and factually distorted. The United States considered that all material concerning dispute settlement consultations between India and any other WTO Members—including the United States—should be excluded from the record of the Panel proceedings and should not be used as the basis for the Panel’s findings. The Panel should reject India’s attempts to impose on this Panel and on the dispute settlement process a settlement it alleged to have reached with other Members not part of this dispute.
  7. The United States contended that by citing material concerning the bilateral negotiations that took place between it and Australia, Canada, the EC, Japan, New Zealand and Switzerland regarding India’s import restrictions notified under Article XVIII:B, India had behaved in the same manner as Costa Rica in the dispute concerning restrictions on imports of underwear by the United States. The United States referred to paragraph 7.27 of the Panel report in that dispute:
  8. "Costa Rica submitted to the Panel information concerning the bilateral negotiations that took place between Costa Rica and the United States before and after the imposition of the restriction. More specifically, Costa Rica submitted information relating to settlement offers made by the United States concerning the level of the restriction to be imposed. In this respect, we note that Article 4.6 of the DSU reads as follows:

    ‘Consultations shall be confidential, and without prejudice to the rights of any Member in any further proceedings.’

    "In our view, the wording of Article 4.6 of the DSU makes it clear that offers made in the context of consultations are, in case a mutually agreed solution is not reached, of no legal consequence to the later stages of dispute settlement, as far as the rights of the parties to the dispute are concerned. Consequently, we will not base our findings on such information." 218

  9. The United States considered that India’s attempts to bring in alleged settlements with third parties were also contrary to the basic principle of international law, pacta tertiis nec nocent nec prosunt, which was found in Article 34 of the Vienna Convention on the Law of Treaties: "A treaty does not create either obligations or rights for a third State without its consent." The United States was certain that India would agree with the proposition that a settlement with one WTO Member could not excuse a violation that impaired the rights of another. The alleged phase-out schedules were never agreed with the United States and had never been notified to the Committee on Balance-of-Payments Restrictions. Only three of the five "mutually agreeable solutions" with other countries had even been notified to the DSB; the three notified stated that they were all signed after the date of establishment of this Panel. Indeed, other WTO Members might have decided to settle with India simply because they knew that this Panel had been established and they would be able to benefit from the outcome of the Panel proceeding. However, any speculation about the intentions of third parties—by either India or the United States—remained just speculation which was irrelevant to the task facing the Panel, and should be excluded from the Panel’s deliberations.
  10. In response, India noted that the United States took the position that:
  11. all material concerning dispute settlement consultations between India and any other WTO Members – including the United States – should be excluded from the record of this Panel proceeding and should not be used as the basis for the Panel's finding. The Panel should reject India's attempt to impose on this Panel and the dispute settlement process a settlement it alleges to have reached with other Members not part of this dispute.

  12. The United States then accused India of behaving like Costa Rica in the Underwear case by submitting information on bilateral consultations held in the context of dispute settlement proceedings between the United States and Costa Rica. The United States also accused India of violating the principle that a treaty does not create either obligations or rights for a third State without its consent.
  13. India had submitted information to the Panel on the settlement reached with Australia, Canada, the EC, Japan, New Zealand and Switzerland in the course of bilateral consultations, and not information on the manifestly unsuccessful consultations held with the United States. India had followed the common practice of explaining the background and origin of the dispute and why prior consultations with the United States had failed while other consultations had resulted in agreements. The information submitted by India was relevant to the Panel's examination because it substantiated India's argument that all members of the Committee except the United States had been ready to support the multilateral accommodation of India's time-schedule. 219 Unlike the United States in the Patents case, 220 India was not asking the Panel to endorse an agreement reached with a third Member. India argued that the prevailing view in the Committee created a presumption that its time-schedule was consistent with the requirements of the note to Article XVIII:11.
  14. Recalling that the United States had stated that "India alleges that the objective of the US complaint is simply to shorten to five years a six-year phase-out plan which India agreed to with other countries. This is fundamentally wrong", India wished to clarify that it was the United States' objective that was fundamentally wrong. India noted that, in the context of the balance-of-payments consultations (not the confidential consultations under the DSU), the United States had suggested that a five-year phase-out period would be acceptable. The objective of the United States in the present proceedings appeared to be to confuse the issue by mixing up two different periods, namely, the phase-out period which India was entitled to under Article XVIII:11 for the removal of the import restrictions maintained legally for about 50 years and the time-period foreseen in the DSU for the removal of illegal measures, which was normally 15 months.
  15. 9. Consultations with the International Monetary Fund

    (a) Introduction

  16. Although the United States was of the opinion that the Panel had before it sufficient evidence, if there were any doubts, the Panel should consult with the IMF. The United States claimed that since Article XV:2 required the WTO to consult the IMF, in all cases where the WTO is called on to consider matters concerning monetary reserves, balance of payments or foreign exchange arrangements, the Panel must also do so, and since the WTO must accept the IMF’s findings on the matters specified in Article XV:2, the Panel must also do so. Although Article XV:2 did not mention panels, per se, an interpretation of WTO would include panels. Although the Appellate Body had found in Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items that the dispute did not involve "problems concerning monetary reserves, balance of payments or foreign exchange arrangements", it had found with respect to panel proceedings that Article XV:2 "requires the WTO to consult with the IMF when dealing with 'problems concerning monetary reserves, balance of payments or foreign exchange arrangements" 221 The Appellate Body had also found that the Panel had ample authority to consult with the Fund under Article 13.1 of the DSU, which provides that "Each panel shall have the right to seek information and technical advice from any individual or body which it deems appropriate". 222
  17. India noted that the text of Article XV:2 required Contracting Parties, not the Panel, to accept the determinations of the IMF on specific matters. Under Article XVIII:B, it was the Contracting Parties which must accept the determination of the Fund on certain aspects of the criteria relating to a Member’s monetary reserves set forth in Article XVIII:9(a) and (b), as it was for the Contracting Parties to reach a final decision referred to in Article XV:2 on whether India's import restrictions exceeded those necessary to meet the criteria relating to its reserves in Article XVIII:9(a) and (b). India considered that the competence of the IMF did not extend to all the matters required to be taken into account by the General Council in making the final decision on whether India's balance of payments and reserves situation met the criteria of Article XVIII:9(a) and (b). A comparison of the plain text and context of Articles XV and XVIII:B, as well as the object and purpose of the GATT , bore this out. Article XV:2 limited the rôle of the IMF in determining the justification of import restrictions under Article XVIII:B to rendering statistical findings and financial determinations relating to monetary reserves and balances of payments. On the other hand, the Committee and the General Council were under an obligation to take into account the economic development and trade aspects of the balance-of-payments situation and the adequacy of reserves of less-developed countries under the criteria specified in Article XVIII:9. India argued that Article XVIII:B and the 1994 Understanding clarified that the WTO, in its relations with the IMF, must act through the Committee and the General Council. It was these bodies that had the task of consulting with the IMF and of "reaching their final decision" on the basis of the IMF’s determination on certain financial aspects of the balance-of-payments consultations. The United States’ argument that the reference to the WTO included a reference to a WTO panel failed to take into account this distribution of competence among the organs of the WTO.
  18. India added that, most importantly, the issues of whether a time-schedule for the progressive relaxation and removal of import restrictions met the criteria set out in the Article XVIII:11 read with the interpretative note and whether the Committee should recommend the endorsement of a time-schedule for the removal of the import restrictions proposed by the consulting Members were outside the IMF's competence. The appropriate duration of a time-schedule for removal of import restrictions were clearly a trade and economic developmental issue and not a statistical or financial issue. Accordingly, under Article XVIII:12(c) and paragraphs 5 to 13 of the 1994 Understanding, the responsibility for endorsing a time-schedule proposed by a Member rested with the Committee and the General Council.
  19. Furthermore, India argued, the ruling of the Appellate Body in Argentina Textiles must be confined to the facts of the dispute. in which Argentina had cited an arrangement with the IMF as a reason for imposing the statistical tax at issue in the dispute. The Appellate Body observed that it "might perhaps have been useful for the Panel to have consulted with the IMF on the legal character of the … arrangement between Argentina and the IMF in this case…". , In this case, the Committee had already consulted with the IMF.
  20. The United States, in turn, noted that the original intention of Article XV:2 had been to ensure that decisions made by the CONTRACTING PARTIES took proper account of the determinations of the IMF, the institution to which the architects of the post-war economic order gave the responsibility of overseeing balance-of-payments matters. Acceptance of India's position would effectively mean that panels would be less constrained by the rules of GATT 1994 than other bodies of the WTO and would introduce inconsistency between panels and the rest of the WTO. The United States also remarked that India had said that the Committee must accept the determinations of the IMF under Article XV:2, even though the Committee was not mentioned in the Article.

To continue with Views on the competence of the IMF


211 WT/DS90.

212 WT/DS91.

213 WT/DS92.

214 WT/DS93.

215 WT/DS94.

216 WT/DS95.

217 WT/DS90/2. Such requests were also made by the European Communities (WT/DS90/3), Canada (WT/DS90/4), Australia (WT/DS90/5), Switzerland (WT/DS90/6) and New Zealand (WT/DS90/7).

218 Panel Report on United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear, (hereafter Underwear), WT/DS24/R, para. 7.27 (emphasis added).

219 India noted that the Panel was facing two requests to strike material submitted to the Panel from the record. India requested in its first submission that the factual allegations on which the United States based no legal claims be struck from the record. The United States demanded that the parts of procedural history leading up to the dispute be struck. India considered that there was a qualitative distinction between the two requests and hoped that this would be reflected in the report of the Panel.

220 In that case the United States requested the Panel to suggest that India implement its obligations under Article 70.8 of the TRIPS Agreement in the same manner as the United States had agreed with Pakistan (WT/DS50/R, para. 4.36).

221 Appellate Body Report, Argentina-Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/AB/R, 27 March 1998.

222 On 26 February 1952, the Intersessional Committee of GATT 1947 established a working party under the complaint procedures of Article XXIII to examine Belgian restrictions on imports from the dollar area. The terms of reference of the working party provided for the working party to consult as necessary with the Fund in accordance with Article XV. GATT/IC/SR.3, p. 18-21, cited in Analytical Index/Guide to GATT Law and Practice (6th ed. 1995), p. 689.