(b) Views on the competence of the International Monetary Fund

(i) "�shall accept the determination of the Fund�"

310. The United States considered that the Panel must accept as dispositive the determination of the Fund concerning whether the facts of India�s balance of payments and reserve situation placed India within the criteria listed in Article XVIII:9(a) and (b). In the Balance-of-Payments Committee, the IMF had determined that India had no balance-of-payments problem and that there was no threat to or inadequacy of India's foreign exchange reserves which would merit imposition of such restrictions. ²²³ The concrete significance of Article XV:2 was that the WTO, and the present Panel, must accept all findings of statistical and other facts presented by the Fund in the Balance-of-Payments Committee or to this Panel relating to India�s foreign exchange, monetary reserves and balances of payments. In reaching its final decision as to whether India�s measures were consistent with India�s obligations under Article XVIII:9 of GATT 1994, the text of Article XV:2 required the Panel to accept the determination of the Fund as to whether there was a "serious decline in [India�s] monetary reserves", or what would be a "reasonable rate of increase in [India�s] monetary reserves."
311. The United States stated that Article XV:2 expressly allocated to the IMF the authority for making certain specific determinations within the scope of its particular expertise. Allocation of that authority to the IMF had been the intent of the drafters of Article XV:2, and that intent was carried out in the practice of the CONTRACTING PARTIES. On the matters of fact specified in Article XV:2, the WTO and its bodies were required to accept the determinations of the IMF. The WTO and its bodies were free, however, to draw conclusions from, and take decisions on the basis of, the facts determined by the IMF. In other words, Article XV:2 provided that the WTO must accept the IMF�s determinations with respect to whether there was a serious decline (or a threat of a serious decline) in a Member�s monetary reserves, whether a Member�s reserves were inadequate, and whether a Member�s rate of increase of inadequate reserves was reasonable.
312. For the United States, the IMF�s determination that India was not facing, or threatened with, balance-of-payments difficulties was a factual finding for consideration by the Panel. The IMF essentially acted as an "expert" that panels must consult in disputes involving issues arising under Article XVIII:B. However, this factual determination by the IMF took nothing away from the efficacy of the "final decision" phrase in Article XV:2. In the view of the United States, the sentence containing those words simply meant that whenever the WTO or its bodies considered the eligibility of a Member to take measures for balance-of-payments purposes, they must accept the IMF�s determination on the factual issues specified in that clause. In other words, the "final decision" clause did not prevent the IMF�s determination from being factually dispositive of the matters to which those determinations related. Any other reading would render meaningless the requirements that the WTO "shall accept" the IMF�s determination on the specified factual issues.
313. India considered that the text of Article XV:2 made it clear that the Committee and the General Council must accept certain determinations of the IMF "in reaching their final decision"; in contrast, the argument of the United States allowed the determination of the IMF on the financial aspects of the consultations to determine the legal status of a restriction notified under Article XVIII:B. Article XVIII:12(c)(ii) also clearly stated that the Committee and the General Council determined the inconsistency of the import restrictions with Article XVIII:B. In India's view, Articles XV:2 and XVIII:12 left no doubt that the IMF did not take the final decision on the legal status of the import restrictions under the WTO. Moreover, Article XV:1 affirmed that jurisdiction over "quantitative restrictions and other trade measures" remain with the CONTRACTING PARTIES although it acknowledged the jurisdiction of the IMF over exchange issues.
314. In India's opinion, the drafting history confirmed that the final decisions of the Committee and the General Council did not necessarily have to follow the determinations of the IMF regarding the financial aspects of the balance-of-payments consultations. During the discussions of paragraphs 2 and 3 of the corresponding Havana Charter Article (Article 24) at the Havana Conference it was stated that:

"If the provisions of Article 24 were considered with Article 21 [XII], there was no basis for the fears that the ITO would be subservient to the Fund. The provisions of paragraphs 2(a)(ii) and (3(a) of Article 21 [XII] made it clear that the final decision as to whether restrictions would be instituted or maintained rested with the ITO, notwithstanding determinations made by the IMF." ²²⁴

315. India considered that it was important to note that "balance of payments difficulties" in Article XVIII:12 reflected the obligation of the Committee and the General Council to take the economic development needs of less-developed countries into account when assessing the justification for import restrictions. Article XVIII:8 recognized that the less-developed country Members suffered from balance-of-payments difficulties because of efforts to expand internal markets as well as from instability in their terms of trade. In addition, in arriving at any determinations under Articles XVIII:12(c) or (d), the Committee and the General Council must consider certain special factors referred to in Article XVIII:2. Article XVIII:2 also emphasized the special responsibility of the Committee and the General Council to consider economic developmental issues affecting less-developed country Members. Thus, it recognized that import restrictions might be necessary to help less-developed country Members implement their economic development programmes and that such import restrictions "are justified insofar as they facilitate the attainment of the objectives of the [GATT]". It also required the Committee to take "full account of the continued high level of demand for imports likely to be generated by the economic development programmes of [less-developed Members]". There was little doubt, therefore, that as between the Committee and the General Council, on the one hand, and the IMF, on the other, it was the Committee and the General Council that had a special obligation to look after the trade related economic development needs of less-developed country Members.
316. India noted that the IMF staff shared this understanding of the relationship between it and the WTO. A paper entitled The Relationship of the World Trade Organization with the Fund - Legal Aspects explained:

"It is also important to note that "acceptance" by the CONTRACTING PARTIES of the Fund�s factual findings or determinations does not preclude the right of the CONTRACTING PARTIES to make their own independent "final decision" on the balance of payments exception to the GATT. The legal effect of this consultation obligation is that the decisions of the CONTRACTING PARTIES under the balance of payments provisions of the GATT should be made on the basis of, or having regard to, the Fund�s findings and determinations." ²²⁵

317. As further evidence, India noted that the views of the CONTRACTING PARTIES had sometimes deviated from those of the IMF. For instance, when the United States imposed a surcharge for balance-of-payments reasons in 1971, the IMF reported in the GATT consultations that "in the absence of other appropriate action and in the present circumstances the import surcharge can be regarded as being within the bounds of what is necessary to stop a serious deterioration in the United States� balance-of-payments position" and it further stated that it had "no alternative measures to suggest at this time". ²²⁶ By contrast the CONTRACTING PARTIES found "that the surcharge, as a trade-restrictive measure, was inappropriate given the nature of the United States balance-of-payments situation and the undue burden of adjustment placed upon the import account . . . ." ²²⁷ India concluded that the Committee, in arriving at its final determination on the consistency, or otherwise, of a Member's import restrictions under Article XVIII:B, was not bound by the determinations of the IMF under Article XV:2.
318. The United States pointed out, with reference to the discussions at the Havana Conference, that India's reference was to a statement made by an individual delegation at Havana which had never been incorporated into the text of the General Agreement. and had no legal status with respect to the WTO. In addition, delegations at Geneva had considered, but not adopted, a proposal to replace the words "shall accept the determination" of the Fund with the words "shall give special weight to the opinions" of the Fund. The proposal had been made by Australia "on the main ground that since the [ITO] has the responsibility for action under [what became Article XII of the GATT 1994], it should also retain the right of final decision as to whether the criteria of para. 2(a) have been met." ²²⁸
319. With respect to the Report of the Working Party on the United States Temporary Import Surcharge, the IMF had made a finding that the United States was in balance-of-payments difficulties. While the CONTRACTING PARTIES did not approve the particular measure chosen by the United States to respond to those difficulties, their decision did not call into question the determination by the IMF that the United States was facing balance-of-payments difficulties.
320. With respect to India's argument that because Article XVIII:B had an economic development dimension, the IMF's determinations could not be dispositive of the factual matters before this Panel, the United States replied that India's conclusion did not follow from its premise. Nothing suggested that the IMF was incapable of considering the development program of a Member in making its determinations about that Member's reserves. The IMF conducted a review and assessment of every Fund member's economy once a year. Furthermore, the text of Article XV:2 did not distinguish between Article XVIII:B (in which economic development played a rôle) and Article XII (in which it did not). Article XV:2 treated Article XII and Article XVIII:B identically. The United States also considered that this issue was essentially a theoretical one: India had provided no facts from which the Panel could conclude that the IMF's analysis of India's balance-of-payments situation was wrong.
321. The United States considered that IMF document SM/94/303, when read more fully, said only that while the WTO must accept a determination that a country has, for instance, a serious problem with monetary reserves, the WTO retained the right to determine whether a particular trade measure exceeded what was necessary to address the problem. The United States had not claimed otherwise.
322. India contended that the Report of the Working Party on The United States - Temporary Import Surcharge did not support the U.S. argument on the role of the IMF. The Working Party in that case obviously looked into both justification and application aspects. This was clear from the fact that the Working Party first "took note of the findings of the IMF" and then separately "recognized that the United States had found itself in a serious balance-of-payments situation which required urgent attention". In India's view, the language used by the Working Party clearly brought out the distinction between consideration of the inputs provided by the IMF and the final decision of the CONTRACTING PARTIES on whether there was a balance-of-payments problem that justified import restrictions. In this context, India did not dispute that the Committee must consult the IMF, consider such factual inputs as they were permitted to give under Article XV:2, and then come to a conclusion that struck a balance between the rights and the needs of a country in the process of development and their fellow Member countries.

(ii) "�what constitutes a threat of a serious decline"

323. 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 role 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. While taking a final decision, the Committee and the General Council were required to accept the following findings and determinations of the IMF:

(a) IMF findings of statistical and other facts relating to monetary reserves and balances of payments; and

(b) IMF determinations "as to what constitutes":

- a serious decline in monetary reserves,

- a very low level of monetary reserves,

- a reasonable rate of increase in monetary reserves; and

- the financial aspects of other matters covered in consultations.

324. On the other hand, according to India, 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. The IMF determination with respect to Article XVIII:9(a) and (b) was only one component of the larger consultations process in the Committee pursuant to Article XVIII:12 which was premised upon a reconciliation of the economic development needs of an individual less-developed country Member imposing import restrictions with the interests of its trading partners.
325. Even on issues relating to monetary reserves, India considered that there were various omissions from the competence of the IMF with respect to monetary reserves under Article XV:2. These omissions reflected the intention of the CONTRACTING PARTIES to reserve issues relating to the economic development of the less-developed country Members for themselves. In particular, the IMF could only determine what "constituted" a serious decline in monetary reserves not whether there was one. That is, with respect to a particular Member, the IMF could only determine how much of a decline in reserves would render it a serious decline; it could not make the final decision on whether there was a serious decline in monetary reserves. If the intention behind Article XVIII:9(a) had been to permit import restrictions only after a serious decline had already occurred, then the language of Article XVIII:9(a) would have read "to forestall a threat of, or to reverse, a serious decline in monetary reserves," not to stop it. Moreover, there would be no distinction between the two situations with respect to monetary reserves contemplated by Article XVIII:9(a) and (b); presumably, after a serious decline had already occurred as determined by the IMF, the less-developed country Member concerned would already be facing a situation of inadequate reserves. The second situation covered by Article XVIII:9(b) would then be redundant or merely a reiteration in a different manner of Article XVIII:9(a). Accordingly, the role of the IMF under Article XV:2 must be limited to the words intentionally chosen by the drafters; the IMF could only specify the criteria for judging what constituted a serious decline in monetary reserves under Article XVIII:9 and not whether there was a serious decline in monetary reserves.
326. India considered that Article XV:2 did not entrust the determination of whether there was a threat of a serious decline in monetary reserves to the IMF. The fact that almost none of the multilateral financial institutions or the private credit rating agencies accurately predicted the recent balance-of-payments crisis in South East Asia suggested that mathematical precision was impossible in estimating the magnitude or probability of a threat to the balance of payments situation. Accordingly, it appeared to be a subject more amenable to determination within the consultations process in the Committee. In this context, it was important to note that, in contrast to Article XII:2(a) which required an "imminent threat" of a serious decline in monetary reserves before developed country Members could impose import restrictions, Article XVIII:9(a) required just "a threat". In addition, even in the context of the "imminent threat" in Article XII:2, at the Geneva session of the Preparatory Committee, one representative noted that:

"matters to be taken into consideration may be almost entirely trade questions, such as, for instance, the imminent threat to Australia's balance of payments through the failure of her wheat crop. I say nothing about what would happen if all the sheep died. Equally there might be, in the case of another country, some financial aspect of the imminent threat on which I should have thought the assistance of the [IMF] would be extremely useful to the ITO." ²²⁹

327. In India's view, there were trade aspects to the determination of a threat of a serious decline in monetary reserves that were solely within the competence of the Committee.
328. In the view of the United States, the question of whether a Member's balance-of-payments situation met the criteria of Article XVIII:9(a) and (b) was an exchange and financial question and therefore, in accordance with Article XV:1 and 2, for the IMF to determine. When the IMF assessed India's reserves movements, it was assessing whether these constituted a serious decline, i.e., "is there a serious decline or is one threatened?".

(iii) "... adequacy of reserves �"

329. India also argued that Article XV:2 did not give the IMF the competence to determine whether the reserves of a less-developed country Member were "inadequate" as required by Article XVIII:9(b). The adequacy of the reserves of a developing country Member for purposes of Article XVIII:9 had to be assessed in relation to the demands of its programme of economic development over a period of time. In this regard, the Report of the Review Working Party on "Quantitative Restrictions", the main source of the drafting history of Articles XII and XVIII:B, C and D, noted that:

.". . [P]aragraph 9 [of Article XVIII], although modelled on paragraphs 1 and 2 of Article XII, recognises that the reserve problem for these countries is one of the adequacy of the reserves in relation to their programme of economic development, that for this reason the word 'imminent' which occurs in paragraph II(a) is inappropriate in this context, and that in order to safeguard their external position these countries may need over a period of time to control the general level of their imports . . . ." ²³⁰

330. India considered that Article XV:2 specifically omitted the determination of the adequacy of reserves of a less-developed country Member from the competence of the IMF under Article XV:2 because Article XVIII:B had an economic developmental dimension -- as opposed to a purely financial one -- that the Committee had a special responsibility to take fully into account as required by Article XVIII:12(f), Article XVIII:2 and Article XVIII:8.
331. The United States, noting that Article XV:2 applied equally to Article XII and Article XVIII:B, considered that the issue under subparagraph (b) of Article XVIII:9 was whether a Member with inadequate reserves was achieving a reasonable rate of increase; Article XV:2 did require the WTO to accept the IMF's determination of what constituted a reasonable rate of increase of reserves. It also required that the WTO accept the IMF's determination on financial matters generally, in addition to those specifically mentioned in Article XV:2. The United States considered that, while Article XVIII:9 also referred to the existence of "inadequate monetary reserves," this reference was clearly covered by the reference in the final sentence of Article XV:2 to "the financial aspects of other matters covered in consultation in such cases." Nor was there anything that suggested that the IMF was incapable of considering the development program of a Member in making a determination about that Member's reserves, since it reviewed and assessed each Fund member's economy annually. In the view of the United States, the IMF's determination on the adequacy of reserves should be considered as binding.
332. The United States considered that the Report of the Review Working Party on Quantitative Restrictions also recognized the interests of the trading partners of developing countries. The Report recognized that because the measures to be authorized by Article XVIII:B would have effects on other contracting parties, such measures must be restrained by rules and safeguards:

"The general concept of the new Article is that economic development is consistent with the objectives of the General Agreement �.

"[T]he new Article contains a number of safeguards to ensure that the exercise of the right to deviate from an obligation under the Agreement would be strictly limited to cases where no other alternative measure consistent with the Agreement would be available� ." ²³¹

This statement explained the object and purpose of Article XVIII: to achieve a balance between the rights and needs of both a country in the process of development and that country's fellow Members. The right of a developing country member to utilise the provisions of Article XVIII:B was therefore qualified by the right of other Members to protect their interests by insisting on compliance with the strict limitations that had been built into that Article. Article XVIII was a negotiated text that, like many other agreements in the trading system, took account of different Members' interests and concerns. Its drafters appreciated that point, and made sure that their Report expressed it. India was entitled to rely on measures authorized by Article XVIII:B when they were justified: India's trading partners � developed and developing � were entitled to rely on India not to exceed the limits of that authorization. In this case, that meant that India's trading partners were entitled to have India respect the limitations contained in Articles XVIII:9 and 11 that required India to eliminate the challenged measures. With respect to India's point that Article XVIII:9 (unlike its counterpart in Article XII) did not require an "imminent" threat of a serious decline in reserves, the United States noted that it did still require a threat of a serious decline in reserves. In India's case no such threat existed or was expected.

(iv) "�financial aspects of other matters covered in consultation�"

333. In India's view, although the IMF had a residual competence with respect to "the financial aspects of other matters covered in consultations", the term "financial" also delimited precisely the area of the IMF's competence. For example, the financial aspects of other matters clearly included one of the special factors specifically mentioned in Article XVIII:9, i.e., the availability of special external credits or other resources. India contended that only the CONTRACTING PARTIES and not the IMF would be able to assess the economic developmental aspects of the need to put these special credits or resources to proper use. This interpretation was also consistent with Article XV:2 which limited the competence of the IMF to questions relating to exchange, monetary reserves and balance of payments. The term "financial aspects of other matters" could not be used to extend the scope of IMF determinations with respect to the criteria set forth in the proviso to Article XVIII:9 beyond the determinations specifically mentioned in the last sentence of Article XV:2. Any such interpretation would render the words "of other matters" superflous in this sentence. India noted further that GATT working parties had also interpreted the term "the financial aspects of other matters" as covering matters other than those mentioned in the proviso to Article XVIII:9. ²³²
334. In conclusion, India stated that an analysis of the provisions of Articles XV and Article XVIII:B made it clear that there were both economic developmental and trade aspects to the final decision to be made under Article XVIII:9 that the Committee and the General Council -- not the IMF -- were uniquely qualified to make. Therefore, a determination by the IMF that import restrictions lacked economic justification under Article XVIII:B was clearly outside its competence and could not bind the Committee and the General Council. It followed that the determination by the IMF that India's import restrictions did not have any justification under Article XVIII:9 was not "dispositive" .
335. In the view of the United States, the words "�and as to the financial aspects of other matters covered in consultations in such cases" were a broad text and should be construed to include statements by the Fund with respect to financial matters connected with balance-of-payments matters but not explicitly referred to in Article XV:2. The United States cited a Balance-of-Payments Committee Note from 1975:

�"the Fund's determinations have generally gone beyond merely stating what constitutes a serious decline in reserves�but have compared the overall level of import controls with the reserve position. During the past five years, the Committee has accepted in all cases the Fund's broad determinations. In one case the consulting country disagreed with the Fund's assessment and the Committee's decision to follow the Fund's determination"²³³

To continue with Matters outside the scope of XV:2.

²²³ WT/BOP/R/22, Op. Cit.

²²⁴ WTO, Analytical Index: Guide to GATT Law and Practice, Vol. 1, p. 431.

²²⁵ IMF document SM/94/303, 20 December 1994, p. 23

²²⁶ Report of the Working Party on the United States Temporary Import Surcharge; BISD 18S/214.

²²⁷ Ibid., p. 222.

²²⁸ E/PC/T/163, 11 August 1947, p. 20, item 7.

²²⁹ EPCT/A/PV/41, pp. 69-70.

²³⁰ L/332/Rev.1 and Addenda, BISD 3S/183.

²³¹ BISD 3S/170, paras. 35-36.

²³² Analytical Index of the GATT, pp. 432-433, Section II.A.4(b) under the chapter on Article XV, where the reports of the working parties on "United Kingdom Import Deposits" and "United States Temporary Import Surcharge" are discussed.

²³³ L/4200, 18 July 1975, paras.18-19. The country referred to was Spain: the report of the Committee, in which it followed the Fund's determination, was however adopted by the GATT Council on 19 October 1973 (C/M/90, page 2).