(v) Matters outside the scope of XV:2.

336. India cited a letter from the head of the Legal Department of the IMF provided in July 1997 in response to India's request for clarification as to whether the WTO had to accept the IMF views on matters not mentioned in Article XV:2, which mentioned that:

". . With respect to expressions of the Fund�s views outside the scope of Article XV, these are not legally required to be accepted by the Committee on Balance-of-Payments Restrictions. The report of the Committee to the WTO for its "final decision" as to whether a trade restriction is justified under the GATT must also take into account the criteria applicable to these restrictions stated in Article XVIII. Thus, for example, in the course of a consultation, the Fund may have made a determination that a contracting party has a "serious problem with its monetary reserves"; while they are obliged to accept that determination, the CONTRACTING PARTIES may nevertheless decide that the particular import restrictions or other trade measures applied by that contracting party "exceed" those "necessary" to correct its balance of payments problem as provided for under Article XII, Section 2(a) or Article XVIII, Section 9�In practice, however, there have been only rare cases in which a reviewing committee reported that a restriction was inappropriate although the Fund had identified a balance of payments problem. Additionally, a practice has developed over time whereby the Fund�s statement to the Committee has become broader than that articulated in Article XV, primarily to provide a fuller context within which to assess the trade-restrictive measures....This established practice, although significant, does not change the legal point that the final decision on whether the measure is justified under the WTO agreements ultimately rests with the Committee on Balance-of-Payments Restrictions�"

337. For India, this confirmed that, while the IMF in practice offered views on matters other than those referred to in Article XV:2, the WTO was not required to base its final decision on these views.
338. The United States noted that, as India had pointed out, in the first years of IMF-GATT cooperation on balance-of-payments matters, a question arose among the CONTRACTING PARTIES (as they were preparing for the Fifth Session, at Torquay, in 1950) whether the IMF was expected to transmit to the GATT an evaluation of the facts it accumulated on the balance-of-payments situation of countries concerned, or merely the facts themselves. ²³⁴ Although no formal decision was taken then, the practice developed under GATT 1947 to accept the conclusions provided by the IMF. The former Director of the Secretariat Legal Affairs Division had provided his views in an article:

"GATT is institutionally not equipped to collect and evaluate data on financial matters. To arrive at meaningful conclusions, it therefore relies on the Fund�s advice not only for facts on monetary matters, but also for their evaluation. Although the question as to exactly what GATT is obliged to accept from the Fund has been raised from time to time after the Torquay controversy � in particular by contracting parties dissatisfied with the Fund�s findings � a formal decision to settle the issue has never proved necessary because the Fund�s conclusions have, even in the controversial cases, always been accepted in the end." ²³⁵

339. The United States recalled that two individual examples of this practice of following the IMF�s determination included the consultations with Germany beginning in 1957, and the 1973 consultations with Spain. In each case the CONTRACTING PARTIES acted on the basis of judgments by the IMF about the reserve position of the country in question. The case of Spain was particularly noteworthy, because Spanish objections to acceptance of the IMF�s conclusions were simply not accepted by the CONTRACTING PARTIES. The IMF statements to the Balance-of-Payments Committee in the 1997 consultations concerning India were another instance of this practice. They should be found to be dispositive of the factual question of whether India was faced with a threat of or serious decline in its monetary reserves, or whether the removal of the quantitative restrictions at issue in this dispute would result in a threat of or serious decline in such reserves.
340. In India's view, GATT practice was authoritative only in the context of dispute settlement cases brought under Article XXIII that were approved by the CONTRACTING PARTIES. Thus, the so-called GATT practice in the Committee of accepting the IMF's views on whether a Member's import restrictions had justification was no basis for according finality to the IMF's opinion if Article XV:2 did not render the IMF's opinion final. It was impossible to discern from the Committee's reports on consultations whether the members of the Committee did so because they considered themselves bound by the IMF's views or whether they did so because they independently arrived at the same conclusion. Therefore, the so-called GATT practice within the Committee could not give the IMF's determination a more binding character than warranted by the text of Articles XV:2 and XVIII:B. Accordingly, India respectfully submitted that the IMF's "determination" that India's import restrictions lacked justification could not bind this Panel.
341. The United States considered that, for the following reasons, the WTO and this Panel were required to accept factual findings and determinations by the IMF with respect to whether the removal of the quantitative restrictions at issue in this dispute would result in a serious decline (or threat thereof) in India�s reserves. The Note Ad Article XVIII:11 provided that India was not required to remove the restrictions at issue in this dispute "if such removal ... would thereupon produce conditions justifying the ... institution ... of restrictions under paragraph 9 of Article XVIII." The Ad Note was therefore explicitly linked to Article XVIII:9. A link to Article XVIII:9 was also explicitly made in the final sentence of Article XV:2, by which the WTO was bound to accept the determinations of the IMF with respect to, inter alia, what constituted a serious decline. Article XV:2, final sentence, therefore should be read as explicitly applying to the IMF�s factual findings and determinations with respect to matters arising under the Ad Note. Further textual support for this view was found in the second sentence of Article XV:2, which provided that the WTO "shall accept all findings of statistical and other facts presented by the Fund relating to ... balance of payments ... ." Additionally, Article XV:2, final sentence, also contemplated that the WTO must accept determinations of the IMF concerning "the financial aspects of other matters covered in consultation in such cases." which, in the view of the United States, would encompass factual determinations related to the Ad Note to Article XVIII:11. Thus, the United States considered that, based on the text of these provisions, the Panel must accept the IMF�s factual determinations related, inter alia, to the existence of a serious decline in reserves or threat thereof following removal of the quantitative restrictions at issue in this dispute. The United States considered that the object and purpose of Article XV:2 is to allocate jurisdiction to the IMF for determination of factual questions, concerning, inter alia, foreign exchange, monetary reserves, balance of payments and other financial matters in such cases. The IMF's determination of whether removal of quantitative restrictions would lead to a serious decline was therefore a factual finding that the WTO and this Panel must accept. The United States added that even if the Panel did not agree that the IMF's determination was binding, the determinations of the IMF would provide evidence that the Panel should consider about India's balance-of-payments situation following removal of the challenged measures.
342. While Article XV:2 provided that the WTO must accept the IMF's determination with respect to the matters within the scope of that Article, the United States agreed that the WTO did not, however, need to accept the IMF�s determinations whether a particular trade measure exceeded or did not exceed what was necessary, or whether a particular measure otherwise complied with the requirements of Article XVIII:B or XII. Those determinations were for the WTO and its bodies to make.
343. India contended that 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 clearly outside the IMF's competence. The appropriate duration of a time-schedule for removal of import restrictions was 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.
344. With respect to the letter from the Head of the the IMF's Legal Department, the United States saw no conflict with its own position. The United States agreed with the points made that "the WTO is required to accept not only the Fund�s findings of statistical and other facts specifically mentioned in [Article XV:2], but also the determinations under the two provisions quoted above [including the requirements in the proviso to Article XVIII:9]." and that the WTO was not required to accept the IMF�s determination on matters "outside the scope of Article XV:2". Finally, The Relationship Between the World Trade Organization and the Fund - Legal Aspects ²³⁶ 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. In the view of the United States, the IMF had made the factual determination that India was not in any of the balance-of-payments difficulties described in Article XVIII:9; consequently, no trade measures of any kind were necessary to address India�s balance-of-payments situation.

(c) The Panel's consultations with the IMF

(i) Parties comments on the questions to the IMF

345. The Panel, having regard to Article 13 of the DSU and to Article XV:2 of the GATT 1994, decided to consult the IMF. It so informed the Parties and circulated its proposed set of questions for comment by the Parties on 24 June. On 30 June, the Parties comments were received and taken into consideration in redrafting the Panel's questions. (Where the full comments are not reflected the views are reflected elsewhere in the text.) The questions were sent to the IMF on 3 July, and the replies received on 22 July, as requested.
346. In its comments on the proposed questions, the United States considered that 15 July 1997, the date of request for consultations, was the date as of which the Panel should determine whether India's measures were justified under Article XVIII:B; or, at the latest, 18 November 1997, the date of the establishment of the Panel, a point with which India had agreed. Changes in India's balance-of-payments situation since then were not relevant to the current dispute.
347. India pointed out that it was relevant to ask the IMF for its views on developments since that date since much of the evidence that the United States had submitted related to the period following the establishment of the Panel.
348. With respect to the question regarding the IMF's views on the effect of the removal of restrictions, the United States considered these should focus on the balance-of-payments effect.
349. Both parties agreed that whether the import restrictions "exceeded" what was "necessary" to meet the criteria of paragraph 9(a) and (b) was a trade issue within the purview of the WTO.
350. India reiterated its points regarding the limited competence of the IMF, that inter alia, the WTO was the institution that had the responsibility of assessing the balance-of-payments situation in relation to a Member's economic development needs. Nor did India believe that the Panel should seek the IMF's opinion on whether the removal or relaxation of the restrictions would lead to conditions justifying their introduction or intensification, an evaluation which only the WTO could provide. In India's view, the IMF's role was restricted to specifying the criteria of "what constituted" a threat of serious decline, "inadequate" or a reasonable rate of increase in reserves, not whether there was.
351. India considered that the WTO had an obligation to consult the IMF only with respect to specific points mentioned above. However, only the WTO can apply the findings and determinations of the IMF and make determinations on whether (i) for purposes of Article XVIII:9(a), a decline in reserves will turn into a serious one or, in the absence of a decline, whether a threat of serious decline exists, and (ii) for purposes of Article XVIII:9(b), reserves are inadequate. In other words, the WTO must evaluate the likelihood of the threat of a serious decline in a Member's monetary reserves, its adequacy and whether the rate of increase in reserves exceeds what is reasonable. This followed because only the WTO was competent to factor in the trade aspects of a threat to the balance-of-payments and monetary reserves. The trade aspect of a threat to the balance of payments was especially important when evaluating the impact of the removal of import restrictions in terms of the Note Ad Article XVIII:11.
352. Further, India reiterated its view that the WTO must assess the balance-of-payments and reserves situation of a Member invoking Article XVIII:B in relation to its programme of economic development over a period of time. This followed from a structural nature of the balance-of-payments problems of a Member under Article XVIII:B as compared to the temporary, cyclical nature of the balance-of-payments problem under Article XII:2(a). In addition, various provisions of Article XVIII:B, including paragraphs 1 through 3, 5, 8, 11 and 12(c) and (f) of Article XVIII, assigned the responsibility for assessing the economic development needs of a Member to the WTO � not the IMF.
353. India noted that the United States had been unable to rebut India's arguments on the competence of the IMF or to provide any textual basis for its view that the IMF's decision was final for purposes of Article XVIII:9 on the likelihood of a threat of serious decline in a Member's reserves or on the adequacy of its reserves relative to its programme of economic development.
354. India elaborated further stating that other decisions, declarations and understandings of the WTO relating to the balance-of-payments provisions of the GATT 1994 demarcated the respective roles of the WTO, the IMF and the Members invoking Article XVIII:B during consultations and confirm the limited role of the IMF. These WTO documents included:

1. Procedures and Arrangements for Regular Consultations on Balance-of-Payments Restrictions, 1970 ²³⁷ (the "1970 Full Consultations Procedures");
2. Procedures for Regular Consultations on Balance-of-Payments Restrictions with Developing Countries, 1972 ²³⁸ (the "1972 Simplified Procedures");
3. Declaration on Trade Measures Taken for Balance-of-Payments Purposes, 1979 (the "1979 Declaration"); and
4. Understanding on the balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994 (the "1994 Understanding").
355. In describing the full consultations procedures under Articles XII and XVIII:B, in India's view, the 1970 Full Consultations Procedures suggested a limited role for the IMF. Paragraph 6 provided that the time schedule for consultations must be drawn up in "light of the � progress of consultations of the [IMF] with the governments concerned so as to ensure that the most up-to-date and meaningful possible data form part of the Fund's contribution �" [Emphasis added.] Paragraph 8 delimited the role of the IMF in consultations: "Under paragraph 2 of Article XV, the CONTRACTING PARTIES are required to consult with the IMF on the points specified in that paragraph."
356. In addition, Annex I to the 1970 Full Consultations Procedures contained the "Plan of Discussion for Consultations Under Articles XII:4(b) and XVIII:12(b). The heading, "Balance-of-Payments Position and Prospects", presumably covered the issue of a threat of serious decline in monetary reserves and the adequacy of reserves. The fourth item under this heading was "Factors, either external or internal, affecting the various elements of the balance-of-payments, such as exports and imports". The fifth item was "Effects of the restrictions on the balance-of-payments and expected duration of the restrictions". The sixth item was "Prospects of relaxation or elimination and likely effect of such action on the balance-of-payments". Clearly, as trade issues, these were entirely within the purview of the WTO and, therefore, the CONTRACTING PARTIES under the GATT had never intended to give the final word on the possibility of a threat of a serious decline to the IMF. India considered that this analysis was confirmed by the structure of regular consultations by developing countries under the 1972 Simplified Procedures. Under paragraph 3(b) of these simplified procedures, the Member invoking Article XVIII:B submitted a concise written statement of its balance-of-payments difficulties. Under paragraph 3(d), the IMF merely submitted balance-of-payments statistics. Under paragraph 3(c), the Committee decided whether to require the Member to invoke full consultations. Effectively, therefore, it was the Committee that determined whether a Member's balance-of-payments difficulties had lessened to the point where full consultations were necessary in the absence of an IMF determination on whether the conditions in Article XVIII:9 were met. As stated in paragraph 2, the 1972 Simplified Procedures represented a "solution which would both meet the legal requirements of the General Agreement and lessen the burden of the CONTRACTING PARTIES and the developing countries concerned without detracting from the basic objective of fostering understanding of the balance-of-payments problems of the developing countries and providing opportunities for exploring constructive solutions to them".
357. Nor, India commented, did the 1979 Declaration accord a greater role to the IMF than the 1970 Full Consultations Procedures and the 1972 Simplified Consultations Procedures. It provided for a basic document to be provided to the Committee by the consulting Member that had invoked Article XVIII:B, a background paper by the WTO Secretariat and a paper on "Recent Economic Developments" by the IMF. Paragraph 11 of the 1994 Understanding provided that the Basic Document should include "an overview of the balance-of-payments situation and prospects, including a consideration of the internal and external factors having a bearing on the balance-of-payments situation.". Again, this aspect of the basic document would be unnecessary if the IMF had the power to make a determination binding on the WTO as to whether a Member's balance-of-payments and monetary reserves situation justified import restrictions under Article XVIII:B. Therefore, the 1970 Full Consultations Procedures, 1972 Simplified Consultations Procedures, 1979 Declaration and the 1994 Understanding confirmed that the role of the IMF in this proceeding should be limited, as a matter of law, to the specific findings and determinations provided for in Article XV:2.
358. India considered that India's economic development and the effect of the progressive liberalization of India's import regime, prima facie, were not matters on which the Panel should seek the views of the IMF. The competence of the IMF under Article XV:2 did not extend to economic development or trade issues. Under the 1970 Full Consultations Procedures, the Member invoking Article XVIII:B must furnish to the Committee its own assessment of its economic development needs. The GATT Secretariat furnished the background paper that permitted the Committee to assess the trade issues that were involved. Accordingly, India considered that, as provided in the 1970 Full Consultations Procedures, the 1979 Declaration and the 1994 Understanding, the Panel should make its own assessment of India's economic development needs and its own assessment of how to reconcile India's trade interests with those of its trading partners after going through all the relevant material. Therefore, it would be appropriate for the Panel to ask the IMF to explain how it took India's economic development needs as well as risks and prudence into account, while answering each question. This would enable the Panel to determine the weight to be accorded to the IMF's views.

To continue with Questions to and replies from the IMF

²³⁴ The United States stated that as India had pointed out, the IMF side of this story had been told by Margaret G. DeVries. What India failed to mention was the outcome: "Eventually these questions had to be answered by vote. The Board decided that the Fund was to supply to the GATT not only relevant statistical data but also conclusions as to the current need for restrictions." "Collaborating with the GATT," in J. Keith Horsefield, ed., The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation (IMF, 1969), vol. II, p. 332.

²³⁵ Frieder Roessler, "Selective Balance-of-Payments Adjustment Measures Affecting Trade: The Roles of the GATT and the IMF," Journal of World Trade, Vol. 9, page 622, 648 (November-December 1975).

²³⁶ IMF document SM/94/303, dated 20 December 1994.

²³⁷ BISD 18S/48-53.

²³⁸ BISD 20S/47-49.