6 April 1999
India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products
Report of the Panel
1. Review of the balance-of-payments justification of India's measures
- India argues that the Panel's interpretation of footnote 1 to the Understanding on the Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994 (hereafter the "1994 Understanding on Balance-of-Payments Provisions" or the "1994 Understanding") is incorrect, essentially focusing on four issues. Firstly, India challenges the interpretation of the Panel based on the ordinary meaning of the terms. Secondly, India also considers that the Panel misconstrued the preparatory work of the 1994 Understanding. Thirdly, it considers that the Panel misconstrued the practice under GATT 1947. Finally, India claims that the Panel's interpretation creates an imbalance between the BOP Committee procedures and the dispute settlement system.
(a) Interpretation of the terms of footnote 1
- Footnote 1 to the 1994 Understanding on Balance-of-Payments Provisions provides that the WTO dispute settlement provisions "may be invoked with respect to any matters arising from the application of restrictive measures taken for balance-of-payments purposes". India claims that our interpretation of the footnote deprives the term "application" of any useful effect. We disagree. We identified the ordinary meaning of the terms which is confirmed by their context and the object and purpose of the WTO Agreement, whereas India's interpretation could be considered rather to support a special meaning (within the meaning of Article 31.4 of the Vienna Convention on the Law of Treaties of 1969 – hereinafter the "Vienna Convention"), in respect of which it has not proved that there was an agreement of the negotiators.
- India also contests our interpretation of the context of the footnote, arguing that we failed to address explicitly its arguments concerning the use of the term "application" in the Understanding on the Interpretation of Article XXIV of the GATT 1994 (hereinafter the "1994 Understanding on Article XXIV"). We have expanded our discussion of this issue in paragraphs 5.70 to make it clear that the use of the term "application" in the 1994 Understanding on Article XXIV, if anything, supports our interpretation.
- India further claims that the Panel does not acknowledge the fact that the terms "the application of" appear only in two references to the DSU, namely the 1994 Understandings on Balance-of-Payments Provisions and Article XXIV, that only in these areas was recourse to Article XXIII at issue in GATT cases, and that the terms "the application of" therefore must have been intended to qualify the right to resort to the DSU. We note, however, that the terms "the application of" appear in several other dispute settlement provisions of the WTO Agreement (such as Article XXIII:1(b) of GATT 1994 and Article XXIII:3 of GATS), but are not used in any of these provisions in a way that would lead us to imply a limitation on the availability of dispute settlement. Thus, we cannot accept the claim that the use of the terms "the application of", as such, implies a limitation on the availability of dispute settlement. Moreover, the different phrasing of the two Understandings argues against India's interpretation, as we explain in paragraph 5.70. Indeed, in the 1994 Understanding on Article XXIV, the terms at issue seem to serve the opposite purpose, that of confirming the full applicability of the DSU to Article XXIV agreements in cases where it was once disputed.
- India also complains that the Panel gave inadequate attention to its examples of where it is accepted that dispute settlement procedures do not apply. We have expanded our discussion of this issue (paragraph 5.87, footnote 310). However, even if we were to accept India's point that it could be inappropriate for certain issues to be resolved by dispute settlement panels, that observation in itself does not shed light on whether footnote 1 to the 1994 Understanding on Balance-of-Payments Provisions confirms the availability of dispute settlement in cases such as this one.
(b) Practice under GATT 1947
- India claims that the Panel's analysis of the practice under GATT 1947 is misleading. While we have made minor adjustments in paragraphs 5.39 to 5.46, we maintain our analysis. We do not agree that, with the exception of the Panel Report on Republic of Korea - Restrictions on Imports of Beef, Complaint by the United States,
257 there has never been a request for the examination of the balance-of-payments justification of restrictions under Article XXIII (see paragraphs 5.37-5.38 and the footnotes attached thereto). The existence of these cases is at variance with India's contention that the question of justification has always been reserved exclusively to the BOP Committee and that no resort to dispute settlement is possible in relation to the justification of measures under Article XVIII:B.
- India also argues that the Panel misinterpreted the finding of the Korea - Beef report. Firstly, India claims that we speculate when we state in paragraph 5.45 that we find no evidence that the panel would have refused to review the claims of the complainants as to the justification of the balance-of-payments measures if the BOP Committee had not issued a report. We believe our statement is correct. In the Korea - Beef case, the BOP Committee had issued a report, but the panel found it relevant to seek confirmation that the situation was still that which had led the BOP Committee to reach its conclusions. Such a verification, involving the review of additional data published by the Korean authorities and advice from the IMF, would not have been justified if the panel had considered the Committee's opinion to be decisive and had not considered itself competent to review the justification of the Korean measures. No other interpretation can reasonably be given to the analysis found in paragraph 123 of the Korea - Beef report. The panel itself reached its conclusion that there was a "continued improvement in the Korean balance-of-payments situation", a conclusion which could not be based solely on the Committee report, which dated back to 1987.
- India also argues that the Korea - Beef panel declared itself competent to look at the justification of the measures only because its terms of reference had been agreed by the complaining parties and Korea. However, its terms of reference did not expressly address the Article XVIII:B issue. The panel was directed "to examine [the Korean measures] in light of the relevant GATT provisions". In response to a request from Korea for a ruling on the admissibility of the claim under Article XXIII, the panel made an initial ruling that it clearly had a mandate to examine the merits of the case in accordance with its terms of reference. 258 In its findings, it then proceeded to consider "whether the consistency of restrictive measures with Article XVIII:B could be examined within the framework of Article XXIII". While the panel did, in its findings, refer to its terms of reference, it did so after it had considered the arguments of the parties concerning past deliberations by the CONTRACTING PARTIES on the exclusivity of special review procedures under the GATT and had decided that these earlier deliberations were not directly applicable in the present dispute. Then, the panel added a paragraph on the drafting history of Articles XVIII and XXIII and an analysis of their terms and functions. The panel considered that, by accepting its terms of reference, Korea had agreed to the competence of the panel to review the matter in the light of the relevant GATT provisions. From this general competence, the panel deduced its competence to review the justification of the measure under Article XVIII:B, which is part of the "relevant GATT provisions". Thus the panel's competence under Article XVIII:B was the result of its reasoning, not that of an express acceptance by Korea. This is the meaning of the first reference to Korea's acceptance of the panel's mandate, in paragraph 117. In its context, the sentence cannot be read as meaning that the panel relied on a specific acceptance by Korea of its competence under XVIII:B, and even less that it relied exclusively on Korea's acceptance of its mandate to look at the justification of the measures under Article XVIII:B. 259 The reference to the fact that "the parties have chosen to proceed under Article XXIII" is obviously based on the same reasoning. We therefore consider that India's references in the Korea - Beef case do not support its argument according to which the panel in that case did not conduct its own analysis of the justification of the measure and only reviewed the justification of measures essentially because Korea had accepted that it do so.
(c) Preparatory work
- India further claims that we did not properly address the preparatory work of the 1994 Understanding. As mentioned in paragraph 5.110, we did not need to look at the preparatory work since the meaning resulting from our analysis under Article 31 of the Vienna Convention was neither ambiguous or obscure, nor did it lead to a manifestly absurd or unreasonable result. It is a well established principle of interpretation of international law not to refer to the preparatory work if the ordinary meaning of the text, taken in its context and in the light of the object and purpose of the treaty, is clear. On the other hand, recourse to the preparatory work must always be undertaken with caution and prudence. 260 The purpose of paragraphs 5.106 to 5.111 was to show that limited use could be made of the document invoked by India, since India could not provide evidence that the US-Canada proposal was rejected specifically because of the part of the proposal that dealt with recourse to Article XXIII. Indeed, several other reasons could have contributed to the rejection of the proposal, which makes relying on it problematic. In any event, we have expanded our discussion of the preparatory work in paragraphs 5.106-5.111 to make those points more clearly.
(d) Allocation of decision-making in balance-of-payments matters
- In respect of its argument that the interim report improperly allocates decision-making authority in balance-of-payments matters between panels and the BOP Committee, India first contends that, in application of the principle lex specialis derogat legi generali, the general provisions according to panels the right to make legal findings cannot override the specific provisions giving the BOP Committee and the General Council the power to make specified determinations. India did not really present its argumentation in terms of lex specialis during the Panel's proceedings and the Panel considers that this concept does not apply in the present case. While the two procedures may be said to apply to the same subject matter, the second condition for the application of the principle of lex specialis, i.e. the existence of a conflict between the two, is not met. The objective of the Committee procedure under Article XVIII:12(b) 261 is a general review of a Member's policy by the BOP Committee and the General Council, whereas the DSU applies in case of a dispute between two Members related to specific measures. Moreover, the Panel in its analysis of the operation of the two procedures found no circumstances where, in practice, those procedures would conflict (see paragraphs 5.92-5.97). In any event, the principle of lex specialis is only subsidiary. If the treaty provides for the relationship between the two "conflicting" rules, the principle no longer applies. 262 In the present case, footnote 1 to the 1994 Understanding on Balance-of-Payments Provisions clearly confirms the application of the DSU to balance-of-payments matters.
- As to the argument of India that our findings lead to the anomalous result that the power to make the same decision is accorded to two different organs, we consider that it is based on an inappropriate assumption. As explained above, the two procedures (that under Article XVIII:12(b) and that under the DSU) fulfill two different and complementary objectives. One is meant to allow the review of a policy by the WTO, the other one is meant to preserve the rights of Members under the WTO Agreement. As explained in paragraphs 5.92-5.97, which we have modified slightly, we see no problem of conflicts. India also argues that it is a denial of due process to have dispute resolution available to an aggrieved Member only. We disagree. In our view, a Member invoking Article XVIII:B to justify its restrictions has nothing to complain about since it may maintain its restrictions until the Committee recommends that they should be removed. Comparatively any other Member may have reasons to complain at any time that the measures for which Article XVIII:B is invoked are not, or no longer, justified. We do not agree either that the Panel declares itself competent only to take decisions that are potentially adverse to the Member imposing balance-of-payments measures. If balance-of-payments measures are found to be justified, a panel will not find against that Member on that aspect. Moreover, while that Member may not be able to block adverse findings by a panel, as a practical matter it can do so with Committee recommendations. In light of this, the Panel considers its conclusion as to the availability of dispute settlement concurrently with the Committee procedures more in compliance with the basic principles of procedural justice than an interpretation that would allow measures not in conformity with Article XVIII:B to be maintained at the will of the Member imposing them.
- India also claims that we failed to address its argument that "the transfer to panels of the competence explicitly assigned in Article XV:2 and XVIII:12 to the General Council would eliminate the procedural rights which Article XVIII:B and the Balance-of-Payments Understanding accord to Members in balance-of-payments difficulties". India's reasoning that it would be deprived of its procedural rights is based on the fundamental assumption that (i) Members have a right to "an assessment of their difficulties and corrective policies by peers" and (ii) that if a panel decides on the issue before the BOP Committee has completed its own examination, the BOP Committee will be bound by the findings of the panel. Nowhere in our report do we say this. The initiation of a dispute settlement procedure with respect to certain measures does not prevent the examination of their justification in the BOP Committee. Moreover, the BOP Committee is not constrained by the aspects of due process which require that a panel set a cut-off date for the facts on which it will rely. In other words, the Committee may always decide on the basis of new facts. Thus, just as the panel in Korea - Beef made its own assessments of the facts that followed the BOP Committee's decision, the BOP Committee can make its own assessment of the facts subsequent to the date of establishment of the Panel. India's arguments are of course concentrated on its position as a consulting Member. However, the situation of the Members whose rights under the WTO Agreement are affected by India's measures should not be forgotten. If one were to follow India's arguments, pursuant to which a Member can maintain measures as long as no decision to the contrary has been taken by the General Council, even when there is no longer any balance-of-payments justification, the rights of other Members under the Agreement would be unduly affected, with no effective means of redress, as noted in paragraph 4.21.
2. Immediate removal of the measures and consequence thereof
- India claims that the Panel's finding that the Note Ad Article XVIII:11 requires India to remove all its import restrictions at once lacks any basis in law and facts. The Panel addresses the arguments of India in relation to this issue in paragraphs 5.201 to 5.215. We were required to determine whether a given measure was consistent with the provisions of Article XVIII:B. We concluded that India was in violation of Article XVIII by still maintaining in November 1997 measures that were no longer justified under Article XVIII:B. The fact that the Panel found that, as from November 1997, the measures were not justified does not mean that they should be removed immediately.
263 We could not rule on a phase-out period, but we suggested that the reasonable period of time to implement the DSB recommendations on this matter be considered in the light of a number of factors listed in paragraph 7.5. For that reason, we think that our decision is consistent with the facts and the applicable norms.
- India also claims that our interpretation of the word "thereupon" in the Note Ad Article XVIII renders that provision inoperative in practice. We disagree. We consider that our interpretation of the word "thereupon" is consistent with the principles of interpretation of the Vienna Convention and is the only one that could give a useful meaning to that term. As shown in paragraphs 5.196 to 5.198, the interpretation suggested by India (inter alia: "by direct agency" in English, "sans intermédiaire" in French) would make the word "thereupon" redundant, since the causal link in the Ad Note is clear without that word. Moreover, saying that the relaxation or removal of the measures would "directly" (in the sense of not indirectly) produce the conditions foreseen in Article XVIII:9 would also simply restate the causal link, which is not necessary.
- India comments at length on the nature of its development policy and the fact that the Panel did not address this central issue. We note first that India has submitted new data at the interim review stage. There is no trace either in the record of the Planning Commission's estimate that India faces an additional threat to its reserves from an increase in the trade deficit and a fall in its foreign exchange reserves to "significantly below" US$16 billion in a period ranging between a few months and one year. We agree with the United States that this submission of additional information is untimely. We consequently decided not to take it into account. Secondly, we remain unconvinced that India "has argued in detail and at length" regarding the changes that an immediate removal of the measures at issue would require in India's development policy. We do not disagree that India discussed the first sentence and the proviso of Article XVIII:11, or the impact of the removal of the measures on its development policy. Accordingly, we revised the part now corresponding to paragraphs 5.216 to 5.223. However, we do not agree that India produced sufficient evidence to support a claim that the removal of the measures at issue actually would require a change in its development policy. Nor can we share India's view as to the risks entailed by India's economy as a result of the removal of the measures. In paragraph 5.204, we note the IMF views that the restrictions should be removed over a relatively short period of time, not immediately, but we also note that this period has nothing to do with a gradual phase-out accompanying a reduction of balance-of-payments difficulties. This is why we suggest that they should be removed within a reasonable period of time.
- We note in this regard that India, in support of its contention that immediate removal of its measures would immediately lead to balance-of-payments difficulties, refers to a potential surge in imports. India does not always take into account the distinction between a projected change in imports and a projected change in its reserves. The removal of the measures at issue will most probably lead to an increase in imports, but showing that imports will increase, even substantially, does not demonstrate that balance-of-payments difficulties within the meaning of Article XVIII:9 will occur ipso facto. For instance, India does not take into account in its assessment the positive effects that would result from the removal of import restrictions. In relation to this, we clarified our own statements in paragraph 5.207.
3. Other specific comments
- India claims in relation to paragraphs 5.159-5.163 that the Panel should not use the date of its establishment as the date at which India's balance-of-payments and reserve situation should be reviewed. Rather, India claims that "The respondent party must be able to prepare its defence as from the request for the establishment of the Panel." We first recall that our terms of reference were set as of the date of establishment and added practical reasons for using this date, as contained in paragraph 5.161-5.162. Our decision on this issue is also consistent with past practice under GATT 1947.
264 Secondly, we note that India was, during the course of the proceedings, in favour of taking into account the latest economic developments possible, i.e., using a date after, not before, the date of establishment of the Panel. The Panel therefore finds no reasons to modify paragraphs 5.159 to 5.163.
- India claims that the Panel presents in paragraph 5.232 and 5.235 "speculations on the scope of the authority of the BOP Committee and the General Council under paragraph 13 of the Understanding". The Panel addressed this matter in reply to India's arguments related to its alleged right to a phase-out period. It finds it appropriate to keep this discussion.
- Finally, in light of the comments by India, we also modified paragraphs 5.34, 5.47, 5.53, 5.84, 5.114, 5.244, 5.245.
- The United States requests the Panel to find that the challenged measures, notified by India in Annex I, Part B of document WT/BOP/N/24, are quantitative restrictions subject to Article XI:1 and are not justified under the provisions of Article XVIII:11 of GATT 1994. The United States also claims that the measures are in violation of Article 4.2 of the Agreement on Agriculture. India requests the Panel to note that both parties agree that the import restrictions at issue fall under Article XI:1, but disagree on their justification under Article XVIII:B.
- In the event that the measures are found not to be in violation of Article XVIII:11, the United States also requests a finding that the challenged measures violate Article XIII of GATT 1994. The United States also identified in its request for establishment of the Panel a violation of Article 3 of the Agreement on Import Licensing Procedures.
- In the course of the proceedings, the Panel made a preliminary ruling and consulted the International Monetary Fund. These actions are addressed first (in Part B). We then clarify the scope of the complaint to be addressed by the Panel (Part C). In its defence, India raised issues relating to the extent of the competence of this Panel to address issues relating to the justification of import restrictions taken for balance-of-payments purposes under Article XVIII:B of GATT 1994. We consider these arguments and determine the scope of our competence in this dispute in Part D, before addressing the issue of burden of proof in Part E. In Part F, we address the claim of violation of Article XI:1 of GATT 1994, and then in Part G, we consider the claim of violation of Article XVIII:11 and the possible justification of the measures under Article XVIII:B. The claim of violation of Article 4.2 of the Agreement on Agriculture is then addressed in Part H. The claim of violation of Article XIII of GATT 1994 is addressed in Part I.
- Before proceeding further in our examination, it is useful to recall the main events which preceded the establishment of this Panel.
To continue with Facts Leading To The Dispute
257 Adopted on 7 November 1989, BISD 36S/268 (hereinafter the "Korea - Beef case"). Two other complaints were addressed by the same panel, but led to separate reports. See Panel Reports adopted on 7 November 1989, Republic of Korea - Restrictions on Imports of Beef, Complaint by Australia, BISD36S/202 and Complaint by New Zealand, BISD 36S/234.
258 Op. Cit., para. 10.
259 This is consistent with Korea's later contention on justification: Korea could challenge the competence of the panel to look at the justification without negating its consent to the terms of reference.
260 Ian Sinclair, The Vienna Convention on the Law of Treaties (1980), p. 142.
261 In the course of which inconsistent measures may be identified by the BOP Committee, pursuant to Article XVIII:12(c).
262 Sinclair, Op. Cit., p. 97, Daillier and Pellet, Droit international public (1994), p. 263 and 265.
263 Article 21.3 of the DSU does not require immediate compliance with DSB recommendations and rulings if it is impracticable to do so.
264 Panel Report on United States – Section 337 of the Tariff Act of 1930, adopted on 7 November 1989, BISD 36S/345, para. 5.2.