6 April 1999
India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products
Report of the Panel
A. Facts Leading To The Dispute
- India has, for the past fifty years, applied quantitative restrictions justified for balance-of-payments reasons. These were applied under Article XII of GATT 1947 between 1950 and 1957 and, since, under Article XVIII:B. India has been consulting regularly under Article XVIII:B since 1957. After a serious crisis in 1990-1991 where India's monetary reserves were depleted, its balance-of-payments situation has gradually improved and it has implemented economic reforms and import liberalization programmes, including reduction of its quantitative restrictions. At the conclusion of the 1994 simplified consultations with the Committee on Balance-of-Payments Restrictions (hereafter the "BOP Committee" or the "Committee"), the Committee noted that, if the balance of payments of India showed sustained improvement, India's stated aim was to move by 1996/97 to a regime in which import licensing restrictions would only be maintained for environmental and safety reasons. Members of the Committee welcomed the significant improvements in India's balance-of-payments position but recognized that it remained volatile. The Committee concluded that a full consultation in the second half of 1995 was desirable.
- During the 1995 full consultations, the Committee invited the International Monetary Fund (IMF) to participate in the consultations in accordance with Article XV:2 of GATT 1994. In an official statement to the Committee, the IMF representative noted that, with continued prudent macroeconomic management, the transition to a tariff-based import regime with no quantitative restrictions could reasonably be accomplished within a period of two years. The Committee also noted the view expressed by India that, in the context of a deteriorating balance-of-payments situation, it would be neither prudent nor feasible to consider the general lifting of existing quantitative restrictions on imports at this stage. Many Members supported India's continued use of import restrictions under Article XVIII:B for balance-of-payments reasons in view of the uncertainty and fragility they perceived in India's balance-of-payments position. Many other Members stated that India's balance-of-payments position was comfortable, that India did not currently face the threat of a serious decline in foreign exchange reserves as set out in Article XVIII:9 and that therefore India was not justified in its continued recourse to import restrictions for balance-of-payments reasons. Many Members asked India inter alia to present a firm time-table for the phasing out of the restrictions. The Committee did not reach any conclusions and welcomed India's readiness to resume consultations in October 1996. 266
- During the resumed consultations which were held in January 1997, the BOP Committee took note of the IMF's statement that India's current monetary reserves were not inadequate and that there was no threat of a serious decline in India's monetary reserves. The Committee agreed to resume consultations in June 1997 to consider a plan to be presented by India to eliminate the measures notified under Article XVIII:B and to conclude the consultations consistently with all relevant WTO balance-of-payments provisions. 267 On 19 May 1997, India presented a new notification in document WT/BOP/N/24, including a nine year phase-out plan for removal of the measures. At the June 1997 consultations, the IMF representative stated that the views of the IMF as expressed during the January 1997 consultations on India's balance-of-payments situation had not changed during the interim period. In the course of consultations, India proposed a phase-out period of six years, plus one year for a limited number of products. A number of Members were of the view that the phase-out period for the existing measures should not exceed five years. 268 The BOP Committee concluded its consultations with India by recording the different views on the issue, without reaching a consensus on a Committee recommendation to the General Council. 269
B. Rulings Made By The Panel In The Course Of The Proceedings
1. Request by India for sufficient time to prepare and present its argumentation, pursuant to Article 12.10 of the DSU
- On 7 April 1998, the Panel received a letter from the Permanent Mission of India requesting, pursuant to Article 12.10 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (hereinafter "the DSU"), that India be granted up to 12 May 1998 to prepare and present its first written submission. India claimed that the case was of a systemic importance and covered a wide range of issues. The case occurred at a time when a new government had recently assumed office. The post of Attorney General, associated with disputes of this type, had not yet been filled and other administrative difficulties made it virtually impossible for India to adhere to the time-limit originally set for India to present its first submission.
- In a letter dated 8 April 1998, the United States opposed the granting of additional time to India. The request was untimely. The WTO rules imposed very strict deadlines to which all Members had agreed. The United States would face administrative constraints if the proceedings had to be re-scheduled. In any event, the United States' first submission was straightforward and India had the necessary expertise available in Geneva to deal with it.
- On 15 April 1998 we ruled as follows:
"The Panel has carefully reviewed the arguments of the parties. The Panel notes that India could have raised several of the reasons mentioned in its letter during the organizational meeting held on 27 February 1998. However, pursuant to Article 12.10 of the DSU, "in examining a complaint against a developing country Member, the panel shall accord sufficient time for the developing country Member to prepare and present its argumentation." In light of this provision, and considering the administrative reorganization taking place in India as a result of the recent change in government, the Panel has decided to grant an additional period of time to India to prepare its submission. However, bearing in mind also the need to respect the time frames of the DSU and in light of the difficulties of rescheduling the meeting of 7 and 8 May, the Panel considers that an additional period of ten days would represent "sufficient time" within the meaning of Article 12.10 of the DSU. India is therefore granted until 1 May 1998 (5 p.m.) to submit its first written submission to the Panel. The original date of the first meeting remains unchanged as 7 and 8 May."
2. Consultation with the International Monetary Fund
- During the course of its proceedings, the Panel decided to consult with the International Monetary Fund. The parties had divergent opinions on the possible role of the IMF in this instance. The United States was of the opinion that the Panel had before it sufficient evidence, but should consult the IMF if the Panel had any doubts. For the United States, the terms of Article XV:2 of GATT 1994, read as per paragraph 2(b) of the Incorporation Clause of GATT 1994 in Annex 1A of the WTO Agreement, require the WTO to consult with the IMF in specific matters, and the WTO includes panels. For India, on the contrary, to interpret the terms of Article XV to refer to panels ignores the division of functions between the different bodies of the WTO, and only the General Council and BOP Committee are covered by this provision. The parties also had diverging views on the extent of the discretion enjoyed by the Panel with regard to determinations of the IMF. In the view of the United States, the Panel must accept as dispositive the determination of the IMF on the matters of fact specified in Article XV:2, and in particular 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). This took nothing away from the efficacy of the Panel's final decision phase. For India, 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 India's view, the argument of the United States, however, 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. For India, Articles XV:2 and XVIII:12 left no doubt that the IMF did not take final decisions on the legal status of restrictions under the WTO.
- Article 13.1 of the DSU provides that each panel has "the right to seek information and technical advice from any individual or body which it deems appropriate." Article 13.2 further provides that panels may "seek information from any relevant source and may consult experts to obtain their opinion on certain aspects of the matter". With regard to balance-of-payments issues, the IMF, as a recognized body with extensive expertise in these matters, is obviously a highly relevant source of information. We find that, whatever the interpretation of Article XV:2 of GATT 1994, Article 13.1 of the DSU entitles the Panel to consult with the IMF in order to obtain any relevant information relating to India's monetary reserves and balance-of-payments situation which would assist us in assessing the claims submitted to us. Although the BOP Committee had previously consulted with the IMF, there were two particular reasons for the Panel to consult the IMF on its own account. First, the BOP Committee itself had not made a determination based on Article XVIII:B following its consultation with the IMF. Secondly, the balance-of-payments situation of India might have changed in the meantime. Consequently, the Panel submitted a number of questions to the IMF, by a letter dated 3 July 1998, having regard to Article 13 of the DSU and to Article XV:2 of the GATT 1994.
270 The IMF provided answers to these questions on July 17, 1998. These answers were duly taken into account in our assessment of the claims before us.
- We do not find it necessary for the purposes of this case to decide the extent to which Article XV:2 may require panels to consult with the IMF or consider as dispositive specific determinations of the IMF. As will be seen in Section V.G infra, we accept in the circumstances of this case certain assessments of the IMF. In this regard, however, we note that whether or not the provisions of Article XV:2 extend to panels, the Panel has the responsibility of making an objective assessment of the facts of the case and the conformity with GATT 1994, as incorporated into the WTO Agreement, of the Indian measures at issue, in accordance with Article 11 of the DSU.
C. Scope of the Complaint
- We note that the product coverage of the complaint is not at issue here. In its first submission, the United States clearly stated that its claims were limited to the measures applicable to the 2,714 HS tariff lines notified by India on 19 May 1997 in Annex I, Part B of document WT/BOP/N/24 under paragraph 9 of 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"). However, in light of the arguments exchanged by the parties, we need to define more precisely our understanding of some of the claims made by the United States. In particular, we must consider (1) whether the claims of violation of Article XIII of GATT 1994 and Article 3 of the Agreement on Import Licensing Procedures are properly before the Panel, (2) the extent to which we should consider the provisions of Article XVIII:B, other than Article XVIII:11, which is the only paragraph of Article XVIII expressly contained in the United States' request for establishment of a panel and (3) the relationship of the United States’ claim to India's claim that it is entitled to a phase-out period for its balance-of-payments measures.
1. Claims of violation of Article XIII of GATT and of Article 3 of the Agreement on Import Licensing Procedures
- In its first written submission, the United States claimed that the measures at issue violate Articles XI:1 and XVIII:11 of GATT 1994, as well as Article 4.2 of the Agreement on Agriculture. The United States did not refer at that stage to Article XIII of GATT 1994 or to Article 3 of the Agreement on Import Licensing Procedures (hereafter the "Import Licensing Agreement"), which were mentioned in its request for the establishment of a panel and hence incorporated in our terms of reference.
271 India claimed that, since the United States did not elaborate on its claims under Article XIII of GATT 1994 and Article 3 of the Licensing Agreement in its first submission, it could not do so later. The United States replied that it is only in the event the Panel does not agree that India lacks justification for the challenged measure that the United States requests a finding that the measures are not applied in accordance with the requirements of Article XIII:2(a) of GATT 1994.
- A claim of violation of Article 3 of the Import Licensing Agreement is contained in the United States' request for establishment of a panel and thus, in our terms of reference. The United States, however, did not develop any legal arguments relating to such claim at any point of the proceedings, nor did it request a finding on the basis of that provision. We therefore do not address that claim.
- With regard to the claim of violation of Article XIII of GATT 1994, since the resolution of the claims under Articles XI and XVIII:B may make it unnecessary to resolve that claim, we will defer consideration of this issue.
2. Provisions of Article XVIII:B other than Article XVIII:11
- India has raised the issue of the extent to which the Panel should consider the provisions of Article XVIII:B and the 1994 Understanding on Balance-of-payments Provisions in its analysis of the US claims. In this regard, we note that the United States has not raised any claim regarding violations of Article XVIII:B or the 1994 Understanding, apart from Article XVIII:11. Accordingly, we will not address any claims of the United States based on the 1994 Understanding or on provisions of Article XVIII:B other than Article XVIII:11.
- However, the provisions of Article XVIII:B (other than Article XVIII:11) and the 1994 Understanding are part of the context of those provisions alleged by the United States to have been violated. In addition, India also refers to various provisions of Article XVIII:B in its defence. In our view, the defending party is not restricted in the provisions of the Marrakesh Agreement Establishing the World Trade Organization (hereinafter "WTO Agreement") that it can invoke in its defence. In these circumstances, we find it relevant to consider the provisions of Article XVIII:B and the 1994 Understanding as part of the context in deciding on the claims of the United States and to examine them in relation to the defence raised by India.
3. Phase-out period
- India claims that the central issue in this dispute is the length of the time-schedule that India should be permitted in order to relax progressively and eliminate certain restrictions on imports that India has maintained for balance-of-payments purposes. The United States replies that the case is not about the phase-out schedule for the Indian restrictions. We note that the United States does not seek any findings or recommendations regarding the duration of the phase-out period. The United States seeks findings that the challenged measures are quantitative restrictions subject to Article XI:1 and that they are not justified under the provisions of Article XVIII:11. We therefore consider the issue of the phase-out only to the extent relevant to the defence raised by India and in our suggestions for implementation of the recommendations of the DSB.
D. Competence of the Panel
- In their submissions, the parties raise fundamental issues relating to the competence of panels to review balance-of-payments measures and their justification under Article XVIII:B. We therefore examine at the outset these issues of competence.
1. The issue: are panels competent to review the justification of balance-of-payments measures under Article XVIII:B?
- In response to the claim of the United States that its balance-of-payments measures violate Articles XI:1 and XVIII:11, India’s defence is that, even if its measures violate Article XI:1, they are permitted as balance-of-payments measures under Article XVIII:B and, as such, do not violate Article XVIII:11. Moreover, India considers that this Panel is not competent to make findings with respect to the justification of the measures taken under Article XVIII:B, as this is a matter in respect of which, according to India, exclusive authority has been assigned by GATT 1994 to the BOP Committee and the General Council. India claims that a panel cannot substitute itself for the BOP Committee or the General Council with regard to the justification of measures under Article XVIII:B and that acceptance of the arguments of the United States would result in making whole paragraphs of Article XVIII:B and whole sections of the 1994 Understanding redundant, altering fundamentally the negotiated balance reflected in the text of Article XVIII:B and the 1994 Understanding.
- The United States argues that the texts of neither Article XII nor Article XVIII:B prohibit recourse to dispute settlement under Article XXIII. Nor does the text of Article XXIII or of the DSU contain any such prohibition. Article XVIII of GATT 1994 is among the WTO provisions that have been made subject to the DSU as set forth in Appendix 1 to the DSU and for which no special or additional provisions are found in Appendix 2 of the DSU. In that light, the United States argues that India’s suggestion that the committee that holds Article XVIII:12(c) consultations is the sole body able to decide the question before this Panel is an untenable interpretation of GATT 1994. The United States further argues that footnote 1 of the 1994 Understanding confirms the availability of dispute settlement in relation to measures taken for balance-of-payments purposes.
- Pursuant to Article 3.2 of the DSU, our task is to clarify the existing provisions of the covered agreements in accordance with customary rules of interpretation of public international law. The Appellate Body has stated that these rules are the criteria contained in Articles 31 and 32 of the Vienna Convention on the Law of Treaty (1969) (hereafter the "Vienna Convention").
- In addition, on the basis of Article XVI:1 of the WTO Agreement, we are also guided by the decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947. Indeed, the parties refer to the practice of GATT CONTRACTING PARTIES and the role of the procedures under Article XVIII:B of GATT in their arguments regarding the competence issue. Moreover, the first sentence of footnote 1 of the 1994 Understanding, which was negotiated as part of the WTO Agreement, provides that "[n]othing in this Understanding is intended to modify the rights and obligations of Members under Articles XII or XVIII:B of GATT 1994".
- In the light of these elements, we first examine, to the extent relevant to our discussion, the mechanisms which the GATT provided for the surveillance and review of balance-of-payments measures prior to the entry into force of the WTO Agreement. Our focus is first on Article XVIII:B, the provision applicable to balance-of-payments measures taken by developing countries which came into effect in 1957, and its Ad Note, together with relevant texts adopted in 1970, 1972 and 1979 (with a reference, as appropriate, to Article XII, the balance-of-payments provision applicable to developed countries), then on Article XXIII, the provision regarding the settlement of disputes in general under GATT 1947.
- We then proceed with the analysis of the applicable provisions under the WTO Agreement. The text of Article XVIII:B is unchanged. It should now be read together with the 1994 Understanding. The text of Article XXIII of GATT is also unchanged in the WTO. However, it should now be read in conjunction with the DSU.
To continue with Surveillance and review of balance-of-payments measures
265 BOP/R/221, 1 December 1994, para. 4.
266 WT/BOP/R/11, 23 January 1996.
267 WT/BOP/R/22, 3 March 1997.
268 Finally, a period of six years was proposed by India in bilateral consultations.
269 WT/BOP/R/32, 18 September 1997. See also Section II:A supra.
270 The parties were provided with the opportunity to comment on the questions put to the IMF.
271 WT/DS90/8 and WT/DS90/9.
272 For a detailed description of the arguments of the parties, see Section III.D.1 supra.