2. Surveillance and review of balance-of-payments measures prior to the entry into force of the WTO

(a) Article XVIII:B

28. Article XVIII:B was added to the GATT text in 1957 to provide special and differential treatment for developing countries in respect of their balance-of-payments measures. ²⁷³ Article XVIII:12 established several procedures through which the CONTRACTING PARTIES collectively could exercise surveillance over balance-of-payments measures taken by developing contracting parties and review their consistency with Article XVIII:B. Hereafter, we first identify the nature of these procedures, then examine the practice under Article XVIII:12.

(i) Article XVIII:12 procedures

29. Article XVIII:12 provided for two different types of procedures: procedures for consultations (Article XVIII:12(a) and (b)) and dispute-settlement like procedures (Article XVIII:12(c) and (d)). Procedures for consultations on balance-of-payments restrictions were further detailed in decisions approved on 28 April 1970 ("full consultation procedures") and on 19 December 1972 ("simplified consultations"), ²⁷⁴ and in the Declaration on Trade Measures taken for Balance-of-Payments Purposes adopted on 28 November 1979 (hereinafter "the 1979 Declaration"). Article XVIII:12(a) required a contracting party applying new or substantially intensified measures under Article XVIII:B to consult as to the nature of its balance-of-payments difficulties, alternative corrective measures which might be available and the possible effect of the restrictions on the economies of other contracting parties. ²⁷⁵ Article XVIII:12(b) provided for the review of measures applied under Article XVIII:B and for regular consultations on such measures.
30. Article XVIII:12(c)(i) provided that if in the course of consultations, the CONTRACTING PARTIES found that the restrictions were not consistent with the provisions of Article XVIII:B or Article XIII, they "shall" indicate the nature of the inconsistency and "may" advise that the restrictions be suitably modified. Article XVIII:12(c)(ii) further provided that if in the course of consultations, the CONTRACTING PARTIES determined that the restrictions were being applied in a manner involving an inconsistency "of a serious nature" with the provision of Article XVIII:B or Article XIII and that damage to the trade of any contracting party was caused or threatened thereby, they "shall" make appropriate recommendations for securing conformity with such provisions within a specified period. If the recommendations were not complied with, the CONTRACTING PARTIES could release any contracting party, whose trade was adversely affected by the restrictions, from such obligations under GATT to the contracting party applying the restrictions as they determined to be appropriate.
31. Under the terms of Article XVIII:12(d), the CONTRACTING PARTIES were to invite any contracting party applying balance-of-payments restrictions under Article XVIII:B to enter into consultations with them at the request of any contracting party which could establish a prima facie case that the restrictions were inconsistent with the provisions of Article XVIII:B or Article XIII and that its trade was adversely affected thereby. If the consultations were unsuccessful and the CONTRACTING PARTIES determined that the restrictions were being applied inconsistently with such provisions and that damage to the trade of the complaining contracting party was caused or threatened, they were to recommend the withdrawal or modification of the restrictions within a prescribed time period. If the recommendations were not complied with, the CONTRACTING PARTIES could release the complaining contracting party from such GATT obligations to the contracting party applying the restrictions as they determined to be appropriate.
32. Determinations under Article XVIII:12 were to be made expeditiously and if possible within 60 days of the initiation of consultations. ²⁷⁶
33. Paragraph 13 of the 1979 Declaration provides that if the BOP Committee finds an inconsistency with, inter alia, Article XVIII, it shall in its report to the Council make such findings as will assist the Council in making appropriate recommendations designed to promote the implementation of Article XVIII. The Council is directed to keep under surveillance any matters on which it has made recommendations.

(ii) Practice of the BOP Committee/Council

34. Numerous consultations were held in the past under Article XVIII:B concerning balance-of-payments measures taken by developing countries. The consultations led to reports which expressed in most cases the unanimous view of all the contracting parties present and which were subsequently adopted by the Council. We are not aware of instances, at least since 1970, ²⁷⁷ where consultations led to formal recommendations, explicitly based on Article XVIII:12(c)(ii), that measures determined to be unjustified under Article XVIII:B had to be brought into conformity with that provision.
35. A Secretariat note concerning the period from 1975 to 1988 indicates that, in a number of cases, the BOP Committee explicitly recognized the existence of a balance-of-payments justification. On the other hand, the Committee never explicitly determined that a particular measure was unjustified under the balance-of-payments provisions of the GATT. Rather, various levels of tone have been used to indicate the strength of the Committee's doubts concerning the justification of measures in particular circumstances. Strong language was, for instance, used in the 1987 report concerning Korea. The report stated that "[t]he prevailing view expressed in the Committee was that the current situation and outlook for the balance-of-payments was such that import restrictions could no longer be justified under Article XVIII:B." ²⁷⁸ With regard to the discussion and adoption of reports, the same Secretariat note indicates that

"on a number of occasions contracting parties, while not opposing the adoption of reports, have used the occasion of their adoption to express regret at the continued maintenance of import restrictions and to press for faster or more complete liberalization. In some cases, countries have also reserved their GATT rights in relation to measures which they saw as damaging their interests and whose maintenance they believed not to be in conformity with GATT. For example, in 1985 Japan reserved its rights in relation to measures maintained by Portugal, and Hungary did so in relation to a Turkish measure (�). In November 1987 the point was made that contracting parties retain all their GATT rights in respect of measures maintained for balance-of-payments purposes, and that review of such restrictions by the Balance-of-payments Committee, and adoption by the Council of the Committee's report, did not constitute acceptance that they were consistent with GATT." ²⁷⁹

We also note that it appears that Article XVIII:12(d) has not been resorted to. ²⁸⁰

(b) Article XXIII

(i) The general procedure for the settlement of disputes

36. At the origin of GATT, the general procedure contemplated for the settlement of disputes between contracting parties bore marked similarities with the procedure which was available to contracting parties under Article XVIII:12(d). In the course of time, the procedure based on Article XXIII evolved as a result of the development of the system of panels.

(ii) Practice under Article XXIII with respect to balance-of-payments measures

37. Prior to the WTO Agreement, recourse to dispute settlement with regard to balance-of-payments measures occurred from time to time, but it was infrequent. The United States cites in particular the Belgian Dollar Import Restrictions case and the German Import Restrictions case. The Belgian Dollar Import Restrictions case concerned measures maintained by Belgium on imports from the dollar area, which in the view of the United States were not justified by Belgium's dollar balance-of-payments position. A Working Party was established in 1952 following a request under Article XXIII, but no ruling was made on the issue, since a settlement was reached between the parties. The measures were progressively reduced and eliminated. ²⁸¹ The German Import Restrictions case did not directly involve a determination of consistency of measures with Article XII through dispute settlement. ²⁸²
38. In another case, not cited by the parties and involving the United States and India, the United States initiated consultations regarding the justification of balance-of-payments measures maintained by India. Although a panel was established in November 1987, the parties reached a mutually agreed solution and no report was issued by the panel. ²⁸³
39. The only adopted panel report to have addressed explicitly the issue of the availability of dispute settlement procedures under Article XXIII, in relation to the justification of measures taken for balance-of-payments purposes under Article XVIII:B, concerned a dispute relating to measures applied by Korea on the importation of beef. ²⁸⁴
40. In that instance, the BOP Committee had previously reviewed these measures and in its conclusions, noted that

"The prevailing view expressed in the Committee was that the current situation and outlook for the balance of payments was such that import restrictions could no longer be justified under Article XVIII:B" [�] "[T]he Committee therefore stressed the need to establish a clear timetable for the early, progressive removal of Korea's trade measures maintained for balance-of-payments purposes" ²⁸⁵

41. In the panel proceedings, Korea argued that its import restrictions could not be challenged under Article XXIII and the panel therefore examined the issue of availability of dispute settlement procedures under Article XXIII in relation to import restrictions applied on balance-of-payments grounds:

"The Panel examined Korea's contention that its import restrictions, referred to under paragraph 111(b) above, were justified under the provisions of Article XVIII:B. The Panel noted Korea's view that the compatibility with the General Agreement of Korea's import restrictions could not be challenged under Article XXIII because of the existence of special review procedures in paragraphs 12(b) and 12(d) of Article XVIII:B, and the adoption by the CONTRACTING PARTIES of the results of the paragraph 12(b) reviews in the Balance-of-Payments Committee. The Panel decided first to consider whether the consistency of restrictive measures with Article XVIII:B could be examined within the framework of Article XXIII.

The Panel considered the various arguments of the parties to the dispute concerning past deliberations by the CONTRACTING PARTIES on the exclusivity of special review procedures under the General Agreement. However, the Panel was not persuaded that any of these earlier deliberations in the GATT were directly applicable to the present dispute. Moreover, the Panel had a clear mandate to examine Korea's beef import restrictions under Article XXIII. The Panel's terms of reference, as agreed by Korea and the United States, and approved by the Council, required the Panel, however, to examine the beef import restrictions "in the light of the relevant GATT provisions", which included Article XVIII:B.

The Panel examined the drafting history of Article XXIII and Article XVIII, and noted that nothing was said about priority or exclusivity of procedures of either Article. The Panel observed that Article XVIII:12(b) provided for regular review of balance-of-payments restrictions by the CONTRACTING PARTIES. Article XVIII:12(d) specifically provided for consultations of balance-of-payments restrictions at the request of a contracting party where that party established a prima facie case that the restrictions were inconsistent with the provisions of Article XVIII:B or those of Article XIII, but the Article XVIII:12(d) provision had hitherto not been resorted to. In comparison, the wording of Article XXIII was all-embracing; it provided for dispute settlement procedures applicable to all relevant articles of the General Agreement, including Article XVIII:B in this case. Recourse to Article XXIII procedures could be had by all contracting parties. [�]"

42. The panel highlighted the differences between the dispute settlement procedures under Article XXIII and the procedures under Article XVIII:B:

"[T]he Panel noted that in GATT practice there were differences with respect to the procedures of Article XXIII and Article XVIII:B. The former provided for the detailed examination of individual measures by a panel of independent experts whereas the latter provided for a general review of the country's balance-of-payments situation by a committee of government representatives." (footnote omitted)

43. It concluded that it was competent to review balance-of-payments measures in the following terms:

"[�]excluding the possibility of bringing a complaint under Article XXIII against measures for which there was claimed balance-of-payments cover would unnecessarily restrict the application of the General Agreement. This did not preclude, however, resort to special review procedures under Article XVIII:B. Indeed, either procedure, that of Article XVIII:12(d) or Article XXIII, could have been pursued by the parties in this dispute. But as far as this Panel was concerned, the parties had chosen to proceed under Article XXIII." ²⁸⁶

44. The panel then considered Korea's balance-of-payments justification under Article XVIII:B and examined the balance-of-payments situation of Korea. The panel "considered that it should take into account the conclusions reached by the Committee on balance-of-payments in 1987". The panel also looked at other information available up to February 1989, noted that there was a continued improvement in Korea's balance-of-payments situation and then reached a conclusion similar to that of the CONTRACTING PARTIES when they adopted the Committee report in 1987. The CONTRACTING PARTIES adopted the panel report in November 1989. ²⁸⁷
45. India argues that in the Korea - Beef case, the panel did not make its own finding on the balance-of-payments situation, since conclusions had been reached in the Committee, which the panel took into account. However, we find no evidence in the report 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 Committee had not issued any report. Indeed, as noted in paragraph 5.41 above, the panel states in its report that it has a clear mandate to examine Korea's beef import restrictions under Article XXIII and that the wording of its mandate was all embracing; it provided for the panel to review the matter in the light of the relevant GATT provisions, which included Article XVIII:B. In particular, the panel discussed expressly the availability of dispute settlement procedures with regard to balance-of-payments measures and concluded that it was competent without reference to the existence of specific Committee conclusions in the case submitted to it. Furthermore, in its assessment of the balance-of-payments situation of Korea, it had not simply taken note of the existence of a violation on the basis of the Committee's conclusions alone. Rather, the panel determined the absence of a balance-of-payments justification, in light of the conclusions of the Committee, and also of updated information relating to the period elapsed since the adoption of the Committee's conclusions. The report thus tends rather to show that even in a situation where conclusions had emerged from the Committee�s consultations, the panel, while taking account of such conclusions, felt itself competent to carry out its own updated assessment of the balance-of-payments situation of Korea.
46. Thus the Korea - Beef case is an example of recourse to the GATT dispute resolution mechanism under Article XXIII with respect to Article XVIII:B. Although it is the only case where the justification of balance-of-payments measures was clearly challenged and fully examined by a panel, its relevance is increased by the fact that it contains a reasoned discussion of the issue and that there was a consensus to adopt it. ²⁸⁸ This would tend to support the view that, as recently as 1989, the time of its adoption, a GATT contracting party could have recourse to Article XXIII with respect to measures for which Article XVIII:B justification was claimed.

(c) Summary

47. Numerous consultations were held in the framework of Article XVIII:12(b). However, as indicated in paragraphs 5.34 and 5.35, the specific provisions of Article XVIII:12(c)(ii) and XVIII:12(d) have not been explicitly referred to by the GATT CONTRACTING PARTIES for the purpose of prescribing the removal of measures unjustified under Article XVIII:B. However, GATT contracting parties, at times, did resort to the general dispute settlement procedures of Article XXIII of GATT in order to obtain a ruling with respect to balance-of-payments measures, including regarding their justification. There are thus instances suggesting acceptance that prior to the entry into force of the WTO Agreement, recourse could be had either to the special procedures of Articles XII or XVIII or to Article XXIII in respect of balance-of-payments measures. ²⁸⁹

3. Applicable provisions under the WTO Agreement

(a) Article XVIII:B

48. As already indicated, the text of Article XVIII:B is unchanged. ²⁹⁰ It should now be read in light of the 1994 Understanding, which clarifies the provisions of Articles XII and XVIII:B and of the 1979 Decision. The 1994 Understanding, which refers to the procedures for balance-of-payments consultations adopted in 1970 ("full consultation procedures") and 1972 ("simplified consultation procedures") as well as the 1979 Decision, contains provisions on the application of balance-of-payments measures, as well as provisions relating to the procedures for balance-of-payments consultations and their conclusion, but it does not explicitly refer to Articles XVIII:12(c) and (d). Footnote 1 to the 1994 Understanding, however, as was previously noted, indicates 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". The same footnote further states that "[t]he provisions of Article XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked with respect to any matters arising from the application of restrictive import measures taken for balance-of-payments purposes". The exact meaning of this reference, which is a subject of debate between the parties, is discussed infra. ²⁹¹
49. Since the entry into force of the WTO Agreement, WTO Members have not to date made express use of or reference to the procedures under Articles XII(c) and (d) and XVIII:12(c) and (d). It should nevertheless be mentioned that the BOP Committee has in one instance found that the measures under review, maintained by Nigeria, "could no longer be justified under Article XVIII:B and the Understanding on Balance-of-Payments Provisions of GATT 1994" and "recalled Nigeria's commitments to make all restrictive trade measures price-based and to eliminate them by disinvoking Article XVIII:B". ²⁹² The Committee did, not, however, expressly refer to a particular provision of Article XVIII:12 in making this determination.

(b) Article XXIII and the DSU

50. Article XXIII is now elaborated by the DSU. Pursuant to its Article 1, the Dispute Settlement Understanding applies to all the multilateral agreements, subject to special or additional provisions contained therein. We must therefore first consider whether any such provisions exist which would apply to this dispute and be relevant to the determination of the scope of competence of panels in relation to balance-of-payments measures. We note in this instance that there is no specific provision in the DSU or in Article XVIII that would establish such special or additional rules and procedures applicable to this dispute.
51. While parties disagree as to the degree of inter-relation between the DSU and Article XVIII of GATT 1994, neither party claims that the Panel is subject to specific procedures under Article XVIII other than the normal DSU procedures.
52. The only provision of Article XVIII:B, the DSU or the WTO Agreement which expressly addresses the relationship between dispute settlement under the DSU and measures taken for balance-of-payments purposes is the second sentence of footnote 1 to the 1994 Understanding, which provides that:

"The provisions of Article XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked with respect to any matters arising from the application of restrictive import measures taken for balance-of-payments purposes."

53. Hereafter, we discuss the meaning of the second sentence of footnote 1 to the 1994 Understanding, since it bears directly on the relation between Article XVIII:12 and Article XXIII of GATT 1994. As noted in paragraphs 5.24 and 5.25 above, the discussion will be based on the criteria set forth in Articles 31 and 32 of the Vienna Convention. It will also be guided by decisions, procedures and customary practices under GATT 1947.

To continue with Competence of panels

²⁷³ For a fuller description of the special and differential treatment provided for in Article XVIII, see infra paras. 5.152-5.157.

²⁷⁴ BISD18S/48-53 and BISD 20S/47-49.

²⁷⁵ A similar provision is found in Article XII:4(a).

²⁷⁶ Article XVIII:12(f).

²⁷⁷ L/4200, 18 July 1975, para. 39 and document MTN.GNG/NG7/W46, 24 June 1988, para. 66, further discussed infra at para. 5.35.

²⁷⁸ BOP/R/171, para. 22.

²⁷⁹ Consultations held in the Committee on Balance-of-Payments Restrictions under Articles XII and XVIII:B since 1975, Note by the Secretariat, MTN.GNG/NG7/W/46, 24 June 1988, para. 66.

²⁸⁰ Footnote 289 to para.5.47 infra.

²⁸¹ GATT/CP.6/50, GATT/IC/7, GATT/IC/SR.3 and SR.7/11.

²⁸² In the German Import Restrictions case, Germany consulted within the Consultations Committee in June 1957, under Article XII:4(b). At their twelfth session, the CONTRACTING PARTIES decided that the Federal Republic of Germany was no longer entitled to maintain import restrictions under Article XII for balance-of-payments purposes. When the report was presented for approval by the CONTRACTING PARTIES, the Federal Republic of Germany presented a statement announcing further phased liberalization measures and presenting "some facts and points of view" it considered of importance for appreciating the measures. A Working Party was established under Article XII to consider this statement and "to collect and present in an orderly fashion for transmission to the German government the initial reactions and comments of contracting parties [�]". The issue was further examined in 1958 and 1959, and a waiver was eventually adopted, without prejudice to the legal arguments raised by Germany that it was entitled to maintain import restrictions under paragraph 1 (a) (ii) of the Torquay protocol (as existing legislation).

²⁸³ The US request for establishment of a panel was based on Article XXIII:2 of GATT. The United States argued that the import restrictions maintained by India on almonds were "impermissible under Article XI of the General Agreement" and were "not justified under Article XVIII, Section B, as claimed by the Government of India, because India ha[d] not followed the requirements incumbent on a contracting party imposing restrictions under that section." In the discussions of the Council prior to the establishment of the panel, a number of delegations questioned the appropriateness of resort to dispute settlement procedures in relation to balance-of-payments measures taken by developing countries under Article XVIII:B and expressed concern that a precedent might be set by the establishment of a panel in this matter. Other delegations, however, supported the view that there was no reason for dispute settlement procedures under Article XXIII not to be available with regard to balance-of-payments measures as for other measures. Although a panel was established, the parties reached a mutually agreed solution and no report was issued by the panel (See L/6197, C/M/215, p. 5-7, C/154 and C/154/Add.1.).

²⁸⁴ There were in fact three complaints, leading to almost identical reports. See Panel Report on Republic of Korea - Restrictions on Imports of Beef, Complaint by the United States, adopted on 7 November 1989, BISD 36S/268 (hereinafter the "Korea - Beef case"). See also 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.

²⁸⁵ BOP/R/171, 10 December 1987, p. 7.

²⁸⁶ Op. Cit., para. 119.

²⁸⁷ BISD 36S/268.

²⁸⁸ In that respect, we recall that the Appellate Body, in its report on Japan � Taxes on Alcoholic Beverages, adopted on 1 November 1996, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, stated, at p. 14, that "Adopted panel reports are an important part of the GATT acquis. [�] They create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute."

²⁸⁹ Indeed, a leading treatise on GATT commented in 1969: "All four of these "release remedy" procedures in Article XII and XVIII parallel in many respects the provisions of Article XXIII. But the BOP procedures are both more restrictive than those of Article XXIII, so in all probability a damaged party is likely to use Article XXIII rather than the BOP procedures. This author can find no record of any procedure actually brought under the subparagraph (d) complaint procedures and no record of a release approval under either the (c) or (d) subparagraphs of Article XII, paragraph 4, or Article XVIII, paragraph 12, but some Article XXIII complaints might have been eligible for the BOP procedure". (John H. Jackson, World Trade and the Law of GATT (1969), p. 706).

²⁹⁰ The Ministerial Conference has not formally assigned the functions of the CONTRACTING PARTIES in Article XVIII to any body. However, under the 1979 Declaration and the 1994 Understanding and decisions referred to therein, the oversight of Articles XII and XVIII:B is assigned to the BOP Committee, which reports to the General Council. The General Council acts on recommendations of the BOP Committee.

²⁹¹ See infra the discussion starting para. 5.55.

²⁹² WT/BOP/R/18, 16 October 1996, para. 10. See also the reports of the Committee on the resumed consultations in 1997 and 1998, in WT/BOP/R/25 (27 March 1997) and WT/BOP/R/41 (7 April 1998).