6 April 1999
India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products
Report of the Panel
4. Competence of panels to review the justification of measures taken under Article XVIII:B
- Pursuant to Article 31 of the Vienna Convention, we must interpret the relevant provisions by relying on the ordinary meaning of the terms taken in their context and in the light of the object and purpose of the WTO Agreement. While all these elements are part of one single assessment, for the sake of clarity, we examine the different elements of Article 31 successively, examining first the terms of Footnote 1 of the 1994 Understanding (a), before considering them in their context (b) and in relation to the object and purpose of the WTO Agreement (c).
(a) Terms of the second sentence of footnote 1 to the 1994 Understanding
- The parties disagree on the interpretation of the terms of the second sentence of footnote 1 to the 1994 Understanding, and in particular on the interpretation of the indication that dispute settlement procedures are available regarding "any matters arising from the application of measures (…)"(emphasis added). We recall the arguments of the parties relating to the terms of the second sentence of the footnote before analysing these terms.
(i) Arguments of the parties
- In the view of India, the reference in footnote 1 to the 1994 Understanding to "matters arising from the application of restrictive import measures" requires that a distinction be made between "application" of measures and their "justification" under the balance-of-payments provisions of GATT 1994. According to India, the scope of the footnote is limited to import restrictions that have a valid balance-of-payments justification and it does not modify a Member's right to a determination of the justification of its import restrictions by the BOP Committee in accordance with the provisions of Article XVIII:12. India argues that the consistency of balance-of-payments measures with Articles I, II, X, and XIII of the GATT and the provisions of other WTO agreements, such as the Agreement on Import Licensing Procedures, could be examined by a panel but the question of their balance-of-payments justification should be determined in accordance with the procedures set out in Articles XV:2 and XVIII:B of GATT 1994, the 1979 Declaration on Trade Measures Taken for Balance-of-Payments Purposes and the 1994 Understanding. India is of the opinion that the footnote indirectly confirms that disputes arising from the other matters regulated in the 1994 Understanding, in particular the matters regulated in paragraph 13, are not meant to be resolved by panels. In contrast, the reference to "restrictions... being applied in a manner involving an inconsistency" in Article XVIII:12(c)(ii) must be interpreted to refer both to import restrictions lacking balance-of-payments justification and import restrictions administered in a GATT-inconsistent manner.
- The United States replies that the text of footnote 1 to the 1994 Understanding confirms rather than denies the availability of dispute settlement. In the view of the United States, had the drafters of the GATT 1994 intended to impose restrictions on dispute settlement, they would have used words of prohibition or limitation. For the United States, even if India’s interpretation of footnote 1 were to be accepted, this dispute would be properly before the Panel since it has "arisen" precisely because of India’s "application" of quantitative restrictions that it originally instituted for balance-of-payments purposes: India is applying the challenged measures in excess of what is necessary to address its balance-of-payments situation. For the United States, lawful application of measures taken for balance-of-payments purposes includes the obligation not to apply measures in excess of what is necessary to address the balance-of-payments situation and the removal of unjustifiable measures is a part of the "application" of such measures. For the United States, footnote 1 served a function by confirming the availability of dispute settlement under Article XXIII in balance-of-payments cases, shortly after the panel reports on European Communities – Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region (hereafter EC – Citrus),
294 EEC – Member States' Import Regimes for Bananas (hereafter EC- Bananas I) 295, and Korea - Beef. 296 Negotiators were aware of the possibility that panels would examine quantitative restrictions for which balance-of-payments cover had been claimed and intentionally did not exclude them from the scope of panel review in the WTO system. Finally, India’s argument would unnecessarily restrict the application of the WTO Agreement. If India’s approach were accepted, a mere claim of balance-of-payments cover could be used to frustrate justified access to dispute settlement. 297
(ii) Ordinary meaning of the terms "application of measures" in footnote 1 to the 1994 Understanding
- We must first consider the ordinary meaning of the terms "application of measures". A dictionary definition of "application" includes "use, employment, a specific use or purpose for which something is put, the bringing of a general or figurative statement, a theory, principle, etc., to bear upon a matter; applicability in a particular case."
298 The "application" of a measure would thus refer to the fact that a measure is in use. The terms "application of restrictive measures taken for balance-of-payments purposes", in their ordinary meaning, therefore seem to refer simply to the fact that a measure is applied for balance-of-payments purposes. The use of these words, in themselves and taken in their ordinary meaning, therefore does not suggest an opposition between the "application" of the measures and their "justification" under Article XVIII:B. To so interpret them would require additional terms to express a restriction or an opposition between two concepts that does not appear in the sentence at issue.
- Furthermore, taking a word in isolation would be applying Article 31 of the Vienna Convention incorrectly. 299 We therefore look at the other terms of the sentence. The expression "any matters arising from the application of restrictive import measures taken for balance-of-payments purposes" (emphasis added), taken in its ordinary meaning, does not contain an explicit limitation to issues relating to the manner in which measures are administered, to the exclusion of their justification, as suggested by India. The sentence is in the form of an affirmative statement, and the expression "any matters arising from" is very broad and all-encompassing. It does not distinguish between one or another possible legal basis for action. The sentence therefore seems to be an affirmation of the availability of dispute settlement rather than an expression of restriction. The use of the term "any matters" suggests that the matters that may be considered by a panel include, as in the present case, a question of justification of the measure under Article XVIII:9, i.e. whether the Member actually faces balance-of-payments difficulties within the meaning of Article XVIII:9 and whether it is entitled to maintain balance-of-payments measures. Indeed, if the meaning of the footnote had been intended to be restrictive (i.e. to mean that dispute settlement procedures may only be invoked with respect to matters arising from the "application" of measures, as opposed to their justification), the use of the words "any matters" would not have been necessary to convey this meaning. In fact it would have confused the meaning of the sentence.
- We also note that reviewing the application of measures is the purpose of dispute settlement. WTO dispute resolution is typically initiated with respect to measures 300 and a measure can only be reviewed by a panel if it is applied (a measure that is not applied can only be reviewed if it is mandatory legislation, i.e., it is certain that it will be applied). 301 Moreover, in a practical sense, the consideration of the application of a measure must necessarily embrace its justification. The notion of application includes both the mode of application and the level of application. Even if one were to confine the review of a measure to its "application" within the meaning that India claims it has, then the review still could find that the level of application consistent with the rule under which it is claimed to be justified is zero. In effect, "justification" within the meaning given to it by India inevitably would have been reviewed. As a result, the wording used by the drafters of the footnote is consistent with dispute settlement principles: by saying that the DSU can be invoked with respect to matters arising from the application of restrictive import measures, the footnote does not in our view qualify the role of dispute settlement in the context of balance-of-payments problems. Rather, as the United States pointed out, it seems to re-affirm the application of the DSU.
- The terms of the second sentence of footnote 1 to the Understanding, in their ordinary meaning, therefore appear to affirm, rather than restrict, the availability of dispute settlement provisions with regard to measures taken for balance-of-payments purposes.
- Our examination of the ordinary meaning of the terms of the second sentence of footnote 1 to the 1994 Understanding so far has not led us to conclude that the indication that dispute settlement procedures are available regarding "any matters arising from the application of restrictive import measures taken for balance-of-payments purposes" would imply that panels are precluded from reviewing the justification of measures taken for balance-of-payments purposes under Article XVIII:B. We must now consider whether, taken in their context, these terms should be understood to imply a distinction between a strict notion of "application" of a measure, as advocated by India, and the "justification" of the measure under the terms of Article XVIII:B.
- We examine successively different elements of the relevant context of the second sentence of footnote 1 to the 1994 Understanding. Firstly, we consider whether the use of the terms "application of measures" or "measures being applied" in the rest of the Understanding and in Article XVIII:B suggests the proposed distinction. We then turn to a broader examination of the functions of the consultation procedures for balance-of-payments measures under Article XVIII:B in order to determine whether, as argued by India, exclusive authority has been assigned to the BOP Committee and General Council to make certain determinations, thereby preventing panels established in accordance with Articles XXII and XXIII of GATT 1994 and the DSU from making such determinations. Finally, we consider whether our interpretation of the terms of the provision is consistent with the terms of the first sentence of footnote 1 of the 1994 Understanding, which 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".
(i) Meaning of the terms "application of measures" or measures "applied" in other provisions of the 1994 Understanding, in Article XVIII:B and in other GATT provisions
- The terms "measures being applied" or "application of measures" appear in other provisions of the 1994 Understanding and of Article XVIII:B. It is therefore relevant to consider whether these uses of the notion of "application" are helpful in interpreting the term as used in the footnote.
- The terms "application of measures", "applied" or "applies" are used in various instances in the Understanding. Paragraphs 1 to 4 of the Understanding are grouped under the heading "Application of Measures". The use of these terms in these paragraphs seems to refer to the fact that a measure is in use. There is no suggestion that the terms are used in a way that assumes the measures referred to are justified, or that their justification cannot be reviewed under the dispute settlement mechanism. Indeed, the first sentence of paragraph 4 implies that the "Application of Measures" encompasses the requirement that measures may not exceed what is necessary to address the balance-of-payments situation.
302 As argued by the United States, if a measure exceeds what is necessary to address the balance-of-payments difficulties within the meaning of Article XVIII:9, then, to the extent that it is excessive, it is not necessary. If there is no justification for balance-of-payments restrictions, no measure applied for that reason can be considered as necessary any longer. Indeed, to the extent that paragraph 4 of the Understanding refers to the way a measure is being implemented, it uses the terms "administration" or "administer", not "application". 303
- Paragraph 6 of the Understanding also refers to "[a] Member applying new restrictions or raising the general level of its existing restrictions […]" to describe situations where consultations may be requested under Article XII:4 (a) or Article XVIII:12 (a). Paragraph 7 further states that "All restrictions applied for balance-of-payments purposes shall be subject to periodic review under paragraph 4 (b) of Article XII or under paragraph 12 (b) of Article XVIIII […]". In both instances, the text refers to situations where review under the consultation procedures of Article XVIII:12 could or would take place and it cannot be assumed that this would refer only to measures having a valid balance-of-payments justification, but rather suggests a situation where measures are being applied and a balance-of-payments justification is claimed for them.
- Thus, it is clear that the word "application" (or "applied" or "applies") is not used in the 1994 Understanding in a way that suggests that a consideration of justification, i.e., whether a balance-of-payments measure is necessary, would be excluded from dispute settlement.
- Since the Understanding aims at clarifying the provisions of, inter alia, Article XVIII:B, the terms of the 1994 Understanding should also be read in light of the provisions of Article XVIII:B. In this respect, it is worth noting that Article XVIII:B does not require measures to be authorized before they can be applied. The very mechanism of surveillance and review of import restrictions under Article XVIII:12 rests on the notification of measures which are in application and for which a balance-of-payments justification is claimed. This does not mean that they could not be found to be inconsistent with the provisions of Article XVIII:B in the course of consultations. In this context, the provisions of Article XVIII:B frequently refer to measures being "applied" under Article XVIII:B, but this reference cannot be assumed only to encompass measures which have a valid balance-of-payments justification.
- Likewise, under Article XVIII:12(c) and (d), the Committee and General Council are called upon to determine whether "restrictions are being applied" in a manner involving an inconsistency with Article XVIII:B or Article XIII. Article XVIII:12 (d) refers to the establishment of a prima facie case "that the restrictions are inconsistent with the provisions of [Article XVIII:B] or with those of Article XIII" and to a determination that the restrictions are "being applied inconsistently with such provisions". Accordingly, these references to measures being "applied" cannot be assumed to refer exclusively to measures consistent with Article XVIII:B. The fact that consistency with both Article XVIII:B and Article XIII may be reviewed under Articles XVIII:12 (c) and (d) precludes an interpretation of the word "applied" as limiting consideration to the administration of restrictions having a valid balance-of-payments justification. 304
- India also draws comparisons between Footnote 1 of the 1994 Understanding and the terms of paragraph 12 of the Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994 (hereafter the "Understanding on Article XXIV"), claiming that they are identical in their reference to the application of measures and represent a compromise between the conflicting positions taken by the contracting parties in relation to the application of dispute settlement in those fields. The fact that the same word "application" is found in another provision of GATT 1994 is not in itself sufficient to justify an analogy. In paragraph 12 of the Understanding on Article XXIV, what is referred to is the "application of […] provisions of Article XXIV", not the "application of measures" as in the 1994 BOP Understanding. The phrase "the application of those provisions of Article XXIV" plainly means "the implementation of the provisions of Article XXIV…" and does not allow for a distinction such as the one proposed by India. India's argument that the terms of paragraph 12 of the Understanding on Article XXIV would represent a compromise limiting the scope of review of panels with respect to Article XXIV agreements is based on the assumption that such a compromise had to be reached because of the debate generated by some panel reports. India did not supply any evidence on this matter that would suggest that we should depart from the plain meaning of the terms of paragraph 12. In any case, such a comparison alone would not have been sufficient to change our conclusion on the meaning of the terms in the footnote to the 1994 Understanding.
- India further refers to Article XX of GATT 1994 to support the proposed distinction between the application and the justification of a measure. Here, the wording of the two provisions is quite distinct, as the preamble of Article XX expressly requires that measures "are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination"(emphasis added). In that case, the text is explicit in its reference to the manner in which the measure is applied. There is no similar wording in the footnote to the 1994 Understanding.
- These elements of context clearly suggest that the terms of the footnote refer to the fact that a measure is being applied, i.e. is in effect, nothing more.
(ii) Respective roles of DSU procedures and Article XVIII:B procedures
- Part of the context of the second sentence of footnote 1 to the 1994 Understanding is Article XVIII:B and the rest of the 1994 Understanding. India argues that this context compels the conclusion that dispute settlement panels are not competent to decide on the justification of balance-of-payments measures. In India's view, a WTO Member has the right to institute balance-of-payments measures without prior approval of any WTO body and it has the right to maintain those measures until the BOP Committee or General Council advises it to modify them under Article XVIII:12 or establishes a time-period for their removal under paragraph 13 of the 1994 Understanding. According to India, its position reflects the carefully negotiated balance struck by WTO Members on this issue, and, in particular, a decision that the justification of balance-of-payments should be determined by WTO Members by consensus in a political setting, not by dispute settlement panels. If the justification of balance-of-payments measures could be decided by dispute settlement panels, India alleges that significant parts of Article XVIII:B and the 1994 Understanding would be rendered redundant and serious conflicts could arise.
- The United States responds that the consultation procedures established in Article XVIII:B are independent of dispute settlement procedures under Article XXIII and the DSU. For the United States, there are two independent tracks for enforcing Article XVIII:B and either may be followed in order to determine the justification of balance-of-payments measures.
- In this section, we examine the position of India on this aspect of the context of the second sentence of footnote 1 and the US response. We start with India's argument that it has a right to maintain balance-of-payments measures until the BOP Committee or the General Council decides otherwise. We then consider whether the procedures of Article XVIII:12(c)-(d) are an exclusive mechanism for assessing compliance with Article XVIII:B. Third, we analyze whether dispute settlement panels are capable of making the necessary determinations on issues related to the justification of balance-of-payments measures. Finally, we assess whether recognizing a role for dispute settlement in determining the justification of balance-of-payments measures would render Article XVIII:B and the 1994 Understanding redundant or result in serious conflicts.
The right to maintain balance-of-payments measures
- India's basic argument is that it has a right to institute balance-of-payments measures without the prior approval of any WTO body and a right to maintain those measures until the BOP Committee or the General Council advises it to modify them under Article XVIII:12 or establishes a time-period for their removal under paragraph 13 of the 1994 Understanding. In the absence of such action by the Committee or General Council, India asserts that the issue of whether its measures are justified under Article XVIII:B cannot be raised in dispute settlement.
- Under Article XVIII:B, it is clear that a Member has the right to institute balance-of-payments measures without the prior approval of any WTO body. India correctly notes that proposals in the past to require such approval were not adopted. As explained above, when a Member institutes or intensifies balance-of-payments measures, it is required to consult with the BOP Committee. Pursuant to Article XVIII:12(c)-(d), the Committee and the General Council 306 have certain powers to advise or recommend that such measures be modified because of an inconsistency with Article XVIII:B or Article XIII. Paragraph 13 of the 1994 Understanding authorizes the General Council to approve a phase-out period for balance-of-payments measures.
- We note at the outset that there is no explicit statement in Article XVIII:B or the 1994 Understanding that authorizes a Member to maintain its balance-of-payments measures in effect until the General Council or BOP Committee acts under one of the aforementioned provisions. Article XVIII:B, however, addresses the issue of the extent to which balance-of-payments measures may be maintained. Article XVIII:11, which is analyzed in more detail in Part G below, specifies that a Member:
"shall progressively relax any restrictions applied under this Section [i.e., Article XVIII:B] as conditions improve, maintaining them only to the extent necessary under the terms of paragraph 9 of this Article [XVIII] and shall eliminate them when conditions no longer justify their maintenance."
- The obligation of Article XVIII:11 is not conditioned on any BOP Committee or General Council decision. If we were to interpret Article XVIII:11 to be so conditioned, we would be adding terms to Article XVIII:11 that it does not contain.
- Moreover, the obligation in Article XVIII:11 requires action by the individual Member. It is qualified only by a proviso and Ad
te (which we discuss in Part G and which are not relevant here) and it is not made subject to the accomplishment of other procedures. In light of the unqualified nature of the Article XVIII:11 obligation, it would be inconsistent with the principle pacta sunt servanda to conclude that a WTO Member has a right to maintain balance-of-payments measures, even if unjustified under Article XVIII:B, in the absence of a Committee or General Council decision in respect thereof. Thus, we find that India does not have a right to maintain its balance-of-payments measures until the General Council advises it to modify them under Article XVIII:12 or establishes a time-period for their removal under paragraph 13 of the 1994 Understanding.
To continue with Are Article XVIII:12 procedures exclusive?
293 Arguments have been raised relating to the negotiating history. These are addressed as relevant in the course of our discussion in this section, in accordance with Article 32 of the Vienna Convention (see infra paras. 5.106-5.111).
294 L/5776, 7 February 1985, not adopted. This case, which does not relate to Article XVIII:B of GATT, is discussed in paras. 5.104-5.105 infra in section (d) on "Related GATT practice".
295 DS32/R, 3 June 1993, not adopted. This case, which does not relate to Article XVIII:B of GATT, is discussed in paras. 5.104-5.105 below in section (d) on "Related GATT practice".
296 See paras. 5.39-5.46 supra.
297 For a detailed description of the arguments of the parties, see Section III.D.1.(b) supra.
298 See New Oxford Shorter English Dictionary (1993), p. 100.
299 See PCIJ Advisory Opinion on the Competence of the ILO to Regulate Agricultural Labour, PCIJ (1922) Series B, No. 2, p. 23:
"In considering the question before the Court upon the language of the Treaty, it is obvious that the Treaty must be read as a whole, and that its meaning is not to be determine merely upon particular phrases which, if detached from the context, may be interpreted in more than one sense."
See also M. Yassen, L'Interprétation des Traités d'après la Convention de Vienne sur le Droit des Traités, in Recueil des Cours de l'Académie de La Haye (1974), p. 9, at p. 26:
"Il ne s'agit donc pas d'un sens ordinaire abstrait, mais d'un sens ordinaire concret qui ne peut être discerné que par l'examen du terme en question dans le contexte de ce terme et à la lumière du but et de l'objet du traité."
300 Panel Report on Japan - Trade in Semiconductors, L/6309, adopted on 4 May 1988, paras. 106-107.
301 Panel Report on United States – Taxes on Petroleum and Certain Imported Substances ("Superfund"), adopted on 17 June 1987, BISD 34S/136, paras. 5.2.1–5.2.2.
302 This "necessity" test is also found in Article XVIII:9 of GATT 1994.
303 Paragraph 4 of the 1994 Understanding.
304 India itself actually interprets the words "applied in a manner" as used in Article XVIII:12(c)(ii) to cover not only measures which are administered in violation of Article XIII, but also measures which no longer have a justification under Article XVIII:9 (see para. 3.98 in Section III.D.1.(b) supra).
305 For a detailed description of the arguments of the parties, see Section III.D.1.(a) supra.
306 As noted earlier, in the absence of a Ministerial Conference allocation, these powers still formally reside in the CONTRACTING PARTIES, but on the basis of the 1979 Declaration (in particular para. 13) and the 1994 Understanding, it is appropriate to refer to the BOP Committee and General Council as the decision-makers. We refer to both bodies, although the BOP Committee only makes recommendations to the General Council, which is the actual decision-making body in these matters.