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World Trade
Organization

WT/DS90/R
6 April 1999
(99-1329)
Original: English

India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products

Report of the Panel

(Continued)


    Are Article XVIII:12 procedures exclusive?

  1. India also argues that the procedures of Article XVIII:12(c)-(d) are the exclusive route for determining whether balance-of-payments measures taken under Article XVIII:B are justified. This issue is related to the issue of whether India has a right to maintain its balance-of-payments measures in the absence of a Committee or General Council decision. However, the conclusion that India does not have such a substantive right does not necessarily dispose of the procedural question of how other Members may challenge India's balance-of-payments measures as unjustified.
  2. In considering whether the Article XVIII:12 procedures are exclusive, we start with the fact that the text of Article XVIII:12 in itself does not indicate that the BOP Committee procedures thereunder would be exclusive of procedures under Article XXIII or the DSU. Indeed, in the first part of our examination of the context of the second sentence of footnote 1 to the 1994 Understanding, we noted that the authorization in Article XVIII:12 to consider whether balance-of-payments measures were being "applied" in a manner involving an inconsistency with Articles XVIII:B or XIII tended, amongst other contextual elements, to confirm that footnote 1 should be interpreted as permitting dispute settlement panels to consider the justification of balance-of-payments measures (see paragraph 5.69 supra). Thus, the text of Article XVIII:12 as a whole does not suggest that Article XVIII:12 procedures are the exclusive means of determining whether balance-of-payments measures are justified under Article XVIII:B.
  3. Further textual support for the non-exclusivity of Article XVIII:12 procedures is found in the fact that those procedures are specifically authorized to consider violations of Article XIII. In this regard, we note that India concedes that violations of Article XIII may be considered in regular dispute settlement proceedings under the DSU. We understand India's distinction that while certain aspects of the administration (for India, "application") of balance-of-payments measures may be considered under either Article XVIII:B procedures or DSU procedures (such as those involving Article XIII), the issue of the justification of balance-of-payments measures is reserved to Article XVIII:B procedures. We find it significant, however, that India's distinction (i) necessarily concedes that issues subject to Article XVIII:12 procedures are not always exclusively subject thereto, and (ii) has no textual basis in Article XVIII:B.
  4. The conclusion that Article XVIII:12 procedures do not exclude the application of the general dispute settlement system is also confirmed by the fact that Article XVIII:12(d) is not mentioned as a special or additional procedure within the meaning of Article 1.2 of the DSU. 307 If it had been intended that the DSU should apply subject to Article XVIII:12(d), it could have been expected that this would be specified in the DSU. Moreover, Article 8.5 of the Agreement on Subsidies and Countervailing Measures, which is one of the provisions to which India refers in support of its argument that exclusive procedures exist in the WTO Agreement, is mentioned in Appendix 2 to the DSU. The Panel therefore concludes that the nature of the procedures applied under Article XVIII:B is not a decisive factor in determining whether Article XVIII:B procedures are exclusive.
  5. We find accordingly that the Article XVIII:12 procedures are not the exclusive means for determining whether balance-of-payments measures are justified under Article XVIII:B. 308 We reach this conclusion on a provisional basis, however, as India presents several other arguments justifying its position that dispute settlement panels cannot consider the justification of balance-of-payments measures taken pursuant to Article XVIII:B.
  6. The nature of decisions on the justification of balance-of-payments issues

  7. India argues that the very nature of a decision as to whether balance-of-payments measures are justified or not makes it unsuitable for consideration by a dispute settlement panel. India argues that WTO Members have agreed on a number of provisions that assign the task of determining the legal status of politically delicate issues not to panels but to specialized bodies acting under particular procedures. These include decisions on whether balance-of-payments measures are consistent with Article XVIII:B and whether a phase-out period is appropriate, decisions which are not technical, legal matters in India's view.
  8. In our view, panels are frequently required to examine issues which may call on consideration of specialized, or more generally "non-legal" matters. With regard to specialized matters, panels have the possibility of consulting with experts and seeking information and technical advice from any individuals and bodies they deem appropriate, under the terms of Article 13 of the DSU. With respect to balance-of-payments issues in particular, the IMF plays an important role and indeed, the panel has consulted with the IMF on the issues pertaining to its areas of expertise (see paragraphs 5.11-5.13 supra regarding the consultations with the IMF). In addition, it is quite possible that some disputes submitted to panels may concern politically sensitive matters. The role of panels is defined in Article 3.2 of the DSU which provides that the dispute settlement system "serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law." Panels are in all instances required to make an objective assessment of the facts of the case and apply the relevant WTO provisions to those facts. 309 We are therefore not convinced that the specialized or "non-legal" nature of the issues involved in examining the justification of balance-of-payments measures should prevent panels from examining such issues in the light of Article XVIII:B. 310
  9. Potential redundancies

  10. According to India, if the Panel were to interpret the right to resort to the DSU confirmed in the footnote to the 1994 Understanding as implying a complete transfer of the competence to determine the justification of balance-of-payments restrictions, including phased removal of such restrictions, from the Committee and the General Council to panels and the Appellate Body, it would reduce the whole of Article XVIII:12 and most of the provisions of the 1994 Understanding and the 1979 Declaration to redundancy or inutility.
  11. In our view, India's argument overstates the effect of a decision that dispute settlement panels may consider the justification of balance-of-payments measures in individual cases. In most cases, it is reasonable to assume that there will be no resort to dispute settlement procedures on such issues. Past practice supports that assumption.
  12. Even if some balance-of-payments issues are considered in the dispute settlement system, it is our view that the BOP Committee procedures would play a significant role in these cases. To begin with, the issues will first be discussed in the BOP Committee and the results of the Committee process may influence the results of the dispute settlement process (see infra paragraphs 5.92-5.97 on potential conflicts). It should also be noted that dispute settlement procedures and the BOP Committee consultation procedures differ in nature, scope, timing and type of outcome. A review of the 1970 and 1979 Declarations, for example, confirms that the BOP Committee is called upon to address a wider range of issues than panels. Moreover, while resort to dispute settlement procedures under Article XXIII was not common in the GATT system, we have seen that recourse to Article XXIII was recognized, without calling into question the utility of the BOP Committee process, which has always provided the permanent framework for considering balance-of-payments issues.
  13. Thus, we find that allowing dispute settlement panels to consider whether balance-of-payments measures are justified under Article XVIII:B would not render redundant or reduce to inutility either that article or related WTO provisions dealing with balance-of-payments issues. Article XVIII:B and the 1979 Declaration and 1994 Understanding taken together would continue to provide the basic instrument for review of balance-of-payments issues, with the dispute settlement procedures playing a complementary role, if and when necessary.
  14. Potential conflicts

  15. India argues that if dispute settlement panels are permitted to make findings on whether balance-of-payments measures are justified under Article XVIII:B, there will be a risk of normative conflicts within the WTO system because such decisions may be inconsistent with decisions on the same issue reached by other WTO bodies. In this regard, India additionally notes that different panels acting on different complaints could reach inconsistent conclusions. Moreover, India sees a significant increase in the risk of such conflicts in the WTO system, as opposed to the GATT 1947 system, because of the "automatic" adoption of dispute settlement reports under the DSU. We examine each of these issues in turn.
  16. Potential conflicts between a panel report and the BOP Committee. It is possible that a panel and the BOP Committee could examine successively 311 the issue of whether the same balance-of-payments measures are justified under Article XVIII:B. If there has been no decision in the BOP Committee or General Council at the time of the panel's consideration of the issue, the issue of conflict does not arise at the panel stage, which is the situation in this case. While the BOP Committee and the General Council have considered the justification of India's balance-of-payments measures at issue in this case, they made no determinations and reached no agreed conclusions. Even if this Panel were to decide that India's measures are not justified, nothing would prevent the Committee and the General Council from reaching different conclusions on the basis of new, different facts, in which case the Council could take a decision on a phase-out period under paragraph 13 of the 1994 Understanding on Balance-of-Payments Provisions. Moreover, what Members accepted in the DSB could be modified in the General Council. The discretionary competence of the General Council to waive India's obligations under Article IX of the WTO Agreement would remain unaffected. Similarly, a decision by the Panel that India's measures were justified as of November 1997 would not preclude re-examination by the BOP Committee or the General Council of India's measures in the future.
  17. If the measures before a panel have been the subject of determinations or recommendations by the BOP Committee or General Council, we see no reason to assume that the panel would not appropriately take those conclusions into account. If the nature of the conclusions were binding (e.g., a decision on a phase-out period pursuant to paragraph 13 of the 1994 Understanding, which provides that the General Council may recommend that "in adhering to such a time-schedule, a Member shall be deemed to be in compliance with its GATT 1994 obligations" or a determination on the basis of Article XVIII:12 (c) or (d)), a panel should respect them. Indeed, paragraph 13 of the Understanding provides that "[w]henever the General Council has made specific recommendations, the rights and obligations of Members shall be assessed in the light of such recommendations". If the conclusions are based on factual matters as of a given point of time, we assume that a panel would take those conclusions into account, as did the panel in the Korea - Beef case. In such a case, the fact that a matter before a panel is being considered at a later point in time necessarily means that a different result could be reached because the underlying factual situation may have changed. But in such circumstances, it could not be said that there would be an actual conflict between the Committee and panel determinations.
  18. Potential conflicts between panels. India notes that the question of whether or not a Member's balance-of-payments measures are justified must be answered consistently. Yet, if panels may consider the issue of justification, successive panels may reach different results. While such a result cannot be excluded, we do not think it is likely. If the panels are commenced at or about the same time, Article 9.3 of the DSU provides for the same individuals to serve on the panels to the greatest extent possible. In all cases, the reports of such panels would be subject to review by the Appellate Body, which provides a mechanism to ensure consistent decisions. To the extent that the panels were established at significantly different points of time (such that Article 9.3 could not be applied), we note that, if the same factual situation obtained, it is likely that the second panel would take into account the results of the first panel, for the reasons expressed by the panel in India � Patent Protection for Pharmaceutical and Agricultural Chemical Products, Complaint by the European Communities and their Member States (hereinafter India � Patents II). 312 If the same factual situation did not obtain, a different decision would not necessarily be in conflict.
  19. "Automatic" adoption of panel reports. It is certainly true, as noted by India, that the WTO dispute settlement system functions differently from that of the GATT dispute settlement system, particularly in respect of the procedures for the adoption of panel reports. In the WTO, in the absence of a consensus to the contrary (a "negative" consensus), panel and Appellate Body reports are adopted, while consensus decision-making prevails elsewhere in the WTO. We do not see why this would increase the risk of conflict, however. In fact, the practice of consensus decision-making in the WTO generally reduces the possibility of conflicts since opposition by one Member results in no decision being taken. While the negative consensus rule could result in the adoption of conflicting panel reports, that is true generally for dispute settlement in the WTO and not a problem specific to the balance-of-payments area. But such conflicts are unlikely, as discussed in the preceding paragraph.
  20. Thus, we cannot accept India's argument that the problem of potential conflicting decisions (panel vs. Committee, panel vs. panel) in cases considering whether balance-of-payments measures under Article XVIII:B are justified, requires a finding that panels are not competent to consider such issues. In any case, the arguments raised by India concerning any potential conflict do not seem to outweigh the drawbacks which could result from the absence of availability of dispute settlement procedures to deal with balance-of-payments measures taken under Article XVIII:B.
  21. (iii) First sentence of footnote 1 of the 1994 Understanding

  22. Having considered the first two elements of the context of the second sentence of footnote 1 of the 1994 Understanding � the use of the word "applied" in other provisions and the relationship of the BOP Committee procedures to dispute settlement procedures, we now turn to the third element of that context � the first sentence of footnote 1 of the 1994 Understanding. This sentence 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."
  23. Our interpretation of the second sentence of footnote 1 so far, which has been based on the ordinary meaning of its terms, taken in their context, and which is consistent with past practice under GATT 1947, does not affect the right of developing country Members to take measures under Article XVIII:B. Nor does it prevent Members from resorting to the procedures of the BOP Committee under Article XVIII:12 and the 1994 Understanding. As such, our interpretation does not modify Members� rights and obligations under Article XVIII:B of GATT 1994.
  24. (c) Object and purpose of the WTO Agreement

  25. In relation to the object and purpose of the WTO Agreement, we note that the first sentence of Article 3.2 of the DSU provides that "[t]he dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system." It has been one of the major achievements of the Uruguay Round to strengthen the operation of settlement of disputes through the institution of a single integrated framework for the examination of disputes relating to all the multilateral trade Agreements negotiated as part of the "Single Undertaking". This includes GATT 1994 which contains the relevant provisions relating to balance-of-payments measures. It has clearly been intended that this mechanism be very widely available for the preservation of the rights and obligations of Members under the WTO Agreement, subject only to special or additional rules and procedures which are specifically listed.
  26. With regard to measures taken for balance-of-payments purposes, we have noted that, under GATT 1947, the panel in Korea - Beef concluded that it was competent to review balance-of-payments measures. That panel, the only one to have expressly addressed this issue under GATT 1947, found that the availability of dispute settlement procedures with regard to balance-of-payments provisions was consistent with the complete application of the GATT 1947. Under the WTO, the rule of law has been strengthened through increased automaticity of dispute settlement and detailed integrated dispute settlement procedures. All the more so in this context of "thickening of legality", it would be inconsistent with the object and purpose of the WTO Agreement to interpret the relevant provisions as precluding panels from reviewing the justification of measures taken for balance-of-payments purposes in the absence of a clear textual basis to this effect.
  27. The purpose of Article XVIII:B is to allow developing countries to deviate temporarily from the provisions of the GATT by adopting, under certain specified conditions, import restrictions to safeguard their external position and ensure a level of reserves adequate for the implementation of their programme of economic development. However, to interpret footnote 1 to the 1994 Understanding to confirm the availability of dispute settlement in relation to measures taken for balance-of-payments purposes is not in contradiction with that purpose. The right of developing country Members to take such measures is not affected by the availability of dispute settlement in relation to these measures. This is also consistent with the overall object and purpose of the WTO Agreement described above, as it enables the preservation of Members' rights and obligations in relation to such measures.
  28. These elements confirm our interpretation that, in the absence of a provision clearly limiting the application of the DSU in balance-of-payments matters, no such limitation should be read in footnote 1 to the 1994 Understanding.
  29. (d) Related GATT practice

  30. India also referred to practice under Article XXIV of GATT 1947 to support its argument that under the GATT 1947, the established practice was not to allow review by dispute settlement panels of measures justified under provisions for which a specific review procedure exists. India thus refers to the report on EC-Citrus, and the panel report on EC � Bananas I, both unadopted reports which have addressed the issue of the relationship between Article XXIV and Article XXIII procedures under GATT 1947. 313
  31. The reference to panel reports concerning Article XXIV could be relevant, to the extent that they also address issues relating to the availability of dispute settlement procedures to challenge measures taken on the basis of a provision, Article XXIV, under which a specific review procedure exists. However, since both reports cited remained unadopted, they have a very limited weight as a reflection of past practice of the GATT Contracting Parties. 314 Also, they can only be relevant to this dispute by analogy, as they consider the issue of the relationship between Article XXIII and Article XXIV, which is not the issue we are required to examine here. Moreover, these reports do not seem to support India's claim that the past practice under GATT 1947 had been not to allow a review under dispute settlement procedures when a specific review procedure exists, such as Article XXIV. At best, this past practice would seem uncertain, and the most recent report on this issue, the second panel report on EC � Import Regime for Bananas (hereinafter EC - Bananas II), shows an evolution with respect to Article XXIV towards a result similar to that applied for Article XVIII:B in the Korea - Beef case. 315 In addition, the Understanding on the Interpretation of Article XXIV of GATT 1994, concluded after these reports, includes some specific language on the availability of dispute settlement in relation to Article XXIV.

To continue with Preparatory work


307 Since the present complaint is based on Article XXIII and not on Article XVIII:12(d), it is not for this Panel to discuss whether the DSU would apply to a procedure based on Article XVIII:12(d).

308 To support its argument that panels cannot determine the justification of balance-of-payments measures taken under Article XVIII:B, India also relies on paragraph 13 of the 1994 Understanding, which authorizes the General Council to approve a phase-out period for removal of balance-of-payments measures. In our view, the fact that the General Council has been granted such authority does not affect our conclusion. See infra the discussion in paras. 5.229-5.235.

309 Article 7.1 of the DSU defines standard terms of reference: "To examine, in the light of the relevant provisions in (name of the covered agreement (s) cited by the parties to the dispute, the matter referred to the DSB by (name of the party) in document � and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in that/those agreement(s)." Finally, Article 11 specifies that "the function of panels is to assist the DSB in discharging its responsibilities under [the DSU] and the covered agreements. Accordingly, a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements".

310 India further argues that numerous provisions in the WTO Agreement assign the task of determining the legal status of a measure to WTO bodies other than panels. (For a detailed description of the arguments of the parties, see supra in Section III.D.1 (a)). However, the examples given by India to illustrate its arguments do not persuade us that our conclusion on this issue is incorrect. These arguments are not directly relevant to Article XVIII:B.

Firstly, in the case of non-actionable subsidies, a specific provision exists to exclude the application of the dispute settlement procedures to notified subsidies and, provided the subsidy being reviewed is found to conform with Article 8.2 of the Agreement on Subsidies and Countervailing Measures (hereafter the "SCM Agreement"), to non-notified subsidies. No similar provision exists in the case of Article XVIII. If anything, the second sentence of footnote 1 to the 1994 Understanding affirms the application of the DSU. It is only by interpreting extensively one word of this sentence that India reaches the conclusion that panels are not supposed to review the "justification" of balance-of-payments measures under Article XVIII:B. However, since we found this interpretation unsupported by the ordinary meaning of the terms of footnote 1 in their context and in the light of the object and purpose of the WTO Agreement, we cannot make any analogy with the provisions of Article 8 of the SCM Agreement. In addition, we are not convinced that India's arguments reflect an accurate description of the situation resulting from the cited provisions. Regarding the procedure of Article 8.3 of the SCM Agreement, footnote 35 to that Agreement states that the provisions of Parts III and V of the Agreement shall not be invoked with respect to measures considered non-actionable. However, a subsidy referred to in Article 8.2 conferred pursuant to a non-notified programme can be subject to panel review, even though such subsidy shall be treated as non-actionable if it is found to conform with Article 8.2.

Secondly, the example of Argentina�s request for the establishment of a panel to determine its principal supplying interest under Article XXVIII of GATT 1947 in respect of the renegotiation of the concession covering its soyabean exports to the EC is not conclusive. In that case, the discussions of the Council reveal divergent opinions of contracting parties on the appropriateness of recourse to Article XXIII to resolve this issue. The matter was however considered to have been satisfactorily resolved, without establishment of a panel, as the European Communities recognized Argentina's principal supplying interest in the concessions at issue, "without prejudice to any future decision by the CONTRACTING PARTIES with regard to Note 5 to Article XXVIII:1, nor to the future application of the Memorandum relating to Article XXVIII" (C/M/260).

Finally, Article V of GATS contains no express reference to dispute settlement procedures. It is therefore difficult to compare the situation with respect to Article V GATS with one where a provision exists that expressly addresses the relationship between the DSU and Article XVIII:B.

In any case, the argument that the provisions referred to by India provide for exclusive Committee procedures, even if it were to show that such possibility exists in the WTO Agreement, is of no relevance for Article XVIII:B, since no analogy can be deduced from the terms or the structure of the agreement itself.

311 It is most unlikely that a dispute settlement procedure and a Committee procedure would reach conclusions at the same time. Even if this were to occur, the basis of review by the panel and the Appellate Body is limited to the facts and claims in existence at the time of the establishment of the panel, while the Committee is not under such constraint regarding the materials it can consider in terms of fact, implying that the factual basis of the conclusions of the Committee is likely to be different.

312 Panel Report on India � Patent Protection for Pharmaceutical and Agricultural Chemical Products, Complaint by the European Communities and their Member States, adopted on 2 September 1998, WT/DS79/R, para. 7.30.

313 See supra notes 294 and 295 the references for EC � Citrus and EC � Bananas I respectively.

314 We recall that the Appellate Body specified, in its report on Japan - Taxes on Alcoholic Beverages, that unadopted panel reports "have no legal status in the GATT or WTO system since they have not been endorsed through decisions by the CONTRACTING PARTIES to GATT or WTO Members. Likewise we agree that 'a panel could nevertheless find useful guidance in the reasoning of an unadopted panel report that it considered to be relevant.'" (WT/DS8/AB/R,WT/DS10/AB/R, WT/DS11/AB/R, adopted on 1 November 1996, p.14-15) The Appellate Body confirmed this analysis in Argentina � Measures Affecting Imports of Footwear, Textiles, Apparels and other Items (See Report of the Appellate Body, WT/DS56/AB/R, adopted on 22 April 1998, para. 43).

315 In EC - Bananas II, the panel "could not accept that tariff preferences inconsistent with Article I:1 would, by notification of the preferential agreement and invocation of Article XXIV against the objections of other contracting parties, escape any examination by a panel established under Article XXIII. If this view were endorsed, a mere communication of a contracting party invoking Article XXIV could deprive all other contracting parties of their procedural rights under Article XXIII:2, and therefore also of the effective protection of their substantive rights, in particular those under Article I:1. The Panel concluded therefore that a panel, faced with an invocation of Article XXIV, first had to examine whether or not this provision applied to the agreement in question." (DS38/R, 11 February 1994, not adopted, para. 158.).