6 April 1999
India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products
Report of the Panel
(e) Preparatory work
- India also refers to a US-Canadian proposal for a "Declaration on Trade Measures Taken for Balance-of-Payments Purposes", presented in June 1990 during the Uruguay Round negotiations. The proposal contained detailed provisions relating to surveillance of balance-of-payments measures316, including, in a final section entitled "Review of Measures Following Balance-of-payments Consultations", the following text:
"In those cases in which the Committee has been unable to agree on a specific recommendation, the question of the consistency of the measures under review with the Articles and this Declaration has not been resolved. The consulting contracting party or affected contracting parties can, if they wish, attempt to resolve the question in the Council. Alternatively, affected contracting parties can, if they wish, pursue the matter through normal GATT dispute settlement procedures pursuant to Articles XXII and XXIII".317
- From the fact that the US-Canadian proposal of June 1990 was not adopted, India derives that the notion of recourse to dispute settlement as an "alternative" mode of determination of the legal status of restrictions taken for balance-of-payments purposes was rejected. 318
- India does not point to any particular source supporting its position. The provision relating to recourse to dispute settlement was only one element of the US-Canadian proposal, which addressed a broad range of issues relating to balance-of-payments measures. At the time this proposal was put forward, there was no agreement to negotiate balance-of-payments matters and discussions in the Negotiating Group seemed to reflect a general lack of support for the proposal by a number of developing countries. A report of the Chairman of the Negotiating Group, dated 23 July 1990, 319 notes that :
"The Group has discussed at considerable length a number of proposals for negotiations on trade measures taken for balance-of-payments reasons [one from the EC, one from Canada and the United States]. It has not however been able to agree to engage in negotiations on this subject. In these circumstances it is not possible for me to present a text which would have the character of a profile of an agreement. This note therefore describes the main positions taken in the Group's discussions to date." [
"The general thrust of these proposals has been supported by a substantial number of developed contracting parties, though some have said that while being prepared to negotiate stronger disciplines in Article XII, it would be difficult for them, at this stage, to commit themselves to avoid recourse to it.
A considerable number of developing countries, on the other hand, have argued that no convincing case has been made out as to why it is necessary to address this issue in the Round, given that as recently as 1979 the CONTRACTING PARTIES approved the Declaration on Trade Measures Taken for Balance-of-Payments Purposes [
]. The payments situation of many developing countries [
] remains critical: if there were to be negotiations regarding trade measures taken under Article XVIII:B, the objective should be to provide greater flexibility in its use rather than to impose more stringent conditions. This applied in particular to countries undertaking major economic reforms. In general, however, these participants have taken the view that the existing provisions and the related procedures in the Balance-of-Payments Committee have worked well and that any perceived problems in their functioning should be addressed in the Committee rather than in the context of the Round."
- However, this document does not specify whether the dispute settlement aspects played any role in the rejection of the US-Canada proposal. Moreover, one should be cautious in drawing from this report any conclusion as to the meaning of the texts finally adopted since negotiations actually continued in spite of the attitude of the parties recorded in that document.
- Article 32 of the Vienna Convention allows a treaty interpreter to have recourse to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of Article 31 or when interpretation according to Article 31 (a) leaves the meaning ambiguous or obscure or (b) leads to a result which is manifestly absurd or unreasonable. In this instance, we find that the meaning resulting from the application of Article 31 is neither ambiguous nor obscure, and does not lead to a manifestly absurd or unreasonable result. We therefore do not need to consider the preparatory work as reflected in the negotiating history to determine the meaning of the terms. 320
- We also note that the piece of drafting history referred to by India is not unequivocal. The US-Canadian proposal of June 1990 addressed several aspects of the balance-of-payments surveillance. India did not point to any source, such as minutes, which would have expressly stated that the reasons for its rejection was related to the alternative recourse to Article XXIII. The additional negotiating material available to the Panel on the reasons for the rejection of that proposal does not address specifically this aspect. 321 We can only conclude that the piece of negotiating history submitted by India is insufficient evidence that recourse to the general dispute settlement mechanisms was rejected during the Uruguay Round and to lead us to change the conclusions we reached on the basis of the criteria of Article 31.
- Our examination of the ordinary meaning of the words of footnote 1 to the 1994 Understanding, the only provision expressly addressing the relationship between dispute settlement procedures under the DSU and balance-of-payments measures, has revealed that it could not be assumed, from the use of the terms "application of measures" in the provision, that an implicit distinction is intended between such "application" and the justification of the measure under Article XVIII:B. The ordinary meaning of the words suggests rather that this is a positive requirement that there be a measure currently applied, which will form the basis for the complaint. We find that this wording affirms the application of the WTO dispute settlement system to balance-of-payments matters. It does not limit it. In order to find, as suggested by India, an implicit opposition contained in this text between this notion of "application" and that of "justification", with the effect of very significantly restricting the scope of dispute settlement review by panels regarding balance-of-payments measures, we would have needed to find clear elements supporting such an interpretation. An examination of the context of the provisions and object and purpose of the agreement, as well as past GATT practice, has not led us to a conclusion other than that initially suggested by the terms of the provisions.
- Therefore, we find that the terms of the second sentence of footnote 1 to the 1994 Understanding cannot be construed in such a narrow sense as to preclude the examination by panels of issues relating to the justification of measures taken for balance-of-payments purposes under Article XVIII:B of GATT. Nothing in past panel reports leads us to change our conclusions in this respect. Our finding is also 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 XIII or XVIII:B".
- We are thus competent to review the legal status of balance-of-payments measures and the justification of these measures to the extent necessary to address the claims submitted to us, within the scope of our mandate under the DSU. We are aware of the fact that the BOP Committee and panels have different functions and our finding is without prejudice to the role of the Committee and the General Council in reviewing balance-of-payments measures in the context of consultations under the balance-of-payments provisions of GATT 1994. By finding that panels can review the justification of balance-of-payments measures, we do not conclude that panels can substitute themselves for the BOP Committee, making the Committee procedure redundant and depriving Members of their rights under Article XVIII:B procedures. On the one hand, as shown in paragraphs 5.92 to 5.97, the likelihood of a conflict between conclusions reached under the dispute settlement mechanism and conclusions of the Committee is very low in practice. It is also clear that panels could not ignore determinations by the BOP Committee and the General Council. Moreover, our findings do not affect the right of developing country Members to invoke Article XVIII:B when they face balance-of-payments difficulties. They do not affect their right to maintain those measures in accordance with the requirements of Article XVIII:11 and the Committee procedure remains the only procedure for Members to obtain the authorisation to maintain balance-of-payments measures under certain circumstances. On the other hand, our findings also preserve the right of Members aggrieved by balance-of-payments measures to secure the protection of their rights under the WTO Agreement if the measures at issue are no longer justified under Article XVIII:B If India's interpretation were endorsed, a mere notification by a Member under Article XVIII:B could deprive other Members of their procedural rights under the WTO dispute settlement provisions and therefore also of the effective protection of their substantive rights. This would also be contrary to the principle expressed in Article 3.2 of the DSU, which provides that the dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system.
- Having determined our degree of competence in this case, we must address the substantive claims of the United States. Before proceeding with this examination, we clarify the manner in which burden of proof is distributed in the examination of the different claims submitted to us.
E. Burden of Proof with Respect to the Claims
- We consider that the evidence and arguments submitted by the parties regarding Article XI and Article XVIII requires us to state how we review the evidence in this case. In relation to Article XI, the United States has presented detailed evidence regarding four types of measures applied by India to a number of products which it considers violate Article XI:1 of GATT 1994. India does not submit a point-by-point rebuttal of the evidence presented by the United States. Rather, India contests the need for a ruling of the Panel on the question of the legality of the import restrictions at issue since they were notified to the BOP Committee as falling under Article XI:1. With respect to Article XVIII, the issue in this case is the extent to which the United States needs to prove its claim of a violation of Article XVIII:11, when India invokes Article XVIII:B as its justification for the measures at issue.
- We recall that the Appellate Body Report on United States Measure Affecting Imports of Woven Wool Shirts and Blouses from India,
323 stated that:
"the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a particular claim or defence. If that party adduces evidence sufficient to raise a presumption that what is claimed is true, the burden then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption."
- In addition, we recall that the Appellate Body, in its report on EC Measures concerning Meat and Meat Products (Hormones), stated that:
"The general rule in a dispute settlement proceeding requiring a complaining party to establish a prima facie case of inconsistency of a provision [
] before the burden of showing consistency with that provision is taken by the defending party is not avoided by simply describing the same provision as an exception" (emphasis in original) 324
- We view the above-mentioned principle as requiring the following in terms of burden of proof in this case. In all instances, each party has to provide evidence in support of each of its particular assertions. This implies that the United States has to prove any of its claims in relation to the alleged violation of Article XI:1 and XVIII:11. Similarly, India has to support its assertion that its measures are justified under Article XVIII:B. We also view the rules stated by the Appellate Body as requiring that the United States as the complainant cannot limit itself to stating its claim. It must present a prima facie case that the Indian balance-of-payments measures are not justified by reference to Articles XI:1 and XVIII:11 of GATT 1994. 325 Should the United States do so, India would have to respond in order to rebut the claim.
- In this instance, the United States has presented a prima facie case for each of its claims. India has responded and presented several defences to which the United States has responded. Subsequently, having regard to Article XV:2 of GATT 1994 and Article 13 of the DSU, we have consulted the IMF on a number of issues related to India's balance-of-payments situation.We have then weighed, on each claim, the evidence favouring India against that favouring the United States to determine on the basis of all evidence before the Panel whether the United States has established its claim. Of course, where the balance of evidence is inconclusive, the party asserting the particular claim or defence will have failed to establish it.
- In the case of the claim of violation of Article XI:1, we shall take into account the fact that the United States intends to prove violations in specific situations, and that India does not deny or reply specifically to some of those allegations. We accordingly determine whether the evidence made available by both parties allows the Panel to reach a conclusion for each measure. In the case of Article XVIII, the United States has claimed that India has violated Article XVIII:11 by maintaining balance-of-payments measures that are no longer justified. If the evidence before us supports the US position, the United States will at the same time have negated India's Article XVIII defence.
F. Article XI:1
- India regulates the importation of goods found in a "Negative List of Imports", contained in Chapter 15 of India's Export and Import Policy 1997-2002. The United States identifies four measures which are implemented under India's Export and Import Policy and which it claims constitute quantitative restrictions within the meaning of Article XI:1: (a) discretionary import licensing; (b) canalization of imports through government agencies; (c) the Special Import Licensing (SIL) system; (d) the "Actual User" condition on import licensing. These measures are described in more detail in paragraphs 5.125, 5.132, 5.137 and 5.140. To the extent that India applies these four measures as balance-of-payments restrictions on the products specified in Annex I, Part B of WT/BOP/N/24, we refer to these measures as the "measures at issue" in this dispute.
- While India seeks to rebut some of the United States' arguments, it does not challenge the status of the measures under Article XI:1. India argues that it has already notified all of the import restrictions at issue to the BOP Committee as falling under Article XI:1. In the view of India, there is consequently no dispute regarding the legality of the import restriction under Article XI:1 and it would be sufficient for the Panel to record that India has notified all the measures at issue as import restrictions falling under Article XI:1 and then proceed with the examination of their consistency with Article XVIII:B.
- In our opinion, the notification by India of the measures at issue to the Committee is more than a simple admission of facts, since such notification implies a recognition that the measures at issue are "quantitative restrictions". The fact that India also notified that these measures were justified under Article XVIII, with the legal consequences attached to it (including consultations within the BOP Committee) also gives added value to the statement of India.
326 However, we consider that we need to make a finding on the violation of Article XI:1, for two reasons. First, it is an established practice under GATT and under the WTO that, even when the legal nature of a particular measure is not challenged, panels have made findings to determine the existence of a violation before addressing any justification invoked by the defending party. Secondly, the United States has asked for a ruling on the legality of each of the import restrictive measures at issue in this case. The United States claims that specific findings on the violation of Article XI:1 would assist in the implementation of the Panel's recommendations. Such a finding would not constitute, as argued by India, a "declaratory judgment" on "potential future inconsistencies". It will be based on an examination of the measures at issue as they are submitted to the Panel, and is required for the effective resolution of this dispute concerning these measures.
1. India's import licensing system for products on the "Negative List of Imports"327
- The United States claims that imports of goods falling within the "Restricted Items" list, found in Annex II of the Negative List, require a licence issued by the Director-General of Foreign Trade (DGFT). The "Restricted Items" list covers a number of products, including consumer goods (defined as consumption goods which can directly satisfy human needs without further processing and includes consumer durables and accessories). In WT/BOP/N/24, Annex 1, Part B, the products subject to this condition are identified by the notation "NAL", which stands for "Non-automatic Licensing". According to the United States, imports of these products into India are subject to an arbitrary, non-transparent and discretionary import licensing system, under which licences are granted "on merit" and only to a category of operators called "Actual Users".
- India responds that this system is transparent and rules-based, and notes in particular that under the Foreign Trade (Development and Regulation) Act, 1992, criteria are provided for the granting of licences, refusals to grant a licence must be motivated in writing and decisions on the granting of licences, including refusals, are open to appeal.
- Article XI contains one of the fundamental principles of the GATT/WTO legal system, the general prohibition of quantitative restrictions. Article XI:1 reads as follows:
"No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any [Member] on the importation of any product of the territory of any other [Member] or on the exportation or sale for export of any product of the territory of any other [Member]."
- We note that the text of Article XI:1 is very broad in scope, providing for a general ban on import or export restrictions or prohibitions "other than duties, taxes or other charges". As was noted by the panel in Japan - Trade in Semi-conductors, the wording of Article XI:1 is comprehensive: it applies "to all measures instituted or maintained by a [Member] prohibiting or restricting the importation, exportation, or sale for export of products other than measures that take the form of duties, taxes or other charges." 328 The scope of the term "restriction" is also broad, as seen in its ordinary meaning, which is "a limitation on action, a limiting condition or regulation".329
- Under the GATT 1947, panels have examined whether import and export licensing systems are restrictions under Article XI:1. For example, in a case involving a so-called "SLQ" regime, which concerned products subject in principle to quantitative restrictions, but for which no quota amount had been set either in quantity or value, permit applications being granted upon request, the panel noted "that the SLQ regime was an import licensing procedure which would amount to a quantitative restriction unless it provided for the automatic issuance of licences". 330 A similar conclusion was reached in the above-cited Japan - Trade in Semi-conductors, where the panel found that "export licensing practices by Japan, leading to delays of up to three months in the issuing of licences for semi-conductors destined for contracting parties other than the United States, had been non-automatic and constituted restrictions on the exportation of such products inconsistent with Article XI". 331 These reports are consistent with the ordinary meaning noted above, as discretionary or non-automatic licensing systems by their very nature operate as limitations on action since certain imports may not be permitted. Thus, in light of the terms of Article XI:1 and these adopted panel reports, we conclude that a discretionary or non-automatic import licensing requirement is a restriction prohibited by Article XI:1.
- In light of the foregoing, we note that it is agreed that India's licensing system for goods in the Negative List of Imports is a discretionary import licensing system, in that licences are not granted in all cases, but rather on unspecified "merits". We note also that India concedes this measure is an import restriction under Article XI:1. 332
- In light of these elements, we find that the import licensing system maintained by India for the products found in Annex II of the Negative List of Imports, to the extent that it applies to the products specified in WT/BOP/N/24, Annex I, Part B, operates as a restriction on imports within the meaning of Article XI:1.
To continue with Canalization of imports through government agencies
316 The US-Canada proposal included strongly worded provisions relating to preference to be given to price-based measures over quantitative restrictions, and specific deadlines to announce time-schedules for relaxation and removal of measures and maximum time-periods for such relaxation or removal. This proposal as tabled was not accepted.
317 "Proposal by Canada and the United States", MTN.GNG/NG7/W/72, 15 June 1990, para. 19.
318 For a detailed description of the parties' arguments, see Section III.D.(c) supra.
319 MTN.GNG/NG7/W/73, Annex 2, para. 1 and 4-5.
320 See PCIJ Lotus (France vs. Turkey), 7 September 1927, PCIJ Reports Series A (1927), No. 10 p. 16.
321 The results of the negotiations on this issue has been described in the following terms:
"In November 1989 the Americans and Canadians put their earlier views into concrete form in a joint proposal [
] [According to the proposal] action under the balance-of-payments articles should be allowed only in accordance with agreed guidelines. [
] Any deviations from the guidelines, unless explicitly approved by the Committee, would permit other countries to seek redress through the GATT dispute settlement procedures for damage done to their trade, with the onus on the restricting country to show that its measures are justified. [
] The reaction of developing countries was totally negative. [
] By June 1990, the Americans and Canadians had recognized that their earlier proposals were not negotiable, and moved to a position fairly close to that of the Community, although still calling for time limits for the removal of restrictions and not offering anything for infant industries. This was still not enough, however, to persuade developing countries to negotiate on the subject[
"The fragile compromise that emerged [in 1991] [
] was [
] carried into the Draft Final Act [
]. For the most part, it deals with the procedures for balance-of-payments consultations [
] The Agreement also makes clear that countries resorting to the balance-of-payments provisions may still be subject to complaints under the GATT dispute settlement procedures if they do not follow the rules. As a whole, the Agreement is a far cry from the ambitious controversial and ultimately non-negotiable proposals originally put forward by some countries. But it stands as (in Maciel's words) "a serious effort to clarify the existing provisions and procedures without undermining the right to use balance-of-payments measures". (J. Croome, Reshaping the World Trading System. A History of the Uruguay Round, World Trade Organization, 1995, pp. 223-224 and 307. Ambassador Maciel, of Brazil, was Chairman of the Negotiating Group on Rule-Making and Trade-Related Investment Measures during the Uruguay Round negotiations.) This text, apart from being a secondary source of information, is also imprecise on this issue.
322 Panel Report on European Communities Import Regime for Bananas, 11 February 1994, DS38/R, not adopted, para. 158.
323 WT/DS33/AB/R, adopted on 23 May 1997.
324 Op. Cit. para. 104.
325 Appellate Body Report on Australia Measures Affecting Importation of Salmon, adopted on 6 November 1998, WT/DS18/AB/R, paras. 257-259.
326 We recall in this context that, as recently stated by the Panel on United States Import Prohibition of Certain Shrimp and Shrimp Products, adopted on 6 November 1998, WT/DS58/R, "it is usual legal practice for domestic and international tribunals, including GATT panels, to consider that, if a party admits a particular fact, the judge may be entitled to consider such fact as accurate" (footnote omitted). See also the panel reports cited in reference in the footnote to the cited text: EEC Programmes of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables, adopted on 18 October 1978, BISD 25S/68, para. 4.9 and EEC- Quantitative Restrictions against Imports of Certain Products from Hong Kong, adopted on 12 July 1983, BISD 30S/129, para. 31.
327 For a detailed description of the measures at issue and of the arguments of the parties, see Sections II.B and III.B supra.
328 Panel Report on Japan Trade in Semi-conductors, adopted on 4 May 1988, BISD 35S/116, para. 104.
329 New Shorter Oxford Dictionary (1993), p. 2569.
330 Panel Report on EEC Quantitative Restrictions Against Imports of Certain Products from Hong Kong, adopted on 12 July 1983, BISD 30S/129, para. 31 (emphasis added). See also Panel Report on EEC Programmes of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables, adopted on 18 October 1978, BISD 25S/68, para. 4.9.
331 Op. Cit., para. 118.
332 We note that a finding that a discretionary licensing system is a restriction for purposes of Article XI does not imply that discretionary licensing systems cannot be used where an exception to Article XI is applicable. Indeed, their use is foreseen by the Import Licensing Agreement, which regulates their use.