46. In New Zealand's view, the relationship between the European Community's preferential arrangements entered into under Article XXIV:7 and Article I was extremely complex. Faced with the dilemma, the panel chose to find in favour of the complaining party (the United States) by avoiding the issue as to whether the European Community's preferential arrangements were or were not in conformity with the European Community's obligations under Article I. The panel's stated reason was "... the practice never to use the procedures of Article XXIII:2 to make recommendations or rulings on the GATT conformity of measures subject to special review procedures ...".¹⁴ The "practice" to which paragraph 4.16 referred reflected nothing so much as that contracting parties had not - for whatever reason - actually had occasion to take a case under Article XXIII where a so-called "special review" procedure existed. There were no logical or legal grounds upon which to elevate that fact into a "principle" that this should not occur. It was not hard to see what the logical consequences of such an approach would be. Any case brought on a demonstrably novel issue could be claimed not to have a precedent to warrant its coverage under Article XXIII and avoid dispute settlement. Any claim that Article XXIII did not apply could not be based on conjecture or an unsubstantiated assertion concerning what lay behind the fact that there were no precedents. It was necessary to adduce specific evidence that Article XXIII did not apply, and that the Article was drafted to exclude it. New Zealand observed also that the Citrus Panel report was not adopted. It thus had no GATT standing. Even if this matter concerned an Article XXIV:7 complaint, rather than BOP, the Citrus Panel reasoning would be without legal standing.

47. Korea replied that the Citrus Panel report highlighted the rule at issue in the present case in general terms. The report then went on to consider the specific relationship between Articles XXIV:7 and XXIII. Korea considered it was significant that New Zealand declined to take issue with the general rule, but rather confined itself to a discussion of the rule's application to the specific relationship between Article XXIV:7 and XXIII.

48. New Zealand argued that the Panel would no doubt be conscious of the implications for the General Agreement of applying Korea's reasoning to measures reviewed by the BOP Committee as notified under Articles XII and XVIII. To uphold the application of this reasoning would be to assert the primacy of review procedures open to the BOP Committee over GATT's central dispute settlement provision

49. In response, Korea took issue with New Zealand's claim that the BOP Committee process could be abused this easily by a country claiming BOP cover for a trade restriction. Korea also rejected any suggestion that it had abused the BOP Committee process. Furthermore, New Zealand failed to make a clear distinction, according to Korea, between the BOP Committee's review procedures under Article XVIII:12(b) and the as yet uncharted involvement of the BOP Committee in the implementation of Article XVIII:12(d). Finally, Korea argued, that the possibility of abuse could never be a justification for not applying a binding rule, in this case Article XVIII:12(d).

50. Referring to the Indian Almonds case¹⁵, New Zealand argued that there could be no doubt that the decision by the Council to establish a panel at the request of the United States, after a long debate, reflected a consensus by the CONTRACTING PARTIES that the provisions of Article XXIII, including paragraph 1(a), applied in all respects to matters which had been considered in the BOP Committee under Article XVIII:B and where the complaining party had made it clear it was alleging a prima facie breach of GATT rules, specifically Article XI:1. Other third parties took positions on both sides of this issue while New Zealand stated that "... there were no grounds for the view that Article XXIII:2 did not apply to all GATT provisions".¹⁶ The fact that the Indian Almonds panel did not run its course, did not alter the conclusion that the argument which Korea was presenting had already been considered in the fullest way by the CONTRACTING PARTIES and settled once and (hopefully) for all. Were the Panel to accept the Korean argumentation it would be directly contrary to this decision. The Council had established the present panel to consider New Zealand's complaint on Korea's beef restrictions under Article XXIII. There were no qualifications attached by any contracting party, including Korea. New Zealand therefore urged the Panel to uphold the primacy of GATT's dispute settlement provisions over the review provisions of the BOP Committee. New Zealand considered it had every right to request the Panel to consider the matter pursuant to Article XXIII:1(a) and make a ruling on the GATT conformity of the Korean measures.

51. Korea replied that it did not agree with New Zealand's claim that the Council had settled the relationship between Articles XVIII:12(d) and XXIII once and for all in favour of Article XXIII when it established a panel in the recent Indian Almonds case. While the issue was raised when the United States requested a panel to review import restrictions on almonds maintained by India, the Council drew no conclusion at the time. The discussions in the Council did reveal that the relationship between Articles XVIII:12(d) and XXIII was controversial. Thus, the Indian Almonds panel was set up with standard terms of reference. And, as in the present case, these terms did not exclude review of Article XVIII:12(d) in relation to Article XXIII. Accordingly, the Council at that time gave no guidance as to how the issue should be resolved, and certainly did not decide the issue. And because the dispute between the United States and India appeared to have been subsequently settled, there was no panel report that shed any light on the issue.

52. If the Panel were to review New Zealand's complaint under the standards of Article XXIII, Korea argued, the Panel would be agreeing that New Zealand and any other country that wanted to challenge a BOP measure could choose to ignore Article XVIII:12(d). By doing so, the Panel would render these provisions obsolete. The general procedure of Article XXIII would thus supersede the special review procedure of Article XVIII:12(d). Accordingly, by reviewing New Zealand's complaint under the standards of Article XXIII, the Panel would effectively amend the General Agreement.

53. Consequently, Korea argued, in accordance with the long-standing practice of the CONTRACTING PARTIES, New Zealand was not entitled to complain about the possible inconsistencies of the disputed beef restrictions with provisions of the General Agreement pursuant to Article XXIII:1(a). Instead, New Zealand would have to show that Korea's restrictions on beef imports constituted "non-violation" nullification or impairment under Article XXIII:1(b) or (c). Korea asserted that there was no hard and fast rule as to how a showing of "non-violation" nullification or impairment was to be made. What was clear was that the complaining party had to provide a "detailed justification".¹⁷ To date, New Zealand had not provided any such justification.

54. Korea also argued that, in the Citrus case, the panel arrived at its conclusion of "non-violation" nullification or impairment by inquiring whether, inter alia, the disputed restrictions could have been reasonably anticipated by the United States, the complaining party. This panel did not find that the disputed measures could not have been reasonably anticipated by the United States.¹⁸ Likewise, in the present case, New Zealand could not claim that it could not have reasonably anticipated Korea's restrictions on beef imports since Korea had maintained these restrictions since its accession to the GATT, and had regularly consulted about them under Article XVIII:B.

55. New Zealand replied that the assertion that to allow Article XXIII to be used would be to "negate" the procedure of Article XVIII:12(d) was logically and legally incorrect. A case taken or a finding made under XXIII would simply mean nothing more nor less than that the GATT provisions on nullification and impairment applied. It would involve no legal finding to the effect that it would have been improper for any contracting party to have resorted to Article XVIII:12(d) on any issue as and when it saw fit. On the contrary, it was Korea that was insisting that Article XVIII:12(d) was exclusive, and that Article XXIII could not apply. It could find no provision in the General Agreement or agreed interpretation of the contracting parties to support such a view.

56. New Zealand further recalled that the 1950 Working Party report, "The Use of Quantitative Restrictions for Protective and Other Commercial Purposes", stated in paragraph 23 that the "... misuse of import restrictions might appropriately provide a basis for recourse to the procedures laid down in the Agreement for the settlement of disputes". Article XVIII:B was modelled closely on Article XII, with certain changes made to take account of the special needs of developing countries. In the absence of specific language or understandings to the contrary, it had to be presumed that the above 1950 requirement, which was not qualified so as to exclude any part of the GATT dispute settlement procedures (i.e. it did not state - "except for Article XXIII:1(a)"), applied equally to Article XVIII:B.

57. Korea replied that the 1950 Working Party report reflected the economic position of the European countries in the years just after World War II. For various reasons these developed countries, which had been heavily affected by the war, maintained import or export quotas. The report disapproved of the use of quantitative restrictions for protective and other commercial reasons, that is, for reasons not justified under the GATT. The preface of the report indicated that some quantitative restrictions remained in force after the need for them had disappeared, and that some of the quantitative restrictions originally applied for financial reasons were retained to protect domestic producers against foreign competition. Any individual contracting party which considered that such a situation existed and that its trade was harmed thereby could have recourse to the complaint procedure of the General Agreement, according to the Working Party. This report was the first signal of the problems which the GATT was beginning to experience with so-called "residual" restrictions.

58. Korea then argued that none of the GATT precedents addressed the fundamental issue in this case. If the complaint of New Zealand were reviewed under Article XXIII, no country would ever consider invoking Article XVIII:12(d). Korea had pointed out that Article XVIII:12(d) made it rather difficult for a country to complain about a BOP measure that had been reviewed by the BOP Committee. In fact, the requirements of this provision were rather more difficult to satisfy for a complaining country than the requirements of Article XXIII. There were good reasons for these differences. When countries applied restrictions under Article XVIII:B and held regular consultations concerning these measures with a qualified GATT Committee that took into account the relevant findings of the International Monetary Fund, they had a legitimate expectation that these measures could not simply be challenged under the relatively loose requirements of Article XXIII regarding nullification or impairment. Otherwise, the exercise of multilateral surveillance would become meaningless. Moreover, if the Panel reviewed New Zealand's complaint under Article XXIII it agreed that New Zealand and any country that wanted to challenge a BOP measure could choose to ignore Article XVIII:12(d). This would negate the procedure of Article XVIII:12(d), and amount to an improper amendment of the GATT, in violation of Article XXX.

59. Korea could conceive of only one approach that would not necessarily put the relationship between Article XXIII and Article XVIII:12(d) at issue in this case. For that, the Panel would have to distinguish the 1984/1985 intensification measures (which were not imposed for BOP reasons but for beef industry protection reasons) from the original BOP restrictions on beef imports. Korea did not favour this approach, because it believed that BOP concerns continued to underlie and characterize the restrictions as a whole. Yet, Korea was of the view that an alternative approach was possible, which emphasized that the 1984/1985 intensification measures themselves were not motivated by BOP concerns.

60. New Zealand replied that Article XXIII was worded in a general manner and clearly applied to all areas of the Agreement. Nowhere did Article XXIII state that it did not apply to Article XVIII. Nor was it stated in Article XVIII that that Article overrode Article XXIII. Against this background, it was not at all surprising to see that paragraph 1 of the 1979 Declaration on Trade Measures Taken for Balance-of-Payments Purposes¹⁹ stated:

61. This self-explanatory section received further emphasis by the additional statement in paragraph 1 that "[t]he provisions of this paragraph are not intended to modify the substantive provisions of the General Agreement". To uphold the view that the Panel could not consider New Zealand's complaint under the key provision of Article XXIII:1(a) would be precisely to modify the substantive provisions of the General Agreement. It would be tantamount to saying that the key substantive provision of Article XXIII:1 did not apply to Article XVIII:B. Moreover, New Zealand said, the drafters clearly envisaged that there would be cases where Article XVIII was claimed but did not apply. No complainant should be prohibited from invoking Article XXIII to pursue this and be obliged a priori to concede Article XVIII cover in the first place. Korea itself had, in New Zealand's view, provided vindication for the approach of New Zealand in stating that "[i]t (i.e. Korea) did not pretend that the intensificationof its BOP restrictions was motivated by a worsening of its BOP situation and hence did not notify the measures pursuant to Article XVIII:12(a)". Thus, even in the eyes of Korea, it did not have clear Article XVIII:12 cover for its measures. Korea could hardly now expect that New Zealand should have taken any different view and utilized Article XVIII:12(d), thereby granting a status to the measures that not even the imposing contracting party itself was prepared to claim.

62. Korea replied that it failed to see any discussion of, let alone decision on, the relationship between Articles XVIII:12(d) and Articles XXIII in the passage cited from the 1979 BOP Declaration. Korea also expressed doubts that where paragraph 1 referred to "substantive provisions", the drafters had in mind the procedural dispute settlement provisions of Article XXIII. Moreover, Korea disagreed with New Zealand's claim that, in the event the Panel would not consider the GATT compatibility of Korea's beef restrictions, this would modify any provision of the General Agreement. On the contrary, if the Panel were to review New Zealand's complaint under the standards of Article XXIII, this would render Article XVIII:12(d) obsolete.

63. Korea argued that it could be that the present Panel, notwithstanding the Citrus Panel report and Korea's arguments, believed that the mere existence of special review procedures in Article XVIII:B would not prevent New Zealand from challenging the GATT compatibility of Korea's restrictions under Article XXIII. In that event, Korea submitted that the actual results of the regular consultations under Article XVIII:B still blocked a challenge of the GATT compatibility of its restrictions. Korea further argued that the GATT CONTRACTING PARTIES had authorized its restrictions on beef imports under Article XVIII:B. Korea had maintained BOP restrictions on various products since its accession to the GATT. The number of restricted imports had, however, gradually been reduced in recent years, and currently some 358 mainly agricultural products remained subject to restriction, including beef. Over the years, Korea had regularly consulted about these restrictions under Article XVIII:B. The justification of its restrictions had not been called into question until the last round of full consultations in December 1987.²⁰ In those consultations, the "prevailing view" as reported by the BOP Committee, was that import restrictions "could" no longer be justified under Article XVIII:B.²¹ It was clear that, for the first time, the BOP Committee thereby expressed doubts about the future justification of Korea's BOP restrictions. Yet, it was equally clear that the BOP Committee did not make a finding that the present or past application of Korea's BOP restrictions was inconsistent with Article XVIII:B.

64. New Zealand recalled that in 1987, the BOP Committee concluded as follows:

Events since then had, in New Zealand's opinion, served only to reinforce the Committee's prevailing view. There was no justification under Article XVIII:B for any GATT-inconsistent import restrictions and New Zealand was confident that the Panel could only uphold the Committee's prevailing view in its findings. In order to uphold the Korean case, the Panel would have to disagree with that "prevailing view". The Panel, of course, had every right to do so for the precise reason that New Zealand had asked for a ruling on the GATT consistency of restrictions maintained on beef imports. The very fact that New Zealand had asked for a panel to make a finding was evidence that the issue was not settled in a strict legal sense. New Zealand was confident that the Panel would conclude what clearly a "number" (it must, by definition, have ranged from a majority of committee members to all but Korea) of committee members had already concluded. But until the Panel did so on behalf of the CONTRACTING PARTIES, the legal consistency of Korean measures on beef with respect to Article XVIII:B remained open.

65. Korea asserted that the Committee's language was more guarded than New Zealand suggested. Also, if the Committee had established any inconsistency regarding Korean BOP restrictions, it would have made explicit recommendations to that effect to the Council.²² Perhaps even more significantly, the BOP Committee report stated that the Committee "did not necessarily expect Korea to disinvoke Article XVIII:B immediately, but to establish a clear timetable for the phasing out of remaining restrictions maintained for balance-of-payments purposes".²³ In other words, the BOP Committee accepted that Korea could still benefit from the cover of Article XVIII:B for some limited time to come. Indeed, Korea was currently preparing for further consultations under Article XVIII:B in June 1989. These would be meaningless if Article XVIII:B was no longer available to Korea, as New Zealand claimed. The BOP Committee reviewed restrictions under Article XVIII:B on behalf of the CONTRACTING PARTIES.²⁴ Since Korea's accession to the GATT, its restrictions under Article XVIII:B had been regularly examined and the application of Article XVIII:B had never been disapproved. Korea respectfully submitted that the Panel could not, with retroactive effect, substitute its own judgment for that of the CONTRACTING PARTIES.

66. As concerned the claim by Korea that its beef measures had been authorized by the BOP Committee, New Zealand replied that this view was quite without legal foundation. New Zealand subscribed firmly to the view, made explicit recently by Canada and recorded in the extensive background note prepared on Articles XII and XVIII:B by the secretariat for the Negotiating Group on GATT Articles, that: "... review of such restrictions by the Balance-of-Payments Committee, and adoption by the Council of the Committee's Report, [does] not constitute acceptance that they [are] consistent with GATT". ²⁵ The word "adopted" was a carefully chosen one. It was not intended to settle, one way or the other, the GATT legality of each and every aspect of a BOP Committee report. Thus, the Korean claim that the CONTRACTING PARTIES had "authorized" these restrictions through the BOP Committee was a misinterpretation of the word "adopted".

67. Korea argued that when the CONTRACTING PARTIES agreed to establish a panel, they limited its terms of reference to examining Korea's import restrictions on beef. Yet, these restrictions were part of a series of restrictions that remained to protect Korea's balance of payments. Accordingly, findings on the justification of Korea's restrictions on beef imports under Article XVIII:B were likely to reflect on the justification of these other restrictions as well. These, however, fell outside this Panel's terms of reference. And Korea could not agree to the challenge of all its BOP restrictions on the basis of the present New Zealand complaint. Assuming, nevertheless, that the Panel were to feel it could distinguish the restrictions on beef imports and thus limit its own analysis, Korea submitted that it was inconceivable that the IMF could do likewise.

68. New Zealand replied that it was claiming that the measures under the terms of reference were not consistent with the GATT. Korea had chosen to defend the measures under consideration on grounds of Article XVIII:B. New Zealand for its part did not consider that Article XVIII:B applied, both because the measures were not for BOP purposes and because Korea did not have a BOP problem as claimed. Furthermore, if a panel was to refrain from examining or finding on a particular case on grounds that this might have implications for other products or other contracting parties, the GATT dispute settlement process would not operate and would be rendered meaningless.

69. Korea submitted that without further advice from the IMF pursuant to Article XV:2, the Panel could not make any recommendations on the justification of Korea's restrictions on imports of beef under Article XVIII:B. Yet, it was open to question whether the Panel would be competent, without specific authorization from the Council, to consult with the IMF. To Korea's knowledge, panels had received no such authorization to date.

70. New Zealand replied that before the Panel could take a view on a particular measure's consistency with the various specific conditions of Article XVIII:B, it would need to be convinced that the country had a BOP problem in the first place. But the GATT was very precise in defining what constituted a BOP problem. It was defined in Article XVIII:9 by reference to "monetary reserves". GATT panellists, when they were drawn from CONTRACTING PARTIES, tended to be trade policy experts, not international monetary experts. Thus, a panel asked to make a finding on the basis of Article XVIII:9 was fully entitled to seek the advice of such experts through the explicit link between Articles XVIII:9 and XV:2. Seeking an updated view from the IMF was not, as Korea suggested, a mandatory requirement. The provision of Article XV:2 could be considered already met by the 1987 consultations with the IMF. But a good deal had happened to Korea's foreign exchange position in the last two years. New Zealand would thus consider it advisable to seek renewed advice. But that was for the Panel to determine and would indeed be unnecessary if the Panel had already concluded that Korean measures on beef were not being maintained for BOP reasons.

71. In response, Korea argued that the determination rendered by the IMF in 1987 plainly did not hold that Korea's BOP restrictions were unjustifiable under Article XVIII:B. Even assuming therefore that "updates" fell outside the purview of Article XV:2 (which Korea contested), New Zealand was not seeking an update in this case. In order to rule against Korea on the GATT compatibility of its restrictions under Article XVIII:B, the Panel would need a binding determination from the IMF pursuant to Article XV:2 that Korea's BOP position no longer justified restrictions. That would not be an "update". That would require the IMF to reach a very different conclusion from the one which it had reached in the past. Furthermore, Article XXIII:2 was not dispositive regarding the powers of a panel to initiate consultations independently with the IMF. The determinations of the IMF under Article XV:2 bound the CONTRACTING PARTIES. Thus, if this Panel were to obtain determinations from the IMF, these determinations would bind, among others, the BOP Committee. Yet, Korea expressed doubts whether the GATT and the IMF really envisaged that various GATT bodies could independently request binding determinations on BOP issues. In this connection, Korea recalled that the CONTRACTING PARTIES had specifically authorized the BOP Committee, in its work under Article XVIII:12(b), to consult with the IMF pursuant to Article XV:2.²⁶ Furthermore, Korea referred to the Working Party which had examined the BOP surcharge imposed by the United States in 1971. This Working Party was also specifically authorized by the CONTRACTING PARTIES to consult with the IMF.²⁷

72. Should the Panel wish to proceed with a request for such consultations with the IMF, New Zealand asserted that there were no grounds for the Korean suggestions that it would have to seek authorization from the CONTRACTING PARTIES before doing so. The Panel had been established pursuant to Article XXIII:2. This Article stated that "the CONTRACTING PARTIES may consult ... with any appropriate intergovernmental organization in cases where they consider such consultation necessary". CONTRACTING PARTIES in the context of the second and third sentences of Article XXIII:2 meant a panel or working party; they clearly had the authority as the non-mandatory language above implied.

73. New Zealand also argued that Article XVIII:4(a) allowed a temporary departure from the provisions of the other articles of the General Agreement. Further, Korea had been subject to the consultation provisions of Article XVIII:B for a number of years and had sought to justify import restrictions under the provisions of this Article. However, it should be noted that there were three general tests (and additional specific criteria) that had to be met, if these measures were to be justified in terms of Article XVIII:B:

Were the Panel to consider that any one of these conditions were not fulfilled, Korea could not justify its GATT-inconsistent restrictions by reference to Article XVIII:B.

74. New Zealand further contended that Korea was no longer experiencing BOP difficulties. In recent BOP consultations Korea had acknowledged its current account surpluses but had suggested that the CONTRACTING PARTIES should not read too much into the results of one or two years. New Zealand considered this to be most misleading: the strengthening of Korea's BOP position was now approaching a decade in duration, and macroeconomic analysis by the IMF²⁸ indicated that this secular improvement was based not on some short-term cyclical upturn in Korea's terms of trade, but on fundamental structural factors, principally sound macroeconomic management by the Korean authorities, and an extremely high savings rate. The charts prepared for the 1987 BOP consultation with Korea showed that there had been an uninterrupted improvement in Korea's current account position every year since 1980. Since then, this pattern had consolidated further. The Bank of Korea had provided a provisional estimate of a current account surplus of US$10 billion for 1987.²⁹ The Financial Times of 29 October 1988 quoted the Bank of Korea Governor estimating a surplus of US$9.4 billion for the nine months to date - implying an annual surplus of US$12 billion. This had permitted an accelerated programme of debt repayment such that the Bank of Korea expected Korea to become a net creditor nation in the fourth quarter of 1989 at the earliest, or in the first half of 1990 at the latest.³⁰

75. In response Korea argued that the question of whether the disputed restrictions were justified under Article XVIII:B essentially turned on whether Korea had cause to be concerned about the level of foreign reserves that were necessary for the implementation of its programme of economic development. Korea asserted that the restrictions which it currently maintained, including its restrictions on beef imports, were indeed necessary to secure an adequate level of reserves. Firstly, its present reserves provided no more than one month's import cover. Secondly, Korea's huge foreign debt, though declining, still posed a serious threat to Korea's balance of payments.

76. Furthermore, according to Korea, the beneficial effect of Korea's current account surpluses on its BOP position should not be overestimated. Korea's current account had been in surplus only since 1986. Its surplus, moreover, was very vulnerable because of its structure. There were several reasons for this, and by way of illustration Korea mentioned two of them. First, the share of trade in total GNP was as high as 72 per cent in 1987. A worsening of the world market situation would therefore immediately affect Korea's balance of payments. Second, Korea had a population of 42 million people and more than 70 per cent of its land was non-arable. Moreover, Korea was poor in natural resources and did not produce any petroleum. Indeed, Korea had been able to run a surplus in its current account since 1986 mainly due to the decline in oil prices.

77. New Zealand considered that the restrictions on beef imports were for the purpose of protecting Korea's cattle farmers. Yet, Article XVIII:2 specified that the application of quantitative restrictions should be for BOP purposes (emphasis added). The 1955 Review³¹ clarified that this "purpose" was the relevant criterion "by which the contracting parties would be considered to be entitled to the facilities of this Article". The 1979 Declaration on Trade Measures³² also stated that restrictive import measures "should not be taken for the purpose of protecting a particular industry or sector". It was thus clear

that contracting parties did not have to accept a simple claim of Article XVIII:B justification for particular measures as determinative. Rather, there was a means to distinguish legitimate and illegitimate claims. In New Zealand's view, the standard of "purpose" was an essential test for whether particular measures could be justified under Article XVIII:B.

78. New Zealand submitted documentation indicating the purpose of the Korean measures as revealed in:

79. Korea argued that the fact that the restrictions on beef imports had protected Korea's cattle farmers did not render Article XVIII:B inapplicable. Trade restrictions imposed for BOP reasons had protective side effects and tended to favour specific industries. The point remained, however, that the GATT as it was originally drafted, and as it stood today, did permit the use of trade restrictions for BOP purposes and thereby accepted such protective side effects. Referring to New Zealand's claimed that "the suspension of imports is thus clearly explained by agricultural policy decisions, not by foreign exchange developments" Korea contended that such an assertion ignored the fact that restrictions imposed for BOP reasons could and did have side effects. Indeed, Korea had never concealed that the BOP measures on beef protected its cattler farmers.

80. New Zealand replied that it was indeed true that trade restrictions taken for legitimate BOP reasons had protective side-effects. It was also true that a contracting party imposing trade restrictions for protective reasons could claim, after the event, that they were taken for BOP reasons. In terms of the GATT, the first was legal, the second was not. The Panel had to decide which was the case here. It involved a judgment about intentions. Moreover, as mentioned above it was clear from the documents submitted to the Panel that the reason for restrictions on beef was not BOP difficulties, but the protection of domestic cattle prices.

81. Korea submitted that when it acceded to the GATT in 1967, the restrictions which it imposed for BOP reasons (on imports of beef, among numerous other products) were justified under Article XVIII:B. This had never been contested, and to do so now would amount to a retroactive withdrawal of the Article XVIII:B cover from all its BOP restrictions. On the other hand, New Zealand could be making a different and more modest claim. It could be saying that the restrictions on beef imports as such were justified under Article XVIII:B, but that the intensification of these BOP measures in 1984/85 was not. In this connection, New Zealand had pointed out that Korea's BOP position was improving. That might indeed seem contradictory. But one had to appreciate that Korea was then faced with an unprecedented situation. In conjunction with its general liberalization efforts, Korea relaxed its restrictions on beef imports in the early 1980's. There were differences between products in this process. Some BOP restrictions were eliminated altogether. Some, like those on beef imports, were not removed but relaxed. This was consistent with the GATT which did not require that all BOP restrictions be terminated at once. In deciding which BOP restrictions could be eliminated and which should be maintained or relaxed, so as to ensure an adequate BOP position overall, Korea obviously took into account the state of the various domestic industries that would be affected by these liberalization measures. Thus, Korea argued that in deciding to relax the BOP restrictions on beef imports in the early 1980's, Korea not only assessed the effects on its overall BOP position, but also considered the impact on its cattle farmers. Now, with the benefit of hindsight, some might say that the Korean Government miscalculated the level of imports to which its cattle farmers could adjust because by mid-1984, many small cattle farmers were going bankrupt or incurring very heavy losses. That was when the Korean Government decided to intervene and intensified the Article XVIII:B restrictions on beef imports. It was a situation which the GATT regime, including its BOP provisions, did not envisage.

82. As concerned the "retroactivity" aspects of the Korean arguments, New Zealand replied that the retroactivity issue involved two matters. One related to the point that the Korean argument misrepresented the legal standing conferred by the adoption of a BOP Committee report. The second related to a view that misconstrued significantly the nature and purpose of GATT's BOP provisions. There was every possibility that a panel, if asked, say in 1976 to rule on the consistency of Korean restrictions with Article XVIII:B might have upheld the consistency of such measures. The reason was that in 1976 "... the Committee agreed with the IMF that Korea's balance-of-payments position justified import restrictions under Article XVIII:B".³³ In 1979, the wording of the BOP Committee was less dogmatic, reflecting the improving BOP position: "The Committee agreed with the IMF that the overall level of the remaining import restrictions maintained by Korea did not go beyond that necessary to prevent a decline in Korea's monetary reserves but that the current level of these reserves did not constitute a constraint on the continuation of further import liberalization".³⁴

83. In 1984, New Zealand continued, the balance shifted further in the direction of a finding that, if put to a legal test at that time, might have found that the general requirement of Article XVIII:B had not been met. The Committee, after all, "... urged Korea to pursue its trade liberalization programme as vigorously and speedily as possible and expressed the hope that the rapid improvement in the balance of payments would soon obviate the need for trade-restrictive measures".³⁵ By 1987, as New Zealand had stressed, the position had shifted again in the direction of a "prevailing view" that restrictions could not be justified, and that Korea "... would consider alternative GATT justifications for any remaining measures" - i.e. the implication being that most members of the Committee did not consider that Korea had any longer a BOP problem.

84. New Zealand said that the purpose of surveying past BOP Committee recommendations was not so much to hypothesize what a panel might have concluded at different times in the past. Rather, it was to demonstrate that the judgment might well have differed, depending on when a challenge to a particular measure, justified by Korea on Article XVIII:B grounds, was made. There was no inconsistency here. It was central to the purpose of Article XVIII:B that the Article was there for use on a temporary basis. This implied that a wholesale finding based on a "retroactive" view was not required or appropriate. Literally, of course, this Panel - any panel - made findings relating to the past. Logically, there was no alternative. Furthermore, were this not to be the case, any contracting party could invalidate any panel's work on any matter by the simple device of making a small adjustment to policy and claiming that the complaint had been overtaken by events. It was, moreover, quite acceptable in the GATT to ask for a panel finding on measures no longer being applied. But New Zealand was not seeking a retroactive finding of a sweeping nature. This was not necessary. Rather, New Zealand's difficulties with the Korean measures on beef dated from October 1984 and it was this period until the most recent possible period on which the Panel could make judgments.

85. Korea replied that much of this discussion was speculation on what a panel might have done in the past, in 1987, in 1984, in 1979 and even in 1976. In Korea's view, that was not relevant to the issue of retroactivity. The relevant question was whether a panel in 1989 could hold that Korea's BOP restrictions were not justified in, say, 1979, despite the BOP Committee's undisputed findings to the contrary. Korea argued that that was unprecedented. The issue of retroactivity raised another fundamental concern. How could the present Panel decide that Korea's beef restrictions were not justified under Article XVIII:B in, say, 1983 (prior to the taking of the 1984/1985 intensification measures), without holding that all the other BOP restrictions which Korea maintained at the time were not justified either?

86. Korea explained further that, faced with an unprecedented situation in 1984-85, it nevertheless sought to stay close to the letter of the GATT. It did not pretend that the intensification of its BOP restrictions was motivated by a worsening of its BOP situation, and hence did not notify this measure pursuant to Article XVIII:12(a). Moreover, Korea made an attempt to act within the spirit of Article XVIII:10, in that it sought to avoid unnecessary damage to the interests of its trading partners. Now that the domestic market situation had stabilized, Korea was retracting the intensification of its BOP restrictions.

87. New Zealand replied that the measures under consideration by the Panel were not justified by Article XVIII:B at all. As admitted by Korea, they were measures imposed, not to achieve BOP objectives, but to protect the Korean beef industry. The statements and structures referred to earlier were related to the totality of the restrictions - not some portion of them. Moreover, New Zealand had noted the Korean statement that "the intensification measures were not motivated by BOP concerns, but instituted in order to remedy the disruption of Korea's cattle farming industry". Of course, Korea fell short of unequivocally conceding the point by use of the term "intensification". But it could be shown that the implied distinction between "intensified" and "underlying" restrictions had no foundation and that the measures as a whole were not eligible for justification under Article XVIII:B. The purpose of the measures was the relevant consideration. The Korean distinction seemed to rest on the false assumption that protective purpose and varying import levels at the border were somehow incompatible. On the contrary, the actual levels of import restraint would be varied from period to period precisely in order to meet the basic purpose of domestic protection. If import prices were, in a given year, at a higher level, and/or producer prices were also higher, a regime based on protective purpose could well be prepared to allow more imports than before. But the basic purpose - which was the relevant consideration here - was identical in both circumstances. It was precisely such a system that Korea operated.

88. Korea argued that the 1984/1985 intensification measures could not be isolated and divorced from their BOP context. One should look at the whole picture. Ever since its accession to the GATT, Korea maintained BOP restrictions on beef imports (among other products). Korea had BOP problems in 1984/1985 and was still recognized to have them at present by the BOP Committee. That was why Korea maintained that Article XVIII and its procedures were still relevant, even if one recognized that the intensification measures were not taken for BOP reasons, but because of an unprecedented situation arising from the disruption of Korea's cattle industry. That was also why Korea maintained that, even if the 1984/1985 intensification measures were incompatible with the GATT, Korea should be allowed to restore the level of BOP restrictions on beef imports prevailing prior to the 1984/85 intensification measures. In 1983, Korea imported a total of 51,500 tons (product weight) of beef. This would now again be the appropriate level of BOP restrictions on beef imports, until these restrictions could be further relaxed or removed depending on the development of Korea's overall BOP position. New Zealand could not reach above and beyond the total 1983 import level because to do so required findings on Korea's past and present BOP justification. Any such findings would involve the BOP restrictions maintained on 357 other products.

89. New Zealand replied that there could be no basis whatsoever for this new appeal that Korea "be allowed to restore the level of BOP restrictions on beef imports prevailing prior to the 1984/85 intensification measures". First, there was the question of the purpose of the restrictions. As had been argued previously, New Zealand considered that a single protective purpose applied. Second, an appeal to a past level of imports would, in any case, require a finding that the pre-1984 regime was - among other things - not for a protective purpose. That matter had not been addressed directly in this Panel. Korea had certainly made no case to sustain it - merely asserted it. Third, the Panel, indeed, could not make such a finding as it was outside the terms of reference. New Zealand was seeking a finding on measures post 1984/85. Fourth, even were the terms of reference different, New Zealand argued, and a case sustained that measures on beef pre-1984 were indeed for BOP purposes, that would imply nothing for this case. Neither the nature of the import/domestic regime nor the BOP situation pre- and post-1984 could be assumed to be the same. The post-1984 measures would still have to be judged on their own terms.

90. Korea argued that it was certainly true that Korea's BOP position had improved since 1984/85. Yet, without involving all other remaining BOP restrictions, this Panel could not decide whether and to what extent such improvement ought to translate into a further relaxation of the BOP restrictions on beef beyond the 51,500-ton level existing in 1983. Thus, it would make no sense to find that Korea's restrictions on beef imports were no longer justified under Article XVIII:B, while maintaining that the other 357 restrictions continued to be justified as they were. Obviously, improvements in Korea's BOP position did not affect the restrictions on beef imports exclusively. Prescriptions for change required a global assessment. Yet, an across-the-board review of all of Korea's remaining BOP restrictions clearly fell outside this Panel's terms of reference.

91. In the event the Panel were to find that Korea's beef restrictions were not consistent with the provisions of Article XVIII:B, Korea argued that a novel situation would arise. There was no precedent in GATT addressing the proper course of action if a measure, which had otherwise been authorized under the review procedures of Article XVIII:B, was deemed incompatible with the GATT in an action under Article XXIII. Korea submitted that in such cases the defendant country would be entitled to a grace period, in which it could consider which GATT consistent measures it could and should take. As indicated, Korea's cattle farmers had derived protection from the BOP restrictions on beef imports. In case that protection were no longer available, the farmers would in principle be exposed to unbridled competition from abroad. The effects were bound to be disastrous. Accordingly, the Korean Government would need a grace period to implement another mechanism, consistent with GATT, that would offer some protection to its cattle farmers. To allow the Panel to appreciate this, Korea described the underdeveloped state of its agricultural sector, and of its cattle farming industry in particular. Korea aimed for controlled liberalization of imports of beef. It did not want a repetition of the early 1980's, when an explosive import growth ultimately necessitated a near-suspension of imports in 1984/85. Korea submitted that the avoidance of similar shocks in the future was also in the interest of foreign industries, including New Zealand's beef industry.

92. New Zealand replied that Korea's request for a grace period was not a "defence" as such against the charges New Zealand was making. Nor was it relevant to any GATT panel finding. The Panel was invited to give a ruling on the GATT consistency of the measures under dispute, not to recommend an adjustment path to the Korean trade and agriculture authorities. The Korean authorities would be well aware of New Zealand's understanding of the political and economic sensitivities in Korea and in New Zealand. However, such considerations belonged to a subsequent stage in the course of this long dispute between New Zealand and Korea, should the Panel uphold New Zealand's claim. New Zealand assumed the Panel would, if it supported New Zealand's case, make its recommendations to the CONTRACTING PARTIES along standard lines.

93. New Zealand considered that the Republic of Korea's beef import restriction measures constituted a prima facie breach of Korea's obligations under the General Agreement and that these nullified or impaired benefits accruing to New Zealand.

94. The Panel received submissions from Australia, Canada and the United States as interested third countries. Australia and the United States both stated that their interests as exporters of bovine meat to the Republic of Korea had been affected by the Korean beef import measures. They considered, together with Canada, that these restrictions contravened the provisions of the GATT, in particular the provisions of Article XI:1, and nullified or impaired benefits accruing to them within the meaning of Article XXIII:2 of the General Agreement.

95. Australia considered that the prohibition of beef imports from mid-1985 until August 1988 and the subsequent import ceiling restrictions maintained by the Republic of Korea were contrary to the provisions of Article XI:1. These measures were prima facie inconsistent with the GATT under Article XI:1 which proscribed "prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures". Australia also considered that the mark-up practised by the LPMO on imports of beef, the sole Korean importer of beef from August 1988 and an authorized monopoly in the sense of Article II:4, contravened the provisions of that Article. Australia further argued that the Korean measures could not be justified under Article XI:2, Article XVIII:B or under any other Article of the General Agreement.

96. Australia argued that Korea did not meet the appropriate requirements for coverage of its beef import measures under Article XVIII:B: The Korean beef import regime contravened both the spirit and the letter of Article XVIII:B, paragraphs 9, 10, 11 and 12(a), as well as the 1979 Declaration on Trade Measures Taken for Balance-of-Payments Purposes. Korea had implemented an effective prohibition rather than a restriction on beef imports from 1984 to 1988. The nature of Korea's beef import regime from at least 1984 onwards was demonstrably not necessary to achieve the objectives specified in paragraph 9 and could not, therefore, be deemed consistent with its provisions. Moreover, Korea's economic situation was certainly not such in 1984 as to justify the intensification of import restrictions under the provisions of paragraph 9. Also, there were clear indications that the Korean measures with respect to beef imports were not taken for BOP reasons, but to protect the domestic industry.

97. The United States considered that the Korean import ban and quantitative restrictions on beef imports violated GATT Article XI:1 since that Article prohibited any contracting party from imposing quotas, import or export licences or other measures to restrict trade. To the extent that Korea had banned imports of beef through MAFF's refusal to issue import licences, the Korean action was a "prohibition" in violation of Article XI:1. To the extent that Korea had in the past or might in the future restrict imports of beef entering under quota, its actions constituted a "quantitative restriction" inconsistent with the GATT.

98. The United States also argued that the LPMO was an "import restriction" within the meaning of Article XI, and, as a monopoly, it operated in a manner which violated the provisions of that Article. The United States asserted, moreover, that Korea could not justify its beef import measures under Articles XI:2(c)(i), XI:2(c)(ii), XVIII:B or under any other provision of the GATT.

99. The United States also considered that the Korean measures could not be justified under Article XVIII:B since Korea did not have a BOP problem as defined by the GATT. If, however, it was considered that Korea could restrict imports for BOP reasons, the United States argued that the restrictions on beef imports did not qualify as BOP measures since, inter alia, these measures were taken for domestic, political purposes, i.e., for the purposes of protecting a Korean industry, rather than for BOP reasons.

TO CONTINUE WITH: REPUBLIC OF KOREA - RESTRICTIONS ON IMPORTS
OF BEEF - COMPLAINT BY NEW ZEALAND

¹⁴Citrus Panel Report, L/5776, paragraph 4.16

of Article XXIII. The practical consequences could be all too easily sketched. In short, acceptance of the Korean logic would lead to the absurd position where contracting parties wishing to use the exemption provided by GATT's BOP provisions could ensure that the GATT consistency of the measures could never be challenged provided the purely formal requirement of a review were met.

¹⁵India - Import Restrictions on Almonds, C/M/215, pages 5-7.

¹⁶C/M/213, page 16.

¹⁷Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement (Article XXIII:2), BISD 26S/215, 216, paragraph 5.

¹⁸L/5776, paragraphs 4.32 and 4.33.

¹⁹BISD 26S/205, 206.

²⁰See, e.g., BOP/R/163 (23 October 1986); BOP/R/146 (15 November 1984).

²¹BOP/R/171, paragraph 7 (10 December 1987).

²²See Declaration on Trade Measures Taken for Balance-of-Payment Purposes, BISD 26S/205, 209, paragraph 13.

²³BOP/R/171, paragraph 9.

²⁴See Note by the Chairman of the Committee on Balance-of-Payments Restrictions, BISD 18S/48, 51, paragraph 10.

²⁵MTN/GNG/NG7/W/46, page 22.

²⁶BISD 26S/205 and BISD 18S/48, 51 (1972).

²⁷BISD 18S/212, 213.

²⁸BOP/R/171, paragraph 22.

²⁹Korea Times, 18 August 1988.

³⁰Idem.

³¹Working Party Report on Quantitative Restrictions, BISD 3S/188 (1955).

³²BISD 26S/205.

³³MTN/GNG/NG7/W/46.

³⁴Idem, paragraph 113.

³⁵Idem, paragraph 116.

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