24 May 1989

1. In August 1988 New Zealand and the Republic of Korea held Article XXIII:1 consultations concerning Korea's beef import restrictions. These consultations did not lead to a mutually satisfactory solution. New Zealand therefore requested the Council to establish a panel to examine the matter (L/6354).

2. At its meeting on 22 September 1988, the Council agreed to establish a panel and authorized its Chairman to designate the chairman and members of the Panel in consultation with the parties concerned (C/M/224, item 4). Australia, Canada, the European Community and the United States each reserved their right to make a submission to the Panel.

3. The following terms of reference were agreed upon:

4. In consultations between the parties it was agreed that the Panel would have the same composition as the Australian/Korean Panel and the United States/Korean Panel agreed upon earlier, as follows:

Chairman: Mr. Chew Tai Soo

Members:

Ms. Yvonne Choi

Mr. Piotr Freyberg

5. The Panel met with the parties on 1 December 1988 and on 16 January 1989. It received third country submissions from Australia, Canada and the United States. Their views are summarized below in paragraphs 94-105. The Panel submitted its report on the dispute to the parties on 25 April 1989.

6. In its first submission to the Panel, the Republic of Korea argued that the complaint had been improperly brought under Article XXIII of the GATT and that the Panel should therefore declare it inadmissible. Korea requested that the Panel rule on the issue of admissibility prior to considering the merits of the complaint.

7. Korea put forward the following arguments for its request: since its accession to the GATT, Korea had applied restrictions on beef, among other products, under Article XVIII:B. Korea had regularly held consultations about these restrictions pursuant to Article XVIII:12(b), under the aegis of the GATT's Balance-of-Payments Committee. The most recent report of this Committee was issued as BOP/R/171 (1987). A new round of consultations was scheduled to take place in June 1989.

8. Korea also argued that the General Agreement made specific provision for a complaint procedure in Article XVIII:12(d) if, despite the multilateral surveillance exercised pursuant to other provisions of Section B of Article XVIII, a contracting party wanted to challenge the consistency of restrictions that had been applied under this Section.

9. Korea further noted that the complaint procedures of Article XVIII:12(d) and Article XXIII differed in several important respects. For example, under Article XVIII:12(d), the complainant must make a prima facie showing that the disputed restrictions were inconsistent with the provisions of Article XVIII:B. On the other hand, Article XXIII merely required a showing of nullification or impairment of benefits of the complainant, which was not dependent on a showing of inconsistencies with the General Agreement. There were valid 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 pursuant to Article XVIII:B became meaningless.

10. The Panel decided to make an immediate ruling on the question of admissibility as requested by Korea, as follows:

"After deliberation the Panel came to the same conclusion as in the case of the United States/Korean Panel and in the case of Australian/Korean Panel, namely that it clearly has a mandate to examine the merits of the case in accordance with its terms of reference. The Panel also found that it cannot accede to the request of the Republic of Korea. The following considerations were taken into account by the Panel in arriving at its conclusions:

(a) At the GATT Council in September 1988, New Zealand requested the establishment of a panel under Article XXIII:2. The Republic of Korea agreed to this request. As is customary, the Panel was set up by the GATT Council by consensus. The Republic of Korea is a party to the consensus to set up the Panel under Article XXIII:2.

(b) The terms of reference given to the Panel, and agreed to by the parties as well as the Council, require the Panel to examine, in the light of the relevant GATT provisions, the matter referred to the CONTRACTING PARTIES by New Zealand in document L/6354, and to make such findings as will assist the CONTRACTING PARTIES in making the recommendations or in giving the rulings provided for in Article XXIII:2.

(c) The terms of reference do not give the Panel authority to rule on the admissibility of the claim."

11. The case before the Panel concerned measures maintained by the Republic of Korea on imports of beef (CCCN 02.01).

12. Since its accession in 1967, Korea has maintained balance-of-payments (BOP) measures on various products. Since that year, and to date, Korea's BOP restrictions have been subject to regular review by the BOP Committee. During this period, Korea had abandoned or relaxed restrictions on some products. By 1988, restrictions for which Korea claimed BOP cover were still maintained on 358 items, including beef. In 1979, the Korean tariff on beef was reduced from 25 per cent to 20 per cent and bound at that level. Korean beef imports increased from 694 tons (product weight) in 1976 to 25,316 tons in 1981, 42,329 tons in 1982 and 51,515 tons in 1983.¹ Increased beef supplies, due to rising domestic production and the higher level of beef imports, resulted eventually in falling prices on the Korean domestic market and mounting pressures from Korean beef farmers for protection from the adverse effects of beef imports.

13. In October 1984, Korea ceased issuing tenders for commercial imports to the general market, and in May 1985 orders for imports of high-quality beef for the hotel market also ceased, leading to a virtual stop of commercial beef imports. These measures were neither notified to, nor discussed in, the BOP Committee. Between May 1985 and August 1988, no commercial imports of beef took place. Korea partially reopened its market in August 1988, permitting up to 14,500 tons (product weight) of beef to be imported before the end of the year. For 1989, a quota of up to 39,000 tons had been announced.

14. At the last meeting of the BOP Committee in December 1987, "the Committee took note with great satisfaction of the improvement in the Korean trade and payments situation since the last full consultation".² "The prevailing view expressed in the Committee was that the current situation and outlook for the balance of payments was such that import restrictions could no longer be justified under Article XVIII:B. The conditions laid down in paragraph 9 of Article XVIII for the imposition of trade restrictions for balance-of-payments purposes and the statement contained in the 1979 Declaration on Trade Measures Taken for Balance-of-Payments Purposes that 'restrictive trade measures are in general an inefficient means to maintain or restore balance-of-payments equilibrium' were also recalled. It also noted that many of the remaining measures were related to imports of agricultural products or to particular industrial sectors, and recalled the provision of the 1979 Declaration that 'restrictive import measures taken for balance-of-payments purposes should not be taken for the purpose of protecting a particular industry or sector'".

15. Therefore, the BOP Committee "stressed the need to establish a clear timetable for the early, progressive removal of Korea's restrictive trade measures maintained for balance-of-payments purposes. It welcomed Korea's willingness to undertake another full consultation with the Committee in the first part of 1989. However, the expectation was expressed that Korea would be able in the meantime to establish a timetable for the phasing out of balance-of-payments restrictions, and that Korea would consider alternative GATT justifications for any remaining measures, thus obviating the need for such consultations. The representative of Korea stated that he could not prejudge the policy of the next Government in this regard".³ Moreover, members of the Committee had stated that "they did not necessarily expect Korea to disinvoke Article XVIII:B immediately ...".

16. Economic indicators in Korea since its latest BOP consultations showed a continuation of the favourable economic situation of the recent past. Economic growth for the period January-September 1988 was expected to have reached 12 per cent as compared to the same period in 1987. Terms of trade improved by 2.5 per cent during the first nine months of 1988 while unemployment dropped from 4 per cent in 1985 to 2.6 per cent for the period January-September 1988. As regards BOP, the current account for the first nine months of 1988 showed a favourable balance of US$14.1 billion, compared to US$9.9 billion for the whole year of 1987. Official reserves (gross) passed from US$3.6 billion at the end of 1987 (enough to finance 1.1 months of imports) to US$12.3 billion at the end of 1988 (3 months of imports). Finally, the ratio of external debt to GNP decreased from 30 per cent in 1987 to 20.4 per cent for the period January-September 1988.⁴

17. During the late 1970's and early 1980's, Korea adopted a number of policies designed to promote a cattle herd build-up. These measures included banning the slaughter of all bulls under 350 kg. and cows of less than six years of age. In addition, Korea began to import large quantities of beef for domestic consumption. Finally, Korea undertook an expansion of credit to help cattle farmers build up their herds and provided producer incentives (5,000 won per head) for female calves. The credit programme and restrictive slaughter rules led to a sharp increase in imports of live cattle and beef. Korean live beef cattle imports increased from 8,138 head in 1979 to a peak of 67,706 head in 1983. During this period, Korean beef imports averaged 30,330 metric tons⁵ (product weight).

18. The success of the Korean programme led to a strong increase in domestic cattle numbers. Official Korean statistics showed that the beef cattle inventory nearly doubled between 1982 and 1986. The total beef inventory increased from 1,312,000 head on 1 January 1982 to 2,553,000 head on 1 January 1986. This build-up in cattle inventories eventually led to falling cattle prices. Livestock market prices for Korean native cattle (400 kg.) rose to a peak of 1.57 million won per head in February 1983 and then began to fall throughout 1984-1986, eventually reaching a low of 0.92 million won per head in February 1987. ⁶ The decline in cattle prices led to reduced profitability for cattle farmers.

19. Prior to 1 July 1987, Korea's beef imports were governed by the Foreign Trade Transaction Act (as amended) which came into force in 1967. The Foreign Trade Transaction Act provided, inter alia, that the Minister of Trade and Industry was obliged to publicly notify the classification of (a) automatic approval import items; (b) restricted approval items; and (c) prohibited items. For restricted items, the Minister was required to lay down procedures controlling their import, including any restrictions on quantity. These arrangements were published in a consolidated public notice (the Export and Import Notice). Meat and edible offals were classified in 1967 as restricted items for the purposes of the Foreign Trade Transaction Act. As restricted products, beef could be imported on the recommendation of the National Livestock Cooperatives Federation (NLCF) subject to the guidelines of the Ministry of Agriculture, Forestry and Fisheries (MAFF), which controlled the quota allocation. If import levels became too high in relation to the level of consumption, imports could be adjusted or suspended.

20. Under the Foreign Trade Transaction Act, the Republic of Korea handled beef imports via two separate mechanisms. One mechanism was concerned with imports of beef for general domestic consumption and generally covered more than 90 per cent of beef imports. These were administered by the NLCF which was established in 1981 by the Livestock Cooperative Law. It had the following functions: (a) administration of a Livestock Development Fund (funded by import levies and direct government contributions) with a prime responsibility of providing concessional loans to livestock farmers; (b) establishment of livestock markets; (c) intervention in the domestic market to stabilize prices through the purchase or sale of stocks; (d) import operations; (e) supply of farming material; (f) marketing of livestock products; (g) general banking business; and (h) extension services. The NLCF imported beef for the general market through a tender system, according to the MAFF's guidelines. Some of the imported beef was processed by the NLCF into packed beef, and some was released to a private entity called Korea Cold Storage Co., at prices lower than those of the domestic wholesale market in order for the latter to produce packed beef. The margin between the wholesale release price and the NLCF's costs, including the purchase price of imported beef, duty and handling charges, was allocated to the Livestock Development Fund.

21. The second mechanism was concerned with imports of high-quality beef for hotels and was handled by the Korean Tourist Hotel Supply Centre (KTHSC) between 1981 and 1985. The KTHSC, an organization representing Korea's major tourist hotels, was established in 1972, under the jurisdiction of the Ministry of Transportation, to import goods solely for tourist hotels. After application from the KTHSC, the Ministry of Transportation would forward the demand for beef imports to the MAFF. The KTHSC paid a levy of 2 per cent of the c.i.f. price of the imported beef to the NLCF for the Livestock Development Fund. The import operations of the NLCF were virtually suspended in October 1984 and those of the KTHSC in May 1985.

22. On 1 July 1987, the Foreign Trade Transaction Act was superseded by the Foreign Trade Act (Law No. 3895 of 31 December 1986). A new organization was established by the Korean Government, the Livestock Products Marketing Organization (LPMO), with effect from 1 August 1988. This organization administered on an exclusive basis the importation of beef within the framework of quantitative restrictions set by the Korean Government. According to its current by-laws, as amended on 29 December 1988, the LPMO was to:

- stabilize the prices of livestock products through smooth adjustment of supply and demand, supporting thereby, and at the same time, both livestock farmers and consumers; and

- contribute to improving the balance of payments.

The main function of the LPMO was the administration of the quota restrictions set by the government. The LPMO's board of fifteen directors included the following representatives:

President, NLCF

Director-General, Livestock Bureau, MAFF

Chairman, Pusan Livestock Cooperative

Vice-President for Marketing, National Agricultural Cooperative Federation

Chairman, Baekam Agricultural Cooperative

President, National Headquarters for Korea Dietary and Life Improvement Campaign

Chairman, Korea Dairy and Beef Farmers Association

Professor, Livestock College, Kunkook University

Research Director for Agricultural Development, Korea Rural Economic Institute

Professor, College of Agriculture, Seoul National University

President, LPMO

Chairman, Tourist Hotel Subcommittee, Korea Tourism Association

Chairman, Korea Restaurant Association

Chairwoman, Korea Federation of Housewives Club

Senior Vice-President, Korea Consumers Protection Association

23. Under the current import arrangements, the MAFF sets a maximum import level on the basis of various criteria such as estimated domestic beef production and estimated domestic consumption. In 1988, the LPMO imported the beef through a system of open tenders and resold a major part of it by auction to the domestic market.

24. Before reselling the imported beef either through the wholesale auction system (61.2 per cent of total volume) or directly (38.8 per cent), for instance to hotels, the LPMO added its costs and a profit margin. Between August and October 1988 the LPMO imposed an announced base price under which the meat was not sold at the wholesale auction. Since October, no explicit base price had been announced on the understanding that a certain base price level had to be respected. After having deducted its overhead, the difference between the import contract price and the auction price (or derived direct sale price) was paid into the Livestock Development Fund. This difference varied from one month to another, and also for different types of beef, but was on average approximately 44 per cent in the period August to November 1988.

25. New Zealand argued that the Republic of Korea's restrictions on the import of beef constituted a prima facie breach of Korea's obligations under Articles XI:1 and II:4 of the General Agreement, that such measures nullified or impaired benefits accruing to New Zealand directly or indirectly under the Agreement, and that the Panel would be fully justified in suggesting to the CONTRACTING PARTIES that they recommend that the Republic of Korea bring their import regime relating to the meat of bovine animals into conformity with the General Agreement. New Zealand further argued that these restrictions could be justified neither under the exceptions of Article XI:2 nor under those of Article XVIII:B, nor any other provision of the GATT.

26. The Republic of Korea argued that its restrictions on beef imports were covered by the balance-of-payments (BOP) provisions of Article XVIII:B and thus permissible under the GATT. Furthermore, New Zealand's complaint could not be reviewed under the standards of Article XXIII in view of the standards and procedures in Article XVIII:12(d).

27. New Zealand argued that, according to Article XI:1, Korea was entitled to maintain its bound duty of 20 per cent on imports of the meat of bovine animals. However, Korea retained a web of additional restrictions that severely depressed the level of imports beyond that which would pertain were only the 20 per cent duty to be levied, and also seriously distorted the pattern of trading opportunities within these severely depressed overall levels of imports. These additional restrictions were clearly contrary to the provisions of Article XI:1.

28. New Zealand argued that the suspension of import licences for almost four years from 1984 to 1988 constituted an effective prohibition on imports. This was so even during the early period of the prohibition when, for seven months, Korea allowed some imports to enter the tourist hotel sector. The Panel Report "Japan - Restrictions on Imports of Certain Agricultural Products"⁷ established that where imports were confined to a certain segment of the market and not permitted to enter the general commerce of the importing country, a de facto prohibition could be said to exist. When Korea, seven months later, closed even the hotel trade, it was thus simply reinforcing what in GATT terms was already a de facto import prohibition on beef. Such restrictions were contrary to the letter of Article XI:1.

29. It was not necessary in terms of Article XI:1, New Zealand asserted, to consider whether the recent authorization of imports had in fact terminated the de facto import prohibition maintained for four years. Such was the complexity of current Korean restrictions operated by the LPMO that it was extremely doubtful whether it could be said that all imports of the meat of bovine animals could currently enter the general customs tariff territory of Korea. However, Article XI:1 referred not simply to prohibitions but also to "restrictions" other than bound duties. In considering events since limited imports were resumed in August 1988, the questions were thus: (a) did Korea continue to adopt measures, additional to the 20 per cent tariff rate, which restricted imports? and (b) were such measures inconsistent with accepted interpretations of Article XI:1?

30. The answer to both questions, New Zealand believed, was affirmative and flowed directly from the description of the Korean import regime, the essential features of which had remained the same before the import prohibition, during the prohibition and under the present import regime. First, the fact that imports were restricted by administrative/political decisions to a ceiling - any ceiling - beyond which import licences would not be issued in 1988 indicated the existence of a restriction in addition to the bound tariff. This was a prima facie breach of Article XI:1. The restrictions not only depressed the level of imports, they also restricted the types of beef imports. The binding on item 0201.10 in the Korean schedule related to all imports of the meat of bovine animals. There was no distinction in this tariff item between so-called "high-quality" and other beef, or between "grain-fed" and "grass-fed", or between different cuts or specifications of meat. The obligation to apply only the restriction of a 20 per cent tariff applied to all imports of the meat of bovine animals. Yet, there was a morass of additional restrictions drawing such distinctions, imposing prices at which the product could be sold onto the domestic market, and dictating when imports could take place. These were all made effective through the LPMO, which had a monopoly over beef imports.

31. These restrictions conflicted directly with Korea's obligations under Article XI:1 because the LPMO was clearly a state-trading enterprise within the meaning of Article XVII, and the Interpretative Note to Article XI:1 stated that: "... the terms "import restrictions" ... include restrictions made effective through state-trading operations". In brief, such restrictions were prohibited.

32. New Zealand argued that the LPMO, established under the legislative authority of the Foreign Trade Act 1986, had a monopoly on the import of beef. Although the LPMO was not a state-owned enterprise it was covered by the provisions of Article XVII since in 1960 a Panel on State-Owned Enterprises concluded that "[n]ot only State enterprises are covered by the provisions of Article XVII, but all enterprises which enjoy "exclusive or special privileges".⁸ Since an import monopoly was an "exclusive or special privilege", the LPMO was an enterprise of the type covered by Article XVII. Restrictions made effective through its operations were thus of the type captured by the Interpretative Note to Article XI:1. The current restrictions which were made effective by the operations of the LPMO since August 1988 therefore meant that Korea remained as much in conflict with its obligations under Article XI:1 as when all imports were suspended.

33. Korea did not deny that the beef restrictions maintained by Korea were contrary to the provisions of Article XI but claimed that they were justified under Article XVIII:B. Moreover, Korea argued that it was important to stress that the LPMO mechanism did not represent a separate import restriction. The LPMO simply had no authority to set or modify quantitative limitations on beef imports. Nor was the LPMO charged with making recommendations to the government on the appropriate level of imports. Rather, the LPMO administered the importation of beef within the framework of quantitative restrictions set by the Korean Government. Since the LPMO was just an implementing mechanism, the LPMO's objectives did not affect the justification of the Government's restrictions on beef imports.

34. New Zealand argued that the relevant legal consideration, as far as Article II:4 was concerned, was the size of the mark-up on imported beef and whether this mark-up was "in excess of the amount of protection provided for in (Korea's) schedule". That latter protection was 20 per cent. The fact that (for a certain percentage of sales of product for which LPMO had monopoly import rights) onward selling occurred via an auction system did not modify the obligation to limit the margin of protection to 20 per cent (with due allowance for costs, etc.). This was the inescapable consequence of having accepted a GATT binding. It was no defence to argue that there was an "auction" system involved. In any case, the auction system at wholesale level was not operating in a free market. There was a monopolistic supplier exercising its market power by means of the auction system. Where the right to import was in the hands of a single seller, an auction arrangement was in fact a highly potent device to maximize returns from a monopolistic market power. Apart from this, 63 per cent of grass fed beef was sold directly quite outside the auction system, and the attempted "defence" of an "auction system" could not even be resorted to for these sales.

35. As the Canadian Liquor Panel⁹ had made clear, New Zealand further argued, the defence that "revenue maximization" was a "normal commercial consideration" was rejected. The panel there considered that a "monopoly profit margin on imports resulting from policies of revenue maximization (by provincial liquor boards) could not normally be considered as a "reasonable margin of profit" in the sense of Article II:4". Based on a reading of Article II:4 and Article 31 of the Havana Charter, the Canadian Liquor Panel considered that "a reasonable margin of profit was a margin of profit that would be obtained under normal conditions of competition (in the absence of a monopoly)".

36. New Zealand considered that the protection afforded by the LPMO clearly restricted trade in the bound item. More specifically, while New Zealand had not won any of the first few tenders from the LPMO¹⁰, New Zealand understood that the LPMO applied a type of surcharge to all imported beef leaving its storage facilities to ensure that the price on imported beef was the same as the domestic price. Reportedly, such mark-ups had, on occasion, been very substantial. According to Korean end-users, the LPMO imposed a surcharge of 20-200 per cent of c.i.f. value on top of the 22.5 per cent tariff and tax. Estimates made by New Zealand for the period August-November 1988 indicated mark-ups on grass fed beef in the order of 47.1 per cent to 133.6 per cent. For instance, beef which had an average November tender price of 1,589.9 won/kg was, New Zealand estimated, released to the NLCF at a price as high as 5,384 won/kg. The margin between the landed cost (even allowing for relevant charges, etc.) and the wholesale price was considerable. New Zealand was aware of at least one example where an import shipment with a tender price of US$4,000/ton was auctioned through the LPMO at US$10,000 in mid-1988. That which was not auctioned was released to the trade at US$7,953 by late 1988. Even the very selective information produced by Korea indicated that the 11 November auction prices for two of the three categories reflected a 41.7 per cent and 30.9 per cent mark-up. The application of mark-ups over and above the amount of protection provided in the Korean Schedule constituted a clear violation of Article II:4.

37. Korea replied that as long as it maintained quantitative restrictions justified under Article XVIII:B, these had to be administered. That was to say, these restrictions had to be allocated among the different suppliers. Article XVIII:B referred to Article XIII, which laid down principles to avoid discrimination among foreign suppliers who wanted to export beef to the country that applied quantitative restrictions. Article XIII was not the only standard that a country had to observe when it imported products which it had subjected to restriction. The importing country had to continue to observe its tariff bindings as well, even if it had GATT justification to subject the products concerned to quantitative restrictions. Thus, while Article XVIII permitted a country to impose quantitative restrictions for BOP reasons, it did not make allowance for surcharges that increased import duties above the level bound in GATT. This was clearly established by the working party that reviewed the tariff surcharge imposed by the United States for BOP reasons in 1971.¹¹

38. Consequently, Korea argued, assuming that Korea was entitled to maintain quantitative restrictions under Article XVIII:B, then the LPMO's administration of these restrictions was subject to two GATT requirements: first, the LPMO had to administer these consistently with Article XIII; second, the LPMO could not impose surcharges on beef imports that exceeded Korea's tariff on beef which had been bound pursuant to Article II. These were the relevant standards for this Panel's review of the LPMO's operation. Korea explained that quota shares were allocated to the foreign suppliers who submitted the lowest bid to the tender which the LPMO had issued. Furthermore, when the successful bidder exported the beef to Korea, this beef was subject to the bound customs duty of 20 per cent. In addition, 2.5 per cent was levied pursuant to the National Defence Tax Law. This extra levy was not inconsistent with the GATT, because the levy applied across the board, to foreign and domestic goods alike and even to the income of wage earners. No other taxes, levies or charges were applied on imports of beef. Furthermore, Korea recalled that virtually all imported beef was resold through wholesale market auctions or at prices that were equivalent to or lower than an auction-based price average for imported beef. Thus, the LPMO's operation was consistent with Article II.

39. New Zealand alleged that Korea's administration of beef import restrictions violated the provisions of Article X, which required contracting parties to publish promptly all rulings and requirements pertaining to restrictions on imports "... to enable governments and traders to become acquainted with them". New Zealand considered that there had been a noticeable lack of transparency in the administration of Korean measures affecting beef imports.

40. New Zealand argued that the Interpretative Note to Article XI referred to above applied also to Article XIII, i.e., the LPMO and its predecessors (NLCF, KTHSC) had to be operated in a way consistent with Article XIII. This meant, inter alia, that the restrictions imposed by such state-trading enterprises had to conform to the requirement in paragraph 3(b) to give "... public notice of the total quantity or value of the product or products which will be permitted to be imported during a specified future period ...". For the same reasons as discussed above in relation to Article X, New Zealand considered that Korea had been in breach of its obligations under this provision of the General Agreement.

41. Korea submitted that the withdrawal of the intensification measures, and the import levels established for 1988 and 1989 had been widely publicized, both in Korea and abroad. Furthermore, the LPMO's tenders, implementing the quota shares, had been easily filled and no complaint had been raised by traders about the LPMO's import formalities.

42. The Republic of Korea argued that New Zealand could not challenge the compatibility with the GATT of Korea's restrictions under Article XXIII because of the existence of special review procedures in Article XVIII:B as well as the actual results of these review procedures. Korea referred to a recent panel case¹² in which the United States had challenged tariff preferences on citrus fruit granted by the European Community to certain Mediterranean countries with whom it had concluded free trade agreements. The Community argued in that case that the United States complaint was inadmissible under Article XXIII. It referred to Article XXIV:7 which in the Community's view represented the exclusive mechanism to review the consistency of the tariff preferences and the underlying free trade agreements with the GATT. The panel admitted the United States complaint, but refused to consider its merits under Article XXIII:1(a). Instead, the panel reviewed the merits of the United States complaint exclusively under Article XXIII:1(b), limiting its review to the issue of "non-violation" nullification or impairment.

43. Korea therefore argued that New Zealand would have to make a showing of "non-violation" nullification or impairment. Referring to the above-mentioned panel case in which the panel considered that "the practice, so far followed by the CONTRACTING PARTIES never to use the procedures of Article XXIII:2 to make recommendations or rulings on the GATT compatibility of measures subject to special review procedures was sound"¹³, thus ruling out the consideration of the United States complaint under paragraph 1(a) of Article XXIII, Korea argued that if Article XXIV:7 was deemed a special review procedure as in the above-mentioned case, Article XVIII:12 a fortiori set forward such procedures.

44. The above-mentioned principle was self-evident according to Korea. If measures were subject to GATT review pursuant to special procedures, it made no sense to allow them to be challenged under Article XXIII as well. Such duplication wasted the resources of all concerned, in particular of the GATT bodies charged with the special review, and of the country whose measures were being examined. Moreover, to the extent the standards of review under Article XXIII were different from the standards applied to the special review procedures, review under Article XXIII negated the latter.

45. New Zealand replied that Korea was attempting to use some of the isolated judgments of the Citrus Panel report - which was never adopted and thus had no standing in the GATT - out of context and was seeking to apply such judgments to a very different matter involving the relationship of the BOP Articles with Article XXIII. The Citrus Panel report concerned a wide-ranging complaint by the United States that a series of tariff preferences extended by the European Community to a number of Mediterranean developing countries were contrary to Article I:1. It involved a consideration of the relationship of Article I:1 to Article XXIV:7. The United States put its primary emphasis on a prima facie breach, in terms of Article XXIII:1(a). But the United States also agreed the panel could make findings of a non-violation type under Article XXIII:1(b) or (c). The European Community, the defending country, objected to the panel considering the matter under Article XXIII:1(b). The Citrus Panel chose to make its findings under Article XXIII:1(b) and concluded that "... the benefit accruing to the United States directly or indirectly under Article I:1 has been impaired as a result of the EEC's application of tariff preferences".

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

¹Figures provided by the Republic of Korea.

²The last full consultation before 1987 was held in November 1984.

³The full text of the Balance-of-Payments Committee's conclusions is set out in Annex I.

⁴Figures derived from tables in Annex II.

⁵Korean figure.

⁶Figures derived from National Livestock Cooperatives Federation statistics.

⁷L/6253, page 68.

⁸BISD, 9S/180 paragraph 8.

⁹Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies, L/6304.

¹⁰Some tenders had, subsequently, been awarded to New Zealand.

¹¹United States Temporary Import Surcharge, BISD 18S/213, 223.

¹²European Community - Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, L/5776, 7 February 1985. This report was not adopted by the GATT Council.

¹³Idem, paragraph 4.16.