62. Referring to the above-mentioned language in the 1955 report, Korea argued that, at first glance, this language might seem supportive of the United States position. Korea maintained, however, that on closer analysis, it was damaging. First of all, when read in full, the paragraph was quite ambiguous, if not self-contradictory.¹⁹ It could just as well be read to say that Article XXIII could only be invoked against Section C measures in which the CONTRACTING PARTIES had not concurred. Following that reading, Korea's beef restrictions could not be challenged under Article XXIII, because the BOP Committee did recently review Korea's beef restrictions, among others, and stated, according to Korea, that it did not expect Korea to disinvoke Article XVIII:B.²⁰

63. Secondly, Korea argued, assuming nevertheless that this language in the 1955 Working Party report did envisage the application of Article XXIII to measures in which the CONTRACTING PARTIES had concurred, the Working Party still restricted the use of Article XXIII. It held that Article XXIII could not be used simply to challenge the consistency of the measures in question. Rather, the complaining party could only prevail in an Article XXIII proceeding (and be entitled to compensatory concessions) if the effects of the measure in which the CONTRACTING PARTIES concurred proved to be "substantially different" from what could have reasonably been foreseen at the time the measure was considered by the CONTRACTING PARTIES.²¹ Following this reasoning in the present case, the United States complaints under Article XXIII that Korea's beef restrictions were GATT incompatible were irrelevant. It would be incumbent on the United States to show that the effects of the restrictions on beef were "substantially different" than what could have been foreseen when the GATT's BOP Committee last reviewed them. Korea submitted that it was obvious that the United States would never be able to make such a showing, if only because the United States had never challenged the beef restrictions before the BOP Committee.

64. Korea also argued that the statement in the 1955 Report on the relationship between Article XXIII and Section C of Article XVIII could not be transposed to Section B of Article XVIII. The reason was that Section C did not contain a complaint procedure similar to Article XVIII:12(d) in Section B. With respect to the 1955 Report, Korea argued finally that this Report actually supported its position. While not explicitly saying so, the Report made quite clear that Article XVIII:12(d), rather than Article XXIII, was the proper remedy to complain about the GATT-compatibility of BOP restrictions. Korea referred to the following statement in the Report:

The Working Party decided not to include a multilateral review mechanism to supervise the justification of quantitative restrictions imposed pursuant to paragraph 2 of Article XI. Accordingly, it felt comfortable with a challenge of these restrictions under the general procedure of Article XXIII. On the other hand, the same Working Party incorporated a multilateral review mechanism (Article XVIII:12(b)) to supervise the justification of quantitative restrictions imposed pursuant to Article XVIII:B. And while consciously avoiding duplication of dispute settlement procedures, the Working Party established a separate complaint procedure to challenge these restrictions, with more difficult standards, in Article XVIII:12(d). Obviously, the Working Party did not envisage that the restrictions reviewed by the BOP Committee under Article XVIII:12(b) could be challenged under the relatively loose standards of Article XXIII as well.

65. Korea further argued that none of the GATT precedents addressed the fundamental issue in this case. If the complaint of the United States were to be 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 became meaningless. Moreover, if the Panel reviewed the United States complaint under Article XXIII, it agreed that the United States 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.

66. 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.

67. The United States disagreed with Korea's claim that the 1987 review by the BOP Committee foreclosed a dispute settlement challenge under Article XXIII. Review in the BOP Committee under paragraph 12(b) and dispute settlement under Article XXIII served two separate functions. Review in the BOP Committee was a prerequisite for the imposition of otherwise GATT-inconsistent trade restrictions. This review necessarily focused on broad macroeconomic and trade policy issues and on the underlying justification for the BOP measures. The BOP Committee did not examine each and every product subject to restrictions, nor did it engage in the close and detailed scrutiny available in the dispute settlement process. Although the United States accepted that the BOP Committee could choose to examine individual measures in the semi-annual reviews, detailed review of each restricted item would mean that BOP consultations would take years. This protracted review would be a waste of time and would undercut the functions of the semi-annual review. The United States disagreed with Korea's argument that use of Article XXIII to review the GATT-consistency of a purported BOP measures was inconsistent with BOP Committee review under Articles XII and XVIII:B, since both decisions required approval of the CONTRACTING PARTIES.

68. The United States argued that the BOP Committee generally met every two years, so problems like this one, that arose in the interim, could not be addressed. While no procedures had ever been developed for Article XVIII:12(d) or Article XII:4(d), it appeared that the review would take place before the full BOP Committee and should be finished within sixty days. In addition, the Committee's ability to examine certain key non-BOP issues, like the transparency and LPMO profit issues in this case, was wholly unclear, since these issues fell outside the Committee's jurisdiction. Finally, the consensus requirement allowed the country imposing the restrictions to block or otherwise limit an adverse Committee recommendation. The fact that the review was in the full Committee, took place within short time limits, and focused broadly on the macroeconomic justification for the BOP "restrictions" or on inconsistencies of a "serious nature" meant that the BOP consultation and review procedures were not well-suited for a narrow challenge to an individual measure of interest to a single party. These matters could be efficiently dealt with in dispute settlement. Accordingly, in the United States view, the BOP Committee and dispute settlement processes were complementary. The BOP Committee provided broad review of the overall justification for the restrictions and ensured that appropriate trade and macroeconomic policies were adhered to. Dispute settlement allowed a country, whose trade was damaged by the misuse of alleged BOP measures, to establish its GATT rights.

69. The United States also did not agree with Korea's argument that Article XVIII:12(d) was the only means for challenging the misuse of BOP rights. First, as the 1955 Working Party which drafted the provision emphasized, paragraph 12(d) "takes the form of a request for consultations, rather than of a challenge".²² Accordingly, it was not a substitute for the dispute settlement procedures of Article XXIII:2. Second, the Korean interpretation was inconsistent with the 1950 Report on "The Use of Quantitative Restrictions for Protective and Other Purposes", which clearly indicated that misuse of BOP measures could be brought to dispute settlement "under the procedures laid down in the Agreement for the settlement of disputes". Third, paragraph 12(d) appeared to provide a means only for challenging the GATT-consistency of an entire BOP régime. It authorized the CONTRACTING PARTIES to determine whether "the restrictions are inconsistent with this Section" and to recommend "the withdrawal or modification of those restrictions". Accordingly, it appeared to contemplate a consultation with respect to the underlying economic and trade policy justification for the entire BOP régime. Thus, the provision was both too broad and too narrow for the purposes of United States concerns in this case. It was too broad because the United States initially had only challenged the Korean restrictions on beef trade, rather than on all 358 of Korea's alleged BOP restrictions. While the Korean decision to rely on a BOP defence required the Panel to decide issues that could have broader indirect implications for other Korean restrictions, this was Korea's decision and a ruling with respect to the other quotas had not been sought initially by the United States. Second, paragraph 12(d) was too narrow because the United States concerns went beyond BOP. The United States position was that even if Korea had a right to impose BOP measures (which the United States did not think it did), the Korean beef restrictions were GATT-inconsistent because they were not BOP measures and were not imposed for BOP reasons. The United States concerns also included issues that could not be dealt with under Article XVIII:12(d), such as Article X and the consistency of the LPMO with Articles II, XI and XVII.

70. Korea argued in response that this analysis of the United States was erroneous, in that it did not distinguish between the consultations before the BOP Committee pursuant to Article XVIII:12(b) and the special complaint procedure of Article XVIII:12(d), which had not been implemented to date. The latter was comparable to the dispute settlement procedure of Article XXIII.

71. Korea argued that it could be that the present Panel, notwithstanding the Citrus Panel report and Korea's procedural arguments, believed that the mere existence of special review procedures in Article XVIII:B would not prevent the United States 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 argued that the GATT CONTRACTING PARTIES had authorized its restrictions on beef imports under Article XVIII:B and explained that Korea had maintained BOP restrictions on various products since its accession to the GATT. The number of the 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 never been called into question, until the last round of full consultations in December 1987.²³ According to the "prevailing" view expressed therein, import restrictions "could" no longer be justified under Article XVIII:B.²⁴ 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 GATT's BOP Committee did not make a finding that the present or past application of Korea's BOP restrictions was inconsistent with Article XVIII:B.

72. The United States replied that, in December 1987, the members of the BOP Committee "emphasized that, in their view, the present situation and outlook did not justify the maintenance of balance-of-payments restrictions". ²⁵ The Committee stated that Korea's external debt was not a justification for continued restrictions: "The debt burden, while still large had been substantially reduced, and was not high in per capita terms. Moreover, it could be expected that the goals for reduction of the debt burden mentioned in the IMF statement could be achieved ahead of time". Accordingly, the Committee reported that "[t]he prevailing view expressed in the Committee was that the current situation and outlook for balance of payments was such that import restrictions could no longer be justified under Article XVIII:B". ²⁶ Under these circumstances, the United States saw no GATT BOP justification for Korean trade restrictions, and considered that the findings of the IMF and the GATT BOP Committee should be given substantial weight in this regard.

73. Korea replied that the Committee's language was more guarded than the United States suggested. Furthermore, if the Committee had established any inconsistency regarding Korean BOP restrictions, it would have made explicit recommendations to that effect to the Council.²⁷ 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". ²⁸ 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 which were scheduled for June 1989. These would be meaningless if Article XVIII:B was no longer available to Korea, as the United States claimed. In addition, Korea pointed out that the IMF had made no finding pursuant to Article XV:2 that Korea's trade restrictions could no longer be justified under Article XVIII:B.

74. Korea argued that the BOP Committee reviewed restrictions under Article XVIII:B on behalf of the GATT CONTRACTING PARTIES.²⁹ Since Korea's accession to the GATT, its restrictions under Article XVIII:B had been examined regularly, 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. In recent years, the United States had several times raised objections bilaterally about Korea's restrictions on beef imports. If these bilateral exchanges did not lead to the desired result for the United States, as they apparently did not, one would have expected the United States to take this matter up multilaterally, at the consultations before the GATT BOP Committee. Yet, even as late as the last BOP consultations, in December 1987, the United States remained silent on the matter.

75. Citing the "prevailing view"³⁰ of the BOP Committee report, the United States argued that the BOP Committee had made it very clear that the Korean measures were not justified. This was particularly true for agriculture, since the report stated:

These statements did not imply any BOP Committee endorsement of the Korean restrictions. Far from endorsing the measures, the Committee urged Korea to set a definite timetable for rapidly removing the remaining restrictions. The United States agreed with the prevailing view that Korea had no BOP justification for its import restrictions and that certain Korean restrictions, including the beef import measures, were taken for protectionist reasons having nothing to do with BOP. The United States would have preferred a much stronger statement, but GATT operated on the basis of consensus. The United States believed that the report provided a sufficient basis for the Panel to reject Korea's BOP claim.

76. Korea replied that the statement in the BOP Committee Report quoted here by the United States, 'noting' and 'recalling' certain facts and issues, did not represent a specific conclusion on the compatibility of Korea's BOP restrictions on agricultural products with Article XVIII:B. Furthermore, Korea did not agree with the suggestion of the United States that the BOP Committee's conclusions reflected an unfortunate compromise because it was the result of consensus. Read in full, the Committee's Report made good sense. Only a selective reading, as proposed by the United States, made the Committee's conclusions look weak. Furthermore, Korea expressed concern about the implications of the United States critical appraisal of the consensus principle, which had been the cornerstone of the GATT to date.

77. The United States responded that the matter had not been raised in the BOP Committee, inter alia, because the United States had been requested bilaterally not to push the issue at a politically delicate time in Korea that preceded national elections. The United States further considered that Korea could not rely on the 1987 BOP Committee review as a basis for maintaining its beef trade restrictions. Korea had admitted in its submissions that the 1985-1988 prohibition on beef imports was not imposed for BOP reasons, but was taken outside the GATT in order to protect Korean beef farmers from imports. Indeed, Korea had stated that: "[i]t did not pretend that the intensification of its BOP restrictions was motivated by a worsening of its balance-of-payments situation ...". The prohibition was in effect at the time of the 1987 BOP Committee review. Accordingly, the beef restriction could not have been authorized by the BOP Committee or the CONTRACTING PARTIES, since it was not a BOP measure in the first place.

78. Korea argued that when the CONTRACTING PARTIES agreed to establish this 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 United States complaint. Korea submitted that its remaining BOP restrictions, taken as a whole, served to protect the Korean economy, consistent with Article XVIII:B. A proper evaluation of the justification of the beef restrictions would involve a review of all of Korea's BOP restrictions. Yet, the United States did not request such a broad-scale review from the Council, and this Panel could not engage in such a review now. 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 International Monetary Fund could do likewise.

79. 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.

80. The United States replied that panels were clearly authorized to consult with the IMF since the Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance³² provided that "each panel should have the right to seek information and technical advice from any individual or body which it deems appropriate". The United States considered that, if there was any remaining doubt on whether Korea could impose BOP restrictions under the criteria of Articles XII:2(a) or XVIII:9, the Panel should request IMF advice as soon as possible in order to resolve it. The United States did not agree with Korea's contention that the Panel should refrain from ruling on the justification under Article XVIII:B for Korea's beef quotas because any ruling could have broader implications for other Korean trade restrictions that were allegedly justified on BOP grounds. The United States noted that it was Korea, not the United States, which had introduced BOP to the case by choosing to rely on BOP as its GATT defence. Having done so, Korea could not object to consideration of the BOP issue or the necessary implications of the resolution of certain BOP issues for other Korean trade restrictions. The United States did not agree with Korea's claim that the Panel could not rule on an issue if the implications of its ruling could be interpreted to go beyond beef, since GATT panel decisions frequently had broader implications. Indeed, one of the primary benefits of the GATT dispute settlement process had been to create a series of precedents as to permissible and impermissible actions under GATT. Preventing a panel from making decisions with implications going beyond the immediate case would have the perverse effect of insulating major trade barriers from dispute settlement, since it would be impossible for panels to issue rulings on one product or one exporting country's concerns without creating implications for other products or other exporting countries.

81. In response, Korea expressed doubts that the passage from the 1979 Understanding quoted by the United States addressed the Panel's authority to initiate consultations with the IMF under Article XV:2. When panels had consulted an expert in the past they were not bound to accept the expert's advice, and neither were the GATT contracting parties. Advice rendered by the IMF under Article XV:2 on the balance of payments of a contracting party did bind the GATT contracting parties, however. Korea submitted there was no evidence that the CONTRACTING PARTIES, through the 1979 Understanding, intended to authorize a panel to request advice from the IMF which would bind them.

82. If, despite the foregoing, the Panel were to evaluate its balance-of-payments position, Korea argued, referring to Article XVIII:9, 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.

83. Furthermore, according to Korea, the beneficial effect of Korea's current account surpluses on its balance-of-payments position should not be overestimated. Korea's current account had only been in surplus 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 of all, 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. Secondly, 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.

84. The United States argued that under Article XV:2, GATT accepted as dispositive the findings of the International Monetary Fund as to what constituted a serious decline in monetary reserves or a reasonable rate of increase. The IMF reviewed Korea in the IMF publication "Recent Economic Developments" of May 1988. It reported that: "The external current account registered surpluses of $5 billion in 1986 (5 per cent of GNP) and $10 billion (8 per cent of GNP) in 1987. Export volume rose by an average of 25 per cent annually, mainly due to increased competitiveness brought about by a large real effective depreciation of the won between 1985 and mid-1986 and by the emergence of new exports". With respect to Korea's external debt, the IMF reported that: "[t]he current account surpluses in 1986-87 provided the first opportunity to reduce the external debt since the rapid build-up in the late 1970's. Mainly through prepayments of debt with unfavourable terms, the external debt declined from $47 billion (56 per cent of GNP) to $36 billion (30 per cent of GNP)".³³ According to the World Bank³⁴, Korean GNP growth had averaged 8 per cent per year since 1960. This had raised Korean per capita income from $180 in 1960 to over $2,800 in 1987. In 1987, Korean GNP grew at the exceedingly high rate of 12 per cent, and during the first quarter of 1988 the same strong expansion continued, stimulated by exports which were up 28.5 per cent from a year earlier. Korea was now the world's thirteenth largest trading nation. It had a highly sophisticated industrial base, and its leading exports included automobiles, consumer electronics, televisions and computers.

85. Korea recalled the nature of its current account surplus and pointed out that the findings in the 1988 IMF publication referred to by the United States were not made pursuant to a request from the GATT under Article XV:2. Nor did this publication address the justification of Korea's invocation of Article XVIII:B. On the other hand, in the most recent advice which the IMF did render on Korea's BOP restrictions to the BOP Committee pursuant to Article XV:2, there was no finding that Korea's restrictions were unjustifiable under Article XVIII:B.

86. The United States strongly disagreed with the Korean claim that Korean beef import restrictions were justified under Article XVIII:B. The United States considered, on the contrary, that the Republic of Korea was in the strong position of running large trade and current account surpluses, a competitively undervalued currency, growing foreign exchange reserves, and had substantially reduced its external debt. Korea did not, in the United States view, qualify under Articles XII or XVIII:B since it did not have a balance-of-payments problem as defined by GATT. Under Article XII, a contracting party could impose quantitative restrictions for BOP purposes only "in order to safeguard its external financial position and its balance of payments". The requirements of Article XVIII:B were similar, but covered also restrictions "to ensure a level of reserves adequate for the implementation of its programme of economic development". Under either Article, these restrictions could not exceed those necessary: "(i) to forestall the threat of, or to stop, a serious decline in its monetary reserves", or "(ii) in the case of a contracting party with inadequate monetary reserves, to achieve a reasonable rate of increase in its reserves".

87. Even if it were determined that Korea was justified in restricting imports from the United States and other GATT contracting parties for BOP reasons, the United States argued that the Korean restrictions on beef imports did not qualify as BOP measures. Korea's alleged BOP restrictions were almost entirely concentrated in the agricultural sector. They were not general and across-the-board measures as contemplated by the GATT. In the 1979 Declaration on Trade Measures Taken for Balance-of-Payments Purposes, the CONTRACTING PARTIES reaffirmed that "restrictive import measures taken for balance-of-payments reasons should not be taken for the purpose of protecting a particular industry or sector".³⁵ Accordingly, assuming for the sake of argument that Korea was entitled to restrict imports, the reasons behind the special restrictions in the beef sector had to be examined, since it had to be determined that the restrictions were in fact imposed for BOP reasons. In this respect, it was noted that the Korean import restrictions were related almost entirely to agriculture, a sector which had complained repeatedly about import competition in general and beef imports in particular.

88. Korea maintained that the United States operated under a misunderstanding by making much of the fact that Korea's currently remaining BOP restrictions were concentrated in the agricultural sector. Surely, Korea argued, the GATT did not contemplate that a country, which had legitimately imposed BOP restrictions, should wait until its BOP position had improved to such an extent that it could remove all its BOP restrictions at once. On the contrary, as late as December 1987, during the last consultations before the BOP Committee, Korea was commended for "phasing out" its import restrictions. Furthermore, the Committee approvingly noted Korea's commitment "to maintaining the pace of the adjustment and liberalization process".³⁶

89. It had been said by the United States that the restrictions on beef imports had protected Korea's cattle farmers, but, Korea argued, this 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.

90. Korea argued that it had never concealed that the BOP restrictions on beef imports protected its cattle farmers. Indeed, had they not, then Korea would have been forced to resort to other measures to protect its vulnerable and underdeveloped cattle farming industry. Accordingly, the United States reference to the 1979 Declaration on Trade Measures Taken for Balance-of-Payments Purposes, which reaffirmed that "restrictive import measures taken for balance-of-payments reasons should not be taken for the purpose of protecting a particular industry or sector", was misplaced. Whatever this statement meant, it could not mean that restrictions which were legitimately taken for BOP purposes could not have protective side effects. As was indicated above, such side effects were inherent in trade restrictions imposed for BOP purposes.

91. The United States argued that the Korean beef restrictions appeared to bear an inverse relationship to Korea's balance-of-payments situation. That is, during a period when it was running current account deficits, Korea imported approximately 70,000 tons of beef per year. In contrast, when it began running record balance-of-payments surpluses, Korea closed off imports of beef. This course of action was inconsistent at best with a purported BOP justification. It was also at odds with the GATT rule that a contracting party applying BOP restrictions must progressively relax them as conditions improve, maintaining them only to the extent necessary under the terms of paragraph 9 of Article XVIII and shall eliminate them when conditions no longer justified such maintenance (Article XVIII:11). The lack of any correlation with Korea's international financial situation suggested that these measures were taken for domestic political purposes, i.e., protection of a Korean industry, rather than for BOP reasons. The Korean beef measures bore no relationship to Korea's external financial situation, but appeared to be driven instead by declining cattle prices, protectionism and domestic political pressure. Furthermore, this was admitted by Korea itself which had stated that the 1984-1985 measures were not motivated by BOP concerns, but imposed in order to remedy the disruption of Korea's cattle farming industry. Korea was required to notify the BOP Committee in 1985 that it was "raising the general level of its existing restrictions by a substantial intensification of the measures" when it banned or "suspended" beef imports for three years. This was not done and showed that these steps were not taken for BOP reasons. Under the circumstances, the United States did not believe that the beef restrictions were legitimate BOP measures, and therefore believed that they were inconsistent with the 1979 Declaration.

92. 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. However, the United States had pointed out that Korea tightened its beef restrictions at a time when Korea's BOP position was improving. That, indeed, seemed contradictory. But one must 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 removed altogether. Some, like those on beef imports, were not eliminated 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 situation overall, Korea obviously took into account the state of the various domestic industries that would be affected by these liberalization measures.

93. Thus, Korea argued, 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 incurred 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.

94. 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.

95. Korea further argued that it was certainly true that Korea's BOP position had improved since 1984/1985. Yet, without involving all the 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.

96. The United States submitted that Korea's financial position had strengthened dramatically since 1984. It saw no justification for reimposing balance-of-payments restrictions in Korea's present situation. It was essential to keep in mind that BOP was not a permanent entitlement to restrict imports to protect sensitive domestic industries. While BOP measures could have "incidental" protective effects, the only legitimate purpose of BOP was financial. Under Articles XII:2(b) and XVIII:B(11), the measures had to be temporary and had to be eliminated as soon as a country's financial position improved. Accordingly, in the United States view, it followed that Korea did not have a right to reimpose quotas as it pleased after a period of GATT inconsistency. On the contrary, it was incumbent on Korea to show that, in its present external financial situation, with its growing current account surpluses and accelerated repayment of debt, the situation in beef trade posed a real and imminent threat to its BOP position. Otherwise, the Panel would be setting up a rule that if a country had in the past experienced BOP problems, it had a permanent and ongoing right to reimpose quota restrictions at past levels. This would undercut the whole GATT notion that BOP was a temporary measure which had to be adjusted to fit improvements in a country's reserve position.

97. Korea replied 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 had 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 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 1984/1985 intensification measures. In 1983, Korea imported a total of 51,500 tons 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. The United States 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. And any such findings would involve the BOP restrictions maintained on the 357 other products.

98. 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 the 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 GATT incompatible in an action under Article XXIII. Korea submitted that in such a case the defendant country would be entitled to a grace period, in which it could consider which GATT-consistent measures it could and should take, retracting the measures according to a reasonable timetable. As indicated, Korea's cattle farmers had derived protection from the BOP restrictions on beef imports. In the event that such 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 the 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, in short, 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 the United States beef industry.

TO CONTINUE WITH REPUBLIC OF KOREA - RESTRICTIONS ON IMPORTS OF BEEF - COMPLAINT BY THE UNITED STATES

¹⁹BISD 3S/170, 188 paragraph 63.

²⁰BOP/R/171, paragraph 9 (1987).

²¹See the closing sentence of paragraph 63 of the 1955 Working Party's report, BISD 3S/188.

²²BISD 3S/173, paragraph 11.

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

²⁴BOP/R/171, page 7 (10 December 1987).

²⁵BOP/R/171, page 3.

²⁶Idem, paragraph 22.

²⁷See Declaration on Trade Measures Taken for Balance-of-Payment Purposes, BISD 26S/205, 209, paragraph 13 (1980).

²⁸BOP/R/171, paragraph 9.

²⁹See Note by the Chairman of the Committee on Balance-of-Payments Restrictions, BISD 18S/48, 51, paragraph 10 (1972).

³⁰BOP/R/171, paragraph 22.

³¹Idem.

³²L/4907, paragraph 15.

³³IMF, Korea - Recent Economic Developments (SM/88/101), 4 May 1988, page 2.

³⁴International Bank for Reconstruction and Development, International Development Association, Country Briefs (as of 16 May 1988), Vol. II (Asia Region) (Sec. M88-571).

³⁵BISD, 26S/205, 206.

³⁶BOP/R/171, paragraph 20 (10 December 1987).

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