General Agreement on Tariffs and Trade 1994

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XIII. Article XI 

A. Text of Article XI

Article XI*: General Elimination of Quantitative Restrictions

1.   No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.

 

2.   The provisions of paragraph 1 of this Article shall not extend to the following:

 

(a)   Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party;

 

(b)   Import and export prohibitions or restrictions necessary to the application of standards or regulations for the classification, grading or marketing of commodities in international trade;

 

(c)   Import restrictions on any agricultural or fisheries product, imported in any form,* necessary to the enforcement of governmental measures which operate:

 

(i)   to restrict the quantities of the like domestic product permitted to be marketed or produced, or, if there is no substantial domestic production of the like product, of a domestic product for which the imported product can be directly substituted; or

 

(ii)   to remove a temporary surplus of the like domestic product, or, if there is no substantial domestic production of the like product, of a domestic product for which the imported product can be directly substituted, by making the surplus available to certain groups of domestic consumers free of charge or at prices below the current market level; or

 

(iii)   to restrict the quantities permitted to be produced of any animal product the production of which is directly dependent, wholly or mainly, on the imported commodity, if the domestic production of that commodity is relatively negligible.

 

Any contracting party applying restrictions on the importation of any product pursuant to subparagraph (c) of this paragraph shall give public notice of the total quantity or value of the product permitted to be imported during a specified future period and of any change in such quantity or value. Moreover, any restrictions applied under (i) above shall not be such as will reduce the total of imports relative to the total of domestic production, as compared with the proportion which might reasonably be expected to rule between the two in the absence of restrictions. In determining this proportion, the contracting party shall pay due regard to the proportion prevailing during a previous representative period and to any special factors* which may have affected or may be affecting the trade in the product concerned.

B. Text of Note Ad Article XI

Ad Articles XI, XII, XIII, XIV and XVIII

Throughout Articles XI, XII, XIII, XIV and XVIII, the terms “import restrictions” or “export restrictions” include restrictions made effective through state-trading operations.

Ad Article XI: Paragraph 2 (c)

   The term “in any form” in this paragraph covers the same products when in an early stage of processing and still perishable, which compete directly with the fresh product and if freely imported would tend to make the restriction on the fresh product ineffective.

Paragraph 2, last subparagraph

   The term “special factors” includes changes in relative productive efficiency as between domestic and foreign producers, or as between different foreign producers, but not changes artificially brought about by means not permitted under the Agreement.

C. Interpretation and Application of Article XI

1. General

(a) Role of Article XI in GATT

597.   The Panel in Turkey — Textiles elaborated on the systemic significance of Article XI in the GATT framework.

“The prohibition against quantitative restrictions is a reflection that tariffs are GATT’s border protection ‘of choice’. Quantitative restrictions impose absolute limits on imports, while tariffs do not. In contrast to MFN tariffs which permit the most efficient competitor to supply imports, quantitative restrictions usually have a trade-distorting effect, their allocation can be problematic and their administration may not be transparent.⁽⁸³⁸⁾

 

Notwithstanding this broad prohibition against quantitative restrictions, GATT contracting parties over many years failed to respect completely this obligation. From early in the GATT, in sectors such as agriculture, quantitative restrictions were maintained and even increased to the extent that the need to restrict their use became central to the Uruguay Round negotiations. In the sector of textiles and clothing, quantitative restrictions were maintained under the Multifibre Agreement (further discussed below). Certain contracting parties were even of the view that quantitative restrictions had gradually been tolerated and accepted as negotiable and that Article XI could not be and had never been considered to be, a provision prohibiting such restrictions irrespective of the circumstances specific to each case. This argument was, however, rejected in an adopted panel report EEC — Imports from Hong Kong.⁽⁸³⁹⁾

 

Participants in the Uruguay Round recognized the overall detrimental effects of non-tariff border restrictions (whether applied to imports or exports) and the need to favour more transparent price-based, i.e. tariff-based, measures; to this end they devised mechanisms to phase-out quantitative restrictions in the sectors of agriculture and textiles and clothing. This recognition is reflected in the GATT 1994 Understanding on Balance-of-Payments Provisions⁽⁸⁴⁰⁾, the Agreement on Safeguards⁽⁸⁴¹⁾, the Agreement on Agriculture where quantitative restrictions were eliminated⁽⁸⁴²⁾ and the Agreement on Textiles and Clothing (further discussed below) where MFA-derived restrictions are to be completely eliminated by 2005.”⁽⁸⁴³⁾

(b) Burden of proof

598.   In India — Quantitative Restrictions, the Panel examined whether the Indian import licensing system was inconsistent with Article XI and, in case of inconsistency, whether it was justified by Article XVIII. Referring to the Appellate Body Report on US — Wool Shirts and Blouses and the Appellate Body Report on EC — Hormones, the Panel stated on the issue of the burden of proof under Article XI:

“In all instances, each party has to provide evidence in support of each of its particular assertions. This implies that the United States has to prove any of its claims in relation to the alleged violation of Article XI:1 and XVIII:11. Similarly, India has to support its assertion that its measures are justified under Article XVIII:B. We also view the rules stated by the Appellate Body as requiring that the United States as the complainant cannot limit itself to stating its claim. It must present a prima facie case that the Indian balance-of-payments measures are not justified by reference to Articles XI:1 and XVIII:11 of GATT 1994.⁽⁸⁴⁴⁾ Should the United States do so, India would have to respond in order to rebut the claim.”⁽⁸⁴⁵⁾

(c) GATT practice

599.   GATT practice.

2. Article XI:1

(a) “restrictions or prohibitions”

600.   In India — Quantitative Restrictions, the Panel set out the scope of the concept of “restriction”:

“[T]he text of Article XI:1 is very broad in scope, providing for a general ban on import or export restrictions or prohibitions ‘other than duties, taxes or other charges’. As was noted by the panel in Japan — Trade in Semiconductors, the wording of Article XI:1 is comprehensive: it applies ‘to all measures instituted or maintained by a [Member] prohibiting or restricting the importation, exportation, or sale for export of products other than measures that take the form of duties, taxes or other charges.’⁽⁸⁴⁶⁾ The scope of the term ‘restriction’ is also broad, as seen in its ordinary meaning, which is ‘a limitation on action, a limiting condition or regulation’.⁽⁸⁴⁷⁾

 

The Panel in India — Autos endorsed this view:

 

“The question of whether [the] measure can appropriately be described as a restriction on importation turns on the issue of whether Article XI can be considered to cover situations where products are technically allowed into the market without an express formal quantitative restriction, but are only allowed under certain conditions which make the importation more onerous than if the condition had not existed, thus generating a disincentive to import.

 

On a plain reading, it is clear that a ‘restriction’ need not be a blanket prohibition or a precise numerical limit. Indeed, the term ‘restriction’ cannot mean merely ‘prohibitions’ on importation, since Article XI:1 expressly covers both ‘prohibition or restriction’. Furthermore, the Panel considers that the expression ‘limiting condition’ used by the India — Quantitative Restrictions panel to define the term ‘restriction’ and which this Panel endorses, is helpful in identifying the scope of the notion in the context of the facts before it. That phrase suggests the need to identify not merely a condition placed on importation, but a condition that is limiting, i.e. that has a limiting effect. In the context of Article XI, that limiting effect must be on importation itself.”⁽⁸⁴⁸⁾

601.   The Panel in Dominican Republic — Import and Sale of Cigarettes found that “not every measure affecting the opportunities for entering the market would be covered by Article XI, but only those measures that constitute a prohibition or restriction on the importation of products, i.e. those measures which affect the opportunities for importation itself.”⁽⁸⁴⁹⁾ Examining a bonding requirement, that Panel was not convinced that “the requirement is a condition for the importation of cigarettes, that is, that importation would not be allowed unless the bond requirement had been complied with. The Panel therefore does not consider that there is evidence that the bond requirement operates as a restriction on the importation of cigarettes, in a manner inconsistent with Article XI:1 of the GATT 1994.”⁽⁸⁵⁰⁾

(b) De facto prohibitions or restrictions

602.   In Argentina — Hides and Leather, the European Communities argued that Argentina’s measure violated Article XI:1 by authorizing the presence of domestic tanners’ representatives in the customs inspection procedures for hides destined for export operations, and thus, imposing de facto restrictions on exports of hides.⁽⁸⁵¹⁾ The Panel noted:

“There can be no doubt, in our view, that the disciplines of Article XI:1 extend to restrictions of a de facto nature.⁽⁸⁵²⁾ It is also readily apparent that Resolution 2235, if indeed it makes effective a restriction, fits in the broad residual category, specifically mentioned in Article XI:1, of ‘other measures’.”⁽⁸⁵³⁾

603.   Citing the Panel Report on Japan — Film, the Panel in Argentina — Hides and Leather went on to state:

“It is well-established in GATT/WTO jurisprudence that only governmental measures fall within the ambit of Article XI:1. This said, we recall the statement of the panel in Japan — Measures Affecting Consumer Photographic Film and Paper to the effect that:

 

‘[P]ast GATT cases demonstrate that the fact that an action is taken by private parties does not rule out the possibility that it may be deemed governmental if there is sufficient governmental involvement with it. It is difficult to establish bright-line rules in this regard, however. Thus, that possibility will need to be examined on a case-by-case basis.’⁽⁸⁵⁴⁾

 

We agree with the view expressed by the panel in Japan — Film. However, we do not think that it follows either from that panel’s statement or from the text or context of Article XI:1 that Members are under an obligation to exclude any possibility that governmental measures may enable private parties, directly or indirectly, to restrict trade, where those measures themselves are not trade-restrictive.⁽⁸⁵⁵⁾”⁽⁸⁵⁶⁾

604.   The Panel in Argentina — Hides and Leather had to determine, inter alia, whether the presence of representatives of the domestic hide tanning industry in the Argentine customs inspection procedures for hides destined for export was an export restriction. The Panel found that evidence regarding trade effects carried weight, but that a complaining party would need to demonstrate how the measure at issue causes or contributes to a low level of exports; in that case, the EC did not meet that burden.

“[A]s to whether Resolution 2235 makes effective a restriction, it should be recalled that Article XI:1, like Articles I, II and III of the GATT 1994, protects competitive opportunities of imported products, not trade flows.⁽⁸⁵⁷⁾ In order to establish that Resolution 2235 infringes Article XI:1, the European Communities need not prove actual trade effects. However, it must be borne in mind that Resolution 2235 is alleged by the European Communities to make effective a de facto rather than a de jure restriction. In such circumstances, it is inevitable, as an evidentiary matter, that greater weight attaches to the actual trade impact of a measure.

 

Even if it emerges from trade statistics that the level of exports is unusually low, this does not prove, in and of itself, that that level is attributable, in whole or in part, to the measure alleged to constitute an export restriction. Particularly in the context of an alleged de facto restriction and where, as here, there are possibly multiple restrictions,⁽⁸⁵⁸⁾ it is necessary for a complaining party to establish a causal link between the contested measure and the low level of exports.⁽⁸⁵⁹⁾ In our view, whatever else it may involve, a demonstration of causation must consist of a persuasive explanation of precisely how the measure at issue causes or contributes to the low level of exports.”⁽⁸⁶⁰⁾

605.   However, in Colombia — Ports of Entry, the Panel found that:

“[T]o the extent [the complainant] were able to demonstrate a violation of Article XI:1 based on the measure’s design, structure, and architecture, the Panel is of the view that it would not be necessary to consider trade volumes or a causal link between the measure and its effects on trade volumes.

 

In support of its approach, the Panel recalls that a number of panels have previously determined the existence of a restriction on importation based on the design of the measure and its potential to adversely affect importation, as opposed to the actual resulting impact of the measure on trade flows. The Panel notes further that more than one panel has declined to make a determination based on the alleged trade effects of a measure.”⁽⁸⁶¹⁾

606.   In China — Raw Materials, the Panel found that an export price coordination requirement administered by the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters (CCCMC) was a restriction on exportation. The Panel found that various measures involving CCCMC were attributable to China, because China acknowledged that it delegated authority to the CCCMC to coordinate export prices;⁽⁸⁶²⁾ also that the CCCMC’s charter directed it to set and coordinate export prices for all branches under its authority, including the raw materials at issue in that dispute.⁽⁸⁶³⁾ The Panel found that China “had in place a system of penalties imposed on exporters that failed to set prices in accordance with the coordinated export prices”⁽⁸⁶⁴⁾ and “had in place a system that imposed penalties on licensing entities that issue licences to exporters that did not follow the coordinated export prices.”⁽⁸⁶⁵⁾ The Panel found:

“[T]he authority to coordinate export prices and enforce these prices through the imposition of penalties on exporting enterprises, or on export licensing entities that issue licences to exporters that do not follow the coordinated export prices, amounts to a requirement to coordinate export prices for the raw materials at issue. The requirement derives from the fact that failure to comply with the coordinated price will result in punishment that rises to a level to prevent an enterprise from exporting altogether. In addition, under the measures at issue, export licensing entities may be punished for failing to enforce a given coordinated price. The measures do not permit exporting enterprises to deviate from coordinated export prices, or otherwise grant discretion to export licensing agencies to make exceptions. Thus, coordinated export prices must be adhered to whenever set by the CCCMC.”⁽⁸⁶⁶⁾

(c) Import prohibitions

607.   In Canada — Periodicals, the Panel found that a complete ban on imports of certain magazines was inconsistent with Article XI:1 of GATT:

“Since the importation of certain foreign products into Canada is completely denied under Tariff Code 9958, it appears that this provision by its terms is inconsistent with Article XI:1 of GATT 1994.”⁽⁸⁶⁷⁾

608.   The Panel in US — Shrimp found that the United States violated Article XI by imposing an import ban on shrimp and shrimp products harvested by vessels of foreign nations where such exporting country had not been certified by United States’ authorities as using methods not leading to the incidental killing of sea turtles above certain levels. The Panel stated with reference to the term “prohibitions or restrictions” as follows:

“[[T]he US statutory provision in question] expressly requires the imposition of an import ban on imports from non-certified countries. … the United States bans imports of shrimp or shrimp products from any country not meeting certain policy conditions. We finally note that previous panels have considered similar measures restricting imports to be ‘prohibitions or restrictions’ within the meaning of Article XI.⁽⁸⁶⁸⁾”⁽⁸⁶⁹⁾

609.   The Panel in Brazil — Retreaded Tyres noted: “There is no ambiguity as to what ‘prohibitions’ on importation means: Members shall not forbid the importation of any product of any other Member into their markets.”⁽⁸⁷⁰⁾ That Panel found that Brazilian measures prohibiting the importation of used consumer goods and the importation of retreaded tyres constituted import prohibitions inconsistent with Article XI:1.⁽⁸⁷¹⁾

610.   The dispute in US — Poultry (China) concerned a US legislative provision (“Section 727”) restricting the use of funds allocated by the US Congress to the US Department of Agriculture and its agency, the Food Safety and Inspection Service (FSIS). The legislation provided that these funds could not be used to establish or implement a rule allowing poultry products to be imported from China into the United States.⁽⁸⁷²⁾ The Panel found that this provision imposed an import prohibition in violation of Article XI:1:

“The establishment and implementation of a rule by FSIS in the Federal Register allowing the importation of poultry products from a given country is a prerequisite for the importation of such products. Without the establishment or implementation of this rule, countries are prohibited from importing poultry products into the United States.

 

Section 727 prohibited the FSIS to use appropriated funds to ‘establish’ or ‘implement’ a rule allowing the importation of poultry products from China. This restriction on the use of funds, had the effect of prohibiting the importation of poultry products from China, because without a rule being established / implemented, Chinese poultry products are banned from entering the US market. Hence, Section 727 operated as a prohibition on the importation of poultry products from China into the United States.”⁽⁸⁷³⁾

(d) Enforcement measures

611.   In Brazil — Retreaded Tyres, the Panel examined fines of R$400 per unit on the importation of retreaded tyres, which both parties agreed were an enforcement measure in addition to and in support of the import ban on these tyres. Brazil confirmed that the fines were intended to exceed the unit value of most tyres, because they were a punitive measure intended to penalize traders that circumvented the import ban.⁽⁸⁷⁴⁾ The Panel analysed the fines as follows:

“[W]hat is important in considering whether a measure falls within the types of measures covered by Article XI:1 is the nature of the measure. In the present case, we note that the fines as a whole, including that on marketing, have the effect of penalizing the act of “importing” retreaded tyres by subjecting retreaded tyres already imported and existing in the Brazilian internal market to the prohibitively expensive rate of fines. To that extent, we consider that the fact that the fines are not administered at the border does not alter their nature as a restriction on importation within the meaning of Article XI:1. In addition, the level of the fines — R$ 400 per unit, which significantly exceeds the average prices of domestically produced retreaded tyres for passenger cars (R$ 100–280) — is significant enough to have a restrictive effect on importation.

 

Thus, the Panel finds that the fines impose limiting conditions in relation to the importation of retreaded tyres, and thus act as a restriction on the importation of retreaded tyres within the meaning of Article XI:1.”⁽⁸⁷⁵⁾

(e) Licensing schemes

612.   In India — Quantitative Restrictions, the Panel examined the application of Article XI to India’s discretionary import licensing system for items on the Negative List of Imports, as well as India’s Special Import Licence system. The Panel held that discretionary or non-automatic import licensing systems are prohibited by Article XI:1:

“Under the GATT 1947, panels have examined whether import and export licensing systems are restrictions under Article XI:1. For example, in a case involving a so-called ‘SLQ’ regime, which concerned products subject in principle to quantitative restrictions, but for which no quota amount had been set either in quantity or value, permit applications being granted upon request, the panel noted ‘that the SLQ regime was an import licensing procedure which would amount to a quantitative restriction unless it provided for the automatic issuance of licences’.⁽⁸⁷⁶⁾ A similar conclusion was reached in the above-cited Japan — Trade in Semiconductors, where the panel found that ‘export licensing practices by Japan, leading to delays of up to three months in the issuing of licences for semi-conductors destined for contracting parties other than the United States, had been non-automatic and constituted restrictions on the exportation of such products inconsistent with Article XI’.⁽⁸⁷⁷⁾ These reports are consistent with the ordinary meaning noted above, as discretionary or non-automatic licensing systems by their very nature operate as limitations on action since certain imports may not be permitted. Thus, in light of the terms of Article XI:1 and these adopted panel reports, we conclude that a discretionary or non-automatic import licensing requirement is a restriction prohibited by Article XI:1.”⁽⁸⁷⁸⁾

613.   In Korea — Various Measures on Beef, the Panel, in a finding not appealed, rejected the United States’ claim that “Korea’s regulatory regime [on beef imports], and thus its licensing system, by granting exclusive authority to [certain Korean agencies] to import beef, effectively establishes a non-automatic import licensing system in violation of Article XI:1 …”. The Panel held that discretionary licensing used in conjunction with a quantitative restriction does not necessarily constitute a restriction additional to the quantitative restriction:

“[W]here a quota is in place, the use of a discretionary licensing system need not necessarily result in any additional restriction. Where a discretionary licensing system is implemented in conjunction with other restrictions, such as in the present dispute, the manner in which the discretionary licensing system is operated may create additional restrictions independent of those imposed by the principal restriction. Since this issue was not considered in the India — Quantitative Restrictions report, that case does not provide authority for the proposition that a discretionary licensing system, used in conjunction with a quantitative restriction, necessarily provides some additional level of restriction over and above the inherent restriction on access created through the imposition of a quantitative restriction.”⁽⁸⁷⁹⁾

614.   In China — Raw Materials, the Panel found that China’s export licensing regime on various raw materials was inconsistent with Article XI:1 because it was operated in a restrictive manner:

“[L]icences that are granted without condition or those that implement an underlying measure that is justified pursuant to another provision of the WTO Agreement, such as GATT Article XI:2, XII, XVIII, XIX, XX or XXI, may be consistent with Article XI:1, so long as the licence does not by its nature have a limiting or restrictive effect. Conversely, a licence requirement that results in a restriction additional to that inherent in a permissible measure would be inconsistent with GATT Article XI:1. Such restriction may arise in cases where licensing agencies have unfettered or undefined discretion to reject a licence application.

 

The Panel finds that China’s export licensing regime is not per se inconsistent with Article XI:1 on the basis that it permits export licensing agencies to require a licence for ‘goods subject to … export restrictions’, as provided for in Article 19 of China’s Foreign Trade Law. The Panel finds, however, that the discretion that arises from the undefined and generalized requirement to submit an unqualified number of ‘other’ documents of approval in Article 11(7) of China’s 2008 Export Licence Administration Measures, as applicable to goods subject to export licensing only, or the ‘other materials’ in Articles 5(5) and 8(4) of China’s Working Rules on Export Licenses, amounts to an additional restriction inconsistent with Article XI:1.”⁽⁸⁸⁰⁾

(f) Trade balancing requirements

615.   Paragraph 2 of the Annex to the TRIMs Agreement provides that

“‘TRIMs which are inconsistent with the obligation of general elimination of quantitative restrictions provided for in [GATT Article XI:1]’ include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which restrict:

 

(a)   the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports;

 

(b)   the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange to an amount related to the foreign exchange inflows attributable to the enterprise”

616.   In India — Autos, India had argued that since Article XI of the GATT 1994 dealt with border measures and the disputed Public Notice No. 60 did not deal with any such measure, it could not violate Article XI. However, the Panel found that as it required acceptance of the so-called “trade balancing condition” it imposed a restriction on imports and therefore was inconsistent with Article XI:1 of the GATT 1994:

“[I]n determining whether Public Notice No. 60 is inconsistent with Article XI:1 of the GATT 1994, the Panel recalls its earlier analysis of the trade balancing condition as contained in the previous section.

 

First, it recalls its conclusion that Public Notice No. 60, as a governmental measure requiring manufacturers to accept certain conditions in order to be allowed to import restricted automotive kits and components, constituted a ‘measure’ within the meaning of Article XI:1. This conclusion remains relevant to this analysis and the Panel confirms its earlier conclusion in this respect.

 

Second, in order to establish whether Public Notice No. 60, in itself, can be considered to be inconsistent with Article XI:1, it has to be established that it constitutes a ‘restriction … on importation’ within the meaning of that provision. The Panel recalls in this respect its earlier conclusion that the trade balancing condition, as contained both in Public Notice No. 60 and in the MOUs signed thereunder, constituted a restriction on importation contrary to Article XI:1 in that it effectively limits the amount of imports that a manufacturer may make by linking imports to commitment to undertake a certain amount of exports. Under such circumstance, an importer is not free to import as many restricted kits or components as he otherwise might so long as there is a finite limit to the amount of possible exports.

…

The Panel therefore concludes that Public Notice No. 60 in itself, to the extent that it requires the acceptance of the trade balancing condition in order to gain the advantage of importing the restricted products, imposes a restriction on imports and is inconsistent with Article XI:1 of the GATT 1994.”⁽⁸⁸¹⁾

(g) Minimum export price requirements

617.   In China — Raw Materials, the Panel found that a minimum export price requirement is a quantitative restriction on trade prohibited by Article XI:1.⁽⁸⁸²⁾

(h) Restrictions on circumstances of importation

(i) Restrictions on imports by particular persons

618.   The Panel in India — Quantitative Restrictions examined, inter alia, an “Actual User Requirement” under India’s Export and Import Policy 1997–2002, under which import licences were generally available only to “Actual Users” (persons who would employ the imported goods “for their own use”). In a finding that was not appealed, the Panel determined that the Actual User condition operated as a restriction on imports within the meaning of Article XI:1:⁽⁸⁸³⁾

“As noted above, Article XI:1 is ‘comprehensive’ in that it prohibits import restrictions ‘made effective through quotas, import or export licences or other measures’, excluding from its coverage only ‘duties, taxes or other charges’. In considering the scope of the prohibition, it is instructive to consider how it has been dealt with in prior panel reports. For example, a minimum import price system has been considered to be a restriction within the meaning of Article XI:1.⁽⁸⁸⁴⁾ In a case involving limitations on the points of sale available to imported beer, a panel found that such limitations were restrictions within the meaning of Article XI:1.⁽⁸⁸⁵⁾ These reports are in accord with the ordinary meaning of the term ‘restriction’, which, as noted above, is ‘a limitation on action, a limiting condition or regulation’. Applied to the ‘Actual User’ condition, they lead to the conclusion that it is a restriction on imports because it precludes imports of products for resale by intermediaries, i.e. distribution to consumers who are unable to import directly for their own immediate use is restricted.”⁽⁸⁸⁶⁾

(ii) Trading rights

619.   In recent years, Working Party Reports on the accession of new WTO Members have included commitments regarding the absence of restrictions on the right to trade. For instance, the Working Party Report on the Accession of the Kyrgyz Republic included the following paragraph:

“The representative of the Kyrgyz Republic confirmed that from the date of accession, the Kyrgyz Republic would ensure that all of its laws and regulations relating to the right to trade in goods, and all fees, charges or taxes levied on such rights would be in full conformity with its WTO obligations, including Articles VIII:1(a), XI:1 and III:2 and 4 of the GATT 1994 and that it would also implement such laws and regulations in full conformity with these obligations. The Working Party took note of these commitments.”⁽⁸⁸⁷⁾

(iii) Restrictions on ports of entry

620.   The Panel in Colombia — Ports of Entry examined the ports of entry measure described in paragraph 432 above. The measure had been implemented for a period of six months, extended twice, and a similar measure had been in place earlier for 18 months.⁽⁸⁸⁸⁾ The Panel concluded that “all of these uncertainties, including access to one seaport for extended periods of time and the likely increased costs that would arise for importers operating under the constraints of the port restrictions, limit competitive opportunities for imports arriving from Panama”⁽⁸⁸⁹⁾ and that “the ports of entry measure has a limiting effect on imports arriving from Panama … the restriction to two ports of entry for subject goods arriving from Panama imposed under the ports of entry measure constitutes a restriction on importation within the meaning of Article XI:1 of the GATT 1994.”⁽⁸⁹⁰⁾

(i) “restrictions made effective through state-trading operations”

621.   The Panel in India — Quantitative Restrictions, in examining the contested Indian measures, addressed the phrase “restrictions made effective through state-trading operations”. In its findings on this issue, which were not appealed, the Panel emphasized that the fact that imports were effected through state-trading operations did not per se mean that imports were being restricted:

“In analyzing the US claim, we note that violations of Article XI:1 can result from restrictions made effective through state trading operations. This is made very clear in the Note Ad Articles XI, XII, XIII, XIV and XVIII, which provides that ‘Throughout Articles XI, XII, XIII, XIV and XVIII, the terms “import restrictions” or “export restrictions” include restrictions made effective through state-trading operations.’ It should be noted however, that the mere fact that imports are effected through state trading enterprises would not in itself constitute a restriction. Rather, for a restriction to be found to exist, it should be shown that the operation of this state trading entity is such as to result in a restriction.⁽⁸⁹¹⁾

 

As noted above, the United States has shown in some instances that there have been zero imports of products reserved to state trading enterprises by India. We note, however, that canalization per se will not necessarily result in the imposition of quantitative restrictions within the meaning of Article XI:1, since an absence of importation of a given product may not always be the result of the imposition of a prohibitive quantitative restriction. For instance, the absence of importation of snow ploughs into a tropical island cannot be taken as sufficient evidence of the existence of import restrictions, even if the right to import those products is granted to an entity with exclusive or special privileges.”⁽⁸⁹²⁾

622.   The Panel in Korea — Various Measures on Beef examined, inter alia, practices of the Livestock Products Marketing Organization (LPMO), Korea’s state trading agency for beef. The LPMO was the sole administrator of beef imports; it imported 30 per cent of the beef import quota, through a tendering system and with a mandate to stabilize demand and supply in the market. Groups of private end-users also could import beef within the beef import quota as allocated by LPMO. The LPMO also had a distribution monopoly for the beef that it imported.⁽⁸⁹³⁾ The Panel made the factual finding that for a 7-month period in 1997–98, the LPMO suspended its tenders (effectively closing the Korean market to imported beef to the extent of the LPMO’s quota share) and failed to discharge (sell its stock of) imported beef; also that this behaviour had no economic justification.⁽⁸⁹⁴⁾ It then examined the law applicable to restrictions imposed by state-trading enterprises.

623.   Referring to the Note Ad Articles XI, XII, XIII, XIV and XVIII, the Panel remarked that “[t]his is to say that when an import restriction is imposed by a state-trading enterprise, with or without exclusive rights, such restriction would be covered by Article XI.”⁽⁸⁹⁵⁾ Referring to the GATT Panel Reports on Japan — Agricultural Products and Canada — Marketing Agencies, the Panel found:

“[I]n the special case where a state-trading enterprise possesses an import monopoly and a distribution monopoly, any restriction it imposes on the distribution of imported products will lead to a restriction on importation of the particular product over which it has a monopoly. In other words, the effective control over both importation and distribution channels by a state-trading enterprise means that the imposition of any restrictive measure, including internal measures, will have an adverse effect on the importation of the products concerned. The Ad Note to Article XI therefore prohibits a state-trading enterprise enjoying monopoly right over both importation and distribution from imposing any internal restriction against such imported products.”⁽⁸⁹⁶⁾

624.   The Panel found that “the LPMO’s lack and delays in calling for tenders and its discharge practices between the end of October 1997 and the end of May 1998, i.e. the LPMO’s refusal to discharge into the Korean market imported beef led it to keep important stocks of beef and in turn to reduce imports, were restrictive. As demonstrated above, these LPMO practices are closely connected and have led to import restrictions on foreign beef, contrary to Article XI through the application of its Ad Note.”⁽⁸⁹⁷⁾

625.   The Panel further examined the LPMO’s calls for tenders that distinguished between grain- and grass-fed beef, and excluded grass-fed beef on some occasions. The Panel found that “the LPMO practice to call for tenders on the basis of the distinction between grass-fed and grain-fed beef, constitute an import restriction in violation of Article XI of GATT, through the Ad Note to Articles XI, XII, XIII, XIV and XVIII” and remarked:⁽⁸⁹⁸⁾

“The Panel considers that the LPMO’s calls for tenders that impose a distinction between grain- and grass-fed beef constitute de facto limits on importation of grass-fed beef, thus amounting to import restrictions. The Panel recalls its discussion on Article XI, the Ad Note to Articles XI, XII, XIII, XIV and XVIII, where it was concluded that the purpose of the Ad Note to Articles XI, XII, XIII, XIV and XVIII is to ensure that WTO Members cannot escape their basic obligations, such as the prohibition against import restrictions, by using a state-trading enterprise.”⁽⁸⁹⁹⁾

(j) Bonding requirements

626.   In US — Certain EC Products, the measures at issue were increased bonding requirements imposed by the United States on imports from the European Communities. The increased bonding requirements were imposed in order to secure the future collection of additional import duties which were only later authorized by the Dispute Settlement Body under Article 22.6 of the DSU. While the majority of the Panel found that this bonding requirement constituted a duty or charge under Article II, one panellist found that this measure fell under Article XI of GATT:

“Any bonding requirements to cover the payment of tariffs above their bound levels cannot be viewed as a mechanism in place to secure compliance with WTO compatible tariffs and constituted, therefore, import restrictions for which there was no justification. The actual trade effects of the 3 March Measure, which are reflected on the charts contained in paragraph 2.37 of this Panel Report, confirm its restrictive nature and effect. One Panellist found, therefore, that the 3 March Measure constituted a ‘restriction’, contrary to Article XI of GATT, rather than a duty or charge under Article II.”⁽⁹⁰⁰⁾

(k) “prohibitions or restrictions … on the exportation or sale for export of any product”

627.   Paragraph 2 of the Annex to the TRIMs Agreement provides that

“‘TRIMs which are inconsistent with the obligation of general elimination of quantitative restrictions provided for in [GATT Article XI:1]’ include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which restrict: …

 

(c)   the exportation or sale for export by an enterprise of products, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production.”

628.   The Panel Report on Argentina — Hides and Leather, referred to in paragraph 602 above, examined a claim that a measure of Argentina was an export restriction on hides in violation of Article XI:1.

629.   The Panel in China — Raw Materials found that China maintained export quotas on bauxite, coke, fluorspar, silicon carbide and zinc, and found that for each of these products, “the series of measures operating in concert has resulted in the imposition of a restriction or prohibition on their exportation that are inconsistent with China’s obligations under Article XI:1”.⁽⁹⁰¹⁾

(l) GATT practice regarding Article XI:1

630.   See the GATT Analytical Index.

3. Article XI:2(a)

(a) Burden of proof

631.   The Panel in China — Raw Materials found that “the burden is on the respondent … to demonstrate that the conditions of Article XI:2(a) are met in order to demonstrate that no inconsistency arises under Article XI:1.”⁽⁹⁰²⁾ The Panel concluded that China had failed to demonstrate that the export quota applied to refractory-grade bauxite was justified pursuant to Article XI:2(a).⁽⁹⁰³⁾ While the Panel found that refractory-grade bauxite is “essential” to China on the basis of its importance in steel production,⁽⁹⁰⁴⁾ it found that the export restriction on this product, which had been in place at least since 2000, was not “temporarily applied”,⁽⁹⁰⁵⁾ and it did not agree that China currently faces a “critical shortage” of refractory bauxite.⁽⁹⁰⁶⁾

(b) “Export prohibitions or restrictions”

632.   The Panel in China — Raw Materials found that the meaning of “prohibitions or restrictions” is the same in Article XI:2 as in Article XI:1, and thus Article XI:2 potentially applies to any “prohibitions or restrictions” prohibited by Article XI:1.⁽⁹⁰⁷⁾

(c) “temporarily applied”

633.   The Panel in China — Raw Materials interpreted the word “temporarily” as meaning that Article XI:2(a) permits the application of restrictions or prohibitions for a limited time:

“In the Panel’s view, an interpretation that Article XI:2(a) permits the application of a measure for a limited time under limited circumstances would be in harmony with the protection that may be available to a Member under Article XX(g), which addresses the conservation of exhaustible natural resources. To conclude otherwise would allow Members to resort indistinguishably to either Article XI:2(a) or XX(g) to address the problem of an exhaustible natural resource.

 

As mentioned above, Article XX(g) incorporates additional protections in its chapeau to ensure that the application of a measure does not result in arbitrary or unjustifiable discrimination or amount to a disguised restriction on international trade. Article XI:2(a) does not impose similar limitations on Members’ actions. In the Panel’s view, the absence of such safeguards in Article XI:2(a) lends support to our view that a restriction or ban applied under Article XI:2(a) must be of a limited duration and not indefinite.”⁽⁹⁰⁸⁾

(d) “essential products”

634.   The Panel in China — Raw Materials found that “a product may be ‘essential’ within the meaning of Article XI:2(a) when it is ‘important’ or ‘necessary’ or ‘indispensable’ to a particular Member. This may include a product that is an ‘input’ to an important product or industry. However, the determination of whether a particular product is ‘essential’ to a Member must take into consideration the particular circumstances faced by that Member at the time that a Member applied the restriction.”⁽⁹⁰⁹⁾

“The Panel does not consider that the terms of Article XI:2, nor the statement made in the context of negotiating the text of Article XI:2 that the importance of a product ‘should be judged in relation to the particular country concerned’, means that a WTO Member may, on its own, determine whether a product is essential to it. If this were the case, Article XI:2 could have been drafted in a way such as Article XXI(b) of the GATT 1994, which states: ‘Nothing in this Agreement shall be construed … to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests’ (emphasis added). In the Panel’s view, the determination of whether a product is ‘essential’ to that Member should take into consideration the particular circumstances faced by that Member at the time when a Member applies a restriction or prohibition under Article XI:2(a).”⁽⁹¹⁰⁾

(e) “prevent or relieve critical shortages”

635.   The Panel in China — Raw Materials found that the term “critical shortage” in Article XI:2(a) “refers to those situations or events that may be relieved or prevented through the application of measures on a temporary, and not indefinite or permanent, basis.”⁽⁹¹¹⁾ Comparing Article XI:2(a) with Article XX(g), the Panel found that “[t]he benefits and strictures of Article XX(g) must not be transposed to Article XI:2(a), or vice versa”⁽⁹¹²⁾ and “disagree[d] that Article XI:2(a) would permit long-term measures to be imposed to address an inevitable depletion of a finite resource.”⁽⁹¹³⁾

“Article XI:2(a) authorizes derogation from the prohibition on export and import restrictions under Article XI:1 in order to prevent or relieve critical shortages of products essential to the Member taking action. Thus like Article XX(g), Article XI:2(a) operates as an exception, but only with respect to the obligations contained in Article XI:1, and not with respect to GATT obligations more broadly. This suggests to us that the reach of Article XI:2(a) would not be the same as that of Article XX(g); they are intended to address different situations and thus must mean different things.

 

As with Article XX(g), the right to invoke Article XI:2(a) is circumscribed, but in a much different way. The Panel considers that this difference, too, is important in interpreting the scope of Article XI:2(a). Article XI:2(a) is not confined to conservation measures and any exceptional measures must be ‘temporarily applied’ to address ‘critical’ shortages. Conservation measures tempered by the chapeau of Article XX, which takes into account conditions outside the Member taking action, and by operating together with domestic restrictions, will necessarily be different from temporary measures seeking to address a domestic crisis or a matter involving ‘suspense or grave fear’ in the Member taking action.”⁽⁹¹⁴⁾

4. Notification of quantitative restrictions and non-tariff trade barriers

636.   The Decision on Notification Procedures for Quantitative Restrictions, adopted by the Council for Trade in Goods on 1 December 1995,⁽⁹¹⁵⁾ requires Members to make complete notifications of the quantitative restrictions which they maintain by 31 January 1996 and at two-yearly intervals thereafter, and to notify changes to their quantitative restrictions as and when these changes occur. These notifications are stored in a database of quantitative restrictions. As required by the Decision, the Secretariat publishes periodically a document listing the Members having made a notification (G/MA/NTM/QR/1 and Addenda). The Secretariat makes the database available to Members. The notifications are available for consultation in the Secretariat. At its meeting on 24 June 1997, the Committee on Market Access adopted a format for the submissions of notifications of quantitative restrictions.⁽⁹¹⁶⁾

637.   The Decision on Reverse Notification of Non-Tariff Measures, adopted by the Council for Trade in Goods on 1 December 1995,⁽⁹¹⁷⁾ provides that Members may notify non-tariff measures maintained by other Members insofar as such measures are neither subject to any existing WTO notification obligations nor to any other reverse notification possibilities under the WTO Agreement. The Member maintaining the measures shall comment on each of the points contained in the notification. The Decision established an Inventory of Non-Tariff Measures, made available to Members in a loose-leaf format. As of 2010, one such reverse notification had been received.⁽⁹¹⁸⁾

638.   In July 2003, the Negotiating Group on Market Access agreed that participants would submit new notifications of non-tariff barriers which their exporters were facing in various markets, to supplement an earlier series of such notifications. The notifications received were collected and circulated in Secretariat documents from 2002 to 2006.⁽⁹¹⁹⁾

5. Relationship with other GATT provisions

(a) Article II

639.   In US — Certain EC Products, the majority of the Panel found the increased bonding requirements imposed on imports in order to secure the collection of additional import duties to be a duty or charge under Article II. One panellist found the measure at issue to be a restriction within the meaning and scope of Article XI. See paragraph 626 above.

(b) Article III

640.   See under Article III.

(c) Article VI

641.   In US — 1916 Act (Japan), after finding a violation of Article VI, the Panel held that in the case before it, Article VI addressed the “basic feature” of the measure at issue more directly than Article XI; however, the Panel stated explicitly that this did not mean that Article VI applied to the exclusion of Article XI:1. Nevertheless, the Panel found that it was entitled to exercise judicial economy and decided not to review the claims of Japan under Article XI.⁽⁹²⁰⁾

(d) Article XVII

642.   Concerning import restrictions implemented through state trading, see paragraphs 621–625 above.

(e) GATT practice regarding relationship with other Articles

643.   See the GATT Analytical Index.

6. Relationship with other WTO Agreements

(a) Agreement on Agriculture

644.   The Panel in Korea — Various Measures on Beef found that:

“when dealing with measures relating to agricultural products which should have been converted into tariffs or tariff-quotas, a violation of Article XI of GATT and its Ad Note relating to state-trading operations would necessarily constitute a violation of Article 4.2 of the Agreement on Agriculture and its footnote which refers to non-tariff measures maintained through state-trading enterprises.”⁽⁹²¹⁾

645.   Further concerning Article 4.2 of the Agreement on Agriculture, see the Chapter on the Agreement on Agriculture.

(b) TRIMs Agreement

646.   Paragraph 2 of the Illustrative List in the Annex to the TRIMs Agreement lists three trade-related investment measures “that are inconsistent with the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994”: see paragraphs 615 and 627 above. The Panel in Colombia — Ports of Entry reviewed the Illustrative List and found that “Article XI:1 is not restricted to such a finite list of measures. On the contrary, Article XI:1 applies to ‘prohibitions or restrictions other than duties, taxes or other charges’ and does not include finite categories.”⁽⁹²²⁾

(c) SPS Agreement

647.   In Australia — Salmon, the Panel examined the Canadian claim that the import prohibition of uncooked salmon was inconsistent with Article XI of the GATT as well as with several provisions of the SPS Agreement. After finding that the Australian measure was inconsistent with the requirements of the SPS Agreement, the Panel did not find it necessary to also examine the measure in the light of Article XI.⁽⁹²³⁾

(d) Anti-Dumping Agreement

648.   The Panel in US — 1916 Act (Japan), after finding that the measure at issue was inconsistent with provisions of the Anti-Dumping Agreement (and Article VI of the GATT), did not find it necessary to address the same measure also in the light of Article XI. See also paragraph 641 above.

 

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XIV. Article XII  

A. Text of Article XII

Article XII*: Restrictions to Safeguard the Balance of Payments

1.   Notwithstanding the provisions of paragraph 1 of Article XI, any contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported, subject to the provisions of the following paragraphs of this Article.

 

2.   (a)   Import restrictions instituted, maintained or intensified by a contracting party under this Article shall not exceed those necessary:

 

(i)   to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves, or

 

(ii)   in the case of a contracting party with very low monetary reserves, to achieve a reasonable rate of increase in its reserves.

 

Due regard shall be paid in either case to any special factors which may be affecting the reserves of such contracting party or its need for reserves, including, where special external credits or other resources are available to it, the need to provide for the appropriate use of such credits or resources.

 

     (b)   Contracting parties applying restrictions under sub-paragraph (a) of this paragraph shall progressively relax them as such conditions improve, maintaining them only to the extent that the conditions specified in that sub-paragraph still justify their application. They shall eliminate the restrictions when conditions would no longer justify their institution or maintenance under that sub-paragraph.

 

3.   (a)   Contracting parties undertake, in carrying out their domestic policies, to pay due regard to the need for maintaining or restoring equilibrium in their balance of payments on a sound and lasting basis and to the desirability of avoiding an uneconomic employment of productive resources. They recognize that, in order to achieve these ends, it is desirable so far as possible to adopt measures which expand rather than contract international trade.

 

   (b)   Contracting parties applying restrictions under this Article may determine the incidence of the restrictions on imports of different products or classes of products in such a way as to give priority to the importation of those products which are more essential.

 

   (c)   Contracting parties applying restrictions under this Article undertake:

 

(i)   to avoid unnecessary damage to the commercial or economic interests of any other contracting party;*

 

(ii)   not to apply restrictions so as to prevent unreasonably the importation of any description of goods in minimum commercial quantities the exclusion of which would impair regular channels of trade; and

 

(iii)   not to apply restrictions which would prevent the importations of commercial samples or prevent compliance with patent, trade mark, copyright, or similar procedures.

 

   (d)   The contracting parties recognize that, as a result of domestic policies directed towards the achievement and maintenance of full and productive employment or towards the development of economic resources, a contracting party may experience a high level of demand for imports involving a threat to its monetary reserves of the sort referred to in paragraph 2 (a) of this Article. Accordingly, a contracting party otherwise complying with the provisions of this Article shall not be required to withdraw or modify restrictions on the ground that a change in those policies would render unnecessary restrictions which it is applying under this Article.

 

4.   (a)   Any contracting party applying new restrictions or raising the general level of its existing restrictions by a substantial intensification of the measures applied under this Article shall immediately after instituting or intensifying such restrictions (or, in circumstances in which prior consultation is practicable, before doing so) consult with the CONTRACTING PARTIES as to the nature of its balance of payments difficulties, alternative corrective measures which may be available, and the possible effect of the restrictions on the economies of other contracting parties.

 

    (b)   On a date to be determined by them,* the CONTRACTING PARTIES shall review all restrictions still applied under this Article on that date. Beginning one year after that date, contracting parties applying import restrictions under this Article shall enter into consultations of the type provided for in sub-paragraph (a) of this paragraph with the CONTRACTING PARTIES annually.

 

    (c)   (i)   If, in the course of consultations with a contracting party under sub-paragraph (a) or (b) above, the CONTRACTING PARTIES find that the restrictions are not consistent with provisions of this Article or with those of Article XIII (subject to the provisions of Article XIV), they shall indicate the nature of the inconsistency and may advise that the restrictions be suitably modified.

 

      (ii)   If, however, as a result of the consultations, the CONTRACTING PARTIES determine that the restrictions are being applied in a manner involving an inconsistency of a serious nature with the provisions of this Article or with those of Article XIII (subject to the provisions of Article XIV) and that damage to the trade of any contracting party is caused or threatened thereby, they shall so inform the contracting party applying the restrictions and shall make appropriate recommendations for securing conformity with such provisions within the specified period of time. If such contracting party does not comply with these recommendations within the specified period, the CONTRACTING PARTIES may release any contracting party the trade of which is adversely affected by the restrictions from such obligations under this Agreement towards the contracting party applying the restrictions as they determine to be appropriate in the circumstances.

 

    (d)   The CONTRACTING PARTIES shall invite any contracting party which is applying restrictions under this Article to enter into consultations with them at the request of any contracting party which can establish a prima facie case that the restrictions are inconsistent with the provisions of this Article or with those of Article XIII (subject to the provisions of Article XIV) and that its trade is adversely affected thereby. However, no such invitation shall be issued unless the CONTRACTING PARTIES have ascertained that direct discussions between the contracting parties concerned have not been successful. If, as a result of the consultations with the CONTRACTING PARTIES, no agreement is reached and they determine that the restrictions are being applied inconsistently with such provisions, and that damage to the trade of the contracting party initiating the procedure is caused or threatened thereby, they shall recommend the withdrawal or modification of the restrictions. If the restrictions are not withdrawn or modified within such time as the CONTRACTING PARTIES may prescribe, they may release the contracting party initiating the procedure from such obligations under this Agreement towards the contracting party applying the restrictions as they determine to be appropriate in the circumstances.

 

    (e)   In proceeding under this paragraph, the CONTRACTING PARTIES shall have due regard to any special external factors adversely affecting the export trade of the contracting party applying the restrictions.*

 

    (f)   Determinations under this paragraph shall be rendered expeditiously and, if possible, within sixty days of the initiation of the consultations.

 

5.   If there is a persistent and widespread application of import restrictions under this Article, indicating the existence of a general disequilibrium which is restricting international trade, the CONTRACTING PARTIES shall initiate discussions to consider whether other measures might be taken, either by those contracting parties the balance of payments of which are under pressure or by those the balance of payments of which are tending to be exceptionally favourable, or by any appropriate intergovernmental organization, to remove the underlying causes of the disequilibrium. On the invitation of the CONTRACTING PARTIES, contracting parties shall participate in such discussions.

B. Text of Note Ad Article XII

Ad Article XII

   The CONTRACTING PARTIES shall make provision for the utmost secrecy in the conduct of any consultation under the provisions of this Article.

Paragraph 3 (c)(i)

   Contracting parties applying restrictions shall endeavour to avoid causing serious prejudice to exports of a commodity on which the economy of a contracting party is largely dependent.

Paragraph 4 (b)

   It is agreed that the date shall be within ninety days after the entry into force of the amendments of this Article effected by the Protocol Amending the Preamble and Parts II and III of this Agreement. However, should the CONTRACTING PARTIES find that conditions were not suitable for the application of the provisions of this subparagraph at the time envisaged, they may determine a later date; Provided that such date is not more than thirty days after such time as the obligations of Article VIII, Sections 2, 3 and 4, of the Articles of Agreement of the International Monetary Fund become applicable to contracting parties, members of the Fund, the combined foreign trade of which constitutes at least fifty per centum of the aggregate foreign trade of all contracting parties.

Paragraph 4 (e)

   It is agreed that paragraph 4 (e) does not add any new criteria for the imposition or maintenance of quantitative restrictions for balance of payments reasons. It is solely intended to ensure that all external factors such as changes in the terms of trade, quantitative restrictions, excessive tariffs and subsidies, which may be contributing to the balance of payments difficulties of the contracting party applying restrictions, will be fully taken into account.

C. Understanding on the Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994

[The text of the Understanding on the Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994 can be found immediately following the text of Article XVIII below.]

 
D. Interpretation and Application of Article XII

1. General

649.   The Panel in Chile — Price Band System, interpreting footnote 1 to Article 4.2 of the Agreement on Agriculture, found that “Article XII is clearly in the nature of an exception to the general obligations of GATT 1994. In our view, therefore, footnote 1 was meant to exclude from the scope of Article 4.2 only those measures which are maintained on the basis of GATT 1994 provisions which allow Members, subject to certain conditions, to act inconsistently with their general obligations under GATT 1994.”⁽⁹²⁴⁾

650.   The interpretation and application of the note Ad Article XI, XII, XIII, XIV and XVIII, which clarifies that the terms “import restrictions” or “export restrictions” used in these Articles include “restrictions made effective through state-trading operations”, was discussed by the Panels on India — Quantitative Restrictions and on Korea — Various Measures on Beef. See paragraphs 621–622 above.

2. BOP Understanding

651.   This Chapter discusses balance-of-payments measures generally, and interpretation and application of the Understanding on the Balance-of-Payments Provisions of the GATT 1994, under Article XVIII below.

3. Relationship with other GATT provisions

(a) Article II

652.   The Understanding on the Balance-of-Payments Provisions of the GATT 1994 provides in paragraph 2 regarding an exception from Article II:1(b) for “price-based measures taken for balance-of-payments purposes”:

“Members confirm their commitment to give preference to those measures which have the least disruptive effect on trade. Such measures (referred to in this Understanding as ‘price-based measures’) shall be understood to include import surcharges, import deposit measures or other equivalent trade measures with an impact on the price of imported goods. It is understood that, notwithstanding the provisions of Article II, price-based measures taken for balance-of-payments purposes may be applied by a Member in excess of the duties inscribed in the Schedule of that Member. …”

(b) Article XVIII

653.   In India — Quantitative Restrictions, the Panel explained the relationship between Articles XII and XVIII:B in clarifying the function of Article XVIII:B. See paragraph 754 below.

4. GATT practice

654.   See GATT Analytical Index.

 

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XV. Article XIII  

A. Text of Article XIII

Article XIII*: Non-discriminatory Administration of Quantitative Restrictions

1.   No prohibition or restriction shall be applied by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation of any product destined for the territory of any other contracting party, unless the importation of the like product of all third countries or the exportation of the like product to all third countries is similarly prohibited or restricted.

 

2.   In applying import restrictions to any product, contracting parties shall aim at a distribution of trade in such product approaching as closely as possible the shares which the various contracting parties might be expected to obtain in the absence of such restrictions and to this end shall observe the following provisions:

 

(a)   Wherever practicable, quotas representing the total amount of permitted imports (whether allocated among supplying countries or not) shall be fixed, and notice given of their amount in accordance with paragraph 3 (b) of this Article;

 

(b)   In cases in which quotas are not practicable, the restrictions may be applied by means of import licences or permits without a quota;

 

(c)   Contracting parties shall not, except for purposes of operating quotas allocated in accordance with subparagraph (d) of this paragraph, require that import licences or permits be utilized for the importation of the product concerned from a particular country or source;

 

(d)   In cases in which a quota is allocated among supplying countries the contracting party applying the restrictions may seek agreement with respect to the allocation of shares in the quota with all other contracting parties having a substantial interest in supplying the product concerned. In cases in which this method is not reasonably practicable, the contracting party concerned shall allot to contracting parties having a substantial interest in supplying the product shares based upon the proportions, supplied by such contracting parties during a previous representative period, of the total quantity or value of imports of the product, due account being taken of any special factors which may have affected or may be affecting the trade in the product. No conditions or formalities shall be imposed which would prevent any contracting party from utilizing fully the share of any such total quantity or value which has been allotted to it, subject to importation being made within any prescribed period to which the quota may relate.*

 

3.   (a)   In cases in which import licences are issued in connection with import restrictions, the contracting party applying the restrictions shall provide, upon the request of any contracting party having an interest in the trade in the product concerned, all relevant information concerning the administration of the restrictions, the import licences granted over a recent period and the distribution of such licences among supplying countries; Provided that there shall be no obligation to supply information as to the names of importing or supplying enterprises.

 

    (b)   In the case of import restrictions involving the fixing of quotas, the contracting party applying the restrictions shall 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 and of any change in such quantity or value. Any supplies of the product in question which were en route at the time at which public notice was given shall not be excluded from entry; Provided that they may be counted so far as practicable, against the quantity permitted to be imported in the period in question, and also, where necessary, against the quantities permitted to be imported in the next following period or periods; and Provided further that if any contracting party customarily exempts from such restrictions products entered for consumption or withdrawn from warehouse for consumption during a period of thirty days after the day of such public notice, such practice shall be considered full compliance with this subparagraph.

 

    (c)   In the case of quotas allocated among supplying countries, the contracting party applying the restrictions shall promptly inform all other contracting parties having an interest in supplying the product concerned of the shares in the quota currently allocated, by quantity or value, to the various supplying countries and shall give public notice thereof.

 

4.   With regard to restrictions applied in accordance with paragraph 2 (d) of this Article or under paragraph 2 (c) of Article XI, the selection of a representative period for any product and the appraisal of any special factors* affecting the trade in the product shall be made initially by the contracting party applying the restriction; Provided that such contracting party shall, upon the request of any other contracting party having a substantial interest in supplying that product or upon the request of the CONTRACTING PARTIES, consult promptly with the other contracting party or the CONTRACTING PARTIES regarding the need for an adjustment of the proportion determined or of the base period selected, or for the reappraisal of the special factors involved, or for the elimination of conditions, formalities or any other provisions established unilaterally relating to the allocation of an adequate quota or its unrestricted utilization.

 

5.   The provisions of this Article shall apply to any tariff quota instituted or maintained by any contracting party, and, in so far as applicable, the principles of this Article shall also extend to export restrictions.

B. Text of Note Ad Article XIII

Ad Article XIII: Paragraph 2 (d)

No mention was made of “commercial considerations” as a rule for the allocation of quotas because it was considered that its application by governmental authorities might not always be practicable. Moreover, in cases where it is practicable, a contracting party could apply these considerations in the process of seeking agreement, consistently with the general rule laid down in the opening sentence of paragraph 2.

Paragraph 4

See note relating to “special factors” in connection with the last subparagraph of paragraph 2 of Article XI.

C. Interpretation and Application of Article XIII

1. General

655.   In EC — Bananas III, the Panel, in a finding not reviewed by the Appellate Body, held that the object and purpose of Article XIII:2 is to minimize the impact of quantitative restrictions on trade flows, and set out how the provisions of Article XIII work together:

“The working of Article XIII is clear. If quantitative restrictions are used (as an exception to the general ban on their use in Article XI), they are to be used in the least trade-distorting manner possible. … Article XIII:5 makes it clear … that Article XIII applies to the administration of tariff quotas. In light of the terms of Article XIII, it can be said that the object and purpose of Article XIII:2 is to minimize the impact of a quota or tariff quota regime on trade flows by attempting to approximate under such measures the trade shares that would have occurred in the absence of the regime. In interpreting the terms of Article XIII, it is important to keep their context in mind. Article XIII is basically a provision relating to the administration of restrictions authorized as exceptions to one of the most basic GATT provisions — the general ban on quotas and other non-tariff restrictions contained in Article XI.

 

… Article XIII:1 establishes the basic principle that no import restriction shall be applied to one Member’s products unless the importation of like products from other Members is similarly restricted. Thus, a Member may not limit the quantity of imports from some Members but not from others. But as indicated by the terms of Article XIII (and even its title, ‘Non-discriminatory Administration of Quantitative Restrictions’), the non-discrimination obligation extends further. The imported products at issue must be ‘similarly’ restricted. A Member may not restrict imports from some Members using one means and restrict them from another Member using another means. …”⁽⁹²⁵⁾

656.   The Panel Report in EC — Bananas III (Article 21.5 — Ecuador II) notes that “Article XIII of the GATT 1994 is relevant to one of the few remaining permissible practices of with a quantitative dimension in agriculture: tariff quotas.”⁽⁹²⁶⁾

657.   The Panel in US — Line Pipe found that safeguard measures are subject to Article XIII in addition to the Agreement on Safeguards, and consequently that the safeguard measure at issue in that dispute was subject to Article XIII.⁽⁹²⁷⁾ See also paragraph 690 below.

2. Article XIII:1: “the importation … is similarly restricted”

658.   In EC — Bananas III, the Appellate Body reviewed the Panel’s finding that the EC import regime for bananas was inconsistent with Article XIII because the European Communities allocated tariff quota shares to some Members without allocating such shares to other Members. The European Communities claimed that “there [were] two separate EC import regimes for bananas, the preferential regime for traditional ACP bananas and the erga omnes regime for all other imports of bananas” and argued that “the non-discrimination obligations of Article I:1, X:3(a) and XIII of GATT 1994 and Article 1.3 of the Licensing Agreement apply only within each of these separate regimes.”⁽⁹²⁸⁾ Rejecting this argument, the Panel found:

“[Article XIII:1 and Article XIII:2] do not provide a basis for analysing quota allocation regimes separately because they have different legal bases or because different tariff rates are applicable. Article XIII applies to allocations of shares in an import market for a particular product which is restricted by a quota or tariff quota. In our view, its nondiscrimination requirements apply to that market for that product, irrespective of whether or how a Member subdivides it for administrative or other reasons. Indeed, to accept that a Member could establish quota regimes by different legal instruments and argue that they are not as a consequence subject to Article XIII would be, as argued by the Complainants, to eviscerate the nondiscrimination provisions of Article XIII.”⁽⁹²⁹⁾

659.   Upholding this finding, the Appellate Body applied Article XIII to the whole import regime as follows:

“The essence of the non-discrimination obligations is that like products should be treated equally, irrespective of their origin. As no participant disputes that all bananas are like products, the non-discrimination provisions apply to all imports of bananas, irrespective of whether and how a Member categorizes or subdivides these imports for administrative or other reasons. If, by choosing a different legal basis for imposing import restrictions, or by applying different tariff rates, a Member could avoid the application of the non-discrimination provisions to the imports of like products from different Members, the object and purpose of the non-discrimination provisions would be defeated. It would be very easy for a Member to circumvent the non-discrimination provisions of the GATT 1994 and the other Annex 1A agreements, if these provisions apply only within regulatory regimes established by that Member.”⁽⁹³⁰⁾

660.   In EC — Bananas III, the Appellate Body found that the European Communities’ import regime for bananas violated Article XIII:1, stating as follows:

“[A]llocation to Members not having a substantial interest must be subject to the basic principle of nondiscrimination. When this principle of non-discrimination is applied to the allocation of tariff quota shares to Members not having a substantial interest, it is clear that a Member cannot, whether by agreement or by assignment, allocate tariff quota shares to some Members not having a substantial interest while not allocating shares to other Members who likewise do not have a substantial interest. To do so is clearly inconsistent with the requirement in Article XIII:1 that a Member cannot restrict the importation of any product from another Member unless the importation of the like product from all third countries is ‘similarly’ restricted.”⁽⁹³¹⁾

661.   On GATT practice.

3. Article XIII:2

(a) Chapeau: “aim at a distribution of trade”

662.   In US — Line Pipe, the Panel held: “the chapeau of Article XIII:2 contains a general rule, and not merely a statement of principle. This is confirmed by the Note Ad Article XIII:2, which refers to “the general rule laid down in the opening sentence of paragraph 2”.⁽⁹³²⁾

663.   In US — Line Pipe, the Panel examined a US safeguard measure which provided that, for three years and one day, a higher tariff (declining each year) would be imposed on all imports from each country in excess of 9,000 short tons. Mexico and Canada were excluded from the remedy. The Panel found that this measure was inconsistent with the “general rule” in the chapeau of Article XIII:2 because it was not based on historical trade patterns, and did not aim at tracking the distribution of trade that would be expected in its absence:

“[I]n our view, Korea is correct to argue that a Member would violate the general rule set forth in the chapeau of Article XIII:2 if it imposes safeguard measures without respecting traditional trade patterns (at least in the absence of any evidence indicating that the shares a Member might be expected to obtain in the future differ, as a result of changed circumstances, from its historical share). Trade flows before the imposition of a safeguard measure provide an objective, factual basis for projecting what might have occurred in the absence of that measure.

 

There is nothing in the record before the Panel to suggest that the line pipe measure was based in any way on historical trade patterns in line pipe, or that the United States otherwise ‘aim[ed] at a distribution of trade … approaching as closely as possible the shares which the various Members might be expected to obtain in the absence of’ the line pipe measure. Instead, as noted by Korea, ‘the in-quota import volume originating from Korea, the largest supplier historically to the US market, was reduced to the same level as the smallest — or even then non-existent — suppliers to the US market (9,000 short tons)’. For this reason, we find that the line pipe measure is inconsistent with the general rule contained in the chapeau of Article XIII:2.”⁽⁹³³⁾

664.   The Panel in US — Line Pipe, in a statement not reviewed by the Appellate Body, highlighted the importance of respecting traditional trade patterns when imposing safeguard measures:

“In our view, Korea is correct to argue that a Member would violate the general rule set forth in the chapeau of Article XIII:2 if it imposes safeguard measures without respecting traditional trade patterns (at least in the absence of any evidence indicating that the shares a Member might be expected to obtain in the future differ, as a result of changed circumstances, from its historical share). Trade flows before the imposition of a safeguard measure provide an objective, factual basis for projecting what might have occurred in the absence of that measure.”⁽⁹³⁴⁾

665.   In EC — Bananas III, the Appellate Body found a violation of Article XIII:2 in respect of the European Communities’ import regime for bananas and, more specifically, in respect of the treatment granted to countries which had concluded with the European Communities the so-called Banana Framework Agreement (BFA). A quota share not utilized by one of the BFA countries could, at the joint request of all BFA countries, be transferred to another BFA country. No equivalent regulation existed with respect to banana exporting countries that were not part of the BFA. The Panel found that this aspect of the measure was inconsistent with the requirement to approximate, in the administration of a quantitative restriction, the relative trade flows which would exist in the absence of the measure at issue:

“Pursuant to these reallocation rules, a portion of a tariff quota share not used by the BFA country to which that share is allocated may, at the joint request of the BFA countries, be reallocated to the other BFA countries. … [T]he reallocation of unused portions of a tariff quota share exclusively to other BFA countries, and not to other non-BFA banana-supplying Members, does not result in an allocation of tariff quota shares which approaches ‘as closely as possible the shares which the various Members might be expected to obtain in the absence of the restrictions’. Therefore, the tariff quota reallocation rules of the BFA are also inconsistent with the chapeau of Article XIII:2 of the GATT 1994.”⁽⁹³⁵⁾

666.   In EC — Poultry, Brazil challenged the European Communities’ calculation of the tariff quota shares because imports from China — at that time not a Member of the WTO — had been included in this allocation of tariff quota shares. The Panel, in a finding expressly endorsed by the Appellate Body⁽⁹³⁶⁾, found that nothing in Article XIII required the calculation of tariff quota shares only on the basis of imports from WTO Members:

“We note that Article XIII carefully distinguishes between Members (‘contracting parties’ in the original text of GATT 1947) and ‘supplying countries’ or ‘source’. There is nothing in Article XIII that obligates Members to calculate tariff quota shares on the basis of imports from Members only.⁽⁹³⁷⁾ If the purpose of using past trade performance is to approximate the shares in the absence of the restrictions as required under the chapeau of Article XIII:2, exclusion of a non-Member, particularly if it is an efficient supplier, would not serve that purpose.

 

This interpretation is also confirmed by the use in Article XIII:2(d) of the term ‘of the total quantity or value of imports of the product’ without limiting the total quantity to imports from Members.

 

The conclusion above is not affected by the fact that the TRQ in question was opened as compensatory adjustment under Article XXVIII because Article XIII is a general provision regarding the non-discriminatory administration of import restrictions applicable to any TRQs regardless of their origin.”⁽⁹³⁸⁾

667.   The Panel Report on EC — Bananas III (21.5 — Ecuador II) found that the EC banana regime as amended failed to “aim at a distribution of trade in [bananas] approaching as closely as possible the shares which the various [Members, including both ACP and MFN countries] might be expected to obtain in the absence of such restrictions,” based on the exclusion of MFN producers from the tariff rate quota, and statements by the EC and ACP countries indicating that the preferential tariff quota regime was indispensable to the existence of ACP exports to the EC. The Panel consequently found that “on its face the European Communities’ current banana import regime, including its preferential ACP tariff quota, is inconsistent with the chapeau of Article XIII:2 of the GATT 1994.”⁽⁹³⁹⁾

(b) Article XIII:2(a): “quotas representing the total amount of permitted imports … shall be fixed”

668.   The Panel in US — Line Pipe, in a finding not reviewed by the Appellate Body, held that the US safeguard measure described in paragraph 663 was inconsistent with Article XIII:2(a), because the measure did not fix an overall quantity of imports eligible for the lower tariff rate, and the US had not demonstrated that it was not practicable to do so; the Panel observed that “we see no reason why the United States could not have chosen another type of measure consistent with the general rule set forth in the chapeau of Article XIII:2.”⁽⁹⁴⁰⁾ The Panel held:

“Irrespective of whether or not tariff quotas constitute ‘quotas’ within the meaning of Article XIII:2(a), tariff quotas are necessarily subject to the disciplines contained in Article XIII:2(a) as a result of the express language of Article XIII:5. Thus, Article XIII:2(a) must have meaning in the context of tariff quotas. We believe that, in respect of tariff quotas, Article XIII:2(a) requires Members to fix, wherever practicable, the total amount of imports permitted at the lower tariff rate.⁽⁹⁴¹⁾”⁽⁹⁴²⁾

(c) Article XIII:2(b): import licensing schemes

669.   Article 4 of the Understanding on the Balance-of-Payments Provisions of the GATT 1994 provides that “In the administration of quantitative restrictions, a Member shall use discretionary licensing only when unavoidable and shall phase it out progressively. Appropriate justification shall be provided as to the criteria used to determine allowable import quantities or values.”

(d) Article XIII:2(d): quota allocation

(i) Agreements under Article XIII:2(d)

670.   The Panel in EC — Bananas III observed regarding Article XIII:2(d):

“Article XIII:2(d) … specifies the treatment that, in case of country-specific allocation of tariff quota shares, must be given to Members with ‘a substantial interest in supplying the product concerned’. For those Members, the Member proposing to impose restrictions may seek agreement with them as provided in Article XIII:2(d), first sentence. If that is not reasonably practicable, then it must allot shares in the quota (or tariff quota) to them on the basis of the criteria specified in Article XIII:2(d), second sentence.

 

The terms of Article XIII:2(d) make clear that the combined use of agreements and unilateral allocations to Members with substantial interests is not permitted. The text of Article XIII:2(d) provides that where the first ‘method’, i.e., agreement, is not reasonably practicable, then an allocation must be made. Thus, in the absence of agreements with all Members having a substantial interest in supplying the product, the Member applying the restriction must allocate shares in accordance with the rules of Article XIII:2(d), second sentence. In the absence of this rule, the Member allocating shares could reach agreements with some Members having a substantial interest in supplying the product that discriminated against other Members having a substantial interest supplying the product, even if those other Members objected to the shares they were to be allocated.”⁽⁹⁴³⁾

671.   The Appellate Body Report on EC — Poultry rejected Brazil’s claim that a bilateral agreement with the EC constituted an agreement under Article XIII:2(d) to allocate the entire amount of a tariff quota to Brazil, and observed:

“To conform to Article XIII:2(d), all other Members having a ‘substantial interest’ in supplying the product concerned would have to agree. That is not the case here. As the European Communities did not seek an agreement with Thailand, the other contracting party having a substantial interest in the supply of frozen poultry meat to the European Communities at that time, the Oilseeds Agreement cannot be considered an agreement within the meaning of Article XIII:2(d) of the GATT 1994.”⁽⁹⁴⁴⁾

(ii) “among supplying countries”: Allocation of import quotas to Members other than those with a “substantial interest”

672.   The Panel in EC — Bananas III, in a finding not addressed by the Appellate Body, found that country-specific quota shares can be allocated to Members that do not have a substantial interest in supplying the product; the Panel emphasized that any allocation to Members not having a substantial interest in supplying the product at issue would have to comply with the principle of nondiscrimination. The Panel endorsed allocation on the basis of imports during a representative period consisting of the three years prior to the quota:

“ … we note that the first sentence of Article XIII:2(d) refers to allocation of a quota ‘among supplying countries’. This could be read to imply that an allocation may also be made to Members that do not have a substantial interest in supplying the product. If this interpretation is accepted, any such allocation must, however, meet the requirements of Article XIII:1 and the general rule in the chapeau to Article XIII:2(d). Therefore, if a Member wishes to allocate shares of a tariff quota to some suppliers without a substantial interest, then such shares must be allocated to all such suppliers. Otherwise, imports from Members would not be similarly restricted as required by Article XIII:1.⁽⁹⁴⁵⁾ As to the second point, in such a case it would be required to use the same method as was used to allocate the country-specific shares to the Members having a substantial interest in supplying the product, because otherwise the requirements of Article XIII:1 would also not be met.

…

In so far as this in practice results in the use of an ‘others’ category for all Members not having a substantial interest in supplying the product, it comports well with the object and purpose of Article XIII, as expressed in the general rule to the chapeau to Article XIII:2. When a significant share of a tariff quota is assigned to ‘others’, the import market will evolve with the minimum amount of distortion. Members not having a substantial supplying interest will be able, if sufficiently competitive, to gain market share in the ‘others’ category and possibly achieve ‘substantial supplying interest’ status which, in turn, would provide them the opportunity to receive a country-specific allocation by invoking the provisions of Article XIII:4. New entrants will be able to compete in the market, and likewise have an opportunity to gain ‘substantial supplying interest’ status. For the share of the market allocated to Members with a substantial interest in supplying the product, the situation may also evolve in light of adjustments following consultations under Article XIII:4. In comparison to a situation where country-specific shares are allocated to all supplying countries, including Members with minor market shares, this result is less likely to lead to a long-term freezing of market shares. This is, in our view, consistent with the terms, object and purpose, and context of Article XIII.”⁽⁹⁴⁶⁾

673.   The Panel in EC — Bananas III (Article 21.5 — Ecuador) examined the consistency with Article XIII of the European Communities’ regime for imports of bananas, as revised by the European Communities in response to the DSB’s recommendation. In this revised regime, bananas could be imported under the MFN tariff-rate quota on the basis of past trade performance by exporting countries during the past representative period from 1994 to 1996, while bananas from traditional ACP supplier countries could be imported up to a collective amount which was originally set to reflect the overall amount of the pre-1991 best-ever export by individual traditional ACP suppliers. The Panel found the revised regime to be inconsistent with Article XIII:2(d):

“[F]or traditional ACP supplier countries the average exports during the three-year period from 1994 to 1996 were collectively at a level of approximately 685,000 tonnes, which is only about 80 per cent of the 857,700 tonnes reserved for traditional ACP imports under the previous as well as under the revised regime. In contrast, the MFN tariff quota of 2.2 million tonnes (autonomously increased by 353,000 tonnes) has been virtually filled since its creation (over 95 per cent) and there have been some out-of-quota imports. Thus, the allocation of an 857,700 tonne tariff quota for traditional banana imports from ACP States is inconsistent with the requirements of Article XIII:2(d) because the EC regime clearly does not aim at a distribution of trade approaching as closely as possible the shares which various Members might be expected to obtain in the absence of restrictions.”⁽⁹⁴⁷⁾

(iii) Allocation of quotas to non-Members and newly acceded Members

674.   In EC — Poultry, the Appellate Body upheld the Panel’s finding that the European Communities acted consistently with Article XIII in calculating a tariff-rate quota share for a Member based upon the total quantity of imports including those from non-Members.⁽⁹⁴⁸⁾ See also paragraph 666 above. See also under Article XIII:4 regarding adjustment of quotas in light of the accession to the WTO of a supplier.

675.   With respect to GATT practice concerning the allocation of quotas.

4. Article XIII:4: Adjustment of quota allocation

676.   The Panel in EC — Bananas III, in a finding not addressed by the Appellate Body, discussed the obligations of a Member that maintains an allocated tariff quota to adjust the allocation to take into account the rights of a new WTO Member that is a substantial supplier:

“The general rule in the chapeau to Article XIII:2 indicates that the aim of Article XIII:2 is to give to Members the share of trade that they might be expected to obtain in the absence of a tariff quota. There is no requirement that a Member allocating shares of a tariff quota negotiate with non-Members, but when such countries accede to the WTO, they acquire rights, just as any other Member has under Article XIII whether or not they have a substantial interest in supplying the product in question.

 

[A]lthough the EC reached an agreement with all Members who had a substantial interest in supplying the product at one point in time, under the consultation provisions of Article XIII:4, the EC would have to consider the interests of a new Member who had a substantial interest in supplying the product if that new Member requested it to do so.⁽⁹⁴⁹⁾ The provisions on consultations and adjustments in Article XIII:4 mean in any event that the BFA could not be invoked to justify a permanent allocation of tariff quota shares. Moreover, while new Members cannot challenge the EC’s agreements with Colombia and Costa Rica in the BFA on the grounds that the EC failed to negotiate and reach agreement with them, they otherwise have the same rights as those Complainants who were GATT contracting parties at the time the BFA was negotiated to challenge its consistency with Article XIII. Generally speaking, all Members benefit from all WTO rights.”⁽⁹⁵⁰⁾

677.   See also the reference to Article XIII:4 in paragraph 672 above.

5. Article XIII:5

(a) Application of Article XIII to tariff quotas

678.   The Panel in EC — Bananas III (Article 21.5 — Ecuador) found that “a tariff quota is a quantitative limit on the availability of a specific tariff rate”.⁽⁹⁵¹⁾

679.   The Panel in US — Line Pipe examined a US safeguard measure which provided that, for three years and one day, a higher tariff (declining each year) would be imposed on all imports from each country in excess of 9,000 short tons. Mexico and Canada were excluded from the remedy. As a threshold measure, the Panel determined that “the line pipe measure at issue is a tariff quota, since there are country-specific limits (9000 short tons) placed on the application, or availability, of the lower tariff rate, and it is these country-specific limits that determine whether or not line pipe from specific countries enters the United States at the lower or higher rate of duty”.⁽⁹⁵²⁾ The Panel Report also holds that “By virtue of Article XIII:5, Article XIII:2(a) applies to tariff quotas. … a tariff quota may exist, even though no overall limit is provided for.⁽⁹⁵³⁾

680.   The Panel Report on EC — Bananas III (21.5 — Ecuador II) addressed the application of Article XIII to tariff quotas:

“The words ‘any’ (both before the terms ‘tariff quota’ and ‘contracting party’) and ‘shall’ in Article XIII:5 underscore the absolute and categorical nature of the application of ‘the provisions of … Article [XIII]’ to tariff quotas. The Panel notes also that Article XIII:5 uses the term ‘any tariff quota instituted or maintained by any [Member]’ in the singular. The Panel reads this to mean that Article XIII of the GATT 1994 is also applicable to one single tariff quota, and that this is so irrespective of whether that single tariff quota is part of an import regime with more tariff quotas or is part of an import regime that comprises only one tariff quota.”⁽⁹⁵⁴⁾

681.   On appeal, the Appellate Body also addressed this issue:

“In contrast to quantitative restrictions, tariff quotas do not fall under the prohibition in Article XI:1 and are in principle lawful under the GATT 1994, provided that quota tariff rates are applied consistently with Article I. Members are required, in accordance with Article II, to provide treatment no less favourable than that bound in their Schedules of Concessions. Accordingly, in-quota and out-of-quota tariffs must not exceed bound tariff rates, and import quantities made available under the tariff quota must not fall short of the scheduled amount. In addition, tariff quotas are, under the terms of Article XIII:5, made subject to the disciplines of Article XIII.”⁽⁹⁵⁵⁾

(b) Export quota allocation

6. Relationship with other GATT provisions

(a) Article I

682.   In EC — Bananas III, the European Communities argued that even though the waiver for EC measures under the Lomé Convention only waived GATT Article I:1, the Lomé waiver also excused violation of Article XIII by discriminatory tariff quota allocation measures pursuant to the Lomé Convention Banana Protocol, due to the inherent substantive link between Articles I and XIII. While the Panel agreed with the European Communities’ argument, the Appellate Body rejected it.⁽⁹⁵⁶⁾ The Panel in EC — Bananas III (21.5 — Ecuador II) commented on this finding: “the rejection by the Appellate Body of the panel’s finding on the scope of the Lomé Waiver indicates that Articles I and XIII of the GATT 1994 do not have the same scope, and that an inconsistency with Article XIII is possible irrespective of an inconsistency with Article I.”⁽⁹⁵⁷⁾

683.   In EC — Bananas III (21.5 — Ecuador II), the Panel examined a measure consisting of a duty-free tariff quota for bananas from ACP countries, combined with an MFN applied specific duty. The Panel found that this preferential duty-free tariff quota for ACP countries was subject to Article XIII, stating:

“[I]t is the very quantitative limit that establishes the applicability of Article XIII of the GATT 1994 to the European Communities’ preferential tariff quota for ACP countries, not the specific level of the quantitative limit, nor whether MFN countries are also subject to a tariff quota or only an MFN tariff. The Panel therefore rejects the argument made by the European Communities that ‘the fact that the ACP countries enjoy a trade preference and the fact that there is a “cap” imposed on the quantities of ACP bananas that can benefit from this preference may be relevant for purposes of GATT Article I, but are completely irrelevant for the application of GATT Article XIII.’”⁽⁹⁵⁸⁾

(b) Article II

684.   The Panel in EC — Bananas III discussed the relationship between GATT Articles II and XIII. See paragraphs 168–169 above.

(c) Article XI

685.   The Panel in Colombia — Ports of Entry, like a number of other panels⁽⁹⁵⁹⁾, declined to make findings in relation to a claim under Article XIII:1 regarding a quantitative restriction that it had found to be prohibited under Article XI:1:

“ … in addition to being a prohibited restriction within the meaning of Article XI:1, the ports of entry measure is imposed only on certain textile, apparel or footwear goods arriving from Panama, independent of the products’ origin, and not like-product imports originating in, and shipped from, any other Member or third country. Whether or not it is discriminatory in its design, the restrictions on ports of entry are prohibited under Article XI:1.”⁽⁹⁶⁰⁾

(d) Article XXIV

686.   The Panel in US — Line Pipe Safeguards found that the US was entitled to rely on an Article XXIV defence against claims under Articles I, XIII and XIX regarding the exclusion of Canada and Mexico from its safeguard measure (described in paragraph 663).⁽⁹⁶¹⁾ On appeal, the Appellate Body found that the exclusion of Canada and Mexico violated Articles 2 and 4 of the Safeguards Agreement, and modified the Panel finding by declaring it moot and of no legal effect. ⁽⁹⁶²⁾

(e) Article XXVIII

687.   The EC — Poultry dispute concerned a tariff quota on imports into the European Communities, which had been agreed with Brazil as compensation under Article XXVIII; Brazil argued that the EC had failed to implement a bilateral agreement under which the tariff quota was to be allocated only to imports from Brazil. Brazil argued that Articles I and XIII of GATT do not apply to tariff quotas provided as compensation under Article XXVIII, and argued that the tariff quota’s administration had violated Article XIII. The Appellate Body stated that “the concessions contained in Schedule LXXX pertaining to the tariff-rate quota for frozen poultry meat must be consistent with Articles I and XIII of the GATT 1994.”⁽⁹⁶³⁾ The Appellate Body opined that compensatory measures negotiated under Article XXVIII remain subject to GATT Articles I and XIII, citing the negotiating history of Article XXVIII:

“We see nothing in Article XXVII to suggest that compensation negotiated within its framework may be exempt from compliance with the non-discrimination principle inscribed in Articles I and XIII of the GATT 1994. As the Panel observed, this interpretation is, furthermore, supported by the negotiating history of Article XXVIII. Regarding the provision which eventually became Article XXVIII:3, the Chairman of the Tariff Agreements Committee at Geneva in 1947, concluded:

 

‘It was agreed that there was no intention to interfere in any way with the operation of the most-favoured-nation clause. This Article is headed “Modification of Schedules”. It refers throughout to concessions negotiated under paragraph 1 of Article II, the Schedules, and there is no reference to Article I, which is the Most-Favoured-Nation Clause. Therefore, I think the intent is clear: that in no way should this Article interfere with the operation of the Most-Favoured-Nation Clause.’⁽⁹⁶⁴⁾

 

Although this statement refers specifically to the MFN clause in Article I of the GATT, logic requires that it applies equally to the non-discriminatory administration of quotas and tariff-rate quotas under Article XIII of the GATT 1994.”⁽⁹⁶⁵⁾

(f) Reference to GATT practice

688.   With respect to GATT practice concerning the relationship of Article XIII with other Articles.

7. Relationship with other WTO Agreements

(a) Agreement on Agriculture

689.   In EC — Bananas III, the European Communities argued that, in light of the meaning and intent of Articles 4.1 and 21.1 of the Agreement on Agriculture, it was permitted, with respect to market access concessions, to act inconsistently with the requirements of Article XIII of the GATT 1994. The Panel concluded that the Agreement on Agriculture did not permit the European Communities to act inconsistently with Article XIII. The Appellate Body confirmed the Panel’s finding:

“[W]e do not see anything in Article 4.1 to suggest that market access concessions and commitments made as a result of the Uruguay Round negotiations on agriculture can be inconsistent with the provisions of Article XIII of the GATT 1994. There is nothing in Articles 4.1 or 4.2, or in any other article of the Agreement on Agriculture, that deals specifically with the allocation of tariff quotas on agricultural products. If the negotiators had intended to permit Members to act inconsistently with Article XIII of the GATT 1994, they would have said so explicitly. The Agreement on Agriculture contains several specific provisions dealing with the relationship between articles of the Agreement on Agriculture and the GATT 1994. For example, Article 5 of the Agreement on Agriculture allows Members to impose special safeguards measures that would otherwise be inconsistent with Article XIX of the GATT 1994 and with the Agreement on Safeguards. In addition, Article 13 of the Agreement on Agriculture provides that, during the implementation period for that agreement, Members may not bring dispute settlement actions under either Article XVI of the GATT 1994 or Part III of the Agreement on Subsidies and Countervailing Measures for domestic support measures or export subsidy measures that conform fully with the provisions of the Agreement on Agriculture. With these examples in mind, we believe it is significant that Article 13 of the Agreement on Agriculture does not, by its terms, prevent dispute settlement actions relating to the consistency of market access concessions for agricultural products with Article XIII of the GATT 1994. As we have noted, the negotiators of the Agreement on Agriculture did not hesitate to specify such limitations elsewhere in that agreement; had they intended to do so with respect to Article XIII of the GATT 1994, they could, and presumably would, have done so. We note further that the Agreement on Agriculture makes no reference to the Modalities document⁽⁹⁶⁶⁾ or to any ‘common understanding’ among the negotiators of the Agreement on Agriculture that the market access commitments for agricultural products would not be subject to Article XIII of the GATT 1994.”⁽⁹⁶⁷⁾

(b) Agreement on Safeguards

690.   The Panel in US — Line Pipe held, in a statement not reviewed by the Appellate Body, that Article XIII applies to tariff quota safeguard measures, in addition to the Safeguards Agreement. In support of its finding, the Panel argued that a contrary finding would open the door for discriminatory tariff rate quotas, which would be inconsistent with the objectives set out in the preamble of the Safeguards Agreement:

“[I]t is the paucity of disciplines governing the application of tariff quota safeguard measures in Article 5 of the Safeguards Agreement that supports our interpretation of Article XIII. If Article XIII did not apply to tariff quota safeguard measures, such safeguard measures would escape the majority of the disciplines set forth in Article 5. This is an important consideration, given the quantitative aspect of a tariff quota. For example, if Article XIII did not apply, quantitative criteria regarding the availability of lower tariff rates could be introduced in a discriminatory manner, without any consideration to prior quantitative performance.⁽⁹⁶⁸⁾ In our view, the potential for such discrimination is contrary to the object and purpose of both the Safeguards Agreement, and the WTO Agreement. In this regard, the preamble of the Safeguards Agreement refers to the “need to clarify and reinforce the disciplines of GATT 1994” in the context of safeguards. We consider that the ‘disciplines of GATT 1994’ surely include those providing for non-discrimination. In any event ‘the elimination of discriminatory treatment in international trade relations’ is referred to explicitly in the preamble to the WTO Agreement. We further note that the preamble of the Safeguards Agreement also mentions that one of the objectives of the Safeguards Agreement is to ‘establish multilateral control over safeguards and eliminate measures that escape such control’. We are of the view that non-application of Article XIII in the context of safeguards would result in tariff quota safeguard measures partially escaping the control of multilateral disciplines. This result would be contrary to the objectives set out in the preamble of the Safeguards Agreement.”⁽⁹⁶⁹⁾

691.   The Panel in US — Line Pipe discussed the relationship between Article XIII and Article 5.2 of the Safeguards Agreement:

“Just because some provisions of Article XIII are replicated in the Safeguards Agreement, that alone does not mean that the remaining provisions cease to be binding on Members. … ⁽⁹⁷⁰⁾ We therefore decline to draw any conclusions from the fact that certain Article XIII provisions are not replicated in the Safeguards Agreement. Like the Appellate Body, we consider that if the Uruguay Round negotiators had intended to expressly omit Article XIII from the safeguards context, ‘they would and could have said so in the Agreement on Safeguards. They did not’.⁽⁹⁷¹⁾

 

… Although there may be some duplication between Article XIII:2(d) and Article 5.2 of the Safeguards Agreement, duplication is not the same as nullification. …”⁽⁹⁷²⁾