India Quantitative Restrictions

By: Mohammad Daniyal Nizami and Raunaq Jaiswal

Parties1. India : Appellant

2. United States : Appellee

Articles in Contention in this case

1. Article XI Para 1 of GATT (Alleged claim of breach by United States)

2. Article XVIII Para 11 of GATT (Defence of India)

Facts of the Case1.  India maintains Quantitative Restrictions of agricultural, textile and industrial products falling in 2714 tariff lines. To justify this measure, India invoked the “Balance of Payment” clause in accordance with Article XVIII of the GATT, 1994 and notified these Quantitative Restrictions to the committee on Balance of Payment Restriction.

2.  India proposed eliminating its QR measures for a period of 7 years

3.  Some of the members of the BOP Committee were of the view that India’s BOP restrictions could be phased out over a shorter period than proposed by India.

4.  The Panel recommended that India bring its measures in conformity with the WTO agreement

What is Balance of Payment?

Balance of payment is a summary of a country’s transaction with the rest of the world FOR a SPECIFIED period of time.

It encompasses all transactions between a country’s residents and its non residents, involving goods, services and income; financial claims on liabilities to the rest of the world.

In other words, it states the difference of the import over export and vice versa.

A negative BOP shows that Imports are more than Exports while a positive BOP shows that Exports are more than Imports.

Adequate level of reserves IMF reported that India’s reserves as of November 1997

were $25.1 billion, and that an adequate level of reserves at that date would have been $16 billion.

RBI concluded in August 1997, that India’s reserves were well above the thumb rule of reserve adequacy.

India was therefore not facing a serious decline or a threat of it as under Art. XVIII:9(a)

Meaning of Quantitative Restriction:

Quantitative restrictions are limits imposed on the volume or value of goods traded by a WTO member. The General Agreement on Tariffs and Trade (GATT) requires the general elimination of these restrictions — except in defined circumstances.

Article XI: General Elimination of Quantitative Restrictions

Para 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*

Burden of Proof under Article XI

The AB referred to the ruling in US-Wool Shirts and EC-Hormones.

The AB was of the view that each party must provide evidence in support of its claims, i.e. The US has to prove the claims in its alleged violation of Article XI:1 and XVIII:11. Similarly, India has to prove that its measures are justified under Article XVIII:B.

Complainant has to present a prima facie case that Indian BOP measures are not justified by reference to Articles XI:1 and XIII:11 of GATT.

Article XVIII: Governmental Assistance to Economic Development

Para 11: In carrying out its domestic policies, the contracting party concerned shall pay due regard to the need for restoring equilibrium in its balance of payments on a sound and lasting basis and to the desirability of assuring an economic employment of productive resources. It shall progressively relax any restrictions applied under this Section as conditions improve, maintaining them only to the extent necessary under the terms of paragraph 9 of this Article and shall eliminate them when conditions no longer justify such maintenance; Provided that no contracting party shall be required to withdraw or modify restrictions on the ground that a change in its development policy would render unnecessary the restrictions which it is applying under this Section*.

Article XVIII:9Para 9: In order to safeguard its external financial position and to ensure a level of reserves adequate for the implementation of its programme of economic development, a contracting party coming within the scope of paragraph 4 (a) of this Article may, subject to the provisions of paragraphs 10 to 12, control the general level of its imports by restricting the quantity or value of merchandise permitted to be imported; Provided that the import restrictions instituted, maintained or intensified shall not exceed those necessary:(a)      to forestall the threat of, or to stop, a serious decline in its monetary reserves, or (b)      in the case of a contracting party with inadequate 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 the 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.

Article XVIII:Para 4: (a) Consequently, a contracting party, the economy of which can only support low standards of living and is in the early stages of development, shall be free to deviate temporarily from the provisions of the other Articles of this Agreement, as provided in Sections A, B and C of this Article.

Interpretation of the word “thereupon”

In its analysis of the condition which a balance of payment measure, imposed by a developing country, had to comply with in the light of the Note Ad Article XVIII:11, the panel addressed the meaning of the phrase “would thereupon produce”.

The AB was of the view that the word “thereupon” expresses a Notion of temporal sequence between the removal of BOP restrictions and the recurrence of one of the conditions of Article XVIII:9.

Further, the AB ruled that measures are not maintained because of some distant possibility that BOP difficulties may occur.

Balance of Payment Revisited BOP Measures MAY be maintained under the Ad note if

their removal or relaxation would “thereupon” produce: A threat of a serious decline in monetary reserves A serious decline in monetary reserves Inadequate monetary reserves

With regard to the first of these conditions, the AB concurred with the Panel, that the word “thereupon” means immediately.

Jurisdiction of the Panels India’s claimed that Panel’s have no authority to examine

Member’s justifications of BOP restrictions under the terms of Note Ad Article XVIII:11.

Footnote 1 of the Understanding to BOP provision of GATT provides that the DSU may be invoked in respect of matters relating to the specific use or purpose of a BOP measure.

Rejecting this view, the AB ruled that doubts over the dispute settlement procedures under Art.XXIII have been removed by footnote 1 second sentence.

They were of the opinion that Dispute settlement procedures are available for disputes relating to any matters concerning BOP restrictions.

Conclusion1> GATT Art. XI:1 (quantitative restrictions): The Panel found, based on the broad scope of a general ban on import restrictions embodied in Art. XI:1, that India's measures, including its discretionary import licensing system, were quantitative restrictions inconsistent with GATT Art. XI:1.

2> GATT Art. XVIII:11 (balance-of-payment ("BOP")): The Panel found that as India's monetary reserves were adequate, and, thus, India's BOP measures were not necessary.

Thank You