RESTRICTEDWORLD TRADE
ORGANIZATIONWT/BOP/R/61
 18 March 2002
(02-1373)
Committee on Balance-of-Payments Restrictions
NOTE ON THE MEETING OF 27 FEBRUARY
1. The Committee met on 27 February 2002, under the Chairmanship of
Ambassador Hernando José Gómez (Colombia), to continue its consultations with Bangladesh and to
address paragraph 12(b) of the Doha Ministerial Declaration.1  The report on the consultations with
Bangladesh has been circulated in WT/BOP/R/60.
2. The Chairman reminded Members that according to the Decision on Implementation-Related
Issues and Concerns adopted at Doha2, Members had decided to "reaffirm that Article XVIII of
GATT 1994 is a special and differential treatment provision for developing countries and that
recourse to it should be less onerous than to Article XII of GATT 1994".  He recalled that paragraph
12(b) of the Doha Ministerial Declaration called upon relevant WTO bodies to address outstanding
implementation issues as a matter of priority and report to the TNC by the end of 2002 for appropriate
action.
3. The Chairman noted that tiret 1 and a  part of tiret 3 of point 1 of Job(01)152/Rev.1 concerned
the Committee.  Tiret 1 stated that  "only the Committee on Balance-of-Payments Restrictions shall
have the authority to examine the overall justification of balance-of-payments measures".  Tiret 3
stated that "a complete review of Article XVIII shall be undertaken with a view to ensure that it
subserves the original objective of facilitating the progressive development of the economies indeveloping countries and to allow them to implement programmes and policies of economic
development designed to raise the general standard of living of their people."  The Chairman drew the
attention of the Committee to a draft document that had been prepared by the Secretariat containing
references related to these issues.
3  A tentative schedule, of two meetings before the summer break,
and two after was agreed.
4. The delegation of India made a statement recapitulating India’s position (see Annex 1).  The
United States, the EU, Canada and Switzerland offered preliminary responses with respect to the
systemic implications of the issues before the Committee and agreed to come back in detail at the next
meeting of the Committee scheduled for April 8.  The Chairman urged Members to submit comments
by March 22.
                                                     
1 "We attach the utmost importance to the implementation-related issues and concerns raised by
Members and are determined to find appropriate solutions to them.  In this connection, and having regard to the
General Council Decisions of 3 May and 15 December 2000, we further adopt the Decision on Implementation-Related Issues and Concerns in document WT/MIN(01)/17 to address a number of implementation problemsfaced by Members.  We agree that negotiations on outstanding implementation issues shall be an integral part ofthe Work Programme we are establishing, and that agre ements reached at an early stage in these negotiations
shall be treated in accordance with the provisions of pa ragraph 47 below.  In this regard, we shall proceed as
follows:  (a) where we provide a specific negotiating mandate in this Declaration, the relevant implementationissues shall be addressed under that mandate;  (b) the other outstanding implementation issues shall beaddressed as a matter of priority by the relevant WTO bodies, which shall report to the Trade NegotiationsCommittee, established under paragraph 46 below, by the end of 2002 for appropriate action."
2 WT/MIN(01)/17 dated 20 November 2001.
3 Subsequently issued as WT/BOP/INF/9.WT/BOP/R/61
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5. Under "Other Business", the Chairman drew the Committee’s attention to the notification
from Pakistan (WT/BOP/N/59), circulated on 17 December 2001, informing Members that it had
completed the phase out of its balance-of-payments restrictions ahead of schedule.
6. At the conclusion of the meeting the Committee welcomed its new Chairperson, Ambassador
Anda Christina Filip (Romania).WT/BOP/R/61
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ANNEX 1
Statement by India
1. We attach importance to the mandate set out in paragraph 12 of the Doha Ministerial
Declaration, and look forward to a constructive di scussion on implementation issues during this year
which enables a successful outcome to be reported to the Trade Negotiations Committee by the end of
2002.
2. In accordance with the requirements of paragraph 12 of the Doha Ministerial Declaration, this
Committee is to take up work on tirets 1 and 3 listed in Job(01)/152/Rev.1.  You have already listedthe written proposals circulated by India and also by groups of developing countries in 1999.  These
proposals have been the subject of formal and informal discussion, albeit some elements of them more
rigorously than others in the General Council.  The purpose of our statement this morning is to refresh
ourselves on various issues that have underpinned the proposals so that we can move to a substantive
and conclusive phase on them.
3. As Members are aware, the provisions of Article XVIII:B of the GATT, and the 1994 BOP
Understanding are premised on the recognition that Members whose economy can only support low
standards of living and are in the early stages of development tend to experience balance-of-payments
difficulties arising mainly from efforts to expand their internal markets as well as from the instability
in their terms of trade when they are in rapid process of development.  Thus, there is recognition of
the tendency of development itself to generate balance-of-payments difficulties, as well as the need to
safeguard the external position of developing countries and to ensure a level of reserves adequate for
implementation of programmes of economic development through control of the general level of
imports over a period of time as the progress of development programmes creates new demands.
4. Therefore, Article XVIII:B and the associated 1994 Understanding are intended to authorize
protective or other measures affecting imports, including quantitative restrictions, for balance-of-
payments purposes in a manner which takes full account of the continued high level of demand for
imports likely to be generated by programmes of economic development of developing-country
Members.  The criteria under Article XVIII:9 are intended to differ from those applied to developed-
country Members under Article XII:2 and the Ministerial Declaration emphasizes this.
5. However, recent rulings and recommendations of the judicial bodies that were adopted by the
Dispute Settlement Body in a particular case involving balance-of-payments measures taken underArticle XVIII:B, would appear to have the result of making it extremely difficult for developing-
country Members to take recourse to Article XVIII:B, besides vitiating the differences in the
provisions intended through Articles XII and XVIII:B for developed- and developing-country
Members, respectively.  We will provide some more details on this later on in our statement, since
they relate directly to tiret 3.
6. Turning specifically to the proposal in tiret 1, we recall that another set of issues that arise
from the above mentioned decisions of the dispute settlement mechanism relate to the competence of
political organs and judicial organs of the WTO in all matters relating to import restrictions
maintained under Article XVIII:B.  The provisions under the Uruguay Round Agreements were
intended to provide that only matters arising from the application of restrictive import measures and
not those arising from the overall justification of those measures can be referred to panels and that the
invocation of the DSU cannot modify any of the rights accorded to developing-country Members
under Article XVIII:B, including procedural rights.WT/BOP/R/61
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7. Yet, the judicial bodies in this dispute have also made important rulings on the relationship
between the judicial and political organs of the WTO in the area of balance-of-payments measures and, in
our assessment by implication, also in the area of regional trade agreements.  For instance they have ruled
that:
− The DSU can be invoked with respect to any matters relating to balance-of-payments
restrictions, i.e., not only with regard to matters arising from the application of individual
BOP measures but also with regard to overall justification of the BOP measures.
− The provisions of Article XVIII:12 of the GATT 1994 and of paragraph 13 of the
Understanding on BOP Provisions that permit the General Council to decide that balance-of-
payments restrictions found to be inconsistent be removed within a "specified period" and to
formally approve a time-schedule for the removal of restrictions need not be taken into
account in the dispute settlement proceedings.
8. India has argued before the judicial bodies, and in the General Council, in the context of our
proposal in tiret 1, that with regard to the balance-of-payments justification under Article XVIII:B as well
as to the consistency of regional trade agreements with Article XXIV, there are strong grounds to
reinforce, on the basis of the relevant texts as well as GATT practice, that the judicial bodies will look
into matters arising from the "application of" restrictive import measures taken for balance-of-paymentspurposes or matters arising from the application of provisions of Article XXIV, as the case may be, and
that they will not go into the overall justification of BOP measures or consistency of a regional trade
agreement with Article XXIV.
9. If we look at what was the practice under GATT 1947, we find that in the only case in which
GATT panels were asked to review the balance-of-payments justification of a measure, the panels did notthemselves assess the external financial position of the country concerned but based themselves on the
decision that the CONTRACTING PARTIES, acting jointly, had already taken on this matter on the basis
of a determination by the IMF. The panels limited their examination to the GATT-consistency of the
individual measures imposed for balance-of-payments reasons.  Furthermore, the two panels that were
asked to review the consistency of agreements notified under Article XXIV both refused to do so.Throughout the history of the GATT 1947, not a single panel has thus decided to determine the balance-
of-payments justification of measures notified under Article XII and XVIII:B or the consistency of a
regional trade agreement with Article XXIV.  Prior to this last dispute, the consistent practice of the
CONTRACTING PARTIES, acting jointly, was thus to assign these matters to bodies composed of the
representatives of contracting parties.
10. When we look at the negotiating history, during the Uruguay Round negotiations the
United States had presented a broad proposal for a reform of the provisions relating to surveillance of
balance-of-payments measures which included, inter alia, provisions explicitly providing for resolution
by panels of the question of consistency of the BOP measures under review in the Committee on
Balance-of-Payments Restrictions (MTN.GNG/NG7/W/72 of 15 June 1990, paragraph 19).  This
particular portion was strongly opposed by the developing countries and it is India’s firm belief that a
compromise was found after lengthy negotiations in the form of footnote to the Understanding on BOPProvisions.  The text of the footnote makes three matters clear:
− The dispute settlement procedures may be invoked in respect of restrictions notified under
Article XVIII:B (which had been in dispute unt il the panels on Korea’s restriction confirmed
that such restrictions may be examined by panels);
− The invocation must relate to "matters arising from the application of restrictive import
measures taken for balance-of-payments purposes" (which is the only matter that the panels
on Korea’s restrictions had examined);WT/BOP/R/61
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− The invocation cannot entail a modification of the rights and obligations under
Article XVIII:B.
11. The reference to the application of measures in the text of the footnote to the 1994
Understanding is identical to that in the text of paragraph 12 of the Understanding on theInterpretation of Article XXIV of the GATT 1994.  None of the other clauses in the WTO agreements
and understandings that define the causes of action under the DSU contain a similar reference to the
application of measures.
12. While the proceedings on India balance-of-payments restrictions were underway, another
panel examined, at the request of India, Turkey’s restrictions on imports of textiles and clothing
products introduced by Turkey under a trade arrangement with the European Communities (EC) that
Turkey described as an agreement providing for the completion of a customs union. Turkey claimedthat only the Committee on Regional Trade Agreements (CRTA) was competent to examine the
matter.  That panel reacted to this argument as follows:
"... we understand from the wording of paragraph 12 of the WTO Understanding on
Article XXIV that panels have jurisdiction to examine "any matters 'arising from' the
application of those provisions of Article XXIV."  For us this confirms that a panel
can examine the WTO compatibility of one or several measures "arising from"
Article XXIV types of agreement, as also argued by the United States in its third-
party submission.  …  Thus we consider that a panel can assess the WTO
compatibility of any specific measure adopted by WTO Members ... on the occasion
of the formation of a customs union.  As to the  ... question of how far-reaching apanel’s examination should be of the regional trade agreement underlying the
challenged measure, we note that the  ... CTRA has been established, inter alia , to
assess the GATT/WTO compatibility of regional trade agreements entered into by
Members, a very complex undertaking which involves consideration by the CTRA,
from the economic, legal and political perspectives of different Members, of thenumerous facets of a regional trade agreement in relation to the provisions of the
WTO.  It appears to us that the issue regarding the GATT/WTO compatibility of a
customs union, as such, is generally a matter for the CRTA since, as noted above, it
involves a broad multilateral assessment of any such custom union, i.e. a matter
which concerns the WTO membership as a whole."
13. That panel thus interpreted the terms "any matters arising from" to refer to specific measures
taken in connection with the formation of an Article XXIV agreement and ruled that the overall
justification of that agreement was a matter to be generally left by panels to the CTRA.  The Panel that
examined India’s BOP related quantitative restrictions, however, specifically rejected the contention that
the terms "any matters arising from" in the Understanding on Article XXIV had this implication. It ruled:
"The phrase "the application of those provisions of Article XXIV" plainly means "the
implementation of the provisions of Article XXIV ..." and does not allow for adistinction such as the one proposed by India."
14. Two concurrent WTO panels thus arrived on the same fundamental issue at opposite
conclusions.  Clearly, therefore, the WTO membership needs to resolve this contrariness, and to re-
emphasise that the existing provisions provide th at only the BOP Committee and the General Council
have the authority to examine the overall justification of BOP measures.
15. Turning to tiret 3, we take this opportunity to recall that Article XVIII:9 itself recognizes that
there may be special factors that may be affecting the reserves of a developing-country Member’sWT/BOP/R/61
Page 6
need for reserves.  Article XVIII:11 itself gives further recognition to the need to pay due regard to
the need to restore equilibrium in its balance-of-payments on a sound and lasting basis and to the
desirability of assuring an economic employment of productive resources in the carrying out its
domestic policies by the Member concerned.  Most importantly, the Note Ad Article XVIII:11, to the
second sentence of Article XVIII:11, provides that the second sentence shall not be interpreted to
mean that a Member is required to relax or remove restrictions if such relaxation or removal would
thereupon produce conditions justifying the intensification or institution, respectively, of restrictions
under Article XVIII:9.  Further, the proviso to th e second sentence adds the requirement that no
Member 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
Article XVIII:B.  Article XVIII:11 and the Note thereto make it clear two points:
− One, that when the restrictions are relaxed or removed the level of imports does not rise at
once but only after traders and investors have adjusted to the new situation.  This provision
would therefore have no practical applicability if the term "thereupon" were given the
meaning "at once".  It may be necessary to clarify that this term means "as a direct
consequence" rather than "at once";
− Two, in interpreting the proviso and the Note to Article XVIII:11, the Committee on Balance-
of-Payments Restrictions should more explicitly recognise and consider the greater need for
reserves of developing countries for implementing their programmes of economic
development and that these programmes entail the financing of infrastructure needs through
foreign capital.
16. Despite these provisions, as mentioned by us earlier, recent judicial rulings that were adopted
by the DSB in a particular case involving BOP measures taken under Article XVIII:B set out that:
− The right to gradually phase out balance-of-payments restrictions in accordance with the Note
Ad Article XVIII:11 of the GATT 1994 is limited to cases in which renewed balance-of-
payments difficulties would arise "immediately" from the removal of the restrictions.
Consequently, this provision cannot be invoked in cases in which the adverse balance-of-
payments impact of the removal of the restrictions, though direct and foreseeable, takes placeafter some time.
− The proviso in Article XVIII:11, according to which no WTO Member "shall be required to
withdraw or modify restrictions on the ground th at a change in its development policy would
render unnecessary the restrictions which it is applying" does not relate to macro-economic
policy instruments. Consequently, developing-country Members can be required to changetheir macro-economic policies to render their balance-of-payments restrictions unnecessary.
17. The experience of a number of developing countries over the last few years has shown that
when countries are facing balance-of-payments difficulties, policies for reduction in import demandthrough exchange rate adjustments and other macroeconomic policy measures may not by themselves
have perceptible positive impact, particularly when exports fail to rise because of the unfavourable
external environment, as is the situation at present.   Instability in financial markets as well as the
volatility in the movement of funds, for short- and medium-term investments have further highlighted
the need to have a broader and more holistic assessment of the foreign exchange needs related to their
economic development.  In view of the changing nature of the external vulnerability of developing
countries, in particular to the volatility of capital  flows, and the requirements to secure consistency
between policies regarding the current and the capital account, the conventional criteria for the
legitimacy of measures to safeguard the balance-of-payments in the context of WTO provisions forWT/BOP/R/61
Page 7
developing countries, including the basis for assessin g the adequacy of reserves, need to be reviewed.
In the context of the development of guidelines in  this area for policy makers in the wake of the
volatility in global capital markets that has put increasing pressure on emerging-market economies
and its implications for financial management of those economies seen in recent years,
Mr. Alan Greenspan, Chairman of the Board of Governors of the United States Federal Reserve
System, has also observed that one possible standard  could be that "countries could be expected to
hold sufficient liquid reserves to ensure that they could avoid new borrowing for one year with a
certain ex ante  probability, such as 95 per cent of the time".  Other economists have also pointed out
that criteria based on imports (for instance, 3 months of import cover) or current-account deficits can
no longer provide an appropriate basis for assessing reserve adequacy and need to be reviewed.
18. In summary, these factors have underpinned our proposals set out in tirets 1 and 3, which
relate (i) to the jurisdiction of the Committee on Balance-of-Payments Restrictions and the GeneralCouncil, and (ii) to the examination by the Committee on Balance-of-Payments Restrictions of all
issues that arise from the provisions of Article XVIII:B and the 1994 BOP Understanding, read along
with Article XV of the GATT, including (a) all aspects relating to the criteria for assessing the
adequacy of reserves and the justification for import measures, and (b) the scope and applicability of
the proviso to Article XVIII:11 and Note Ad Article XVIII:11.
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