./.WORLD TRADE
ORGANIZATIONWT/GC/W/364
12 October 1999
(99-4316)
General Council Original:  English
PREPARATIONS FOR THE 1999 MINISTERIAL CONFERENCE
Proposals Regarding the Balance-of-Payment s Provisions of the General Agreement
on Tariffs and Trade 1994 in Terms of Paragraph 9(a)(i)
of the Geneva Ministerial Declaration
Communication from India
The following communication, dated 4 October 1999, has been received from the Permanent
Mission of India.
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Issues
1. Article XVIII:B of the General Agreement on Tariffs and Trade, and the 1994 Understanding
on Balance-of-Payments Provisions of the GATT  recognize 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 ar e 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 reservesadequate 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.
2. 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.
3. Similarly, Article XVIII:9 itself recognizes that there may be special factors that may be
affecting the reserves of a Member or such Member’s 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 thatthe 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 the 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 that:WT/GC/W/364
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- 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”.
- In interpreting the proviso and the Note to Article XVIII:11, the Balance-of-Payments
Committee 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.
4. However, recent rulings and recommendations of the panel and the Appellate Body that were
adopted by the Dispute Settlement Body in a particular case involving balance-of-payments measures
taken under Article XVIII:B, would appear to have the result of making it extremely difficult for
developing-country Members to take recourse to Ar ticle XVIII:B, besides vitiating the differences in
the provisions intended through Articles XII and XVIII:B for developed- and developing-countryMembers, respectively.  Furthermore, 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
for developing countries, including the basis for assessing the adequacy of reserves, need to bereviewed.  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 tohold 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, three months of import cover) or current-account deficits
can no longer provide an appropriate basis for assessing reserve adequacy and need to be reviewed.
5. 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 UruguayRound 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.
Proposal
6. The Balance-of-Payments Committee should be requested to examine all the issues that arise
from the provisions of Article XVIII:B and the 1994 BOP Understanding, read along with Article XV
of the GATT, and should be mandated to submit its report to the General Council in a time-bound
manner.  Its examination should include:  (i) the jurisdiction of the Balance-of-Payments Committeeand the General Council;  (ii) all aspects relating to the criteria for assessing the adequacy of reserves
and the justification for import measures;  and (iii) the scope and applicability of the proviso to
Article XVIII:11 and Note Ad  Article XVIII:11.
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