Download iii. quantitative restrictions

WTO E-LEARNING
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Detailed Presentation of Quantitative
Restrictions in the WTO
OBJECTIVES

Present the multilateral negotiations on Non-Tariff Measures under
the auspices of the GATT;

Explain GATT disciplines on Quantitative Restrictions;

Explain GATT/WTO disciplines on Non-Tariff Measures resulting from
the Uruguay Round.
My Course series
12
I.
INTRODUCTION
Besides tariffs, several non-tariff measures could also restrict or even impede market access of goods, some of
which can be legitimately introduced and maintained by WTO Members, as long as they are applied in a WTO
consistent manner.
There is no agreed definition in the WTO of what constitutes a "non-tariff measure" nor a "non-tariff barrier"
neither is there consistency in the way both terms have been used in the past. Although both terms are often
used interchangeably, the term "non-tariff measure" (NTM) has been preferred throughout this course1. While
the application of NTMs does not always restrict trade, they often result in unnecessary restrictions or undue
barriers, which explains the utilisation of the term "non-tariff barrier" (NTBs).
The type of measures covered by these terms varies significantly and includes all measures other than tariffs
which can have an impact on trade in goods. Measures covered by WTO Agreements include: quantitative
restrictions (e.g. quotas), and other NTMs (e.g. lack of transparency in trade regulation, arbitrary application of
trade regulations, customs formalities, technical barriers to trade, practices of customs valuation, etc.).
During the last GATT Rounds of negotiations, Contracting Parties made considerable efforts to eliminate NTBs
that were used solely for protectionist purposes or, in those cases where they were applied to pursue a
legitimate objective (e.g. to protect health or the environment), to minimize their trade distorting effects.
1 The term "non-tariff barrier" (NTB) is, nevertheless, used whenever this course cites GATT/WTO texts or
refers to specific occasions where the term NTB was originally employed.
2
II.
GATT NEGOTIATIONS ON NON-TARIFF
MEASURES
IN BRIEF
While the GATT 1947 already contained some provisions on non-tariff measures (NTMs), it was not until the
Kennedy Round (1964 - 1967) that GATT Contracting Parties decided to go beyond tariffs and address NTMs in
the context of a multilateral round. In the following GATT Rounds (the Tokyo Round and the Uruguay Round),
NTMs remained on the agenda of negotiations and received extensive attention.
The most important
achievement resulting from these negotiations and in particular from the Uruguay Round, was the conclusion of
a number of multilateral agreements, which set out specific disciplines on different types of NTMs.
THE ''KENNEDY ROUND''
With the progressive reduction of tariffs brought about by the early GATT Tariff Conferences, it was perceived
that governments were gradually shifting to other forms of measures to restrict market access for goods and
protect their domestic industries. GATT Contracting Parties recognized that the benefits resulting from tariff
reductions and tariff bindings would only be effective if they could not be undermined by the application of
other measures.
Therefore, effective trade liberalization required that not only tariff barriers had to be
reduced, but that there was a growing necessity to agree on multilateral disciplines to address NTMs.
The Kennedy Round was the first GATT Round where NTMs were addressed as part of the multilateral
negotiations in addition to tariffs.
However, the results in this Round were rather modest due to the
considerable reluctance of some negotiating parties to assume new commitments in this new field. At the end
of this Round, Contracting Parties were only able to produce an Anti-dumping Code (the 1967 International
Anti-Dumping Code), which, however, applied only to those parties which agreed to be bound by it.
Contracting Parties also made efforts to identify NTMs through an exercise of notification of the barriers they
encountered in their trade relations. The result was a non-exhaustive list including 18 categories of measures
involving issues such as escape clauses, anti-dumping, customs valuation, government procurement policies,
residual quantitative restrictions, administrative and technical regulations, subsidies, etc. On the basis of that
list, an inventory of quantitative restrictions and other non-tariff barriers (NTBs) was drawn up shortly after the
Kennedy Round.
THE ''TOKYO ROUND''
Compared to the modest results on NTBs during the Kennedy Round, the Tokyo Round took a broader look at
trade rules and focused on addressing what was considered the most important NTBs facing exports at that
time.
3
The results of this round were considered to be one of the major accomplishments in trade negotiations since
the creation of the GATT. The Tokyo Round negotiations on NTMs led to:

the amendment of the Anti-dumping Code that had originally been negotiated during the Kennedy
Round; and,

the conclusion of new "Codes", including the Code on Customs Valuation, the Code on Import Licensing
Procedures, the Code on Government Procurement, the Code on Subsidies and Countervailing
Measures, and the Code on Technical Barriers to Trade.
Instead of providing legal disciplines applicable to all Contracting Parties, these Codes were drafted as standalone agreements that obliged only those Contracting Parties that became party to them. In most cases, only
a relatively small number of GATT Contracting Parties (mainly developed countries) subscribed to these Codes.
However, the operation of the MFN principle meant that even those GATT Contracting Parties who had not
signed the Codes generally enjoyed the same benefits of the Codes as those Parties who had signed them.
This diminished the incentives for joining the Codes, creating a "free-rider" problem. 2
Furthermore, the Tokyo Round did not tackle some NTBs that impeded considerably the exports of developing
countries, such as NTBs on textiles and clothing products, consumer electronics, agricultural goods and
foodstuffs, etc.
Despite these limitations, the result of the negotiations during the Tokyo Round injected an important impetus
for the further negotiation of NTMs during the Uruguay Round.
TO KNOW MORE... THE TOKYO ROUND CODES
Some of the most relevant codes included:
The Code on Customs Valuation
The Valuation Code established a positive system of Customs Valuation based on the price actually paid or
payable for the imported goods.
It was signed by more than 40 Contracting Parties.
The Code was
replaced by the WTO Agreement on Implementation of Article VII of the GATT 1994 after the conclusion
of the Uruguay Round.
Import Licensing Code
The Code was aimed at preventing import licensing procedures from unnecessarily hindering international
trade.
During the Uruguay Round, it was revised to strengthen the disciplines on transparency and
notifications.
2 In this context, the term "free-rider" is used to describe a situation in which a country who does not make
any trade concessions, enjoys, nonetheless from the concessions made by other countries owing to the MFN
principle. From an economic perspective, free riders do themselves harm because they deny themselves the
benefits of trade liberalization (Goode Walter, Dictionary of Trade Policy Terms (2007), Fifth Edition, p. 181).
The Code on Government Procurement, however, remained a plurilateral instrument and its benefits were not
extended to non-signatory Members.
4
TBT Code or "Standards Code"
The Standards Code laid down the rules for preparation, adoption and application of technical regulations,
standards and conformity assessment procedures. Only 32 GATT Contracting Parties signed the Code.
The WTO Agreement on Technical Barriers to Trade (TBT Agreement) has strengthened and clarified the
provisions of the Standards Code.
Anti-Dumping Code
The Anti-Dumping Code provided more guidance about the determination of dumping and of injury than
did Article VI of the GATT 1947. It also set out in detail certain procedural and due process requirements
that must be fulfilled in the conduct of investigations. Nevertheless, the Code represented only a general
framework for countries to follow in conducting investigations and imposing duties. The Code was later
replaced by the WTO Agreement on Anti-Dumping
THE ''URUGUAY ROUND''
One of the motivations behind the decision to launch the Uruguay Round was the GATT Contracting Parties'
awareness that NTMs were becoming increasingly important. In the Uruguay Round Ministerial Declaration,
negotiating parties set out as one of the objectives to reduce or eliminate NTBs, including quantitative
restrictions (paragraph D of the Ministerial Declaration).
The Uruguay Round brought several significant
achievements on addressing NTMs, including:

the amendment of the Codes adopted during the Tokyo Round;

the conclusion of several new Agreements to deal with other forms of NTMs, including the ''Agreement
on Preshipment Inspection'', the ''Agreement on Rules of Origin'', the ''Agreement on Trade-related
Investment Measures'', the ''Agreement on the Application of Sanitary and Phytosanitary Measures'',
the ''Agreement on Textiles and Clothing'', and the ''Agreement on Safeguards''; and,

A new "Part III" was included in the Schedules of concessions to record commitments in respect of
NTMs.
Eleven Members made concessions by including specific commitments on areas such as the
removal of import licensing requirements, elimination of quantitative restrictions and tendering
requirements, reform of import licensing systems, eliminate import bans and phase out tariff-rate
quotas, etc.
A major innovation of the Uruguay Round was the introduction of the principle of ''single undertaking''.
According to this principle, all Members were required to accept the Multilateral Trade Agreements concluded
during the Uruguay Round as a whole, that is, as a single package.
In other words, no Member had the
possibility to opt out of some Agreements. Thus, while the Tokyo Round Codes were applicable to signatories
only, all of the Uruguay Round Multilateral Trade Agreements were binding on all WTO Members.
EXERCISES:
1.
What is the main difference between the Tokyo Round Codes and the Multilateral Trade Agreements
resulting from the Uruguay Round, besides the differences in substantive content?
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III.
QUANTITATIVE RESTRICTIONS
IN BRIEF
Quantitative restrictions (QRs), which are one of the best-known NTBs, can be defined as specific limits on the
quantity or value of goods that can be imported (or exported) during a specific time period. The most common
QRs are prohibitions and quotas.
Under the GATT/WTO framework, tariffs are allowed as a form of protection as long as they do not exceed the
bound levels and are applied on an MFN basis. However, Members are generally prohibited from applying QRs.
The rationale of favouring tariffs over quantitative restrictions and other forms of NTBs is because tariffs are
considered to be more transparent and less trade distorting.
Article XI:1 of the GATT 1994 provides the general elimination of quantitative restrictions and "other
measures" instituted or maintained by a Member on the importation, exportation or sale for export of products
(other than duties, taxes or other charges consistent with GATT/WTO rules).
Despite the general rule prohibiting QRs, there are exceptions which allow the imposition of QRs in certain
circumstances and subject to certain conditions. Whenever authorized under WTO rules, QRs must be imposed
on a non-discriminatory basis according to Article XIII of the GATT.
III.A. GENERAL PROHIBITION OF QUANTITATIVE
RESTRICTIONS
According to Article XI:1 of the GATT 1994, quantitative restrictions should NOT be maintained by WTO
Members. In other words, a WTO Member cannot, as a general rule, impose quantitative restrictions on the
goods imported from or exported to another Member.
The only protective barriers that WTO Members can
institute or maintain are "duties, taxes or other charges" consistent with GATT/WTO rules. Consequently, any
form of "restriction", whether "quotas, import or export charges or other measures", is inconsistent with
Article XI:1. This being said, it should also be noted that there are several exceptions which allow Members to
impose quantitative restrictions under certain circumstances and subject to specific requirements. 3
Article XI:1 of the GATT 1994 provides:
Article XI:1 of the GATT 1994 – 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.
3 For further information, please refer to document JOB/MA/6.
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This Article contains the following main elements:

as a general rule, WTO Members are obliged not to institute or maintain any prohibitions or restrictions
on imports or exports at the time or point of importation or exportation;

such prohibitions or restrictions may include quotas, import or export licences as well as "other
measures", meaning the scope of this provision is very wide;

the only barriers that WTO Members are allowed to institute or maintain are "duties, taxes or other
charges" compatible with GATT rules.
III.A.1. WHY PROHIBITING QUANTITATIVE RESTRICTIONS?
It is considered that the general prohibition of quantitative restrictions in Article XI of the GATT 1994
constitutes one of the cornerstones of the GATT/WTO (Turkey – Textile, Panel Report, para. 9.63).
1
THE WELFARE EFFECTS OF QUANTITATIVE RESTRICTIONS
A quota restricts the quantity that can be imported of a given good over a given period of time. The welfare
effects of an import quota are illustrated below. In general, the effects of an import quota are similar to the
effects of an import tariff, although there are some differences. The figure below illustrates the welfare effects
of an import quota.
THE WELFARE EFFECTS OF AN IMPORT QUOTA ON A SMALL IMPORTING COUNTRY
The Figure uses the demand and supply analysis to illustrate the welfare effects of an import quota of 10,000
units under condition of perfect competition. We assume that Medatia is a small importing country so that its
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import quota cannot affect the world price. We also assume that Medatia's domestic industry is competitive
with or without the quota.
In the absence of the quota, consumers of Medatia would buy Do at the given world price Pw (£100) per unit.
Domestic producers would supply So, while (Do – So or 25,000 – 5000) would be imported from other
countries.
Suppose the government imposes an import quota. This prevents the domestic economy from importing as
much as before. After the imposition of the quota, the imports would be automatically limited to (D1 – S1 or
20,000 – 10,000) units. The effect of the quota is that, at existing prices, demand will exceed supply. In order
to satisfy demand, domestic suppliers would have to produce any quantity demanded in excess of the quota.
The domestic supply curve is represented in bold. A quota has the effect of shifting the supply curve to the
right by the amount of the quota whenever the price is above the world price. Since the cost of producing
these extra units is strictly higher than the costs of importing them, the domestic price will increase Pq (£120),
leading to an effect similar to the one of a tariff.

Consumers surplus: Area a+b, consumers loose c+d+e+f+h

Producer surplus: Area g+c

Deadweight loss / Net welfare loss : Area d+h
Who gains the part of consumer loss represented by area e+f?
Quota Rent: area e+f
As you know, with a tariff, this area is collected by the government. However, in the case of a quota, area e+f
(the "rent") may be "captured" by those holding a license to import.
Who benefits from the "rent" depends on the method for allocating quota shares, unless these are auctioned
off. In other words, the welfare effects of a quota will depend on how the importing government allocates the
legal right to import.
It is worth noting that, in practice, governments might distribute the quota shares based on historical market
shares to importers, who collect the quota rents. Thus, the existence of a quota can provide incentives for
importers to engage in inefficient activities aimed at maximising their quota shares.
In addition, a quota
grants discretion as to how a government allocates import licenses. As a result, quotas are considered less
transparent and might entail additional inefficiencies, which is why tariffs are commonly seen as a better
means of protection (see also section below).
Based on: World Trade Report 2009, pages 60 - 61.
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2.
THE TRADE EFFECTS OF QUANTITATIVE RESTRICTIONS
The trade effects of an import quota are also different from the trade effects of a tariff in the following aspects:

Import quotas are more trade-restrictive than tariffs -- while an import quota imposes an
absolute limit on imports of goods, an import tariff does not impose limitations on the quantity or value
of imports. If domestic demand increases imports increase in the case of a tariff, but not in the case of
a quota.

Import quotas are more trade-distortive than tariffs -- the imposition of a tariff on an MFN basis
would allow the source of the imports from the most efficient foreign supplier. However, in the case of
a quota, the source of the imports is dependent upon to whom the license to import is allocated, not
the most efficient foreign supplier.

The administration of an import quota is less transparent and more costly than a tariff -who benefits from the «rent» depends on the administration of the quota licences. Moreover, in the
presence of licensing systems, administration and compliance costs can be very high.

It is more difficult to compare trade policies across countries in the case of a quota than in
the case of a tariff. Furthermore, it is more difficult to measure the trade effect of a quota than that
of a tariff.
These differences between an import quota and a tariff provide an explanation of why tariffs were preferred in
the WTO as a policy instrument of protection over quantitative restrictions. In fact, it should be noted that the
general prohibition of QRs performs a systemic function in the MTS, namely, that of preserving the value of
tariff concessions.
The market access conditions achieved through GATT/WTO tariff negotiations would be
easily undermined if Member governments were free to impose restrictions or limitations on the quantity or
value of imports.
III.B. INTERPRETATION AND APPLICATION OF ARTICLE XI:1
OF THE GATT 1994
The obligations contained in Article XI:1 have been interpreted by GATT/WTO panels and the Appellate Body in
a number of cases. The main issues that have been dealt with include the following:
III.B.1. THE SCOPE OF ARTICLE XI:1
1.
COVERAGE OF ARTICLE XI:1
By referring to restrictions ''made effective through quotas, imports or export licenses or other measures'',
Article XI:1 provides for a wide coverage of measures.
In Japan – Trade in Semi-conductors, the GATT
Panel stated that 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
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other than measures that take the form of duties, taxes or other charges (Japan-Trade in Semi-conductors,
GATT Panel Report, para. 104).
The Council for Trade in Goods, in a 1996 Decision (G/L/59, Annex), provided an illustrative list of the ways in
which QRs could be made effective.
This list includes: prohibitions, prohibitions except under defined
conditions, global quota, global quota allocated by country, bilateral quota (i.e. anything less than a global
quota), automatic licensing, non-automatic licensing, QRs made effective through state-trading operations,
mixing regulation, minimum price triggering a QR, and voluntary export restraints (i.e. an agreement between
an exporting country and an importing country, where the former voluntarily limits the quantity of its exports).
Examples of Measures within the Scope of Article XI:1 of the GATT 1994
The following measures have been found to fall within the scope of Article XI:1 by GATT/WTO panels:

In Japan - Trade in Semi-conductors, 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 US, constituted restrictions on the exportation of such products inconsistent with
Article XI of the GATT (Japan – Trade in Semi-conductors, GATT Panel Report, para. 118);

The Panel in US - Shrimp found that the US acted in a manner inconsistent with Article XI of the
GATT 1994 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 US's authorities as using methods not
leading to the incidental killing of sea turtles above certain levels (US – Shrimp, Panel Report,
para. 7.16);

The Panel in India – Quantitative Restrictions found that India's measures, including its discretionary
import licensing system – where licences were not granted in all cases, but rather on unspecified
"merits" - , were quantitative restrictions within the meaning of Article XI:1 of the GATT 1994 (India Quantitative Restrictions, Panel Report, para. 5.130);

In India- Autos, the Panel found that India's trade balancing requirement, which limited the amount of
imports in relation to an export commitment, acted as a restriction on importation within the meaning
of Article XI:1 of the GATT 1994 and thus, was inconsistent with Article XI:1 of the GATT 1994 (India
– Autos, Panel Report, para. 7.278).
2.
DE JURE & DE FACTO RESTRICTIONS
Article XI:1 of the GATT 1994 covers both de jure restrictions and de facto restrictions.
A measure is
restrictive de jure when it is clear from the wording of the legal instrument. On the other hand, a measure is
restrictive de facto when, although not apparent from the wording of the legal instrument, it has in practice
effects which are similar as those stated in Article XI:1.
In Argentina - Hides and Leather, the EEC argued that Argentina's measure was inconsistent with Article XI:1
by allowing 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. The Panel held
that there can be no doubt that the disciplines of Article XI:1 extend to restrictions of a de facto nature
(Argentina - Hides and Leather, Panel Report, para. 11.17).
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3.
PRIVATE ACTIONS ATTRIBUTABLE TO GOVERNMENTS AND NON-BINDING
MEASURES
Since the GATT is an international agreement among governments, only quantitative restrictions imposed by
governments are, in principle, covered by Article XI:1.
However, there can be instances in which certain
private behaviours have strong ties to some governmental actions and thus, could fall into the purview of
Article XI:1 of the GATT 1994.
In addition, non-mandatory measures or informal instructions issued by a
government may constitute restrictions under the purview of Article XI of the GATT 1994 if they operate in a
manner "equivalent" to mandatory measures (see box below).
Example of Private Actions attributable to Governments and Non-Binding Measures : Japan - Trade
in Semi-Conductor (GATT Panel Report)
In Japan – Trade in Semi-Conductor, the Japanese government requested Japanese producers and
exporters of semi-conductors not to export semi-conductors at prices below company-specific costs to certain
third countries to implement its Arrangement concerning Trade in Semi Conductor Products with the US.
The EEC considered that such measures constituted restrictions within the meaning of Article XI:1 of the GATT.
Japan contended that there were no governmental measures limiting the right of Japanese producers and
exporters to export semi-conductors at any price they wished. The Government's measures were not legally
binding and therefore, did not fall under Article XI:1. Thus, according to Japan, exports were limited by private
enterprises in their own self-interest and such private action was outside the purview of Article XI:1 (Japan –
Trade in Semi-Conductor, GATT Panel, para. 102).
The Panel recognized that not all non-mandatory requests could be regarded as measures within the meaning
of Article XI:1.
In this regard, it stated that in order to determine whether the measures taken in this case would be such as to
constitute a contravention of Article XI, the presence of two criteria was essential (Japan – Trade in
Semi-Conductor, GATT Panel Report, paras. 108 -109):
(i)
there were reasonable grounds to believe that sufficient incentives or disincentives existed for
non-mandatory measures to take effect; and,
(ii)
the operation of the measures to restrict export of semi-conductors at prices below companyspecific costs was essentially dependent on government action or intervention.
After considering various factors relating to the Japanese exporting system of semi-conductors (e.g. statutory
requirement for exporters to submit information on export prices, the systematic monitoring of companies and
product-specific costs and export prices), the Panel concluded that "an administrative structure had been
created by the Government of Japan which operated to exert maximum possible pressure on the private sector
to cease exporting at prices below company-specific costs".
The Panel considered that the complex of
measures exhibited the rationale as well as the essential elements of a formal system of export control. The
only distinction in this case was the absence of formal legally binding obligations in respect of exportation or
sale for export of semi-conductors. However, the Panel concluded that this amounted to a difference in form
rather than substance because the measures were operated in a manner equivalent to mandatory
requirements. Therefore, the Panel concluded that the complex of measures constituted a coherent system
restricting the sale for export of monitored semi-conductors at prices below company-specific costs to markets
other than the US, inconsistent with Article XI.1 (Japan - Trade in Semi-Conductor, GATT Panel, para. 117).
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4.
RESTRICTIONS MADE EFFECTIVE THROUGH "STATE – TRADING OPERATIONS"
Restrictions made effective through state-trading operations may also be found inconsistent with Article XI:1 of
the GATT 1994. This is made clear in the Ad Note to 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.
One should however note 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 the state-trading entity is such as to result in a restriction (India – Quantitative Restrictions, Panel
Report, para. 5.134).
In Korea – Beef, the Panel found, in a ruling not reviewed by the Appellate Body, that in 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 rights over both importation
and distribution from imposing any internal restriction against such imported products (Korea – Beef, Panel
Report, para. 751).
III.B.2. BORDER MEASURES VS. INTERNAL MEASURES
Despite the broad coverage of Article XI:1 of the GATT, one should note that it applies to "border measures" as
opposed to "internal measures" (which are subject to the national treatment rule embodied in Article III:4 of
the GATT).
Article III:4 of the GATT 1994
4.
The products of the territory of any Member imported into the territory of any other Member shall be
accorded treatment no less favourable than that accorded to like products of national origin in respect
of all laws, regulations, transportation, and requirements affecting their internal sale, offering for sale,
purchase, transportation distribution or use.
The provisions of this paragraph shall not prevent the
application of differential internal transportation charges which are based exclusively on the economic
operation of the means of transport and not on the nationality of the product (...).
Nevertheless, the Ad Note to Article III of the GATT 1994 provides the possibility that a measure ''enforced or
collected in the case of an imported product at the time or point of importation'' may be treated as an internal
measure and thus governed by Article III. Thus, in practice, it may not always be easy to decide whether a
measure should be categorized as a border measure within the meaning of Article XI:1 or an internal measure
within the meaning of Article III of the GATT 1994.
In India – Autos (DS146, DS175), India argued that its trade balancing requirement (which limited the value of
imports to the value of exports) was not a border measure and thus, did not constitute restrictions on
importation within the meaning of Article XI:1. In India's view, this measure was within the scope of Article III
(paras. 7.218-7.219).
The Panel stated that Articles III and XI of GATT 1994 have distinct scopes of
12
application. It concluded that ''it cannot be excluded a priori that different aspects of a measure may affect the
competitive opportunities of imports in different ways, making them fall within the scope either of Article III
(where competitive opportunities on the domestic market are affected) or of Article XI (where the opportunities
for importation itself, i.e. entering the market, are affected), or even that there may be, in perhaps exceptional
circumstances, a potential for overlap between the two provisions" (India – Autos, Panel Report,
paras. 7.223-7.224).
III.C. EXCEPTIONS TO THE GENERAL PROHIBITION OF
QUANTITATIVE RESTRICTIONS
Exceptions that allow the derogation from the general prohibition of QRs can be classified into two categories:
(i) exceptions to the general prohibition of QRs contained in Article XI:2 of the GATT 1994; and, (ii) exceptions
to the general prohibition of QRs contained in other GATT/WTO provisions.
III.C.1. EXCEPTIONS IN ARTICLE XI
The exceptions provided for in Article XI:2 of the GATT 1994 include:
1.
export prohibitions or restrictions temporarily applied to prevent or relieve critical shortage of
foodstuffs or other products essential for the exporting Member (Article XI(2)(a) of the GATT 1994);
2.
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 (Article XI(2)(b) of
the GATT 1994); and,
3.
import restrictions on [agricultural and]* fisheries products necessary to the enforcement of
governmental measures which operate to restrict the domestic production of certain products or to
remove a temporary surplus of certain domestic products (Article XI(2)(c) of the GATT 1994).
Thus, Article XI:2 sets special circumstances where it would be necessary for Members to derogate from the
principle of general elimination of QRs. However, it is worth pointing out that these specific exceptions were
rarely invoked.
*Note
The exception contained in Article XI:2(c) of the GATT 1994 created a quasi-general derogation for
agricultural policies and measures relating to fishery products, and constituted the essential provision which
led to the "special treatment" for agriculture before the Uruguay Round. The "agricultural exception" ended
when the WTO Agreement on Agriculture entered into force. The WTO Agreement on Agriculture superseded
Article XI:2(c) of the GATT.
Article 4 of the Agreement on Agriculture provides, among other things, that
quotas must be transformed into tariffs (a process normally called "tariffication"). Consequently, quantitative
restrictions remain possible only on fishery products, which are treated as non-agricultural products in the
framework of the WTO.
In those cases, the rules on non-discriminatory administration of quantitative
restrictions provided in Article XIII of the GATT 1994, explained below, also apply.
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III.C.2. OTHER EXCEPTIONS
Besides Article XI:2 of the GATT 1994, there are also other provisions contained in the GATT /WTO Agreements
which allow Members to derogate from the general prohibition of QRs, subject to certain requirements. They
include the following:

General Exceptions (Article XX of the GATT 1994);

Security Exceptions(Article XXI of the GATT 1994);

Regional Trade Agreements (Article XXIV of the GATT 1994);

Balance of Payments and temporary application of quantitative restrictions in a discriminatory manner
(Articles XII, XVIII.B and XIV of the GATT 1994);

Waivers (Article IX:3 of the Marrakesh Agreement Establishing the WTO);

Safeguard measures in the form of quotas (Article XIX of the GATT 1994 and the Agreement on
Safeguards) 4;

A number of provisions on Special and Differential Treatment, which can be found throughout the WTO
Agreements (e.g. Article XVIII:2(b) of the GATT 1994).
Exemption applicable to Textile and Clothing – No longer in force
Textiles and clothing were, until some years ago, exempted from Article XI of the GATT. Instead, they were
subject to the Agreement Regarding International Trade in Textiles (more commonly referred to as the
Multi-Fibre Arrangement, or the "MFA") (1974-1994) and a series of bilateral agreements, which were phasedout and integrated into the GATT 1994 disciplines by the WTO Agreement on Textiles and Clothing ("ATC")
(1995-2005). The ATC expired on 1 January 2005.
The MFA allowed the application of quotas under a special regime, which managed trade through quotas.
Under such regime, textile and clothing products were subject to import quotas, where importing countries
were allowed to discriminate between exporters of these products. The applicable rules were very peculiar and
included "flexibility" provisions for the use of these quotas, such as the "carry-over" (possibility to use
afterwards an unused portion of the quota), "carry-forward" (possibility to use in an anticipated manner part of
the quota from the following year) and "swing" of the quotas (possibility to exchange part of one quota for a
part in the quota of a different product).
The ATC negotiated in the Uruguay Round was aimed at gradually integrating the textiles and clothing sector
into the GATT, with the last quota being lifted on the 1 January, 2005. The expiry of the ten year transition
period of ATC implementation meant that trade in textile and clothing products is no longer subject to quotas
under a special regime outside normal GATT/WTO rules, but rather governed by the general rules and
disciplines embodied in the MTS. Accordingly, the quotas came to an end and importing countries of textiles
and clothing are no longer able to discriminate between exporters.
4 Pursuant to Article XIX of the GATT 1994 and the Agreement on Safeguards, Members may apply safeguard
measures, among others, in the form of quotas, in case of a surge of imports that causes, or threatens to
cause, serious injury to the domestic industry producing like of directly competitive products.
14
III.D. TARIFF QUOTAS VS. QUOTAS
Under the WTO, one must distinguish between quotas and tariff quotas (also referred to as "tariff-rate quotas"
or TRQ), as the former are generally prohibited whereas the latter are a form or tariff and are, therefore,
allowed under the WTO Agreements.
A TRQ is a two-tiered tariff tied with a quantity under which, predetermined quantities of goods can be
imported at a "preferential" (i.e. lower) rate of customs duty over a given period of time ("in-quota" rate).
Once the TRQ volume has been filled, one can continue to import the product without limitations but paying a
higher tariff rate ("out-of-quota" rate). In other words, one could import any quantity of the product by paying
the out-of-quota tariff.
This is different from a quota where the main feature is an absolute limit on the
volume that could be imported (i.e. imports above the prescribed quantity are prohibited, even if willing to pay
a much higher import tariff). As a result, TRQs are considered to be less trade restrictive than quotas.
While several TRQ volumes are distributed on an MFN basis, the Schedules of some Members include a "quota
allocation" element which is subject to the disciplines provided in Article XIII of the GATT 1994 (explained
below).
The Figure below gives an example of a TRQ. In this example, imports entering under the TRQ (up to 1,000
tons) have to pay a 10% tariff. Imports entering outside the TRQ (out of quota imports) have to pay a 80%
tariff.
III.E. NON-DISCRIMINATORY ADMINISTRATION OF
QUANTITATIVE RESTRICTIONS
In cases where the use of a QR is allowed, as well as in the case of TRQs, there are requirements applicable to
their administration which are contained in Article XIII of the GATT 1994:
Article XIII: Non-discriminatory Administration of Quantitative Restrictions
1.
No prohibitions or restrictions shall be applied by any Member on the importation of any product of the
territory of any other Member or on the exportation of any product destined for the territory of any
other Member, 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.
15
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.*
(...)
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.
Article XIII:1 of the GATT 1994 sets out the basic principle of non-discrimination in the administration of
quantitative restrictions and TRQs, which is the other side of the coin of the MFN principle. Accordingly, where
authorized, QRs must be imposed on a non-discriminatory basis. That is, no import restriction shall be applied
to one Member's products unless the importation of like products from other Members is similarly restricted.
In other words, a Member may not limit the quantity of imports from some Members, but not from others. The
Member is expected to impose such restrictions in a non-discriminatory manner.
Article XIII:2 of the GATT 1994 provides that in applying import restrictions to any product, Members shall aim
at a distribution of trade in such product approaching as closely as possible the shares which the various
Members might be expected to obtain in the absence of such restrictions. 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 QRs on trade flows (EC - Bananas III, Panel Report, para. 7.86 – See Case Study).
In this regard, Article XIII:2(d) provides for the possibility of allocating tariff quota shares to specific supplier
countries.
However, according to the chapeau of Article XIII:2, the allocation of quotas between exporting
Members must aim to ensure that QRs do not distort ordinary trade flows. To ensure this, the allocation of
16
quotas should correspond as closely as possible to the expected market shares that would have existed in the
absence of quotas.
Article XIII:2(d) further specifies the treatment that, in case a quota is allocated among specific supplier
countries, 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 their agreement as provided in
Article XIII:2(d), first sentence. If that is not reasonably practicable, then it must assign shares in the quota
(or tariff quota) to them on the basis of the criteria specified in Article XIII:2(d), second sentence.
Allocations of country-specific shares to Members not having a substantial interest in supplying the product
may be allowed, but it must meet the requirements of Article XIII:1 and the chapeau of Article XIII:2(d)
(EC - Bananas III, Panel Report, paras. 7.71-7.73).
In EC – Poultry, the Appellate Body stated that even when a TRQ is the result of compensation negotiations
under Article XXVIII (Modification of Schedules), it must be administered in a non-discriminatory manner (EC –
Poultry, Appellate Body Report, para. 100). The Appellate Body also agreed with the Panel that TRQ shares
must be calculated on the basis of "total imports", including imports coming from non-Members (EC – Poultry,
Panel Report, paras. 230-232; Appellate Body Report, para. 106).
Note
See also the section on the Agreement on Import Licensing Procedures below.
EXERCISES:
2.
What are quantitative restrictions (QRs)?
3.
What are the different trade effects between an import quota and an import tariff?
4.
What measures may fall within the scope of Article XI:1 of the GATT 1994?
5.
What is a tariff quota (TRQ) and what are the differences between a TRQ and a QR?
6.
Please summarize the WTO disciplines on the administration of QRs and TRQs.
17
CASE STUDY
CASE STUDY 1 : EC – BANANAS III
(EC - Regime for the Importation, Sale and Distribution of Bananas) (DS27)
Parties
Complainants
Agreements
Timeline of the dispute
Ecuador,
Articles I, III, X and XIII of the
Establishment of
Guatemala,
GATT 1994
Panel
Articles II and XVII of the GATS
Circulation
Honduras,
Mexico,
United
States (US)
Respondent
European
Communities
Article 1.3 of the Agreement on
Licensing Procedures
Lomé Waiver
(EC)
8 May 1996
of
22 May 1997
of
9 September
Panel Report
Circulation
Appellate
Body
1997
Report
Adoption
25 September
1997
Measure and Product at Issue
Measures at issue: The EC' regime for the importation, distribution and sale of bananas, introduced on
1 July 1993 and established by Council Regulation 404/93 (Regulation 404/93).
Products at issue: Bananas imported from third countries.
Factual Aspects
The EC's regime for the importation, distribution and sale of bananas established by Regulation 404/93 applied
different import regimes to three categories of imports:
(i) traditional imports from twelve ACP countries;
(ii) non-traditional imports from ACP countries which are defined as both any quantities in excess of traditional
quantities supplied by traditional ACP countries and any quantities supplied by ACP countries which are not
traditional suppliers of the EC; and, (iii) imports from third (non-ACP) countries.
18
The EC applies the following tariffs to these banana imports:
EC Tariff Treatment of Banana Imports
Category of Banana Imports
Source/Definition
Traditional ACP bananas
Bananas
within
Tariffs Applied
country-specific
Duty-free.
quantitative limits totalling 857,700
tonnes established for each of 12
ACP countries.
Non-traditional ACP bananas
Either
ACP
imports
above
the
Duty-free up to 90,000 tonnes,
traditional allocations for traditional
divided
ACP countries or any quantities
allocations and an "other ACP
supplied by ACP countries which
countries" category;
are non-traditional suppliers.
ECU
into
693
country-specific
per
out-of-quota
tonne
for
shipments
in
1996/97.
Third-country bananas
Imports from any non-ACP source.
ECU 75 per tonne up to 2.11
million tonnes as provided in the
EC
Schedule.
An
353,000
tonnes
available
in
1995
additional
were
made
and
1996.
Country-specific allocations were
made for countries party to the
Framework
Agreement
on
Bananas (BFA), plus an "others"
category;
ECU 793 per tonne for out-ofquota shipments in 1996/97.
See Panel Report, para. 6.7.
Summary of the key findings of the panel/appellate body related to this part of the course
1. General principle under Article XIII:1
Article XIII:1 sets out a basic principle of non-discrimination in
of the GATT 1994
the administration of both quantitative restrictions and tariff
quotas.
Article XIII:1
stipulates
that
the
importation
or
exportation of a product of a Member can only be prohibited or
restricted if 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 (EC-Banana III,
Appellate Body Report, para. 160).
19
2. Allocation of tariff-quotas among
The allocation to Members not having a substantial interest must
Members not having a substantial
be subject to the basic principle of non discrimination. When this
interest in supplying bananas to the EC
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 (EC-Banana III,
Appellate Body Report, para. 161).
The allocation of tariff quota shares, whether by agreement or by
assignment, to some, but not to other, Members not having a
substantial
interest
in
supplying
bananas
to
the
EC
is
inconsistent with the requirements of Article XIII:1 of the
GATT 1994 (EC-Banana III, Panel Report, para. 7.89; Appellate
Body Report, para. 162).
3. Tariff quota reallocation rules of the
Pursuant to the reallocation rules of the BFA, a portion of a tariff
BFA
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. These reallocation rules
allow the exclusion of banana supplying countries, other than
BFA countries, from sharing in the unused portions of a tariff
quota share. Thus, imports from BFA countries and imports from
other Members are not "similarly" restricted (EC-Banana III,
Appellate Body Report, para. 163).
The tariff quota reallocation rules of the BFA are inconsistent
with the requirements of Article XIII:1 of the GATT 1994.
Moreover, the 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 (EC-Banana III, Panel
Report, para. 7.70 and 7.89; Appellate Body Report, para. 163).
20
ILLUSTRATION
General Prohibition of Quantitative Restrictions (QRs) and NonDiscriminatory Administration of QRs & Tariff Quotas (TRQs) – Articles XI:1
and XIII of the GATT 1994
SCENARIO
Suppose that Medatia, Vanin and Tristat are WTO Members. For many years, Medatia has been one of the
main producers and exporters of Liquid-Crystal Displays (LCDs) in the world. In 2002, Vanin and Tristat began
to produce LCDs with new designs and higher quality. Due to low labour costs, both countries have been able
to keep their costs of production relatively low.
From 2003, LCDs produced in Vanin and Tristat started to compete with those produced in Medatia in both the
world market and Medatia's local market. Thanks to cost advantage, LCD producers in Vanin and Tristat are
able to export their products to Medatia at lower prices than Medatia's domestically-made LCDs. Vanin's LCDs
accounted for two per cent (20,000 units) of all LCDs imported by Medatia in 2003 and 2004, and Tristat's
accounted for five per cent (50,000 units) of all LCDs imported by Medatia during the same period of time.
QUESTION 1
In 2004, Medatia published Regulation 200 - 2004, which requires that one LCD be exported for each LCD
imported in a given year. According to the regulation, if the amount of exports do not exceed the volume of
imports at any time, an importer may still import LCDs, but the importer would be requested to pay a deposit
at that time to ensure that the export requirement would be met at the end of the year.
Since the regulation was published, Medatia has imported fewer LCDs due to the requirement to pay the
deposit. In particular, the volume of LCD imports in 2005 from Vanin and Tristat decreased to 10,000 units
and 30,000 units respectively. In 2006, volumes declined further to 8,000 units from Vanin and 20,000 units
from Tristat.
Both Vanin and Tristat consider that Medatia's Regulation 200 – 2004 constitute a restriction on imports of
LCDs. Vanin and Tristat have decided to seek recourse before the WTO dispute settlement system under the
DSU.
They hold consultations with Medatia with a view to reach a mutually agreed solution; however no
agreement was reached among the parties.
Vanin and Tristat opt to request the establishment of a WTO
panel. What would you advise Vanin and Tristat to argue before the panel?
PROPOSED ARGUMENT
Vanin and Tristat may argue that Medatia's Regulation 200 – 2004 is inconsistent with Article XI:1 of the
GATT 1994 because it constitutes a measure that has the effect of restricting importation of LCDs.
Their
argument could be as follows:
The regulation is within the scope of coverage of Article XI:1 of the GATT 1994. By referring to restrictions
made effective through quotas, import or export licences or "other measures", Article XI:1 of the GATT 1994
covers a wide range of measures (see Japan-Trade in Semi-conductors, GATT Panel Report, para. 104). In this
regard, they may argue that "any form of limitation imposed on, or in relation to importation constitutes a
21
restriction on importation within the meaning of Article XI:1 of the GATT 1994" (see India – Autos, Panel
Report, para. 7.257).
Vanin and Tristat may contend that the measure is WTO-inconsistent because it requires an importer to pay a
deposit if the one-export-per-import threshold is not maintained. It is worth noting that Article XI:1 covers not
only de jure but also de facto restrictions (see Argentina – Hides and Leather, Panel Report, para. 11.17).
When a measure that is not restrictive on its face nevertheless has similar effect in practice to those stated in
Article XI:1, the measure is de facto restrictive. Although the regulation does not impose any numerical limit
on imports of LCDs, it has the effect of restricting the importation of LCDs from Vanin and Tristat.
In this
regard, the condition to pay a deposit in order to ensure that the export requirement is met at the end of the
year works to limit the amount of imports in relation to the amount of exports of LCDs by making the
importation more onerous than if the condition had not existed, thus generating a disincentive to imports (see
India – Autos, Panel Report, para. 7.264 – 7.281). Vanin and Tristat may argue that, since the promulgation
of the regulation, the imports of LCDs have decreased from 20,000 and 50,000 units to 10,000 and 30,000
units respectively.
QUESTION 2
At the beginning of 2008, Medatia was granted a waiver by the WTO Membership under Article IX:3 of the
Agreement Establishing the WTO. The waiver allows Medatia to impose a global quota of 500,000 units per
year on the imports of LCDs for the following three years (namely from 2008 to 2010). Medatia allocates the
quota as follows: 20,000 for Vanin; 5,000 for Tristat; and, 475,000 for the rest of the supplying countries.
Tristat is unsatisfied with the allocation of the quota and has asked for your advice.
PROPOSED ARGUMENT
Article XIII:1 sets forth the basic principle of non-discrimination in the administration of both QRs and TRQs. It
stipulates that the importation or exportation of a product of a Member can only be prohibited or restricted if
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 (see EC-Banana III, Appellate Body Report, para. 160).
In this regard, Article XIII:2(d) provides for the possibility to allocate quota shares to specific supplier
countries.
However, according to the chapeau of Article XIII:2, the allocation of quotas between exporting
Members must aim to ensure that QRs do not distort ordinary trade flows.
Tristat may argue that Medatia's allocation of the quota is inconsistent with the chapeau of Article XIII:2 of the
GATT 1994, which requires the allocation of quotas to approach ''as closely as possible the shares which the
Members might be expected to obtain in the absence of the restrictions''. According to the share of imports of
LCDs from Vanin and Tristat in 2003 and 2004, Vanin's imports accounted for five per cent, while Tristat's
accounted for two per cent of units. Under the current measure, Vanin's share of the quota is four per cent
and Tristat's share is one per cent.
Therefore, Tristat may argue that it should be allocated more imports
according to the share it might be expected to obtain in the absence of the restriction.
22
IV.
SUMMARY
Besides tariffs, various forms of non-tariff measures (NTMs) could also restrict or even impede market access
of goods, some of which can be legitimately introduced and maintained by WTO Members, as long as they are
applied in a WTO consistent manner.
There is no definition of "non-tariff measure" nor of "non-tariff barrier", neither is there consistency in the
way both terms have been used in the past. While the application of NTMs does not always restrict trade,
they often result in unnecessary restrictions or undue barriers, which explains the utilisation of the term "nontariff barrier" (NTBs) The type of measures covered by the these terms varies significantly and includes all
measures other than tariffs which have an impact on trade in goods.
The early GATT Rounds of negotiations focused mainly on tariffs. With the progressive reduction of tariffs
brought about by the early GATT Rounds, it was perceived that governments were gradually shifting to other
forms of measures to restrict market access for goods and protect their domestic industries. The Kennedy
Round was the first Round of negotiations where NTMs were addressed as part of the multilateral negotiations
in addition to tariffs. The negotiations on NTMs continued in the following GATT Rounds (the Tokyo Round
and the Uruguay Round). The most important achievement was the conclusion of a number of Multilateral
Agreements at the end of the Uruguay Round, which set out specific disciplines on different forms of NTMs.
These disciplines provide to eliminate non-tariff barriers (NTBs) used solely for protectionist purposes and, in
those cases where NTMs are applied to pursue a legitimate objective (e.g. to protect health or the
environment), to minimize their trade distorting effects.
One of the best-known forms of NTBs are quantitative restrictions (QRs), which can be defined as specific
limits on the quantity or value of goods that can be imported –or exported- during a specific time period (e.g.
a prohibition or a quota). According to Article XI:1 of the GATT 1994, quantitative restrictions on imports or
exports should not be maintained by WTO Members at the time or point of importations. Thus, under the
WTO framework, while tariffs are allowed as a form of protection as long as they do not exceed the bound
levels and are applied on an MFN basis, QRs are generally prohibited because they are considered less
transparent and more trade distorting.
specific conditions.
Deviations from the general prohibition of QRs are allowed under
Whenever QRs are permitted as an exception, QRs must be imposed on a
non-discriminatory basis according to Article XIII of the GATT 1994. These requirements apply equally to the
administration of tariff quotas which constitute a form of tariff and thus, are allowed under WTO rules.
23
PROPOSED ANSWERS:
1.
Compared to the Tokyo Round, a major change in the Uruguay Round was the introduction of the
principle of ''single undertaking''.
According to this principle, all Members were required to accept the
Multilateral Trade Agreements concluded during the Uruguay Round as a whole (as a single package): no
Member had the possibility to opt out of some Agreements. Thus, while the Tokyo Round Codes were
applicable to signatories only, the Uruguay Round Multilateral Trade Agreements are binding on all WTO
Members.
2.
Quantitative restrictions (QRs) can be defined as specific limits on the quantity or value of goods that can
be imported (or exported) during a specific period, such as a prohibition or a quota.
Under the
GATT/WTO framework, while tariffs are allowed as a form of protection, as long as they do not exceed the
scheduled bound levels and are applied on an MFN basis, Members are generally prohibited from applying
QRs because they impose absolute limits on imports (while tariffs do not).
3.
The trade effects between an import quota and an import tariff are different in the following aspects:

Import quotas are more trade-restrictive than tariffs -- while an import quota imposes an
absolute limit on imports of goods, an import tariff does not.
If domestic demand increases,
imports increase in the case of a tariff, but not in the case of a quota;

Import quotas are more trade-distortive than tariffs -- the imposition of a tariff on an MFN basis
would allow the source of the imports from the most efficient foreign supplier. However, in the
case of a quota, the source of the imports is dependent upon the allocation of import licenses,
not the efficiency of foreign suppliers;

The administration of an import quota is less transparent and more costly than a tariff -- who
benefits from the «rent» depends on the administration of the quota licences. Moreover, in the
presence of licensing systems, administration and compliance costs can be very high; and,

It is more difficult to compare trade policies across countries in the case of a quota than in the
case of a tariff. Furthermore, it is more difficult to measure the trade effects of a quota than of a
tariff.
4.
By referring to restrictions ''made effective through quotas, imports or export licenses or other
measures'', Article XI:1 provides for a wide coverage of measures. In principle, 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 "duties, taxes or other charges".
The Council for Trade in Goods, in a 1996 Decision (G/L/59, Annex), provided an illustrative list of the
ways in which QRs could be made effective.
This list includes: prohibitions, prohibitions except under
defined conditions, global quota, global quota allocated by country, bilateral quota (i.e. anything less than
a global quota), automatic licensing, non-automatic licensing, QRs made effective through state-trading
operations, mixing regulation, minimum price triggering a QR, and voluntary export restraints (i.e. an
agreement between an exporting country and an importing country, where the former voluntarily limits
the quantity of its exports).
5.
Under the WTO, one must distinguish between quotas and TRQs, as the former are generally prohibited
whereas the latter are a form of tariff and therefore, allowed under the WTO Agreements. A TRQ is a
two-tiered tariff tied with a quantity under which, predetermined quantities of goods can be imported at a
"preferential" (i.e. lower) rate of customs duty over a given period of time ("in-quota" rate). Once the
TRQ volume has been filled, one can continue to import the product without limitations but paying a
higher tariff rate ("out-of-quota" rate). In other words, one could import any quantity of the product by
24
paying the out-of-quota tariff. This is different from a quota where the main feature is an absolute limit
on the volume that could be imported (i.e. imports above the prescribed quantity are prohibited, even if
willing to pay a much higher import tariff). As a result, TRQs are considered to be less trade restrictive
than quotas.
6.
Article XIII:1 sets out the basic principle of non-discrimination in the administration of both QRs and
TRQs, which is another expression of the MFN principle.
Accordingly, where authorized, QRs must be
imposed on a non-discriminatory basis, that is, no import restrictions shall be applied to one Member's
products unless the importation of like products from other Members is similarly restricted.
In other
words, a Member may not limit the quantity of imports from some Members but not from others. The
Member is expected to impose such restrictions across the board.
Article XIII:2 of the GATT 1994 provides that in applying import restrictions to any product, Members
shall aim at a distribution of trade in such product approaching as closely as possible the shares which the
various Members might be expected to obtain in the absence of such restrictions.
Article XIII:2(d)
provides for the possibility of allocating tariff quota shares to specific supplier countries.
However,
according to the chapeau of Article XIII:2, the allocation of quotas between exporting Members must aim
to ensure that QRs do not distort ordinary trade flows. Article XIII:2(d) further specifies the treatment
that, in case a quota is allocated among specific supplier countries, must be given to Members with "a
substantial interest in supplying the product concerned".
25
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