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favored-nation treatment for the products of all contracting parties in the application of marking requirements; (b) the relaxation of marking regulations, if administratively practicable, so as to permit marking at the time of importation; (c) the elimination of marking requirements which would seriously damage the goods or materially reduce their value or unreasonably increase their cost; and (d) limitation of penalties for noncompliance with marking regulations to cases of unreasonable delay, deceptive marks, or intentional omission.
Included in article IX is a provision which looks toward international cooperation to prevent the "pirating” or deceptive use of geographical trade names which are distinctive of the products of a particular country or region. Article X: Publication and Administration of Trade Regulations
Article X aims at assuring adequate publicity and fair administration of laws and regulations affecting foreign trade.
The article provides for the prompt publication of laws and regulations pertaining to customs duties and other restrictions and regulations affecting imports and exports, in such a manner as to enable governments and traders to become acquainted with them. It provides that increases in customs duties and more burdensome restrictions on imports may not be made retroactive; they may not be enforced until such measures have been officially published.
Laws and regulations are to be administered in a uniform, impartial, and reasonable manner, and the contracting parties undertake to maintain tribunals or other procedures designed to assure the impartial review and correction of administrative action relating to customs matters. Articles XI Through XV: Quantitative Restrictions and Related Exchange Matters
These five articles (XI through XV) should be considered together, as well as individually. First, there is a general prohibition against the use of quotas, this prohibition then being subject to carefully defined exceptions permitting the use of quotas in certain circumstances. Of these exceptions, the most important are (a) that permitting use of import quotas on agricultural products in conjunction with certain domestic agricultural programs and (b) that permitting
import: restrictions to safeguard a country's extornal financial position and balance of payments. General rules, subject to specific exceptions, provide for the nondiscriminatory application of permitted restrictions. The relationship of the GATT with the International Monetary Fund is also dealt with. Article XI: Elimination of Quantitative Restrictions
Article XI lays down a general rule prohibiting the use of quantitative import and export restrictions (e.g. quotas) and sets out certain exceptions to the general rule. These exceptions include (a) export restrictions imposed to prevent or relieve critical shortages of foodstuffs or other essential commodities; (b) import and export restrictions imposed in connection with grading or marketing standards; and (c) import restrictions on agricultural or fisheries products where such restrictions are necessary to the enforcement of domestic marketing or production restriction programs, or for the removal of temporary surpluses.
The article establishes the principle that, when import restrictions are imposed in connection with domestic agricultural restriction programs, the import restrictions are not to be applied in such a way as to decrease the proportion or share relative to domestic production which imports might normally be expected to furnish in the absence of restrictions.
NOTE: Under section 22 of the Agricultural Adjustment Act, as amended, the United States has found it necessary in a few instances to impose quotas or fees on imports of certain agricultural products to prevent interference with its domestic agricultural programs, particularly price-support programs which tend to keep domestic prices above world prices and thereby attract abnormal imports. By a decision of the Contracting Parties 6 in 1955, the United States was granted a waiver of its obligations under GATT articles II and XI, insofar as such obligations might be inconsistent with action required to be taken by the United States under section 22. The waiver provides that the United States shall consult with and give due consideration to the views of contracting parties affected by section 22 actions, that parties
When the term "Contracting Parties" is capitalized, it refers to the Contracting Parties acting jointly (see art. XXV).
adversely affected by action taken may have recourse to the nullification or impairment procedures of article XXIII, that the United States shall remove or relax restrictions imposed under the waiver as soon as changed circumstances permit, and that United States action under the waiver shall be reviewed annually by the Contracting Parties. Article XII: Balance-of-Payments Restrictions
As an exception to the general rule laid down in article XI against the use of quantitative restrictions on trade, article XII provides that a contracting party which is in balance-of-payments difficulties may impose import restrictions (e.g. quotas) to the extent necessary to prevent a serious decline in its monetary reserves or, if its reserves are already very low, to achieve a reasonable rate of increase in them. Such import restrictions must be relaxed or removed as the external financial position of the country improves.
Even when import restrictions are permitted under this article, various safeguards are provided to protect the interests of exporting countries. First, there is the general rule laid down in article XIII for the nondiscriminatory application of permitted quantitative restrictions. Then there is a broad undertaking in article XII that a contracting party imposing quantitative restrictions will apply them in such a way as to avoid unnecessary damage to the commercial or economic interests of other contracting parties. Provision is also made for the importation of minimum commercial quantities in order to maintain regular trade channels and to comply with patent and trademark requirements, etc.
On the one hand, the article recognizes the right of a country to maintain its domestic policies (even if these are responsible for the country's financial difficulties) and to give priority to the importation of goods which it considers more essential than others (e.g. food rather than luxuries). On the other hand, however, the article states that contracting parties, in carrying out their domestic policies, will pay due regard to the need for maintaining or restoring equilibrium in their balance of payments and to the desirability of avoiding an uneconomic use of productive resources. Measures adopted should be measures which expand rather than contract international trade.
An important safeguard for the interests of exporting countries is provided by the consultation
procedures set up by article XII, under which import restrictions are reviewed and pressure exerted to assure compliance with the rules and the early relaxation of restrictions that have been imposed. A country which imposes new restrictions or intensifies old ones is required to consult with the Contracting Parties, and a restricting country must consult in response to a "challenge” by an adversely affected contracting party. Furthermore, all contracting parties still maintaining balance-of-payments restrictions under article XII are now required to consult annually, in the course of which there is a comprehensive examination of the restrictions—the need for them, their conformity or deviation from the rules, and their effect on the trade of other contracting parties. (NOTE: Underdeveloped countries operate under separate, but similar, provisions in article XVIII which require consultations at approximately 2-year intervals.)
If, in the course of these consultations, it is determined that restrictions are being applied in a manner that is inconsistent with the General Agreement and are causing or threatening trade damage to other contracting parties, appropriate recommendations must be made for securing compliance with the agreement. If these recommendations are not carried out within a specified period, “compensatory” action may be authorized against the country applying the restrictions. In other words, the Contracting Parties may release an adversely affected contracting party from such GATT obligations toward the country applying the restrictions as may be appropriate in the circumstances.
Finally, the article provides that, if there is a persistent and widespread application of balanceof-payments restrictions, the Contracting Parties are to initiate discussions to consider whether other measures might be taken to remove the underlying causes of the disequilibrium which is restricting international trade.
Article XIII: Nondiscriminatory Administration of Quantitative Restrictions
Article XIII extends the principle of mostfavored-nation treatment (i.e. nondiscrimination) to the administration of such quantitative restrictions as are permitted under the GATT.
First, a contracting party may not restrict imports from or exports to another GATT country unless it applies a similar restriction on the like product imported from or exported to all other countries.
Second, the article lays down detailed rules aimed at assuring, when import restrictions are imposed, a distribution of trade in the product concerned approaching as closely as possible the shares which contracting parties would be likely to have in the absence of restrictions. These rules include provisions for establishing total quotas wherever practicable, giving notice of their amounts, and allocating quotas among supplying countries either by agreement with the interested countries or on the basis of the shares supplied in a previous representative period. If import licenses are employed without a quota, these may not require that the goods be imported from a particular country.
Provision is made for furnishing relevant information concerning the administration of import restrictions, for giving public notice, if quotas are fixed, of the amounts which may be imported during a specified period, and for promptly informing supplying countries of the quotas allocated to them. Special provision is made for goods enroute at the time a quota is imposed.
The selection of a representative period as the basis for allocating shares to supplying countries is to be made initially by the country imposing the quota. However, there is an obligation to consult promptly, upon request of any substantially interested country, regarding the base period selected and other matters relating to the allocation and utilization of a quota.
The provisions of the article are also made applicable to tariff quotas and, insofar as applicable, the principles of the article are likewise to apply to export restrictions. Article XIV: Exceptions to the Rule of Nondiscrimination
Article XIV, in essence, is an exception to article XIII. It contains provisions which permit, in special circumstances, the discriminatory application of quantitative import restrictions utilized to protect the balance of payments. With the estab lishment of the convertibility of the principal currencies of Western Europe, beginning in December 1958, the bulk of world trade is now carried on through the use of convertible currencies. Thus the rationale for the application of quantitative
import restrictions in a discriminatory manner has disappeared for virtually all contracting parties. Extensive progress has been made by contracting parties over the last few years to dismantle the structure of discriminatory restrictions built up when virtually all the important currencies used in trade, except the U.S. dollar, were inconvertible.
In the main, the right to discriminate under article XIV of the GATT is tied to the right to discriminate under the Articles of Agreement of the International Monetary Fund. Article XIV provides that a country may discriminate (i.e. deviate from article XIII) in applying import restrictions to the extent that it is permitted by the International Monetary Fund to discriminate in the application of exchange restrictions. In this connection the IMF ruled in October 1959 ® that "there is no longer any balance of payments justification for discrimination by members whose current receipts are largely in externally convertible currencies," while recognizing that, where such discriminatory restrictions have been long maintained, "a reasonable amount of time may be needed fully to eliminate them.” Article XV: Exchange Arrangements
Article XV deals mainly with the relationship between the Contracting Parties and the International Monetary Fund. They are to cooperate in order to achieve a coordinated policy with respect to exchange questions within the jurisdiction of the Fund and trade measures within the jurisdiction of the Contracting Parties.
The Contracting Parties are required to consult with the Fund when dealing with problems of monetary reserves, balances of payments, or foreign exchange arrangements. In such consultations the findings of the Fund with respect to the financial aspects of the problems under consideration must be accepted.
Contracting parties shall not, by exchange action, frustrate the intent of the provisions of the GATT. Similarly, they are not to frustrate, by trade action, the intent of the provisions of the Fund agreement.
The article provides that a contracting party which is not a member of the Fund must either become a member or conclude a special exchange agreement providing in part that the objectives
As amended on Feb. 15, 1961.
'For complete text, see BULLETIN of Nov. 9, 1959, P. 681. of the GATT will not be frustrated by exchange action by the country concerned. Finally, the article explicitly recognizes the right of contracting parties to use exchange controls or restrictions permitted by the Fund agreement or by a special exchange agreement and to employ trade controls or restrictions for the purpose of making effective such exchange measures.
Article XVI: Subsidies
Article XVI provides, in section A, that if any contracting party maintains a subsidy, including any form of income or price support, which operates to increase exports or to decrease imports of any product, the nature and extent of the subsidy must be reported to the Contracting Parties together with a statement showing why the subsidy is necessary and an estimate of its effect on imports or exports. If the subsidy seriously prejudices the trade of any other contracting party, the country maintaining the subsidy must, upon request, discuss with the parties concerned, or with the Contracting Parties, the possibility of limiting the subsidization. Section B of this article contains additional provisions that are designed to limit the use of export subsidies. Contracting parties should seek to avoid the use of subsidies on the exportation of primary products. If, however, such subsidies are employed, they shall not be applied in a manner which would result in obtaining for the subsidizing country more than an equitable share of the world export trade in the product concerned. In determining an equitable share, account is to be taken of the shares of the various contracting parties in such trade during a previous representative period and of any special factors affecting the trade in the product concerned. As to products other than primary products, this section of article XVI aims at the eventual prohibition of export subsidies for nonprimary products (i.e. manufactures), beginning at the “earliest practicable date” after January 1, 1958. The Contracting Parties have drawn up a supplementary agreement, which has not yet entered into force, designed to make this prohibition effective for the countries agreeing to it. Meanwhile a “standstill” arrangement under this article has been extended from time to time, whereby it is agreed generally that contracting parties would not introduce new or increased subsidies
on the exportation of nonprimary products as compared with any subsidization of such products existing on January 1, 1955. Article XVI also calls for a review of the operation of its provisions from time to time in order to appraise their effectiveness. A panel of experts, first appointed in November 1958, has submitted several reports designed to assist the Contracting Parties in such review.
Article XVII: State Trading Enterprises
Article XVII lays down the rule that an enterprise which is given exclusive or special privileges by the state shall conduct its trading operations involving imports or exports on a nondiscriminatory basis. To this end it is provided that (a) purchases and sales involving imports or exports by a state trading enterprise shall be made solely in accordance with commerical considerations such as price, quality, etc., and (b) the enterprises of other contracting parties must be given an opportunity to compete for the international business of the state trading enterprise in accordance with customary business practice. (A
note to articles XI, XII, XIII, XIV, and XVIII provides that the provisions of those articles apply to import restrictions made effective through state trading operations.)
These general rules applicable to state trading do not apply to ordinary purchases by a government for governmental use, such as purchases for the armed forces, for strategic stockpiles, or for similar purposes. For such purchases the article provides a rule of “fair and equitable” treatment.
Further provisions of this article recognize that state trading enterprises may be operated in such a manner as to create serious obstacles to trade and that negotiations to limit or reduce such obstacles are important to the expansion of international trade. The article also establishes a reporting procedure to provide information about state trading enterprises maintained by contracting parties. The reporting procedure is designed to provide interested contracting parties with the information needed for possible negotiations or for a complaint against a contracting party if it is believed the latter is operating a state trading enterprise in a manner inconsistent with the provisions of the agreement.
Article XVIII: Economic Development
Article XVIII sets out in detail the conditions and circumstances under which underdeveloped countries may deviate from the normal rules and provisions of the GATT in order to encourage economic development (e.g. the establishment of now industries) and thereby seek to raise their standard of living. The article contains five parts, & preamble and sections A to D.
The preamble, or introductory statement (paragraphs 1-6), defines the objectives and scope of the article. It states in substance that raising the standard of living of underdeveloped countries which should result from their economic development will facilitate the attainment of the objectives of the GATT; hence, underdeveloped countries occupy a special position and should be granted special facilities (i.e. they should not be held strictly to the same rules of commercial policy as the more industrialized countries). Underdeveloped countries are defined as those countries whose economies "can only support low standards of living" and are “in the early stages of development” (paragraph 4(a)).
Section A (paragraph 7) sets out a procedure whereby an underdeveloped country, in order to facilitate the establishment of a new industry, may modify or withdraw a tariff concession in its GATT schedule (i.e. increase the bound duty on a product) by negotiation and agreement with the country with which the concession was initially negotiated and with other substantially interested countries. As in article XXVIII negotiations, compensatory concessions would normally be granted, but if agreement cannot be reached, the underdeveloped country may nevertheless proceed to increase the bound duty, provided the Contracting Parties find that adequate compensation has been offered or that a reasonable effort has been made to do so. In the latter case, the affected country could withdraw equivalent concessions.
Section B (paragraphs 8-12) establishes special provisions on balance-of-payments restrictions for the underdeveloped countries, in recognition of the special and persistent pressures upon the financial reserves of these countries. These rules are substantially the same as those in article XII, except that consultations of underdeveloped countries with the Contracting Parties on balanceof-payments restrictions maintained under article
XVIII are to be held at approximately 2-year intervals instead of every year.
Section C (paragraphs 13–21) authorizes underdeveloped countries to use protective import quotas under certain conditions in order "to promote the establishment of a particular industry with a view to raising the general standard of living.” With regard to "unbound items” (i.e. products on which tariff concessions have not been made), the country is required to notify the Contracting Parties of its desire to impose restrictions and to delay action for a stated period during which it may be asked to consult. At the end of the period, it may proceed, whether or not its action has been approved, subject only to possible compensatory action by other countries. If approval is obtained, the country is released from the relevant GATT obligation. If the product is one on which a concession has been granted, the country must not only consult with substantially interested contracting parties but also obtain the approval of the Contracting Parties before it can impose a proposed restriction. Such approval shall be given if agreement has been reached during consultation with the other interested parties or, in the absence of such agreement, within & stated period, if it is found that the underdeveloped country has offered adequate compensation or made reasonable efforts to reach agreement. Any restrictions imposed under this section must be nondiscriminatory.
Section D (paragraphs 22–23) lays down procedures whereby a country whose economy is in the process of development but which is not an underdeveloped country in the sense of paragraph 4(a) may impose nondiscriminatory import restrictions (i.e. quotas) to assist in the establishment of a new industry if the prior approval of the Contracting Parties is obtained.
Article XIX: Emergency Action on Imports of Particular Products—“Escape Clause"
Article XIX contains the standard “escape clause” of the GATT which has been required to be included in U.S. trade agreements since 1947, at first by Executive order and now by the Trade Agreements Extension Act of 1951.
This article authorizes the suspension, withdrawal, or modification of a tariff concession (or other obligation) if, as a result of unforeseen