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Understanding paras. 7–11
).
9
A further point in the understanding makes it clear that the examination of a regional agreement under
Article XXIV does not (as has sometimes been argued in the past) extinguish the separate right to invoke
the GATT/WTO dispute settlement procedures on matters arising from the application of the article
(
Understanding para. 12
).
Rules of origin, actions by lower-level governments
Nothing is said in the Article XXIV understanding about the question of rules of origin. Although a
separate Uruguay Round agreement,
10
(discussed in a separate book in this series), deals with origin rules,
it applies only peripherally to origin rules used in preferential arrangements such as regional trading
agreements.
The Article XXIV understanding also includes a provision which deals with a paragraph of the article that
has nothing to do with regional agreements. Article XXIV:12 concerns the responsibility of WTO member
governments to take “reasonable measures” to ensure that lower-level regional or local governments observe
the GATT rules. The problem of such governments or authorities not acting in accordance with
commitments made by the central government is primarily one that arises in federal states.
The understanding states clearly that WTO members are fully responsible for breaches of the GATT by
subordinate levels of government, and may ultimately have to provide compensation if they cannot make the
subordinate level meet GATT obligations (
Understanding paras. 13–15
).
Balance-of-Payments Provisions
As noted earlier, the GATT allows countries in balance-of-payments difficulty to introduce trade restrictions
as one of the major exceptions to the basic principles of tariff bindings and “tariffs only”.
The GATT articles concerned — XII and XVIII:B — will probably not work very differently under
GATT 1994 than under GATT 1947. Nevertheless, the understanding
11
reached in the Uruguay Round on
these articles is quite significant, particularly as regards the kind of restrictions that countries may be
authorized to introduce.
Article XII, the only balance-of-payments provisions available to
developed countries
, allows import
restrictions to the extent necessary either to forestall an imminent threat of, or to stop, an imminent decline
9
The WTO General Council has established a Committee on Regional Trade Agreements to carry out the examina-
tion of such agreements, in replacement of the ad hoc working parties previously used for this purpose (Decision of
6 February 1966, WT/L/127).
10
Agreement on Rules of Origin.
11
Understanding on Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994
.
8
THE WORLD TRADE ORGANIZATION AGREEMENTS
in its reserves or to rebuild reserves that are very low.
Article XVIII:B, available only to
developing countries
, eases these conditions somewhat by not
requiring a threat to be “imminent” and by specifying that reserves be “inadequate” rather than “very low”.
Both articles provide that in these circumstances the general level of imports may be controlled through
restrictions on the quantity or value of imports (
GATT 1947 Articles XII:2(a) and XVIII:B:9
).
In recent years, developed countries have almost ceased to resort to Article XII, and the use of import
surcharges or similar price-based measures has been recognized to be preferable to quantitative
restrictions.
12
Commitment to ‘price-based’ measures
The new balance-of-payments understanding gives a formal endorsement to the latter change that is almost
equivalent to amendment of both articles: WTO members “confirm their commitment” to price-based
measures such as import surcharges or import deposit requirements as having the least disruptive effect on
trade.
These are to be accepted in spite of the fact that they may involve imposing duties at levels higher than the
maxima bound by the member concerned in its goods schedule. Members shall “seek to avoid” imposing
new quantitative restrictions (
Understanding paras. 1–3
).
Announced timetables, and avoiding protection for particular sectors
Other provisions affecting measures taken under the balance-of-payments articles are also strengthened.
Members accept the obligation to announce publicly time schedules for phasing out restrictive import
measures, or to provide justification where this is not possible (
Understanding
paras. 1 and 11(d)
). They
confirm that restrictions applied for balance-of-payments reasons may only be applied to control the general
level of imports: while “essential imports” may be excluded from such restrictions, this term is defined
(
Understanding para. 4
)
13
in such a way as to prevent it from becoming a loophole for the protection of
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