Module2 Part11

2.

Exceptions

General horizontal exceptions and protective measures which also constitute a derogation to other rules are examined in Modules 4 and 5. Specific exceptions to the Principle of Prohibition of Quantitative Restrictions are allowed to : Prevent critical shortage of foodstuffs or other essential products (GATT Art. XI:2a) Remove temporary surpluses of a like domestic product for which the imported product is a direct substitute (GATT Art. XI:2b) Uphold import restrictions on agricultural and fisheries products (GATT Art. XI:2c)

The drafters of the GATT Agreement realized that in specific circumstances (shortages or surplus of products domestically produced) one could derogate from the "no QRs" principles to prevent or deal with critical situations. The exception contained in GATT Art. XI:2c and which creates a quasi-general derogation for agricultural policies and measures relating to fishery products constituted the essential provision which led to "special treatment" for agriculture. The "agricultural exception" ended when the WTO Agreement on Agriculture entered into force. The WTO Agreement on Agriculture superseded GATT Art. XI:2c. Art. 4 of the Agreement on Agriculture provides, among other things, that quotas must be transformed into tariffs ("tariffication"). Consequently, under the WTO, quantitative restrictions remain possible only on fishery products. It may be useful here to distinguish between Quotas – which are generally prohibited – and Tariff-Rate Quotas (TRQs). TRQs are predetermined quantities of products which can be imported at a "preferential" rate of customs duty ("in-quota Tariff Rate"). Once the TRQ has been filled, one can continue to import the product without limitation – so it is not a quantitative restriction in the sense of GATT Art. XI – but at a higher tariff rate ("out-of-quota Tariff Rate"). The "out-of-quota Tariff Rate" is generally the MFN rate. In a tariff-quota, specific quantities of products may be imported at different tariff levels. The allocation of the TRQ should obey disciplines in GATT Art. XIII (Non-discriminatory Administration of Quantitative Restrictions) which provides that TRQs should be applied similarly to products from all origins, but allocations should also respond as closely as possible to the expected markets share that would have existed in the absence of TRQs. Agreements with principal suppliers are also possible.

ILLUSTRATION Prohibition of Quantitative Restrictions (for Goods) Let us assume that Alba and Vanin are WTO Members. GATT Article XI:1 requires Members to eliminate quantitative restrictions in the form of quotas, import or export licenses, or other measures. Therefore, a violation of the GATT can take several forms. A typical violation occurs where an importing Member seeks to limit the amount of a good imported into the country, usually to protect a competing domestic industry. For example, if Alba determined that the potential market for watches in Alba was 1 million per year and decided that in order to ensure dominance of the domestic industry it will limit the number of Vanin watches imported to 400,000, this would be a violation of Article XI:1.

However, a distinction can be made between prohibited quotas and Tariff-Rate Quotas (TRQs). Alba could instead allow 400,000 Vanin watches to be imported at a preferential tariff rate and collect a higher rate of duties on watches exceeding the 400,000 limit (though not higher than Alba's bound rate). This policy would be permitted under Article XI, because, in the example, there are no numerical limitation on the amount of watches that can be imported. The Government of Alba is simply providing better market access through a preferential duty for imported watches up to a certain quantity (from 1 to 400,000 watches). They applied the regular duty after the quota is filled i.e. starting on the 400,001st watch imported in the country. There was therefore no trade restriction. Nevertheless, Quantitative Restrictions can be applied to fisheries products. Therefore, Alba could impose a quota on how many salmons Alba import. For example, the Government of Alba could introduce a quota of 10MT of salmons. In such circumstances, importers cannot import more than 10MT of salmons per year into the country. Members are also allowed to derogate from the elimination of quantitative restrictions when they take "safeguard measures". Safeguard measures will be discussed in more details in Module 5.