Chapter 3 Quantitative Restrictions

chapter 3
QUANTITATIVE RESTRICTIONS
1. OVERVIEW OF RULES
Article XI of the GATT generally prohibits quantitative restrictions on the
importation or the exportation of any product by stating “No prohibitions or restrictions
other than duties, taxes or other charges . . . shall be instituted or maintained by any
Contracting Party…” One reason for this prohibition is that quantitative restrictions are
considered to have a greater protective effect than tariff measures and are more likely to
distort the free flow of trade. When a trading partner uses tariffs to restrict imports, it
remains possible to increase exports as long as foreign products become price-
competitive enough to overcome the barriers created by the tariff. When a trading
partner uses quantitative restrictions (i.e., quotas), however, it is impossible to export in
excess of the quota no matter how price competitive the product may be. Thus,
quantitative restrictions are considered to have a distortional effect on trade and their
prohibition is one of the fundamental principles of the GATT.
However, the GATT provides exceptions to this fundamental principle. These
exceptions permit the imposition of quantitative measures under limited conditions, and
only if they are taken on policy grounds justifiable under the GATT, such as critical
shortages of foodstuffs (Article XI:2) or balance of payment problems (Article
XVIII:B). As long as these exceptions are invoked formally in accordance with GATT
provisions, they cannot be criticized as unfair trade measures.

2. LEGAL FRAMEWORK
GATT Provisions Regarding Quantitative Restrictions
Quantitative import and export restrictions against WTO Members are prohibited
by Article XI:1 of the GATT. GATT provisions, however, provide some exceptions for
quantitative restrictions applied on a limited or temporary basis (See Figure II-3-1).
This section details quantitative restrictions permitted under the exceptions.

Figure II-3-1 Exceptions Provided in GATT Article XI

 “Export prohibitions or restrictions temporarily applied to prevent or relieve critical
shortages of foodstuffs or other products essential to the exporting” WTO Member
(Paragraph 2 (a));
 “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” (Paragraph 2 (b)); and
 “Import restrictions on any agricultural or fisheries product . . . necessary to the
enforcement of governmental measures which operate . . . to restrict” production of
the domestic product or for certain other purposes (Paragraph 2 (c)).

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Exceptions Provided in Other Articles

Non-Economic Reasons
 General exceptions for measures such as those necessary to protect public morals or
protect human, animal, or plant life or health (Article XX);
 Exceptions for security reasons (Article XXI).
Economic Reasons
 Restrictions to safeguard the balance of payments (Article XII regarding all WTO
Members; Article XVIII:B regarding developing WTO Members in the early stages
of economic development);
 Quantitative restrictions necessary to the development of a particular industry by a
WTO Member in the early stages of economic development or in certain other
situations (Article XVIII:C, D);
 Quantitative restrictions necessary to prevent sudden increases in imports from
causing serious injury to domestic producers or to relieve producers who have
suffered such injury (Article XIX);1
 Quantitative restrictions imposed with the authorization of the Dispute Settlement
Body as retaliatory measures in the event that the recommendations and rulings of a
panel are not implemented within a reasonable period of time (Article XXIII:2);
 Quantitative restrictions imposed pursuant to a specific waiver of obligations
granted in exceptional circumstances by the Ministerial Conference (or the General
Council in between Ministerial Conferences).2

Import Restrictions for Balance-of-Payments Purposes

Under GATT Articles XII or XVIII:B, a WTO Member may restrict imports in
order to safeguard its balance-of-payments (BOP) if the International Monetary Fund
(IMF) finds that the country is experiencing BOP difficulties (Article XV:2). When a
country is designated as an “IMF Article VIII country”, it is not generally permitted to
institute foreign exchange restrictions. Members have rarely been found to be
experiencing BOP difficulties.
Figure II-3-2 shows recent developments in WTO Committee on Balance-of-
Payments Restrictions consultations. While Article XII can be invoked by all Members,
Article XVIII:B can be invoked solely by Members who are in the early stages of
economic development and whose economy can only support low standards of living.

1
Quantitative restrictions imposed under the above-mentioned three exceptions should, in principle, be
applied in a non-discriminatory manner (Article XIII).
2
See Chapter 1 for a discussion of the conditions for waivers under the WTO Agreement.

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Figure II-3-2 Consultations in the WTO Committee on Balance-of-Payments

Restrictions Under Article XII and Article XVIII: B of the GATT
Article
Most Recent Details of
Country on which Circumstance
Based
Consultation Measures
The Committee on Balance of
Payments was notified in February
2009 that import restrictions were
being introduced for a period of one
year on 630 items due to a worsening
Ecuador XVIII: Import
June 2009 international balance of payments. In
(2009) B restrictions June, GATT Article XVIII:B was
applied after discussion.
The Ecuadorian government promised
that these restrictions will be lifted by
January 2010.
The Committee on Balance of
Payments was notified that a 13%
surcharge would be imposed on
imports due to problems with
international balance of payments. In
Ukraine September Import
XII discussions in September the same
(2009) 2009 surcharges year, however, the Committee on
Balance of Payments stated that GATT
Article XII could not be applied. The
surcharges were lifted as of September
2009.
The Committee approved the plan of
the Government of Bangladesh to
eliminate BOP restrictions on 11 out of
16 items in January 2001. According to
the plan, the restrictions on the 11
items would be fully eliminated by
January 2005. With respect to the
remaining 5 items, the Committee
Import approved retaining restrictions on: (1)
Bangladesh XVIII: October restrictions on sugar until July 2005, together with the
submitted elimination plan (Committee
(1962) B 2002 agricultural on Balance of Payments, February
products 2002); and (2) chicken, eggs, paper
boxes and salt under Article XVIII:B
until 2009 (Committee on Balance of
Payments, October 2002).
Subsequently, Bangladesh notified the
Committee on Balance of Payments
that it had lifted restrictions on paper
boxes (2005), salt (2008) and chicken
eggs (2009.
Under Articles XII and XVIII:B of the GATT, a Member may restrict imports in
order to safeguard its balance of payments. However, a lack of well-defined criteria
with which to judge whether the country has met the conditions of these articles has led
to occasional abuse. To correct this, the WTO Agreement attempted to clarify the

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conditions for invoking the BOP provisions. These conditions are detailed in the
Understanding on the Balance-of-Payments Provisions of the GATT 1994 (the
Understanding) and summarized below (Figure II-3-3) in the Outline of BOP
Understanding. Among other requirements, countries invoking BOP safeguards must
now specify products involved and provide a timetable for their elimination. In 2009,
both Ukraine and Ecuador introduced import restriction measures after the Lehman
Brothers collapse, and have requested the application of GATT Articles XII and
XVIII:B. In the case of Ukraine, however, the introduction was merely temporary, both
countries had withdrawn all measures.

Figure II-3-3 Outline of BOP Understanding

Conditions and Procedures
 Restrictive import measures taken for BOP purposes “may only be applied to
control the general level of imports and may not exceed what is necessary to
address the balance-of-payments situation” (Paragraph 4 of the Understanding).
 Members must announce time-schedules for removing restrictive import measures
taken for BOP purposes (Paragraphs 1 and 9).
 Wherever possible, price-based restrictions are to be preferred to quantitative
restrictions, except in times of crisis (Paragraph 3).
 Cumulative restrictions on the same product are prohibited (Paragraph 3).
Committee on Balance-of-Payments Restrictions
 A Member invoking restrictive import measures for BOP purposes “shall enter
into consultations with the Committee within four months of adopting such
measures” and consult in accordance with Article XII or XVIII as appropriate
(Paragraph 6).
 “The Committee shall report on its consultations to the General Council”
(Paragraph 13).

The Agreement on Agriculture

The Agreement on Agriculture created substantial, binding commitments in three
areas: market access (tariffication), domestic support (reduction in domestic subsidies)
and export competition. These commitments were to be implemented over a six-year
period beginning in 1995. This was accomplished despite the following difficulties: (1)
the U.S. use of price-support policies to boost grain production and exports to portray
itself as “the world’s breadbasket”; (2) the European Union’s Common Agricultural
Policy (CAP) that used price supports, variable import levies, and export subsidies, and
consequently transformed the European Union from one of the world’s largest importers
of agricultural products to one of the largest exporters; and (3) increased competition for
grain exports as the shortages that existed through the mid-1970s turned into surpluses
because of changes in the international supply-and-demand balance.
Figure II-3-4, below, outlines the market access provisions of the Agreement on
Agriculture to which each WTO Member must conform its import quota measures. The
integrated dispute settlement procedures of the WTO apply to consultations and dispute
settlements arising under the Agreement on Agriculture.

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Figure II-3-4 Outline of the Agreement on Agriculture

All non-tariff barriers are to be converted to tariffs using tariff equivalents
Tariffication of
(tariffication), (Article 4.2) and concessions are to be made. After
Non-Tariff
conversion, tariffs, in principle, should be equal to the difference between
Barriers
import prices and domestic wholesale prices.
Over a period of six years, ordinary tariffs, including tariff equivalents, were
Reduction in
to be reduced by at least 36 percent overall and at least 15 percent for each
Ordinary Tariffs
tariff line.
Tariff equivalent quantities that can serve as an index in tariffication (domes-
Tariff equivalent tic and foreign price difference) shall be, in principle, the difference between
quantities a domestic wholesale price and an import price, with a base-year period of
1986 to 1988.
“Current access Current access opportunities will be maintained for tariffed products. If
opportunity” imports are negligible, however, a minimum access opportunity of 3 percent
Standards for of domestic consumption will be provided in the first year, expanding to 5
Establishing percent by the end of the implementation period (Article 4.2 and Annex 5).
Minimum
Access
Opportunities
Under Article 5, additional tariffs may be imposed as special safeguard
measures for tariffed items and may be increased either by: (i) one-third for
the relevant year only; or (ii) 30 percent, if a drop of 10-40 percent occurs for
the portion of the drop over 10 percent and applied to the relevant shipment
load only. Additional tariffs may also be imposed where price drops exceed
40 percent.
Specifically, under Article 5:
1. Tariffs may be increased by one-third if import volumes exceed the
following trigger level: (percentage of market access opportunities in
Special
domestic consumption quantities):
Safeguards
a) Where market access opportunities are 10 percent or less, the base
trigger level shall be equal to 125 percent;
b) Where market access opportunities are greater than 10 percent but
less than or equal to 30 percent, the base trigger level shall be
equal to 110 percent;
c) Where market access opportunities are greater than 30 percent, the
base trigger level shall be equal to 105 percent. (Article 5.4)
2. Tariffs may be increased if import prices drop more than 10 percent from
the average prices for 1986-1988 (Article 5.5).
Any Member instituting a new export prohibition or restriction on foodstuffs
Rules on Export
shall give due consideration to the effects thereof on the importing Member’s
Prohibitions and
food security, notify the Committee on Agriculture, and consult with any
Restrictions
other Member having a substantial interest.3 (Article 12(1))

3
Special exceptions (implementation waived for six years) to the tariff rule were applied to agricul-
tural products that meet several conditions, including the three criteria below. The exceptions are condi-
tional upon set increases in minimum access opportunities (increasing those of 3 percent and 5 percent, to
those of 4 percent and 8 percent, respectively). The three criteria for special exceptions are:
(1) Imports during the base period (1986-1988) were less than 3 percent of domestic consumption;
(2) Export subsidies are not provided;
(3) Effective production limits are in place.
When exceptions are ended during implementation, the annual rate of increase for minimum ac-
cess is reduced beginning the next year (from 0.8% to 0.4%).

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3. ECONOMIC ASPECTS AND SIGNIFICANCE

The imposition of quantitative restrictions on imports and exports (and other
similar measures also act as quantitative restrictions on imports), through direct
restriction on the amount of the foreign product imported enables domestic products to
avoid direct competition. Quantitative restrictions also enable the applicable domestic
industry, at least for the time being, to secure market share, expand their profits and
stabilize employment. When quantitative restrictions are employed by a “large country”
with enough trade volume to influence international prices, the decline in import
volumes may improve the terms of trade and can increase the economic welfare of the
importing country as a whole. Quantitative restrictions on imports and the resulting
declines in export volumes may convince foreign companies to make direct investments
in the importing country and to transfer production there. Such investments have the
effect of promoting employment and technology transfers.
At the same time, quantitative restrictions impair access of foreign products
enjoyed by consumers and consuming industries in the importing country. By
increasing prices and reducing the range of choice, the economic benefit for these
groups is vastly diminished. Although quantitative restrictions may improve the terms
of trade for importing countries, they exacerbate the terms of trade for exporting
countries and reduce their economic welfare. The disparity between international and
domestic prices caused by quantitative restrictions becomes a “rent” that profits those
who own export and import licenses. In the case of export restrictions, the rent shifts
overseas; consequently, economic welfare in the importing country is reduced more than
under an import restriction scenario. Import restrictions require that the quantities,
varieties and importers (or in the case of export restrictions, exporters) be determined in
advance. These determinations can be arbitrary and opaque, causing unfairness among
industries and unfairness in the acquisition of export/import licenses. In addition,
import restrictions fail to reflect changes in international prices and exchange rates.
Thus, the GATT/WTO prohibits all quantitative restrictions, with only a handful of
exceptions.
Badly implemented quantitative restrictions have a detrimental impact on industry
- they discourage companies to streamline productivity that they would otherwise have
been required to undertake if exposed to intense competition. Unless quantitative
restrictions are clearly characterized as temporary measures contingent upon
adjustments made to the industrial structure and upon sufficient productivity gains
achieved during the period of implementation, they have a high potential over the
medium and long term to impair development of the industry and harm the economic
interests of the restricting country, regardless of what their short-term benefits may be.

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4. RELATIONSHIP BETWEEN THE WTO AGREEMENT AND

TRADE RESTRICTIVE MEASURES PURSUANT TO
MULTILATERAL ENVIRONMENTAL AGREEMENTS
The WTO Committee on Trade and Environment (CTE) discussed the relationship
between the WTO Agreement and trade measures pursuant to Multilateral
Environmental Agreements (MEAs) with respect to quantitative restrictions.
The GATT generally bans quantitative restrictions, but allows those which fall
under the general exceptions described in Articles XX(b) (necessary to protect human,
animal, or plant life or health) and XX(g) (relating to the conservation of exhaustible
natural resources). Measures applied under these exceptions also must not be applied
in a manner that would constitute a means of arbitrary or unjustifiable discrimination or
disguised restriction on international trade.
MEAs such as the Basel Convention on the Control of Transboundary Movements
of Hazardous Wastes and their Disposal, the Montreal Protocol on Substances that
Deplete the Ozone Layer, and the Convention on International Trade in Endangered
Species of Wild Fauna and Flora authorize trade measures that are aimed at protecting
the environment outside either member countries’ jurisdiction or the global
environment, or that serve to encourage changes in the environmental policy of non-
signatories of MEAs. The finding of the past GATT panel reports would seem to
indicate that such measures conflict with the WTO Agreement. The CTE Committee
has therefore been examining how to clearly ensure the WTO compatibility of trade
measures taken pursuant to MEAs.
One opinion voiced is that Article XX of the GATT (general exceptions) should
be amended to expressly permit exceptional treatment for measures taken for
environmental protection. Opponents argue, however, that allowing waivers on a case-
by-case basis is adequate to address the issue. There has also been a proposal to
formulate guidelines for the types of trade measures under MEAs that would be
considered consistent with the WTO Agreement.
In its report to the Singapore Ministerial Conference in December 1996, the CTE
noted that there may be cases in which trade measures pursuant to specifically agreed-
upon provisions would be necessary to achieve the objectives of MEAs. The CTE,
however, offered no conclusions on how to ensure conformity with the WTO
Agreement. Discussions on this topic are still ongoing. It is the majority’s opinion,
however, that unilateral measures for reasons of protecting the environment outside the
jurisdiction of one’s own country should be strictly avoided when such measures are not
based on MEAs.4
The November 2001 Doha Ministerial Declaration agreed on negotiations involv-
ing the WTO and MEAs, but limited them in scope to the relationship between MEAs
of relevant parties. Discussions at CTE have been ongoing since March 2002, and ar-
rangements are being made for summarizing the past negotiations.

4
See also the discussion in Chapter 10 on the relationship between Eco-labelling schemes and the TBT
Agreement, another major subject discussed in the CTE.

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5. MAJOR CASES
(1) US – Import Restrictions on Yellowfin Tuna (BISD 39S/155) (unadopted)
To reduce the incidental taking of dolphins by yellowfin tuna fisheries, the United
States implemented the Marine Mammal Protection Act of 1972 to ban imports of
yellowfin tuna and their processed products from Mexico and other countries whose
fishing methods result in the incidental taking of dolphins in the Eastern Tropical
Pacific. A GATT panel established pursuant to a request by Mexico in February 1991
found that the US measures violate the GATT. The panel report concluded that the US
measures violate Article XI as quantitative restrictions and that such restrictions are not
justified by Article XX(b) and (g) because: (1) the US measures may not be a necessary
and appropriate means of protecting dolphins, and (2) allowing countries to apply
conservation measures that protect objects outside their territory and thus to determine
unilaterally the necessity of the regulation and its degree would jeopardize the rights of
other countries.
Subsequently, in September 1992, a GATT panel was established to examine the
issue again at the request of the European Communities and the Netherlands
(representing the Dutch Antilles). In May 1994, the panel found that the US measures
violate GATT obligations. The report noted that the US import prohibitions are
designed to force policy changes in other countries, and were neither measures
necessary to protect the life and health of animals nor primarily aimed at the
conservation of exhaustible natural resources. As such, the panel concluded that the US
measures violated Article XI and were not covered by the exceptions in Articles XX(b)
or (g). This report was submitted, however, to the GATT Council for adoption in July
1994, but was never adopted as a result of opposition from the United States.

(2) US – Import Restrictions on Shrimp and Shrimp Products (DS 58)

Under Section 609 of Public Law 101-162 of 1989, the United States began
requiring shrimp fishers on May 1, 1991, to provide a certificate showing that their
governments maintain a regulatory program comparable to that of the United States for
protecting sea turtles from shrimp nets, and banned imports of shrimp from countries
that cannot provide such certification. In response to this, India, Malaysia, Pakistan and
Thailand initiated WTO dispute-settlement procedures, claiming that the US measures
violate Article XI and were not justified under any GATT regulation Article XX
exception. The panel found that the US measures regarding shrimp imports violated
GATT Article XI, and that measures attempting to influence the policies of other
countries by threatening to undermine the multilateral trading system were not justified,
under GATT Article XX. The Appellate Body subsequently reversed some of the
panel’s findings, but it nonetheless agreed with the panel’s decision.

(3) Measures Relating to Brazil’s Import of Recycled Tires (DS332)

In 2004, Brazil introduced restrictions on the import, sale, transportation and
storage, etc., of used tires, and prohibited the import of recycled tires, since it was
considered that the storage of used tires was creating a breeding ground for disease-
carrying mosquitoes, leading to the incidence of malaria and dengue and resulting in a
serious negative impact on the life and health of its citizens. In response to this, the EC
claimed that prohibiting the import or restriction of used or recycled tires was an

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infringement of GATT Article XI:1, and initiated WTO dispute-settlement procedures.

The panel acknowledged the EC’s claim and judged the measures an infringement of
GATT Article XI. Since Brazil did not appeal this issue to the Appellate Body, it was
resolved at panel level. In this case, in addition to the infringement of GATT Article XI,
whether or not the infringement was justified under GATT Article XX(b) was also
disputed. The Appellate Body ruled that the measure was not justified under GATT
Article XX (b), stating that the import prohibitions/restrictions were “arbitrarily or
unjustifiably discriminatory” (GATT XX introduction) due to the fact that some
exceptions had been allowed (such as the import of used and recycled tires from
MERCOSUR countries, etc.)

(4) Introduction/Expansion of Non-Automatic Import Licensing System by Argentina

(DS438, 444, 445)
In November 2008, Argentina introduced a non-automatic import licensing system
for approximately 400 items, including metal products (elevators, etc.), that would
require applications to be submitted along with prescribed information. However, the
requirements for issuing a license were unclear and the issuance had been delayed (this
system was abolished in January 2013, just before the establishment of a panel, and
therefore no deliberation took place under the WTO dispute settlement procedures).
Since at least 2009 Argentina also imposed various Trade-related Requirements for the
purpose of trade balancing (measures to require business operators to export goods from
Argentina of a value equivalent to or greater than the value of the business operators’
imports or to make or increase investments in Argentina) and limited the volume of
imports by localization, etc. through unwritten verbal instructions. In February 2012,
Argentina established the Advance Sworn Import Declaration (DJAI) system, which
required importing business operators to provide specified information, including the
description of the product, quantity, price, etc., and obtain approval from the Federal
Administration of Public Revenue before initiating import procedures.
The United States, the EU and Japan filed a complaint under the WTO dispute
settlement procedures, claiming that the import restriction measures by Argentina were
in violation of GATT Article XI:1. The Panel issued a report accepting the claims of the
complainant countries in August 2014. The Panel determined that the Trade-related
Requirements were in violation of GATT Article XI:1 for the following reasons: (1)
while the existence of the measure was at issue because the it was implemented through
unwritten verbal instructions, the measure, which imposed trade balancing
requirements, local content requirements, and investment requirements, etc. to importers
in a broad range of industries based on the Argentine policy aimed at limiting imports
and reducing trade deficits, was found to exist based on documents published by the
government and various evidentiary materials submitted by business operators,
including sworn affidavits, etc.; and (2) the measure was trade restrictive because
satisfying the requirements was established as a condition for import, and the measure
lacked transparency and predictability due to its unwritten nature. The Panel also
determined that the DJAI system was trade restrictive and therefore in violation of
GATT Article XI:1 because obtaining approvals was established as a condition for
import, and the scope of administrative agencies that can participate in the system and
terminate/delay the approval procedures as well as the standards for exercising their
discretion were unclear. Argentina objected to the Panel’s decision and applied. In

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January 2015, the Appellate Body released a report upholding the Panel’s ruling.

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