Mar 10, 1984

GATT PANEL RULES AGAINST U.S. ON NICARAGUAN SUGAR QUOTA.

GENEVA, 8 (IFDA/CHAKRAVARTHI RAGHAVAN) -- A three member GATT panel has ruled against the United States over its action reducing the sugar quota of Nicaragua on the U.S. market to 6.000 tons .-

The Contracting Parties of GATT, the panel has said, should recommend that the U.S. should promptly allocate to Nicaragua a sugar import quota consistent with the share of the U.S. market that Nicaragua would have obtained without the restrictions.-

The panel report now goes before the GATT Council, which acts, by consensus.-

In May 1982, the U.S. imposed a quota system on sugar imports from abroad, acting under the tariff schedules of the U.S.A., which are incorporated in the GATT schedule of tariff concessions.-

Under this Nicaragua was allotted an import quota of 58.000 tons or a 2.1 percent share of the total import quota, corresponding to its average exports to the U.S.A. during 1975-81.-

This order was modified in May 1983, reducing the Nicaraguan quota to 6.000 tons and redistributing the balance among El Salvador, Honduras and Costa Rica. This became effective from September 23, 1983.-

The modification announcement had said the action was being taken "to reduce the resources available to Nicaragua for financing its military build-up, and its support for subversion and extremist violence in the region".-

On a complaint by Nicaragua, the GATT Council set up the panel to adjudicate the dispute.-

Nicaragua argued before the panel that though the U.S. had been given a permanent waiver enabling it to derogate from its obligations under article XI (relating to elimination of quota restriction) as provided in the U.S. agricultural adjustment act, the U.S. actions on sugar import quotas was not under this waiver, but by modification of U.S. tariff concessions.-

It was hence violative of U.S. obligations both under article XI article II (schedule of concessions in GATT).-

The U.S. action was also contrary to its obligations under article XIII relating to non-discriminatory application of quota restrictions, and part IV of GATT relating to special provisions favouring the developing countries.-

The U.S., Nicaragua noted, had explained its actions in terms of "foreign policy and security considerations".-

This was against the fundamental GATT principle that trade measures should not be used to exert pressure for solving non-economic problems, a principle also embodied in the 1982 GATT Ministerial declaration.-

Both before the panel, and earlier in the GATT Council, the U.S. did not seek to justify its actions in terms of any GATT provisions, and made clear the action was not "solely motivated by trade considerations".-

The action, the U.S. said, was justified "in the context in which it was taken", and discussing it in purely trade terms within GATT, divorced from the broader context of the dispute, would be "disingenuous".-

In rejecting this approach, the panel said that the U.S. measures were but one aspect of a more general problem (presumably relating to U.S.-Nicaraguan relations) .-

But the panel had examined the issue solely in the light of GATT provisions and the trade issue under dispute.-

The panel did not go into the examination of the U.S. sugar import quota system as such, viewing it as beyond its terms of reference.-

However, it ruled that the U.S. action was contrary to its obligations under article XIII, requiring any country applying a quota restriction "to aim at a distribution of trade in such product approaching as closely as possible the shares which various parties might be expected to obtain in the absence of such restrictions".-

In this light, the sugar quota of 6.000 tons allocated to Nicaragua for fiscal year 1983/84 was inconsistent with U.S. obligations to GATT under article XIII: 2.-

The panel noted that the U.S.A. had not invoked any of the exceptions provided in GATT permitting discriminatory quantitative restrictions, and hence the panel had not examined whether the action was justified any of these exceptions.-

Having found the U.S. action to be inconsistent with its article XIII: 2 obligations, it had not also considered whether it violated U.S. obligations under article II or part IV of the GATT.-

The Contracting Parties, the panel suggested, should recommend that the U.S. should promptly allocate to Nicaragua a sugar quota with U.S. obligations under article XIII: 2.-