Jun 13, 1989

U.S. SUGAR IMPORT QUOTA REGIME HELD GATT ILLEGAL.

GENEVA, JUNE 12 (BY CHAKRAVARTHI RAGHAVAN)— The sugar import restrictions and the quota regime for imports, maintained by the United States since 1982, has been held by a three-member GATT panel to be illegal in terms of U.S. obligations in GATT.

The panel ruled that the U.S. restrictions were contrary to the GATT provisions in article XI relating to quantitative restrictions (QRS), and could not be justified by a reference to the U.S. tariff schedule incorporated in GATT under article II.

The panel ruling came in a dispute involving Australia and the United States.

The panel, whose report will come up before the GATT council on June has said the U.S. should be, asked either to terminate the restrictions or to bring them into conformity with GATT.

The implication of this ruling, if accepted by the GATT council, would appear to be that any new U.S. sugar import regime must involve equivalent restrictions on domestic production, and maintenance in the domestic market of the shares of imports, probably relative to the period before the 1982 regime.

There were two other issues raised before the panel, one by Australia and the other by the EEC, on which the panel gave no ruling, but which would remain open in the event of a new U.S. sugar regime to protect domestic producers, particularly the influential agri-corporations involved in sugar substitutes.

The first is an issue raised by the EEC before the panel as an "interested party", namely the incompatibility of the U.S. regime with the conditions of the waiver granted to the U.S. in 1955 in respect of agriculture.

The EEC has a pending dispute with the U.S. on this specific issue in the GATT Council since June 1988. But the U.S. has been resisting reference of this wider question to a panel.

In declining to go into this issue, the GATT panel has recalled the GATT practice that panels may make findings only on issues raised by parties to a dispute.

The panel has not also ruled on an issue that arose subsequently, namely, the legality of U.S. action in reallocating a portion of Guyana’s sugar quota to three other caricom countries on the basis of exchange of letters between the U.S. and caricom countries.

The U.S. has maintained a sugar quota regime under the U.S. sugar act of 1948, restricting domestic production and imports to provide price support to domestic producers.

In the 1949 annecy round of MTNS in GATT, the U.S. negotiated tariff concessions on raw and refined sugar, and bound it in GATT through its schedule of tariff concessions under article II. Under a head note to the U.S. schedule, the concession was made subject to the quota regime, for domestic production and imports, under the 1948 sugar act which the U.S. agriculture secretary was required to establish.

Subsequent tariff changes in U.S. schedules all carried the same head note qualifications.

The U.S. sugar act of 1948 expired on 31 December 1974, and there has been no equivalent legislation since then. But by a presidential proclamation in November 1974, the U.S. introduced import quotas and provided for duties on raw and refined sugar imports on the basis of its head note to the U.S. tariff schedule.

In May 1982, a new "emergency" import quota programme was announced, providing for determination of global import quota and their allocation, among various exporters.

The average U.S. sugar imports between 1977-1981 was 5.08 million short tons.

Under the new regime, for U.S. fiscal year 1982/83, a global import quota of 2.80 million short tons (raw value) was fixed, with an additional 2.000 short tons for speciality sugars.

On the basis of this global import quota, the Australian share of 8.3 percent of imports was maintained.

But since 1982, the global import quotas have been steadily going down. For 1988 calendar year, the global quota was 1.057 million short tons, and for 1989 a quota of 1.240 short tons has been set.

Due to reduction in overall imports, Australia’s volume of exports to the U.S. has fallen steadily from 232,400 short tons in 1982/83 to 83,335 in 1988, and an allocated quota for 1989 of 96,343 short tons.

Australia argued before the panel that the U.S. import restrictions were contrary to the provisions of article XI prohibiting QRS in general, and were not protected by any of the exceptions.

One of these, in article XI: 2 (C) (I), requires that the import restricting measures must be those necessary to enforcement of governmental measures that operate to restrict marketing or production of quantities of like domestic product, and that the import restrictions should not reduce the total share of imports relative to total domestic production, compared to the proportion that could be reasonably expected to rule in the absence of the restrictions.

Australia also noted that the U.S. had not invoked before the panel the waiver it had from GATT obligations in respect of sec. 22 of its agricultural adjustment act, and argued that in any event the waiver did not permit imposition of quotas and fees import tariffs, etc., simultaneously.

The U.S. justified before the panel its restrictions solely on the basis of its head note to the tariff schedule, arguing that its incorporation in GATT under article 11 with the head note meant that other GATT provisions would not apply.

Ruling against the U.S. on this, the panel said that the right provided under article 11 to stipulate conditions while filing tariff schedules could only be interpreted to mean that it enabled contracting parties to incorporate into their schedules acts "yielding rights" under the general agreement, and not "diminishing" their obligations.

Hence the U.S. could not maintain import restrictions inconsistent with its obligations under article XI: l.

Subsequent to the reference of the dispute to the panel in September 1988, the U.S., in December 1988, reallocated a portion of Guyana's sugar quota to Belize, Jamaica and Trinidad and Tobago, acting under an exchange of letters between the U.S. and caricom.

Australia sought a ruling on this, arguing that the U.S. action violated its article XIII obligations requiring it to administer any quota restrictions in a non-discriminatory way.

The panel did not go into this, noting that in any event it had ruled the quota regime as illegal, and the issue raised by Australia had arisen after the reference of the dispute and involved rights of other contracting parties who did not know it would be agitated and thus had not intervened.

The panel recommended that the GATT contracting parties should request the U.S. either to terminate its sugar import restrictions or bring them into conformity with the general agreement.