Jun 3, 1989


GENEVA, JUNE 2 (BY CHAKRAVARTHI RAGHAVAN)— A three-member GATT panel has held that the import ban and quantitative restrictions maintained by South Korea on beef imports are contrary to GATT.

The panel has said that Korea should be asked to either eliminate or bring into conformity with GATT its beef import measures, introduced in 1984/85, and consult with interested contracting parties and agree on a time-table for phasing out other restrictions maintained for balance of payments reasons since 1967.

The panel ruling will come up before the GATT council at its next meeting on June. But apart from the narrow issues of Korean restrictions on beef imports, the panel ruling has raised some basic issues for other third world countries.

These issues relate to their rights under the GATT BOP provisions (in article XVIII: B) to restrict imports, through quantitative or other measures and to autonomously determine incidence of their restrictions on various products guided by their priority needs for economic development.

The GATT article enables restrictions to be imposed by a developing country to safeguard its external financial position and to ensure a level of reserves "adequate" for the implementation of their economic development programmes.

The restrictions are not to exceed those necessary to forestall or stop a serious decline in monetary reserves or in case of a CP with inadequate reserves to achieve a reasonable rate of increase in its reserves.

The article (and decisions of GATT Contracting Parties) has some provisions and safeguards against misuse, including against use for protecting domestic industry. Countries maintaining BOP restrictions are also subject to multilateral surveillance of the GATT BOP Committee.

However the terms about the adequacy of reserves have never been defined and have always been seen to be subjective, though subject to the IMF views and reports and the surveillance of the BOP committee.

The panel ruling against Korea has now raised some fundamental questions about the scope of dispute settlement mechanisms and free-ranging panel investigations into the BOP situation or the incidence of import restrictions on particular products.

While South Korea and its current account surpluses (though its reserves themselves, in 1988, cover three months imports, as against an average one month in earlier years), may appear to be a border line case between "developing" and "developed", the issues raised are such that other third world countries would want to make sure that this sets no precedent.

Some third world sources noted in this regard the organised efforts of the industrialised countries and the GATT secretariat to whittle away the BOP rights of third world countries in article XVIII: B through the Uruguay round (where the U.S. wants this article to be revised), and through the BOP surveillance as well as of the proposed trade policy review mechanism (TPRM) under the so-called "functioning of the GATT system".

The panel ruling has come in a dispute between U.S. and South Korea. The same panel also went into a similar dispute between New Zealand and South Korea on beef imports.

Since it joined GATT in 1967, Korea has maintained BOP measures on various products. These BOP restrictions have been subject to regular review by the BOP Committee.

During the period, Korea had abandoned or relaxed some restrictions, but as of 1988 it had restrictions on some 358 items, including beef.

In 1979 Korean tariff on beef was also reduced from 25 to 20 percent and bound at that rate. Korean beef imports had climbed from 694 tons in 1976 to 51,515 tons in 1983.

According to the panel, under pressures from Korean farmers for protection, in 1984 Korea ceased issuing tenders for beef imports, and since may 1985 ceased importing high quality beef for the hotels, leading toa virtual stop in beef imports.

These measures were however neither notified to the BOP committee nor discussed.

In August 1988, Korea partially reopened its market for beef, and allowed imports of 14.500 tons, while for 1989 a quota of 39.000 tons has been announced.

Before the panel, Korea claimed justification for the restrictions, which were not permitted under article XI, on BOP reasons.

However, the panel on an examination of the facts ruled that the restrictions imposed since 1985 were not for BOP reasons but for protecting the domestic market.

As for the restrictions imposed by Korea since its accession in 1967, and regularly notified and discussed in the BOP Committee, Korea argued that this could not be looked at by the panel and only the BOP Committee had exclusive jurisdiction.

The panel rejected this, pointing out that the terms of reference, agreed to by Korea and United States, required the panel to examine Korea’s beef import restrictions in the light of relevant GATT provisions, including the BOP provisions.

On the question whether restrictions maintained for BOP could be challenged under GATT dispute settlement mechanisms, the panel said excluding such a possibility "would unnecessarily restrict the scope of the general agreement", and the parties to a dispute could have pursued either of the two remedies BOP procedures or the, dispute settlement.

In this case, the panel said, both parties had agreed to the dispute settlement procedures.

As for the justification for Korea maintaining BOP restrictions, the panel noted that Korea’s reserves had increased in 1988, that Korea’s BOP situation had continued to improve since November 1987, and by end of 1988 Korean reserves provided three months import cover.

The panel concluded that: "in the light of the continued improvement of the Korean balance-of-payments situation, and having regard to the provisions of article XVII: 11, there was a need for the prompt establishment of a time-table for the phasing -out of Korea’s balance of payments restrictions on beef, as called for by the contracting parties in adopting the 1987 balance-of-payments report."