UNDERSTANDING ON THE BALANCE-OF-PAYMENTS PROVISIONS OF THE GENERAL AGREEMENT 
ON TARIFFS AND TRADE 1994


Members,

      Recognizing the provisions of Articles XII, XVIII:B of the  GATT 1994 
and of the 1979 Declaration on Trade Measures taken for Balance-of-Payments 
Purposes (hereafter referred to as the "1979 Declaration") and in order to 
clarify such provisions[1];

      Hereby agree as follows:

Application of Measures

1.    Members confirm their commitment to publicly announce, as soon as 
possible, time-schedules for the removal of restrictive import measures 
taken for balance-of-payments purposes.  It is understood that such 
time-schedules may be modified as appropriate to take into account changes 
in the balance-of-payments situation.  Wherever a time-schedule is not 
publicly announced, justification shall be provided as to the reasons 
therefor.

2.    Members confirm their commitment to give preference to those measures 
which have the least disruptive effect on trade.  Such measures (hereafter 
referred to as "price-based measures") shall be understood to include import 
surcharges, import deposit requirements or other equivalent trade measures 
with an impact on the price of imported goods.  It is understood that, 
notwithstanding the provisions of Article II, price-based measures taken for 
balance-of-payments purposes may be applied in excess of the duties 
inscribed in the schedule of a Member.  Furthermore, the amount by which the 
price-based measure exceeds the bound duty shall be clearly and separately 
indicated under the notification procedures of this Understanding.  

3.    Members shall seek to avoid the imposition of new quantitative 
restrictions for balance-of-payments purposes unless, because of a critical 
balance-of-payments situation, price-based measures cannot arrest a sharp 
deterioration in the external payments position.  In those cases in which a 
Member applies quantitative restrictions, justification shall be provided as 
to the reasons why price-based measures are not an adequate instrument to 
deal with the balance-of-payments situation.  A Member maintaining 
quantitative restrictions shall indicate in successive consultations the 
progress made in significantly reducing the incidence and restrictive effect 
of such measures.  It is understood that not more than one type of 
restrictive import measure taken for balance-of-payments reasons may be 
applied on the same product.

4.    Members confirm that restrictive import measures taken for 
balance-of-payments reasons 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.  In order to minimise any incidental 
protective effects, restrictions shall be administered in a transparent 
manner.  The authorities of the importing Member shall provide adequate 
justification as to the criteria used to determine which products are 
subject to restriction.  As provided in Articles XII:3 and XVIII:B:10, 
Members may, in the case of certain essential products, exclude or limit the 
application of surcharges applied across the board or other measures applied 
for balance-of-payments reasons.  The term essential products shall be 
understood to mean products which meet basic consumption needs or which 
contribute to the Member's effort to improve its balance-of-payments 
situation, such as capital goods or inputs needed for production.  In the 
administration of quantitative restrictions, discretionary licensing shall 
be used only when unavoidable and be progressively phased out.  Appropriate 
justification shall be provided as to the criteria used to determine 
allowable import quantities or values.

Procedures for Balance-of-Payments Consultations

5.    The Committee on Balance-of-Payments Restrictions (hereafter referred 
to as "Committee") shall carry out consultations in order to  review all 
restrictive import measures taken for balance-of-payments purposes.  The 
membership of the Committee is open to all Members indicating their wish to 
serve in it.  The Committee shall follow the procedures for consultations on 
balance-of-payments restrictions approved by the GATT 1947 Council on 28 
April 1970 and set out in BISD, Eighteenth Supplement, pages 48-53 
(hereafter referred to as "Full consultation Procedures"), subject to the 
provisions set out below.  

6.    A Member applying new restrictions or raising the general level of its 
existing restrictions by a substantial intensification of the measures shall 
enter into consultations with the Committee within four months of the 
adoption of such measures.  The Member adopting  such measures may request 
that a consultation be held under Article XII:4(a) or Article XVIII:12(a) as 
appropriate.  If no such request has been made, the Chairman of the 
Committee shall invite the Member to hold such consultation.  Factors that 
may be examined in the consultation would include, inter alia, the 
introduction of new types of restrictive measures for balance-of-payments 
purposes, or an increase in the level or product coverage of restrictions.

7.    All restrictions applied for balance-of-payments purposes shall be 
subject to periodic review in the Committee under paragraph 4(b) of Article 
XII or under paragraph 12(b) of Article XVIII, subject to the possibility of 
altering the periodicity of consultations in agreement with the consulting 
Member or pursuant to any specific review procedure that may be recommended 
by the General Council.

8.    Consultations may be held under simplified procedures in the case of 
least-developed country Members or in the case of developing country Members 
which are pursuing liberalisation efforts in conformity with the schedule 
presented to the Committee in previous consultations.  Simplified 
consultations may also be held when the Trade Policy Review of a developing 
country Member is scheduled for the same calendar year as the date fixed for 
the consultations.  In such cases the decision as to whether a full 
consultation should be held will be made on the basis of the factors 
enumerated in paragraph 8 of the 1979 Declaration.  Except in the case of 
least-developed country Members, no more than two successive consultations 
may be held under simplified procedures.

Notification and Documentation

9.    A Member shall notify to the General Council the introduction of or 
any changes in the application of restrictive import measures taken for 
balance-of-payments purposes as well as any modifications in time schedules 
for the removal of such measures as announced under paragraph 1.  
Significant changes shall be notified to the  General Council prior to or 
not later than 30 days after their announcement.  A consolidated 
notification, including all changes in laws, regulations, policy statements 
or public notices, shall be made available to the MTO Secretariat on a 
yearly basis for examination by Members.  Notifications shall include full 
information, as far as possible, at the tariff line level, on the type of 
measures applied, the criteria used for their administration, product 
coverage and trade flows affected.

10.   At the request of any Member, notifications may be reviewed by the 
Committee.  Such reviews would be limited to the clarification of specific 
issues raised by a notification or examination of whether a consultation 
under Article XII:4(a) or Article XVIII:12(a) is required.  Members which 
have reasons to believe that a restrictive import measure applied by another 
Member was taken for balance-of-payments reasons may bring the matter to the 
attention of the Committee.  The Chairman of the Committee shall request 
information on the measure and make it available to all Members.  Without 
prejudice to the right of any member of the Committee to seek appropriate 
clarifications in the course of consultations, questions may be submitted in 
advance for consideration by the consulting Member.  

11.   The consulting Member shall prepare a Basic Document for the 
consultations which, in addition to any other information considered to be 
relevant, should include:  (a) an overview of the balance-of-payments 
situations and prospects, including a consideration of the internal and 
external factors having a bearing on the balance-of-payments situation and 
the domestic policy measures taken in order to restore equilibrium on a 
sound and lasting basis;  (b) a full description of the restrictions applied 
for balance-of-payments reasons, their legal basis and steps taken to reduce 
incidental protective effects;  (c) measures taken since the last 
consultation to liberalise import restrictions, in the light of the 
conclusions of the Committee;  (d) plan for the elimination and progressive 
relaxation of remaining restrictions.  References may be made, when 
relevant, to the information provided in other notifications or reports made 
to the MTO.  Under Simplified Consultations, the consulting Member shall 
submit a written statement containing essential information on the elements 
covered by the Basic Document.

12.   The MTO Secretariat shall, with a view to facilitating the 
consultations in the Committee, prepare a factual background paper dealing 
with the different aspects of the plan for consultations.  In the case of 
developing country Members, the Secretariat document will include relevant 
background and analytical material on the incidence of the external trading 
environment on the balance-of-payments situation and prospects of the 
consulting Member.  The technical assistance services of the MTO Secretariat 
shall, at the request of a developing country Member, assist in preparing 
the documentation for the consultations.

Conclusions of Balance-of-Payments Consultations

13.   The Committee shall report on its consultations to the General 
Council.  In the case of full consultations, the report should indicate the 
Committee's conclusions on the different elements of the plan for 
consultations, as well as the facts and reasons on which they are based.  
The Committee shall endeavour to include in its conclusions proposals for 
recommendations aimed at promoting the implementation of Articles XII, 
XVIII:B, the 1979 Declaration and this Understanding.  In those cases in 
which a time-schedule has been presented for the removal of restrictive 
measures taken for balance-of-payments reasons, the General Council may 
recommend that, in adhering to such a time-schedule, a Member shall be 
deemed to be in compliance with its GATT 1994 obligations.  Whenever the 
General Council has made specific recommendations, the rights and 
obligations of Members shall be assessed in the light of such 
recommendations.  In the absence of specific proposals for  recommendations 
by the General Council, the Committee's conclusions should record the 
different views expressed in the Committee.  In the case of simplified 
consultations, the report shall include a summary of the main elements 
discussed in the Committee and a decision on whether Full Consultations are 
required.


1. Nothing in this Understanding is intended to modify the rights and 
obligations of Members under Articles XII or XVIII:B of the GATT 1994.  The 
provisions of Articles XXII and XXIII of the GATT 1994 as elaborated and 
applied by the Understanding on Rules and Procedures Governing the 
Settlement of Disputes may be invoked with respect to any matters arising 
from the application of restrictive import measures taken for 
balance-of-payments reasons.



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