      UNDERSTANDING ON THE INTERPRETATION OF ARTICLE XXVIII OF THE
               GENERAL AGREEMENT ON TARIFFS AND TRADE 1994


1.    For the purposes of modification or withdrawal of a concession, the 
Member which has the highest ratio of exports affected by the concession 
(i.e., exports of the product to the market of the Member modifying or 
withdrawing the concession) to its total exports shall be deemed to have a 
principal supplying interest if it does not already have an initial 
negotiating right or a principal supplying interest as provided for in 
Article XXVIII:1.  It is however agreed that this paragraph will be reviewed 
by the Council for Trade in Goods five years from the date of the entry into 
force of the Agreement Establishing the MTO with a view to deciding whether 
this criterion has worked satisfactorily in securing a redistribution of 
negotiating rights in favour of small and medium-sized exporting Members.  
If this is not the case consideration will be given to possible 
improvements, including, in the light of the availability of adequate data, 
the adoption of a criterion based on the ratio of exports affected by the 
concession to exports to all markets of the product in question.

2.    Where a Member considers that it has a principal supplying interest in 
terms of paragraph 1 above, it should communicate its claim in writing, with 
supporting evidence, to the Member proposing to modify or withdraw a 
concession, and at the same time inform the MTO Secretariat.  Paragraph 4 of 
the "Procedures for Negotiations under Article XXVIII" (BISD 27S/26) shall 
apply in these cases.

3.    In the determination of Members with a principal supplying interest 
(whether as provided for in paragraph 1 above or in Article XXVIII:1) or 
substantial interest, it is agreed that only trade in the affected product 
which has taken place on an m.f.n. basis shall be taken into consideration.  
However, trade in the affected product which has taken place under 
non-contractual preferences shall also be taken into account if the trade in 
question has ceased to benefit from such preferential treatment, thus 
becoming MFN trade, at the time of the renegotiation or will do so by its 
conclusion.

4.    When a tariff concession is modified or withdrawn on a new product 
(i.e., a product for which three years' trade statistics are not available) 
the  Member possessing initial negotiating rights on the tariff line where 
the product is or was formerly classified shall be deemed to have an initial 
negotiating right in the concession in question.  The determination of 
principal supplying and substantial interests and the calculation of 
compensation shall take into account inter alia production capacity and 
investment in the affected product in the exporting Member and estimates of 
export growth, as well as forecasts of demand for the product in the 
importing Member.  For the purposes of this paragraph "new product" is 
understood to include a tariff item created by means of a breakout from an 
existing tariff line.

5.    Where a Member considers that it has a principal supplying or a 
substantial interest in terms of paragraph 4 above, it should communicate 
its claim in writing, with supporting evidence, to the Member proposing to 
modify or withdraw a concession, and at the same time inform the MTO 
Secretariat.  Paragraph 4 of the "Procedures for Negotiations under Article 
XXVIII" (BISD 27S/26) shall apply in these cases.

6.    When an unlimited tariff concession is replaced by a tariff rate 
quota, the amount of compensation provided should exceed the amount of the 
trade actually affected by the modification of the concession.  The basis 
for the calculation of compensation should be the amount by which future 
trade prospects exceed the level of the quota.  It is understood that the 
calculation of future trade prospects should be based on the greater of:

      (i)  the average annual trade in the most recent representative three 
           year period, increased by the average annual growth rate of 
           imports in that same period, or by ten per cent, whichever is the 
           greater;  or

      (ii) trade in the most recent year increased by ten per cent.  

In no case shall the liability for compensation exceed that which would be 
entailed by complete withdrawal of the concession.

7.    Any Member having a principal supplying interest, whether as provided 
for in paragraph 1 above or in Article XXVIII:1, in a concession which is 
modified or withdrawn shall be accorded an initial negotiating right in the 
compensatory concessions, unless another form of compensation is agreed by 
the Members concerned.