Feb 21, 1990

U.S. SUGAR RESTRICTIONS IN ACCORD WITH WAIVER, BUT ...

GENEVA, FEBRUARY 19 (BY CHAKRAVARTHI RAGHAVAN)— A GATT panel has ruled that restrictions on imports of sugar and sugar products maintained by the United States is in accord with the terms and conditions of a GATT waiver but not in accord with the "assurances" given by the U.S.

The panel whose report is to come up before the GATT Council Tuesday, has recognised that the GATT Contracting Parties could not have anticipated U.S. use of the waiver in such a way and contrary to the assurances.

However, the panel said, the issue of fulfilment of assurances by the U.S., in consideration of which the indefinite waiver was granted in 1955, may be relevant for the Contracting Parties in any decision "to withdraw or modify" the waiver, but not for the panel to rule against the United States practices.

Given the fact that there was no time limitation in the terms and conditions, beyond the stipulation that the U.S. would remove or relax restrictions as soon as the U.S. found the circumstances for restrictions no longer existed or had changed, any modification or revocation would be possible only with the U.S. consent or by two-thirds majority vote of the Contracting Parties.

Neither seems likely at the moment. Paradoxically at the time the U.S. got the indefinite waiver, two-thirds of the present 96 Contracting Parties, mostly Third World countries, had not acceded to the GATT, but are now the principal victims (because of destabilisation of world market prices for sugar) by U.S. violations of "assurances".

The U.S. has said that its waiver is on the negotiating table as part of the Uruguay Round agricultural negotiations, but this implies too that it would be modified only if the U.S. gets what it seeks in the Round.

The ruling was in a dispute raised by the EEC against the U.S.

The U.S. restrictions on sugar and sugar products are maintained under two different legal provisions: one on the basis of the 1955 waiver and the other on the basis of a "headnote" to its GATT tariff schedule. This latter was ruled illegal by a GATT panel in June 1989 on a complaint by Australia. The U.S. has accepted the ruling, but has not so far implemented the ruling.

The EEC-U.S. dispute related to the import fees levied by the U.S. on refined sugar and the restrictions on some products containing sugar, which the U.S. has contended, are covered by the 1955 waiver.

While the EC challenge and reference to the panel was specific to the sugar issue, it was more basic and related to the way the U.S. has used its 1955 agriculture waiver in an indefinite way.

Under the waivers, granted in respect of Sec. 22 of the U.S. Agricultural Adjustment Act of 1935, the U.S. currently maintains import restrictions on sugar and sugar products, dairy products, cotton and cotton waste and peanuts.

U.S. imports of raw sugar have declined from 5.3 million metric tonnes (raw value) in 1977 to 1.2 million tonnes in 1987. During the same period, U.S. production of sugar (beet and cane) rose from 5.8 to 6.6 million tonnes. The U.S. policy and high domestic prices through protection has also encouraged the production of sugar substitutes.

In the EEC complaint against the U.S., there was no dispute that the U.S. import restrictions were violative of Article XI: 1 of GATT, which prohibits quota restrictions.

The 1955 waiver, the panel said, did not specify precisely which concrete measures the U.S. was authorised to take, but authorised the U.S. to implement a domestic law which gave the administration discretion to impose fees or quantitative limitations on any agricultural commodity or product.

The U.S. restrictions on sugar products, the panel said was thus in conformity with the waiver though the GATT Contracting Parties, in granting the waiver, "may not have expected" the U.S. to impose prohibitions on sugar-containing products under Sec. 22 of the U.S. Agriculture Adjustment Act in order to avoid circumvention of a quota imposed under some other law or the use of zero quotas to prevent new or newly classified products from entering the U.S. market. On the EEC complaint that the U.S. had used the waiver both to impose additional fees on refined sugar as well as restrictions on raw and refined sugar and sugar-containing products, the panel said the U.S. actions were again not inconsistent with the waiver though the Contracting Parties, while granting the waiver, "may not have expected that the fees ... would be imposed in conjunction with restrictions imposed under another domestic legal authority inconsistently with the General Agreement".

On the EEC contention that the U.S. President had continued the restrictions, despite the U.S. International Trade Commission not having found the domestic industry to be suffering any "injury", the panel again ruled that the final authority under the waiver rested with the President, though again in 1955 the CPs might not have expected the President to ignore the opinion of the body advising him under Sec. 22 of the Agriculture law.

Under the conditions of the waiver, the U.S. was only obliged annually to report on the steps it had taken to solve the problem of the surpluses of agricultural commodities, but had no obligation "to report on the absence of steps", the panel further declared, adding that it was for the Contracting Parties, in their review of the annual reports of the U.S., to draw conclusions from the absence of the reports on such steps.

(Since such working parties act by consensus, no conclusions unacceptable to the U.S. can ever be drawn).

On the EEC's contention that the restrictions were not justified by the waiver since the U.S. had not observed the assurances in consideration of which the waiver had been granted, the panel said that the text of the waiver had clearly distinguished between "conditions" and "assurances", and fulfilment of assurances were not a "legal requisite".

The Contracting Parties in granting the waiver, might not have expected the U.S. to make use of the waiver in the manner it had done or pursue a sugar policy as it was now doing.

Given the assurances of the U.S. in this regard, these questions "may be relevant" for a decision of the Contracting Parties to withdraw or modify the waiver, but it was not for the panel to propose changes in GATT provisions, and hence it did not address this question, it added.

The panel said the EC could still have claimed relief on the basis of impairment and nullification of rights, but it had not provided the detailed justification to permit an examination of its complaint in this regard under Article XXIII: l (b).

However, the panel added, this did not preclude the EEC from bringing a complaint under this provision with the required detailed information about how its rights had been impaired or nullified.