Q.1 What are QRs ?

A. Quantitative restrictions or QRs are specific limits imposed by countries on the quantity or value of goods that can be imported or exported. QRs can be in the form of a quota, a monopoly or any other quantitative means. In other words, QRs refer to non-tariff measures, which are taken to regulate or prohibit international trade. According to the WTO notification procedures for QRs, these measures specifically include: licensing requirements (i.e., both automatic licensing and non-automatic licensing); global quotas allocated by countries; bilateral quotas, quantitative restrictions made effective through state trading corporations; minimum prices triggering a quantitative restriction and "voluntary" export restraints.

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Q.2 What are the GATT/WTO provisions regarding QRs?

A. Article XI of GATT 1947 - which is carried forward in the form of GATT 1994 signed as part of the Uruguay Round Agreement in 1994 - generally prohibits the use of quantitative restrictions (QRs.) This is because the basic philosophy of the General Agreement on Tariffs and Trade (GATT) - as also of its successor, the World Trade Organisation (WTO) - is that imports have to be controlled only through tariffs and not through quantitative means. Thus, Article XI states ‘no prohibition or restrictions other than duties, taxes or other charges, whether made effective through quotas, imports or export licences or other measures, shall be instituted or maintained by any Contracting Party on the importation of any product of the territory of any other Contracting Party or on the exportation or sale for export of any product destined for the territory of any other Contracting Party’. But there are a number of exceptions to this stipulation against QRs. An important exception is the situation where a country has to safeguard its external financial position as elaborated in Article XII (used by developed countries) and Article XVIII: B (used by developing countries). Article XVIII:B recognised that such economies could experience balance of payments difficulties arising mainly from efforts to expand their internal markets as well as from instability in their terms of trade. However, even though a country can take recourse to Article XVIII:B under certain circumstances, QRs or price-based measures can be resorted to within certain limitations only. These limitations are: (a) not more than one type of restrictive measure may be applied on the same product; (b) restriction on imports should not be excessive - i.e. they should be commensurate with the extent of balance of payments difficulties; and (c) preference must be given to those measures that have the least disruptive effect on trade. The provisions relating to BOP restrictions also contemplate that a country must progressively relax the restrictions as BOP conditions improve and must eliminate measures when conditions no longer justify their existence. It is also provided that the member has to announce publicly, as soon as possible, time schedules for the elimination of restrictive import measures taken for balance of payments purposes. There is also a provision for the committee on BOP Restrictions to carry out consultations.

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Q.3 Is it obligatory then for all WTO Member countries to phase out QRs?

A. Yes. This obligation arises from the fact that Article XI of GATT 1947 as well as GATT 1994 specifically prohibits the use of QRs and permits control of imports only through tariffs.

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Q.4. How many of the WTO’s 136 members are still maintaining QRs?

A. According to the WTO Secretariat, only very few countries are maintaining QRs for BOP reasons at present. It is understood that India is among the six countries in the world which maintain QRs the other five being Bangladesh, Nigeria, Pakistan, Sri Lanka and Tunisia. In addition, even these countries are in the process of phasing out the quantitative restrictions.

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Q.5 What are the tariff lines on which India has been maintaining QRs? What is the time frame for phase-out of QRs by India?

A. India had notified a total of 2714 tariff lines in May, 1997 to the WTO on which quantitative restrictions were being maintained under Article XVIII:B of the GATT. Out of these, 1285 items were freed by April 1,1999. Consequent to the signing of the bilateral agreement between India and the US on the reasonable period of time granted to India for implementing the WTO panel ruling and recommendations of the Dispute Settlement Body (DSB) in the QR dispute case, India is required to remove all its remaining QRs on 1429 tariff lines by April 1, 2001 in a two-stage process. The removal in each of these two stages will be as follows: India would have to remove QRs on at least 714 of the 1429 tariff lines by April 1, 2000, coinciding with the annual Exim Policy for 2000-2001. (However, at present 685 of the 1429 tariff lines are already importable under SIL or the

Special Import License). QRs on the remaining 715 items would have to be removed by April 1, 2001.

Break-up of the original 2714 tariff lines

As on April 1, 1999

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Q.6 India has been maintaining QRs on imports on BOP grounds for many decades. Why has it suddenly become necessary for India to phase-out QRs?

A. It is true that India has been maintaining QRs on imports during the last several decades under Article XVIII:B of GATT. Periodic consultations were being held with the Committee on BOP Restrictions of the GATT/WTO on this issue. In January, 1997 the Committee on BOP Restrictions invited India to present a phase-out plan for elimination of its remaining QRs maintained for BOP purposes. Accordingly, in May 1997, India notified the Committee of its phase-out plan for QRs on 2714 tariff lines on which QRs were being maintained on BOP grounds. India initially presented a

9-year plan for removal of QRs which was subsequently reduced to 7 years at the insistence of several members. However, Australia, New Zealand, Canada, Switzerland, EC, US and Japan did not agree to this time-schedule of 7 years. Subsequently, India signed an understanding each with Australia, New Zealand, Canada, Switzerland, EC and Japan (as third party) for a six-year

phase-out period of India’s QRs notified to the WTO in May 1997. However, the US filed a dispute against India in the WTO for the removal of QRs in view of the improvement in its balance of payments position. Following the rulings and recommendations of the WTO Dispute Settlement Body dated 22 September, 1999 which upheld that India’s QRs on imports were not justified on balance of payments grounds, India and the US reached a bilateral agreement for the determination of the reasonable period of time for implementing the above rulings and recommendations, in the context of the disputes filed by the USA. The reasonable period of time for implementation, as mutually agreed between the US and India, will finally expire on April 1, 2001 by which date the existing QRs on all 1429 tariff lines at the 8-digit level have to be removed by India.

It may be noted that out of the 1429 tariff lines on which QRs have to be removed, 685 tariff lines are already importable against Special Import License (SIL). Hence, there is unlikely to be any perceptible serious impact on Export-Import trade in future due to the removal of QRs which were being maintained on BOP grounds.

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Q.7 What is the protection that will be available to domestic industry after phase-out of QRs?

A. Protection against unfair imports is allowed in the case of dumping or subsidised exports through imposition of Anti-Dumping Duties and Countervailing Duties respectively. Even in the absence of unfair trade, a WTO member may restrict imports of a product temporarily if its domestic industry is injured or threatened to be injured by a surge in imports. These safeguard measures are allowed under GATT Article XIX and can take the form of Safeguard Duties or tempory QRs.

Further, the instrument of tariffs will be available for providing protection to domestic industry. It may be noted that in the case of the remaining 1429 tariff lines, India has a leverage of increasing its applied rates of tariffs to appropriate levels wherever the tariff rates are either unbound or the bound rates are in excess of the applied rates upto the bound levels. An analysis of the data relating to tariffs indicates that a large percentage of these tariff lines are unbond. In fact, in 1211 out of the 1429 tariff lines, India has the leverage to increase the applied tariffs.

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Q.8 How will the removal of QRs impact on SSIs?

A. 812 items are reserved for the Small Scale Industries (SSI) sector. (N.B: these items are not in conjunction with the

ITC-HS Classification). Of these, 576 items have already been freed as on April 1, 1999 and only 236 items are under the SIL or the Restricted List, amounting to only around 70 to 75 tariff lines on which QRs are to be removed. As already mentioned, tariff protection will be available even for the bulk of these. Ministry of SSI has recommended back-loading the removal of QRs for these items to the second phase (April 1, 2001). The Ministry of SSI has further recommended that import tariff should be fixed as near the bound rates as possible, to enable the SSI units to upgrade themselves technologically.

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Q.9 What has been the experience of other WTO countries in phase-out of QRs?