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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.