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UNDERSTANDING ONTHE INTERPRETATION OFARTICLE XXVIII
OFTHE GENERAL AGREEMENT ONTARIFFS AND TRADE 1994
Members hereby agree asfollows:
1. Forthepurposes ofmodification orwithdrawal ofaconcession, theMember which hasthe
highest ratioofexports affected bytheconcession (i.e.exports oftheproduct tothemarket ofthe
Membermodifyingorwithdrawingtheconcession)toitstotalexportsshallbedeemedtohaveaprincipal
supplying interest ifitdoesnotalready haveaninitial negotiating rightoraprincipal supplying interest
asprovided forinparagraph 1ofArticle XXVIII. Itishowever agreed thatthisparagraph willbe
reviewed bytheCouncil forTrade inGoods fiveyears fromthedateofentry intoforce oftheWTO
Agreement withaview todeciding whether thiscriterion hasworked satisfactorily insecuring a
redistribution ofnegotiating rights infavour ofsmall andmedium-sized exporting Members. Ifthis
isnotthecase, consideration willbegiven topossible improvements, including, inthelightofthe
availability ofadequate data,theadoption ofacriterion based ontheratioofexports affected bythe
concession toexports toallmarkets oftheproduct inquestion.
2. Where aMember considers thatithasaprincipal supplying interest interms ofparagraph 1,
itshould communicate itsclaim inwriting, withsupporting evidence, totheMember proposing to
modify orwithdraw aconcession, andatthesame timeinform theSecretariat. Paragraph 4ofthe
"Procedures forNegotiations under Article XXVIII" adopted on10November 1980(BISD 27S/26-28)
shallapply inthese cases.
3. Inthedetermination ofwhich Members haveaprincipal supplying interest (whether asprovided
forinparagraph 1above orinparagraph 1ofArticle XXVIII) orsubstantial interest, onlytrade in
theaffected product which hastaken placeonanMFN basisshallbetaken intoconsideration. However,
trade intheaffected product which hastaken place under non-contractual preferences shallalsobe
taken intoaccount ifthetrade inquestion hasceased tobenefit fromsuchpreferential treatment, thus
becoming MFN trade, atthetimeofthenegotiation forthemodification orwithdrawal oftheconcession,
orwilldosobytheconclusion ofthatnegotiation.
4. When atariff concession ismodified orwithdrawn onanewproduct (i.e.aproduct forwhich
three years'trade statistics arenotavailable) theMember possessing initial negotiating rights onthe
tarifflinewhere theproduct isorwasformerly classified shallbedeemed tohaveaninitial negotiating
rightintheconcession inquestion. Thedetermination ofprincipal supplying andsubstantial interests
andthecalculationofcompensationshalltakeintoaccount,interalia,productioncapacityandinvestment
intheaffected product intheexporting Member andestimates ofexport growth, aswellasforecasts
ofdemand fortheproduct intheimporting Member. Forthepurposes ofthisparagraph, "new product"
isunderstood toinclude atariff itemcreated bymeans ofabreakout from anexisting tariff line.
5. Where aMember considers thatithasaprincipal supplying orasubstantial interest interms
ofparagraph 4,itshould communicate itsclaim inwriting, withsupporting evidence, totheMember
proposing tomodify orwithdraw aconcession, andatthesametimeinform theSecretariat. Paragraph 4
oftheabove-mentioned "Procedures forNegotiations under Article XXVIII" shallapply inthesecases.
6. Whenanunlimitedtariffconcessionisreplacedbyatariffratequota,theamountofcompensation
provided should exceed theamount ofthetradeactually affected bythemodification oftheconcession.
Thebasis forthecalculation ofcompensation should betheamount bywhich future trade prospectsPage40
exceed thelevel ofthequota. Itisunderstood thatthecalculation offuture trade prospects should
bebased onthegreater of:
(a) theaverage annual tradeinthemostrecent representative three-year period, increased
bytheaverage annual growth rateofimports inthatsame period, orby10percent,
whichever isthegreater; or
(b) trade inthemost recent yearincreased by10percent.
InnocaseshallaMember 'sliability forcompensation exceed thatwhich would beentailed bycomplete
withdrawal oftheconcession.
7. AnyMember having aprincipal supplying interest, whether asprovided forinparagraph 1
above orinparagraph 1ofArticle XXVIII, inaconcession which ismodified orwithdrawn shallbe
accorded aninitial negotiating right inthecompensatory concessions, unless another form of
compensation isagreed bytheMembers concerned.