The report of the Panel on Turkey � Restrictions on Imports of Textile and Clothing Products is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 31 May 1999, pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.

I. Introduction
II. Factual Aspects

Annex

1. On 21 March 1996, India requested consultations with Turkey pursuant to Article 4.4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") and Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 ("GATT") regarding the unilateral imposition of quantitative restrictions ("QRs") by Turkey on imports of a broad range of textile and clothing products from India as from 1 January 1996 (WT/DS34/1).

2. India and Turkey did not enter into consultations, due to disagreement on the appropriateness of participation of the European Communities in such consultations, and consequently the dispute could not be resolved at that stage. The Dispute Settlement Body ("DSB") was informed accordingly on 24 April 1996.¹

3. In a communication dated 2 February 1998, India requested the DSB to establish a panel to examine the matter in the light of GATT and the Agreement on Textiles and Clothing ("ATC"), in accordance with Article 6.2 of the DSU (WT/DS34/2). In its communication, India claimed that the restrictions imposed by Turkey were inconsistent with Turkey�s obligations under Articles XI and XIII of GATT and were not justified by Article XXIV of GATT, which did not authorize the imposition of discriminatory QRs, and that the restrictions were inconsistent with Turkey�s obligations under Article 2 of the ATC. India also claimed that the restrictions appeared to nullify or impair benefits accruing to it directly or indirectly under GATT and the ATC.

4. On 13 March 1998, the DSB established a panel pursuant to the request of India, with the following standard terms of reference (Article 7.1 of the DSU):²

   "To examine, in the light of the relevant provisions of the covered agreements cited by India in document WT/DS34/2, the matter referred to the DSB by India in that document and to make such findings as will assist the DSB in making recommendations or in giving the rulings provided for in those agreements."

5. On 11 June 1998, the parties to the dispute agreed on the following composition of the Panel (WT/DS34/3):

   Chairman:	Ambassador Wade Armstrong
   Members:	Dr. Luzius Wasescha
   	Prof. Robert Hudec

6. Following the resignation of Prof. Robert Hudec, the parties to the dispute agreed to appoint a new member to the Panel, on 21 July 1998. Accordingly, the composition of the Panel was as follows (WT/DS34/4):

   Chairman:	Ambassador Wade Armstrong
   Members:	Dr. Luzius Wasescha
   	Mr. Johannes Human

7. Hong Kong, China; Japan; the Philippines; Thailand; and the United States reserved their third-party rights in accordance with Article 10 of the DSU.

8. On 14 August 1998, Turkey requested preliminary rulings by the Panel on a number of issues. On 28 August 1998, the Panel invited India, as well as the third parties, to present their views on the points raised by Turkey. India submitted written comments on the issues; Japan, the Philippines and the United States, as third parties, also submitted written communications. The Panel met on 19 September 1998 with Turkey and India on this matter, and issued its ruling on 25 September 1998.

9. The Panel received the first written submissions from the parties on 21 August 1998 (India) and on 18 September 1998 (Turkey). Written submissions were also received from Hong Kong, China; Japan; the Philippines; and Thailand, as third parties.

10. The first substantive meeting of the Panel with the parties took place on 5-6 October 1998 and the Panel met with third parties on 6 October 1998.

11. On 28 October 1998, the Panel addressed a letter to the European Communities, seeking certain relevant factual and legal information under Article 13.2 of the DSU. The European Communities answered in writing the specific questions raised by the Panel on 13 November 1998.

12. On 19 November 1998, the Panel received the second written submissions from the parties, with whom it met again on 25 November 1998.

13. In a communication dated 20 January 1999, the Chairman of the Panel informed the DSB that the Panel would not be able to issue its report within six months. The reasons for that delay are stated in document WT/DS34/5.

14. The Panel issued its interim report to the parties on 3 March 1999. On 12 March 1999, both parties submitted written requests for the Panel to review precise aspects of the interim report; no further meeting with the Panel was requested.

15. The Panel submitted its final report to the parties on 26 March 1999.

1. This section addresses the factual aspects of the dispute in a sequential order, in which the QRs at issue are described in paragraphs 2.39 to 2.41 below. In view of the nature of the dispute, this section outlines first the factual context in which the dispute is addressed.

2. The relationship between the most-favoured-nation ("MFN") principle and Article XXIV of the GATT, which deals with free-trade areas and customs unions, has not always been harmonious. In 1947, their coexistence in the framework of international trade relations had been viewed as ultimately positive, reflecting the perception that genuine customs unions and free-trade areas were congruent with the MFN principle and directed towards the same objective, i.e. multilaterally-agreed trade liberalization.³

3. As a matter of fact, trade liberalization under the GATT paralleled a process of increasing economic integration among contracting parties: from 1948 to end-1994, 107 regional trade agreements ("RTAs") were notified to the GATT under Article XXIV.⁴

4. Before 1957, the GATT contracting parties dealt with only three such agreements, covering a small fraction of their aggregate trade (see Figure II.1), on which compatibility with Article XXIV was temporarily waived and which were maintained under surveillance. ⁵ Article XXIV provisions confronted their first real applicability test with the notification of the Treaty of Rome in 1957, which concerned the integration of major players in the international scene. From then on, the examination of RTAs notified to the GATT did not lead to clear-cut assessments of full consistency with the rules, except in one instance. ⁶ Frictions between GATT contracting parties arising in the context of the formation of customs unions or free-trade areas were dealt with pragmatically. ⁷

5. The perception that RTAs could contribute to the expansion of world trade was reiterated during the Uruguay Round, when negotiators re-visited certain aspects of Article XXIV, in an endeavour to clarify some of its provisions. ⁸

   Figure II.1 � Number of RTAs notified to the GATT/WTO under Article XXIV

6. During the course of the Uruguay Round, there was an increase in the number of new RTAs notified to the GATT. The conclusion of the Round and the establishment of the WTO did not put to rest the appeal of regional integration. Since 1 January 1995, a further 60 new RTAs have been notified under Article XXIV of GATT, most of which are presently in force. ⁹

7. The WTO General Council established, on 6 February 1996, the Committee on Regional Trade Agreements ("CRTA"), ¹⁰ with the mandate of, inter alia, examining all RTAs notified to the Council for Trade in Goods ("CTG") under Article XXIV. ¹¹ The CRTA is likewise entrusted with the examination of those RTAs notified under the 1979 Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries and under Article V of the General Agreement on Trade in Services ("GATS"), ¹² and referred to it by the Committee on Trade and Development ("CTD") and the Council for Trade in Services ("CTS"), respectively. The mandate of the CRTA also includes the consideration of "the systemic implications of [RTAs] and regional initiatives for the multilateral trading system and the relationship between them".¹³

8. Later in 1996, the WTO Membership expressed its views on RTAs and the role of the CRTA in paragraph 7 of the Singapore Ministerial Declaration, as follows:

   "We note that trade relations of WTO Members are being increasingly influenced by regional trade agreements, which have expanded vastly in number, scope and coverage. Such initiatives can promote further liberalization and may assist least-developed, developing and transition economies in integrating into the international trading system. In this context, we note the importance of existing regional arrangements involving developing and least-developed countries. The expansion and extent of regional trade agreements make it important to analyse whether the system of WTO rights and obligations as it relates to regional trade agreements needs to be further clarified. We reaffirm the primacy of the multilateral trading system, which includes a framework for the development of regional trade agreements, and we renew our commitment to ensure that regional trade agreements are complementary to it and consistent with its rules. In this regard, we welcome the establishment and endorse the work of the new Committee on Regional Trade Agreements. We shall continue to work through progressive liberalization in the WTO as we are committed in the WTO Agreement and Decisions adopted at Marrakesh, and in so doing facilitate mutually supportive processes of global and regional trade liberalization." ¹⁴

9. The CRTA 1998 Report to the General Council is self-explanatory on the results so far achieved in its work. ¹⁵ Paragraph 6 of the Report, with respect to the examination of the agreements, reads:

   "In 1998, the Committee endeavoured to accelerate the examination of agreements which had already commenced, as well as to handle new agreements referred to it. The Committee has currently under its purview a total of 62 RTAs. To date, the examination of 54 RTAs have been referred to the Committee by the CTG, seven by the CTS and one by the CTD. Draft reports on the examination of 28 agreements are currently under consideration; for 13 other agreements, reports are being drafted or factual examinations are well engaged, while the first round of examination for the remaining 21 RTAs is scheduled for either the Committee's twentieth session or early in 1999 � Thus far, no report has been adopted."

   As concluding remarks, paragraph 15 of the CRTA 1998 Report states as follows:

   "� Despite its heavy workload and delays in the submission of certain relevant material, the Committee also made progress in examining RTAs. The need to move forward in the process of examination pursuant to WTO rules was recognized; however, progress in this regard was slowed, inter alia, by a lack of consensus on the interpretation of certain elements of those rules relating to RTAs. On systemic issues, the Committee held discussions on some important topics and identified different approaches to these subjects; the need to move forward in the discussion of systemic issues was also recognized."

To continue with Turkey's Trade Relations with the European Communities

¹ WT/DSB/M/15, pp. 3-5.

² WT/DSB/M/43, p. 6.

³ Customs unions and free-trade areas were viewed as trade-creating instruments (susceptible to expand trade both among the parties and between these and third parties), but there were also concerns about their possible trade-distorting effects.

⁴ Of these, only 36 remain today in force, reflecting in most cases the evolution over time of the RTAs themselves, as they were superseded by more modern agreements between the same signatories (usually going deeper in integration), or by their consolidation into wider groupings.

⁵ See in this respect: Report on the Customs Union between South Africa and Southern Rhodesia (BISD II/176) and corresponding Decisions (BISD II/29, and 3S/47); Decision on the Free-Trade Area Treaty between Nicaragua and El Salvador (BISD II/30); and Decision on Participation of Nicaragua in Central American Free-Trade Area (BISD 5S/29).

⁶ This was the case of the Customs Union between the Czech Republic and the Slovak Republic (see Working Party Report, GATT document L/7501, dated 4 October 1994).

⁷ See, for example, BISD 7S, p. 69 et seq..

⁸ The result of such negotiations is embodied in the Understanding on the Interpretation of Article XXIV of GATT 1994.

⁹ The negotiation of RTAs among countries geographically distant has also become an increasingly frequent feature in the 1990s.

¹⁰ WT/L/127.

¹¹ The CRTA is in charge of the examinations which were previously performed by separate working groups, one per agreement.

¹² These provisions also govern regional integration within the WTO.

¹³ WT/L/127, para.1(d).

¹⁴ WT/MIN(96)/DEC, para. 7.

¹⁵ WT/REG/7.