Turkey - Restrictions on Imports of Textile and Clothing Products
Report of the Panel
(Continued)
(c) Article XXIV:8(a)
(i) Relationship between Article
XXIV:8(a)(ii) and other Article XXIV provisions
- India submitted that the obligations under Article XI:1 of
GATT and Article 2.4 of the ATC were not modified by Article
XXIV:8(a)(ii) of GATT, which required Members forming a customs union
to apply substantially the same regulations of commerce to the trade
with other Members of the WTO.
- India recalled that, in the communication dated 9 January 1996,
Turkey attempted to justify its new restrictions with reference to
Article XXIV:8(a)(ii) of GATT as follows:
"The GATT jurisprudence since 1957 has considerably widened
the scope of "regulations of commerce". Indeed, in the 1986
Working Party examining the accession of Spain and Portugal to the
Community, it was no longer disputed that QRs formed part of
"other regulations of commerce". The conformity assessment
of the EU-Turkey Customs Union in the framework of Article XXIV should
therefore not be abused in an attempt to shape new substantive WTO
law. Since a customs union must cover "substantially all
trade" and may not exclude particular economic sectors, the
EC�s customs union with Turkey must also cover the textiles sector,
which, it must be recalled, represents over 40% of Turkey�s trade
with the Community." (Emphasis added.)
- In India's view, however, that sub-paragraph merely defined one of
the requirements to be fulfilled by an RTA to qualify as a customs
union within the meaning of Article XXIV. The provision could not
possibly be interpreted to imply that Members, in fulfilling that
requirement, were entitled to ignore their WTO obligations when
applying restrictions to imports from third Members. Article XXIV:4
made it clear that the purpose of a customs union was not to raise
barriers to the trade of third countries, and Article XXIV:6
stipulated that tariff bindings could not simply be ignored by Members
forming a customs union which, if necessary, had to renegotiate them
in accordance with the procedures set out in Article XXVIII. If the
obligations under Article II could not be ignored by Members forming a
customs union, how could one reasonably conclude that the obligations
under Article XI:1 of GATT and Article 2.4 of the ATC could be
ignored?
- India recalled that this position was also taken by the
representative of Thailand at the meeting of the CRTA in October 1996:
"... Article XXIV:6 ... required the parties to RTAs to enter
into compensation negotiations under Article XXVIII. A unilateral
withdrawal of concessions under Article II of GATT 1994 would thus
constitute a breach of the multilateral rules. Similarly, the
imposition of QRs by new members of a customs union violated the
provisions of GATT 1994, as this could not be justified under Article
XXIV." 121
- India also warned against importing into Article XXIV:8(a)(ii) in
terms of creating rights to impose QRs where there were not
specifically provided. Moreover, while Turkey claimed to be obliged by
Article XXIV:8 to adopt common quotas with the European Communities
for textiles and clothing, it was also claiming the right to follow
divergent trade policy practices and to adopt different instruments in
other areas. India noted in this respect differences inter alia
in external trade policies on agriculture, steel and other sensitive
industrial products, as well as in relation to anti-dumping,
countervailing and safeguards measures. There was additionally no
requirement that Members fulfil the requirements of Article XXIV:8(a)
immediately.
- Turkey submitted that Article XXIV:8(a)(ii) required it to
apply to third countries import restrictions similar to those applied
to the same countries by the European Communities, since the term
"regulations of commerce" had traditionally been interpreted
as incorporating QRs. 122
This was precisely the reason for Article 12 of Decision 1/95
unequivocally envisaging the wholesale adoption by Turkey of the EC
Common Commercial Policy Instruments, as well as the EC Customs Code,
in the area of textiles and clothing products, prior to the completion
of the Turkey-EC customs union. Article 12(1) specified the external
trade measures to be adopted by Turkey towards third countries, which
constituted the critical mass of commercial policy regulations applied
by the European Communities. Appropriate measures were envisaged to
prevent trade diversion to Turkey over the EC customs territory. 123
The provisions of Decision 1/95 which had permitted the European
Communities to continue applying - even after the completion of the
Turkey-EC customs union - certificates of origin to imports of
textiles and clothing from Turkey, had lapsed because Turkey had been
able to meet all the requirements for the free circulation of these
products set out in the Decision itself (including the adoption of
substantially the same commercial policy as the European Communities
for those products).
- Turkey referred again to the example of a customs union between WTO
Members A and B, where A applied (fully WTO-compatible) QRs on certain
imports but low tariffs, while B had no QRs but (fully WTO-compatible)
high tariffs on such imports. In such a case, the mentioned option (i)
would entail that the A-B customs union would have to adapt its
external trade regime to that of B, which meant raising tariffs to the
high B level, an undoubtedly permissible move under Article XXIV:6.
Option (ii) would result in the A-B customs union aligning its
external trade regime with A, which would entail the introduction of
QRs corresponding to those of A. Option (iii) would attempt to find
some middle ground between the other two options.
- In Turkey's view, the position of India would entail, in the context
of the present case, that options (ii) and (iii) be legally
unavailable. This would come down to an overly restrictive
interpretation of Articles XXIV:5 and XXIV:8(a)(ii), because under
this reading, the inescapable need to raise the tariffs to a high
level could easily enter into conflict with the requirement of Article
XXIV:5(a) according to which the external trade regime of the customs
union should not on the whole be more restrictive than the general
incidence of the external trade regime of each of the constituent
territories prior to the formation of the customs union. This would
make option (i) likewise legally unavailable.
- Turkey was of the view that any interpretation of Article XXIV which
could lead to the conclusion that in certain circumstances, WTO
Members with diverging external trade regimes were legally inhibited
from forming a customs union would also be in contradiction with the
objective clearly stated in Article XXIV:4. In order to fully preserve
the right of WTO Members to form customs unions, it was necessary to
keep open in all cases options (i), (ii) and (iii) as referred to
above, since only by maintaining this flexibility would it be possible
to allow WTO Members to form a customs union where they have diverging
(but entirely legal) external trade regimes prior to the formation of
such a customs union. As already mentioned, this reading of Article
XXIV:8(a)(ii) was also commanded by the requirements laid down in
Article XXIV:5(a).
- Turkey considered therefore that, under India�s reading, Articles
XXIV:5-8 could stand in the way of the formation of a customs union
between WTO Members with diverging external trade regimes. Such a
reading of the portions of Article XXIV flew in the face of the
purpose of this provision which was, on the contrary, to facilitate
the formation of customs unions.
- Turkey submitted further that, contrary to India's reading, Article
XXIV:8(a)(ii) did not merely define a customs union. If such
interpretation were followed, the set of GATT provisions on customs
unions would be incoherent and logically inconsistent. If, in order to
qualify as a customs union, the Turkey-EC customs union had to cover
substantially all trade - as required by Article XXIV:8(a)(i) - it had
obviously to cover trade in textiles and clothing products, which
represented 40 per cent of Turkey's sales in the European Communities.
If such trade had to be covered, the Turkey-EC customs union had to
have a common regulation of commerce with other countries in
accordance with Article XXIV:8(a)(ii). Such common regulation of
commerce, as determined by restrictive measures which the European
Communities applied in conformity with WTO rules, applied to goods
imported in the Turkey-EC customs union via Turkey. Article
XXIV:5(a) could not be interpreted as prohibiting this: if it were,
the absence of a common regulation of commerce for textiles and
clothing products would result in the exclusion of these products from
the coverage of the Turkey-EC customs union, which then would not meet
the requirement of Article XXIV:8(a)(i).
(ii) Relationship between Article
XXIV:8(a)(ii) of GATT and Article 2.4 of the ATC
- India believed that, implicit in Turkey's argument that
Article XXIV:8(a)(ii) required it to apply to its customs territory
the same import restrictions that the European Communities were
authorized to apply under the transitional arrangements of the ATC,
there was the claim that a conflict existed between the provisions of
Article 2 of the ATC and those of Article XXIV:8(a)(ii) of GATT. India
also believed that, implicit in this argumentation was the further
claim of Turkey that it was entitled to resolve this conflict in
favour of its obligations under Article XXIV:8(a)(ii).
- For these reasons, India considered that Turkey�s argumentation
had to be examined in the light of the General Interpretative Note to
Annex 1A of the WTO Agreement, which read:
"In the event of a conflict between a provision of the General
Agreement on Tariffs and Trade 1994 and a provision of another
agreement in Annex 1A of the Agreement Establishing the WTO ..., the
provision of the other agreement shall prevail to the extent of the
conflict."
- In the EC-Bananas III case, the panel interpreted this note
as covering two types of conflicts: Firstly, conflicts between
obligations contained in GATT and obligations contained in agreements
listed in Annex 1A to the WTO Agreement, where those obligations were mutually
exclusive in the sense that a Member could not comply with both
obligations at the same time. Secondly, the situation where a rule
in one agreement prohibited what a rule in another agreement
explicitly permitted, illustrated by the panel with the following
example:
"� Article XI:1 of the GATT 1994 prohibits the imposition of
quantitative restrictions ... Article 2 of the � ATC � authorizes
the imposition of quantitative restrictions in the textiles and
clothing sector, subject to conditions specified in Article 2.1-21 of
the ATC. In other words, Article XI:1 of GATT 1994 prohibits what
Article 2 of the ATC permits in equally explicit terms. It is true
that Members could theoretically comply with Article XI:1 of GATT, as
well as with Article 2 of the ATC, simply by refraining from invoking
the right to impose quantitative restrictions ... However, such an
interpretation would render whole Articles or sections of Agreements
covered by the WTO meaningless and run counter to the object and
purpose of many agreements listed in Annex 1A which were negotiated
with the intent to create rights and obligations which in parts differ
substantially from those of the GATT 1994." 124
- India noted that, in the present proceedings, no conflict of the
first type arose because the European Communities and Turkey could
meet their obligations under Article XXIV and Article 2.4 of the ATC
simply by not imposing any restrictions on imports of textiles and
clothing. However, the second type of conflict between Article
XXIV:8(a) of GATT and Article 2.4 of the ATC did arise because, while
the former required the European Communities and Turkey to apply
substantially the same regulations of commerce, the latter explicitly
required them to apply different regulations of commerce. The
provisions of Article 2.4 of the ATC therefore clearly prevailed to
the extent of this conflict.
- India therefore submitted that the European Communities and Turkey
could meet their obligations under the WTO agreements if they were to
form a customs union under which the import policies of the European
Communities and Turkey on textiles and clothing differed to the extent
that their obligations differed under Article 2.4 of the ATC.
Turkey�s defense based on the notion of a conflict of obligations
was therefore without any legal basis. In this context, India noted
further that the ATC was a newly negotiated agreement designed to
exempt partially the textiles and clothing sector from the earlier
GATT disciplines during a transitional period; it therefore
constituted a later and more specific statement of Members' rights and
obligations in the field of textiles and clothing.
- Turkey submitted that, with regard to the ATC, no conflict
existed. In addition, Turkey considered that it was in the first place
for the TMB to determine the relationship between the ATC and GATT, as
this relationship depended on an interpretation of the ATC. Turkey
therefore continued to believe that this issue could not be considered
by the Panel without prior examination by the TMB which had been given
the task to examine measures taken under the ATC and their conformity
therewith.
- Turkey submitted further that, in any case, since the ATC
specifically referred back to the "relevant GATT 1994
provisions" in Article 2.4, Turkey could not see any basis for
construing a conflict between ATC and GATT. This was also evidenced by
footnote 3 to Article 2.4 of the ATC, which solely excluded Article
XIX of GATT from the reference contained in the main body of this
provision. 125 Finally, the
ATC established a transitional regime, the ultimate aim of which was
full integration of the textiles and clothing sector in the GATT. It
would therefore be surprising if Article XXIV of GATT would be
considered inapplicable in the context of the ATC, since the purpose
of the ATC was to phase out gradually any special rules applying to
textiles and clothing products and to phase in all the GATT rules,
which obviously included Article XXIV.
(iii) Differences between the formation
of a customs union and the enlargement of an already existing one
- India noted that Turkey had not become a Member State of the
European Communities, and the territory to which the European
Communities applied the WTO Agreement had therefore not been extended
to comprise that of Turkey. The new restrictions were consequently not
EC measures extended to the territory of Turkey, but restrictions
imposed by Turkey. In this context, India recalled that, in the
communication dated 9 January 1996, Turkey further attempted to
justify its new restrictions as follows:
"To the extent that the EC's current regime for textiles is in
accordance with WTO rules including the ATC, nothing prevents the
Community from applying its existing regime to the enlarged territory
of the EU-Turkey customs union, as has been done by the EC on the
occasion of previous enlargements."
- India was of the opinion that this statement was both factually and
legally incorrect. While the European Communities were responsible for
the implementation of the WTO Agreement within its own separate
customs territory (which essentially comprised the European
territories of its Member States), 126
it had assumed no obligations under the WTO Agreement in respect of
the territory of those countries with which it had concluded a customs
union agreement. The case before the Panel was thus not the case of an
extension of the territory to which the European Communities applied
the WTO Agreement (which occurred for instance when Austria, Finland
and Sweden acceded to the European Communities and when Germany was
unified). This case concerned the adoption by Turkey of the EC
restrictive textiles and clothing import regime within the framework
of an RTA. There was therefore no need for the Panel to make any
findings on the complex legal issues arising from an extension of the
territorial application of the WTO Agreement by the European
Communities to the territory of States that acceded to the European
Communities but remained Members of the WTO.
- Turkey submitted that, from the point of view of rights and
obligations arising out of membership of the WTO, there was no
distinction between accession to the European Communities and
participation in a customs union with it, as long as a single customs
territory had been created with the inclusion of both parties. For
that reason, the procedures followed, whether in relation to Article
XXIV:5(a) or Article XXIV:6, were identical in both cases. In Turkey's
opinion, the precedents set by EC accessions were valid for the
examination of its own customs union with the European Communities.
While the decision-making processes varied depending on whether a
country had acceded to the European Communities or joined in a customs
union with it, what mattered was the fact that the obligations which
arose out of both cases were indistinguishable in essence, as in the
case of the Turkey-EC customs union which had a single customs
territory as provided for in Article 3(3) of Decision 1/95. Precisely
because a common commercial policy was applied over this single
customs territory, Turkey and the European Communities had insisted on
the latter's participation in the examination of India's complaint by
the Panel, since the elements of that common commercial policy could
not be modified without the consent of the European Communities.
- Turkey therefore did not agree with the argument made by India
concerning the alleged difference in WTO terms between an extension of
the EC customs union through accession of new member States and the
substitution of a single Turkey-EC customs territory for the
pre-existing individual customs territories of Turkey and the European
Communities respectively. In fact, in both cases, the territory
covered by the customs union was extended by comparison to the
situation prevailing beforehand. The main difference was in the
administration of the customs union, which was the responsibility of
the European Communities alone in the case of an accession, but the
joint responsibility of Turkey and the European Communities in the
case of the Turkey-EC customs union. This was however entirely
irrelevant for the application of Article XXIV:5 to 8 of GATT.
(iv) Scope of harmonization of the
external trade regime in the Turkey-EC regional trade agreement
- India noted that Turkey and the European Communities had
chosen to eliminate the barriers on trade between them in respect of
most industrial products, and Turkey had harmonized certain aspects of
its external trade policies with those of the European Communities.
However, outside the sector of textiles and clothing, the European
Communities and Turkey would continue to apply different trade policy
measures to third countries. The RTA between the European Communities
and Turkey, at its present stage of implementation, could best be
characterized as a free-trade area whose parties had chosen to
harmonize certain aspects of their external trade policies. The
argument that Article XXIV required Turkey to raise the level of its
restrictions in the field of textiles and clothing to that of EC
restrictions was therefore particularly unconvincing in this context.
As the representative of the United States pointed out in the CRTA:
"The reasoning by the EC that Article XXIV required new member
countries to adopt certain restrictive and discriminatory arrangements
so as to ensure the smooth functioning of the Turkey-EC customs union
was dubious, as it was not applied across the board. The selectivity
of this reasoning confirmed that it was being used as a disguised
restriction to the trade of third countries. In textiles, Turkey was
required to adopt quotas, but in other areas was exempted. Regional
trade agreements should have the objective of strengthening, rather
than weakening the multilateral trading system." 127
- Turkey submitted that over 98 per cent of trade between
Turkey and the European Communities was covered by the Turkey-EC
customs union and the criteria contained in the twin sub-paragraphs of
Article XXIV:8(a), were more than fulfilled in the completion of the
customs union. With reference to the requirements in Article
XXIV:8(a)(i), Turkey noted the following:
- Duties and QRs had been eliminated on intra-trade in industrial
products. Textiles and clothing products, which accounted for around
40 per cent of Turkey's exports to the European Communities, were in
free circulation in the Turkey-EC customs union. As far as steel
products were concerned, they would be incorporated into the customs
union before the ECSC was phased out in 2001 and benefit from free
circulation.
- The only sector not fully covered by the Turkey-EC customs union
in 2002 would be agriculture, although intra-trade in agricultural
products would have been significantly liberalised. 90 per cent of
intra-trade in agricultural products had been liberalised as a
result of a separate Decision of the Association Council, Decision
1/98, which entered into force on 1 January 1998.
- With respect to the harmonisation exercise carried out by Turkey in
the area of commercial policy, Turkey referred to the provisions
contained in Section III of Decision 1/95 and, stressing its
comprehensive nature, noted as follows:
- Turkey had adopted the CCT for all industrial products, except
those of EURATOM and ECSC. 128
- Turkey had adopted in the textiles and clothing sector a trade
regime identical to that of the European Communities, in conformity
with Article 12(2) of Decision 1/95.
- Turkey, as the European Communities, applied restrictions on a
limited range of products imported from some state-trading countries
not Members of the WTO.
- In order to achieve free circulation of agricultural products
between the two parties, Turkey has to adopt necessary elements of
the Common Agricultural Policy. The "European Strategy"
for Turkey, endorsed by the European Council at its meeting held in
Cardiff on 15-16 June 1998, had proposed modalities for reaching
that objective and discussions on these proposals were expected to
be initiated shortly
- In competition and state-aids, the harmonisation process had
already been initiated and, once completed, resort to anti-dumping
and countervailing duties would cease and identical policies would
be applied to third countries. 129
(Meanwhile, the Parties to the Turkey-EC customs union were required
to coordinate their actions towards third countries.) 130
Such gradual integration of anti-dumping actions was envisaged in
Article 4.3 of the WTO Agreement on Implementation of Article VI of
the GATT 1994.
- Consequently, Turkey was of the view that the Turkey-EC customs
union could not be described, as India did, as a "free trade area
whose members have chosen to harmonise certain aspects of their
external trade policies", nor could it be argued that
"Turkey has chosen to harmonise its commercial policies with
those of the EC on a selective basis".
To continue with Other options available
121 WT/REG22/M/1,
para. 17. India, Japan, Hong Kong, and the United States expressed their
agreement with Thailand.
122 See BISD 35S/293,
para. 45.
123 A transitional
period was only provided for in Article 16 of Decision 1/95 (see
WT/REG22/1) for alignment by Turkey on the EC preferential trade policy as
no risk of trade diversion through the Turkish customs territory was
likely as long as Turkey maintained towards the countries concerned a more
restrictive import regime than that of the European Communities.
124 Panel Report on EC
- Bananas III (Complaint by the United States), para. 7.159 and
footnote 403.
125 See also, in this
respect, paras. 6.27 to 6.29 above.
126 See Article XXIV:1
and the Explanatory Notes at the end of the WTO Agreement.
127 WT/REG22/M/1,
para. 13.
128 Exceptionally, for
a transitional period ending on 1 January 2001, imports from third
countries of products covering 1.4 per cent of eight-digit tariff lines
would be subjected to higher duties than the CCT, in accordance with
Article 19 of the Additional Protocol.
129 See Article 44(1)
of Decision 1/95 (WT/REG22/1).
130 See Article 45(2)
of Decision 1/95 (WT/REG22/1).
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