Turkey - Restrictions on Imports of Textile and Clothing Products
Report of the Panel
(Continued)
(ii) Type of agreement under Article XXIV
- India submitted that, if the Panel were to consider the
relationship between the EC-Turkey trade agreement and the provisions
of Article XXIV relevant for its conclusions, it should, in the view
of India, adopt the approach followed by the GATT panel on EEC-Bananas
I, which reacted as follows to the EEC�s claim that the
preferences it granted to developing countries in the framework of the
Lom� Convention were covered by Article XXIV:
"The Panel first examined the argument of the EEC that Article
XXIV:7 sets out special procedures for the examination of free trade
areas by the CONTRACTING PARTIES, and that the overall consistency of
such free trade area with Article XXIV could therefore not be
investigated by a panel established under Article XXIII. ... The Panel
observed that, whatever the precise relationship between the
procedures under Article XXIII and XXIV, the provisions of Article
XXIV:7 empower the CONTRACTING PARTIES to make recommendations only
on agreements establishing a customs union or free trade area, or
interim agreements leading to such a union or area. These provisions
thus do no apply to any agreement notified to the CONTRACTING
PARTIES but only the four specified types of agreements. The Panel
therefore concluded that, notwithstanding the issue of whether the
procedures of Article XXIV:7 supersede those of Article XXIII:2, it
would first have to examine whether the Lom� Convention is an
agreement of the type to which the procedures of Article XXIV:7 apply.
The Panel could not accept that tariff preferences inconsistent with
Article I:1 would, by notification of the preferential arrangement and
invocation of Article XXIV against the objections of other contracting
parties, escape any examination by a panel established under Article
XXIII. If this view were endorsed, a mere communication of a
contracting party invoking Article XXIV could deprive all other
contracting parties of their procedural rights under Article XXIII:2,
and therefore also of the effective protection of their substantive
rights, in particular those under Article I. The Panel concluded
therefore that a panel, faced with an invocation of Article XXIV first
had to examine whether or not this provision applied to the agreement
in question. ... The Panel then proceeded to examine whether the Lom�
Convention was one of the types of agreement mentioned in Article
XXIV." 142
- In India's view, the reasoning underlying this example of judicial
restraint could be transposed to the present case. The Panel need not
decide whether the determinations to be made under Article XXIV:7
could be made by a panel nor whether the EC-Turkey agreement was
consistent with Article XXIV. It was sufficient for the Panel to
decide into which of the four categories of agreements the type of
agreement notified by the European Communities and Turkey fell. India
argued that the type of agreement concluded between the European
Communities and Turkey (i.e. an agreement under which the same import
duties and regulations were to be applied to imports from third
countries only at a future date) was not governed by those provisions
of Article XXIV that related to completed customs unions, but fell
into the category of interim agreements leading to the formation of a
customs union. Since Turkey had invoked the provisions of Article XXIV
on completed customs union as a legal cover for measures taken under
an agreement that provided for the establishment of such an union at a
future date and to which those provisions could not apply, the Panel
should reject Turkey�s invocation of the provisions on completed
customs unions as a potential legal basis for the restrictions at
issue.
- India considered that there was yet another reason why the Panel
need not determine whether the EC-Turkey agreement met the
requirements of Article XXIV. When the agreement was examined by the
CRTA, the European Communities and Turkey did not clarify the precise
nature of the agreement and made contradictory and vague statements on
this issue in response to pointed questions raised by other Members.
Although the European Communities and Turkey claimed that the
agreement established a customs union fully consistent with the
requirements of Article XXIV, 143
they also said that the harmonization of certain policies would take
place at the end of transitional periods, 144
thereby admitting that the agreement was in effect an interim
agreement leading to the formation of a customs union.
- India further noted that Turkey had claimed in the CRTA that it
might, consistently with Article XXIV, apply import policies different
from those of the European Communities in the areas of agriculture,
steel and other "sensitive" industrial products,
preferential trade agreements, the GSP, anti-dumping duties,
countervailing measures, and safeguards. Before the Panel, Turkey
claimed that, to conform to Article XXIV, it had to apply the same
policies as the European Communities in the field of textiles and
clothing. However, these two legal claims could not be simultaneously
accepted by the Panel. The first proposition was correct if the
EC-Turkey agreement was an interim agreement leading to the
formation of a customs union because, in that case, Turkey�s import
policies could deviate from those of the European Communities during a
transitional period in certain sectors, including textiles and
clothing. The second proposition was correct if that agreement was a
fully fledged customs union because, in that case, Turkey would be
required to adopt the same policies in all areas, including textiles
and clothing. India agreed that the Panel should not determine whether
the EC-Turkey agreement met the requirements set out in Article XXIV
for customs unions or those for interim agreements leading to the
formation of a customs union. However, India disagreed that the Panel
had to accept the proposition implied in Turkey�s argumentation that
one agreement notified under Article XXIV could be at the same time a
customs union agreement and an interim agreement leading to the
formation of a customs union.
- India noted, furthermore, that, to question 2 of the Panel, on
whether in its view the agreement with Turkey was an interim agreement
that should lead to a customs union by 2005 or an agreement
implementing a completed customs union, the European Communities
avoided a reply by incorrectly referring to the date of 2001, by
mentioning Article XXIV:8(a), and by defining the requirements of this
sub-paragraph in terms of a "final phase". 145
The reference to 2001 was incorrect because the agreement did not
establish any final date for common policies in the fields of
agriculture, "commercial defense" instruments and
preferential trade policies. Moreover, the European Communities
appeared to take the view that the requirements of Article XXIV:8(a)
were met by entering into the "final phase with regard to the
requirements of Article XXIV:8(a)" and thus imparted upon this
provision the notion of transition that was contained in the concept
of interim agreement. It might therefore be concluded that the
European Communities in response to a clear question by the Panel
refused to confirm that the EC-Turkey agreement established a customs
union within the meaning of Article XXIV:8(a).
- In view of the above, India concluded that the type of agreement
existing between the European Communities and Turkey was not governed
by the provisions of Article XXIV on customs unions.
- Turkey submitted that it had defended the view that it was
not the Panel's task to substitute itself for the CRTA and that the
Panel could not rule on the legality of the measures forming the
object of the complaint in the absence of agreed conclusions on the
consistency of the Turkey-EC Agreements with Article XXIV. Turkey
wished to clarify that, while pursuant to the institutional
arrangements of the WTO the assessment of the Turkey-EC customs union
was a matter for the CTRA and ultimately for the CTG, this should not
prevent the Panel from verifying whether the Turkey-EC customs union
might prima facie be regarded as a customs union within the
meaning of Article XXIV:8(a).
- In this connection, Turkey drew attention to the TPR Secretariat
Report on Turkey, which in the Introduction to the Summary
Observations highlighted, as a general point, the wide range of
reforms implemented by Turkey within the framework of the customs
union between Turkey and the European Communities "taking it
significantly beyond its Uruguay Round commitments as well as
generating improved and more secure trading opportunities for third
countries", 146
noting in particular that "the [Customs Union Decision] goes well
beyond the basic requirements of a customs union".147
- Turkey disagreed with India's allegations that the customs union
between Turkey and the European Communities was in fact an interim
agreement and that therefore under this agreement Turkey was not
required to apply the same external trade policy, including in the
area of textiles and clothing, as the European Communities. Turkey
also noted that, while India, in its first submission, had described
the Turkey-EC customs union as such, it had later decided to downgrade
the status of the customs union to that of a mere trade agreement.
- Turkey elaborated that the customs union was a definitive agreement
providing for the phasing in of harmonized policies in certain
specific areas which did not affect the character of the customs union
because of their limited trade impact. The 290 "sensitive"
products for which a transitional period ending on 1 January 2001 had
been allowed for Turkey to adjust to the CCT only accounted for 1.5-2
per cent of Turkey's total imports. Much of the gradual alignment on
the CCT which started with the completion of the customs union had
already been made in the 2.5 years elapsed since then and the margin
of difference between the CCT and the tariff applied for those
products in Turkey was being progressively reduced so that the
alignment would be completed on 1 January 2001, bearing in mind that
for the remaining 17,000 tariff lines covered by the customs union the
alignment had already been completed on 1 January 1996. Coal and steel
products would be incorporated in the Turkey-EC customs union when
included in the EC customs union itself, in 2002; meanwhile , they
were covered by a free-trade agreement similar to the ECSC Agreement
itself. Alignment on the EC preferential trade regimes was taking
place. As far as agriculture was concerned, the objective of free
movement was contained in the Association Agreement and was being
reached by stages. Association Council Decision 1/98, which provided
for mutual trade preferences in these products and entered into force
on 1 February 1998, consolidated the elimination of customs tariffs on
70 per cent of trade in these products between Turkey and the European
Communities.
- Turkey therefore concluded that India's arguments on the alleged
incomplete nature of the Turkey-EC customs union were groundless.
- India remarked that the quote of the TPR Secretariat Report
made by Turkey was partial and therefore misleading. There was no
reference to Article XXIV requirements in the Secretariat's
observations. In India's view, since a customs union could be
established without a harmonization of a number of domestic policies,
the Secretariat had correctly observed that certain of the measures
taken went beyond the requirements of a customs union.
5. Nullification or Impairment
(a) Trade aspects
- Turkey submitted that the Turkey-EC customs union had
benefited third countries and could not be described as having raised
barriers to their trade with Turkey. The CCT, adopted under the
Turkey-EC customs union, had an incidence of tariff levels much lower
than that of Turkey's previous tariff. The average Turkish tariff had
been 18 per cent while the level of the CCT was 5.6 per cent and, with
the implementation of the Uruguay Round results, this rate would fall
further to 3.5 per cent.
- Turkey added that, in undertaking the process of alignment of its
external trade policy with that of the European Communities, it had
embarked in the negotiation of free trade agreements with the
countries which had concluded similar arrangements with the European
Communities. Those agreements already in force had been notified to
the WTO; further such agreements would be notified prior to their
entry into force. Turkey was also preparing the adoption of a GSP
scheme similar to that of the European Communities and of preferential
arrangements applicable to ACP countries under the Lom� Convention.
In accordance with Article 16 of Decision 1/95, alignment by Turkey
with the EC common commercial policy would be completed in 2001.
- Turkey considered that, as a result, the Turkish market had became
as open as the EC market to third-country products and that those
products would enjoy even larger benefits in the Turkish market
following the completion of the Turkey-EC customs union. It also
affirmed that, overall, the Turkey-EC customs union had resulted in
the lowering of the general incidence of duties and other regulations
of commerce. The requirements of Article XXIV:5(a) of GATT had
therefore been met.
- Turkey submitted further that, although the replacement of an
essentially tariff-based system by one based on quantitative controls
might appear to be more trade restrictive, the exact opposite occurred
with its new import regime for textiles and clothing products,
reflecting the fact that a prohibitively high tariff-based system had
been replaced by a more transparent and predictable regime. Turkey
noted that, in the preparatory process to the customs union, Turkey's
import duties on textiles and clothing products from third countries
had been reduced from 37 per cent in 1993, to 27 per cent in 1994 and
21 per cent in 1995, this benefiting those countries even before the
customs union itself was completed. Moreover, in the following two
years, due to the further reduction in tariffs offered by the customs
union, imports of textiles and clothing products increased
considerably, reaching $3.6 billion in 1997, which represented an
increase of over 100 per cent compared to 1994. Turkey also noted
that, following the completion of the Turkey-EC customs union, its
imports from third countries had increased faster than those from the
European Communities. 148
- Turkey stressed that the above import results should be seen against
the fact that Turkey was a major exporter of textiles and clothing,
with a highly competitive industry. The substantial expansion of
imports, particularly of those from third countries, in 1996 and 1997
was an indication of the degree of liberalization attained as a result
of the completion of the Turkey-EC customs union.
- In this context, Turkey considered India as an important competitor
for Turkish producers in certain categories of textiles and clothing,
not only in third countries' markets but also in the Turkish market
itself. The imposition of QRs on imports of certain categories of
textile and clothing products originating in India had not reduced the
inflow of products from that country. Imports of textile and clothing
products from India into Turkey had increased from $32.5 to $137
million in the period 1994-1997. 149
Despite such a massive increase, Turkey had chosen not to invoke the
means available to it under the WTO, to slow down this process.
- Turkey added that India benefited more in terms of market share than
any other country from the opening of the Turkish textile and clothing
market resulting from the completion of the Turkey-EC customs union.
Its share in Turkey's total imports of these products had risen from
1.99 per cent in 1994 to 3.82 per cent in 1997.
- Turkey pointed out that, for most of the 19 categories of textile
and clothing imports to which QRs were applied India had never been an
important and regular supplier to the Turkish market, 150
and its share in the Turkish market in those products remained below 3
per cent for the period 1994-1997. 151
Before the entry into force of the Turkey-EC customs union, its
imports from India of the products under the relevant tariff headings
corresponding to those 19 categories were subject to an average custom
duty rate of 34.31 per cent. After the entry into force of Turkey-EC
customs union, these products were subject to an average custom duty
rate of 11.74 per cent (1996). This rate had been lowered further to
11.6 per cent in 1997, and would continue to be lowered further as a
result of the implementation by Turkey of the concessions made by the
European Communities during the Uruguay Round. Turkey pointed out that
the improvement in market access was reflected in the 134 per cent
increase in imports from India of products in the 19 categories
between 1994 ($13.08 million) and 1997 ($30.66 million). 152
- Commenting upon trade figures, Turkey noted that in 1995, i.e. the
last year before completion of the customs union, duty reductions were
phased in three separate instalments and India's exports immediately
began to benefit from these reductions. In Turkey's view, 1995 was
therefore clearly an atypical year for trade projections.
- India remarked that the correct figure for India's exports to
Turkey of the 19 restricted product categories in 1997 was $19.87
million, not $30.66 million as reported by Turkey. 153
India also noted that, apart from absolute values, the important point
was the trend in exports, which demonstrated that Turkey's QRs had
affected India's interests. From the trade data provided (Table II.4),
two irrefutable facts could be drawn in this respect: a serious and
significant decline in India's exports of restricted products to
Turkey had occurred after the introduction of the restrictions; and
for the non-restricted categories, there was an increase in India's
exports to Turkey.
- In India's view, the level of exports of textiles and clothing
products from India to Turkey was influenced not only by Turkey�s
trade regime but also by the evolution of the market, as well as by
the import regimes of other countries. It would not be possible to
segregate the impact of the quotas from the impact of such other
factors. It would also not be possible to segregate the impact of
Turkey�s reduction of tariffs from the impact of the new
restrictions.
To continue with Arguments
142 EEC - Bananas I,
paras. 158-159 (emphasis in the original).
143 See WT/REG22/M/1,
para. 4.
144 See WT/REG22/M/1,
paras. 5, 8, 10, 12, 28, 29 and 30.
145 See para. 4.3
above.
146 TPR Secretariat
Report on Turkey, p. x.
147 TPR Secretariat
Report on Turkey, p. xi.
148 See Table II.2
above.
149 See Table II.5
above.
150 The only
exceptions were product categories 1, 23, and 29.
151 See the supporting
tables reproduced in the Annex to this report, Appendix 4a and Appendix
4b.
152 See Table II.5
above.
153 See paras. 2.43 to
2.46 above for details on differences between trade data provided by India
and Turkey.
|