C. Non-Participation of the European Communities in the Dispute

1. Arguments by the parties

26. Turkey noted that the creation and existence of a customs union was not only a fact which was taken into account by the drafters of the GATT, but was expressly referred to in Article XXIV:4 of GATT as "desirable" because of the economic integration between the countries parties to the customs union. India was well aware that the measures subject of its complaint had not been taken unilaterally by Turkey, but resulted from the completion of the customs union agreed between Turkey and the then EEC in the Ankara Agreement, as specified in more detail in Association Council's Decision No. 1/95 "on implementing the final phase of the Customs Union". Turkey referred to paragraphs 1 and 2 of Article 12 of Decision No. 1/95 as evidence of its lack of autonomy in adopting its external commercial policy concerning imports of textile and clothing products from countries outside the customs union. Turkey recalled that the conclusion of the Turkey-EC customs union, and more particularly the above-mentioned provisions were duly notified to the GATT and to the WTO.

27. India noted that the restrictions imposed by Turkey were acknowledged by both Turkey and the European Communities as having been imposed by Turkey. Thus, Article 12 of Decision 1/95 provided that "Turkey shall, in relation to countries which are not members of the Community, apply provisions and implementing measures which are substantially similar to those of the Community's commercial policy set out in the following Regulations" (emphasis added). ⁷⁰ Furthermore, the joint Turkey-European Communities communication to the CRTA on 8 November 1996 (containing preliminary information on Decision 1/95) reads as follows: "In this framework, Turkey has introduced quantitative restrictions and surveillance measures parallel with the practices of the EC and will similarly align itself with EC liberalisation" (emphasis added). ⁷¹ In the Turkey-European Communities communication to the CRTA on the details of the QRs imposed, there was again joint and clear acknowledgement that:

    "In order to assist Members in the examination of the customs union, Turkey and the European Communities are pleased to confirm, in the Annex hereto, details of the quantitative limits applied by Turkey in respect of imports of certain textile and clothing products from certain WTO Members, and in conformity with the provisions of Article XXIV of GATT 1994" (emphasis added). ⁷²

    In India's opinion, there was therefore no doubt that the measures at issue were restrictions imposed by Turkey and not by the European Communities.

28. Turkey recalled that, according to the Appellate Body in Japan � Taxes on Alcoholic Beverages, Panel and Appellate Body Reports "are not binding, except with respect to resolving the particular dispute between the parties to that dispute"(emphasis added). ⁷³ This corresponded to internationally recognized standards: Article 59 of the Statute of the International Court of Justice ("ICJ") contained similar language, as indicated in footnote 30 of the above-mentioned Appellate Body report. Turkey added that Article 63 of the ICJ Statute allowed for all the parties to an international convention to become an intervenient with regard to the interpretation of that convention, it being understood that such an intervenient would then be bound by the judgement of the ICJ. ⁷⁴ Turkey noted that such a provision was absent from the DSU, Article 10 giving third parties only limited rights of participation.

29. India noted that, although the DSU did not provide for the status of co-respondent, the European Communities would have had the right to participate in the present proceedings as a third party (Article 10). As such, it would have had the right to request the Panel to accord it the enhanced third-party status which certain GATT and WTO panels have accorded to third parties with a direct contractual interest in the outcome of a proceeding. ⁷⁵ This would have permitted it to be present at all meetings of the Panel with the parties and to submit its views in all stages in the proceedings. The European Communities deliberately chose not to participate in the proceedings in accordance with the provisions of the DSU. It would amount to an amendment of the DSU by the Panel if the European Communities were accorded rights of participation not foreseen in the DSU and never before granted to a GATT contracting party or WTO Member interested in supporting the respondent.

30. Turkey further submitted that it could not be obliged by a DSB ruling to breach an international agreement that was duly notified and had a recognized status in the WTO by virtue of Article XXIV of GATT. A generally accepted rule of public international law was contained in Article 26 of the Vienna Convention of the Law of Treaties ("VCLT"): pacta sunt servanda. This made it legally impossible for Turkey to act inconsistently with its obligations under the Turkey-EC customs union without the consent of the other party to that agreement. Any other solution would amount to obliging Turkey to breach its international obligations vis-�-vis the European Communities and would thereby be contrary to general principles of public international law which, in accordance with Article 3.2 of the DSU, was a source of law within the WTO dispute settlement system.

31. India considered that, although it might be true that Turkey faced conflicting obligations in the WTO and in its bilateral agreement with the European Communities, this issue was not germane to the task of the Panel, whose mandate according to Article 7.1 of the DSU was to examine exclusively Turkey�s obligations under the WTO agreements cited by the parties to the dispute, not any other treaties accepted by Turkey. This was not the first case in GATT/WTO history in which a panel had examined GATT-inconsistent measures taken by the defendant as a result of a bilateral agreement with another State. So far, all panels faced with that situation had simply ignored it and left it to the defendant to decide how to resolve its conflict of international obligations. ⁷⁶ Turkey�s potential conflict of international obligations was, therefore, irrelevant in the current proceedings.

32. India noted that it was undisputed in international law that a treaty between two States does not create either obligations or rights for a third State without its consent. ⁷⁷ The agreement reached between Turkey and the European Communities, therefore, could not modify the rights which India asserted before this Panel. Contrary to Turkey's defense based on the recognized status of a customs union under Article XXIV of the GATT, India argued that nothing in Article XXIV could possibly be interpreted as authorizing WTO Members forming a customs union to restrict imports from third WTO Members. Article XXIV provisions could not be understood as an expression of the consent of third WTO Members to bear the consequences of whatever restrictions might be imposed on their trade under an agreement between WTO Members forming a customs union.

33. Turkey also maintained that India�s claim could not succeed as long as India was unwilling to direct its complaint against both the European Communities and Turkey. If the European Communities was not fully involved in the present dispute, it would not be bound by its outcome and would therefore be under no obligation to agree to apply the agreement in a way that would satisfy India�s pretensions. Turkey considered that India�s claim should be rejected on the basis that, in order to pursue its claims properly, India should have cited both parties to the Turkey-EC customs union as respondents. In Turkey's view, the present case was comparable to a situation where the complainant directed its complaint against country A for a measure taken by country B; in such situation, the complaint would have to be turned down for lack of standing due to the obvious absence of international liability. The same rule should therefore apply in the present case, since there was no basis, in fact or in law, for the assumption that Turkey was alone internationally answerable and individually responsible for acts collectively taken by the parties to the Turkey-EC customs union through its institutions.

34. In that context, Turkey viewed India�s ultimate aim as that of being able to increase its trade in textile and clothing products with the Turkey-EC customs union, and not with Turkey alone. However, the "level of nullification or impairment" (Article 22.4 of the DSU) of QRs applied by the Turkey-EC customs union with regard to such trade with a final destination in Turkey would in fact be nil, while such trade impairment was potentially measurable with regard to the trade in these products with a final destination in European Communities. India�s choice of the respondent therefore amounted to a circumvention of the essential rights of defense of the European Communities as the party in the Turkey-EC customs union which would have to bear the trade consequences of any change in the existing import regime for textile and clothing products in Turkey as a constituent territory of the Turkey-EC customs union.

35. India noted that Turkey was not an EC Member State. Hence, the territorial scope of the European Communities�s obligations under the WTO Agreement did not comprise the Turkish customs territory and the Turkish government was not an authority for whose acts the European Communities had assumed any responsibility under the WTO Agreement. The import restrictions adopted by Turkey within its customs territory were measures neither adopted by, nor legally attributable to the European Communities. ⁷⁸ In the absence of any EC restrictions that India could possibly challenge under the WTO agreements, India could not reasonably be expected to initiate proceedings against the European Communities under the DSU.

36. Finally, in India's view, according to Article 19.1 of the DSU, the DSB could request the European Communities to modify their agreement with Turkey only if EC participation in that agreement, by itself, constituted a measure inconsistent with a WTO agreement covered by the DSU. This was, however, not the case. Moreover, a Member participating as a third party in the normal panel procedures is not bound by the outcome of the proceedings merely by virtue of its participation. As confirmed by the Appellate Body, the results of a panel proceeding bound only the complainant and the defendant in the proceedings. ⁷⁹ There was no obligation for third parties participating in panel proceedings corresponding to that contained in the arbitration procedures of Article 25 of the DSU. ⁸⁰

37. India could therefore not see how a mere change in the status of the European Communities in the proceedings of the Panel could entail a change in India�s rights towards the European Communities under the WTO agreements and oblige the European Communities to agree to a modification of the common EC-Turkey regime for imports of textile and clothing products from India. Under general international law, such an obligation could result only from an agreement between India and the European Communities according to which these would commit themselves to abide by the Panel ruling if it were permitted to participate in the Panel proceedings. India noted that the European Communities had not offered to assume that obligation.

    2. Arguments by third parties

38. Japan submitted that the Panel had been established in accordance with the provisions of the DSU, since India questioned Turkey's obligations under the WTO Agreements (not Turkey's obligations vis-�-vis the European Communities under the Ankara Agreement). Japan further noted that there was no obligation under the DSU for India to complain against the European Communities in this particular case and that any general issue of mandatory co-respondents should be addressed in another context.

39. The Philippines submitted that the European Communities were not an indispensable party to the dispute and that the resolution of India's claims against Turkey was not precluded without the participation of the European Communities. The Philippines observed, in particular, the following:

    1. Turkey's invocation of the pacta sunt servanda principle contained in Article 26 of the VCLT was not relevant in this context, since the terms and conditions of any agreement between Turkey and the European Communities, as between themselves, was not the subject of the dispute. Rather, a necessary consequence of Articles 26 and 34 of the VCLT was that, in the WTO, as between Turkey and India, Turkey could not invoke whatever conflicting obligations it might have under a Turkey-EC agreement.
    2. Even assuming that Turkey had acted in performance of an obligation imposed by a Turkey-EC agreement, the operative act from which India's cause of action arose (the promulgation of a law applicable in Turkish territory) was the exclusive and sovereign act of Turkey.
    3. The Panel, or the Appellate Body, had no choice but to apply the WTO Agreement, since the Turkey-EC agreements were not "covered agreements". Moreover, in accordance with paragraph 4 of Article 30 of the VCLT, ⁸¹ the WTO Agreement was exclusively applicable as between Turkey and India in the context of this dispute.
    4. It was irrelevant and immaterial that the European Communities be bound by the results of this dispute, since India did not seek any remedy from the European Communities.

40. The United States also argued in support of India's views, noting the following:

    1. The text of Article 10 of the DSU drew a balance between the rights of the parties to a dispute and the rights of other Members, a point made clear in the EC � Bananas III case, when the panel granted part but not all of a request for additional participatory rights for third parties. ⁸² In the present dispute, the European Communities had however not chosen to avail themselves of the rights afforded to it by the provisions of Articles 10.1-10.3 of the DSU.
    2. Turkey's claim that it was not individually responsible under the WTO Agreement for the measures at issue because of Turkey's entry into the Ankara Agreement could not be accepted. The existence of the Ankara Agreement could not by itself limit the rights of India under the WTO Agreement with respect to those measures. This principle of customary international law, pacta tertiis nec nocent nec prosunt, was expressed in Article 34 of the VCLT: "A treaty does not create either obligations or rights for a third State without its consent."
    3. Turkey's citation of the principle of pacta sunt servanda was inapposite, as the text of Article 26 of the VCLT made it clear that "Every treaty in force is binding upon the parties to it and must be performed by them in good faith" (emphasis added). This Article did not have an effect on Turkey's obligations to India, or India's rights vis-�-vis Turkey, as India was not a party to the Ankara Agreement.
    4. The measures in question were not acts adopted by institutions of the Ankara Agreement but were of Turkey's responsibility, as clearly stated by the European Communities at the DSB meeting on 13 February 1998: the "basic policy on Turkey's future textiles regime [including the measures in question] had been agreed by the Communities and Turkish Ministers�".⁸³
    5. In the EC � Bananas III case, the Appellate Body had already endorsed the examination under the DSU of measures adopted by one Member even when those measures were related to that Member's other international agreements and that the other parties to such agreements were not parties in the WTO dispute settlement proceeding.

    D. Consultation Stage of the Dispute Settlement Procedure with Respect to Trade in Textile and Clothing Products

    1. Arguments by the parties

41. Turkey submitted that India had violated cogent rules of procedure which were applicable in the present case and which took precedence over the ordinary rules under the DSU. In Turkey's view, the Panel had thus not been regularly established with respect to matters which were covered by the ATC and should decide, therefore, in limine litis that all the alleged violations of the ATC were not correctly before it and that it could not rule upon them.

42. Turkey claimed that, though alleging inconsistency of the Turkish measures with Article 2 of the ATC, India had disregarded the requirements of the special and additional procedural rules under Article 8, paragraphs 5 and 10, of the ATC (in the context of Article 1.2 and Appendix 2 of the DSU). In particular, India had not requested the TMB to review promptly the particular matter that it considered detrimental to its interests under the ATC. By so doing, it did not allow the TMB to make the appropriate recommendations. However, pursuant to Article 8.10 of the ATC, a matter might be brought before the DSB under Article XXIII:2 of GATT and the relevant provisions of the DSU only after the TMB had made recommendations and these could not be implemented. Thus, according to Article 1.2 of the DSU, the ordinary DSU rules did not apply in this case with respect to the alleged violation of the ATC: in particular it was not possible to request the DSB to establish a panel on this aspect of India�s complaint in the absence of a TMB recommendation.

43. Turkey recalled that as from 1 January 1995, two dispute settlement procedures concerning textile and clothing products had undergone the complete panel and Appellate Body procedure. ⁸⁴ In both cases, the TMB was requested to make recommendations before the request for the establishment of the panel was filed to the DSB. ⁸⁵ In the Panel Report on United States � Restrictions Affecting Imports of Woven Wool Shirts and Blouses, in which India was the complaining party, the following could be read:

    "India noted that the matter had remained unresolved in spite of bilateral consultations between India and the United States held under Article 6.7 of the ATC�; the examination of the matter by the Textile Monitoring Body (TMB) under Article 6.10 of the ATC�; the communication sent to the TMB under Article 8.10 of the ATC, within one month of the TMB recommendations; and the review of the matter by the TMB under Article 8.10 of the ATC� Consequently, India considered that it had met all requirements in Article 8.10 of the ATC for the direct recourse to Article XXIII.2 of GATT 1994." ⁸⁶

44. In Turkey's view, India did not meet in the present case, unlike in the above-mentioned precedent, all requirements in Article 8.10 of the ATC, since it did not allow the TMB to make recommendations, it denied Turkey the opportunity to make its views known to the TMB before such recommendations were made and it disregarded the special and additional procedural rules under Appendix 2 of the DSU.

45. India submitted that Turkey's argumentation was based on the notion that the special dispute settlement procedures of the ATC applied to all restrictions on textile and clothing products whatever their legal basis. This, however, was clearly not the case. Pursuant to Article 2.4 of the ATC, new restrictions on textile and clothing products might be justified by invoking either a provision of the ATC or a provision of the GATT. If a Member invoked a provision of the ATC, the matter might be examined by the TMB, since Article 8.1 of the ATC gave to the TMB the mandate "to examine all measures taken under this Agreement and their conformity therewith" (emphasis added). If a Member invoked a GATT provision, such as Articles XII, XVIII or XIX, as the legal basis for its restrictions on textile and clothing products, the TMB would have to leave the matter to the WTO body competent to examine measures taken under the GATT provision, for instance the Committee on Balance-of-Payments Restrictions or the Committee on Safeguards. This followed not only from the definition of the TMB�s mandate in Article 8:1 of the ATC but also from Article 3:3, which stipulated that "� Members shall provide to the TMB, for its information, notifications �" (emphasis added).

46. India noted that Article 2.4 of the ATC prohibited in principle all new restrictions on textile and clothing products except those justified by ATC or GATT provisions. If a restriction on such products was introduced under the provisions of the ATC, the TMB was competent and the special dispute settlement provisions of the ATC applied. This was not relevant to the present dispute, since Turkey had neither notified, pursuant to Article 2.1 of the ATC, QRs maintained under the MFA, not had it based its restrictions on the specific transitional safeguard mechanism of Article 6 of the ATC.

47. India argued further that, if a new restriction on textile and clothing products was introduced under the provisions of the GATT, the TMB was merely informed of the matter and the normal dispute settlement procedures applied. Article XXIV of GATT was so far the only provision Turkey had invoked to justify its introduction of new QRs on imports from India of certain textile and clothing products as from 1 January 1996. ⁸⁷ In accordance with Article 3.3 of the ATC, Turkey provided to the TMB, for its information, on two occasions the notifications which were submitted to the CRTA for the measures at issue. ⁸⁸ Consistently with its limited mandate, the TMB had merely taken note of the information provided. ⁸⁹

48. India noted that it was contradictory for Turkey to invoke a GATT provision as the legal basis for its new restrictions while claiming before this Panel that procedures of the ATC should be used by India to address the question of whether that GATT provision in fact provided the required legal basis. The TMB, established for the sole purpose of supervising the implementation of the ATC, was obviously not the proper forum for the resolution of a dispute on the relationship between Article XXIV of GATT and the general prohibitions of new textile and clothing restrictions set out in Article XI of GATT and Article 2.4 of the ATC.

49. India, therefore, concluded that it was entitled to pursue its claim that Turkey�s restrictions violated Article 2.4 of the ATC under the normal dispute settlement procedures of the DSU.

    2. Arguments by third parties

50. The Philippines submitted that India's claims under the ATC were within the Panel's jurisdiction, on the following grounds:

    1. It was not mandatory on Members, in the context of Article 8.5 of the ATC, to refer a matter to the TMB, but only mandatory on the TMB to act on a matter brought before it.
    2. Article 8.10 of the ATC applied to a situation where a matter had been referred to the TMB; it did not establish exclusive jurisdiction in favor of the TMB to the exclusion of the DSB.
    3. With reference to Turkey's invocation of Article 1.2 of the DSU, there was no difference between the special or additional rules and procedures set forth in the ATC and those under the DSU. Even if such difference existed, Article 1.2 of the DSU provided for a solution aiming at keeping the integrity of the claim intact: "the rules and procedures set out in [the DSU] should be used to the extent necessary to avoid the conflict".

To continue with Additional Information

⁷⁰ See WT/REG22/1.

⁷¹ WT/REG22/5, Section II.8 (Trade Provisions, Sector-specific provisions), sub-section on Textiles and Clothing.

⁷² WT/REG22/7, p. 1.

⁷³ Appellate Body Report on Japan � Taxes on Alcoholic Beverages, adopted on 1 November 1996, WT/DS8/AB/R ("Japan - Alcoholic Beverages"), p. 14.

⁷⁴ Article 63 of the Statute of the International Court of Justice reads as follows: "1. Whenever the construction of a convention to which states other than those concerned in the case are parties is in question, the Registrar shall notify all such states forthwith. 2. Every state so notified has the right to intervene in the proceedings; but if it uses this right, the construction given by the judgement will be equally binding upon it."

⁷⁵ See Panel Report on EC � Bananas III (Complaint by the United States), para. 7.5; and the references to GATT precedents in footnote 330 of that report.

⁷⁶ Examples of such cases are: Norway � Restrictions on Imports of Certain Textiles Products, BISD 27S/119 (restrictions discriminating against Hong Kong imposed under bilateral agreements with six developing countries); Japan � Trade in Semi-Conductors, BISD 35S/116 (export restrictions on semi-conductors imposed under an agreement with the United States); EC � Bananas III (Complaint by the United States), para. 3.30 (country-specific allocations of tariff quota shares under the "Framework Agreement on Bananas" concluded between the EC and certain Latin American countries).

⁷⁷ Article 34 of the VCLT: "pacta tertiis nec nocent nec prosunt" ("A treaty does not create either obligations or rights for a third State without its consent").

⁷⁸ In India's view, the only measure the EC took with respect to the measures at issue was to seek a common EC-Turkey regime for third-country imports of textiles and clothing and to reach an agreement with Turkey on such a regime. However, these actions of the EC, by themselves, were not measures covered by WTO law. The only provision in the WTO agreements which specifically prohibited Members to seek the imposition of a measure by another Member or to conclude an agreement with another Member on such imposition was Article 11 of the Safeguards Agreement, a provision which obviously did not apply in the present case.

⁷⁹ See Appellate Body Report on Japan � Alcoholic Beverages, Section E.

⁸⁰ Where all parties to the proceeding, including any third Member that agreed to participate, "shall agree to abide by the arbitration award".

⁸¹ "When the parties to the later treaty do not include all the parties to the earlier one: � (b) as between a State party to both treaties and a State party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations".

⁸² See Panel Report on EC - Bananas III, paras. 7.8-7.9.

⁸³ WT/DSB/M/42, item 3, p. 6.

⁸⁴ United States � Restrictions on Imports of Cotton and Man-Made Fibre Underwear (complaint WT/DS24) and United States � Restrictions Affecting Imports of Woven Wool Shirts and Blouses (complaint WT/DS33).

⁸⁵ See Panel Report on United States � Restrictions on Imports of Cotton and Man-Made Fibre Underwear, adopted on 25 February 1997, WT/DS24/R ("US - Underwear"), paras. 2.8-2.18.

⁸⁶ Panel Report on United States � Restrictions Affecting Imports of Woven Wool Shirts and Blouses, adopted on 20 March 1997, WT/DS33/R ("US - Shirts and Blouses"), para. 1.2.

⁸⁷ See WT/REG22/1, WT/REG22/5, WT/REG22/7 and WT/REG22/8.

⁸⁸ See G/TMB/N/308 and G/TMB/N/326.

⁸⁹ See para. 2.20 above.