IV. Additional Information

1. Pursuant to Article 13.2 of the DSU, the Panel sought from the European Communities certain relevant factual and legal information regarding the matters at issue. The Chairman of the Panel therefore addressed the following letter, dated 28 October 1998, to the Permanent Representative of the European Communities in Geneva:

   "I am writing with regard to the Panel on Turkey � Restrictions on Imports of Textiles and Clothing Products, Request by India (document WT/DS34). In this context, the Panel has had a first meeting with the parties and has asked them a series of questions in order to help clarify the facts of this dispute and the parties' related legal arguments. As you may be aware, parties in that dispute have invoked and raised arguments that relate to the Agreement between Turkey and the European Communities which these Members have notified to the WTO (document WT/REG22/1).

   In order to ensure that the Panel has the fullest possible understanding of this case, and pursuant to Article 13.2 of the DSU, the Panel would like to ask the European Communities for factual or legal information relevant to this case that they would wish to provide (for your information the full list of questions posed to Turkey is attached). In particular, the Panel would invite the European Communities to submit written responses to the following questions:

   1. Can you provide the Panel with information with regard to negotiations which resulted in what was notified to the WTO under WT/REG22/1? Article 12 of Decision 1/95 provides that "From the date of entry into force of this Decision, 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: (�)" Can the EC provide us with a description of all the alternatives that the EC and Turkey considered in trying to identify textile and clothing policies that would have been "substantially similar" to those of the EC. Was there any effort to look at alternative means of securing the same effect other than adopting exactly the same policy as that of the EC? Did parties consider using rules of origin to ensure that only Turkish exports of textile and clothing products to the EC would benefit from the preferential market access treatment to the EC market as envisaged in the customs union? Was any consideration given to the use of a provisions similar to that of Article 115 of the EC Treaty which has effectively been used amongst EC member states for many years before the completion of the EC single market?

   2. How do you explain that the initial agreement between Turkey and the EC was signed in 1963 and that the transition period until now has lasted some 35 years? How would you qualify the nature of the Agreement notified as WT/REG22/1? Is it an interim agreement that should lead to a customs union by 2005 or would you qualify this agreement implementing a completed customs union?

   3. Do all textile and clothing products circulate freely between EC territory and Turkey's territory? If so, since when? What about other industrial and agricultural goods? What legal means are used to ensure an effective EC border control of these goods under restrictions vis-�-vis Turkey?

   4. How does the EC administer and control the respect of the overall EC/India and Turkey/India textile and clothing quotas at EC-Turkey's borders?

   5. The agreement between the EC and Turkey provides that the parties maintain antidumping, countervailing and safeguard regimes applicable to imports of textile and clothing products from each other? Have parties used such measures against imports from each other?"

2. The EC Representative in Geneva replied substantively as follows:

   "In reply to your letter of 28 October 1998, I would like to answer the questions that the Panel has asked of the European Communities pursuant to Article 13.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

   Before doing so, I would like to clarify that it is not our intention to participate in any other way in this procedure, since India has chosen to direct its complain exclusively against Turkey in spite of the fact that it was clearly indicated to India that the measures at issue were taken in the framework of the formation of the EC/Turkey customs union. The European Communities has taken good note of this deliberate choice of India and our contribution to the debate before this Panel should therefore not be treated as that of a party or a third party to its proceedings.

   We are of course pleased to answer the specific questions raised by the Panel under Article 13.2 DSU, but we do not believe it would be appropriate for us, under this provision, to enter into a broader discussion of the factual or legal elements that may be relevant for the resolution of this dispute since this could be confused with the pleading of a case before the Panel. We will therefore stick to the specific questions asked by the Panel and provide the requested factual information to the Panel as objectively as we can."

3. The Annex to the EC letter contained replies to the specific questions asked by the Panel, as follows:

   Reply to question 1

   "The objective from the outset of the negotiations was to include textile and clothing products within the customs union. Turkish exports to the European Union of textiles and clothing amounted to approximately 40 per cent of all Turkish industrial exports to the European Union and it was therefore considered essential that these products formed part of the customs union and hence be in free circulation within the customs union.

   The use of rules of origin benefiting only Turkish exports would have been an exception to the principle of free circulation within the customs union and would have required the maintenance of customs and border checks within the customs union designed to ensure that Turkey would not become a transit point of goods in circumvention of the Community's quota system arising from Turkey's adoption of the Community's rates of tariffs, etc.

   Article 115 of the EC Treaty lost a considerable degree of relevance following the completion of the EC single market. As such, no serious consideration was given to the use of provisions akin to those of Article 115 of the EC Treaty but it appears very doubtful whether such measures would have been workable or proportionate within the customs union."

   Reply to question 2

   "The core of the Ankara Agreement signed in 1963 is the establishment of a Customs Union in three stages. The Additional Protocol signed in 1970 and which entered into force in 1973 defined the modalities for implementing the transitional stage which was supposed to end after 22 years (in 1995). In accordance with the planned calendar, the final stage of the Customs Union entered into force on 31 December 1995 (with the adoption of Decision 1/95 of the EC-Turkey Association Council). Decision 1/95 defines the rules which ensure the proper functioning of the Customs Union. Despite the fact that Turkey benefits from certain adaptation periods (until 2001), in some areas such as preferential commercial policy, protection of the intellectual property rights etc, we consider that the customs union has already reached its final phase with regard to the requirement of Article XXIV:8(a) of the GATT 1994. Precise data concerning the trade coverage and other details concerning the functioning of the customs union were submitted to the WTO Committee for Regional Trade Agreements and were also discussed in the recent Trade Policy Review of Turkey. It is worth noting that many provisions in the Customs Union Decision go beyond the definition of a Customs Union under Article XXIV of the GATT 1994."

   Reply to question 3

   "Industrial products including textiles products have been in free circulation between the EU and Turkey since the entry into force of the customs union on 31 December 1995. Shipment of textiles and clothing requires an ATR document indicating that the goods are in free circulation. No indication of origin is required for goods in free circulation. There is thus no specific EC border control in respect of goods for which Turkey has quantitative restrictions, the Turkish authorities having effected such control on entry of the goods into free circulation in Turkey.

   Agricultural products will be included in the customs union following an adaptation period and for the time being enjoy preferential treatment subject to proof of origin including EUR-1 certificates and invoice declarations to enable the identification of the products."

   Reply to question 4

   "Turkey has adopted all the European Communities's relevant regulations concerning imports of textiles (e.g. Regulation EEC/3030/93, Regulation EEC/517/94 and Regulation EEC/3951/92). Thus the basic administrative principles are the same in both parts of the customs union. The Turkish authorities have observer status in the "management" committee chaired by the Commission set up under the relevant regulations. In addition, the Turkish authorities maintain an inter-departmental committee in order to take any necessary measures to ensure consistency between the EU and Turkey. So far as the management by the Community's integrated system of licensing is concerned, the Turkish authorities have full access to the European Community's computerised licensing system (Syst�me Integr� de Gestion de Licences or SIGL) and there is a regular exchange of information at administrative level. Thus, there is no administration or control of the overall EC/India and Turkey/India textile and clothing quotas at the EC/Turkey's borders. Once goods enter the customs union pursuant to the parties' respective systems, they are in free circulation and no further controls are necessary."

   Reply to question 5

   "The Customs Union Decision maintains the possibility for each party to apply trade defense instruments, including anti-dumping measures to the products originating from the other party. The Community imposed definitive anti-dumping measures on imports of polyester fibres from Turkey in June 1996. Provisional anti-dumping duties were imposed on imports of unbleached cotton fabrics from Turkey in April 1998. However, these expired in October without the imposition of definitive measures."

V. Claims of the Parties

1. India requested the Panel to rule that the import restrictions which Turkey had imposed since 1 January 1996 in the context of its trade agreement with the European Communities on textiles and clothing products from India:

   1. were inconsistent with Articles XI and XIII of GATT and Article 2.4 of the ATC and were not justified by Article XXIV of GATT, and;
   2. impaired benefits accruing to India under Articles XI and XIII of GATT and Article 2.4 of ATC.

2. India requested the Panel to recommend that Turkey bring its restrictions into conformity with its obligations under GATT and the ATC, basing its rulings and recommendations on the following findings:

   1. Article XXIV:5 of GATT did not permit Members forming a customs union to impose QRs on imports from third Members;
   2. to the extent that there was a conflict between the provisions of Article 2.4 of the ATC (which permitted the European Communities but not Turkey to impose restrictions on imports of textiles and clothing products from India) and the provisions of Article XXIV:8 of GATT (which required Members forming a customs union to apply substantially the same restrictions on imports from third Members), the provisions of Article 2.4 of the ATC prevailed; and
   3. Turkey had not rebutted the presumption that its restrictions on imports of textiles and clothing impaired benefits accruing to India under Articles XI and XIII of GATT and Article 2.4 of the ATC.

3. Subsidiarily, if the Panel were to accept the argument by Turkey that Article XXIV of GATT provided a waiver from the obligations under Articles XI and XIII of GATT and Article 2.4 of the ATC for measures necessary for the purposes of a customs union meeting the standards of Article XXIV, India requested the Panel to base its rulings on the following findings:

   1. for the purposes of the EC-Turkey trade agreement, an immediate harmonization of import restrictions on textiles and clothing products was unnecessary, because (a) the European Communities and Turkey were applying different import duties and regulations in respect of many sectors, policy instruments and trading partners and (b) in all areas in which their import duties or regulations differ, the European Communities and Turkey were able to implement border controls ensuring that only products originating in the territories of the European Communities and Turkey benefit from the preferential treatment under the EC-Turkey trade agreement; and
   2. the type of agreement concluded between the European Communities and Turkey, that is an agreement providing for the establishment of a customs union at a future date, was not governed by the provisions of Article XXIV of GATT on completed customs unions and Turkey could therefore not invoke those provisions as justification for the restrictions.

4. Turkey requested the Panel to find that:

   1. India had not sufficiently exhausted the avenues of Article XXII of GATT, Article 4 of the DSU and Article XXIV of GATT in order to bring about an amicable settlement and adjustment;
   2. India had not complied with the procedural requirements of the ATC;
   3. the Panel could not substitute itself for the CRTA which had not yet completed its examination of the Turkey-EC customs union;
   4. since Turkey argued that the measures forming the object of the complaint were a requirement of the Turkey-EC customs union, the Panel could not rule on their legality in the absence of agreed conclusions on the consistency of the Turkey-EC customs union with the obligations of Turkey and the European Communities under GATT;
   5. Turkey had not acted inconsistently with its rights and obligations under GATT and the ATC; and
   6. as required under Article 3.6 of the DSU, the parties to the dispute should seek a negotiated solution to the matter, taking into account India's commercial interests and Turkey's obligations arising from the Turkey-EC customs union.

VI. Main Arguments by the Parties

A. Introductory Points

1. Consultations

1. Turkey submitted that India had failed to comply with the principle of procedural economy and the spirit of the WTO dispute settlement mechanism which required that the panel procedure was to be considered as ultima ratio means to solve conflicts between Members, when unable to find a negotiated solution. ⁹⁰ India had refused to enter into bilateral negotiations offered by Turkey, including the European Communities, and had also refused to deal with the issues in consultations under Article XXII of GATT.
2. Turkey said that it had accepted the request by India for consultations under Article XXIII of GATT on the measures it applied, on condition that representatives of the European Communities participate. Their participation was deemed essential, given that the application of the restrictions which constituted the object of India's complaint derived from the alignment of Turkey's commercial policy on that of the European Communities. Consultations scheduled to be held in Geneva on 18-19 April 1996 did not occur owing to India's refusal to accept the participation of EC officials. Turkey continued to offer to find a negotiated solution to India's complaint, and the subject was raised in discussions held in both capitals at different times and at a meeting between both countries' Trade Ministers in Geneva in May 1998. However, and despite the fact that the measures in question had never formed the subject of a consultation between Turkey and India under Articles XXII and XXIII of GATT, India requested the DSB to establish a panel regarding the imposition by Turkey of QRs on imports of certain textiles and clothing products.
3. India submitted that Turkey had violated Articles 3 and 4 of the DSU, since it had not entered within the 30-day period into the bilateral consultations requested by India, with a view to reaching a mutually satisfactory solution. India submitted that Turkey had in particular contravened the provisions of Article 3.10 of the DSU. India considered that its recourse to the provisions of GATT and the DSU as regards consultations was frustrated in a most unprecedented manner, and the dispute remained unresolved. ⁹¹
4. India explained that its request for consultations, pursuant to Article 4 of the DSU and Article XXIII:1 of GATT, ⁹² had been accepted by Turkey on 1 April 1996. While confirming its agreement to enter into consultations "on textiles and clothing restrictions applied by Turkey" at a mutually acceptable time and venue, Turkey considered that "the European Communities as our partner in the customs union should also be represented in the consultations". On 4 April 1996, India proposed the venue (Geneva) and dates (18-19 April 1996) for such consultations while clearly stating that it could not accept that the European Communities should participate in the consultations since, under the GATT and WTO practices, consultations under Article XXIII:1 of GATT were bilateral in nature; India asked for confirmation by Turkey of the date and venue of the bilateral consultations. On 16 April 1996, Turkey scheduled a meeting with its Indian counterparts for 18 April 1996 (3.30 to 6 p.m.), while stating its "understanding that representatives of the European Communities would also be participating". India stated that, despite that very short notice, it ensured the presence of its delegation at the consultations, but the delegation of Turkey did not attend the scheduled meeting nor did it provide an explanation for its absence. India submitted that it sent another communication to Turkey on 18 April 1996, proposing to enter into bilateral consultations on 19 April 1996. When India endeavoured to confirm with Turkey the date and venue of these consultations, it was informed that the latter was not in a position to enter into these consultations without the participation of the European Communities, and that this would be conveyed to India in writing by close-of-business on 19 April 1996. India submitted that the communication from Turkey, dated 19 April 1996, was received on 22 April 1996.
5. Turkey responded that it had refused consultations on the ground that such consultations did not involve the European Communities. It had good and proper reasons not to engage in formal consultations in which the European Communities would not be involved, namely that the measures complained of were a direct consequence of the Turkey-EC customs union and could not be modified without the consent of the European Communities. This did not mean that Turkey was not prepared to examine with India how to adjust the measures challenged and to bring about an amicable settlement. Turkey recalled the various steps it took and the latest attempts made as recently as 28 September 1998.
6. Turkey submitted that the issue it raised in its request for a preliminary ruling, with respect to EC participation in the dispute had also a substantive aspect. ⁹³ It considered that in this case findings and recommendations, if any, of the Panel directed against the measures challenged by India and the resulting recommendations and rulings of the DSB, if any, could hardly be addressed to Turkey alone, as Turkey was only one of the parties to the Turkey-EC customs union.
7. India believed that Turkey's claim that, given its obligations towards the European Communities under the EC-Turkey trade agreement, it could not remove the restrictions on imports of textiles and clothing products from India without the consent of the European Communities, had no basis in international law. According to the relevant part of Article 41.1 of VCLT, "[t]wo or more parties to a multilateral treaty may conclude an agreement to modify the treaty as between themselves alone if ... the modifications in question ... do[es] not affect the enjoyment by the other parties of their rights under the treaty �" (emphasis added).
8. India stated that the European Communities and Turkey were both party to a multilateral treaty, the WTO Agreement. In their trade agreement they had committed themselves to harmonize their textiles and clothing policies towards third countries without regard to Turkey�s obligations under the WTO Agreement. They had thus concluded between them a treaty which modified the WTO Agreement as between them in a manner that affected the enjoyment of India�s and other WTO Members' rights under the WTO Agreement. According to Article 41 of the VCLT, Turkey was therefore not bound by the EC-Turkey trade agreement to the extent that it entailed a violation of Turkey�s obligations under the WTO Agreement towards third WTO Members.
9. India feared that, if the DSB were to rule in India�s favour, Turkey would use its obligations under the EC-Turkey trade agreement as a pretext for not implementing the ruling. The European Communities's decision not to participate in the Panel�s proceedings as third party suggested that it might lend its hand in such an approach. This would set an extremely harmful precedent for the multilateral trading system because it would imply that the obligations under a bilateral trade agreement could provide a justification for a failure to implement the obligations under the WTO Agreement. India therefore requested that the Panel make use of its power under the second sentence of Article 19.1 of the DSU and suggest that Turkey, when bringing itself into conformity with its obligations under the GATT and the ATC, took into account the principles set out in Article 41 of the VCLT.
10. India also noted later that, following its arguments on Article 41.1 of the VCLT, Turkey had conceded that two or more parties to a multilateral treaty that concluded an agreement amongst themselves could not make modifications to the multilateral treaty that affected the rights of other parties under the multilateral treaty. To Turkey�s argument that remedy for the situation did not lie with Turkey alone, India reiterated that since in this case, the measure in question was taken by Turkey alone, India could bring a dispute against Turkey only.

To continue with Offers to settle

⁹⁰ See Articles 3.10 and 4, as well as Articles 5.4 and 3.7 of the DSU.

⁹¹ The DSB was informed of this situation on 24 April 1996 (WT/DSB/M/15, para. 3).

⁹² See WT/DS34/1.

⁹³ In this context, Turkey welcomed the invitation addressed by the Panel to the European Communities to provide written information related to the customs union and hoped that the Panel would not refrain from asking the European Communities to present evidence orally, should that prove necessary.