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Turkey - Restrictions on Imports of Textile and Clothing Products

Report of the Panel

(Continued)


    2. Offers to settle

  1. Turkey claimed that India, through its refusal to negotiate in a bilateral constellation, including the European Communities, had to assume responsibility for neglecting the avenue of a mutually satisfactory compensatory arrangement. In order to ensure that trade diversion into EC territory did not occur after the completion of the Turkey-EC customs union, Turkey had to impose, in accordance with its obligations under Decision 1/95, 94 restrictions on imports from India of those products already subject to quantitative limits when exported to the European Communities.
  2. Turkey argued that a parallel could be drawn between the renegotiation of bound duties through the procedures established in Article XXIV:6 of GATT and the negotiation of compensatory adjustments or other equivalent means of compensation for the QRs required by the Turkey-EC customs union, which should be considered as "other regulations of commerce" in the meaning of Article XXIV:5(a) and XXIV:8(a) of GATT. Therefore, all the countries whose exports of textiles and clothing products were subject to EC restrictions were offered the possibility to negotiate with Turkey arrangements consistent with those that they had concluded with the European Communities. Such arrangements, in the negotiation of which the European Communities took an active part, were reached with 24 countries in the period which preceded and immediately followed the completion of the Turkey-EC customs union. 95 Turkey also noted that there were 28 other countries, including India, with which it was not possible to reach agreement and to which it accordingly applied unilateral restrictions or surveillance regimes. These restrictions only affected products whose export to the European Communities was also under restraint.
  3. Turkey explained that a draft Memorandum of Understanding covering trade in certain textiles and clothing products had been sent to the Indian Embassy in Ankara on 31 July 1995 and that India had been invited to negotiate with Turkey, prior to the completion of the Turkey-EC customs union, an arrangement similar to the already existing India-EC arrangement covering trade in those products. The request was repeated in December 1995. Turkey claimed that it could not modify the restrictions unilaterally and accordingly insisted on the participation of EC officials in the bilateral negotiations. India refused negotiations with Turkey on the grounds that EC representatives would be present.
  4. India recalled that it had all along stated clearly that the unilateral imposition of QRs by Turkey on imports of textile and clothing products from India was inconsistent with Turkey's obligations under GATT and the ATC, and were not authorised by Article XXIV of GATT. India also recalled that Turkey did not enter into consultations requested by India under the DSU. In bilateral discussions outside the framework of the DSU, India had requested the removal of the quotas at issue but Turkey merely offered to marginally increase their size. Neither the European Communities nor Turkey submitted offers of compensation to India.
  5. Turkey also noted that it had made a fresh attempt to reach a negotiated solution with India to the problem which formed the object of India's complaint. In response to a suggestion made by its President to the President of India during the latter's state visit to Turkey on 17-20 September 1998, negotiations were held with the Indian counterparts in New Delhi on 28 September 1998. In the course of those negotiations, Turkey offered to increase by an average of 200 per cent - but in some categories by much more than that - the quotas made available for Indian exports of textiles and clothing to Turkey. It claimed that India refused to examine this offer and claimed instead that it was only prepared to discuss the complete elimination of quotas. Nevertheless, through a Note addressed on 12 October 1998 by the Turkish Embassy in New Delhi to the Indian Ministry of External Affairs, Turkey reiterated its call for a bilateral solution to be explored and invited India to attend further negotiations in Ankara, in the course of October 1998. According to Turkey, no response to this Note had yet been received from India.
  6. In this respect, India pointed out that it was for India to assess the best means by which it could protect its interests, noting that the dispute was then clearly in the final stages of argumentation before the Panel.
  7. B. Legal Arguments

    1. Burden of Proof

  8. India submitted that it was for Turkey to invoke an exception from the prohibition of discriminatory QRs set out in Article XI:1 of GATT and Article 2.4 of the ATC.
  9. India argued that the current state of WTO case law in the area of burden of proof was summarized in the recent panel on Argentina � Certain Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items as follows:
  10. "Concerning the issue of what one may call the "burden of proof", the Appellate Body has confirmed the GATT practice whereby

    (a) it is for the complaining party to establish the violation it alleges;

    (b) it is for the party invoking an exception or an affirmative defense to prove that the conditions contained therein are met; and

    (c) it is for the party asserting a fact to prove it." 96

  11. In India's view, the wording of Article 2.4 of the ATC, whereby it prohibited the introduction of new restrictions after 31 December 1994 "except under the provisions of this Agreement or relevant GATT 1994 provisions" (emphasis added) made it clear that the specific transitional safeguard mechanism in the ATC or any GATT provision that might justify the introduction of new discriminatory restrictions constituted an exception in terms of Article 2.4 of the ATC. It was thus for Turkey to invoke an exception to Article 2.4 of the ATC and to prove that the conditions contained under the relevant provisions were met.
  12. Reacting to Turkey's statement that Articles XI and XIII of GATT and Article 2 of the ATC were not relevant, India referred to the ruling of the panel on the Australia - Measures Affecting the Importation of Salmon case. 97 In India's view, Turkey had not presented any arguments or facts to refute India's claim of inconsistency; therefore, it was correct to state that the violation of Articles XI and XIII of GATT and Article 2.4 of the ATC had not been disputed by Turkey. India believed that the legal relevance of these provisions was another matter.
  13. 2. Articles XI:1 and XIII of GATT

  14. India submitted that Article XI:1 of GATT constituted a general prohibition on the imposition of QRs on imports. The QRs imposed by Turkey on imports of textiles and clothing were clearly inconsistent with this general prohibition and were not saved by any of the exceptions to this provision contained in GATT.
  15. India submitted further that, to the extent that Turkey�s QRs were discriminatory in nature, they were also inconsistent with the prohibition on discriminatory QRs in Article XIII:1 of GATT.
  16. Turkey reiterated that its restrictions on imports of textiles and clothing from a number of third countries were consistent with Article 2 of the ATC on the basis of the provisions of Article 2:4. Once a measure was justified under Article 2.4 of the ATC, the debate about its consistency with the obligations arising from Articles XI and XIII of GATT became redundant, since the ATC provided an exception to the rules contained in those Articles. 98
  17. 3. Article 2 of the ATC

  18. India submitted that Article 2 of the ATC permitted WTO Members to continue to apply, during the transition period provided for, restrictions on textile and clothing products that were in force on the day before the entry into force of the Agreement (i.e. 31 December 1994) under the MFA. According to Article 2.1 of the ATC, such restrictions were to be notified in detail to the WTO by the Members maintaining them within 60 days following the entry into force of the WTO Agreement. As stated in Article 2.4 of the ATC, the restrictions so notified were "deemed to constitute the totality of such restrictions applied by the respective Members on the day before the entry into force" of the ATC. Turkey had not maintained restrictions on imports of textile and clothing products from India on 31 December 1994. The restrictions on textiles and clothing products from India were imposed by Turkey on 1 January 1996 and were consequently not in force on the day before the entry into force of the WTO Agreement.
  19. India also noted that Article 2.4 of the ATC also provided that "[n]o new restrictions in terms of products or Members shall be introduced except under the provisions of this Agreement or relevant GATT 1994 provisions". India argued that the only provision of the ATC under which a Member could be allowed to introduce new QRs on imports of textiles and clothing products was under the transitional safeguard mechanism set out in Article 6 of the ATC. However, Turkey did not invoke the specific transitional safeguard mechanism set out in Article 6 of the ATC as a justification for its new restrictions. India argued that the GATT did not contain any provision permitting the imposition of discriminatory import restrictions for the purpose of protecting a Member�s domestic industry. Turkey�s restrictions were therefore inconsistent with Article 2.4 of the ATC, and also contravened Article XI:1 of GATT, which specifically prohibited QRs.
  20. Turkey submitted that its restrictions on imports of textiles and clothing from a number of third countries were consistent with Article 2 of the ATC on the basis of the provisions of Article 2.4. Turkey claimed that the measures were justified under Article XXIV of GATT, which was to be considered as a "relevant GATT provision" in the sense of Article 2.4 of the ATC, and therefore covered by this provision. Turkey later confirmed that Article XXIV was the legal basis for its restrictions at issue. 99
  21. In Turkey's opinion, India assumed that there was a conflict between Article XXIV of GATT and the ATC and that, in that case, ATC obligations prevailed. Turkey refuted such an assumption on the grounds that footnote 3 to Article 2.4 of the ATC did not exclude Article XXIV, which meant, in the present case, that Turkey could introduce new restrictions under Article XXIV.
  22. India did not agree with Turkey's interpretation, recalling the drafting history of the ATC. It argued that footnote 3 to Article 2.4 merely restricted the applicability of safeguard provisions under Article XIX of GATT to products already integrated; for non-integrated products, the provisions of Article 6 of the ATC would apply.
  23. Turkey responded in this respect that the drafting history was only relevant when doubts subsisted as to the precise meaning of legal provisions. Turkey considered that, in this particular case, no such doubts could be justified since footnote 3 was quite explicit.
  24. 4. Article XXIV of GATT

    (a) Relationship between Article XXIV and other GATT provisions

  25. India submitted that what was at issue in the present dispute was not whether the Turkey-EC customs union met the requirements of Article XXIV:5(a) but whether this provision provided an authorisation to impose, on the occasion of the formation of a customs union, new barriers to the trade of third Members inconsistently with Article XI:1 of GATT and Article 2.4 of the ATC on the grounds that other barriers to imports had been voluntarily reduced. India's claim was that WTO Members forming a customs union, irrespective of whether their union met the requirements set out in Article XXIV or not, had to abide by the disciplines of Article XI:1 of GATT and Article 2.4 of the ATC with respect to the trade of third Members. The question of whether the Turkey-EC customs union was consistent with the requirements of Article XXIV therefore did not arise in this dispute. India was seeking a ruling on an obvious legal point on which there had so far been agreement among WTO Members, including the European Communities, Turkey's partner in the envisaged customs union.
  26. Turkey submitted that the measures challenged by India could not possibly be assessed on their consistency with the relevant WTO rules separately and in isolation from the Turkey-EC customs union of which they were an integral part. Turkey disagreed with India's position that the GATT did not permit the application of restrictions determined by the Turkey-EC customs union on imports from other Members into the Turkey-EC customs union via Turkey, despite the fact that this customs union and in particular its common regulation of commerce would be consistent with GATT.
  27. Turkey presented the arguments below in support of its view that the consistency of the measures challenged by India with the WTO rules was to be determined by reference to Article XXIV:5 to XXIV:8 of GATT and not to other GATT provisions.
  28. Turkey started its presentation by analyzing the ordinary meaning of Article XXIV:4 and XXIV:5. Recalling the terms of these provisions, Turkey considered that their plain meaning was clearly that the provisions of GATT did not prevent the imposition of a regulation of commerce at the institution of a customs union, as long as on the whole this was not more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories prior to the formation of the customs union. If, as argued by India, Article XXIV:5(a) did not allow Members forming a customs union to introduce a common regulation of commerce determined by restrictive measures lawfully applied by a Member party to that customs union, the plain wording of Article XXIV:5(a) would be deprived of any meaning. As had been made clear by the Appellate Body 100, an interpretation might not result in reducing whole clauses or paragraphs to redundancy or inutility.
  29. Turning to the context of Articles XXIV:5 to XXIV:8, Turkey noted that Article XXIV basically dealt with:
    1. the territorial scope of the GATT as regards customs territories (paragraphs 1 and 2);
    2. preferences granted between adjacent countries in certain circumstances (paragraph 3);
    3. rules applying to the formation of economic integration agreements, i.e. customs unions and free-trade areas (paragraphs 4 to 10);
    4. the special relationship between India and Pakistan; and
    5. the application of the GATT to sub-central entities (paragraph 12).

  30. Turkey viewed all these provisions as having in common that they were all concerned with the scope of application of the GATT, both generally and in particular circumstances. Article XXIV should therefore not be regarded as a "justification", a "defense", an "exception" or a "waiver". Rather, Article XXIV determined the outer limits of the scope of GATT and was not an incursion into the normal application of the rights and obligations contained in its substantial provisions, as the above-referred words appeared to suggest. For instance, sub-central entities were subject to a "best endeavours" clause under Article XXIV:12, while economic integration agreements under Article XXIV:4 and following had to comply with specific requirements in order to qualify as such, but these requirements were different from the obligations which applied to separate customs territories not related among themselves by an economic integration agreement.
  31. Turkey argued that, on the basis of these considerations, Article XXIV:4-10 could be viewed as lex specialis for the rights and obligations of WTO Members at the time of formation of an economic integration agreement. Such a characterization did obviously not alter in any way the concrete obligations to be fulfilled by WTO Members wishing to enter into an economic integration agreement in conformity with these provisions.
  32. Turkey added that its conclusion that Article XXIV:5-8 did not constitute an exception found also support in a systemic analysis. It was significant that Article XXIV:5-8 did not appear in Part II of GATT, which contained substantive provisions and derogations from and exceptions to these substantive obligations (e.g., Articles XX and XXI). Article XXIV belonged to Part III of GATT, which contained a number of general and institutional provisions (such as those on "Joint Action by the Contracting parties", "Acceptance, Entry into Force and Registration", "Amendments" and "Withdrawal").
  33. In Turkey's view, free-trade areas, and even more so customs unions, implied that GATT contracting parties, now WTO Members, embarked on a closer economic integration and entered inter se into commitments that were going beyond those of the GATT. This resulted in trade between the constituent parties as a rule free from all customs duties and other classical obstacles to trade. In free trade areas this regime applies to goods originating in the constituent parties. In customs unions this regime applied also to goods originating in other countries, provided that such goods had been subjected, when imported in any of the constituent parties of such customs union, to common customs duty rates and a common regulation of commerce. When forming free trade areas, and even more so customs unions, countries created a new situation in their relationships with other GATT contracting parties. The situation arising in the case of customs unions bore some analogy to two or more GATT contracting parties entering into a confederation.
  34. Turkey noted that the GATT could have left such a situation to negotiations, if and when contracting parties decided to form a free-trade area or a customs union, but instead it had foreseen provisions, i.e. Article XXIV:4-8, designed to deal with the new situation, defining what GATT meant by customs unions and free-trade areas and setting forth the conditions under which this new situation in the relationship between the constituent parties and the other GATT contracting parties was deemed to be in conformity with the GATT. These provisions were thus quite properly inserted in Part III on general and institutional provisions.
  35. In view of these arguments Turkey concluded that, contrary to what India asserted, the consistency with WTO rules of the measures challenged by India was to be determined by reference to Article XXIV:5-8 of the GATT and not to other GATT provisions. This in turn depended on the consistency with the WTO rules of the Turkey-EC customs union of which the measures challenged formed integral part. In Turkey's view, there was no room for conflict between these measures and other GATT provisions.
  36. India had understood Turkey as arguing in essence that the terms "the provisions of [the GATT] shall not prevent" in Article XXIV:5 implied that Article XXIV was an exception from other GATT provisions and hence also from Article XI, and as considering that the present dispute concerned the question of whether Article XXIV contained a sufficient justification for the measures at issue. Later, Turkey had also claimed, in responding to questions, that Article XXIV was the legal basis for its actions but denied its use of this provision as a defense or justification, considering that Article XXIV defined "the outer limits of the applicability of the GATT" and that this provision "disapplied" Article XI.
  37. India considered that all rules of the GATT defined the limits of applicability of the GATT and it was not clear to India what this legal characterization of Article XXIV implied for the resolution of the present dispute. India also did not know what Turkey attempted to convey with the novel term "disapply" and in what respects a provision establishing an exception differed from a provision that "disapplied" another. The relevance of the fact that Article XXIV had been included in Part III of the GATT 1947, to which Turkey apparently attached importance, escaped India. In its view, this fact might simply be related to the existence of the grandfather clause in the Protocol of Provisional Application and accession protocols. Non-tariff measures covered by Part II, but required under existing legislation, were exempted by that clause, while Article XXIV applying in practice to future arrangements did not need to be qualified by such clause.
  38. In India's opinion, the simple fact was that new restrictions on imports of textiles and clothing from a single Member were explicitly prohibited by Articles XI and XIII of GATT and Article 2.4 of the ATC and that it was up to Turkey to assert that another provision in a WTO agreement permitted those restrictions. 101 That assertion would normally be described as a defense and the provision invoked as such a justification.
  39. India disputed Turkey's claim that Members forming a customs union might impose new restrictions on imports from third WTO Members (even discriminatory restrictions on the trade of one WTO Member) by meeting only the two requirements set out in paragraphs 5(a) and 8(a)(ii) of Article XXIV. If this was the case, such Members would thus be freed from the burden of satisfying the many substantive and procedural requirements other Members imposing quantitative restrictions had to meet. Thus, it would not be necessary for them to invoke and observe the provisions of the Safeguards Agreement or the ATC when they wished to accord temporary import protection to their textiles or clothing industry; they could do this simply under the framework of Article XXIV.
  40. India noted that the requirements for quantitative restrictions permitted under the exceptions from Article XI of the GATT applied to each and every individual restriction that a Member imposed. By contrast, the requirements set out in paragraphs 5 and 8 of Article XXIV applied to the import regimes of the Members forming the customs union taken as a whole. They neither authorized nor prohibited any specific set of import restrictions. Therefore, if Turkey were correct, an individual restrictive import measure imposed in the context of the formation of a customs union could never be the subject of a panel ruling because it could, as such, not be found to be inconsistent with Article XXIV:5 and 8.
  41. India pointed out, however, that Members forming a customs union that wished to raise the level of a tariff above the rate bound under Article II had to negotiate with its trading partners in accordance with Article XXVIII of the GATT and offer compensatory market-opening commitments. India argued that by definition a customs union or free-trade area could not be formed without the elimination or reduction of tariffs on a preferential basis, but could be formed without the imposition of new QRs against third parties. There was thus no corresponding obligation to compensate Members adversely affected by non-tariff restrictions, including those covering bound items, that Members forming a customs union could impose. Moreover, acceptance of Turkey�s argument would therefore induce WTO Members forming a customs union to replace the protection afforded by their tariffs by quantitative restrictions. This would upset the balance of concessions resulting from past trade negotiations and undermine the principle that protection should be afforded by ordinary customs duties only.
  42. India was of the view that, if Turkey�s argument were accepted, Members forming a customs union could legally circumvent the procedural and substantive requirements in respect of quotas, which the negotiators of the WTO agreements agreed to permit in exceptional circumstances, and would have every incentive to do so. In respect of such Members, the WTO agreements could no longer operate as a legal framework providing effective assurance of market access and the WTO dispute settlement procedures would be rendered ineffective. This would create a serious imbalance between the obligations of Members forming a customs union and other Members, and would upset the balance of concessions negotiated between them. The drafters of the GATT and the Uruguay Round agreements could not possibly have intended this result.
  43. India recalled the statement by the Appellate Body that, since all interpretation must be based on the text of the treaty, the process of interpretation had not to lead to "the imputation into a treaty of words that are not there or the importation into the treaty of concepts that were not intended". 102 India considered that an acceptance of Turkey�s position would clearly be contrary to this fundamental principle of interpretation.
  44. Moreover, India argued that Turkey's view that Article XXIV:4-10 was lex specialis in relation to Articles XI and XIII of GATT and to Article 2.4 of the ATC logically implied that there was a conflict between these two sets of provisions. 103 India considered that, if such a view were to be accepted, the inevitable conclusion, in the light of the General Interpretative Note on Annex 1A to the WTO Agreement, would be that Turkey had to resolve the conflict by observing Article 2.4 of the ATC. 104

To continue with Article XXIV:5(a)


94 In particular, Article 12 of Decision 1/95, para. 2 (see WT/REG22/1).

95 Since then, integration lists identical to those of the EC had been put into effect by Turkey, in compliance with the relevant ATC provisions.

96 Panel Report on Argentina � Certain Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, adopted on 22 April 1998, WT/DS56/R ("Argentina - Textiles and Apparel"), paras. 6.34-6.40.

97 As cited approvingly in the Appellate Body Report on Australia - Measures Affecting the Importation of Salmon, adopted on 6 November 1998, WT/DS18/AB/R ("Australia - Salmon"), paras. 1-3.

98 See paras. 6.26 and 6.27 below.

99 On 24 November 1998, the Panel asked the following question to Turkey: "Can the Panel assume that Turkey's defense to India's claims of violations of Articles XI and XIII of GATT and Article 2.4 of ATC is based exclusively on Article XXIV of GATT?" Turkey responded: "Yes. Turkey believes that Article XXIV provides the legal basis for the measures which India complains about."

100 See Appellate Body Report on US - Gasoline, p. 22.

101 This followed from the consistent jurisprudence of the Appellate Body on the distribution of the burden of proof (Report on Australia - Salmon, section VI, paras. 1-2).

102 Appellate Body Report on India - Patent, para. 45.

103 The lex specialis derogat legi generali principle was inseparably linked to the question of conflict (see Panel Report on Indonesia - Autos, footnote 649).

104 See also paras. 6.95 to 6.100 below.