(v) Other options available

110. Turkey submitted that there were no alternative solutions to the imposition of quantitative limits. No alternative could be devised which would not impair the principle of free circulation of these products between Turkey and the European Communities as long as their importation into the European Communities was subject to restrictions. Since 1 January 1996, no specific border controls (other than regular border checks to verify that goods are under free circulation or under preferential regime) existed between Turkey and the European Communities for products covered by the customs union, including those which were subject to QRs when imported from third countries; products were accompanied by a circulation document which indicates that they are in free circulation. All textile and clothing products therefore circulated freely between the European Communities and Turkey's territories since that date.
111. Turkey indicated that maintaining the regulations of commerce applied prior to the formation of the Turkey-EC customs union would be equivalent to excluding the goods, imported into Turkey under Turkey's pre-customs union regulation of commerce, from the coverage of the customs union. Reintroducing the pre-customs union regime would also substantially reduce the degree of market access available for third countries in Turkey, and would require the European Communities (as the other party in the Turkey-EC customs union) to raise bound tariffs substantially, which was almost certainly not feasible.
112. Turkey recalled that the deviations from the Turkey-EC customs union were in any case of a temporary nature and insignificant in terms of the volume of trade affected. For that reason, the provisions of Decision 1/95 relating to compensatory measures during the period until Turkey had fully aligned itself to the CCT and EC preferential trade policy, had never been invoked.
113. India submitted that, in all areas in which their import duties or regulations differed, the European Communities and Turkey were able to implement border controls ensuring that only products originating in their respective territories would benefit from the preferential treatment under the trade agreement.
114. India noted that, because of the many differences in the duties and restrictions the European Communities and Turkey applied to imports from third countries, they had to ensure that exporters of other countries did not take advantage of such differences by transshipping their exports via the partner with the lowest barriers to imports. Given the absence of a complete harmonization of external policies, Decision 1/95 explicitly safeguarded the parties� right to impose the necessary controls in these areas. In this respect, India referred to the customs controls in the case of differences in arrangements on textiles and clothing, as contained in paragraphs 2 and 3 of Article 12 of the Decision; the supplementary levies in the case of differences in import duties, provided for in its Article 16.3(a); and the trade controls needed because of differences in the use of countervailing and anti-dumping measures and safeguard actions, according to Article 46 of the Decision. In India's view, all these provisions demonstrated that Decision 1/95 provided, in each case in which EC and Turkey's import policies differed, for the border controls necessary to ensure that exporters in third countries did not take advantage of those differences. In each of these cases, the principle of free circulation did not apply.
115. India drew attention in particular to the fact that Article 12.3 of Decision 1/95 specifically provided for the application of restrictions and certificates of origin to textiles and clothing products from third countries with whom Turkey had not concluded restraint arrangements equivalent to those of the European Communities, thereby explicitly contemplating differences between their individual arrangements with third countries and giving the European Communities the right to apply the controls necessary to ensure that such differences did not entail transshipments via Turkey.
116. India concluded that, though Turkey had claimed that there were no alternatives to its restrictions on imports of textiles and clothing products from India, Decision 1/95 itself provided for such an alternative. With respect to the European Communities' response to a question by the Panel that it appeared "doubtful" that the use of rules of origin benefiting only Turkish exports of textiles and clothing products "would have been workable or proportionate within the customs union", ¹³¹ India remarked that such measures were considered to be workable and proportionate in the many other areas in which EC and Turkey's policies diverged.
117. India further submitted that for the purposes of the EC-Turkey trade agreement, any immediate harmonization of import restrictions on textiles and clothing products was unnecessary. The European Communities and Turkey were applying different import duties and regulations in respect of many sectors, policy instruments and trading partners. They pursued entirely different external policies in respect of a very broad range of products, trading partners and trade policy instruments. ¹³² The agreement which the European Communities and Turkey claimed to be a customs union was concluded in the form of Decision 1/95 of the EC-Turkey Association Council. According to the text of Decision 1/95 and the recent Secretariat Report on Turkey issued in the context of the Trade Policy Review Mechanism ("TPR Secretariat Report"), the European Communities and Turkey maintained divergent policies in the following areas:

1. In their automobile import policies in relation to Japan, in accordance with Article 12.4 of the Decision, which stated that the provisions of the Decision should not constitute a hindrance to the implementation by the European Communities and Japan of the Arrangement relating to trade in motor vehicles, mentioned in the Annex to the WTO Agreement on Safeguards.
2. In customs duties for non-agricultural products, in accordance with Article 15.1 of the Decision, which allowed Turkey to retain until 1 January 2001 customs duties higher than the CCT in respect of third countries for products agreed by the Association Council. ¹³³
3. With respect to preferential trade regimes, given that, according to Article 16.1 of the Decision, Turkey was to align itself progressively with the EC preferential customs regime until 1 January 2001. However, to the extent that the EC preferential regime was based on agreements, this was subject to successful negotiations with the third countries concerned. ¹³⁴
4. In agricultural products, an additional period (of undefined length) is required to put in place the conditions necessary to achieve free movement of these products, according to Article 24 of the Decision.
5. With respect to trade defense instruments (i.e. countervailing and anti-dumping measures as well as safeguard actions), according to Articles 44-47 of the Decision, the European Communities and Turkey were able to take such measures against each other and, independently from one another, against third countries. ¹³⁵
6. In government procurement, Article 48 of the Decision merely foresaw negotiations on a harmonization of policies in this area. At present, the European Communities were party to the WTO Agreement on Government Procurement, but not Turkey.
7. On trade-related investment measures, foreign companies setting up a joint venture in the automobile sector typically agreed to incorporate a certain share of local content in their production under informal arrangements with the Turkish government. ¹³⁶ These arrangements, which had not been notified to the WTO, led to competitive conditions for imported automobile parts and components in the Turkish market different from those prevailing in the EC market.
118. India argued from the above that the European Communities and Turkey did not have the same external trade policies in the field of agriculture, 290 "sensitive" industrial products, shoes and other leather goods. The automobiles and automobiles parts and components sectors in Turkey and the European Communities were subject to different arrangements affecting imports. The European Communities and Turkey did not apply the same legislation or the same external policies with respect to anti-dumping, countervailing and safeguard measures. The import tariffs for automobiles and the export restraints agreed with Japan differed. Turkey restricted the purchase of imported automobile parts and components through informal arrangements but not the European Communities. The European Communities and Turkey had not liberalized their mutual trade in agricultural products except for the industrial component of processed agricultural products. ¹³⁷ Therefore, for the purposes of the trade agreement they concluded, Turkey and the European Communities did not have to impose the same restrictions on imports of textiles and clothing. Given the long transitional periods agreed for so many sectors, policy instruments and trading partners, they could also have exempted the textiles and clothing sector from the coverage of the agreement until the end of 2004 when the transitional period under the ATC lapsed. Turkey�s decision to immediately adopt the EC policies in the field of textiles and clothing restrictions but not in the agricultural, automobile, shoes and leather goods sectors could be easily explained by a desire of Turkey to tailor the scope of the customs union to its domestic political constraints rather than its obligations under the GATT and the ATC.

(d) Turkey-EC regional trade agreements in the framework of Article XXIV

(i) Compatibility with Article XXIV provisions

119. Turkey submitted that the legitimacy of RTAs, whether customs unions or free- trade areas, as an exception to the MFN rule, had been recognised since work started on the Charter of the International Trade Organisation in the 1940s. The Havana Charter recognised the desirability of "preferential agreements for economic development and reconstruction". ¹³⁸ The present text of Article XXIV of GATT was adopted at the Havana Conference in 1948. In Turkey's opinion, it was generally acknowledged that such arrangements could lead to a better allocation of world resources as long as their "trade diverting" effects were less significant than their trade creating effects."
120. Turkey submitted further that full transparency had always been maintained in the GATT, and subsequently the WTO, by Turkey and the European Communities with respect to the Association between them and its evolution over the years. In asserting that its Association with the European Communities had never been challenged in the GATT or the WTO, Turkey summarized the main observations contained in the Working Party Reports on (i) the Ankara Agreement, (ii) the 1970 Additional Protocol and (iii) the 1973 Supplementary Protocols, as follows: ¹³⁹

1. "The signatories of the [Ankara] Agreement recalled that ... the final objective of the Agreement, notably by the institution of a customs union, [was] the accession of Turkey to the Community when the operation of the Agreement [made] it possible ..." The Working Party was informed of the fact that the external tariff of the customs union would be that of the EEC, that trade regulations applied by Turkey towards third countries would be approximated with those of the EEC and that as between the parties, the customs union regime would involve the elimination of all customs duties and charges with equivalent effect and all QRs. The main criticism raised by Contracting Parties related to what was considered to be the "undetermined duration" of the transition to the customs union. One of the members of the Working Party, considered that the tariff quotas to be put into effect by the EEC for the benefit of exports of certain Turkish products constituted a unilateral preferential arrangement which had the effect of "widening the area of discrimination against third countries and eroding their rights under the General Agreement". The parties responded that "it was a case of an economic integration Agreement between parties at very different stages of development and that such arrangements are rightly characterised by a certain imbalance in the obligations undertaken during their formative period". In reply to further questions regarding the possible trade effect of the Agreement on third parties, Turkey and the EEC stated that they were prepared "to consult with contracting parties on matters affecting the operation of the General Agreement as required by Article XXII". One member of the Working Party said that "if the CONTRACTING PARTIES were to decide that the Agreement was not in conformity with the relevant provisions of Article XXIV, then the provisions of paragraph 7(b) should apply". However, no contracting party resorted to the provisions of Article XXII and no recommendation was addressed to the parties to the Agreement under Article XXIV:7(b).
2. When Turkey and the EEC notified to the GATT the 1970 Additional Protocol and Interim Agreement, they stated that the "Additional Protocol defined the rhythm and modalities of the realisation of the customs union". The parties, in their statements to the Working Party, reiterated the fact that the long-term objective of the Agreement was "Turkey's accession to the EEC" and that the details for the implementation of the transitional stage prior to the completion of the customs union were set out in the Additional Protocol. While some members of the Working Party found the provisions of the Protocol "reasonable and justified when considering the different levels of development of the EEC and Turkey", others were of the view that the extended period for completing the customs union could not be considered "reasonable" in the sense of Article XXIV:5(c). In accordance with Article XXII:1 of GATT 1947, Turkey and the EEC undertook to "give sympathetic consideration to representations made by contracting parties". However, no such representations were ever made.
3. At the further examination of the Association, on the basis of the 1973 Supplementary Protocols and Interim Agreement, some members of the Working Party agreed with the parties that the Supplementary Protocol "conformed fully to Article XXIV of the General Agreement". Other members of the Working Party considered the transitional period envisaged as too long and criticised the maintenance of discrimination in the dismantling of duties and QRs by Turkey in favour of the European Communities. Nevertheless, no contracting party invoked the right to consult under Article XXII in relation to any provision of the Agreement.
121. Turkey recalled that, in subsequent years, the two parties had reported regularly on the implementation of the Association Agreements and on the progress made in reaching their objectives. Full transparency had therefore been maintained on this subject and contracting parties had had the opportunity of expressing their views on it when the reports were examined by the GATT Council. No country invoked any rights under GATT 1947 throughout this period.
122. Turkey also recalled that, on 22 December 1995, Turkey and the European Communities notified to the WTO the text of Decision 1/95 which had been formally adopted on that same day and which set out the modalities for the completion of the Turkey-EC customs union provided for in the Association Agreements. Turkey and the ECSC notified in July 1996 the free-trade agreement on ECSC products, which entered into force on 1 August 1996.
123. Turkey noted that, in the WTO context, two meetings of the CRTA had so far been devoted to examining Decision 1/95, which set out the modalities for the completion of the Turkey-EC customs union provided for in the Association Agreements. At the first meeting, the Chairman stated that "the parties had provided the Secretariat with information and data to enable it to compute the general incidence of duties as required under Article XXIV:5(a), and for purposes of facilitating negotiations under Article XXIV:6 of GATT 1994". Some members of the CRTA had agreed with the parties in that the creation of a customs union between them was consistent with the provisions of Article XXIV:4, 5 and 8, and that the Turkey-EC customs union would benefit third parties, as the general incidence of duties and other regulations of commerce had been lowered. Other members considered that the agreement failed to meet the obligations of Article XXIV, essentially because it did not at the moment provide for free movement of agricultural products, and because of the QRs on imports of textiles and clothing products introduced by Turkey to align its external trade policy on that of the European Communities. Turkey and the European Communities had responded by explaining that liberalisation of trade in agricultural products was a requirement of the Association Agreement (a separate Association Council Decision providing in due course for the elimination of most restrictions on such trade between the two parties entered into force on 1 January 1998).
124. Turkey considered that, though the CRTA had not yet concluded its examination of the Turkey-EC customs union, there was no indication, two and a half years after the completion of the customs union, that it would recommend to the parties, under Article XXIV:7(b), that modifications be made to the Agreement. Turkey added that no country had asked for compensatory adjustment with respect to any tariff bindings that might have been affected by the Turkey-EC customs union. It also noted that the completion of the customs union as originally scheduled convincingly replied to the principal criticism raised in the Working Parties entrusted with the task of examining the Association in the past, namely that the transitional period was too long to be considered "reasonable". By fulfilling its commitments as originally intended, Turkey had demonstrated that it had made good use of such transitional period.
125. Noting that India recognized that the present dispute did not cover the question of whether or not Turkey met the requirements of Article XXIV:5(a), Turkey concluded that, for the purposes of the present dispute, India did not contest that the provisions of this Article were applicable to the Turkey-EC customs union and that it assumed, for the purposes of this dispute, that the Turkey-EC customs union fulfilled the requirements of those provisions. In Turkey's opinion, it could hardly be otherwise, since the question of the compatibility of the Turkey-EC customs union as such with the requirements of Article XXIV:5(a) was not within the terms of reference of this Panel. Rather, this question was presently examined by the CRTA under Article XXIV:7(b). Turkey noted that the present dispute was therefore limited to the question as to whether Article XXIV contained a sufficient justification for the measures at issue. ¹⁴⁰
126. India agreed with Turkey that panels should not make determinations which were to be made according to explicit provisions of the GATT and other WTO Agreements by bodies composed of representatives of Members. India also did not believe that the present case required the Panel to assess the consistency of the EC-Turkey trade agreement with the requirements of Article XXIV. ¹⁴¹

To continue with Type of agreement under Article XXIV

¹³¹ See para. 4.3 above, Reply to question 1.

¹³² See WT/REG22/M/1 and also Trade Policy Review: Turkey, Report by the Secretariat, dated 14 September 1998, WT/TPR/S/44 ("TPR Secretariat Report on Turkey"), pp. xii-xiv.

¹³³ According to the TPR Secretariat Report on Turkey (p. 22), Turkey would maintain rates of protection above those specified in the EC�s common external tariff (CET) for "sensitive" products equivalent to 290 items at the HS-twelve-digit level for up to five years. These items included motor vehicles with an engine capacity smaller than 2,000cc, bicycles, leather cases and bags, footwear and their parts, furniture, chinaware and ceramic ware, iron and steel wires and ropes not electrically insulated, and paper or paperboard sacks and bags for cement or fertilizers.

¹³⁴ According to the TPR Secretariat Report on Turkey (paras. 33 and 36), Turkey had not yet adopted the GSP of the EC and was still discussing free-trade agreements with Tunisia, Egypt, Morocco and Palestine

¹³⁵ In the CRTA, the EC representative confirmed that Decision 1/95 had no provisions on the common application of anti-dumping and countervailing measures (see WT/REG22/M/1, para. 45) and further explained that the European Communities and Turkey would harmonize common safeguards rules only after a transitional period (ibid., para. 40).

¹³⁶ TPR Secretariat Report on Turkey (para. 87).

¹³⁷ This, despite the fact that the agricultural sector of Turkey accounts for 14 per cent of GDP and about half of the labour force, and would therefore most likely be an important element in EC-Turkey trade relations were zero tariffs applied to such products as well. (See TPR Secretariat Report on Turkey, p. xi.)

¹³⁸ See United Nations Conference on Trade and Employment, Final Act and Related Documents, ICITO, April 1948, Chapter 15.

¹³⁹ See para. 2.14 for references to these Reports.

¹⁴⁰ See also, in this respect, para. 6.133 below.

¹⁴¹ India reserved the right to challenge in a future proceeding the preferences that the EC and Turkey accord each other if WTO jurisprudence were to emerge according to which panels are entitled to rule also on those matters that were to be resolved according to the provisions of the GATT and other WTO legal instruments by bodies composed of Members, such as the provisions of Articles XII:4, XVIII:12, XIX:3 XXVIII:1 and XXIV:7 of GATT.