(ii) Type of agreement under Article XXIV

127. India submitted that, if the Panel were to consider the relationship between the EC-Turkey trade agreement and the provisions of Article XXIV relevant for its conclusions, it should, in the view of India, adopt the approach followed by the GATT panel on EEC-Bananas I, which reacted as follows to the EEC�s claim that the preferences it granted to developing countries in the framework of the Lom� Convention were covered by Article XXIV:

"The Panel first examined the argument of the EEC that Article XXIV:7 sets out special procedures for the examination of free trade areas by the CONTRACTING PARTIES, and that the overall consistency of such free trade area with Article XXIV could therefore not be investigated by a panel established under Article XXIII. ... The Panel observed that, whatever the precise relationship between the procedures under Article XXIII and XXIV, the provisions of Article XXIV:7 empower the CONTRACTING PARTIES to make recommendations only on agreements establishing a customs union or free trade area, or interim agreements leading to such a union or area. These provisions thus do no apply to any agreement notified to the CONTRACTING PARTIES but only the four specified types of agreements. The Panel therefore concluded that, notwithstanding the issue of whether the procedures of Article XXIV:7 supersede those of Article XXIII:2, it would first have to examine whether the Lom� Convention is an agreement of the type to which the procedures of Article XXIV:7 apply. The Panel could not accept that tariff preferences inconsistent with Article I:1 would, by notification of the preferential arrangement and invocation of Article XXIV against the objections of other contracting parties, escape any examination by a panel established under Article XXIII. If this view were endorsed, a mere communication of a contracting party invoking Article XXIV could deprive all other contracting parties of their procedural rights under Article XXIII:2, and therefore also of the effective protection of their substantive rights, in particular those under Article I. The Panel concluded therefore that a panel, faced with an invocation of Article XXIV first had to examine whether or not this provision applied to the agreement in question. ... The Panel then proceeded to examine whether the Lom� Convention was one of the types of agreement mentioned in Article XXIV." ¹⁴²

128. In India's view, the reasoning underlying this example of judicial restraint could be transposed to the present case. The Panel need not decide whether the determinations to be made under Article XXIV:7 could be made by a panel nor whether the EC-Turkey agreement was consistent with Article XXIV. It was sufficient for the Panel to decide into which of the four categories of agreements the type of agreement notified by the European Communities and Turkey fell. India argued that the type of agreement concluded between the European Communities and Turkey (i.e. an agreement under which the same import duties and regulations were to be applied to imports from third countries only at a future date) was not governed by those provisions of Article XXIV that related to completed customs unions, but fell into the category of interim agreements leading to the formation of a customs union. Since Turkey had invoked the provisions of Article XXIV on completed customs union as a legal cover for measures taken under an agreement that provided for the establishment of such an union at a future date and to which those provisions could not apply, the Panel should reject Turkey�s invocation of the provisions on completed customs unions as a potential legal basis for the restrictions at issue.
129. India considered that there was yet another reason why the Panel need not determine whether the EC-Turkey agreement met the requirements of Article XXIV. When the agreement was examined by the CRTA, the European Communities and Turkey did not clarify the precise nature of the agreement and made contradictory and vague statements on this issue in response to pointed questions raised by other Members. Although the European Communities and Turkey claimed that the agreement established a customs union fully consistent with the requirements of Article XXIV, ¹⁴³ they also said that the harmonization of certain policies would take place at the end of transitional periods, ¹⁴⁴ thereby admitting that the agreement was in effect an interim agreement leading to the formation of a customs union.
130. India further noted that Turkey had claimed in the CRTA that it might, consistently with Article XXIV, apply import policies different from those of the European Communities in the areas of agriculture, steel and other "sensitive" industrial products, preferential trade agreements, the GSP, anti-dumping duties, countervailing measures, and safeguards. Before the Panel, Turkey claimed that, to conform to Article XXIV, it had to apply the same policies as the European Communities in the field of textiles and clothing. However, these two legal claims could not be simultaneously accepted by the Panel. The first proposition was correct if the EC-Turkey agreement was an interim agreement leading to the formation of a customs union because, in that case, Turkey�s import policies could deviate from those of the European Communities during a transitional period in certain sectors, including textiles and clothing. The second proposition was correct if that agreement was a fully fledged customs union because, in that case, Turkey would be required to adopt the same policies in all areas, including textiles and clothing. India agreed that the Panel should not determine whether the EC-Turkey agreement met the requirements set out in Article XXIV for customs unions or those for interim agreements leading to the formation of a customs union. However, India disagreed that the Panel had to accept the proposition implied in Turkey�s argumentation that one agreement notified under Article XXIV could be at the same time a customs union agreement and an interim agreement leading to the formation of a customs union.
131. India noted, furthermore, that, to question 2 of the Panel, on whether in its view the agreement with Turkey was an interim agreement that should lead to a customs union by 2005 or an agreement implementing a completed customs union, the European Communities avoided a reply by incorrectly referring to the date of 2001, by mentioning Article XXIV:8(a), and by defining the requirements of this sub-paragraph in terms of a "final phase". ¹⁴⁵ The reference to 2001 was incorrect because the agreement did not establish any final date for common policies in the fields of agriculture, "commercial defense" instruments and preferential trade policies. Moreover, the European Communities appeared to take the view that the requirements of Article XXIV:8(a) were met by entering into the "final phase with regard to the requirements of Article XXIV:8(a)" and thus imparted upon this provision the notion of transition that was contained in the concept of interim agreement. It might therefore be concluded that the European Communities in response to a clear question by the Panel refused to confirm that the EC-Turkey agreement established a customs union within the meaning of Article XXIV:8(a).
132. In view of the above, India concluded that the type of agreement existing between the European Communities and Turkey was not governed by the provisions of Article XXIV on customs unions.
133. Turkey submitted that it had defended the view that it was not the Panel's task to substitute itself for the CRTA and that the Panel could not rule on the legality of the measures forming the object of the complaint in the absence of agreed conclusions on the consistency of the Turkey-EC Agreements with Article XXIV. Turkey wished to clarify that, while pursuant to the institutional arrangements of the WTO the assessment of the Turkey-EC customs union was a matter for the CTRA and ultimately for the CTG, this should not prevent the Panel from verifying whether the Turkey-EC customs union might prima facie be regarded as a customs union within the meaning of Article XXIV:8(a).
134. In this connection, Turkey drew attention to the TPR Secretariat Report on Turkey, which in the Introduction to the Summary Observations highlighted, as a general point, the wide range of reforms implemented by Turkey within the framework of the customs union between Turkey and the European Communities "taking it significantly beyond its Uruguay Round commitments as well as generating improved and more secure trading opportunities for third countries", ¹⁴⁶ noting in particular that "the [Customs Union Decision] goes well beyond the basic requirements of a customs union".¹⁴⁷
135. Turkey disagreed with India's allegations that the customs union between Turkey and the European Communities was in fact an interim agreement and that therefore under this agreement Turkey was not required to apply the same external trade policy, including in the area of textiles and clothing, as the European Communities. Turkey also noted that, while India, in its first submission, had described the Turkey-EC customs union as such, it had later decided to downgrade the status of the customs union to that of a mere trade agreement.
136. Turkey elaborated that the customs union was a definitive agreement providing for the phasing in of harmonized policies in certain specific areas which did not affect the character of the customs union because of their limited trade impact. The 290 "sensitive" products for which a transitional period ending on 1 January 2001 had been allowed for Turkey to adjust to the CCT only accounted for 1.5-2 per cent of Turkey's total imports. Much of the gradual alignment on the CCT which started with the completion of the customs union had already been made in the 2.5 years elapsed since then and the margin of difference between the CCT and the tariff applied for those products in Turkey was being progressively reduced so that the alignment would be completed on 1 January 2001, bearing in mind that for the remaining 17,000 tariff lines covered by the customs union the alignment had already been completed on 1 January 1996. Coal and steel products would be incorporated in the Turkey-EC customs union when included in the EC customs union itself, in 2002; meanwhile , they were covered by a free-trade agreement similar to the ECSC Agreement itself. Alignment on the EC preferential trade regimes was taking place. As far as agriculture was concerned, the objective of free movement was contained in the Association Agreement and was being reached by stages. Association Council Decision 1/98, which provided for mutual trade preferences in these products and entered into force on 1 February 1998, consolidated the elimination of customs tariffs on 70 per cent of trade in these products between Turkey and the European Communities.
137. Turkey therefore concluded that India's arguments on the alleged incomplete nature of the Turkey-EC customs union were groundless.
138. India remarked that the quote of the TPR Secretariat Report made by Turkey was partial and therefore misleading. There was no reference to Article XXIV requirements in the Secretariat's observations. In India's view, since a customs union could be established without a harmonization of a number of domestic policies, the Secretariat had correctly observed that certain of the measures taken went beyond the requirements of a customs union.

5. Nullification or Impairment

(a) Trade aspects

139. Turkey submitted that the Turkey-EC customs union had benefited third countries and could not be described as having raised barriers to their trade with Turkey. The CCT, adopted under the Turkey-EC customs union, had an incidence of tariff levels much lower than that of Turkey's previous tariff. The average Turkish tariff had been 18 per cent while the level of the CCT was 5.6 per cent and, with the implementation of the Uruguay Round results, this rate would fall further to 3.5 per cent.
140. Turkey added that, in undertaking the process of alignment of its external trade policy with that of the European Communities, it had embarked in the negotiation of free trade agreements with the countries which had concluded similar arrangements with the European Communities. Those agreements already in force had been notified to the WTO; further such agreements would be notified prior to their entry into force. Turkey was also preparing the adoption of a GSP scheme similar to that of the European Communities and of preferential arrangements applicable to ACP countries under the Lom� Convention. In accordance with Article 16 of Decision 1/95, alignment by Turkey with the EC common commercial policy would be completed in 2001.
141. Turkey considered that, as a result, the Turkish market had became as open as the EC market to third-country products and that those products would enjoy even larger benefits in the Turkish market following the completion of the Turkey-EC customs union. It also affirmed that, overall, the Turkey-EC customs union had resulted in the lowering of the general incidence of duties and other regulations of commerce. The requirements of Article XXIV:5(a) of GATT had therefore been met.
142. Turkey submitted further that, although the replacement of an essentially tariff-based system by one based on quantitative controls might appear to be more trade restrictive, the exact opposite occurred with its new import regime for textiles and clothing products, reflecting the fact that a prohibitively high tariff-based system had been replaced by a more transparent and predictable regime. Turkey noted that, in the preparatory process to the customs union, Turkey's import duties on textiles and clothing products from third countries had been reduced from 37 per cent in 1993, to 27 per cent in 1994 and 21 per cent in 1995, this benefiting those countries even before the customs union itself was completed. Moreover, in the following two years, due to the further reduction in tariffs offered by the customs union, imports of textiles and clothing products increased considerably, reaching $3.6 billion in 1997, which represented an increase of over 100 per cent compared to 1994. Turkey also noted that, following the completion of the Turkey-EC customs union, its imports from third countries had increased faster than those from the European Communities. ¹⁴⁸
143. Turkey stressed that the above import results should be seen against the fact that Turkey was a major exporter of textiles and clothing, with a highly competitive industry. The substantial expansion of imports, particularly of those from third countries, in 1996 and 1997 was an indication of the degree of liberalization attained as a result of the completion of the Turkey-EC customs union.
144. In this context, Turkey considered India as an important competitor for Turkish producers in certain categories of textiles and clothing, not only in third countries' markets but also in the Turkish market itself. The imposition of QRs on imports of certain categories of textile and clothing products originating in India had not reduced the inflow of products from that country. Imports of textile and clothing products from India into Turkey had increased from $32.5 to $137 million in the period 1994-1997. ¹⁴⁹ Despite such a massive increase, Turkey had chosen not to invoke the means available to it under the WTO, to slow down this process.
145. Turkey added that India benefited more in terms of market share than any other country from the opening of the Turkish textile and clothing market resulting from the completion of the Turkey-EC customs union. Its share in Turkey's total imports of these products had risen from 1.99 per cent in 1994 to 3.82 per cent in 1997.
146. Turkey pointed out that, for most of the 19 categories of textile and clothing imports to which QRs were applied India had never been an important and regular supplier to the Turkish market, ¹⁵⁰ and its share in the Turkish market in those products remained below 3 per cent for the period 1994-1997. ¹⁵¹ Before the entry into force of the Turkey-EC customs union, its imports from India of the products under the relevant tariff headings corresponding to those 19 categories were subject to an average custom duty rate of 34.31 per cent. After the entry into force of Turkey-EC customs union, these products were subject to an average custom duty rate of 11.74 per cent (1996). This rate had been lowered further to 11.6 per cent in 1997, and would continue to be lowered further as a result of the implementation by Turkey of the concessions made by the European Communities during the Uruguay Round. Turkey pointed out that the improvement in market access was reflected in the 134 per cent increase in imports from India of products in the 19 categories between 1994 ($13.08 million) and 1997 ($30.66 million). ¹⁵²
147. Commenting upon trade figures, Turkey noted that in 1995, i.e. the last year before completion of the customs union, duty reductions were phased in three separate instalments and India's exports immediately began to benefit from these reductions. In Turkey's view, 1995 was therefore clearly an atypical year for trade projections.
148. India remarked that the correct figure for India's exports to Turkey of the 19 restricted product categories in 1997 was $19.87 million, not $30.66 million as reported by Turkey. ¹⁵³ India also noted that, apart from absolute values, the important point was the trend in exports, which demonstrated that Turkey's QRs had affected India's interests. From the trade data provided (Table II.4), two irrefutable facts could be drawn in this respect: a serious and significant decline in India's exports of restricted products to Turkey had occurred after the introduction of the restrictions; and for the non-restricted categories, there was an increase in India's exports to Turkey.
149. In India's view, the level of exports of textiles and clothing products from India to Turkey was influenced not only by Turkey�s trade regime but also by the evolution of the market, as well as by the import regimes of other countries. It would not be possible to segregate the impact of the quotas from the impact of such other factors. It would also not be possible to segregate the impact of Turkey�s reduction of tariffs from the impact of the new restrictions.

To continue with Arguments

¹⁴² EEC - Bananas I, paras. 158-159 (emphasis in the original).

¹⁴³ See WT/REG22/M/1, para. 4.

¹⁴⁴ See WT/REG22/M/1, paras. 5, 8, 10, 12, 28, 29 and 30.

¹⁴⁵ See para. 4.3 above.

¹⁴⁶ TPR Secretariat Report on Turkey, p. x.

¹⁴⁷ TPR Secretariat Report on Turkey, p. xi.

¹⁴⁸ See Table II.2 above.

¹⁴⁹ See Table II.5 above.

¹⁵⁰ The only exceptions were product categories 1, 23, and 29.

¹⁵¹ See the supporting tables reproduced in the Annex to this report, Appendix 4a and Appendix 4b.

¹⁵² See Table II.5 above.

¹⁵³ See paras. 2.43 to 2.46 above for details on differences between trade data provided by India and Turkey.