4. Conclusions

72. The Philippines submitted that the promulgation of the measure by Turkey and the imposition of the restrictions were in violation of Articles XI and XIII of GATT and of Article 2.4 of the ATC, and were not justified under Article XXIV of GATT.
73. The prima facie violation of Articles XI and XIII of GATT and of Article 2.4 of the ATC was not disputed by Turkey. The Philippines considered that Turkey's defense was based on the argument that the territories of Turkey and the European Communities formed one single customs union and that the promulgation of the measure by Turkey was but part of the process of harmonization under Article XXIV:8(a)(ii). In the Philippines' view, even assuming that the Turkey-EC arrangement qualified as a customs union under Article XXIV:8, the promulgation of the measure and the imposition of the restrictions were in violation of Article XXIV:4, in relation to the Understanding on Article XXIV, ²⁰⁸ since other less restrictive and less discriminatory options were available to Turkey and the European Communities to achieve such harmonization. Furthermore, such promulgation and imposition were likewise in violation of Article XXIV:5, in relation to the Understanding on Article XXIV, as the general incidence of regulations of commerce applicable in the constituent territories were on the whole more restrictive compared to that prevailing prior to the formation of the alleged customs union.
74. The Philippines considered that, in any event, Turkey could not invoke (the excuse of) harmonization under Article XXIV:8(a)(ii), because the territory of Turkey and the territory of the European Communities did not constitute a genuine single customs territory, the Turkey-EC arrangement having not established the existence of a customs union between the parties, neither in relation to the required elimination of duties and other restrictive regulations of commerce on intra-trade nor the application of substantially the same duties and other regulations of commerce to the trade of third parties.

D. Thailand

1. Arguments

75. Thailand submitted that the imposition of the QRs by Turkey was inconsistent with its obligations under the provisions of Article 2.4 of the ATC and under the provisions of Article I:1, Article XI:1 and Article XIII:1 of GATT. Thailand submitted further that these inconsistencies could not be justified by the provisions of Article XXIV:5(a) and/or Article XXIV:8(a)(ii).
76. Thailand noted that the imposition of QRs by Turkey pursuant to Decision 1/95 were new restrictions prohibited by Article 2.4. Turkey's measures did not fall within the exception provisions of the ATC to the prohibition of new restrictions, namely the "transitional safeguard" (Article 6), since Turkey did deliberately not invoke this mechanism for its justification. Turkey, instead, invoked the provisions of Article XXIV:5(a) and Article XXIV:8(a)(ii) of GATT as its defense. The question to be considered in this regard was therefore whether those provisions fell within the meaning of the "relevant GATT 1994 provisions" provided for in Article 2.4.
77. Thailand submitted that the terms "relevant GATT 1994 provisions" in Article 2.4 of the ATC related only to the provisions of the GATT that pertained to permissible QRs, such as Article XII and Article XX. By virtue of footnote 3 to Article 2.4 of the ATC, however, the phrase did not include the provisions of Article XIX in respect of the products not yet integrated into GATT. It had nothing to do nor did it cover the provisions of Article XXIV. The imposition of QRs by Turkey, therefore, did not fall within the exception provisions of the relevant GATT provisions.
78. Thailand considered that provisions of the ATC and the GATT had to be interpreted "in accordance with customary rules of interpretation of public international law", as instructed by the provisions of Article 3.2 of the DSU, of which the cardinal rule of interpretation was enshrined in Article 31 of the VCLT.
79. In this regard, Thailand noted that the context of Article 2.4 was Article 2 itself and the ATC as a whole. Article 2 dealt with the elimination of existing QRs and the prohibition against the introduction of new ones in textile and clothing products as specified in the ATC Annex, which were in the transitional process of being integrated into GATT. As to the ATC, it was the international agreement "to be applied by Members during a transition period for the integration of the textiles and clothing sector into GATT 1994". ²⁰⁹ Article 2 and the ATC itself did not at all deal with nor had anything to do with customs unions or free trade areas as contained in GATT.
80. Thailand noted further that the primary object and purpose of the ATC were the integration of textiles and clothing sector into the GATT, the strengthening of GATT rules and disciplines, and trade liberalization, as evident from the preambular first paragraph of the ATC. ²¹⁰ Consequently, unless otherwise clearly provided for by the ATC or the GATT as permissible, any new QRs on any other basis, including on the basis of the formation of customs unions under Article XXIV of GATT, could not legitimately be made. To allow any other different interpretation would impair or nullify the objects and purposes of the ATC.
81. Thailand added that this interpretation was consistent with the purpose of a customs union or of a free trade area as provided for in Article XXIV:4, of , inter alia, "not to raise barriers to the trade of other contracting parties with such territories". Even assuming, arguendo, that the terms "relevant GATT 1994 provisions" included Article XXIV, this Article did not authorize QRs in violation of Articles I, XI, and XIII of GATT.
82. Thailand noted that Turkey's had asserted that its imposition of QRs for the furtherance of its objective of the formulation of the customs union with the European Communities was allowed by Article XXIV:5(a) and Article XXIV:8(a)(ii) of GATT, in particular the terms "other regulations of commerce". This assertion was in part based on the allegation that Turkey's association with the European Communities had never been challenged in the GATT or the WTO, and no recommendation was addressed to the parties to the Agreement under Article XXIV:7(b).
83. Thailand considered such arguments as factually incorrect, without a basis under the GATT, and contrary to the GATT jurisprudence. The consistency of the Treaty of Rome and the Ankara Agreement with the provisions of Article XXIV had continually been contested by contracting parties to the GATT and Members of the WTO since the initial examination of the Treaty of Rome in 1957.
84. In this respect, Thailand submitted that GATT jurisprudence, as reflected by a number of reports of Working Parties and of panels examining issues pertaining to Article XXIV, clearly substantiated that the provisions of Article XXIV were not the exception to, nor the justification or waiver for the institution or maintenance of any form of QRs. This point was illustrated by the following examples:

1. During the examination of the conformity of the Treaty of Rome with the provisions of Article XXIV, in Sub-Group B (QRs) of the relevant Committee, the representatives of the parties asserted that they could, by virtue of the provisions of Article XXIV:5(a) in combination with the provisions of Article XXIV:8(a)(ii), impose QRs for balance of payment reasons against other contracting parties while impose none of such restrictions among themselves. However, most members of the Sub-Group opposed strongly to such assertion and interpretation. ²¹¹

Sub-Group C (Trade in Agricultural Products) came to the conclusion that in the view of the majority of members of the Sub-Group the Treaty of Rome was not consistent with the provisions of Article XXIV and noted that the failing of making recommendations did not mean or could be interpreted to mean that the Treaty of Rome and the measures thereof were consistent with those provisions. ²¹²

2. In discussions within the Working Party on the Accession of Greece to the European Communities, the question of the compatibility of the Treaty of Rome was again raised. ²¹³ In addition, a large number of delegations had raised several questions and strongly objected to the actions of Greece which, as a result of the accession liberalized the existing QRs to EC members only (without extending the benefits of such liberalization to any other contracting parties), while at the same time imposing new QRs to these contracting parties. In the view of these delegations, the said actions of Greece were in contravention with the provisions of Article XI and XIII, and were not in conformity with the provisions of Article XXIV since these provisions were not at all the exception of nor the justification or waiver for the GATT prohibition of QRs. ²¹⁴
3. During the discussions within the Working Party on the Accession of Portugal and Spain to the European Communities, many delegations expressed the view that Article XXIV was at most an MFN exception and, in particular, not an exception to provisions concerning QRs, namely Articles XI, XII and XIII. They also stated that Article XXIV, being the exception to the cardinal MFN principle, had to be interpreted very restrictively. It was important to note at this juncture that the European Communities themselves did not deny the validity of those delegations' view. ²¹⁵
85. From the above examples, Thailand inferred that it was generally accepted, even by the European Communities, that the provisions of Article XXIV were not the exception to nor the justification or waiver for the institution or maintenance of any form of QRs.
86. Thailand stressed that, even if Turkey itself had on several occasions, including the present case, claimed that it could impose or maintain QRs on any other contracting parties except the European Communities by virtue of the provisions of Article XXIV, such a claim had never been accepted; on the contrary, it had been strongly objected to by virtually all the contracting parties. Thus, for example, in the context of the examination of the Ankara Agreement, the Report of the Working Party concluded, inter alia, that "[s]ome members of the Working Party � criticized the discriminatory removal of QRs and import deposits". ²¹⁶ Another example could be seen in the Working Party which examined the Additional Protocol to the Ankara Agreement, where Turkey claimed that it had the right to maintain the existing QRs or to impose new ones by virtue of the provisions Article XXIV in combination with the consideration that Turkey was the developing country and thereby should be provided with special leniency. ²¹⁷
87. Thailand observed in this context that none of Turkey�s Agreements with the European Communities had been approved by the examining Working Parties as consistent with the provisions of Article XXIV. The legal status of these Agreements and their conformity with the provisions of Article XXIV remained open in the same manner as the Treaty of Rome and its related Agreements. Therefore, the examination of whether the Agreement for the formation of a Customs Union between Turkey and the European Communities was in accord with the provisions of Article XXIV had not only to be considered in the light of the provisions of Article XI, XIII and XXIV, but also be measured in view of the fact that the legal status of the previous Turkey-EC Agreements and their conformity with the provisions of Article XXIV remained inconclusive.
88. Thailand noted that, in the present case, despite the GATT rules and the GATT jurisprudence delineated above, Turkey still claimed that it could impose or maintain quantitative restrictions to the importation of textiles and clothing from any other contracting parties except the European Union by virtue of the provisions of Article XXIV and the GATT jurisprudence, and that the practice of the contracting parties in the GATT had widened the scope of the terms "other regulations of commerce" in Article XXIV.5(a) and Article XXIV.8(a)(ii) to include quantitative restrictions. In Thailand's view, this claim was unfounded, and in fact a distortion of the GATT rules and jurisprudence. The GATT rules and jurisprudence were completely opposite to what Turkey had claimed.
89. Thailand also noted that the practice was not uniform in respect of the widening of the scope of the terms "other regulations of commerce" in Article XXIV:5(a) and XXIV:8(a)(ii). The European Communities and its partners once in a while had claimed that the terms covered QRs. However, a larger number of the contracting parties opposed to such a claim. In the view of the latter, the terms signified only to the matters such as customs procedures, grading and marketing requirements, and similar routine controls in international trade. In the Report of the Sub-Group B of the Committee on the EEC, it was clearly stated as follows:

"Most members of the Sub-Group could not accept of the interpretation of the Six of paragraph 5(a). In their view the use of the term "regulations" in this paragraph and in paragraph 8(a)(ii) does not include QRs imposed for balance-of-payments reasons. An examination of the provisions of the Agreement indicates that the term "regulations" is consistently used to describe such matters as customs procedures, grading and marketing requirements, and similar routine controls in international trade. This interpretation is reinforced by the fact that in paragraph 8(a)(i) the term "regulation" is qualified by the word "restrictive" in the one instance where Article XXIV specifically refers to the balance-of-payments Articles. Moreover, the term "regulation" does not appear in the balance-of-payments Articles of the General Agreement. The General Agreement prohibits the use of QRs for protective purposes and permits their use only in exceptional circumstances and mainly to deal with balance-of-payment difficulties. Accordingly, the notion that paragraph 5(a) would require that temporary QRs should be treated in the same way as normal protective measures such as tariffs in determining the trade relations between countries in a customs union and third countries would be contrary to the basic provisions of the Agreement which preclude the use of QRs as an acceptable protective instrument." ²¹⁸

90. In this connection, Thailand emphasized that the GATT being an international agreement, it thereby was subject to the rules and principles of public international law, as instructed by the DSU Article 3.2. The VCLT Article 31 provided, inter alia, that "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning of the terms of the treaty in their context and in the light of its object and purpose". In the light of these rules of interpretation, it was clear that the primary objective and purpose of the GATT, and in particular Article XXIV, was trade liberalization not trade restrictions, especially QRs. Therefore, if two or more interpretations of the GATT in general and Article XXIV in particular were possible, the one favouring trade liberalization should prevail.
91. Thailand added that in the presence of clear provisions of the GATT to the contrary, and in the absence of uniform interpretation and practice of the terms "other regulations of commerce ", subsequent interpretation and practice of a few countries which would benefit from such interpretation and practice was meaningless and completely lacked any legal validity. In addition, the said practice could in no way be treated as the customary rules under the GATT, since the two fundamental prerequisites for the formation of a customary rule, namely (i) the consistent and uniform practice of states and (ii) the psychological element that the practice is necessitated by the requirement of law ("opinio juris sive necessitatis") were lacking. The strong protest to such practice by many contracting parties of the GATT and Members of the WTO was clearly evident. For the same reasons, the lack of or infrequent protest to such interpretation and practice in the dispute settlement body of the GATT by the contracting parties could not be regarded as tacit agreement or acceptance of such interpretation and practice by all the contracting parties.
92. In this context, Thailand recalled a number of panel decisions supporting the assertions that Article XXIV provisions were not the exception to nor the justification or waiver for QRs; that the lack of or infrequent protest to the European Communities and associated members� interpretation and practice of the term "other regulations of commerce" did not mean or imply tacit agreement or acceptance of such interpretation and practice; and that QRs were possible only when they fully conformed to the permissible provisions of the GATT, such as Article XI, XII, and XIII.
93. Citing the case on EC - Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, ²¹⁹ Thailand recalled that the European Communities argued that the United States could not contest its preferential trade treatment on citrus products given to certain countries in the Mediterranean Region because the Working Parties which had examined the Treaty of Rome itself and other related agreements never gave any recommendation that these agreements were not in conformity with the provisions of Article XXIV, such non-recommendation constituting a tacit acceptance by the CONTRACTING PARTIES as a whole as well as the individual contracting parties that these agreements were in conformity with the provisions of Article XXIV. Such acceptance, in other words, applied erga omnes, and the United States could not circumvent its validity by means of the dispute settlement procedures under the provisions of Article XXIII. In response to this argument, the United States stated in paragraph 3.12 of the Report, inter alia, the following:

"... In no case did a working party unanimously agree that any agreement in question was compatible with the General Agreement. It was clear that the Council had been aware of the strong divergence of views within the working parties, and its adoption of the report should be viewed from this perspective. The failure of the CONTRACTING PARTIES to reject the agreements did not imply acceptance nor did it constitute a legal finding of GATT consistency with Article XXIV. The fact that the CONTRACTING PARTIES were aware that the EEC was going to implement the agreements could not be equated with approval. Similarly, the fact that these agreements had been in place for a number of years did not confer legitimacy. The pragmatic attitude the CONTRACTING PARTIES had adopted in their treatment of free-trade areas and customs unions did not envisage a loss of the right to subsequently challenge the legal validity of such agreements. The implication of the decision of the CONTRACTING PARTIES with respect to the Treaty of Rome was that, while the legal issues could not be fruitfully discussed at that stage, such legal issues could be raised at a later point in time. Moreover, as the EEC had pointed out itself, the decisions on customs unions and free-trade areas had been adopted on the explicit understanding that the legal rights of contracting parties under the General Agreement would not be affected. This clearly implied that the CONTRACTING PARTIES meant the right of individual contracting parties to challenge the consistency of the agreement with the requirements of Article XXIV to remain intact." ²²⁰

94. The United States further argued, inter alia, that:

"... it was customary in the GATT to refrain from raising legal principles in cases where a contracting party after taking into account overall economic interests and political concerns, was unsure that its trade interests would be adversely affected. Given this customary practice and the history of GATT consideration of these agreements, one could not characterize the failure to make recommendations under paragraph 7(b) as constituting approval by the CONTRACTING PARTIES." ²²¹

95. In so far as the right of a contracting party to challenge the conformity of the Treaty of Rome and its related agreements with the provisions of Article XXIV by the dispute settlement procedures under Article XXIII, the United States added, inter alia, as follows:

"The United States replied that the consequence of the EC position was that a failure to assert legal rights immediately constituted a permanent bar to future legal challenge. It would penalize those contracting parties that waited to assert their legal rights until a specific trade problem occurred. If the EEC view was accepted, the result would be an immediate termination of the pragmatic approach which had been characteristic of the GATT. The GATT would not be well-served by the approach suggested by the EEC�"²²²

"The United States argued that, whatever the scope of the Article XXIV: 7 procedures for the examination of interim agreements, the existence of these procedures in no way curtailed the general right of contracting parties to challenge the GATT-consistency of any measure under the procedures of Article XXIII. Neither the wording of Article XXIII nor the Understanding on Article XXIV Regarding Notification, Consultation, Dispute Settlement and Surveillance adopted by the CONTRACTING PARTIES in 1979 (BISD 26S/210) limited in any way the right of contracting parties to bring complaints under Article XXIII, nor suggested that the applicability of Article XXIV was meant to be excluded." ²²³

96. With respect to the cited arguments, Thailand noted that although the panel made an implicit conclusion to the effect that the legal status of the agreements in question remained open; however, it did not make a ruling on the arguments because the complainant, the United States, had not requested it to do so, nor was it proper for it to do so by itself, as can be seen, inter alia, in the conclusions of the Report:

"Given the lack of consensus among contracting parties, there had been no decision by the CONTRACTING PARTIES on the conformity with Article XXIV of the agreements under which the EC grants tariff preferences to certain citrus products originating from certain Mediterranean countries, and therefore the legal status of the agreements remained open; �"

97. Thailand recalled in this connection the wording of paragraph 12 of the Understanding on Article XXIV and argued that, although the panel report in the above-referred case was not adopted by the CONTRACTING PARTIES as a whole due to the objection of certain contracting parties as could be expected, the juridical value of the panel�s findings as well as the legal validity of the principles and rules of the GATT and international law behind and underpinning those findings on this particular point had not been impaired.
98. Thailand also mentioned that many GATT panels in the past, such as those on Japan - Leather ²²⁴ and in EEC - Imports from Hong Kong, ²²⁵ had confirmed that the fact that for a long time illegitimate practices of the contracting parties in violation of Article XI:1 of the GATT were not challenged under the GATT dispute settlement procedures, did not make them consistent with the GATT. In the latter case, the panel stated explicitly that:

"... It recognized that restrictions had been in existence for a long time without Article XXIII ever having been invoked by Hong Kong in regard to the products concerned, but concluded that this did not alter the obligations which contracting parties had accepted under GATT provisions. Furthermore the Panel considered it would be erroneous to interpret the fact that a measure had not been subject to Article XXIII over a number of years, as tantamount to its tacit acceptance by contracting parties..."

99. Thailand also referred to the arguments of the parties to the dispute the EEC - Bananas I, noting that the findings of the panel in that case was important and pertinent to the present dispute. In that case, the legal regimes of the EEC Member giving preferential trade treatments to the African, Caribbean and Pacific Countries ("ACPs") were challenged by a number of Latin American contracting parties, on the grounds that, by imposing a zero per cent duty and no quota to the importation of bananas from the ACPs while imposing a 20 per cent duty and a range of quotas (or in some cases complete prohibition) to the importation of bananas from them, such regimes were in contravention with several provisions of the GATT, including in particular Article I, Article II, Article XI, Article XIII, and Article XXIV. ²²⁶
100. Thailand noted that in that case the complainants argued in essence that Article XI was one of the cardinal principles of the GATT. It prohibited all forms of QRs not only because of their damaging effects on the quantities of the importation of certain goods, but also because of their distorting impacts upon the present and future markets of the importing contracting parties. The effects and impacts of such QRs should not be gauged only from their names and appearances, but should also be measured from their practical and damaging effects on the importation of the goods. Therefore, it had always been upheld by many panels in the past that there were presumption against the legality of QRs, and it was the onus of the contracting parties who had undertaken such actions to rebut the presumption, such as by proving that these actions fell within the exceptions of the Article itself. In addition, economic, social, and historical factors were extraneous to the consideration of a panel established in accordance with the provisions of Article XXIII which had to consider only the relevant provisions of the GATT.
101. Thailand further noted that in that case the panel found the EEC Member States�s QRs contrary to the provisions of Article XI:1 and not justified by the provisions of Article XI:2(c), and, more importantly, confirmed the GATT jurisprudence regarding the relationship between Article XI and Article XXIV, when it stated:

"The Panel noted the argument of the EEC that the restrictions and prohibitions on imports of bananas, even if inconsistent with Article XI:1, were nonetheless consistent with the General Agreement because they were covered under the provisions of Article XXIV. The Panel noted that Article XXIV:5 to 8 permitted the contracting parties to deviate from their obligations under other provisions of the General Agreement for the purpose of forming a customs union or free-trade area, or adopting an interim agreement leading to the formation of a customs union or free-trade area, but not for any other purpose. Article XXIV:5 to 8 therefore did not provide contracting parties with a justification for restrictive import measures as such; it merely provided them - within the limits set out in this provision - with a justification for not applying to imports originating in such a union or area the restrictive import measures that they were permitted to impose under other provisions of the General Agreement. The Panel therefore considered that the import restrictions on bananas could not be justified by Article XXIV." ²²⁷

To continue with Conclusions

²⁰⁸ Such harmonization was contrary to the standard "not to raise barriers to the trade of other contracting parties with such territories" in Article XXIV:4. Turkey and the EC did not likewise "to the greatest possible extent avoid creating adverse effects on the trade of other Members" (see preamble of the Understanding on Article XXIV).

²⁰⁹ Article 1.1 of the ATC.

²¹⁰ "... negotiations in the area of textiles and clothing shall aim to formulate modalities that would permit the eventual integration of this sector into GATT on the basis of strengthened GATT rules and disciplines, thereby also contributing to the objective of further liberalization of trade" (emphasis added).

²¹¹ See Reports on the European Economic Community, adopted on 29 November 1957, BISD 6S/76-81, paras. B.4 to B.8.

²¹² See BISD 6S/88-89, para. 14 and especially para. 15.

²¹³ See BISD 30S/174, para. 14.

²¹⁴ The questions and objections referred to above were evident in many paragraphs of the Report. See, for instance, BISD 30S/190, paras. 51, 55 and 60.

²¹⁵ See BISD 35S/318, inter alia paras. 19, 35, 39 and 45.

²¹⁶ See BISD 19/108, para. 14.

²¹⁷ See BISD 21S/110-112, paras. 12 and 17.

²¹⁸ BISD 6S/78-79, para. 5.

²¹⁹ Panel Report (not adopted) on EC - Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, GATT document L/5776, of 7 February 1985.

²²⁰ Ibid., para. 3.12, p. 38.

²²¹ Ibid., para. 3.94, p. 70.

²²² Ibid., para. 3.22, p. 40.

²²³ Ibid., para. 3.26, p. 41.

²²⁴ See Panel Report on Japan - Leather, para. 44.

²²⁵ See Panel Report on EEC - Imports from Hong Kong, para. 28.

²²⁶ See Panel Report on EEC - Bananas I.

²²⁷ Panel Report on EEC - Bananas I, para. 358 (emphasis added).