2. Conclusions

102. Accordingly, 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, the provisions of Article I:1, Article XI:1 and Article XIII:1 of GATT, and that these inconsistencies could not be justified by the provisions of Article XXIV:5(a) and/or Article XXIV:8(a)(ii) of GATT.
103. Consequently, in the light of the provisions of Article 19 of the DSU, Thailand requested that the Panel recommend that Turkey bring its measures into conformity with the above-mentioned provisions of the ATC and GATT, and that it might also suggest the ways in which Turkey could implement the recommendations.

E. United States

104. The United States stated that Turkey had asserted no substantive defense under the ATC or Article XI of GATT for the QRs at issue in this dispute. The only legal basis that Turkey claimed for its unilateral imposition of new QRs was that measures whose application constituted a requirement of the Turkey-EC customs union were deemed to be justified under Article XXIV of GATT. The United States was unable to agree with Turkey on that point.
105. Turkey claimed that Article XXIV provided a derogation from all the provisions of the GATT, and that that derogation in turn justified Turkey�s new QRs. Turkey said that, as applied to customs unions and free trade areas, Article XXIV permitted deviation from the MFN obligations of Article I:1. The United States agreed with Turkey, up to a point. Article XXIV:8 provided that to constitute a customs union (or a free-trade area) duties and other regulations of commerce had to be eliminated as between the constituent members of that customs union (or free-trade area). The United States agreed that, in light of Article XXIV, the provisions of Article I:1 did not require the constituent members of the customs union (or free-trade area) to offer such elimination of duties and restrictive regulations of commerce to non-originating goods. Turkey went on to suggest, however, that all the provisions of GATT were overridden by Article XXIV, and at that point the United States disagreed with Turkey.
106. The object and purpose of Article XXIV were authoritatively given in Article XXIV:4. In light of the second sentence of that provision, it was difficult to see how Turkey�s action in this case was justifiable. In fact, the GATT generally prohibited QRs entirely, as an especially serious barrier to trade. Therefore, it was hard to see how a customs union could introduce new QRs consistently with Article XXIV:4, unless some other provision of the WTO Agreement independently justified those restrictions.
107. The United States recalled that the argument that Turkey was now advancing had been made before, but had not been accepted. In 1957, when the CONTRACTING PARTIES were considering the consistency with the GATT of the Treaty of Rome, the six members of the EEC proposed that Article XXIV:5 authorized those six members to deviate from the provisions of the GATT concerning QRs. The report of the Sub-Group considering the Community�s QRs recorded the following:

"Most members of the sub-group could not accept the interpretation of the Six of paragraph 5(a). ... 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-payments 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." ²²⁸

108. More recently, the European Communities, Turkey�s partner in the Ankara Agreement, had taken the opposite position to Turkey on this issue. During the examination of the Accession of Spain and Portugal to the European Communities, several GATT contracting parties claimed that, as a result of the accession, Spain and Portugal had imposed new restrictions that violated Articles XI and XIII. The Working Party report recorded the EC response as follows:

"On the question of other regulations of commerce, and in particular QRs, the Communities agreed that Article XXIV did not provide a waiver from other provisions of the GATT." ²²⁹

109. Furthermore, in 1993, the EEC - Bananas I panel confirmed the point when it found that "Article XXIV:5 to 8 ... did not provide contracting parties with a justification for restrictive import measures as such ..." ²³⁰
110. For all these reasons, Turkey�s contention that its customs union with the European Communities allowed it to maintain new QRs on imports from third countries in derogation from the provisions of the Article XI of GATT should be rejected.
111. The United States also disagreed with Turkey�s interpretation of Article XXIV:8(a)(ii). Article XXIV:8(a) was a definitional paragraph. It described the characteristics of a customs union, one of which was that the constituent Members applied substantially the same regulations of commerce to trade from outside the union. However, Article XXIV:8 did not require or authorize the customs union to adopt any particular set of such external regulations. Most importantly, Article XXIV:8(a)(ii) nowhere provided that the external regulations that the customs union chose to apply could be inconsistent with WTO requirements. (Of course, if Turkey wished to act inconsistently with its WTO obligations it was always free to seek a waiver.)
112. A customs union could, in principle, meet the requirements of Article XXIV in different ways. In fact, the Panel could decide this dispute on straightforward grounds. As the delegation of the Philippines had pointed out, it was clear that the European Communities and Turkey could just as easily have chosen to remove the QRs that either one of them previously imposed against Indian textile and clothing products. The delegation of Hong Kong, China, had pointed out that the European Communities and Turkey could have chosen to implement a certificate of origin system to ensure that goods entering the European Communities from Turkey were in fact of Turkish origin. Had the European Communities and Turkey taken either of these approaches, they could still have continued to apply the same regulations of commerce externally. And, they would not have raised the trade barriers that Turkey had with its new QRs.
113. Because these alternatives were open to them, Turkey could not claim that the provisions of the WTO Agreement (and in particular, the provisions of the ATC) were preventing the formation of a customs union with the European Communities. For that reason, as well as the others outlined, Turkey was incorrect in claiming that Article XXIV:5 and 8(a) authorized these measures.
114. The United States noted that Turkey appeared to pre-suppose that the agreement between Turkey and the European Communities met the requirements of Article XXIV. After all, Turkey�s entire defense relied on the assumption that its relationship with the European Communities qualified under Article XXIV as a customs union. It was important to recall, however, that the Ankara Agreement, and the Turkey-EC customs union, had never been found to be consistent with the requirements of Article XXIV. They were still under examination by the CRTA. Turkey itself acknowledged this fact. The Panel should therefore not conclude that the Turkey-EC agreement was a customs union consistent with the requirements of Article XXIV of GATT.
115. The United States also noted that Turkey argued that the reduction in average tariffs resulting from the customs union agreement meant that the agreement could not be described as having raised barriers to trade with Turkey. In the first place, the evaluation under Article XXIV of the level of trade barriers went beyond an evaluation of tariffs, and therefore Turkey�s statement was not correct. Secondly, this claim was a variation of the "reverse compensation" argument that had been raised but never accepted in the past; the argument was that contracting parties that reduced duties in forming a customs union were entitled to compensation for that reduction. Paragraph 6 of the Understanding on Article XXIV expressly eliminated that argument, however. Turkey�s claim in this case that the agreement had not raised barriers to trade was just another version of that old argument and should not be accepted.
116. Turning to some procedural matters, the United States expressed its concern over Turkey�s requested finding that, because Turkey has made the argument that its QRs were a requirement of the customs union, therefore the Panel could not rule on the legality of its QRs in the absence of agreed conclusions on the consistency of the Turkey-EC customs union with GATT. Turkey did not appear to have supplied any argument in support of this request.
117. In fact, the suggestion that this Panel could not rule on the legality of Turkey�s measures was inconsistent with the WTO Agreement in several ways. First of all, nothing in the text of GATT or any other part of the WTO Agreement supported the notion that measures could be excluded from dispute settlement merely because a Member made an argument about the justification of a measure. Quite the reverse: Article XXIII did not exclude any measures from its scope. Furthermore, Appendix 2 to the DSU did not list Article XXIV as one of the special or additional rules and procedures to which the DSU was subject. Moreover, Turkey�s suggestion contradicted the provisions of paragraph 12 of the Understanding on Article XXIV. Of course, it could not be otherwise. If a Member could prevent a panel from issuing rulings merely by making arguments about its measures, then dispute settlement would grind to a halt. This point was made clear by the panel in the EEC - Bananas I case:

"If preferences granted under any agreement for which Article XXIV had been invoked could not be investigated under Article XXIII, any contracting party, merely by invoking Article XXIV, could deprive other contracting parties of their rights under Article XXIII." ²³¹

118. The United Stated noted that Turkey had even gone so far as to suggest that the present case should not proceed in the absence of agreed conclusions in the CRTA. Such a procedure would subject WTO dispute settlement to the ability of any Member to block consensus; and the central feature of the WTO dispute settlement system was the inability of any Member to prevent dispute settlement by consensus blocking. In short, this Panel should reject Turkey�s suggestion that it lacked the power to decide the question of the consistency of Turkey�s measures with the requirements of the WTO Agreement.
119. The United States further noted that Turkey�s argument that India�s supposed failure to engage in meaningful consultations should deprive India of the right to pursue this dispute was unfounded. Article 3.7 of the DSU made clear that the dispute settlement mechanism was available in absence of a mutually agreed solution. And, Article 4.7 of the DSU made it quite clear that the complaining party was entitled to request a panel if the dispute had not been settled within 60 days after the date of receipt of the request for consultations.
120. The United States also noted Turkey�s statement that there was no difference in WTO terms between an EC enlargement and the formation of a new customs union. It was not clear how this statement advanced Turkey�s arguments in this dispute. Perhaps Turkey was attempting to bolster its observation that no Member had initiated a dispute as a result of the extension of the EC textiles and clothing restrictions to Sweden, but the Swedish analogy did not help the Turkish position. As a previous GATT panel made clear, "... 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". ²³² Another panel pointed out that "[t]he decision of a contracting party not to invoke a right vis-�-vis another contracting party at a particular point in time can therefore, by itself, not reasonably be assumed to be a decision to release that other contracting party from its obligations under the General Agreement". ²³³ Therefore, the fact that no Member objected to the new Swedish restrictions did not mean that either those restrictions or the ones challenged in this case were consistent with the requirements of the WTO Agreement. In any event, the United States concurred with India�s observation that this Panel need not make any findings on the complex issues relating to the extension of the WTO Agreement to the territory of states that acceded to the European Communities.
121. The United States also noted that India had submitted that the only provision of the ATC under which a Member could introduce new QRs on imports of textile and clothing products was under the transitional safeguard mechanism set out in Article 6 of the ATC. That statement was not entirely accurate; the United States recalled that other provisions of the ATC, such as Article 5.4, also allowed for the introduction of new restrictions in specified circumstances. But India was correct to draw attention to the Article 6 safeguard mechanism, because - assuming that the customs union as a whole could demonstrate the serious damage or threat thereof required by Article 6 (and footnote 5) of the ATC - it could provide the Turkey-EC customs union with cover, once the European Communities removed its textiles and clothing restrictions to match the earlier Turkish regime.
122. The United States also noted that Japan had proposed "the need for strict interpretation of the provisions for exception clauses" and that a previous panel "concluded that the parties invoking the exception must bear the burden of proof that it has fulfilled the conditions for invoking the exception." However, the interpretation of the US - Underwear panel (referred to by Japan) had been superseded by the Appellate Body discussion in US - Shirts and Blouses, where the question also arose. The Appellate Body disagreed with the notion that Article 6 of the ATC was an exception in the same sense as provisions such as Article XX of GATT and stated that "[t]he ATC is a transitional arrangement that, by its own terms, will terminate when trade in textiles and clothing is fully integrated into the multilateral trading system. Article 6 of the ATC is an integral part of the transitional arrangement manifested in the ATC and should be interpreted accordingly".²³⁴
123. In conclusion, the United States urged the Panel to decide this dispute, notwithstanding Turkey�s claim that it could not do so. The United States further urged the Panel not to accept the various justifications that Turkey had advanced for the QRs that India had challenged. In particular, Article XXIV of GATT should not be read to permit Members to introduce QRs that were not consistent with their obligations under the WTO Agreement.

F. Comments by the Parties

124. Turkey did not intend to take a position on each of the issues raised by the third parties. To the extent that they would have been raised by India, these issues would be addressed in Turkey's own submissions. Turkey stressed, however, that third parties were neither complainants nor respondents and had therefore to intervene in the matter as defined by the terms of reference, limited to the claims of the complaining party. Noting that, in the present case, there had been such a situation, Turkey stated that a third party could not be permitted to raise new issues, as otherwise the whole dispute settlement procedure would be subverted and disputes would become open-ended, which could not be the purpose of the dispute settlement mechanism.
125. India responded that it conceptually agreed with Turkey that third parties were not expected to add new claims to those made by the complaining party. In its view, however, the third parties had basically rebutted Turkey's claim that the measures at issue were justified under Article XXIV of GATT.

VIII. Interim Review²³⁵

1. On 12 March 1999, Turkey and India requested the Panel to review, in accordance with Article 15.2 of the DSU, certain aspects of the interim report that had been transmitted to the parties on 3 March 1999. No request for a further meeting with the Panel was received from either party.

2. We have reviewed the arguments and suggestions presented by the parties, and finalized our report, taking into account those comments by the parties which we considered justified. In this context we have made small changes, including those to paragraphs 9.148, 9.151 and 9.191. In addition, we have made other minor linguistic and typographical corrections.

3. Turkey submits that, contrary to the Panel's view, it never claimed that the measures which form the object of India's complaint had been taken by another entity than itself. Turkey therefore requests the Panel to modify paragraphs 9.33 to 9.43 of the Interim Panel Report. We note that in its very first submission Turkey wrote: "Given this situation, the Panel should reject India's claim on the basis that India's choice of the respondent in this dispute is incorrect. � The situation here is in fact comparable with a situation where the complainant directs its complaint against country A for a measure taken by country B. � In Turkey's view the same rule must apply in the present case � There is no basis in fact or in law, for the assumption � that Turkey is individually responsible for acts that are collectively taken by the members of the Turkey-EC customs union through the institutions created by the custom union agreement." ²³⁶ As we mention in paragraph 9.33 we have examined all alternatives possible to cover Turkey's argument that the measure had been taken by an entity other than Turkey. We were of the view that there were only two other alternatives: the measures could have been those of the Turkey-EC customs union or those of the European Communities. We find that the measures at issue were clearly Turkish measures. We then proceed further (paragraph 9.38) to examine whether the measures at issue could be measures of the Turkey-EC customs union or measures of the European Communities and we find that we have no alternative but to conclude that the measures at issue are only Turkish measures (paragraph 9.40). Having noted that the Turkey-EC customs union is not a Member of the WTO, we also examine the rules of state responsibility in public international law public, and find that in the absence of a specific treaty provision (in the DSU as drafted) individual states remain responsible for any wrongful act committed by their common organ. We see no reason to change these findings. We reach the conclusion that the measures under examination were those of Turkey itself and Turkey alone, and only Turkey could therefore be defendant to this dispute, especially as the Panel was not assessing the WTO compatibility of the Turkey-EC customs union.

4. Turkey also reiterates that its position is that such measures are the basic requirements of the customs union into which it has entered with the European Communities, and as long as the European Communities itself maintains similar measures with their imports of the same products from a number of countries. We refer to our considerations and findings in paragraphs 9.140 to 9.182. We find that there are WTO compatible alternatives for Turkey to form a customs union or an interim agreement leading to a customs union with the European Communities or others. We also find that even if the Turkey-EC customs union agreement did require Turkey to adopt all EC trade policies, an issue that we do not have to address, we consider that such a requirement would not be sufficient to exempt Turkey from its obligations under the WTO Agreement.

5. India requests the Panel to review its interpretation of Article XXIV:8(a)(ii) because, according to India it is not based on the language of this provision. The Panel finds that the phrase "substantially the same duties and other regulations of commerce" does not impose an absolute standard and that not "all" the constituents' duties and not all the constituent members' regulations of commerce shall be the same. We find that this standard leaves an element of flexibility to the constituent members. India argues that when the Panel finds that "a situation where the constituent members have comparable trade regulations having similar effects with respect to trade with third countries, would generally meet the requirements of Article XXIV:8(a)(ii)" the Panel is effectively turning the requirement to apply "substantially the same regulations" into "the same regulations on substantially all the trade". We are of the view that the wording of Article XXIV:8(a)(ii) makes it clear that the term "substantially the same" qualifies both the "duties" and the "other regulations of commerce". In other words, we consider that the ordinary meaning of the term "substantially the same � regulations of commerce" in the context of sub-paragraph 8(a) appears to provide for both qualitative and quantitative components; we also consider that in many cases, when constituent members adopt comparable trade regulations having a similar effect, they will be in compliance with the provisions of sub-paragraph 8(a)(ii) whereby constituent members are required to adopt "substantially the same � regulations of commerce". We also consider that the greater the degree of policy divergence, the lower the flexibility as to the areas in which this can occur; and vice-versa. We find as well that this degree of flexibility does not provide Turkey with the right to impose otherwise WTO incompatible quantitative restrictions. On the contrary, we find that Turkey's conditional right to form a regional trade agreement compatible with Article XXIV, without violating Articles XI and XIII and Article 2.4 of the ATC, is confirmed by the flexibility offered by the wording of Article XXIV.

6. Finally, in response to India's claim, in its request for review of the interim report, that the Panel should not reach any conclusion on the alternatives open to Turkey when forming a "fully fledged" customs union since Turkey could always have claimed before the CRTA that its customs agreement with the European Communities was not a complete customs union, we would like to reiterate ²³⁷ that we are not assessing the nature of the regional trade agreement between the EC and Turkey, nor its stage of integration. In this report, we simply respond to Turkey's defense based on Article XXIV:8(a) and find that even if the Turkey-EC customs union is to be considered a complete customs union as alleged by Turkey, in the present dispute there are alternatives open to Turkey to form a customs union where measures adopted by constituent members would not violate other provisions of the WTO. In the context of an interim agreement leading to a custom union, Turkey would have further flexibility, since compliance with Article XXIV:8(a) is required only at the end of the transitional period leading to the formation of a customs union.

To continue with Findings

²²⁸ Reports on the European Economic Community, adopted on 29 November 1957, BISD 6S/70, para. B.5.

²²⁹ Report of the Working Party on the Accession of Portugal and Spain to the EC, adopted on 19-20 October 1988, BISD 35S/293, para. 45 (emphasis added).

²³⁰ Panel Report on EEC - Bananas I, para. 358.

²³¹ Ibid., para. 367.

²³² Panel Report on EEC-Imports from Hong Kong, para. 28.

²³³ Panel Report on EEC-Bananas I, para. 362.

²³⁴ Appellate Body Report on US - Shirts and Blouses, p. 16.

²³⁵ Pursuant to Article 15.3 of the DSU, the findings of the panel report shall include a discussion of the arguments made at the interim review stage. Consequently the following section entitled Interim Review is part of the Findings of this Panel report.

²³⁶ See para. 3.33 above which refers to page 14 of Turkey's request for preliminary ruling: " Given this situation, the Panel should reject India�s claim on the basis that India�s choice of the respondent in this dispute is incorrect. In order to pursue its claims properly, India should have chosen both parties to the Turkey-EC customs union as respondents, not just one of them. The situation here is in fact comparable with a situation where the complainant directs its complaint against country A for a measure taken by country B. In such a situation, the complaint would have to be turned down for lack of standing due to the obvious absence of international liability. In Turkey�s view, the same rule must apply in the present case, since Turkey alone is not internationally answerable for acts adopted by the institutions created by the agreement creating the Turkey-EC customs union. There is no basis, in fact or in law, for the assumption - on which however India�s complaint appears to be founded - that Turkey is individually responsible for acts that are collectively taken by the members of the Turkey-EC customs union through the institutions created by the customs union agreement." (emphasis added).

²³⁷ See our statement to this effect in footnotes 241 and 285 hereafter.