What's New?
 - Sitemap - Calendar
Trade Agreements - FTAA Process - Trade Issues 

espa�ol - fran�ais - portugu�s
Search

Turkey - Restrictions on Imports of Textile and Clothing Products

Report of the Panel

(Continued)


    (ii) The immediate context of Article XXIV:5(a)

  1. Our interpretation of the terms of Article XXIV:5(a) is supported by their context. That context in the first place consists of the other provisions of Article XXIV relating to regional trade agreements.
  2. Article XXIV:5(b)

  3. Our interpretation of paragraph 5(a) is also supported by the similar wording contained in paragraph 5(b) in relation to free-trade areas. In paragraph 5(b), which is concerned with free-trade areas, it is stated that "� the duties and other regulations of commerce maintained in each of the constituent territories � shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories �" (emphasis added). We note that the terms of paragraph 5(b) are very similar to those in paragraph 5(a). In free-trade areas, however, constituent members are not required to harmonize their other trade regulations with third countries. Therefore, constituent members of a free-trade area could not argue that the terms of paragraph 5(b) would authorize them to violate other provisions of the WTO Agreement in their efforts to harmonize their external trade policies, since they are not required to do so. Consequently, we see no basis for arguing that the terms of paragraph 5(a) authorize constituent members of a customs union to adopt GATT-inconsistent measures. The same terms being used in paragraphs 5(a) and 5(b) should not lead to different interpretations.
  4. Article XXIV:4

  5. We also note that Article XXIV:4 provides that the purpose of a customs union should not be to raise barriers to the trade of other Members. While not expressed as an obligation, paragraph 4 (and its elaboration in the fifth paragraph of the Preamble of the GATT 1994 Understanding on Article XXIV) argues against an interpretation of paragraph 5(a) that would read into that paragraph an exception to GATT rules that prohibit specific trade barriers. This view is also expressed by Japan and Hong Kong, China in their third party submissions. 340 With the use of the term "Accordingly", the language of paragraph 4 is specially relevant to the application and interpretation of the provisions in paragraph 5, and argues against any interpretation in favour of exceptions or deviations (not elsewhere foreseen) to the general GATT prohibition against the use of quantitative restrictions. This is also noted by the Philippines. 341
  6. Article XXIV:6

  7. Furthermore, Article XXIV:6 provides that if a Member "proposes to increase any rate of duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply". Thus, in the adoption of the common external tariff of a customs union, compensation is due if a pre-existing tariff binding is exceeded. We note that there is no parallel provision to compensate Members for the introduction of quantitative restrictions. In our view, this is the case because quantitative restrictions are generally prohibited by GATT/WTO, while increases of tariffs above their bindings, if re-negotiated, are WTO compatible.
  8. We also consider that this reference to Article XXVIII in Article XXIV provides evidence of the application of the other GATT provisions to measures adopted on the occasion of the formation of a customs union. The purpose of such specific reference to Article XXVIII, is to allow for the re-negotiation of the tariff bindings outside the time and prior notification constraints of Article XXVIII (including Article XXVIIIbis and the GATT 1994 Understanding on Article XXVIII).
  9. Article XXIV:8

  10. Another element relating to the context is the scope and ordinary meaning of the terms of sub-paragraph 8(a)(ii) which define how Members forming a customs union should act vis-�-vis third country Members. For our analysis of Article XXIV:8(a) we refer to our discussion in paragraphs 9.142 to 9.169 below, where we address Turkey's argument that it is required to adopt the EC's commercial trade policy including quantitative restrictions in the sector of textile and clothing products.
  11. Article XXIV in Part III of GATT

  12. An additional element relating to the context is the fact that Article XXIV is found in Part III of GATT, a section of GATT distinct from Part I and Part II. Part I contains the main foundations of GATT: the most-favoured nation clause (Article I) and the tariff commitments or bindings (Article II). Part II contains a set of disciplines, the purpose of which is mainly to ensure the effectiveness of the tariff commitments. This is evident from the prohibition against quantitative restrictions (Article XI) and the national treatment obligation (Article III). We note that Article XXIV is not listed with the general exceptions (Article XX) or the security exception (Article XXI), both of which are in Part II.
  13. Turkey concludes from the positioning of Article XXIV in Part III, that Article XXIV constitutes a self-contained regime for the formation of regional trade agreements, i.e. if the requirements of Article XXIV are met, other GATT rules do not apply to measures related to the formation of a customs union.
  14. We note that Part III contains different types of provisions, some of a more institutional nature (Article XXV for instance), others dealing with Members' basic rights, such as Article XXVIII, and Article XXIV. We also note that Article XXIV itself deals with various elements such as the territorial application of GATT, frontier traffic and customs unions and free-trade areas. We have examined thoroughly the negotiating history of Article XXIV which, however, is not instructive in this respect. There is no text associated with Part III that suggests that it is fundamentally different from Part II, although Parts II and III entered into force at different dates. 342 In the Havana Charter, the provisions on regional trade agreements were included in the commercial policy chapter in a section on special provisions (among which were the general exceptions found today in Article XX of GATT). Yet we are not aware that the provisions of the Havana Charter on customs unions were thought to be fundamentally different from those of GATT. We can read that the drafters were of the view that customs unions and free-trade areas (a concept that came in later in the negotiations) were of the nature of this so-called "exception" but the discussions are not illuminating on the scope or even the nature of this provision and the relevance of its "location" in the GATT. We hesitate to draw from this examination the conclusion proposed by Turkey.
  15. Moreover, the interpretation advanced by Turkey which pertains to propose a test as to the treatment of measures that are associated with the "formation" of a customs union, is problematic. The temporal and substantive breadth of this concept would be crucial to the interpretation of Article XXIV under Turkey's argument, yet Article XXIV does not define such a concept. 343 There are important difficulties in relation to the interpretation of the term "formation" when considered in relation to the present case. 344 For us this argument of Turkey is not substantiated and we therefore reject it.
  16. (iii) Conclusion based on the ordinary meaning of the terms and their immediate context

  17. We shall examine the wider context of Article XXIV:5(a) and 8(a) as well as the object and purpose of GATT and the WTO Agreement, together with the practice of GATT CONTRACTING PARTIES and WTO Members with regard to these provisions, after our examination of the wording of Article XXIV:8(a). So far, based on the ordinary meaning of the terms and their immediate context, we find that the language of Article XXIV:5(a) is not prescriptive as to whether a specific measure may be adopted on the occasion of the formation of a customs union. From the terms of Article XXIV:5(a) and their immediate context, we find that there is a basis for the provisions of the sub-paragraph 5(a) to be informed by, and interpreted consistent with, the language of paragraph 4 against the raising of trade barriers. Consequently, we find that there is no legal basis in Article XXIV:5(a) for the introduction of quantitative restrictions otherwise incompatible with GATT/WTO; the wording of sub-paragraph 5(a) does not authorize Members forming a customs union to deviate from the prohibitions contained in Articles XI and XIII of GATT or Article 2.4 of the ATC. We find that the terms of sub-paragraph 5(a) provide for a prohibition against the formation of a customs union that would be more restrictive, on the whole, than was the trade of its constituent members (even in situations where there are no WTO-incompatible measures).
  18. 4. Article XXIV:8

    (a) Arguments of the parties

  19. Turkey submits also that Article XXIV:8(a)(ii) requires it to apply to third countries the same regulations of commerce, including import restrictions as those applied by the European Communities to the same third countries, since the term regulations of commerce has traditionally been interpreted as incorporating quantitative restrictions. 345 For Turkey, this is precisely the reason why Article 12 of Decision 1/95 unequivocally envisages the wholesale adoption by Turkey of the European Communities' Common Commercial Policy Instruments, as well as the European Communities' Customs Code, in the area of textiles and clothing products, prior to the completion of the customs union. Article 12(1) specifies the external trade measures to be adopted by Turkey towards third countries, which constituted the critical mass of commercial policy regulations applied by the European Communities and appropriate measures are envisaged to prevent trade diversion to the European Communities over Turkey's customs territory.
  20. In India's view, however, Article XXIV:8(a) merely defines the requirements to be fulfilled by a regional trade agreement to qualify as a customs union within the meaning of Article XXIV. 346 This provision could not reasonably be interpreted to imply that Members, in fulfilling that requirement, are entitled to ignore their WTO obligations, such as those prohibiting import restrictions from third Members. For India, Article XXIV:4 makes it clear that the purpose of a customs union is not to raise barriers to the trade of third countries.
  21. India notes that while Turkey claims it is obliged by Article XXIV:8 to adopt common quantitative restrictions with the European Communities for textiles and clothing products, it is also claiming the right to follow divergent trade policy practices and to adopt different instruments in other areas. India notes in this respect differences inter alia in external trade policies on agriculture, steel and other sensitive industrial products, as well as in relation to anti-dumping, countervailing and safeguards measures. India also adds that there is additionally no requirement that Members fulfil the requirements of Article XXIV:8(a) immediately.
  22. For Turkey, India's interpretation of Articles XXIV:5 and XXIV:8(a)(ii) is overly restrictive. Turkey is of the view that any interpretation of Article XXIV which could lead to the conclusion that in certain circumstances, WTO Members with diverging external trade regimes were legally inhibited from forming a customs union, is in contradiction with the objective clearly stated in Article XXIV:4.
  23. Turkey submits further that, since, in order to qualify as a customs union, the Turkey-EC customs union must cover substantially all trade - as required by Article XXIV:8(a)(i) - it has obviously to cover trade in textiles and clothing products, which represents 40 per cent of Turkey's exports to the European Communities. For such trade in textiles and clothing to be covered, the constituent members of the Turkey-EC customs union must have common tariffs and a common foreign trade regime with other countries in accordance with Article XXIV:8(a)(ii). For Turkey, such common regulation of commerce, as determined by restrictive measures which the European Communities applies in conformity with WTO rules, must cover goods imported into the Turkey-EC customs union via Turkey. For Turkey, there is no alternative: in the context of the formation of its customs union with the European Communities, it was required to adopt the European Communities' external trade policy in textile and clothing products.
  24. We understand that Turkey is referring to two different requirements: 1) the requirement that it adopt the European Communities' external textile policy in order to form a customs union compatible with Article XXIV:8(a)(ii), and 2) the requirement in its specific customs union agreement with the European Communities that it adopt that European Communities' policy. We shall examine the second requirement in paragraphs 9.178 to 9.182 of this Panel report.

To continue with Analysis of Article XXIV:8(a)


340 See Japan's argument in para. 7.21 and Hong Kong, China's argument in para. 7.10 above.

341 See para. 7.43 above.

342 We recall also that in the European Communities � Measures Affecting the Importation of Certain Poultry Products, adopted on 23 July 1998, WT/DS69/7, the Appellate Body concluded that the prohibitions contained in Article XIII were applicable to negotiations taking pace pursuant to Article XXVIII, a provision also contained in Part III of GATT. Clearly provisions of Part III of GATT do not in themselves argue for a distinct regime from those contained in Part II of GATT.

343 What would be the minimum required scope for measures to qualify as being part of the "formation"? Would all measures that lead to, or are alleged to lead to, harmonization of policies be covered? Should there be a minimum or maximum time-frame to determine such "formation" period? Should the formation be required to correspond to any announced transitional period of interim agreements?

344 We note that Turkey's first agreement with the European Communities was signed on 12 September 1963; see paras. 2.10 to 2.13 above. We note in passing that this situation is not unusual and reflects the reality of the ways in which Article XXIV type agreements are negotiated and presented to the WTO Members. But it is also evident that the present wording of Article XXIV on interim agreements is not adequate and does not reflect the present realities of the way regional trade agreements are negotiated and presented to the CRTA.

345 See BISD 35S/293, para. 45.

346 See India's argument in para. 6.86 and Turkey's response in para. 6.94 above.