Turkey - Restrictions on Imports of Textile and Clothing Products
Report of the Panel
(Continued)
(ii) The immediate context of Article
XXIV:5(a)
- 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.
Article XXIV:5(b)
- 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.
Article XXIV:4
- 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
Article XXIV:6
- 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.
- 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).
Article XXIV:8
- 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.
Article XXIV in Part III of GATT
- 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.
- 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.
- 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.
- 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.
(iii) Conclusion based on the ordinary
meaning of the terms and their immediate context
- 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).
4. Article XXIV:8
(a) Arguments of the parties
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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