(d) GATT/WTO practice

164. Turkey also refers to the practice of the GATT CONTRACTING PARTIES to support its view that, on the occasion of the creation of a customs union, individual GATT contracting parties and now WTO Members have been authorized to introduce new, otherwise GATT/WTO incompatible, import restrictions. ³⁶² Article 31.3(b) of the VCLT provides that the "context" of a provision to be interpreted, includes "any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation". Article XVI:1 of the Agreement Establishing the WTO provides that the WTO shall be guided by the customary practices followed by the CONTRACTING PARTIES.
165. We recall the statement of the Appellate Body in Japan � Alcoholic Beverages: ³⁶³

"Generally, in international law, the essence of subsequent practice in interpreting a treaty has been recognized as a "concordant, common and consistent" sequence of acts or pronouncements which is sufficient to establish a discernable pattern implying the agreement of the parties regarding its interpretation. ³⁶⁴ An isolated act is generally not sufficient to establish subsequent practice; ³⁶⁵ it is a sequence of acts establishing the agreement of the parties that is relevant. ³⁶⁶"

166. After examination of GATT/WTO practice, and as noted by the United States ³⁶⁷ and the Philippines, ³⁶⁸ it is quite evident that no consensus was reached, nor was any practice agreed upon regarding Article XXIV of GATT. For example in 1957, the Report of the Sub-Group B (Quantitative Restrictions) of the GATT Committee on the European Economic Community, ³⁶⁹ which examined the conformity of the Treaty of Rome with the provisions of Article XXIV, stated that:

"4. Most members of the Sub-Group (�) [were of the] view [that] countries entering a customs union would continue to be governed by the provisions of Article XI prohibiting the use of quantitative restrictions as well as by the other provisions of the Agreement (�). Further, adherence to these provisions would in no case prevent the establishment of a customs union. Since paragraph 8 (a) (i) permitted where necessary the use of quantitative restrictions for balance-of-payments reasons, it followed that the use of quantitative restrictions by individual countries within the union for these reasons could not be regarded as preventing the formation of a customs union as defined in Article XXIV. (�)

6. (�). Moreover they [most members of the Sub-Group] pointed out that if paragraph 8 (a) (ii) were interpreted to require a common level of quantitative restrictions against third countries, this would be incompatible with the explicit permission in paragraph 8 (a) (i) for the use of quantitative restrictions within the system for balance-of-payments reasons since it would appear not to be practicable to have a common level of quantitative restrictions against third countries in a situation where countries within the customs union made use of their right to impose such restrictions against their partners. Moreover, the effect of such an arrangement would be that some country or countries in the union would be imposing quantitative restrictions not required by their own individual balance-of-payments position and would, therefore, be raising barriers to trade with other contracting parties."

167. Upon accession to the European Communities (Denmark, Ireland and United Kingdom in1973; Greece in 1982; Spain and Portugal in 1985; Austria, Finland and Sweden in 1994), those countries imposed new quantitative restrictions in accordance with the European Communities' commercial policy. These actions were not universally accepted by GATT CONTRACTING PARTIES. For example, it was the position of some of the GATT contracting parties that:

"� the accession [of Greece] was not in conformity with the relevant provisions of the General Agreement, including those relating to the application and administration of quantitative restrictions. Neither the EC nor Greece were waived in any respect under the provisions of Article XI and XIII of the GATT by concluding and implementing the Act." ³⁷⁰ (emphasis added)

168. In the Working Party that considered the accession of Portugal and Spain to the European Communities, some contracting parties ³⁷¹ expressed their views as follows:

"Some delegations expressed concerns which related to the introduction in Portugal and Spain of new quantitative restrictions some of which were discriminatory and inconsistent with Articles XI, XIII and XXIV: 4�

�Since Article XXIV did not provide a waiver from obligations contained in Articles XI and XIII and did not allow or require a country acceding to a customs union to adopt the more restrictive trade r�gime of the customs union, they called on the Communities and Spain to eliminate all GATT inconsistent measures �".

169. In light of these positions taken by individual GATT contracting parties ³⁷² before the entry into force of the WTO Agreement and therefore the ATC, we cannot conclude that there is "subsequent practice" (as that term is used in the VCLT) or "customary practices" (as used in Article XVI:1 of the WTO Agreement) that could be regarded as an agreement or acceptance (even implicit) that paragraphs 5(a) or 8(a)(ii) of Article XXIV authorize or require the introduction of otherwise GATT/WTO inconsistent measures upon the formation of a customs union. We recall, as noted in paragraph 9.71 above, that the ATC has put in place new disciplines regarding the introduction of quantitative restrictions in the sector of textiles and clothing whereby, as of 1 January 1995, the global level of quantitative restrictions in that sector could only decrease (setting aside the possibility for ATC compatible safeguards measures).

(e) Temporary nature of the Turkish quantitative restrictions

170. Turkey also argues that because its import restrictions at issue are essentially temporary in nature, since under the ATC all quantitative restrictions should be phased out by 1 January 2005, it should be authorized to maintain them, even if they appear to be GATT/WTO incompatible.
171. We consider that the duration of quantitative restrictions does not alter the nature of such measures. The GATT/WTO prohibition against quantitative restrictions does not provide for any allowance for "short-time quantitative restrictions" or any similar time consideration. In the present case, a measure which is not in conformity with the WTO Agreement cannot become WTO compatible just because of its limited duration. We must therefore reject this latter argument by Turkey. Indeed, the transitional nature of the ATC and the possibility under Article XXIV to phase in a customs union argues against an exception in favour of temporary measures.

(f) The absence of recommendations pursuant to Article XXIV:7 of GATT

172. Turkey also argues that the fact that no Article XXIV:7 recommendation has ever been made to parties to a customs union to change or abolish any import restrictions, and in particular that no such recommendation has ever been made in respect of the previous Turkey-EC trade agreements, suggests that its measures are therefore WTO compatible. Turkey adds that up until now no contracting party or a WTO Member ever challenged measures similar to those under examination.
173. We recall that the European Communities made a similar argument before the panel in EEC � Imports from Hong Kong when it argued that quantitative restrictions had been accepted by contracting parties, that their violation had become negotiable and that this was tantamount to a tolerance:

"15.�This proved, according to the EC, that quantitative restrictions had become a general problem and had gradually come to be accepted as negotiable, and that Article XI could not and had never been considered to be a provision prohibiting residual restrictions irrespective of the circumstances specific to each case."

This argument was rejected by the panel. It further discussed the consequences of a situation where during many years there had been no challenge to such a measure:

"28. With regard to Article XI � The Panel acknowledged that there exist quantitative restrictions which are maintained for other than balance-of-payments reasons. 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. In fact, contracting parties and in particular Hong Kong have made it clear that the discussions on quantitative restrictions which have taken place in the GATT over the years were without prejudice to the legal status of the measures or the rights and obligations of GATT contracting parties. The Panel observed that, while most of the measures had been notified to the GATT in the past, the measures on watches had not been notified.

29. The Panel considered the argument put forward by the European Communities that the principle referred to as "the law-creating force derived from circumstances" could be relevant in the absence of law. It found, however, that in the present case such a situation did not exist, and the matter was to be considered strictly in the light of the provisions of the General Agreement." (Emphasis added)

174. We agree with these findings. We note that until the adoption of paragraph 12 of the GATT 1994 Understanding on Article XXIV, it was not always clear whether specific measures adopted on the occasion of the formation of a customs union, could be challenged under Article XXII and XXIII of GATT. We note also that with regard to the interpretation of Article XXIV, the difficulty in securing a definitive interpretation from WTO Members because of the wide range of issues involved, and because Members are often parties to one or more regional trade agreements, and the rather unclear wording of Article XXIV, may explain the absence of challenges under GATT. However, we cannot draw any conclusion as to the GATT/WTO compatibility of the measures at issue on the basis of the absence of past challenges.

(g) Offer to negotiate

175. Turkey also argues that it offered compensation to India which, contrary to 24 other exporting countries, has consistently declined to accept to enter into negotiations towards a mutually agreed solution. India responds that the introduction of GATT/WTO-inconsistent quantitative restrictions is generally prohibited by the WTO Agreement, and not otherwise authorized by Article XXIV, and that it cannot be forced to accept compensation for a WTO illegal measure.
176. We note that Article XXIV:6 provides for a special procedure for renegotiation of tariff increases. This provision does not refer to any form of compensation for the introduction of quantitative restrictions. Indeed, we consider that members cannot be forced to negotiate or accept compensation in respect of GATT/WTO incompatible quantitative restrictions. We also recall the conclusion of the panel in EEC� Imports from Hong Kong that quantitative restrictions prohibited by GATT, cannot be negotiated.
177. Therefore the Panel considers that the refusal of India to enter into negotiations with Turkey in respect of compensation does not undermine its right to challenge Turkey's measures.

(h) The requirements of the Turkey-EC Customs Union Agreement itself

178. Turkey also argues that it was "required"' by the very terms of its customs union agreement with the European Communities to adopt the WTO compatible import restrictions of the European Communities in the sector of textiles and clothing. In our view, however, a bilateral agreement between two Members, such as that between the European Communities and Turkey, does not alter the legal nature of the measures at issue or the applicability of the relevant GATT/WTO provisions.
179. We note also that Article 12.2 of Decision 1/95 (WT/REG22/1) provides:

"2. In conformity with the requirements of Article XXIV of the GATT, Turkey will apply as from the entry into force of this Decision, substantially the same commercial policy as the Community in the textile sector including the agreements or arrangements on trade in textile and clothing. The Community will make available to Turkey the cooperation necessary for this objective to be reached."

It is clear to us that the italicised language indicates that Turkey has some flexibility under this provision.

180. We recall that in the EC � Bananas III dispute the European Communities raised similar arguments with regard to what it was required to do pursuant to the Lom� Convention with the ACP countries. The European Communities argued that the panel should not have examined the content of the Lom� Convention and should have deferred to the common understanding of the parties. In that case the panel and the Appellate Body did examine the Lom� convention (for the purpose of assessing the scope of the Lom� waiver) and concluded that unless explicitly authorized by the waiver the provisions of the Lom� convention could not alter the rights and obligations of WTO Members including those of the European Communities.
181. We note in this context the relevance of Article 41 of the VCLT, which provides that:

"Two or more parties to a multilateral treaty may conclude an agreement to modify the treaty as between themselves alone if � (b) the modification in question is not prohibited by the treaty and (i) does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations".

182. Consequently, 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 requirement would not be sufficient to exempt Turkey from its obligations under the WTO Agreement.

(i) Further considerations

183. Our analysis would not be complete without addressing the argument that when, prior to forming the customs union, a constituent member has a WTO right, that Member may, on the occasion of the formation of a customs union, "pass" or "extend" such right to the other constituent members. We find that this proposition cannot be sustained for the following reasons.
184. We note that such a legal fiction or concept is not referred to in Article XXIV, in the WTO Agreement or in public international law. ³⁷³ The WTO system of rights and obligations provides, in certain instances, flexibility to meet the specific circumstances of Members. For instance, the ATC has grand-fathered certain MFA derived rights regarding import restrictions for specific Members and Articles XII, XIX, XX and XXI of GATT authorize Members, in specific situations, to make use of special trade measures. We consider that, even if the formation of a customs union may be the occasion for the constituent member(s) to adopt, to the greatest extent possible, similar policies, the specific circumstances which serve as the legal basis for one Member's exercise of such a specific right cannot suddenly be considered to exist for the other constituent members. We also consider that the right of Members to form a customs union is to be exercised in such a way so as to ensure that the WTO rights and obligations of third country Members (and the constituent Members) are respected, consistent with the primacy of the WTO, as reiterated in the Singapore Declaration.
185. On a further matter, we have provided above our legal analysis of Article XXIV:8(a)(ii). We would add a brief general observation on Turkey's claim that it was "required" to adopt exactly the same trade policies as those of the European Communities and consequently that the provisions of Article XXIV do not leave any alternative to Members which intend to form a customs union. If we were to hypothesize such a complete lack of flexibility in the terms of Article XXIV, and that Turkey's foreign trade regime in consequence had to be completely and immediately identical to that of the European Communities, in order to comply with the provisions of Article XXIV:8(a)(ii) (and further assuming that, as in the present case, the European Communities can but is not obliged to maintain quantitative restrictions on textiles and clothing whereas Turkey cannot), it would imply that the European Communities would have to align its textiles and clothing regime to that of Turkey and immediately phase-out its import restrictions. This would go against the clear wording of Article XXIV in that it would arguably prevent Turkey from exercising its right to form a customs union with the European Communities because in practice it appears inconceivable that the European Communities would proceed with such a customs union if the "price" were to be that it must phase out its quantitative restrictions regularly notified to the TMB (and eventually, as a result, have to raise tariffs substantially in order to maintain the same overall level of protection). Turkey itself has noted ³⁷⁴ that such a scenario "is almost certainly not feasible". We recall the international law principle of effective interpretation whereby all provisions of a treaty must be given their full meaning and must ensure the overall consistency of the treaty and its effective application. We consider that Members have a right, albeit conditional, to form regional trade agreements. Therefore, Turkey's argument cannot be sustained since it would produce the above absurd result, i.e. that the European Communities would be forced to choose between its ATC rights and a customs union with Turkey. Consequently, there must be another realistic interpretation of Article XXIV, and there is, that reconciles the various interests of Members. In our view, the conclusion we have reached does so, and respects legal principles of 1) interpretation against conflicts and 2) for an effective interpretation of treaties.

To continue with Conclusion

³⁶² Turkey alludes to GATT practice, albeit not in great detail. See paras. 6.58 to 6.61 above.

³⁶³ Appellate Body Report on Japan � Alcoholic Beverages, pp. 12-13.

³⁶⁴ [Footnote original]Sinclair, The Vienna Convention on the Law of Treaties (2nd ed., 1984), p. 137; Yasseen, "L'interpr�tation des trait�s d'apr�s la Convention de Vienne sur le Droit des Trait�s" (1976-III) 151 Recueil des Cours p. 1 at 48.

³⁶⁵ [Footnote original]Sinclair, supra., footnote 24, p. 137.

³⁶⁶ [Footnote original](1966) Yearbook of the International Law Commission, Vol. II, p. 222; Sinclair, supra., footnote 24, p. 138.

³⁶⁷ See para. 7.88 above.

³⁶⁸ See para. 7.107 above.

³⁶⁹ BISD 6S/68, pp. 78-79, adopted on 29 November 1957.

³⁷⁰ Report of the Working Party on the Accession of Greece to the European Communities, adopted on 9 March 1983, BISD S30/169, p. 186 (emphasis added). Reinforcing this point of view is a statement made by a member of the same Working Party Report regarding Greece's accession to the EC: "� [the] quotas [established under the EC common trade policy are] contrary to the provisions of Article XI and XIII and � neither the EC nor Greece [are] relieved of their obligations under these Articles by virtue of having concluded the Act." (p. 186). That member furthermore noted that all the "members [to that Working Party] therefore fully [reserve] their rights under the General Agreement following the accession of Greece to the European Communities" (pp. 188-189).

³⁷¹ Report of the Working Party on the Accession of Portugal and Spain to the European Communities, adopted on 19-20 October 1988, BISD 35S/293, p. 315.

³⁷² It is also worth recalling the conclusions of the following GATT Panel Report which, although not adopted, confirm that some contracting parties opposed interpretations such as those suggested by Turkey, thereby denying the existence of any international customary practice. In the non-adopted Panel Report on EEC � Tariff Treatment of Citrus Products from Certain Mediterranean Countries, L/5776, paras. 3.12-3.22, the EEC argued that the non-recommendations by Working Parties which had examined the Treaty of Rome itself and other related agreements constituted 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, and that therefore the United States could not contest its preferential trade agreement with the Mediterranean Region. The United States' statement in response to the European Communities' argument was that 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.

³⁷³ See for instance, O'Connell, The Law of State Succession, Cambridge Press, 1956, Chapter V Extension of Treaties of the Successor State to Territory Incorporated where the author concludes that "� it would appear that treaties do not extend, as a general rule, and in the absence of clear intention to the contrary, to territories which remain after their incorporation invested with some degree or other of autonomy. The Permanent Mandates Commission reported in 1923 that 'the special international conventions entered into by a State do not apply de jure to territories in regard to which the state in question had been entrusted with a mandate, even when those conventions are applicable to contiguous territories placed under the sovereignty of the same state". See also Lasok, D., Lasok K., Law and Institutions of the European Union (1996), 6th ed., Vol.1; Jennings and Watts, Oppenheim's International Law (1996), 9th ed., Vol 1 (peace), Parts 2 to 4, p. 1261; Resolution on the White Paper "Preparing the Associated Countries of Central and Eastern Europe for Integration into the Internal Market of the Union", COM (95)0163-C4-0166/95, OJ No C141, p. 135, 1996/05/13; and Articles 15 and 29 of the VCLT.

³⁷⁴ See para. 6.111 above.