5. Conclusion

186. We have considered the proposition that Article XXIV is lex specialis and is purported to be a self-contained regime insulated from the other provisions of GATT and the WTO Agreement. We are not convinced by this argument. The relationship between Article XXIV and GATT/WTO seems to us to be self-evident from the wording and context of Article XXIV.
187. The wording of Article XXIV:4 refers to the objectives of Article XXIV, in the same terms as used in the Preamble to GATT 1947 (now GATT 1994); the same objectives are repeated in the GATT 1994 Understanding on Article XXIV and in the Preamble of the WTO Agreement. Paragraph 6 also refers to the provisions of Article XXVIII and provides specific procedures for the re-negotiation of tariff bindings, confirming thereby the applicability of other GATT provisions. To us, this confirms the nature of the WTO Agreement, as a single undertaking and that the provisions of Article XXIV are to be applied together with and not separately from the rest of the WTO Agreement. The Appellate Body has indeed repeated on several occasions that the WTO Agreement contains several obligations which must be complied with simultaneously, unless there is a conflict between the said provisions. Moreover we have noted that the wording of Article XXIV:4, with its reference to "should not raise barriers to trade" which appeared in GATT 1947, has continued to be determinative of the parameters of Article XXIV as evidenced by the wording of the GATT 1994 Understanding on Article XXIV and the Singapore Ministerial Declaration.
188. With regard to the specific relationship between, in the case before us, Article XXIV and Articles XI and XIII (and Article 2.4 of the ATC), we consider that the wording of Article XXIV does not authorize a departure from the obligations contained in Articles XI and XIII of GATT and Article 2.4 of the ATC. We base our findings on the nature of the conditional right established in Article XXIV as opposed to the clear and unambiguous obligation in Article XI prohibiting the use of quantitative restrictions, notwithstanding the specific contrary practice which has in the past existed in the sector of textiles and clothing but which the ATC represents a collective commitment to terminate. As further discussed above, we consider that it is possible, and even necessary in order to avoid a conclusion that would lead to politically and economically absurd results, to interpret the provisions of Article XXIV in such a way as to avoid conflicts with the prescriptions of Articles XI and XIII of GATT, and Article 2.4 of the ATC.
189. As we have noted, paragraphs 5 and 8 of Article XXIV provide parameters for the establishment and assessment of a customs union, but in doing so allow flexibility in the choice of measures to be put in place on the formation of a customs union. In this context we recall the use of the terms "substantially all the trade" and "substantially the same duties and other regulations of commerce". While the meaning of these terms is not precisely clear in relation to what and how much constitute "substantially", they do confirm clearly that in both cases the standard is not all. These provisions do not, however, address any specific measures that may or may not be adopted on the formation of a customs union and importantly they do not authorize violations of Articles XI and XIII, and Article 2.4 of the ATC. Moreover, we note that paragraph 6 of Article XXIV provides for a specific procedure for the renegotiation of tariffs which are increased above their bindings upon formation of a customs union; no such provision exists for quantitative restrictions. To the Panel, if the introduction of WTO inconsistent quantitative restrictions were intended to be negotiable on the formation of a customs union, it would seem odd to us that an explicit procedure would exist for changes in GATT's preferred form of trade barrier (i.e. tariffs), while no procedure would be provided for negotiation of compensation connected with imposition of otherwise GATT inconsistent measures. We draw the conclusion that even on the occasion of the formation of a customs union, Members cannot impose otherwise incompatible quantitative restrictions.
190. We have further considered, in the context of these conclusions on Turkey's defense based on Article XXIV, the scope of flexibility allowed for in Article XXIV. However, this flexibility does not allow for the introduction of measures otherwise incompatible with the WTO Agreement. We consider that means for securing the objectives of Turkey in relation to the specific circumstances of forming its customs union with the European Communities, exist in the form of alternatives (e.g. increased tariffs, rules of origin, early phase-out, tariffication) to the imposition of quantitative restrictions imposed against imports from third countries, thereby interpreting Article XXIV in such a way as to avoid such conflict with other WTO provisions. In particular, our interpretation of paragraph 8(a)(ii) allows parties to form a customs union, as in this case, where one constituent member is entitled to impose quantitative restrictions under a special transitional regime and the other constituent is not.
191. Finally, we recall that the prohibitions against quantitative restrictions in the sector of textiles and clothing constitute a fundamental feature of the WTO Agreement which argues strongly against the introduction of any new such restrictions in that sector. Moreover, considering the flexibility offered by the possibility of "interim agreements" under Article XXIV ³⁷⁵ and the inherently transitional nature of quantitative import restrictions in the sector of textiles and clothing, we find that Turkey was in a position to avoid the violations of Articles XI and XIII ³⁷⁶ of GATT, and Article 2.4 of the ATC.
192. Consequently, we reject Turkey's defense that Article XXIV allows it to introduce, upon the formation of its customs union with the European Communities, quantitative restrictions on 19 categories of textile and clothing products, in violation of Articles XI and XIII of GATT and Article 2.4 of the ATC.

H. The Absence of Nullification and Impairment

193. In its second submission, Turkey also submits an additional defense to India's claims. Turkey argues that even if the Panel were to conclude that Turkey's measures violated provisions of the GATT and/or the ATC, India's claims should still be rejected as imports of textile and clothing products from India into Turkey have increased since the entry into force of the Turkey-EC customs union. For Turkey, India has, therefore, not suffered any nullification or impairment of its WTO benefits.
194. Turkey argues that Article 3.8 of the DSU implies (a) that a proceeding brought by a complaining party against a violation of a WTO rule is and remains based on the purpose to protect benefits against nullification or impairment and (b) that a violation of a WTO rule is not in and by itself a nullification or impairment of benefits of a Member complaining about such violation; a violation constitutes only a presumption of nullification or impairment. For Turkey, this is in line with the fact that many domestic jurisdictions require an "interest to sue", i.e. a complainant must show more than that its right was breached. Similarly in international law a complainant must show a legal interest. ³⁷⁷ Turkey argues that WTO law requires that an alleged breach of a Member's right must have an economic impact on the complaining Member.
195. Turkey urges the Panel to ignore the conclusions of the panel in US � Superfund, and of the Appellate Body in EC � Bananas III. Turkey adds that a such presumption of nullification and impairment, in case of a breach of a WTO obligation, does not exist under the GATS ³⁷⁸ or for prohibited subsidies under the SCM Agreement ³⁷⁹ and should, therefore, not be considered a general principle of WTO law.
196. For Turkey, India's claims must fail since, according to Turkey, the quantities that could be exported by India under the restrictions of the Turkey-EC customs union exceed, on the average by 134 per cent, India's exports to Turkey in 1994, i.e. the last full year before the tariff reductions provided by the Turkey-EC customs union took place. Turkey also submits that India's exports of the textile products covered by the measures challenged, in the years 1996-1998, remained significantly below the possibilities opened under these measures. In 1996, for 12 out of the 19 categories the amounts licensed remained below 50 per cent of the quotas, and for 8 out of these 19 categories even below 10 per cent. In 1997 for 6 out of the 19 categories the amounts licensed remained below 50 per cent of the quotas. In 1998 for 9 out of 19 categories the amounts licensed remained below 50 per cent of the quotas. ³⁸⁰
197. Finally, Turkey also argues that in rejecting Turkey's offer to negotiate a bilateral limitation on textile and clothing imports (contrary to what some other 24 countries have done), India has itself broken the chain of causation between the measures challenged and the nullification and impairment. For Turkey, there is a general principle of law according to which one may not seek redress for harm that one has brought onto oneself by not taking measures that would have prevented or at least mitigated the harm caused by another party. ³⁸¹
198. India challenges the accuracy and the relevance of the data submitted by Turkey. India submits that during the year that preceded the imposition of Turkey�s restrictions, exports of the clothing items that are now restricted had grown by 57 per cent compared to the previous year. During the year immediately following the imposition of the measures, they declined by 74 per cent. In respect of textiles the situation is even more extreme: the growth rate in the year prior to the introduction of the measures was 200 per cent and the decline in the subsequent year 48 per cent. ³⁸²
199. India also insists that the presumption mentioned in Article 3.8 of the DSU is not rebuttable by the submission of evidence alleging no actual adverse effects of the measure. India refers the Panel to the evolution of this principle in GATT law starting with the 1960 decision of the CONTRACTING PARTIES when it was decided that a GATT-inconsistent measure was presumed to cause nullification or impairment and that it was up to the party complained against to demonstrate that this was not the case. ³⁸³ This principle was taken over in the dispute settlement procedures adopted at the end of the Tokyo Round, ³⁸⁴ and is now reflected in Article 3.8 of the DSU. For India, the "adverse impact" of a violation cannot be determined on the basis of the actual impact of the violation on trade flows. India refers the Panel to the adopted Panel Report on Japan � Leather in which Japan had argued that, since the quotas had not been fully utilized, they had not restrained trade and had consequently not caused a nullification or impairment of benefits accruing under Article XI of the GATT. The panel rejected the argument on the grounds that:

"The existence of quantitative restrictions should be presumed to cause nullification or impairment not only because of any effect it had on the volume of trade but also for other reasons, e.g., it would lead to increased transaction costs and would create uncertainties which could affect investment plans." ³⁸⁵

For India, this ruling indicates that a demonstration that no adverse trade impact had as yet occurred was insufficient to rebut the presumption. In its view, the rationale of prohibiting quantitative restrictions requires a demonstration that there was no potential future impact.

200. India refers also to the US � Superfund decision, the reasoning of which, the Appellate Body in EC � Bananas III stated, was applicable to the European Communities� obligations under Articles III, XI and XIII of the GATT 1994. For India, the Appellate Body thereby rejected the argument of the European Communities that the benefits accruing to the United States under these provisions had not been impaired because the United States had not exported a single banana to the European Communities, nor was in a position to do so.
201. Article 3.8 of the DSU provides that:

"In cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. This means that there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement, and in such cases, it shall be up to the Member against whom the complaint has been brought to rebut the charge."

202. We recall that in EC � Bananas III, ³⁸⁶ the Appellate Body confirms that the principles established in US � Superfund:

"� a demonstration that a measure has no or insignificant effects would not be a sufficient demonstration that the benefits accruing under that provision had not been nullified or impaired even if such a rebuttal were in principle permitted." ³⁸⁷

are still most relevant to violations of provisions of GATT 1994.

203. We note that some of the statistics provided by Turkey appear to refer to the trade effects of Turkey's entire import policy on textile and clothing products, including the reduced tariffs on some categories. Other statistics refer to the impact of Turkey's import policy in general resulting from the creation of the customs union. ³⁸⁸ With reference to the specific statistics on the 19 categories under restrictions, these statistics show, and both parties agree, that imports of textiles and clothing from India into Turkey significantly declined in 1996 after a substantial increase in 1995. ³⁸⁹ Turkey argues, however, that the year 1995 is atypical because it had already begun to lower its import tariffs in preparation for the entry into force of the customs union. ³⁹⁰ India challenges this assertion ³⁹¹ and argues that the level of its exports of textiles and clothing into Turkey was influenced by the evolution of the market itself as well as by the import regimes of other countries. In support of its view, India argues that for the non-restricted categories, its exports to Turkey also increased substantially in 1995 but did not decline in 1996. ³⁹²
204. We are of the view that it is not possible to segregate the impact of the quantitative restrictions from the impact of other factors. While recognizing Turkey's efforts to liberalize its import regime on the occasion of the formation of its customs union with the European Communities, it appears to us that even if Turkey were to demonstrate that India's overall exports of clothing and textile products to Turkey have increased from their levels of previous years, is would not be sufficient to rebut the presumption of nullification and impairment caused by the existence of WTO incompatible import restrictions. Rather, at minimum, the question is whether exports have been what they would otherwise have been, were there no WTO incompatible quantitative restrictions against imports from India. Consequently, we consider that even if the presumption in Article 3.8 of the DSU were rebuttable, Turkey has not provided us with sufficient information to set aside the presumption that the introduction of these import restrictions on 19 categories of textile and clothing products has nullified and impaired the benefits accruing to India under GATT/WTO.
205. As to Turkey's allegations that India has not fully utilized the quotas under examination, ³⁹³ we recall the conclusion of the adopted panel report in Japan � Leather that the existence of quantitative restrictions should be presumed to cause nullification or impairment even if quotas are not fully utilized because they lead to increased transaction costs and would create uncertainties which could affect investment plans (or in this case, trade).
206. As to Turkey's arguments that India's refusal to accept compensation has broken the chain of causation, we consider that although parties should clearly favour a mutually acceptable settlement of their dispute as provided for under the DSU, such a solution must be one that is "mutually" acceptable. We can only take note that India considered that the offers by Turkey and the European Communities were not acceptable to it. We recall that when a WTO Member considers that its rights have been nullified by the actions of another Member it is entitled to initiate dispute settlement procedures envisaged in the DSU. ³⁹⁴ We reject therefore Turkey's argument that India's nullification and impairment of its WTO benefits have resulted from India's own action or absence thereof.

I. Our Main Findings Recalled

207. Without prejudice to our detailed analysis above, it may be helpful to provide a brief overview of our main findings. We have found that the measures at issue were Turkish measures, as they were adopted by the Turkish government at a date different from the EC measures, and they were applied and enforced by Turkey alone. In this context we ruled that the European Communities was not an essential party to this dispute, although we invited it to submit to us any relevant facts or arguments that it deemed appropriate. We found that the measures at issue had not been introduced under the ATC, but rather, as submitted by Turkey, in the context of the formation of its customs union with the European Communities. Therefore the matter at issue is not for the TMB and we have jurisdiction to adjudicate on it. We have also found that the measures were "new measures" pursuant to Article 2.4 of the ATC and that, unless they could be justified under a GATT provision, the discriminatory quantitative restrictions imposed by Turkey against the imports of 19 categories of textiles and clothing imports from India, would violate Articles XI and XIII of GATT and consequently Article 2.4 of the ATC.
208. We then proceeded to examine Turkey's defense based on Article XXIV of GATT. In this context, we decided that we had jurisdiction to examine any specific measure adopted by a WTO Member in the context of a customs union but that, in this case, we did not need, and indeed we were asked by the parties not to assess the overall WTO compatibility of the Turkey-EC customs union. We have found that, as a general principle, Turkey was bound, at all times, by all WTO obligations, unless there was a conflict between any provisions. Since the wording of Articles XI and XIII of GATT and Article 2.4 of the ATC is clear in prohibiting the introduction of quantitative restrictions such as those at issue, we examined the terms of Article XXIV to decide whether Turkey could be exempted from the application of these prohibitions. We found that the provisions of paragraphs 5 and 8 of Article XXIV did not authorize any violation of the WTO obligations, other than the MFN obligation. Indeed, these paragraphs do not provide any indication as to the type of measure to be used in the formation of a customs union but rather provide guidelines for the overall assessment of regional trade agreements. We have therefore concluded that Article XXIV did not authorize the violation of Articles XI and XIII of GATT or Article 2.4 of the ATC. While reaching this conclusion on the basis of the wording of the provisions at issue, we have endeavoured to ensure that our interpretation did not render Turkey's right to form a customs union with the European Communities a nullity, since pursuant to Article XXIV:8(a)(ii), constituent members to a customs union are required to adopt substantially the same regulations of commerce. We found that this standard leaves flexibility to the constituent members. In any event, in the present case, taking into account, inter alia, the share of trade affected by the type of measures at issue (quantitative restrictions on textiles and clothing), we found that there were WTO compatible alternatives available to Turkey if it wanted to conclude a customs union with the European Communities. Finally we found that even if the presumption of nullification of Article 3.8 of the DSU were rebuttable, Turkey had not submitted evidence that the benefits accruing to India under the ATC and GATT had not been reduced or nullified by the introduction of WTO incompatible quantitative restrictions.

X. Conclusions

1. We conclude that the measures adopted by Turkey on 19 categories of textile and clothing products are inconsistent with the provisions of Articles XI and XIII of GATT and consequently with those of Article 2.4 of the ATC. We reject Turkey's defense that the introduction of any such otherwise GATT/WTO incompatible import restrictions is permitted by Article XXIV of GATT.

2. Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment of benefits under that agreement. Accordingly, we conclude that, to the extent that Turkey has acted inconsistently with the provisions of covered agreements, as described in the preceding paragraph, it has nullified or impaired the benefits accruing to the complainant under those agreements.

3. The Panel recommends that the Dispute Settlement Body request Turkey to bring its measures into conformity with its obligations under the WTO Agreement.

To continue with Annex

³⁷⁵ For the purpose of this dispute we need not to address further the distinction between an "interim agreement" leading to a customs union and a completed customs union. We indeed state in footnotes 241 and 285 that we do not have to assess the precise relationship of the Turkey-EC agreement with Article XXIV, e.g. whether it is a free-trade agreement or a customs union or an interim agreement leading to a free-trade area or customs union. In this dispute, Turkey claims that its regional trade agreement with the European Communities is a completed customs union. We therefore limit our discussion to responding to Turkey's defense and, as we state in paras. 9.146 to 9.151 above even for completed customs unions, we are of the view that Article XXIV:8(a) leaves flexibility to constituent members of a customs union so that Turkey did not have to violate Articles XI, XIII of GATT and Article 2.4 of the ATC.

³⁷⁶ We note that even if the quantitative restrictions imposed by Turkey were to be justified under Article XXIV, such a justification of quantitative restrictions introduced in violation of Article XI of GATT could not necessarily permit a violation of Article XIII of GATT. The ATC authorizes discriminatory quantitative restrictions (contrary to Article XIII). In this case the quantitative restrictions imposed by Turkey are not imposed pursuant to the ATC (see our conclusion in para. 9.80). They were not imposed under Article 2.1, or Article 6 as a safeguard measure, or otherwise under any other explicit provision of the ATC. Even if Article XXIV were to justify a violation of Article XI of GATT, such quantitative restrictions would still have to respect the prescriptions of Article XIII. In light of the principle of judicial economy, we consider, however, that we do not need to discuss further, India's claims pursuant to Article XIII of GATT.

³⁷⁷ Turkey refers to South West Africa Cases (Second Phase) ICJ [1966], p. 47; Barcelona Traction Light and Power Co. Ltd , ICJ [1970], p. 32.

³⁷⁸ The General Agreement on Trade in Services.

³⁷⁹ The Agreement on Subsidies and Countervailing Measures.

³⁸⁰ See paras. 6.146 and 6.164 above.

³⁸¹ See para. 6.168 above.

³⁸² See paras. 6.148 and 6.159 above.

³⁸³ BISD S11/99-100.

³⁸⁴ Paragraph 5 of the Annex to the Understanding on Dispute Settlement adopted on 28 November 1979.

³⁸⁵ Panel Report on Japan - Measures on Imports of Leather, adopted on 15/16 May 1984, BISD 31S/94, ("Japan � Leather"), p. 113.

³⁸⁶ Appellate Body Report on EC - Bananas III, para. 253.

³⁸⁷ Panel Report on US � Superfund, para. 5.1.9.

³⁸⁸ See paras. 6.139 to 6.147 above.

³⁸⁹ See paras 2.43 and 2.44, and Tables II.4 and II.5 above.

³⁹⁰ See para. 6.147 above.

³⁹¹ See paras. 6.148 and 6.149 above.

³⁹² See para. 6.148 above and Table II.4 above.

³⁹³ See para. 6.164 above.

³⁹⁴ See for instance the Appellate Body Report on US � Shirts and Blouses, p. 13, where it is stated: "If any Member should consider that its benefits are nullified or impaired as the result of circumstances set out in Article XXIII, then dispute settlement is available"; see also the Appellate Body Report on EC - Bananas III, paras. 136 and 252-253.