Turkey - Restrictions on Imports of Textile and Clothing Products
Report of the Panel
(Continued)
2. Offers to settle
- Turkey claimed that India, through its refusal to negotiate
in a bilateral constellation, including the European Communities, had
to assume responsibility for neglecting the avenue of a mutually
satisfactory compensatory arrangement. In order to ensure that trade
diversion into EC territory did not occur after the completion of the
Turkey-EC customs union, Turkey had to impose, in accordance with its
obligations under Decision 1/95, 94
restrictions on imports from India of those products already subject
to quantitative limits when exported to the European Communities.
- Turkey argued that a parallel could be drawn between the
renegotiation of bound duties through the procedures established in
Article XXIV:6 of GATT and the negotiation of compensatory adjustments
or other equivalent means of compensation for the QRs required by the
Turkey-EC customs union, which should be considered as "other
regulations of commerce" in the meaning of Article XXIV:5(a) and
XXIV:8(a) of GATT. Therefore, all the countries whose exports of
textiles and clothing products were subject to EC restrictions were
offered the possibility to negotiate with Turkey arrangements
consistent with those that they had concluded with the European
Communities. Such arrangements, in the negotiation of which the
European Communities took an active part, were reached with 24
countries in the period which preceded and immediately followed the
completion of the Turkey-EC customs union. 95
Turkey also noted that there were 28 other countries, including India,
with which it was not possible to reach agreement and to which it
accordingly applied unilateral restrictions or surveillance regimes.
These restrictions only affected products whose export to the European
Communities was also under restraint.
- Turkey explained that a draft Memorandum of Understanding covering
trade in certain textiles and clothing products had been sent to the
Indian Embassy in Ankara on 31 July 1995 and that India had been
invited to negotiate with Turkey, prior to the completion of the
Turkey-EC customs union, an arrangement similar to the already
existing India-EC arrangement covering trade in those products. The
request was repeated in December 1995. Turkey claimed that it could
not modify the restrictions unilaterally and accordingly insisted on
the participation of EC officials in the bilateral negotiations. India
refused negotiations with Turkey on the grounds that EC
representatives would be present.
- India recalled that it had all along stated clearly that the
unilateral imposition of QRs by Turkey on imports of textile and
clothing products from India was inconsistent with Turkey's
obligations under GATT and the ATC, and were not authorised by Article
XXIV of GATT. India also recalled that Turkey did not enter into
consultations requested by India under the DSU. In bilateral
discussions outside the framework of the DSU, India had requested the
removal of the quotas at issue but Turkey merely offered to marginally
increase their size. Neither the European Communities nor Turkey
submitted offers of compensation to India.
- Turkey also noted that it had made a fresh attempt to reach a
negotiated solution with India to the problem which formed the object
of India's complaint. In response to a suggestion made by its
President to the President of India during the latter's state visit to
Turkey on 17-20 September 1998, negotiations were held with the Indian
counterparts in New Delhi on 28 September 1998. In the course of those
negotiations, Turkey offered to increase by an average of 200 per cent
- but in some categories by much more than that - the quotas made
available for Indian exports of textiles and clothing to Turkey. It
claimed that India refused to examine this offer and claimed instead
that it was only prepared to discuss the complete elimination of
quotas. Nevertheless, through a Note addressed on 12 October 1998 by
the Turkish Embassy in New Delhi to the Indian Ministry of External
Affairs, Turkey reiterated its call for a bilateral solution to be
explored and invited India to attend further negotiations in Ankara,
in the course of October 1998. According to Turkey, no response to
this Note had yet been received from India.
- In this respect, India pointed out that it was for India to
assess the best means by which it could protect its interests, noting
that the dispute was then clearly in the final stages of argumentation
before the Panel.
B. Legal Arguments
1. Burden of Proof
- India submitted that it was for Turkey to invoke an exception
from the prohibition of discriminatory QRs set out in Article XI:1 of
GATT and Article 2.4 of the ATC.
- India argued that the current state of WTO case law in the area of
burden of proof was summarized in the recent panel on Argentina �
Certain Measures Affecting Imports of Footwear, Textiles, Apparel and
Other Items as follows:
"Concerning the issue of what one may call the "burden of
proof", the Appellate Body has confirmed the GATT practice
whereby
(a) it is for the complaining party to establish the violation it
alleges;
(b) it is for the party invoking an exception or an affirmative
defense to prove that the conditions contained therein are met; and
(c) it is for the party asserting a fact to prove it." 96
- In India's view, the wording of Article 2.4 of the ATC, whereby it
prohibited the introduction of new restrictions after 31 December 1994
"except under the provisions of this Agreement or relevant
GATT 1994 provisions" (emphasis added) made it clear that the
specific transitional safeguard mechanism in the ATC or any GATT
provision that might justify the introduction of new discriminatory
restrictions constituted an exception in terms of Article 2.4 of the
ATC. It was thus for Turkey to invoke an exception to Article 2.4 of
the ATC and to prove that the conditions contained under the relevant
provisions were met.
- Reacting to Turkey's statement that Articles XI and XIII of GATT and
Article 2 of the ATC were not relevant, India referred to the ruling
of the panel on the Australia - Measures Affecting the Importation
of Salmon case. 97
In India's view, Turkey had not presented any arguments or facts to
refute India's claim of inconsistency; therefore, it was correct to
state that the violation of Articles XI and XIII of GATT and Article
2.4 of the ATC had not been disputed by Turkey. India believed that
the legal relevance of these provisions was another matter.
2. Articles XI:1 and XIII of GATT
- India submitted that Article XI:1 of GATT constituted a
general prohibition on the imposition of QRs on imports. The QRs
imposed by Turkey on imports of textiles and clothing were clearly
inconsistent with this general prohibition and were not saved by any
of the exceptions to this provision contained in GATT.
- India submitted further that, to the extent that Turkey�s QRs were
discriminatory in nature, they were also inconsistent with the
prohibition on discriminatory QRs in Article XIII:1 of GATT.
- Turkey reiterated that its restrictions on imports of
textiles and clothing from a number of third countries were consistent
with Article 2 of the ATC on the basis of the provisions of Article
2:4. Once a measure was justified under Article 2.4 of the ATC, the
debate about its consistency with the obligations arising from
Articles XI and XIII of GATT became redundant, since the ATC provided
an exception to the rules contained in those Articles. 98
3. Article 2 of the ATC
- India submitted that Article 2 of the ATC permitted WTO
Members to continue to apply, during the transition period provided
for, restrictions on textile and clothing products that were in force
on the day before the entry into force of the Agreement (i.e. 31
December 1994) under the MFA. According to Article 2.1 of the ATC,
such restrictions were to be notified in detail to the WTO by the
Members maintaining them within 60 days following the entry into force
of the WTO Agreement. As stated in Article 2.4 of the ATC, the
restrictions so notified were "deemed to constitute the totality
of such restrictions applied by the respective Members on the day
before the entry into force" of the ATC. Turkey had not
maintained restrictions on imports of textile and clothing products
from India on 31 December 1994. The restrictions on textiles and
clothing products from India were imposed by Turkey on 1 January 1996
and were consequently not in force on the day before the entry into
force of the WTO Agreement.
- India also noted that Article 2.4 of the ATC also provided that
"[n]o new restrictions in terms of products or Members shall be
introduced except under the provisions of this Agreement or relevant
GATT 1994 provisions". India argued that the only provision of
the ATC under which a Member could be allowed to introduce new QRs on
imports of textiles and clothing products was under the transitional
safeguard mechanism set out in Article 6 of the ATC. However, Turkey
did not invoke the specific transitional safeguard mechanism set out
in Article 6 of the ATC as a justification for its new restrictions.
India argued that the GATT did not contain any provision permitting
the imposition of discriminatory import restrictions for the purpose
of protecting a Member�s domestic industry. Turkey�s restrictions
were therefore inconsistent with Article 2.4 of the ATC, and also
contravened Article XI:1 of GATT, which specifically prohibited QRs.
- Turkey submitted that its restrictions on imports of textiles
and clothing from a number of third countries were consistent with
Article 2 of the ATC on the basis of the provisions of Article 2.4.
Turkey claimed that the measures were justified under Article XXIV of
GATT, which was to be considered as a "relevant GATT
provision" in the sense of Article 2.4 of the ATC, and therefore
covered by this provision. Turkey later confirmed that Article XXIV
was the legal basis for its restrictions at issue. 99
- In Turkey's opinion, India assumed that there was a conflict between
Article XXIV of GATT and the ATC and that, in that case, ATC
obligations prevailed. Turkey refuted such an assumption on the
grounds that footnote 3 to Article 2.4 of the ATC did not exclude
Article XXIV, which meant, in the present case, that Turkey could
introduce new restrictions under Article XXIV.
- India did not agree with Turkey's interpretation, recalling
the drafting history of the ATC. It argued that footnote 3 to Article
2.4 merely restricted the applicability of safeguard provisions under
Article XIX of GATT to products already integrated; for non-integrated
products, the provisions of Article 6 of the ATC would apply.
- Turkey responded in this respect that the drafting history
was only relevant when doubts subsisted as to the precise meaning of
legal provisions. Turkey considered that, in this particular case, no
such doubts could be justified since footnote 3 was quite explicit.
4. Article XXIV of GATT
(a) Relationship between Article XXIV and
other GATT provisions
- India submitted that what was at issue in the present dispute
was not whether the Turkey-EC customs union met the requirements of
Article XXIV:5(a) but whether this provision provided an authorisation
to impose, on the occasion of the formation of a customs union, new
barriers to the trade of third Members inconsistently with Article
XI:1 of GATT and Article 2.4 of the ATC on the grounds that other
barriers to imports had been voluntarily reduced. India's claim was
that WTO Members forming a customs union, irrespective of whether
their union met the requirements set out in Article XXIV or not, had
to abide by the disciplines of Article XI:1 of GATT and Article 2.4 of
the ATC with respect to the trade of third Members. The question of
whether the Turkey-EC customs union was consistent with the
requirements of Article XXIV therefore did not arise in this dispute.
India was seeking a ruling on an obvious legal point on which there
had so far been agreement among WTO Members, including the European
Communities, Turkey's partner in the envisaged customs union.
- Turkey submitted that the measures challenged by India could
not possibly be assessed on their consistency with the relevant WTO
rules separately and in isolation from the Turkey-EC customs union of
which they were an integral part. Turkey disagreed with India's
position that the GATT did not permit the application of restrictions
determined by the Turkey-EC customs union on imports from other
Members into the Turkey-EC customs union via Turkey, despite the fact
that this customs union and in particular its common regulation of
commerce would be consistent with GATT.
- Turkey presented the arguments below in support of its view that the
consistency of the measures challenged by India with the WTO rules was
to be determined by reference to Article XXIV:5 to XXIV:8 of GATT and
not to other GATT provisions.
- Turkey started its presentation by analyzing the ordinary meaning of
Article XXIV:4 and XXIV:5. Recalling the terms of these provisions,
Turkey considered that their plain meaning was clearly that the
provisions of GATT did not prevent the imposition of a regulation of
commerce at the institution of a customs union, as long as on the
whole this was not more restrictive than the general incidence of the
duties and regulations of commerce applicable in the constituent
territories prior to the formation of the customs union. If, as argued
by India, Article XXIV:5(a) did not allow Members forming a customs
union to introduce a common regulation of commerce determined by
restrictive measures lawfully applied by a Member party to that
customs union, the plain wording of Article XXIV:5(a) would be
deprived of any meaning. As had been made clear by the Appellate Body 100,
an interpretation might not result in reducing whole clauses or
paragraphs to redundancy or inutility.
- Turning to the context of Articles XXIV:5 to XXIV:8, Turkey noted
that Article XXIV basically dealt with:
- the territorial scope of the GATT as regards customs territories
(paragraphs 1 and 2);
- preferences granted between adjacent countries in certain
circumstances (paragraph 3);
- rules applying to the formation of economic integration
agreements, i.e. customs unions and free-trade areas (paragraphs 4
to 10);
- the special relationship between India and Pakistan; and
- the application of the GATT to sub-central entities (paragraph
12).
- Turkey viewed all these provisions as having in common that they
were all concerned with the scope of application of the GATT, both
generally and in particular circumstances. Article XXIV should
therefore not be regarded as a "justification", a
"defense", an "exception" or a "waiver".
Rather, Article XXIV determined the outer limits of the scope of GATT
and was not an incursion into the normal application of the rights and
obligations contained in its substantial provisions, as the
above-referred words appeared to suggest. For instance, sub-central
entities were subject to a "best endeavours" clause under
Article XXIV:12, while economic integration agreements under Article
XXIV:4 and following had to comply with specific requirements in order
to qualify as such, but these requirements were different from the
obligations which applied to separate customs territories not related
among themselves by an economic integration agreement.
- Turkey argued that, on the basis of these considerations, Article
XXIV:4-10 could be viewed as lex specialis for the rights and
obligations of WTO Members at the time of formation of an economic
integration agreement. Such a characterization did obviously not alter
in any way the concrete obligations to be fulfilled by WTO Members
wishing to enter into an economic integration agreement in conformity
with these provisions.
- Turkey added that its conclusion that Article XXIV:5-8 did not
constitute an exception found also support in a systemic analysis. It
was significant that Article XXIV:5-8 did not appear in Part II of
GATT, which contained substantive provisions and derogations from and
exceptions to these substantive obligations (e.g., Articles XX and
XXI). Article XXIV belonged to Part III of GATT, which contained a
number of general and institutional provisions (such as those on
"Joint Action by the Contracting parties", "Acceptance,
Entry into Force and Registration", "Amendments" and
"Withdrawal").
- In Turkey's view, free-trade areas, and even more so customs unions,
implied that GATT contracting parties, now WTO Members, embarked on a
closer economic integration and entered inter se into
commitments that were going beyond those of the GATT. This resulted in
trade between the constituent parties as a rule free from all customs
duties and other classical obstacles to trade. In free trade areas
this regime applies to goods originating in the constituent parties.
In customs unions this regime applied also to goods originating in
other countries, provided that such goods had been subjected, when
imported in any of the constituent parties of such customs union, to
common customs duty rates and a common regulation of commerce. When
forming free trade areas, and even more so customs unions, countries
created a new situation in their relationships with other GATT
contracting parties. The situation arising in the case of customs
unions bore some analogy to two or more GATT contracting parties
entering into a confederation.
- Turkey noted that the GATT could have left such a situation to
negotiations, if and when contracting parties decided to form a
free-trade area or a customs union, but instead it had foreseen
provisions, i.e. Article XXIV:4-8, designed to deal with the new
situation, defining what GATT meant by customs unions and free-trade
areas and setting forth the conditions under which this new situation
in the relationship between the constituent parties and the other GATT
contracting parties was deemed to be in conformity with the GATT.
These provisions were thus quite properly inserted in Part III on
general and institutional provisions.
- In view of these arguments Turkey concluded that, contrary to what
India asserted, the consistency with WTO rules of the measures
challenged by India was to be determined by reference to Article
XXIV:5-8 of the GATT and not to other GATT provisions. This in turn
depended on the consistency with the WTO rules of the Turkey-EC
customs union of which the measures challenged formed integral part.
In Turkey's view, there was no room for conflict between these
measures and other GATT provisions.
- India had understood Turkey as arguing in essence that the
terms "the provisions of [the GATT] shall not prevent" in
Article XXIV:5 implied that Article XXIV was an exception from other
GATT provisions and hence also from Article XI, and as considering
that the present dispute concerned the question of whether Article
XXIV contained a sufficient justification for the measures at issue.
Later, Turkey had also claimed, in responding to questions, that
Article XXIV was the legal basis for its actions but denied its use of
this provision as a defense or justification, considering that Article
XXIV defined "the outer limits of the applicability of the
GATT" and that this provision "disapplied" Article XI.
- India considered that all rules of the GATT defined the limits of
applicability of the GATT and it was not clear to India what this
legal characterization of Article XXIV implied for the resolution of
the present dispute. India also did not know what Turkey attempted to
convey with the novel term "disapply" and in what respects a
provision establishing an exception differed from a provision that
"disapplied" another. The relevance of the fact that Article
XXIV had been included in Part III of the GATT 1947, to which Turkey
apparently attached importance, escaped India. In its view, this fact
might simply be related to the existence of the grandfather clause in
the Protocol of Provisional Application and accession protocols.
Non-tariff measures covered by Part II, but required under existing
legislation, were exempted by that clause, while Article XXIV applying
in practice to future arrangements did not need to be qualified
by such clause.
- In India's opinion, the simple fact was that new restrictions on
imports of textiles and clothing from a single Member were explicitly
prohibited by Articles XI and XIII of GATT and Article 2.4 of the ATC
and that it was up to Turkey to assert that another provision in a WTO
agreement permitted those restrictions. 101
That assertion would normally be described as a defense and the
provision invoked as such a justification.
- India disputed Turkey's claim that Members forming a customs union
might impose new restrictions on imports from third WTO Members (even
discriminatory restrictions on the trade of one WTO Member) by meeting
only the two requirements set out in paragraphs 5(a) and 8(a)(ii) of
Article XXIV. If this was the case, such Members would thus be freed
from the burden of satisfying the many substantive and procedural
requirements other Members imposing quantitative restrictions had to
meet. Thus, it would not be necessary for them to invoke and observe
the provisions of the Safeguards Agreement or the ATC when they wished
to accord temporary import protection to their textiles or clothing
industry; they could do this simply under the framework of Article
XXIV.
- India noted that the requirements for quantitative restrictions
permitted under the exceptions from Article XI of the GATT applied to
each and every individual restriction that a Member imposed. By
contrast, the requirements set out in paragraphs 5 and 8 of Article
XXIV applied to the import regimes of the Members forming the customs
union taken as a whole. They neither authorized nor prohibited any
specific set of import restrictions. Therefore, if Turkey were
correct, an individual restrictive import measure imposed in the
context of the formation of a customs union could never be the subject
of a panel ruling because it could, as such, not be found to be
inconsistent with Article XXIV:5 and 8.
- India pointed out, however, that Members forming a customs union
that wished to raise the level of a tariff above the rate bound under
Article II had to negotiate with its trading partners in accordance
with Article XXVIII of the GATT and offer compensatory market-opening
commitments. India argued that by definition a customs union or
free-trade area could not be formed without the elimination or
reduction of tariffs on a preferential basis, but could be formed
without the imposition of new QRs against third parties. There was
thus no corresponding obligation to compensate Members adversely
affected by non-tariff restrictions, including those covering bound
items, that Members forming a customs union could impose. Moreover,
acceptance of Turkey�s argument would therefore induce WTO Members
forming a customs union to replace the protection afforded by their
tariffs by quantitative restrictions. This would upset the balance of
concessions resulting from past trade negotiations and undermine the
principle that protection should be afforded by ordinary customs
duties only.
- India was of the view that, if Turkey�s argument were accepted,
Members forming a customs union could legally circumvent the
procedural and substantive requirements in respect of quotas, which
the negotiators of the WTO agreements agreed to permit in exceptional
circumstances, and would have every incentive to do so. In respect of
such Members, the WTO agreements could no longer operate as a legal
framework providing effective assurance of market access and the WTO
dispute settlement procedures would be rendered ineffective. This
would create a serious imbalance between the obligations of Members
forming a customs union and other Members, and would upset the balance
of concessions negotiated between them. The drafters of the GATT and
the Uruguay Round agreements could not possibly have intended this
result.
- India recalled the statement by the Appellate Body that, since all
interpretation must be based on the text of the treaty, the process of
interpretation had not to lead to "the imputation into a treaty
of words that are not there or the importation into the treaty of
concepts that were not intended". 102
India considered that an acceptance of Turkey�s position would
clearly be contrary to this fundamental principle of interpretation.
- Moreover, India argued that Turkey's view that Article XXIV:4-10 was
lex specialis in relation to Articles XI and XIII of GATT and
to Article 2.4 of the ATC logically implied that there was a conflict
between these two sets of provisions. 103
India considered that, if such a view were to be accepted, the
inevitable conclusion, in the light of the General Interpretative Note
on Annex 1A to the WTO Agreement, would be that Turkey had to resolve
the conflict by observing Article 2.4 of the ATC. 104
To continue with Article XXIV:5(a)
94 In particular,
Article 12 of Decision 1/95, para. 2 (see WT/REG22/1).
95 Since then,
integration lists identical to those of the EC had been put into effect by
Turkey, in compliance with the relevant ATC provisions.
96 Panel Report on Argentina
� Certain Measures Affecting Imports of Footwear, Textiles, Apparel and
Other Items, adopted on 22 April 1998, WT/DS56/R ("Argentina -
Textiles and Apparel"), paras. 6.34-6.40.
97 As cited approvingly
in the Appellate Body Report on Australia - Measures Affecting the
Importation of Salmon, adopted on 6 November 1998, WT/DS18/AB/R
("Australia - Salmon"), paras. 1-3.
98 See paras. 6.26 and
6.27 below.
99 On 24 November 1998,
the Panel asked the following question to Turkey: "Can the Panel
assume that Turkey's defense to India's claims of violations of Articles
XI and XIII of GATT and Article 2.4 of ATC is based exclusively on Article
XXIV of GATT?" Turkey responded: "Yes. Turkey believes that
Article XXIV provides the legal basis for the measures which India
complains about."
100 See Appellate Body
Report on US - Gasoline, p. 22.
101 This followed from
the consistent jurisprudence of the Appellate Body on the distribution of
the burden of proof (Report on Australia - Salmon, section VI,
paras. 1-2).
102 Appellate Body
Report on India - Patent, para. 45.
103 The lex
specialis derogat legi generali principle was inseparably linked to
the question of conflict (see Panel Report on Indonesia - Autos,
footnote 649).
104 See also paras.
6.95 to 6.100 below.
|