Table of Contents

I. Introduction

II. Arguments of the Participants

A. Claims of Error by Turkey � Appellant

B. Arguments of India - Appellee

III. Arguments of Third Participants

1. Hong Kong, China
   
2. Japan
   
3. The Philippines

IV. Issue Raised in this Appeal  

V. Article XXIV of the GATT 1994

VI. Findings and Conclusions

WORLD TRADE ORGANIZATION
APPELLATE BODY

I. Introduction

1. Turkey appeals from certain issues of law and legal interpretations in the Panel Report, Turkey � Restrictions on Imports of Textile and Clothing Products (the "Panel Report").¹ The Panel was established to consider a complaint by India regarding quantitative restrictions introduced by Turkey on imports of Indian textile and clothing products.
   
   
2. On 6 March 1995, the Turkey-EC Association Council adopted Decision 1/95² , which sets out the rules for implementing the final phase of the customs union between Turkey and the European Communities. Article 12(2) of this Decision states:
   
   

   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.

   In order to apply what it considered to be "substantially the same commercial policy" as the European Communities on trade in textiles and clothing, Turkey introduced, as of 1 January 1996, quantitative restrictions on imports from India on 19 categories of textile and clothing products.³ 
   
   
3. The Panel considered claims by India that the quantitative restrictions introduced by Turkey were inconsistent with Articles XI and XIII of the GATT 1994, and Article 2.4 of the Agreement on Textiles and Clothing (the "ATC"). In the Panel Report, circulated on 31 May 1999, the Panel reached the conclusion that the quantitative restrictions were inconsistent with the provisions of Articles XI and XIII of the GATT 1994 and consequently with those of Article 2.4 of the ATC, and rejected Turkey's defence that the introduction of any such otherwise GATT/WTO incompatible import restrictions is permitted by Article XXIV of the GATT 1994.⁴
    
   
4. On 26 July 1999, Turkey notified the Dispute Settlement Body (the "DSB") of its intention to appeal certain issues of law covered in the Panel Report and legal interpretations developed by the Panel, pursuant to Article 16.4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures"). On 5 August 1999, Turkey filed its appellant's submission.⁵ On 20 August 1999, India filed an appellee's submission.⁶ On the same day, Hong Kong, China; Japan; and the Philippines filed third participant's submissions.⁷
    
   
5. The oral hearing in the appeal was held on 14 September 1999. The participants and third participants presented oral arguments and responded to questions put to them by the Members of the Division hearing the appeal.
   
   II. Arguments of the Participants
   
   A. Claims of Error by Turkey � Appellant
   
   
6. Turkey appeals the Panel's finding that Article XXIV of the GATT 1994 does not allow it to introduce, upon the formation of its customs union with the European Communities, quantitative restrictions on textile and clothing products which are inconsistent with Articles XI and XIII of the GATT 1994 and Article 2.4 of the ATC.
   
   
7. Turkey argues that the Panel erred in presuming the existence of a conflict between, on the one hand, Articles XI and XIII of the GATT 1994 and Article 2.4 of the ATC, and, on the other, Article XXIV of the GATT 1994. The Panel's reasoning was based on the incorrect presumption that the quantitative restrictions introduced by Turkey in the framework of its customs union with the European Communities were incompatible with Turkey's WTO obligations.
   
   
8. According to Turkey, Article XXIV permits the common regulation of commerce of a customs union in a particular sector to be determined by one of the constituent members' lawful quantitative restrictions in that sector, provided that unified regulations are not on the whole more restrictive than the previous regulations of the constituent members.
   
   
9. Turkey further contends that Article XXIV is different from exceptions such as Articles XX and XXI of the GATT 1994. The right under Article XXIV to establish a customs union is an autonomous right; it is not an "exception" from other GATT obligations.
   
   
10. Turkey argues that the Panel ignored the proper relationship between Article XXIV and the general obligations under the GATT 1994. The Panel did not properly interpret the ordinary meaning of the text of Article XXIV, and, in particular, the chapeau of paragraph 5 of that Article. The ordinary meaning of the chapeau of paragraph 5 demonstrates that Article XXIV confers on WTO Members a right to enter into a customs union, and to derogate, under certain conditions, from their GATT obligations, including, but not limited to, their obligations under Article I.
    
    
11. In Turkey's view, other provisions in Article XXIV confirm that forming a customs union or free-trade area is a right of WTO Members. The provisions of Articles XXIV:6, XXIV:7, XXIV:8 and XXIV:9 establish requirements for implementation of a customs union, but do not prohibit its ultimate formation, thereby supporting the proposition that Members have a right to form a customs union under Article XXIV.
    
    
12. Turkey argues that there is no textual support for the Panel's conclusion that Article XXIV permits derogations from Article I, but not from other GATT provisions. The chapeau of Article XXIV:5 states that "the provisions of this Agreement" shall not prevent the formation of a customs union, thereby covering all provisions of the GATT 1994, not just Article I.
    
    
13. Turkey claims that the Panel's conclusion that Article XXIV: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"⁸ was based on a number of legal errors. First, Turkey argues that the Panel misinterpreted the ordinary meaning of Article XXIV:5(a). Specifically, Turkey argues that the Panel ignored the chapeau to Article XXIV:5. The chapeau clearly states that no GATT 1994 provision shall "prevent" the formation of a customs union as long as certain conditions set out in sub-paragraph 5(a) are satisfied. The Panel ignored the chapeau, and, as a result, came to the erroneous conclusion that Article XXIV:5(a) does not "authorize or prohibit" the use of quantitative restrictions upon the formation of a customs union.
    
    
14. Second, Turkey argues that the Panel's reading of Article XXIV:5(a) must fail because it renders the provision a "nullity". The "economic test" established by sub-paragraph 5(a) applies to the duties and regulations of commerce of the customs union as a whole, not, as stated by the Panel, to the duties and regulations of the particular customs union members. Under the Panel's interpretation, the introduction of an otherwise inconsistent measure could disqualify the customs union even though trade flows were, on the whole, facilitated.
    
    
15. Third, Turkey argues that the Panel's analysis of "the immediate context" of Article XXIV:5(a) does not support its interpretation of that provision. The Panel failed to include the chapeau of Article XXIV:5(a) in its analysis of the context. Furthermore, the Panel misinterpreted the context of Article XXIV:5(a), in particular, Articles XXIV:5(b), XXIV:4, XXIV:6, and the location of Article XXIV in Part III of the GATT 1994.
    
    
16. Turkey also claims that the Panel failed to interpret properly the ordinary meaning of Article XXIV:8(a). The Panel erred by failing to examine the entire context of Article XXIV:8(a), and, therefore, overlooked the interdependent nature of sub-paragraphs 8(a)(i) and 8(a)(ii), and their relationship in the broader context of Article XXIV.
    
    
17. Turkey submits that if it is not allowed to impose quantitative restrictions on the textile and clothing products at issue in this case, the European Communities will exclude 40 per cent of Turkey's exports from the customs union between Turkey and the European Communities, thereby leading to an inconsistency with Article XXIV:8(a)(i). Turkey will thus be exposed to a challenge that the proposed customs union does not cover "substantially all trade" and, therefore, is not consistent with Article XXIV.
    
    
18. Turkey notes that the Panel stated that Turkey had several alternatives to the imposition of quantitative restrictions: increased tariffs, rules of origin, early phase-out, and tariffication. Each of these suggestions is flawed, and, moreover, Turkey fails to see how the Panel could conclude that Turkey had a duty to opt for one of these alternatives as long as the measures challenged by India did not result in the common regulation of commerce of the Turkey/EC customs union being on the whole more restrictive than the regulations of Turkey and the European Communities before the formation of the customs union.
    
    
19. Turkey also argues that the wider context of Articles XXIV:5 and XXIV:8 and the object and purpose of the WTO Agreement do not support the Panel's interpretation. Article XXIV:4, the Preamble of the Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994 (the "Understanding on Article XXIV") and the Singapore Ministerial Declaration do not support a conclusion that the introduction of quantitative restrictions as part of the formation of a customs union is prohibited by Article XXIV.
    
    
20. Finally, Turkey argues that the Panel drew the wrong conclusion from past GATT/WTO practice. The Panel concluded from its review of GATT/WTO practice that there is no agreement or acceptance that Article XXIV authorized or required the introduction of otherwise GATT/WTO inconsistent measures upon the formation of a customs union. The Panel erred, however, by not reviewing whether GATT/WTO practice prohibited the introduction of such measures. Turkey recalls, for example, that during the accession of Sweden to the European Communities, Sweden adopted quantitative restrictions similar to those challenged in this case. In that case, no GATT Contracting Party challenged those measures under Articles XXII or XXIII of the GATT.
    
    
    B. Arguments of India - Appellee
    
    
21. India argues that the Panel's ruling that Article XXIV does not authorize the introduction of quantitative restrictions in this case is compelled by the recognized principles of interpretation set out in Articles 31 and 32 of the Vienna Convention on the Law of Treaties. The terms of Article XXIV:5 exempt from the other obligations of the GATT 1994 only those measures that are "inherent" in the formation of a customs union. For example, in order to form a customs union, preferential treatment inconsistent with Article I of the GATT 1994 must be granted. By contrast, customs unions can be formed without the introduction of new quantitative restrictions on imports that are inconsistent with Article XI of the GATT 1994.
    
    
22. India argues that the context of Article XXIV:5 confirms this interpretation. Article XXIV:4 explains why customs unions are permitted and which purposes they are to serve. Based on the context provided by Article XXIV:4, Article XXIV:5 cannot be interpreted to provide a justification for measures raising barriers to the trade of other WTO Members. Furthermore, the existence in Article XXIV:6 of a mechanism for compensation in the case of increases in tariff duties, without a corresponding provision for compensation for the introduction of new quantitative restrictions, makes clear that Article XXIV was not meant to authorize the imposition of quantitative restrictions.
    
    
23. Examining the object and purpose of the WTO Agreement, India notes Turkey's argument that the requirements of Article XXIV:5 and Article XXIV:8 apply to the import regimes of the WTO Members forming the customs union taken as a whole, not to individual measures. As there is, however, no mechanism for providing compensation for the introduction of new quantitative restrictions, acceptance of Turkey's argument would induce Members forming a customs union to replace the protection afforded by their tariffs with new quantitative restrictions. This result contradicts the object and purpose of the drafters, who established a strong prohibition on the use of quantitative restrictions.
    
    
24. With respect to Turkey's general claims of legal error, India argues that the Panel did not presume a conflict between the provisions of Article XXIV and the provisions of Articles XI and XIII of the GATT 1994 and Article 2.4 of the ATC. The Panel made no such presumption, and simply addressed the question whether there was a need to examine the consistency of the customs union with Article XXIV. Furthermore, in contrast to what Turkey argues, the Panel never stated that Article XXIV was an exception to GATT obligations. The Panel simply noted that Turkey made an "affirmative defence" based on Article XXIV.
    
    
25. Next, India responds to Turkey's statement that Article XXIV:5 permits the formation of a customs union as long as the economic assessment in sub-paragraph 5(a) is fulfilled. Article XXIV defines the purposes for which a WTO Member can deviate from other GATT provisions, but does not define the provisions themselves. Only those provisions of the GATT 1994 that "prevent" the formation of a customs union may provide the basis for a defense under Article XXIV. Under the terms of Article XXIV:5, the formation of a customs union is not "prevented" by the obligations set out in Article XI of the GATT 1994 and Article 2.4 of the ATC. The formation of a customs union is only "prevented" by those provisions of the GATT 1994 that prohibit discrimination, such as Article I of the GATT 1994 and other most-favoured-nation provisions, because discrimination is inherent in regional integration.
    
    
26. India also claims that, contrary to Turkey's argument, the Panel did not rule that Article XXIV justifies only deviations from Article I, and that Article XXIV consequently applied only to tariffs. In fact, the Panel made clear that Article XXIV could permit Members to refrain from applying quantitative restrictions, as well as tariffs, to their partner in the customs union.
    
    
27. Finally, according to India, Turkey is unable to explain why the mere fact that a type of measure is regulated in Part III of the GATT 1994 demonstrates that the other Parts of the GATT 1994 no longer apply. Turkey's arguments fail to take into account the reason why the drafters divided the GATT into three parts.
    
    
28. With respect to Turkey's specific claims of legal error, India responds to Turkey's objection that the Panel failed to consider the chapeau of Article XXIV:5 in its examination of Article XXIV:5(a) by arguing that the Panel in fact conducted a thorough textual and contextual analysis. In response to Turkey's claim that the Panel's interpretation renders Article XXIV:5(a) a nullity, India argues that Article XXIV:5(a) establishes a requirement that Members forming a customs union must meet in addition to their other market access obligations. This additional requirement has not been reduced to inutility by the Panel's interpretation. Members forming a customs union may not have bound all their tariffs or may apply their tariffs at levels below the bound rate, or they may have the right to impose quantitative restrictions consistently with one of the exceptions to Article XI of the GATT 1994. In these circumstances, the Members could exercise their right to increase barriers to trade, but only under the conditions set out in Article XXIV:5(a).
    
    
29. India also submits that, in contrast to Turkey's claims, the immediate context of Article XXIV:5(a) supports the Panel's interpretation that that provision does not authorize the introduction of quantitative restrictions. In particular, the text of Article XXIV:5(b), Article XXIV:4, and Article XXIV:6, as well as the placement of Article XXIV in Part III of the GATT 1994, all support the Panel's interpretation. India also argues that, contrary to Turkey's claims, the wider context of Articles XXIV:5 and XXIV:8 and the object and purpose of the WTO Agreement support the Panel's interpretation of these provisions.
    
    
30. Furthermore, India contends that Turkey's claim that the Panel did not properly interpret the ordinary meaning of Article XXIV:8(a) is incorrect. The Panel found that Article XXIV:8(a)(ii) does not provide authorization for Members forming a customs union to violate the prescriptions of Articles XI and XIII of the GATT 1994 or Article 2.4 of the ATC. Turkey objects to this interpretation on the ground that it curtails the right of Members with different trade regimes to form a customs union. Turkey fails to take into account that the right to form a customs union is not absolute. Moreover, the Panel's interpretation does not prevent Turkey from forming a customs union with the European Communities, even though it might affect the nature and timing of the formation.
    
    
31. Finally, according to India, the Panel drew the correct conclusions from GATT/WTO practice on this issue. The situation here is different from the case involving Sweden's adoption of quantitative restrictions on the occasion of its accession to the European Union, as Turkey did not accede to the European Union. The measures at issue here are simply quantitative restrictions adopted by Turkey in the context of an agreement establishing a customs union with the European Communities.
    
    
32. In addition to responding to Turkey's general and specific claims of legal error, India makes a number of general observations. First, the argument that Article XXIV of the GATT 1994 can provide a justification for quantitative restrictions has never been accepted under the GATT 1947. Second, the agreement establishing a customs union between Turkey and the European Communities was drafted on the assumption that Article XXIV does not justify the introduction of new quantitative restrictions on imports of textile and clothing products. This agreement explicitly recognized the possibility that Turkey would not be able to impose quantitative restrictions and that, therefore, a system of certificates of origin would continue to be applied on these products. Third, the agreement between Turkey and the European Communities provides for the formation of a customs union only at a future date, and therefore constitutes, at most, an interim agreement for the formation of a customs union. To realize the objectives of this interim agreement, Turkey did not have to impose the same restrictions on imports of textiles and clothing as imposed by the European Communities.
    

Continue here with  III. Arguments of Third Participants