WORLD TRADE
ORGANIZATIONWT/DS34/R
31 May 1999
(99-2081)
Original:  English
TURKEY – RESTRICTIONS ON IMPORTS OF
TEXTILE AND CLOTHING PRODUCTS
Report of the Panel
The report of the Panel on Turkey – Restrictions on Imports of Textile and Clothing Products is being
circulated to all Members, pursuant to the DSU.  The report is being circulated as an unrestricted
document from 31 May 1999, pursuant to the Procedures for the Circulation and Derestriction of
WTO Documents (WT/L/160/Rev.1).  Members are reminded that in accordance with the DSU onlyparties to the dispute may appeal a panel report.  An appeal shall be limited to issues of law covered in
the Panel report and legal interpretations developed by the Panel.  There shall be no ex parte
communications with the Panel or Appellate Body concerning matters under consideration by the
Panel or Appellate Body.
Note by the Secretariat:  This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the
date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report .
If the Panel Report is appealed to the Appellate Body, it sha ll not be considered for adoption by the DSB until after the
completion of the appeal.  Information on the current status of the Panel Report is available from the WTO Secretariat.WT/DS34/R
Page i
TABLE OF CONTENTS
I. INTRODUCTION................................................................................................................. .......................1
II. FACTUAL ASPECTS ............................................................................................................. ....................2
A. R EGIONAL TRADE AGREEMENTS IN THE GATT/WTO F RAMEWORK .........................................................2
B. T URKEY 'S TRADE RELATIONS WITH THE EUROPEAN COMMUNITIES ..........................................................5
1. Association between Turkey and the European Communities, and the GATT/WTO process................5
2. Synopsis of recent developments in Turkey-EC trade ........................................................................... 7
C. Q UANTITATIVE LIMITS IN RESPECT OF TURKEY 'S IMPORTS OF CERTAIN TEXTILE AND CLOTHING
PRODUCTS ............................................................................................................................... ............................9
1. Historical  backg round ........................................................................................................ ..................9
2. Recent background............................................................................................................ ..................10
3. Quantitative limits imposed on certain  Turkey's imports of textile and cl othing products from India11
4. Statistical analysis of Turkey's imports of textile and clothing products  under restraint....................11
(a) Imports of 61 textile and clothing product categories under restraint....................................................... .......11
(b) Imports of the 19 textile and clothing product categories under restraint for India ......................................... 12
III. PRELIMI NARY POIN TS......................................................................................................... ................14
A. I SSUES ............................................................................................................................... .......................14
B. P RECISION OF THE REQUEST FOR THE ESTABLISHMENT OF THE PANEL ....................................................15
1. Arguments by the parties..................................................................................................... ................15
2. Arguments by third parties................................................................................................... ...............19
C. N ON-PARTICIPATION OF THE EUROPEAN COMMUNITIES IN THE DISPUTE ................................................20
1. Arguments by the parties..................................................................................................... ................20
2. Arguments by third parties................................................................................................... ...............23
D. C ONSULTATION STAGE OF THE DISPUTE SETTLEMENT PROCEDURE WITH RESPECT TO TRADE IN TEXTILE
AND CLOTHING PRODUCTS ............................................................................................................................... 24
1. Arguments by the parties..................................................................................................... ................24
2. Arguments by third parties................................................................................................... ...............26
IV. ADDITIONAL INFORMATION...................................................................................................... ...26
V. CLAIMS OF THE PARTIES ........................................................................................................ ...........30
VI. MAIN ARGUMENTS BY THE PARTIES.........................................................................................31
A. I NTRODUCTORY POINTS ...........................................................................................................................31
1. Consultations ................................................................................................................ ......................31
2. Offers to settle ............................................................................................................. ........................33
B. L EGAL ARGUMENTS ............................................................................................................................... ..34
1. Burden of Proof.............................................................................................................. .....................34
2. Articles XI:1 and XIII of GATT............................................................................................... ............35
3. Article 2 of the ATC......................................................................................................... ....................35
4. Article XXIV of GATT ......................................................................................................... ................36
(a) Relationship between Article XXIV and other GATT provisions ................................................................. ..36
(b) Article XXIV:5(a)........................................................................................................... .................................40
(c) Article XXIV:8(a)........................................................................................................... .................................47
(i) Relationship between Article XXIV:8(a)(ii) and other Article XXIV provisions.......................................47(ii) Relationship between Article XXIV:8(a)(ii) of GATT and Article 2.4 of the ATC....................................49
(iii) Differences between the formation of a customs uni on and the enlargement of an already existing one ...51
(iv) Scope of harmonization of the external trade regime in the Turkey-EC regional trade agreement.............52(v) Other options available ..................................................................................................... ..........................53
(d) Turkey-EC regional trade agreements in the framework of Article XXIV ......................................................56
(i) Compatibility with Article XXIV provisions.................................................................................. ............56
(ii) Type of agreement under Article XXIV ....................................................................................... ..............58
5. Nullificati on or Impairment .................................................................................................. ..............61
(a) Trade aspects ............................................................................................................... ....................................61
(b) Arguments ................................................................................................................... ....................................63WT/DS34/R
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VII. SUMMARY OF ARGUMENTS PRES ENTED BY THIRD PARTIES...........................................70
A. H ONG KONG, CHINA ............................................................................................................................... .70
1. General ...................................................................................................................... .........................70
2. Article 2 of the ATC and Artic les XI and XIII  of GATT ......................................................................71
3. Article XXIV of GATT ......................................................................................................... ................72
4. Alternative soluti ons and conc lusions........................................................................................ .........73
BJ APAN ............................................................................................................................... ........................74
1. General ...................................................................................................................... .........................74
2. Arguments .................................................................................................................... .......................74
C. T HE PHILIPPINES ............................................................................................................................... .......75
1. General ...................................................................................................................... .........................75
2. Articles XI and XIII of GATT and Article 2 of  the ATC ......................................................................76
3. Article XXIV of GATT ......................................................................................................... ................77
(a) Customs unions in context................................................................................................... ............................77
(b) Article XXIV:4.............................................................................................................. ..................................78
(c) Article XXIV:5.............................................................................................................. ..................................78
(d) Article XXIV:8.............................................................................................................. ..................................80
4. Conclu sions.................................................................................................................. .......................86
D. T HAILAND ............................................................................................................................... .................86
1. Arguments .................................................................................................................... .......................86
2. Conclu sions.................................................................................................................. .......................93
E. U NITED STATES ............................................................................................................................... .........93
F. C OMMENTS BY THE PARTIES ....................................................................................................................97
VIII. INTERI M REVI EW............................................................................................................ ..................97
IX. FINDINGS .................................................................................................................... .........................99
A. P RELIMINARY RULINGS RECALLED ..........................................................................................................99
1. Article 6.2 of the DSU ....................................................................................................... ................100
2. Necessity of Partic ipation of the Eur opean Communities.................................................................100
3. The Need to Exhaust TMB Procedures ........................................................................................... ..103
4. Inadequacy of th e Consultations.............................................................................................. .........104
B. M AIN CLAIMS OF THE PARTIES ..............................................................................................................106
C. M EASURES AT ISSUE ..............................................................................................................................1 07
1. Identification of the Measures at  Issue...................................................................................... ........107
2. Attribution to Turkey of the Measures at Issue ............................................................................... ..108
3. Conclusion ................................................................................................................... .....................111
D. S COPE OF THE DISPUTE ..........................................................................................................................112
E. B URDEN OF PROOF ............................................................................................................................... ..114
F. C LAIMS UNDER ARTICLES XI AND XIII OF GATT AND ARTICLE 2.4 OF THE ATC ................................115
1. Articles XI and XIII of GATT ................................................................................................. ...........115
2. Article 2.4 of the ATC....................................................................................................... .................117
(a) Regulatory framework of the ATC ............................................................................................. ...................117
(b) Quantitative restrictions permitted under the ATC ........................................................................... .............118
(c) The Turkish measures under the ATC - are these new measures?................................................................ .119
(d) Jurisdiction of the TMB versus that of the Panel............................................................................ ...............120
3. Conclusions on India's claims under Articles XI and XIII of GATT, and Article 2.4 of the ATC .....121
G. T URKEY 'S DEFENSE BASED ON ARTICLE XXIV OF GATT.....................................................................122
1. General Interpretative Principles ............................................................................................ .........122
(a) Vienna Convention on the Law of Treaties .................................................................................... ...............122
(b) WTO rules on conflicts...................................................................................................... ............................123
(c) Principle of effective interpretation ....................................................................................... ........................124
2. Overview of Article XXIV of GATT ............................................................................................. ......125
3. Article XXIV:5(a) ............................................................................................................ ..................127
(a) Arguments of the parties.................................................................................................... ............................127
(b) Analysis of Article XXIV:5(a) ............................................................................................... .......................129
(i) Ordinary meaning of the terms of Article XXIV:5(a).......................................................................... .....129
(ii) The immediate context of Article XXIV:5(a) ................................................................................. ..........131
(iii) Conclusion based on the ordinary meaning of the terms and their immediate context .............................133
4. Article XXIV:8............................................................................................................... ....................133
(a) Arguments of the parties.................................................................................................... ............................133WT/DS34/R
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(b) Analysis of Article XXIV:8(a) ............................................................................................... .......................134
(i) The terms of paragraph 8(a)................................................................................................. .....................134
(ii) Immediate context.......................................................................................................... ...........................138
(iii) Conclusion................................................................................................................ ................................138
(c) The wider context of Article XXIV:5 and 8 a nd the object and purpose of the agreements..........................138
(d) GATT/WTO practice........................................................................................................... ..........................140
(e) Temporary nature of the Turkish quantitative restrictions................................................................... ..........142
(f) The absence of recommendations pursu ant to Article XXIV:7 of GATT......................................................142
(g) Offer to negotiate.......................................................................................................... .................................143
(h) The requirements of the Turkey-EC Customs Union Agreement itself .........................................................143(i) Further considerations ...................................................................................................... .............................144
5. Conclusion ................................................................................................................... .....................145
H. T HE ABSENCE OF NULLIFICATION AND IMPAIRMENT .............................................................................147
I. O UR MAIN FINDINGS RECALLED ............................................................................................................150
X. CONCLUSIONS .................................................................................................................. ....................151
ANNEX.......................................................................................................................... ....................................152WT/DS34/R
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I. INTRODUCTION
1.1 On 21 March 1996, India requested consultations with Turkey pursuant to Article 4.4 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") and Article
XXIII:1 of the General Agreement on Tariffs and Trade 1994 ("GATT") regarding the unilateral
imposition of quantitative restrictions ("QRs") by Turkey on imports of a broad range of textile and
clothing products from India as from 1 January 1996 (WT/DS34/1).
1.2 India and Turkey did not enter into consultations, due to disagreement on the appropriateness
of participation of the European Communities in such consultations, and consequently the dispute
could not be resolved at that stage.  The Dispute Settlement Body ("DSB") was informed accordingly
on 24 April 1996.1
1.3 In a communication dated 2 February 1998, India requested the DSB to establish a panel toexamine the matter in the light of GATT and the Agreement on Textiles and Clothing ("ATC"), in
accordance with Article 6.2 of the DSU (WT/DS34/2).  In its communication, India claimed that therestrictions imposed by Turkey were inconsistent with Turkey’s obligations under Articles XI and
XIII of GATT and were not justified by Article XXIV of GATT, which did not authorize the
imposition of discriminatory QRs, and that the restrictions were inconsistent with Turkey’s
obligations under Article 2 of the ATC.  India also claimed that the restrictions appeared to nullify or
impair benefits accruing to it directly or indirectly under GATT and the ATC.
1.4 On 13 March 1998, the DSB established a panel pursuant to the request of India, with the
following standard terms of refe rence (Article 7.1 of the DSU):
2
"To examine, in the light of the relevant provisions of the covered agreements cited by
India in document WT/DS34/2, the matter referred to the DSB by India in that document
and to make such findings as will assist the DSB in making recommendations or ingiving the rulings provided for in those agreements."
1.5 On 11 June 1998, the parties to the dispute agreed on the following composition of the Panel
(WT/DS34/3):
Chairman: Ambassador Wade Armstrong
Members: Dr. Luzius Wasescha
Prof. Robert Hudec
1.6 Following the resignation of Prof. Robert Hudec,  the parties to the dispute agreed to appoint a
new member to the Panel, on 21 July 1998.  Accordingly, the composition of the Panel was as follows
(WT/DS34/4):
Chairman: Ambassador Wade Armstrong
Members: Dr. Luzius Wasescha
Mr. Johannes Human
1.7 Hong Kong, China; Japan; the Philippines; Thailand; and the United States reserved their
third-party rights in accordance with Article 10 of the DSU.
1.8 On 14 August 1998, Turkey requested preliminary rulings by the Panel on a number of issues.
On 28 August 1998, the Panel invited India, as well as the third parties, to present their views on the
points raised by Turkey.  India submitted written comments on the issues; Japan, the Philippines and
                                                     
1 WT/DSB/M/15, pp. 3-5.
2 WT/DSB/M/43, p. 6.WT/DS34/R
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the United States, as third parties, also submitted written communications.  The Panel met on 19
September 1998 with Turkey and India on this matter, and issued its ruling on 25 September 1998.
1.9 The Panel received the first written submissions from the parties on 21 August 1998 (India)
and on 18 September 1998 (Turkey).  Written submissions were also received from Hong Kong,
China; Japan; the Philippines; and Thailand, as third parties.
1.10 The first substantive meeting of the Panel with the parties took place on 5-6 October 1998 and
the Panel met with third parties on 6 October 1998.
1.11 On 28 October 1998, the Panel addressed a letter to the European Communities, seeking
certain relevant factual and legal information under Article 13.2 of the DSU.  The European
Communities answered in writing the specific questions raised by the Panel on 13 November 1998.
1.12 On 19 November 1998, the Panel received the second written submissions from the parties,
with whom it met again on 25 November 1998.
1.12 In a communication dated 20 January 1999, the Chairman of the Panel informed the DSB that
the Panel would not be able to issue its report within six months.  The reasons for that delay are stated
in document WT/DS34/5.
1.13 The Panel issued its interim report to the parties on 3 March 1999.  On 12 March 1999, both
parties submitted written requests for the Panel to review precise aspects of the interim report; no further
meeting with the Panel was requested.
1.14 The Panel submitted its final report to the parties on 26 March 1999.
II. FACTUAL ASPECTS
2.1 This section addresses the factual aspects of the dispute in a sequential order, in which the
QRs at issue are described in paragraphs 2.39 to 2.41 be low.  In view of the nature of the dispute, this
section outlines first the factual context in which the dispute is addressed.
A. R EGIONAL TRADE AGREEMENTS IN THE GATT/WTO F RAMEWORK
2.2 The relationship between the most-favoured-nation ("MFN") principle and Article XXIV of
the GATT, which deals with free-trade areas and customs unions, has not always been harmonious.
In 1947, their coexistence in the framework of in ternational trade relations had been viewed as
ultimately positive, reflecting the perception that genuine customs unions and free-trade areas were
congruent with the MFN principle and directed towards the same objective, i.e. multilaterally-agreed
trade liberalization.3
2.3 As a matter of fact, trade liberalization under the GATT paralleled a process of increasingeconomic integration among contracting parties:  from 1948 to end-1994, 107 regional trade
agreements ("RTAs") were notified to the GATT under Article XXIV.
4
                                                     
3 Customs unions and free-trade areas were viewed as trade-creating instrume nts (susceptible to expand
trade both among the parties and between these and third parties), but there were also concerns about their
possible trade-distorting effects.
4 Of these, only 36 remain today in force, reflecting in most cases the evolution over time of the RTAs
themselves, as they were superseded by more modern agreements between the same signatories (usually goingdeeper in integration), or by their consolidation into wider groupings.WT/DS34/R
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rest the appeal of regional integration.  Since 1 January 1995, a further 60 new RTAs have been
notified under Article XXIV of GATT, most of which are presently in force.9
2.7 The WTO General Council established, on 6 February 1996, the Committee on RegionalTrade Agreements ("CRTA"),
10 with the mandate of, inter alia, examining all RTAs notified to the
Council for Trade in Goods ("CTG") under Article XXIV.11  The CRTA is likewise entrusted with the
examination of those RTAs notified under the 1979 Decision on Differential and More FavourableTreatment, Reciprocity and Fuller Participation of  Developing Countries and under Article V of the
General Agreement on Trade in Services ("GATS"),
12 and referred to it by the Committee on Trade
and Development ("CTD") and the Council for Trade in Services ("CTS"), respectively.  The mandate
of the CRTA also includes the consideration of "the systemic implications of [RTAs] and regional
initiatives for the multilateral trading system and the relationship between them".13
2.8 Later in 1996, the WTO Membership expressed its views on RTAs and the role of the CRTAin paragraph 7 of the Singapore Ministerial Declaration, as follows:
"We note that trade relations of WTO Members are being increasingly influenced by
regional trade agreements, which have expanded vastly in number, scope and coverage.
Such initiatives can promote further liberalization and may assist least-developed,
developing and transition economies in integrat ing into the international trading system.
In this context, we note the importance of  existing regional arrangements involving
developing and least-developed countries. The expansion and extent of regional trade
agreements make it important to analyse whether the system of WTO rights and
obligations as it relates to regional trade agreements needs to be further clarified. We
reaffirm the primacy of the multilateral trading system, which includes a framework for
the development of regional trade agreements, and we renew our commitment to ensurethat regional trade agreements are complementary to it and consistent with its rules. In
this regard, we welcome the establishment and endorse the work of the new Committee
on Regional Trade Agreements. We shall continue to work through progressive
liberalization in the WTO as we are committed in the WTO Agreement and Decisions
adopted at Marrakesh, and in so doing facilitate mutually supportive processes of globaland regional trade liberalization."
14
2.9 The CRTA 1998 Report to the General Council is self-explanatory on the results so farachieved in its work.
15  Paragraph 6 of the Report, with respect to the examination of the agreements,
reads:
"In 1998, the Committee endeavoured to accelerate the examination of agreements which
had already commenced, as well as to handle new agreements referred to it.  The
Committee has currently under its purview a total of 62 RTAs.  To date, the examinationof 54 RTAs have been referred to the Committee by the CTG, seven by the CTS and one
by the CTD.  Draft reports on the examination of 28 agreements are currently under
consideration; for 13 other agreements, reports are being drafted or factual examinations
are well engaged, while the first round of examination for the remaining 21 RTAs is
scheduled for either the Committee's twentieth session or early in 1999 … Thus far, noreport has been adopted."
                                                     
9 The negotiation of RTAs among countries geographically distant has also become an increasingly
frequent feature in the 1990s.
10 WT/L/127.
11 The CRTA is in charge of the examinations which were previously performed by separate working
groups, one per agreement.
12 These provisions also govern regional integration within the WTO.
13 WT/L/127, para.1(d).
14 WT/MIN(96)/DEC, para. 7.
15 WT/REG/7.WT/DS34/R
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As concluding remarks, paragraph 15 of the CRTA 1998 Report states as follows:
"… Despite its heavy workload and delays in the submission of certain  relevant material,
the Committee also made progress in examining RTAs.  The need to move forward in the
process of examination pursuant to WTO rules was recognized;  however, progress in
this regard was slowed, inter alia , by a lack of consensus on the interpretation of certain
elements of those rules relating to RTAs. On systemic issues, the Committee helddiscussions on some important topics and identified different approaches to these
subjects;  the need to move forward in th e discussion of systemic issues was also
recognized."
B. T
URKEY 'S TRADE RELATIONS WITH THE EUROPEAN COMMUNITIES
1. Association between Turkey and the European Communities, and the GATT/WTO
process16
2.10 On 12 September 1963, Turkey and the Council and member States of the then European
Economic Community ("EEC") signed the Ankara Agreement ,17 which entered into force on 1
December 1964.  The Ankara Agreement formed the basis of the Association (in the sense of Article
228 of the Treaty of Rome) between Turkey and the European Communities envisaging that its
objectives would be reached through a customs union which would be established in three progressive
stages:  preparatory, transitional and final.  Article 28 of the Ankara Agreement also left open "thepossibility of the accession" of Turkey to the EEC.  The Ankara Agreement itself contained the
modalities of the preparatory stage of the Association.
2.11 The terms and conditions for the implementation of the transitional stage were defined in the
1970 Additional Protocol  to the Ankara Agreement and in the 1971  Interim Agreement .
18  T h e
provisions of the Interim Agreement entered into force on 1 September 1971 and the AdditionalProtocol entered into force on 1 January 1973.  These texts provided for an extended transitional
period running over 22 years and foresaw the establishment of a customs union by the end of 1995.
The Additional Protocol provided for an asymmetrical liberalization of intra-trade,  because of the
disparity in levels of development between the parties:  the European Communities were to abolish all
duties and QRs on imports of industrial products from Turkey as from September 1971, while Turkeywas to do so over the transitional period, according to a timetable.
19  The Protocol also contained
provisions designed to ensure the alignment of Turkey on EC policies in many areas (commercial
policy, standards, competition, state aids, trade in services, etc.).
2.12 Supplementary Protocols  to the Ankara Agreement (and Interim Agreement) were also
concluded in 1973 between Turkey and the European Communities, containing adaptation and
transition measures following the accession to the European Communities of Denmark, Ireland and
the United Kingdom.20
2.13 Starting in 1973, Turkey embarked in the gradual alignment of its customs duties to the EC
Common Customs Tariff ("CCT"), as scheduled.  The implementation of Turkey's obligations arising
out of its Association with the European Communities was interrupted during a number of years, due
inter alia  to the crisis in which the Turkish economy was engulfed following the oil shocks of 1973
and 1979.  In 1987, when Turkey requested accession to the European Communities, completion of
                                                     
16 The official titles of the agreements have changed over time  The European Communities is a WTO
Member.
17 GATT document L/2155/Add.1.
18 GATT document L/3554.
19 Other agreements concluded at the time by the EC with Mediterranean countries contained similar
provisions.
20 GATT document L/3980.WT/DS34/R
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the customs union was seen as part of a package of measures designed to help Turkey prepare for
membership.  In 1988, Turkey resumed the reduction of its customs duties and alignment on the CCT.
2.14 The Ankara Agreement and the subsequent instruments concluded in the context of the
Association between Turkey and the European Comm unities during the 1970s were notified to the
GATT Contracting Parties under Article XXIV:7 of GATT 1947.  The GATT entrusted three separate
working parties with the task of examining the di fferent agreements in light of those provisions.
Reports of these working parties were adopted by the GATT Council:
(i) Report of the Working Party on the Ankara Agreement, adopted on 25 March 1965
(BISD 13S/59-64);
(ii) Report of the Working Party on the Additional Protocol, adopted on 25 October 1972
(BISD 19S/102-109); and
(iii) Report of the Working Party on the Supple mentary Protocols, adopted on 21 October
1974 (BISD 21S/108-112).
2.15 As agreed at a meeting of the Turkey-EC Asso ciation Council ("Association Council") held in
November 1992,21 negotiations were initiated between the two parties on the modalities for the
completion of the customs union, i.e. for the final phase of the Association.  These negotiations were
conducted from 1993 to 1995.
2.16 On 6 March 1995, the Association Council took Decision 1/95 , to enter into force on 1
January 1996.22  Decision 1/95 set out the modalities for the final phase of the Association between
Turkey and the European Communities.  In addition to the elimination of customs duties and
alignment on the CCT, it contained provisions for the harmonisation of Turkey's policies and practices
in all areas covered by the Association where this was deemed necessary "for the proper functioning
of the Customs Union".  In accordance with Article 65 of Decision 1/95 the parties were to consider,before entry into force, whether those harmonisation provisions (in particular those contained in
Article 12) had been fulfilled.  Once this requirement was considered satisfied, at a meeting of the
Association Council on 30 October 1995, Decision 1/95 was submitted to the European Parliament for
its approval and subsequently formally adopted by the Association Council on 22 December 1995. On
22 December 1995, the Association Council also adopted Decision 2/95, in pursuance of Article 15 ofDecision 1/95.  Decision 2/95 defined the cove rage of products for temporary exception from
Turkey's application of the CCT in respect of third countries, and fixed the timetable for their
alignment to the CCT (from 1 January 1996 to 1 January 2001).
2.17 The entry into force of "the final phase of the Customs Union" between Turkey and the
European Communities was notified to the WTO on 22 December 1995, under Article XXIV of
GATT.
23  The texts of Decision 1/95 and Decision 2/95 were distributed to Members on 13 February
1996.24  On 29 January 1996, the CTG adopted standard terms of reference for the examination of the
"Customs Union between Turkey and the European Community"25 ("Turkey-EC customs union"), and
referred such examination to the CRTA.26
                                                     
21 The Association Council was created by the Ankara Agreement, as the only decision-making body of
the Turkey-EC Association.
22 Decision 1/95 is reproduced in WT/REG22/1.
23 WT/REG22/N/1.
24 WT/REG22/1 and WT/REG22/2, respectively.
25 The terms of reference for the examination are contained in WT/REG22/4.  In this Panel report we
shall refer to the Turkey-EC customs union without any assessment of the WTO nature of this Article XXIVtype of arrangement.
26 G/C/M/8.WT/DS34/R
Page 7
2.18 Turkey and the European Coal and Steel Co mmunity ("ECSC") signed an Agreement on 25
July 1996, which entered into force on 1 August 1996.27  In their joint communication to the WTO,
the parties stated that the Agreement was "intended as the complement to the Customs Union in
respect of products covered by the European Coal and Steel Community and as a transitional
arrangement in respect of such products until … the year 2002".28
2.19 On 30 October 1996, Turkey and the European Communities submitted preliminary
information to the WTO on "the final phase of the Customs Union", in accordance with the Standard
Format for Information on Regional Trade Agreements.29  In a joint communication dated 24
November 1997,30 Turkey and the European Communities provided, "[t]o assist Members in the
examination of the Customs Union, … details of the quantitative limits applied by Turkey in respect
of imports of certain textile and clothing products from certain WTO Members", including the levels
of such quantitative limits for 1997.31  The CRTA met twice to examine, in the light of the relevant
provisions of GATT, the Turkey-EC customs union:  on 23 October 1996 and on 1 October 1997.32
Additional written questions from Members were also replied to by the parties.33  To date, the CRTA
has not yet finalized its examination.
2.20 Turkey and the European Communities transmitted copies of their communications to the
CRTA, in relation to the quantitative limits applied by Turkey, and to the Textiles Monitoring Body
("TMB"), for information pursuant to Article 3.3 of the ATC.34   The TMB took note of the
information supplied at its meetings held on 11-12 December 1997. and 26-27 May 1998.35  To date
Turkey has notified to the TMB its lists for the first and second stage of integration and advance
integration for a product which will be subject to the third stage of integration.36
2. Synopsis of recent developments in Turkey-EC trade37
2.21 The European Communities38 has traditionally constituted the major single market for
Turkish goods and Turkey's major supplier, accounting for around 50 per cent of both Turkey's
exports and imports.  Exports to the European Communities in 1996 and 1997 expanded at a slower
rate than those destined to the rest of the world.  Imports from the European Communities increased
37 per cent in 1996 but rose by only 7 per cent in the next year; by contrast, Turkey's imports from the
rest of the world grew 9 per cent in 1996 and by 16 per cent in 1997.  (See Figure II.2.)
2.22 In 1997, Turkey's total exports, by broad product categories,39 were comprised of agricultural
products (17 per cent), textiles (10 percent), clothi ng (27 per cent) and other industrial products (45
per cent).  At a more detailed level, main export groups included:  edible fruits and nuts (5 per cent),
iron and steel (8 per cent) and electrical machinery and equipment (6 per cent).  As much as 95 per
cent of Turkish total imports in 1997 were made up of industrial products, including 7 per cent
                                                     
27 WT/REG22/1/Add.1.
28 WT/REG22/N/1/Add.1.
29 WT/REG22/5.
30 WT/REG22/7.
31 A similar communication was circulated to Members on 28 July 1998, containing the levels of the
quantitative limits in 1998 (Document WT/REG22/8).
32 See WT/REG22/M/1 and WT/REG22/M/2 (Notes on the meetings).
33 WT/REG22/6 and WT/REG22/6/Add.1.
34 G/TMB/N/308 and G/TMB/N/338.
35 See G/TMB/R/38 and G/TMB/R/43, respectively.
36 From the point of view of the TMB, Turkey's status is mixed.  While it applies restrictions on
imports from certain developing countries, in line with its obligations towards the EC, its own exports to the
United States and Canada remain under restraint.
37 Based on trade statistics provided by the Government of Turkey.
38 Throughout this section, trade figures relate to the EC-15.
39 The broad product categories are here defined as follows:  agricultural products (Turkish tariff
chapters 1 to 23); textiles (50 to 60); clothing (61 to 63); other industrial products (24 to 49 and 64 to 97).WT/DS34/R
Page 8
accounted for by imports of textiles and clothing.  Major sub-groups among the imported industrial
products included:  fuels, machinery and chemicals.
Figure II.2 –  Turkey's total exports and imports from the European Communities
and the rest of the world, 1994-1997
2.23 By broad product categories, the evolution of Turkey's exports to the European Communities
during the period 1994-1997 showed some distinct features, when compared to the corresponding
developments in Turkey's exports to non-EC countries.  For agricultural products, exports to non-EC
countries tended to increase (albeit moderately) over practically the whole period, while exports to the
European Communities showed increases only in 1995 and 1997.  For textiles and clothing, the
growth of exports to the European Communities was steady during the period; exports of theseproducts to non-EC countries rose in 1995 and, after virtually stagnating in 1996, increased again in
1997.  Exports of other industrial products to the European Communities, after a sharp increase in
1995, slowed down considerably, while those to non-EC countries were steadily up throughout the
period, to a level in 1997 46 per cent higher than in 1994.  (See Table II.1.)
Table II.1: Turkey's exports to the European Communities and to other countries, by broad
product categories, 1994-1997
Exports to the EC Exports to other countries
1994 1995 1996 1997 1994 1995 1996 1997
($ million) ($ million)
Agricultural products 1,572 1, 841 1,729 1,901 2,060 2,132 2,284 2,643
Textiles and clothing 4,150 5,353 5,665 5,933 2,285 2,967 3,031 3,886
Other industrial products 2,913 3,885 4,154 4,413 5,126 5,460 6,360 7,468
Total exports 8,634 11,078 11,549 12,248 9,471 10,558 11,676 13,997
(Percentages) (Percentages)
Share of "textiles and
clothing" in total exports 48.1 48.3 49.1 48.4 24.1 28.1 26.0 27.7
Source :  Government of Turkey.
2.24 By broad product categories, imports into Turkey of agricultural products from the European
Communities declined in both 1996 and 1997, while those from other countries continued to grow,
albeit at a slower pace.  Imports of textiles and clothing from the European Communities more than
trebled between 1994 and 1997; those from other countries recovered from the decline in 1996, to
reach in 1997 a level 75 per cent higher than in 1994.  (See Table II.2.)
TOTAL EXPORTS
05,00010,00015,00020,00025,00030,000
1994 1995 1996 1997
ECRest of the world
TOTAL IMPORTS
05,00010,00015,00020,00025,00030,00035,00040,00045,00050,000
1994 1995 1996 1997
ECRest of the worldWT/DS34/R
Page 9
Table II.2: Turkey's imports from the European Communities and from other countries, by
broad product categories, 1994-1997
Imports from the EC Imports from other countries
1994 1995 1996 1997 1994 1995 1996 1997
($ million) ($ million)
Agricultural products 457 1,031 959 755 810 1,591 1,903 1,809
Textiles and clothing 501 828 1,392 1,617 1,136 1,853 1,590 1,994
Other industrial products 10,172 15,216 21,002 22,713 10,409 15,403 16,995 19,912
Total imports 10,915 16,861 23,138 24,870 12,355 18,847 20,489 23,715
(Percentages) (Percentages)
Share of "textiles and
clothing" in total imports 4.6 4.9 6.0 6.5 9.2 9.8 7.8 8.4
Source :  Government of Turkey.
C. Q UANTITATIVE LIMITS IN RESPECT OF TURKEY 'S IMPORTS OF CERTAIN TEXTILE AND
CLOTHING PRODUCTS
1. Historical background
2.25 The gradual removal of QRs in major developed countries during the 1950s, in the wake of
general liberalization efforts pursued in the GATT, brought about substantial increases in textiles and
clothing imports into major developed countries originating in low-cost countries.  To alleviate thedifficulties caused to their producers, some importing countries convinced exporters of cotton textiles
to conclude voluntary export restraint agreements.  In an attempt to find a multilateral solution to the
problem, in 1960 the GATT CONTRACTING PARTIES recognized the phenomenon of market
disruption, thus setting the ground for selective safeguard action in the area of textile and clothing
products (as a departure from the requirements of Article XIX of GATT 1947).
2.26 Thereafter, discriminatory restraints took the form of the 1961 Short-Term Arrangement
Regarding International Trade in Cotton Textiles, followed in 1962 by the Long-Term Cotton Textiles
Arrangement (1962-1973).  The Arrangement Regarding International Trade in Textiles or Multifibre
Arrangement ("MFA") entered into force in 1974, ex tending the coverage of the restrictions on
textiles and clothing from cotton products, to in clude wool and man-made fibre products (and, from
1986, certain vegetable fibre products).
40
2.27 During its 21 years of existence, from 1974 to 1994, the MFA underwent numerousoperational changes and adaptations.  The restraints under the MFA developed into a complex
network of restrictions, bilaterally negotiated (or imposed in the case of unilateral actions) at short
intervals, often every year or so.  In the last year of its existence, the MFA had 44 participants, six of
which (Canada, Norway, the United States and the European Communities, plus Austria and Finland,)
applied restraints.  Such restraints were used almost exclusively to protect their markets againstimports of textiles and clothing from developing countries and, to a lesser extent, from former state-
trading countries, also MFA members.
2.28 After more than three decades of special and increasingly complicated regimes governing
international trade in textile and clothing products, seven years of negotiations during the Uruguay
Round resulted in the ATC.  Through the transitional process embodied in the ATC, by 1 January2005 the extensive and complex system of bilateral restraints will come to an end and importing
countries will no longer be able to discriminate between exporters in applying safeguard measures.
                                                     
40 Operationally, the MFA (like the cotton arrangements) provided rules for the imposition of restraints,
either through bilateral agreements or, in cases of market disruption or threat thereof, through unilateral action.Importing countries were also required, with certain exceptions, to allow for an annual growth rate in therestraints.WT/DS34/R
Page 10
2.29 Turkey became a member of the MFA, as an exporting country, in 1981.  Since 1979, Turkish
textile and clothing products were subjected to restraints in the EC market under the provisions of
Article 60 of the Additional Protocol to the Ankara Agreement.41
2.30 On 31 December 1994, one day before the ATC came into force, Turkey did not maintainQRs on imports of textile and clothing products.  It s exports of certain textile and clothing products
were at that time under restraint in the European Communities and other countries' markets under theMFA.
2. Recent background
2.31 In accordance with Article 13 of Decision 1/95, as of 1 January 1996, the customs duties
applied by Turkey to the industrial goods imported from third countries were harmonized with the
CCT and the previous Mass Housing Fund levy of some 20 per cent, collected from industrial goods,
was abolished.  With respect to imports of textile and clothing products, the MFN tariffs applied by
Turkey were thereby reduced from roughly 10 per cent for textiles and 14 per cent for clothing in1994 ( plus the Mass Housing Fund levy) to 9 per cent in 1996.
42
2.32 Decision 1/95 included specific provisions with respect to trade in textiles and clothing, in
particular in Article 12, supplemented by related statements by both parties.  Such provisions called
for Turkey's adoption of the relevant EC regulatio ns concerning imports of textiles and clothing, in
particular Council Regulation 3030/93, which provided for the bilateral agreements with suppliercountries to be implemented by a set of EC quantitative limits on certain imports and for a system of
import surveillance.
2.33 Two Decrees issued by Turkey's Council of Ministers laid down the basis for the alignment of
Turkish commercial policy in textiles and clothing to that of the European Communities:  Decree No.
95/6815 on Surveillance and Safeguard Measures for Imports of Certain Textiles Products , with
respect to products from countries with which Turkey concluded bilateral agreements, and Decree No.
95/6816, concerning the Surveillance and Safeguard Measures for Imports of Textile Products
Originating in Certain Countries not Covered by Bilateral Agreements, Protocols and other
Arrangements , both of which were dated 30 April 1995 and published in the Turkish Official Gazette
on 1 June 1995.  Both Decrees were published with the respective Regulations for their application,under the authority of the Under-Secretariat for Foreign Trade, the Turkish responsible body for
determination and calculation of the quota levels on imports of textile and clothing products.
2.34 Early in 1995, in its endeavour to complete Decision 1/95 requirements for the "completion of
the Customs Union", Turkey sent proposals to the relevant countries (i.e. those whose imports of
textiles and clothing were under restraint in the EC market), including India, to reach agreements for
the management and distribution of quotas under a double checking  system.  A standard formula was
proposed for calculating the levels of QRs on textile and clothing products to be introduced by Turkeyvis-à-vis all third countries concerned.
2.35 On 31 July 1995, Turkey forwarded to the Indian authorities a draft Memorandum of
Understanding on trade in the categories of textile and clothing products on which Turkey intended to
introduce QRs.  India was invited to enter into negoti ations with Turkey, with the participation of the
European Communities, to conclude, prior to the completion of the Customs Union, an arrangementcovering trade in those products which would be similar to the one already existing between India and
the European Communities.  India maintained that the intended restrictions were in contravention of
Turkey's multilateral obligations and declined to enter into discussions on the conditions proposed by
Turkey.
                                                     
41 Notified to the Textiles Surveillance Body under Article 7 of the MFA.
42 The average level of protection of those imports in Turkey was 37 per cent in 1993.WT/DS34/R
Page 11
2.36 Agreements providing for restraints similar to those of the European Communities were
negotiated by Turkey with 24 countries (WTO Members and non-Members).  As provided for in
Article 12 of Decision 1/95, the EC Commission cooperated with the Turkish authorities in the
preparation of negotiating positions and generally participated in the negotiations themselves.  As
from 1 January 1996, unilateral restrictions or surveillance regimes were applied to imports
originating in another 28 countries (WTO Members and non-Members), including India, with whichTurkey could not reach agreement.  These restrictions only affected products whose export to the
European Communities was also under restraint.
2.37 The quantitative limits established by Turkey for 1996 were allocated on a quarterly basis,
through Communiqués published in the Official Gazette  on 19 December 1995, 13 March, 13 June
and 25 September 1996.  Quantitative limits for 1997 were allocated on a half-year basis, through
Communiqués published in the Official Gazette  on 7 December 1996 and 12 June 1997. Quantitative
limits for the year 1998 were allocated through a Communiqué published in the Official Gazette  on 18
December 1997.
3. Quantitative limits imposed on certain Turkey's imports of textile and clothing products
from India
2.38 Turkey applies QRs, as of 1 January 1996, on imports from India of 19 categories of textile
and clothing products.  (See the Annex to this report, Appendix 1, for a list of the categories anddescription of products.)
2.39 In the case of India, the formula used by Turkey to fix the level of the QRs corresponded to
either (i) the arithmetical average of imports into Turkey from India for the category of  products
during the period 1992-1994; or (ii) an amount based on total EC imports for the category of products
in question multiplied by the percentage of the basket exit threshold laid down in the bilateralagreement between the European Communities and India in force in 1994, multiplied by the
percentage share of Turkish GDP in EC-15 total GDP (i.e. 2.5  per cent), whichever was the higher.
To this amount the corresponding growth rates in force in quota years 1994 and 1995 had been added
to arrive at a level for 1996.  The specific criteria retained for the calculation of the quantitative limits
on imports of textile and clothing products into Turkey from India were as follows:
(i) average of Turkish imports in 1992-1994, for calculations on product categories 1, 2,
2a, 3a, and 23; and
(ii) option based on GDP, for calculations on product categories 6, 9, 20, 24 and 29
(because there were no imports into Turkey during 1992-1994); and on product
categories 3, 4, 5, 7, 8, 15, 26, 27 and 39 (because its outcome was higher than the
alternative calculation based on imports).
2.40 Actual quantitative limits established for 1996-1998 on textile and clothing products imported
from India can be found in the Annex to this report, Appendix 2.
4. Statistical analysis of Turkey's imports of textile and clothing products under restraint
(a) Imports of 61 textile and clothing product categories under restraint
2.41 Table II.3 below is based on (i) information provided to the CRTA on the QRs applied by
Turkey on imports of certain textile and clothi ng products from 25 WTO Members (WT/REG22/7)
and (ii) import statistics made available by Turkey to the Panel.  The data shown below therefore
correspond to imports into Turkey of textile and clothing products in the 61 categories identified in
the Annex to the document cited under (i) above as being restricted by Turkey for at least one WTOWT/DS34/R
Page 12
Member in 1997.43  The statistics in Table II.3 distinguish imports into Turkey from the EC-15 and
those originating in other countries (including India).
Table II.3: Turkey's imports of 61 textile and clothing product categories under restraint,
from the EC-15 and other countries, 1994-1997
Import values Shares
Origin 1994 1995 1996 1997 1994 1995 1996 1997
($ million) (Percentages)
EC-15 181 326 646 747 25 25 45 47
Other countries 556 960 802 853 75 75 55 53
Imports from all origins 736 1,286 1,448 1,600 100 100 100 100
Source :  WT/REG22/7 and Government of Turkey.
2.42 For the 61 categories of textiles and clothing under restraint, Turkey's imports from all non-
EC countries (including India) accounted for 4.5 and 5 per cent of its total imports from those
countries in 1994 and 1995, respectively, (i.e. prior to the introduction of the restraints) and for less
than 4 per cent of the corresponding totals in 1996 and 1997.  The share of imports of those same
product categories in Turkey's total imports from  the EC-15 increased from 1.7 per cent in 1994 to 3
per cent in 1997.44
(b) Imports of the 19 textile and clothing product categories under restraint for India
2.43 Statistics provided by India show that the value of its exports to Turkey of the 19 product
categories under restriction dropped in 1996 and continued to decline in the following year, albeit less
markedly; in 1995, exports under those categories had virtually trebled over their level in 1994.  Such
fluctuations were mainly due to variations in exports of restricted textile products to Turkey.  Adifferent behaviour is observed in India's exports to Turkey of other – unrestricted – products during
the period 1994-1997:  their share in India's total exports of textiles and clothing to Turkey has
increased throughout the period, from 32 per cent in 1994 to 87 per cent in 1997.  (See Table II.4, and
more detailed statistics in the Annex to this report, Appendix 3a.)
Table II.4: India's exports of textiles  and clothing to Turkey, 1994-1997
Export values Annual change
1994 1995 1996 1997 95/94 96/95 97/96
($ thousand) (Percentages)
Textiles Restricted products 13,960 41,840 21,700 19,570 200 -48 -10
Clothing Restricted products 252 396 104 297 57 -74 186
Textiles and clothing    All products 20,842 94,636 69,022 147,271 354 -27 113
Restricted products 14,212 42,236 21,804 19,867 197 -48 -9
Other products 6,630 52,400 47,218 127,404 690 -10 170
Source :  Government of India.
2.44 Data derived from trade statistics supplied by Turkey on its imports from India of the
restricted 19 product categories in 1994 to 1997 differ in magnitude or movement from those provided
by India.45  Nevertheless, they point at similar overall trends, both with respect to imports of product
                                                     
43 These product categories are the following:  1-10, 12-24, 26-29, 31-33, 35-37, 39, 46, 50, 61, 67, 68,
70, 72-74, 76-78, 83, 86, 90, 91, 97, 100, 110, 111, 117 and 118.
44 Shares calculated on the basis of data in Tables II.2 and II.3.
45 For the restricted product categories, differences are mainly concentrated in textiles.  Since
differences in trade dollar values are also found in volume terms, and most often pointing in the same direction,the impact of divergent unit values can hardly be the sole explanatory factor.  Such differences may derive, notonly from the usual time lags of international trade statistics, but also from computation methods.  In particular,differences in the data relative to the restrictive pr oduct categories could thus be linked to the existence ofWT/DS34/R
Page 13
categories under restraint and with respect to imports of other textile and clothing products.  (See
Table II.5, and more detailed statistics in the Annex to this report, Appendix 3b.)
Table II.5: Turkey's imports of text iles and clothing from India, 1994-1997
Import values Annual change
1994 1995 1996 1997 95/94 96/95 97/9
6
($ thousand) (Percentages)
Textiles Restricted products 12,949 45,530 31,651 30,528 252 -30 -4
Clothing Restricted products 133 153 352 131 15 130 -63
Textiles and clothing   All products 32,457 104,678 93,992 137,343 223 -10 46
Restricted products 13,082 45,683 32,003 30,659 249 -30 -4
Other products 19,375 58,995 61,989 106,684 204 5 72
Source :  Government of Turkey.
2.45 In Table II.6, based on Turkish statistics, Turkey's imports of the 19 product categories under
restraint for India and of other textile and clothing products are broken down by selected origins, forthe 1994-1997 period.  Imports from all origins into Turkey of the 19 product categories under
restraint for India accounted in both 1994 and 1995 for 24 per cent of Turkey's total imports of textiles
and clothing, this share declining to 19 per cent in 1997.
2.46 Turkey's imports of the 19 categories of textiles and clothing under restraint for India from all
non-EC countries (including India) accounted for less than 3 per cent of Turkey's imports of allproducts (including textiles and clothing) from those countries in both 1994 and 1995, and for less
than 2 per cent of the corresponding totals in 1996 and 1997. The share of imports of the same 19
product categories in Turkey's imports of all products  (including textiles and clothing) from the EC-15
doubled from 0.5 per cent in 1994 to 1.1 per cent in 1997.
46
Table II.6: Turkey's imports of the 19 textile and clothing product categories under
restraint for India, by selected origins, 1994-1997
Import values Shares
Origin 1994 1995 1996 1997 1994 1995 1996 1997
($ million) (Percentages)
EC-15 56 101 237 280 14 16 37 41
Other countries 336 548 400 406 86 84 63 59
   of which:  India 13 46 32 31 3 7 5 5
Imports from all origins 392 649 637 686 100 100 100 100
Source :  Government of Turkey.
                                                                                                                                                                    
various stages in the process of export/import licensing, which may serve as a source of the statistics.  It is
however to be noted that India's export data on unrestr icted product categories are also largely at variance with
the corresponding import data provided by Turkey.
46 Shares calculated on the basis of data in Tables II.2 and II.6.WT/DS34/R
Page 14
III. PRELIMINARY POINTS47
A. I SSUES
3.1 Following the establishment and composition of the Panel, Turkey  submitted on 14 August
1998 that some points needed to be addressed by the Panel ahead of any examination of the substance
of the complaint brought by India.  Turkey claimed that:
(i) the request for the establishment of the panel was insufficiently precise in terms of
the measures at issue and the product coverage of such measures; by omitting tomake clear reference to the measures complained of and their precise product
coverage, India had frustrated Turkey's rights of defense;
(ii) the failure by India to direct the complaint to the European Communities as well as
Turkey, because the measures at issue stemmed from the Turkey-EC customs union,
meant that the complaint should necessarily fail; and
(iii) rules concerning the consultation stage of the dispute settlement procedure with
respect to trade in textile and clothing products had not been followed by India.
3.2 In the view of Turkey, the Panel should make a preliminary ruling on these points, rejecting
India’s complaint.
3.3 India  requested the Panel to rule that Turkey’s request for preliminary rulings had factually
and legally no basis, on the grounds that:
(i) the identification of the measures at issue (the restrictions Turkey imposed on textile
and clothing products from India as from 1 January 1996, the date when Turkey
began to align its restrictions to those of the European Communities) was sufficiently
specific to enable Turkey to prepare its defense and the Panel to resolve the dispute;
(ii) it was not possible to bring a complaint against the European Communities with
respect to the measures at issue, since these had not been taken by the EuropeanCommunities nor were they legally attributable to the European Communities
because the territorial scope of its obligations under the WTO Agreement did not
extend to the customs territory of Turkey.  Also, in the absence of a provision for a
co-respondent status in the DSU, the European Communities’s participation in the
proceedings would not, by itself, oblige it to abide by the Panel’s ruling and agree toa modification of the common EC-Turkey regime governing restrictions on imports
of textile and clothing products from third countries; and
(iii) the special dispute settlement procedures of the ATC did not apply to all restrictions
imposed on textile and clothing products but only to those for which the provisions of
the ATC were invoked.  Since Turkey had notified the TMB that its restrictions werenot imposed under the provisions of the ATC but in accordance with Article XXIV of
the GATT, the normal dispute settlement procedures applied to the restrictions at
issue.  The TMB, established for the sole purpose of supervising the implementation
of the ATC, was obviously not the proper forum for the resolution of a dispute on the
relationship between Article XXIV of GATT and the general prohibitions of new
textile and clothing restrictions set out in Article XI of GATT and Article 2.4 of the
ATC.
                                                     
47 See also para. 1.8 above.WT/DS34/R
Page 15
3.4 India also noted that procedural arguments ma de by Turkey could not be divorced from the
facts and substantive arguments Turkey would present to the Panel.  For instance, to rule on Turkey’srequest the Panel would need to know whether Turkey presented any product-specific arguments,
whether the measures at issue were taken by the European Communities or Turkey and which
provisions of the GATT and/or the ATC Turkey invoked to justify its restrictions.  India therefore
stated its preference for the Panel to address the procedural points raised by Turkey after its
substantive arguments were presented and an opportunity given to India to rebut those arguments.
3.5 Japan , the Philippines  and the United States , as third parties, also submitted their views in
this respect  Both Japan and the United States consid ered that, in the absence of any standard working
procedures for preliminary rulings, the procedural and organisational issues raised by Turkey should
be disposed of by the Panel in limine litis , so that India would have an opportunity to address defects,
if any, before the conclusion of the work of the Panel.  The Philippines argued that the Panel should
not consider Turkey's request for preliminary rulings because (i) the request was an ex parte
communication in the sense of Article 18.1 of the DSU, not being required nor contemplated in thePanel's working procedures; (ii) the Panel's findings on the issues of law and fact involved in the
request could deprive India and the third parties of their rights under procedural due process; and (iii)
the issues raised in the request were inextricably  linked with the substance of India's complaint and
could not be resolved separately.
B. P
RECISION OF THE REQUEST FOR THE ESTABLISHMENT OF THE PANEL
1. Arguments by the parties
3.6 Turkey  submitted that it was incumbent upon the Panel to examine the request for its
establishment to ensure its compliance with both the letter and the spirit of Article 6.2 of the DSU.  It
was important that a panel request be sufficiently precise because (i) it often formed the basis of the
terms of reference of the panel pursuant to Article 7 of the DSU, and (ii) it informed the defendingparty and the third parties of the scope and the legal basis of the complaint.
48  Since the jurisdiction of
a panel was established on its terms of reference, by which it was bound,49 no uncertainty with regard
to their scope was permissible, since any such uncertainty would be tantamount to a basic uncertainty
concerning the scope of the jurisdiction of that panel.
3.7 Turkey also considered that, as noted by the Appellate Body in the EC – Regime for the
Importation, Sale and Distribution of Bananas  case,50 such a fundamental issue concerning the scope
of the panel jurisdiction could be decided early in the panel procedure without unfairness to any party
or third party, but Turkey did not believe that for this purpose detailed panel working procedures
needed to be first established, since panels had regularly addressed preliminary issues of this kind in
limine litis .51
3.8 Turkey recalled that Article 6.2 of the DSU required a request for the establishment of a panel
to identify "the specific measures at issue".  In its request submitted in the present case, India merely
referred to "the unilateral imposition of QRs by Turkey on imports of a broad range of textile and
                                                     
48 See Appellate Body Report on EC – Regime for the Importation, Sale and Distribution of Bananas ,
adopted on 25 September 1997, WT/DS27/AB/R (" EC - Bananas III "), para. 142.  See also Panel Report on EC
– Regime for the Importation, Sale and Distribution of Bananas , adopted on 25 September 1997,
WT/DS27/R/MEX (" EC - Bananas III "), para. 7.37.
49 See Appellate Body Report on India – Patent Protection for Pharmaceutical and Agricultural
Chemical Products , adopted on 16 January 1998, WT/DS50/AB/R (" India - Patent "), para. 92.
50 See Appellate Body Report on EC - Bananas III , para. 144 (footnote 1).
51 For a recent example of preliminary rulings issued at the beginning of the first meeting with the
parties by the Panel, see Panel Report on Indonesia – Certain Measures Affecting the Automobile Industry ,
adopted on 2 July 1998, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R (" Indonesia - Autos "), Section
XIV.A, paras. 14.1-9.WT/DS34/R
Page 16
clothing products from India as from 1 January 1996",52 which Turkey considered a clearly
insufficient description of the "specific measures at issue".  In particular, the measures complained ofwere not specified by reference to the place of publication, by a clear indication of the date of
adoption or promulgation, the issuing authority and the type of measure, nor by a reference to their
precise product coverage.  In Turkey's view, such a lack of precision was contrary to the letter and the
spirit of Article 6.2 of the DSU.  The basic right of  defense, or due process implicit in the DSU would
be impaired if the identification of the specific m easures complained of were not clear, so that the
party with the better guess  would prevail.  It was fundamental for a fair process that the party that had
allegedly committed a breach of its obligations be fully aware of the case held against it.  Turkey
considered that, this could only be achieved, in the circumstances of the present case, by a clear
reference to the measures complained of and their exact product coverage.
3.9 India  pointed out that Turkey could not claim that it was not adequately informed about the
scope of the dispute at the beginning of the panel proceedings.  The domestic legal basis and product
coverage of Turkey's measures could not have escaped the notice of its own authorities since Turkeyhad itself notified all details to the WTO.  Furthermore, India raised the matter of the restrictions
imposed by Turkey on a number of separate occasions.
53  On none of these occasions did Turkey
indicate that the description of the measure left any uncertainty regarding the scope of the dispute.  On
the contrary, Turkey made it clear that it was fully aware of the product coverage when it stated
before the DSB that "… with regard to Turkey’s textile quotas … none of the textiles and clothingcategories which were subject to QRs had been fully utilised by any exporting country.  In the case of
India, textile and clothing quotas had been underutilised in both 1996 and 1997".
54  All Members,
including Turkey, were thus fully informed of the facts on which Turkey now claimed ignorance.
3.10 India noted further that one of the purposes of the requirement of prior consultations (Articles
XXII and XXIII of GATT and Article 4 of the DSU) was to ensure that Members conducted adetailed exchange of facts and views before resorting to the panel procedure.  During consultations
the respondent had the opportunity to seek clarifications regarding the scope of the complaint.  India
recalled in this context that Turkey had refused to  consult with India altogether without the presence
of the European Communities, although, in India's view, it would have been free to raise in the
consultations the issue of European Communities’s participation in the proceedings.  To buttress itspresent claims, Turkey had invoked the principle of due process, recognized by the Appellate Body as
inherent in the DSU.
55  However, India failed to see how could it be consistent with the principle of
due process if a Member were permitted to first refuse to hold consultations and then claim ignorance
on matters that could have been clarified in those consultations.  India therefore considered Turkey’s
claim that it was insufficiently informed by India about the scope of the dispute as a case of venire
contra factum proprium  which should, for that reason alone, be rejected by the Panel.
3.11 India also submitted that its request for the establishment of a panel stated that the measures
at issue were the "QRs [imposed unilaterally] by Turkey on imports of a broad range of textile and
clothing products from India as from 1 January 1996",56 thus clearly identifying the specific measures
at issue.  It noted that Turkey was aware of the details of the quantitative limits imposed by it, since
these were notified jointly by the European Communities and Turkey to the CRTA and a copy of this
notification was also sent to the Chairman of the TMB.  There could be no uncertainty for the Turkishauthorities regarding such details as the product coverage of these restrictions, the place of
                                                     
52 WT/DS34/2, para. 1.
53 DSB meeting of 27 March 1996 (WT/DSB/M/13, dated 13 May 1996); DSB meeting of 24 April
1996 (WT/DSB/M/15, dated 15 May 1996); DSB meetings of 13 February 1998 and 13 March 1998(WT/DSB/M/42, dated 16 March 1998, and WT/DSB/M/43, dated 8 April 1998); CRTA meeting of 16-18 and20 February 1998 (WT/REG/M/16, dated 18 March 1998, paras. 140 and 141).
54 WT/DSB/M/43, dated 8 April 1998, Item 2, para. 3.
55 See Appellate Body Report on India – Patent , para. 94.
56 WT/DS34/2, para.1.WT/DS34/R
Page 17
publication, the date of adoption or promulgation, the issuing authority or the type of measure.  The
identification of the specific measures at issue in India’s request for a panel, therefore, did not requireTurkey to engage in conjectures as to the scope of the dispute.
3.12 India submitted further that its complaint was directed against Turkey’s restrictive regime for
textile and clothing products from India agreed with the European Communities.  The dispute
between Turkey and India concerned one narrow legal issue, namely, whether Article XXIV of
GATT, the only provision invoked by Turkey to ju stify its restrictions, permitted Turkey to impose
new restrictions on imports of textile and clothing products from India that were inconsistent with the
provisions of Article XI:1 of GATT and Article 2.4 of the ATC.  The manner in which India had
identified the measures at issue fully enabled Turkey to prepare its defense on this dispute and the
Panel to rule on it.  India considered that the identification of the measures at issue was, therefore,
sufficiently precise for the purposes of Article 6.2 of the DSU.
3.13 Turkey  recalled the findings of the panel on  EEC – QRs against Imports of Certain Products
from Hong Kong , which included the following:
"The Panel considered that just as the terms of reference must be agreed between the
parties prior to the commencement of the Panel’s examination, similarly the product
coverage must be clearly understood  and agreed between the parties to the dispute.  The
Panel considered that to allow the inclusion of an additional product item about which
one party had not been formally advised prior to the commencement of the proceedingswould be to introduce an element of inequity" (emphasis added).
57
3.14 Turkey noted that, since under the DSU the parties to the dispute needed no longer to agreeon the establishment of a panel, it was all the more important that the parties and the third parties be in
the clear about the precise scope of the dispute, as the Appellate Body found in the EC – Bananas III
case.
58  It also noted that, in the EC – Customs Classification of Certain Computer Equipment  case,
the Appellate Body, taking into account such clear logical and legal necessities, stated that "it may
also be necessary to identify the products subject to the measures in dispute",59 in this case rejecting
the claim by the European Communities that the United States had violated Article 6.2 of the DSU on
the basis that "the complaining parties may have identified [the products at issue] by broader
grouping, but not spelled out in sufficient detail".60
3.15 Turning to the present case, Turkey recalled that, in its request for the establishment of a
panel, India had not even indicated a broader grouping of products, but limited itself to a generic
reference to "a broad range of textile and clothing products".  In Turkey's view, if such generic
reference would be deemed to be sufficient to  comply with Article 6.2 of the DSU, the word
"specifically" in that provision would be inevitably reduced to redundancy or inutility, thus breachinga fundamental principle of interpretation of international public law.
61
3.16 India  responded that Article 6.2 of the DSU did not prescribe the manner in which the
specific measures at issue were to be identified.  Turkey’s interpretation was supported neither by
GATT/WTO practice nor by Appellate Body rulings.  In most requests for the establishment of a
panel made under the GATT and the WTO Agreement, the measures at issue were not identified by
date and place of publication nor was the product coverage indicated with precision.  The WTO EC –
                                                     
57 Panel Report on EEC – QRs against Imports of Certain Products from Hong Kong , adopted on 12
July 1983, BISD 30S/129 (" EEC - Imports from Hong Kong "), para. 30.
58 See Appellate Body Report on EC – Bananas III , para. 142, footnote 1.
59 Appellate Body Report on EC – Customs Classification of Certain Computer Equipment , adopted on
22 June 1998, WT/DS62, 67, 68/AB/R (" EC - Computer Equipment "),  para. 67.
60 Ibid., para. 70.
61 See Appellate Body Report on United States – Reformulated and Conventional Gasoline,  adopted on
20 May 1996, WT/DS2/AB/R (" US - Gasoline "), p. 23, footnote 45.WT/DS34/R
Page 18
Bananas III  case, cited by Turkey in support of its position, was no exception.  Close to 100 different
regulations made up the EC regime for the importation, sale and distribution of bananas, whichapplied to over a dozen different products.  Both the panel and the Appellate Body examined the
totality of this regime, irrespective of whether the regulations at issue were identified in the terms of
reference in detail, and neither the panel nor the Appellate Body considered the generic description of
the products to which this regime applied to be inconsistent with Article 6.2 of the DSU.
62
3.17 In India's view, Article 6.2 of the DSU essentially required that the complainant identify
clearly the matter in dispute.  Details were in most cases irrelevant to its resolution.63  If Turkey’s
interpretation were accepted, Members would only be able to bring complaints about elements of a
trade regime whose domestic legal basis and product coverage could be identified with precision at a
particular point in time, leaving the authorities of the respondent complete freedom to change a detail
of the regime and claim that the new regime was no longer the measure ruled upon by the DSB.
Requests for the establishment of a panel on defined aspects of a trade regime had frequently been
made in the past and the panels and parties had not found an indication of the domestic legal basis andproduct coverage as necessary to resolve the disputes.  India considered that the possibility to bring
complaints on the basis of such requests should re main in the future if the DSU was to serve its
purpose.
3.18 India noted further that the GATT and WTO precedents cited by Turkey did not support its
position.  For instance, Turkey had quoted the GATT Panel Report on EEC – Imports from Hong
Kong .
64  During the course of proceedings of this panel, Hong Kong had requested a ruling on a
product not mentioned at all in its panel request.  There was no parallel there with India’s complaint
because India did not request in its first submission a ruling on products that it had not mentioned in
its panel request.  The panel on the EC – Computer Equipment  case had pointed out that the EEC –
Imports from Hong Kong  s case had to be distinguished from the case in which the complaining party
merely elucidated the product coverage already specified in the request for the establishment of a
panel.65  India, just like the United States in the EC – Computer Equipment  case, merely provided in
its first submission details on the present product coverage of measures already identified in the panel
request.  Finally, Turkey referred to the Appellate Body Report on the EC – Computer Equipment
case, in which the Appellate Body recognized that  the complaining party might identify the products
subject to the measures at issue "by broader grouping", rejecting the European Communities’s claim
that each individual product had to be identified with precision.66  However, this Appellate Body
ruling supported India’s position that the identification of the measures at issue as the restrictions
Turkey imposed as from 1 January 1996 on imports of textiles and clothing from India was
sufficiently precise.
3.19 Turkey  recalled Article 22.4 of the DSU, which referred to the "level of nullification and
impairment", questioning how such level could be established if the precise product coverage of the
dispute was unknown.
3.20 India  made reference to Article 22.6 of the DSU, according to which the level of suspension
of concessions, in the case of a failure to comp ly with recommendations or rulings adopted by the
DSB under the procedures of Article 22 of the DSU, should be equivalent to the level of the
nullification or impairment.  India considered that Turkey's argument that such equivalence could
                                                     
62 See Panel and Appellate Body Reports on EC – Bananas III (Complaint by the United States) .
63 For instance, if a Member complained about the import licensing procedures of another Member, it
would normally not be necessary to identify the place and date of publication of the regulation promulgating the
procedures and its current product coverage.  What was relevant for the resolution of such a dispute was theimport licensing procedure as such, not its current domestic legal basis and the particular products to which itapplied at a particular point in time.
64 See BISD 30S/129
65 See Panel Report on EC – Computer Equipment, para. 8.9.
66 See Appellate Body Report on EC – Computer Equipment , para. 67.WT/DS34/R
Page 19
only be determined if the product coverage was precisely determined during the panel proceedings
had no merit.  The level of suspension to which the complainant was entitled to under Article 22.4 ofthe DSU obviously depended on the level of nullification or impairment at the time when the failure
to comply with the DSU recommendations occurre d.  India’s rights under Article 22 of the DSU
would in the present case thus depend on the nullification or impairment caused by the Turkish
measures when the reasonable period for compliance with the DSB recommendations or rulings
would have elapsed.  Thus, if Turkey were to remove several items from the coverage of its restrictiveregime for Indian textile and clothing products, India’s right to suspend concessions or other
obligations would be curtailed correspondingly.  In India's view, the product coverage at the present
time was thus not relevant for the purposes of Article 22 of the DSU.  Moreover, any dispute
regarding the level of suspension was to be resolved under the separate procedures set out in Article
22.6 of the DSU.  There was, therefore, no need to make in the panel proceedings the factual findings
that might have to be made in a subsequent Article 22.6 proceeding.
3.21 Turkey  also pointed out that a faulty request for the establishment of a panel could not be
"cured" by a complaining party’s argumentation in its written submissions to the panel, in accordance
with the findings of the Appellate Body in EC – Bananas III .
67  The deficiency of India’s request for
the establishment of a panel was therefore a fatal procedural obstacle to carrying this case any further.
Any other decision would amount to a violation of Turkey’s essential procedural right as a respondent
to be aware of the case held against it which was part of the demands of due process to be preservedby the Panel.
68
3.22 India  noted that no issue of a "cure", as implied in Turkey's reference to the Appellate Body
ruling in EC – Bananas III , could arise when, as was the case of India’s request for a panel and its
first submission, the measures at issue in the request for a panel were the same measures that were
referred to in the first submission of the complainant.
3.23 India concluded that the identification of the measures at issue was sufficiently specific to
enable Turkey to prepare its defense and the Panel to resolve the dispute, and it, therefore, met the
requirements of Article 6.2 of the DSU.
2. Arguments by third parties
3.24 Japan  referred to the Japan – Measures Affecting Consumer Photographic Film and Paper
case as an additional important precedent for the interpretation of Article 6.2 of the DSU.  For the
identification of the specific measures at issue in that case, the panel found that a measure not
explicitly described in a request for the establishmen t of a panel, to be regarded as being included in
the measures at issue, had to be subsidiary or so closely related to the latter that the responding party
could reasonably be found to have received adequate notice.69
3.25 The Philippines  submitted that there was no specific standard on the degree of specificity
required in the phrase "identify the specific measures at issue" other than the phrase "sufficient to
present the problem clearly", in Article 6.2 of the DS U.  In the Philippines view, Turkey, by its own
acts, had made it sufficiently clear that it understood the problem clearly, or ought to understand it, as
a reasonable party acting in good faith in the context of non-contentious proceedings (as pointed out
in Article 3.10 of the DSU).  The Philippines also rejected Turkey's argument related to the level of
nullification and impairment as having no relevance whatsoever to the identification of the specific
                                                     
67 See Appellate Body Report on EC – Bananas III , para. 143.
68 See Appellate Body Report on India – Patent , para. 94, where it is stated that "the demands of due
process … are implicit in the DSU".
69 See Panel Report on Japan – Measures Affecting Consumer Photographic Film and Paper , adopted
on 22 April 1998, WT/DS44/R.WT/DS34/R
Page 20
measures at issue.  The Philippines concluded that India was in compliance with Article 6.2 of the
DSU.
C. N ON-PARTICIPATION OF THE EUROPEAN COMMUNITIES IN THE DISPUTE
1. Arguments by the parties
3.26 Turkey  noted that the creation and existence of a customs union was not only a fact which
was taken into account by the drafters of the GATT, but was expressly referred to in Article XXIV:4
of GATT as "desirable" because of the economic in tegration between the countries parties to the
customs union.  India was well aware that the measures subject of its complaint had not been taken
unilaterally  by Turkey, but resulted from the completion of the customs union agreed between Turkey
and the then EEC in the Ankara Agreement, as specified in more detail in Association Council's
Decision No. 1/95 "on implementing the final phase of the Customs Union".  Turkey referred to
paragraphs 1 and 2 of Article 12 of Decision No. 1/95 as evidence of its lack of autonomy in adopting
its external commercial policy concerning imports of textile and clothing products from countries
outside the customs union. Turkey recalled that the conclusion of the Turkey-EC customs union, andmore particularly the above-mentioned provisions were duly notified to the GATT and to the WTO.
3.27 India  noted that the restrictions imposed by Turkey were acknowledged by both Turkey and
the European Communities as having been imposed by Turkey.  Thus, Article 12 of Decision 1/95
provided that " Turkey shall , in relation to countries which are not members of the Community, apply
provisions and implementing measures which are substantially similar  to those of the Community 's
commercial policy set out in the following Regulations" (emphasis added).
70  Furthermore, the joint
Turkey-European Communities communication to the CRTA on 8 November 1996 (containing
preliminary information on Decision 1/95) r eads as follows:  "In this framework, Turkey has
introduced quantitative restrictions  and surveillance measures parallel with the practices of the EC
and will similarly align itself  with EC liberalisation" (emphasis added).71  In the Turkey-European
Communities communication to the CRTA on the details of the QRs imposed, there was again joint
and clear acknowledgement that:
"In order to assist Members in the examination of the customs union, Turkey and the
European Communities are pleased to confirm, in the Annex hereto, details of the
quantitative limits applied by Turkey in respect of imports of certain textile and clothingproducts from certain WTO Members, and in conformity with the provisions of Article
XXIV of GATT 1994" (emphasis added).
72
In India's opinion, there was therefore no doubt that the measures at issue were restrictions imposed
by Turkey and not by the European Communities.
3.28 Turkey  recalled that, according to the Appellate Body in  Japan – Taxes on Alcoholic
Beverages , Panel and Appellate Body Reports " are not binding, except  with respect to resolving the
particular dispute between the parties to that dispute "(emphasis added).73  This corresponded to
internationally recognized standards:  Article 59 of the Statute of the International Court of Justice
("ICJ") contained similar language, as indicated in footnote 30 of the above-mentioned Appellate
Body report.  Turkey added that Article 63 of the ICJ Statute allowed for all the parties to an
international convention to become an intervenie nt with regard to the interpretation of that
                                                     
70 See WT/REG22/1.
71 WT/REG22/5, Section II.8 (Trade Provisions, Sector-specific provisions), sub-section on Textiles
and Clothing.
72 WT/REG22/7, p. 1.
73 Appellate Body Report on Japan – Taxes on Alcoholic Beverages , adopted on 1 November 1996,
WT/DS8/AB/R (" Japan - Alcoholic Beverages "), p. 14.WT/DS34/R
Page 21
convention, it being understood that such an intervenient would then be bound by the judgement of
the ICJ.74  Turkey noted that such a provision was absent from the DSU, Article 10 giving third
parties only limited rights of participation.
3.29 India  noted that, although the DSU did not prov ide for the status of co-respondent, the
European Communities would have had the right to participate in the present proceedings as a third
party (Article 10).  As such, it would have had the right to request the Panel to accord it the enhanced
third-party status which certain GATT and WTO panels have accorded to third parties with a directcontractual interest in the outcome of a proceeding.
75  This would have permitted it to be present at all
meetings of the Panel with the parties and to submit its views in all stages in the proceedings.  The
European Communities deliberately chose not to part icipate in the proceedings in accordance with the
provisions of the DSU.  It would amount to an amendment of the DSU by the Panel if the European
Communities were accorded rights of participation not foreseen in the DSU and never before granted
to a GATT contracting party or WTO Member interested in supporting the respondent.
3.30 Turkey  further submitted that it could not be obliged by a DSB ruling to breach an
international agreement that was duly notified and had a recognized status in the WTO by virtue of
Article XXIV of GATT.  A generally accepted rule of public international law was contained in
Article 26 of the Vienna Convention of the Law of Treaties ("VCLT"):  pacta sunt servanda .  This
made it legally impossible for Turkey to act incons istently with its obligations under the Turkey-EC
customs union without the consent of the other party to that agreement.  Any other solution wouldamount to obliging Turkey to breach its international obligations vis-à-vis  the European Communities
and would thereby be contrary to general principles of public international law which, in accordance
with Article 3.2 of the DSU, was a source of law within the WTO dispute settlement system.
3.31 India  considered that, although it might be true that Turkey faced conflicting obligations in
the WTO and in its bilateral agreement with the European Communities, this issue was not germaneto the task of the Panel, whose mandate according to Article 7.1 of the DSU was to examine
exclusively Turkey’s obligations under the WTO agreements cited by the parties to the dispute, not
any other treaties accepted by Turkey.  This was not the first case in GATT/WTO history in which a
panel had examined GATT-inconsistent measures taken by the defendant as a result of a bilateral
agreement with another State.  So far, all panels faced with that situation had simply ignored it and
left it to the defendant to decide how to resolve its conflict of international obligations.
76  Turkey’s
potential conflict of international obligations was,  therefore, irrelevant in the current proceedings.
3.32 India noted that it was undisputed in internat ional law that a treaty between two States does
not create either obligations or rights for a third State without its consent.77  The agreement reached
between Turkey and the European Communities, therefore, could not modify the rights which Indiaasserted before this Panel.  Contrary to Turkey's defense based on the recognized status of a customs
union under Article XXIV of the GATT, India argued that nothing in Article XXIV could possibly be
                                                     
74 Article 63 of the Statute of the International Court of Justice reads as follows:  "1. Whenever the
construction of a convention to which states other than th ose concerned in the case are parties is in question, the
Registrar shall notify all such states forthwith.  2. Every state so notified has the right to intervene in the
proceedings; but if it uses this right, the construction given by the judgement will be equally binding upon it."
75 See Panel Report on EC – Bananas III (Complaint by the United States) , para. 7.5; and the references
to GATT precedents in footnote 330 of that report.
76 Examples of such cases are: Norway – Restrictions on Imports  of Certain Textiles Products, BISD
27S/119 (restrictions discriminating against Hong Kong imposed under bilateral agreements with six developing
countries);  Japan – Trade in Semi-Conductors , BISD 35S/116 (export restrictions on semi-conductors imposed
under an agreement with the United States); EC – Bananas III (Complaint  by the United States) , para. 3.30
(country-specific allocations of tariff quota shares under the "Framework Agreement on Bananas" concludedbetween the EC and certain Latin American countries).
77 Article 34 of the VCLT:  " pacta tertiis nec nocent nec prosunt " ("A treaty does not create either
obligations or rights for a third State without its consent").WT/DS34/R
Page 22
interpreted as authorizing WTO Members forming a customs union to restrict imports from third
WTO Members.  Article XXIV provisions could not be understood as an expression of the consent ofthird WTO Members to bear the consequences of whatever restrictions might be imposed on their
trade under an agreement between WTO Members forming a customs union.
3.33 Turkey  also maintained that India’s claim could not succeed as long as India was unwilling
to direct its complaint against both the European Communities and Turkey.  If the European
Communities was not fully involved in the present dispute, it would not be bound by its outcome and
would therefore be under no obligation to agree to apply the agreement in a way that would satisfy
India’s pretensions.  Turkey considered that India’s claim should be rejected on the basis that, in order
to pursue its claims properly, India should have cited both parties to the Turkey-EC customs union as
respondents.  In Turkey's view, the present case was comparable to a situation where the complainant
directed its complaint against country A for a measure taken by country B; in such situation, the
complaint would have to be turned down for lack of standing due to the obvious absence of
international liability.  The same rule should ther efore apply in the present case, since there was no
basis, in fact or in law, for the assumption that Turkey was alone internationally answerable and
individually responsible for acts collectively taken by the parties to the Turkey-EC customs union
through its institutions.
3.34 In that context, Turkey viewed India’s ultimate aim as that of being able to increase its trade
in textile and clothing products with the Turk ey-EC customs union, and not with Turkey alone.
However, the "level of nullification or impairment" (Article 22.4 of the DSU) of QRs applied by the
Turkey-EC customs union with regard to such trade with a final destination in Turkey would in fact
be nil, while such trade impairment was potentiall y measurable with regard to the trade in these
products with a final destination in European Communities. India’s choice of the respondent therefore
amounted to a circumvention of the essential rights of defense of the European Communities as theparty in the Turkey-EC customs union which would have to bear the trade consequences of any
change in the existing import regime for textile and clothing products in Turkey as a constituent
territory of the Turkey-EC customs union.
3.35 India  noted that Turkey was not an EC Member State.  Hence, the territorial scope of the
European Communities’s obligations under the WTO Agreement did not comprise the Turkishcustoms territory and the Turkish government was not an authority for whose acts the European
Communities had assumed any responsibility under the WTO Agreement.  The import restrictions
adopted by Turkey within its customs territory were measures neither adopted by, nor legally
attributable to the European Communities.
78  In the absence of any EC restrictions that India could
possibly challenge under the WTO agreements, India could not reasonably be expected to initiateproceedings against the European Communities under the DSU.
3.36 Finally, in India's view, according to Article 19.1 of the DSU, the DSB could request the
European Communities to modify their agreement with Turkey only if EC participation in that
agreement, by itself, constituted a measure inconsistent with a WTO agreement covered by the DSU.
This was, however, not the case.  Moreover, a Member participating as a third party in the normal
panel procedures is not bound by the outcome of the proceedings merely by virtue of its participation.
As confirmed by the Appellate Body, the results of a panel proceeding bound only the complainant
                                                     
78 In India's view, the only measure the EC took with respect to the measures at issue was to seek a
common EC-Turkey regime for third-country imports of textiles and clothing and to reach an agreement withTurkey on such a regime.  However, these actions of the EC, by themselves, were not measures covered byWTO law.  The only provision in the WTO agreements which specifically prohibited Members to seek theimposition of a measure by another Member or to conclude an agreement with another Member on suchimposition was Article 11 of the Safeguards Agreement, a provision which obviously did not apply in the
present case.WT/DS34/R
Page 23
and the defendant in the proceedings.79  There was no obligation for third parties participating in panel
proceedings corresponding to that contained in the arbitration procedures of Article 25 of the DSU.80
3.37 India could therefore not see how a mere change in the status of the European Communities
in the proceedings of the Panel could entail a change in India’s rights towards the European
Communities under the WTO agreements and oblige the European Communities to agree to a
modification of the common EC-Turkey regime for imports of textile and clothing products from
India.  Under general international law, such an  obligation could result only from an agreement
between India and the European Communities according to which these would commit themselves to
abide by the Panel ruling if it were permitted to part icipate in the Panel proceedings.  India noted that
the European Communities had not offered to assume that obligation.
2. Arguments by third parties
3.38 Japan  submitted that the Panel had been established in accordance with the provisions of the
DSU, since India questioned Turkey's obligations under the WTO Agreements (not Turkey's
obligations vis-à-vis  the European Communities under the Ankara Agreement).  Japan further noted
that there was no obligation under the DSU for India to complain against the European Communities
in this particular case and that any general issue of mandatory co-respondents should be addressed in
another context.
3.39 The Philippines  submitted that the European Communities were not an indispensable party to
the dispute and that the resolution of India's clai ms against Turkey was not precluded without the
participation of the European Communities.  The Philippines observed, in particular, the following:
(i) Turkey's invocation of the pacta sunt servanda  principle contained in Article 26 of
the VCLT was not relevant in this context, since the terms and conditions of any
agreement between Turkey and the European Communities, as between themselves,
was not the subject of the dispute.  Rather, a necessary consequence of Articles 26and 34 of the VCLT was that, in the WTO, as between Turkey and India, Turkey
could not invoke whatever conflicting obligations it might have under a Turkey-EC
agreement.
(ii) Even assuming that Turkey had acted in performance of an obligation imposed by a
Turkey-EC agreement, the operative act from which India's cause of action arose (thepromulgation of a law applicable in Turkish territory) was the exclusive and
sovereign act of Turkey.
(iii) The Panel, or the Appellate Body, had no choice but to apply the WTO Agreement,
since the Turkey-EC agreements were not "covered agreements".  Moreover, in
accordance with paragraph 4 of Article 30 of the VCLT,
81 the WTO Agreement was
exclusively applicable as between Turkey and India in the context of this dispute.
(iv) It was irrelevant and immaterial that the European Communities be bound by the
results of this dispute, since India did not seek any remedy from the European
Communities.
3.40 The United States  also argued in support of India's views, noting the following:
                                                     
79 See Appellate Body Report on Japan – Alcoholic Beverages , Section E.
80 Where all parties to the proceedi ng, including any third Member that  agreed to participate, "shall
agree to abide by th e arbitration award".
81 "When the parties to the later treaty do not include all the parties to the earlier one:  … (b) as
between a State party to both treaties and a State party to only one of the treaties, the treaty to which both States
are parties governs their mutual rights and obligations".WT/DS34/R
Page 24
(i) The text of Article 10 of the DSU drew a ba lance between the rights of the parties to
a dispute and the rights of other Members, a point made clear in the EC – Bananas III
case, when the panel granted part but not all of a request for additional participatory
rights for third parties.82  In the present dispute, the European Communities had
however not chosen to avail themselves of the rights afforded to it by the provisions
of Articles 10.1-10.3 of the DSU.
(ii) Turkey's claim that it was not individually responsible under the WTO Agreement for
the measures at issue because of Turkey's entry into the Ankara Agreement could not
be accepted.  The existence of the Ankara Agreement could not by itself limit the
rights of India under the WTO Agreement with respect to those measures.  This
principle of customary international law, pacta tertiis nec nocent nec prosunt , was
expressed in Article 34 of the VCLT:  "A treaty does not create either obligations or
rights for a third State without its consent."
(iii) Turkey's citation of the principle of pacta sunt servanda  was inapposite, as the text of
Article 26 of the VCLT made it clear that "Every treaty in force is binding upon the
parties to it  and must be performed by them in good faith" (emphasis added).  This
Article did not have an effect on Turkey's obligations to India, or India's rights vis-à-
vis Turkey, as India was not a party to the Ankara Agreement.
(iv) The measures in question were not acts adopted by institutions of the Ankara
Agreement but were of Turkey's responsibility, as clearly stated by the European
Communities at the DSB meeting on 13 February 1998:  the "basic policy on
Turkey's future textiles regime [including the measures in question] had been agreed
by the Communities and Turkish Ministers…".83
(v) In the EC – Bananas III  case, the Appellate Body had already endorsed the
examination under the DSU of measures adopted by one Member even when those
measures were related to that Member's other international agreements and that the
other parties to such agreements were not parties in the WTO dispute settlement
proceeding.
D. C ONSULTATION STAGE OF THE DISPUTE SETTLEMENT PROCEDURE WITH RESPECT TO TRADE
IN TEXTILE AND CLOTHING PRODUCTS
1. Arguments by the parties
3.41 Turkey  submitted that India had violated cogent rules of procedure which were applicable in
the present case and which took precedence over the ordinary rules under the DSU.  In Turkey's view,
the Panel had thus not been regularly established with respect to matters which were covered by theATC and should decide, therefore, in limine litis  that all the alleged violations of the ATC were not
correctly before it and that it could not rule upon them.
3.42 Turkey claimed that, though alleging inconsistency of the Turkish measures with Article 2 of
the ATC, India had disregarded the requirements of the special and additional procedural rules under
Article 8, paragraphs 5 and 10, of the ATC (in the context of Article 1.2 and Appendix 2 of the DSU).
In particular, India had not requested the TMB to review promptly the particular matter that it
considered detrimental to its interests under the ATC.  By so doing, it did not allow the TMB to makethe appropriate recommendations.  However, pursuant to Article 8.10 of the ATC, a matter might be
brought before the DSB under Article XXIII:2 of GATT and the relevant provisions of the DSU only
                                                     
82 See Panel Report on EC - Bananas III , paras. 7.8-7.9.
83 WT/DSB/M/42, item 3, p. 6.WT/DS34/R
Page 25
after  the TMB had made recommendations and these could not be implemented.  Thus, according to
Article 1.2 of the DSU, the ordinary DSU rules did not apply in this case with respect to the allegedviolation of the ATC:  in particular it was not pos sible to request the DSB to establish a panel on this
aspect of India’s complaint in the absence of a TMB recommendation.
3.43 Turkey recalled that as from 1 January 1995, two dispute settlement procedures concerning
textile and clothing products had undergone the complete panel and Appellate Body procedure.
84  In
both cases, the TMB was requested to make recommendations before the request for the establishmentof the panel was filed to the DSB.
85  In the Panel Report on United States – Restrictions Affecting
Imports of Woven Wool Shirts and Blouses , in which India was the complaining party, the following
could be read:
"India noted that the matter had remained unresolved in spite of bilateral consultations
between India and the United States held under Article 6.7 of the ATC…; the
examination of the matter by the Textile Monitoring Body (TMB) under Article 6.10 of
the ATC…; the communication sent to the TMB under Article 8.10 of the ATC, withinone month of the TMB recommendations; and the review of the matter by the TMB
under Article 8.10 of the ATC…  Consequently, India considered that it had met all
requirements in Article 8.10 of the ATC for the direct recourse to Article XXIII.2 of
GATT 1994."
86
3.44 In Turkey's view, India did not meet in the present case, unlike in the above-mentioned
precedent, all requirements in Article 8.10 of the ATC, since it did not allow the TMB to make
recommendations, it denied Turkey the opportunity to  make its views known to the TMB before such
recommendations were made and it disregarded the special and additional procedural rules under
Appendix 2 of the DSU.
3.45 India  submitted that Turkey's argumentation was based on the notion that the special dispute
settlement procedures of the ATC applied to all restrictions on textile and clothing products whatever
their legal basis.  This, however, was clearly not the case.  Pursuant to Article 2.4 of the ATC, new
restrictions on textile and clothing products might be justified by invoking either a provision of the
ATC or a provision of the GATT.  If a Member invoked a provision of the ATC, the matter might be
examined by the TMB, since Article 8.1 of the ATC gave to the TMB the mandate "to examine allmeasures taken under this Agreement  and their conformity therewith" (emphasis added).  If a Member
invoked a GATT provision, such as Articles XII, XVIII or XIX, as the legal basis for its restrictions
on textile and clothing products, the TMB would have to leave the matter to the WTO body
competent to examine measures taken under the GATT provision, for instance the Committee on
Balance-of-Payments Restrictions or the Committee on Safeguards.  This followed not only from thedefinition of the TMB’s mandate in Article 8:1 of the ATC but also from Article 3:3, which stipulated
that "… Members shall provide to the TMB, for its information , notifications …" (emphasis added).
3.46 India noted that Article 2.4 of the ATC prohibited in principle all new restrictions on textile
and clothing products except those justified by ATC or GATT provisions.  If a restriction on such
products was introduced under the provisions of the ATC, the TMB was competent and the special
dispute settlement provisions of the ATC applied.  This was not relevant to the present dispute, since
                                                     
84 United States – Restrictions on Imports of Cotton and Man-Made Fibre Underwear  (complaint
WT/DS24) and United States – Restrictions Affecting Imports of Woven Wool Shirts and Blouses  (complaint
WT/DS33).
85 See Panel Report on United States – Restrictions on Imports of Cotton and Man-Made Fibre
Underwear , adopted on 25 February 1997, WT/DS24/R (" US - Underwear "), paras. 2.8-2.18.
86 Panel Report on United States – Restrictions Affecting Imports of Woven Wool Shirts and Blouses ,
adopted on 20 March 1997, WT/DS33/R (" US - Shirts and Blouses "), para. 1.2.WT/DS34/R
Page 26
Turkey had neither notified, pursuant to Article 2.1 of the ATC, QRs maintained under the MFA, not
had it based its restrictions on the specific transitional safeguard mechanism of Article 6 of the ATC.
3.47 India argued further that, if a new restriction on textile and clothing products was introduced
under the provisions of the GATT, the TMB was merely informed of the matter and the normal
dispute settlement procedures applied.  Article XX IV of GATT was so far the only provision Turkey
had invoked to justify its introduction of new QRs on imports from India of certain textile and
clothing products as from 1 January 1996.87  In accordance with Article 3.3 of the ATC, Turkey
provided to the TMB, for its information, on two occasions the notifications which were submitted to
the CRTA for the measures at issue.88  Consistently with its limited mandate, the TMB had merely
taken note of the information provided.89
3.48 India noted that it was contradictory for Turkey to invoke a GATT provision as the legal basisfor its new restrictions while claiming before this Panel that procedures of the ATC should be used by
India to address the question of whether that GATT provision in fact provided the required legal basis.
The TMB, established for the sole purpose of supervising the implementation of the ATC, wasobviously not the proper forum for the resolution of a dispute on the relationship between Article
XXIV of GATT and the general prohibitions of new te xtile and clothing restrictions set out in Article
XI of GATT and Article 2.4 of the ATC.
3.49 India, therefore, concluded that it was entitled to pursue its claim that Turkey’s restrictions
violated Article 2.4 of the ATC under the normal  dispute settlement procedures of the DSU.
2. Arguments by third parties
3.50 The Philippines  submitted that India's claims under the ATC were within the Panel's
jurisdiction, on the following grounds:
(i) It was not mandatory on Members, in the context of Article 8.5 of the ATC, to refer a
matter to the TMB, but only mandatory on the TMB to act on a matter brought beforeit.
(ii) Article 8.10 of the ATC applied to a situation where a matter had been referred to the
TMB; it did not establish exclusive jurisdiction in favor of the TMB to the exclusion
of the DSB.
(iii) With reference to Turkey's invocation of Article 1.2 of the DSU, there was no
difference between the special or additional rules and procedures set forth in the ATC
and those under the DSU.  Even if such difference existed, Article 1.2 of the DSU
provided for a solution aiming at keeping the integrity of the claim intact:  "the rules
and procedures set out in [the DSU] should be used to the extent necessary to avoid
the conflict".
IV. ADDITIONAL INFORMATION
4.1 Pursuant to Article 13.2 of the DSU, the Panel sought from the European Communities
certain relevant factual and legal information regard ing the matters at issue.  The Chairman of the
                                                     
87 See WT/REG22/1, WT/REG22/5, WT/REG22/7 and WT/REG22/8.
88 See G/TMB/N/308 and G/TMB/N/326.
89 See para. 2.20 above.WT/DS34/R
Page 27
Panel therefore addressed the following letter, dated 28 October 1998, to the Permanent
Representative of the European Communities in Geneva:
"I am writing with regard to the Panel on  Turkey – Restrictions on Imports of Textiles
and Clothing Products , Request by India (document WT/DS34).  In this context, the
Panel has had a first meeting with the parties and has asked them a series of questions in
order to help clarify the facts of this dispute and the parties' related legal arguments.  As
you may be aware, parties in that dispute have invoked and raised arguments that relateto the Agreement between Turkey and the European Communities which these Members
have notified to the WTO (document WT/REG22/1).
In order to ensure that the Panel has the fullest possible understanding of this case, and
pursuant to Article 13.2 of the DSU, the Panel would like to ask the European
Communities for factual or legal information rele vant to this case that they would wish to
provide (for your information the full list of questions posed to Turkey is attached).  In
particular, the Panel would invite the European Communities to submit written responsesto the following questions:
1. Can you provide the Panel with information with regard to negotiations which
resulted in what was notified to the WTO under WT/REG22/1? Article 12 of Decision
1/95 provides that "From the date of entry in to force of this Decision, Turkey shall, in
relation to countries which are not members of the Community, apply provisions andimplementing measures which are substantially similar to those of the Community's
commercial policy  set out in the following Regulations: (…)" Can the EC provide us
with a description of all the alternatives that the EC and Turkey considered in trying to
identify textile and clothing policies that would have been "substantially similar" to those
of the EC.  Was there any effort to look at alternative means of securing the same effectother than adopting exactly the same policy as that of the EC?  Did parties consider using
rules of origin to ensure that only Turkish exports of textile and clothing products to the
EC would benefit from the preferential market access treatment to the EC market asenvisaged in the customs union?  Was any consideration given to the use of a provisions
similar to that of Article 115 of the EC Treaty which has effectively been used amongstEC member states for many years before the completion of the EC single market?
2. How do you explain that the initial agreement between Turkey and the EC was
signed in 1963 and that the transition period until now has lasted some 35 years?  How
would you qualify the nature of the Agreement notified as WT/REG22/1?  Is it an
interim agreement that should lead to a customs union by 2005 or would you qualify thisagreement implementing a completed customs union?
3. Do all textile and clothing products circulate freely between EC territory and
Turkey's territory? If so, since when?  What about other industrial and agricultural
goods?  What legal means are used to ensure an effective EC border control of these
goods under restrictions vis-à-vis  Turkey?
4. How does the EC administer and control the respect of the overall EC/India
and Turkey/India textile and clothing quotas at EC-Turkey's borders?
5. The agreement between the EC and Turkey provides that the parties maintain
antidumping, countervailing and safeguard regimes applicable to imports of textile and
clothing products from each other?  Have parties used such measures against imports
from each other?"
4.2 The EC Representative in Geneva replied substantively as follows:WT/DS34/R
Page 28
"In reply to your letter of 28 October 1998, I would like to answer the questions that the
Panel has asked of the European Communities pursuant to Article 13.2 of theUnderstanding on Rules and Procedures Governing the Settlement of Disputes (DSU).
Before doing so, I would like to clarify that it is not our intention to participate in any
other way in this procedure, since India has chosen to direct its complain exclusively
against Turkey in spite of the fact that it was clearly indicated to India that the measures
at issue were taken in the framework of the formation of the EC/Turkey customs union.The European Communities has taken good note of this deliberate choice of India and
our contribution to the debate before this Panel should therefore not be treated as that of
a party or a third party to its proceedings.
We are of course pleased to answer the specific questions raised by the Panel under
Article 13.2 DSU, but we do not believe it would be appropriate for us, under this
provision, to enter into a broader discussion of the factual or legal elements that may be
relevant for the resolution of this dispute since this could be confused with the pleadingof a case before the Panel.  We will therefore stick to the specific questions asked by the
Panel and provide the requested factual information to the Panel as objectively as we
can."
4.3 The Annex to the EC letter contained replies to the specific questions asked by the Panel, as
follows:
Reply to question 1
"The objective from the outset of the negotiations was to include textile and clothing
products within the customs union.  Turkish exports to the European Union of textiles
and clothing amounted to approximately 40 per cent of all Turkish industrial exports to
the European Union and it was therefore considered essential that these products formedpart of the customs union and hence be in free circulation within the customs union.
The use of rules of origin benefiting only Turkish exports would have been an exception
to the principle of free circulation within the customs union and would have required the
maintenance of customs and border checks within the customs union designed to ensure
that Turkey would not become a transit point of goods in circumvention of theCommunity's quota system arising from Turk ey's adoption of the Community's rates of
tariffs, etc.
Article 115 of the EC Treaty lost a consid erable degree of relevance following the
completion of the EC single market.  As such, no serious consideration was given to the
use of provisions akin to those of Article 115 of the EC Treaty but it appears verydoubtful whether such measures would have been workable or proportionate within the
customs union."
Reply to question 2
"The core of the Ankara Agreement signed in 1963 is the establishment of a Customs
Union in three stages.  The Additional Protocol signed in 1970 and which entered into
force in 1973 defined the modalities for implementing the transitional stage which was
supposed to end after 22 years (in 1995).  In accordance with the planned calendar, thefinal stage of the Customs Union entered into force on 31 December 1995 (with the
adoption of Decision 1/95 of the EC-Turke y Association Council).  Decision 1/95
defines the rules which ensure the proper functioning of the Customs Union.  Despite the
fact that Turkey benefits from certain adaptation periods (until 2001), in some areas suchWT/DS34/R
Page 29
as preferential commercial policy, protection of the intellectual property rights etc, we
consider that the customs union has already reached its final phase with regard to therequirement of Article XXIV:8(a) of the GATT 1994.  Precise data concerning the trade
coverage and other details concerning the functioning of the customs union were
submitted to the WTO Committee for Regional Trade Agreements and were also
discussed in the recent  Trade Policy Review of Turkey.  It is worth noting that many
provisions in the Customs Union Decision go beyond the definition of a Customs Unionunder Article XXIV of the GATT 1994."
Reply to question 3
"Industrial products including textiles products ha ve been in free circulation between the
EU and Turkey since the entry into force of the customs union on 31 December 1995.
Shipment of textiles and clothing requires  an ATR document indicating that the goods
are in free circulation.  No indication of origin is required for goods in free circulation.
There is thus no specific EC border control in respect of goods for which Turkey hasquantitative restrictions, the Turkish authorities having effected such control on entry of
the goods into free circulation in Turkey.
Agricultural products will be included in the customs union following an adaptation
period and for the time being enjoy preferential treatment subject to proof of origin
including EUR-1 certificates and invoice declarations to enable the identification of theproducts."
Reply to question 4
"Turkey has adopted all the European Communities's relevant regulations concerning
imports of textiles (e.g. Regulation EEC/3030/93, Regulation EEC/517/94 and
Regulation EEC/3951/92).  Thus the basic administrative principles are the same in bothparts of the customs union.  The Turkish authorities have observer status in the
"management" committee chaired by the Commission set up under the relevant
regulations.  In addition, the Turkish authorities maintain an inter-departmental
committee in order to take any necessary measures to ensure consistency between the EU
and Turkey.  So far as the management by the Community's integrated system oflicensing is concerned, the Turkish authorities have full access to the European
Community's computerised licensing system ( Système Integré de Gestion de Licences  or
SIGL) and there is a regular exchange of information at administrative level.  Thus, there
is no administration or control of the overall EC/India and Turkey/India textile and
clothing quotas at the EC/Turkey's borde rs.  Once goods enter the customs union
pursuant to the parties' respective systems, they are in free circulation and no further
controls are necessary."
Reply to question 5
"The Customs Union Decision maintains the possibility for each party to apply trade
defense instruments, including anti-dumping measures to the products originating from
the other party.  The Community imposed definitive anti-dumping measures on imports
of polyester fibres from Turkey in June 1996.  Provisional anti-dumping duties wereimposed on imports of unbleached cotton fabrics from Turkey in April 1998.  However,
these expired in October without the imposition of definitive measures."WT/DS34/R
Page 30
V. CLAIMS OF THE PARTIES
5.1 India  requested the Panel to rule that the import restrictions which Turkey had imposed since
1 January 1996 in the context of its trade agreement with the European Communities on textiles and
clothing products from India:
(i) were inconsistent with Articles XI and XIII of GATT and Article 2.4 of the ATC and
were not justified by Article XXIV of GATT, and;
(ii) impaired benefits accruing to India under Articles XI and XIII of GATT and Article
2.4 of ATC.
5.2 India requested the Panel to recommend that Turkey bring its restrictions into conformity with
its obligations under GATT and the ATC, basing its rulings and recommendations on the following
findings:
(i) Article XXIV:5 of GATT did not permit Members forming a customs union to
impose QRs on imports from third Members;
(ii) to the extent that there was a conflict between the provisions of Article 2.4 of the
ATC (which permitted the European Communities but not Turkey to impose
restrictions on imports of textiles and clothing products from India) and the
provisions of Article XXIV:8 of GATT (which required Members forming a customs
union to apply substantially the same restrictions on imports from third Members),
the provisions of Article 2.4 of the ATC prevailed; and
(iii) Turkey had not rebutted the presumption that its restrictions on imports of textiles and
clothing impaired benefits accruing to India under Articles XI and XIII of GATT and
Article 2.4 of the ATC.
5.3 Subsidiarily, if the Panel were to accept the argument by Turkey that Article XXIV of GATT
provided a waiver from the obligations under Articles XI and XIII of GATT and Article 2.4 of theATC for measures necessary for the purposes of a customs union meeting the standards of Article
XXIV, India requested the Panel to base its rulings on the following findings:
(i) for the purposes of the EC-Turkey trade agreement, an immediate harmonization of
import restrictions on textiles and clothing products was unnecessary, because (a) the
European Communities and Turkey were applying different import duties andregulations in respect of many sectors, policy instruments and trading partners and (b)
in all areas in which their import duties or regulations differ, the European
Communities and Turkey were able to implement border controls ensuring that only
products originating in the territories of the European Communities and Turkey
benefit from the preferential treatment under the EC-Turkey trade agreement; and
(ii) the type of agreement concluded between the European Communities and Turkey,
that is an agreement providing for the establishment of a customs union at a future
date,  was not governed by the provisions of Article XXIV of GATT on completed
customs unions and Turkey could therefore not invoke those provisions as
justification for the restrictions.
5.4 Turkey  requested the Panel to find that:WT/DS34/R
Page 31
(i) India had not sufficiently exhausted the avenues of Article XXII of GATT, Article 4
of the DSU and Article XXIV of GATT in order to bring about an amicablesettlement and adjustment;
(ii) India had not complied with the procedural requirements of the ATC;
(iii) the Panel could not substitute itself for the CRTA which had not yet completed its
examination of the Turkey-EC customs union;
(iv) since Turkey argued that the measures forming the object of the complaint were a
requirement of the Turkey-EC customs union, the Panel could not rule on their
legality in the absence of agreed conclusions on the consistency of the Turkey-EC
customs union with the obligations of Turkey and the European Communities under
GATT;
(v) Turkey had not acted inconsistently with its rights and obligations under GATT and
the ATC; and
(vi) as required under Article 3.6 of the DSU, the parties to the dispute should seek a
negotiated solution to the matter, taking into  account India's commercial interests and
Turkey's obligations arising from the Turkey-EC customs union.
VI. MAIN ARGUMENTS BY THE PARTIES
A. I
NTRODUCTORY POINTS
1. Consultations
6.1 Turkey  submitted that India had failed to comply with the principle of procedural economy
and the spirit of the WTO dispute settlement mechanism which required that the panel procedure was
to be considered as ultima ratio  means to solve conflicts between Members, when unable to find a
negotiated solution.90  India had refused to enter into bilateral negotiations offered by Turkey,
including the European Communities, and had also refused to deal with the issues in consultations
under Article XXII of GATT.
6.2 Turkey said that it had accepted the request by India for consultations under Article XXIII of
GATT on the measures it applied, on condition that representatives of the European Communities
participate.  Their participation was deemed essential, given that the application of the restrictionswhich constituted the object of India's complaint derived from the alignment of Turkey's commercial
policy on that of the European Communities.  Consultations scheduled to be held in Geneva on 18-19
April 1996 did not occur owing to India's refusal to accept the participation of EC officials.  Turkey
continued to offer to find a negotiated solution to India's complaint, and the subject was raised in
discussions held in both capitals at different times and at a meeting between both countries' TradeMinisters in Geneva in May 1998.  However, and despite the fact that the measures in question had
never formed the subject of a consultation between Turkey and India under Articles XXII and XXIII
of GATT, India requested the DSB to establish a panel regarding the imposition by Turkey of QRs on
imports of certain textiles and clothing products.
6.3 India  submitted that Turkey had violated Articles 3 and 4 of the DSU, since it had not entered
within the 30-day period into the bilateral consultations requested by India, with a view to reaching a
                                                     
90 See Articles 3.10 and 4, as well as Articles 5.4 and 3.7 of the DSU.WT/DS34/R
Page 32
mutually satisfactory solution.  India submitted that Turkey had in particular contravened the
provisions of Article 3.10 of the DSU.  India considered that its recourse to the provisions of GATTand the DSU as regards consultations was frustrated in a most unprecedented manner, and the dispute
remained unresolved.
91
6.4 India explained that its request for consultations, pursuant to Article 4 of the DSU and Article
XXIII:1 of GATT,92 had been accepted by Turkey on 1 April 1996.  While confirming its agreement
to enter into consultations "on textiles and clothing restrictions applied by Turkey" at a mutuallyacceptable time and venue, Turkey considered that "the European Communities as our partner in the
customs union should also be represented in the consultations".  On 4 April 1996, India proposed the
venue (Geneva) and dates (18-19 April 1996) for such consultations while clearly stating that it could
not accept that the European Communities should participate in the consultations since, under the
GATT and WTO practices, consultations under Article XXIII:1 of GATT were bilateral in nature;
India asked for confirmation by Turkey of the date and venue of the bilateral consultations.  On 16
April 1996, Turkey scheduled a meeting with its Indian counterparts for 18 April 1996 (3.30 to 6p.m.), while stating its "understanding that representatives of the European Communities would also
be participating".  India stated that, despite that very short notice, it ensured the presence of its
delegation at the consultations, but the delegation of Turkey did not attend the scheduled meeting nor
did it provide an explanation for its absence.  India submitted that it sent another communication to
Turkey on 18 April 1996, proposing to enter into bilateral consultations on 19 April 1996.  WhenIndia endeavoured to confirm with Turkey the date and venue of these consultations, it was informed
that the latter was not in a position to enter into these consultations without the participation of the
European Communities, and that this would be conveyed to India in writing by close-of-business on
19 April 1996.  India submitted that the communication from Turkey, dated 19 April 1996, was
received on 22 April 1996.
6.5 Turkey  responded that it had refused consultations on the ground that such consultations did
not involve the European Communities.  It had good and proper reasons not to engage in formal
consultations in which the European Communities would not be involved, namely that the measures
complained of were a direct consequence of th e Turkey-EC customs union and could not be modified
without the consent of the European Communities.  This did not mean that Turkey was not preparedto examine with India how to adjust the measures challenged and  to bring about an amicable
settlement.  Turkey recalled the various steps it took and the latest attempts made as recently as 28
September 1998.
6.6 Turkey submitted that the issue it raised in its request for a preliminary ruling, with respect to
EC participation in the dispute had also a substantive aspect.
93  It considered that in this case findings
and recommendations, if any, of the Panel directed against the measures challenged by India and the
resulting recommendations and rulings of the DSB, if any, could hardly be addressed to Turkey alone,
as Turkey was only one of the parties to the Turkey-EC customs union.
6.7 India  believed that Turkey's claim that, given its obligations towards the European
Communities under the EC-Turkey trade agreement, it could not remove the restrictions on imports of
textiles and clothing products from India without the consent of the European Communities, had no
basis in international law.  According to the relevant part of Article 41.1 of VCLT, "[t]wo or moreparties to a multilateral treaty may conclude an ag reement to modify the treaty as between themselves
alone if ... the modifications in question ... do[es] not affect the enjoyment by the other parties of their
rights under the treaty  …" (emphasis added).
                                                     
91 The DSB was informed of this situation on 24 April 1996 (WT/DSB/M/15, para. 3).
92 See WT/DS34/1.
93 In this context, Turkey welcomed the invitation addressed by the Panel to the European Communities
to provide written information related to the customs union and hoped that the Panel would not refrain from
asking the European Communities to present evidence orally, should that prove necessary.WT/DS34/R
Page 33
6.8 India stated that the European Communities and Turkey were both party to a multilateral
treaty, the WTO Agreement.  In their trade agreement they had committed themselves to harmonizetheir textiles and clothing policies towards third countries without regard to Turkey’s obligations
under the WTO Agreement.  They had thus concluded between them a treaty which modified the
WTO Agreement as between them in a manner that affected the enjoyment of India’s and other WTO
Members' rights under the WTO Agreement.  According to Article 41 of the VCLT, Turkey was
therefore not bound by the EC-Turkey trade agreemen t to the extent that it entailed a violation of
Turkey’s obligations under the WTO Agreement towards third WTO Members.
6.9 India feared that, if the DSB were to rule in  India’s favour, Turkey would use its obligations
under the EC-Turkey trade agreement as a pretext for not implementing the ruling.  The European
Communities's decision not to participate in the Pane l’s proceedings as third party suggested that it
might lend its hand in such an approach.  This would set an extremely harmful precedent for the
multilateral trading system because it would imply that the obligations under a bilateral trade
agreement could provide a justification for a failure to implement the obligations under the WTOAgreement.  India therefore requested that the Panel make use of its power under the second sentence
of Article 19.1 of the  DSU and suggest that Turkey , when bringing itself in to conformity with its
obligations under the GATT and the ATC, took into account the principles set out in Article 41 of the
VCLT.
6.10 India also noted later that, following its arguments on Article 41.1 of the VCLT, Turkey had
conceded that two or more parties to a multilateral treaty that concluded an agreement amongst
themselves could not make modifications to the multil ateral treaty that affected the rights of other
parties under the multilateral treaty.  To Turkey’s argument that remedy for the situation did not lie
with Turkey alone, India reiterated that since in this case, the measure in question was taken by
Turkey alone, India could bring a dispute against Turkey only.
2. Offers to settle
6.11 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, inaccordance 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.
6.12 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-ECcustoms 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.
                                                     
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.WT/DS34/R
Page 34
6.13 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 thatIndia 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 bepresent.
6.14 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 margina lly increase their size.  Neither the European
Communities nor Turkey submitted offers of compensation to India.
6.15 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 thecourse 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.
6.16 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 argumentationbefore the Panel.
B. L
EGAL ARGUMENTS
1. Burden of Proof
6.17 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.
6.18 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; andWT/DS34/R
Page 35
(c) it is for the party asserting a fact to prove it."96
6.19 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 containedunder the relevant provisions were met.
6.20 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
6.21 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.
6.22 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.
6.23 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 theobligations 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
6.24 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 inforce 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 restri ctions 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 theentry 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.
                                                     
96 Panel Report on Argentina – Certain Measures  Affecting Imports of Foot wear, 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.WT/DS34/R
Page 36
6.25 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 relevantGATT 1994 provisions".  India argued that the on ly 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 impositionof 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.
6.26 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 thereforecovered by this provision.  Turkey later confirmed that Article XXIV was the legal basis for its
restrictions at issue.
99
6.27 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, inthe present case, that Turkey could introduce new restrictions under Article XXIV.
6.28 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.
6.29 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
6.30 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 WTOMembers 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.
                                                     
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."WT/DS34/R
Page 37
6.31 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-ECcustoms 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 regulati on of commerce  would be consistent with GATT.
6.32 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.
6.33 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 preven t 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 Body100, an
interpretation might not result in reducing whole clauses or paragraphs to redundancy or inutility.
6.34 Turning to the context of Articles XXIV:5 to XXIV:8, Turkey noted that Article XXIV
basically dealt with:
(i) the territorial scope of the GATT as regards customs territories (paragraphs 1 and 2);
(ii) preferences granted between adjacent countries in certain circumstances (paragraph 3);
(iii) rules applying to the formation of economic integration agreements, i.e. customs
unions and free-trade areas (paragraphs 4 to 10);
(iv) the special relationship between India and Pakistan; and
(v) the application of the GATT to sub-central entities (paragraph 12).
6.35 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.
6.36 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.
                                                     
100 See Appellate Body Report on US - Gasoline , p. 22.WT/DS34/R
Page 38
6.37 Turkey added that its conclusion that Article XXIV:5-8 did not constitute an exception found
also support in a systemic analysis.  It was signific ant 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").
6.38 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 originatin g 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 customsduty 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 cu stoms unions bore some analogy to two or more GATT
contracting parties entering into a confederation.
6.39 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 inPart III on general and institutional provisions.
6.40 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 challengedformed integral part.  In Turkey's view, there was no room for conflict between these measures and
other GATT provisions.
6.41 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 disputeconcerned 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.
6.42 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 theresolution of the present dispute.  India also did no t 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 ofProvisional 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.WT/DS34/R
Page 39
6.43 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 ofthe 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.
6.44 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 oneWTO 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.
6.45 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 bethe subject of a panel ruling because it could, as such, not be found to be inconsistent with Article
XXIV:5 and 8.
6.46 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 wouldtherefore 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.
6.47 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 UruguayRound agreements could not possibly have intended this result.
6.48 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
                                                     
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.WT/DS34/R
Page 40
considered that an acceptance of Turkey’s position would clearly be contrary to this fundamental
principle of interpretation.
6.49 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 theATC.
104
(b) Article XXIV:5(a)
6.50 India  recalled that, in the communication dated 9 January 1996 handed to the Indian
authorities at Ankara, Turkey attempted to justify its new restrictions with reference to Article
XXIV:5(a) of GATT.  India submitted that obligations under Article XI:1 of GATT and Article 2.4 of
the ATC were not modified by Article XXIV:5(a) of GATT.
6.51 India argued that any interpretation of Article XXIV:5(a) that would entail 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 was excluded by the general principle set out in
Article XXIV:4, which provided a recognition of the purpose of a customs union as "not to raise
barriers to the trade" of other Members with such territories.
6.52 India noted that, according to Article XXIV:6 of GATT, Members parties to a customs union
wishing to raise tariffs beyond the rate bound under Article II of GATT had to renegotiate them under
the procedure for the modification of tariff concessions in Article XXVIII of GATT.  India considered
that, if tariff concessions under Article II coul d not be ignored by Members forming a customs union,
an interpretation of Article XXIV permitting such Members to ignore their obligations under ArticleXI:1 of GATT and Article 2.4 of the ATC was not justified.
6.53 India also recalled that the issue of the introduction of new QRs by a party to a regional trade
agreement had been discussed in detail in the GATT Working Party on the Accession of Greece to the
European Communities.
105  Several delegations stated their concern with the introduction of new
discriminatory QRs by Greece on imports from state-trading countries of products, which theyclaimed were contrary to Articles XI and XIII of the GATT and contravened their Protocols of
Accession.  The Working Party Report recorded the response of the European Communities as
follows:
"With reference to Article XXIV:5 and against the background of the very considerable
liberalisation of restrictions which would occur in Greece, it was hard to claim thatbarriers were being created; even if it might be true for one or two products, the overall
situation was clearly the opposite.  On the question of the alleged inconsistency of this
with Article XIII, the EC did not consider this point relevant to the Article XXIV:5
exercise;  the matter could be further discussed in the context of the relevant Accession
Protocols for the countries concerned."
106
                                                     
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.
105 See BISD 30S/168, paras. 25-33.
106 Ibid., para. 32.WT/DS34/R
Page 41
6.54 The issue of new QRs was again discussed in detail in the GATT Working Party on the
Accession of Spain and Portugal to the European Communities.107  Several delegations expressed
concern regarding Spain’s imposition of new QRs on imports from third countries.  The European
Communities defended the new restrictions with the argument that, on the whole, the number of
Spanish restrictions had declined.  Those delegations responded that newly established GATT-
inconsistent measures could not be traded off against the alleged reduction of other barriers.  The
Working Party Report recorded the ensuing discussion as follows:
"Some members of the Working Party stated that since acceding to the Communities,
Spain had introduced discriminatory QRs which contravened Articles XI, XIII and
XXIV:4 as well as their countries’ Protocols of Accession to the GATT under which
contracting parties undertook not to increase the element of discrimination which they
maintained on these countries’ imports.  Before acceding to the Communities, Spain had
repeatedly notified the GATT that it maintained no discriminatory QRs on their
countries’ imports and they had no reason to doubt the validity of these notifications.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 regime of the customs union, they called on the Communities and
Spain to eliminate all GATT-inconsistent measures, which in the case of one of these
countries affected one quarter of its total exports to Spain.  The same members of theWorking Party considered that measures that were inconsistent with the GATT could not
be traded off against the alleged reduction of other barriers and could not be included in
the assessment of incidence of changes in "other regulations of commerce" required by
Article XXIV:5(a) under which only GATT-consistent measures should be taken into
account.  They did not consider the Treaty of Accession was in conformity with theGATT and reserved their rights under the General Agreement."
108
6.55 India noted that, on the question of other regulations of commerce, and in particular QRs, the
European Communities agreed that Article XXIV did not provide a waiver from other provisions of
the GATT.  By the same token, however, the role of the Working Party in this context was to examine
the situation in the light of Article XXIV rather than with respect to any other provision such as
Articles XI or XIII.  Contracting parties were free to reserve their GATT rights and to have recourse
to other provisions on these questions.109
6.56 Turkey  submitted that Article XXIV:5 of GATT authorized the formation of a customs
union, as defined by Article XXIV:8(a), provided that the conditions of Article XXIV:5(a) were met.
If it had been the intention of the Members to ban the imposition of new QRs whenever a customsunion was being instituted, Article XXIV:5 would have been a redundant provision.
6.57 Turkey considered that provisions of Article XX IV:5(a) should be read as permitting, at the
time of the completion of a customs union, the introduction of restrictive regulations of commerce to
the trade of third countries, provided that the overall incidence of duties and other regulations of
commerce was not higher or more restrictive after the completion of the customs union than before.
Further clarification was brought to the expression "on the whole" used in Article XXIV:5, in
paragraph 2 of the Understanding on the Interpretation of Article XXIV of GATT 1994("Understanding on Article XXIV").  The view that a total prohibition on new restrictions was not
intended, found its confirmation in the last sentence of that paragraph, which stated, inter alia , that
"for the purposes of the overall assessment of the incidence of other regulations of commerce for
which quantification and aggregation are difficult, the examination of individual measures,
regulations, products covered and trade flows affected  may be required" (emphasis added).  In
                                                     
107 See BISD 35S/293, paras. 19-21.
108 Ibid., paras. 19-20.
109 Ibid., para. 45.WT/DS34/R
Page 42
Turkey's view, such a provision would not be meaningf ul if it had been the intention to totally prohibit
the imposition of new restrictions by one party to the customs union.110
6.58 Turkey noted that this point had been made very effectively by the European Communities at
a meeting of the Working Party on the Accession of Spain and Portugal, as follows:
"The task was general, namely to reach a view on whether the general incidence of
customs duties and regulations after enlargement was on the whole more or less
restrictive than before.  Even if a negative incidence were shown to be the case forcertain items, such as when duties were increased or replaced by variable levies, one had
to consider whether these effects were not balanced by the effects of other changes in the
tariff sector taken as a whole. An overall appreciation of effects of changes in tariffs and
regulations of commerce had to be made.  In assessing general incidence, one had to
avoid too static an analysis and to take into account the trade-creating effects of the
establishment or enlargement of a customs union."
111
In its conclusions, the Working Party had noted that:
"Because of the divergent views expressed, [it] was unable to reach agreed conclusions
as to the consistency of the Treaty with the General Agreement. It decided to forward to
the Council, this report which summarizes the views expressed by its members during
the discussion.  It noted the fact that many members of the Working Party had reserved
their rights under the General Agreement and that these rights would not be prejudicedby submission of the report."
112
6.59 Nevertheless, problems which might have arisen in connection with the accession of Spain
and Portugal to the European Communities were settled under the procedures of Article XXIV:6 and
no contracting party chose to invoke Articles XXII and XXIII in relation to the question of whether
the obligations arising out of Articles XXIV:4 and XXIV:5(a) had been met.
6.60 Turkey noted further that, if it had been the intention of WTO Members to prohibit the
imposition of new restrictions at the time of the formation or enlargement of customs unions, they
would no doubt have seized the opportunity provided by the Uruguay Round to do so.
6.61 Turkey also recalled that, despite regular examinations of the Association Agreements
between Turkey and the European Communities, both prior to and subsequent to the completion ofthe Turkey-EC customs union, no recommendations had ever been addressed to the parties to the
agreement under Article XXIV:7(b).  In the absence of such recommendations, it could not be argued
that the Association Agreement and the Turkey-EC customs union to which it had led were
inconsistent with obligations arising out of Article XXIV.
6.62 In Turkey's view, therefore, Article XI:1 had to be read in conjunction with Article XXIV,
concluding that measures whose application constituted a requirement of the Turkey-EC customs
union were deemed to be justified under Article XXIV.
113
                                                     
110 In its Report on US - Gasoline , the Appellate Body had made clear that an interpretation might not
result in reducing whole clauses or paragraphs to redundancy or inutility (p. 22).
111 Appellate Body Report on US - Gasoline , para. 6.
112 Ibid., para. 49.
113 In this context, Turkey recalled that the accessi on of Sweden to the European Union on 1 January
1995 had led it to adopt the EC's common commercial policy in textiles and clothing, which had resulted in thereplacement of a tariff-based system by QRs similar to those applied by Turkey since the completion of theTurkey-EC customs union, without the relevant procedures of the MFA being observed.  No country had
however invoked Article XXII or Article XXIII rights in connection with the adoption of those measures byWT/DS34/R
Page 43
6.63 In support of its argument, Turkey also recalled changes in its import regime vis-à-vis  third
countries triggered by the completion of the Turkey-EC customs union, which led to an incidence oftariff levels much lower than that of Turkey's previous tariff and to a process of alignment of its
external trade policy with that of the Europe an Communities resulting in the Turkish market
becoming as open as the EC market to products of third countries.  Turkey also referred to
developments in its imports of textiles and clothing products in this respect, stressing that the lower
level of tariff protection had led to a more open access to the Turkish market in these products despitethe introduction of a system based on QRs, and recalled that the restrictions in question were of a
temporary nature and would be phased out as foreseen in the ATC.
6.64 Turkey concluded that, overall, the Turkey-EC customs union had resulted in the lowering of
the general incidence of duties and other regulations of commerce and, consequently, the
requirements of Article XXIV:5(a) had been met.
6.65 Turkey explained that there were basically only three options open to the parties to a customs
union when setting up a single set of external trade rules, in accordance with Article XXIV:8(a)(ii)
requirements, both for reasons of logic and for practical purposes.  Supposing that WTO Member A
and WTO Member B formed a customs union, the options for establishing single external trade rules
could be:
(i) to extend the external trade rules of Member A to the entire customs union;
(ii) to extend the external trade rules of Member B to the entire customs union; or
(iii) to develop an external trade regime for the entire customs union somewhere in the
middle between options (i) and (ii).
6.66 For this reason, Article XXIV:6 provided for the procedure to give compensatory adjustment
in case of increased bound customs duties, which clearly indicated that the otherwise stringent rules of
Article II were in this case applied in a more fl exible way in order not to stand in the way of the
creation of a customs union.  However, the special rules contained in Article XXIV:5-8 did not only
provide increased flexibility in the application of Article II.  For example, although not specifically
spelled out anywhere in these provisions, Turkey stated that it would simply make no sense if they did
not authorize a derogation from Article I as well, and this had never been contested.
6.67 Turkey argued that the derogation authorized by Article XXIV:5 was not limited to a
particular GATT rule, but encompassed all those rules from which a derogation was necessary to
permit the formation of customs unions.  In support of this argument, Turkey noted that the opening
clause of Article XXIV:5 was drafted in language that was similar to the language used in the opening
clause of Article XX, which demonstrated  that th e derogation referred to all the provisions of the
GATT, and not just from those contained in Ar ticle II, more specifically mentioned in Article
XXIV:6.
114  In this context, Turkey recalled that it ha d offered to enter into negotiations to address
India’s concerns with regard to the change in its external trade regime, but India had not wished to
participate in such negotiations.
                                                                                                                                                                    
Sweden despite the fact that Sweden was not applying quantitative restrictions to imports of textiles and
clothing before.  Moreover, the formula used in the calculation of the quota levels to be applied by Turkey after
completion of the Turkey-EC customs union was the same as the one used in the accession of Austria, Finlandand Sweden.
114 Of course, as required by Article XXIV:5(a), the overall impact of the creation of the customs union
should not be such as to be on the whole more trade-restrictive than the general incidence of the duties andregulations of commerce applicable to the constituent territories prior to the formation of the customs union.  As
demonstrated before, however, this was not the case in the Turkey-EC customs union.WT/DS34/R
Page 44
6.68 India  endeavoured, following the provisions of Article 3.2 of the DSU and the consistent
jurisprudence of the Appellate Body, to interpret Article XXIV:5 of the GATT, which Turkeyinvoked as a defense, in accordance with the principles of interpretation set out in Articles 31 and 32
of the VCLT.  These principles required an interpretation in accordance with the ordinary meaning to
be given to the terms of Article XXIV:5 in their context and in the light of the object and purpose of
the GATT.
6.69 India could not see how the terms of Article XXIV:5 could provide for a justification of the
measures taken by Turkey.  This provision authorized merely the formation of a customs union or free
trade area, nothing else.  Its terms consequently exempted from the other obligations under the GATT
only measures inherent in the formation of a customs union.  For instance, a customs union or a free
trade area could only be formed by the granting of preferential treatment inconsistent with Article I
and Article XXIV therefore clearly provided a justification for it.  However, customs unions and free
trade areas could be formed without the introduction of new QRs on imports from third Members
inconsistent with Article XI of GATT.  There wa s, in particular, nothing that required Members
forming a customs union to impose new restrictions on imports from one particular third Member
inconsistently with Article XIII of GATT and Article 2.4 of the ATC.  Article XXIV:4, according to
which the purpose of customs unions and free trade areas should not be to raise barriers to the trade of
third Members, was drafted on that assumption.  The terms of Article XXIV therefore could not be
interpreted to provide a legal basis for discriminatory restrictions against a third Member inconsistentwith Articles XI and XIII of GATT and Article 2.4 of the ATC.
6.70 In this regard, India referred to the GATT panel on the EEC-Member States’ Import Regimes
for Bananas , which summarized the legal implications of the text of Article XXIV as follows:
"The Panel noted the argument of the EEC that the restrictions and prohibitions on
imports of bananas, even if inconsistent with Article XI:1, were nonetheless consistentwith the General Agreement because they were covered under the provisions of Article
XXIV.  The Panel noted that Article XXIV:5 to 8 permitted the contracting parties to
deviate from their obligations under other provisions of the General Agreement for the
purpose of forming a customs union or free trade-area, or adopting an interim
agreement leading to the formation of a custom s union or free trade area, but not for any
other purpose. Article XXIV:5 to 8 therefore did not provide contracting parties for a
justification for restrictive import measures as such; it merely provided them - within the
limits set out in this provision - with a justification for not applying to imports
originating in such a union or area the restrictive measures that they were permitted to
impose under other provisions of the General Agreement .  The Panel therefore
considered that the import restrictions on bananas could not be justified by Article
XXIV."
115
6.71 Though the report of this panel was not adopted, the Appellate Body recognized that the
reasoning in a not-adopted panel report could provide useful guidance.116 In India's view, the succinct
and clear exposition of the legal situation flowing from the terms of Article XXIV in the above
quotation was such an example.
6.72 With reference to the next element to be considered under the principles of interpretation of
the VCLT, i.e. the context in which the terms set out in Article XXIV:5 appeared, India noted that,
since the preceding paragraph, Article XXIV:4, stated why customs unions and free trade areas were
permitted and which purposes they were to serve, Article XXIV:5 had to be interpreted consistently
with the principles set out therein.  This meant that, in the absence of any clear indication to the
                                                     
115 Panel Report (not adopted) on EEC - Member States' Import Regimes for Bananas , DS32/R (" EEC -
Bananas I "), para. 358 (emphasis added).
116 Appellate Body Report on Japan - Alcoholic Beverages , section E.WT/DS34/R
Page 45
contrary, Article XXIV:5 could not be interpreted as providing a justification for measures raising
barriers to the trade of third Members.
6.73 India noted further that Article XXIV:6 was also part of the context of Article XXIV:5.  Both
according to the terms of this provision and the consistent practice under it, it applied only to custom
duties bound under Article II, and the related paragraphs 5 and 6 of the Understanding on Article
XXIV, also referred only to customs duties.  There was no corresponding mechanism for
renegotiation and compensation following an increase in QRs.  India considered this a logicalconsequence of the principle that tariffs were negotiable (and renegotiable under Article XXVIII)
while QRs might only be imposed in narrow circumstances defined in the WTO agreements.  Given
that rules governing quotas were fundamentally diff erent from the rules governing tariffs, there was
no basis to apply Article XXIV:6 by analogy to quotas, as Turkey had claimed.  Moreover, paragraph
4 of the Understanding on Article XXIV made it explicit that paragraph 6 of Article XXIV established
the procedures to be followed when a Member forming a custom union proposed to increase a bound
rate of duty.  Had the Uruguay Round negotiators meant to extend Article XXIV:6 to quotas, theywould have formulated this provision accordingly.
6.74 India noted that two important conclusions for the interpretation of Article XXIV:5 could be
drawn from Article XXIV:6.  Firstly, if Memb ers forming a customs union could not ignore their
obligations under Article II and any duty increased by such Members was to be brought into
conformity through a renegotiation under Article XXVIII, it could reasonably be concluded that theycould also not ignore such obligations in respect of quotas.  Secondly, Members adversely affected by
a duty increase had to be compensated under the procedures of  Article XXVIII; since Article XXIV
did not provide for any form of compensation for Members adversely affected by the imposition of a
new quota, it could logically be concluded that Article XXIV was not meant to authorize the
imposition of quotas.
6.75 Turning to analyze, in accordance with Article 31:3(b) of the VCLT, subsequent practice in
the application of Article XXIV:5, India could not find any which would lend support to Turkey’s
interpretation of this provision.
6.76 India recalled that the claim that Article XXIV:5 of GATT authorized QRs inconsistent with
Article XI was made by the six members of th e EEC in 1957 when the CONTRACTING PARTIES to
GATT 1947 examined the Treaty of Rome. The Report of the Sub-Group considering the EEC’s
restrictions recorded the following:
"Most members of the sub-group could not accept the interpretation of the Six of
paragraph 5(a) ... The notion that paragraph 5(a) would require that temporary QRs
should be treated in the same way as normal protective measures such as tariffs indetermining the trade relations between countries in a customs union and third countries
would be contrary to the basic provision of the Agreement which precludes the use of
QRs as an acceptable protective instrument."
117
6.77 India noted that this had been the position of third countries in all cases in which the claim
that Article XXIV:5 justified restrictions had been made.118  More recently the European
Communities had accepted this position since it stated during the GATT examination of Portugal and
Spain’s Accession to the European Communities as follows:
                                                     
117 Reports on the European Economic Community , adopted on 29 November 1957, BISD 6S/70, para. 5.
118 See detailed references to past discussions in the GATT on the use of QRs by Members forming a
customs union in the third-party submission of Thailand (para. 7.84 below).WT/DS34/R
Page 46
"On the question of the other regulations of commerce, and in particular QRs, the
Communities agreed that Article XXIV did not provide a waiver from other provisions ofthe GATT."
119
6.78 India also considered that it was on the basis of such interpretation of Article XXIV that the
EC-Turkey Association Council Decision 1/95 had been drafted.  Referring to paragraphs 2 and 3 of
Article 12 of the Decision, it noted that the provisions described the adoption of the same policy in the
textile sector as an "objective" and recognized that "cooperation" between the European Communities
and Turkey was required to achieve this objective.  Moreover, the provisions made it clear that the
drafters envisaged the possibility that Turkey would not succeed in negotiating restraint agreements
identical to those of the European Communities becaus e they explicitly agreed that in this case the
European Communities would continue to apply the sy stem of certificates of origin to prevent the
circumvention of its policies through shipments into the European Communities via Turkey.  The
parties, when drafting these provisions, thus recognized that Turkey could not, simply by invoking
Article XXIV, unilaterally impose the import restrictions which the European Communities wasentitled to impose under the transitional provisions of the ATC.
6.79 India recognized that the pronouncements listed above might not be sufficiently "concordant,
common and consistent" to constitute subsequent practice within the meaning of Article 31:3(b) of the
VCLT;
120  however, they demonstrated that the claim that Article XXIV:5 provided a waiver from the
general prohibition of QRs had never been accepted and that the European Communities and Turkeyhad themselves not proceeded on the assumption that it did provide such a waiver. Turkey negotiated
restraint agreements similar to those of the European Communities with 24 countries; it imposed
unilateral restrictions or surveillance regimes to imports from 28 countries with which it was not
possible to reach agreements, among them India.  India noted that the interpretation of Article XXIV
which the European Communities and Turkey had adopted in response to their failure to concluderestraint agreements with all exporting countries was in complete contradiction with the legal
assumption on which their original decision to negotiate such agreements was based.
6.80 Turkey  disagreed with India's argument according to which, if the Turkey-EC customs union
could put in place a common regulation of commerce determined by restrictive measures applied by
the European Communities, the obligations under Article XI:1 of GATT and Article 2.4 ATC wouldbe ignored. Turkey pointed out that, while the GATT expressly stated that its provisions "shall not
prevent the formation of a customs union" (the chapeau  of Article XXIV:5), it took account of the
pre-existing obligations of members of a customs union vis-à-vis  other GATT contracting parties by
the requirements in Article XXIV:5(a) relating to the customs tariff and the common regulation of
commerce of the customs  union.
6.81 Turkey also disagreed with India's argument that, unlike in the case of the raising of customs
duties rates for certain items that might result from the establishment of a common customs tariff,
there was no procedure on compensatory adjustment for QRs and that as a result Article XI
obligations could be ignored.
 According to Turkey, it could not be inferred from the fact that Article
XXIV:6 only referred to increases of customs duty rates that the intention behind Article XXIV:5(a)
was to prohibit restrictive measures of a common regulation of commerce of a customs union,
determined by one of the parties to such customs union. Such interpretation would be difficult toreconcile with Article XXIV:5(a) providing a test for the GATT consistency of a customs union with
the GATT establishing, inter alia , that a regulation of commerce of a customs union could not on the
whole be more restrictive than the regulation of commerce applicable in the constituent territories
prior to the formation of the customs union.
                                                     
119 Report of the Working Party on the Accession of Portugal and Spain to the EC , adopted on 19-20
October 1988 (BISD 35S/293).
120 See the Appellate Body Report on Japan - Alcoholic Beverages , Section E, on this issue.WT/DS34/R
Page 47
6.82 Turkey noted that Article XXIV:6 did not exclude compensatory adjustments, where the
common regulation of commerce of a customs union applied a restrictive measure taking account ofthe application of such a measure by a party to a customs union prior to the formation of that customs
union.  In agreeing to the Understanding on Arti cle XXIV, WTO Members made this clear.  In
paragraph 2 of that Understanding they agreed on further rules on the evaluation under Article
XXIV:5(a) of the general incidence of duties and other regulations of commerce applicable before
and after the formation of a customs  union, when recognizing "that for the purpose of the overallassessment of the incidence of other regulations of commerce for which quantification and
aggregation are difficult, the examination of individual measures, regulations, products covered and
trade flows affected may be required".
6.83 Turkey submitted that it would make little sense to provide for an evaluation of the overall
incidence of other regulations of commerce if, as India asserted, the regulation of commerce of the
Turkey-EC customs union could not be determined by pre-existing restrictive measures applied by the
European Communities.  It would equally make little sense to provide for an examination ofindividual measures, with a view of the evaluation of their incidence if, as India asserted, GATT did
not permit the regulation of commerce of the Turkey-EC customs union to be determined by pre-
existing restrictive measures applied by the European Communities.  Why evaluate the incidence of a
measure which would be prohibited?  It would also  make little sense to provide for an evaluation of
the incidence of individual measures of a regulation of commerce of a customs union, if this wouldnot to give rise, where appropriate, to a duty to offer a compensatory adjustment.  In this context,
Turkey drew attention to the steps taken by Turkey in this sense. In respect of textiles and clothing
products, Turkey had negotiated adjustments with 24 countries.  Turkey had also, repeatedly but in
vain, offered to India to negotiate adjustments.
(c) Article XXIV:8(a)(i) Relationship between Article XXIV:8(a)(ii) and other Article XXIV provisions
6.84 India  submitted that the obligations under Article XI:1 of GATT and Article 2.4 of the ATC
were not modified by Article XXIV:8(a)(ii) of GATT, which required Members forming a customs
union to apply substantially the same regulations of commerce to the trade with other Members of the
WTO.
6.85 India recalled that, in the communication dated 9 January 1996, Turkey attempted to justify
its new restrictions with reference to Article XXIV:8(a)(ii) of GATT as follows:
"The GATT jurisprudence since 1957 has considerably widened the scope of
"regulations of commerce".  Indeed, in the 1986 Working Party examining the accession
of Spain and Portugal to the Community, it was no longer disputed that QRs formed partof "other regulations of commerce".  The conformity assessment of the EU-Turkey
Customs Union in the framework of Article XXIV should therefore not be abused in an
attempt to shape new substantive WTO law.  Since a customs union must cover
"substantially all trade" and may not exclude particular economic sectors, the EC’s
customs union with Turkey must also cover the textiles sector , which, it must be recalled,
represents over 40% of Turkey’s trade with the Community." (Emphasis added.)
6.86 In India's view, however, that sub-paragraph merely defined one of the requirements to be
fulfilled by an RTA to qualify as a customs union within the meaning of Article XXIV.  The provision
could not possibly be interpreted to imply that Members, in fulfilling that requirement, were  entitled
to ignore their WTO obligations when applying restrictions to imports from third Members.  Article
XXIV:4 made it clear that the purpose of a customs union was not to raise barriers to the trade of third
countries, and Article XXIV:6 stipulated that tariff bindings could not simply be ignored by Membersforming a customs union which, if necessary, had to renegotiate them in accordance with theWT/DS34/R
Page 48
procedures set out in Article XXVIII.  If the obligations under Article II could not be ignored by
Members forming a customs union, how could one reasonably conclude that the obligations underArticle XI:1 of GATT and Article 2.4 of the ATC could be ignored?
6.87 India recalled that this position was also taken by the representative of Thailand at the
meeting of the CRTA in October 1996:
"... Article XXIV:6 ... required the parties to RTAs to enter into compensation
negotiations under Article XXVIII.  A unilatera l withdrawal of concessions under Article
II of GATT 1994 would thus constitute a breach of the multilateral rules. Similarly, the
imposition of QRs by new members of a cust oms union violated the provisions of GATT
1994, as this could not be justified under Article XXIV."
121
6.88 India also warned against importing into Article XXIV:8(a)(ii) in terms of creating rights to
impose QRs where there were not specifically provided.  Moreover, while Turkey claimed to be
obliged by Article XXIV:8 to adopt common quotas with the European Communities for textiles and
clothing, it was also claiming the right to follow divergent trade policy practices and to adopt different
instruments in other areas.  India noted in this respect differences inter alia  in external trade policies
on agriculture, steel and other sensitive industrial products, as well as in relation to anti-dumping,
countervailing and safeguards measures.  There was additionally no requirement that Members fulfil
the requirements of Article XXIV:8(a) immediately.
6.89 Turkey  submitted that Article XXIV:8(a)(ii) required it to apply to third countries import
restrictions similar to those applied to the same countries by the European Communities, since the
term "regulations of commerce" had traditionally been interpreted as incorporating QRs.122  This was
precisely the reason for Article 12 of Decision 1/95 unequivocally envisaging the wholesale adoption
by Turkey of the EC Common Commercial Policy Instruments, as well as the EC Customs Code, in
the area of textiles and clothing products, prior to the completion of the Turkey-EC customs union.Article 12(1) specified the external trade measures to be adopted by Turkey towards third countries,
which constituted the critical mass of commercial policy regulations applied by the European
Communities.  Appropriate measures were envisaged to prevent trade diversion to Turkey over the
EC customs territory.
123  The provisions of Decision 1/95 which had permitted the European
Communities to continue applying - even after the completion of the Turkey-EC customs union -certificates of origin to imports of textiles and clothing from Turkey, had lapsed because Turkey had
been able to meet all the requirements for the free circulation of these products set out in the Decision
itself (including the adoption of substantially the same commercial policy as the European
Communities for those products).
6.90 Turkey referred again to the example of a customs union between WTO Members A and B,
where A applied (fully WTO-compatible) QRs on certain imports but low tariffs, while B had no QRs
but (fully WTO-compatible) high tariffs on such imports.  In such a case, the mentioned option (i)
would entail that the A-B customs union would have to adapt its external trade regime to that of B,
which meant raising tariffs to the high B level, an undoubtedly permissible move under Article
XXIV:6.  Option (ii) would result in the A-B custom s union aligning its external trade regime with A,
which would entail the introduction of QRs corresponding to those of A.  Option (iii) would attempt
to find some middle ground between the other two options.
                                                     
121 WT/REG22/M/1, para. 17.  India, Japan, Hong Kong, and the United States expressed their
agreement with Thailand.
122 See BISD 35S/293, para. 45.
123 A transitional period was only provided for in Article 16 of Decision 1/95 (see WT/REG22/1) for
alignment by Turkey on the EC preferential trade policy as no risk of trade diversion through the Turkishcustoms territory was likely as long as Turkey maintained towards the countries concerned a more restrictive
import regime than that of the European Communities.WT/DS34/R
Page 49
6.91 In Turkey's view, the position of India would entail, in the context of the present case, that
options (ii) and (iii) be legally unavailable.  This would come down to an overly restrictiveinterpretation of Articles XXIV:5 and XXIV:8(a)(ii), because under this reading, the inescapable need
to raise the tariffs to a high level could easily en ter into conflict with the requirement of Article
XXIV:5(a) according to which the external trade regime of the customs union should not on the whole
be more restrictive than the general incidence of th e external trade regime of each of the constituent
territories prior to the formation of the customs union.  This would make option (i) likewise legallyunavailable.
6.92 Turkey was of the view that any interpretation of Article XXIV which could lead to the
conclusion that in certain circumstances, WTO Members with diverging external trade regimes were
legally inhibited from forming a customs union would also be in contradiction with the objective
clearly stated in Article XXIV:4.  In order to fully preserve the right of WTO Members to form
customs unions, it was necessary to keep open in all cases options (i), (ii) and (iii) as referred to
above, since only by maintaining this flexibility would it be possible to allow WTO Members to form
a customs union where they have diverging (but entirely legal) external trade regimes prior to the
formation of such a customs union.  As already mentioned, this reading of Article XXIV:8(a)(ii) was
also commanded by the requirements laid down in Article XXIV:5(a).
6.93 Turkey considered therefore that, under India’s reading, Articles XXIV:5-8 could stand in the
way of the formation of a customs union between WTO Members with diverging external traderegimes.  Such a reading of the portions of Article XXIV flew in the face of the purpose of this
provision which was, on the contrary, to facilitate the formation of customs unions.
6.94 Turkey submitted further that, contrary to India's reading, Article XXIV:8(a)(ii) did not
merely define a customs union.  If such interpretation were followed, the set of GATT provisions on
customs unions would be incoherent and logically inconsistent.  If, in order to qualify as a customsunion, the Turkey-EC customs union had to cover substantially all trade - as required by Article
XXIV:8(a)(i) - it had obviously to cover trade in textiles and clothing products, which represented 40
per cent of Turkey's sales in the European Communities.  If such trade had to be covered, the Turkey-
EC customs union had to have a common regulation of commerce with other countries in accordance
with Article XXIV:8(a)(ii).  Such common regulation of commerce, as determined by restrictivemeasures which the European Communities applied in conformity with WTO rules, applied to goods
imported in the Turkey-EC customs union via Turkey.  Article XXIV:5(a) could not be interpreted as
prohibiting this: if it were, the absence of a common regulation of commerce for textiles and clothing
products would result in the exclusion of these products from the coverage of the Turkey-EC customs
union, which then would not meet the re quirement of Article XXIV:8(a)(i).
(ii) Relationship between Article XXIV:8(a)(ii) of GATT and Article 2.4 of the ATC
6.95 India  believed that, implicit in Turkey's argument  that Article XXIV:8(a)(ii) required it to
apply to its customs territory the same import restrictions that the European Communities were
authorized to apply under the transitional arrangements of the ATC, there was the claim that a conflict
existed between the provisions of Article 2 of th e ATC and those of Article XXIV:8(a)(ii) of GATT.
India also believed that, implicit in this argumentation was the further claim of Turkey that it was
entitled to resolve this conflict in favour of its obligations under Article XXIV:8(a)(ii).
6.96 For these reasons, India considered that Turkey’s argumentation had to be examined in the
light of the General Interpretative Note to Annex 1A of the WTO Agreement, which read:
"In the event of a conflict between a provision of the General Agreement on Tariffs and
Trade 1994 and a provision of another agreement in Annex 1A of the Agreement
Establishing the WTO ..., the provision of the other agreement shall prevail to the extentof the conflict."WT/DS34/R
Page 50
6.97 In the EC-Bananas III  case, the panel interpreted this note as covering two types of conflicts:
Firstly, conflicts between obligations contained in GATT and obligations contained in agreementslisted in Annex 1A to the WTO Agreement, where those obligations were mutually exclusive  in the
sense that a Member could not comply with both oblig ations at the same time.  Secondly, the situation
where a rule in one agreement prohibited what a ru le in another agreement explicitly permitted ,
illustrated by the panel with the following example:
"… Article XI:1 of the GATT 1994 prohibits the imposition of quantitative restrictions ...
Article 2 of the … ATC … authorizes the imposition of quantitative restrictions in the
textiles and clothing sector, subject to conditions specified in Article 2.1-21 of the ATC.
In other words, Article XI:1 of GATT 1994 prohibits what Article 2 of the ATC permits
in equally explicit terms.  It is true that Members could theoretically comply with Article
XI:1 of GATT, as well as with Article 2 of the ATC, simply by refraining from invoking
the right to impose quantitative restrictions ... However, such an interpretation would
render whole Articles or sections of Agreements covered by the WTO meaningless andrun counter to the object and purpose of many agreements listed in Annex 1A which
were negotiated with the intent to create rights and obligations which in parts differ
substantially from those of the GATT 1994."
124
6.98 India noted that, in the present proceedings, no conflict of the first type arose because the
European Communities and Turkey could meet their obligations under Article XXIV and Article 2.4of the ATC simply by not imposing any restrictions on imports of textiles and clothing. However, the
second type of conflict between Article XXIV:8(a) of GATT and Article 2.4 of the ATC did arise
because, while the former required the European Communities and Turkey to apply substantially the
same regulations of commerce, the latter explicitly required them to apply different regulations of
commerce.  The provisions of Article 2.4 of the ATC therefore clearly prevailed to the extent of thisconflict.
6.99 India therefore submitted that the European Communities and Turkey could meet their
obligations under the WTO agreements if they were to form a customs union under which the import
policies of the European Communities and Turkey on textiles and clothing differed to the extent that
their obligations differed under Article 2.4 of the ATC.  Turkey’s defense based on the notion of aconflict of obligations was therefore without any legal basis.  In this context, India noted further that
the ATC was a newly negotiated agreement designed to exempt partially the textiles and clothing
sector from the earlier GATT disciplines during a transitional period; it therefore constituted a later
and more specific statement of Members' rights and obligations in the field of textiles and clothing.
6.100  Turkey  submitted that, with regard to the ATC, no conflict existed.  In addition, Turkey
considered that it was in the first place for the TMB to determine the relationship between the ATC
and GATT, as this relationship depended on an interpretation of the ATC.  Turkey therefore continued
to believe that this issue could not be considered by the Panel without prior examination by the TMB
which had been given the task to examine measures taken under the ATC and their conformity
therewith.
6.101  Turkey submitted further that, in any case, since the ATC specifically referred back to the
"relevant GATT 1994 provisions" in Article 2.4, Turkey could not see any basis for construing aconflict between ATC and GATT.  This was also evidenced by footnote 3 to Article 2.4 of the ATC,
which solely excluded Article XIX of GATT from the reference contained in the main body of this
provision.
125  Finally, the ATC established a transitional regime, the ultimate aim of which was full
integration of the textiles and clothing sector in th e GATT.  It would therefore be surprising if Article
XXIV of GATT would be considered inapplicable in the context of the ATC, since the purpose of the
                                                     
124 Panel Report on EC - Bananas III (Complaint by the United States) , para. 7.159 and footnote 403.
125 See also, in this respect, paras. 6.27 to 6.29 above.WT/DS34/R
Page 51
ATC was to phase out gradually any special rules applying to textiles and clothing products and to
phase in all the GATT rules, which obviously included Article XXIV.
(iii) Differences between the formation of a customs union and the enlargement of an already
existing one
6.102  India  noted that Turkey had not become a Member State of the European Communities, and
the territory to which the European Communities applied the WTO Agreement had therefore not been
extended to comprise that of Turkey.  The new restrictions were consequently not EC measuresextended to the territory of Turkey, but restrictions imposed by Turkey.  In this context, India recalled
that, in the communication dated 9 January 1996, Turkey further attempted to justify its new
restrictions as follows:
"To the extent that the EC's current regime for textiles is in accordance with WTO rules
including the ATC, nothing prevents the Community from applying its existing regime to
the enlarged territory of the EU-Turkey cust oms union, as has been done by the EC on
the occasion of previous enlargements."
6.103  India was of the opinion that this statement was both factually and legally incorrect.  While
the European Communities were responsible for the implementation of the WTO Agreement within
its own separate customs territory (which essentially comprised the European territories of its Member
States),
126 it had assumed no obligations under the WTO Agreement in respect of the territory of those
countries with which it had concluded a customs union agreement.  The case before the Panel wasthus not the case of an extension of the territory to which the European Communities applied the
WTO Agreement (which occurred for instance when Austria, Finland and Sweden acceded to the
European Communities and when Germany was unified).  This case concerned the adoption by
Turkey of the EC restrictive textiles and clothing import regime within the framework of an RTA.
There was therefore no need for the Panel to make any findings on the complex legal issues arisingfrom an extension of the territorial application of the WTO Agreement by the European Communities
to the territory of States that acceded to the European Communities but remained Members of the
WTO.
6.104  Turkey  submitted that, from the point of view of rights and obligations arising out of
membership of the WTO, there was no distinction between accession to the European Communitiesand participation in a customs union with it, as long as a single customs territory had been created
with the inclusion of both parties.  For that re ason, the procedures followed, whether in relation to
Article XXIV:5(a) or Article XXIV:6, were identical in both cases.  In Turkey's opinion, the
precedents set by EC accessions were valid for the examination of its own customs union with the
European Communities.  While the decision-making processes varied depending on whether a countryhad acceded to the European Communities or joined  in a customs union with it, what mattered was
the fact that the obligations which arose out of both cases were indistinguishable in essence, as in the
case of the Turkey-EC customs union which had a single customs territory as provided for in Article
3(3) of Decision 1/95.  Precisely because a common commercial policy was applied over this single
customs territory, Turkey and the European Commun ities had insisted on the latter's participation in
the examination of India's complaint by the Panel, since the elements of that common commercial
policy could not be modified without the consent of the European Communities.
6.105  Turkey therefore did not agree with the argument made by India concerning the alleged
difference in WTO terms between an extension of  the EC customs union through accession of new
member States and the substitution of a single Turkey-EC customs territory for the pre-existing
individual customs territories of Turkey and the European Communities respectively.  In fact, in both
cases, the territory covered by the customs union was extended by comparison to the situation
                                                     
126 See Article XXIV:1 and the Explanatory Notes at the end of the WTO Agreement.WT/DS34/R
Page 52
prevailing beforehand.  The main difference was in the administration of the customs union, which
was the responsibility of the European Communities alone in the case of an accession, but the jointresponsibility of Turkey and the European Communities in the case of the Turkey-EC customs union.
This was however entirely irrelevant for the application of Article XXIV:5 to 8 of GATT.
(iv) Scope of harmonization of the external trade regime in the Turkey-EC regional trade
agreement
6.106  India  noted that Turkey and the European Comm unities had chosen to eliminate the barriers
on trade between them in respect of most industrial products, and Turkey had harmonized certain
aspects of its external trade policies with those of the European Communities.  However, outside the
sector of textiles and clothing, the European Communities and Turkey would continue to apply
different trade policy measures to third countries.  The RTA between the European Communities and
Turkey, at its present stage of implementation, could best be characterized as a free-trade area whose
parties had chosen to harmonize certain aspects of their external trade policies.  The argument that
Article XXIV required Turkey to raise the level of its restrictions in the field of textiles and clothingto that of EC restrictions was therefore particularly unconvincing in this context.  As the
representative of the United States pointed out in the CRTA:
"The reasoning by the EC that Article XXIV required new member countries to adopt
certain restrictive and discriminatory arrangements so as to ensure the smooth
functioning of the Turkey-EC customs union wa s dubious, as it was not applied across
the board.  The selectivity of this reasoning confirmed that it was being used as a
disguised restriction to the trade of third countries.  In textiles, Turkey was required to
adopt quotas, but in other areas was exempted.  Regional trade agreements should have
the objective of strengthening, rather than  weakening the multilateral trading system."
127
6.107  Turkey  submitted that over 98 per cent of trade between Turkey and the European
Communities was covered by the Turkey-EC customs union and the criteria contained in the twin sub-
paragraphs of Article XXIV:8(a), were more than fulfilled in the completion of the customs union.
With reference to the requirements in Article XXIV:8(a)(i), Turkey noted the following:
(i) Duties and QRs had been eliminated on intra-trade in industrial products. Textiles and
clothing products, which accounted for around 40 per cent of Turkey's exports to theEuropean Communities, were in free circulation in the Turkey-EC customs union. As
far as steel products were concerned, they would be incorporated into the customs
union before the ECSC was phased out in 2001 and benefit from free circulation.
(ii) The only sector not fully covered by the Turkey-EC customs union in 2002 would be
agriculture, although intra-trade in agricultural products would have beensignificantly liberalised.  90 per cent of intra-trade in agricultural products had been
liberalised as a result of a separate Decision of the Association Council, Decision
1/98, which entered into force on 1 January 1998.
6.108  With respect to the harmonisation exercise carried out by Turkey in the area of commercial
policy, Turkey referred to the provisions containe d in Section III of Decisi on 1/95 and, stressing its
comprehensive nature, noted as follows:
                                                     
127 WT/REG22/M/1, para. 13.WT/DS34/R
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(i) Turkey had adopted the CCT for all indust rial products, except those of EURATOM
and ECSC.128
(ii) Turkey had adopted in the textiles and clothing sector a trade regime identical to that
of the European Communities, in conformity with Article 12(2) of Decision 1/95.
(iii) Turkey, as the European Communities, applied restrictions on a limited range of
products imported from some state-trad ing countries not Members of the WTO.
(iv) In order to achieve free circulation of agricultural products between the two parties,
Turkey has to adopt necessary elements of the Common Agricultural Policy. The
"European Strategy" for Turkey, endorsed by the European Council at its meeting
held in Cardiff on 15-16 June 1998, had proposed modalities for reaching that
objective and discussions on these proposals were expected to be initiated shortly
(v) In competition and state-aids, the harmonisation process had already been initiated
and, once completed, resort to anti-dumping and countervailing duties would cease
and identical policies would be applied to third countries.129  (Meanwhile, the Parties
to the Turkey-EC customs union were required to coordinate their actions towards
third countries.)130  Such gradual integration of anti-dumping actions was envisaged
in Article 4.3 of the WTO Agreement on Implementation of Article VI of the GATT
1994.
6.109  Consequently, Turkey was of the view that the Turkey-EC customs union could not be
described, as India did, as a "free trade area whose members have chosen to harmonise certain aspects
of their external trade policies", nor could it be argued that "Turkey has chosen to harmonise its
commercial policies with those of the EC on a selective basis".
(v) Other options available
6.110  Turkey  submitted that there were no alternative solutions to the imposition of quantitative
limits. No alternative could be devised which would not impair the principle of free circulation of
these products between Turkey and the European Communities as long as their importation into the
European Communities was subject to restrictions. Since 1 January 1996, no specific border controls
(other than regular border checks to verify that goods are under free circulation or under preferential
regime) existed between Turkey and the European  Communities for products covered by the customs
union, including those which were subject to QRs when imported from third countries; products were
accompanied by a circulation document which indicates that they are in free circulation.  All textile
and clothing products therefore circulated freely between the European Communities and Turkey's
territories since that date.
6.111  Turkey indicated that maintaining the regulatio ns of commerce applied prior to the formation
of the Turkey-EC customs union would be equivalent to excluding the goods, imported into Turkey
under Turkey's pre-customs union regulation of comme rce, from the coverage of the customs union.
Reintroducing the pre-customs union regime would also substantially reduce the degree of market
access available for third countries in Turkey, and would require the European Communities (as the
other party in the Turkey-EC customs union) to ra ise bound tariffs substantially, which was almost
certainly not feasible.
                                                     
128 Exceptionally, for a transitional period ending on 1 January 2001, imports from third countries of
products covering 1.4 per cent of eight-digit tariff lines would be subjected to higher duties than the CCT, inaccordance with Article 19 of the Additional Protocol.
129 See Article 44(1) of Decision 1/95 (WT/REG22/1).
130 See Article 45(2) of Decision 1/95 (WT/REG22/1).WT/DS34/R
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6.112  Turkey recalled that the deviations from the Turkey-EC customs union were in any case of a
temporary nature and insignificant in terms of the volume of trade affected.  For that reason, theprovisions of Decision 1/95 relating to compensatory measures during the period until Turkey had
fully aligned itself to the CCT and EC preferential trade policy, had never been invoked.
6.113  India  submitted that, in all areas in which their import duties or regulations differed, the
European Communities and Turkey were able to implement border controls ensuring that only
products originating in their respective territories would benefit from the preferential treatment underthe trade agreement.
6.114  India noted that, because of the many differences in the duties and restrictions the European
Communities and Turkey applied to imports from third countries, they had to ensure that exporters of
other countries did not take advantage of such differences by transshipping their exports via the
partner with the lowest barriers to imports.  Given the absence of a complete harmonization of
external policies, Decision 1/95 explicitly safeguarded the parties’ right to impose the necessary
controls in these areas.  In this respect, India referred to the customs controls in the case of differencesin arrangements on textiles and clothing, as contained in paragraphs 2 and 3 of Article 12 of the
Decision; the supplementary levies in the case of differences in import duties, provided for in its
Article 16.3(a); and the trade controls needed because of differences in the use of countervailing and
anti-dumping measures and safeguard actions, accord ing to Article 46 of the Decision.  In India's
view, all these provisions demonstrated that Decision 1/95 provided, in each case in which EC andTurkey's import policies differed, for the border controls necessary to ensure that exporters in third
countries did not take advantage of those differences. In each of these cases, the principle of free
circulation did not apply.
6.115  India drew attention in particular to the fact that Article 12.3 of Decision 1/95 specifically
provided for the application of restrictions and certificates of origin to textiles and clothing productsfrom third countries with whom Turkey had not concluded restraint arrangements equivalent to those
of the European Communities, thereby explicitly contemplating differences between their individual
arrangements with third countries and giving the European Communities the right to apply the
controls necessary to ensure that such differences did not entail transshipments via Turkey.
6.116  India concluded that, though Turkey had claimed that there were no alternatives to its
restrictions on imports of textiles and clothing products from India, Decision 1/95 itself provided for
such an alternative.   With respect to the European Communities' response to a question by the Panel
that it appeared "doubtful" that the use of rules of origin benefiting only Turkish exports of textilesand clothing products "would have been workable or proportionate within the customs union",
131
India remarked that such measures were consider ed to be workable and proportionate in the many
other areas in which EC and Turkey's policies diverged.
6.117  India further submitted that for the purposes of the EC-Turkey trade agreement, any
immediate harmonization of import restrictions on textiles and clothing products was unnecessary.The European Communities and Turkey were applying different import duties and regulations in
respect of many sectors, policy instruments and trading partners.  They pursued entirely different
external policies in respect of a very broad range of products, trading partners and trade policy
instruments.
132  The agreement which the European Communities and Turkey claimed to be a customs
union was concluded in the form of Decision 1/95 of  the EC-Turkey Associa tion Council.  According
to the text of Decision 1/95 and the recent Secretariat Report on Turkey issued in the context of the
Trade Policy Review Mechanism ("TPR Secretaria t Report"), the European Communities and Turkey
maintained divergent policies in the following areas:
                                                     
131 See para. 4.3 above, Reply to question 1.
132 See WT/REG22/M/1 and also Trade Policy Review: Turkey , Report by the Secretariat,  dated 14
September 1998, WT/TPR/S/44 (" TPR Secretariat Report on Turkey "), pp. xii-xiv.WT/DS34/R
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(i) In their automobile import policies in relation to Japan, in accordance with Article
12.4 of the Decision, which stated that the provisions of the Decision should notconstitute a hindrance to the implementation by the European Communities and Japan
of the Arrangement relating to trade in motor vehicles, mentioned in the Annex to the
WTO Agreement on Safeguards.
(ii) In customs duties for non-agricultural products, in accordance with Article 15.1 of the
Decision, which allowed Turkey to retain until 1 January 2001 customs duties higherthan the CCT in respect of third countries for products agreed by the Association
Council.
133
(iii) With respect to preferential trade regimes, given that, according to Article 16.1 of the
Decision, Turkey was to align itself progressively with the EC preferential customs
regime until 1 January 2001.  However, to the extent that the EC preferential regime
was based on agreements, this was subject to successful negotiations with the third
countries concerned.134
(iv) In agricultural products, an additional period (of undefined length) is required to put
in place the conditions necessary to achieve free movement of these products,
according to Article 24 of the Decision.
(v) With respect to trade defense instruments (i.e. countervailing and anti-dumping
measures as well as safeguard actions), according to Articles 44-47 of the Decision,the European Communities and Turkey were able to take such measures against each
other and, independently from one another, against third countries.
135
(vi) In government procurement, Article 48 of the Decision merely foresaw negotiations
on a harmonization of policies in this area.  At present, the European Communities
were party to the WTO Agreement on Government Procurement, but not Turkey.
(vii) On trade-related investment measures, foreign companies setting up a joint venture in
the automobile sector typically agreed to incorporate a certain share of local content
in their production under informal arrangements with the Turkish government.136
These arrangements, which had not been notified to the WTO, led to competitiveconditions for imported automobile parts and components in the Turkish marketdifferent from those prevailing in the EC market.
6.118  India argued from the above that the European Communities and Turkey did not have the
same external trade policies in the field of agriculture, 290 "sensitive" industrial products, shoes and
other leather goods.  The automobiles and automobiles parts and components sectors in Turkey and
the European Communities were subject to different arrangements affecting imports.  The European
                                                     
133 According to the  TPR Secretariat Report on Turkey  (p. 22), Turkey would maintain rates of
protection above those specified in the EC’s common external tariff (CET) for "sensitive" products equivalent to
290 items at the HS-twelve-digit level for up to five years.  These items included motor vehicles  with an engine
capacity smaller than 2,000cc, bicycles, leather cases and bags , footwear  and their parts, furniture , chinaware
and ceramic ware, iron and steel wires and ropes not electrically insulated, and paper or paperboard sacks andbags for cement or fertilizers.
134 According to the  TPR Secretariat Report on Turkey  (paras. 33 and 36), Turkey had not yet adopted
the GSP of the EC and was still discussing free-trade agreements with Tunisia, Egypt, Morocco and Palestine
135 In the CRTA, the EC representative confirmed that Decision 1/95 had no provisions on the common
application of anti-dumping and countervailing measures (see WT/REG22/M/1, para. 45) and further explainedthat the European Communities and Turkey would harmonize common safeguards rules only after a transitionalperiod (ibid., para. 40).
136 TPR Secretariat Report on Turkey  (para. 87).WT/DS34/R
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Communities and Turkey did not apply the same legislation or the same external policies with respect
to anti-dumping, countervailing and safeguard measures.  The import tariffs for automobiles and theexport restraints agreed with Japan differed.  Turkey restricted the purchase of imported automobile
parts and components through informal arrangements but not the European Communities. The
European Communities and Turkey had not liberalized their mutual trade in agricultural products
except for the industrial component of processed agricultural products.
 137  Therefore, for the purposes
of the trade agreement they concluded, Turkey and the European Communities did not have to imposethe same restrictions on imports of textiles and clothing.  Given the long transitional periods agreed
for so many sectors, policy instruments and trading partners, they could also have exempted the
textiles and clothing sector from the coverage of the agreement until the end of 2004 when the
transitional period under the ATC lapsed.  Turkey’s decision to immediately adopt the EC policies in
the field of textiles and clothing restrictions but not in the agricultural, automobile, shoes and leather
goods sectors could be easily explained by a desire of Turkey to tailor the scope of the customs union
to its domestic political constraints rather than its obligations under the GATT and the ATC.
(d) Turkey-EC regional trade agreements in the framework of Article XXIV
(i) Compatibility with Article XXIV provisions
6.119  Turkey  submitted that the legitimacy of RTAs, whether customs unions or free- trade areas,
as an exception to the MFN rule, had been recognised since work started on the Charter of the
International Trade Organisation in the 1940s.  The Havana Charter recognised the desirability of"preferential agreements for economic development and reconstruction".
138  The present text of
Article XXIV of GATT was adopte d at the Havana Conference in 1948.  In Turkey's opinion, it was
generally acknowledged that such arrangements could lead to a better allocation of world resources as
long as their "trade diverting" effects were less significant than their trade creating effects."
6.120  Turkey submitted further that full transparency had always been maintained in the GATT, and
subsequently the WTO, by Turkey and the Europ ean Communities with respect to the Association
between them and its evolution over the years. In asserting that its Association with the European
Communities had never been challenged in the GA TT or the WTO, Turkey summarized the main
observations contained in the Working Party Reports on (i) the Ankara Agreement, (ii) the 1970
Additional Protocol and (iii) the 1973 Supplementary Protocols, as follows:139
(i) "The signatories of the [Ankara] Agreement recalled that ... the final objective of the
Agreement, notably by the institution of a customs union, [was] the accession of
Turkey to the Community when the operation of the Agreement [made] it possible ..."
The Working Party was informed of the fact that the external tariff of the customs
union would be that of the EEC, that trade regulations applied by Turkey towardsthird countries would be approximated with those of the EEC and that as between the
parties, the customs union regime would involve the elimination of all customs duties
and charges with equivalent effect and all QRs.  The main criticism raised by
Contracting Parties related to what was considered to be the "undetermined duration"
of the transition to the customs union.  One of the members of the Working Party,
considered that the tariff quotas to be put into effect by the EEC for the benefit of
exports of certain Turkish products constituted a unilateral preferential arrangementwhich had the effect of "widening the area of discrimination against third countries
                                                     
137 This, despite the fact that the agricultural sector of Turkey accounts for 14 per cent of GDP and
about half of the labour force, and would therefore most likely be an important element in EC-Turkey traderelations were zero tariffs applied to such products as well.  (See TPR Secretariat Report on Turkey , p. xi.)
138 See United Nations Conference on Trade and Employment, Final Act and Related Documents ,
ICITO, April 1948, Chapter 15.
139 See para. 2.14 for references to these Reports.WT/DS34/R
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and eroding their rights under the General Agreement".  The parties responded that "it
was a case of an economic integration Agreement between parties at very differentstages of development and that such arrangements are rightly characterised by a
certain imbalance in the obligations undertaken during their formative period".  In
reply to further questions regarding the possible trade effect of the Agreement on
third parties, Turkey and the EEC stated that they were prepared "to consult with
contracting parties on matters affecting the operation of the General Agreement asrequired by Article XXII".  One member of the Working Party said that "if the
CONTRACTING PARTIES were to decide that the Agreement was not in
conformity with the relevant provisions of Article XXIV, then the provisions of
paragraph 7(b) should apply".  However, no contracting party resorted to the
provisions of Article XXII and no recommendation was addressed to the parties to the
Agreement under Article XXIV:7(b).
(ii) When Turkey and the EEC notified to the GATT the 1970 Additional Protocol and
Interim Agreement, they stated that the "Additional Protocol defined the rhythm and
modalities of the realisation of the customs union".  The parties, in their statements to
the Working Party, reiterated the fact that the long-term objective of the Agreement
was "Turkey's accession to the EEC" and that the details for the implementation of
the transitional stage prior to the completion of the customs union were set out in theAdditional Protocol.  While some members of the Working Party found the
provisions of the Protocol "reasonable and justified when considering the different
levels of development of the EEC and Turkey", others were of the view that the
extended period for completing the customs union could not be considered
"reasonable" in the sense of Article XXIV:5(c).  In accordance with Article XXII:1 ofGATT 1947, Turkey and the EEC undertook to "give sympathetic consideration to
representations made by contracting parties".  However, no such representations were
ever made.
(iii) At the further examination of the Association, on the basis of the 1973
Supplementary Protocols and Interim Agreement, some members of the WorkingParty agreed with the parties that the Supplementary Protocol "conformed fully to
Article XXIV of the General Agreement".  Other members of the Working Party
considered the transitional period envisaged as too long and criticised the
maintenance of discrimination in the dismantling of duties and QRs by Turkey in
favour of the European Communities.  Nevertheless, no contracting party invoked theright to consult under Article XXII in relation to any provision of the Agreement.
6.121  Turkey recalled that, in subsequent years, the two parties had reported regularly on the
implementation of the Association Agreements and on the progress made in reaching their objectives.
Full transparency had therefore been maintained on this subject and contracting parties had had the
opportunity of expressing their views on it when the reports were examined by the GATT Council.
No country invoked any rights under GATT 1947 throughout this period.
6.122  Turkey also recalled that, on 22 December 1995, Turkey and the European Communities
notified to the WTO the text of Decision 1/95 which had been formally adopted on that same day and
which set out the modalities for the completion of the Turkey-EC customs union provided for in the
Association Agreements.  Turkey and the ECSC notified in July 1996 the free-trade agreement on
ECSC products, which entered into force on 1 August 1996.
6.123  Turkey noted that, in the WTO context, two mee tings of the CRTA had so far been devoted to
examining Decision 1/95, which set out the modaliti es for the completion of the Turkey-EC customs
union provided for in the Association Agreements.  At  the first meeting, the Chairman stated that "the
parties had provided the Secretariat with information and data to enable it to compute the generalWT/DS34/R
Page 58
incidence of duties as required under Article XXIV:5(a), and for purposes of facilitating negotiations
under Article XXIV:6 of GATT 1994".  Some members of the CRTA had agreed with the parties inthat the creation of a customs union between them was consistent with the provisions of Article
XXIV:4, 5 and 8, and that the Turkey-EC customs union would benefit third parties, as the general
incidence of duties and other regulations of commerce had been lowered.  Other members considered
that the agreement failed to meet the obligations of  Article XXIV, essentially because it did not at the
moment provide for free movement of agricultural products, and because of the QRs on imports oftextiles and clothing products introduced by Turkey to align its external trade policy on that of the
European Communities.  Turkey and the European Communities had responded by explaining that
liberalisation of trade in agricultural products was a requirement of the Association Agreement (a
separate Association Council Decision providing in due course for the elimination of most restrictions
on such trade between the two parties entered into force on 1 January 1998).
6.124  Turkey considered that, though the CRTA had not yet concluded its examination of the
Turkey-EC customs union, there was no indication, two and a half years after the completion of thecustoms union, that it would recommend to the parties, under Article XXIV:7(b), that modifications
be made to the Agreement.  Turkey added that no country had asked for compensatory adjustment
with respect to any tariff bindings that might ha ve been affected by the Turkey-EC customs union.  It
also noted that the completion of the customs union as originally scheduled convincingly replied to
the principal criticism raised in the Working Pa rties entrusted with the task of examining the
Association in the past, namely that the transitional period was too long to be considered
"reasonable".  By fulfilling its commitments as orig inally intended, Turkey had demonstrated that it
had made good use of such transitional period.
6.125  Noting that India recognized that the present dispute did not cover the question of whether or
not Turkey met the requirements of Article XXIV:5(a), Turkey concluded that, for the purposes of thepresent dispute, India did not contest that the provisi ons of this Article were applicable to the Turkey-
EC customs union and that it assumed, for the purposes of this dispute, that the Turkey-EC customs
union fulfilled the requirements of those provisions.  In Turkey's opinion, it could hardly be
otherwise, since the question of the compatibility of the Turkey-EC customs union as such with the
requirements of Article XXIV:5(a) was not within th e terms of reference of this Panel.  Rather, this
question was presently examined by the CRTA under Article XXIV:7(b).  Turkey noted that the
present dispute was therefore limited to the question as to whether Article XXIV contained a
sufficient justification for the measures at issue.
140
6.126  India  agreed with Turkey that panels should not make determinations which were to be made
according to explicit provisions of the GATT and other WTO Agreements by bodies composed ofrepresentatives of Members.  India also did not believe that the present case required the Panel to
assess the consistency of the EC-Turkey trade agreement with the requirements of Article XXIV.
141
(ii) Type of agreement under Article XXIV
6.127  India  submitted that, if the Panel were to consider the relationship between the EC-Turkey
trade agreement and the provisions of Article XXIV relevant for its conclusions, it should, in the view
of India, adopt the approach followed by the GATT panel on EEC-Bananas I , which reacted as
follows to the EEC’s claim that the preferences it granted to developing countries in the framework ofthe Lomé Convention were covered by Article XXIV:
                                                     
140 See also, in this respect, para. 6.133 below.
141 India reserved the right to challenge in a future  proceeding the preferences that the EC and Turkey
accord each other if WTO jurisprudence were to emerge according to which panels are entitled to rule also on
those matters that were to be resolved according to the provisions of the GATT and other WTO legalinstruments by bodies composed of Members, such as the provisions of Articles XII:4, XVIII:12, XIX:3
XXVIII:1 and XXIV:7 of GATT.WT/DS34/R
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"The Panel first examined the argument of the EEC that Article XXIV:7 sets out special
procedures for the examination of free trade areas by the CONTRACTING PARTIES,and that the overall consistency of such free trade area with Article XXIV could
therefore not be investigated by a panel established under Article XXIII. ... The Panel
observed that, whatever the precise relationship between the procedures under Article
XXIII and XXIV, the provisions of Article XXIV:7 empower the CONTRACTING
PARTIES to make recommendations only on agreements establishing a customs union or
free trade area, or interim agreements leading to such a union or area.  These provisions
thus do no apply to any agreement notif ied to the CONTRACTING PARTIES but only
the four specified types of agreements.  The Panel therefore concluded that,
notwithstanding the issue of whether the procedures of Article XXIV:7 supersede those
of Article XXIII:2, it would first have to examine whether the Lomé Convention is an
agreement of the type to which the procedures of Article XXIV:7 apply.  The Panel
could not accept that tariff preferences inconsistent with Article I:1 would, bynotification of the preferential arrangement and invocation of Article XXIV against the
objections of other contracting parties, escape any examination by a panel established
under Article XXIII.  If this view were endorsed, a mere communication of a contracting
party invoking Article XXIV could deprive all other contracting parties of their
procedural rights under Article XXIII:2, and th erefore also of the effective protection of
their substantive rights, in particular those under Article I.  The Panel concluded
therefore that a panel, faced with an invocation of Article XXIV first had to examine
whether or not this provision applied to the agreement in question. ... The Panel then
proceeded to examine whether the Lomé Convention was one of the types of agreement
mentioned in Article XXIV."
142
6.128  In India's view, the reasoning underlying this example of judicial restraint could be transposed
to the present case.  The Panel need not decide whether the determinations to be made under Article
XXIV:7 could be made by a panel nor whether the EC-Turkey agreement was consistent with Article
XXIV.  It was sufficient for the Panel to decide in to which of the four categories of agreements the
type of agreement notified by the European Communities and Turkey fell.  India argued that the typeof agreement concluded between the European Communities and Turkey (i.e. an agreement under
which the same import duties and regulations were to be applied to imports from third countries only
at a future date) was not governed by those provisions of Article XXIV that related to completed
customs unions, but fell into the category of interim agreements leading to the formation of a customs
union.  Since Turkey had invoked the provisions of Article XXIV on completed customs union as alegal cover for measures taken under an agreement that provided for the establishment of such an
union at a future date and to which those provisions could not apply, the Panel should reject Turkey’s
invocation of the provisions on completed customs unions as a potential legal basis for the restrictions
at issue.
6.129  India considered that there was yet another reason why the Panel need not determine whether
the EC-Turkey agreement met the requirements of Article XXIV.  When the agreement was examined
by the CRTA, the European Communities and Turkey did not clarify the precise nature of theagreement and made contradictory and vague statements on this issue in response to pointed questions
raised by other Members.  Although the European Communities and Turkey claimed that the
agreement established a customs union fully consistent with the requirements of Article XXIV,
143 they
also said that the harmonization of certain policies would take place at the end of transitional
periods,144 thereby admitting that the agreement was in effect an interim agreement leading to the
formation of a customs union.
                                                     
142 EEC - Bananas I , paras. 158-159 (emphasis in the original).
143 See WT/REG22/M/1, para. 4.
144 See WT/REG22/M/1, paras. 5, 8, 10, 12, 28, 29 and 30.WT/DS34/R
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6.130  India further noted that Turkey had claimed in the CRTA that it might, consistently with
Article XXIV, apply import policies different  from those of the European Communities in the areas of
agriculture, steel and other "sensitive" industrial products, preferential trade agreements, the GSP,
anti-dumping duties, countervailing measures, and safeguards.  Before the Panel, Turkey claimed that,
to conform to Article XXIV,  it had to apply the same  policies as the European Communities in the
field of textiles and clothing. However, these two legal claims could not be simultaneously accepted
by the Panel.  The first proposition was correct if the EC-Turkey agreement was an interim agreement
leading to the formation of a customs union because, in that case, Turkey’s import policies could
deviate from those of the European Communities during a transitional period in certain sectors,
including textiles and clothing.  The second proposition was correct if that agreement was a fully
fledged customs union because, in that case, Turkey would be required to adopt the same policies in
all areas, including textiles and clothing.  India agreed that the Panel should not determine whether the
EC-Turkey agreement met the requirements set out in Article XXIV for customs unions or those for
interim agreements leading to the formation of a customs union. However, India disagreed that the
Panel had to accept the proposition implied in Turkey’s argumentation that one agreement notified
under Article XXIV could be at the same time a customs union agreement and an interim agreement
leading to the formation of a customs union.
6.131  India noted, furthermore, that, to question 2 of the Panel, on whether in its view the
agreement with Turkey was an interim agreement that should lead to a customs union by 2005 or an
agreement implementing a completed customs union, the European Communities avoided a reply by
incorrectly referring to the date of 2001, by mentioning Article XXIV:8(a), and by defining the
requirements of this sub-paragraph in terms of a "final phase".145  The reference to 2001 was incorrect
because the agreement did not establish any final date for common policies in the fields of agriculture,
"commercial defense" instruments and preferential trade policies.  Moreover, the EuropeanCommunities appeared to take the view that the requirements of Article XXIV:8(a) were met by
entering into the "final phase with  regard to the requirements of Article XXIV:8(a)" and thus imparted
upon this provision the notion of transition that was contained in the concept of interim agreement.  It
might therefore be concluded that the European Communities in response to a clear question by the
Panel refused to confirm that the EC-Turkey agreement established a customs union within themeaning of Article XXIV:8(a).
6.132  In view of the above, India concluded that the type of agreement existing between the
European Communities and Turkey was not governed by the provisions of Article XXIV on customs
unions.
6.133  Turkey  submitted that it had defended the view that it was not the Panel's task to substitute
itself for the CRTA and that the Panel could not rule on the legality of the measures forming the
object of the complaint in the absence of agreed  conclusions on the consistency of the Turkey-EC
Agreements with Article XXIV. Turkey wished to clarify that, while pursuant to the institutional
arrangements of the WTO the assessment of the Turkey-EC customs union was a matter for the
CTRA and ultimately for the CTG, this should not prevent the Panel from verifying whether the
Turkey-EC customs union might prima facie  be regarded as a customs union within the meaning of
Article XXIV:8(a).
6.134  In this connection, Turkey drew attention to the TPR Secretariat Report on Turkey, which in
the Introduction to the Summary Observations highlighted, as a general point, the wide range of
reforms implemented by Turkey within the framewo rk of the customs union between Turkey and the
European Communities "taking it significantly beyond its Uruguay Round commitments as well as
                                                     
145 See para. 4.3 above.WT/DS34/R
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generating improved and more secure trading opportunities for third countries",146 noting in particular
that "the [Customs Union Decision] goes well beyond the basic requirements of a customs union".147
6.135  Turkey disagreed with India's allegations that the customs union between Turkey and the
European Communities was in fact an interim agreement and that therefore under this agreement
Turkey was not required to apply the same external trade policy, including in the area of textiles and
clothing, as the European Communities.  Turkey also  noted that, while India, in its first submission,
had described the Turkey-EC customs union as such, it had later decided to downgrade the status ofthe customs union to that of a mere trade agreement .
6.136  Turkey elaborated that the customs union was a definitive agreement providing for the
phasing in of harmonized policies in certain specific areas which did not affect the character of the
customs union because of their limited trade impact.  The 290 "sensitive" products for which a
transitional period ending on 1 January 2001 had been allowed for Turkey to adjust to the CCT only
accounted for 1.5-2 per cent of Turkey's total imports.  Much of the gradual alignment on the CCT
which started with the completion of the customs union had already been made in the 2.5 yearselapsed since then and the margin of difference between the CCT and the tariff applied for those
products in Turkey was being progressively reduced so that the alignment would be completed on 1
January 2001, bearing in mind that for the remaining 17,000 tariff lines covered by the customs union
the alignment had already been completed on 1 January 1996.  Coal and steel products would be
incorporated in the Turkey-EC customs union when included in the EC customs union itself, in 2002;meanwhile , they were covered by a free-trade agreement similar to the ECSC Agreement itself.
Alignment on the EC preferential trade regimes was taking place.  As far as agriculture was
concerned, the objective of free movement was contained in the Association Agreement and was
being reached by stages.  Association Council De cision 1/98, which provided for mutual trade
preferences in these products and entered into force on 1 February 1998, consolidated the eliminationof customs tariffs on 70 per cent of trade in these products between Turkey and the European
Communities.
6.137  Turkey therefore concluded that India's arguments on the alleged incomplete nature of the
Turkey-EC customs union were groundless.
6.138  India  remarked that the quote of the TPR Secretariat Report made by Turkey was partial and
therefore misleading.  There was no reference to Article XXIV requirements in the Secretariat's
observations.  In India's view, since a customs uni on could be established without a harmonization of
a number of domestic policies, the Secretariat had correctly observed that certain of the measures
taken  went beyond the requirements of a customs union.
5. Nullification or Impairment
(a) Trade aspects
6.139  Turkey  submitted that the Turkey-EC customs union had benefited third countries and could
not be described as having raised barriers to their trade with Turkey.  The CCT, adopted under the
Turkey-EC customs union, had an incidence of tariff levels much lower than that of Turkey's previous
tariff.  The average Turkish tariff had been 18 per cent while the level of the CCT was 5.6 per cent
and, with the implementation of the Uruguay Round resu lts, this rate would fall further to 3.5 per cent.
6.140  Turkey added that, in undertaking the process of alignment of its external trade policy with
that of the European Communities, it had embarked  in the negotiation of free trade agreements with
the countries which had concluded similar arrangements with the European Communities.  Those
                                                     
146 TPR Secretariat Report on Turkey , p. x.
147 TPR Secretariat Report on Turkey , p. xi.WT/DS34/R
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agreements already in force had been notified to the WTO; further such agreements would be notified
prior to their entry into force.  Turkey was also preparing the adoption of a GSP scheme similar to thatof the European Communities and of preferential arrangements applicable to ACP countries under the
Lomé Convention.  In accordance with Article 16 of Decision 1/95, alignment by Turkey with the EC
common commercial policy would be completed in 2001.
6.141  Turkey considered that, as a result, the Turkish market had became as open as the EC market
to third-country products and that those products would enjoy even larger benefits in the Turkishmarket following the completion of the Turkey-EC customs union. It also affirmed that, overall, the
Turkey-EC customs union had resulted in the lowering of the general incidence of duties and other
regulations of commerce.  The requirements of Article XXIV:5(a) of GATT had therefore been met.
6.142  Turkey  submitted further that, although the replacement of an essentially tariff-based system
by one based on quantitative controls might appear to be more trade restrictive, the exact opposite
occurred with its new import regime for textiles and clothing products, reflecting the fact that a
prohibitively high tariff-based system had been replaced by a more transparent and predictableregime.  Turkey noted that, in the preparatory process to the customs union, Turkey's import duties on
textiles and clothing products from third countries had been reduced from 37 per cent in 1993, to 27
per cent in 1994 and 21 per cent in 1995, this benefiting those countries even before the customs
union itself was completed.  Moreover, in the following two years, due to the further reduction in
tariffs offered by the customs union, imports of textiles and clothing products increased considerably,reaching $3.6 billion in 1997, which represented an in crease of over 100 per cent compared to 1994.
Turkey also noted that, following the completion of the Turkey-EC customs union, its imports from
third countries had increased faster than those from the European Communities.
148
6.143  Turkey stressed that the above import results should be seen against the fact that Turkey was
a major exporter of textiles and clothing, with a highly competitive industry.  The substantialexpansion of imports, particularly of those from third countries, in 1996 and 1997 was an indication
of the degree of liberalization attained as a result of the completion of the Turkey-EC customs union.
6.144  In this context, Turkey considered India as an important competitor for Turkish producers in
certain categories of textiles and clothing, not only in third countries' markets but also in the Turkish
market itself.  The imposition of QRs on imports of certain categories of textile and clothing productsoriginating in India had not reduced the inflow of pr oducts from that country.  Imports of textile and
clothing products from India into Turkey had increased from $32.5 to $137 million in the period
1994-1997.
149  Despite such a massive increase, Turkey had chosen not to invoke the means available
to it under the WTO, to slow down this process.
6.145  Turkey added that India benefited more in terms of market share than any other country from
the opening of the Turkish textile and clothing ma rket resulting from the completion of the Turkey-
EC customs union.  Its share in Turkey's total imports of these products had risen from 1.99 per cent
in 1994 to 3.82 per cent in 1997.
6.146  Turkey pointed out that, for most of the 19 categories of textile and clothing imports to which
QRs were applied India had never been an important and regular supplier to the Turkish market,150
and its share in the Turkish market in those products remained below 3 per cent for the period 1994-1997.
151  Before the entry into force of the Turkey-EC customs union, its imports from India of the
products under the relevant tariff headings corresponding to those 19 categories were subject to an
average custom duty rate of 34.31 per cent.  After the entry into force of Turkey-EC customs union,
                                                     
148 See Table II.2 above.
149 See Table II.5 above.
150 The only exceptions were product categories 1, 23, and 29.
151 See the supporting tables reproduced in the Annex to this report, Appendix 4a and Appendix 4b.WT/DS34/R
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these products were subject to an average custom duty rate of 11.74 per cent (1996).  This rate had
been lowered further to 11.6 per cent in 1997, and would continue to be lowered further as a result ofthe implementation by Turkey of the concessions made by the European Communities during the
Uruguay Round.  Turkey pointed out that the improvement in market access was reflected in the 134
per cent increase in imports from India of products in the 19 categories between 1994 ($13.08 million)
and 1997 ($30.66 million).
152
6.147  Commenting upon trade figures, Turkey noted that in 1995, i.e. the last year before
completion of the customs union, duty reductions were phased in three separate instalments and
India's exports immediately began to benefit from these reductions.  In Turkey's view, 1995 was
therefore clearly an atypical year for trade projections.
6.148  India  remarked that the correct figure for India's exports to Turkey of the 19 restricted
product categories in 1997 was $19.87 million, not $30.66 million as reported by Turkey.153  India
also noted that, apart from absolute values, the important point was the trend in exports, which
demonstrated that Turkey's QRs had affected India's interests.  From the trade data provided (TableII.4), two irrefutable facts could be drawn in this respect:  a serious and significant decline in India's
exports of restricted products to Turkey had occurred after the introduction of the restrictions; and for
the non-restricted categories, there was an increase in India's exports to Turkey.
6.149  In India's view, the level of exports of textiles and clothing products from India to Turkey was
influenced not only by Turkey’s trade regime but also by the evolution of the market, as well as by theimport regimes of other countries.  It would not be possible to segregate the impact of the quotas from
the impact of such other factors.  It would also not be possible to segregate the impact of Turkey’s
reduction of tariffs from the impact of the new restrictions.
(b) Arguments
6.150  India  noted that the presumption that measures inconsistent with the GATT impaired the
benefits accruing to a Member under the GATT could not be rebutted with a demonstration that the
restrictions had no trade effect.
154  It was not possible to balance the adverse impact of the
(discriminatory ) quotas against any favourable imp act of the (MFN) tariff reductions for the purpose
of determining the consistency of the quotas with Articles XI and XIII of GATT and Article 2.4 of the
ATC.155
6.151  India  submitted further that the import restrictions which Turkey had imposed since 1 January
1996 in the context of its trade agreement with the European Communities on textiles and clothing
products from India impaired benefits accruing to India under Articles XI and XIII of GATT and
Article 2.4 of ATC.
6.152  India noted later that, though Turkey claimed (in answering a question from India) that the
restrictions at issue had "no economic substance" and that India was therefore not subject to
nullification or impairment, it had not elaborated this point in its defense.  India considered as
violating the principle of due process recognized by the Appellate Body to be inherent in the DSU if
the defendant were permitted to present a defense in its first submission but leave the presentation of
all the facts and arguments substantiating that defense to its rebuttal submission, thereby either
                                                     
152 See Table II.5 above.
153 See paras. 2.43 to 2.46 above for details on differences between trade data provided by India and
Turkey.
154 See also the arguments reported in paras. 6.159 and 6.160 below.
155 See the rulings of the panel on United States - Section 337 of the Tariff Act of 1930 (BISD 36S/386-
387), which clearly rejected such a "balancing test" for the purposes of Article III.  The reasoning of this panel
applied equally to the balancing the benefits of voluntar y tariff reductions against the adverse impact of quotas
imposed inconsistently with Articles XI and XIII of GATT and Article 2.4 of the ATC.WT/DS34/R
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depriving the complainant of the opportunity to respond to that defense in its rebuttal submission or
delaying the panel procedures if such an opportunity was granted.
6.153  India therefore did not know how Turkey would la ter substantiate its claim.  It had assumed,
for the purposes of the argument, that Turkey w ould attempt to demonstrate on the basis of trade
statistics that no impairment had occurred.  India was of the view that such an attempt could not
succeed.156
6.154  India noted that, in 1960, the CONTRACTING PARTIES to GATT 1947 decided that a
GATT-inconsistent measure was presumed to cause nu llification or impairment and that it was up to
the party complained against to demonstrate that this was not the case.157  This principle was taken
over in the dispute settlement procedures adopted at the end of the Tokyo Round,158 and was now
reflected in Article 3.8 of the DSU.  In this contex t, Turkey might claim that the "adverse impact" to
which this provision referred was the trade impact caused by its failure to carry out its obligations
under Articles XI and XIII of GATT and Article 2.4 of the ATC and that, therefore, a demonstration
that the exports of India did not decline was sufficient to rebut the presumption.  However, Article 3.8of the DSU needed to be interpreted in the light of GATT 1947 jurisprudence reflected in this
provision.  According to this jurisprudence, the "adverse impact" of the violation of a provision
prescribing conditions of competition could not be de termined on the basis of the actual impact of the
violation on trade flows.
6.155  India recalled that in the Japan-Measures on Imports of Leather  panel proceedings, Japan
argued that, since the quotas had not been fully utilised, they had not restrained trade and had
consequently not caused a nullification or impairme nt of benefits accruing under Article XI of GATT.
The panel rejected the argument on the grounds that the existence of a QR "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 uncertaintieswhich could affect investment plans".
159  This ruling indicated that a demonstration that no adverse
trade impact had as yet occurred was insufficient to rebut the presumption.  The rationale of
prohibiting QRs required a demonstration that there was no potential future impact.
6.156  This reasoning was carried further in the United States-Taxes on Petroleum and Certain
Imported Substances  case.  The United States argued that the tax differential between domestic and
imported petroleum products was not causing nullification or impairment because it was so small that
it could not possibly cause trade effects.  However, the panel ruled that Article III did not protect
expectations on trade volumes but expectations on competitive conditions accorded to imported
products, and that a measure establishing conditions of competition less favourable for imported
products than for domestic products was therefore ipso facto  a nullification of the benefits accruing
under that provision, whether or not trade volumes were adversely affected.  The panel explained its
ruling as follows:
                                                     
156 For a complete review of the jurisprudence on non-violation cases, see the following publications
cited by the Appellate Body in its report on India - Patent (footnote 26):  Ernst-Ulrich Petersmann, "Violation-
Complaints and Non-Violation Complaints in Public International Trade Law", in German Yearbook of
International Law, Volume 34, 1991, pp. 175 - 229; and Frieder Roessler, "The Concept of Nullification and
Impairment in the Legal System of the World Trade Organization", in Ernst-Ulrich Petersmann (ed.),
International Trade Law and the GATT/WTO Dispute Settlement System, Studies in Transnational Economic
Law, Volume 11, Kluwer Law and Taxation Publishers (Deventer and Boston: 1997), pp. 123-142.
157 See BISD 11S/99-100.
158 See para. 5 of the Annex to the Understanding on Dispute Settlement adopted on 28 November
1979.
159 Panel Report on Japan - Measures on Imports of Leather , BISD 31S/94 (" Japan - Leather "), para.
55.WT/DS34/R
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"An acceptance of the argument that measures which have only an insignificant effect on
the volume of exports do not nullify or impair benefits accruing under Article III:2, firstsentence, implies that the basic rationale of this provision - the benefit it generates for the
contracting parties - is to protect expectations on export volumes. That, however, is not
the case. Article III:2, first sentence, obliges contracting parties to establish certain
competitive conditions for imported products in relation to domestic products ... It is
conceivable that a tax consistent with the national treatment principle (for instance a highbut nondiscriminatory excise tax) has a more severe impact on the exports of other
contracting parties than a tax that violates that principle (for instance a very low but
discriminatory tax).  The case before the Panel illustrates this point: the United States
could bring the tax on petroleum in confor mity with Article III:2, first sentence, by
raising the tax on domestic products, by lowering the tax on imported products or by
fixing a new common tax rate for both imported and domestic products.  Each of these
solutions would have different trade results, and it is therefore logically not possible todetermine the difference in trade impact ... resulting from the nonobservance of this
provision. For these reasons, Article III:2, first sentence, cannot be interpreted to protect
expectations on export volumes; it protects expectations on the competitive relationship
between imported and domestic products. A change in the competitive relationship
contrary to that provision must consequently be regarded ipso facto  as a nullification or
impairment of benefits accruing under the General Agreement."
160
6.157  In its report on EC-Bananas III , the Appellate Body ruled that the reasoning in the GATT
panel report cited above applied also in that case,161 which concerned, inter alia, the EC obligations
under Articles XI and XIII of GATT.  It thereby rejected the argument of the European Communities
that the benefits accruing to the United States under these provisions had not been impaired becausethe United States had not exported a single banana to the European Communities, nor was it in a
position to do so.  The Appellate Body thereby rejected as untenable the idea that a measure might be
inconsistent with a GATT provision prescribing cert ain conditions of compet ition but nevertheless not
impair benefits accruing under it for lack of any trade effect.  India observed that the provisions at
issue in the present dispute - Articles XI and XIII of GATT and Article 2.4 of the ATC - were allprovisions prescribing conditions of competition.  Any attempt by Turkey to rebut the presumption of
Article 3.8 of the DSU with trade statistics could not therefore but fail.
6.158  India also referred to the case involving an Italian scheme under which credit facilities were
accorded to farmers in a manner discriminating against imported agricultural machinery, where the
panel reacted to Italy’s claim that the measure had no adverse trade effects by stating:  "If theconsidered view of the Italian Government was that these credit facilities had not influenced the terms
of competition on the Italian market, there would not seem to be a serious problem in amending ... the
law so as to avoid any discrimination".
162  With this case in mind, India asked why the Turkish
authorities did not eliminate the restrictions at issu e in this dispute if their considered view was that
they had no economic substance.
6.159  Although India considered trade statistics completely irrelevant for the resolution of the
present dispute, it nevertheless highlighted a few features in the evolution of India exports to Turkey.During the year before the imposition of Turkey’s restrictions, exports of the clothing items that were
now restricted had grown by 57 per cent compared to the previous year. During the year immediately
following the imposition of the measures, they declin ed by 74 per cent.  In respect of textiles, the
situation was even more extreme.  Here, the growth rate in the year prior to the introduction of the
                                                     
160 Panel Report on United States - Taxes on Petroleum and Certain Imported Substance , BISD 34S
("US - Superfund "), p. 159.
161 Appellate Body Report on EC - Bananas III .
162 Panel Report on Italy - Discrimination Against Imported Agricultural Machinery, BISD 7S/67.WT/DS34/R
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measures was 200 per cent and the decline in the subsequent year 48 per cent.163  Against this
background, India questioned the validity of Turkey's allegation that its complaint was withouteconomic substance.
6.160  Finally, India recalled that it was not seeking in these proceedings findings specific to
particular restricted items, nor had Turkey presented any defense specific to any particular restricted
items.  The dispute could therefore be settled by a ruling on all restrictions imposed by Turkey on
textile and clothing products imported from India as  from 1 January 1996 (that is, to the knowledge of
India, the items included in the 19 product categories).
6.161  Turkey  noted that it followed from the text of Article 3.8 of the DSU that (i) a proceeding
brought by a complaining party against a violation of a WTO rule was and remained based on the
purpose to protect benefits against nullification or impairment; and (ii) a violation of a WTO rule was
not in and by itself a nullification or impairment of benefits of a Member complaining about such
violation, but constituted only a presumption of nullification or impairment.
6.162  Turkey also noted that a WTO rule could be seen as an obligation for one Member and a right
for another one.  The concept of nullification and impairment made clear that for a complaint to
succeed there needed to be more than a breach of a complainant Member's right.  That such a concept
appeared in GATT 1947 and was maintained in the DSU was hardly surprising.  Many domestic
jurisdictions required an "interest to sue", i.e. that a complainant should show more than that his right
was breached.  Similarly in international law a complainant had to show a legal interest.
164
6.163  Turkey considered that the requirement that a benefit be nullified or impaired made it clear
that the alleged breach of a Member's right had to have an economic impact on the complaining
Member.  This had been confirmed in several panel reports, in particular US-Superfund , and in the
Appellate Body Report on EC-Bananas III.
6.164  In Turkey's view, the quantities that could be exported by India to Turkey under the
restrictions of the Turkey-EC customs union exceeded on the average by 134 per cent India's exports
to Turkey in 1994, the last full year before the tariff reductions provided by the Turkey-EC customs
union were phased in over 3 separate instalments in 1995.  Moreover, India's exports to Turkey in the
years 1996-1998 of the products covered by the measures challenged remained significantly below the
possibilities opened under these measures.165  It seemed obvious to Turkey that the way in which the
panel in the US-Superfund  case and the Appellate Body in the EC-Bananas III  case defined
nullification or impairment, and the reasons for which they considered that the presumption had not
been rebutted could be of no assistance to India in the present case:
(i) In the US-Superfund  case the panel considered that Article III:2 GATT "protects
expectations on the competitive relationship between imported and domesticproducts. A change in the competitive relationship contrary to that provision must
consequently be regarded ipso facto  as a nullification or impairment of benefits
accruing under the General Agreement".
166  In that case, the competitive relationship
between the imported and the domestic gasoline, whose change to the detriment of
the imported gasoline was considered as a nullification or impairment of benefits
accruing to the complaining GATT Contracting Parties, resulted from the imposition
                                                     
163 See also paras. 6.148 and 6.149 above, Table II.4 and the Annex to this report, Appendix 3a.
164 See ICJ, South West Africa Cases  (Second Phase), ICJ Report 1966, p. 47; ICJ , Barcelona Traction
Light and Power Co. Ltd , ICJ Report 1970, p 32.
165 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 theamounts licensed remained below 50 per cent of the quotas.  In 1998 for 9 out of 19 categories the amountslicensed remained below 50 per cent of the quotas.
166 Panel Report on US - Superfund , para. 5.1.9.WT/DS34/R
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of a rate of tax applied to imported gasoline that was 3.5 cents/barrel higher than the
rate applied to domestic gasoline which competed on the United States market.  Asthis higher tax rate was passed through to consumers, its trade impact was obvious.
The present case did not concern Indian products subjected on the Turkish market to
a discriminatory taxation rendering them more expensive on that market than similar
Turkish products.  The measures challenged had no impact on the competitive
relationship between Indian and Turkish textiles and clothing products on the Turkishmarket.  In fact, the competitive relationship improved in view of the substantial
reduction of tariff protection resulting from the customs union.
(ii) In EC-Bananas III , the Appellate Body referred to a "potential export interest by the
United States" that "cannot be excluded". On this point the Appellate Body report
was far from clear and did not explain why this potential export interest amounted to
"an expectation of a competitive relationship" that needed to be protected against theEC measures.
 167
The present case did not relate to a situation in which India was a potential exportingcountry faced with measures that effectively prevented exports to Turkey. The
measures challenged were manifestly not preventing India from exporting to Turkey.
As already indicated, the quantities that might be imported from India into Turkey farexceeded India's exports in 1994, the last complete year before the entry into force of
the Turkey-EC customs union.  Moreover India's current exports to Turkey were
significantly below the effectively more favorable possibilities opened by the
measures challenged.  As indicated earlier, the quantities India stated it would export
to Turkey were quite unrealistic.
6.165  Turkey also drew attention to some particular developments of the WTO law relating to the
concept of nullification and impairment that were relevant to this case.  Though in 1987 the panel in
the US-Superfund  case noted that "there was no case in the history of the GATT in which a
contracting party had successfully rebutted the presumption" and concluded that "the presumption hadin practice operated as an irrefutable presumption",
168 later developments made it clear that Members
did not share or endorse that view.  On the contrary, when they agreed on the DSU, they expressly
confirmed in Article 3.8 that a violation was only a prima facie  case of nullification and impairment.
They even added a qualification:  "This means that there is normally  a presumption" (emphasis
added).  This was all the more significant as in the WTO Agreement on Subsidies and CountervailingMeasures a claim of nullification or impairment of be nefits no longer needed to be made in dispute
settlement procedures concerning prohibited subsidies, as appeared from Article 4.1 of the
Agreement.  Similarly, the concept of a violation as a rebuttable presumption of nullification or
impairment was absent from the GATS, as a Member which considered "that any other Member fails
to carry out its obligation or specific commitments under this Agreement may have recourse to the
DSU" (GATS Article 23:1).  In light of these developments, Turkey was of the view that
US-Superfund  could no longer be considered as good law and that a recommendation or a ruling of
the DSB that would treat the presumption of nullif ication and impairment as irrefutable would add to
the rights of a complaining party and diminish those of a respondent party.
6.166  Turkey concluded that its alleged violation, if any, of the relevant WTO rules, should be
treated fully as a rebuttable presumption of a nullification or impairment of India's benefits and that it
had demonstrated that prima facie  the alleged violation, if any, of the relevant WTO rules had not
resulted in a nullification or impairment of India's benefits.
                                                     
167 Appellate Body Report on EC - Bananas III , para. 252.
168 Panel Report on US - Superfund , paras. 5.1.6 and 5.1.7.WT/DS34/R
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6.167  Turkey also put forward an additional argument against a finding of nullification and
impairment in the present case.  By introducing the presumption that a violation of a WTO rule by aMember constituted nullification and impairment of benefits accruing to the complaining Member,
Article 3.8 of the DSU made also clear that there was necessarily a causal link between the violation
of a WTO rule and the nullification or impairment.  Assuming arguendo  that India's exports would
have been higher but for the measures challenged and from this that Turkey had not rebutted the
presumption of Article 3.8 of the DSU, accordin g to Turkey, it was highly relevant that India
repeatedly rejected Turkey's offer to negotiate a nd preferred to do otherwise than the 24 countries that
accepted to negotiate with Turkey and obtained satisfactory adjustments. This meant in effect that,
even if India's benefits were nullified or impaired, the chain of causation between the measures
challenged and the nullification and impairment would be broken by India's rejection of the
opportunity to negotiate adjustments.
6.168  Turkey submitted that there was a general principle of law, that could be expressed in a
variety of doctrines and could take a variety of forms, according to which one could not seek redressfor harm that one had brought onto oneself by not taking measures that would have prevented or at
least mitigated the harm caused by another party.  This general principle was inter alia  reflected in the
International Law Commission's Draft Articles on State Responsibility, whose Article 6bis (paragraph
2) provided that "[i]n the determination of reparation, account shall be taken of the negligence or the
wilful act or omission … of the injured State".
169
6.169  Turkey also argued that a WTO case consisted of the violation element and the resulting
nullification and impairment element; if the complainant failed in either one of the elements, a panel
ought to reject the complaint without addressing the other element.  According to Turkey, in the
present case, it had rebutted the presumption that the alleged violation resulted in nullification or
impairment of India's benefits.  Therefore, India's complaint could be rejected without addressing the
issue of the alleged violation of the relevant WTO rules.
6.170  To this last argument, India  responded that the question of nullification or impairment was
legally and logically subsidiary to the question of violation.170  The Panel had first to examine whether
an infringement occurred.  India considered that th is followed also from Article 11 of the DSU, which
did not entitle panels to deny the complainant the right to a ruling on the conformity of the measures
at issue on the grounds that they had no adverse effects.  To the knowledge of India, there was no case
in the history of the GATT and the WTO in which a panel examined the question of whether the
presumption of impairment had been rebutted before  the question of whether the presumption applied.
6.171  India also questioned the validity of Turkey's argument that India was partly responsible for
the damage it incurred, because it had refused to accept Turkey's offer to negotiate a settlement basedon an increase in the quotas.  In India's view, the principle of international law cited by Turkey could
not apply when a WTO Member refused to accept a partial implementation of the obligation incurred
by another Member.
6.172  India also noted that discriminatory import restrictions were inconsistent with Articles XI and
XIII, irrespective of whether the relevant quotas were exhausted.
171
6.173  India argued that Turkey had essentially claimed that the customs union was on balance
beneficial to India because any adverse effect of the quantitative restrictions adopted in the frameworkof the EC-Turkey trade agreement was offset by the effect of the tariff reductions.  India, according to
                                                     
169 Yearbook of the International Law Commission  (1993), Vol. II, Part II, Chapter IV.
170 The presumption in Article 3.8 of the DSU only applying "in cases in which there is an infringement
of the obligations assumed under a covered agreement".
171 BISD 31S/113.WT/DS34/R
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Turkey, was therefore incorrect when it argued that the evidence demonstrated "that the customs
union has impaired benefits to which it claims entitlement."
6.174  India remarked that at issue in this complaint was not whether the EC-Turkey trade agreement
was consistent with Article XXIV and consequently also not whether benefits accruing to India were
impaired as a result of the customs union that the European Communities and Turkey alleged to have
formed under that agreement. At issue were the restrictions which Turkey had imposed since 1
January 1996 on imports of textiles and clothing products from India and consequently whether these
restrictions  impaired benefits accruing to India under the GATT and the ATC.  The overall impact of
the customs union on India’s exports was therefore irrelevant to the measure at issue.
6.175  India added that implied in Turkey’s argumentation was the assertion that discriminatory
import restrictions inconsistent with Articles XI  and XIII of GATT and Article 2.4 of the ATC did not
impair benefits accruing under these provisions if the Member imposing the restrictions voluntarily
reduced its import tariffs and thereby accorded offsetting trade benefits to other Members.  However,
in India's view, ordinary customs tariffs applied on an MFN basis have an impact on the conditions of
competition that was completely different from that of prohibited discriminatory QRs.  Tariff
reductions tended to improve India's opportunities to engage in price competition but Articles XI and
XIII of GATT and Article 2.4 of the ATC guaranteed India the right to engage in price competition
without being hampered by discriminatory quantitative limitations.  It was this benefit accruing to
India which was being impaired by the measures at issue.  India pointed out that, in its Third PartySubmission, the United States had noted that Turkey said that the reduction in average tariffs resulting
from the customs union agreement meant that the agreement "cannot be described as having raised
barriers" to trade with Turkey.  In the first place, the evaluation under Article XXIV of the level of
trade barriers went beyond an evaluation of tariffs.  Moreover, implicit in Turkey’s argument was the
assertion that India should accept the discriminatory QRs unilaterally imposed by Turkey because ofthe tariff reductions Turkey voluntarily granted to all WTO Members under the agreement, since the
net effect of the two measures taken together was an increase in India’s exports. This argument was
fundamentally flawed for two reasons.
6.176  Firstly, as made clear by the reasoning of the US-Superfund panel
172, endorsed by the
Appellate Body in the EC- Bananas III  case,173 the benefit accruing to India under Articles XI and XIII
of GATT and Article 2.4 of the ATC was not the protection of its expectations on the volume of
textiles and clothing products to Turkey.  These provisions protected India’s expectations regarding
the competitive conditions for its exports of textiles and clothing products to Turkey.  The competitive
conditions prescribed by the provisions of the GATT governing multilateral tariff reductions were
completely different from those prescribed by th e provisions governing QRs.  The former were
designed to ensure that all Members could equally engage in price competition, the latter were
intended to ensure that price competition was not subject to quantitative limits, to the extent that such
limits were permitted, that they did not differ between Members.  Turkey’s calculations demonstrating
that "a net profit" resulted from the grant of tariff reductions and the imposition of discriminatory
quotas were irrelevant.
6.177  Secondly, implicit in Turkey’s claim was the assertion that India had the obligation to accept
the denial of benefits to which it was entitled under the rules governing discriminatory restrictionsbecause of the reductions of duties consequent upon the formation of a customs union.  There was no
WTO provision nor any principle of law that supported this proposition.  Paragraph 6 of the
Understanding on Article XXIV confirmed that the advantages accruing to third Members as a result
of the formation of a customs union did not entail any obligations on their part.  If this was the
principle that governed Article XXIV:6 negotiations, a different principle could not govern theassessment of the adverse impact of an illegal measure in the context of Article 3.8 of the DSU.
                                                     
172 Panel Report on US - Superfund , p.158.
173 Appellate Body Report on EC - Bananas III , paras. 249-253.WT/DS34/R
Page 70
6.178  India also noted that Turkey had recognized that past panels and the Appellate Body in the
EC-Bananas III case had consistently ruled that the provisions of the GATT on non-tariff measures
protected expectations on conditions of competition and not on trade volumes and that, consequently,
the presumption that a measure inconsistent with such a provision impaired benefits accruing under
the GATT could not be rebutted with a demonstration that the complainant’s exports did not decline.
6.179  In response to Turkey's claim that these precedents were no longer "good law" because they
had been superseded by legal developments that dictated another approach and that rejection of theseprecedents was implicit in the inclusion of Article 3.8 into the DSU, India noted that the wording of
Article 3.8 of the DSU was in substance identical to the wording of the third and fifth sentences in
paragraph 5 of the Annex to the 1979 Dispute Settlement Understanding.  If the drafters of Article 3.8
of the DSU had meant to negate the continued validity of the principles on nullification and
impairment developed under GATT jurisprudence,  they would surely not have adopted language
identical to the terms of the provision under which that jurisprudence was developed.
6.180  India noted that the Appellate Body had confirmed in the EC - Bananas III  case the continued
validity of the jurisprudence developed under the GATT 1947, in particular the principles developed
in the US - Superfund  case.
174  In response to Turkey's allegation that the present case was distinct
from the EC - Bananas III  case, India pointed out that India was actually an exporting country faced
with measures by Turkey that effectively prevented exports to Turkey.
6.181  India also stated that Turkey had apparently  further misunderstood India’s argument.  India
had not questioned the existence of Article 3.8 of the DSU.  The 1979 Decision also had the same
provision.  There were two aspects: Firstly, India disagreed with Turkey when Turkey argued that the
Panel had to first discuss whether nullification and impairment had occurred and that the question of
violation could be taken up later.  In India's view, the first issue was whether a violation had occurred.
In this context, India noted that implicit in the re marks by Turkey was an admission that there was a
case of violation.  India certainly had demonstrated it.  Secondly, India had pointed out on the basis of
the available jurisprudence, that the provisions of the GATT on non-tariff measures protected
expectations on conditions of competition and not on trade volumes and that, consequently, the
presumption that a measure inconsistent with such  a provision impaired benefits accruing under the
GATT could not be rebutted with a demonstration that the complainant’s exports did not decline.Trade volumes were not relevant.  Even assuming that trade volumes were relevant, India had already
supplied data to the Panel which clearly demonstrated that the discriminatory QRs imposed by Turkey
had adversely affected India’s textile and clothing exports to Turkey.
VII. SUMMARY OF ARGUMENTS PRESENTED BY THIRD PARTIES
A. H
ONG KONG, CHINA
1. General7.1 Hong Kong, China submitted that Turkey had unilaterally imposed discriminatory QRs on
imports of textiles and clothing from Hong Kong, China and some other WTO Members as from 1
January 1996.  Turkey’s measures covered a broad range of textile and clothing products from
selected Members including Hong Kong, China.  According to Turkey, these measures were taken in
order "to achieve the Customs Union between the EC and Turkey" and "to fulfill the requirements ofArticle XXIV".
175
                                                     
174 Appellate Body Report on EC - Bananas III , paras. 249-253.
175 WT/REG22/6.WT/DS34/R
Page 71
7.2 Hong Kong, China did not question the right of Members to form a customs union in
accordance with WTO rules and had no intention to focus on whether Turkey had fulfilled therequirements of Article XXIV of GATT.  Its concern was that Turkey’s measures constituted an
infringement of the WTO Agreement.  Specifically, Hong Kong, China submitted that the measures
were inconsistent with Article 2.4 of the ATC and hence with Article XI ipso facto  and Article XIII of
GATT.  The GATT did not provide carte blanche  for a customs union to introduce discriminatory
QRs.
7.3 Hong Kong, China considered that, in line with the views of the Appellate Body in US -
Shirts and Blouses ,
176 a party claiming a violation of a prov ision of the WTO Agreement by another
Member needed to assert and prove its claim.  Having done so, it was up to the defending party to
bring forward evidence and arguments to disprove the claim. Furthermore, the burden of establishing
a defense including that derived from exceptions from obligations under certain provisions of GATT
should rest with the defending party. Turkey claimed that the measures were required as part of a
process of alignment of its external trade policy with that of the European Communities so as toensure the free circulation of products, including textile and clothing products, covered by the Turkey-
EC customs union, relying on Article XXIV to justify the measures.  The burden of proof rested
therefore with Turkey to substantiate its claim that a customs union formed under Article XXIV did
provide a derogation from other GATT provisions.
2. Article 2 of the ATC and Articles XI and XIII of GATT
7.4 Hong Kong, China submitted that Turkey’s measures were in violation of Article 2.4 of the
ATC.  Hong Kong, China viewed Article 2 of the ATC and Article XI of GATT as both dealing with
QRs, the former specifically about QRs in the textiles and clothing sector, and the latter about QRs in
the goods field.  Since the former was lex specialis  to the latter, any time Article 2.4 of the ATC was
violated, Article XI of GATT was violated ipso facto  (but not vice versa).
7.5 The objective of the ATC was to reintegrate trade in the textiles and clothing sector into the
full disciplines of the GATT over a period of ten years starting from 1995.  Article 2.4 of the ATC
provided that the restrictions which were notified by a Member under Article 2.1 when the WTO
came into force constituted "the totality of such restrictions" and that no new restrictions in terms of
products or Members were to "be introduced except under the provisions of this Agreement orrelevant GATT provisions".
7.6 As at or before 31 December 1994, Turkey maintained no QRs on imports of textile and
clothing products from Hong Kong, China.  It only started to do so on 1 January 1996.   Obviously,
Turkey’s measures were new restrictions which had never been notified as having been in force on the
day before entry into force of the ATC.  Nor had Turkey justified them under other provisions of the
ATC.  Turkey had therefore violated Article 2.4 of the ATC unless it could justify the measures under
other provisions of GATT.
7.7 The burden of proof was with Turkey to identify "the relevant GATT 1994 provisions" and to
clearly demonstrate the relevance of such provisions in the context of the ATC in general, and to the
extent that such provisions should provide an exception to Article 2.4 of the ATC in particular.
However, Turkey had not provided any legal arguments that could substantiate its claim in this
respect.  Hong Kong, China therefore submitted that Turkey had failed to discharge the burden ofproof.  Moreover, in its view, Article XXIV:5 of GATT did not provide any exemption for Turkey’s
measures.
7.8 Hong Kong, China submitted further that Turkey’s measures were inconsistent with Article
XIII of GATT.  Non-discrimination was a fundamental principle of the WTO. Since the measures
                                                     
176 Appellate Body Report on US - Shirts and Blouses , p. 16.WT/DS34/R
Page 72
applied only to selected Members and textile and clothing products from many other Members were
not subject to the same measures, Turkey was obviously in breach of the principles of non-discrimination under Article XIII of GATT.
3. Article XXIV of GATT
7.9 In the view of Hong Kong, China, Article XXIV only set out the obligations to be fulfilled
when customs territories of the constituent parties formed a customs union.  It did not enable or
provide justifications for any Member to establish or extend discriminatory QRs against selected thirdparties. Article 31 of the VCLT required that "a treaty shall be interpreted … in the light of its object
and purpose".  The specific object and purpose of GATT was set out in its preamble as "entering into
reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and
other barriers to trade and to the elimination of discriminatory treatment in international commerce".
7.10 If the imposition of discriminatory QRs using Article XXIV as a waiver was permitted, it
would render meaningless the purpose of a custom s union, as reaffirmed in the preamble of the
Understanding on Article XXIV, that economic integration agreements "should be to facilitate tradebetween the constituent territories and not to raise barriers to the trade of other Members with such
territories; and that in their formation or enlargement the parties to them should to the greatest
possible extent avoid creating adverse effects on the trade of other Members".  It would be difficult to
think of a more adverse effect than the imposition of  discriminatory QRs against selected third parties.
7.11 Hong Kong, China did not agree with Turkey's view that the intention of the authors of
Article XXIV:5 had been to permit the introduction of new restrictive regulations of commerce which
might be made necessary by the formation of a customs union, as long as their effect on the whole
was not more restrictive than that of the previously applicable regime. Hong Kong, China did not
consider that Article XXIV:5 went so far as to  provide a waiver from other provisions of the
GATT.
177 It also questioned whether an overall reduction of barriers could legally justify GATT-
inconsistent measures.
7.12 Were Article XXIV:5 to be interpreted as providing carte blanche  for customs unions to
impose discriminatory QRs against selected third parties, subject only to the proviso that the balance
of all third parties’ trade interests taken as a whole be respected, the outcome could be highly
discriminatory, contrary to the interests of natural justice, and not consistent with the object andpurpose of GATT as stated above.  Such an interpretation would thus not be in accordance with the
VCLT.  Hong Kong, China considered, therefore, that the opposite was the case, i.e. that Article
XXIV:5 did not sanction the imposition of discriminatory QRs.
7.13 In the view of Hong Kong, China, Article XXIV:8 was a definition clause.  In itself it created
neither rights nor obligations.  Article XXIV:8(a)(i), on the internal trade regime of a customs union,entailed the elimination of duties and other restri ctive regulations of commerce with respect to (i)
substantially all the trade between the constituent territories, or (ii) substantially all the trade in
products originating in such territories.  Article XXIV:8(a)(ii), on the external trade regime of a
customs union, entailed the application by members of a customs union of substantially the same
duties and other regulations of commerce to the trade of third parties.
7.14 While the meaning of the two key terms "substantially all the trade" in Article XXIV:8(a)(i)
and "substantially the same" in Article XXIV:8(a)(ii) might not be completely clear and precise, theyall undoubtedly pointed to the unambiguous effect that the required free circulation of goods within a
customs union and the alignment of the external trade regimes of constituent territories need not be
absolute .
                                                     
177 This was the view of the European Communities stated in the Working Party on the Accession of
Portugal and Spain to the EC (see BISD 35S/318, para. 45).WT/DS34/R
Page 73
7.15 As regards the internal trade regime of a customs union, it was quite clear from Article
XXIV:8(a)(i) that a customs union could be based on (i) the principle of free circulation of goods or(ii) a set of origin rules, provided its benefits applied to substantially all the trade in products
originating in the constituent territories.  In other words, some deviations from the free circulation of
goods within a customs union were not ruled out totally.
7.16 Likewise, some differentials between the external trade regimes of constituent territories were
clearly provided for in sub-paragraph (a)(ii) as borne out by the use of the word "substantially".  HongKong, China considered that the purpose of such flexibility was to address, among others, situations
where it was not justified, by virtue of other provisions of Article XXIV, for a constituent territory to
impose new discriminatory QRs against selected third parties for the purpose of alignment.  In the
view of Hong Kong, China, Article XXIV of GATT did not necessarily require a constituent territory
to align every aspect of its external trade regime with that of the other constituent territory, especially
if the regime of the latter was more restrictive and discriminatory.
4. Alternative solutions and conclusions
7.17 As far as Hong Kong, China understood, a border still existed between the European
Communities and Turkey. There were existing arrangements which satisfied the procedural/
documentary requirements for goods entering the EC Member States via Turkey.  Against this
background, derogation from the free circulation of goods was possible and was, in fact, foreseen by
Decision No.1/95 of the EC-Turkey Association Council implementing the final phase of the Turkey-
EC customs union, e.g.:
(i) Equivalent but independent anti-dumping legislation was maintained vis-à-vis  third
countries.  The customs authorities of each party ensured that their own anti-dumping
measures were not circumvented by checking the origin of the products imported into
their territory from the other party.
(ii) The EC customs authorities checked, at the border between the European
Communities and Turkey, the origin of  vehicles imported into the European
Communities via Turkey.  EC imports of Japanese vehicles via Turkey were treated
as direct EC imports for the purpose of the ceilings laid down in the 1991 EC-Japan
Agreement relating to trade in motor vehicles, mentioned in the Annex to the WTOAgreement on Safeguards.
7.18 Since derogation from free circulation of goods was to a certain extent permitted within a
customs union, Hong Kong, China doubted whether Turkey’s measures were a necessary precondition
for the implementation of the Turkey-EC customs union.  Hong Kong, China's view was that a
temporary certificate of origin system on textile and clothing products not originating in Turkey, untilquotas were phased out altogether by the end of 2004, was a viable alternative to QRs.  This meant a
different import regime for regulating the circulation from Turkey to the European Communities of
products not originating in Turkey.  However, it could hardly be construed as excluding a major
sector of trade from the customs union, nor would it require the suspension of the free circulation of
textile and clothing products originating in Turkey, which need not be affected.
7.19 Hong Kong, China concluded from its analysis that Turkey’s measures were inconsistent with
Article 2.4 of the ATC (Article XI of GATT was violated ipso facto ) and Article XIII of GATT, and
that they were not justified by Article XXIV of GATT.  Hong Kong, China requested the Panel to
pronounce on the inconsistency of Turkey's measures with Article 2.4 of the ATC and Articles XI and
XIII of GATT, and to recommend that Turkey brings its measures into conformity with its obligations
under the WTO.WT/DS34/R
Page 74
BJ APAN
1. General
7.20 Japan submitted that, being a country which was not a party to any RTA and was greatly
benefiting from the multilateral trading system, it had a great interest in ensuring that RTAs were
consistent with the WTO Agreement and that such agreements did not lead to forming trade blocs.
Japan’s trade interests would be severely affected, if any measure similar to Turkey’s import quota on
textiles and clothing should be introduced as a consequence of the establishment of similar customsunions. As this panel is to address the systemic issue of consistency of the automatic application of
restrictive measures at the institution of a customs union with WTO principles, Japan has a substantial
interest in this case.
7.21 Japan considered that RTAs derogated inherently from the MFN principle and could bring
discriminatory treatment to third countries. RTAs, therefore, might run the risk of weakening the open
multilateral trading system. In this context, in accordance with Article XXIV of GATT, it was
necessary to avoid their negative effects upon the trade of third countries, a point Members reaffirmedin the preamble of the Understanding on Article XXIV.
178  In the Singapore Ministerial Declaration,
Ministers also reaffirmed the primacy of the multilateral trading system and renewed their
commitment to ensure RTAs' complementarity with it and consistency with its rules.
7.22 In Japan's view, RTAs were governed by Article XXIV of GATT, but the parties to RTAs, as
WTO Members, should also abide by the MFN principle and other provisions of the WTOAgreement. Close scrutiny of RTAs was called for and the provisions of Article XXIV of GATT were
to be interpreted strictly in the light of the purpose s of the multilateral trading system, to ensure and
strengthen it.  Article XXIV had to be interpreted in good faith, in the context of and in the light of the
object and purpose of the WTO Agreement as a whole,
179 and with due consideration given to its
overall spirit and basic principles.
2. Arguments
7.23 Japan submitted that the introduction of new QRs by Turkey was inconsistent with Turkey’s
obligation under Article XI of GATT and Article 2.4 of the ATC, unless Turkey demonstrated that it
fulfilled the conditions for invoking Article XXIV of GATT.  In the US - Underwear  case, the need
for strict interpretation of the provisions for exception clauses was demonstrated by the panelconcluding that the parties invoking the exception bore the burden of proof that the conditions for
invoking the exception had been fulfilled.
180
7.24 Japan believed that the claims by Turkey that Article XXIV:5 or XXIV:8 of GATT were
applicable to the current case and that it was entitled  to the exception to the general rule stipulated in
Article XI of GATT and Article 2.4 of the ATC, could not be justified.
7.25 In Japan's view, the requirement contained in Article XXIV:8(a)(ii) of GATT, that a member
of a customs union apply "substantially" the same duties and other regulations of commerce vis-à-vis
third parties, did not mean that "exactly" the same regulations of commerce were necessarily to be
                                                     
178 Members reaffirmed "that the purpose of such agre ements should be to facilitate trade … and not to
raise barriers … and that … the parties to them should to the greatest possible extent avoid creating adverseeffects on the trade of other Members".
179 Panel Report on United States - Import Prohibition of Certain Shrimp and Shrimp Products ,
adopted on 6 November 1998, WT/DS58/R (" US - Shrimp "), para. 7.35.
180 Panel Report on US - Underwear , para. 7.16.WT/DS34/R
Page 75
applied.181  The issue then lied in whether there were any specific types of regulations of commerce
whose very nature did not merit uniform application by the members of the customs union.  Whatneeded examination was whether a measure had minimized the adverse effect on third countries, and
in light of the relevant WTO provisions and their intent.
7.26 Japan submitted that consideration of both Article XXIV:8 and other relevant WTO
provisions led to the conclusion that Article XXIV:8(a)(ii) should not be interpreted so as to give the
parties the right to introduce new restrictive measures, including QRs and anti-dumping and safeguardmeasures which had not been allowed prior to their signing the RTA.  Article XXIV:8(a)(ii) did not
call for the parties to take any measures inconsistent with other provisions of the WTO Agreement in
order to apply "substantially the same duties and other regulations of commerce" and could thus not
be invoked as a "relevant GATT 1994 provision" under which "new restrictions" could be
exceptionally introduced, as provided in Article 2.4 of the ATC. Japan therefore believed that the
introduction of new QRs by Turkey, which was inconsistent with Turkey’s obligation under Article
XI of GATT and Article 2.4 of the ATC, could not be justified by Article XXIV:8(a)(ii) of GATT.
7.27 Japan noted further that it was important to interpret provisions in Article XXIV:5 of GATT
in the light of the purpose of a customs union or of a free-trade area, as contained in Article XXIV:4.
Japan also recalled the provisions in paragraph 2 of the Understanding on Article XXIV with respect
to the overall assessment of weighted average tariff rates and of customs duties collected and the
recognition contained therein that "for the purpose of the overall assessment of the incidence of otherregulations of commerce for which quantification and aggregation are difficult, the examination of
individual measures, regulations, products covered and trade flows affected" might be required.  In
this regard, it noted the difficulty to numerically assess the effect of QRs, let alone make judgments as
to whether QRs in conjunction with the duties and other regulations of commerce imposed at the same
time was "on the whole higher or more restrictive than the general incidence of the duties andregulations of commerce …", as required in Article XXIV:5(a).
7.28 In Japan's view, the individual regulations of Tu rkey needed to be examined in order to verify
that they did not constitute more restrictive measures vis-à-vis  third countries.  In this context, the
introduction of GATT-inconsistent measures (in this case, those inconsistent with Article XI of GATT
and Article 2.4 of the ATC) should be first presumed as "more restrictive" in the sense of ArticleXXIV:5 of GATT.
C. T
HE PHILIPPINES
1. General
7.29 The Philippines noted that the preamble of the Understanding on Article XXIV recognized
that customs unions and free-trade areas had "greatly increased in number and importance since theestablishment of GATT 1947" and covered "a significant proportion of world trade".  The formation
of such RTAs could contribute to the attainment of the objectives of the WTO Agreement.  However,
if interpreted and invoked erroneously, or abused, WTO provisions authorizing the formation of
customs unions and free-trade areas could likewise easily lead to the entrenchment of practices which
were in subversion of those objectives.
7.30 Panels in disputes involving Article XXIV of GATT 1947 and of GATT 1994, for various
reasons, did not rule squarely on issues similar to those raised in this dispute. Contracting Parties to
GATT 1947 and WTO Members had expressed various views on some of such issues in the relevant
bodies, but those views remained as such.  The Phil ippines considered that, short of an authoritative
                                                     
181 For example, it would not be necessary or adequate that an anti-dumping measure of a member of
the customs union be introduced automatically in the other members simply because they formed a customs
union.WT/DS34/R
Page 76
interpretation by the Members themselves, this was a timely opportunity for a rules-based analysis of
the relevant provisions of Article XXIV of GATT.182
7.31 The Philippines had opted to participate as a third party primarily on the basis of its legitimate
trade interest in exports of textile and clothing products to Turkey.  In addition, the Philippines
realized that the broader systemic implications of  the issues raised were indeed far-reaching and
delved into core principles which were the very foundation of the WTO itself.
2. Articles XI and XIII of GATT and Article 2 of the ATC
7.32 The Philippines submitted that the promulgation and imposition of the QRs established by
Turkey as of 1 January 1996 on imports into its territory of a broad range of textile and clothing
products, applicable only on imports of some Members, including India and the Philippines, were
prima facie  violations of Articles XI:1 and XIII:1 of GATT since:
(i) the restrictions were in the nature of proscribed  "prohibitions and restrictions" in the
sense of Article XI:1 of GATT;
(ii) Turkey did not cite the existence of any of the situations specified in Article XI:2 of
GATT under which the prohibitions and restrictions otherwise proscribed under
Article XI:1 may be imposed; neither did it attempt to establish that it had complied
with any of the conditions specified thereunder; and
(iii) Turkey did not attempt to establish that the restrictions were applicable to imports of
textile and clothing products from all Members, in accordance with provisions inArticle XIII:1 of GATT; on the contrary, as part of its affirmative defense, it
confirmed that the restrictions were not applied against the importation of like
products from, at the very least, the EC Member States.
7.33 The Philippines also considered that, since Turkey had no restrictions in force as of 1 January
1995 and thus did not so notify under Article 2.1 of the ATC, Turkey's quantitative limitations onimports of textile and clothing products were proscrib ed "new restrictions", for purposes of Article 2.4
of the ATC.  In the context of Article 2.4 of the ATC, Turkey did not attempt to establish that its
restrictions were imposed under ATC provisions within the exceptions provided for, but invoked
Article XXIV of GATT as a "relevant GATT 1994 provision" justifying its restrictions.
7.34 The Philippines submitted that Article XXIV was not a "relevant GATT 1994 provision" for
purposes of Article 2.4 of the ATC. "Relevant" qualified "GATT 1994 provisions".  Based on the
succeeding discussion, Article XXIV was not a "relevant" GATT provision.  Article XXIV neither
permitted Turkey to promulgate the measure nor to impose the restrictions.  The "relevant" GATT
provision was, and remained to be, Article XI, under which Turkey did not attempt to justify the
restrictions.
7.35 Therefore, the promulgation of the measures and the imposition of the restrictions were
conclusively  in violation of Article 2.4 of the ATC.  The Philippines noted that Turkey's defense was
in the nature of an affirmative defense :  Turkey admitted the violation of Articles XI and XIII of
GATT and of Article 2.4 of the ATC, but attempted to exonerate itself on the basis of Article XXIV.
                                                     
182 At present, in essence, WTO Members were still going through the process  of acclimatising
themselves from a pragmatic, diplomacy-based  multilateral trading system to one avowedly rules-based .
However, today, in the context of a rules-based system, pragmatism and diplomacy could have a proper role
after, and only after, subsisting rules had been clarified.WT/DS34/R
Page 77
3. Article XXIV of GATT
(a) Customs unions in context
7.36 The Philippines viewed a customs union as a paradox in the context of the WTO Agreement.
When parties eliminated duties and other restrictive regulations of commerce on trade between their
respective territories, "substantial reduction of tariffs and other barriers to trade" was achieved.
However, this subverted the underlying contractual intent of "elimination of discriminatory treatment
in international trade relations".183  Non-discrimination was a core principle of the WTO Agreement,
implemented in GATT through the twin rules of MFN and national treatment.  Nevertheless, Article
XXIV allowed the formation of customs unions and, as an exception to MFN, tolerated the resultant
discrimination, but subject to compliance with certain conditions.  Article XXIV could therefore only
be construed strictly and narrowly, and all doubt resolved against the perpetuation of discrimination.
A Member invoking Article XXIV had the burden of establishing strict compliance with the terms and
conditions stated thereunder.
7.37 The Philippines noted that, in the examination of an arrangement purporting to be a customs
union,  it was pivotal to establish the specific date when it qualified, if at all, as a customs union.  An
agreement might have some of the features of a customs union as of any given date, but unless it fully
qualified as such, the parties could not implement the (permitted) discriminatory aspects of the
customs union without according the same treatment  to third parties.  The most that such an
arrangement could be, if at all, was an agreement necessary for the formation of a customs union (a"leading-to agreement").  Without delving into whether or not a similar requirement was imposed on a
full-fledged customs union, a leading-to agreement could not be implemented without the approval of
third parties and without according them the opportunity to examine the arrangement and to make
recommendations to the parties.
7.38 The Philippines recalled the provisions in Article XXIV:5 and XXIV:7 of GATT relating to
the distinct requirements with respect to leading- to agreements.  Referring to Article XXIV:10, the
Philippines noted that the phrase "proposals whic h do not fully comply with the requirements of
paragraphs 5 to 9" applied by definition to leading-to agreements, thereby expressly made subject to
the approval of two-thirds of the Members;  in the process of such approval, Members were to find
that "such proposals lead to the formation of a customs union" in the sense of Article XXIV.
7.39 The Philippines argued that the letter and context of those provisions prohibited parties from
implementing a leading-to agreement unless they had (i) notified the third parties; (ii) consulted them
in a manner consistent with their substantive right to make recommendations and (iii) modified the
leading-to agreement in accordance with such recommendations.
184  Aside from the letter and context
of the relevant provisions, the broader context likewise supported the conclusion that parties could notimplement a leading-to agreement without giving due regard to the right of third parties to be
consulted.  The Philippines noted that in a leadin g-to agreement, the union was not complete, there
was no single customs territory, and the trade-off situation for permitting the resultant otherwise
prohibited discrimination was not in place.  To allow parties to implement discriminatory measures
under such circumstances subverted the WTO Agreement.  All doubts had to be resolved against the
perpetuation of discrimination.  Policy reasons would also support such a rule. Otherwise, while the
core principle of non-discrimination was allegedly being pursued, a back-door for its subversionwould be left wide open.  The system, in effect, would be working against itself.
                                                     
183 See third paragraph of the preamble of the WTO Agreement.
184 The word "maintain" in relation to the phrase "as the case may be" in the last sentence of Article
XXIV:7(a) should be taken in the context of Article XXIV:7(c).  Thus, once a leading-to agreement had passedscrutiny of third parties, the partie s might not introduce a substantial change in the plan or schedule without
again respecting the right of the former to be consulted.WT/DS34/R
Page 78
7.40 The Philippines therefore considered that in th e present dispute it was vital to determine the
exact status of the arrangement between Turkey and the European Communities as of 1 January 1996,when Turkey's measures took effect.
185  For purposes of determining such status, what might have
transpired thereafter was not relevant.
(b) Article XXIV:4
7.41 The Philippines noted that Members had established a standard, separate and distinct from the
standard imposed under Article XXIV:5, for the implementation of the phrase "not to raise barriers tothe trade of other contracting parties" in Articl e XXIV:4, since the preamble of the Understanding on
Article XXIV provided, among others, that in the formation or enlargement of RTAs "the parties to
them should to the greatest possible extent avoid creating adverse effects on the trade of other
Members".
7.42 The Philippines considered that, as a general rule, parties were free to establish the conditions
under which harmonization under Article XXIV:8(a)(ii) was to be achieved.  In this instance, Turkey
and the European Communities opted to impose the same restrictions subsisting in the EuropeanCommunities to achieve harmonization, at least in respect of textile and clothing products.  In the
process of harmonization, Turkey and the European Communities had opted for the most restrictive
and discriminatory option when other less restrictive and discriminatory options were equally
available.  Among other ways to achieve harmonization, the Philippines noted (i) the possibility of the
European Communities maintaining or imposing QRs against Turkey, as expressly allowed by ArticleXXIV:8, without adversely affecting the status of the Turkey-EC relationship as that of a customs
union; or (ii) the harmonization of EC policies to those of Turkey, by abolishing its global QRs
altogether.  Turkey was therefore in violation of Article XXIV:4 of GATT, in relation to the
Understanding on Article XXIV.
(c) Article XXIV:57.43 The Philippines noted that the word "[a]ccordingl y" at the start of Article XXIV:5 related and
linked such paragraph to Article XXIV:4.  As to the phrase "the provisions of this Agreement shall
not prevent" in Article XXIV:5, it could not be interpreted to mean that Members becoming parties to
a customs union were absolved from all of their obligations under the WTO Agreement and that the
only provision thereunder which governed their conduct as Members was Article XXIV.  Ifinterpreted in the proper context, "the provisions of  this Agreement" would exclusively refer to those
provisions in GATT which otherwise would have  prohibited the formation of a customs union.
Derogation therefrom was a matter of necessity, but did not imply that derogation might also exist in
respect of other provisions, based solely on the convenience of the parties.
7.44 The Philippines also noted that in the standard imposed under Article XXIV:5(a), which
seemed less stringent than that under Article XXIV:5(b), the key phrases were "general incidence",
"not on the whole higher or more restrictive" and "applicable in the constituent territories".
7.45 In the Philippines view, paragraph 2 of the Understanding on Article XXIV was
determinative of the issue underlying Turkey's arguments in support of its alleged compliance with
Article XXIV:5 (i.e. that the effects of the QRs imposed were balanced by and more than
                                                     
185 On 22 December 1995, barely a few days prior to its entry into force, Turkey and the EC informed
the Members that "the final phase of the Customs Union between Turkey and the EC will enter into force on 1
January 1996, following the decision of the EC-Turkey Association Council of 22 December 1995" (documentWT/REG22/N/1). Thus, it took the parties more than nine months to notify other Members, on a date within theholiday season.  The text of the Decision was circulated to the Members on 13 February 1996 (documentWT/REG22/1), more than one month after its entry into force.  Turkey and the EC thus presented otherMembers with a  fait accompli , a fact that might not be coincidental in light of the requirement of prior approval
of a leading-to agreement.WT/DS34/R
Page 79
compensated for by its lower tariffs now applicable to imports as a result of the formation of the
customs union), by its separate treatment of (i) duties and other charges, and (ii) other regulations ofcommerce for which quantification and aggregation were difficult.
186  This view was further
supported by the context of other relevant provisions:
(i) According to paragraph 6 of the Understanding on Article XXIV, Turkey had no right
to demand or to expect compensatory adjustment  from other Members as a result of
the "reduction of duties consequent upon the formation of a customs union".  Therewas thus no basis whatsoever for Turkey to demand or to impose compensatory
adjustment on other Members by way of the sufferance of the restrictions imposed.
(ii) As provided in Article XXIV:6,  compensatory adjustment applied only to increases
in rates of duties, and was likewise in the form of the reduction of duties.  There was
no basis for a compensatory adjustment for QRs and other regulations of commerce
for which quantification or aggregation was difficult.
7.46 The Philippines considered that at issue in the present dispute was whether or not the general
incidence of the "other regulations of commerce" was "more restrictive", in the sense of Article
XXIV:5(a).  Properly assessed as an individual measure pursuant to paragraph 2 of the Understanding
on Article XXIV, the option chosen by Turkey and the European Communities was the most
restrictive and discriminatory of the options available, since it had resulted in the extension to Turkey
of the territorial application of QRs previously imposed solely in the territory of the EuropeanCommunities. The reduction in the general incidence of some or even all duties which might result
from the Turkey-EC customs union was irrelevant for purposes of the dispute.
7.47 The Philippines, noting that the import statistics presented by Turkey in an attempt to
establish that its present regime was less restrictive were irrelevant, argued that nullification or
impairment sufficed.
187
                                                     
186 Paragraph 2 of the Understanding on Article XXIV distinguished the assessment of the general
incidence of the duties from that of the general incidence of other regulations of commerce.  In its first sentence,
the first part ("The evaluation....customs union") pertaine d to the evaluation of the "general incidence of the
duties and other regulations of commerce" (emphasis added), with reference to the corresponding condition in
Article XXIV:5(a); the second part ("shall in respect of du ties and charges"), in relation to its first part, qualified
the phrase thereafter as relating exclusively to the evaluation of "duties and charges"; the last part, in relation tothe first two parts, prescribed the basis for the evaluatio n of the general incidence of duties.  The second, third
and fourth sentences ("This assessment ... applied rates of duty") specified detailed rules for the "overall
assessment" sought.  The last sentence ("It is recognized that for ... may be required") referred  solely to "other
regulations of commerce for which quantification and aggregation are difficult" as a category distinct fromobjectively quantifiable "duties and charges", and provided that in respect of such regulations, the "examinationof individual measures … may be required".  Ordinarily, the word "may" denoted being permissive, but whenqualified by a situation or condition (in this instance, "regulations of commerce …") and that situation orcondition obtained, it could acquire a mandatory tenor;  in this instance, particularly more so in light of the other
provisions of paragraph 2 of the Understanding on Article XXIV.
187 "In general international law, material damage is neither a constitutive element of an internationally
wrongful act nor a requirement of state responsibility.  GATT dispute settlement practice likewise recognizesthat the GATT inconsistency of a trade measure, and nullification or impairment in terms of GATT ArticleXXIII, do not depend on damage" (E.U. Petersmann, The GATT/WTO Dispute Settlement System:
International Law, International Organizations and Dispute Settlement, 1997, p. 136).  While this is in the
chapter entitled "Non-Violation and Situation Complaints in GATT/WTO Law", the quotation relative tomaterial damage as a (non-)constitutive element of an internationally wrongful act and a non-requirement ofstate responsibility is nevertheless appropriate.
Prof. Petersmann further states:  "As stated in the GATT panel report adopted by the GATT Council on
17 June 1987 concerning 'US Taxes on Petroleum', 'the impact of a measure inconsistent with the General
Agreement is not relevant for a determination of nullification or impairment' because the function of mostWT/DS34/R
Page 80
7.48 The Philippines also submitted that, for purposes of determining the adverse (more restrictive)
effects of Turkey's restrictions, the relevant market was that of Turkey and the European
Communities.  Turkey's restrictions were imposed purportedly as a necessary element in the
formation of a customs union with the European Communities.  As a result of the alleged customs
union, Turkey's competitive advantage as a major exporter of textile and clothing products188 had been
unduly enhanced vis-à-vis  other Members:  while Turkey's textile and clothing products entered the
European Communities duty-free and without the burden of QRs, other Members, including India andthe Philippines, now had to compete with Turkey in the EC market bearing the dual burden of both
duties and QRs.  While the relatively lower EC tari ffs for such products (independently of the customs
union with Turkey) might have improved the ability of other Members to compete with EC domestic
producers, the alleged customs union placed them at a disadvantage vis-à-vis  Turkey.  In the
Philippines' view, such potential benefits had therefore been nullified or impaired and EC
commitments in its Schedules under Article II were rendered academic vis-à-vis  other Members, at
least in respect of textile and clothing products and in light of Turkey's discriminatory advantage.
7.49 The Philippines concluded that the promulgation of the Turkish measure and imposition of
the restrictions were in violation of Article XX IV:5(a) because, as a result thereof, the general
incidence of regulations of commerce were on the whole more restrictive.
(d) Article XXIV:8
7.50 The Philippines noted that there were only two essential requirements in Article XXIV:8(a),
to characterize an arrangement between two or more customs territories as that of being a customs
union.  In respect of the requirement in Article XXIV:8(a)(i), derogation from the MFN obligation
under Article I was needed to allow parties to eliminate duties and other restrictive regulations of
commerce among themselves without according the same treatment to third parties.  In respect of the
requirement in Article XXIV:8(a)(ii), derogation from the obligations under Article II was necessaryto allow parties to harmonize duties and charges, subject to the provisions of Article XXIV:(6) in
relation to Article XXVIII and of Article XXIV:(5)(a) in relation to paragraph 2 of the Understanding
on Article XXIV.
7.51 The Philippines argued that, however, in respect of the requirement of harmonization of other
regulations of commerce, derogation from Articles XI and XIII, among others, was not necessary.Even the parties, as among themselves, could impose measures authorized under the Articles
bracketed in Article XXIV:8(a)(i), among which were Articles XI and XIII.  If the parties could
impose such measures among themselves, their imposition towards third parties in the guise of
harmonization was likewise not necessary.
7.52 The Philippines therefore submitted that the phrase "the provisions of this Agreement shall
not prevent" in Article XXIV:5 did not exempt parties from complying with all other relevant
provisions of the WTO Agreement, including GATT, and more particularly the provisions of the
Articles bracketed in Article XXIV:8(a)(i), including Articles XI and XIII.
                                                                                                                                                                    
GATT rules (such as Article I-III and XI) is to estab lish conditions of competition and to protect trading
opportunities, and violations of GATT rules are presumed to adversely affect these conditions of competition."
The footnote to the above statement reads as follows:  "See the GATT panel report in BISD 34S/135, 156, 158.
See also the GATT panel report adopted on 25 January 1990, on EEC Subsidies Paid to Processors of Oilseeds
… (BISD 37/S86, 125) [the] panel report emphasizes 'that the CONTRACTING PARTIES have consistentlyinterpreted the basic provisions of the General Agre ement on restrictive trade measures as provisions
establishing conditions of competition', and that 'nullification or impairment of benefits' depends therefore onadverse changes in competitive conditions and not  on an actual decline in volumes of trade " (emphasis added).
188 In 1997, textile and clothing products constitute d 41.4 per cent of Turkey's entire manufacturing
exports.  See the  TPR Secretariat Report on Turkey , p. 117.WT/DS34/R
Page 81
7.53 The Philippines considered that the formation of a customs union did not per se result in the
merger of the legal personalities of the parties; it did not create a successor entity  assuming the rights
and obligations of the parties as Members.  Members maintained their standing as such and retained
their corresponding rights and obligations.
7.54 The Philippines argued that the measures permitted under the bracketed Articles disclosed at
least a common feature in that the grounds upon which the imposition of the measures was permitted
were specific to the Member concerned.  It illustrated its argument recalling the texts of Articles XI,XII and XX.
189  It noted, for instance, that there was no basis, in fact and in law (positive law under
the WTO Agreement), for a party to a customs union to claim that, for example, the existence of a
critical food shortage or a state of serious decline in monetary reserves in one of the parties likewise
constituted its own critical food shortage or monetary reserves crisis.  The grounds were specific to
the party concerned, and the corresponding right to impose a measure permitted under the bracketed
Articles, including Articles XI and XIII, likewise pertained exclusively to such party.
7.55 The Philippines therefore submitted that neither the grounds upon which the European
Communities had relied in justifying its QRs,190 nor the corresponding right to impose QRs were
assignable to Turkey, whether voluntarily or by operation of law.  While it might be convenient  for
parties (whether for procedural reasons or, more substantively, for purposes of securing undue
advantage in competition) to adopt the same measures permitted under the bracketed Articles
(including Articles XI and XIII) towards the trade of third parties, such convenience could not prevailover the specific requirements under those Articles.
7.56 The Philippines considered that, in accordance with the ordinary meaning of Article XXIV:8
(a)(i), all duties and other restrictive regulations of commerce (except those authorized under the
Articles specified within brackets) should have been eliminated with respect to substantially all trade
between  Turkey and the European Communities.  It noted, however, the following:
(i) Paragraph 2 of Article 44 of Decision 1/ 95 provided, among others, that "[t]he
modalities of implementation of anti-dumping measures set out in Article 47 of the
Additional Protocol remain in force".  Thus, Turkey might impose anti-dumping
measures against the European Communities, and vice versa.
191  Article VI of GATT,
governing anti-dumping measures (i.e. restrictive regulations of commerce) was notone of the bracketed Articles.
(ii) Article 34 of Decision 1/95 in relation to Article 38 effectively allowed Turkey and
the European Communities to impose countervailing measures against each other.
                                                     
189 Article XI referred to "Export prohibitions or restrictions temporarily applied to prevent or relieve
critical shortages of foodstuffs or other products essential to the exporting contracting party "; Article XII dealt
with "Import restrictions instituted, maintained or intensified … by a contracting party  ... to forestall the
imminent threat of, or to stop, as serious decline in its monetary reserves  …"; and Article XX stated:  "…
nothing in this Agreement shall be construed to prevent the adoption or enforcement  by any contracting party  of
measures … relating to the conservation of exhaustible natural resources if such measures are made effective in
conjunction with restrictions on domestic production or consumption … " (emphasis added).
190 Since QRs imposed by the EC were not at issue in this dispute, it could only be presumed that they
were based on grounds specified under relevant provisions of the WTO Agreement, or at least were in force onthe basis of the tolerance of Members.  In any event, the grounds and the corresponding right  to impose the
appropriate measure(s) were specific to each Member.  As such, they were beyond the commerce of Members,
not assignable, not capable of being appropriated by others.  Neither was the tolerance of Members.
191 This was confirmed in the  TPR Secretariat Report on Turkey  (para. 11, p. xii) and in Annex II of the
Communications from the Parties to the Customs Union , WT/REG22/5, dated 30 October 1996, containing a list
of "Anti-Dumping and Countervailing Measures applied by the European Union on Turkish Products" and"Anti-Dumping Duties applied by Turkey" on products of some EC Member States (see also in p. 4 of that same
document, reference by the parties to Article 44 of the Decision).WT/DS34/R
Page 82
Article VI of GATT, governing countervailin g measures (i.e. restrictive regulations of
commerce) was not one of the bracketed Articles.192
(iii) Articles 32 and 33 of Decision 1/95, in re lation to Article 38, effectively allowed
Turkey and the European Communities to impose "appropriate measures" vis-à-vis
each other on the basis of  practices which "causes or threatens to cause serious
prejudice to the interest of the other Party or material injury to its domestic
industry".193  "Appropriate measures" was broad enough as to cover any measure,
including other restrictive regulations of commerce (in addition to anti-dumping and
countervailing measures).  It could thus include "emergency action" under Article
XIX of GATT, likewise based on injury to domestic industry.  Article XIX,
authorizing such action (i.e. a restrictive regulation of commerce) was not one of the
bracketed Articles.
(iv) In Article 63 of Decision 1/95, the parties confirmed "that the mechanism and
modalities of safeguard measures provided for in Article 60 of the AdditionalProtocol remain[ed] valid".  Turkey and the European Communities thus retained the
right to impose such "safeguard measures" against each other on the grounds of
serious disturbances occurring in a sector of economic activity; threat to external
financial stability; or difficulties which had the effect of altering the economic
situation of any of their respective areas.  Such grounds were much broader thanthose upon which measures under the bracketed Articles might be imposed.
Moreover, such "safeguard measures" were likewise broad enough to cover every
conceivable restrictive regulation of commerce.
(v) According to paragraph 1 of Article 8 of Decision 1/95, Turkey should incorporate
into its internal legal order the Community instruments relating to the removal oftechnical barriers to trade.  As of 1 January 1996 therefore, Turkey had not eliminated
regulations relative to technical barriers to trade vis-à-vis  the European Communities.
Regulations relative to technical barriers to trade were not among those contemplated
in the bracketed Articles, but such regulations could have the effect of being
restrictive regulations of commerce.
(vi) According to Article 7 of Decision 1/95, Turkey and the European Communities
retained the right to impose QRs (i.e. restrictive regulations of commerce) on each
other on the ground of "public security", among others.  Article XXI of GATT,
governing the so-called "security exemptions" was not one of the bracketed Articles.
7.57 The Philippines submitted that the arrangement between Turkey and the European
Communities did not qualify as a customs union under Article XXIV:8(a)(i) because, among others,
all restrictive regulations of commerce had not been eliminated with respect to substantially all the
trade between Turkey and the European Communities.  Therefore, the promulgation of the measure
by Turkey and the imposition of the restrictions could not be justified because the Turkey-EC
arrangement had not resulted in the formation of a customs union.
7.58 The Philippines submitted further that the arrangement between Turkey and the European
Communities did not qualify as a customs union under Article XXIV:8(a)(i) because, among others,
                                                     
192 Article 37 of Decision 1/95 provided that in the absence of rules which are to be adopted by Turkey
and the EC for the implementation of Articles 32, 33 and 34 and related parts of Article 35, "the provisions ofthe GATT Subsidies Code shall be applied as the rules for the implementation of Article 34" (seeWT/REG22/1).
193 See para. 1 of Article 32 and  para. 1 of Article 33 of Decision 1/95 (WT/REG22/1).WT/DS34/R
Page 83
duties  had not been eliminated with respect to subs tantially all the trade between Turkey and the
European Communities.
7.59 The Philippines considered that, in interpreting the phrase "substantially all" in Article
XXIV:8 (a)(i), the "ordinary meaning … in their co ntext and in the light of its object and purpose"
was determinative, as the basic rule of treaty interpretation contained in Article 31.1 of the VCLT.  It
therefore noted that "substantially" was defined as "1. in a substantial manner; solidly; firmly; with
strength. 2. to a substantial degree; specifically, (a) truly; really; actually; (b) largely; essentially; inthe main".
194  "Substantially" thus meant "essentially" and its context was better understood in light of
the object and purpose of:
(i) Article XXIV:8(a), which commenced by stating that a customs union should "be
understood to mean the substitution of a single customs territory for two or more
customs territories, so that …"; and
(ii) the preamble of the Understanding on Article XXIV, which contained the recognition
that "… the contribution to the expansion of world trade that may be made by closerintegration between the economies of the parties to such agreements … is increased if
the elimination between the constituent territories of duties and other restrictive
regulations of commerce extends to all trade, and diminished if any major sector of
trade is excluded".
7.60 Thus, in the Philippines view, in applying the "substantially all" requirement, the focus should
be more on what was excluded, since what was included should have been included as a matter of
course .  As to the exclusion, the Philippines proposed to at least test it against the criterion that it
should not be indicative of the absence of the existence of a genuine substitution of a single customs
territory for two or more customs territories.  Ot herwise, the possible contribution to the expansion of
world trade that may be made by the closer integration between the economies of the parties woulddiminished, contrary to the underlying rationale for allowing, in this instance, exception from
compliance with the MFN core principle.
195
7.61 The Philippines also considered that, in applyi ng the "substantially all" requirement, the
meaning of the word "trade" in the phrase "the trade of the constituent territories ... all the trade in
products....in such territories" was also germane.  "Trade" was defined as "the act or business ofexchanging commodities for other commodities or for money;  the business of buying and selling;
commerce; barter".
196  The synonyms of "trade" were: "business, traffic, sale, exchange".197  "Trade"
was thus used in the phrase in the broad generic sense, and there was no basis in qualifying it with
                                                     
194 Websters, New Twentieth Century Dictionary, unabridged, 2nd edition.
195 In this regard, "substantially all" could not necessarily be assessed quantitatively, i.e.:  100∗ zyx=
where x =product lines on which duties and other restrictive regulations were eliminated in intra-trade,
y=product lines in potential intra- trade, and z=resulting percentage
If z equalled 100%,  it could of course be concluded that the "substantially all" requirement had been
more than fully complied with.  If z was less than 100%, regardless of how close it might be to 100%, it would
nevertheless be proper to apply the criterion on what is excluded.
y was a sensitive factor.  In the context of a genuine customs union, y was the totality of products
which could  potentially  be traded between the parties, not actual  products traded.  The latter construction would
perpetuate discrimination.  For example, assuming that  Member A produced and traded in products A-1 to A-10,
and party B in products B-1 to B-10; assuming further that Member A exported only product A-1 to Member B,and that Member B exported only product B-1 to party A, if both parties were to eliminate duties and otherrestrictive regulations of commerce in trade between them in respect of products A-1 and B-1, the arrangementcould not be characterized as a customs union;  instead , it would be a "classic" discriminatory arrangement .
196 Websters, New Twentieth Century Dictionary , unabridged, 2nd edition.
197 Ibid..WT/DS34/R
Page 84
"actual".  This was the ordinary meaning in context, and in light of the object and purpose of Article
XXIV (a single customs territory as trade-off for allowing exceptions from compliance with MFN
obligations).  Trade therefore included all potential trade, and was not confined to actual trade.
Otherwise, the arrangement would not be that of  a customs union; rather, it would be a classic
discriminatory arrangement.
7.62 The Philippines then recalled that the Eu ropean Communities was composed of three
communities, namely: the ECSC, the EEC and the European Atomic Energy Community(EURATOM), each dealing with certain specific pr oducts and matters.  The Treaties establishing the
ECSC
198 and EURATOM199 dealt with, among others, duties and other regulations of commerce
applicable to the products they respectively covered.  Turkey claimed to have entered into a customs
union with the European Communities, whose Member States were, at the same time, parties to the
ECSC and EURATOM.  However,  the ECSC and EURATOM respec tively covered trade in products
which were excluded from the coverage of the Turkey-EC arrangement under Decision 1/95, as the
parties themselves disclosed.200  The Philippines further noted that Decision 1/95 itself excluded
agricultural products and the agricultural component of processed agricultural products from its
coverage.201
7.63 The Philippines considered that it was unquestionable that agriculture was a major sector,202
that the ECSC also covered a major sector,203 and that products covered by the EURATOM Treaty
also comprised a major sector.
7.64 The Philippines therefore submitted that the arrangement between Turkey and the European
Communities did not qualify as a customs union under Article XXIV:8(a)(i) because, among others,
all duties had not been eliminated with respect to substantially all the trade between Turkey and the
European Communities.
7.65 It also submitted that the arrangement between Turkey and the European Communities did not
qualify as a customs union under Article XXIV:8(a)(ii) because, among others, Turkey and the European
Communities did not apply "substantially the same duties and regulations of commerce" to the trade of
third parties in the categories of products covered by the ECSC and the EURATOM Treaties, and in
agricultural products.
7.66 The Philippines added that even with respect to products which were supposedly part of the
customs union, Turkey and the European Communities did not apply "substantially the same duties
                                                     
198 The ECSC Treaty was signed in Paris on 18 April 1951 (Paris Treaty establishing the European
Coal and Steel Community).  Its Article 4 provided, among others:  "The following are recognized as
incompatible with the common market for coal and st eel and shall accordingly be abolished and prohibited
within the Community, as provided in this Treaty:  (a) import and export duties, or charges having equivalenteffect, and QRs on the movement of products; …".
199 Article 93 of the EURATOM Treaty provided, among others, for the abolishment of  "all customs
duties on imports and exports or charges having equivalent effect, and all QRs on imports and exports" in
respect of selected listed products.
200 See WT/REG/22/5, para. I:3.  A Free Trade Agreement between Turkey and the ECSC entered into
force on 1 August 1996 (WT/REG22/1/Add.1).
201 The provisions of Decision 1/95 on the elimination of customs duties and charges and the
elimination of QRs or measures having equivalent effect apply only to goods in Chapter I.  Agricultural
products were dealt with in Chapter II (see WT/REG22/1).  In this regard, the TPR Secretariat Report on Turkey
(para. II(I) 1., p. 16) confirmed that "there is no firm timetable of the integration of agriculture" in the Turkey-
EC arrangement.
202 "The agriculture sector accounts for 14% of GDP and employs about half of the labour force" of
Turkey ( TPR Secretariat Report on Turkey , para. 17, p. xiii).
203 See Annex I of WT/REG22/1/Add.1, for the list of products covered.  See also paras. 42, 44, 45, 76
and 77 of the TPR Secretariat Report on Turkey , as illustrative of the product coverage.WT/DS34/R
Page 85
and regulations of commerce" to third parties' trade in certain products, i.e. 290 items.204  In addition,
under Article 15 of Decision 1/95, Turkey (in agreement with the European Communities) retainedthe right to impose higher duties on third parties' trade and in respect of potentially all products
covered by the alleged customs union.
7.67 The Philippines submitted that, therefore, the promulgation of Turkey's measures and the
imposition of the restrictions could not be justified because the Turkey-EC arrangement had not
resulted in the formation of a customs union.
7.68 On the question whether the territory of Turkey and the territory of the European
Communities constituted a single customs territory, as provided for in Article XXIV:8(a), the
Philippines noted that "single customs territory" implied genuine economic integration.  It was only
under this circumstance when exception from compliance with the MFN obligation was permissible.
In the absence of genuine economic integration, an arrangement characterized by the elimination of
some but less than all or substantially all dutie s and regulations of commerce on trade between the
parties and/or harmonization in respect to some but less than all or substantially all of their traderegimes vis-à-vis  third parties was merely a preferential trading arrangement in violation of MFN,
regardless of the manifested intention of the parties.
 205
7.69 In regarding the Turkey-EC arrangement in perspective, the Philippines noted that Turkey and
the European Communities had maintained the righ t to impose restrictive regulations of commerce on
each other beyond the measures authorized under Article XXIV:8(i), including anti-dumping,countervailing, and safeguard measures, which were similarly based on the concept of injury to
domestic industry (or serious  injury in the case of safeguard measures).  However, not a single
measure permissible under any of the bracketed Articles was based on such concept.
206  It was thus
conceptually irreconcilable that a part of a single customs territory could impose restrictive
regulations of commerce on other parts on that basis, since a single customs territory could not imposeanti-dumping duties, countervailing measures, and safeguard measures on its own self.
7.70 The Philippines noted further that, while the reasons why the products covered by the ECSC
and EURATOM Treaties were not covered by the alleged customs union between Turkey and the
European Communities were not material in this dispute, perhaps more revealing was the reason cited
by Turkey and the European Communities for the non-inclusion of agricultural products in the allegedcustoms union, that is:
"The Decision envisages an additional period for the achievement of free movement of
agricultural products between the Parties, on account of the different policies and trade
regimes pursued by each.  The adoption of the Common Agricultural Policy measures of
the EC by Turkey was determined as a prerequisite condition for the establishment offree movement of such products…"
207
7.71 The Philippines was of the view that the form ation of a customs union between two sovereign
states certainly did have economic consequences, the parties usually expecting that it would likewise
be of benefit to their respective economies.  However, compliance with Article XXIV was
                                                     
204 This was confirmed by the  TPR Secretariat Report on Turkey , para. 22.
205 "The pivotal requirement of Article XXIV is that the union be complete, freeing substantially all
internal trade.   The main reason for that requirement is non-economic.  The requirement exists primarily to
discourage governments from using 'customs unions' as an excuse to engage in ad hoc discriminations for short-
run advantage.  It also seeks to create a stable end situation upon which other governments can plan, and can
negotiate." (emphasis added), in Robert E. Hudec, GATT Legal System and World Trade Diplomacy,
(Butterworth Legal Publishers), 2nd edition, p. 221.
206 This is but a logical and necessary consequence of the formation of a customs union.  In a genuine
customs union, there is only one domestic industry - that of the Parties', collectively.
207 WT/REG/22/5, para. 8.WT/DS34/R
Page 86
inextricably based on the political will to establish a genuine single customs territory, regardless of
the economic consequences.  However, in this regard, the Philippines submitted that the attendantcircumstances analyzed in the preceding paragraphs  and the joint Turkey-EC declaration just quoted
above were (perhaps) indicative of the deficiency of genuine political will to establish a likewise
genuine single customs territory between Turkey  and the European Communities, notwithstanding
manifested intentions.
4. Conclusions
7.72 The Philippines submitted that the promulgation of the measure by Turkey and the imposition
of the restrictions were in violation of Articles XI and XIII of GATT and of Article 2.4 of the ATC,
and were not justified under Article XXIV of GATT.
7.73 The prima facie  violation of Articles XI and XIII of  GATT and of Article 2.4 of the ATC was
not disputed by Turkey.  The Philippines considered that Turkey's defense was based on the argument
that the territories of Turkey and the European  Communities formed one single customs union and
that the promulgation of the measure by Turkey was but part of the process of harmonization underArticle XXIV:8(a)(ii).  In the Philippines' view, even assuming that the Turkey-EC arrangement
qualified as a customs union under Article XXIV :8, the promulgation of the measure and the
imposition of the restrictions were in violation of Article XXIV:4, in relation to the Understanding on
Article XXIV,
208 since other less restrictive and less discriminatory options were available to Turkey
and the European Communities to achieve such harmonization.  Furthermore, such promulgation andimposition were likewise in violation of Article XXIV:5, in relation to the Understanding on Article
XXIV, as the general incidence of regulations of commerce applicable in the constituent territories
were on the whole more restrictive compared to that prevailing prior to the formation of the alleged
customs union.
7.74 The Philippines considered that, in any event, Turkey could not invoke (the excuse of)
harmonization under Article XXIV:8(a)(ii), because the territory of Turkey and the territory of the
European Communities did not constitute a genuine single customs territory, the Turkey-EC
arrangement having not established the existence of a customs union between the parties, neither in
relation to the required elimination of duties and other restrictive regulations of commerce on intra-
trade nor the application of substantially the same duties and other regulations of commerce to thetrade of third parties.
D. T
HAILAND
1. Arguments
7.75 Thailand submitted that the imposition of the QRs by Turkey was inconsistent with its
obligations under the provisions of Article 2.4 of the ATC and under the provisions of Article I:1,Article XI:1 and Article XIII:1 of GATT.  Thailand submitted further that these inconsistencies could
not be justified by the provisions of Article XXIV:5(a) and/or Article XXIV:8(a)(ii).
7.76 Thailand noted that the imposition of QRs by Turkey pursuant to Decision 1/95 were new
restrictions prohibited by Article 2.4.  Turkey's measures did not fall within the exception provisions
of the ATC to the prohibition of new restrictions, namely the "transitional safeguard" (Article 6),
since Turkey did deliberately not invoke this mechanism for its justification.  Turkey, instead, invoked
the provisions of Article XXIV:5(a) and Article XXIV:8(a)(ii) of GATT as its defense.  The question
                                                     
208 Such harmonization was contrary to the standard "not to raise barriers to the trade of other
contracting parties with such territori es" in Article XXIV:4.  Turkey and the EC did not likewise "to the greatest
possible extent avoid creating adverse effects on the trade of other Members" (see preamble of the
Understanding on Article XXIV).WT/DS34/R
Page 87
to be considered in this regard was therefore whet her those provisions fell within the meaning of the
"relevant GATT 1994 provisions" provided for in Article 2.4.
7.77 Thailand submitted that the terms "relevant GATT 1994 provisions" in Article 2.4 of the ATC
related only to the provisions of the GATT that pert ained to permissible QRs, such as Article XII and
Article XX.  By virtue of footnote 3 to Article 2.4 of the ATC, however, the phrase did not include the
provisions of Article XIX in respect of the products not yet integrated into GATT.  It had nothing to
do nor did it cover the provisions of Article XXIV.  The imposition of QRs by Turkey, therefore, didnot fall within the exception provisions  of the relevant GATT provisions.
7.78 Thailand considered that provisions of the ATC and the GATT had to be interpreted "in
accordance with customary rules of interpretation of public international law", as instructed by the
provisions of Article 3.2 of the DSU, of which the cardinal rule of interpretation was enshrined in
Article 31 of the VCLT.
7.79 In this regard, Thailand noted that the context of Article 2.4 was Article 2 itself and the ATC
as a whole.  Article 2 dealt with the elimination of existing QRs and the prohibition against theintroduction of new ones in textile and clothing products as specified in the ATC Annex, which were
in the transitional process of being integrated into GATT.  As to the ATC, it was the international
agreement "to be applied by Members during a transition period for the integration of the textiles and
clothing sector into GATT 1994".
209  Article 2 and the ATC itself did not at all deal with nor had
anything to do with customs unions or free trade areas as contained in GATT.
7.80 Thailand noted further that the primary object and purpose of the ATC were the integration of
textiles and clothing sector into the GATT, the strengthening of GATT rules and disciplines, and trade
liberalization, as evident from the preambular first paragraph of the ATC.210  Consequently, unless
otherwise clearly provided for by the ATC or the GATT as permissible, any new QRs on any other
basis, including on the basis of the formation of customs unions under Article XXIV of GATT, couldnot legitimately be made.  To allow any other different interpretation would impair or nullify the
objects and purposes of the ATC.
7.81 Thailand added that this interpretation was consistent with the purpose of a customs union or
of a free trade area as provided for in Article XXIV:4, of , inter alia , "not to raise barriers to the trade
of other contracting parties with such territories".  Even assuming, arguendo , that the terms "relevant
GATT 1994 provisions" included Article XXIV, this Article did not authorize QRs in violation of
Articles I, XI, and XIII of GATT.
7.82 Thailand noted that Turkey's had asserted that its imposition of QRs for the furtherance of its
objective of the formulation of the customs union with the European Communities was allowed by
Article XXIV:5(a) and Article XXIV:8(a)(ii) of GATT, in particular the terms "other regulations ofcommerce".  This assertion was in part based on the allegation that Turkey's association with the
European Communities had never been challenged in the GATT or the WTO, and no recommendation
was addressed to the parties to the Agreement under Article XXIV:7(b).
7.83 Thailand considered such arguments as factually incorrect, without a basis under the GATT,
and contrary to the GATT jurisprudence.  The consistency of the Treaty of Rome and the Ankara
Agreement with the provisions of Article XXIV had continually been contested by contracting parties
to the GATT and Members of the WTO since the initial examination of the Treaty of Rome in 1957.
                                                     
209 Article 1.1 of the ATC.
210 "... negotiations in the area of textiles and clothing shall aim to formulate modalities that would
permit the eventual integration of this sector into GATT on the basis of strengthened GATT rules and
disciplines, thereby also contributing to the objective of further liberalization of trade " (emphasis added).WT/DS34/R
Page 88
7.84 In this respect, Thailand submitted that GATT jurisprudence, as reflected by a number of
reports of Working Parties and of panels examining issues pertaining to Article XXIV, clearlysubstantiated that the provisions of Article XXIV were not the exception to, nor the justification or
waiver for the institution or maintenance of any form of QRs.  This point was illustrated by the
following examples:
(i) During the examination of the conformity of the Treaty of Rome with the provisions
of Article XXIV, in Sub-Group B (QRs) of the relevant Committee, therepresentatives of the parties asserted that they could, by virtue of the provisions of
Article XXIV:5(a) in combination with the provisions of Article XXIV:8(a)(ii),
impose QRs for balance of payment reasons against other contracting parties while
impose none of such restrictions among themselves.  However, most members of the
Sub-Group opposed strongly to such assertion and interpretation.
211
Sub-Group C (Trade in Agricultural Products) came to the conclusion that in the viewof the majority of members of the Sub-Group the Treaty of Rome was not consistentwith the provisions of Article XXIV and noted that the failing of making
recommendations did not mean or could be interpreted to mean that the Treaty of
Rome and the measures thereof were consistent with those provisions.
212
(ii) In discussions within the Working Party on the Accession of Greece to the European
Communities, the question of the compatibility of the Treaty of Rome was againraised.
213  In addition, a large number of  delegations had raised several questions and
strongly objected to the actions of Greece which, as a result of the accession
liberalized the  existing QRs to EC members only (without extending the benefits of
such liberalization to any other contractin g parties), while at the same time imposing
new QRs to these contracting parties.  In the view of these delegations, the said
actions of Greece were in contravention with the provisions of Article XI and XIII,
and were not in conformity with the provisions of Article XXIV since these
provisions were not at all the exception of nor the justification or waiver for the
GATT prohibition of QRs.214
(iii) During the discussions within the Workin g Party on the Accession of Portugal and
Spain to the European Communities, many delegations expressed the view that
Article XXIV was at most an MFN excepti on and, in particular, not an exception to
provisions concerning QRs, namely Articles XI, XII and XIII.  They also stated that
Article XXIV, being the exception to the cardinal MFN principle, had to be
interpreted very restrictively.  It was important to note at this juncture that theEuropean Communities themselves did not deny the validity of those delegations'
view.
215
7.85 From the above examples, Thailand inferred that it was generally accepted, even by the
European Communities, that the provisions of Article XXIV were not the exception to nor the
justification or waiver for the institution or maintenance of any form of QRs.
                                                     
211 See Reports on the European Economic Community , adopted on 29 November 1957, BISD 6S/76-
81, paras. B.4 to B.8.
212 See BISD 6S/88-89, para. 14 and especially para. 15.
213 See BISD 30S/174, para. 14.
214 The questions and objections referred to above were evident in many paragraphs of the Report.  See,
for instance, BISD 30S/190, paras. 51, 55 and 60.
215 See BISD 35S/318,  inter alia  paras. 19, 35, 39 and 45.WT/DS34/R
Page 89
7.86 Thailand stressed that, even if Turkey itself had on several occasions, including the present
case, claimed that it could impose or maintain QRs on any other contracting parties except theEuropean Communities by virtue of the provisions of Article XXIV, such a claim had never been
accepted; on the contrary, it had been strongly objected to by virtually all the contracting parties.
Thus, for example, in the context of the examina tion of the Ankara Agreement, the Report of the
Working Party concluded, inter alia , that "[s]ome members of the Working Party … criticized the
discriminatory removal of QRs and import deposits".
216  Another example could be seen in the
Working Party which examined the Additional Protocol to the Ankara Agreement, where Turkey
claimed that it had the right to maintain the existing QRs or to impose new ones by virtue of the
provisions Article XXIV in combination with the consideration that Turkey was the developing
country and thereby should be provided with special leniency.217
7.87 Thailand observed in this context that none of Turkey’s Agreements with the European
Communities had been approved by the examining Working Parties as consistent with the provisions
of Article XXIV.  The legal status of these Agreements and their conformity with the provisions ofArticle XXIV remained open in the same manner as the Treaty of Rome and its related Agreements.
Therefore, the examination of whether the Agreement for the formation of a Customs Union between
Turkey and the European Communities was in accord with the provisions of Article XXIV had not
only to be considered in the light of the provisions of Article XI, XIII and XXIV, but also be
measured in view of the fact that the legal status of the previous Turkey-EC Agreements and theirconformity with the provisions of Article XXIV remained inconclusive.
7.88 Thailand noted that, in the present case, despite the GATT rules and the GATT jurisprudence
delineated above, Turkey still claimed that it could impose or maintain quantitative restrictions to the
importation of textiles and clothing from any othe r contracting parties except the European Union by
virtue of the provisions of Article XXIV and the GATT jurisprudence, and that the practice of thecontracting parties in the GATT had widened the scope of the terms "other regulations of commerce"
in Article XXIV.5(a) and Article XXIV.8(a)(ii) to include quantitative restrictions.  In Thailand's
view, this claim was unfounded, and in fact a distortion of the GATT rules and jurisprudence.  The
GATT rules and jurisprudence were completely opposite to what Turkey had claimed.
7.89 Thailand also noted that the practice was not uniform in respect of the widening of the scope
of the terms "other regulations of commerce" in Article XXIV:5(a) and XXIV:8(a)(ii).  The European
Communities and its partners once in a while had claimed that the terms covered QRs. However, a
larger number of the contracting parties opposed to such  a claim.  In the view of the latter, the terms
signified only to the matters such as customs pr ocedures, grading and marketing requirements, and
similar routine controls in international trade.  In the Report of the Sub-Group B of the Committee onthe EEC, it was clearly stated as follows:
"Most members of the Sub-Group could not accept of the interpretation of the Six of
paragraph 5(a). In their view the use of the term "regulations" in this paragraph and in
paragraph 8(a)(ii) does not include QRs imposed for balance-of-payments reasons.  An
examination of the provisions of the Agreement indicates that the term "regulations" is
consistently used to describe such matters as customs procedures, grading and marketing
requirements, and similar routine controls in international trade.  This interpretation is
reinforced by the fact that in paragraph 8(a)(i) the term "regulation" is qualified by the
word "restrictive" in the one instance wher e Article XXIV specifically refers to the
balance-of-payments Articles. Moreover, the term "regulation" does not appear in the
balance-of-payments Articles of the General Agreement.  The General Agreement
prohibits the use of QRs for protective purposes and permits their use only in exceptionalcircumstances and mainly to deal with balance-of-payment difficulties.  Accordingly, the
                                                     
216 See BISD 19/108, para. 14.
217 See BISD 21S/110-112, paras. 12 and 17.WT/DS34/R
Page 90
notion that paragraph 5(a) would require that temporary QRs should be treated in the
same way as normal protective measures such as tariffs in determining the trade relationsbetween countries in a customs union and third countries would be contrary to the basic
provisions of the Agreement which preclude the use of QRs as an acceptable protective
instrument."
218
7.90 In this connection, Thailand emphasized that the GATT being an international agreement, it
thereby was subject to the rules and principles of public international law, as instructed by the DSU
Article 3.2.  The VCLT Article 31 provided, inter alia , that "[a] treaty shall be interpreted in good
faith in accordance with the ordinary meaning of th e terms of the treaty in their context and in the
light of its object and purpose".  In the light of these rules of  interpretation, it was clear that the
primary objective and purpose of the GATT, and in particular Article XXIV, was trade liberalization
not trade restrictions, especially QRs.  Therefore, if two or more interpretations of the GATT in
general and Article XXIV in particular were possible, the one favouring trade liberalization should
prevail.
7.91 Thailand added that in the presence of clear provisions of the GATT to the contrary, and in
the absence of uniform interpretation and practice of the terms "other regulations of commerce ",
subsequent interpretation and practice of a few countries which would benefit from such interpretation
and practice was meaningless and completely lacked any legal validity.  In addition, the said practice
could in no way be treated as the customary rules under the GATT, since the two fundamentalprerequisites for the formation of a customary rule, namely (i) the consistent and uniform practice of
states and (ii) the psychological element that the practice is necessitated by the requirement of law
("opinio juris sive necessitatis ") were lacking.  The strong protest to such practice by many
contracting parties of the GATT and Members of the WTO was clearly evident.  For the same
reasons, the lack of or infrequent protest to such interpretation and practice in the dispute settlementbody of the GATT by the contracting parties could not be regarded as tacit agreement or acceptance
of such interpretation and practice by all the contracting parties.
7.92 In this context, Thailand recalled a number of panel decisions supporting the assertions that
Article XXIV provisions were not the exception to nor the justification or waiver for QRs; that the
lack of or infrequent protest to the European Communities and associated members’ interpretation andpractice of the term "other regulations of commerce" did not mean or imply tacit agreement or
acceptance of such interpretation and practice; and that QRs were possible only when they fully
conformed to the permissible provisions of th e GATT, such as Article XI, XII, and XIII.
7.93 Citing the case on EC - Tariff Treatment on Imports of  Citrus Products from Certain
Countries in the Mediterranean Region ,
219 Thailand recalled that the European Communities argued
that the United States could not contest its preferential trade treatment on citrus products given to
certain countries in the Mediterranean Region because the Working Parties which had examined the
Treaty of Rome itself and other related agreements never gave any recommendation that these
agreements were not in conformity with the provisions of Article XXIV, such non-recommendation
constituting a 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.
Such acceptance, in other words, applied erga omnes , and the United States could not circumvent its
validity by means of the dispute settlement procedures under the provisions of Article XXIII.  In
response to this argument, the United States stated in paragraph 3.12 of the Report, inter alia , the
following:
                                                     
218 BISD 6S/78-79, para. 5.
219 Panel Report (not adopted) on EC - Tariff Treatment on Imports of Citrus Products from Certain
Countries in the Mediterranean Region , GATT document L/5776, of 7 February 1985.WT/DS34/R
Page 91
"... In no case did a working party unanimously agree that any agreement in question was
compatible with the General Agreement. It was clear that the Council had been aware ofthe strong divergence of views within the working parties, and its adoption of the report
should be viewed from this perspective.  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. The fact that the CONTRACTING PARTIES
were aware that the EEC was going to implement the agreements could not be equatedwith approval. Similarly, the fact that these agreements had been in place for a number of
years did not confer legitimacy. The pragmatic attitude the CONTRACTING PARTIES
had adopted in their treatment of free-trade areas and customs unions did not envisage a
loss of the right to subsequently challenge th e legal validity of such agreements.  The
implication of the decision of the CONTRACTING PARTIES with respect to the Treaty
of Rome was that, while the legal issues could not be fruitfully discussed at that stage,
such legal issues could be raised at a later point in time.  Moreover, as the EEC had
pointed out itself, the decisions  on customs unions and free-trade areas had been adopted
on the explicit understanding that the legal rights of contracting parties under the General
Agreement would not be affected. This clearly implied that the CONTRACTING
PARTIES meant the right of individual contracting parties to challenge the consistency
of the agreement with the requirements of Article XXIV to remain intact."220
7.94 The United States further argued, inter alia , that:
"... it was customary in the GATT to refrain from raising legal principles in cases where a
contracting party after taking into account overall economic interests and political
concerns, was unsure that its trade interests would be adversely affected. Given this
customary practice and the history of GATT consideration of these agreements, onecould not characterize the failure to make recommendations under paragraph 7(b) as
constituting approval by the CONTRACTING PARTIES."
221
7.95 In so far as the right of a contracting party to  challenge the conformity of the Treaty of Rome
and its related agreements with the provisions of Article XXIV by the dispute settlement procedures
under Article XXIII, the United States added,  inter alia , as follows:
"The United States replied that the consequence of the EC position was that a failure to
assert legal rights immediately constituted a permanent bar to future legal challenge. It
would penalize those contracting parties that waited to assert their legal rights until a
specific trade problem occurred.  If the EEC view was accepted, the result would be an
immediate termination of the pragmatic approach which had been characteristic of theGATT. The GATT would not be well-served by the approach suggested by the
EEC…"
222
"The United States argued that, whatever the scope of the Article XXIV: 7 procedures for
the examination of interim agreements, the existence of these procedures in no way
curtailed the general right of contracting parties to challenge the GATT-consistency of
any measure under the procedures of Article XXIII. Neither the wording of Article XXIII
nor the Understanding on Article XXIV Regarding Notification, Consultation, DisputeSettlement and Surveillance adopted by the CONTRACTING PARTIES in 1979 (BISD
26S/210) limited in any way the right of contracting parties to bring complaints under
                                                     
220 Ibid., para. 3.12, p. 38.
221 Ibid., para.  3.94, p. 70.
222 Ibid., para. 3.22, p. 40.WT/DS34/R
Page 92
Article XXIII, nor suggested that the applicability of Article XXIV was meant to be
excluded."223
7.96 With respect to the cited arguments, Thailand noted that although the panel made an implicit
conclusion to the effect that the legal status of the agreements in question remained open; however, it
did not make a ruling on the arguments because the complainant, the United States, had not requested
it to do so, nor was it proper for it to do so by itself, as can be seen, inter alia , in the conclusions of
the Report:
"Given the lack of consensus among contracting parties, there had been no decision by
the CONTRACTING PARTIES on the conformity with Article XXIV of the agreements
under which the EC grants tariff preferences to certain citrus products originating from
certain Mediterranean countries, and therefore the legal status of the agreements
remained open; …"
7.97 Thailand recalled in this connection the wording of paragraph 12 of the Understanding on
Article XXIV and argued that, although the panel report in the above-referred case was not adoptedby the CONTRACTING PARTIES as a whole due to the objection of certain contracting parties as
could be expected, the juridical value of the panel’s findings as well as the legal validity of the
principles and rules of the GATT and international law behind and underpinning those findings on
this particular point had not been impaired.
7.98 Thailand also mentioned that many GATT panels in the past, such as those on Japan -
Leather
224 and in EEC - Imports fr om Hong Kong ,225 had confirmed that the fact that for a long time
illegitimate practices of the contracting parties in violation of Article XI:1 of the GATT were not
challenged under the GATT dispute settlement procedures, did not make them consistent with the
GATT.  In the latter case, the panel stated explicitly that:
"... 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..."
7.99 Thailand also referred to the arguments of the parties to the dispute the EEC - Bananas I ,
noting that the findings of the panel in that case was important and pertinent to the present dispute.  In
that case, the legal regimes of the EEC Member giving preferential trade treatments to the African,
Caribbean and Pacific Countries ("ACPs") were  challenged by a number of Latin American
contracting parties, on the grounds that, by imposing a zero per cent duty and no quota to theimportation of bananas from the ACPs while imposing a 20 per cent duty and a range of quotas (or in
some cases complete prohibition) to the importa tion of bananas from them, such regimes were in
contravention with several provisions of the GATT, including in particular Article I, Article II, Article
XI, Article XIII, and Article XXIV.
226
7.100  Thailand noted that in that case the complainants argued in essence that Article XI was one of
the cardinal principles of the GATT.  It prohibited all forms of QRs not only because of their
damaging effects on the quantities of the importation of certain goods, but also because of theirdistorting impacts upon the present and future markets of the importing contracting parties.  The
                                                     
223 Ibid., para. 3.26, p. 41.
224 See Panel Report on Japan - Leather , para. 44.
225 See Panel Report on EEC - Imports from Hong Kong , para. 28.
226 See Panel Report on EEC - Bananas I .WT/DS34/R
Page 93
effects and impacts of such QRs should not be gauged only from their names and appearances, but
should also be measured from their practical and damaging effects on the importation of the goods.Therefore, it had always been upheld by many panels in the past that there were presumption against
the legality of QRs, and it was the onus of the c ontracting parties who had undertaken such actions to
rebut the presumption, such as by proving that thes e actions fell within the exceptions of the Article
itself.  In addition, economic, social, and historical factors were extraneous to the consideration of a
panel established in accordance with the provisions of Article XXIII which had to consider only therelevant provisions of the GATT.
7.101  Thailand further noted that in that case the panel found the EEC Member States’s QRs
contrary to the provisions of Article XI:1 and not justified by the provisions of Article XI:2(c), and,
more importantly, confirmed the GATT jurispruden ce regarding the relationship between Article XI
and Article XXIV, when it stated:
"The Panel noted the argument of the EEC that the restrictions and prohibitions on
imports of bananas, even if inconsistent with Article XI:1, were nonetheless consistentwith the General Agreement because they were covered under the provisions of
Article XXIV.  The Panel noted that Article XXIV:5 to 8 permitted the contracting
parties to deviate from their obligations under other provisions of the General Agreement
for the purpose of forming a customs union or free-trade area, or adopting an  interim
agreement leading to the formation of a customs union or free-trade area, but not for anyother purpose.  Article XXIV:5 to 8 therefore did not provide contracting parties with a
justification for restrictive import measures as such ; it merely provided them - within the
limits set out in this provision - with a justification for not applying to imports
originating in such a union or area the restrictive import measures that they were
permitted to impose under other provisions of the General Agreement.  The Panel
therefore considered that the import restrictions on bananas could not be justified by
Article XXIV ."
227
2. Conclusions
7.102  Accordingly,  Thailand submitted that the imposition of the QRs by Turkey was inconsistent
with its obligations under the provisions of Article 2.4 of the ATC, the provisions of Article I:1,Article XI:1 and Article XIII:1 of GATT, and that these inconsistencies could not be justified by the
provisions of Article XXIV:5(a) and/or Article XXIV:8(a)(ii) of GATT.
7.103  Consequently, in the light of the provisions of Article 19 of the DSU, Thailand requested that
the Panel recommend that Turkey bring its measures into conformity with the above-mentioned
provisions of the ATC and GATT, and that it migh t also suggest the ways in which Turkey could
implement the recommendations.
E. U
NITED STATES
7.104  The United States stated that Turkey had asserted no substantive defense under the ATC or
Article XI of GATT for the QRs at issue in this disp ute.  The only legal basis that Turkey claimed for
its unilateral imposition of new QRs was that measures whose application constituted a requirement
of the Turkey-EC customs union were deemed to be justified under Article XXIV of GATT.  The
United States was unable to agree with Turkey on that point.
7.105  Turkey claimed that Article XXIV provided a derogation from all the provisions of the
GATT, and that that derogation in turn justified Tu rkey’s new QRs.  Turkey said that, as applied to
customs unions and free trade areas, Article XXIV permitted deviation from the MFN obligations of
                                                     
227 Panel Report on EEC - Bananas I , para. 358 (emphasis added).WT/DS34/R
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Article I:1.  The United States agreed with Turkey, up to a point.  Article XXIV:8 provided that to
constitute a customs union (or a free-trade area) duties and other regulations of commerce had to beeliminated as between the constituent members of that customs union (or free-trade area).  The United
States agreed that, in light of Article XXIV, the provisions of Article I:1 did not require the
constituent members of the customs union (or free-trade area) to offer such elimination of duties and
restrictive regulations of commerce to non-originating goods.  Turkey went on to suggest, however,
that all the provisions of GATT were overridden by Article XXIV, and at that point the United States
disagreed with Turkey.
7.106  The object and purpose of Article XXIV were authoritatively given in Article XXIV:4.  In
light of the second sentence of that provision, it was difficult to see how Turkey’s action in this case
was justifiable.  In fact, the GATT generally prohibited QRs entirely, as an especially serious barrier
to trade.  Therefore, it was hard to see how a customs union could introduce new QRs consistently
with Article XXIV:4, unless some other provisi on of the WTO Agreement independently justified
those restrictions.
7.107  The United States recalled that the argument that Turkey was now advancing had been made
before, but had not been accepted.  In 1957, when the CONTRACTING PARTIES were considering
the consistency with the GATT of the Treaty of  Rome, the six members of the EEC proposed that
Article XXIV:5 authorized those six members to deviate from the provisions of the GATT concerning
QRs.  The report of the Sub-Group considering the Community’s QRs recorded the following:
"Most members of the sub-group could not accept the interpretation of the Six of
paragraph 5(a). ... The General Agreement prohibits the use of QRs for protective
purposes and permits their use only in exceptional circumstances and mainly to deal with
balance-of-payments difficulties.  Accordingly, the notion that paragraph 5(a) would
require that temporary QRs should be treated in the same way as normal protectivemeasures such as tariffs in determining the trade relations between countries in a customs
union and third countries would be contrary to the basic provisions of the Agreement
which preclude the use of QRs as an acceptable protective instrument."
228
7.108  More recently, the European Communities, Turkey ’s partner in the Ankara Agreement, had
taken the opposite position to Turkey on this issue.  During the examination of the Accession of Spainand Portugal to the European Communities, several GATT contracting parties claimed that, as a result
of the accession, Spain and Portugal had imposed new restrictions that violated Articles XI and XIII.
The Working Party report recorded the EC response as follows:
"On the question of other regulations of commerce, and in particular QRs,  the
Communities agreed that Article XXIV did not provide a waiver from other provisions ofthe GATT."
229
7.109  Furthermore, in 1993, the EEC - Bananas I  panel confirmed the point when it found that
"Article XXIV:5 to 8 ... did not provide contracting parties with a justification for restrictive import
measures as such ..."230
7.110  For all these reasons, Turkey’s contention that its customs union with the European
Communities allowed it to maintain new QRs on imports from third countries in derogation from the
provisions of the Article XI of GATT should be rejected.
                                                     
228 Reports on the European Economic Community , adopted on 29 November 1957, BISD 6S/70, para.
B.5.
229 Report of the Working Party on the Accession of Portugal and Spain to the EC , adopted on 19-20
October 1988, BISD 35S/293, para. 45 (emphasis added).
230 Panel Report on EEC - Bananas I , para. 358.WT/DS34/R
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7.111  The United States also disagreed with Turk ey’s interpretation of Article XXIV:8(a)(ii).
Article XXIV:8(a) was a definitional paragraph.  It described the characteristics of a customs union,one of which was that the constituent Members applied substantially the same regulations of
commerce to trade from outside the union.  However, Article XXIV:8 did not require or authorize the
customs union to adopt any particular  set of such external regulations.  Most importantly, Article
XXIV:8(a)(ii) nowhere provided that the external regulations that the customs union chose to apply
could be inconsistent with WTO requirements.  (Of course, if Turkey wished to act inconsistentlywith its WTO obligations it was always free to seek a waiver.)
7.112  A customs union could, in principle, meet the requirements of Article XXIV in different
ways.  In fact, the Panel could decide this dispute on straightforward grounds.  As the delegation of
the Philippines had pointed out, it was clear that the European Communities and Turkey could just as
easily have chosen to remove the QRs that either one of them previously imposed against Indian
textile and clothing products.  The delegation of Hong Kong, China, had pointed out that the
European Communities and Turkey could have chosen to implement a certificate of origin system toensure that goods entering the European Communities from Turkey were in fact of Turkish origin.
Had the European Communities and Turkey taken either of these approaches, they could still have
continued to apply the same regulations of commerce externally.  And, they would not have raised the
trade barriers that Turkey had with its new QRs.
7.113  Because these alternatives were open to them, Turkey could not claim that the provisions of
the WTO Agreement (and in particular, the provisions of the ATC) were preventing the formation of a
customs union with the European Communities.  For that reason, as well as the others outlined,
Turkey was incorrect in claiming that Article XXIV:5 and 8(a) authorized these measures.
7.114  The United States noted that Turkey appeared to pre-suppose that the agreement between
Turkey and the European Communities met the requirements of Article XXIV.  After all, Turkey’sentire defense relied on the assumption that its relationship with the European Communities qualified
under Article XXIV as a customs union.  It was important to recall, however, that the Ankara
Agreement, and the Turkey-EC customs union, had never been found to be consistent with the
requirements of Article XXIV.  They were still under examination by the CRTA.  Turkey itself
acknowledged this fact.  The Panel should therefore not conclude that the Turkey-EC agreement wasa customs union consistent with the requirements of Article XXIV of GATT.
7.115  The United States also noted that Turkey argued that the reduction in average tariffs resulting
from the customs union agreement meant that the agreement could not be described as having raised
barriers to trade with Turkey.  In the first place, the evaluation under Article XXIV of the level of
trade barriers went beyond an evaluation of tariffs, and therefore Turkey’s statement was not correct.Secondly, this claim was a variation of the "reverse compensation" argument that had been raised but
never accepted in the past; the argument was that contracting parties that reduced duties in forming a
customs union were entitled to compensation for that reduction.  Paragraph 6 of the Understanding on
Article XXIV expressly eliminated that argument, however.  Turkey’s claim in this case that the
agreement had not raised barriers to trade was just another version of that old argument and should
not be accepted.
7.116  Turning to some procedural matters, the United States expressed its concern over Turkey’s
requested finding that, because Turkey has made the argument  that its QRs were a requirement of the
customs union, therefore  the Panel could not rule on the legality of its QRs in the absence of agreed
conclusions on the consistency of the Turkey-EC customs union with GATT.  Turkey did not appear
to have supplied any argument in support of this request.
7.117  In fact, the suggestion that this Panel could not rule on the legality of Turkey’s measures was
inconsistent with the WTO Agreement in several ways .  First of all, nothing in the text of GATT or
any other part of the WTO Agreement supported th e notion that measures could be excluded fromWT/DS34/R
Page 96
dispute settlement merely because a Member  made an argument  about the justification of a measure.
Quite the reverse:  Article XXIII did not excl ude any measures from its scope.  Furthermore,
Appendix 2 to the DSU did not list Article XXIV as one of the special or additional rules and
procedures to which the DSU was subject.  Mo reover, Turkey’s suggestion contradicted the
provisions of paragraph 12 of the Understanding on Article XXIV.  Of course, it could not be
otherwise.  If a Member could prevent a panel from issuing rulings merely by making arguments
about its measures, then dispute settlement would grind to a halt.  This point was made clear by thepanel in the EEC - Bananas I  case:
"If preferences granted under any agreement for which Article XXIV had been invoked
could not be investigated under Article XXIII, any contracting party, merely by invoking
Article XXIV, could deprive other contracting parties of their rights under Article
XXIII."
231
7.118  The United Stated noted that Turkey had even gone so far as to suggest that the present case
should not proceed in the absence of agreed  conclusions in the CRTA.  Such a procedure would
subject WTO dispute settlement to the ability of any Member to block consensus; and the central
feature of the WTO dispute settlement system was the inability of any Member to prevent dispute
settlement by consensus blocking.  In short, this Panel should reject Turkey’s suggestion that it lacked
the power to decide the question of the consistency of Turkey’s measures with the requirements of the
WTO Agreement.
7.119  The United States further noted that Turkey’s argument that India’s supposed failure to
engage in meaningful consultations should deprive India of the right to pursue this dispute was
unfounded.  Article 3.7 of the DSU made clear that the dispute settlement mechanism was available in
absence of a mutually agreed solution.  And, Article 4.7 of the DSU made it quite clear that the
complaining party was entitled to request a panel if the dispute had not been settled within 60 daysafter the date of receipt of the request for consultations.
7.120  The United States also noted Turkey’s statement that there was no difference in WTO terms
between an EC enlargement and the formation of  a new customs union.  It was not clear how this
statement advanced Turkey’s arguments in this dis pute.  Perhaps Turkey was attempting to bolster its
observation that no Member had initiated a dispute as a result of the extension of the EC textiles andclothing restrictions to Sweden, but the Swedish analogy did not help the Turkish position.  As a
previous GATT panel made clear, "... 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".
232  Another panel pointed out that "[t]he decision of a contracting party not to
invoke a right vis-à-vis  another contracting party at a particular point in time can therefore, by itself,
not reasonably be assumed to be a decision to release that other contracting party from its obligations
under the General Agreement".233  Therefore, the fact that no Member objected to the new Swedish
restrictions did not mean that either those restrictions or the ones challenged in this case were
consistent with the requirements of the WTO Agreement.  In any event, the United States concurred
with India’s observation that this Panel need not make any findings on the complex issues relating to
the extension of the WTO Agreement to the territory of states that acceded to the European
Communities.
7.121  The United States also noted that India had submitted that the only provision of the ATC
under which a Member could introduce new QRs on im ports of textile and clothing products was
under the transitional safeguard mechanism set out in Article 6 of the ATC.  That statement was not
entirely accurate; the United States recalled that other provisions of the ATC, such as Article 5.4, also
                                                     
231 Ibid., para. 367.
232 Panel Report on EEC-Imports from Hong Kong, para. 28 .
233 Panel Report on EEC-Bananas I , para. 362.WT/DS34/R
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allowed for the introduction of new restrictions in specified circumstances.  But India was correct to
draw attention to the Article 6 safeguard mechanism, because - assuming that the customs union as awhole could demonstrate the serious damage or threat thereof required by Article 6 (and footnote 5)
of the ATC - it could provide the Turkey-EC customs union with cover, once the European
Communities removed its textiles and clothing restrictions to match the earlier Turkish regime.
7.122  The United States also noted that Japan had proposed "the need for strict interpretation of the
provisions for exception clauses" and that a previous panel "concluded that the parties invoking theexception must bear the burden of proof that it has fulfilled the conditions for invoking the
exception."  However, the interpretation of the  US - Underwear  panel (referred to by Japan) had been
superseded by the Appellate Body discussion in  US - Shirts and Blouses, where the question also
arose.  The Appellate Body disagreed with the not ion that Article 6 of the ATC was an exception in
the same sense as provisions such as Article XX of GATT and stated that "[t]he ATC is a transitional
arrangement that, by its own terms, will terminate when trade in textiles and clothing is fully
integrated into the multilateral trading system.  Ar ticle 6 of the ATC is an integral part of the
transitional arrangement manifested in the ATC and should be interpreted accordingly".
234
7.123  In conclusion, the United States urged the Panel to decide this dispute, notwithstanding
Turkey’s claim that it could not do so.  The United States further urged the Panel not to accept the
various justifications that Turkey had advanced for the QRs that India had challenged.  In particular,
Article XXIV of GATT should not  be read to permit Members to introduce QRs that were not
consistent with their obligations under the WTO Agreement.
F. C OMMENTS BY THE PARTIES
7.124  Turkey  did not intend to take a position on each of the issues raised by the third parties.  To
the extent that they would have been raised by Indi a, these issues would be addressed in Turkey's own
submissions.  Turkey stressed, however, that third parties were neither complainants nor respondentsand had therefore to intervene in the matter as defi ned by the terms of reference, limited to the claims
of the complaining party.  Noting that, in the pr esent case, there had been such a situation, Turkey
stated that a third party could not be permitted to raise new issues, as otherwise the whole dispute
settlement procedure would be subverted and disp utes would become open-ended, which could not be
the purpose of the dispute settlement mechanism.
7.125  India  responded that it conceptually agreed with Turkey that third parties were not expected
to add new claims to those made by the complaining party.  In its view, however, the third parties had
basically rebutted Turkey's claim that the measures at issue were justified under Article XXIV of
GATT.
VIII. INTERIM REVIEW
235
8.1 On 12 March 1999, Turkey and India requested the Panel to review, in accordance with
Article 15.2 of the DSU, certain aspects of the interim report that had been transmitted to the parties
on 3 March 1999.  No request for a further meeting with the Panel was received from either party.
8.2 We have reviewed the arguments and suggestions presented by the parties, and finalized our
report, taking into account those comments by the parties which we considered justified.  In this
                                                     
234 Appellate Body Report on US - Shirts and Blouses , p. 16.
235 Pursuant to Article 15.3 of the DSU, the findings of the panel report shall include a discussion of the
arguments made at the interim review stage.  Consequently the following section entitled Interim Review is part
of the Findings of this Panel report.WT/DS34/R
Page 98
context we have made small changes, including those to paragraphs 9.148, 9.151 and 9.191.  In
addition, we have made other minor linguistic and typographical corrections.
8.3 Turkey submits that, contrary to the Panel's view, it never claimed that the measures which
form the object of India's complaint had been taken by another entity than itself.  Turkey therefore
requests the Panel to modify paragraphs 9.33 to 9.43 of the Interim Panel Report.  We note that in its
very first submission Turkey wrote: "Given this situation, the Panel should reject India's claim on the
basis that India's choice of the respondent in this dispute is incorrect. …  The situation here is in factcomparable with a situation where the complainant directs its complaint against country A for a
measure taken by country B. … In Turkey's view the same rule must apply in the present case …
There is no basis in fact or in law, for the assumption … that Turkey is individually responsible for
acts that are collectively taken by the members of the Turkey-EC customs union through the
institutions created by the custom union agreement."
236  As we mention in paragraph 9.33 we have
examined all alternatives possible to cover Turkey's argument that the measure had been taken by an
entity other than Turkey.  We were of the view that there were only two other alternatives: themeasures could have been those of the Turk ey-EC customs union or those of the European
Communities.  We find that the measures at issue were clearly Turkish measures.  We then proceed
further (paragraph 9.38) to examine whether the measures at issue could be measures of the Turkey-
EC customs union or measures of the European Communities and we find that we have no alternative
but to conclude that the measures at issue are only Turkish measures (paragraph 9.40).  Having notedthat the Turkey-EC customs union is not a Member of the WTO, we also examine the rules of state
responsibility in public international law public, and find that in the absence of a specific treaty
provision (in the DSU as drafted) individual states remain responsible for any wrongful act committed
by their common organ.  We see no reason to change these findings.  We reach the conclusion that the
measures under examination were those of Turkey  itself and Turkey alone, and only Turkey could
therefore be defendant to this dispute, especially as the Panel was not assessing the WTO
compatibility of the Turkey-EC customs union.
8.4 Turkey also reiterates that its position is that such measures are the basic requirements of the
customs union into which it has entered with the European Communities, and as long as the European
Communities itself maintains similar measures with their imports of the same products from a numberof countries.  We refer to our considerations and findings in paragraphs 9.140 to 9.182.  We find that
there are WTO compatible alternatives for Turkey to form a customs union or an interim agreement
leading to a customs union with the European Communities or others.  We also find that 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 a requirement would not be sufficient to exemptTurkey from its obligations under the WTO Agreement.
8.5 India requests the Panel to review its interpretation of Article XXIV:8(a)(ii) because,
according to India it is not based on the language of this provision.  The Panel finds that the phrase
"substantially the same duties and other regulations of commerce" does not impose an absolute
                                                     
236 See para. 3.33 above which refers to page 14 of Turkey's request for preliminary ruling: " Given this
situation, the Panel should reject India’s claim on the basi s that India’s choice of the respondent in this dispute is
incorrect. In order to pursue its claims properly, India should have chosen both parties to the Turkey-EC
customs  union  as respondents, not just one of them. The situa tion here is in fact comparable with a situation
where the complainant directs its complaint against country A for a measure taken by country B . In such a
situation, the complaint would have to be turned down for lack of standing due to the obvious absence of
international liability. In Turkey’s view, the same rule mu st apply in the present case, since Turkey alone is not
internationally answerable for acts adopted by the institutions created by the agreement creating the Turkey-EC
customs union . There is no basis, in fact or in law, for the assumption - on which however India’s complaint
appears to be founded - that Turkey is individually responsible for acts that are collectively taken by the
members of the Turkey-EC customs union through the institutions created by the customs union agreement."(emphasis added).WT/DS34/R
Page 99
standard and that not "all" the constituents' duties and not all the constituent members' regulations of
commerce shall be the same. We find that this standard leaves an element of flexibility to theconstituent members.  India argues that when the Panel finds that "a situation where the constituent
members have comparable trade regulations having similar effects with respect to trade with third
countries, would generally meet the requirements of Article XXIV:8(a)(ii)" the Panel is effectively
turning the requirement to apply "substantially the same regulations" into "the same regulations on
substantially all the trade".  We are of the view that the wording of Article XXIV:8(a)(ii) makes itclear that the term "substantially the same" qualifies both the "duties" and the "other regulations of
commerce".  In other words, we consider that the ordinary meaning of the term "substantially the same
… regulations of commerce" in the context of sub-pa ragraph 8(a) appears to provide for both qualitative
and quantitative components; we also consider that in many cases, when constituent members adopt
comparable trade regulations having a similar effect, they  will be in compliance with the provisions of
sub-paragraph 8(a)(ii) whereby constituent members are required to adopt "substantially the same …
regulations of commerce".  We also consider that th e greater the degree of policy divergence, the lower
the flexibility as to the areas in which this can occu r; and vice-versa.  We find as well that this degree of
flexibility does not provide Turkey with the righ t to impose otherwise WTO incompatible quantitative
restrictions.  On the contrary, we find that Turkey's  conditional right to form a regional trade agreement
compatible with Article XXIV, without violating Ar ticles XI and XIII and Article 2.4 of the ATC, is
confirmed by the flexibility offered by the wording of Article XXIV.
8.6 Finally, in response to India's claim, in its request  for review of the interim report, that the Panel
should not reach any conclusion on the alternatives open to Turkey when forming a "fully fledged"
customs union since Turkey could always have clai med before the CRTA that its customs agreement
with the European Communities was not a comp lete customs union, we would like to reiterate
237 that we
are not assessing the nature of the regional trade agreement between the EC and Turkey, nor its stage ofintegration.  In this report, we simply respond to Turkey's defense based on Article XXIV:8(a) and find
that even if the Turkey-EC customs union is to be considered a complete customs union as alleged by
Turkey, in the present dispute there are alternatives open to Turkey to form a customs union where
measures adopted by constituent members would not violate other provisions of the WTO.  In the
context of an interim agreement leading to a custom  union, Turkey would have further flexibility, since
compliance with Article XXIV:8(a) is required only at  the end of the transitional period leading to the
formation of a customs union.
IX. FINDINGS
A. P
RELIMINARY RULINGS RECALLED
9.1 On 14 August 1998 Turkey requested the Panel to make three preliminary rulings in limine
litis.  On 28 August 1998 we invited India and the third parties to comment in writing on Turkey's
request.  The Panel held a meeting with the parties only on 19 September 1998 to consider the request
and on 25 September 1998, the Panel issued its rulings on the issues raised by Turkey.  In its first
submission, Turkey also requested the Panel to reject India's complaint on the grounds that the
consultations preceding the request for establishment of a panel were defective.  In this section, as
foreshadowed in our rulings of 25 September 1998, we recall and expand on those rulings rejectingTurkey's first three preliminary objections and then analyze Turkey's claim concerning the inadequacy
of the consultations.
                                                     
237 See our statement to this effect in footnotes 241 and 285 hereafter.WT/DS34/R
Page 100
1. Article 6.2 of the DSU
9.2 Firstly, in its request for preliminary rulings, Turkey claimed that India's request for the
establishment of a panel did not respect the specificity requirements of Article 6.2 of the
Understanding on the Rules and Procedures Governing the Settlement of Disputes ("DSU") in that it
failed to identify specifically the measures at issue and the products subject to those measures and that
its basic rights of defense and due process were impaired.238
9.3 On 25 September 1998 the Panel issued the following ruling on this point:
"In assessing Turkey's claim that India's request for the establishment of a panel was not
sufficiently precise, we consider that it is important that a panel request, which defines
the terms of reference,  meets this criterion so as to inform the defending party and
potential third parties both of the measures at issue, including the products they cover,
and of the legal basis of the complaint.  This is necessary to ensure due process and the
ability of the defendant to defend itself.
We have examined India's request for establishment of the panel (WT/DS34/2).  While
not identified by place and date of publication, the measures are specified by type (i.e.
quantitative restrictions), by effective date of entry into force (1 January 1996) and by
product coverage (textiles and clothing, a well defined class of products in the WTO).239
In our view the panel request meets the minimum requirements of specificity of Article6.2 of the DSU as interpreted by the Appellate Body in Bananas III and LAN.
240  Even if
we agree that India's request could have been more detailed, we conclude that Turkey is
sufficiently informed of the measures at issue and the products they cover, and that our
terms of reference are sufficiently clear.  Co nsequently, we reject Turkey's claim that the
Panel should refuse to accept India's request in limine litis  for its failure to respect the
basic requirements of Article 6.2 of the DSU."
2. Necessity of Participation of the European Communities
9.4 Secondly, in its request for preliminary rulings, Turkey claimed that the Panel should dismiss
India's claims because they are directed only against Turkey while the measures at issue were taken
pursuant to a regional trade agreement be tween Turkey and the European Communities241, and
according to Turkey, the European Communities shou ld also have been a party to the dispute.242
                                                     
238 Turkey's arguments are further detailed in paras. 3.6 to 3.8, 3.13 to 3.15, 3.19 and 3.21, India's
arguments are in paras. 3.9 to 3.12, 3.16 to 3.18, 3.20, 3.22 and 3.23 and the third parties' arguments are in
paras. 3.24 and 3.25 above.
239 [Footnote original]We note also that during the period of consultations Turkey and the EC jointly
sent notifications and other communications to the CRTA (WT/REG22/5, WT/REG22/7) and, pursuant toArticle 3.3 of the ATC, to the TMB (G/TMB/N/308), in which Turkey lists the new textile import restrictions itadopted following the conclusion of the agreement between the EC and Turkey.  In addition, during the
meetings of the CRTA (WT/REG22/M1 and M2), and the TMB (meetings of 11-12 December 1997), which
preceded the request for the establishment of a panel, the parties discussed the issues relating to this dispute.
This confirms to us that Turkey is sufficiently informed of the measures challenged by India in this dispute andthe products covered by the measures at issue.  Moreover, we note that no comments were made on this issue atany of the meetings of the DSB where the present dispute was discussed (WT/DSB/M13, 15, 42 and 43) and
that no Member questioned the scope of the terms of reference in this regard.
240 Appellate Body Report on European Communities – Regime for the Importation, Sale and
Distribution of Bananas , adopted on 25 September 1997, WT/DS27/AB/R (" EC-Bananas III ") and European
Communities – Customs Classific ation of Certain Equipment  adopted on 22 June 1998, WT/DS62, 67,
68/AB/R, (" EC - Computer Equipment " or " EC – LAN ").
241 The official title of that agreement is the Customs Union between Turkey and the Community (see
WT/REG22/1).  The European Communities is a WTO Member.  In this Panel report we shall refer to theWT/DS34/R
Page 101
9.5 On 25 September 1998, the Panel issued the following ruling on this point:
"Turkey states that the measures at issue were introduced in the context of the trade
agreement concluded with the EC, which Turkey and the EC notified to the CRTA as a
customs union (WT/REG/22/1).  The Panel will obviously have to assess whether such
import restrictions introduced by Turkey in the context of that trade agreement are
compatible with the WTO Agreement and its related instruments.
We note that the EC has decided not to participate as a third party in this dispute.  We
note that the DSU does not allow for any other form of participation in favour of a
Member, not party to the dispute, other than the third-party rights under Article 10 of the
DSU, which, we also note, have been extended in previous cases to meet the specific
circumstances of the case.  In the absence of any relevant provision in the DSU, in light
of international practice243, and noting the position of the EC to this point, we consider
that we do not have the authority to direct that a WTO Member be made third-party or
that it otherwise participate throughout the panel process.
We can find no provision in the DSU that wo uld prevent India from initiating a panel
procedure against measures imposed by Turkey in these circumstances.  Moreover, we
are not aware of any general rule applicable to cases in which disputed measures arise
from a bilateral or multilateral agreement, that would prohibit a Member from initiating a
dispute settlement procedure against one party to such agreement.  Accordingly, we donot accept Turkey's claim that India's request should be rejected at this stage of the panel
process because India's request was not directed against all parties to the trade agreement
which, according to Turkey, forms the basis for the introduction of the measures at issue.
This is without prejudice to our decision whether the said measures are WTO
compatible.  We would like also to emphasise that we shall ensure due processthroughout these panel proceedings and that in this context we are aware of the means
existing under the DSU for panels to obtain technical advice and information from any
relevant source."
9.6 In terms of Article XXIII of the 1994 General Agreement on Tariffs and Trade ("GATT") and
the DSU any Member may initiate a dispute settlement procedure against any other Member if itconsiders that its rights have been nullified or impaired by this other Member.  We note that there is
no special provision in the DSU for dispute settlement proceedings involving customs unions or any
other type of regional trade agreements.  We note also that the Turkey-EC customs union itself is not
a Member of the WTO and therefore cannot be the subject of any DSU procedure, as it lacks WTO
legal personality.
244
                                                                                                                                                                    
Turkey-EC customs union without any assessment of the WTO nature of this Article XXIV type of
arrangement.
242 Turkey's arguments are further detailed in paras. 3.26, 3.28, 3.30, 3.33 and 3.34, India's arguments
are in paras. 3.27, 3.29, 3.31, 3.32, and 3.35 to 3.37 and the third parties' arguments are in paras. 3.38 to 3.40
above.
243 [Footnote original]The Panel examined relevant principles of international law, including the
practice of the International Court of Justice in the Military and Paramilitary Activities in and Against Nicaragua
case ([1984], ICJ Reports, pp.430-431) and the Phosphate Lands in Nauru  case([1992], ICJ Reports, p.259-262)
cases (preliminary objections).
244 We recall that in its Report on India – Patent Protection for Pharmaceutical and Agricultural
Chemical Products  adopted on 16 January 1998, WT/DS50/AB/R (" India – Patent "), the Appellate Body stated:
"Although panels enjoy some discretion in establishing their own working procedures, this discretion does notextend to modifying the substantive provisions of the DSU. (…) Nothing in the DSU gives a panel the authority
either to disregard or to modify other explicit provision of the DSU", para. 92.WT/DS34/R
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9.7 We also recall that in the EC - Bananas III245 dispute the Panel and the Appellate Body
addressed the compatibility of EC measures adopted pursuant to the Lomé Convention with the WTOAgreement, notwithstanding the EC claim that it was required to adopt the measures pursuant to that
Convention and notwithstanding the fact that its Lomé partners were not parties to the dispute.
9.8 It is relevant to recall the case law of the International Court of Justice (ICJ).  The ICJ has not
declined to exercise jurisdiction in cases si milar to this one.  For example in the ICJ Military and
Paramilitary Activities in and Against Nicaragua  case, the US argued that the application brought by
Nicaragua was inadmissible because Nicaragua ha d not also impleaded third countries whose
participation was essential.  The ICJ dismissed this argument, saying:
"There is no doubt that in appropriate circumstances the Court will decline, …, to
exercise the jurisdiction conferred upon it where the legal interests of a State not party to
the proceedings "would not only be affected by a decision, but would form the very
subject-matter of the decision". … Where however claims of a legal nature are made by
an Applicant against a Respondent in proceedings before the Court, and made the subjectof submissions, the Court has in principle merely to decide upon those submissions, with
binding force for the parties only, and no other State… Other States which consider that
they may be affected are free to institute separate proceedings, or to employ the
procedure of intervention.  There is no trace, either in the Statute or in the practice of
international tribunals, of an "indispensable parties" rule  of the kind argued for by the
United States, which would only be conceivable in parallel to a power, which the Court
does not possess, to direct that a third State be made a party to proceedings."
246
9.9 The ICJ Phosphate Lands in Nauru  case concerned a proceeding initiated by Nauru against
Australia alone in respect of the administration of a fund in favour of Nauru.  The case was based on
an international treaty whereby Australia, New Zealand and the United Kingdom were co-administrators of the fund.  The ICJ exercised jurisdiction despite the absence of the two other
administering authorities since the legal interest of those third countries (which could be affected by
the result of the dispute) did not form the subject-matter of the dispute which was the legal
relationship between Australia and Nauru. The ICJ stated:
"In the present case, a finding… regarding the existence or the content of responsibility
attributed to Australia by Nauru might well have implications for the legal situation of
the two other States concerned, but no finding in respect of that legal situation will be
needed as a basis for the Court's decision on Nauru's claims against Australia.
Accordingly, the Court cannot decline to exercise its jurisdiction."
247
In its separate opinion, Judge Shahabuddeen added:
"To return to the question under examination, as to whether Australia may be sued alone,
I consider that an affirmative answer is required for three reasons. First, the obligations
of the three Governments under the Trusteeship Agreement were joint and several.
Second, assuming that the obligations were joint, this did not by itself prevent Australia
from being sued alone. Third, a possible judgment against Australia will not amount to a
judicial determination of responsibility of New Zealand and the United Kingdom."248
                                                     
245 Appellate Body Report on  EC - Bananas III , , paras. 164 -188.
246 Military and Paramilitary Activities in and Against Nicaragua  [1984] at 431.
247 Certain Phosphate Lands in Nauru  ("Nauru "), [1992] ICJ Reports, 240 (June 26); p. 261-262.
248 Nauru  case; Separate Opinion of Judge Shahabuddeen, at 271, italics added.  A separate opinion is
not a dissenting opinion but reflects the additional discussion of one of the Judge of the ICJ.WT/DS34/R
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9.10 The practice of the ICJ indicates that if a decision between the parties to the case can be
reached without an examination of the position of the third state (i.e. in the WTO context, a Member)the ICJ will exercise its jurisdiction as between the parties.  In the present dispute, there are no claims
against the European Communities before us that woul d need to be determined in order for the Panel
to assess the compatibility of the Turkish measures with the WTO Agreement.
249
9.11 It should be noted that there is no WTO concept of "essential parties".  Based on our terms of
reference and the fact that we have decided (as further discussed hereafter) not to examine theGATT/WTO compatibility of the Turkey-EC customs union, we consider that the European
Communities was not an essential party to this dispute; the European Communities, had it so wished,
could have availed itself of the provisions of the DSU, which we note have been interpreted with a
degree of flexibility by previous panels
250, in order to represent its interests.  We recall in this context
that Panel and Appellate Body reports are binding on the parties only.251
9.12 Under WTO rules, the European Communities and Turkey are Members with equal and
independent rights and obligations.  For Turkey, it is not at all inconceivable that it adopted themeasures in question in order to have its own policy  coincide with that of the European Communities.
However, in doing so, it should have been aware, in respect of the measures it has chosen, that its
circumstances were different from those of the European Communities in relation to the Agreement
on Textiles and Clothing ("ATC") and thus could reasonably have been anticipated to give rise to
responses which focussed on that distinction.
9.13 In the context of our concern for due process and pursuant to Article 13 of the DSU, we put a
series of questions to the European Communities  and invited it to comment on any matter it
considered relevant.  The European Communities, while responding to the specific questions, did not
avail itself of the latter opportunity.
252
3. The Need to Exhaust TMB Procedures
9.14 Thirdly, in its request for preliminary rulings, Turkey claimed that India was required to
exhaust the special dispute settlement procedures under the ATC first before it could refer the matter
to the DSB and that consequently, this Panel had not been established properly.253
                                                     
249 We are aware that the ICJ has declined to exerci se its jurisdiction when it concluded that the real
"subject-matter of the dispute" is the legal position of a third country which is not before it. In the Monetary
Gold Removed from Rome in 1943  case, Italy brought a case against the United Kingdom claiming it had
priority over both the British and Albanian claims to the gold in question.  However, Albania took no part in the
dispute.  The ICJ declined to exerci se its jurisdiction because it would have  been necessary to decide upon the
international responsibility of Albania - the very subject-matter of the dispute - without her consent. (See [1954]ICJ Reports, p. 32).  In the Case of East Timor , Portugal complained against Australia concerning a treaty
between Australia and Indonesia for the delimitation of the continental shelf between Australia and Indonesian-occupied East Timor. Indonesia had not been impleaded by Portugal and had not applied for permission tointervene as a third party.  The ICJ declined to exercise  its jurisdiction because it would have had to rule, as a
prerequisite, on the lawfulness of the possession of East Timor by Indonesia, which was not present in the case.
(See [1995] ICJ Reports, pp. 90-106)
250 See for instance the Panel Reports on European Communities – Regime for the Importation, Sale
and Distribution of Bananas , adopted on 25 September 1997, WT/DS27/Rs (" EC -  Bananas III "), paras. 7.4-7.9
and on European Communities – Measures Concerning Meat and Meat Products (EC - Hormones ), adopted on
13 February 1998, WT/DS26, 48/R, paras. 8.12-8.15.
251 Appellate Body Report on Japan – Taxes on Alcoholic Beverages , WT/DS8, 10, 11/AB/R, adopted
on 1 November 1996 (" Japan – Alcoholic Beverages "), p. 13.
252 For further information on the details of this procedure and the Panel's invitation to the European
Communities, see paras. 4.1 to 4.3 above.
253 Turkey's arguments are further detailed in paras. 3.41 to 3.44 , India's arguments are in paras. 3.45
to 3.49 and the third parties' arguments are in para. 3.50 above.WT/DS34/R
Page 104
9.15 On 25 September 1998, the Panel issued the following ruling on this point:
"We note that the special and additional dispute settlement procedures before the Textile
Monitoring Body (TMB) apply when measures are imposed pursuant to the ATC and
that Article 8.1 of the ATC provides that the TMB is established to examine measures
taken under the ATC and their conformity therewith.
We note that Turkey, in its own notifications to the Committee on Regional Trade
Agreements (CRTA) and to the TMB (pursuant to Article 3.3 of the ATC), stated that the
import restrictions at issue were justified and had been introduced pursuant to its
agreement with the EC and in conformity with Article XXIV of GATT 1994.  For
instance, in its 7 November 1997 notification to the TMB (G/TMB/N/308), Turkey wrote
that it was notifying the TMB of the "details of certain quantitative limits introduced by
Turkey in respect of imports of certain textile and clothing products into Turkey from
certain WTO Members, and necessary to give effect to the Customs Union in conformity
with the provisions of Article XXIV of GATT  1994".  We also note that the notification
to the TMB, for its information, was made pursuant to Article 3.3 of the ATC, which
refers to "any new restrictions (…) taken under any GATT 1994 provision".
In our view India's claim under Article 2.4 of the ATC is a reflection of its claims under
GATT 1994.  This is to say that India does not claim a violation of the ATC except in so
far as the ATC, in Article 2.4, prohibits the imposition of restrictions inconsistent withGATT 1994.  Article 2.4 of the ATC provides that all new import restrictions on textile
and clothing products are prohibited, except if justified under the ATC or under GATT
1994.
As noted above, Turkey itself has indicated that its new restrictions on textile and
clothing products are justified under and have been imposed pursuant to Article XXIV ofGATT 1994, and as such can be exempted from the general prohibition against new
restrictions mentioned in Article 2.4 of the ATC.
Since the measures at issue are alleged to have been imposed pursuant to GATT 1994
(and India's claim relates to Turkey's alleged justification pursuant to GATT 1994), we
reject Turkey's in limine litis  request that the TMB should have been seized of the matter
under Article 8 of the ATC prior to its referral to the DSB.  This ruling is without
prejudice to our eventual decision on whether the said measures at issue constitute a
WTO compatible justification pursuant to Article 2.4 of the ATC and other WTO rules."
9.16 In our view, the determination of this case depends on the Panel's assessment of Turkey's
defense that its measures were taken in the context of its customs union with the EuropeanCommunities, and so for Turkey, were authorized by Article XXIV of GATT.  We consider that this
is not a matter for the TMB, whose jurisdiction is limited by Article 8.1 of the ATC to the
examination of measures taken under the ATC and their conformity therewith.  (We address further
the relationship between the role of the TMB and that of panels in paragraphs 9.82 to 9.85).
9.17 In reconsidering our rulings of 25 September 1998, we find no substantive basis to call them
into question.
4. Inadequacy of the Consultations
9.18 Turkey also raised a fourth procedural exception for which it did not request an immediate in
limine litis  ruling by the Panel.  In its first submission, Turkey asserts that India has not sufficientlyWT/DS34/R
Page 105
exhausted the consultations requirements of Article XXII of GATT 1994 and Article 4 of the DSU in
order to bring about a mutually acceptable solution to the dispute.254
9.19 For Turkey, the principle of procedural economy as well as the spirit of the WTO dispute
settlement mechanism require that panel procedures be considered as ultima ratio  means to solve
conflicts between Members for which they are unable to find a negotiated solution. For Turkey, India
failed to comply with this principle and the spir it of the DSU. While Turkey offered to enter into
negotiations on the issues in dispute with India, I ndia refused to enter into such negotiations, in as
much as it refused to deal with the issues in dispute in consultations under Article XXII of GATT.
9.20 India responded255 that on 21 March 1996, it requested formal consultations with Turkey
under the DSU regarding the matter of the unilateral imposition of quantitative restrictions by Turkey
on imports of a broad range of textile and clothi ng products from India as from I January 1996. This
request was accepted by Turkey on 1 April 1996.  In a letter confirming this, Turkey stated that it had
agreed to enter into consultations “on textiles and clothing restrictions applied by Turkey” at a
mutually acceptable time and venue.  Further, Turkey considered that “the European Communities asour partner in the customs union should also be represented in the consultations”.  On 4 April 1996,
India proposed that consultations should be held in Geneva on 18-19 April 1996, and stated that India
could not accept Turkey’s view that the European Communities should participate in these
consultations since, under GATT and WTO practice, consultations under Article XXIII:1 of GATT
1994 were bilateral in nature.  India requested that Turkey confirm the venue and time proposed forconsultations to be held without the participation of the European Communities.   On 16 April 1996,
Turkey replied that “the Turkish authorities would be prepared to hold with their Indian counterparts
the consultations requested by India ... on the understanding that representatives of the European
Communities would also be participating.  This meeting could be held on 18 April 1996 from 3:30
p.m. to 6:00 p.m. as suggested by India”.  India stated that despite this very short notice, it ensured thepresence of its delegation at the consultations but the delegation of Turkey did not attend the
scheduled meeting nor did it provide an explanation for its absence.  India submitted that it sent
another communication to Turkey, on 18 April 1996, proposing to enter into bilateral consultations on
19 April 1996.  When India endeavoured to confirm the date and venue of the consultations, it was
informed that Turkey was not in a position to ente r into these consultations without the participation
of the European Communities, and that this would be conveyed to India in writing by close-of-
business  on 19 April 1996.  India submits that the communication from Turkey, dated 19 April 1996,
was received on 22 April 1996.
9.21 India argued that its recourse to the provisions of GATT 1994 and the DSU regarding
consultations was frustrated.  Its request for bilateral consultations had been made in good faith, infull transparency and with a view to reaching a mutually satisfactory solution.  For India, since
Turkey did not enter into these consultations within the 30-day period provided for in Article 4.3 of
the DSU, Turkey violated Articles 3 and 4 of the DSU, and in particular contravened the provisions of
Article 3.10 of the DSU, and therefore the dispute remained unresolved.
256
9.22 Firstly, we note that in EC – Bananas III  the panel concluded that the private nature of the
bilateral consultations means that panels are normally not in a position to evaluate how the
consultations process functions, but could only determine whether consultations, if required, did infact take place.
257  In this case, the parties never consulted, as Turkey declined to do so without the
presence of the European Communities.
9.23 In Korea – Taxes on Alcoholic Beverages  the panel concluded that:
                                                     
254 Turkey's arguments are further detailed in paras. 6.1, 6.2, 6.5 and 6.6 above.
255 India's arguments are further detailed in paras. 6.3, 6.4, 6.7 to 6.10 above.
256 India added that the DSB was informed of this situation on 24 April 1996; WT/DSB/M/15, para. 3.
257 Panel Report on EC - Bananas III , paras. 7.18-7.19 (not appealed).WT/DS34/R
Page 106
"… the WTO jurisprudence so far has not recognized any concept of "adequacy" of
consultations.  The only requirement under the DSU is that consultations were in factheld, or were at least requested, and that a pe riod of sixty days has elapsed from the time
consultations were requested to the time a request for a panel was made. …  We do not
wish to imply that we consider consul tations unimportant.  Quite the contrary,
consultations are a critical and integral part of the DSU.  But, we have no mandate to
investigate the adequacy of the consultation process that took place between the partiesand we decline to do so in the present case."
258
9.24 We concur with this statement.  We note also that our terms of reference (our mandate) are
determined, not with reference to the request for consultations, or the content of the consultations, but
only with reference to the request for the establishment of a panel.259 Consultations are a crucial and
integral part of the DSU and are intended to facilitate a mutually satisfactory settlement of the dispute,
consistent with Article 3.7 of the DSU.  However, the only function we have as a panel in relation to
Turkey's procedural concerns is to ascertain whether consultations were properly requested, in termsof the DSU, that the complainant was ready to consult with the defendant and that the 60 day period
has lapsed before the establishment of a panel was requested by the complainant.  We consider that
India complied with these procedural requirements and therefore we find it necessary to reject
Turkey's claim.
B. M
AIN CLAIMS OF THE PARTIES
9.25 India claims that the quantitative restrictions imposed by Turkey on imports of textile and
clothing products from India since 1 January 1996 are inconsistent with Articles XI:l and XIII of
GATT and with Article 2.4 of the ATC.  India also claims that Article XXIV does not constitute a
defense to such violations.
9.26 Turkey, in response, claims that the restrictions it applies on imports of nineteen categories of
certain textile and clothing products from India are justified under Article XXIV of GATT, as these
measures were adopted pursuant to (and on the occasion of the formation of) its customs union with
the European Communities.
9.27 Turkey considers that Article XXIV of GATT recognizes that WTO Members have a right to
form customs unions and that this right provides su ch a regional trade agreement with a "shield" from
all other WTO obligations. In the context of invoking Article XXIV of GATT, Turkey argues that its
customs union with the European Communities is consistent with Article XXIV in that 1) the new
regime is overall less restrictive than its previous one, 2) the restrictions challenged by India are of a
temporary nature, 3) the customs union has liberalized Turkey’s trade with third countries, and 4) the
customs union will be deepened further including in the area of trade legislation.  In particular withreference to import restrictions, Turkey argues that 1) Article XXIV:5 provides a derogation from
other GATT provisions in the case of the form ation of a customs union, and 2) GATT does not
prohibit all new restrictions which may be required by customs unions.
9.28 In addition, Turkey argues 1) that these measures constitute a "requirement" (by the European
Communities and also of Article XXIV); that it adopt the European Communities’ common
commercial policy, including the arrangements relating to trade in textiles and clothing; 2) that there
is no GATT-consistent alternative to these restrictions if it wants to include textile and clothingproducts (which constitute 40 per cent of Turkey's exports to the European Communities) in the
                                                     
258 Panel Report on Korea – Taxes on Alcoholic Beverages , upheld by the Appellate Body, adopted on
17 February 1999, WT/DS75, 84/R (" Korea – Alcoholic Beverages "), paras. 10.19, (not appealed).
259 See for instance the Appellate Body Report on EC - Bananas III , paras. 139-144; the Appellate
Body Report on  Brazil - Measures Affecting Desiccated Coconut , adopted on 20 March 1997, WT/DS22/AB/R
("Brazil – Desiccated Coconut "), page 22; and the Appellate Body Report on India – Patent, paras. 86-96.WT/DS34/R
Page 107
customs union; and 3) that in this context, the WTO Agreement makes no distinction between the
formation of a new customs union and accession to an existing customs union.
9.29 Turkey argues that, since it has formed a customs union with the European Communities
which, under the ATC, is entitled to maintain import restrictions on the same 19 categories of textiles
and clothing, Turkey's parallel import restrictions ar e not new restrictions in the sense of Article 2.4 of
the ATC, being justified by Article XXIV.  For Turkey, the said measures are therefore not
inconsistent with Article 2 of the ATC.  Finally,  in its second submission, Turkey claims that India
has not suffered any nullification of benefits, as its exports to Turkey have generally increased since
the entry into force of the customs union.
9.30 In response to Turkey's argument that the provisions of Article XXIV constitute a derogation
or complete defense (possibly as lex specialis ) to all claims, India argues that the obligations under
Articles XI:1 and XIII of GATT and 2:4 of the AT C are not modified by Article XXIV:5(a) of GATT
1994, which, according to India, requires Members forming a customs union not to raise the general
incidence of regulations of commerce imposed on trade with third Members.  As to Turkey'sarguments that it was required to follow the EC commercial policy in the sector of textiles and
clothing and that it had no alternative but to do s o, India responds that the prohibitions of Articles XI
and XIII of GATT and Article 2.4 of the ATC are not modified by Article XXIV:8(a)(ii) of GATT.
For India, pursuant to Article XXIV:8(a)(ii), the European Communities and Turkey could have
maintained different external textile policies at l east for a certain period since their agreement is only
an interim agreement and Turkey has not become a member of the European Communities.  Turkey
claims that its customs union with the European Communities was complete as of 1 January 1996 and
is not an interim agreement or any form of transitional agreement, as defined by Article XXIV.
9.31 In response to Turkey's argument that the Panel should not substitute itself for the CRTA by
examining the WTO compatibility of the Turkey-EC customs union, India agrees that it is notchallenging the consistency of the Turkey-EC trade agreement with Article XXIV.  Instead India
states that it is requesting this Panel to rule that Turkey does not have the right to impose
discriminatory restrictions on imports of textiles and clothing from India, irrespective of whether
Turkey's agreement with the European Communities is consistent with Article XXIV.  In response to
Turkey's allegation that India's rights have not been nullified or impaired by its textile and clothingpolicy, India challenges the accuracy of the statistics submitted by Turkey and argues that, in any
case, Article 3.8 of the DSU establishes that any breach of a GATT obligation constitutes prima facie
impairment and nullification of benefits, which have been considered to include benefits denied due to
changes in competitive opportunities.
C. M
EASURES AT ISSUE
1. Identification of the Measures at Issue
9.32 India claims that the import restrictions in place since 1 January 1996 on 19 categories of
textile and clothing products violate the provisions of Articles XI and XIII of GATT and Article 2.4
of the ATC.260  We invited Turkey to confirm that the quantitative restrictions at issue are those listed
in India's first submission and to provide us with the Official Gazette which published the
establishment of such quantitative restrictions for the years 1996, 1997 and 1998. In response to a
question from the Panel at the second substantive meeting, Turkey acknowledged that the quantitativerestrictions in place correspond to the measures referred to by India in its first submission.  Turkey
noted that those quantitative restrictions had been notified to the WTO, i.e. to the CRTA and to the
TMB.  We conclude that the parties agree that the quantitative restrictions at issue are those listed by
                                                     
260 Turkey, in its in limine litis  preliminary request, claimed that th e product coverage of India's request
was not sufficiently detailed and precise.  In our preliminary ruling of 25 September 1998 we rejected this claim
by Turkey as further detailed in paras. 9.2 and 9.3 above.WT/DS34/R
Page 108
Turkey in its responses to the Panel's various questions on this issue and annexed to the present
findings (see Annex to this report, Appendix 1).
2. Attribution to Turkey of the Measures at Issue
9.33 Although Turkey does not deny the existence of such quantitative restrictions on imports, it
argues that since it duly notified its various trade agreements with the European Communities to the
appropriate bodies of the GATT 1947 and of the WTO, it cannot be held individually liable for these
quantitative restrictions as they result from the implementation of its customs union with theEuropean Communities.  Turkey argues that India has directed its complaint against Turkey
concerning a measure taken by another entity (the Turkey-EC customs union or the European
Communities).  In Turkey’s view, it is not individually responsible for acts that were collectively
taken by the members of the Turkey-EC customs union through the institutions created by the
agreement.
9.34 Turkey submits that the "nationality" of the measures at issue also relates to a fundamental
aspect of the nature of a customs union.  For Turkey, when two Members enter into a customs union,there is a fundamental change in the relationship between them and in their relationship with other
WTO Members.
9.35 We comment briefly below on the issue of the responsibility of parties to a customs union vis-
à-vis  third countries.  As to the question of "whose measures these import quantitative restrictions
are?", three answers are possible:  they are ei ther Turkey's measures, the European Communities'
measures, or the Turkey-EC customs union's measures.
9.36 As to whether the measures at issue are Turkish measures, we note that the measures were
implemented through formal action by Turkey and that the measures were published by Turkey in its
Official Gazette.  The first Turkey-EC joint notification to the TMB refers to "details of certain
quantitative limits introduced by Turkey"
261 and the second one to "details of changes in respect of
quantitative limits applied by Turkey"262 and both notifications list the measures at issue, i.e.
restrictions imposed on 19 categories of textile and clothing products.  In other words, the measures
under examination were enacted, implemented and are now applied, by the Turkish government and
do not impose any obligation on any other national or supranational authorities.  Thus, on their face,
the measures at issue appear to be measures taken by Turkey and enforceable on Turkish territoryonly.
9.37 We also note that the measures are applied by Turkey and that they are mandatory, i.e. they
leave no discretion to Turkish authorities but to enforce the measure. It is customary practice of
GATT/WTO dispute settlement procedures to address applied measures.  In addition, previous
adopted GATT panels have always considered that mandatory legislation of a Member, even if not yetin force or not applied
263, can be challenged by another WTO Member.
                                                     
261 G/TMB/N/308.  In the notification to the WTO the terms used are "details of the quantitative limits
applied by Turkey in respect of imports of certain…", WT/REG22/7.
262 G/TMB/N/326.  In the notification to the WTO the terms used are "details of the quantitative limits
applied by Turkey in respect of imports of certain…"; WT/REG22/8.
263 See for instance the Panel Report on United States – Taxes on Petroleum and Certain Imported
Substances , adopted on 17 June 1987, BISD 34S/136 (" US - Superfund "), paras. 5.2.1-5.2.2; Panel Report on
EEC – Regulation on Imports of Parts and Components , adopted on 16 May 1990, BISD 37S/132, paras. 5.25-
5.26; Panel Report on United States – Measures Affec ting Alcoholic and Malt Beverages , adopted 19 June 1992,
BISD 39S/206, para 5.39.WT/DS34/R
Page 109
9.38 However, in view of Turkey's contention that these import restrictions are measures of
another entity,264 we proceed to address the issue of whether such measures can be those of the
European Communities or of the Turkey-EC customs union.
9.39 While the European Communities also maintain s restrictions against imports from India on
the same 19 categories at issue, it does so pursuant to its "Council Regulation (EEC) 3030/93 on
common rules for imports of certain textile products from third countries", adopted by the Council of
the European Communities on 12 October 1993.265  This regulation applies only to the European
Communities' customs territory.266 It is not enforceable in Turkey as an EC measure as such. On 7
January 1997 the European Communities notified the second stage of its integration programme to take
effect by 1 January 1998; such notifications we re made only with reference to the European
Communities' quota levels (based on their previous 1990 level). 267 Thus, the measures at issue cannot
be considered to be EC measures.  Moreover, the European Communities itself stated that the
measures had been adopted by Turkey, that Turkey itself was ensuring the surveillance of such quotas
at its borders, and that the European Communities and Turkey have their respective systems of bordercontrol.
268
9.40 As to the issue of whether the measures at issue should be considered to be measures of the
Turkey-EC customs union as such, we note that according to the Permanent Court of International
Justice269, the assessment whether any customs union (or another legal entity) has a legal personality
distinct from that of its constituent countries is to be based on an examination of the treaty formingsuch customs union and the relevant circumstances.  Such determination will therefore always be
made on a case by case basis.  We note that the Turkey-EC customs union agreement does not have
any legislative body which would have the constitutional authority to enact laws and regulations that
                                                     
264 See paras. 3.33 and 8.3 above.
265 That regulation was adopted in the context of the MFA; this regulation was later amended in 1995,
Regulation (EC) No. 1616/95 (OJ No. L154, 5.7.1995, p.3) to take into account  Council regulation (EC) No3036/94 establishing economic outward processing arrang ements applicable to certain textiles and clothing
products reimported into the Community after working or processing in certain third countries.  See footnote 14of Decision 1/95 (see WT/REG22/1).
266 See documents G/TMB/N/60, notified on 28 February 1995.
267 In its notification (G/TMB/N/207), the European Communities consistently refers to categories of
product that represent 17.99 per cent of 1990 EC imports (by volume) and therefore does not include any quantitycovering the territory of Turkey.  We note that the letter from European Communities Permanent Representativestated that "The European Community and Turkey form a customs union and have consulted prior to notifyingtheir second stages of integration".  This appears to refer to the consultation process under the Turkey-EC customsunion prior to the identification of which products are to be integrated.  It is also a recognition that each party to the
customs union must adopt its own measures.  (The European Communities' first integration process stage was
notified as G/TMB/N/1.)
268 See para. 4.3 above, third response of the European Communities to the Panel's questions: "There is
thus no specific EC border control in respect of goods for which Turkey has quantitative restrictions , the Turkish
authorities having effected such control on entry of the goods  into free circulation in Turkey" (emphasis added).
To the Panel's fourth question, the European Communities answered: "Turkey has adopted all the European
Communities' relevant regulations concerning imports of textiles … Thus the basic administrative principles  are
the same in both parts of the customs union . … Thus, there is no administration or control of the overall
EC/India and Turkey/India textile and clothing quotas at the EC/Turkey's borders.  Once goods enter thecustoms union pursuant to the parties' respective systems , they are in free circulation… "(emphasis added).
Since Turkey has its own specific quotas and so does the European Communities, Turkey and the European
Communities must control their own import restrictions.  This is to say that Indian textile and clothing products
are not imported into Turkey on the basis of the European Communities' quantitative restrictions on Indianproducts, but rather only on the basis of the Turkish quantitative restrictions on Indian products (through the
issuance of export licenses by India and import licenses by Turkey against the Turkish quota levels).  Onceentered into the customs union, say at the India/Turkey border, the products are described as being able to movefreely into the EC, the same as Turkish products.
269 Customs Regime between Germany and Austria , PCIJ, Series A/B, No. 41, at 49.WT/DS34/R
Page 110
would be, as such, applicable to the territory of  the customs union.  Under the Turkey-EC customs
union, the only institutional body with legislative feat ures is the Association Council, the powers of
which were first defined in the Ankara Agreement.270 Paragraph 1 of Article 22 of the Ankara
Agreement states that the Association Council shall have the power to take decisions.  Although each
of the two parties are "bound to take the steps involved in the execution of the decisions adopted",
these decisions "shall be taken unanimously" (Article 23 of the Ankara Agreement) and there is no
further enforcement process. The Turkey-EC Customs Union Joint Committee can only "carry outexchange of views and information, formulate recommendations to the Association Council and
deliver opinions with a view to ensuring the proper  functioning of the Customs Union" (Article 52 of
the Decision 1/95 of the Turkey-EC customs union).
271  Article 55 imposes on Turkey and the
European Communities the obligation to notify each other of the adoption of any new legislation that
may affect each other or the functioning of the customs union.  Article 58 also envisages the situation
of "discrepancies between Community and Turkish legislation".  This is a recognition that each party
to the customs union may adopt measures, to some extent different, and which may not be fullyconsistent with one another; it provides confirmation of the ability of the parties to act independently
and that Turkey maintains that sovereign right.
272  Since the actions of the Association Council require
independent implementation by the parties to the customs union without any enforcement process
either individually or jointly; since the Association Council cannot force the parties to act273; and since
there is no other provision that would lead us to conclude that either of the two parties, or somecollective entity on behalf of them, could enact legislation applicable to both of them; we consider the
measures at issue taken, implemented and enforced by the Turkish government itself, applied on
Turkish territory only, can only be Turkish measures.
                                                     
270 Paragraph 1 of Article 22 of the Ankara Agreement reads as follows:  "For the achievement of the
aims laid down in the agreement and in the cases covered by the latter, the Association Council shall have thepower to take decisions.  Each of the two parties shall be bound to take the steps involved in the execution of the
decisions adopted.  The Association Council may al so formulate any necessary recommendations" (GATT
document L/2155/Add.1, p. 13).  Article 23 of the Ankara Agreement specifies that both parties are representedin the Association Council and that its decisions "shall be taken unanimously".
271 See WT/REG22/1.
272 The Permanent Court of International Justice (PCIJ) concluded in the Customs Regime between
Germany and Austria , that the wording of the customs union  was determinant as to whether a member lost its
sovereignty.  An example of a customs union where member  states appear to have retained full sovereignty and
independence vis-à-vis  third countries is the customs union between the Czech Republic and the Slovak
Republic.  It can be noted that in such a customs union, the parties have not created any autonomous institutioncapable of enacting legislation or providing for the legal personality of the customs union, independent andautonomous from that of each member state.  Consequently, to take one example, when the Czech Republic andthe Slovak Republic wanted to enter into a free trade agreement with Slovenia, Poland, Hungary and Romania,
each of them (the Czech Republic and the Slovak Republic) signed individually and independently the so-called
CEFTA.  It is not the Czech-Slovak customs union, as an entity, which did so.  The same is also true for therecent free trade agreement between Turkey and Lithuani a, which is parallel to the EC-Lithuania free trade
agreement.  Again it is not the Turkey-EC customs union which concluded one single free trade agreement withLithuania, but the EC and Turkey, individually, signed separate agreements.  As far as the Turkey-EC customunion treaty is concerned, we have already concluded above,  that the institutions existing in the context of  the
customs union do not have the legal capacity to legislate (there is only a provision that any legislation or
measure adopted by either party (the EC or Turkey) must be notified to the other party and consulted upon.)The terms of the Turkey-EC customs union agreement provide no indication of a transfer of sovereignty of themember states either to an institution established unde r the customs union, nor to the EC.  In WTO terms, unless
a customs union is provided with distinct rights and obligations (and therefore some WTO legal personality,
such as the European Communities) each party to the customs union remains accountable for measures it adopts
for application on its specific territory.  See also Jennings, R., Watts, A., Oppenheim's International Law (1996),
9th ed., Vol. 1 (Peace), Introduction and Part 1, p. 255.
273 In the  Reparations for Injuries case, the ICJ stated that, where a group of states claims to be a legal
entity distinct from its members, the test is whether it was in "such a position that it possesses, in regard to itsMembers, rights which it is entitled to ask them to respect."(See ICJ Rep (1949), p. 178 and also Western
Sahara  case (1975), p. 63; see Jennings, R., Watts, A., Oppenheim's International Law (1996), Op.cit ., p. 119.)WT/DS34/R
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9.41 Importantly, we note that the WTO dispute settlement system is based on Member's rights; is
accessible to Members only; and is enforced and monitored by Members only.274  The Turkey-EC
customs union is not a WTO Member, and in that respect does not have any autonomous legal
standing for the purpose of WTO law and therefore its dispute settlement procedures. Moreover, the
European Communities' import restrictions appear a priori  to be WTO compatible and could not be
the object of any panel recommendation that the European Communities brings its measure into
conformity with the WTO Agreement, as required by Article 19 of the DSU.
9.42 Finally, we note that in public international law, in the absence of any contrary treaty
provision,  Turkey could reasonably be held responsible for the measures taken by the Turkey-EC
customs union. In the Nauru case one of the conclusions of Judge Shahabuddeen's separate opinion
was:
"… the [International Law Commission] considered, that where States act through a
common organ, each State is separately answerable for the wrongful act of the common
organ . That view, it seems to me, runs in the direction of supporting Nauru's contention
that each of the three States in this case is jointly and severally responsible for the way
Nauru was administered on their behalf by Australia, whether or not Australia may be
regarded as technically as a common organ. …".275 (Emphasis added.)
9.43 The International Law Commission (ILC) had stated  in its commentaries to its adopted report:
“A similar conclusion is called for in cases of parallel attribution of single course of
conduct to several States, as when the conduct in question has been adopted by an organ
common to a number of States. According to the principles on which the articles of
chapter II of the draft are based, the conduct of the common organ cannot be considered
otherwise than as an act of each of the States whose common organ it is. If that conduct
is not in conformity with an international obligation, then the two or more States willconcurrently have committed separate, although identical, internationally wrongful acts .
It is self-evident that the parallel commission of identical offences by two or more States
is altogether different from participation by one of those States in an internationally
wrongful act committed by the other.”
276 (Emphasis added.)
3. Conclusion
9.44 In light of the foregoing, we conclude that the measures at issue are quantitative restrictions
adopted by the Turkish government in 1996, 1997 and 1998 (and listed in the Annex to this report,
Appendix 2) against 19 categories of textile and clot hing products imported from India.  Even if these
measures are taken in the ambit of a customs union, they are implemented, applied and monitored by
Turkey, for application in the Turkish territory only.  Therefore they are Turkish measures.
                                                     
274 See Appellate Body Report on United States – Import Prohibition of Certain Shrimp and Shrimp
Products , adopted on 6 November 1998, WT/DS58/AB/R (" US – Shrimp "), para. 101.
275 Nauru case, Separate Opinion of Judge Shahabuddeen, at 284. Clark, R., Book review of Nauru:
Environmental Damage Under International Trusteeship (C. Weeramantry), The International Lawyer  Vol. 28,
No. 1, at 186.
276 See the Yearbook of the International Law Commission, 1978, Vol.II, Part Two, at 99.  These
commentaries were adopted by the Commission in its session of 8 May to 28 July 1978.  Article 27 on stateresponsibility to which these commentaries refer was adopted at the ILC session of 6 May to 26 July 1996.These commentaries and the report were submitted in th e same years to the United Nations General Assembly
for its consideration.WT/DS34/R
Page 112
D. S COPE OF THE DISPUTE
9.45 We note that, at least initially, both parties argued explicitly that the Panel should not assess
the compatibility of the Turkey-EC regional trade ag reement with the provisions of Article XXIV.  In
its second submission, however, Turkey argues that the Panel cannot assess the WTO compatibility of
any specific measure adopted in the context of the formation of a regional trade agreement, separately
and in isolation from an assessment of the overall compatibility of this regional trade agreement with
Article XXIV of GATT.
9.46 Turkey's main defense to India's claims of discriminatory quantitative restrictions is that the
measures at issue were adopted as a consequence of its regional trade agreement with the European
Communities which, it argues, is a fully complete customs union explicitly authorized and favoured
by Article XXIV of GATT. For Turkey, Article XXIV of GATT, in allowing the formation of
customs unions, necessarily authorizes measures such as those adopted by Turkey and challenged by
India.  For Turkey, the alignment of its textiles and trade policy with that of the European
Communities is not only an integral part of such Turkey-EC customs union but is inherent andnecessary for its formation in view of the important share of the textile and clothing sector in its trade
with the European Communities.  Turkey argues th at the WTO compatibility of an Article XXIV type
agreement, and all its related measures, is to be determined exclusively with reference to Article
XXIV of GATT (and the 1994 Understanding on Arti cle XXIV) and not by any other provisions of
the WTO Agreement.
9.47 In response to Turkey's defense, India argues that the provisions of Article XXIV do not
constitute a waiver from other WTO obligations, including the general prohibition against
discriminatory import restrictions contained in Articles XI and XIII of GATT and Article 2.4 of the
ATC.
9.48 Turkey's argument has both procedural and substantive aspects.  Firstly, we must decide
whether the WTO dispute settlement proceedings ca n be used to challenge measures adopted by one
or more Members on the occasion of the formation of a customs union in which it (or they)
participate.  Secondly, if so, we must consider the extent to which a panel is authorized or needs to
examine the overall consistency of the customs union with WTO provisions.  Finally, we must
determine whether the test for assessing the WTO compatibility of these specific measures is providedfor in the provisions of Article XXIV only.  If this  is not the case, we will then need to examine the
meaning of the provisions of Article XXIV to assess whether Article XXIV authorizes measures like
those under examination.  We deal with this final determination later in Section G below.
9.49 As to the first issue of whether the WTO dispute settlement procedures can be invoked to
challenge a measure adopted on the occasion of the formation of a customs union, we note paragraph12 of the Understanding on Article XXIV of GATT 1994 which provides:
"12. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and
applied by the Dispute Settlement Unders tanding may be invoked with respect to any
matters arising from the application  of those provisions of Article XXIV relating to
customs unions, free-trade areas or interim agreement leading to the formation of a
customs union or free-trade area." (Emphasis added.)
9.50 We understand from the wording of paragraph 12 of the WTO Understanding on Article
XXIV, that panels have jurisdiction to examine "any matters 'arising from' the application of those
provisions of Article XXIV".  For us, this confirms that a panel can examine the WTO compatibility
of one or several measures "arising from" Article XXIV types of agreement, as also argued by the
United States in its third-party submission.
277  This indicates that, although the right of WTO Members
                                                     
277 See paras. 7.116 to 7.118 above.WT/DS34/R
Page 113
to form regional trade arrangements is "an integral part" of the set of multilateral disciplines of GATT
and now WTO278, the DSU procedures can be used to obtain a ruling by a panel on the WTO
compatibility of any matters arisin g from such regional trade arrangements.  For us, the term "any
matters" clearly includes specific measures adopted on the occasion of the formation of a customs union
or in the ambit of a customs union.
9.51 Thus, we consider that a panel can assess the WTO compatibility of any specific measure
adopted by WTO Members at any time and we cannot  find anything in the DSU, Article XXIV or the
1994 GATT Understanding on Article XXIV that would suspend or condition the right of Members to
challenge measures adopted on the occasi on of the formation of a custom union.
9.52 As to the second question of how far-reaching a panel's examination should be of the regional
trade agreement underlying the challenged measure, we note that the Committee on Regional Trade
Agreements (CRTA) has been established, inter alia , to assess the GATT/WTO compatibility of
regional trade agreements entered into by Members, a very complex undertaking which involves
consideration by the CRTA, from the economic, legal and political perspectives of different Members,of the numerous facets of a regional trade agreement in relation to the provisions of the WTO.
 279 It
appears to us that the issue regarding the GATT/WTO compatibility of a customs union, as such, is
generally a matter for the CRTA since, as noted above, it involves a broad multilateral assessment of
any such custom union, i.e. a matter which concerns the WTO membership as a whole.
9.53 As to whether panels also have the jurisdic tion to assess the overall WTO compatibility of a
customs union, we recall that the Appellate Body stated280 that the terms of reference of panels must
refer explicitly to the "measures" to be examined by panels.  We consider that regional trade
agreements may contain numerous measures, all of which could potentially be examined by panels,
before, during or after the CRTA examination, if  the requirements laid down in the DSU are met.
However, it is arguable that a customs union (or a free-trade area) as a whole would logically not be a"measure" as such, subject to challenge under the DSU.
281
9.54 We consider that the question of whether panels have the jurisdiction to assess the overall
compatibility of a customs union is not in any event an issue on which it is necessary for us to reach a
decision in this case;  we reach this conclusion in light of paragraphs 9.51 to 9.53 above and in
recognition of the principle of judicial economy, as initially developed in the US – Wool Shirts282 case
and qualified by the Appellate Body in the recent Australia – Salmon  case283, under which panels do
not need to address all the claims and arguments raised by the parties to the dispute. We recall the
                                                     
278 See a similar parallel drawn by the Appellate Body in United States – Measures Affecting Imports of
Woven Wool Shirts and Blouses from India , adopted on 23 May 1997, WT/DS33/AB/R (" US – Shirts and
Blouses ") at page 16, concerning the right to use transitional safeguard measures under the ATC.
279 The mandate of the CRTA can be found in WT/L/127.  See para. 2.7 above.
280 Appellate Body Report on  Guatemala – Anti-Dumping Investigation regarding Portland Cement
From Mexico , adopted on 25 November 1998, WT/DS60/AB/R (" Guatemala – Cement "), paras. 76, 86.
281 We are aware of the EC proposal contained in MTN.TNC/W/125 and the report of the 36th Meeting
of the Trade Negotiating Committee MTN.TNC/40.
282 Appellate Body Report on US  – Shirts and Blouses , page 17 .
283 Appellate Body Report on Australia – Measures Affecting Importation of Salmon , adopted on 6
November 1998, WT/DS18/AB/R, para 223: "The principle of judicial economy has to be applied keeping in
mind the aim of the dispute settlement system.  This aim is to resolve the matter at issue and "to secure apositive solution to a dispute".  To provide only a partial resolution of the matter at issue would be false judicialeconomy.  A panel has to address those claims on which a fi nding is necessary in order to enable the DSB to
make sufficiently precise recommendations and rulings so as  to allow for prompt co mpliance by a Member with
those recommendations and rulings "in order to ensure effective resolution of disputes to the benefit of all
Members ." (emphasis added).WT/DS34/R
Page 114
distinction between claims and arguments ( EC – Hormones284) and understand that some latitude is
left to panels to address only arguments that they consider are relevant to resolve the dispute betweenthe parties, which is the main purpose of DSU proceedings.  Accordingly, we find that, in order to
address the claims of India, it will not be necessary for us to assess the compatibility of the Turkey-
EC customs union agreement with Article XXIV as such (in the sense of addressing all aspects of the
customs union and all the measures adopted by Turkey and the European Communities in the context
of their customs union agreement).
9.55 In our view, it will be sufficient for us to address the relationship between the provisions of
Article XXIV and those of Articles XI and XIII of GATT and Article 2.4 of the ATC.  We shall have
to do so as India's claims are based on an alleged violation of those articles,  and Turkey's defense is
based on the application, and, in its view, the "primacy", of Article XXIV over those provisions.  Our
examination will be limited to the question whether in this case, on the occasion of the formation of
the Turkey-EC customs union, Turkey is permitted to introduce WTO incompatible quantitative
restrictions against imports from a third country, assuming arguendo  that the customs union in
question is otherwise compatible with Article XXIV of GATT.  We shall thus limit ourselves to
addressing the parties' arguments submitted in this context only and refrain from any discussion as to
how an overall compatibility assessment of a customs union should be performed.  Our analysis of
Article XXIV is limited to defining, in particular, its relationship with Articles XI and XIII of GATT
(and Article 2.4 of the ATC) and to ensuring that our interpretation of the WTO provisions applicableto the present dispute, does not prevent Turkey from exercising its right to form a customs union.
9.56 We reject therefore Turkey 's argument, in paragraph 9.45 above, to the extent that it would
oblige us to assess the GATT/WTO compatibility of the Turkey-EC customs union in order to assess
the compatibility of the specific measures at issue.
285
E. B URDEN OF PROOF
9.57 The rules on burden of proof are now well established in the WTO and can be summed up as
follows:
(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.286
9.58 It is therefore for India to demonstrate prima facie  that Turkey's measures violate the
provisions of Articles XI and XIII of GATT and Ar ticle 2.4 of the ATC.  Turkey does not deny the
existence of quantitative restrictions but submits an affirmative defense based on the application of
Article XXIV of GATT.  In response to a direct question by the Panel, Turkey stated that it does not
invoke any defense other than that based on Article XXIV in support of its claim that it is not
                                                     
284 Appellate Body Report on European Communities – Measures Concerning Meat and Meat
Products ("EC – Hormones "), adopted on 13 February 1998, WT/DS26, 48/AB/R, paras. 155-156;  see also the
Appellate Body Report on EC - Bananas III , paras. 145-147.
285 We consider that this Turkey-EC regional trade agreement falls under the ambit of Article XXIV for
the purpose of the CRTA's examination.  We are of the view that, for our purposes, 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 ora customs union or an interim agreement leading to a free -trade area or customs union.  We recall that in this
report, we shall refer to the Turkey-EC customs union without any assessment of the WTO nature of this ArticleXXIV type of arrangement.
286 Panel Report on Argentina - Measures Affecting Imports of Footwear, Textile s, Apparel and Other
Items, adopted on 22 April 1998,  WT/DS56/R, paras. 6.34 - 6.40.WT/DS34/R
Page 115
violating Articles XI or XIII of GATT, or Article 2.4 of the ATC.  We note in this context that Hong
Kong, China has argued that since Article XXIV was an exception invoked by Turkey, it was forTurkey to bear the burden of proof.
287
9.59 Accordingly, we will first examine India's claims and the GATT/WTO treatment of import
restrictions generally, and then more specifically in the sector of textiles and clothing.  Secondly, we
shall examine the applicability of Article XXIV and Turkey's defense based, in particular, on
paragraphs 4, 5(a) and 8(a)(ii) of Article XXIV of GATT.
F. C LAIMS UNDER ARTICLES XI AND XIII OF GATT AND ARTICLE 2.4 OF THE ATC
9.60 India claims that the Turkish measures violate the provisions of Articles XI and XIII of
GATT and Article 2.4 of the ATC.  Turkey claims that its rights pursuant to Article XXIV of GATT
prevail over any obligations contained in Articles  XI and XIII of GATT and Article 2.4 of the ATC,
and therefore India's claims should be rejected.
1. Articles XI and XIII of GATT
9.61 The wording of Articles XI and XIII is clear.  Article XI provides that as a general rule (we
note the wording of the title of Article XI:  " General Elimination  of Quantitative Restrictions"), WTO
Members shall not use quantitative restrictions against imports or exports.
"Article XI
General Elimination of Quantitative Restrictions
1. No prohibitions or restrictions other than duties, taxes or other charges,
whether made effective through quotas, import or export licences or other measures,
shall be instituted or maintained by any Member on the importation of any product of the
territory of any other Member or on the exportation or sale for export of any product
destined for the territory of any other Member."
9.62 Article XIII provides that if and when quantitative restrictions are allowed by the
GATT/WTO, they must, in addition, be imposed on a non-discriminatory basis.
"Article XIII
Non-discriminatory Administration of Quantitative Restrictions
1. No prohibition or restriction shall be applied by any Member on the
importation of any product of the territory of any other Member or on the exportation ofany product destined for the territory of any other Member, unless the importation of the
like product of all third countries or the exportation of the like product to all third
countries is similarly prohibited or restricted."
9.63 The prohibition on the use of quantitative restrictions forms one of the cornerstones of the
GATT system.  A basic principle of the GATT system is that tariffs are the preferred and acceptableform of protection.  Tariffs, to be reduced through reciprocal concessions, ought to be applied in a
non-discriminatory manner independent of the origin of the goods (the "most-favoured-nation"
(MFN) clause).  Article I, which requires MFN treatment, and Article II, which specifies that tariffs
                                                     
287 See para. 7.7 above.  We note that Japan, Thailand and the Philippines also identified Article XXIV
as an exception:  see Japan's arguments in para. 7.23, Thailand's arguments in para. 7.100 and the Philippines'
arguments in para. 7.36 above.WT/DS34/R
Page 116
must not exceed bound rates, constitute Part I of GATT.  Part II contains other related obligations,
inter alia  to ensure that Members do not evade the obligations of Part I.  Two fundamental obligations
contained in Part II are the national treatment clause and the prohibition against quantitative
restrictions. The prohibition against quantitative restrictions is a reflection that tariffs are GATT's
border protection "of choice".  Quantitative restrictions impose absolute limits on imports, while
tariffs do not.  In contrast to MFN tariffs which permit the most efficient competitor to supply
imports, quantitative restrictions usually have a trade distorting effect, their allocation can beproblematic and their administration may not be transparent.
9.64 Notwithstanding this broad prohibition against quantitative restrictions, GATT contracting
parties over many years failed to respect comple tely this obligation.  Fr om early in the GATT, in
sectors such as agriculture, quantitative restrictions were maintained and even increased to the extent
that the need to restrict their use became central to the Uruguay Round negotiations.  In the sector of
textiles and clothing, quantitative restrictions were maintained under the Multifibre Agreement
(further discussed below).  Certain contracting parties were even of the view that quantitativerestrictions had gradually been tolerated and accepted as negotiable and that Article XI could not be and
had never been considered to be, a provision prohibiting such restrictions irrespective of the
circumstances specific to each case.  This argument was, however, rejected in an adopted panel report
EEC – Imports from Hong Kong .
288
9.65 Participants in the Uruguay Round recognized the overall detrimental effects of non-tariff
border restrictions (whether applied to imports or exports) and the need to favour more transparent
price-based, i.e. tariff-based, measures; to this end they devised mechanisms to phase-out quantitative
restrictions in the sectors of agriculture and textiles and clothing.  This recognition is reflected in the
GATT 1994 Understanding on Balance-of-Payments Provisions289, the Agreement on Safeguards290,
the Agreement on Agriculture where quantitative restrictions were eliminated291 and the Agreement
on Textiles and Clothing (further discussed be low) where MFA derived restrictions are to be
completely eliminated by 2005.
9.66 The measures at issue, on their face, impose quantitative restrictions on imports and are
applicable only to India.292  We consider that, given the absence of a defense by Turkey (other than its
defense based on Article XXIV of GATT) to India's claims that discriminatory import restrictionshave been imposed, India has made a prima facie  case of violation of Articles XI
293 and XIII of
GATT.
                                                     
288 Panel Report on EEC – Quantitative Restrictions Against Imports of Certain Products from Hong
Kong,  adopted on 12 July 1983, BISD 30S/129, (" EEC – Imports from Hong Kong ").
289 See for instance paras. 2 and 3 of the GATT 1994 Understanding on the Balance-of-Payments
Provisions which provide that Members shall seek to avoid the imposition of new quantitative restrictions for
balance-of-payments purposes.
290 The Agreement on Safeguards also evidences a preference for the use of tariffs.  Article 6 provides
that provisional safeguard measures "should take the form of tariff increases" and Article 11 prohibits the use ofvoluntary export restraints.
291 Under the Agreement on Agriculture, notwithstanding the fact that contracting parties, for over 48
years, had been relying a great deal on import restrictions and other non-tariff measures, the use of quantitative
restrictions and other non-tariff measures was proh ibited and Members had to pr oceed to a "tariffication"
exercise to transform quantitative restrictions into tariff based measures.
292 We note, however, that Turkey maintains other quantitative restrictions against textiles and clothing
imports from other countries on the same and/or other products; see para. 6.12 above.  See also WT/REG22/7.
293 We note that the measures at issue do not qualify for any of the exceptions under Article XI of
GATT.WT/DS34/R
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2. Article 2.4 of the ATC294
9.67 India claims that the measures under examination violate Article 2.4 of the ATC, in that they
constitute new measures not authorized by the ATC and for which there is no GATT justification.
Turkey claims that the measures under examination are not new, since the European Communities had
similar restrictions in place when Turkey and th e European Communities formed their customs union,
and such restrictions are justified by Article XXIV of GATT.
(a) Regulatory framework of the ATC9.68 The ATC provides for a maximum transitional period of ten years for the integration of all
remaining quantitative restrictions in the sector of textiles and clothing that had been maintained
under the old Multifibre Arrangement ("MFA").  Article 2 is the core of the ATC
295 and contains two
key requirements for the transitional process that leads to the re-integration of the textiles and clothing
sector into the general rules of GATT 1994.  Paragraph 1 of Article 2 of the ATC requires that all
former MFA or MFA-type restraints be notified to the TMB in order to be carried over into the ATC.
Article 2.6 to 2.11, sets out the procedures for the progressive integration of the products covered bythe ATC into GATT 1994 rules and disciplines.  The ATC provides therefore exceptions to the
general prohibitions contained in Articles XI and XIII against discriminatory quantitative restrictions
in allowing some Members (those who had MFA restri ctions in place and who have notified the TMB
within 60 days of the entry into force of the WTO Agreement) to maintain such restrictions for  a
maximum period of 10 years.  In that sense the MFA defined the reach of the general prohibitionagainst quantitative restrictions in the area of textiles and clothing.
9.69 The lists of restrictions notified pursuant to Article 2.1 set the starting point for the treatment
of the restraints carried over from the former MFA regime.  Four WTO Members notified the TMB
pursuant to Article 2.1 of the ATC:  Canada, the European Communities, Norway and the United
States.  We consider that the notification requirement  of 60 days referred to in Article 2.1 of the ATC is
mandatory both for formal and substantive reasons.  The wording of Article 2.1 is unequivocal with the
use of the term "shall".  Moreover, since the purpose of the ATC is to provide exceptions to the general
application of Articles XI and XIII of GATT during an integration period to be completed by 1 January
2005, these exceptions should be interpreted narrowly.
296  Stemming from this provision, only the four
Members above had the right to and did notify measures which allowed them to maintain MFA-derivedquantitative restrictions for a maximum period of 10 years during which import quotas must increase
annually until the products they cover are integrated into GATT.  In the absence of an exception under
                                                     
294 In interpreting the ATC and its importance in the WTO Agreement, it should also be clear from the
object and purpose of the ATC, and from the well-known circumstances of the conclusion of the Uruguay
Round, that the phasing out of the textile and clothing restrictions was a fundamental component of the WTOAgreement for developing countries.
295 As discussed in paras. 2.25 to 2.30 above, trade in this sector of textile and clothing products was
governed by special regimes outside the normal GATT rules:  the Short Term Arrangement RegardingInternational Trade in Cotton Textile s (STA) in 1961, the Long Term Arrangement Regarding International
Trade in Cotton Textiles (LTA) from 1962 to 1973 and  the Arrangement Regarding International Trade in
Textiles, also known as the Multifibre Arrangement or MFA, from 1974 to 1994.  These special regimesessentially allowed for an extensive and complex system of bilateral import and export restrictions. The ATCprovides for a set of rules, the purpose of which is that through a transitional process, embodied in the ATC, thissector is to be fully integrated into WTO rules by 1 January 2005.  The two main avenues used by the ATC are
1) mandatory annual level increases of remaining quantitative restriction and 2) and an integration process by
stages of all textile and clothing products into the general GATT rules.
296 See for instance in Panel Report on Indonesia – Certain Measures Affecting the Automobile
Industry , adopted 23 July 1998, WT/DS54, 55, 59 and 64/R, (" Indonesia – Autos ") (Not appealed), para. 14.92,
where the period allowed for notification to the TRIMS Committee under Article 5 of the TRIMS Agreement, inorder for a Member to benefit from the transition provisions of the TRIMS Agreement, was considered
mandatory.WT/DS34/R
Page 118
the ATC or a justification under GATT, no new quant itative restrictions introduced by a Member can
benefit from the exceptions provided for in Article 2.1 of the ATC after this 60 day period.
9.70 Article 2.4 of the ATC provides that:
"4. The restrictions notified under paragraph 1 shall be deemed to constitute the
totality of such restrictions applied by the respective Members on the day before the
entry into force of the WTO Agreement.  No new restrictions in terms of products or
Members shall be introduced except under the provisions of this Agreement or relevantGATT 1994 provisions.
297  Restrictions not notified within 60 days of the date of entry
into force of the WTO Agreement shall be terminated forthwith."
9.71 The prohibition on "new restrictions" must be interpreted taking into account the preceding
sentence:  "The restrictions notified under paragraph 1 shall be deemed to constitutes the totality of
such restrictions  applied by the respective Members on the day before the entry into force of the
WTO Agreement". The ordinary meaning of the words indicates that WTO Members intended that as
of 1 January 1995, the incidence of restrictions under the ATC could only be reduced.  We are of theview that any legal fiction whereby an existing restriction could simply be increased and not
constitute a "new restriction", would defeat the clear purpose of the ATC which is to reduce the scope
of such restrictions, starting from 1 January 1995 (but for the exceptional situations referred to in
Article 2.4 of the ATC).  Thus, we consider that, setting aside the possibility of exceptions and
justifications mentioned in Article 2.4 of the ATC, any increase of an ATC compatible quantitativerestriction notified under Article 2.1 of the ATC, constitutes a "new" restriction.
9.72 On 28 February 1995 (therefore within the 60 day period of Article 2.1 of the ATC), the
European Communities notified its previous  restrictions maintained under the MFA.
298  This notification
referred to restrictions applicable  only to EC territory.  After the period of 60 days (under Article 2 of
the ATC) the European Communities is prohibited from notifying any new restrictions or changes to
existing and notified restrictions, except adopted in compliance with the ATC or any other provisions of
GATT 1994.  Apart from these special cases the European Communities is not entitled to notify any
increase of its MFA derived restrictions.  Immediatel y before the date of the entry into force of the
ATC, Turkey was a member of the Multifibre Arrangement (as an exporting country) and did not
maintain any restrictions pursuant to Article 4 of the MFA or notified under Article 7 or 8 of the MFAin force on the day before the entry into force of the WTO Agreement.  Since Turkey did not have any
MFA restrictions in place, it could therefore not ma ke any notification pursuant to Article 2.1 of the
ATC.  Accordingly, any restrictions on textiles and clothing applied by Turkey appear on their face to be
"new", as defined in Article 2.4 of the ATC with re ference to those countries who had MFA restrictions
and notified them within 60 days.
(b) Quantitative restrictions permitted under the ATC
9.73 The ATC allows new restrictions in the case of safeguard measures (Article 6 of the ATC) or
pursuant to Articles 2.14 and 7 of the ATC when a Member does not comply with the requirements of
the agreement.  We note that there is no provision in the ATC for general exceptions or security
exceptions nor any other provisions on regional trade agreements.
9.74 We note that on 27 February 1995
299 Turkey notified the first stage of its integration programme
to the TMB; in doing so Turkey is entitled, pursuan t to Article 6.1 of the ATC, to make use of the
special safeguard mechanism.  It should be noted that under the ATC the right to maintain MFA
                                                     
297 [Footnote original]The relevant GATT 1994 provisions shall not include Article XIX in respect of
products not yet integrated into GATT 1994, except as  specifically provided in paragraph 3 of the Annex.
298 G/TMB/N/60.
299 G/TMB/N/44.WT/DS34/R
Page 119
derived quantitative restrictions and the integration process by stages are not related.  The provisions
of the ATC make clear that the fact that a product has not yet been re-integrated into the generalGATT rules does not in any manner imply a right to introduce new import restrictions under Article
2.1 of the ATC on such products.  The main benefit for Members resulting from the notification of an
integration programme within 6 months of the entry in to force of the WTO Agreement, is the use of the
special safeguard mechanism under the ATC.  There is no relation between the safeguard provisions of
the ATC and the right to introduce new quantitative restrictions under Article 2.1 of the ATC.  On 27December 1996, Turkey notified the second stage of its integration programme
300to take effect on 1
January 1998.  On the same day, Turkey also notified, early, the provisions of the third stage of its
integration programme301 to take effect on 1 January 2003.  All these notifications relate to imports of
textiles and clothing into Turkey only.  (We also not e that the products covered by the measures at issue
are not listed therein.)
(c) The Turkish measures under the ATC - are these new measures?
9.75 Article 3.3 of the ATC provides for notification of "new restrictions" or "changes in existing
restrictions".  It reads as follows:
"3. During the duration of this Agreement, Members shall provide to the TMB, for
its information, notifications submitted to any other WTO bodies with respect to any new
restrictions or changes in existing restrictions  on textile and clothing products, taken
under any GATT 1994 provision, within 60 days of their coming into effect." (emphasisadded)
9.76 In their joint communication dated 7 November 1997
302, Turkey and the European
Communities notified the TMB pursuant to Article 3.3 of the ATC:
"In addition Turkey and the European Communities have the honour to copy to the
Chairman of the Textiles Monitoring Body for information a communication to theChairman of the Committee on Regional Trade Agreements (CRTA) annexed to which
are details of certain quantitative limits introduced by Turkey  in respect of imports of
certain textile and clothing products into Turkey from certain WTO Members, and
necessary to give effect to the Customs Union in conformity with the provisions of
Article XXIV of GATT 1994." (emphasis added)
9.77 On 6 May 1998, the European Communities and Turkey sent a second notification under
Article 3.3 of the ATC to the TMB,
303 which reads as follows:
"Turkey and the European Communities … concerning details of changes in respect of
the quantitative limits applied by Turkey  in respect of imports of certain textile and
clothing products from certain WTO Members in conformity with its commitmentsarising out of the customs union and with the provisions of Article XXIV of
GATT 1994." (Emphasis added.)
9.78 In light of Article 3.3 of the ATC, Turkey (and the European Communities) must consider
that these measures are either "new" or "changes" to existing restrictions.  As discussed above,
304 the
measures at issue can only be considered to be, in WTO terms, Turkish measures.  Since Turkey did
not have any restrictions in place on 1 January 1995 that it could change, any such import restriction
                                                     
300 G/TMB/N/228.
301 G/TMB/N/240.
302 G/TMB/N/308.
303 G/TMB/N/326.
304 See para. 9.44 above.WT/DS34/R
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is, by definition, "new" for Turkey in the sense of the ATC.  In this regard we cannot accept Turkey's
argument that its measures are not new because the European Communities (its customs unionpartner) had a similar measure in place.  Conceivably, a change of geographical coverage could
constitute a "change" to an "existing" restriction (as could be the case on the occasion of an
enlargement of a customs union - an issue which in this case we do not need to address).  But since
the measures at issue were introduced and are applied by Turkey,
305 and in view of our previous
conclusion that the measures at issue are not EC measures but Turkish measures,306 Turkey's
quantitative restrictions cannot be considered to  be changes to the existing EC restrictions.
9.79 We need, however, to examine the possibility of exceptions or justifications under Article 2.4
of the ATC and whether, any such Turkish measures could otherwise be legitimized in the context of
the application of an Article XXIV type of agreement, escaping thereby the prohibition of Article 2.4
of the ATC against the introduction of new restrictions.
9.80 In the absence of any ATC justification claimed for the Turkish measures and given the
reference to Article XXIV in the Article 3.3 notification, it would seem that any such justificationmust be based on Article XXIV.  We address below whether the formation of a customs union
presents an opportunity to adopt measures which would otherwise be WTO incompatible, (unless, as
noted by India, these are inherent to the very conclusion of the customs union.)  We also consider the
argument that if a WTO compatible measure was already in place for one Member forming the
customs union, the other constituent member(s), in an effort to harmonize their trade policies, may beauthorized to introduce a similar restriction, thereb y legitimizing what would otherwise constitute a
new restriction in the sense of the ATC.  In Section G below, we shall develop our interpretation of
the language of Article XXIV and the flexibility it may provide to Members forming such a customs
union, namely in their efforts to adopt "substantially the same duties and other regulations of
commerce".  This possibility would not, in our view, change the nature of the restrictions at issue as
being "new restrictions" in the sense of Article 2.4 of the ATC, in so far as Turkey is concerned.  It
remains to be decided whether Article XXIV authorizes the introduction of such new ATC
restrictions.
9.81 Therefore, at this stage of our analysis, we consider that the measures at issue are new
measures in the sense of Article 2.4 of the ATC.
(d) Jurisdiction of the TMB versus that of the Panel
9.82 We refer to our preliminary ruling on the jurisdiction of the TMB in paragraph 9.15 above.  In
order to consider the claim of India under Article 2.4 of the ATC (and following our preliminary
ruling of 25 September 1998), we now address furt her the issue of the relationship between the
jurisdiction of the Panel and that of the TMB.  We consider, based on the interpretation by theAppellate Body in Guatemala – Cement
307 with regard to the relationship between the DSU and the
Antidumping Agreement, that the provisions of the ATC (providing jurisdiction to the TMB to
examine measures applied pursuant to the ATC) and the provisions of the DSU (providing jurisdiction
for panels to interpret any covered agreement,  including the ATC) may both apply together.
Therefore even if the TMB has jurisdiction to determine what constitutes a "new" measure in the
sense of the ATC and whether a violation of the ATC has taken place, we remain convinced that a
panel is entitled to interpret the ATC to the extent necessary to ascertain whether Turkey benefitsfrom a defense to India's claims under Articles XI and XIII of GATT based on the provisions of the
ATC.
                                                     
305 See also the European Communities' responses to the Panel's questions, referred to in footnote 268
above and paras. 4.2 and 4.3 above, where it was said by the European Communities that Turkey itself ensuresthe surveillance of its own quantitative restrictions at the Turkey/India border.
306 See paras. 9.33 to 9.44 above.
307 Appellate Body Report on Guatemala – Cement, para. 75.WT/DS34/R
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9.83 We consider, in any case, that the measures under examination are not measures applied
pursuant to the ATC itself and therefore the ATC cannot provide such a defense.  As discussed above,the ATC authorizes some exceptions to the general prohibitions against import restrictions contained
in Articles XI and XIII of GATT (e.g., existing MFA restrictions  notified within 60 days of the entry
into force of the WTO Agreement (Article 2), safeguard measures pursuant to Article 6 of the ATC
and measures adopted in the context of Articles 7 and 2.14 of the ATC).
9.84 On their face, the introduction of the Turkish measures do not correspond to any of the above
situations, as noted also by Thailand in its third party submission
308.  We note that the ATC does not
contain any provision dealing with regional trade agreements or any other general or specific
exceptions.  We conclude that in the present case, as acknowledged by the parties,309 the measures at
issue do not benefit from any circumstances specified in the ATC that would prevent the application
of Article 2.4 of the ATC or Articles XI and XIII of GATT.  We note also that Turkey has notified the
said import restrictions to the TMB under Article 3.3 of the ATC which refers explicitly to "new
restrictions or changes … taken under any GATT 1994 provision".  Article 3.4 of the ATC suggeststhat the ATC envisages that non-ATC matters (such as those notified under Article 3.3 and the reverse
notification pursuant to Article 3.4) will be d ealt with "under relevant GATT 1994 provisions or
procedures in the appropriate WTO body".  Turkey does not claim that it benefits from an exemption
to the prohibitions of Articles XI and XIII of GATT that is contained in the ATC, but rather one that
derives from Article XXIV. It appears to us that th e matter at issue involves a GATT provision rather
than the ATC.  The fact that the products under examination are textiles and clothing does not imply
that it is the ATC exclusively which deals with the measures at issue.  In fact GATT rules are
generally applicable to all textile and clothing products and the ATC is applicable by exception
principally to allow the maintenance for a limited period of time of MFA-derived quantitative
restrictions and the use of the special safeguard mechanism.
9.85 Turkey's main defense is that its measures were adopted in the context of the formation of a
customs union and are compatible with Article XXIV wh ich is the only applicable provision.  Clearly
the interpretation of Article XXIV is not a matter covered by the provisions of the ATC, and could not
fall under the exclusive jurisdiction of the TMB.
310  Having decided that the measures under
examination are Turkish measures and not EC measures, we find that the ATC does not provide anyexception to the prohibitions against quantitative restrictions contained in Articles XI and XIII of
GATT.
3. Conclusions on India's claims under Articles XI and XIII of GATT, and Article 2.4 of
the ATC
9.86 Consequently, unless the measures under examination are justified by Article XXIV (Turkey's
defense that we examine below) they are inconsistent with the provisions of Articles XI and XIII of
GATT and they would necessarily violate also Article 2.4 of the ATC.
311
                                                     
308 See paras. 7.76 and 7.77 above.
309 See para. 6.26 (for Turkey) and paras. 3.47 and 3.48 (for India) above.
310 We recall the provisions of Article 8.1 of the ATC:  " In order to supervise the implementation of
this Agreement, to examine all measures taken under this Agreement and their conformity therewith, and to take
the actions specifically required of it by this Agreement, the Textiles Monitoring Body ("TMB") is herebyestablished …".
311 The Panel is aware of the Appellate Body statement in EC - Bananas III that when two provisions
are both applicable, a panel should pr oceed to apply the more specific provision first.  However, such an
exercise is not necessary here as what is examined is the relationship between Article XXIV and quantitative
restrictions (either under Articles XI and XIII of GATT or the ATC).WT/DS34/R
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G. T URKEY 'S DEFENSE BASED ON ARTICLE XXIV OF GATT
9.87 We shall now proceed to examine Turkey's defense based on the application of Article XXIV
and determine whether it rebuts what appears to be prima facie  evidence of violations of Articles XI
and XIII of GATT and Article 2.4 of the ATC.
9.88 Turkey argues that the measures at issue do not violate Articles XI and XIII of GATT or
Article 2.4 of the ATC because they were implemented in relation to the formation of its customs
union with the European Communities, which it cons iders to be compatible with the provisions of
Article XXIV of GATT.  For Turkey, the provisions of Article XXIV are concerned with the scope of
application of GATT, both generally and in particular circumstances.  As such, Article XXIV should
not be regarded as a "justification", a "defense", an  "exception" or a "waiver".  In Turkey's view, the
special nature of Article XXIV is evidenced by the fact that Article XXIV is in Part III of GATT, and
not in Part II together with other provisions on commercial policies.  For Turkey, Article XXIV,
paragraphs 5 to 9, is to be viewed as lex specialis  for the rights and obligations of WTO Members at
the time of formation of a regional trade agreemen t.  In other words, in Turkey's view, the WTO
consistency of the measures challenged by India depends on the WTO consistency of the Turkey-EC
customs union (of which they are an integral part) and the WTO consistency of both the customs
union and its measures is to be determined with reference to the provisions of paragraphs 5 to 9 of
Article XXIV only and no other GATT provisions.
9.89 India considers that all GATT rules define the limits of applicability of the GATT.  India is of
the view that, if Turkey’s argument were accepted, Members forming a customs union could legally
circumvent the WTO procedural and substantive requirements  with respect to quantitative restrictions,
which the signatories of the WTO agreements agreed to permit only in exceptional circumstances.  In
respect of such Members, the WTO agreements could no longer operate as a legal framework
providing effective assurances of market access and the WTO dispute settlement procedures would berendered ineffective.
9.90 In order to analyze Turkey's arguments, which we consider are properly labelled a defense
312
to India's claims, we firstly recall certain basic interpretative principles applicable in WTO dispute
settlement proceedings.  Secondly, we examine the provisions of Article XXIV generally.  Thirdly,
we consider the meaning of Article XXIV:5 and, finally that of Article XXIV:8, which constitute theheart of Turkey's defense to India's claims.
1. General Interpretative Principles
(a) Vienna Convention on the Law of Treaties
9.91 In its examination of Article XXIV, the Panel is guided by the principles of interpretation of
public international law (Article 3.2 of the DSU) which include Articles 31 and 32 of the ViennaConvention on the Law of Treaties (VCLT).  As provided for in these articles and as applied by
panels and the Appellate Body, we interpret the provisions of Article XXIV using first the ordinary
meaning of the terms of that provision, as elaborated upon by the 1994 Understanding on Article
XXIV, in their context and in light of the object and purpose of the relevant WTO agreements.  If
need be, to clarify or confirm the meaning of these provisions, we may refer to the negotiating history,
including the historical circumstances that led to the drafting of Article XXIV of GATT.  We note
also the prescription of Article XVI:1 of the WTO Agreement which provides that "… the WTO shall
                                                     
312 We note, from our research, that during the negotiation of Article XXIV, participants typically
referred to Article XXIV as an "exception" for customs unions and free-trade areas.  See also footnote 287
above.WT/DS34/R
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be guided by the decisions, procedures and customary practices followed by CONTRACTING
PARTIES to GATT 1947 and the bodies established in the framework of GATT 1947".313
(b) WTO rules on conflicts
9.92 As a general principle, WTO obligations are cumulative and Members must comply with all
of them at all times unless there is a formal "conflict" between them.  This flows from the fact that the
WTO Agreement is a "Single Undertaking".314  On the definition of conflict, it should be noted that:
"… a conflict of law-making treaties arises only where simultaneous compliance with the
obligations of different instruments is impossible. ... There is no conflict if the
obligations of one instrument are stricter than, but not incompatible with, those of
another, or if it is possible to comply with the obligations of one instrument by refraining
from exercising a privilege or discretion accorded by another."315
9.93 This principle, also referred to by Japan in its third party submission,316 is in conformity with
the public international law presumption against conflicts which was applied by the Appellate Body in
Canada – Periodicals317 and in EC – Bananas III318, when dealing with potential overlapping
coverage of GATT 1994 and GATS, and by the panel in Indonesia – Autos319, in respect of the
provisions of Article III of GATT, the TRIMs Agreement320 and the SCM Agreement.321   I n
Guatemala –  Cement322, the Appellate Body when discussing the possibility of conflicts between the
provisions of the Anti-dumping Agreement323 and the DSU, stated:  "A special or additional provision
should only be found to prevail  over a provision of the DSU in a situation where adherence to the one
provision will lead to a violation of the other provision, that is, in the case of a conflict  between
them."
9.94 We recall the Panel's finding in Indonesia – Autos , a dispute where Indonesia was arguing that
the measures under examination were subsidies and therefore the SCM Agreement being lex specialis,
was the only "applicable law" (to the exclusion of other WTO provisions):
"14.28 In considering Indonesia’s defence that there is a general conflict between the
provisions of the SCM Agreement and those of Article III of GATT, and consequently
that the SCM Agreement is the only applicable law, we recall first that in public
international law there is a presumption against  conflict.324  This presumption is
                                                     
313 See Appellate Body Report on Japan – Alcoholic Beverages , p. 14.
314 See the Appellate Body statement in Brazil – Desiccated Coconut , page 12.  The WTO is a single
undertaking except for the plurilateral agreements for the non-signatories.
315 Wilfred Jenks, “The Conflict of Law-Making Treaties”, The British Yearbook of International Law
(1953) at  p. 426-427.
316 See para. 7.22 above.
317 Appellate Body Report on Canada – Certain Measures Concerning Periodicals , adopted on 30 July
1997, WT/DS31/AB/R, (" Canada -  Periodicals "), page 19.
318 Appellate Body Report on EC - Bananas III , paras. 219-222.
319 Panel Report on Indonesia – Autos , para. 14.28.
320 The Agreement on Trade-Related Investment Measures.
321 The Agreement on Subsidies and Countervailing Measures.
322 Appellate Body Report on  Guatemala – Cement , para.65.
323 The Agreement on the Implementation of Article VI of GATT 1994.
324 [Footnote original]In international law for a conflict to exist between two treaties, three conditions
have to be satisfied. First, the treaties concerned must ha ve the same parties.  Second, the treaties must cover the
same substantive subject matter. Were it otherwise, there would be no possibility for conflict.  Third, theprovisions must conflict, in the sense that the provisions must impose mutually exclusive obligations. “...[T]echnically speaking, there is a conflict when two (or more) treaty instruments contain obligations which
cannot be complied with simultaneously. ...  Not every such divergence constitutes a conflict, however. ...
Incompatibility of contents is an essential condition of conflict”. (7 Encyclopædia of Public International LawWT/DS34/R
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especially relevant in the WTO context325 since all WTO agreements, including GATT
1994 which was modified by Understandings when judged necessary, were negotiated atthe same time, by the same Members and in the same forum.  In this context we recall
the principle of effective interpretation
326 pursuant to which all provisions of a treaty (and
in the WTO system all agreements) must be given meaning, using the ordinary meaning
of words."
9.95 In light of this general principle, we will consider whether Article XXIV authorizes measures
which Articles XI and XIII of GATT and Article 2.4 of the ATC otherwise prohibit.  In view of the
presumption against conflicts, as recognized by panels and the Appellate Body, we bear in mind that
to the extent possible, any interpretation of these provisions that would lead to a conflict between
them should be avoided.
(c) Principle of effective interpretation
9.96 Finally we would also like to recall the principle of effective interpretation327 whereby all
provisions of a treaty must be, to the extent possible, given their full meaning so that parties to such atreaty can enforce their rights and obligations effectively.  We note that the Appellate Body has
referred to this principle on several occasions.
328  We understand that this principle of interpretation
                                                                                                                                                                    
(North-Holland 1984), page 468).  The lex specialis derogat legi generali  principle “which [is] inseparably
linked with the question of conflict”(Idem., page 469) between two treaties or between two provisions (one
arguably being more specific than the other), does not apply if the two treaties “.. deal with the same subject
from different points of view or [is] applicable in diff erent circumstances, or one provision is more far-reaching
than but not inconsistent with, those of the other” (Wilfred Jenks, “The Conflict of Law-Making Treaties”, The
British Yearbook of International Law (BYIL) 1953, at 425 et seq. ). For in such a case it is possible for a state
which is a signatory of both treaties to comply with both treaties at the same time.  The presumption against
conflict is especially reinfo rced in cases where separate agreements are concluded between the same parties,
since it can be presumed that they are meant to be co nsistent with themselves, failing any evidence to the
contrary.  See also E.W. Vierdag, “The Time of the "Conclusion" of a Multilateral Treaty: Article 30 of the
Vienna Convention on the Law of Treaties and Related Provisions  ”, BYIL, 1988, at 100; Sir Robert
Jennings/Sir Arthur Watts (ed.), Oppenheim's International Law, Vol. I., Parts 2 to 4, 1992, at 1280; Sir Gerald
Fitzmaurice, “The Law and procedure of the International Court of Justice”,  BYIL , 1957, at 237; Sir Ian
Sinclair, The Vienna Convention on the Law of Treaties, 1984, at 97.
325 [Footnote original]In this context we note that the WTO Agreement contains a specific rule on
conflicts which is however limited to conflicts between a specific provision of GATT 1994 and a provision ofanother agreement of Annex 1A. We do not consider this interpretative note in this section of the report because
we are dealing with Indonesia’s argument that there is a general conflict between Article III and the SCMAgreement, while the note is concerned with specific conflicts between a provision of GATT 1994 and a
specific provision of another agreement of Annex 1A.
326 [Footnote original]"This would correspond to the ruling of the Appellate Body when it stated that a
treaty may not be interpreted so as to reduce whole clauses to “inutility”.  See footnote 649 supra ."
327 The principle of effective interpretation or "l'effet utile" or in latin ut res magis valeat quam pereat
reflects the general rule of interpretation which requires that a treaty be interpreted to give meaning and effect toall the terms of the treaty.  For instance one provision should not be given an interpretation that will result in
nullifying the effect of another provision of the same treaty.  For a discussion of this principle see also the
Yearbook of the International Law Commission, 1966, Vol II A/CN.4/SER.A/1966/Add.1 p. 219 and following.
See also E.g., Corfu Channel  Case, (1949) I.C.J. Reports, p. 24; Territorial Dispute  Case (Libyan Arab Jamahiriya
v. Chad), (1994) I.C.J. Reports, p. 23; Oppenheim's International Law  (9th ed., Jennings and Watts eds., 1992),
Volume 1, 1280-1281; P. Dallier and A. Pellet, Droit Inte rnational Public, 5è éd. (1994) para. 17.2; D. Carreau,
Droit International (1994), para. 369.
328 See for instance the statement of the Appellate Body in  United States – Standards for Reformulated
and Conventional Gasoline , adopted on 20 May 1996, WT/DS2/AB/R (" US – Gasoline "):"An interpreter is not
free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy orinutility"; also the Appellate Body Report on Japan – Alcoholic Beverages, p. 12; Appellate Body Report on
United States – Restrictions on Imports of Cotton and Man-Fibre Underwear , adopted on 25 February 1997,
WT/DS24/AB/R, p. 16.WT/DS34/R
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prevents us from reaching a conclusion on the claims  of India or the defense of Turkey, or on the
related provisions invoked by the parties, that would lead to a denial of either party's rights orobligations.
2. Overview of Article XXIV of GATT
9.97 In examining of Article XXIV, we are well aware that regional trade agreements have greatly
increased in number and importance since the establishment of GATT 1947 and today cover a
significant proportion of world trade.
329  We have also undertaken a detailed analysis of the
negotiating history of Article XXIV.  We note that the wording of Article XXIV is of sub-optimal
clarity and has been the object of various, sometimes opposing, views among individual contracting
parties and Members and in the literature.  We are also aware that the economic and political realities
that prevailed when Article XXIV was drafted, have evolved and that the scope of regional trade
agreements is now much broader than it was in 1948.  Pursuant to the Vienna Convention on the Law
of Treaties, we begin our analysis of the terms of Article XXIV together with those of GATT 1947,
GATT 1994, the 1994 Understanding on Article XXIV in their context and in the light of the objectand purpose of the WTO Agreement, GATT, the AT C and the relevant provisions on regional trade
agreements.
9.98 As a means of increasing freedom of trade, Article XXIV recognizes that, subject to certain
conditions, customs unions and free-trade areas between WTO Members are desirable.  To this end
Article XXIV provides for the possibility that Members forming a customs union may depart, as tothe trade between themselves, from the most-favoured nation principle, in conformity with the
conditions of Article XXIV.
330  There are a number of indications of the broad desirability of Article
XXIV agreements as a means of increasing freedom of trade.  For example, paragraph 4 of Article
XXIV provides that:
"The Members recognize the desirability of increasing freedom of trade by the
development, through voluntary agreements, of closer integration between economies of
the countries parties to such agreements."
9.99 Similarly, the preamble of the GATT 1994 Understanding on Article XXIV, which was added
to GATT 1994 as a result of the Uruguay Round, reiterates that:
"such contribution to the expansion of world trade may be made by closer integration
between the economies of the parties to such agreements".
9.100  This is also reflected in paragraph 7 of the Singapore Ministerial Decision:331
"7. We note that trade relations of WTO Members are being increasingly
influenced by regional trade agreements, which have expanded vastly in number, scope
and coverage.  Such initiatives can promote further liberalization and may assist least-developed, developing and transition economies in integrating into the international
trading system."
9.101  This recognition of the desirability of regional trade agreements is not without qualification,
however.  Article XXIV:4 appears also to recognize that some of these agreements may have
detrimental effects and therefore the rest of paragraph 4 of Article XXIV provides:
                                                     
329 We refer to our discussion in paras. 2.2 to 2.9 above.
330 We note in this context the statement of the Appellate Body in EC - Bananas III , para. 191: "Non-
discrimination obligations apply to all imports of like products, except when these obligations are specificallywaived or are otherwise not applicable as a result of the operation of specific provisions of the GATT 1994,such as Article XXIV".
331 See WT/MIN(96)/DEC.WT/DS34/R
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"They also recognize that the purpose of a customs union and a free-trade area should be
to facilitate trade between constituent territories and not to raise barriers to the trade of
other Members with such territories ." (emphasis added)
9.102  This is reiterated in the preamble of the GATT 1994 Understanding on Article XXIV which
provides that:
"Reaffirming  that the purpose of such agreements should be to facilitate trade between
the constituent territories and not to raise barriers to the trade of other Members with
such territories ;  and that in their formation or en largement the parties to them should to
the greatest possible extent avoid creating adverse effects on the trade of other
Members;" (emphasis added)
9.103  The terms of Article XXIV thus confirm that WTO Members have a right, albeit conditional,
to conclude regional trade agreements.
9.104  In this regard, Article XXIV:5 provides that:
"Accordingly, the provisions of this Agreement [GATT 1994] shall not prevent, as
between the territories of Members, the formation of a customs union or of a free-trade
area or the adoption of an interim agreement necessary for the formation of a customs
union or of a free-trade area; Provided that … :"
9.105  We note that, at the very beginning of Article XXIV:5, the use of the word "Accordingly"
indicates that the conditional right to form a regional trade agreement has to be understood andinterpreted within the parameters set out in paragraph 4, since the word "Accordingly" refers back to
that paragraph, which is the only paragraph addressing customs unions and free-trade areas in Article
XXIV that precedes paragraph 5.  Thus, the purpose of such a regional trade agreement "should be to
facilitate trade between constituent territories and not to raise barriers to the trade of other Members
with such territories " (emphasis added).  In addition, we note that paragraphs 5 (in its proviso), 6 and
8, in particular, contain requirements that such agreements must meet.  We consider these
requirements in more detail later.
9.106  With the intent of enabling Members as a whole to monitor the formation of such regional
trade agreements, Article XXIV:7 provides that:
"(a) Any Member deciding to enter into a customs union or free-trade area, or an
interim agreement leading to the formation of such a union or area, shall promptly notify
the Members and shall make available to  them such information regarding the proposed
union or area as will enable them to make such reports and recommendations to
Members as they may deem appropriate."
332 (emphasis added)
Paragraph 7 of the GATT 1994 Understanding on Article XXIV provides that:
                                                     
332 The rest of paragraph 7 reads:  "( b)  If, after having studied the plan and schedule included in an
interim agreement referred to in paragraph 5 in consultation with the parties to that agreement and taking due
account of the information made available in accordance w ith the provisions of sub-paragraph (a), the Members
find that such agreement is not likely to result in the formation of a customs union or of a free-trade area within
the period contemplated by the parties to the agreement or that such period is not a reasonable one, the Membersshall make recommendations to the parties to the agreement.   The parties shall not maintain or put into force, as
the case may be, such agreement if they are not prepared to modify it in accordance with these
recommendations."WT/DS34/R
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"Review of Customs Unions and Free-Trade Areas
7. All notifications made under paragraph 7(a) of Article XXIV shall be
examined by a working party in the light of the relevant provisions of GATT 1994 and of
paragraph 1 of this Understanding.  The working party shall submit a report to the
Council for Trade in Goods on its findings in this regard. The Council for Trade in
Goods may make such recommendations to Members as it deems appropriate."
9.107  Traditionally in GATT, regional trade agreements were examined by working parties.  In the
WTO, such agreements are now examined by the Committee on Regional Trade Agreements
(CRTA).333  In the history of GATT, except in the case of the 1994 customs union between the Czech
Republic and the Slovak Republic, the CONTRACTING PARTIES were never able to conclude
whether or not a regional trade agreement was fully compatible with GATT.  Today, under the WTO,
Members have yet to conclude that a regional trade agreement is in full compliance with the WTO
Agreement.  In short, virtually all working party reports on regional trade agreements have been
inconclusive.334
9.108  We note also that Article XXIV:10 of GATT provides for the possibility of an approval by
WTO Members of a regional trade agreement that would not be fully compatible with the provisions
of Article XXIV, if such a proposed regional trade agreement respects the key provisions of Article
XXIV ("provided that such proposals lead to the fo rmation of a customs union or a free-trade area in the
sense of this Article").
3. Article XXIV:5(a)
(a) Arguments of the parties
9.109  Turkey claims that Article XXIV:5 of GATT 1994 authorizes the formation of a customs
union, as defined by Article XXIV:8(a), provided that the conditions of Article XXIV:5(a) are met.
Turkey argues that the provisions of Article XXIV:5(a) should be read as permitting, at the time of thecompletion of a customs union, the introduction of restrictive regulations of commerce to the trade of
third countries, provided that the overall incidence of duties and other regulations of commerce was
not higher or more restrictive after the completion of the customs union than before. Turkey claims
that the overall incidence of duties and other regulations of commerce of the constituent members of
the Turkey-EC customs union is not higher or more restrictive after the completion of the customsunion than before.
9.110  In Turkey's view, the fact that Article XXIV does not prohibit Members from introducing new
restrictions is confirmed in the last sentence of paragraph 2 of the GATT 1994 Understanding on
Article XXIV, which states, inter alia , that:
“for the purposes of the overall assessment of the incidence of other regulations of
commerce for which quantification and aggregation are difficult, the examination of
individual measures, regulations, products covered and trade flows affected may be
required”.
                                                     
333 The examination of regional trade agreements is subject to the same law and similar modalities as
they were under GATT; see para. 2.7 above.
334 This is in part due to the GATT/WTO practice of decision-making by consensus whereby the
consensus of contracting parties (including the parties to the regional trade agreement) was needed for a
recommendation to be made in terms of Article XXIV:7(a).  The impossibility for GATT CONTRACTINGPARTIES and still today, WTO Members, to reach any such conclusion is also due, inter alia , to disagreement
on the interpretation of Article XXIV.WT/DS34/R
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9.111  For Turkey, if it had been the intention of Members to ban the imposition of new quantitative
restrictions whenever a customs union was being instituted, the reference to "other regulations ofcommerce" in Article XXIV:5 would have been a redundant provision.
9.112  Turkey further argues that the derogation envisaged by Article XXIV:5 is not limited to a
particular GATT rule, but encompasses all those rules from which a derogation is necessary to permit
the formation of customs unions.  In support of this argument, Turkey notes that the opening clause of
Article XXIV:5 is drafted in language similar to the language used in the opening clause of ArticleXX: "the provisions of this Agreement shall not prevent the formation of customs unions provided
that …".  For Turkey, this wording demonstrates that the derogation refers to all the provisions of the
GATT, and not just to those contained in Article II, which are more specifically mentioned in Article
XXIV:6.
335
9.113  For India, the terms of Article XXIV:5 do not provide a legal basis for measures otherwise
incompatible with GATT/WTO rules.  This provision merely authorizes the formation of a customs
union or free-trade area, nothing else.  Its terms consequently exempt from the other obligations underthe GATT only measures inherent in the formation of a customs union or a free-trade area.  For
instance, a customs union or a free-trade area could only be formed by the granting of preferential
treatment inconsistent with Article I and Article XXIV clearly provides a justification therefor.
However, customs unions and free-trade areas could be formed without the introduction of new
quantitative restrictions on imports from third Member s inconsistent with Article XI of GATT.  There
is, in particular, nothing that requires Members forming a customs union to impose new restrictions
on imports from one particular third Member, inconsistently with Articles XI and XIII of GATT and
Article 2.4 of the ATC.
9.114  India also refers the Panel to Article XXIV:6, as part of the context of paragraph 5, which
recognizes that on the occasion of the creation of a customs union, tariff bindings may be increased.India argues that there is no corresponding mechanism for renegotiation and compensation for
Members affected by the introduction or increase of quantitative restrictions which are otherwise
WTO incompatible.  For India, this is a logical consequence of the principle that increasing tariffs is
not as such WTO incompatible, as tariffs are negotiable (and renegotiable under Article XXVIII),
whereas quantitative restrictions are in general prohibited and may only be imposed in circumstancesnarrowly defined in the WTO agreements. Given that rules governing quantitative restrictions are
fundamentally different from the rules governing tariffs, there is no basis to apply Article XXIV:6 by
analogy to quantitative restrictions.  Moreover, for India, paragraph 4 of the GATT 1994
Understanding on Article XXIV makes it explicit that paragraph 6 of Article XXIV establishes the
procedures to be followed when a Member forming a custom union proposes to increase a bound rateof duty.  Had the Uruguay Round negotiators meant to extend Article XXIV:6 to quantitative
restrictions, they would have formulated this provision accordingly.
9.115  According to Turkey, it could not be inferred from  the fact that Article XXIV:6 only refers to
increases of customs duty rates that the intention behind Article XXIV:5(a) is to prohibit the
introduction of restrictive measures as part of a common regulation of commerce of a customs union.
For Turkey, such an interpretation would be diff icult to reconcile with Article XXIV:5(a), which
provides a test for the GATT consistency of a customs union requiring, inter alia , that regulations of
commerce of a customs union shall not on the whole be more restrictive than the regulations of
commerce applicable in the constituent territories prior to the formation of the customs union.  For
Turkey, it would make little sense to provide for an evaluation of the overall incidence of regulations
of commerce if, as India asserts, the regulations  of commerce of the Turkey-EC customs union cannot
be determined by pre-existing restrictive measures applied by the European Communities.
                                                     
335 In this context, Turkey recalls that it had offered to enter into negotiations to address India’s
concerns with regard to the change in its external trade regime, but that India had not wished to participate in
such negotiations.WT/DS34/R
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(b) Analysis of Article XXIV:5(a)
(i) Ordinary meaning of the terms of Article XXIV:5(a)9.116  Article XXIV:5(a) provides as follows:
"5. Accordingly, the provisions of this Agreement shall not prevent , as between the
territories of contracting parties, the formation of a customs union  or of a free-trade area
or the adoption of an interim agreement necessary for the formation of a customs union
or of a free-trade area; Provided that:
(a) with respect to a customs union, or an interim agreement leading to a formation
of a customs union, the duties and other regulations of commerce imposed at the
institution of any such union or interim agreement in respect of trade with contracting
parties not parties to such union or agreement shall not on the whole be higher or more
restrictive than the general incidence of the duties and regulations of commerce
applicable in the constituent territories prior to the formation of such union or the
adoption of such interim agreement, as the case may be;" (emphasis added)
9.117  With respect to tariffs, paragraph 2 of the GATT 1994 Understanding on Article XXIV makes
it clear that it is the level of the "applied duties" that are to be taken into account by Members in their
"evaluation under paragraph 5(a) of Article XXIV":
"For this purpose the duties and charges to be taken into consideration shall be the
applied rates".
9.118  By requiring an examination of changes in app lied duties, the provisions of Article XXIV:5(a)
are made unambiguously distinct from those in Article XXIV:6, since the level of applied duties, unlike
bound tariffs, is not regulated in the WTO framework of rights and obligations.  Since the analysis of
applied duties is a basic tool in appraising the im pact of actual border barriers on trade opportunities, we
consider that the requirement of an overall assessm ent of the incidence of duties based on applied duties
clearly points at the economic nature of the assessment under paragraph 5(a).
9.119  The same conclusion is applicable in relation to the overall assessment of the incidence of
other (non-tariff) regulations of commerce, in respect of which paragraph 2 of the Understanding on
Article XXIV provides:
"… It is recognized that for the purpose of the overall assessment of the incidence of
other regulations of commerce for which quantification and aggregation are difficult, the
examination of individual measures, regulations, products covered and trade flows
affected may be required."
9.120  Thus, the terms of paragraph 5(a) of Article XXIV, as elaborated upon and clarified by the
GATT 1994 Understanding on Article XXIV, provide for an "economic" test for assessing whether aspecific customs union is compatible with Article XXIV. In the context of the overall assessment of
the potential trade impact of any such customs union, (a task envisaged to be performed by the WTO
membership through the CRTA
336), duties and all regulations which existed in one or more of the
constituent members and/or form part of the customs union treaty must be taken into account.  While
there is no agreed definition between Members as to the scope of this concept of "other regulations of
commerce", for our purposes, it is clear that this concept includes quantitative restrictions.  More
broadly, the ordinary meaning of the terms "other regulations of commerce" could be understood to
                                                     
336 In this respect we note the standard terms of reference used by the Council for Goods for examining
regional trade agreements, as set out in WT/REG3/1.WT/DS34/R
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include any regulation having an impact on trade (such as measures in the fields covered by WTO
rules, e.g. sanitary and phytosanitary, customs valuation, anti-dumping, technical barriers to trade; aswell as any other trade-related domestic regulation, e.g. environmental standards, export credit
schemes).  Given the dynamic nature of regional trade agreements, we consider that this is an
evolving concept.
9.121  We note that the language of paragraph 5(a) of Article XXIV  is general and not prescriptive.
While it authorizes the formation of customs unions, it does not contain any provision that eitherauthorizes or prohibits, on the occasion of the formation of a customs union, the adoption of import
restrictions otherwise GATT/WTO incompatible, by any of the parties forming this customs union.
For example, the terms of paragraph 5(a) do not pe rmit or prohibit or otherwise regulate increases of
bound tariffs, which is an issue dealt with in para graph 6 of Article XXIV.  Rather, paragraph 5(a)
provides for an economic assessment (to be perform ed by the WTO membership as a whole) of the
overall effect of the applied tariffs and other re gulations of commerce resulting from the formation of
the customs union.
337  While the wording of paragraph 5(a) assumes that, as a result of a customs union,
some (applied) duties may be higher, and/or other re gulations of commerce may be more restrictive than
before, it does not specify whether such a situ ation may occur only through GATT/WTO consistent
actions or may occur through GATT/WTO inconsistent actions.  What paragraph 5(a) provides, in short,
is that the effects of the resulting trade measures and policies of the new regional agreement shall not be
more trade restrictive, overall, than were th e constituent countries' previous trade policies.
9.122  In other words, we consider that the terms of paragraph 5(a) do not  address the GATT/WTO
compatibility of specific measures that may be a dopted on the occasion of the formation of a new
customs union.  We note that the standard terms of reference used by the CRTA for the examination of
regional trade agreements confirm that the CRTA, in  its overall assessment, shall not determine the
WTO compatibility of specific measures.338  The terms of Article XXIV:5(a) only provide that, for a
customs union to be compatible with Article XXIV of GATT and the 1994 GATT Understanding on
Article XXIV, the overall impact of the applied ta riffs and other regulations of commerce resulting from
the formation of the customs union must not be more restrictive than that of its constituent members
prior to its formation.
9.123  It is important to emphasize that this interpretation does not render paragraph 5(a) a nullity,339 as
suggested by Turkey.  In terms of our reading of para graph 5(a), it continues to play an important role in
ensuring that the occasion of the formation of a cu stoms union is not used to increase trade barriers
overall, even if the parties' previous concessions allowed such an increase (e.g., in the case of increased
applied rates below tariff levels bound by all parties).  Indeed, that purpose is in fact emphasized by the
focus on "applied", and not on bound, tariff rates.
                                                     
337 The assessment, with respect to applied tariffs, is based on two comparable trade-weighted averages
of applied tariffs, calculated by the Secretariat in acco rdance with the methodology described in paragraph 2 of
the Understanding:  (a) an average representing the pre-customs union situation; and (b) another averagereflecting the situation just after the formation of the customs union.  To compute the figure under (a), allapplied tariffs (by tariff line) of all parties to the customs union are averaged using - as weights - thecorresponding values of their imports from non-preferential origins; the figure under (b) is obtained byaveraging the tariffs (to be) applied by the customs union, using the same values as trade weights.
338 "This implies that a working party established to examine a notification under paragraph 7(a) of
Article XXIV has the mandate to examine the incidence and restrictiveness of all duties and regulations of
commerce, in particular those governed by the provisions of the Agreements contained in Annex 1A of the WTOAgreement .  However, it should be kept in mind that the purpose of an examination in the light of paragraph 5(a)
of Article XXIV would not be to determine whether each individual duty or regulation existing or introduced on
the occasion of the formation of a customs union is consistent with all provisions of the WTO Agreement ;  it would
be to ascertain whether on the whole the general incidence of the duties and other regulations of commerce hasincreased or become more restrictive.", Understanding read out by the Chairman of the Council for Trade in Goods- 20 February 1995, WT/REG3/1 (emphasis added).
339 See our discussion on the general rule of effective interpretation in para. 9.96 above.WT/DS34/R
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(ii) The immediate context of Article XXIV:5(a)
9.124  Our interpretation of the terms of Article XXIV:5(a) is supported by their context.  That context
in the first place consists of the other provisions of Article XXIV relating to regional trade agreements.
Article XXIV:5(b)
9.125  Our interpretation of paragraph 5(a) is also supported by the similar wording contained in
paragraph 5(b) in relation to free-trade areas.  In paragraph 5(b), which is concerned with free-trade
areas, it is stated that "… the duties and other regulations of commerce maintained in each  of the
constituent territories … shall not be higher or more restrictive than the corresponding duties and
other regulations of commerce existing in the same constituent territories …" (emphasis added).  We
note that the terms of paragraph 5(b) are very similar to those in paragraph 5(a).  In free-trade areas,
however, constituent members are not required to harmonize their other trade regulations with third
countries.  Therefore, constituent members of a free-trade area could not argue that the terms of
paragraph 5(b) would authorize them to violate other provisions of the WTO Agreement in their
efforts to harmonize their external trade policies, since they are not required to do so.  Consequently,we see no basis for arguing that the terms of paragraph 5(a) authorize constituent members of a
customs union to adopt GATT-inconsistent measures.  The same terms being used in paragraphs 5(a)
and 5(b) should not lead to different interpretations.
Article XXIV:4
9.126  We also note that Article XXIV:4 provides that  the purpose of a customs union should not be to
raise barriers to the trade of other Members.  While not expressed as an obligation, paragraph 4 (and its
elaboration in the fifth paragraph of the Pream ble of the GATT 1994 Understanding on Article XXIV)
argues against an interpretation of paragraph 5(a) that would read into that paragraph an exception to
GATT rules that prohibit specific trade barriers.  This  view is also expressed by Japan and Hong Kong,
China in their third party submissions.
340  With the use of the term "Accordingly", the language of
paragraph 4 is specially relevant to the application and interpretation of the provisions in paragraph 5,
and argues against any interpretation in favour of exceptions or deviations (not elsewhere foreseen) to
the general GATT prohibition against the use of quantita tive restrictions.  This is also noted by the
Philippines.341
Article XXIV:6
9.127  Furthermore, Article XXIV:6 provides that if a Member "proposes to increase any rate of
duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall
apply".  Thus, in the adoption of the common external tariff of a customs union, compensation is due
if a pre-existing tariff binding is exceeded.  We note that there is no parallel provision to compensate
Members for the introduction of quantitative restrictions.  In our view, this is the case becausequantitative restrictions are generally prohibited by GATT/WTO, while increases of tariffs above their
bindings, if re-negotiated, are WTO compatible.
9.128  We also consider that this reference to Article XXVIII in Article XXIV provides evidence of
the application of the other GATT provisions to measures adopted on the occasion of the formation of
a customs union.  The purpose of such specific reference to Article XXVIII, is to allow for the re-
negotiation of the tariff bindings outside the time and prior notification constraints of Article XXVIII
(including Article XXVIII bis and the GATT 1994 Understanding on Article XXVIII).
                                                     
340 See Japan's argument in para. 7.21 and Hong Kong, China's argument in para. 7.10 above.
341 See para. 7.43 above.WT/DS34/R
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Article XXIV:8
9.129  Another element relating to the context is the scope and ordinary meaning of the terms of sub-
paragraph 8(a)(ii) which define how Me mbers forming a customs union should act vis-à-vis  third
country Members.  For our analysis of Article XXIV: 8(a) we refer to our discussion in paragraphs 9.142
to 9.169 below, where we address Turkey's argument that it is required to adopt the EC's commercial
trade policy including quantitative restrictions in  the sector of textile and clothing products.
Article XXIV in Part III of GATT
9.130  An additional element relating to the context is the fact that Article XXIV is found in Part III of
GATT, a section of GATT distinct from Part I and Part II. Part I contains the main foundations of
GATT: the most-favoured nation clause (Article I) a nd the tariff commitments or bindings (Article II).
Part II contains a set of disciplines, the purpose of  which is mainly to ensure the effectiveness of the
tariff commitments.  This is evident from the prohibition against quantitative restrictions (Article XI)
and the national treatment obligation (Article III).  We note that Article XXIV is not listed with thegeneral exceptions (Article XX) or the security exception (Article XXI), both of which are in Part II.
9.131  Turkey concludes from the positioning of Article XXIV in Part III, that Article XXIV
constitutes a self-contained regime for the forma tion of regional trade agreements, i.e. if the
requirements of Article XXIV are met, other GATT rules do not apply to measures related to the
formation of a customs union.
9.132  We note that Part III contains different types of provisions, some of a more ins titutional nature
(Article XXV for instance), others dealing with Me mbers' basic rights, such as Article XXVIII, and
Article XXIV.  We also note that Article XXIV itself deals with various elements such as the territorial
application of GATT, frontier tr affic and customs unions and free-trade areas.  We have examined
thoroughly the negotiating history of Article XXIV which, however, is not instructive in this respect.There is no text associated with Part III that suggests that it is fundamentally different from Part II,
although Parts II and III entered into force at different dates.
342  In the Havana Charter, the provisions on
regional trade agreements were included in the commercial policy chapter in a section on special
provisions (among which were the general exceptions  found today in Article XX of GATT).  Yet we are
not aware that the provisions of the Havana  Charter on customs unions were thought to be
fundamentally different from those of GATT.  We can  read that the drafters were of the view that
customs unions and free-trade areas (a concept that cam e in later in the negotiations) were of the nature
of this so-called "exception" but the discussions ar e not illuminating on the scope or even the nature of
this provision and the relevance of its "locatio n" in the GATT.  We hesitate to draw from this
examination the conclusion proposed by Turkey.
9.133  Moreover, the interpretation advanced by Turkey which pertains to propose a test as to the
treatment of measures that are associated with th e "formation" of a customs union, is problematic.  The
temporal and substantive breadth of this concept w ould be crucial to the interpretation of Article XXIV
under Turkey's argument, yet Article XXIV does not define such a concept.343  There are important
                                                     
342 We recall also that in the European Communities – Measures Affecting the Importation of Certain
Poultry Products, adopted on 23 July 1998, WT/DS69/7, the Appellate Body concluded that the prohibitions
contained in Article XIII were applicable to negotiations  taking pace pursuant to Article XXVIII, a provision
also contained in Part III of GATT.  Clearly provisions of Part III of GATT do not in themselves argue for adistinct regime from those contained in Part II of GATT.
343 What would be the minimum required scope for measures to qualify as being part of the "formation"?
Would all measures that lead to, or are alleged to lead to , harmonization of policies be covered?  Should there be a
minimum or maximum time-frame to determine such "formation" period? Should the formation be required to
correspond to any announced transitional period of interim agreements?WT/DS34/R
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difficulties in relation to the interpretation of the te rm "formation" when considered in relation to the
present case.344  For us this argument of Turkey is not substantiated and we therefore reject it.
(iii) Conclusion based on the ordinary meaning of the terms and their immediate context
9.134  We shall examine the wider context of Article XXIV:5(a) and 8(a) as well as the object and
purpose of GATT and the WTO Agreement, together with the practice of GATT CONTRACTING
PARTIES and WTO Members with regard to these provisions, after our examination of the wording
of Article XXIV:8(a).  So far, based on the ordinary meaning of the terms and their immediatecontext, we find that the language of Article XXIV:5(a) is not prescriptive as to whether a specific
measure may be adopted on the occasion of the forma tion of a customs union.  From the terms of Article
XXIV:5(a) and their immediate context, we find that  there is a basis for the provisions of the sub-
paragraph 5(a) to be informed by, and interpreted consistent with, the language of paragraph 4 against
the raising of trade barriers.  Consequently, we find that there is no legal basis in Article XXIV:5(a) for
the introduction of quantitative restrictions othe rwise incompatible with GATT/WTO; the wording of
sub-paragraph 5(a) does not authorize Members forming a customs union to deviate from theprohibitions contained in Articles XI and XIII of GATT or Article 2.4 of the ATC.  We find that the
terms of sub-paragraph 5(a) provide for a prohibi tion against the formation of a customs union that
would be more restrictive, on th e whole, than was the trade of its constituent members (even in
situations where there are no WTO-incompatible measures).
4. Article XXIV:8
(a) Arguments of the parties
9.135  Turkey submits also that Article XXIV:8(a)(ii) requires it to apply to third countries the same
regulations of commerce, including import restrictions as those applied by the European Communities
to the same third countries, since the term regulations of commerce  has traditionally been interpreted
as incorporating quantitative restrictions.
345  For Turkey, this is precisely the reason why Article 12 of
Decision 1/95 unequivocally envisages the wholesale adoption by Turkey of the European
Communities' Common Commercial Policy Instruments, as well as the European Communities'
Customs Code, in the area of textiles and clothing products, prior to the completion of the customs
union.  Article 12(1) specifies the external trade measures to be adopted by Turkey towards third
countries, which constituted the critical mass of commercial policy regulations applied by theEuropean Communities and appropriate measures are envisaged to prevent trade diversion to the
European Communities over Turkey's customs territory.
9.136  In India's view, however, Article XXIV:8(a) merely defines the requirements to be fulfilled
by a regional trade agreement to qualify as a customs union within the meaning of Article XXIV
346.
This provision could not reasonably be interprete d to imply that Members, in fulfilling that
requirement, are entitled to ignore their WTO obligations, such as those prohibiting import restrictions
from third Members.  For India, Article XXIV:4 makes it clear that the purpose of a customs union is
not to raise barriers to the trade of third countries.
9.137  India notes that while Turkey claims it is obliged by Article XXIV:8 to adopt common
quantitative restrictions with the European Communities for textiles and clothing products, it is also
claiming the right to follow divergent trade policy pr actices and to adopt different instruments in other
                                                     
344 We note that Turkey's first agreement with the European Communities was signed on 12 September
1963; see paras. 2.10 to 2.13 above.  We note in passing that this situation is not unusual and reflects the reality ofthe ways in which Article XXIV type agreements are negotiated and presented to the WTO Members.  But it isalso evident that the present wording of Article XXIV on interim agreements is not adequate and does not reflectthe present realities of the way regional trade agreements are negotiated and presented to the CRTA.
345 See BISD 35S/293, para. 45.
346 See India's argument in para. 6.86 and Turkey's response in para. 6.94 above.WT/DS34/R
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areas.  India notes in this respect differences inter alia  in external trade policies on agriculture, steel
and other sensitive industrial products, as well as in relation to anti-dumping, countervailing andsafeguards measures.  India also adds that there is additionally no requirement that Members fulfil the
requirements of Article XXIV:8(a) immediately.
9.138  For Turkey, India's interpretation of Articles XXIV:5 and XXIV:8(a)(ii) is overly restrictive.
Turkey is of the view that any interpretation of Article XXIV which could lead to the conclusion that
in certain circumstances, WTO Members with diverging external trade regimes were legally inhibitedfrom forming a customs union, is in contradiction with the objective clearly stated in Article XXIV:4.
9.139  Turkey submits further that, since, in order to qualify as a customs union, the Turkey-EC
customs union must cover substantially all trade - as required by Article XXIV:8(a)(i) - it has
obviously to cover trade in textiles and clothing products, which represents 40 per cent of Turkey's
exports to the European Communities.  For such trade in textiles and clothing to be covered, the
constituent members of the Turkey-EC customs union must have common tariffs and a common
foreign trade regime with other countries in accorda nce with Article XXIV:8(a)(ii).  For Turkey, such
common regulation of commerce, as determined by restrictive measures which the European
Communities applies in conformity with WTO rules, must cover goods imported into the Turkey-EC
customs union via Turkey.  For Turkey, there is no alternative: in the context of the formation of its
customs union with the European Communities, it was required to adopt the European Communities'
external trade policy in textile and clothing products.
9.140  We understand that Turkey is referring to two different requirements: 1) the requirement that
it adopt the European Communities' external textile policy in order to form a customs union
compatible with Article XXIV:8(a)(ii), and 2) the requirement in its specific customs union agreement
with the European Communities that it adopt that  European Communities' policy.  We shall examine
the second requirement in paragraphs 9.178 to 9.182 of this Panel report.
(b) Analysis of Article XXIV:8(a)
9.141  We note Turkey's arguments that if it wants to exercise its right to form a customs union with
the European Communities, it has no alternative but to adopt exactly the same external trade policy as
that of the European Communities and consequently, if  need be, it is authorized by the provisions of
Article XXIV:8(a)(ii) to violate the prohibition of Articles XI and XIII of GATT (and Article 2.4 ofthe ATC).  We shall first examine the wording of  Article XXIV:8(a)(i) and XXIV:8(a)(ii) and
consider whether these provisions require Turkey to do what it claims to be required to do, namely to
violate Articles XI and XIII of GATT and Article 2.4 of the ATC.  In this context we shall discuss the
relationship between Article XXIV and Article XI of GATT.  Finally, we will examine whether our
interpretation of Article XXIV in the present case would prevent Turkey from exercising its right toform a customs union.
(i) The terms of paragraph 8(a)
9.142  Paragraph 8(a) of Article XXIV reads as follows:
"8. For the purposes of this Agreement:
(a) A customs union shall be understood to mean the substitution of a single
customs territory for two or more customs territories, so that
(i) duties and other restrictive regulations of commerce (except, where necessary,
those permitted under Articles XI, XII, X III, XIV, XV and XX) are eliminated with
respect to substantially all the trade between the constituent territories of the union or atWT/DS34/R
Page 135
least with respect to substantially all the trad e in products originating in such territories,
and,
(ii) subject to the provisions of paragraph 9, substantially the same duties and other
regulations of commerce are applied by each of the members of the union to the trade of
territories not included in the union;"
It is accepted that quantitative restrictions, such as the measures at issue in this case, are "restrictive
regulations of commerce" for the purposes of Article XXIV:8(a).
9.143  We note the definition of a customs union as being "the substitution of a single customs
territory for two or more customs te rritories".  The term "customs terr itory" is defined in paragraph 2 of
Article XXIV as being:
"For the purposes of this Agreement a customs territory shall be understood to mean any
territory with respect to which separate tariffs or other regulations of commerce are
maintained for a substantial part of the trade of such territory with other territories."
9.144  With regard to the external dimension of any such customs union, the implied ultimate (and
ideal) situation is that a complete single common foreign trade regime is adopted by the constituent
members of the customs union.
9.145  We note that sub-paragraph 8(a)(i) of Article XXIV governs the internal trade between
constituent members of a customs union.  Sub-paragraph 8(a)(ii) governs the trade of the constituent
members with third countries, and not the trad e between the constituent members themselves.
9.146  The terms of sub-paragraph 8(a)(i) offer some flexibility to the constituent members of a
customs union as also noted by Hong Kong, China.347  The standard is that "substantially all the trade
between the constituent territories" must be fully lib eralized among the constituent Members.  This, in
practice, can be accomplished only by providing preferential treatment to goods originating in the
constituent territories.348  We are mindful that sub-paragraph 8(a)(i) is not directly relevant to this
case, as India's claims do not concern any preferential treatment accorded by Turkey and the
European Communities to each other as part of their customs union, but rather with the treatment of
their trade with non-members of the customs union, i.e. Turkey's imposition of quantitative
restrictions on Indian textiles and clothing.349  This is an issue mainly for consideration in light of
Article XXIV:8(a)(ii), and the relationship between the two sub-paragraphs 8(a)(i) and 8(a)(ii).
                                                     
347 See para. 7.15 above.
348 Thus, in our view, sub-paragraph 8(a)(i) authorizes, for example, the members of a customs union to
grant each other treatment notwithstanding the provisions of Article I:1 of GATT.  We note in this context thestatement of the Appellate Body in EC - Bananas III , para. 191:  "Non-discrimination obligations apply to all
imports of like products, except when these obligations are specifically waived or are otherwise not applicable
as a result of the operation of specific provisions of the GATT 1994, such as Article XXIV".  This was also
recognized in a prior non-adopted Panel Report on EEC – Member States' Import Regimes for Bananas ,
DS32/R, para. 358: " … it [Article XXIV] merely provides them [contracting parties] with a justification for not
applying to imports originating in such a union or area the restrictive import measures that they were permittedto impose under other provisions of the General Agreement".
349 We are aware of the statement of the Appellate Body in the EC – Computer Equipment  which
should be understood in the context of the internal market of the EC :  "96.…. However, the EuropeanCommunities constitutes a customs union, and as such, once goods are imported into any Member State, theycirculate freely within the territory of the entire custom s union.  The export market, therefore, is the European
Communities, not an individual Member State."  This Appellate Body statement referred to the "constant priorpractice" of the European Communities.  However, we are not addressing the situation of the internal market of
the European Communities or the trade relations between the European Communities and Turkey.WT/DS34/R
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9.147  In considering Turkey's Article XXIV:8(a) defense, we are mindful of the need to interpret
Article XXIV in a manner to avoid conflicts with other WTO provisions (see paragraph 9.95 above).The issue we must consider now is whether Articles XI (and XIII) of GATT, on the one hand, and
Article XXIV:8(a)(ii), on the other hand, may be interpreted so as to avoid a conflict requiring that
one provision yields to the other.  For the reasons explained below, we believe that, in this case, the
flexibility inherent in sub-paragraph 8(a)(ii) allows for harmonious interpretation.  That interpretation
is in accordance with the context of the sub-paragraph 8(a)(ii) and the object and purpose of the WTOAgreement, and, at the same time, fully respects Turkey's right to enter into a customs union with
other Members.
9.148  As Japan and Hong Kong, China stressed
350, we note at the outset that the terms of sub-
paragraph 8(a)(ii) do not explicitly authorize Members of a customs union to violate GATT rules in
their relations with non-constituent members.  Nor do they implicitly require such a result.  Indeed,
the terms of sub-paragraph 8(a)(ii) allow for flexibility in the creation of a common commercial policy,
as the standard used is that "substantially the same duties and other regulations of commerce are [to be]applied by each of the members of the [customs] union".  We are aware that GATT CONTRACTING
PARTIES and WTO Members have never reached agreement on the interpretation of the term
"substantially" in the context of Article XXIV:8.  The ordinary meaning of the term "substantially" in
the context of sub-paragraph 8(a) appears to pr ovide for both qualitative and quantitative components.
The expression "substantially the same duties and other regulations of commerce are applied by each ofthe Members of the [customs] union" would app ear to encompass both quantitative and qualitative
elements, the 
quantitative aspect more emphasized in relation to duties.351
9.149  We note also that sub-paragraphs 8(a)(i) and 8(a) (ii) address distinct but inter-linked policies.
Therefore, the inclusion of a sector within the cove rage of a customs union, i.e. the removal of all trade
barriers in respect of products of that sector be tween the constituent members of the customs union, does
not necessarily imply that those constituent member s must apply identical barriers or barriers having
similar effects to imports of the same products from third countries.
9.150  We note, however, in the terms of sub-paragraph 8(a)(i), the possibility for parties to a
customs union to maintain certain restrictions of commerce on their trade with each other, including
quantitative restrictions ("…where necessary, those permitted under Articles XI, XII, XIII, XIV, XVand XX").  This implies that even for "substantially all trade originating in the constituent countries"
to be covered (here, for instance, textile and clothing products), certain WTO compatible restrictions
can be maintained.  This implies that internal quant itative restrictions can be used in the event that
only one of the constituent territories has in place a restriction on imports from third countries.  If
such pre-existing import restrictions were WTO compatible, the maintenance of an internal importrestriction between the two constituent countries would ensure that the protection afforded by the
original WTO compatible quota would not be circ umvented.  The maintenance of such an internal
restriction can obviate the need for identical external trade policies.  We note also that the plain
meaning of the wording used in these two sub-paragraphs implies a difference in approach between
efforts at internal trade liberalization among constituent members of a customs union where the
maintenance of some quantitative restrictions (as restrictive regulations of commerce) is explicitly
permitted (see paragraph 8(a)(i)), and their respective external policies with third countries whereparagraph 8(a)(ii) contains no specific authorization relating to the maintenance of quantitative
restrictions.
9.151  Having said this, and recognizing such flexibility, many questions remain unanswered.  We
consider, however, that if the ideal situation were to be one where the policies of the constituent
members are identical, there is nevertheless a wide ra nge of possibilities left for Members to identify
                                                     
350 See Japan's argument in para. 7.25 and Hong Kong, China's argument in para. 7.16 above.
351 We have also examined the French and Spanish versions of Article XXIV which confirm that
flexibility is left to the constituent members.WT/DS34/R
Page 137
how they can form their customs union and to what  extent and how, they should put in place their
internal trade and their common foreign trade polices.  Considering this wide range of possibilities, we
are of the view that, as a general rule, a situati on where constituent members have "comparable" trade
regulations having similar effects with respect to the trade with third countries, would generally meet the
qualitative dimension of the requirements of sub-para graph 8(a)(ii).  The possibility also exists of
convergence across a very wide range of policy areas but with distinct exceptions in limited areas.  The
greater the degree of policy divergence, the lower the fl exibility as to the areas in which this can occur;
and vice-versa.  In our view, our interpretation of sub-paragraph 8(a)(ii) allows Members to form a
customs union, as in this case, where one consti tuent member is entitled to impose quantitative
restrictions under a special transitional regime and the other constituent member is not.352
9.152  This interpretation seems to be confirmed by the effective practice of the Turkey-EC customs
union.  We note that in some sectors such as those relating to agriculture, steel etc, identical trade
policies are not being applied by the constituent members.  We note also that Decision 1/95 envisages
that the European Communities may continue to apply its system of certificates of origin shouldTurkey fail to conclude agreements with third countries, similar to the agreements already in place
between those countries and the European Communities.
353  Thus, there are administrative means, as
stated by the United States354, available to the European Communities and Turkey, and in particular
rules of origin, as suggested by Hong Kong, China355, in order to ensure that no trade diversion
occurs, while respecting the parameters of sub-paragraph 8(a)(i) and at the same time of sub-paragraph 8(a)(ii), recalling that the two sets of policies under sub-paragraphs 8(a)(i) and 8(a)(ii) are
distinct and the relationship between them is a flexible one.
9.153  Our interpretation of Article XXIV:8(a) is not su ch as to render Turkey's right to form a
customs union a nullity.  We note that Turkey's exports of textiles and clothing to the European
Communities represent 40 per cent of its total export s to the European Communities.  If Turkey wants
to cover such trade and to ensure that it benefits from the advantages of the customs union, it can do
so and comply with sub-paragraph 8(a)(i).  In its  discussion of the interpretation and application of
sub-paragraph 8(a)(ii), Turkey's reference to the fact that textiles and clothing represents 40 per cent
of its trade with the European Communities, is theref ore of no relevance.  With regard to its external
trade policies, calculations based on import statistics provided by Turkey to the Panel show that, in1995, 1996 and 1997, (a) textile and clothing imports from all non-EC countries (including WTO
Members and non-Members) into Turkey represented between 8 and 9 per cent of Turkey's total
imports from those countries
356; (b) imports from non-EC countries of the products covered by all
categories under restriction by Turkey represented 4.5 per cent of Turkey's total imports from those
countries357; and (c) imports from non-EC countries of the products covered by the 19 categories
under restriction from India represented less than 3 per cent of Turkey's total imports from those
                                                     
352 Our discussion of the flexibility offered by Article XXIV:8(a) is without prejudice to the further
flexibility that may exist during the transition period of an interim agreement leading to a customs union.
353 Article 12 of Decision 1/95 (WT/REG22/1) provides that: "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 thisobjective to be reached.  3.Until Turkey has concluded these arrangements, the present system of certificates oforigin for the exports of textile and clothing from Turkey into the Community will remain in force and suchproducts not originating from Turkey will remain subject to the application of the Communities Commercial
Policy in relation to the third countries in question… In the absence of such modalities, the Community reserves
the right to take, in respect of imports into its territory , any measure rendered necessary by the application of the
said Arrangement."
354 See the United States' argument in para. 7.112 above
355 See Hong Kong, China's argument in para. 7.18 above.
356 See Table II.2 above.
357 See paras. 2.41 and 2.42 above.WT/DS34/R
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countries.358  It should be noted that the figures in (b) and (c) above, include both imports from WTO
Members and non-Members.  Thus, a variation in pol icy relevant to WTO Members on at most 4.5 per
cent of Turkey's external trade, in  any event of a temporary nature,359 could not be considered in this
case to jeopardise the requirement of Article XXIV:8 (a)(ii) that substantially the same regulations of
commerce are to be applied by Turkey and the European Communities to third countries.  The fact that
this proportion of trade is regulated in a different way by Turkey, cannot be seen to contradict the
requirements of Article XXIV:8(a)(ii).  As noted above,  we consider that it is for the CRTA to assess the
GATT/WTO compatibility of customs unions such as the Turkey-EC customs union and that in any case
our terms of reference do not request us to do so.  We, for our part, have endeavoured to ensure that our
interpretation is not such as to prevent Turkey from exercising its WTO right to form a customs union.
9.154  Independently of the fact that constituent members could agree that some of their foreign
trade policies may not be identical, we consider that the terms of sub-paragraph 8(a)(ii) do not address
the issue of whether an otherwise WTO incompatible import restriction could be introduced among
the identical or different trade policies on formation of a customs union.  In our view, the terms ofArticle XXIV:8(a)(ii) do not provide any authoriza tion for Members forming a customs union to violate
the prescriptions of Articles XI and XIII of GATT or Article 2.4 of the ATC.
(ii) Immediate context
9.155  The conclusion that Article XXIV:8(a)(ii) should be read as not authorizing the violation of
Articles XI and XIII of GATT or Article 2.4 of the ATC in the circumstances of this case is supportedby the same contextual analysis that we developed relating to paragraph 5(a) (see paragraphs 9.124 to
9.133 above), and in particular, our analysis of paragraphs 4 and 6 of Article XXIV.
(iii) Conclusion
9.156  We conclude, based on the ordinary meaning of its terms and their immediate context, that
Article XXIV:8(a) does not address explicitly th e issue of the GATT/WTO compatibility of the
measures adopted by constituent members of a custom s union in their effort to align substantially all
their duties and regulations of commerce vis-à-vis  third countries.  In any case, we consider that, in this
case, Article XXIV:8(a)(ii) does not authorize Turk ey, in forming a customs union with the European
Communities, to introduce quantitative restrictions  on textile and clothing products that would be
otherwise incompatible with GATT/WTO, nor does it  require that Turkey introduce restrictions on
imports of textiles and clothing which would be inconsistent with other provisions of the WTO
Agreement.
(c) The wider context of Article XXIV:5 and 8 and the object and purpose of the agreements
9.157  We consider that the wider context of sub-paragraphs 5(a) and 8(a) and Article XXIV
generally, as well as the object and purpose of the WTO Agreement, and GATT 1994, including theGATT 1994 Understanding on Article XXIV, are also relevant to the interpretation of Article XXIV
and confirm our interpretation of the provisions of sub-paragraphs 5(a) and 8(a) of Article XXIV.
9.158  We note that the Preamble to the GATT 1947 (now GATT 1994) provides that:
"Recognizing that their relations in the field of trade …should be conducted with a view
to … and expanding the production and exchange of goods ," (emphasis added)
                                                     
358 This results from the fact that, Turkey as an important clothing manufacturer, imports mainly textile
products and these are only partially represented in the restricted categories (only 6, out of the 19 categories,
refer to textile yarn or fabrics).  (See para. 2.46 above and Annex to this report, Appendix 1.)
359 The European Communities' MFA-derived quantitative restrictions must be eliminated by 1 January
2005.WT/DS34/R
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9.159  Such language suggests that a global objective of GATT 1947 was, and of GATT 1994 is, to
increase trade by reducing (making less restrictive) tariffs and lowering non-tariff barriers.  It is adynamic objective.  The use of regional trade agreements to achieve that objective is legitimized by
the first sentence of Article XXIV:4:
"The contracting parties recognize the desirability of increasing freedom of trade  by the
development, through voluntary agreements, of closer integration between the economies
of the countries parties to such agreements." (emphasis added)
9.160  Already then it was clear to CONTRACTING PARTIES that the overall objective of GATT
and for that matter, regional trade agreements, should not be to raise barriers to trade.  This is also
noted in the Philippines' submission.
360  This is reflected in the wording of the second sentence of
paragraph 4 of Article XXIV:
"They also recognize that the purpose of a customs union or of a free-trade area should
be to facilitate trade between the constituent territories and not to raise barriers to the
trade of other contracting parties  with such territories." (emphasis added)
and in the Preamble to GATT 1947:
"Being desirous of contributing to these objectives by entering into reciprocal and
mutually advantageous arrangements directed to the substantial reduction of tariffs and
other barriers to trade and to the elimination of discriminatory treatment  in international
commerce …"(emphasis added)
9.161  At the conclusion of the Uruguay Round Members reiterated the same general objective and
principles in the GATT 1994 Understanding on Article XXIV:
"Reaffirming  that the purpose of such agreements should be to facilitate trade between
the constituent territories and not to raise barriers to the trade of other Members with
such territories;  and that in their formati on or enlargement the parties to them should to
the greatest possible extent avoid creating adverse effects on the trade of other
Members;"
and in the Preamble to the WTO Agreement:
"Being desirous of contributing to these objectives by entering into reciprocal and
mutually advantageous arrangements directed to the substantial reduction of tariffs andother barriers to trade and to the elimination of discriminatory treatment  in international
commerce …" (emphasis added)
9.162  We also recall the Singapore Ministerial Declaration:
"7. … We reaffirm the primacy of the multilateral trading system, which includes
a framework for the development of regional trade agreements, and we renew ourcommitment to ensure that regional trade agreements are complementary to it and
consistent with its rules"
9.163  From the above cited provisions,
361 we draw two general conclusions for the present case.
Firstly, the objectives of regional trade agreements and those of the GATT and the WTO have always
been complementary, and therefore should be interpreted consistently with one another, with a view
                                                     
360 See para. 7.41 above.
361 We note that the wording of Article V of GATS refers to the same concepts.WT/DS34/R
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to increasing trade and not to raising barriers to trade, thereby arguing against an interpretation that
would allow, on the occasion of the formation of a customs union, for the introduction of quantitativerestrictions.  Secondly, we read in these parallel objectives a recognition that the provisions of Article
XXIV (together with those of the GATT 1994 Understanding on Article XXIV) do not constitute a
shield from other GATT/WTO prohibitions, or a justification for the introduction of measures which
are considered generally to be ipso facto  incompatible with GATT/WTO.  In our view the provisions
of Article XXIV on regional trade agreements cannot be considered to exempt constituent members ofa customs union from the primacy of the WTO rules.  In this context we also note the Singapore
Ministerial Declaration where Members stated: "We reaffirm the primacy of the multilateral trading
system…".
(d) GATT/WTO practice
9.164  Turkey also refers to the practice of th e GATT CONTRACTING PARTIES to support its view
that, on the occasion of the creation of a custom s union, individual GATT contracting parties and now
WTO Members have been authorized to introduc e 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 interpretatio n".  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.
9.165  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"
9.166  After examination of GATT/WTO practice, and as noted by the United States367 and the
Philippines368, it is quite evident that no consensus was reached, nor was any practice agreed upon
regarding Article XXIV of GATT.  For exam ple 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 theestablishment 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
                                                     
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'interprétation des traités d'après la Convention de Vienne sur le Droit des Traités" (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.WT/DS34/R
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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 acommon 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."
9.167  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)
9.168  In the Working Party that considered the accession of Portugal and Spain to the European
Communities, some contracting parties371 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 régime of the customs union, they called on the Communities and
Spain to eliminate all GATT inconsistent measures …".
9.169  In light of these positions taken by individual GATT contracting parties372 before the entry
into force of the WTO Agreement and therefore the ATC, we cannot conclude that there is
                                                     
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).  Reinfo rcing this point of view is a statement made by a
member of the same Working Party Report regarding Gr eece'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  EECWT/DS34/R
Page 142
"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 c ould only decrease (setting aside the possibility for
ATC compatible safeguards measures).
(e) Temporary nature of the Turkish quantitative restrictions
9.170  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.
9.171  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 anyallowance 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
9.172  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 nocontracting party or a WTO Member ever challeng ed measures similar to those under examination.
9.173  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 negotia ble 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 furt her 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
                                                                                                                                                                    
– 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 asthe individual contracting parties that these agreements were in conformity with  the provisions of ArticleXXIV, and that therefore the United States could no t contest its preferential trade agreement with the
Mediterranean Region. The United States' statement in response to the European Communities' argument wasthat 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.WT/DS34/R
Page 143
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 partieshad 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 werewithout 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)
9.174  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 insecuring 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
9.175  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 thatit cannot be forced to accept compensation for a WTO illegal measure.
9.176  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 theconclusion of the panel in EEC– Imports from Hong Kong  that quantitative restrictions prohibited by
GATT, cannot be negotiated.
9.177  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
9.178  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.
9.179  We note also that Article 12.2 of Decision 1/95 (WT/REG22/1) provides:WT/DS34/R
Page 144
"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.
9.180  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 Lomé Convention with the ACP
countries.  The European Communities argued that the panel should not have examined the content of
the Lomé Convention and should have deferred to the common understanding of the parties.  In that
case the panel and the Appellate Body did examine the Lomé convention (for the purpose of assessing
the scope of the Lomé waiver) and concluded that unless explicitly authorized by the waiver the
provisions of the Lomé convention could not alter the rights and obligations of WTO Membersincluding those of the European Communities.
9.181  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 theirrights under the treaty or the performance of their obligations".
9.182  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 considerations9.183  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.
9.184  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
                                                     
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.  ThePermanent 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 forIntegration 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.WT/DS34/R
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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 specificright 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.
9.185  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 EuropeanCommunities 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 no t feasible".  We recall the international law
principle of effective interpretation whereby all provisions of a treaty must be given their full meaningand must ensure the overall consistency of the treaty and its effective application.  We consider that
Members have a right, albeit conditional, to fo rm 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, thatreconciles 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.
5. Conclusion
9.186  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.
9.187  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 betweenthe 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
                                                     
374 See para. 6.111 above.WT/DS34/R
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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.
9.188  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 ofquantitative 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 economi cally 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.
9.189  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.  Theseprovisions do not, however, address any specific m easures 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, ifthe 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 im position 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.
9.190  We have further considered, in the context of these conclusions on Turkey's defense based on
Article XXIV, the scope of flexibil ity allowed for in Article XXIV.  However, this flexibility does not
allow for the introduction of measures otherwise in compatible 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 transitio nal regime and the other constituent is not.
9.191  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
                                                     
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 285that 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 isWT/DS34/R
Page 147
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 XIII376 of GATT, and Article 2.4 of the ATC.
9.192  Consequently, we reject Turkey's defense that Article XXIV allows it to introduce, upon the
formation of its customs union with the Europ ean Communities, quantitative restrictions on 19
categories of textile and clothing products, in viola tion of Articles XI and XIII of GATT and Article 2.4
of the ATC.
H. T HE ABSENCE OF NULLIFICATION AND IMPAIRMENT
9.193  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.
9.194  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 requi re 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.
9.195  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 GATS378 or for
prohibited subsidies under the SCM Agreement379 and should, therefore, not be considered a general
principle of WTO law.
9.196  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 by134 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
                                                                                                                                                                    
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 discriminatoryquantitative restrictions (contrary to Article XIII).  In this case the quantitative restrictions imposed by Turkeyare not imposed pursuant to the ATC (see our conclusion in para. 9.80).  They were not imposed under Article2.1, 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, Indi a's claims pursuant to Article XIII of GATT.
377 Turkey refers to South  West  Africa  Cases  (S econd  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.WT/DS34/R
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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 theamounts 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
9.197  Finally, Turkey also argues that in rejecting Tu rkey'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
9.198  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 theclothing 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 ex treme: 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
9.199  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 XIof 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 ha d 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.
9.200  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                                                     
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.WT/DS34/R
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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 EuropeanCommunities, nor was in a position to do so.
9.201  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 ruleshas 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."
9.202  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 beennullified or impaired even if such a rebuttal were in principle permitted."
387
are still most relevant to violations of provisions of GATT 1994.
9.203  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 assertion391 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
9.204  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 WTOincompatible 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.                                                     
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.WT/DS34/R
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9.205  As to Turkey's allegations that India has not fully utilized the quotas under examination393, 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).
9.206  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 oftheir 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. O UR MAIN FINDINGS RECALLED
9.207  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 orarguments 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, thediscriminatory 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.
9.208  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 WTOMember 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 restrictionssuch 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 conclusionon 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
                                                     
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.WT/DS34/R
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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 th e DSU were rebuttable, Turkey had not submitted
evidence that the benefits accruing to India under the ATC and GATT had not been reduced ornullified by the introduction of WTO incompatible quantitative restrictions.
X. CONCLUSIONS
10.1 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 Turk ey's defense that the introduction of any such
otherwise GATT/WTO incompatible import restrictions is permitted by Article XXIV of GATT.
10.2 Under Article 3.8 of the DSU, in cases where th ere 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.  A ccordingly, 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 thoseagreements.
10.3 The Panel recommends  that the Dispute Settlement Body request Turkey to bring its measures
into conformity with its obligations under the WTO Agreement.WT/DS34/R
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ANNEX
Appendix 1 Categories of Turkey's imports of textile and clothing products from India under
restriction
Group Product Description
IA 1 Cotton yarn, not put up for retail sale.
IA 2 Woven fabrics of cotton, other than gauze, terry fabrics, pile fabrics,
chenille fabrics, tulle and other fabrics.
IA 2a Of which:  Other than unbleached or bleached
IA 3 Woven fabrics of synthetic fibres (discontinuous or waste) other than
narrow woven fabrics, pile fabrics (including terry fabrics) and
chenille fabrics
IA 3a Of which:  Other than unbleached or bleached
IB 4 Shirts, T-shirts, lightweight fine knit roll, polo or turtle necked jumpers
and pullovers (other than of wool or fine animal hair), undervests
and the like, knitted or  crocheted
IB 5 Jerseys, pullovers, slip-overs, waistcoats, twinsets, cardigans, bed-
jackets and jumpers (other than jackets and blazers), anoraks,
windcheaters, waister jackets and the like, knitted or crocheted
IB 6 Men's or boys' woven breeches, shorts other than swimwear and
trousers (including slacks), women's or girls' woven trousers andslacks, of wool, of cotton or of man-made fibres; lower parts of
tracksuits with lining, other than category 16 or 29, of cotton or of
man-made fibres
IB 7 Women's or girls' blouses, shirts and shirt-blouses, whether or not
knitted or crocheted, of wool, of cotton or man-made fibres
IB 8 Men's or boys' shirts, other than knitted or crocheted, of wool, cotton
or man-made fibres
IIA 9 Terry towelling and similar woven terry fabrics of cotton; toilet linen
and kitchen linen, other than knitted or crocheted, of terry towelling
and woven terry fabrics, of cotton
IIA 20 Bed linen, other than knitted or crocheted
IIA 23 Yarn of staple or waste artificial fibres, not put up for retail sale
IIA 39 Table linen, toilet and kitchen linen, other than knitted or crocheted,
other than of terry towelling or similar terry fabrics of cotton
IIB 15 Women's or girls' woven overcoats, raincoats and other coats, cloaks
and capes; jackets and blazers, of wool, of cotton or of man-made
textile fibres (other than parkas) (of category 21)
IIB 24 Men's or boys', night shirts, pyjamas, bathrobes, dressing gowns and
similar articles, knitted or crocheted
Women's or girls' night dresses, pyjamas, negligees, bathrobes,
dressing gowns and similar articles, knitted or crocheted
IIB 26 Women's or girls’ dresses, of wool, of cotton or of man-made fibres
IIB 27 Women's or girls' skirts, including, divided skirts
IIB 29 Women's or girls' suits and ensembles, other than knitted or crocheted,
of wool, of cotton or of man-made fibres, excluding ski suits;women's or girls' tracksuits with lining, with an outer shell of an
identical fabric, of cotton or of man-made fibres
Source : Government of Turkey, Decree No. 95/6815, concerning the Surveillance and Safeguard Measures
for Imports of Certain Textile Products , dated 30 April 1995 and published in the Official Gazette  of
1 June 1995, Annex I.WT/DS34/R
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Appendix 2 Size of Turkey's import quotas on textile and clothing products from India,
by product categories, in 1996, 1997 and 1998
Product Category Unit 1996 1997 1998
1 kgs 7,372,000 7,372,000 7,761,800
2 kgs 752,000 752,000 786,800
2a kgs 104,000 104,000 121,000
3 kgs 16,000 16,000 17,800
3a kgs 15,000 15,000 16,700
4 pieces 8,000 8,000 9,000
5 pieces 4,000 4,000 4,600
6 pieces 4,000 4,000 4,600
7 pieces 4,000 4,000 4,300
8 pieces 4,000 4,000 4,300
9 kgs 4,000 4,000 4,600
20 kgs 4,000 4,000 4,600
23 kgs 480,000 480,000 558,100
39 kgs 4,000 4,000 4,700
15 pieces 4,000 4,000 4,700
24 pieces 4,000 4,000 4,700
26 pieces 4,000 4,000 4,500
27 pieces 4,000 4,000 4,500
29 pieces 4,000 4,000 4,600
Source :Official Gazette  of 19 December 1995, 13 March 1996, 13 June 1996, 25 September 1996, 7
December 1996, 12 June 1997 and 18 December 1997.WT/DS34/R
Page 154
Appendix 3a India's exports to Turkey, by textiles and clothing categories under restriction, in
1994-1997
Value (Thousand US$) Volume (Thousand kilos/pieces) Product
Category 1994 1995 1996 1997 1994 1995 1996 1997
Textiles
1 11,380 27,270 16,050 15,790 3,840 7,291 5,074 5,197
2, incl. 2a 1,160 9,350 3,130 2,250 273 2,331 894 648
3, incl. 3a 70 230 1,200 840 6 21 143 139
9 0 2,250 590 0 0 386 140
20 0 20 40 280 0 2 2 29
23 1,350 2,720 670 400 526 818 226 147
39 0 0 20 10 0 0 1 0
Sub-total 13,960 41,840 21,700 19,570
Clothing
4 0000000 0
5 00 1 05001 0
6 111 1 1 11 3
7 3 41 21 29 1 14 8 9
8 194 18 2 16 27 4 0 2
1 5 3338110 2
2 4 0000000 0
26 16 293 28 144 2 49 10 23
27 35 36 26 62 7 14 10 23
29 0 4 13 22 0 1 3 4
Sub-total 252 396 104 297
Source : Government of India.
Appendix 3b Turkey's imports from India, by textiles and clothing categories under
restriction, in 1994-1997
Value (Thousand US$) Volume (Thousand kilos/pieces) Product
Category 1994 1995 1996 1997 1994 1995 1996 1997
Textiles
1 9,644 31,679 22,505 24,997 3,002 7,931 6,714 8,247
2, incl. 2a 1,506 6,353 5,843 3,898 344 1,390 1,372 878
3, incl. 3a 216 466 447 76 31 112 98 16
9 00 9 6 5000 2 0 0 0
2 0 680 5 8010 3
23 1,525 6,975 1,826 1,462 581 1,844 563 590
39 53 48 65 36 3 4 4 5
Sub-total 12,949 45,530 31,651 30,528
Clothing
4 7 6110 1 510 0
5 0989080 3
6 1143011 0
7 52 63 52 6 11 6 5 2
8 2 9 1 49 3 1541 1
1 5 79 2 18211 1
2 4 0000000 0
26 1 46 156 24 0 9 21 3
27 14 42 10 21 3 13 2 3
2 9 04 1 0 8801 1 5 1
Sub-total 133 153 352 131
Source : Government of Turkey.WT/DS34/R
Page 155
Appendix 4a Share of India in Turkey's imports of textile and clothing products subject to
QRs, by product category, in 1994-1997  (percentages based on import
quantities)
Product
category 1994 1995Average
1994-1995 1996 1997Average
1996-1997Average
1994-1997
1 5.66 13.52 9.78 15.61 20.07 17.79 13
2 1.15 2.86 2.21 3.54 2.27 2.90 2.5
2a 0.78 3.83 2.81 2.02 0.81 1.38 0.4
3 0.49 0.93 0.78 0.73 0.09 0.36 0.5
3a 1.26 2.62 2.10 0.89 0 0.37 0.96
4 7.38 0.15 1.49 0.02 0 0.01 0.38
5 0 0 1.82 0 0 0.18 0
6 0.06 0.19 0.14 0.08 0.03 0.05 0.07
7 1.74 16.89 10.13 0.82 0.3 0.53 1.6
8 8.26 4 5.72 0.29 0.35 0.32 1.51
9 0 0 0.00 7.92 0 2.93 1.44
15 3.79 2.99 3.50 0.32 0.22 0.26 0.74
20 0.6 3.93 1.81 0 2.75 1.31 1.39
23 15.37 21.99 19.93 9.07 14.06 11.09 11.42
24 0 0 0.00 0 0 0.00 0
26 0.95 20.32 14.42 4.79 0.68 2.88 3.76
27 15.98 26.60 23.28 0.7 1.06 0.87 3.28
29 0.18 11.20 4.39 14.62 0.54 7.96 7.44
39 4.81 1.57 2.29 2.04 2.16 2.11 2.18
Source : Government of Turkey, Under-Secretariat for Foreign Trade.
Appendix 4b Turkey's protection rates, for the categories of textiles and clothing products
subject to restrictions vis-à-vis India, in 1994-1997
Protection rates (in per cent) Product
category 1993 1994 1995 1996Percentage
change
1996/1993
1 25.1 19.8 13.4 5.36 -78.63
2 37.9 30.8 28.9 9.41 -75.17
3 37.9 26 20 10.12 -73.31
4 35 28 22.4 12.62 -63.95
5 35 28 22.4 13.18 -62.35
6 35 28 22.4 13.4 -61.71
7 35 28 22.4 13.4 -61.71
8 35 28 22.4 12.5 -64.29
9 36.3 26 21.5 10.43 -71.26
15 35 28 22.4 13.4 -61.71
20 35 28 22.4 12.5 -64.29
23 26 20 15.6 7.5 -71.15
24 35 28 22.4 13.09 -62.61
26 35 28 22.4 13.4 -61.71
27 35 28 22.4 13.4 -61.71
29 35 28 22.4 13.4 -61.71
39 35 28 22.4 12.5 -64.29
Av. 19 34.31 26.98 21.6 6 11.74 -65.78
Source : Government of Turkey, Under-Secretariat for Foreign Trade.
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