WORLD TRADE
ORGANIZATIONWT/DS34/AB/R
22 October 1999
(99-4546)
Original: English
TURKEY – RESTRICTIONS ON IMPORTS OF TEXTILE
AND CLOTHING PRODUCTS
AB-1999-5
Report of the Appellate BodyWT/DS34/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Arguments of th e Participants............................................................................................... ......2
A. Claims of Error by Turkey – Appellant.......................................................................... 2
B. Arguments of India - Appellee........................................................................................ 5
III. Arguments of Th ird Partic ipants............................................................................................ .....8
A. Hong Kong, China ......................................................................................................... 8
B. Japan......................................................................................................................... .....8
C. The Phi lippine s............................................................................................................... 9
IV. Issue Raised in this Appeal................................................................................................. ......10
V. Article XXIV of the GATT 1994..............................................................................................10VI. Findings and Conclusions.................................................................................................... .....18WT/DS34/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
Turkey – Restrictions on Imports of Textile
and Clothing Products
Turkey,  Appellant
India,  Appellee
Hong Kong, China; Japan; and the Philippines,
Third ParticipantsAB-1999-5
Present:
Beeby,  Presiding Member
Bacchus,  Member
El-Naggar,  Member
I. Introduction
1. Turkey appeals from certain issues of law and legal interpretations in the Panel Report,
Turkey – Restrictions on Imports of Textile and Clothing Products  (the "Panel Report").1  The Panel
was established to consider a complaint by India regarding quantitative restrictions introduced by
Turkey on imports of Indian textile and clothing products.
2. On 6 March 1995, the Turkey-EC Association Council adopted Decision 1/952, which sets out
the rules for implementing the final phase of the customs union between Turkey and the EuropeanCommunities.  Article 12(2) of this Decision states:
In conformity with the requirements of Article XXIV of the GATT
Turkey will apply as from the entry into force of this Decision,
substantially the same commercial policy as the Community in the
textile sector including the agreements or arrangements on trade in
textile and clothing.
In order to apply what it considered to be "substantially the same commercial policy" as the European
Communities on trade in textiles and clothing, Turkey introduced, as of 1 January 1996, quantitativerestrictions on imports from India on 19 categories of textile and clothing products.
3
                                                     
1WT/DS34/R, 31 May 1999.
2Reproduced in WT/REG22/1.
3For a further discussion of the underlying facts and a more detailed description of the products
involved in this case, see the Panel Report, paras. 2.2-2.46 and 4.1-4.3, and the Annex to the Report.WT/DS34/AB/R
Page 2
3. The Panel considered claims by India that the quantitative restrictions introduced by Turkey
were inconsistent with Articles XI and XIII of the GATT 1994, and Article 2.4 of the Agreement onTextiles and Clothing (the " ATC").  In the Panel Report, circulated on 31 May 1999, the Panel
reached the conclusion that the quantitative restrictions were inconsistent with the provisions of
Articles XI and XIII of the GATT 1994 and consequently with those of Article 2.4 of the ATC, and
rejected Turkey's defence that the introduction of any such otherwise GATT/WTO incompatibleimport restrictions is permitted by Article XXIV of the GATT 1994.
4
4. On 26 July 1999, Turkey notified the Dispute Settlement Body (the "DSB") of its intention to
appeal certain issues of law covered in the Panel Report and legal interpretations developed by thePanel, pursuant to Article 16.4 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes  (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the Working
Procedures for Appellate Review  (the " Working Procedures ").  On 5 August 1999, Turkey filed its
appellant's submission.
5  On 20 August 1999, India filed an appellee's submission.6  On the same day,
Hong Kong, China;  Japan;  and the Philippines filed third participant's submissions.7
5. The oral hearing in the appeal was held on 14 September 1999.  The participants and third
participants presented oral arguments and responded to questions put to them by the Members of theDivision hearing the appeal.
II. Arguments of the Participants
A. Claims of Error by Turkey – Appellant
6. Turkey appeals the Panel's finding that Article XXIV of the GATT 1994 does not allow it to
introduce, upon the formation of its customs union with the European Communities, quantitativerestrictions on textile and clothing products which are inconsistent with Articles XI and XIII of the
GATT 1994 and Article 2.4 of the ATC.
7. Turkey argues that the Panel erred in presuming the existence of a conflict between, on the
one hand, Articles XI and XIII of the GATT 1994 and Article 2.4 of the ATC, and, on the other,
Article XXIV of the GATT 1994.  The Panel's reasoning was based on the incorrect presumption thatthe quantitative restrictions introduced by Turkey in the framework of its customs union with theEuropean Communities were incompatible with Turkey's WTO obligations.
                                                     
4Panel Report, para. 10.1.
5Pursuant to Rule 21(1) of the Working Procedures .
6Pursuant to Rule 22(1) of the Working Procedures .
7Pursuant to Rule 24 of the Working Procedures .WT/DS34/AB/R
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8. According to Turkey, Article XXIV permits the common regulation of commerce of a
customs union in a particular sector to be determined by one of the constituent members' lawfulquantitative restrictions in that sector, provided that unified regulations are not on the whole morerestrictive than the previous regulations of the constituent members.
9. Turkey further contends that Article XXIV is different from exceptions such as Articles XX
and XXI of the GATT 1994.  The right under Article XXIV to establish a customs union is anautonomous right; it is not an "exception" from other GATT obligations.
10. Turkey argues that the Panel ignored the proper relationship between Article XXIV and the
general obligations under the GATT 1994.  The Panel did not properly interpret the ordinary meaningof the text of Article XXIV, and, in particular, the chapeau of paragraph 5 of that Article.  Theordinary meaning of the chapeau of paragraph 5 demonstrates that Article XXIV confers on WTOMembers a right to enter into a customs union, and to derogate, under certain conditions, from theirGATT obligations, including, but not limited to, their obligations under Article I.
11. In Turkey's view, other provisions in Article XXIV confirm that forming a customs union or
free-trade area is a right of WTO Members.  The provisions of Articles XXIV:6, XXIV:7, XXIV:8and XXIV:9 establish requirements for implementation of a customs union, but do not prohibit itsultimate formation, thereby supporting the proposition that Members have a right to form a customsunion under Article XXIV.
12. Turkey argues that there is no textual support for the Panel's conclusion that Article XXIV
permits derogations from Article I, but not from other GATT provisions.  The chapeau ofArticle XXIV:5 states that "the provisions of this Agreement" shall not prevent the formation of acustoms union, thereby covering all provisions of the GATT 1994, not just Article I.
13. Turkey claims that the Panel's conclusion that Article XXIV:5(a) "does not authorize
Members forming a customs union to deviate from the prohibitions contained in Articles XI and XIIIof GATT or Article 2.4 of the ATC"
8 was based on a number of legal errors.  First, Turkey argues that
the Panel misinterpreted the ordinary meaning of Article XXIV:5(a).  Specifically, Turkey argues thatthe Panel ignored the chapeau to Article XXIV:5.  The chapeau clearly states that no GATT 1994provision shall "prevent" the formation of a customs union as long as certain conditions set out in sub-paragraph 5(a) are satisfied.  The Panel ignored the chapeau, and, as a result, came to the erroneousconclusion that Article XXIV:5(a) does not "authorize or prohibit" the use of quantitative restrictionsupon the formation of a customs union.
                                                     
8Panel Report, para. 9.134.WT/DS34/AB/R
Page 4
14. Second, Turkey argues that the Panel's reading of Article XXIV:5(a) must fail because it
renders the provision a "nullity".  The "economic test" established by sub-paragraph 5(a) applies tothe duties and regulations of commerce of the custom s union as a whole, not, as stated by the Panel, to
the duties and regulations of the particular customs union members.  Under the Panel's interpretation,
the introduction of an otherwise inconsistent measure could disqualify the customs union even though
trade flows were, on the whole, facilitated.
15. Third, Turkey argues that the Panel's analysis of "the immediate context" of
Article XXIV:5(a) does not support its interpretation of that provision.  The Panel failed to include thechapeau of Article XXIV:5(a) in its analysis of the context.  Furthermore, the Panel misinterpreted thecontext of Article XXIV:5(a), in particular, Articles XXIV:5(b), XXIV:4, XXIV:6, and the location ofArticle XXIV in Part III of the GATT 1994.
16. Turkey also claims that the Panel failed to interpret properly the ordinary meaning of
Article XXIV:8(a).  The Panel erred by failing to examine the entire context of Article XXIV:8(a),
and, therefore, overlooked the interdependent nature of sub-paragraphs 8(a)(i) and 8(a)(ii), and their
relationship in the broader context of Article XXIV.
17. Turkey submits that if it is not allowed to impose quantitative restrictions on the textile and
clothing products at issue in this case, the European Communities will exclude 40 per cent of Turkey'sexports from the customs union between Turkey and the European Communities, thereby leading toan inconsistency with Article XXIV:8(a)(i).  Turkey will thus be exposed to a challenge that theproposed customs union does not cover "substantially all trade" and, therefore, is not consistent withArticle XXIV.
18. Turkey notes that the Panel stated that Turkey had several alternatives to the imposition of
quantitative restrictions: increased tariffs, rules of origin, early phase-out, and tariffication.  Each of
these suggestions is flawed, and, moreover, Turkey fails to see how the Panel could conclude thatTurkey had a duty to opt for one of these alternatives as long as the measures challenged by India didnot result in the common regulation of commerce of the Turkey/EC customs union being on the wholemore restrictive than the regulations of Turkey and the European Communities before the formationof the customs union.
19. Turkey also argues that the wider context of Articles XXIV:5 and XXIV:8 and the object and
purpose of the WTO Agreement  do not support the Panel's interpretation.  Article XXIV:4, the
Preamble of the Understanding on the Interpretation of Ar ticle XXIV of the General Agreement on
Tariffs and Trade 1994  (the " Understanding on Article XXIV ") and the Singapore MinisterialWT/DS34/AB/R
Page 5
Declaration do not support a conclusion that the introduction of quantitative restrictions as part of the
formation of a customs union is prohibited by Article XXIV.
20. Finally, Turkey argues that the Panel drew the wrong conclusion from past GATT/WTO
practice.  The Panel concluded from its review of GATT/WTO practice that there is no agreement or
acceptance that Article XXIV authorized or required  the introduction of otherwise GATT/WTO
inconsistent measures upon the formation of a customs union.  The Panel erred, however, by notreviewing whether GATT/WTO practice prohibited  the introduction of such measures.  Turkey
recalls, for example, that during the accession of Sweden to the European Communities, Sweden
adopted quantitative restrictions similar to those challenged in this case.  In that case, no GATTContracting Party challenged those measures under Articles XXII or XXIII of the GATT.
B. Arguments of India - Appellee
21. India argues that the Panel's ruling that Article XXIV does not authorize the introduction of
quantitative restrictions in this case is compelled by the recognized principles of interpretation set out
in Articles 31 and 32 of the Vienna Convention on the Law of Treaties .  The terms of Article XXIV:5
exempt from the other obligations of the GATT 1994 only those measures that are "inherent" in theformation of a customs union.  For example, in order to form a customs union, preferential treatmentinconsistent with Article I of the GATT 1994 must  be granted.  By contrast, customs unions can be
formed without the introduction of new quantitative restrictions on imports that are inconsistent withArticle XI of the GATT 1994.
22. India argues that the context of Article XXIV:5 confirms this interpretation.  Article XXIV:4
explains why customs unions are permitted and which purposes they are to serve.  Based on thecontext provided by Article XXIV:4, Article XXIV:5 cannot be interpreted to provide a justification
for measures raising barriers to the trade of other WTO Members.  Furthermore, the existence in
Article XXIV:6 of a mechanism for compensation in the case of increases in tariff duties, without acorresponding provision for compensation for the introduction of new quantitative restrictions, makesclear that Article XXIV was not meant to authorize the imposition of quantitative restrictions.
23. Examining the object and purpose of the WTO Agreement , India notes Turkey's argument that
the requirements of Article XXIV:5 and Article XXIV:8 apply to the import regimes of the WTOMembers forming the customs union taken as a whole, not to individual measures.  As there is,however, no mechanism for providing compensation for the introduction of new quantitativerestrictions, acceptance of Turkey's argument would induce Members forming a customs union to
replace the protection afforded by their tariffs with new quantitative restrictions.  This resultWT/DS34/AB/R
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contradicts the object and purpose of the drafters, who established a strong prohibition on the use of
quantitative restrictions.
24. With respect to Turkey's general claims of legal error, India argues that the Panel did not
presume a conflict between the provisions of Article XXIV and the provisions of Articles XI and XIII
of the GATT 1994 and Article 2.4 of the ATC.  The Panel made no such presumption, and simply
addressed the question whether there was a need to examine the consistency of the customs unionwith Article XXIV.  Furthermore, in contrast to what Turkey argues, the Panel never stated thatArticle XXIV was an exception to GATT obligations .  The Panel simply noted that Turkey made an
"affirmative defence" based on Article XXIV.
25. Next, India responds to Turkey's statement that Article XXIV:5 permits the formation of a
customs union as long as the economic assessment in sub-paragraph 5(a) is fulfilled.  Article XXIVdefines the purposes for which a WTO Member can deviate from other GATT provisions, but doesnot define the provisions themselves.  Only thos e provisions of the GATT 1994 that "prevent" the
formation of a customs union may provide the basis for a defense under Article XXIV.  Under the
terms of Article XXIV:5, the formation of a customs union is not "prevented" by the obligations setout in Article XI of the GATT 1994 and Article 2.4 of the ATC.  The formation of a customs union is
only "prevented" by those provisions of the GATT 1994 that prohibit discrimination, such as Article Iof the GATT 1994 and other most-favoured-nation prov isions, because discrimination is inherent in
regional integration.
26. India also claims that, contrary to Turkey's argument, the Panel did not rule that Article XXIV
justifies only deviations from Article I, and that Article XXIV consequently applied only to tariffs.  Infact, the Panel made clear that Article XXIV could permit Members to refrain from applying
quantitative restrictions, as well as tariffs, to their partner in the customs union.
27. Finally, according to India, Turkey is unable to explain why the mere fact that a type of
measure is regulated in Part III of the GATT 1994 demonstrates that the other Parts of the GATT1994 no longer apply.  Turkey's arguments fail to take into account the reason why the draftersdivided the GATT into three parts.
28. With respect to Turkey's specific claims of le gal error, India responds to Turkey's objection
that the Panel failed to consider the chapeau of Article XXIV:5 in its examination ofArticle XXIV:5(a) by arguing that the Panel in fact conducted a thorough textual and contextualanalysis.  In response to Turkey's claim that th e Panel's interpretation renders Article XXIV:5(a) a
nullity, India argues that Article XXIV:5(a) establishes a requirement that Members forming a
customs union must meet in addition to their other market access obligations.  This additionalWT/DS34/AB/R
Page 7
requirement has not been reduced to inutility by  the Panel's interpretation.  Members forming a
customs union may not have bound all their tariffs or may apply their tariffs at levels below the boundrate, or they may have the right to impose quantitative restrictions consistently with one of theexceptions to Article XI of the GATT 1994.  In these circumstances, the Members could exercise their
right to increase barriers to trade, but only under the conditions set out in Article XXIV:5(a).
29. India also submits that, in contrast to Turkey's claims, the immediate context of
Article XXIV:5(a) supports the Panel's interpretation that that provision does not authorize theintroduction of quantitative restrictions.  In particular, the text of Article XXIV:5(b), Article XXIV:4,and Article XXIV:6, as well as the placement of Article XXIV in Part III of the GATT 1994, allsupport the Panel's interpretation.  India also argues that, contrary to Turkey's claims, the widercontext of Articles XXIV:5 and XXIV:8 and the object and purpose of the WTO Agreement support
the Panel's interpretation of these provisions.
30. Furthermore, India contends that Turkey's claim that the Panel did not properly interpret the
ordinary meaning of Article XXIV:8(a) is incorrect.   The Panel found that Article XXIV:8(a)(ii) does
not provide authorization for Members forming a customs union to violate the prescriptions ofArticles XI and XIII of the GATT 1994 or Article 2.4 of the ATC.  Turkey objects to this
interpretation on the ground that it curtails the right of Members with different trade regimes to form acustoms union.  Turkey fails to take into account that the right to form a customs union is notabsolute.  Moreover, the Panel's interpretation does not prevent Turkey from forming a customs unionwith the European Communities, even though it migh t affect the nature and timing of the formation.
31. Finally, according to India, the Panel drew the correct conclusions from GATT/WTO practice
on this issue.  The situation here is different from the case involving Sweden's adoption of
quantitative restrictions on the occasion of its accession to the European Union, as Turkey did not
accede to the European Union.  The measures at issue here are simply quantitative restrictionsadopted by Turkey in the context of an agreement establishing a customs union with the EuropeanCommunities.
32. In addition to responding to Turkey's general and specific claims of legal error, India makes a
number of general observations.  First, the argument that Article XXIV of the GATT 1994 canprovide a justification for quantitative restrictions has never been accepted under the GATT 1947.Second, the agreement establishing a customs union between Turkey and the European Communitieswas drafted on the assumption that Article XXIV does not justify the introduction of new quantitative
restrictions on imports of textile and clothing products.  This agreement explicitly recognized the
possibility that Turkey would not be able to impose quantitative restrictions and that, therefore, asystem of certificates of origin would continue to be applied on these products.  Third, the agreementWT/DS34/AB/R
Page 8
between Turkey and the European Communities provides for the formation of a customs union only at
a future date, and therefore constitutes, at most, an interim agreement for the formation of a customsunion.  To realize the objectives of this interim agreement, Turkey did not have to impose the samerestrictions on imports of textiles and clothing as imposed by the European Communities.
III. Arguments of Third Participants
A. Hong Kong, China
33. Hong Kong, China argues that Article XXIV is best characterized as a specific provision of
the GATT 1994 under which WTO Members are permitted, subject to compliance with certainconditions, to form customs unions or free trade areas that may depart from certain other provisions ofthe WTO Agreement .
34. In interpreting Article XXIV:5, Hong Kong, China notes that it is important to examine the
context provided by Article XXIV:4.  This paragraph states that the purpose of a customs union orfree-trade area is "not to raise barriers to the trade of other contracting parties with such territories."
Similarly, the Understanding on Article XXIV  states that parties to regional trade agreements "should
to the greatest possible extent avoid creating adverse effects on the trade of other Members."
9  I t
would be contrary to the stated purpose of regional agreements set out in Article XXIV:4 to interpretthe chapeau to Article XXIV:5 to permit the raising of barriers to trade in violation of Articles XI and
XIII of the GATT 1994.
35. Hong Kong, China also states that, under Article XXIV:8(a), a customs union need not result
in a total alignment of the external trade regimes of the constituent territories.  Furthermore, Turkey'sclaims about past GATT/WTO practice on this issue are inapposite.  In particular, the circumstances
in which Sweden introduced discriminatory quantitative restrictions on imports of textile and clothing
products were completely different from those in the present case.
B. Japan
36. Japan states that a basic tenet of the WTO Agreement  is the primacy of the multilateral trading
system based on the core principle of the elimination of discriminatory treatment in international traderelations.  Members must observe this principle whenever they exercise their rights and obligationsunder the WTO Agreement , including when they enter into regional trade agreements under
                                                     
9Understanding on Article XXIV, Preamble.WT/DS34/AB/R
Page 9
Article XXIV of the GATT  1994.  Regional trade agreements are only allowed if they are
complementary to the multilateral trading system and if they comply with the rules set out in
Article XXIV of the GATT 1994.
37. Japan does not believe that Article XXIV functions as a "waiver" which allows derogation
from the basic tenets of the multilateral trading system.  Furthermore, it should not be interpreted as a
waiver of the obligation to eliminate quantitative restrictions, which is a central pillar of the WTOsystem.  Hence, Japan disagrees that Article XXIV gives WTO Members the right to introducequantitative restrictions in contravention of the WTO Agreement  on the occasion of the formation of a
customs union.
C. The Philippines
38. The Philippines first notes that Turkey's invocation of Article XXIV is an affirmative defence
to its acknowledged violation of Articles XI and XIII of the GATT  1994 and Article 2.4 of the ATC.
39. The Philippines then argues that Turkey's quantitative restrictions are not justified by
Article XXIV.  First, the quantitative restrictions are not justified because they are on the whole more
restrictive than the general incidence of regulations of commerce applicable in the constituentterritories prior to the formation of the customs union, in contravention of Article XXIV:5(a).Second, the quantitative restrictions violate Article XXIV:4 because Turkey (and the EuropeanCommunities) did not avoid creating adverse effects on the trade of other Members to the greatestpossible extent.  Third, the chapeau of Article XXIV:5 applies solely to the provisions of the GATT1994 that, if enforced, would prohibit the formation of a customs union.  It does not exempt Membersfrom complying with other obligations under the WTO Agreement .  Fourth, the grounds upon which
measures are permitted under Articles XI, XII, XIII, XIV, XV and XX are, by their nature, specific to
the Member concerned and, accordingly, cannot be grandfathered.
40. The Philippines also argues that, in any case, Turkey and the European Communities have not
formed a customs union.  The arrangement between Turkey and the European Communities does notqualify as a customs union under Article XXIV:8 because, inter alia , all restrictive regulations of
commerce have not been eliminated with respect to substantially all trade between Turkey and theEuropean Communities.  In addition, Turkey and the European Communities do not applysubstantially the same duties and regulations of commerce to the trade with Members not included inthe customs union.WT/DS34/AB/R
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IV. Issue Raised in this Appeal
41. This appeal relates to certain quantitative restrictions imposed by Turkey on 19 categories of
textile and clothing products imported from India.  Turkey adopted these quantitative restrictionsupon the formation of a customs union with the European Communities.  The Panel found these
quantitative restrictions to be inconsistent with Articles XI and XIII of the GATT 1994 and Article 2.4
of the ATC.
10  The issue raised by Turkey in this appeal is whether these quantitative restrictions are
nevertheless justified by Article XXIV of the GATT 1994.
V. Article XXIV of the GATT 1994
42. In examining Turkey's defence that Article XXIV of the GATT 1994 allowed Turkey to adopt
the quantitative restrictions at issue in this appeal, the Panel looked, first, at Article XXIV:5(a) and,then, at Article XXIV:8(a) of the GATT 1994.  The Panel examined the ordinary meaning of theterms of these provisions, in their context and in the light of the object and purpose of the WTO
Agreement .  The Panel reached the following conclusions:
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 adeparture from the obligations contained in Articles XI and XIII of
GATT and Article 2.4 of the ATC.
…
[Paragraphs 5 and 8 of Article XXIV] do not … address any specific
measures that may or may not be adopted on the formation of acustoms union and importantly they do not authorize violations of
Articles XI and XIII, and Article 2.4 of the ATC. … We draw the
conclusion that even on the occasion of the formation of a customs
union, Members cannot impose otherwise incompatible quantitative
restrictions.
11
Consequently, the Panel rejected Turkey's defence that Article XXIV justifies the introduction of the
quantitative restrictions at issue.  Turkey a ppeals the Panel's interpretation of Article XXIV.
43. We note that, in its findings, the Panel referred to the chapeau of paragraph 5 of Article XXIV
only in a passing and perfunctory way.  The chapeau of paragraph 5 is not central to the Panel's
analysis, which focuses instead primarily on paragraph 5(a) and paragraph 8(a).  However, we believethat the chapeau of paragraph 5 of Article XXIV is the key provision for resolving the issue before usin this appeal.  In relevant part, it reads:
                                                     
10Panel Report, para. 9.86.
11Ibid., paras. 9.188 and 9.189.WT/DS34/AB/R
Page 11
Accordingly, the provisions of this Agreement shall not prevent , as
between the territories of contracting parties, the formation of a customs
union  …; Provided that: …  (emphasis added)
44. To determine the meaning and significance of the chapeau of paragraph 5, we must look at
the text of the chapeau, and its context, which, for our purposes here, we consider to be paragraph 4 of
Article XXIV.
45. First, in examining the text of the chapeau to establish its ordinary meaning, we note that the
chapeau states that the provisions of the GATT 1994 " shall not prevent " the formation of a customs
union.  We read this to mean that the provisions of the GATT 1994 shall not make impossible  the
formation of a customs union.12  Thus, the chapeau makes it clear that Article XXIV may, under
certain conditions, justify the adoption of a measure which is inconsistent with certain other GATTprovisions, and may be invoked as a possible "defence" to a finding of inconsistency.
13
46. Second, in examining the text of the chapeau, we observe also that it states that the provisions
of the GATT 1994 shall not prevent " the formation of a customs union ".  This wording indicates that
Article XXIV can justify the adoption of a measure which is inconsistent with certain other GATT
provisions only if the measure is introduced upon the formation of a customs union, and only to theextent that the formation of the customs union would be prevented if the introduction of the measurewere not allowed.
47. It follows necessarily that the text of the chapeau of paragraph 5 of Article XXIV cannot be
interpreted without reference to the definition of a "customs union".  This definition is found inparagraph 8(a) of Article XXIV, which states, in relevant part:
                                                     
12"Prevent" is defined as "make impracticable or impossible by anticipatory action; stop from
happening."  The New Shorter Oxford English Dictionary  (Clarendon Press, 1993), Vol. II, at 2348.
13We note that legal scholars have long considered Article XXIV to be an "exception" or a possible
"defence" to claims of violation of GATT provisions.  An early treatise on GATT law stated: "[Article XXIV]
establishes an exception  to GATT obligations  for regional arrangements that meet a series of detailed and
complex criteria." (emphasis added)  J. Jackson, World Trade and the Law of GATT  (The Bobbs-Merrill
Company, 1969), p. 576.  See also J. Allen, The European Common Market and the GATT  (The University
Press of Washington, D.C., 1960), p. 2;  K. Dam, "Regional Economic Arrangements and the GATT: TheLegacy of Misconception", University of Chicago Law Review , 1963, p. 616;  and J. Huber, "The Practice of
GATT in Examining Regional Arrangements under Article XXIV", Journal of Common Market Studies , 1981,
p. 281.  We note also the following statement in the unadopted panel report in EEC – Member States' Import
Regimes for Bananas , DS32/R, 3 June 1993, para. 358:  "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 …". (emphasis added)
The chapeau of paragraph 5 refers only to the provisions of the GATT 1994.  It does not refer to the
provisions of the ATC.  However, Article 2.4 of the ATC provides that "[n]o new restrictions … shall be
introduced except under  the provisions of this Agreement or relevant GATT 1994 provisions ." (emphasis added)
In this way, Article XXIV of the GATT 1994 is incorporated in the ATC and may be invoked as a defence to a
claim of inconsistency with Article 2.4 of the ATC, provided that the conditions set forth in Article XXIV for the
availability of this defence are met.WT/DS34/AB/R
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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, XIII, XIV, XV and XX) areeliminated with respect to substantially all the trade
between the constituent territories of the union or at
least with respect to substantially all the trade in
products originating in such territories, and,
(ii) … 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. (emphasis added)
48. Sub-paragraph 8(a)(i) of Article XXIV establishes the standard for the internal trade  between
constituent members in order to satisfy the definition of a "customs union".  It requires the constituent
members of a customs union to eliminate "duties and other restrictive regulations of commerce" withrespect to "substantially all the trade" between them.  Neither the GATT C
ONTRACTING PARTIES  nor
the WTO Members have ever reached an agreement on the interpretation of the term "substantially" inthis provision.
14  It is clear, though, that "substantially all the trade" is not the same as all the trade,
and also that "substantially all the trade" is  something considerably more than merely some  of the
trade.  We note also that the terms of sub-paragraph 8(a)(i) provide that members of a customs unionmay maintain, where necessary, in their internal trade, certain restrictive regulations of commerce thatare otherwise permitted under Articles XI through XV and under Article XX of the GATT 1994.
Thus, we agree with the Panel that the terms of sub-paragraph 8(a)(i) offer "some flexibility" to the
constituent members of a customs union when liberalizing their internal trade in accordance with thissub-paragraph.
15  Yet we caution that the degree of "flexibility" that sub-paragraph 8(a)(i) allows is
limited by the requirement that "duties and other restrictive regulations of commerce" be "eliminatedwith respect to substantially all" internal trade.
49. Sub-paragraph 8(a)(ii) establishes the standard for the trade of constituent members with third
countries  in order to satisfy the definition of a "customs union".  It requires the constituent members
of a customs union to apply "substantially the same" duties and other regulations of commerce toexternal trade with third countries.  The constituent members of a customs union are thus required to
apply a common external trade regime, relating to both duties and other regulations of commerce.
However, sub-paragraph 8(a)(ii) does not require each constituent member of a customs union to
apply  the same  duties and other regulations of commerce as other constituent members with respect
                                                     
14Panel Report, para. 9.148.
15Ibid., para. 9.146.WT/DS34/AB/R
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to trade with third countries;  instead, it requires that substantially the same  duties and other
regulations of commerce shall be applied.  We agree with the Panel that:
[t]he ordinary meaning of the term "substantially" in the context of sub-
paragraph 8(a) appears to provide for both qualitative and quantitativecomponents.  The expression "substantially the same duties and other
regulations of commerce are applied by each of the Members of the
[customs] union" would appear to encompass both quantitative and
qualitative elements, the quantitative aspect more emphasized in
relation to duties.
16
50. We also believe that the Panel was correct in its statement that the terms of sub-
paragraph 8(a)(ii), and, in particular, the phrase "substantially the same" offer a certain degree of"flexibility" to the constituent members of a customs union in "the creation of a common commercial
policy."
17  Here too we would caution that this "flexibility" is limited.  It must not be forgotten that the
word "substantially" qualifies the words "the same".  Therefore, in our view, something closelyapproximating "sameness" is required by Article XXIV:8(a)(ii).  We do not agree with the Panel that:
… as a general rule, a situation where constituent members have
"comparable" trade regulations having similar effects with respect to
the trade with third countries, would generally meet the qualitativedimension of the requirements of sub-paragraph 8(a)(ii).
18
Sub-paragraph 8(a)(ii) requires the constituent members of a customs union to adopt "substantially the
same" trade regulations.  In our view, "comparable trade regulations having similar effects" do not
meet this standard.  A higher degree of "sameness" is required by the terms of sub-paragraph 8(a)(ii).
51. Third, in examining the text of the chapeau of Article XXIV:5, we note that the chapeau
states that the provisions of the GATT 1994 shall not prevent the formation of a customs union"Provided  that".  The phrase " provided that " is an essential element of the text of the chapeau.  In this
respect, for purposes of a "customs union", the relevant proviso is set out immediately following thechapeau, in Article XXIV:5(a).  It reads in relevant part:
with respect to a customs union …, the duties and other regulations of
commerce imposed at the institution of any such union … in respectof trade with contracting parties not parties to such union … 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 …;
                                                     
16Panel Report, para. 9.148.
17Ibid.
18Ibid., para. 9.151.WT/DS34/AB/R
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52. Given this proviso, Article XXIV can, in our view, only be invoked as a defence to a finding
that a measure is inconsistent with certain GATT provisions to the extent that the measure isintroduced upon the formation of a customs union which meets the requirement in sub-paragraph 5(a)of Article XXIV relating to the "duties and other regulations of commerce" applied by the constituent
members of the customs union to trade with third countries.
53. With respect to "duties", Article XXIV:5(a) requires that the duties applied by the constituent
members of the customs union after  the formation of the customs union "shall not on the whole be
higher  … than the general incidence " of the duties that were applied by each of the constituent
members before the formation of the customs union.  Paragraph 2 of the Understanding on
Article XXIV  requires that the evaluation under Article XXIV:5(a) of the general incidence of the
duties  applied before and after the formation of a customs union "shall … be based upon an overall
assessment of weighted average tariff rates and of customs duties collected."
19  Before the agreement
on this Understanding, there were different views among the GATT Contracting Parties as to whether
one should consider, when applying the test of Article XXIV:5(a), the bound  rates of duty or the
applied  rates of duty.  This issue has been resolved by paragraph 2 of the Understanding on
Article XXIV , which clearly states that the applied  rate of duty must be used.
54. With respect to "other regulations of comme rce", Article XXIV:5(a) requires that those
applied by the constituent members  after  the formation of the customs union "shall not on the whole
be … more restrictive  than the general incidence " of the regulations of commerce that were applied
by each of the constituent members before  the formation of the customs union.  Paragraph 2 of the
Understanding on Article XXIV  explicitly recognizes that the quantification and aggregation of
regulations of commerce other than duties may be difficult, and, therefore, states 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."20
55. We agree with the Panel that the terms of Article XXIV:5(a), as elaborated and clarified by
paragraph 2 of the Understanding on Article XXIV , provide:
                                                     
19Paragraph 2 of the Understanding on Article XXIV  further states that "this assessment shall be based
on import statistics for a previous representative period to be supplied by the customs union, on a tariff-linebasis and in values and quantities, broken down by WTO country of origin."
20In paragraph 43 of its appellant's submission, Turkey argues that this provision must be interpreted as
allowing the constituent members of a customs union to introduce GATT/WTO inconsistent quantitativerestrictions upon the formation of the customs union.  We see no basis for such an interpretation.WT/DS34/AB/R
Page 15
… that the effects of the resulting trade measures and policies of the
new regional agreement shall not be mo re trade restrictive, overall, than
were the constituent countries' previous trade policies.21
and we also agree that this is:
an "economic" test for assessing whether a specific customs union is
compatible with Article XXIV.22
56. The text of the chapeau of paragraph 5 must also be interpreted in its context.  In our view,
paragraph 4 of Article XXIV constitutes an important element of the context of the chapeau of
paragraph 5.  The chapeau of paragraph 5 of Article XXIV begins with the word "accordingly", which
can only be read to refer to paragraph 4 of Article XXIV, which immediately precedes the chapeau.Paragraph 4 states:
The contracting parties recognize the desirability of increasing freedom
of trade by the development, thr ough voluntary agreements, of closer
integration between the economies of the countries parties to suchagreements. 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.
57. According to paragraph 4, the purpose of a customs union is "to facilitate trade" between the
constituent members and "not to raise barriers to the trade" with third countries.  This objective
demands that a balance be struck by the constituent members of a customs union.  A customs unionshould facilitate trade within the customs union, but it should not do so in a way that raises barriers to
trade with third countries. We note that the Understanding on Article XXIV  explicitly reaffirms this
purpose of a customs union, and states that in the formation or enlargement of a customs union, theconstituent members should "to the greatest possible extent avoid creating adverse affects on the trade
of other Members".
23  Paragraph 4 contains purposive, and not operative, language.  It does not set
forth a separate obligation itself but, rather, sets forth the overriding and pervasive purpose forArticle XXIV which is manifested in operative language in the specific obligations that are foundelsewhere in Article XXIV.  Thus, the purpose set forth in paragraph 4 informs the other relevantparagraphs of Article XXIV, including the chapeau of paragraph 5.  For this reason, the chapeau ofparagraph 5, and the conditions set forth therein for establishing the availability of a defence underArticle XXIV, must be interpreted in the light of the purpose of customs unions set forth inparagraph 4.  The chapeau cannot be interpreted correctly without constant reference to this purpose.
                                                     
21Panel Report, para. 9.121.
22Ibid., para. 9.120.
23Understanding on Article XXIV , Preamble.WT/DS34/AB/R
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58. Accordingly, on the basis of this analysis of the text and the context of the chapeau of
paragraph 5 of Article XXIV, we are of the view that Article XXIV may justify a measure which isinconsistent with certain other GATT provisions.  However, in a case involving the formation of a
customs union, this "defence" is available only when two conditions are fulfilled.  First, the party
claiming the benefit of this defence must demonstrate that the measure at issue is introduced upon the
formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) ofArticle XXIV.  And, second, that party must demons trate that the formation of that customs union
would be prevented if it were not allowed to introduce the measure at issue.  Again, both these
conditions must be met to have the benefit of the defence under Article XXIV.
59. We would expect a panel, when examining such a measure, to require a party to establish that
both of these conditions have been fulfilled.  It may not always be possible to determine whether thesecond of the two conditions has been fulfilled without initially determining whether the firstcondition has been fulfilled.  In other words, it may not always be possible to determine whether not
applying a measure would prevent the formation of  a customs union without first determining whether
there is a customs union.  In this case, the Panel simply assumed, for the sake of argument, that the
first of these two conditions was met and focused its attention on the second condition.
60. More specifically, with respect to the first c ondition, the Panel, in this case, did not address
the question of whether the regional trade arrangement between Turkey and the EuropeanCommunities is, in fact, a "customs union" which meets the requirements of paragraphs 8(a) and 5(a)of Article XXIV.  The Panel maintained that "it is arguable" that panels do not have jurisdiction toassess the overall compatibility of a customs union with the requirements of Article XXIV.
24  We are
not called upon in this appeal to address this issue, but we note in this respect our ruling in India –
Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products  on the
jurisdiction of panels to review the justification of balance-of-payments restrictions underArticle XVIII:B of the GATT 1994.
25  The Panel also considered that, on the basis of the principle of
judicial economy, it was not necessary to assess the compatibility of the regional trade arrangementbetween Turkey and the European Communities with Article XXIV in order to address the claims ofIndia.
26  Based on this reasoning, the Panel assumed arguendo  that the arrangement between Turkey
and the European Communities is compatible with the requirements of Article XXIV:8(a) and 5(a)and limited its examination to the question of whether Turkey was permitted to introduce thequantitative restrictions at issue.
27  The assumption by the Panel that the agreement between Turkey
                                                     
24Panel Report, para. 9.53.
25Adopted 22 September 1999, WT/DS90/AB/R, paras. 80 – 109.
26Panel Report, para. 9.54.
27Ibid., para. 9.55.WT/DS34/AB/R
Page 17
and the European Communities is a "customs union" within the meaning of Article XXIV was not
appealed.  Therefore, the issue of whether this arrangement meets the requirements of paragraphs 8(a)and 5(a) of Article XXIV is not before us.
61. With respect to the second condition that must be met to have the benefit of the defence under
Article XXIV, Turkey asserts that had it not introduced the quantitative restrictions on textile and
clothing products from India that are at issue,  the European Communities would have "exclud[ed]
these products from free trade within the Turkey/EC customs union".
28  According to Turkey, the
European Communities would have done so in order to prevent trade diversion.  Turkey's exports ofthese products accounted for 40 per cent of Turkey 's total exports to the European Communities.
29
Turkey expresses strong doubts about whether the requirement of Article XXIV:8(a)(i) that duties and
other restrictive regulations of commerce be eliminated with respect to "substantially all trade"between Turkey and the European Communities could be met if 40 per cent of Turkey's total exportsto the European Communities were excluded.
30  In this way, Turkey argues that, unless it is allowed to
introduce quantitative restrictions on textile and clothing products from India, it would be prevented
from meeting the requirements of Article XXIV:8(a)(i) and, thus, would be prevented from forming acustoms union with the European Communities.
62. We agree with the Panel that had Turkey not adopted the same quantitative restrictions that
are applied by the European Communities, this would not have prevented Turkey and the EuropeanCommunities from meeting the requirements of sub-paragraph 8(a)(i) of Article XXIV, andconsequently from forming a customs union.  We recall our conclusion that the terms of sub-paragraph 8(a)(i) offer some – though limited – flexibility to the constituent members of a customsunion when liberalizing their internal trade.
31  As the Panel observed, there are other alternatives
available to Turkey and the European Communities to prevent any possible diversion of trade, while
at the same time meeting the requirements of sub-paragraph 8(a)(i).32  For example, Turkey could
adopt rules of origin for textile and clothing products that would allow the European Communities todistinguish between those textile and clothing produ cts originating in Turkey, which would enjoy free
access to the European Communities under the terms of the customs union, and those textile and
clothing products originating in third countries, including India.  In fact, we note that Turkey and theEuropean Communities themselves appear to have reco gnized that rules of origin could be applied to
deal with any possible trade diversion.  Article 12 (3) of Decision 1/95 of the EC-Turkey Association
                                                     
28Turkey's appellant's submission, para. 56.
29Panel Report, para. 9.153.
30Turkey's appellant's submission, para. 56
31Supra , para. 48
32Panel Report, para. 9.152.WT/DS34/AB/R
Page 18
Council, which sets out the rules for implementin g the final phase of the customs union between
Turkey and the European Communities, specifically provides for the possibility of applying a systemof certificates of origin.
33  A system of certificates of origin would have been a reasonable alternative
until the quantitative restrictions applied by the European Communities are required to be terminated
under the provisions of the ATC.  Yet no use was made of this possibility to avoid trade diversion.
Turkey preferred instead to introduce the quantitative restrictions at issue.
63. For this reason, we conclude that Turkey was not, in fact, required to apply the quantitative
restrictions at issue in this appeal in order to  form a customs union with the European Communities.
Therefore, Turkey has not fulfilled the second of the two necessary conditions that must be fulfilled tobe entitled to the benefit of the defence under Article XXIV.  Turkey has not demonstrated that theformation of a customs union between Turkey and the European Communities would be prevented ifit were not allowed to adopt these quantitative restrictions.  Thus, the defence afforded byArticle XXIV under certain conditions is not available to Turkey in this case, and Article XXIV does
not justify the adoption by Turkey of these quantitative restrictions.
VI. Findings and Conclusions
64. For the reasons set out in this report, the Appellate Body concludes that the Panel erred in its
legal reasoning by focusing on sub-paragraphs 8(a) and 5(a) and by failing to recognize the crucialrole of the chapeau of paragraph 5 in the interpretation of Article XXIV of the GATT 1994, butupholds the Panel's conclusion that Article XXIV does not allow Turkey to adopt, upon the formationof a customs union with the European Communities, quantitative restrictions on imports of19 categories of textile and clothing products which were found to be inconsistent with Articles XIand XIII of the GATT 1994 and Article 2.4 of the ATC.
65. We wish to point out that we make no finding on the issue of whether quantitative restrictions
found to be inconsistent with Article XI and Article XIII of the GATT 1994 will ever be justified by
Article XXIV.  We find only that the quantitative restrictions at issue in the appeal in this case werenot so justified.  Likewise, we make no finding either on many other issues that may arise under
                                                     
33Article 12(3) reads as follows:
Until Turkey has concluded these arrangements, the present system of
certificates of origin for the exports of textile and clothing  from Turkey into
the Community will remain in force and such products not originating fromTurkey will remain subject to the application of the CommunitiesCommercial Policy in relation to the third countries in question. (emphasisadded)WT/DS34/AB/R
Page 19
Article XXIV.  The resolution of those other issues must await another day.  We do not believe it
necessary to find more than we have found here to fulfill our responsibilities under the DSU indeciding this case.
66. The Appellate Body recommends that the DSB request that Turkey bring its measures which
the Panel found to be inconsistent with Articles XI and XIII of the GATT 1994 and Article 2.4 of the
ATC into conformity with its obligations under these agreements.
Signed in the original at Geneva this 23rd day of September 1999 by:
_________________________
Christopher Beeby
Presiding Member
_________________________ _________________________
James Bacchus Said El-Naggar
Member Member