Mar 17, 1998

DISPUTE PANEL SET ON TURKEY TEXTILE QRS

Geneva, 14 Mar (Chakravarthi Raghavan) -- The WTO's Dispute Settlement Body (DSB) agreed Friday to establish a panel to go into the dispute raised by India against Turkey over the latter's imposition of quota restrictions on imports of textile and clothing products which, India contends, is contrary to the WTO/GATT rules and the Agreement on Textiles and Clothing (ATC). 

The panel request, had come up before the DSB on 16 February, but Turkey blocked it by withholding consensus. India brought it up Friday for the second time, and it was automatically referred to a panel.  

Turkey wanted 'special terms of reference' for the panel, but India did not agree. The two sides have 20 days to agree on this, and failing that standard terms of reference would apply.  

As set out in Art. 7 of the DSU, the standard terms are for a panel to examine in the light of the relevant provisions in the covered agreements cited by the parties to the dispute, the matter referred to the DSB, and to make such findings as will assist the DSB in making the recommendations or in giving rulings provided for in the agreements.  

Before the DSB agreed to the panel reference, there were procedural discussions about the role of the European Communities (EC) with whom Turkey has a customs union - with the EC arguing it has to be a joint party to the dispute with Turkey. But India did not agree. Mexico supported India's right to raise a dispute with Turkey.  

The EC also wanted the DSB consideration 'suspended' for a few days to allow time for reflection, but India did not agree. 

Thailand, Hong Kong-China, the Philippines, the US and Japan announced their third party interest. Others, who have not declared their interest, still have time to notify the DSB and become third parties - and the EC may have to take recourse to this.  

The Indian complaint is that Turkey, which had not notified any quota restrictions on entry into force of the WTO and its ATC, had unilaterally imposed quotas on imports from India (and some 24 other countries, both WTO and non-WTO members), effective 1 January 1996, and thus violated rules of the WTO/GATT and ATC.  

The quota restrictions imposed by Turkey, after its customs union with the European Communities, has been figuring before the WTO bodies since January 1996, and involves a number of systemic issues, and the 'free-wheeling' ways of the European Communities and other powerful countries within the trading system.  

Consultations on the quotas, sought by Hong Kong with Turkey under Art. XXII, which enables third party participation with consent of both parties, set for 16-17 April 1996, became infructuous, when the EC (as several others) which had applied to join the consultations as an interested party, sought to run the consultations and Turkey said the consultations should be held with Turkey and EC as joint parties to the dispute. Hong Kong as well as other third parties present insisted that the EC could sit in only as a third party, along with other third parties. Hong Kong and others did not accept this, and the meeting broke up on that without any consultations being held. Hong Kong advised the DSB of the situation.  

Hong Kong however did not pursue the case further. The EC Trade Commissioner, Sir Leon Brittan who held talks with Hong Kong, appears to have persuaded Hong Kong not to pursue it. Whether any quid pro quo was involved is not clear.  

India had separately sought 'consultations' with Turkey under Art. XXIII of the GATT (the nullification and impairment provisions). But no consultations ever took place. Though Turkey agreed to these consultations and one was set for 18-19 April 1996, and Indian officials had come for the consultations from New Delhi, Turkey did not turn up and no consultations could be held. 

The Article XXIII consultations that India had sought is essentially a bilateral one - as the EC itself in a case involving it had insisted at the WTO. As such there is no provision for a third party to join the consultations.  

But according to trade diplomats, the EC apparently did not want Turkey to consult with India bilaterally, without the EC by its side, and told Turkey not to go to the consultations.  

With consultations not having been held, India sought a panel, and this request came before the DSB on 16 February this year, but was blocked by Turkey.  

The reason for the 'delay' in India seeking a panel after failure of consultations, appears to be related to the fact that it was only in November 1997, almost two years after the customs union, that both Turkey and the EC appear to have notified the WTO and the WTO's regional integration committee (looking into the EC-Turkey customs union) as a measure under the customs union agreement (XXIV of GATT 1994). The Textile Monitoring Body that monitors the ATC was advised that the QRs imposed by Turkey were not under the ATC.  

Turkey's defence is that these restrictions were the result of its customs union with the European Community and Turkey having to apply the EC's external tariff and trade regime.  

Last year, when the issue was brought up before the DSB and the Goods Council, Hong Kong, Asean, India and others noted that as a result of the customs union, Turkey (with whom they were competing on the EC market before), now had no barriers to the disadvantage of other developing country exporters. At the same time, imports into Turkey were restricted by country-quotas. 

Art. XXIV of the GATT enables formation of customs Unions and free trade areas, and reduction of their mutual trade barriers, but the members and territories forming such unions are required not to raise the trade barriers of other contracting parties. Art XXIV.5 (a) specifically requires that duties and other commercial regulations with contracting parties not parties to the customs union shall not be higher or more restrictive than general incidence before the union.

Under Art XXIV:7 parties to a customs union "shall promptly notify" the CPs of the union, and make available information about the union.  

But these, and other provisions safeguarding the interests of non-members of a customs union have been routinely ignored, in spirit if not in letter by the EC, during the old GATT as well as under the WTO now. The Rome treaty for setting up the EC and its subsequent addition and changes have never received formal approval of the GATT, or the WTO now, but the EC has always proceeded on the basis that is what is not disapproved is approved.  

Under the scheme of the ATC (Art. 2), only those non-MFN quota restrictions maintained by countries under the old Multifibre Agreement (MFA) and notified to the WTO within 60 days of entry into force of the WTO, could be continued under the ATC, but subject to various disciplines and programme for phase-out by 2005. 

Restrictions not notified are deemed to have terminated after the 60-day period, and no new restrictions could be imposed. 

Before the WTO, and under the old MFA regime, Turkey was one of the 'exporting developing' countries (against whom quotas were maintained by the EC, US and Canada); it had no MFA import quota restrictions of its own.

Turkey agreed in December 1995 to form a customs union with the European Communities, and this became effective 1 January 1996. Effective that date, Turkey imposed quotas on imports of textile and clothing products from a number of developing countries.  

There was no prior notification to the WTO of the EC-Turkey customs union, nor was detailed information about the tariffs and other measures notified to the WTO for several weeks, if not months. The textiles and clothing quotas were notified only in November 1997. The compatibility of the EC-Turkey customs union and regulations with the WTO rules is separately under scrutiny of the WTO working party on regional agreements. 

At an earlier meeting of the DSB, the EC and Turkey had argued that disputes as that by India should be raised and settled in the working party (where through the consensus decision making process, the EC can block any adverse recommendations), rather than the binding dispute settlement process. India rejected this. 

At the meeting Friday, Turkey argued that India's exports to Turkey after the customs union had in fact increased 20% in dollar value, and much more than its imports from Turkey, and that as a result of the customs union, the external tariff of Turkey had also been reduced. Turkey also has been arguing about the fact that India was not filling even the allocated quotas. 

However, Indian officials say that the quota regime, is expected to be administered by the exporting country, and that Indian government has not issued any export quotas or documents for this purpose. As for the surplus in the bilateral trade, Indian officials said that this could be due to a contract won by India for modernizing Turkey's railway system, involving supply of goods and services from India. Any event, it is irrelevant to the issue of quotas that are per se not GATT-legal. 

Turkey also said that the measures against which India was complaining were the result of the customs union with the EC, and hence the complaint should be addressed to both parties.  

The EC's Amb. Abbot, in his intervention, said that from the beginning India had denied the EC and Turkey, to defend the case as a customs union, and the dispute now raised some 'systemic' questions:  

Since a customs union is composed of two or more territories, was it right to address a complaint against only one? If the panel were to conclude that the restrictions were not justified under the WTO, would it not have a legal effect on the customs union of both parties? Would it be right for the panel to recommend changes that could affect the rights of the EC, when the EC did not have the possibility of participating fully?  

The DSB, Abbot said, should adjourn for 2-3 days to consider this issue.  

Indian ambassador S.Narayanan, said that under the DSU, India was entitled "to identify the other Member" whose measure had impaired benefits accruing to India. It was Turkey that had introduced the quota restrictions, and India was entitled to invoke the provisions of the DSU against Turkey.  

In an intervention on the procedural issue, Mexico supported India's right to complain against Turkey, without agreeing to make the EC a party along with Turkey. 

In a reference to Turkey's arguments about the trade damage or benefit to India by the customs union, Narayanan said that under Art. 3.8 of the DSU, where there is an infringement of an obligation under a covered agreement, it was a prima facie case of nullification or impairment. The very existence of the quotas was an infringement of Turkey's obligations. India could not also agree to any special terms of reference.  

On Abbot's plea for an adjournment of the meeting, Narayanan said the panel request was being made under the DSU (which requires automatic panel reference at the meeting where the request comes up for a second time), and the DSB as a creature of the DSU could not go beyond the rules. The points raised by the EC could be presented to the panel, if the EC so desired, once the EC became a third party to the dispute. 

India had sought consultations with Turkey, and one was scheduled, but Turkey did not enter into consultations. The DSB was informed of the situation at that time itself, and hence India was entitled to straightaway seek a panel. Since the quota restrictions had been introduced by Turkey, in India's view it is Turkey's measures that have to be examined. As for the terms of reference, unless the parties otherwise agreed, the panel should have the standard terms of reference.  

India also rejected the suggestion of the EC and Turkey, that the DSB forward to the panel other documents. It was for the parties to the dispute to do this, under the procedures set by the DSU, India said.