11:32 PM Apr 22, 1996
INDIA
INDIA (SEPARATELY) TO HOLD CONSULTATIONS WITH TURKEY OVER ITS RECENTLY IMPOSED ARRANGEMENTS UNDER ART. XXIV CUSTOMS UNIONS AND FREE TRADE ACCORDS, AND THE AGREEMENT ON TEXTILES AND CLOTHING (ATC) ARE NOW EXPECTED TO LAND BEFORE THE WORLD TRADE ORGANIZATION (WTO) AND ITS DISPUTE SETTLEMENT MECHANISM.
The consultations, sought by Hong Kong under Art XXII of the GATT, and by India under Art. XXIII did not take place within the 30-day period stipulated by the WTO and its Dispute Settlement Understanding (DSU). The failure was due to the attempt to inject the European Community, with which Turkey has entered into a customs union effective 1 January, to be made a 'partner' in the dispute and consultations. Both Hong Kong and India separately rejected this attempt on the ground that the GATT 1994 and the DSU did not provide for this, but only for the participation, if agreed to, of the EU on the ground of its 'substantial trade interests'. In the case of Hong Kong, the 30-day period for holding "consultations in good faith" (under DSU 4:4) ended last Wednesday (17 April), and in case of India on last Friday (19 April). Hong Kong and India can now bring up their disputes before the Dispute Settlement Body (DSB) for establishment of a panel for a ruling. Other countries who had notified their interest in the Hong Kong-Turkey dispute, but were frustrated in participating in the consultations by the European Union which claimed the right to decide on the participation would also be free to bring up their own complaints. The earliest DSB meeting where these can be brought up is the one set for 8 May. The way the disputes will be handled, and the outcome, will have some important systemic implications for the WTO trading system and its credibility as a rule-based system, and will show up how the EU, as a major trading partner, practices what it preaches and implements the WTO agreement, and respects the rights of smaller trading partners. In this dispute so far, while Hong Kong and India have taken the preliminary steps to raise disputes with Turkey, it has been the EU's Executive Commission that has been attempting to call the shots, in interpreting the WTO rules, and attempting to force its views. The EU and Turkey entered into a 'customs union', effective from 1 January, purportedly under Art. XXIV of the GATT 1994. On 22 December last, a letter signed by the Permanent Representative of Turkey to the WTO and the Representative of the EU's Executive Commission sent a letter to the WTO Committee on Regional Trading Arrangements notifying it of the customs union. The customs union agreement and its conformity with the provisions of the GATT is yet to be looked into and accepted by the Contracting Parties of the WTO. Even the earlier notified agreements for the enlargement of the EU by adhesion of Austria, Finland and Sweden are yet to be approved. The working party is still seized of the issue. Under Art XXIV.4, a customs union or free trade agreement must not "raise barriers" to trade of other contracting parties, and involve within the parties to the Customs Union elimination of duties and other restrictions on "substantially all the trade in products", between the territories covered. At meetings earlier this year of the Goods Council and the WTO General Council, several of the WTO members complained that they had not been advised in detail about the agreement for customs union nor had any consultations been held in respect of their trading rights. Some of the WTO members say that they have not so far got the details of the Customs Union agreement, but say that based on other reports, it would appear to exclude atleast the steel and agriculture sectors. Soon after the customs union came into force, Turkey imposed quotas on textiles and clothing imports from several of the exporting developing countries and had generally said it was done to comply with the EU's textiles and clothing regime. Under Art. 2.1 of the ATC, all countries were required to notify in detail any quantitative restrictions (QRs) under bilateral agreements covered by the Multifibre Agreement (MFA-4) within 60 days of entry into force of the WTO. They were also required under Art. 3.1 to notify all non-MFA restrictions, whether consistent with GATT or not, within the same 60-day period. They were either to bring the restrictions not justified under GATT 1994 in conformity with GATT within one year or phase them out progressively according to a programme to be presented to the ATC's Textile Monitoring Body within the 10-year period. Turkey itself notified no QRs in existence under either of these two stipulations. It had also no notifications of QRs to the Textiles Surveillance Body of the Multifibre Agreement (which was replaced by the ATC on 1 January 1995). On 1 March this year, the EU notified the WTO's TMB, under Art. 3.3 of the ATC, for the "information of the TMB", the fact that the EU and Turkey had entered into a customs union and that the restrictions between Turkey and the EU on textiles and clothing trade had ceased effective 1 January 1996. Turkey did not notify its own restrictions to the other countries affected or to the WTO, but published them in its own official gazette, about the restrictions effective 1 January. But like some others who had no MFA restrictions earlier, had notified the WTO of its intention to be able to make use of the transitory safeguard provisions. But Turkey does not appear to have cited these transitional safeguard provisions to justify its QRs on various exporting countries. In the case of the EU's expansion by adhesion of Austria, Finland and Sweden to the customs union, the EU's existing restrictions on particular exporting countries (like India, Hong Kong etc) were extended to cover the imports into the three new members. The legality of this has been challenged, and is yet to be examined and pronounced upon by the WTO bodies. But while the EU, before the WTO, had MFA restrictions, Turkey had no MFA restrictions before. But on becoming a member of the Customs Union it has applied the quota restrictions against Hong Kong, India and others. But it has applied it not in terms of the provisions of the ATC, but citing its customs union agreement under Art. XXIV of the GATT. In seeking the Art XXII consultations with Turkey, Hong Kong had pointed out that Art. XXIV provides for dismantling of restrictions among the members of an Art. XXIV customs union or free trade accord, not for raising barriers to trade of others. In fact Art. XXIV:4 specifically provides that no barriers should be raised against the trade of other contracting parties. In the case of India, which had sought Art. XXIII consultations with Turkey, on the grounds of nullification and impairment, there had been no restrictions in force previously. But under the customs union arrangements, two shipments from India have already been affected, according to Indian media reports. Turkey would appear to have sent out in July 1995, a note verbale enclosing a memorandum of understanding, to some of the countries, whose exports were being restrained by the EU. The memorandum, in its preambular paragraphs, would appear to have referred to the EU's bilateral accords for export quotas with countries under the 1986 MFA-IV. During 1995, Turkey would appear to have concluded a bilateral agreement with Sri Lanka on quotas for textiles and clothing exports, which referred to the EU's bilateral accord with Sri Lanka under MFA. In both the consultation with Hong Kong and with India, the EU sought to be a "joint partner", a status that was rejected by both. In the consultations sought by Hong Kong (to which it referred in an intervention at the DSB) set for 16-17 April, the EU Commission had notified its desire to participate as an interested party under 4:11 of the DSU. So had Canada, Brazil, Peru, India, Thailand, Philippines and Malaysia. In these consultations, Hong Kong was told that the consultations could take place only if the EU was included as a partner (not an interested party presumably). On April 16, it was EU that told Thailand (which was called in on behalf of itself, the Philippines and Malaysia) that it could participate only as an 'observer' -- a status not recognized by the DSU. There were also apparently some disputes about the 'substantive trade interests' of Canada, Brazil and Peru not have been 'demonstrated'. As mentioned by some of these delegations, Turkey did not ask them, and it was presumably the EU that raised these questions. The consultations broke down on Apr 16 on this procedural question about the EU participating as a 'partner' (in the customs union), and thus running the consultations (and speaking for Turkey?) rather than as an interested party. Somewhat strangely, the EU Commission's representative, Mr. Abbot, in the consultations with Hong Kong, when challenged about its rights other than as an interested party, and the EU's claim to be a partner being against the DSU, reportedly said that "the DSU has to be innovative" -- whatever this might mean. Hong Kong and others waited around at the WTO building until 1 PM of 17 April, but no consultations took place. Hong Kong has made clear that as far it was concerned, no consultations in good faith had taken place within the period stipulated under the DSU, and mutually agreed upon between Hong Kong and Turkey. In respect of the Indian consultations under Art. XXIII, set for 18 and 19 April, Turkey apparently did not turn up on the afternoon of 18 April. There was apparently no response or advice to India either. Nor did Turkey apparently respond till 11.30 (the deadline set) for the consultations on 19 April either nor did Turkey turn up, according to several delegations interested who were in the WTO building. Turkey would however appear to have advised the Indian delegation on Friday that it could agree to hold consultations only on the basis of the EU being treated as a partner. India did not agree, pointing out that Art XXIII consultations are stipulated to be 'bilateral' consultations. The DSU does not say anything about right of other interested parties to join the consultations, as mentioned in respect of Art. XXII consultations. With consultations not having taken place until the evening of 17 April, India would appear to have advised Turkey of its deep regret at the consultations not having taken place, that the 30-day period for holding consultations in good faith has lapsed, and that India reserved its WTO/GATT rights. WTO members and observers say the disputes go to the heart of the WTO system, and the free-wheeling ways in which the European Communities have interpreted and used it under the old GATT, and seek to extend it into the new rule-based WTO trade system.