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R.1.1 Article XXIV:4 — Purpose of trade
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R.1.1.1 Turkey — Textiles, para. 57
(WT/DS34/AB/R)
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 union should
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, the constituent members should “to the
greatest possible extent avoid creating adverse affects on the trade of
other Members”. 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 for Article XXIV
which is manifested in operative language in the specific obligations
that are found elsewhere in Article XXIV. Thus, the purpose set forth in
paragraph 4 informs the other relevant paragraphs of Article XXIV,
including the chapeau of paragraph 5. For this reason, the chapeau of
paragraph 5, and the conditions set forth therein for establishing the
availability of a defence under Article XXIV, must be interpreted in the
light of the purpose of customs unions set forth in paragraph 4. The
chapeau cannot be interpreted correctly without constant reference to
this purpose.
R.1.2 Article XXIV:5 — Chapeau
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R.1.2.1 Turkey — Textiles, para. 45
(WT/DS34/AB/R)
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.
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 GATT provisions, and may be invoked as a possible “defence”
to a finding of inconsistency.
R.1.2.2 Turkey — Textiles, para. 58
(WT/DS34/AB/R)
… 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) of Article XXIV. And, second, that party
must demonstrate 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.
R.1.3 Article XXIV:5(a) — Duties and other
trade regulations on trade with non-parties “not on the whole”
higher or more trade restrictive than prior to customs union formation
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R.1.3.1 Turkey — Textiles, paras. 53-55
(WT/DS34/AB/R)
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.” 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.
With respect to “other regulations of
commerce”, 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.”
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:
… that the effects of the resulting trade
measures and policies of the new regional agreement shall not be more
trade restrictive, overall, than were the constituent countries’
previous trade policies. …
R.1.4 Article XXIV:8(a)(i) — Elimination
of duties and other trade restrictions on “substantially all”
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R.1.4.1 Turkey — Textiles, para. 48
(WT/DS34/AB/R)
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”
with respect to “substantially all the trade” between them. Neither
the gatt Contracting Parties nor the WTO Members have ever reached an
agreement on the interpretation of the term “substantially” in this
provision. 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 union may maintain, where necessary,
in their internal trade, certain restrictive regulations of commerce
that are otherwise permitted under Articles IX 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 this sub-paragraph. 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 “eliminated with respect to substantially all”
internal trade.
R.1.5 Article XXIV: 8(a)(ii) — “substantially
the same” duties and other regulations on external trade
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R.1.5.1 Turkey — Textiles, para. 49
(WT/DS34/AB/R)
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 to external 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 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 quantitative components. 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.
R.1.5.2 Turkey — Textiles, para. 50
(WT/DS34/AB/R)
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.” 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 closely approximating “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 qualitative dimension of the requirements of
sub-paragraph 8(a)(ii).
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).
R.1.6 Relationship between Article XXIV of the
GATT 1994 and the Safeguards Agreement. See also Safeguards
Agreement, Article 2 — Parallelism (S.1.13)
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R.1.6.1 Argentina —
Footwear (EC), para. 109
(WT/DS121/AB/R)
… we also are not persuaded that an analysis
of Article XXIV of the GATT 1994 was relevant to the specific issue that
was before the Panel. This issue, as the Panel itself observed, is
whether Argentina, after including imports from all sources in its
investigation of “increased imports” of footwear products into its
territory and the consequent effects of such imports on its domestic
footwear industry, was justified in excluding other MERCOSUR member
States from the application of the safeguard measures. In our Report in Turkey
— Restrictions on Imports of Textile and Clothing Products
[Appellate Body Report, para. 58], we stated that under certain
conditions, “Article XXIV may justify a measure which is inconsistent
with certain other GATT provisions.” We indicated, however, that this
defence is available only when it is demonstrated by the Member imposing
the measure 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) of Article XXIV” and “that the
formation of that customs union would be prevented if it were not
allowed to introduce the measure at issue.”
R.1.6.2 US — Line Pipe, para. 198
(WT/DS202/AB/R)
… we do not prejudge whether Article 2.2 of
the Agreement on Safeguards permits a Member to exclude imports
originating in member states of a free-trade area from the scope of a
safeguard measure. We need not, and so do not, rule on the question
whether Article XXIV of the GATT 1994 permits exempting imports
originating in a partner of a free-trade area from a measure in
departure from Article 2.2 of the Agreement on Safeguards. The
question of whether Article XXIV of the GATT 1994 serves as an exception
to Article 2.2 of the Agreement on Safeguards becomes relevant in
only two possible circumstances. One is when, in the investigation by
the competent authorities of a WTO Member, the imports that are exempted
from the safeguard measure are not considered in the
determination of serious injury. The other is when, in such an
investigation, the imports that are exempted from the safeguard measure are
considered in the determination of serious injury, and the
competent authorities have also established explicitly, through a
reasoned and adequate explanation, that imports from sources outside the
free-trade area, alone, satisfied the conditions for the application of
a safeguard measure, as set out in Article 2.1 and elaborated in Article 4.2. …
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