C-149/96

PORTUGAL V COUNCIL

OPINION OF ADVOCATE GENERAL SAGGIO delivered on 25 February 1999 *

1. By its application for annulment under multilateral arrangement of 20 December Article 173 of the EC Treaty, lodged at the 1973 regarding International Trade in Tex- Court Registry on 3 March 1996, the tiles, commonly referred to as 'the Multi- Portuguese Republic asks the Court to fibre Arrangement'. 2 This arrangement annul Council Decision 96/386/EC of entered into force on 1 January 1974 and, 26 February 1996 concerning the conclu- due to a series of extensions, 3remained in sion of Memoranda of Understanding force until 31 December 1994. The basic between the European Community and objectives of the Multifibre Arrangement the Islamic Republic of Pakistan and were 'to achieve the expansion of trade, the between the European Community and reduction of barriers to such trade and the the Republic of India on arrangements in progressive liberalisation of world trade in the area of market access for textile pro- such products, while at the same time ducts 1(hereinafter 'the decision'). ensuring the orderly and equitable devel- opment of this trade and avoidance of disruptive effects in individual markets and on individual lines of production in both importing and exporting countries' (Arti- cle 1(2)). Accordingly, the arrangement provides that 'participating countries may, consistently with the basic objectives and principles of this arrangement, conclude Legal background bilateral agreements on mutually accepta- ble terms in order, on the one hand, to eliminate real risks of market disruption ...

4. The ATC contains the rules on the international trade in textiles for a transi- 3. Following the Declaration adopted at tional period of 10 years culminating in the Punta del Este on 20 September 1986, definitive integration of the sector into the international negotiations were opened GATT (Article 1 of the ATC). Under Arti- with the aim of integrating the textiles cle 2(1) of the ATC, all quantitative restric- and clothing sector into the GATT, which tions introduced under bilateral agreements in turn would mean applying the GATT are to be notified, within 60 days following rules and disciplines to the sector and entry into force of the ATC, to the Textiles would therefore constitute a move towards Monitoring Body established under the opening up national markets. ATC. 5On the date of entry into force of the WTO Agreement, each Member is to integrate into the GATT products which accounted for not less than 16 per cent of the total volume of the Member's 1990 imports (Article 2(6)). The remaining pro- ducts are to be integrated in three stages: on the first day of the 37th month, the first day of the 85th month and the first day of the 121st month respectively that the WTO Agreement is in effect. By the end of the On 15 April 1994, the Final Act concluding third phase, 'the textiles and clothing sector the multilateral trade agreements of the shall stand integrated into GATT 1994, all Uruguay Round was signed in Marrakesh, restrictions under this agreement having together with the Agreement establishing the World Trade Organisation and a series of multilateral trade agreements attached 4 — OJ 1994 L 336, p. 1. to the WTO Agreement, including the 5 — Under Article 8(1) of the ATC, '[i]n order to supervise the Agreement on Textiles and Clothing (here- implementation of this agreement, to examine all measures taken under this agreement and their conformity therewith, inafter referred to as 'the ATC'). The and to take the actions specifically required of it by this Community acceded to the agreement by agreement, the Textiles Monitoring Body ("TMB") is hereby established. The TMB shall consist of a Chairman Council Decision 94/800/EC concerning and 10 members. Its membership shall be balanced and broadly representative of the Members and shall provide for the conclusion on behalf of the European rotation of its members at appropriate intervals. The Community, as regards matters within its members shall be appointed by Members designated by the Council for Trade in Goods to serve on the TMB, competence, of the agreements reached in discharging their function on an ad personam basis'.

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of entry into force of the WTO'. It also approved by a qualified majority; Spain, provides that the Indian Government may Greece and Portugal voted against it. 'introduce alternative specific duties for particular products' and that these duties 'will be indicated as a percentage ad valorem or an amount in INR per item/ square metre/kg, whichever is higher' 7. The understandings with India and Paki- (paragraph 2). The European Community stan were signed respectively on 8 and agreed to 'remove with effect from 1 Jan- 27 March 1996. uary 1995 all restrictions currently applic- able to India's exports of handloom pro- ducts and cottage industry products as referred to in Article 5 of the EC-India agreement on trade in textile products' 8. The above Council Decision of 26 Feb- (paragraph 5). 7The Commission under- ruary 1996 was published in the Official took to give favourable consideration to Journal of the European Communities on requests 'which the Government of India 27 June 1996. might introduce for exceptional flexibil- ities, in addition to the flexibilities applic- able under the bilateral textiles agreement' up to the amounts indicated in the Memo- randum of Understanding (paragraph 6). Community legislation on import quotas for textile products

9. Council Regulation (EEC) No 3030/93 of 12 October 1993 on common rules for imports of certain textile products from third countries (hereinafter referred to as 'Regulation 3030/93'), 8lays down quanti- tative limits on Community imports of textiles from third countries. Under Arti- 6. On a proposal from the Commission cle 1(1), as amended by Council Regulation dated 7 December 1995, the Council 3289/94 of 22 December 1994, 9the reg- adopted the contested Decision on the ulation applies to: conclusion of these understandings on 26 February 1996. The Decision was

eral agreements, protocols or other and (g) breach of the principle of equality arrangements as listed in Annex II, — between economic operators. imports of textile products which have not been integrated into the World Trade Organisation within the meaning of Arti- cle 2(6) of the World Trade Organisation Agreement on Textiles and Clothing (ATC) as listed in Annex X and which originate in third countries, Members of the WTO as listed in Annex XI'. Three of these grounds can be seen as distinct from the arguments put forward in support of claims of a conflict between the decision and WTO rules, and may therefore be considered here. They are: the plea concerning a breach of the principle of publication [(a)], breach of the principle of transparency [(b)] and breach of the prin- ciple of non-retroactivity of legal rules [(e)]. Substance I shall deal later with the four other grounds relied on, after considering the compatibility of the rules contained in the bilateral agreements with those in the multilateral WTO Agreement and its annexes. Breach of general principles of the Com- munity legal order

13. Nor is it possible to base a claim that the contested decision is unlawful on a 12. In support of its second plea, concern- breach of the principle of non-retroactivity ing breach of the principle of transparency, of Community legal rules. It is true that the the Portuguese Government invokes the decision, adopted in February 1996 con- Council Resolution of 8 June 1993 on the cerns the conclusion of two agreements in quality of drafting of Community legisla- which the Community made certain com- tion. 10 As the Council has observed, the mitments — on the gradual opening up of resolution has no binding effect 11 and the internal market — beginning in 1994 in therefore places no obligation on the insti- the case of Pakistan, and in 1995 in that of tutions to follow any particular rules in India; I do not, however, consider that drafting legislative measures, although it making such commitments constitutes a does constitute a political commitment that breach of the principle of non-retroactivity such legislation should be made clear and invoked by the Portuguese Government. comprehensible to those to whom the law applies, and on a more general level, to all interested parties. In point of fact, however, the decision appears to be clear in every aspect, as regards both the wording of its provisions relating to the conclusion of two international agreements and as regards the On this matter, the Council observes that rules contained in the two Memoranda of the Memoranda of Understanding were Understanding, which provide for a series initialled in 1994 and that it is to be of reciprocal undertakings by the contract- expected that they should contain provi- ing parties with a view to the gradual sions concerning the importation of textiles liberalisation of the market in textile pro- as from 1995. In any case, according to the ducts. The Portuguese Government's com- Council, as the contested decision sets the plaint that the decision fails to indicate date of signing by the contracting parties (8 precisely what provisions of the earlier and 27 March 1996) as the date on which measures it amends or repeals does not the agreements were to come into force, it does not provide for those agreements to be applied retroactively. As I see it, the Coun- 10 —OJ 1993 C 166, p. 1. cil is confusing entry into force with 11 — For resolutions which, on the basis of their content, are of provisional application. There is no clause a binding nature see judgments of the Court of Justice, in Case 108/83 Luxembourg v European Parliament [1984] in the decision which provides specifically ECR 1945, paragraph 23, and Joined Cases C-213/88 and C-39/89 Luxembourg v European Parliament [1991] for its entry into force and, having been ECR I-5643, paragraphs 25 to 27. published in the Official Journal of the

European Communities, it therefore came justify retroactive application and where into force, according to the general rules, such application does not breach the legit- on the twentieth day following publication imate expectations of those concerned. In (Article 254 EC (ex Article 191)). Further- this case, it is clear that retroactive applica- more, the decision does not expressly tion of the agreements is justified by the provide for retroactive application of its fact that the Community made an express provisions. However, the absence of such a commitment, to other Contracting States, provision does not imply in this instance to provide for the gradual liberalisation of that the decision is not binding on the access for textile products from these States Community with regard to the period from 1994/95 and that therefore any delay before the conclusion of the agreements, in concluding the agreements and initiating as these expressly contain a series of the process of opening up the Community commitments by the Community and the market would constitute an amendment to other contracting States, to be fulfilled the text of the agreement (unless the system from 1994/95. Therefore, contrary to what provided by the agreements could in fact the Council claims, it is not necessary to affect the trade in goods imported before establish the actual date of entry into force of the measure on the basis of the general the entry into force of the agreements). On rules on international agreements, and in the matter of a possible breach of the particular Article 24 of the Vienna Con- legitimate expectations of those concerned, vention on the Law of Treaties of 22 May I do not believe that specific expectations of 1969 which deals with the entry into force operators in this sector can be identified as of international agreements, but rather to regards binding import quotas, given that determine, in the light of general principles the liberalisation of the textiles market was of Community Law, whether the provisions the subject of long negotiations in the of the agreements at issue can be regarded course of the Uruguay Round and, further- as applicable from 1994/95. more, that at the beginning of 1995, the Commission, precisely for the purpose of applying the Memorandum of Understand- ing concluded with India at the end of 1994, repealed Regulation No 3030/93 on imports of certain textile products into the C o m m u n i t y by R e g u l a t i o n (EC) No 3053/95, 12 in respect of the part in which it provided for the establishment of quantitative limits for cottage industry textile products from India. On the basis of these observations, I therefore consider that this plea also should be held to be unfounded.

In order to decide on the admissibility of 14. In support of its view that it is entitled the pleas of illegality advanced by the to rely on World Trade Organisation rules, Portuguese Government, it is necessary to the Portuguese Government states that, as determine the effect of international agree- the contested decision, under which the ments on the Community legal order, in bilateral agreements with India and Paki- particular with reference to the case-law on stan on the importation of textile products the General Agreement on Tariffs and were concluded, constitutes an act enfor- Trade. cing GATT provisions, those provisions, even though they do not have direct effect, may be relied upon in the present case, in accordance with the frequently cited judg- ment in Germany v Council. 13The Council contends that the contested decision is not an act enforcing WTO rules; it argues that the Portuguese Government is, in fact, inferring a conflict between the bilateral agreement concluded between the Commu- 15. Article 228(7) of the Treaty establishes nity and India, and the multilateral agree- that agreements concluded under the con- ment on textiles — the ATC — (attached to ditions set out in that article between the the Agreement establishing the World Community and one or more States or an Trade Organisation) on the other, a matter international organisation 'shall be binding which comes under the exclusive jurisdic- on the institutions of the Community and tion of the Textiles Monitoring Body pro- on Member States'. International agree- vided for in the multilateral agreement. The ments therefore constitute sources of law Commission, for its part, merely points out with which the institutions must comply. that the rules of the World Trade Organi- As the Court ruled in its judgment in Haegeman in 1974, they constitute, 'as far as concerns the Community, an act of one 13 —Judgment in Case C-280/93 [1994] ECR I-4973. of the institutions of the Community within

The Court, in exercising its function as the organ which ensures compliance with Community law and consequently with all legal sources which produce effects within Let me retrace the steps that led the Court the Community legal order, including inter- to that conclusion. In International Fruit national agreements concluded by the (1972), 1 7the validity of three regulations Community, has recognised that it has on the common organisation of the markets jurisdiction to give preliminary rulings on in the fruit and vegetable sector was the interpretation of such agreements with questioned; it was claimed that they were the aim of 'ensuring their uniform applica- contrary to Article XI of the GATT. The tion throughout the Community'. 1 5In Court confirmed that it has jurisdiction to numerous judgments on the interpretation give preliminary rulings concerning the of international agreements, the Court has validity of acts of the institutions of the held that, to determine whether a provision in an international agreement has direct effect within the legal order of the Member 16 — See judgments in Case 87/75 Bresciani [1976] ECR 129, States, it is necessary first to ascertain paragraph 16; Case 270/80 Polydor v Harlequin [1982] ECR 329, paragraph 14 et seq.; Case 17/81 Pabst [1982] whether the content of that provision is ECR 1331, paragraphs 26 and 27; Case 104/81 Kupfer- berg [1982] ECR 3641, paragraphs 11 to 14 and 23; Case 12/86 Demirel [1987] ECR 3719, paragraph 14; Case 192/89 Sevince [1990] ECR I-3461, paragraph 15; Case C-18/90 Kziber [1991] ECR I-199, paragraph 15; 14 — Judgment in Case 181/73 Haegeman v Belgium [1974] Case C-432/92 Anastasiou [1994] ECR I-3087. ECR 449, in particular paragraphs 2 to 6. 17 — See judgment in Joined Cases 21/72 and 24/72 Interna- 15 — See the judgment in Haegeman, cited above, paragraph 6. tional Fruit [1972] ECR 1219.

The Court then considered whether the GATT 'confers rights on citizens of the Community on which they can rely before the courts in contesting the validity of a Community measure'. For this purpose, the judge continued, 'the spirit, the general scheme and the terms of the GATT must be 17. In the judgment of 5 October 1994 in considered' (paragraphs 19 and 20). In its Germany v Council, relied on by the parties analysis of the characteristics of the GATT, in the present case, the limited jurisdiction the Court concluded that the provisions of that agreement may not be invoked before national courts, essentially for two reasons: 18 —See judgment in Case 9/73 Schlüter [1973] ECR 1135, paragraph 27. first, the great flexibility of its provisions, 19 — See judgments in Case 266/81 SIOT [1983] ECR 731, in particular those conferring the possibility paragraph 12; Joined Cases 267/81 and 269/81 SAMI [1983] ECR 801, paragraphs 23 and 24; Case C-469/93 of derogations and the option for States to Chiquita Italia [1995] ECR 1-4533, paragraphs 25 to 29.

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the Court give a ruling on the lawfulness of regulation establishes that any international trade practices attributable to third countries which are incompatible with a Community act which is claimed to be international law or with the generally accepted rules are to be considered unlawful. The Court ruled that the contrary to a GATT rule in an action for combined provisions of Articles 2 and 3 of the regulation entitle the economic agents concerned 'to rely on the annulment. The Court added that 'the GATT provisions in the complaint which they lodge with special features [of the GATT] show that the Commission in order to establish the illicit nature of the commercial practices which they consider to have the GATT rules are not unconditional', harmed them'. In that case the Court affirmed its jurisdiction to exercise 'powers of review over the legality although their content may be, and that 'an of the Commission's decision applying those provisions'

In that case the Court The Court concludes from this that in the proceeded on the assumption that the provisions of the GATT had the effect of binding the Community and that absence of such an obligation, it is not this also applied to the Anti-Dumping Code 'adopted for the purpose of implementing Article VI of the GATT'. It required to review the lawfulness of a follows, according to the Court, that when a measure adopted in order to comply with international obligations Community act that is alleged to conflict arising from that code is challenged, the Court must with the GATT rules. In the same judg- 'ensure compliance with the General Agreement and its implementing measures' and consequently 'examine whe- ment, Germany v Council, the Court, citing ther the Council went beyond the legal framework thus laid down ' and whether by adopting the disputed provision, it acted in breach of 'the Anti-Dumping Code'. In that case, Nakajima had claimed that Council Regula- tion (EEC) N o 2423 of 11 July 1988 (OJ 1988 L 209, p. 1) was at variance with the Anti-Dumping Code implement- ing Article VI of the General Agreement on Tariffs and Trade, approved on behalf of the Community in Council Decision 80/271/EEC of 10 December 1979 concerning the conclusion of the Multilateral Agreements resulting from the 1973 to 1979 trade negotiations (OJ 1980, L 7 1 ,

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Article 173 of the Treaty. It is not clear why the functioning of an international agree- ment, as a criterion of legality for Commu- nity acts, should be subject to the condi- tions normally required, in a specifically Community context, for the direct effect of the provisions of international agreements concluded by the Community to be recog- nised. In my view, an international agree- ment, by virtue of its clear, precise and unconditional terms, can in principle con- stitute a criterion of legality for Commu-

before a court of law. That condition was set out for the first time in a preliminary ruling on validity and therefore in the context of proceedings before a national court. In its judgment in International Fruit the Court concluded that the GATT rules were not applicable because they could not 21 — Recently, the Court, replying to a question of validity arising from conflict between a Council regulation sus- be invoked before a national court and that pending an international agreement concluded with Yugo- the national court consequently could not slavia and the rule of customary international law contained in Article 65 of the Vienna Convention on the refer a question for a preliminary ruling on Law of Treaties, held that the possibility of relying on rules of customary international law is separate from the the validity of a Community measure by question of their direct effect, for these rules are never- reference to the rules of the agreement in theless binding on the Community which must respect international law in the exercise of its powers.

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invoked before the courts. That being so, I (b) Direct applicability of WTO provisions believe that a provision of an agreement and the scope of the eleventh recital in the may be held not to have direct effect but preamble to Council Decision 94/800 that does not justify failing to recognise it as binding on the Community institutions and thence excluding it as a criterion of legality (for the Community).

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WTO give rise to obligations and prohibi- tion of that report (Article 16(4) of the tions that are unconditional and include Understanding on the Settlement of Dis- specific undertakings for commitments by putes, cited above). 23 the contracting parties in the context of their reciprocal relations.

It seems on the part of another contracting party. that the Council intended thus to limit the The general system 22 provides for the effects of the agreement and to align itself establishment of a General Council which with the approach of the other contracting is responsible, amongst other things, for parties who made it quite clear that they dispute settlement (Article IV(3), WTO Agreement). The Dispute Settlement Body 2 3 —In cases where claims of a breach of W T O rules have been appoints a panel which adjudicates com- ruled inadmissible, the Court has admitted that it has pletely autonomously on any possible jurisdiction in two respects.

According Disputes). The panel's report is adopted by to the Court, as it is solely for the national court to decide whether to adopt such measures, the Court is bound to the Members of the Body by a majority give a ruling on questions submitted for preliminary ruling vote of members present. Unanimity is on matters of interpretation relating to such a decision. Furthermore, the Court states that, 'where a provision can required only where the report is not apply both to situations falling within the scope of national law and to situations falling within the scope of Commu- adopted, with the result that any veto by nity law, it is clearly in the Community interest that, in the State accused of breaching a WTO order to forestall future differences of interpretation, that provision should be interpreted uniformly, whatever the provision is not sufficient to prevent adop- circumstances in which it is to apply' (see judgment in Case C-53/96 Hermes [1998] ECR 3603, paragraphs 31

ments). A Textiles Monitoring Body (TMB) is established was 'intended to implement a particular obligation entered which, on the basis of 'information' and 'notifications' by into within the framework of GATT' and that, therefore, parties to the agreement and in the absence of 'any 'the Court must review the lawfulness of the Community mutually agreed solution in the bilateral consultations' act in question from the point of view of the GATT rules' provided for in the agreement, and at the request of either (see judgment of 12 November 1998 in Case C-352/96 Member, 'shall make recommendations to the Members Italy v Council, not yet published in ECR, in particular concerned' (Article 8 of the ATC). paragraphs 19 to 21).

wished to limit the possibility of relying on In respect of the scope of that declaration in provisions of that agreement before the context of the Community legal order, national courts. it is sufficient here to point out that the WTO Agreements, by virtue of their status as international agreements, are binding on all the institutions (under Article 228(7) of the Treaty, cited several times above) and therefore constitute a source of Community law. The Court of Justice therefore has an obligation to ensure that the agreements are respected both by the Community institu- tions and by the Member States, and, furthermore, the Council may not, by an act of secondary legislation, limit the Court's jurisdiction, nor decide to rule out Although the wording of the recital is clear, the jurisdiction of national courts to apply there remain doubts as to the effects that a these agreements. 26 declaration of this kind might produce at international level, in relations with third countries, and at Community level. It need hardly be stated that a unilateral interpre- tation of the agreement made in the context of an internal adoption procedure can- not — outside the system of reservations — limit the effects of the agreement itself. This In the light of these considerations, I interpretation, which favours the objective maintain that, contrary to what the Com- content of provisions of the agreement over mission has stated, the declaration con- wishes expressed in separate unilateral tained in the 14th recital in the preamble to declarations is in accordance with custom- the decision is simply a policy statement ary law on the interpretation of treaties, and, as such, cannot affect the jurisdiction embodied in the Vienna Convention of of either Community or national courts to 22 May 1969, in particular in Articles 31 interpret and apply the rules in the WTO to 33. 2 4According to this case-law, Agreements. 'Embodying customary international law, Article 31 provides that a treaty must be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose. The text of the treaty is the primary source for interpretation, while external aids such as 21. Similarly, any statements by other travaux préparatoires, constitute a supple- States which have acceded to the WTO mentary source'. 25 Agreements and which reject the direct effect of the provisions of the agreements 24 — See, lastly, judgment of 16 June 1998 in Racke, cited above, paragraphs 45 to 48. 25 — See, inter alia, judgment of the International Court of 26 — See the Opinion of Advocate General Tesauro on this Justice of 3 February 1994, Libyan Arab lamabiriya v subject delivered on 13 November 1997 in Case C-53/96 Chad. Hermès, paragraph 24.

cannot be considered relevant. Statements application of the provisions of the agree- of this kind do not affect the scope of those ment by the judiciary. 28 provisions or the question whether they are binding within the Community legal order. In other words, I would find it difficult to admit that such statements can in them- selves limit the binding nature of the whole system of WTO agreements with respect to all other contracting states. A strong argu- ment for the proposition that the WTO rules are not binding because of the reci- procal nature of obligations undertaken in an international context, might be failure 22. It is worth adding that a breach on the by a contracting state to comply with one part of a contracting party is not the only or more provisions of the agreement com- reason for the WTO Agreement to be bined with the fact that there are no suspended and therefore not to be applied adequate instruments for imposing sanc- by the judicature.

In its judgment, in Kupferberg the Court stated that, '[although tracting States or only for the State in each contracting party is responsible for executing fully the breach (Article 60 of the Vienna Conven- commitments which it has undertaken it is nevertheless free to determine the legal means appropriate for attaining tion on the Law of Treaties). 27 A breach of that end in its legal system'. However, 'the fact that the courts of one of the parties consider that certain of the this kind could therefore justify a suspen- stipulations in the agreement are of direct application [and may therefore be invoked by individuals] whereas the sion of the WTO Agreement and preclude courts of the other party do not recognise such direct application is not in itself such as to constitute a lack of reciprocity in the implementation of the agreement'

graph 2(b)]. In a case of this kind, the Community of an alternative system of protection of these rights institutions are entitled to decide to suspend the agreement prevents any breach by the third country from having and to adopt measures and conduct contrary to the extreme consequences. See the Opinion of Advocate provisions of the WTO Agreement in respect of individual General Tesauro in the Hermes case, cited above, para- States who have breached these provisions. graphs 31 et seq.

Vienna Convention in Articles 54 to 64 (for agreements. In my opinion, the system example, the rebus sic stantibus rule). provided for in the WTO Agreements, and in particular in. the Understanding on the Settlement of Disputes, does not imply any limitation on the jurisdiction of the Court of Justice because, first, it does not provide for the establishment of a judicial body but for a system for the settlement of disputes between persons subject to inter- There is also a strong case for holding that national law: the body which adopts the the rules of the agreement are not applic- decisions or recommendations is a political able or a fortiori binding even if the body to which individuals within a parti- agreement was not suspended or extin- cular domestic legal order have no access; guished, whenever the fulfilment of an and, second, the establishment of a judicial obligation under the WTO entails a risk body whose jurisdiction was not limited to for the Community of jeopardising the interpreting and applying the agreement balanced operation of the Community legal but also included the power to annul order and the pursuit of its objectives.

However, in so far as the agreement establishes a judicial system whose decisions are binding 23. In its defence, the Council states that on the Court of Justice in respect of its interpretation and the WTO Agreements provide for an application of rules that are an integral part of the Community legal order, the agreement conditions the autonomous system for the settlement of interpretation of Community rules and therefore 'conflicts with Article 164 of the EEC Treaty and, more generally, disputes which usurps the Court's powers with the very foundations of the Community' (see to interpret and apply the rules of the Section V of Opinion 1/91 [1991], ECR I-6104).

The Memorandum of Understanding with Pakistan includes a series of commitments — Substance: (a) the pleas regarding by the Community and by Pakistan. In breach of the provisions of the World particular, Pakistan undertakes to remove Trade Organisation Agreements and (b) all quantitative restrictions on a number of the pleas claiming a connection with the textile products listed in detail in Annex II alleged contradictions between the rules of to the Memorandum of Understanding. the agreements However, 'should a critical situation arise in the textiles industry of Pakistan or in relation to the balance of payments situa- tion of Pakistan, the Government of Paki- stan retains the right under GATT 1994 and the WTO to reintroduce, after neces- 25. (a) The Portuguese Government claims sary consultations with the European Com- that the contested decision is contrary to mission, quantitative restrictions' (para- the WTO rules on four grounds. It disputes graph 4). The Commission, on the other the lawfulness of the option granted to the hand, is committed to ensuring that 'all Indian government to reintroduce alterna- restrictions currently affecting the importa-

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The Memorandum of Understanding with India establishes that the Indian Govern- ment will bind its tariffs on the textiles and clothing items listed in the Attachment to the Memorandum of Understanding, and 27. The Portuguese Government main- that 'these rates will be notified to the tains, in its first plea for annulment, that WTO Secretariat within 60 days of the date the fact that paragraph 2 of the Memor- of entry into force of the WTO'. However, andum of Understanding with India pro- 'if the integration process envisaged in vides that it may 'introduce alternative Article 2, subparagraphs 6 and 8 of the specific duties for particular products' and WTO Agreement on Textiles and Clothing that it may levy those duties on the basis of does not materialise in full or is delayed, the value of the goods or on the basis of duties will revert to the levels prevailing on 'export data to be provided by the EC', 1 January 1990'. Furthermore, the Indian constitutes a right which clearly goes Government may 'introduce alternative against the requirement to bind customs specific duties for particular products' and duties laid down in Article II of the GATT. those duties 'will be indicated as a percen- In its view, the provision that the Indian tage ad valorem or an amount in INR per Government may modify the system of item/square metre/kg' (paragraph 2). The duties if these 'have an adverse impact' on Indian Government agrees, 'if the EC exports from the Community does not considers that such duties are having an prevent the system from being unlawful. adverse impact' on its exports of the products in question, 'to address the con- cerns raised in a mutually acceptable man- ner' with the Community (paragraph 2). The European Community, for its part, agreed to remove, with effect from 1 Jan- uary 1995, all restrictions currently applic- The second plea for annulment invoked by able to India's exports of handloom pro- the Portuguese Government, as already

28. The third alleged ground of incompat- ibility with the WTO rules concerns the balance between the commitments entered into by the contracting parties. The Portu- guese Government considers that India and Pakistan have in fact agreed to a 'random' opening up of their market, since, on the one hand, India has reserved the right to reintroduce in an arbitrary and discretion- ary manner specific duties and to maintain the system of special licences and, on the That agreement makes provision for two other hand, the Community has under- import licensing procedures: the first taken to grant exceptional flexibilities, that requires licences to be granted automati- is to say to respond to requests for deroga- cally to all operators who apply for them tions from tariff quotas fixed for the import (Article 2); the second does not make of textile products from these countries. provision for licences to be granted but Such a system of flexibility would create a prohibits the State from introducing limits global import quota for all categories of greater than a fixed quantitative restriction textile products, thwarting the quantitative for the trade in its products. As part of this limits placed on each textile category to procedure States must publish the overall protect Community producers, and would amount of quotas to be applied by quantity also lead to a sharp acceleration of the and/or value, the opening and closing dates liberalisation process agreed within the of quotas, and any change thereof [Arti- framework of the Agreement on Textiles cle 3(5)(b)]. Once the licensing system has and Clothing attached to the WTO Agree-

I should point out that Article 4(2), cited In view of the content of the contested above, states that 'the introduction of bilateral agreements — in particular the changes, such as changes in practices, rules, agreement concluded with India — and of procedures ... , in the implementation or the multilateral agreements cited above, it administration of those restrictions notified is impossible to avoid the conclusion that or applied under [the ATC] should not: there are indeed systemic disparities upset the balance of rights and obligations between the WTO provisions invoked by between the Members concerned under this Portugal and the provisions of the bilateral agreement' or 'disrupt trade' in textiles. agreements in all the aspects that Portugal Article 7, in particular paragraph 1, states, raises. In my opinion, however, such dis- furthermore, that all Members are to take parities do not automatically signal incom- 'such actions as may be necessary to abide patibility between the WTO multilateral by GATT 1994 rules'. They must also agreements and the bilateral agreements in 'avoid discrimination against imports in issue, but simply a modification of the the textiles and clothing sector' (Arti- earlier agreements. According to interna- cle 7(l)(c)). tional customary law, parties to a multi- lateral treaty may, in principle, modify the treaty as between themselves by means of a subsequent bilateral agreement, as provi- ded by Article 41(l)(b) of the Vienna Convention on the Law of Treaties which transcribes a rule of customary law, pro- vided that the modification in question '(i) does not affect enjoyment by the other 29. Before considering these claims, which parties of their rights under the treaty or will be evaluated together given the clear the performance of their obligations; and link between the various arguments, it (ii) does not relate to a provision, deroga- should be recalled that the WTO provisions tion from which is incompatible with the invoked as a criterion of the lawfulness of effective execution of the object and pur- the Community acts are clear, precise and pose of the treaty as a whole'. For a unconditional: Article II of the GATT bilateral agreement to be considered Agreement explicitly prohibits the intro- incompatible with a prior multilateral duction of new import restrictions, while agreement therefore — solely with regard the Agreement on Import Licensing Proce- to the aspects of interest in the present dures attached to the WTO Agreement case — the bilateral agreement must mate- imposes specific obligations on contracting rially inhibit the effects of the first agree- states to adopt an internal system of ment, in particular with regard to the rights licensing. Articles 4 and 7 of the ATC and obligations entered into by contracting

In respect of the content of the rules of the agreements at issue, I should point out that the bilateral agreements, contrary to what Portugal maintains, further the integration of the textiles markets of the contracting In the present case it seems clear that the states and are therefore in line with the agreements between the Community and objectives of the multilateral agreements India and the Community and Pakistan do invoked, in respect of their relations both not affect relations between the contracting with one another and with other Member parties to the two bilateral agreements and countries of the WTO. It is apparent from the WTO Agreements in any way, nor do the statements of the parties, that India and they compromise the reciprocal commit- Pakistan offered, as a concession to initiate ments entered into within the framework of the liberalisation process, to set nominal the international negotiations. In this con- quotas to begin with and that the decision nection, the fact that a Community Mem- to negotiate bilateral agreements with these ber State, such as Portugal, suffers as a States was taken precisely with a view to result of the content of the bilateral agree- achieving the objective of the WTO Agree- ments is, contrary the Portuguese Govern- ment of gradually opening up the respective ment's contentions, irrelevant for the pur- markets completely. It appears, therefore, pose of considering the lawfulness of the that the modest initial concessions which two bilateral agreements. Although Mem- India is required to make are, in any case, ber States of the Community have acceded less than those provided for in the bilateral autonomously to the WTO Agreements, on agreement. The fact then that, according to the basis of their being mixed agreements, the bilateral agreement, India, in spite of its they cannot consider themselves as third commitment to bind existing duties (rates parties with regard to a bilateral agree- hitherto notified to the WTO Secretariat), ment, such as the one in issue, concluded by may introduce new duties and thus fail to the Community after the entry into force of honour the commitment to bind them is the multilateral agreements. The disputed certainly not in line with the general aims agreements were in fact concluded by the of the WTO system. However, the intro- Council on the basis of its exclusive powers duction of such duties does not appear to in the area of the common commercial affect the process of liberalisation of the

textiles trade initiated by the multilateral remove all quantitative restrictions on a agreement, given the non-specific and pro- fixed list of textile products attached to the visional nature of the measure. In the same memorandum, while India merely under- way, the option in the agreement with India takes not to introduce new duties and for that country to grant to 'special import therefore not to place any further restric- licenses' in accordance with a procedure — tion on the import of textile products, described by the Portuguese Government while reserving the option to reintroduce and not contested by other contracting certain specific duties ad valorem, and in parties — which provides that recipients particular to issue the Special Import of licences are to be Indian operators and Licences referred to above.

For the reasons explained earlier, I believe that the memoranda in issue do not produce an effect of this kind. 30 Moreover, contrary to what the Portuguese Government argues, the WTO provisions invoked do not pro- hibit a flexible system, that is to say derogations from import quotas, such as the system provided for by the Agreements As regards the alleged 'imbalance' between with India and Pakistan. the benefits for each of the contracting parties, it is clear from the text of the two Memoranda of Understanding that there is a considerable discrepancy between the periods of time agreed on for opening up their respective markets.

Community. In return for these commit- benefits, but reciprocity in discharging the obligations assumed under the GATT and therefore actual observance ments, Pakistan states that it is prepared to of the concessions granted in the context of the agreement.

31. (b) I turn now to the pleas concerning breach of principles of Community law which are closely connected to the argu- ments put forward in support of the alleged conflict between the bilateral agreements concluded with India and Pakistan and the WTO Agreements. These pleas concern a breach of the principle of cooperation in 32 — The letter of 7 April 1994 from the Portuguese Minister good faith in relations between the Com- for Foreign Affairs stated that: 'Portugal's acceptance of this compromise, including dismantling the Multifibre munity and the Member States, breach of Arrangement, was closely tied to the observance of three the principle of the protection of legitimate conditions: effective and complete opening up of all markets, strengthening the GATT rules and discipline, expectations, breach of the principle of and use of the Community system of generalised prefer- ences as a means of correcting imbalance in the case of any economic and social cohesion and, finally, breaches by third countries. I note with concern, in particular in the textiles sector, unfavourable developments breach of the principle of equality between in that certain contracting parties are not fulfilling economic operators. obligations they agreed to, refusing to open up their markets. I am referring specifically to the case of India and Pakistan which, so far, still have not put forward their proposals. The European Union, acting through the Commission, should oblige our partners to fulfil all the 31 — Article X of the GATT specifically provides that: 'Agree- obligations they entered into on 15 December, on the basis ments affecting international trade policy which are in of the policy established by the Council. You will under- force between the Government or a governmental agency stand that these commitments are not negotiable and that of any contracting party and the government or govern- the European Union cannot offer any further concessions, mental agency of any other contracting party shall also be in particular in the most sensitive sectors, such as textiles published.' and clothing'.

The arguments of the Council appear to be well founded. The position of the Portu- guese Government, and in particular the Minister's statement of 7 April 1994 quoted above, are of a merely political nature and as such, therefore, are not relevant for the purpose of determining the lawfulness of the decision. Even if that position were held to produce legal effects,: it would constitute a reservation on Portu- The Council does not dispute the Portu- gal's accession to the WTO Agreements and guese Government's reconstruction of could not therefore affect the validity of the events but emphasises that the position contested bilateral agreements. Further- expressed by Portugal, in particular in the more, the principle of cooperation between letter from the Minister for Foreign Affairs institutions and States that has been of 7 April 1994, is of a political nature and invoked is intended to ensure that the led to the adoption of Regulation 852/95 objectives of the Treaty are achieved; it whereby the Council granted a series of does not affect the choice of the legal basis subsidies to the Portuguese textile indus- for Community acts or the legislative try. 33 The Council maintains that, since the procedure to be followed in adopting contested decision is a commercial policy them. 34 In the present case, the contested measure, it could be adopted by qualified decision is clearly a common commercial majority of the members of the Council policy measure which, under Article 113(4) (Article 113(4) of the Treaty). To recognise of the Treaty must be adopted by qualified that Portugal's position was relevant to the majority. It follows that opposition to it by adoption of the decision would mean call- one Member State does not constitute a ing the legal basis of the contested measure into question, as it would no longer require 34 — On the implementation by the Community institutions of the requirement of cooperation in good faith under Article 5 of the judgment, see Judgments in Case 230/81 Luxembourg v Parliament [1983] ECR 255, para- 33 — Council Regulation (EC) No 852/95 of 10 April 1995 on graphs 36 to 38, Joined Cases 358/85 and 51/86 France the grant or financial assistance to Portugal for a specific v Parliament [1988] ECR 4821, paragraphs 34 to 36 and programme for the modernisation of the Portuguese textile the Order of the Court in Case C-2/88 Zwartveld and and clothing industry (OJ 1995 L 86, p. 10). Others [1990] ECR I-3365, paragraphs 17 to 21.

33. The Portuguese Government also I feel I should make two points on this claims that, in adopting the contested issue. First, a regulation such as the one in decision, the Council breached the princi- this case, which fixes import quantities in a ple of protection of legitimate expectations general way by category of products, in that the agreements concluded with cannot be regarded as constituting concrete India and Pakistan entailed a significant and specific expectations on the part of the acceleration of the process of liberalising various economic operators capable of the trade in products from those countries founding a legitimate expectation in the and would therefore disappoint all the provision in force not being changed. expectations Community operators in the According to settled case-law, compliance sector had formed on the basis of the with the principle of the protection of gradual opening up of the market envisaged legitimate expectations cannot justify the by the WTO Agreements, in particular the immutability of a provision, especially in ATC Agreement, and the Community leg- sectors — such as the importation of tex- islation in force, particularly Regulation tiles — where it is necessary to adapt the No 3030/93 as amended by Regulation rules constantly by reference to changes in No 3289/94 which transposes the ATC the economic situation and such changes into Community law. The Council points may reasonably be expected. 35 Second, out in this connection that the bilateral although under the terms of the bilateral agreements do not materially affect the agreements, as a result of the various stages content of the commitments entered into at of opening up the Community market and multilateral level, as regards either gradual the express option of granting derogations opening up of the contracting parties' from import tariff quotas, the Community markets or the possibility of granting has allowed its market to be opened up exceptional flexibilities in the form of more rapidly than was envisaged in the derogations to quantitative import limits, multilateral agreements, nevertheless, given and that they do not greatly affect the the extent of the discrepancy in the time- future framework of the WTO Agreements. tables set for liberalisation, this does not, as The Council doubts whether operators in we have seen, imply actual conflict with the sector could have been unaware of the WTO provisions, in particular those of the opening of bilateral negotiations between ATC. It follows that no appreciable differ- the Community and India and Pakistan ences in treatment can be established with a view to reaching agreements on the trade in textiles, since the Director General of the GATT had invited the Community to 35 — See my Opinion, delivered on 16 July 1998, in conclude its bilateral negotiations with Case C-159/96 Portugal v Commission, paragraphs 79 to 81.

34. Portugal then claims a breach of the principle of economic and social cohesion set out in Articles 2, 3(j) and 130a to 130e 35. These considerations lead me to con- of the Treaty. Portugal maintains that the clude that Portugal's last plea, on breach of fact that the Community did not adhere to the principle of equality between economic the policy expressed during the negotiation operators, is likewise unfounded. On this of the multilateral agreements, in the point, the Portuguese Government main- course of which the interests of economic tains that the contested decision favours operators of different regions of the Com- wool producers over cotton producers munity were weighed up, led to the pena- since, in the bilateral agreement, the Indian lisation of one particular type of operator, market is to be opened up only for the namely the Portuguese textiles industry. former category of products. In my opinion This, it claims, led to the need to adopt a decision such as this, concerning import Regulation No 852/95 which made provi- quotas having effects such as to favour a sion for grants to Portuguese operators in particular category of producers at the the sector. expense of those operating in the same sector but in different markets, cannot be regarded as illegal on the ground that it supposedly discriminates against those to whom it is addressed. The principle of non- discrimination in fact requires of the Com- munity legislature 'that comparable situa- tions are not treated in a different manner unless the difference in treatment is objec- tively justified'. 36 In this case, operators in This plea seems to me to be clearly the sector work in two distinct markets, unfounded. It is true that the Community wool and cotton, and therefore any eco- has a duty in its actions, particularly when nomic prejudice suffered by one of the two legislating, to ensure economic and social categories of producers does not constitute cohesion, as provided under Articles 2 and a breach of the principle of non-discrimi- 3 of the Treaty; a political objective of this nation. kind, however, is not a principle of law and therefore a criterion of the lawfulness of Community measures. It follows that, in 36 — See in particular judgment in Case C-280/93 Germany v this case, the decision cannot be annulled Council [1994] ECR 1-4973, paragraph 67.

— order each of the interveners to bear its own costs.

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