TMB confirms integration commitments lack credibility

by Chakravarthi Raghavan

GENEVA: The Textiles Monitoring Body (TMB) of the WTO has indirectly confirmed worries of exporting developing countries that little is being done in the North to promote industrial adjustment and competition in this sector and without special actions by importing countries, there might be renewed pressures for continuing the special regimes in this sector.

The WTO Agreement on Textiles and Clothing (ATC) is a time- bound accord, and its special provisions for phased removal of the discriminatory quota restrictions and special safeguard regimes, are to disappear on 1 January 2005, when trade in this sector is to be governed by the normal rules and disciplines of GATT 1994.

The ATC calls for an initial integration, on date of entry into force of the WTO (1 Jan 1995) of 16% of total volume of imports in 1990 of products, chosen autonomously by countries, from out of a list in the annex; another 17% on 1.1.1998; another 18% on 1.1.2002; and the balance on 1.1.2005. Side by side over this period, there is also provision for percentage rise in quotas, wherever countries have instituted them.

Transitionary safeguard provisions

While the ATC's integration is aimed principally at countries that have been using the old Multifibre Agreement (MFA) to put in place country-quotas and other restrictions (covered by Art. 2.1 of the ATC), it enabled other countries not having such quotas but still desirous of preserving their right to use the special transitionary safeguard mechanisms to do so (under Art. 6.1).

Some 55 WTO members (who had no MFA import restrictions) nevertheless notified the WTO of their intention to retain the transitionary safeguard provisions. These Art.6.1 countries have also to carry out a phased "integration", notifying at every stage the percentage by volume of products they would integrate. But since they have no import quota regime (under the old MFA) as such, the only effect for them is that they can't have recourse to transitionary safeguard mechanisms for these products.

Countries "integrating" their trade - whether the old MFA importing countries under Art.2.7(a) or the Art.6.1. countries under 2.7 (b) - cannot invoke transitionary safeguard provisions for their integrated products.

The TMB with 10 members, acting in their personal capacities, and an independent Chairman, has been mandated to oversee the implementation of the ATC. But with its consensus decision-making, and the members from importing countries by and large acting in concert, the TMB has been unable to ensure the observance in letter and spirit of the rules of the ATC.

TMB's comprehensive report

The ATC also envisages an assessment by the WTO Council on Trade in Goods, before the end of each stage of the integration process, of the progress in implementation. The first such assessment is to be made by the Goods Council before end of this year, and the TMB is required to submit a comprehensive report for this by end July.

The first such comprehensive report of the TMB acknowledges that the outcome of the integration plans of the importing countries maintaining old MFA quota restrictions (Canada, the EC, Norway and the US), both in the period ending 31-12-1997 and that notified by them for the next phase, is that 67% by volume of their 1990 imports would remain to be integrated in only 36 months (1.1.2002 to 1.1.2005) and that the large majority of the products subject to the old MFA restrictions (and which are continued under the new regime) would have to be integrated in that short span of time.

And while the EC claims to have some structural adjustment programmes to help industry generally (regional assistance, worker retraining, aid for technological R & D, and for small and medium enterprises) and which the textiles and clothing industry could use, the TMB itself has had no "information or empirical evidence" on progress and accomplishment of importing countries in terms of increasing competition and implementing autonomous industrial adjustment envisaged in Art. 1.5 of the ATC.

This last calls on WTO members to "allow for continuous autonomous industrial adjustment and increased competition in their markets", in order to facilitate the integration of the textiles and clothing sector into GATT 1994.

Rather, the major importing countries like the EC and the US have helped their industries to avoid making adjustments, by not only undertaking a shady integration process - choosing to integrate products that are not subject to quotas, while shielding from competition, products that face competition from developing country exporters - but also taking recourse to other trade instruments like anti-dumping investigations, rules of origin, anti-circumvention actions and so on.

While touching on these aspects, the TMB has failed to clearly identify the misuse of these instruments and perform its intended role of supervising and monitoring the implementation programme.

Stages of integration

Taking both stages 1 and 2 of the integration:

* tops, yarns and fabrics represent 76, 65, 60 and 47% respectively of import volumes integrated of the EC, the US, Norway and Canada;

* the share of clothing in integrated products remains modest - 12,4, 10.6, 7.9 and 7.2% respectively of the US, Norway, Canada and the EC.

Very little of imports now restrained by quotas, whether individual country quotas or group levels, would go at the end of the period. The US would eliminate 8 specific items out of 650 under quota restrictions, the EC, 14 out of 199, and Canada, 28 out of 205.

Norway has not notified any quota restrained products as having been eliminated from restrictions, but has said it plans to liberalise by use of Art. 2.15 under which an importing country could autonomously remove any restrictions maintained by it.

The US has made the largest use of the transitionary safeguard mechanisms - having made 26 requests for consultations, 24 in 1995, one in 1996 and one in 1997. Eleven of them resulted in bilateral agreements on restraint measures - either during the consultations or prior to or during the TMB review.

But what the TMB report fails to bring out is that the way it has been functioning, far from ending the bilateral processes of the old MFA where the unequal power of the partners prevailed, the same pattern in effect has been allowed to continue under the ATC, contrary to the actual intention of the negotiators, so that under a unilateral restraint already in force or threatened, the exporting country negotiates a restraint level in the interests of trade peace.

A best illustration of the TMB's dithering approach, and failure to safeguard and protect the interests of the weaker trading partners is the case relating to US restrictions on what is known in the trade as category 435 - women's and girls' wool coats - where the US maintained illegal restraints against Honduras, some 16 months after it became clear that its action (against India on the same product) was illegal and unjustified, and was rescinded.

The case of India and Honduras against the US

In this product category, in April 1995, the US sought consultations with India and Honduras, and imposed unilateral restraints. The TMB reviewed the US action, came to the conclusion that no serious damage had been demonstrated by the US, but could not reach a consensus on whether threat of serious damage existed. India took the issue to a dispute panel, and subsequent to this, the US removed the restraint (thus avoiding a ruling against it) and India in April 1996, asked the panel not to proceed with the complaint.

As in the Indian case, the TMB found in the Honduras case too, that no serious damage had been established, but could not decide on existence of actual threat, and thus provided no relief to Honduras which reached a bilateral accord with the US.

But even after the US removal of the restraint against India, and the termination at India's request of the panel proceedings, the US maintained the restrictions against Honduras. After a further complaint from Honduras that the US was not living up to the accord, and a US communication to the TMB that it would fully implement the agreement, Honduras came back to the TMB in March 1997 asking the TMB to review the issue under Art. 8.6 and 8.7 (a step preliminary to the issue being taken to a panel) to look into the appropriateness of the US maintaining the restraint. The US asked the TMB not to undertake the review.

After further delays, the TMB considered the issue and in effect asked the US to reassess its position in the light of the actions on the same issue relating to imports from India. After further attempts to maintain its position, the US ultimately advised the TMB that the restrictions against imports of this particular category from Honduras would be removed from September 1997 (over 16 months after it became clear, in the Indian complaint, that the US action was not justified and the US had withdrawn the restraint rather than have the panel rule against it).

In two cases, the US eventually decided not to apply transitionary safeguards, five unilateral measures were dropped before the TMB review, and an additional one during review.

The TMB itself completed a review in seven cases, but in three of them the exporting countries involved went through the dispute settlement process (dissatisfied with the TMB action). In two cases the complainants won, and in the third, the US removed the restraint and the complainant asked the panel to terminate the proceedings.

Brazil's recourse to transitionary safeguards

Next to the US, Brazil had recourse to transitionary safeguards in seven instances - two directed against imports from Hong Kong, five against imports from Korea - and instituted provisional measures. Brazil and Korea reached agreement in their consultations. In the case of action against Hong Kong, the TMB said the Brazilian industry (woven artificial filament fabrics) was exhibiting contradictory symptoms, that it was experiencing serious damage, and that in part this could be attributed to imports from Hong Kong, but that taking account of the restructuring and adjustment being undertaken by the industry, Brazil should rescind the measures at the latest by 31 December 1997. Brazil said it would endeavour to do so. But Hong Kong did not agree with the TMB's view on the transitional safeguards applied, arguing that serious damage had to be drawn from data specific to the particular industry and not broader industry categories. The issue in effect is pending before the Dispute Settlement Body, with Hong Kong reserving its position and awaiting a Brazilian response to the TMB recommendation for rescinding its actions before 31 December.

On the issue of changes in its rules of origin, instituted by the US, which several textiles and clothing exporters complained of having a distortive trade effect and is a protectionist use, the TMB report does not provide its own assessment and view. It has merely recalled the provisions of Art. 4.2 that such changes should not upset the balance of rights and obligations or disrupt trade under the ATC, the importance of following procedures for prior notification and consultations, and the US expression of readiness to consult with trading partners on their concerns. The TMB also notes the EC taking recourse on this matter to the dispute settlement mechanism.

However, it was brought out at the meeting of the DSB on 30 July that the US and EC have "settled" their dispute, that they did so just prior to the date set for "consultations" in which other aggrieved members were due to participate, but that the two have not notified the terms of their settlement.

The EC and US media have reported that under the terms of the settlement, the US in effect would not enforce its rules of origin against imports from EC of products, where fabrics have been imported from elsewhere (and thus under the new US rules have to be viewed as originating in the country where the fabric was made) but processed in the EC (by fashion designers, marketing the goods with high value added).

The TMB report has references to complaints of members about the increasing use of anti-dumping actions, but contents itself with drawing attention to the rules and that consistency or otherwise, of such actions could be brought up before the relevant WTO bodies. (TWE No. 167, 16-31 August 1997)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS).



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