9:41 AM Sep 20, 1995

WTO TEXTILE BODY TRIES TO BE A SOLOMON

Geneva 20 Sep (Chakravarthi Raghavan) -- The Textile Monitoring Body of the World Trade Organization has disposed off three cases involving safeguard actions taken by the United States against imports of some products from India -- by asking the US to rescind one restriction, upheld another and with no consensus decision on the third.

In cases involving imports from Honduras, the TMB failed last time (in July and August) to reach a consensus or persuade Honduras to agree to new consultations, and hence put off the hearing for its next meeting -- in effect penalizing Honduras, since until the TMB completed its hearing and decision, the United States could continue its unilateral restraints and Honduras would be penalized. As a result, Honduras went into a second round of consultations with the United States which resulted in the US withdrawing restrictions on one item and Honduras agreeing to restraints on another, but with some improved quotas.

A similar process was sought to be applied against India, but India insisted that the TMB should give a ruling one way or the other. At the end of the hearings end of August, when the TMB sought to adjourn its consideration of the case wanting to resume the hearing, India also made clear that it could not be repeatedly bringing its experts here from the capital. Ultimately, the TMB decided to resume consideration, without requiring parties to come again.

All cases involved US notifications of its application of transitional safeguards, after consultations and negotiations with exporting countries failed to result in an agreement. Under the WTO/ATC, the TMB is to look into all such cases including the determination by the importing countries of serious damage or actual threat thereof and its causes and make appropriate recommendations to the parties.

The United States was asked to rescind its quotas against Indian exports of product line no 434 - men's woolen jackets and coats. In the case of another category, no 440 (woolen shirts and blouses), the TMB decided that there was no 'serious damage' but there was an actual threat of such damage to the US because of Indian exports, and thus held the restrictions valid. On a third category, no 435, women's woollen jackets and coats, the TMB reached a consensus decision that there was no 'serious damage' to the US industry, but could reach no consensus on whether or not there was a threat of such serious damage.

On this last, the TMB has suggested that the parties in deciding their actions, should keep in mind the fact that the ATC provision is silent on whether import restraints (unilaterally imposed by the importing country) can continue to remain in place in the absence of a consensus ruling from the TMB.

The US appears to be interpreting this to mean that in the absence of a ruling for rescinding the restraint, its own actions remain valid. India, and other exporting countries, are taking the view that without a consensus decision upholding the restraint, the unilateral safeguards action must be removed.

Unless the two sides (India and the US) go back to negotiate and reach an accord (with the US attempting to buy off India by an increased quota), if the US maintains its position, the issue can only be resolved by India raising a dispute, and the Dispute Settlement Body, through a panel ruling (and inevitably an appellate body decision), decide this question.

The TMB which had been meeting from 12-15 December to continue its consideration of the Honduras and Indian cases (where it heard parties at its earlier sessions in July and from 28 Aug - 1 Sep, decided this question on 15th, but its decision in the form of minutes was circulated to the WTO members Tuesday.

The whole process of liberalization and integration of the textiles and clothing trade into the multilateral system has become a farce, with the issuance of "calls", consultations, the TMB process and the renewed consultations and agreements achieved through a process of "bribery", says Sanjoy Bagchi, Executive Director of the International Textiles and Clothing bureau.

When the TMB fails to decide and forces consultations, or renewed consultations on the exporting country and new consultations take place, the importing country with the threat of a restraining quota and its huge capacity to harass imports, offers a slight increase over its unilateral quota to get an agreement, thus protecting itself.

The major importing countries have made a mockery of the concept of progressive integration and liberalization, showing a total lack of good faith, and the US has been misusing the transitional safeguard facility to slap further restrictions on developing countries and fomenting protectionism, Bagchi had said in August in an interview in an Indian paper.

In explaining what he means by the "bribery", Baghchi cites the case of Colombia which was forced to "consult" with the US and reach a compromise.

In respect of one product item, No 351/652, the United States had asked Colombia to restrain its exports to the limit of 1.5 million units. After renewed negotiations, agreement was reached by increasing that quota to two million, but with Colombia being given a quota of 20 million under a 'special regime' involving Colombia importing the cut fabrics from the United States and stitching and exporting them to the United States.

"By no reasonable analysis, interpretation or conclusion, could it be argued that Colombian exports of that item, before the restraint, was causing serious injury to the US garment industry in that product, requiring the imposition of a 1.5 million quota, which, on renegotiation is then raised to two million, but with a quota ten times that amount if the cut fabric is imported from the US, stitched in Colombia and exported to the US."

Was the original surge in Colombian exports of that particular garment causing serious damage or actual threat of it to the US garment industry and producers, or the US Textile fabric manufacturers of the cloth used or of the garment cutters in the US or the actual garment makers who stitch the cut fabric into a final product?

Importing countries generally explain that unless they reach compromises, giving up their contractual rights, they have to contend with the fact that the US, and its customs, could harass their exporters endlessly and cause serious damage to their trade and earnings.

The US customs (or that of other major importers) could easily hold up shipments (on this or other items) on a variety of reasons at the port of entry, forcing the exporter to incur demurrage charges, and prevent the exporting firm from cashing any letters of credit against which exports have been made.

The TMB, with seven members functioning in their ad personum capacities, and an independent chair, are envisaged under the WTO's Agreement on Textiles and Clothing (ATC) to function as a mechanism to ensure the observance of the letter and spirit of the ATC and arbitrate between the importing country and the exporters.

Instead of an independent arbitration body, it has become a 'negotiating body' to reach compromises, attempting to establish its "neutrality" and "independence" by deciding one case in favor of the importer, another in favor of the exporter and a third with no decision beyond asking the parties to consult again -- as has now been done in the three Indian cases.

In an admittedly very secretive and non-transparent organization (the WTO), the TMB is functioning even more secretively and non-transparently than the WTO's dispute settlement panels; and its decisions, including its arguments or reasons for each decision are not public or easily available.

WTO sources say that after much fight by the developing countries, the rules of procedure of the TMB call for this body to provide some kind of a written order, providing a resume of the case and the decision reached.

One trade official said that in a strange stranglehold on the process, the major importing countries -- the US and EU -- have ensured that even when the TMB is unable to decide a case, for lack of consensus, it needs a consensus to make a report about lack of consensus. And while the TMB circulates to its members and the WTO minutes of its decision, the actual "order" of the TMB (which would be needed for any party to raise a dispute) would have to be negotiated and agreed upon by consensus.

The United States and the Europeans who have been in the forefront of the drive for "transparency" in the WTO panel system, wanting panel rulings etc to be immediately published, don't want the same concepts to apply the TMB.

If there is any pattern that could be observed from the decisions made so far, it would be appear to be one of the importing country, like the United States, issuing "calls" on the exporting country to restrain its exports on the claim of 'serious injury or threat thereof" to the US producers, engage in negotiations to persuade exporters to restrain their exports, and failing that impose unilaterally its quotas under the transitionary safeguards clauses of the ATC.

When these are notified, the TMB takes up the cases -- with two or three cases involving individual exporting countries. The hearings become an exercise in "negotiations" between the exporting country representatives and the importing country representatives to achieve a compromise. By refusing a consensus, the importing country members of the TMB, who act together as a bloc, try to pressure the exporting country to go back and hold new consultations and reach a compromise. If the importing country declines, the TMB consideration is adjourned to a future meeting, thus applying pressure on the exporters.

And when finally forced to decide, the TMB, as in the Indian case, decides one case in favor, another against and sending a third for renegotiation -- thus giving the appearance of a body keeping a balance.

"As it functions now, it has become a farce," says Sanjoy Bagchi, Executive Director of the International Textiles and Clothing Bureau, an intergovernmental alliance of Third World exporting countries. From being an impartial dispute settlement mechanism under the ATC, it is being turned into a negotiating body as was the case of the old GATT and the textile bodies under the MFA.

Bagchi also cites published US production data to show the spuriousness of arguments about 'serious injury' or 'actual threat of serious injury' to justify the safeguards action.

In category 434 (men's woolen jackets and coats), US production in year ending September 1993 was 155 thousand dozen items. In 1994 it came down to 152 thousand dozen items or a less than two percent drop. In respect of item 435 (women's woolen coats and jackets), the production fell from a 713 thousand dozen units in 1993 to 703 thousand dozen units in 1994, less than one percent.

How can one call this proof of serious injury or real threat to the US producer, asks Bagchi.