12:07 PM Oct 17, 1996

TEXTILES: 'SEE NO EVIL, HEAR NO EVIL'

Geneva 15 Oct (Chakravarthi Raghavan) -- The functioning of the Textiles Monitoring Body (TMB) set up under the Agreement on Textiles and Clothing (ATC) was discussed at the WTO's Goods Council Tuesday on the basis of the report of the TMB, with developing countries, exporters of textiles and clothing expressing their dissatisfaction.

The Goods Council has also been discussing, at earlier sessions, a paper by Pakistan on behalf of a number of developing countries, about the ATC and its implementation, as also papers by the US and the EU.

The Council, while taking note of the TMB's report, is expected to come up with its own report for the Singapore Ministerial Conference on the implementation of the ATC, taking the TMB report as an input.

The 11-member TMB has been set up under the ATC to supervise the implementation of the ATC, with an independent chair and 10 members from importing and exporting countries, functioning in their ad personum capacities. As such, its report is not a review or assessment of the WTO members as a whole.

And as the statements and interventions of the exporting countries at the Goods Council brought out, developing exporting countries find the TMB not being able to carry out its responsibilities -- hobbled as it is by the 'consensus' rule that enable importing countries to stymie its work as an independent supervisory body, enabling virtual continuance of the bilateral approach of the old Multifibre Agreement (MFA), with the TMB compounding its problems through its non-transparent functioning.

The work of the TMB and its functioning was perhaps best summed up in the intervention at the Goods Council of the Pakistan representative, Amb. Munir Akram, who described the TMB as a "see no evil, hear no evil and, if possible, do no evil" body.

Akram noted that the TMB had not reviewed or looked into one of the most important measures affecting the trade, namely, the change in the rules of origin by the United States, the largest importing market.

In its 32-page report, the TMB acknowledged that in a number of cases before it, the common rationale for its recommendations or findings and that while it was committed to "improve its transparency", more detailed report by the TMB might render consensus more difficult to achieve and/or require more time.

The TMB also conceded that it could not in a few cases arrive at a "consensus decision" on matters brought to it and thus could not fulfil its mandate, attributing this, partially, to lack of time.

But the plea that TMB should have more time to make pronouncements, and be able to function with less-transparency to get a consensus, was rejected by several developing countries who spoke in the discussions. Several of them sharply criticised the TMB for attempting to equate the integration obligations of the importing countries who had MFA restrictions, and those of developing countries who had no such restrictions.

There were sarcastic references to the fact that the TMB had devoted more space and more paragraphs to review the notifications and actions of developing countries whose import restrictions were GATT-legal, and much less to those of the importing industrial countries who had otherwise GATT-illegal quantitative restrictions under the ATC's transition provisions and had effected no commercially meaningful integration or liberalisation.

In a detailed presentation, which was directly or indirectly supported by several other countries, India's Ashok Mukerji noted that apart from a repository of notifications, the ATC had been entrusted the TMB with the important functions that had not been fully carried out.

In polite language, he said the TMB should develop a strong commitment to its responsibility to supervise the implementation of the ATC, examine all measures taking under it and their conformity with the ATC, and thus discharge its duties without fear or favour and thus enhance its credibility.

The Indian representative was specifically rejecting a proposal of the TMB that it should function through "collegiality". Mukerji recalled India's similar stand in respect of the WTO's Appellate Body noting that the appellate body's rulings have to be given by three members who hear a particular case, and not by the seven-member body and nor could the others influence the decision of a particular panel.

Given the way the TMB is constituted -- with all members except those from the Quad (Canada, EU, US and Japan), having rotating membership -- the "collegiality" would mean that members from these four countries would in fact have more say than others.

In detailed comments (a text of which was made available later to the media), Mukerji noted that the TMB had relief extensively on notifications by members to perform its duty of supervising the implementation of ATC. In reviewing the notifications of Canada, EC, Norway and the USA, the TMB had acknowledged that with the exception of Canada, and for one product, the 16% of initial integration by these four had not integrated any product subject to quantitative restrictions prior to GATT 1994.

And while they were grateful to the TMB for bringing out this fact that there had been no "commercially meaningful integration" of this trade in the first stage, the way the TMB had treated this issue of integration was "puzzling".

The concept of integration in the ATC was related to the QRs maintained by the major importing countries under the MFA and carried over into the transition period under Art. 2.1 of the ATC.

Yet the TMB had sought to give the impression that the obligations of the Members who had such restrictions and had an integration obligation during transition according to a prescribed schedule were on a part with other Members who had no MFA-type restrictions, but have retained the power to use transitional safeguards, and thus had to do a "notional" integration. These latter group of countries had no QRs, and if any of them had restrictions these were "GATT consistent".

There was thus a fundamental flaw in the TMB approach, and judged by the length of space devoted to these two types of actions, the TMB appeared to have spent "more time and energy" in dealing with notional integration rather than the substantial integration issues.

In commenting on the integration by the countries with MFA restrictions, the TMB has noted that though they were required to integrate products in four specified categories of products, the share of tops and yarns and/or fabrics were significantly higher. But it has mechanically repeated the same observation in respect of countries having to notify a "notional integration". The products selected for "integration" by these countries had no implications in respect of market access, whereas for the first group, products not selected for integration were subject to MFA-type restrictions.

The TMB is wrong in creating an impression that the two categories of members are on a par, India said.

In respect of notifications by the US, it had earlier notified the TMB of a complete embargo on imports of category 361 from a particular member, later amending the notification to bring it under Art. 2.6 of the ATC. But the ATC only envisaged specific limits on imports and not total embargoes, and the TMB had failed to point out this inconsistency of the US action with ATC.

In an annex to its report, the TMB had listed the various safeguard actions taken by members, but had not stated whether the actions were on account of serious damage or actual threat or both, and what its own findings on each of these.

Referring to the TMB report on US notifications, in its paragraphs 67 and 75, India noted that the US restrictions were "agreed restraint measures" (by bilateral agreements, following request for consultations, or 'calls' as it is technically known).

The ATC, India said, had specifically entrusted the TMB to determine whether such "agreed" measures were in accordance with the ATC provisions which, in Art. 6.8, requires that "specific levels" of agreed restraint measures "shall not be lower than the actual level" of exports or imports from the member over a specified 12-month period. But it was "disquieting" to find the TMB in reviewing these notifications acquiescing with a situation where the specific limits notified was "lower" than the rollback level.

A related point, India complained, was the failure of the TMB to examine in these notifications what are known as "Guaranteed Access Levels" -- quantities of a product that a country can export to the US without being subject to QRs, provided the product shipped is made of "US component".

It was not clear what the view of the TMB was on the GATT consistency of such GALs, and its status in relation to Art. 6 of the ATC. The TMB's footnote reference to GALs seemed to hide more than it revealed. If GAL was the total agreed restraint, how was it possible for the importing country not to provide a growth rate for it in its notification to the TMB? If it is part of a total restraint, then under Art. 6.8, it could not be less than the rollback level.

India complained that the TMB had not gone into the issue. GALs appeared to be part of a preferential access regime (based on use of US components) and not one under the ATC transitional safeguard regime, and as such could not notified or justified under ATC. Also, it would be difficult to conceptualise the "serious damage or actual threat" to domestic industry when looking at figures notified under GALs.

India also expressed concern over the deviation from usual method in the TMB's functioning in this matter. While it normally based its reviews on "notifications" by members, in respect of the dispute between Honduras and the US, where the TMB has taken account of the "intention to implement" by the US, rather than the notification.

Referring to the remark in another case (involving agreed restraint measures between Colombia and the US on women's and girl's wool suits) by the TMB that some data about the pace of increased imports from Colombia might lead to different findings (than serious injury or actual threat), but that the TMB concluded the agreement was justifiable "in overall terms", India the ATC nowhere in Art. 6 had used the words "overall terms" and thus the TMB decision was not based on the ATC provisions. The remark in the paragraph about the US willingness to raise the GALs "on request", and which had been accepted by the TMB as a valid argument, was not also consistent with Article 6.

There was no provision in the ATC justifying such an interpretation by the TMB, Mukerji said.

Summing up India's views on the manner in which the Art. 6 notifications had been reviewed by the TMB, Mukerji said: "the review process does not always seem to have taken place within the disciplines of the ATC. This has resulted in implicit continuation of the bilateral approach, earlier called the 'consenting adults' approach in the discredited MFA system in the implementation of the ATC.

The TMB's review of the transitional safeguard issues, India noted, had gone beyond the provisions of the ATC, in envisaging a requirement by Members to comply with the ATC recommendations. Compliance with the TMB recommendations had not been built into the ATC, and members aggrieved over the TMB view, had been left free to take up their dispute to the normal WTO Dispute Settlement process, India pointed out.

India also expressed "serious concern" over the "subjective nature" of the language used by the TMB, in paras 99 and 100 of the report, about implementation of Art. 7.

This provided for Members abiding by their GATT obligations, with reference to the "specific commitments" undertaken as a result of the Uruguay Round so as to achieve improved access to markets for textiles and clothing products through such measures as tariff reductions and bindings, reduction or elimination of non-tariff barriers and facilitation of customs, administrative and licensing formalities.

The article also provides that any Member which consider another as not having taken such actions could bring the matter before the relevant WTO body and inform the TMB.

This particular article, and its wording, was the subject of any eyeball-eyeball confrontation between India and the US, with the latter in the final days of the Uruguay Round demanding "access" to the Indian market in return for US agreeing to the phasing out of the MFA. India refused to make any new commitments beyond its commitments in the Uruguay Round market access package as a whole, and ultimately some ambiguous language to provide a face saving way out for the USTR Mickey Kantor was negotiated.

In its report, the TMB, after quoting the provisions of the Article spoke of its being aware of the conclusions of the WTO Committee on Market Access in April 1995 (on tariff and non-tariff measures), and the approach of reliance on cross or reverse notifications to identify problems. The TMB said it was not aware of any such cross or reverse notifications, but went on to say that on a few occasions issues relevant to Art 7 of the ATC had been raised in the Committee on Market Access and that it was "also aware of the concerns expressed by some Members with respect to the lack of sufficient improvements in access to the markets in some developing Members."

In some politely worded, but trenchant comments, India said that it was not aware of any notification by any WTO member to the TMB under this Article, nor of any communication from the Committee on Market Access to the TMB of cross and reverse notifications. Nor had the minutes of the meetings of the Committee on Market Access (referred to in the TMB observation) ever been reflected in the minutes of the TMB circulated to the WTO members. India had not also been provided with any notification to the TMB (about the concerns about lack of sufficient improvements in market access in some developing countries).

In the absence of any documentary evidence, India was "surprised" that the TMB should have made such observations in the two paragraphs.

Art. 7 of the ATC, India pointed out, had clearly and explicitly used the phrase "as part of the integration process and with reference to the specific commitments undertaken by Members as a result of the Uruguay Round." The obligation to provide access was only with reference to the specific commitments undertaken as a result of the Uruguay Round, Mukerji said, adding "my delegation is fully aware of the negotiating history of this Article and actively participated in the intense negotiations held on the intervening night of December 14-15, 1993. We would like to state categorically that there is no obligation whatsoever to go beyond the commitments undertaken during the Uruguay Round."

India also rejected the TMB view seeking additional time to reach decisions on disputes, and said the timeframes for TMB decisions was one negotiated and the "proposed negotiation" of this text was unacceptable to India. Such a move, and the danger of transposing it to the processes of the DSB, would be a dangerous step.

India also rejected the TMB view that providing detailed reasoning for conclusions on disputes could make consensus difficult, and noted that for almost 50 years GATT had handled disputes and panels had providing reasons for their conclusions. The unusual argument advanced by the TMB to avoid giving reasons would have wide ramifications on rights and obligations of Members.

The discipline of having to provide reasons for decisions, on the other hand, would encourage TMB members to study the various elements seriously and discharge their duties strictly and in ad personam capacity, India wryly commented.

"We firmly believe greater transparency provides for greater accountability and therefore for greater acceptability".

In other comments, the ASEAN referred to the report that the TMB had received notifications involving "administrative arrangements" of Members about this sector of trade and said it was important for the TMB to review such arrangements and ensure their consistency with the ATC.

The ASEAN also underlined the importance of the time-frames and deadlines in the ATC, distinguishing it from the MFA. The Asean complained about the omission in the TMB report under the relevant paragraph of the unilateral restraints which had not been reviewed by the TMB nor scheduled for review within the 30-day timeframe. The ASEAN statement cited the experience of Thailand which had received a call for consultations on 27 April of 1995. But no consultation was ever held, but restraints were imposed on 25 July retroactive to 27 April. There was no TMB review of this action, although one was sought. The action was rescinded on 2 October -- 69 days after it was referred to the TMB and 159 days after the call was made.

"The result was acceptable, but the process was not," the ASEAN commented.

On the TMB review of a number of restraint actions by the US, and its comment that the restraint agreed to was higher than the "rollback" level, ASEAN said this gave the impression that the key element of review was the size of the restraint, and not the quality or the justification for it.

Also, the TMB in its review of the safeguard actions that both Members invoking it and those subject to such action had "strictly observed" the procedural requirements of Art. 6. If this statement was correct, the ASEAN asked, how was it that a number of issues under Art. 6 were now the subject of dispute before the DSB?

Commenting on TMB view that as a result of its reviews, as well as examination of notifications, "it has been able to establish a certain authority and to set certain standards which can provide guidance to Members in terms of implementation of the different provisions of the ATC," ASEAN asked whether these standards have been formulated in writing and were they acceptable to all members, the ASEAN asked.

The Chairman of the Goods Council, Amb. S.Narayanan of India, said at the end of the discussions that he would hold consultations with members on the report by the Council of its review of the ATC.