9:05 AM Mar 6, 1996

US TEXTILE RESTRICTIONS DISPUTE FOR PANEL

Geneva 5 Mar (Chakravarthi Raghavan) -- The Dispute Settlement Body (DSB) of the World Trade Organization referred to a dispute settlement panel Tuesday a Costa Rican complaint against the US over its restrictions on imports from Costa Rica of cotton and man-made fibre underwear.

This will be the first time in the over 30-year history of discriminatory restrictions by the major industrial countries against imports of textiles and clothing products from developing countries that the issue would be adjudicated by independent panel.

The DSB also acted on another dispute, a complaint by Philippines against Brazil over countervailing duties on desiccated coconut imports. Five other countries -- Canada, US, European Community, Indonesia and Malaysia -- announced their interest in the matter

The dispute involves interpretations of the WTO's Agreement on Textiles and Clothing (ATC) and, in particular, its provisions relating to restrictions unilaterally imposed by an importing country under the ITC's 'transitional safeguard' provisions, and their continuance without the positive sanction of the Textiles Monitoring Body (TMB) - with 10-members of importing and exporting countries, and with an independent chairman charged with monitoring the implementation of the ATC. The case will also bring into the open the discontent of the exporting developing countries over the manner in which the TMB is functioning.

The Costa Rican case relates to the US continuing its restrictions on imports from Costa Rica of women's underwear on the claim of 'serious damage' to the domestic industry and an 'actual threat of serious damage'.

The TMB which is required under the ATC to look into all transitional safeguard measures found against the US on the issue of 'serious damage', but was unable to give any finding on 'actual threat', with a decision blocked by the importing representatives through the consensus procedure.

As a result the TMB did not sanction continuance of the US restrictions, merely asking the two sides to consult again and reach an agreement. But the US said that it was entitled to continue the restrictions in the absence of a positive disapproval by the TMB.

Two other disputes over US actions are also expected to come for panel adjudication through the DSB. Both involve US restrictions against India, and one of them, as in the Costa Rican case, involving US continuing the restrictions on the claims of 'actual threat of serious damage', where the TMB was unable to give a ruling.

The dispute between India and the US involves women's jackets items. While the 'facts' are somewhat different, one of the issues common to these relates to the issue of the importing countries continuing their unilaterally imposed safeguard actions without positive multilateral ruling in their favour.

India has already indicated in the WTO its intention to take the issue to the dispute settlement process and, according to press reports in Delhi, the government has decided to do so.

Under the old GATT, and the Multifibre Agreement which it sanctioned, as an accepted derogation from multilateral trade rules, disputes could not be brought up before a panel.

The WTO and its Agreement on Textiles and Clothing (ATC) provides for full integration of this trade into the WTO/GATT rules, but with a 10-year transition period for progressive dismantling of restrictions.

While envisaging continuance of restrictions or their imposition during the 10-year period under 'transitional safeguards', the ATC has somewhat tightened the rules and disciplines, and has brought them also under the overall Dispute Settlement Mechanism and independent adjudication process, though interposing the Textiles Monitoring Body (composed of interested parties) in a intermediate process.

During the Uruguay Round negotiations, the exporting developing countries wanted provisions under which the importing countries could put in place restrictions only on the basis of a positive finding in their favour by the TMB. The importing countries wanted to have full freedom to take transitional safeguard actions.

As a compromise the two sides agreed on provisions for restrictions to be imposed, in the absence of agreement, but on the basis of more strictly defined criteria about 'serious damage' to domestic producers or 'actual threat thereof', for all such restrictions to be notified and for the TMB to then hear the evidence and give rulings.

But the major importing countries, in relation to the constitution of the TMB, got a provision that it should function on the basis of a consensus (unlike the dispute settlement panels that can rule on a majority basis if no accord is reached). In the actual functioning of the TMB, the importing country members have been blocking the consensus where a finding would not be in their favour.

At the DSB meeting Tuesday narrated the history of this dispute and the TMB review finding on 21 July last that the US had not demonstrated serious damage to its producers by the imports from Costa Rica. Due to the consensus decision-making rule, the TMB was unable to give a finding on the 'actual threat' and asked the two sides to hold further consultations. These produced no compromise and, in a further review brought up by Costa Rica, the TMB merely reiterated its earlier findings and said its own review of the matter was concluded.

Costa Rica held further consultations with the US in terms of the dispute settlement processes and then approached the DSB to set up a panel.

The US did not oppose it, but insisted that the ATC allowed transitional safeguards "if the proper conditions" are met and that the US had met "all the conditions" and was fully within its rights.