9:01 AM Mar 27, 1996

INDIA PANEL REQUEST ON US CLOTHING QUOTAS

Geneva 27 Mar (Chakravarthi Raghavan) -- The Dispute Settlement Body of the World Trade Organization is to have a special meeting on 17 April, at the request of India, to establish a panel to go into disputes against the US for import quotas on two clothing products from India - women's and girls' wool coats and woven wool shirts and blouses.

At the DSB meeting Wednesday, where the Indian request first came up, the United States would not agree to the panel request. Thereupon India left the request on the table and sought a special meeting on 17 April when under the rules of the WTO Dispute Settlement Understanding (DSU), the establishment would be automatic.

The DSB was also advised about the textile and clothing import restraints by Turkey since 1 January, when its customs union with the EU came into force. Hong Kong, some of the Asean countries, and now India have sought 'consultations', the first step on the dispute settlement process.

The disputes raised by India against the US refers to two items of clothing imports by the United States -- No. 435 (women's and girls' wool coats) and No. 440 (woven shirts and blouses) -- which have been unilaterally put under restraint by the United States on 14 July last with retrospective effect from 18 April last year.

Both the cases have gone through the processes of the Textile Monitoring Body (TMB) of the WTO Agreement on Textiles and Clothing (ATC), and brings up issues relating to the transitionary safeguard provisions of the ATC that importing countries can invoke, and the TMB process of consultations/rulings to resolve disputes.

In one case, involving women's and girls' wool coats, the TMB had found the US had not demonstrated 'serious damage' to its industry warranting a restraint, but was unable to reach a consensus on whether there was 'actual threat of serious damage'. But the US had been continuing with its unilateral restraints. India has sought a panel to go into several of these questions.

On this case, the US Amb. Mr. Booth Gardner told the DSB that "several months" ago, on the basis of market developments, the US had come to the conclusion that the 'restraints' were not needed and had sought consultations with India, but that India had brought up the dispute before such consultations could be held.

The Indian ambassador, Mr. S.Narayanan asked why, if the US had concluded that restraints were not needed, it had not removed the restraints but was asking for consultations?

In the second case, Gardner regretted that while the TMB had unanimously decided that US industry faced 'an actual threat of serious damage' and that this was caused by Indian exports, India had still brought up the case for dispute settlement panel.

The US restraints against India is one of several that the US imposed, after calls for consultations on the exporting countries, under the ATC. These calls themselves had been issued by the US towards the closing days of 1994, and under the bilateral agreements the US had with countries under the old Multifibre Agreement (MFA). Later, after the WTO entry, the US quickly re-issued them as 'calls' under the ATC.

The Indian complaint, like one by Costa Rica which has been referred earlier this month to a dispute panel, raises questions about the interpretations of the ATC and the functioning of the TMB and safeguard restrictions imposed by the United States in the absence of a TMB decision upholding its unilateral actions.

The Indian case raises questions as to whether an importing country can seek restraints claiming both 'serious damage' or 'actual threat thereof' to its producers -- when the facts and criteria required for such action under the ATC are different; whether an importing country can impose unilateral restraints with retrospective effect; and whether it can continue such restraints in the absence of a positive finding in its favour by the TMB.

In both the Indian cases, according to Indian communications to the Dispute Settlement Body (DSB), India had received from the US requests for 'consultations' ('calls' as they are known in trade diplomatese) on 30 December 1994, just two days before the MFA was due to end and was to be replaced by the ATC.

While the ATC continues for 10 years a special regime governing trade in the textiles and clothing sector, it has some stricter criteria before the importing countries can resort to transitionary safeguard provisions and seek agreements with exporting countries for export restraints and, failing agreement, impose quotas unilaterally.

India has said that when it met with the US for consultations on 18-19 April 1995, in pursuance of the calls issued on 30 December, and pointed out the legal unsustainability under the WTO-ATC rules of the calls under the old MFA, and the differing criteria to be fulfilled under the ATC, the US issued, on the same day in Washington, a fresh request for consultations on the same items on the ground of 'serious damage' to US producers - and a copy of the new 'call' was handed over in Geneva during the consultations on the old calls,

Further bilateral consultations on the new calls were held in Washington on 14-16 June.

India said that while the US request for consultations, in a note verbale, spoke of 'serious damage or actual threat thereof', but without indication whether the US was contending 'serious damage' or 'actual threat', an accompanying US statement consistently referred to 'serious damage'.

During the consultations, on the basis of information provided by the US and published data of US government agencies, India argued there was no justification for the US contention of 'serious damage'.

Nevertheless, the US established a unilateral restraint on 14 July, but with retrospective effect from 18 April.

The case was heard by the TMB on 28 August-1 September and again 12-15 September. Subsequently, on 3 October, the TMB issued reports.

In the report on 435, the TMB said 'serious damage' had not been demonstrated, but that it could not reach a consensus on 'actual threat'. In reviewing the implications of TMB discussions and findings, it said, the parties should keep in mind that the ATC was silent as to whether import restraints could continue to be maintained.

In the report on 440 issued on 3 October, India complained that while the TMB held that 'actual threat of serious damage' had been demonstrated, it had been silent on the US claim of 'serious damage', and had not given any indication of the criteria applied by the TMB in agreeing that there was an 'actual threat'.

In a communication to the TMB, on 17 October, for a review of the US restraints on the first item, No. 435, (women's and girls' wool coats), India noted that the US was continuing the restraints, whereas Art 6 of the ATC envisaged transitional safeguard measures could be continued only with the endorsement of the justification by the TMB. India also cited the US data as showing neither serious damage nor actual threat existed.

In the communication on the second item, No 440, woven wool shirts and blouses, (where the TMB had said there was an 'actual threat of serious damage'), India advised the TMB of its inability to conform with the TMB advise for restraint. India argued that the TMB had not considered the criteria for serious damage nor had it taken a view on retrospective application of restraints. The US data also did not show any serious damage or actual threat to US producers of same products.

In both cases, after a review, the TMB reported on 8 December 1995, that it was unable to make any recommendations beyond its earlier reports and that the TMB consideration of the issues had been completed.

In raising the disputes and seeking establishment of a panel, India contended at the DSB that the US restraints were inconsistent with the ATC provisions; that the restraint on women's and girls' wool coats were unjustified in the light of the TMB finding that there was no serious damage and there was no consensus on 'existence of actual threat of serious damage'. Without a positive finding US could not continue with its restraint and the onus of demonstrating serious damage or actual threat under the ATC lay with the US.

In respect of this item, as also category No 440 (woven wool shirts and blouses), India said the US had to choose at the beginning of the process (in issuing calls for consultations) whether it was claiming serious damage or actual threat and these two were not interchangeable.

The ATC did not also authorize any importing country to impose a restraint with retrospective effect.

On the restraints on textiles and clothing items India advised the DSB that it had now sought consultations with Turkey and that Turkey was to confirm to India when these could be held.

The textiles and clothing restrictions and quotas had been imposed, effective 1 January this year by Turkey, a net textiles and clothing exporter, on behalf of the EU with which it had entered into a customs union.

This question figured at an earlier meeting of the Goods Council with a number of developing countries complaining against the Turkish actions and viewing it as contrary to Articles XI and XII of GATT.

While India has now sought consultations, Hong Kong did so on 13 Feb.

The EU on 19 February sought to join the consultations. Malaysia, Philippines, Thailand and Korea had also asked on 22 February to join these consultations, and subsequently Peru, India, Brazil, and Canada.

Hong Kong complained today that the restraints had been in place since three months, but no specific details has still been furnished by Turkey. The quota system was itself designed for three months only and thus due to end at the end of March. Hong Kong hoped that Turkey would withdraw the restraints and not amend or extend them. Hong Kong also said it had been informally advised by Turkey that the consultations would be held on 16-17 April in Geneva.

Thailand, on behalf of itself and other Asean members, said it had received no advise about the consultations.

The EU said that this particular aspect of the Customs Union with Turkey had only a limited relation to the dispute, and was 'deforming' an overview of the situation (of the EU-Turkey customs union).

Japan spoke in support of Hong Kong, while Turkey said that since the restraints were a result of the Customs Union, both parties should be involved in the consultations.

India however said that Art XXIII (1) of the GATT envisaged that the consultations were bilateral.

Turkey took note of the various comments and statements.

Under 'other business', the European Community complained that while the US was seeking 'consultations' on bovine growth hormone treated beef imports, the US was maintaining unilateral actions it had taken since 1989, under the old GATT regime, against imports from the EU of about $90 million worth of products as a retaliation against the EU's restrictions on imports of beef from cattle raised by use of bovine growth hormones.

The EU-US consultations on this are due to be held in Geneva Wednesday.

But trade sources do not expect any agreement.

Japan said disputes should be resolved according to the WTO and there should be no unilateral actions. Canada, which has also sought consultations with the EU, said the US actions of restraints pre-dated the WTO and Canada felt that no unilateral actions should be taken, but only through a multilateral process.