3:49 PM Jul 24, 1995

US TEXTILE "CALLS" SHOWS UP SYSTEMIC WEAKNESSES

Geneva 22 July (Chakravarthi Raghavan) -- The Textile Monitoring Body (TMB) of the World Trade Organization, has disposed off the first crop of cases brought before it involving the United States, showing up some major weaknesses in the system and its inability to protect the rights of the weak against the strong, trade sources in Geneva say.

The cases brought and disposed off, some with exporters doing a deal with the US under the threat of palpably illegal US actions, show the basic weaknesses of the WTO's Agreement on Textiles and Clothing (ATC), compounded by the WTO's Dispute Settlement system, as a result of which the 'complainant' against any illegal trade measures of another country can get no remedy for atleast 1-1/2 years, a period during which its trade interests would be affected, and sometimes irrevocably damaged, in the country taking unilateral action.

The TMB, consisting of Chairman and 10 other members (functioning in ad personum basis), is mandated to supervise the implementation of the WTO's Agreement on Textiles and Clothing (ATC) and for this purpose examine all measures taken under the ATC.

In this regard it gets the notifications, including on the use of the transitional safeguard actions, and hears disputes and resolves differences between an exporting and an importing country that invokes the transitionary safeguard provisions and issues "calls" to an exporting country to hold "consultations" to restrain its exports.

If the importing country goes ahead and restrains imports, and if this is a violation of the exporting country's rights, it has then to invoke the Dispute Settlement Understanding for a panel - which from start to finish could take atleast 1-1/2 years, but with the offending importing measures already in place and hurting the exporters.

Since it was set up, after considerable wrangling on the membership, early this year, the TMB had been engaged in a very prolonged process of agreeing on its procedures and processes, and settled these matters early this month, but with some differences left unresolved. Thereafter it has begun substantive work from the second week - with cases involving US.

The ATC came into being on 1 January 1995, along with the WTC, and almost immediately, the United States issued some 20 "calls" on exporters to its markets for "consultations" to cut back their exports.

The International Textiles and Clothing Bureau (ITCB), the alliance of Third World textiles and clothing exporting countries, in May this year, denounced these "calls" and viewed the US actions as lacking in "good faith".

Seven of these cases came to the TMB, and more of the remaining are also expected to come up in due course.

The TMB began hearing the complaints from the exporting countries in respect of the seven "calls" and, after some prolonged discussions, these cases have now been disposed of, trade diplomats from ITCB countries say.

Details would be known only when the TMB reports to the WTO's Council for Trade in Goods, with TMB sources not willing to discuss them. But the corridors of the WTO last week were buzzing with talk about these cases, and reports that the US was exerting considerable bilateral pressures on the exporting countries to settle and not proceed with the cases, invoking the argument of the entire range of their bilateral relations with US being involved and likely to be affected.

Trade diplomats say that of the seven cases, the final crunch was in respect of "calls" on Costa Rica and Honduras. Of the others, Colombia, Dominican Republic, El Salvador and Turkey did not proceed with their cases. The first three had "settled" with the US on the basis of new "quotas", and the US has since done a "deal" with Turkey for increased quotas. The US appears to have dropped its "calls" on Thailand.

In the case of Costa Rica and Honduras, sources said that it would appear that the TMB did not find merit in US "calls" for cutbacks of exports on "pyjamas and nightwear", but suggested to the two to go back and hold "consultations" with the US on the "undergarments" but without prejudice to their positions.

The ATC allows the importing countries to take "transitionary safeguard" measures, but asks them to apply such measures "as sparingly as possible". It also provides a stricter test, than in the Multifibre Agreement, before action can be taken: "serious damage" or "actual threat" of such damage caused to its domestic industry by the exports from a particular country or source. The ATC also requires that such serious damage or actual threat must "demonstrably be caused" by such increased quantities in total imports of that product and not due to such other factors as technological changes or changes in consumer preference.

The US lack of good faith, against which the ITCB complained at its May Cartegena meeting, was shown by the fact that within days of the ATC coming into force, the US issued these "calls", in many cases reissuing the original MFA "calls".

ITCB's Executive Director, Sanjoy Bagchi says that the basic weaknesses of the ATC itself have been shown up by these and other calls by the United States. The ATC, he notes, is intended to get rid, over a 10-year period, of the non-GATT quotas and protectionist actions under the old MFA. In terms of the scheme of the ATC, these old restraints would start to be chipped away after a few years only, and in the case of the US those on "sensitive" and "very sensitive" products only on the midnight of the end of the 10-year period.

On top of it now, new non-GATT ATC safeguard measures, i.e. discriminatory quotas against individual exporting countries in products not under restraint, are being erected. That was why, he said, the ITCB as early as 1990, argued that during the transition period, any new safeguard actions should be imposed only by GATT-legal measures.

But this was rejected by importing countries, and the 'compromise' draft that went to Brussels, and then became the Dunkel Draft Final Act of 1991 and remained unchanged, has these provisions that raise serious credibility issues of the process.

On top of it, one of the most important importing countries, the United States, has virtually ignored the call in the ATC for use of the transitionary safeguards "as sparingly as possible". Within a few weeks of the ATC entry into force, the US issued these "calls" when in strict terms of ATC requirements no "demonstrable" adverse impact could have been found between 1 January this year and the date of the calls.

This, Bagchi says, shows the "bad faith" of the importing country.

Other trade observers said this type of 'unilateral actions' or threat -- of the importing country taking its actions if the exporter does not "consult" and reach a compromise -- is worse than the much publicised US-Japan auto dispute where the high media attention and criticisms acted as a damper of sorts on the US. Even then, the Japanese had to reach a compromise of sorts.

In the textile and clothing cases, it is only developing countries that are involved and the western media are not particularly excited. Information about it, given the WTO's "non-transparent" processes would not come for months, within which time all "media interest" would become academic.

If in the consultations, such as Honduras and Costa Rica, have been asked to undertake (where their exports are coming from garment factories set up in their countries by US capital to take advantage of their cheaper labour for export back to the US), fail and the US takes its own actions and notified them to the WTO and its TMB, the two countries could invoke the DSU processes -- going through the 'consultation' request, establishment of a panel and its rulings etc which could take atleast 18 months.

Even at the end of the period, if the US says it is unable to implement the ruling (giving Congress as an excuse), those who won the case have only "retaliation" as a remedy.