NO IMMEDIATE BENEFITS FROM ATC, PERHAPS IN FUTURE

7:49 AM Oct 13, 1995

NO IMMEDIATE BENEFITS FROM ATC, PERHAPS IN FUTURE
Geneva 12 Oct (Chakravarthi Raghavan) -- While in the long run the Uruguay Round Textiles and Clothing accord would restore credibility to the multilateral trading system and provided guaranteed and increased market access for Third World exports, there will be no immediate trade liberalisation benefits, according to the secretariat of the UN Conference on Trade and Development.

A modest dimension of trade opportunities for developing countries, the secretariat says in a report to its Ad Hoc Working Group on Trading opportunities, may only become perceptible from year 2002.

Also, the end-loading feature of the integration programme calls into question the its credibility as it would make the structural adjustment for industry in the North more painful in the final stage, and would also allow the protectionist forces in their textiles and clothing industries seize the opportunity to lobby their governments to delay the integration process.

The ATC required 16% by volume of products listed in its annex to be integrated on 1 January 1995. According to UNCTAD's analysis of these notified lists, in the major importing countries -- Canada, EU, Norway and the US -- products not so far subject to import restrictions have been first integrated, while integration of those more sensitive have been postponed.

The products integrated were high in volume and low in value. None of the products integrated by the EU, US and Norway, and perhaps even Canada, were covered by MFA quantitative restrictions. There would thus be no trade liberalisation or impact on world trade in textiles and clothing as a result. There is no material change in the protection of the domestic industries in the restraining countries in the first stage. And while the ATC calls for equal integration of four categories -- tops and yarns, fabrics, made-up textile products and clothing -- the first stage integration of the EU, Norway and the US have been uneven, with share of clothing minimal. In the case of the EU clothing products integrated is less than 3.1% of total volume of Third World exports of that segment to the EU, for only one percent in the case of Norway and only 1.72% for the US.

The report also brings out that the importing countries, particularly the European Union and Norway, appear to have included in the first stage integration to be achieved on 1 January 1995 -- 16 percent by volume of the H.S. line textiles and clothing products listed in the annex to the Agreement on Textiles and Clothing (ATC) by including items, such as luggage or handbags etc that don't have any textile material and thus don't fall in products covered by the ATC.

Ten months after the WTO/ATC entry into force, and nearly 17 months after they have been notified, the Textile Monitoring Body (TMB) which is supposed to supervise and monitor the implementation of the ATC is yet to undertake this job. It spent first six months in procedural disputes and since then has been hearing individual disputes, with its processes further stymied and delayed by the requirement to take decisions by consensus.

In the first stage, Canada has only integrated products of an import value of $650 million or 13 percent of its total imports of textiles and clothing.

In the case of the EU, while seemingly meeting the 16% integration requirement in the first stage, it has done so only by integrating some socalled "ex-items", but without any details of the sub-items, while taking the volume of the entire items into the 16% category.

These "ex-items" refer to products such as luggage, handbags, footwear, hats and hatforms, umbrellas, safety-belts, parachutes, watch straps etc. All these types of items, not strictly textile fabrics or clothing, are mentioned in chapters 30-49 and 64-96 of the Harmonized System (HS) classification at broad 6-digit levels, but only some of them (at disaggregated 8-digit level) having some textile fabric contents. The ATC annex while mentioning the six-digit items, has qualified them with the stipulation about only those containing predominantly textile materials.

In value terms, the EU integrated items had an import value in 1990 of $3700 million or 8.7% of its total imports of ATC annex products, and less than 8% of the textiles and clothing exported by the developing countries to the EU. In terms strictly of the textiles and textiles products including clothing of the HS code, the EU integration is only 2.3 percent of its 1990 import value.

In the case of the US none of the products under MFA restraint have been integrated in the first stage. The import value of the integrated products is put at $2300 million or 6.9 percent of US total imports of textiles and clothing in 1990. It is less than 5% of value of Third World exports of these products to the US.

Norway's integration list, like that of the EU, includes a number of ex-items and its integration too is less than the 16% required. In value terms its integration is about $143 million of imports or 7.4 percent of its total imports of textiles and clothing in 1990

As for the future, the ATC requires the intended integration products to be notified 12 months in advance.

But the US has notified already the details of the products it would integrate in the next two stages.

According to UNCTAD estimates based on these, the US programme of integration in the second and third stages would represent 10.7% and 11.3 percent of the total import value in 1990. This would mean that more than 70% of the value of its imports (and 50% by volume) of textiles and clothing would remain protected and restrained till the very end of the 10-year period, raising questions of credibility.

However UNCTAD finds it positive that the various items to be integrated and when, has been set out ten years in advance -- thus giving the industry time to plan and make its structural adjustments. It suggests that other importing countries could emulate this example.

As for the benefits at various stages of the US integration, those countries faced with a much larger number of restrictions - China, Hong Kong, Korea, Taiwan province of China, Pakistan, Philippines and Singapore would benefit from liberalization of a few marginal restrictions at beginning of second stage, 1 January 1998.

The benefits to China or Taiwan would depend on their joining WTO.

The beneficiaries in the beginning of the third stage, 1 January 2001, would be mostly the large and medium exporting countries including Bangladesh, Brazil, China, Haiti, Hong Kong, India, Indonesia, Jamaica, Korea, Macau, Malaysia, Mauritius, Myanmar, Pakistan, the Philippines, Romania, Singapore, Sri Lanka, Taiwan, Thailand, Turkey, Turkey and the United Arab Emirates.

The small exporting countries would have to wait for the end of the 10-year transition, i.e. till 1 January 2006, to get any benefits

But the provisions for flexibility and increased and accelerated growth rates would benefit the small suppliers.

The percentage increases in growth rates provided in the ATC would benefit those with an appreciable growth rate under bilaterals, while its benefit would be marginal for those having low growth rates.

But according to the ITCB (International Textiles and Clothing Bureau) estimates, the total volume of quotas would increase by 102% in Canada, 64% in the EU and 89% in the US at the end of the transition period.

No quantitative limits could be put under the ATC on combined use by exporters of swing, carryover and carry forward provisions would mean that all such limits set under the MFA have to be removed immediately.

A number of countries have non-MFA restrictions which, under the ATC, have to be notified, and either brought into conformity with GATT 1994 or phased out over the 10-year transition period.

Such restrictions include

* Japanese restrictions on silk yarn against China and Korea, on cotton yarn against Pakistan, Switzerland's price surveillance on imports of textiles and clothing and EU restrictions on imports from Turkey, Egypt, Japan, Honduras, Costa Rica and El Salvador;

* those by MFA signatories against non-MFA signatories including EU restrictions on imports from Morocco, Tunisia, Malta, some Latin American countries and some transition economies as well US restrictions against Bahrain, Mauritius, Haiti, Lesotho etc; and

* measures by others, including developing countries, whether or not MFA signatories -- such as through restrictive licensing systems, state trading, quotas, prohibitions, restrictions, government assistance plans etc.

While it would be difficult to determine the extent of non-MFA restrictions, due to conceptual and definition problems, UNCTAD says that, the GATT-inconsistent measures have to be made GATT consistent.

All these would bring increased security and predictability to Third World Countries' access to world markets in these products. But it was unlikely that the restraining countries in these cases would act to remove within a year to make them GATT consistent. It was more likely that they would be phased out progressively over the 10-year period.

As for tariff reductions, UNCTAD finds the average level of tariffs in this sector among the Quad countries would be lowest in Japan at 8.1%, followed by the EU at 9.7%, Canada 12.6% and the US at 13.6%. But imports from the developing countries got smaller tariff reductions.

There is also a perceptible tariff escalation with a clear rise with every stage of production in the four Quad countries. Tops and yarns would have a tariff of 4% in the EU and Japan, and 7.1% and 6% respectively in Canada and the US. The average tariffs on clothing would be 9.4% in Japan, 11.5% in the EU, 15 % in Canada and 15.7% in the US.

Since this sector is protected in all these countries by quotas and high tariffs, without removal of the quotas, the tariff cuts would not be of benefit.

Developing countries as a group have undertaken liberalization measures on trade in these sectors. In 1992, for e.g. they imported $87 billion worth of these products or 30% of total world imports, as compared to a $55 billion in 1989.

The total imports of developing countries increased by 58 percent between 1989 and 1992.

Their imports from the OECD countries increased 41% -- from $19139 million in 1989 to $27014 million in 1992. Their exports to the OECD countries during the same period increased by 30% -- from $62858 million to $81487 million.

During the same period, the intra developing country also increased considerably. In 1992, these imports reached a record high of $59341 million or 73 percent over 1989.

The prospects for rapid expansion of such intra trade are strong and bright, according to UNCTAD.

On the role of the TMB, which has a partial role in settling disputes (with either party able to have recourse to the WTO's Dispute Settlement Body on unresolved disputes), the UNCTAD report finds that in many cases it would prolong a dispute and delay settlement. And unlike the DSU, where panel recommendations are automatically binding, TMB decisions have to be by consensus and this could potentially block the process. TMB processes and procedures could effectively prevent WTO members from having an effective and speedy resolution of disputes arising out of the ATC and may result in a repetition of the MFA experience where countries were left to "slip into bilateral deals, often weakening the multilateral disciplines".

The ATC, UNCTAD notes, would apply only to those exporting countries members of the WTO. While this may sound logical, its impact should not be under-estimated either, UNCTAD says.

China, for example, if it is not a WTO member will not benefit and the WTO members would have considerable discretion and could apply any restriction on its exports. But by the same token, China need no cooperate with them -- for e.g. to prevent circumvention of the ATC provisions through transhipment. Nor would China need to remove its import restrictions.