Dec 18, 1984

TEXTILE BODY RULES AGAINST U.S. RULES OF ORIGIN.

GENEVA, DECEMBER 14 (IFDA/CHAKRAVARTHI RAGHAVAN) – The Textiles Surveillance Body (TSB) in the General Agreement on Tariffs and trade has ruled against the United States over the changes in its rules or origin and their use as a protective safeguard measure, according to GATT sources.-

The TSB, under the Multifibre Arrangement (MFA), monitors and supervises the implementation of the MFA and bilateral agreements under it, and adjudicates on complaints arising from them.-

The United States in August amended its customs regulations and the rules of origin under it, for textiles and clothing imports, and claimed they were intended to deal with "circumventions and frauds" by exporting countries to avoid quota restrictions.-

Hong Kong, in what was seen as a test case, challenged the U.S. actions before the TSB, when some of its shipments of woollen sweaters were stopped by U.S. customs authorities under the new rules.-

While the TSB ruled in favour of Hong Kong in the specific case, in effect it was seen to be an important case law in GATT, namely that rules of origin could not be used as "a safeguard measure" to regulate imports.-

Also, the TSB said that if rules of origin were so used as to affect the rights and obligations of the exporting country, the importing country must compensate the exporting country.-

While the Third World countries, as well as others like the EEC and Japan, have criticised in GATT the U.S. rules of origin as a protective measure, the U.S. itself had claimed that they were ad interim measures aimed at preventing circumvention and fraud.-

The TSB, which met this wee, and heard specific Hong Kong complaints arising from the U.S. customs actions holding up imports from Hong Kong, in a unanimous decision Friday is reported to have taken note of the U.S. view that these were interim measures, and that modifications in the rules would be possible.-

The TSB however noted that the U.S. had not entered into bilateral consultations with Hong Kong before promulgating and acting on the rules.-

Under the MFA, and the bilateral accords under it, any cases of fraud or circumvention should be taken up in bilateral consultations, and failing that relief should be sought through the TSB.-

Thus, the TSB has viewed the effect of the U.S. action, taken without consultations on recourse to the MFA, as a new import barrier and a safeguard action outside the MFA and the bilateral agreement under it with Hong Kong, and thus illegal.-

The TSB also ruled that the introduction of these measures has had the effect of upsetting "the balance of rights and obligations under the bilateral agreement between Hong Kong and the U.S.A.".-

This meant that while any country had the right to frame its rules of origin, it could not be used to upset the rights of the exporting country or undermine its capacity to use the quotas it is entitled to under the MFA and the bilateral accord.-

In this view, the TSB recommended that both parties should hold consultations "to restore such a balance of rights and obligations" so that Hong Kong’s abilities to use its quotas would not be affected.-

In the meantime, both parties were asked to avoid disruption of the orderly and equitable development of the trade.-

The two sides were also asked to report to the TSB on the outcome of their consultations before February 1985.-