8:25 AM Oct 3, 1995

TMB RULES AGAINST US ON HONG KONG WOOL EXPORTS

Geneva 2 Oct (Chakravarthi Raghavan) -- The United States has been asked to drop its moves to restrain imports from Hong Kong of woollen shirts and blouses (category no 440 in trade descriptions).

The ruling against the US has come from the 10-member Textile Monitoring Body (TMB) of the WTO and is on the basis that an importing country already having a 'group' quota restriction on products from a country, could not in addition impose a transitionary safeguards restriction against a particular product in that group.

In bilateral agreements under the Multifibre Agreement (MFA), the US has been imposing various kinds of restraints on the exporting countries: aggregate ceiling on total exports of a country, aggregate 'group' limits (a number of product categories being put under a group ceilings) and limits on specific product exports.

In agreements with some countries, the US has all three, in others it has group limits or specific product limits. Where there are 'group' limits on exports of several products from a country, the exporting country has the 'flexibility' to move exports from one category to another to take advantage of the market situation and fill up the quota limits.

When the WTO, and its Agreement on Textiles and Clothing (ATC) came into being, all countries were obliged to notify all the quantitative restrictions they have in place and as of the WTO/ATC entry into force these restrictions were to be governed by the ATC provisions.

The United States notified the WTO under Art.2 of the ATC all of the restrictions it had in place under the MFA including country quotas, group quotas and specific product quotas.

The International Textiles and Clothing Bureau (ITCB), an alliance of textiles and clothing exporting developing countries had taken the view that country or group quotas were not to be notified (since these were governed by the MFA that was expiring), but only quotas and restrictions that could be governed by the ATC.

However, the US notified all the country, group and product quotas, and thus made them restraints under the ATC.

Having done this, the US sought to invoke the transitionary safeguard provisions and issued a "call" on Hong Kong, meaning that the import of the particular product category, wollen shirts and blouses, were coming in such increased quantities to the US that it was causing serious damage.

However, Art 6.4 of the ATC makes clear that where a country's exports are already under restraint, no transition safeguards can be invoked or applied.

Hong Kong challenged the US call, and the unilateral restrictions imposed on this legal ground.

After an effort by developed country members of the TMB to try to look at the 'substance' (serious damage claimed by the US), the TMB ultimately decided against the US on the issue of applying safeguards on a product already under restraint - and disallowed by Art 6.4

Trade officials from exporting developing countries said that in a similar case involving Thailand, the US backed away and withdrew their restraints before the TMB could rule.

In a case involving imports of the same product from India, the TMB decided that there was no serious damage shown by the US, but nevertheless found in favour of the US that there was a serious threat of damage.

Textile exporting countries generally view this approach used by the US and the TMB -- namely, invoking as cause for restraint both 'serious damage', and failing that, claiming a 'serious threat' -- as unsound law.

However, this can only be tested when an exporting country under such restraint takes the case through the regular WTO dispute settlement mechanism, and gets a panel and appellate body ruling.

Given the formality of a rule-based system, and the reality of the WTO's functioning on the basis of the "power" of the majors (being reflected even in the attempts to set up the Appellate Body), any exporting country going all the way to get a ruling seems less and less likely.