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AGREEMENT ON TEXTILES AND CLOTHING

Presentation to Post Qualification Course in International Trade Laws & WTO

on 9th July 2005

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STRUCTURE OF PRESENTATION

Part I: A Brief History of Restrictions on Textile and Clothing Trade

Part II: The Six Key Elements of the Agreement on Textiles & Clothing.

Part III: The Product Coverage of the ATC – The Annex.

Part IV: The Integration of Textiles and Clothing Products into GATT Rules

Part V: Implementation of the Integration Process.

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Contd…

Part VI: Improvements in Restraint Growth Rates.

Part VII: The Application of Growth Rate Factors.

Part VIII: Removal of Quantitative Restrictions Other Than MFA Restraints –

Article 3.

Part IX: The Transitional Safeguard Mechanism

Part X: Monitoring, Surveillance and Review – Article 8

Part XI: Notification Obligations.

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A BRIEF HISTORY OF RESTRICTIONS ON TEXTILE & CLOTHING TRADE

• Introduction

• The Cotton Arrangements (1961-73)

• The Multifibre Arrangements (1974-94)

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INTRODUCTION• Special Regime for more than 40 years,

outside the normal GATT Rules. • Special regimes:

– Short Term Arrangement Regarding International Trade in Cotton Textiles (STA) in 1961,

– The Long Term Arrangement Regarding International Trade in Cotton Textiles (LTA) from 1962 to 1973.

– Multifibre Arrangement (MFA) from 1974 to 1994.

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INTRODUCTION…

• Included T &C sector within the scope of Uruguay Round in 1986.

• Seven years of complex negotiations.

• Sector fully integrated into WTO Rules on 31st December 2004.

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SIX KEY ELEMENTS OF THE AGREEMENT

ON TEXTILES AND CLOTHING

• Product Coverage.• Programme for Integration. • Progressive Liberalisation of the

Restraints through Improved Growth Rates.

• Treatment of Quantitative Restrictions (other than MFA Restraints).

• Transitional Safeguard Mechanism.• Textiles Monitoring Body.

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THE PRODUCT COVERAGE OF

ATC – THE ANNEX -• It encompasses Section XI (Chapters

50-63) of the Harmonized Commodity Description and Coding System (HS) Nomenclature.

• Some specific products from HS Chapters 30-49 and 64-96 were included.

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BASIS FOR PRODUCT COVERAGE

• Products, which were previously subject to MFA or MFA-type restraints.

• HS lines covering “raw materials” were not included.

• In the case of raw natural materials (silk, cotton, wool, vegetable fibres), the ATC coverage began with the first manufacturing process.

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THE INTEGRATION OF TEXTILE AND

CLOTHING PRODUCTS INTO GATT RULES • Article 2 of the ATC.• Quantitative Restrictions in Force at the

Outset. • The Integration Programmes• Four Stages.• Selection of Products for Integration• Notification of the Products to be Integrated• Termination

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ARTICLE 2 OF THE ATC

• All former MFA or MFA-type restraints must be notified to TMB.

• The procedure for progressive integration of the products covered by the Agreement into GATT 1994 Rules and Disciplines.

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QUANTITATIVE RESTRICTIONS IN

FORCE AT THE OUTSET • All existing restrictions on the day before

the entry into force of the WTO agreement were to be notified in detail to the TMB within 60 days.

• No new restrictions could be introduced except under the provisions of the ATC or relevant GATT 1994 provisions.

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THE INTEGRATION PROGRAMMES

• Four stage programme for the progressive integration was the second central element of the Agreement.

• Under Article 2.6 to 2.8, members carried out a program whereby the rules and disciplines of GATT 1994 were applied progressively to the T & C products.

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WHAT DOES INTEGRATION MEAN ?

• Imports of the product integrated were no longer subject to the ATC, including the possibility of bilateral restraints.

• After integration, if a safeguard measure was considered necessary, the GATT’s non-discriminatory global rules (Article XIX) would apply.

• There was no possibility to bring it back into the coverage of ATC.

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FOUR STAGES • On 1st January 1995, Members were required to

integrate products from the list in the Annex which represented not less than 16% of the total volume of their imports of all those products in 1990.

• At stage 2, on 1st January 1998, not less than a further 17% was integrated;

• At stage 3, on 1st January 2002, not less than a further 18% was integrated;

• Finally at the end of the transition period, on 31st December 2004, all remaining products (which could amount to 49% as a maximum) was automatically stand integrated and the ATC was terminated.

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SELECTION OF PRODUCTS FOR

INTEGRATION • Each importing member decided itself to

reach the required percentage thresholds. • The only requirement was that the list of

products submitted at each stage must include products from each of the four groupings: tops and yarns, fabrics, made-up textile products and clothing (Articles 2.6 and 2.8).

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TERMINATION

• The Agreement was terminated after the 10 year transition, on 31st December 2004.

• Article 9 of the Agreement provided “There shall be no extension of this Agreement”.

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IMPLEMENTATION OF THE INTEGRATION PROCESS

• Review by the Council for Trade in Goods

• The Report by TMB.

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REVIEW BY THE COUNCIL FOR TRADE IN GOODS

• CTG was responsible for overseeing the implementation of the ATC and for this purpose was required by Article 8.11 to “conduct a major review before the end of each stage of the integration process”.

• The TMB was required by the same Article to provide the Council with “a comprehensive report on the implementation of this agreement during the stage under review….”.

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REVIEW BY THE COUNCIL FOR TRADE IN GOODS.…

• The CTG’s first major review of the first stage was held in October – November 1997. For this TMB submitted a comprehensive report in July 1997.

• The major review of implementation of ATC in the second stage of the integration process (1998-2002) was held by CTG in September- October 2001.

• The third and final major review by CTG of the third stage integration (2002-2004) was held in December 2004.

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IMPROVEMENTS IN RESTRAINT

GROWTH RATES • Liberalization of Existing Restrictions

• Notification of Restraints in Place – Increased Growth Rate

• Growth Rate Increases Automatically

• Termination of Restraints

• Early Elimination of Restraints

• Treatment of Small Suppliers.

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LIBERALIZING EXISTING

RESTRICTIONS • The Agreement also provided a programme for

liberalizing existing restraints through progressive, automatic increase in the rate of annual growth (Article 2.13/2.14).

• No new restrictions in terms of products or members could be introduced and restrictions not notified within 60 days of the date of the entry into force of the WTO Agreement shall be terminated forthwith (Article 2.1 and 2.4).

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NOTIFICATION OF RESTRAINTS IN PLACE – INCREASED GROWTH RATES

• The notification by importing countries to TMB at the beginning of the ATC represented the starting point automatic liberalization process.

• The annual growth rates were increased by a factor of 16% for the first stage of the Agreement.

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NOTIFICATION OF RESTRAINTS IN PLACE – INCREASED GROWTH RATES…

• The first stage growth rates were further increased by a factor of 25% for the second stage (i.e. on 1st January 1998).

• The second stage growth rates were increased by a factor of 27% for the third stage (i.e. on 1st January 2002).(Article 2.13 and 2.14).

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NOTIFICATION OF RESTRAINTS IN PLACE – INCREASED GROWTH RATES

• To illustrate this process, a 6% growth rate under the MFA in 1994 became 6.96% on 1st January 1995 (i.e.6% x 1.16%) and was applied for each year 1995/96/97; then it was increased to 8.70% (i.e. 6.96% x 1.25%) for each year 1998/99/2000/01; and then to 11.05% (i.e. 8.70% x 1.27%) for years 2002/3/4.

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GROWTH RATE INCREASES APPLIED AUTOMATICALLY

• Growth-on-growth and the increase to the restraints levels which they entail were automatic.

• The increases in the growth rates, however, were minimums and members could apply higher rates.

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TERMINATION OF RESTRAINTS

• When a product which was subject to a restraint under ATC was integrated into GATT (Part V), the restraint on that product cannot be continued and must be terminated.

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EARLY ELIMINATION OF RESTRAINTS

• Importing members had the possibility of dropping restraints during the transition, beyond that required as a result of the integration process (Article 2.15).

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TREATMENT OF SMALL SUPPLIERS

• For a small suppliers, that was the members whose restraints represented 1.2% or less of the total restraints applied by an importing member at the end of 1991, the growth rate factor applied on existing restraints was required to be advanced by one stage (Article 2.18).

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THE APPLICATION OF GROWTH RATE FACTORS.

• Some developing members were of the view that the ATC had anticipated two paths for the progressive liberalization.

• One was the integration of products and the other was application of growth rate factors.

• The two paths were not substitutes.

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THE APPLICATION OF GROWTH RATE FACTORS…

• The developing members considered that the increase in the restraint levels by the application of stage 1 growth rate factor of 16% to the existing growth rates as carried over from the former MFA was misleading.

• Without meaningful integration and with the increase in the restraints being minimal, these processes could not be counted upon to produce a smooth and effective integration.

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THE APPLICATION OF GROWTH RATE FACTORS…

• The developed country members, however, considered that the provisions of enhanced growth rates would operate to give substantial increase in the volume of the restraints concerned.

• The application of growth rate factors was cumulative and exponential, providing a valuable part of the integration process.

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THE APPLICATION OF GROWTH RATE FACTORS…

• The developed members were also of the view that the accelerated growth rates would no longer operate as a limitation well before the ten year transition period was completed.

• The effect of growth on the restraints, particularly in view of the slower growth rate in their domestic markets.

• For many or all of the restraints that were currently being filled, the restraint growth would cause them to no longer be true restraints.

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REMOVAL OF QUANTITATIVE RESTRICTIONS OTHER THAN MFA RESTRAINTS – ARTICLE 3

• Notification Requirement

• Restrictions May Be Maintained or Must Be Phase Out

• Reverse Notification

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NOTIFICATION REQUIREMENT

• All restrictions maintained by members on Textile and Clothing products whether they were consistent with GATT 1994 or not were to be notified under Article 3.

• This did not apply to restrictions formerly maintained under the MFA, which were covered by the provisions of Article 2.

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RESTRICTIONS MAY BE MAINTAINED OR MUST BE PHASED

OUT • Those restrictions notified, which were justified

under a provision of GATT 1994 could be maintained.

• All restrictions which could not be justified under a GATT 1994 provision had to be either brought into conformity with GATT 1994 within one year following the entry into force of the ATC if this was possible, or if not, it had to be phased out progressively within the ten year transition period according to a program to be presented to the TMB not later than 6 months after the entry into force of the ATC.

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REVERSE NOTIFICATION

• Specific provision was also made for reverse notification to the TMB by any member which considered that another member had not made a notification required by Article 3.

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THE TRANSITIONAL SAFEGUARD MECHANISM

• General

• Two-step Approach for Application of the Safeguard

• Consultation and Application of Measures

• Unilateral Action

• TMB Review

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GENERAL

• A key aspect of ATC was the provision in Article 6 for a special transitional Safeguard Mechanism, separate and distinct from the normal GATT safeguard in Article XIX.

• This was intended to protect members against damaging surges in imports during the ATC period.

• This safeguard permitted measures against imports of specific products from a particular source or sources.

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GENERAL…

• Article 6 applied to goods which caused or threaten to cause serious damage to the industry in another member simply because of the increased levels of exports of these products.

• If, for instance, damage was being caused by a product which benefited from export subsidies or was dumped, then the GATT/WTO subsidy and anti-dumping rules would apply.

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TWO-STEP APPROACH FOR APPLICATION

OF THE SAFEGUARD • Should be applied as sparingly as possible (Article

6.1). It was based on a two-tier approach. • A particular product was being imported in such

increased quantities from all sources so as to cause serious damage or actual threat thereof, to its domestic industry.

• The member must also demonstrate that the serious damage or threat to the industry was the result of the increase in total imports.

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TWO-STEP APPROACH FOR APPLICATION OF THE SAFEGUARD…

• In the second step (Article 6.4) the member must proceed to determine to which exporting member or members this damage was attributable.

• There must be a “sharp and substantial increase in imports, actual or imminent, from such a member or members individually”.

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CONSULTATION AND APPLICATION OF MEASURES

• The importing member must then consult with the specific member(s) to which serious damage or threat was attributed.

• If the consultations lead to an agreed solution, i.e. to a mutual understanding that the situation called for a restraint, the restraint level may not be lower than the actual level of imports from that exporting member during a recent 12-month period (Article 6.8), and the action taken may remain in place for up to three years (Article 6.12).

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UNILATERAL ACTION • If a mutual solution was not found through

the consultation process within 60 days unilateral action may be taken by the importing member, but at the same time the matter must be referred to the TMB (Part XI) for prompt review (Article 6.10).

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UNILATERAL ACTION…

• In very specific cases, described in the Agreement as “highly unusual and critical circumstances where delay would cause damage which would be difficult to repair” (Article 6.11), it was possible to impose a restraint provisionally without prior consultation, on certain conditions, e.g. the request for consultations and notification to the TMB must be made within five working days of such an action.

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TMB REVIEW • Agreed restraints were subject to TMB

review to determine whether they were justified within the provisions of this Article (Article 6.9).

• Where agreement was not reached (Article 6.10) or where a restraint was imposed provisionally (Article 6.11) the TMB was required to “promptly conduct an examination” and make appropriate recommendations.

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MONITORING, SURVEILLANCE AND REVIEW – ARTICLE 8 -

• Textiles Monitoring Body

• Principal Functions of the TMB

• Composition of the TMB

• Alternates

• The WTO Council for Trade in Goods

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TEXTILES MONITORING BODY

• The ATC established Textiles Monitoring Body (TMB) as a standing body which consisted of a Chairman and ten members.

• The ATC required that the membership of the TMB shall be balanced and broadly representative of the WTO members, and shall provide for rotation at appropriate intervals.

• TMB members appointed by WTO members, were required to discharge their function on an ad personam basis.

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TEXTILES MONITORING BODY…

• The TMB took all of its decisions by consensus; however, consensus within the body did not require assent or concurrence of TMB members appointed by WTO members involved in an unresolved issue under review.

• These characteristics made the TMB a unique institution within the WTO framework. The TMB had also developed its own working procedures.

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PRINCIPAL FUNCTIONS OF THE TMB

The principal function of the TMB was to supervise the implementation of the ATC and in so doing to examine all measures taken under its provisions and their conformity, and to take various actions specifically required of it by the ATC. These included the review of:

• Notifications submitted by members of restraints in place at the beginning of the transition period and members’ observations thereon;

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PRINCIPAL FUNCTIONS OF THE TMB…

• Members’ programmes for the integration of products into GATT 1994;

• Members’ notifications with respect to non-MFA restrictions and their programmes for phasing out restrictions not justified under a provision of GATT 1994;

• Bilaterally-agreed restraint measures under Article 6 to ensure they were in accordance with the provisions of the Agreements;

• Unilaterally introduced restraints where an agreement was not reached through bilateral consultation and to make recommendations as appropriate;

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PRINCIPAL FUNCTIONS OF THE TMB…

• The implementation of the Agreement at least five months before the end of each stage of the integration process and to provide a comprehensive report on this to the Council for Trade in Goods.

The TMB’s recommendations and findings were communicated to the Members directly concerned and were also communicated to the Council for Trade in Goods for its information .

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COMPOSITION OF TMB Period: 1st January 02 to 31st December 04

Ten constituencies as follows:• The ASEAN Member countries;• Canada and Norway;• China and Pakistan (this constituency will appoint

Macao, China as a second alternate; it will not rotate with the member or with the first alternate)

• The European Communities;• India and Egypt/Morocco/Tunisia (India to

alternate with one of the three);• Japan;• Korea and Hong Kong, China;

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COMPOSITION OF TMB…• Latin American and Carribean Member Countries

(this constituency will appoint two alternates)• Turkey, Switzerland and Bulgaria/ Croatia/ Czech

Republic/ Hungary/ Lithuania/ Poland/ Romania/ Slovak Republic/ Slovenia (this constituency will appoint two alternates);

• The United States

The ten persons serving on the TMB were appointed by the WTO members designated from the above constituencies. TMB members may appoint their respective alternates.

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COMPOSITION OF TMB…

There would be second alternate from a least developed textile exporting member in constituency which would not rotate with the member or with the first alternate.

Two non-participating observers would be appointed by members not already represented in the TMB, one each being designated from Africa and Asia.

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NOTIFICATION OBLIGATIONS

• Notification Obligations

• Notifying the starting point and the integration stages

• Elimination of Non-MFA QRs

• Safeguard Notifications

• Other Notifications

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NOTIFICATION OBLIGATIONS

• ATC required the notification of the actions which must be taken at each stage in the integration process, to document them both for review purposes by the TMB and to inform all WTO members, for information and transparency.

• In total, the ATC contained 37 references to notifications by WTO members, most of which were to the TMB.

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NOTIFYING THE STARTING POINT AND THE INTEGRATION STAGES

• A number of notifications were required in 1995 to set the starting points for the transition.

• Further, notifications of the second and third integration stages were required of members by the end of 1996 and 1999.

• Notification was also required of any actions taken in relation to this process, such as early integration of products or the elimination of restraints.

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ELIMINATION OF NON-MFA QRs

• A second important goal of the ATC was the elimination of all quantitative restrictions (QRs) on textiles and clothing outside the MFA which were not consistent with GATT rules.

• This required notification in 1995 of the initial situation in each member, that was, the listing of all QRs maintained by WTO members, whether GATT-consistent or not, followed by notification of programmes created to deal with any of these QRs which were not GATT-consistent.

• These provisions were contained in Article 3.

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SAFEGUARD NOTIFICATIONS

• The third main area was the special safeguard mechanism in Article 6 which had up to eight notification requirements when recourse was had to this Article.

• The notification requirements of the various steps in the safeguard process ensured that the carefully negotiated criteria for taking such action would be met and full transparency provided.

• The TMB was, of course, called upon to review every aspect of safeguard actions.

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OTHER NOTIFICATIONS• Other Articles also required notification of

virtually every action taken and in many cases provided for recourse to the TMB by affected members if they felt their rights were being infringed by the actions of others.

• In the CTG’s major reviews, references were also made to the importance of all members fully meeting their notification obligations in a timely manner.

• It was noted that notifications were important not only for transparency but also had elements of legal rights and obligations.

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THANK YOUTHANK YOU