RESTRICTED
WORLD TRADE G/C/W/95
13October 1997
ORGANIZATION(97-4431)
Original: English Council forTrade inGoods
ELEMENTS FOR CONSIDERATION INMAJOR REVIEW OFTHE IMPLEMENTATION
OFTHE AGREEMENT ONTEXTILES AND CLOTHING (ATC)
Communication from Hong Kong, China1
Thefollowing communication hasbeenreceived fromthePermanent Mission ofHong Kong,
China forcirculation toMembers.
_____________
1. Forthismajor review oftheATC, theemphasis should beontheword "major". TheATC
hasaduration ofonly10years, during which period theCouncil forTrade inGoods (CTG) ischarged
withconducting threemajor reviews. Thelastofthesethreewillbeconducted shortly before thefinal,
complete andirrevocable integration ofthetextiles andclothing sector intoGATT 1994. Inorder
topre-empt anyproblems thatmight otherwise ariseatthatlaststage, theCTG needs toensure in
thetwointermediate major reviews thatATC progress iswellontrack. Thefirstmajor review of
theATC isoneofonlytwochances when theCTG isablenotonlytocheck toprogress butalso,if
necessary, totakecorrective action ingoodtimetofacilitate thecomplete integration thatwillbeeffected
inseven years time.
2. Thepurpose ofthemajor review istwofold. Firstly, theCTG isresponsible foroverseeing
thefunctioning andimplementation oftheATC. Themajor review represents animportant component
ofthisresponsibility, incarrying outwhich theCTG hastheassistance ofthecomprehensive report
fromtheTMB. Secondly, theCTG isrequired, inthelightofthemajor review, totakesuchdecisions
asitdeems appropriate toensure thatthebalance ofrights andobligations embodied intheATC is
notbeing impaired. Itfollows thatthemajor review must bebroad enough toenable theCTG to
determine whether therehasbeenanyserious damage tothebalance ofrights andobligations embodied
intheATC oractual threat thereof.
3. TheTMB'scomprehensive report isavaluable contribution tothemajor review. Although
thisreport fallsshort inmaking concrete recommendations, itsobjectivity atleastreflects thebetter
functioning oftheTMB sincetheSMC. Wewould liketocommend theTMB fortheimproved quality
ofreportingandforthegreaterattentiongiventotheconcernsofexportingMembersaswellasimporting
Members. Valuable asthecomprehensive report is,itisbynomeans asubstitute forthemajor review,
which should haveamuch broader scope, including, ifnecessary, thecommissioning offurther studies
beyond 1997.
4. Thecomprehensive report suggests that,inthemain, theformalistic obligations intheATC
arebeing fulfilled, albeit thatrecourse totheTMB andthedispute settlement provisions hasbeen
1Circulated initially asanon-paper intheCouncil forTrade inGoods meeting of6October 1997.G/C/W/95
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necessary onanumber ofoccasions. However, thereport raises questions thatrequire further
consideration bytheCTG.
5. Thecomprehensive report firstaddresses integration anddraws adistinction between those
Members which carried overrestrictions fromtheMFA andotherMembers, noting thatthemainimpact
ofintegration fallsontheformer. Apart from afauxpasofatechnical nature, which wasidentified
bytheITCB andwhich theMember isexpected torectify, Stages 1and2integration programmes
carried outandnotified bytheMembers carrying overMFA restrictions areshown tohavefulfilled
thespecific provisions ofArticles 2.6and2.8(a).
6. However, toconduct amajor review, theCTG needs tomake abroader assessment ofthe
integration process thanwhether specific provisions arefulfilled. Therights andobligations embodied
intheATC aredeeper thanthat. Inthecontext oftheWTO, theobjective oftheATC isliberalization
oftrade andtheATC stipulates thatthemeans bywhich thisliberalization istobeachieved should
beprogressive. Thusitiscrucial fortheCTGtoassess theextent towhich theStages 1and2integration
programmesoftheMemberscarryingoverMFArestrictionshavecontributedtoprogressiveliberalization
oftrade. Thisshould beamain focus ofthemajor review, oneofthecritical aspects forchecking
whether theATC isontrack.
7. Thecomprehensive report notes thattheproducts selected forintegration areconcentrated on
lessvalue-added products suchastops,yarns andfabrics, withonlysmall shares ofmade-up andclothing
products ;also,thatveryfewrestraints areeliminated. Furthermore :theshares ofintegrated products
aresubstantially lower interms ofvalue oftradethaninvolume oftrade;more oftheintegrated trade
isaccountedforbyimportsfromdevelopedcountriesthanfromdevelopingcountries;andtheproportion
oftheintegrated trade accounted forbyproducts thatwere under restraint isintherange ofonly
1%-3%forthethree largest Members concerned.
8. AlthoughsomeMembershaveimplementedelementsoftheirintegrationprogrammesinadvance
oftheduedatesunder Article 2.10and/or eliminated restrictions under Article 2.15, which areclearly
measures intherightdirection. Overall though, andparticularly inrespect ofthetwolargest Members
carrying overMFA restrictions, itisdifficult toseethattheStages 1and2integration programmes
havecontributed meaningfully toprogressive liberalization oftrade. Thisneeds tobeassessed further
bytheCTG initsmajor review.
9. Thecomprehensive report raises another aspect totheimplementation oftheintegration
provisions. TheTMB'sview, which weshare, isthatoneoftheconditions ofimplementation issteady
progress interms ofstructural adjustment andincreased competition inMembers 'markets asrecognised
inArticle 1.5.TheTMB notes thelackofinformation regarding suchprogress andbelieves itwould
beuseful tohaveabetter appreciation oftheprogress andtrends ofautonomous industrial adjustment,
asforeseen inArticle 1.5.Such anappreciation should beanessential element ofthemajor review.
Withthreeyears ofthe10yearphase-out period already expired, withintegration programmes covering
allbutthelastthree years ofthephase-out period already inplace, structural adjustment mustnotbe
allowed tolagbehind, because alltextiles andclothing products willbeintegrated intoGATT 1994
on1January 2005come whatmay. Ifitisthecasethat,inrespect ofsome Members, theirintegration
programmes covering thefirstseven years oftheATC arenotmaking ameaningful contribution to
progressive liberalization oftrade, thenautonomous industrial adjustment andincreased competition
intheirmarkets isallthemore necessary. Thisneeds tobepartoftheoverall assessment required
forthemajor review.
10. Notallactions taken under theATC havecontributed toliberalization. Indeed several actions
have been protectionist. Foremost amongst these istheapplication ofthetransitional safeguards
mechanism. Itisstipulated thatthisshould beusedassparingly aspossible. Inonesense, thisG/C/W/95
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stipulationhasbeenobserved:onlytwoMembershavehadrecoursetoArticle6.Butthecomprehensive
report notes thatoneMember hasinitiated nolessthan26actions andthiscallsintoquestion whether
thatMember 'srecourse toArticle 6hasbeenassparing aspossible. Themajority ofthese actions
resulted inrestraints thatwere found nottobejustified. Notonlywasrecourse toArticle 6notas
sparing aspossible, butimportant obligations inArticle 6were notcomplied with. Although there
hasbeenamarked reduction inrecourse toArticle 6since 1995, newactions arestillbeing initiated.
Theinitiation ofanaction disrupts trade, while imposition ofrestraints causes damage totrade. The
current safeguard measures inforce should betransitional innature andthusnotaffect theoverall
integration process, butthedamage thathasbeendone, andisbeing done, hastobetaken intoaccount
intheoverall assessment ofprogressive liberalization oftrade. Given thisdamage ontheonehand,
andthepaucity ofanyactual benefit fromintegration ontheother hand, itremains tobeseenwhether,
onbalance, theATC hasprovided anybenefit totrade todate.
11. Otheractionswhichhavenotcontributedtoliberalizationincludeanti-dumpingactionsinrespect
ofproducts already under restraint, changes inadministrative arrangements forimplementing restraints,
notably rulesoforigin, andanti-circumvention measures, particularly theintroduction ofnewrestraints.
Suchactions havethepotential, atleastinpart,tofrustrate theobjectives oftheATC andtheyneed
tobemonitored closely intheappropriate forum. Forinstance, inthecaseofanyaction under
Article 5.4,itistheresponsibility oftheTMB tosatisfy itself regarding fulljustification.
12. Wehaveoutlined some oftheelements thatweconsider needtobeaddressed inparticular
aspartofanoverall assessment ofprogress forthemajor review.
Weseeafocus firmly onIntegration, namely theextent towhich integration programmes are
contributing toprogressive liberalization oftrade.
Wealsoexpect intensive deliberations ontheeffect oftransitional safeguards measures and
other protectionist actions onoverall liberalization. Suchdeliberations should goalongside discussions
ontheextent ofincreased competition andautonomous industrial adjustment, andonother issues arising
outofATC Implementation.
13. Such anoverall assessment isnecessary before theCTG canreach aconclusion whether the
ATC isontrack ornotandwhat decisions itshould taketoensure thatthebalance ofrights and
obligations embodied intheATC isnotimpaired. Without wishing toanticipate theoutcome ofthe
overall assessment, onesuchdecision might betoestablish amore structured andcontinuous process
intheCTG forcarrying outitsoversight ofATC implementation.