RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/M/26
19 November 1997
(97-5086)
Council for Trade in Goods
7 November 1997
MINUTES OF THE MEETING
Held in the Centre William Rappard
on 7 November 1997
Chairperson:  Mr. T. Johannessen (Norway)
1. The meeting was convened by Airgram WTO/AIR/699 to continue the discussion which
began on 6 October 1997 (Item 5 of Airgram WT O/AIR/687) of the major review of the
implementation of the Agreement on Textiles and Clothing (ATC) during the first stage of the
integration process, pursuant to Article 8.11 of the ATC.
2. Opening the meeting, the Chairman recalled that, at past meetings, beginning with the one on
6 October, delegations had made comments and exchanged views on:  (i) the general aspects of the
review process;  (ii) the integration process;  and (iii) the application of the transitional safeguardmechanism.  He noted that the report of the first session of the review, which was part of the regular
Council meeting of 6 October, was being circulated in G/C/M/23.  The reports on the first and
second special meetings were in documents G/C/M/24 and 25.  He then proposed, in keeping with the
work programme, that discussions move on this occasion to the subject of the application to textile
and clothing products of GATT 1994 rules as defined in Articles 2, 3, 6 and 7 of the ATC.  First,however, he invited any Members with additional comments on the transitional safeguard mechanism
to do so.
3. The spokesman for the European Community sa id that it was one of the major textile and
clothing markets in the world, with clothing imports in 1996 amounting to US$45,255 million and
textile imports amounting to US$17,215 million.  In addition, the European Community was a major
exporter of textiles and clothing with exports of clothing in 1996 amounting to US$16,030 million
and exports of textiles to US$22,750 million.  The European Community was also an open market asshown by the import penetration ratio of almost 50 per cent.  Tariffs were low and, as from the
beginning of 1995, were being reduced annually.  Non-tariff barriers had not been a subject of
complaint from the Community's trading partners.
4. He explained that, at the time of the entry into force of the ATC, the European Community
had maintained a limited number of quantitative restrictions which had been notified to the WTO andwere currently subject to the provisions of the ATC.  The ATC had been accepted by all Members and
its Article 9 made it clear that it was a transitional Agreement which, together with all restrictions
under it, would stand terminated on the first day of the 121st month that the WTO Agreement was in
effect, on which date the textiles and clothing sector would be fully integrated into GATT 1994 (i.e.
1 January 2005).  There would be no extension of the ATC.  It was, therefore, clear that not all thebenefits to be achieved from the integration of the sector into GATT 1994 would be achieved at once
or during any particular stage of integration.G/C/M/26
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5. The European Community considered that the legal criteria in respect of integration were
unambiguous:  at each stage Members must integrate a percentage of the total volume of the
Member's 1990 imports of the products in the Annex to the ATC.  The integration at each stage must
encompass products from the four groups:  tops and yarns, fabrics, made-up textile products and
clothing.  Other than these criteria, the choice of products was left to each Member, including whether
that Member wished to include products under restraint and the extent to which products came fromeach of the four groups.  The value of the products was not referred to and the European Community
felt certain that if at any stage of integration it notified products with a volume below the percentage
limit for the stage, but with a value above the percentage threshold, other WTO Members would insist
that the amount in volume terms be made up.
6. It was also noted that the pattern in respect of integration was a universal phenomenon in that
it was followed not only by those Members which had notified restrictions but also by almost all other
Members which had notified integration programmes.  Certain Members had maintained integrationprogrammes by reason of their retention of the right to use the transitional safeguard mechanism.
However, one Member that had recently abolished almost all restrictions had been criticised for not
integrating the products in question and thus retaining the right to use the transitional safeguard
provisions in respect of them.  In these circumstances, it had to be taken that those integration
programmes were seen as having a value to the Members concerned independently of restrictions.
7. He pointed out that the European Community was currently reviewing its integration
programme following the findings of the TMB in a matter which had been referred to it by Colombia.
This related to the inclusion in the European Commun ity's first integration stage of certain textile and
clothing products covered by 6-digit HS lines qualified by "ex" in the Annex to the ATC.  This review
was nearing completion and the European Community would shortly notify to the TMB the revisedand corrected information.  Despite the comments of certain Members in this regard, the
European Community noted that Colombia, also on behalf of other ITCB members, had always
insisted that the proceedings before the TMB were not a dispute.  The examination of these matters by
the TMB, however, indicated that many of the diff iculties for the Community were shared by other
Members.  These matters included, in particular, trade statistics which did not specifically break downthe textiles component.  The European Community, therefore, welcomed the TMB's consideration of
the systemic issues and believed that the same principles had to be applied equally to all Members
concerned by these issues and it had notified the TMB accordingly.
8. He stated that the European Community had adopted a positive and balanced approach to
integration.  It had drawn up its second stage of integration following full consultation with allMembers affected by restrictions on their exports to the European Community and the second stage
contained a mixture of restricted and unrestricted products.  Concerning some Members' comments
about "backloading", the European Community had included products covered by restrictions.  For
those products which were not yet integrated and were still covered by restrictions, the provisions
concerning the enhanced growth rates contained in Articles 2.13 and 2.14 of the ATC would operate
to give substantial increases in the volumes of the restrictions concerned.  The European Community
noted that the ITCB considered that the effect of the "growth-on-growt h" provisions would be
minimal and that the effect might not be counted upon to deliver a smooth and effective transition to
GATT;  however, these provisions were cumulative and exponential.  The effect in the first stage did
not justify a conclusion concerning the full period of the ATC which would apply for the integration
of certain products under restraint.  The full effe ct of the enhanced growth rates was shown in a
statistical table circulated to Members at the meeting.  Members would be able to situate anyrestrictions in the tables by reference to the original growth rate.  The European Community,
therefore, considered that the "growth-on-growth" provisions provided a valuable part of the
integration process.  The European Community did not anticipate any difficulties in achieving a
balanced integration programme leading to full integration on 1 January 2005.  It intended to keep theG/C/M/26
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process of integration under review together with exporting Members.  It was also noted that the
European Community had not had recourse to the provisions of Article 6 of the ATC.
9. The spokesman for the European Community stated that it applied its anti-dumping
legislation, which was fully in conformity with GATT/WTO legislation, in a transparent non-
discriminatory manner across all sectors.  No special provisions existed for the textiles sector.Investigations were only opened upon receipt of a complaint from industry containing prima facie
evidence of dumping or subsidies and resulting injury;  once such a complaint had been received, the
Community was obliged to open an investigation.  He noted that, while the WTO agreements on
dumping and subsidies set tough standards for the imposition of measures, the European Community
went even further.  In this respect there were two important areas where the European Community'slegislation differed substantially from that of other user Members.  The first was the "lesser duty rule"
which meant that measures imposed were not necessarily the full dumping/subsidy margin but the
minimum required to eliminate resulting injury.  The second was the application of the "Community
interest test" which meant that measures were proposed only in the overall interest of the Community.
Both of these particular features of the European Community's trade defence legislation werebeneficial to exporters.
10. There were currently five anti-dumping and countervailing duty measures applicable to
textiles and clothing concerning WTO Members and six ongoing investigations concerning WTO
Members of which one was a review of existing measures.  The value of imports of textile andclothing products affected by anti-dumping measures in 1995 amounted to 272 million ECU (the
latest figures available).  Set against the total imports of textiles and clothing into the
European Community in that year, the imports affected represented 0.65 per cent of trade in the sector
as a whole.
11. Concerning market access he said that there was considerable concern that certain Members
did not consider the obligation to achieve improved access to markets for textile and clothing
products, as set out in Article 7 of the ATC, as an important part of the integration process.  Thus,
while the stages up to 1 January 2005 would ensure the integration of the sector, in that integration
would result in the disappearance of all restraints, there was concern that certain Members would havedone little or nothing to improve conditions for access to their own markets for imports.  Some,
indeed, were in the process of reducing access to their markets.  The effect of this was seen over a
broad range of issues such as increases in tariff rates (either going beyond bound rates or, where they
did not, nonetheless, considerably reducing market access), the introduction of specific duties and
minimum import pricing regimes, the introduction of labelling and certification requirements and themaintenance of balance-of-payments provisions affecting textiles and clothing.
12. With respect to the European Community's position on market access and the second stage of
integration, it would have been open to considering further liberalization had it either received
requests to do so from exporting Members and in circumstances where Members had demonstrated amore positive position in respect of the question of access to their own markets for the exports to them
from other Members, notably the European Community.  This was a general assessment and the
European Community had not conditioned fulfilment of its obligations in respect of integration on any
action by other Members, as was shown by its programme for the second stage which fully respected
the relevant provisions of the ATC.  The TMB's approach to this provision, essentially one based onnotification, had resulted in little or no examination of this area to date despite its importance in the
overall balance of rights and obligation of Memb ers.  The European Community also continued to
believe that all Members must remain vigilant to en sure that the provisions to prevent circumvention
were respected by all Members.
13. The representative of Colombia speaking on behalf of the WTO Members that are members
of the ITCB first expressed appreciation for the detailed statement and analysis made by the
representative of the European Community.  He then recalled the two non-papers circulated at earlierG/C/M/26
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meetings, the first containing an assessment of the integration programmes of the four WTO Members
which applied quantitative restrictions under the MFA and the ATC, and the second which referred to
the application of transitional safeguards.  At the present meeting, for the examination of strengthened
GATT rules and disciplines, he circulated a third non-paper on behalf of members of the ITCB that
are also Members of the WTO.  This document set out observations and tables, in respect of certain
actions and measures adopted by various countries (these three papers are being circulated asG/C/W/99, 100 and 101 respectively).
14. As regards anti-dumping measures, he explained that Table I in the non-paper described a
series of anti-dumping actions initiated by the European Community by product sector.  Although the
representative of the European Community had indicated that there was no specific or anti-
discriminatory policy in applying these measures to various sectors, what was clear from this table
was that the largest number of actions had been targeted at textile products.  During the first two years
of the ATC, neither Norway nor Canada had initiated anti-dumping actions involving imports oftextiles products.  In the case of the United States, one anti-dumping action had been initiated against
imports of spun rayon singles yarn from Austria which had resulted in negative injury determination
by the United States International Trade Commission, and therefore no anti-dumping duty had been
imposed.
15. He explained that Table II showed the pattern in anti-dumping actions in the
European Community, against the same products, involving Members whose exports of these
products were the object of quantitative restrictions under the ATC.  Analysis of this might lead to a
conclusion that in practice double protection was being exercised through this type of action.
Table III indicated the amount of trade affected by the European Community's anti-dumping actions
with more than half of the imports of the products concerned from third countries being subject toanti-dumping actions.  It also showed that the anti-dumping actions were generally directed at capital
intensive products, i.e. non-apparel.  One of the purposes of the ATC was the progressive elimination
of quantitative restrictions and a greater liberalization of trade in textiles and it was clear that frequent
use of anti-dumping actions was affecting the gradual transition of the sector to GATT disciplines.
16. He then considered new Customs measures and the introduction of other administrative
formalities.  In the United States, there had been a ch ange in its rules of origin relating to textiles and
clothing after the implementation of the ATC which was having a disruptive effect.  The changes
were effected from July 1996 and in several cases had forced exporters to modify the origin or
products which had already been shipped in order to obtain entry permission.  This had caused serious
problems in the administration of quotas by exporting Members.  The matter had been discussed bythe European Community and the United States, because these measures also affected the
European Community's exports, and after bilateral consultations there had been some understanding
reached.  Members were not aware of the terms of this arrangement.
17. The representative of Colombia also recalled that the United States had recently decided to
continue visa requirements in respect of textile and clothing products even after notifying that they
would be integrated with effect from January 1998.  This requirement contravened the MFN
obligation of GATT and was contrary to the principle of integration of textiles into GATT.  TheUnited States had also enforced bond requirements for shipments from companies suspected of being
involved in the transshipment of goods.  Subsequently, the Customs had increased the minimum bond
amounts for all textile and clothing importers for goods imported from all sources which, in turn,
increased the cost of imports.  The increase in paper work and cost for importers would adversely
affect their decisions for sourcing of products from various suppliers.
18. He stressed that these measures showed how the process of integration had been affected and
how new barriers to textiles trade had been erected with the consequent implications for the proper
implementation of the ATC as:  (i) these new barriers had further increased the restrictions on textilesG/C/M/26
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and clothing;  (ii) the anti-dumping measures adopted on products subject to quantitative restraints
gave double protection which was contrary to the spirit of the ATC;  and, (iii) the changes in rules of
origin and the continuation of visa requirements on integrated products appeared to be contrary to
GATT rules.
19. He considered that, in view of these points, it would be very important that at the end of the
debate, the Council should achieve, after the analyses and explanations, guidelines which respectedthe spirit of the Agreement, guaranteed implementation and made very clear that this was a
transitional agreement where objectives had to be met gradually and progressively so as to prevent, at
the end of the period, any major differences or confrontations in its implementation.
20. The representative of India noted that, on this occasion, the Council was addressing the issue
of the application of GATT 1994 rules and disciplines as defined in Articles 2, 3, 6 and 7 of the ATC
as part of the major review of the implementation of the Agreement.  It had been demonstrated during
the past Council meetings that the integration proc ess so far had not been commercially meaningful to
developing country Members and had not resulted in liberalization.  The indiscriminate use of the
transitional safeguard mechanism by one Member during the first stage had resulted in new
restrictions while the avowed objective of the ATC was liberalization of textiles and clothing trade.
Therefore, during the first three years of the ATC, it had not been implemented in such a manner as to
preserve the balance of rights and obligations both under this Agreement and in relation to the singleundertaking represented by the WTO Agreement.  This was a matter of deep concern.
21. As regards Article 3 of the ATC, India continued to feel serious concern at its non-
implementation.  Its textile and clothing exports to a Member which formed a customs union with
one major importing Member one year after the ATC had come into effect, were subject to new
discriminatory restrictions.  In examining the validity of such new MFA-type restrictions, the Councilwas presented with a situation where the new restrictions had not been notified in detail either to the
TMB or to any other WTO body.  This was in direct contravention of the provisions of Article 3.3 of
the ATC and adversely affected India's rights and obligations both under the ATC and under the WTO
Agreement.  Background information was available in paragraph 245 of the TMB's report.  He
requested the Council to record its serious concern on this matter, which undermined the Agreement.
22. Referring to Article 7 of the ATC, he noted that it referred to the specific commitments
undertaken by Members as a result of the Uruguay Round and was applicable to all Members in its
exhortation to abide by GATT rules and disciplines.  Hence, Article 7 applied equally to all Members
and could not be used to demand any "trade-off" in terms of market access.  Further, the scope of
Article 7 was constructed to cover a variety of measures, including the use of tariffs, non-tariffbarriers and customs and other formalities.  In India's assessment, none of the four major importing
Members which had carried over restrictions from the MFA period had effected reductions in their
tariffs and non-tariff barriers in addition to what they had agreed as a result of their commitments in
the Uruguay Round.  He endorsed the concerns conveyed in this regard by Colombia on changes by
the United States in its rules of origin as well as its decision to continue visa requirements for
products to be integrated into GATT in January 1998.  These actions were directly contradictory to
GATT principles and made the integration of such products questionable.  He also pointed out that thedata available clearly indicated that there had been significantly larger rates of increases in imports of
textile and clothing products into the markets of developing country Members compared to those in
developed country Members.  Given their competitive advantage in producing textiles and clothing
and the relatively lesser importance of these products in their general patterns of consumption, the
rates of increases in the case of developing Members would appear to endorse the meaningfulness oftheir liberalization measures.G/C/M/26
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23. He also asked the Council to note with concern the increased use of non-tariff measures such
as anti-dumping actions, which nullified existing access to the market of the developing country
Members' largest trading partner.  India considered that the major review should address this issue in
depth, with appropriate recommendations being made by the Council, particularly since it involved
action against exports of already-restrained products.  The use of anti-dumping action against these
products amounted to the application of two elements of protection against one product, namelydiscriminatory quantitative restrictions and anti-dumping action.  This went against the very essence
of the objective of trade liberalization which the ATC was meant to bring about.  Further, the manner
in which anti-dumping actions were being used by this Member was tantamount to trade harassment,
since anti-dumping investigations had been initiated without taking into consideration whether the
measure was meant to prevent either serious damage or actual threat of serious damage to the
domestic industry.  Since the very initiation of  anti-dumping proceedings immediately impaired
exports and since the remedies under the WTO provisions were time-consuming, these proceedingshad become, effectively, new elements of protectionism.
24. India argued that the protectionist trend in this Member was dominating the textiles and
clothing sector as substantiated by facts from the Fifteenth Annual Report from the
European Commission to the European Parliament on the Community's Anti-dumping and Anti-
Subsidy Activities dated 16 July 1997.  This report had clearly established that the highest number ofactions taken under this provision were in the textiles and clothing sector, followed by the electronics
and chemicals sectors.  In 1996, the maximum number  of actions taken under this provision were in
the textiles sector, numbering 10 out of the total of 25 mentioned in the report.  This was indeed a
very distressing trend and indicated that this Member was meeting its protectionist objectives by
resorting to anti-dumping procedures, resulting in significant trade barriers to India's exports, while
claiming credit for non-resort to the Article 6 safeguard provisions.  Moreover, India was concerned
by the manner in which the anti-dumping actions had been taken by the European Community.
Repeated anti-dumping actions had been taken against the same products, many involving exports of
India which were already severely restrained by the MFA-type quotas in place in that market.  He
cited as an example of such trade harassment the case of cotton fabrics.  The first investigation hadbeen initiated on 20 January 1994 and terminated on 19 February 1996;  the second investigation on
the same product had been initiated on 21 February 1996 and provisional duties were imposed on
20 November 1996.  The second investigation was initiated only two days after the first investigation
had been terminated.  Worse, in the case of this same product, the provisional duties had been
withdrawn in 18 May 1997 but a complaint had been lodged on 26 May 1997, that is, within six daysof the withdrawal of provisional duties and the third investigation had been initiated on 11 July 1997.
In this regard he noted that, according to usually reliable media reports, the decision to initiate the
third anti-dumping investigation had been taken, in principle, at the European Community Summit
held on 23 May 1997, that is, even before the complaint had been lodged.  All of these actions were
related to one product alone, which was of significant export interest to India.
25. He proposed for the Council's consideration the following recommendations:  first, that the
introduction of new MFA-type restrictions was a direct contravention of the application of GATTrules and disciplines in this sector and should be immediately rectified;  second, that the use of non-
tariff measures, especially anti-dumping proceedings, against products which were already under
MFA-type restrictions, was protectionist and against the objectives of trade liberalization, which was
the goal of the ATC.
26. He questioned the interpretation given to "market access" under Article 7 by the
European Community and suggested that the Council re turn to this subject at a future meeting.  He
noted that the TMB had pointed out that no problem regarding nonfulfillment of specific
commitments during the Uruguay Round had been br ought to the attention of the Market Access
Committee, as required under Article 7.G/C/M/26
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27. The representative of Egypt recalled the point made by Colombia, that the
European Community had initiated 32 anti-dumping actions in the area of textiles.  Egypt had been
the subject of some of these actions and he provided information on one of them, the case of the grey
cotton fabric.  This product had been subject to three successive anti-dumping actions;  the first and
second had been terminated without any final anti-dumping duties being imposed while the
investigation of the third one was still ongoing.
28. In the view of Egypt, the proceedings in the third action had been illegally initiated as the
publication of the notice had taken place after the deadline date which, according to Article 5.9 of the
European Community regulations was 45 days and which was considered as an absolute requirement
according to these regulations.  In addition, the product concerned, grey cotton fabric, was already
protected by quantitative restrictions.  He noted that the three actions had been initiated upon the
request of the same complainant in the European Community but that there was no evidence that this
complainant was qualified to represent the Commun ity's industry within the meaning of Article 5 of
the European Community's anti-dumping regulations.  Egypt had repeatedly asked for sufficient
information to verify this point, but had never received an answer.  There was no evidence of injury,
as Egypt's exports of grey fabrics had decreased sharply between 1994 and 1995, by over 35 per cent
(from 19,063 tons to 12,057 tons), and had remained stable at the level of 12,000 tons between 1995
and 1996.  Also, Egypt's share in the European Community's market had decreased from 4.2 per centin 1995 to 4.1 per cent in 1996.  Furthermore, there was no evidence of any threat of injury since the
prices of Egypt's exports of grey cotton fabrics had increased by 5.5 per cent in the period from 1994
to May 1997, whereas in the same period the European Community's prices for these products
generally had decreased, based on official Eurostat data.  In the view of Egypt, the Community's
industry could not be suffering from any material injury since its production had remained stable, ifnot increased.  In the period from January 1996 to the end of May 1997, production had actually
increased from 92,400 tons to 92,661 tons.
29. Based on this information, Egypt concluded that these anti-dumping actions were not founded
on any solid basis.  It was convinced that anti-dumping was being used in the textiles area in a manner
which caused trade harassment.  It was a well-known fact in international trade that just a rumour ofan anti-dumping action would make importers refrain from buying the product involved from that
country.  This was exactly what had happened in this case when Egypt's exports of grey cotton fabrics
dropped, as illustrated in the WTO background statistics information in document G/L/184.
Therefore, Egypt asked the Council to take the necessary decisions, according to Article 8.12 of the
ATC to ensure that the balance of rights and obligations was not being impaired by the misuse of anti-dumping actions.
30. The representative of Hong Kong, China considered the progress made thus far in the review
noting that the integration process had not resulted in any reduction of restrictions, so there had been
no contribution to liberalization from this element.  There had been a small degree of liberalization,
rather less than claimed in some quarters, arisin g from the application of enhanced growth factors.
However, the invocation of the transitional safeguard mechanism had resulted in the introduction of
additional new restrictions, which was clearly an increase in protection rather than liberalization.  TheConcerning other aspects of ATC implementation, these were briefly summarized in paragraph 11 of
its non-paper tabled on 6 October and circulated as document G/C/W/95.
31. He said that, in terms of assessing the overall balance on progressive liberalization, there had
been a significant negative effect from anti-dumping actions.  The question which arose was whether,
when the most selective provision in GATT 1994 were being invoked to restrict imports, there wasany justification for also continuing to invoke the provisions of the ATC.  The ATC restrictions
carried over from the MFA were originally imposed ostensibly to deal with situations not susceptible
to normal action under GATT.  Under the ATC, such restrictions could remain in force during a
transition period for the integration of the textiles and clothing sector into GATT;  however, if duringG/C/M/26
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this transition period, imports of such products were subjected to anti-dumping actions under GATT,
then the situation in the import markets concerned would be one that was susceptible to action under
GATT 1994.  In such circumstances, to continue to invoke the provisions of the ATC would appear to
be uncalled for.  If what was arguably the "fiercest weapon in the armoury of GATT 1994" was to be
invoked in respect of such products, these Members should no longer need the protection of the ATC
and their textiles and clothing should be fully integrated into GATT.  However, while they remainedwithin the ambit of the ATC, the inescapable conclusion for the major review was that anti-dumping
actions against imports of these products had been a negative contribution to progressive
liberalization, further upsetting the balance of rights and obligations embodied in the ATC.
32. The representative of Hong Kong, China also referred to unilateral changes in administrative
arrangements for implementing restraints which could affect the balance of rights and obligations as
recognized in Article 4 of the ATC.  The most si gnificant change in this respect had been the new
rules of origin introduced by the United States.  This topic had been well covered in the TMB'scomprehensive report and concerns had been aired in previous CTG meetings.  On this occasion it
was sufficient to say that although individual exporting Members may have been able to obtain
appropriate and equitable adjustments under the provisions of Article 4.4 of the ATC, the overall
effect of the new rules of origin had been such as to make access to the United States' market more
difficult for exporters and, consequently, there had been a negative contribution to progressiveliberalization, further upsetting the balance of rights and obligations.
33. He also noted another unilateral change in administrative arrangements which had also been
mentioned at the meeting on 20 October;  namely, the retention of the requirement for visas in respect
of integrated products.  The United States had conveyed their requirement in a diplomatic note to a
number of capitals that export visas would continue to be a condition of entry for imports of certainproducts from Hong Kong, China even though such products had been integrated into GATT 1994.
This requirement for export visas as a condition of entry was being applied selectively, that is, not on
a MFN basis.  Export visas in respect of products restrained under the ATC could be justified as
administrative arrangements under Article 2.17 of the ATC.  But once such products were integrated
into GATT 1994, the ATC ceased to be applicable.  To continue to require export visas as a conditionof entry would be inconsistent with Articles I and X of GATT 1994.
34. In the view of Hong Kong, China, there were  two particular points arising from the TMB's
report which should be reflected in the major review because they were instances where the TMB had
been prevented from carrying out its monitoring function either at all or in a timely manner.  The first
point was covered in paragraph 245 of the TMB's report where it was noted that the TMB had notreceived any notification as required under Article 3.3 of the ATC in respect of the new restrictions
imposed on imports of textile and clothing products by Turkey.  These restrictions had been in force
for nearly two years and the failure of Turkey to notify them was highly regrettable.  There had been a
complete loss of transparency because the TMB had been unable to fulfil its obligation under
Article 3.5 of the ATC.  The second point was covered in paragraph 271 of the TMB's report from
which it could be seen that there had been a delay of some 18 months in the TMB review of a
mutually satisfactory understanding reached under Article 5.4 of the ATC.  Actions taken under thisArticle were required to be notified to the ATC with full justification.  Such a long delay prevented
the TMB from properly exercising its supervision responsibilities.
35. He considered that these aspects of the implementation of the ATC did not demonstrate any
contribution to progressive liberalization and taking into account earlier discussions, his cumulative
assessment was that far from there having been any progressive liberalization there had, rather, been anet increase in protective measures and, thus, the ATC could not be said to be on track.  He also
flagged two issues to be further considered at the next meeting:  first, in relation to Article 1.5 of the
ATC, how to assess whether Members were allowing for continuous autonomous industrialG/C/M/26
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adjustment and increased competition in their mark ets.  It had been suggested that consideration
should be given to whether these processes needed to be further studied;  and second, the suggestion
that an outcome of this major review should be a decision to establish a more structured and
continuous process in the CTG for carrying out its oversight of ATC implementation.  These
two issues were addressed initially in paragraphs 9 and 13 of document G/G/W/95.
36. He also referred to the question of enhanced growth rates and recalled that the United States
had suggested at the last meeting that the lower than average growth rates applied to Hong Kong,
China's quotas did not place it at a disadvantage because these quotas, even for clothing products,
were under-utilized.  This was far from the case.  Of the 45 clothing categories that would remain
under restraint in the United States until the final stage of the ATC, Hong Kong, China had recorded
utilization rates over 100 per cent in 26 of these categories, i.e. exports had exceeded the basic
restraint levels by invoking flexibility provisions in at least one of the years 1995 and 1996.  Referring
to the intervention of the European Community, his first observation was that the level or percentageof integration thus far by the Community had been extremely disappointing.
37. The representative of Pakistan, considering the discussions at the previous two meetings,
concluded that the integration programmes for the first two stages, as notified by the four
MFA-restraining Members, had contributed little to any commercially significant liberalization of
world trade in textile and clothing products.  These integration programmes were a clear manifestationof the fact that the major textile importing Members had postponed the assimilation of sensitive
products into GATT to some later stage which obviously meant prolongation of the quota regime.
Furthermore, use of the transitional safeguard measures over the past three years had been far from
"sparing" thus flouting the very first prescription of this exceptional instrument as laid down in
Article 6.1 of the ATC, while the impact of "g rowth-on-growth" in terms of incremental market
access had been minimal.
38. He stressed that it was not only these features of the ATC implementation which were of a
grave concern but also the fact that the textile importing Members were facing other trade policy
instruments by certain textile importing Members which limited access to their markets.  He
highlighted four issues.  The first was the use of anti-dumping actions which disrupted normal tradeflows.  He said that such a powerful instrument should not be used in an indiscriminate or hasty
manner and recalled the initiation of a series of anti-dumping proceedings by the
European Community against import of textiles from certain developing countries, including Pakistan.
These actions, in the view of Pakistan, were motivated by protectionist intent.  The case involving
export of grey cotton fabric originating from China, India, Indonesia, Turkey and Pakistan had beeninitiated for the first time by the European Community  in 1994 following a complaint.  Then, as it had
exceeded the normal duration of one year and as the industry had formally withdrawn the complaint,
the proceeding had been terminated on 19 February 1996.  However, immediately after that, on
21 February 1996, the second proceeding had been initiated.  At the present time, Pakistan faced two
European Community anti-dumping proceedings against its exports of grey cloth and bed linen which
involved exports of approximately US$300 million accounting for 20 per cent of its total textile
exports to the European Community.  Both of these cases were repeat versions of those initiated in1994 and renewed within days of their termination in 1996 against the same product.  In the view of
Pakistan, the repeated initiation of anti-dumping proceedings by the European Community against
products which had already been under quota restrictions had severely damaged overall trading
interests.  Repeated anti-dumping actions against already restrained products were contrary to the
spirit of competition and defeated the very spirit of Article 7.1(b) of the ATC.
39. The second issue noted by Pakistan was the recent decision by the United States to maintain
visa arrangements for integrated products.  The visa arrangements were a part of the administrative
arrangements under Article 2.17 of the ATC.  Article 2 referred to quantitative restrictions within
bilateral agreements and once the importing Member had integrated items previously restrained underG/C/M/26
Page 10
Article 2, the legal justification for maintaining any restrictions, whether in the shape of a quota or in
any other form, became totally untenable.  In this context, Article 7.1(a) of the ATC was amply clear.
Further, the continuation of visa arrangements for integrated products was incompatible with Article I
and Article VIII of GATT 1994 and was certainly contrary to the principle of integration of textiles
into the GATT 1994.
40. As regards the third issue, in parallel with  maintaining visa arrangements for integrated
products, the United States had informed some textile exporting Members of possible cutbacks in
certain quotas and/or group limits in lieu of trade accounted for by products which were to be
integrated at the beginning of the second stage in January 1998.  Article 4.3 of the ATC did make an
allowance for Members to maintain restrictions on part of a category, subject to the condition that
such a level of restriction shall not upset the balance of rights and obligations between the Members
concerned under the ATC.  This Article, however, did not clarify the basis for the calculation of the
new level which would cover fewer products than before.  Pakistan was concerned that any reductionin quota levels as a result of the adjustment could adversely affect the possibilities for development of
exports in the non-integrated portions of categories as well as for the utilization of flexibilities by the
exporting Member.  Moreover, the United States' d ecision to carry out ad justments without prior
consultations with the Members concerned would be contrary to the principle and procedures
contemplated in Articles 4.3 and 4.4 of the ATC, particularly as it had announced the programme ofintegration about three years ago.  It was also troubling that the United States had decided to adjust
quotas just a little over three months before th e next quota year when many importers would have
placed orders for 1998 shipments and 1998 quotas might have already been at least partially allocated.
41. The fourth issue raised by Pakistan, with an important bearing on the implementation of the
ATC, pertained to the changes in the rules of origin introduced by the United States.  These rules,announced in late 1994, changed the method for determining the origin of textile and clothing
products and had been made effective from 1 July 1996.  While textile traders lived with the complex
system of visa arrangements, bilateral agreements, unilateral restraints and certification requirements,
these non-tariff and non-quota barriers to trade were the latest distortion to this trade.  Administrative
regulations such as documentation requirements, inspection, and rules of origin were as powerful atool for protectionism as the quota system.  In many ways these rules were even more protectionist
because of their complexity.  It was understood that the United States had recently agreed to revert to
the pre-1996 rules in respect of products of interest to the European Community.  The question was
whether the United States would accord this treatment on an MFN basis and if not, could it justify this
discriminatory treatment?
42. In view of these market access limiting policies which were being pursued by some of the
major textile importing Members, it seemed paradoxical to Pakistan that they would exhort the textile
exporting Members to further open their markets as a quid pro quo  for commercially meaningful
integration programmes.  Although sectoral reciproc ity had not been and could not be a precondition
for proper implementation of the obligations of the importing Members under the ATC, the
developing countries had contributed significantly to the cause of liberalization of trade in textile and
clothing products.  Reductions in the textile and clothing sector in trade weighted tariffs ranged from9 per cent to 52 per cent in the case of a number of textile exporting Members.  Countries such as
Brazil, Colombia, Costa Rica, Indonesia and Peru had bound all their textile tariffs.  Thailand had
reduced its tariffs on nearly 4,000 tariff lines bringing its import duties down from 100 per cent to a
maximum of 30 per cent in 1997.  Pakistan had bound 251 tariff lines out of the total textile tariff
lines of 254 over the five-year period and 100 per cent of its textile tariff lines over a ten-year period.The average tariff binding for textile products in the case of Pakistan was 35 per cent for the five-year
phase and 26 per cent over the ten-year period.G/C/M/26
Page 11
43. He pointed out that, in addition to these actions, a number of developing country Members
continued to pursue significant market opening policies on an autonomous basis.  The result of these
efforts was manifest in the fact that imports of textile and clothing products by the developing country
Members had registered a significantly higher growth rate vis-a-vis  the imports of textile and clothing
products by the developed countries for the comparable period.  During the period 1986 to 1995 the
per annum growth in textile imports by the developed Members applying quantitative restrictions hadbeen recorded at 10.07 per cent as compared to 15.6 per cent by the ITCB member countries and
ASEAN.  This should continue in the post-ATC period as well.  Given the disparity in the per capita
income of these two categories of Members, the higher growth in textile and clothing import by
developing Members showed the significance of their liberalization measures.
44. The representative of Pakistan concluded that any inference to further liberalization on the
part of textile exporting developing Members in return for making the integration programmes more
meaningful would be repugnant to the letter and spirit of the ATC.  While a number of developing
country Members had faithfully pursued the market opening policies, the developed country Members
had tended to make frequent use of trade inhibiting policy instruments, thus causing further erosion inthe effectiveness of their integration programmes.
45. The representative of Turkey commented on the statement made by India at the previous
Council meeting.  India had asked the Council to express serious concern at the introduction of new
GATT-inconsistent restrictions on textiles and clothing trade by one Member and to request Membersto abide by the principles of non-discrimination and multilateralism (G/C/M/24, paragraph 51).  It was
understood by Turkey that the Member implied was his country and he would strongly oppose the
adoption of any recommendation along these lines.  This question was being discussed mainly in the
Committee on Regional Trade Agreements (CRTA) from various aspects and he referred to the
documents where the substance of that de bate was reflected;  namely, WT/REG22/N/1,
WT/REG22/1, WT/REG22/2, WT/REG22/N/1/Add.1, WT/R EG22/1/Add.1, WT/REG22/4,
WT/REG22/5, WT/REG22/6, WT/REG22/6/Add.1, WT /REG22/M/1, and WT/REG/W/16.
46. The representative of Turkey stated that when these documents were examined the following
points would become clear:  first, the quantitative restrictions applied by Turkey were justified by
Article XXIV of GATT 1994.  Second, Turkey had been applying the common external tariff (CET)
of the European Community since the completion of the customs union which, on the whole, had a
much lower incidence than Turkish rates previously in force.  Before applying the common external
tariff, at the beginning of 1995, the weighted average Turkish tariff was around 18 per cent.
Currently, it had come down to around 5 per cent, in line with the common external tariff and wasprojected to fall further to around 3 per cent after the implementation of the Uruguay Round
commitments.  The reduction in the protection rates for the textiles and clothing sector was very
striking.  Before the customs union, this sector had been highly protected in Turkey, however, after a
transition period, the average rate of protection in this sector had been reduced from 37 per cent to
around 9 per cent in 1996.  These developments on the whole benefited third countries.  Therefore, it
would not be correct to conclude that the implementation of quantitative restrictions by Turkey had
adversely effected the interests of third countries.  In fact, none of the Members to whom Turkey wasapplying quantitative restrictions had been able to fully utilize the restriction levels in 1996.
Referring to Turkey's integration programme, he noted that as of January 1998, the products
integrated represented 65.01 per cent of the total volume of Turkey's 1990 imports of the products
contained in Annex to the ATC.  He also re minded the Council that the customs union between
Turkey and the European Community was under examination by the CRTA.  Two meetings had beenheld for this examination and the process was ongoing.  Therefore, he did not consider that it would
be appropriate for the Council to adopt any recommendation on this matter.  Discussion of this issue
at the present time would not only be premature, but  it would also prejudice the ongoing work in theG/C/M/26
Page 12
CRTA which was also taking up the systemic issues.  As regards the notification requirement in this
regard referred to in the report of the TMB, this notification requirement was being complied with.
47. The representative of Japan referred to the discussion on the changes in rules of origin.  He
said that it should be confirmed by all Members that changes in rules of origin should be made
consistently with the MFN principle, the most im portant principle of GATT.  Such changes should
also be made in accordance with Article 4.2 of the ATC.
48. The representative of Thailand speaking on behalf of the WTO Members of ASEAN
associated himself with the statement made by Colombia with regard to the assessment of the
application of strengthened GATT rules and disciplines which includes the misuse of anti-dumping
measures, disruptive effects resulting from new customs and administrative formalities, and the
continuation of visa requirements, and with Japan concerning the principle of Most Favoured Nation
treatment.  Referring to the comments made by the spokesman for the European Community, he said
that a reciprocal approach of offering more meaningful integration in exchange for greater marketaccess in export Members was not justified and noted in this regard paragraph 296 of the
TMB Report.  Specific commitments in the Uruguay Round had been undertaken in the context of an
overall package.  The notion of a further quid pro quo  for elimination of what had been or was
GATT-inconsistent would appear to be unfair;  and the MFA restrictions were, in any case,
inconsistent with GATT.
49. While recognizing that the European Community had not applied that transitional safeguard
provision, the facts and figures put forward at th e current meeting showed that anti-dumping actions
had been and continued to be used as a protectionist measure against trade in textiles and clothing.
The closure and rapid reopening of anti-dumping proceedings could lead to systematic trade
harassment over several years until the investigating authorities had proven the allegations made.Therefore, ASEAN called upon the developed Members, particularly the textile importing Members,
to exercise prudence and moderation in initiating actions only in genuine cases of dumped imports.
The unjustified recourse by the European Communities to anti-dumping actions had a significant
bearing on the effective and smooth transition of the sector into GATT.
50. He then referred to the changes in the United States Rules of Origin on Textiles and Apparel
and recalled that on 1 July 1996, the United States had implemented a new set of rules for determining
the country of origin for all textile and clothing goods imported on or after that date.  These new rules
had materially changed the basis of determining the origin of textile products.  A number of Members
including ASEAN were greatly concerned, not only regarding the disruption to their trade caused by
the unilateral imposition of these new rules, but also by the apparent inconsistency of this action withthe Agreement on Rules of Origin (ARO) and the ATC.  The ARO addressed the desire of Members
to harmonize and clarify rules of origin;  setting out procedures, timetables, and disciplines to be
respected by Members in this effort.  In general, Members should avoid changes or modifications to
the rules that were in effect on 1 January 1995 during the transition period.  It was questioned whether
a trade policy objective had motivated the changes in the rules of origin introduced as they were made
while the harmonization work programme was just starting.
51. He noted that Article 2 of the Agreement on Rules of Origin specifically stated that when
changes were to be introduced, determinations based on operations that confer origin must "be
precisely specified" (Article 2(a)(iii));  and that rules could not be "used to pursue trade objectives
directly or indirectly" (Article 2(b)); and, when introducing changes to the rules "they shall not apply
such changes retroactively" (Article 2(i)).  Article 2(c) of the ARO also provided that rules of origin
shall not themselves create restrictive, distorting or disruptive effects on international trade.  Thecircumstance as well as the terms and conditions surrounding the changes in the United States rules of
origin for textile and apparel products appeared to have breached all of these provisions.  He was
concerned that, half way through the three-year Harmonization Work Programme under Article 9 ofG/C/M/26
Page 13
the ARO was a unilateral action by the United States had preempted the process and goals of the
ARO.  The new rules, which had not been published by the United States until 5 September 1995
(V.60 No. 171 Federal Register No. 46188), and notified to Members until November 1995, had, for
several months after, remained unclear as to what constituted the "most important assembly or
manufacturing process" for determining the country of origin on a number of products important to
the trade of developing countries.  In fact, a senior United States' official had indicated as late asMay 1996 that the United States was still seeking an appropriate definition and application of this
term.  This uncertainty by the United States in the interpretation of the rules had led to a number of
exceptions in their application (embroidered fabrics,  discharge printing fabrics, etc.) and resulted in
continued confusion which was disruptive to this trade.
52. The representative of Thailand explained that the initiation of consultations by the
United States had been unnecessarily delayed and specific details on the application of the new rules
to specific processes were not made available at the time, thereby increasing the likelihood of a majordisruption in trade.  Many businesses were being disrupted by the continuing delay in the issuance of
these rulings.  Off-shore production programmes were normally planned at least six months in
advance, and often nine months or a year in advance, of actual shipment.  Many companies were
taking tremendous risks in proceeding with production programmes without the necessary information
to determine the actual country of origin applied to their products and the correct quotas they wereentitled to be compensated for.  The exceptional circumstances that might have led to these changes
were unclear and their ability  to help combat transshipment was difficult to understand.  All Members
were committed to cooperate in the prevention of transshipment and to have established mechanisms
to assist in identifying and preventing these actions.  In fact, statements by the United States had
indicated that very few transshipments of textiles and clothing had been identified in the last six years.Most of these alleged transshipments had been from non-WTO Members; and, those allegedly from
Members were found to be significantly overstated.
53. He expressed the ASEAN's concern that the new rules might be a reflection of the stated
beliefs of the United States' Customs Service that a large proportion of multi-country processing was
unnecessary. (Comments presented in the Federal Register notice of 5 September 1995.)  Thus, thesenew rules were aimed more at a trade policy that would inhibit the sharing of comparative advantages
among producing countries.  This would clearly be contrary to WTO principles and the ARO facilitate
the flow of international trade and not to create unnecessary obstacles to trade.  The implementation
of these new rules had had the effect of being retroactively applied to the trade subject to quantitative
restrictions.  The United States maintained approximately 1,000 restraints on textile and clothingexports from over 45 developing countries.  These restraints, established pursuant to Articles 2 and 6
of the ATC, were administered on a date of export basis, mainly on a calendar year restraint period.
Nevertheless, the United States had implemented these new rules in the middle of the restraint period
and on a date of import basis.  The United States had provided no data regarding the disruption to
trade, but the concept of retroactively applying the new rules to restricted goods that may be in
production or in transit was inconsistent with the disciplines contained in the ARO and in the ATC.
54. He also stressed that Article 4 of the ATC required consultations between Members when
changes such as in the rules of origin, were being introduced.  The consultations should be held prior
to implementation, and should result in appropriate and equitable adjustments that would avoid
disruption to the trade covered by the ATC.  This commitment and obligation had been reaffirmed by
the United States and many Members.  However, the information needed for these consultations,
which was required to be submitted by the United States' importers (the multiple country importdeclaration), had not been provided by the United States to any Member.  Thus, exporting Members
were put in a difficult position to address the quantitative impact of these new rules on their trade.
Without the information, prior to the implementation of the new rules, it was virtually impossible to
determine what appropriate and equitable adjustments would be.G/C/M/26
Page 14
55. In the month of August 1997, it had been reported that the United States and the
European Community had reached a bilateral agreement over the determination of the origin of
fabrics printed and dyed in the European Community.  The arrangement also exempted
European Community silk fabric and scarves sold in the United States' market from the new
United States rules of origin that otherwise would require them to be identified as a product of the
country that had produced the grey fabric.  The marking exception contained in paragraph 6(i) of thememorandum Of understanding applied only to the European Community, and not to any other
suppliers of silk scarves and fabrics to the United States.
56. In his view, the treatment that the United States had given to the European Community under
their bilateral agreement, effective from September 1997, was clearly inconsistent with the
requirements of Article I:1 of GATT 1994 which required unconditional most-favoured-nation
treatment with respect to all rules and formalities in connection with importation.  The exception
amounted to an "advantage, favour, privilege or immunity" granted by the United States to a productoriginating in the European Community, which, Article I:1 required must be accorded "immediately
and unconditionally" to other WTO Members.  He asked if the ASEAN Member countries and the
rest of the exporting Members could import fabric from other countries then export it to the
United States' market using their own countries' certificate of origin?  It seemed that this only applied
to the European Community and did not provide for fair and equitable trading conditions for otherWTO Members.  Several Members of the WTO were being commercially affected by this
discriminatory treatment.  The changes in rules of origin had upset the balance of rights and
obligations, adversely affected access, impeded full utilization of quotas and disrupted trade in textiles
and clothing from their economies.
57. The representative of the United States referred to comments made by delegations concerning
the changes made to its rules of origin.  He considered that, contrary to the views expressed in this
review, the rules which had been put into effect on 1 July 1996, had been implemented quite
smoothly.  In individual cases, as United States' Customs had responded to questions that were raised
concerning the rules, there had been some exchanges between the United States and some exporting
Members.  For the vast majority of trade, however, there had been more than adequate time to preparefor the rules that were put into effect.  The origin al Federal Register Notice had been issued well in
advance of the Notice that adopted the final rule.  There had also been hearings with respect to the
rules and changes which had been made.  Those hearings had been open to exporters and were also
available for receiving any statements from concerned parties.  He stressed that there had been no
violation of the MFN principle with respect to the changes in rules of origin.  Concerning the case ofdischarge printed fabric and the consultations held with the European Community, whereby a
provision was developed so that fabric woven in a third country and discharge printed in the
European Community could be declared as a product of the European Community, this rule was
universal and was applied to all Members.  The rule of origin applicable to fabrics was that the fabric
was a product of the country in which it was woven.  He confirmed that the United States had held
consultations with a number of Members both before 1 July 1996 and after that date which had
resulted in mutually satisfactory agreements with a number of the Members.  This process wasconcerned with Article 4 of the ATC which provided that, if a change was adopted, it was the
responsibility of the Member introducing the change to consult and to find ways to maintain the
balance of rights and obligations.  The United States had been able to do that in the cases where this
issue had been brought to its attention.  It was his opinion, however, that the Council was not the
appropriate forum to deal with such issues.  The ATC had specific provisions on consultationprocedures and the United States remained ready to consult with any Member that felt it had a
problem with the rules of origin changes.  If a Member felt that there was a continuing problem, the
TMB mechanism could be used.  However, he was not aware of any Member that had had a concern
with respect to the changes in the rules of origin that the United States had ignored or been unable to
satisfy.G/C/M/26
Page 15
58. The spokesman for the European Community stated that he shared the view of the
United States that the matter of changes in rules of origin should not be one to give concern in an
MFN context.  The problem that the European Co mmunity faced in respect of the change in the
United States' rules of origin was that certain products, which had previously been considered to be of
European Community origin, became subject to quota and labelling requirements which were not
previously applicable.  This led to consultations with the United States.  Through this process theEuropean Community was informed by the United States of certain matters which allowed it to
postpone the consultations then being held under the ATC and other WTO agreements.  It was
understood that under the harmonization process, which was intended to reach harmonized rules for
this sector, the United States' position in the World Customs Organization might have changed.  He
was under the impression that the European Community had not been alone in seeking consultations
on this matter with the United States, although other consultations might not have reached the formal
level that the European Community's consultations had reached.  It was also understood that theconsultations with other Members had led to a satisfactory resolution of the matter with them.  He
noted, however, that no notification of those results had been made to the TMB.
59. The representative of Indonesia quoted the Singapore Ministerial Decision concerning textiles
and clothing which referred to "its contribution to the increase in export earnings of the developing
countries".  He considered that this sentence had broad implications in view of the importance of thetextiles and clothing sector in the economies of de veloping Members.  The Ministers at Singapore had
recognized this sector as being a key element of major interest to the developing Members.  Nearly
three years after implementation, the developing Members were expecting a rapid and sustained
expansion of their textile and clothing exports;  however, this would be difficult, if not impossible to
achieve, as long as trade barriers remained in this sector.  He said that the issue of market access inthe textiles and clothing sector hinged upon such aspects as the phasing out of the MFA restrictions,
anti-dumping actions, rules of origin and visa requirements which were barriers used for protection.
This situation was inconsistent with the Singapore Ministerial Decision in both letter and spirit.
60. He then focused on issues related to textiles and clothing market access, in particular, on
anti-dumping measures which were being used by developed country Members and were a chronicproblem for textiles and clothing trade.  One of the worst aspects of the proliferation of anti-dumping
actions was their use against textile and clothing products which were already under restraint.  These
actions created a heavy burden on this sector, in effect a double protection, amounting to trade
harassment.  An example was the case of grey (unbleached) cotton fabrics originating in several WTO
Member countries, including Indonesia.  While it was difficult to predict the consequences of suchactions on textiles and clothing trade, Indonesia was of the view that they would constitute a
precedent for future harassment which would have a thoroughly adverse effect on this trade.  He
believed that although the integration programmes would be successful in phasing out quantitative
restrictions, this would result in a meaningless outcome if anti-dumping measures continued to be
applied in a random manner.  He fully recognized the legitimacy of any action taken to defend
domestic industries against the unfair imports of dumped or subsidized products;  however, a
proliferation of anti-dumping measures that led to trade harassment was both unnecessary anddamaging, particularly when most of the anti-dumping actions were directed against the textiles and
clothing sector which was absolutely essential to the economies of Indonesia and other developing
country Members.
61. With regard to Article 7 of the ATC and the issue of reciprocity in integration, he stressed that
the concern of importing Members to link this issue with the obligation to improve market access wasnot relevant or justified.  This Article should not be interpreted in a narrow manner but should be read
in the context of the whole ATC, especially the philosophy establishing this Agreement as inherently
set out in its consideration.  He, therefore, stressed that there was no explicit link between the two
matters and that market access could not be considered as a prerequisite for the removal of the MFA
restrictions.  The obligations, as set out in Article 7, did not specifically refer to developing MembersG/C/M/26
Page 16
but to all Members and the scope of specific commitments to be undertaken covered a wide range of
measures such as tariff reductions and bindings, reduction or elimination of non tariff barriers,
facilitation of customs, etc.
62. The representative of Indonesia stated that rules of origin were a very complex matter and had
profound implications on trade in textiles and clothing.  The issuance of the United States' rules origin
for textiles and clothing seemed to have been effected without any consideration of the schedule
agreed in the Agreement on Rules of Origin.  These new rules had resulted in a changing pattern in
the production of clothing, such as cutting and assembling in the developing countries.  When the
negotiations on harmonization resumed in the coming weeks, he urged the developed Members to
bear in mind the interests of developing Members fully based on the spirit of partnership and mutualbenefit.
63. The representative of Brazil referred to the earlier discussions in the Council concerning the
application of the transitional safeguard.  In this regard he made reference to Section III.C of the
TMB's report which provided a description of the review by the TMB of the transitional safeguardmeasures applied by Brazil to six categories of textile and clothing products.  Details on these
measures were also contained in documents G/ TMB/R/20, 22, 26 and 27.  Me mbers could also find
comments and observations concerning the transitional safeguards applied during the first stage of the
ATC in Section III.G of the TMB report.  He made specific reference to a comment by the TMB to be
found in the last sentence of paragraph 177, concerni ng the application of transitional safeguards by
Members which had retained the right to use Article 6 of the ATC.  He felt that this comment by the
TMB was fully applicable to Brazil which had experienced important changes in trade patterns as a
result of its increased market access.  Brazil fully shared the views of Colombia and other delegations
that there was no quid pro quo  between the integration process and the provisions of Article 7 of the
ATC.  However, it might be in the interest for this  review if he provided an example of increased
market access.
64. He stated that, in 1990 Brazil had implemented an autonomous programme of tariff
reductions which had resulted in a change in the volume of imports.  In 1990, Brazil's imports of
textile and clothing products had amounted to US$463 million.  In 1996, this volume had increased to
US$2,308 million.  At the same time exports had remained unchanged.  These increases had placed
Brazil among the top ten importers of textiles and clothing.  Furthermore, in 1990 Brazil had
4,938 enterprises manufacturing textile and clothing products;  six years later in 1996, the number had
decreased by more than 1,000.  As regards employment, in 1990 there had been about
890,000 workers in the industry;  six years later, there was about half of that figure, 418,000.  In theview of Brazil, these numbers provided a good indication of the increased access to the Brazilian
market.
65. The representative of Norway recalled that, in connection with the integration process, he had
previously underlined the interaction between a numbe r of elements leading up to the final integration
of the textiles and clothing sector into GATT.  The various elements of the ATC should not be viewed
in isolation from each other.  It was particularly relevant to review the removal of restrictions in
accordance with Articles 2.15 and 3.3 of the ATC in conjunction with integration and the application
of safeguards.  The elimination of quotas and other measures would contribute to and facilitate the
final objective of the complete integration of the ATC into the general GATT provisions.  He notedthat Norway was one of four Members which had notified restrictions introduced under the MFA and
maintained in accordance with Article 2.1 of the ATC.  Twenty-nine Members maintained restrictions
for ATC-covered products under Article 3 of the ATC or other GATT 1994 provisions.  Three
Members applied restrictions on imports which appeared to be justified by applying the provisions of
Article 3.2(b) of the ATC.
66. Norway noted with concern that two Member s had not communicated with the TMB in order
to settle its queries in respect of restrictions notified under Article 3.1.  According to its report,G/C/M/26
Page 17
paragraphs 232 and 233, the TMB had nevertheless decided to conclude the consideration of these
notifications.  Norway suggested that the Council, in any conclusions to be drawn, should request the
TMB to follow up any queries it may have regardin g these two notifications in order to fulfil its
obligations as the supervising body of the ATC.  It was also noted from the TMB's report, that not all
Members had complied with the notification requirements under Article 3.3 in respect of new
restrictions or changes in existing restrictions.  Such notifications were important elements in the
process leading up to the elimination of the ATC and all Members should endeavour to follow the
minimum transparency requirements of the ATC, in  particular when restrictions were concerned.
67. The representative of Norway presented some background information on its textile policy.
Norway's textiles and clothing industry had, over the last generation, been undertaking substantial
structural changes.  Thirty years ago, 80 per cent of the consumption in Norway's textiles market was
supplied by domestic production and 20 per cent was imported.  At present, this had changed and only
10 per cent of the market was supplied domestically and 90 per cent of the consumption wasimported.  This had, in Norway's case, been the result of the international division of labour of the
GATT Members with certain modifications permitte d by the MFA and the phase-out of restrictions
under the ATC. It was, in this respect, important  when comparing with other Members, to remember
that Norway had a small, open economy with a sm all market and for many products an exceptionally
high level of imports and a corresponding low level of domestic production.
68. In order to improve the competitiveness and cost structure of its textile industry, Norway had,
through a programme of internationalization, encouraged cooperation between Norwegian and
developing country industries.  In addition, the MFA and the ATC had made it possible for the
restructuring of the Norwegian industry to take place over a number of years.  This made the
adjustment more acceptable in Norway, considering the number of jobs lost and the closure offactories which had resulted from the increased imports.  The gradual liberalization of quotas would,
by the end of 1997 and 1998, be taken further.  Norway maintained altogether 54 quotas;  in
accordance with Article 2.15 of the ATC, 14 of these restrictions had been eliminated earlier; an
additional 32 quotas would be eliminated by the end of 1997; and five more quotas would be
rescinded at the end of 1998.  After 1998, Norway would maintain only 6 per cent of the restrictionsin force at the time of the establishment of the WTO in 1995.  Furthermore, as a result of the
Uruguay Round, Norway would reduce its textile and clothing tariffs by up to 45 per cent and the
highest tariffs would be reduced the most.  Norway considered both the elimination of quotas and the
reduction of tariff rates as generally beneficial to the Norwegian economy;  however, an important
element in the formulation of the policies had also been the strong political will to help stimulatefurther trade with developing countries.
69. He explained why Norway had found Article 2.15 of the ATC to be the most appropriate
provision for the removal of the majority of its textile and clothing quotas.  Since the establishment of
the WTO, Norway had maintained quotas only on the four most sensitive product categories and
integrating these categories into GATT was not considered feasible.  Concerning the administration of
restrictions, Norway noted the comments in this regard in the TMB report and explained that, due to
the smooth and pragmatic cooperation with the exporting Members concerned, there had not been theneed to enter into administrative arrangements.  Nevertheless, if any particular problem in the
implementation of restrictions should arise, Norway  would be prepared to enter into administrative
arrangements, as foreseen by the ATC.  He stated that Norway attached great importance to the task
of preventing circumvention;  all countries should do their utmost to cooperate in order to combat
circumvention within the provisions of the ATC.  Such cooperation was an important element in order
to secure the integration of textiles into GATT.  Furthermore, Members of the WTO should be aware
of their responsibilities to abide by the ATC, when  they entered into bilateral agreements in this
respect.  Extreme interpretations of the provisions should be avoided when corrective measures were
taken.G/C/M/26
Page 18
70. The representative of the United States referred to the discussions concerning the retention of
visa arrangements for items that had been integrated into GATT in Stage 2.  He believed that there
were no grounds for concern among exporting country Members on this issue.  The United States had
proposed that exporting Members voluntarily retain the use of textile visas for integrated products but
this was not a mandatory requirement.  The United States' provision on visa arrangements provided
that either party could terminate the agreement in whole or in part.  It had already consulted on thisissue with one Member and had established to the satisfaction of that Member the link between the
visa arrangements and the prevention of circumvention.  This had allowed them to reach an agreement
to retain textile visas for exports to the United States of integrated textile and clothing products.  The
United States remained available to any other Member with concerns in this area and he expected that
it would be possible to reach mutually satisfactory arrangements.
71. With respect to market access, he said that it was clear that Article 7 of the ATC required that
Members must achieve improved market access for textile products;  however, the question must beasked if WTO Members had met this requirement.  He had heard the argument that the importing
Members had not adopted any provisions beyond what they had committed themselves to in the
Uruguay Round.  The real question was not, however, if there had been liberalization measures
adopted in the abstract, but whether market access had been achieved.  He observed that in the case of
India, United States' imports from India in 1995 had totalled 750 million square metres of textileproducts.  In 1996, this number had increased by 16 per cent to 869 million square metres.  In the
12 months ending in July 1997, this had increased a further 22 per cent to 974 million square metres.
This was not an exceptional case.  In the last 12 months for which data were available, imports into
the United States' market for textile products had increased by almost 20 per cent.  This was one
definition of achieving improved access for textile products.  Another example, cited by Pakistan, wasthe rate at which Pakistan had bound its textile tariff lines.  He said that one could argue that the rates
being proposed were relatively high.  The point, however, was not so much if bindings had been
adopted but whether market access was actually being achieved.  In some countries, the United States
was facing a combination of high tariffs and balance-of-payments restrictions which provided no
improvements in market access.  In any evaluation of the ATC and whether its provisions were beingfollowed, these situations would need to be clearly identified.
72. He then referred to the question of circumvention, which was a continuing problem that
showed no sign of diminishing over time.  There had been a steady increase in the number of court
cases in the United States where exporters had systematically circumvented the restraints on textile
imports.  It was considered that the Members involved had a responsibility to increase their vigilancein combatting this problem.  He also referred to  the statement by Hong Kong, China, concerning the
extent to which the clothing restraints on that Member had continued to be a significant factor in its
access to the United States' market and whether the situation was changing over time.  He said that
over time, starting with some period before the implementation of the ATC and going up to 1997,
there was a clear trend towards a decline in the utilization of the quotas on textiles and clothing that
Hong Kong, China had with the United States.  In response to a point raised by Pakistan concerning
the United States' proposal to adjust quotas to take into account the second stage integration process, itwas correct that the United States had made such proposals to the Members on which the integration
was going to have an effect on either group limits or part categories that had been integrated.  The
United States believed that the proposals it had put forward were reasonable and consistent with
Article 4 of the ATC.  It stood ready to consult with any Member that had questions or concerns with
respect to this proposal.  He did not consider that putting such a proposal forward well in advance ofthe start of the next quota year would be a violation of the provisions of the Agreement.
73. The spokesman for the European Community referred to the topic of integration, and
commented that compliance with such obligations was the best way of preserving rights and
obligations.  He also referred to the discussions on the use of anti-dumping actions and noted that
Article 7 recognized the role of anti-dumping in the liberalization and expansion of internationalG/C/M/26
Page 19
trade.  This had been accompanied by the setting up of trade defense legislation in many countries
which was regarded as a legitimate development to th e extent that these were used in conformity with
international rules.  The Agreement did not condone dumping;  rather, it provided the framework
within which the application of such rules in conf ormity with WTO obligations should occur.  He was
able to provide some updated statistics on the number of anti-dumping actions taken by the
Community in 1997.  In textiles, three cases had been initiated;  in chemical and allied products, fivecases initiated;  in electronics, one case initiated;  in iron and steel, two cases initiated;  and in other
metals, one case initiated.  A total of 12 cases initiated with three of these relating to textiles.  He
failed to see a pattern in the statistics relating to textiles given that in 1994 there had been 17 cases
initiated, in 1995 there had been five cases, in 1996 there were ten, and in 1997 to date, three.
74. He also referred to a matter raise by many delegations, namely, the question of grey cotton
cloth.  In his view, the Council was not a dispute mechanism to consider such questions and he
recalled that the European Community was oblig ed to open an anti-dumping or anti-subsidy
investigation upon receipt of a complaint containing prima facie evidence of dumping and resulting
injury.  He also considered that the European Community's internal rules had been fully complied
with.
75. With respect to market access, he associated himself with the views of the United States.  He
recalled that the number of trade barriers to the Community's exports still existed such as specific
duties and import pricing regimes, but he had heard no recognition in the review that these were
barriers that should be removed.  He considered that all factors must be taken into account in
considering the developments in trade and where Members had entered into other types of trading
structures, such as free-trade areas or customs unions, these might also have some effect in respect of
trade.
76. In concluding the meeting, the Chairman reminded Members that the next meeting would be
held on Thursday, 13 November.  On that occasion, he would be proposing that the Council approach
its work programme under three sub-topics:  first, discussion of any other aspects Members might
wish to raise in relation to the implementation of the ATC;  second, any summaries or overall
comments Members might wish to make in the light of the discussions so far;  and third, he intendedto have an exchange of views on how the Counci l should conclude its review.  In this regard,
consideration should be given to the question of observations, conclusions or recommendations and
what form they might take.
77. The Council took note of the statements made.