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1 e_tit_trade.jpg (4825 bytes) TITLE The World Trade Organization Agreement on textiles and clothing (ATC) Informative Note November 1999 AUTHOR Permanent Secretariat of SELA. I. Background 1. International trade in textiles and clothing is significant and sensitive to both less-advantaged countries (LACs) and industrial countries. In 1997, the sector represented approximately 9 per cent of world exports of manufactured products and for LACs approximately 19 per cent (and for particular LACs often much higher figures). The sensitivity stems from the competitive advantage (access to raw materials and low production costs, particularly wages) of the LACs and the impact of relatively cheap products on employment in long-established industries in developed countries. 2. The sensitivity of importing industrial countries initially manifested itself in bilateral voluntary export restraint agreements (1950s) and then the following formal arrangements: The Short Term Arrangement Regarding International Trade in Cotton Textiles (1961) The Long-Term Arrangement Regarding International Trade in Cotton Textiles ( ) The Arrangement Regarding International Trade in Textiles (the Multifibre Arrangement the MFA) ( ). 3. None of these agreements and arrangements were in conformity with normal GATT rules. However, in 1960 the Contracting Parties recognised the situation of market disruption following sharp increases in imports, over a brief period of time and in a narrow range of commodities which can have serious economic, political and social repercussions in the importing countries. Market disruption could be from: (i) a sharp and substantial increase or potential increase of imports of particular products from particular sources; file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (1 of 10)12/09/ :11:10 a.m.

2 (ii) these products are offered at prices which are substantially below these prevailing for similar goods of comparable quality in the market of the importing country; (iii) thereof; there is a serious damage to domestic producers or threat (iv) the price differentials referred to in (ii) do not arise from government intervention in fixing or the formation of prices or from dumping practices. 4. The acceptance of the relevance of a particular source of supply and of a substantial price advantage, and the possibility of selective safeguard action was a fundamental departure from Article XIX of the GATT, which in turn allowed the introduction of discriminatory restraints in the two Cotton Textile Arrangements. 5. The MFA expanded the use of discriminatory restraints to a wider range of products: wool, man-made fibres and certain vegetable fibres. The key objectives were: to achieve the expansion of trade, the reduction of barriers to such trade and the progressive liberalisation of world trade in textile products, while at the same time ensuring the orderly and equitable development of this trade and avoidance of disruptive effects in individual markets and on individual lines of production in both importing and exporting countries; and to further the economic and social development of developing countries and secure a substantial increase in their export earnings from textile products and to provide for a greater share for them in world trade in these products. 6. The key rules of the MFA covered: consultation on the determination of market disruption of threat thereof; bilateral agreements and unilateral action to follow consultation; annual restraint levels to relate to a relevant 12 month period of exports; an annual growth rate of 6 per cent (which in practice was, by agreement, often less); monitoring and dispute settlement by the statutory Textiles Surveillance Body. II. The Uruguay Round Negotiations ( ) 7. A consideration in instituting the GATT Uruguay Round of negotiations file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (2 of 10)12/09/ :11:10 a.m.

3 was that they were to constitute a single undertaking i.e. nothing was agreed until everything was agreed. This interdependence of the various issues was designed so that both the developed and developing countries had something to gain so that compromise would, in theory, be more easily reached. For example, for new agreements, on services and the trade-related aspects of intellectual property rights, industrial countries might more readily accept the return to normal GATT rules of trade in textiles, albeit the developing countries argued that they should not have to pay for the rectification of a deviation from normal GATT rules. In the event, the mandate for the textile and clothing negotiations was to formulate modalities that would permit the eventual integration of this sector into the GATT, on the basis of strengthened GATT rules and disciplines. This reflected the importance of this sector to the developing countries and also its sensitivity in the industrial countries. That the Uruguay Round took as long as it did is, in part, because of the difficulty of the compromises necessary to arrive at the Agreement on Textiles and Clothing. III. The Agreement on Textiles and Clothing (1994) 8. The Agreement on Textiles and Clothing (ATC) came into effect on 1 January 1995 and provides that by 1 January 2005 all quotas will be removed and that this sector will be fully integrated into GATT 1994 rules. At this point the ATC will cease to exist. The ATC s key provisions are: the product coverage (Article 1) the integration process (Article 2) the liberalisation of the restrictions carried over from the MFA (Article 2) the treatment of quantitative restrictions other than those under the MFA (Article 3) the special transitional safeguard mechanism (Article 6) procedures concerning circumvention of quotas (Article 5) the administration of restrictions (Article 4) the overall obligations of members (Article 7) the Textiles Monitoring Body (Article 8) 9. The product coverage listed in the Annex to the ATC, covers all products which were subject to MFA or MFA-type quotas in at least one importing country. Therefore in the four WTO Members which maintained MFA quotas (Canada, the EU, Norway and the USA), the product coverage includes products not necessarily subject to quotas in a particular Member. 10. The products come from Section XI (Chapters 50 to 63) of the file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (3 of 10)12/09/ :11:10 a.m.

4 Harmonised Commodity Description and Coding System (HS) Nomenclature, plus some specific products from HS Chapters 30 to 49 and 64 to 96. The chapter headings include silk, wool, cotton man-made fibres, carpets, knitted fabrics, apparel and clothing accessories. However, raw materials are excluded. 11. The integration process requires that all former MFA or MFA-type restraints be notified to the Textiles Monitoring Body (TMB) as they will be carried over into the ATC and continue until the products are integrated and therefore the quota eliminated. It also sets the procedure for integration. 12. The procedure covers a ten-year period: Per cent to be integrated, not less than At 1 January 1995 : 16 per cent by volume of a Member s total 1990 imports of all products in the Annex At 1 January 1998 : At 1 January 2002: a further 17 per cent (33 per cent in total) a further 18 per cent (51 per cent in total) At 1 January 2005 : all remaining products, up to 49 per cent (100 per cent in total) 13. Each importing Member decides itself which products it will integrate at each stage, with the proviso that they shall come from each of the four following groupings: tops and yarns; fabrics; made up textile products; clothing. 14. In addition to the integration process, there is a programme for liberalising the restrictions carried over from the MFA by increasing the size of the quotas. The quota annual growth rates are increased as follows: Increase to be applied annually On 1 January 1995 On 1 January 1998 On 1 January 2002 by 16 per cent by 25 per cent by 27 per cent 15. Therefore a 6 per cent growth rate under the MFA in 1994 became 6.9 per cent under the ATC in years 1995, 1996 and 1997; then 8.7 per cent in years 1998, 1999, 2000 and 2001; and per cent in years 2002, 2003 and For small suppliers (those whose restrictions represent 1.2 per cent or less of the total volume of the restrictions applied by an importing Member as at 31 December 1991), the above increases in growth rates are advanced by file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (4 of 10)12/09/ :11:10 a.m.

5 one stage. Quotas will be eliminated either when the products concerned are integrated into GATT at one of the stages or at the end of the transition on 1 January Importing Members may drop restraints beyond that required by the integration and liberalisation process. This has been done by Norway in respect of most products under restraint, by Canada in respect of certain products and, in a more limited way, by the United States. 17. The ATC requires Members to notify the Textiles Monitoring Body (TMB) of all quantitative restrictions (eg. unilateral restrictions and bilateral arrangements) whether consistent with GATT or not, in addition to those under the MFA. There is also provision for reverse notification, eg., by the exporting Member. In many cases, GATT 1994 justification was claimed for a restriction, under such as Articles XVIIIB (balance of payments), XX(b) (general exceptions, health and sanitary reasons), XXIV (customs unions and free-trade areas) and individual protocols of accession. In other cases, phase-out programmes were put in place. 18. A particularly important provision of the ATC is the special transitional safeguard mechanism, which allows selective safeguard action to be taken, as distinct from the non-selective provision in Article XIX of GATT This is to protect Members during the transition period against damaging surges in imports of products which have not yet been integrated into GATT and which are not already under quota. 19. The mechanism requires the importing member to determine that total imports of a specific product are causing serious damage, or actual threat thereof, to its domestic industry and to which exporting Members of this serious damage can be attributed. There are provisions for consultations, including time frames, notification to the TMC and growth rates. 20. When this transitional safeguard mechanism is invoked, more favourable treatment must be given to least-developed countries, small suppliers, new entrants and to re-imports from outward processing. Wool producing developing countries also must be given special consideration. 21. The ATC provides procedures concerning any circumvention of quotas by transhipment, re-routing, false declaration of origin or falsification of official documents. These procedures cover legal and administrative procedures, consultation and notification to the TMB. 22. As under MFA, the administration of restrictions (essentially the allocation of quotas) will be by the exporting Members. However, Members are not obliged to accept shipments in excess of the restriction levels. The ATC also provides that changes in rules and practices should not upset the balance of rights and obligations between the Members concerned... Again there is file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (5 of 10)12/09/ :11:10 a.m.

6 provision for referral to the TMB. 23. There are overall obligations under the Uruguay Round to achieve improved access for textile and clothing products through such as tariff reductions and bindings, reduction and elimination of non-tariff barriers and the facilitation of customs, administrative and licensing formalities; to ensure fair and equitable trading conditions as regards textiles and clothing in such as dumping and anti-dumping rules and procedures, subsidies and countervailing measures and the protection of intellectual property rights; and to avoid discrimination against imports of textiles and clothing when taking measures for general trade policy reasons. Where it is thought that the balance of rights and obligations has been upset, there is provision for referral to the relevant WTO body and the TMB. 24. The Textiles Monitoring Body, established under the ATC, is required to supervise the implementation of the Agreement to ensure conformity with the rules. It is a quasi-judicial standing body which consists of a Chairman and ten members, discharging their function on an ad personam basis and taking decisions by consensus. The ten members are appointed by WTO Members according to agreed constituencies. 25. The TMB reports annually to the WTO Council for Trade in Goods. A specific ATC requirement is that the implementation of the Agreement will be reviewed by the Goods Council before the end of each stage of the integration process, which should in part be based on TMB report. IV. WTO Ministerial Conference, First Session, Singapore, At the first Ministerial Meeting following the completion of the Uruguay Round, Ministers, inter alia, confirmed their commitment to the full and faithful implementation of the provisions of the ATC, stressing the importance of integrating trade in textile products in GATT 1994 s strengthened rules and disciplines because of its systemic significance for the rule-based, nondiscriminatory trading system and its contribution to the increase in export earnings of developing countries. The Ministerial Declaration also noted that: ATC transitional safeguard provisions should be used as sparingly as possible; It is important to fully implement the provisions relating to small suppliers, new entrants, least developed countries and cotton-producing exporting members. file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (6 of 10)12/09/ :11:10 a.m.

7 IV. WTO Ministerial Conference, Second Session, Geneva, The Second Ministerial Meeting recognised the need for the system to make its own contribution in response to the particular trade interests and development needs of developing country Members. It was also recognised that there was an urgent need to address the marginalisation of least developed countries and certain small economies. The Ministerial Declaration also noted that: a process will be established under the General Council to ensure the full and faithful implementation of existing agreements; at the Third Ministerial there is to be a further evaluation of the implementation of individual agreements and recommendations for a further work programme, taking into account the overall balance of interests of all Members. V. Current position (December 1998) 28. As at the end of 1998, the ATC had been operational for four years (1995, 1996, 1997 and 1998) and two of the four stages are in place (covering the years 1999, 2000 and 2001). Points arising from the current position include: the notification of restrictions was satisfactorily completed; the four Members maintaining MFA import restrictions (Canada, the EU, Norway, USA) are complying with the integration process. In addition, other Members wishing to retain the right to use the transitional safeguard mechanism (Article 6) had to notify the TMB accordingly and to provide integration lists. Fifty-five Members chose to retain this right and nine Members (Australia, Brunei Darussalam, Chile, Cuba, Hong Kong, Iceland, Macao, New Zealand and Singapore) chose not to retain this right. The nine are deemed to have integrated 100 per cent at the outset; the integration into GATT 1994, which is a the discretion of importing Members, has been in accordance with the Agreement, but in the first two stages most products come from the low value added group (tops and yarns) and relatively few from the high value added sector (clothing). For example, in the EU, in 1997 only 4.18 per cent by value of total restrained imports had been freed; in the USA, 6.12 per cent. However, Norway has chosen to accelerate the process and at the end of 1998, 94 per cent by volume of its restraints have been removed; the liberalisation of restrictions through increases in the annual growth rate has been in accordance with the Agreement, but as the MFA growth rates forming the base were often well under the standard 6 per cent level, the new rates were also very small, giving increased access of the order of 2 per cent for the years 1995, 1996 and For small suppliers and leastdeveloped countries, for whom there was to be special treatment, the file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (7 of 10)12/09/ :11:10 a.m.

8 increases have been an additional 0.5 per cent per year; the special transitional safeguard mechanism has been invoked on 26 occasions by the USA (24 in 1995, one in 1996 and one in 1997), resulting in 11 selective restraints being implemented. Brazil invoked the mechanism on seven occasions, resulting in seven selective restraints being implemented; The TMB has been effective in monitoring notifications and in particular its examination of the use of the transitional safeguards mechanism, where, because of the examination, there are examples of proposed applications being withdrawn and modified. VI. Role of the International Textiles and Clothing Bureau 29. The International Textiles and Clothing Bureau (ITCB) came into existence in 1984 with the general objectives of: the elimination of the discrimination of protectionism faced by developing countries in the textile sector; the full application of GATT rules and principles to international trade in textiles; assisting members in their dealings with the relevant international bodies. 30. The ITCB is an international organisation with its headquarters in Geneva. It consists exclusively of developing countries and is managed and financed solely by them. There are currently 23 members[1] and three observer countries[2]; international organisations, such as UNCTAD, the WTO and ITC are also observers. 31. The ITCB participated in the Uruguay Round and contributed to the ATC. Currently its main function is to oversee the implementation of the Agreement in particular to help evolve common positions among developing countries and to provide technical assistance. VIII. The Less-Advantaged Country (LAC) dimension 32. Some comment from the LAC point of view: with the integration and liberalisation programme for seven of the total ten years now in place, real trade gains for exporting countries are minimal. In particular, the Agreement allows up to 49 per cent by volume of restrained trade to remain so up to 1 January 2005 and it is probable that this trade will mainly be from the high value-added groups of made-up textiles and clothing. It is, within the spirit of the Agreement, important to keep pressure on the importing Members to improve this situation; file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (8 of 10)12/09/ :11:10 a.m.

9 it is worth bearing in mind the Second Ministerial Declaration (1998) which noted the urgent need to address the marginalisation of leastdeveloped countries and certain small economies and committed Members to continue to improve market access conditions for products exported by least-developed countries on as broad and liberal a basis as possible ; with the importing countries leaving the great bulk of the sensitive integration to the end of the ten-year period, the impact of the necessary restructuring on domestic industry is likely to be heightened and therefore more difficult. This will need to be kept before Members and monitored; there is a requirement to use the special selective transitional safeguard as sparingly as possible, but in the first years of the Agreement this provision was used significantly by three Members. There is evidence that this use is reducing but this must be kept before Members and monitored. In addition the 55 Members not maintaining restraints who have chosen to retain the right to use this provision might be persuaded to join the nine who have not and who are therefore deemed to have integrated 100 per cent; there are overall obligations on Members to avoid discrimination against imports of textile and clothing products, and there are examples of changes in importing Members rules of origin and of the use of anti-dumping measures which may have affected the balance of rights and obligations, in particular given that textile and clothing products are in the main still under restraint in the key export markets. This needs to be monitored; it is important to participate in the process [...] established under the direction of the General Council to ensure full and faithful implementation of existing agreements, and to prepare for the Third Session of the Ministerial Conference, as in the Second Ministerial Conference Declaration. [1] Argentina, Bangladesh, Brazil, China, Colombia, Costa Rica, Egypt, El Salvador, Honduras, Hong Kong- China, India, Indonesia, Jamaica, Korea, Macao, Maldives, Mexico, Pakistan, Paraguay, Peru, Sri Lanka, Thailand, Uruguay. [2] Cuba, Mauritius and Singapore. file:///c /Documents%20and%20Settings/Administrador...ement%20on%20textiles%20and%20clothing%20(ATC).html (9 of 10)12/09/ :11:10 a.m.

10 SELA, Permanent Secretariat Torre Europa, Fourth floor, Urb. Campo Alegre, Av Francisco de Miranda, Caracas Venezuela Tlf: (58) (212) Fax: (58) (212) file:///c /Documents%20and%20Settings/Administrado...ment%20on%20textiles%20and%20clothing%20(ATC).html (10 of 10)12/09/ :11:10 a.m.