AGREEMENT ON TEXTILES AND CLOTHING Presentation to Post Qualification Course in International Trade

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AGREEMENT ON TEXTILES AND CLOTHINGPresentation
to Post Qualification Course in International
Trade Laws WTO on 9th July 2005
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STRUCTURE OF PRESENTATION

• Part I A Brief History of Restrictions on
  Textile and Clothing Trade
• Part II The Six Key Elements of the
  Agreement on Textiles Clothing.
• Part III The Product Coverage of the ATC The
  Annex.
• Part IV The Integration of Textiles and
  Clothing Products into GATT Rules
• Part V Implementation of the Integration
  Process.

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Contd

• Part VI Improvements in Restraint Growth Rates.
• Part VII The Application of Growth Rate Factors.
• Part VIII Removal of Quantitative Restrictions
  Other Than MFA Restraints Article 3.
• Part IX The Transitional Safeguard Mechanism
• Part X Monitoring, Surveillance and Review
  Article 8
• Part XI Notification Obligations.

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A BRIEF HISTORY OF RESTRICTIONS ON TEXTILE
CLOTHING TRADE

• Introduction
• The Cotton Arrangements (1961-73)
• The Multifibre Arrangements (1974-94)

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INTRODUCTION

• Special Regime for more than 40 years, outside
  the normal GATT Rules.
• Special regimes
• Short Term Arrangement Regarding International
  Trade in Cotton Textiles (STA) in 1961,
• The Long Term Arrangement Regarding International
  Trade in Cotton Textiles (LTA) from 1962 to 1973.
• Multifibre Arrangement (MFA) from 1974 to 1994.

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INTRODUCTION

• Included T C sector within the scope of Uruguay
  Round in 1986.
• Seven years of complex negotiations.
• Sector fully integrated into WTO Rules on 31st
  December 2004.

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SIX KEY ELEMENTS OF THE AGREEMENT ON TEXTILES AND
CLOTHING

• Product Coverage.
• Programme for Integration.
• Progressive Liberalisation of the Restraints
  through Improved Growth Rates.
• Treatment of Quantitative Restrictions (other
  than MFA Restraints).
• Transitional Safeguard Mechanism.
• Textiles Monitoring Body.

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THE PRODUCT COVERAGE OF ATC THE ANNEX -

• It encompasses Section XI (Chapters 50-63) of the
  Harmonized Commodity Description and Coding
  System (HS) Nomenclature.
• Some specific products from HS Chapters 30-49 and
  64-96 were included.

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BASIS FOR PRODUCT COVERAGE

• Products, which were previously subject to MFA or
  MFA-type restraints.
• HS lines covering raw materials were not
  included.
• In the case of raw natural materials (silk,
  cotton, wool, vegetable fibres), the ATC coverage
  began with the first manufacturing process.

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THE INTEGRATION OF TEXTILE AND CLOTHING PRODUCTS
INTO GATT RULES

• Article 2 of the ATC.
• Quantitative Restrictions in Force at the Outset.
  
• The Integration Programmes
• Four Stages.
• Selection of Products for Integration
• Notification of the Products to be Integrated
• Termination

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ARTICLE 2 OF THE ATC

• All former MFA or MFA-type restraints must be
  notified to TMB.
• The procedure for progressive integration of the
  products covered by the Agreement into GATT 1994
  Rules and Disciplines.

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QUANTITATIVE RESTRICTIONS IN FORCE AT THE OUTSET

• All existing restrictions on the day before the
  entry into force of the WTO agreement were to be
  notified in detail to the TMB within 60 days.
• No new restrictions could be introduced except
  under the provisions of the ATC or relevant GATT
  1994 provisions.

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THE INTEGRATION PROGRAMMES

• Four stage programme for the progressive
  integration was the second central element of the
  Agreement.
• Under Article 2.6 to 2.8, members carried out a
  program whereby the rules and disciplines of GATT
  1994 were applied progressively to the T C
  products.

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WHAT DOES INTEGRATION MEAN ?

• Imports of the product integrated were no longer
  subject to the ATC, including the possibility of
  bilateral restraints.
• After integration, if a safeguard measure was
  considered necessary, the GATTs
  non-discriminatory global rules (Article XIX)
  would apply.
• There was no possibility to bring it back into
  the coverage of ATC.

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FOUR STAGES

• On 1st January 1995, Members were required to
  integrate products from the list in the Annex
  which represented not less than 16 of the total
  volume of their imports of all those products in
  1990.
• At stage 2, on 1st January 1998, not less than a
  further 17 was integrated
• At stage 3, on 1st January 2002, not less than a
  further 18 was integrated
• Finally at the end of the transition period, on
  31st December 2004, all remaining products (which
  could amount to 49 as a maximum) was
  automatically stand integrated and the ATC was
  terminated.

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SELECTION OF PRODUCTS FOR INTEGRATION

• Each importing member decided itself to reach the
  required percentage thresholds.
• The only requirement was that the list of
  products submitted at each stage must include
  products from each of the four groupings tops
  and yarns, fabrics, made-up textile products and
  clothing (Articles 2.6 and 2.8).

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TERMINATION

• The Agreement was terminated after the 10 year
  transition, on 31st December 2004.
• Article 9 of the Agreement provided There shall
  be no extension of this Agreement.

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IMPLEMENTATION OF THE INTEGRATION PROCESS

• Review by the Council for Trade in Goods
• The Report by TMB.

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REVIEW BY THE COUNCIL FOR TRADE IN GOODS

• CTG was responsible for overseeing the
  implementation of the ATC and for this purpose
  was required by Article 8.11 to conduct a major
  review before the end of each stage of the
  integration process.
• The TMB was required by the same Article to
  provide the Council with a comprehensive report
  on the implementation of this agreement during
  the stage under review..

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REVIEW BY THE COUNCIL FOR TRADE IN GOODS.

• The CTGs first major review of the first stage
  was held in October November 1997. For this TMB
  submitted a comprehensive report in July 1997.
• The major review of implementation of ATC in the
  second stage of the integration process
  (1998-2002) was held by CTG in September- October
  2001.
• The third and final major review by CTG of the
  third stage integration (2002-2004) was held in
  December 2004.

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IMPROVEMENTS IN RESTRAINT GROWTH RATES

• Liberalization of Existing Restrictions
• Notification of Restraints in Place Increased
  Growth Rate
• Growth Rate Increases Automatically
• Termination of Restraints
• Early Elimination of Restraints
• Treatment of Small Suppliers.

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LIBERALIZING EXISTING RESTRICTIONS

• The Agreement also provided a programme for
  liberalizing existing restraints through
  progressive, automatic increase in the rate of
  annual growth (Article 2.13/2.14).
• No new restrictions in terms of products or
  members could be introduced and restrictions not
  notified within 60 days of the date of the entry
  into force of the WTO Agreement shall be
  terminated forthwith (Article 2.1 and 2.4).

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NOTIFICATION OF RESTRAINTS IN PLACE INCREASED
GROWTH RATES

• The notification by importing countries to TMB at
  the beginning of the ATC represented the starting
  point automatic liberalization process.
• The annual growth rates were increased by a
  factor of 16 for the first stage of the
  Agreement.

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NOTIFICATION OF RESTRAINTS IN PLACE INCREASED
GROWTH RATES

• The first stage growth rates were further
  increased by a factor of 25 for the second stage
  (i.e. on 1st January 1998).
• The second stage growth rates were increased by a
  factor of 27 for the third stage (i.e. on 1st
  January 2002).(Article 2.13 and 2.14).

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NOTIFICATION OF RESTRAINTS IN PLACE INCREASED
GROWTH RATES

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

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GROWTH RATE INCREASES APPLIED AUTOMATICALLY

• Growth-on-growth and the increase to the
  restraints levels which they entail were
  automatic.
• The increases in the growth rates, however, were
  minimums and members could apply higher rates.

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TERMINATION OF RESTRAINTS

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

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EARLY ELIMINATION OF RESTRAINTS

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

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TREATMENT OF SMALL SUPPLIERS

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

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THE APPLICATION OF GROWTH RATE FACTORS.

• Some developing members were of the view that the
  ATC had anticipated two paths for the progressive
  liberalization.
• One was the integration of products and the other
  was application of growth rate factors.
• The two paths were not substitutes.

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THE APPLICATION OF GROWTH RATE FACTORS

• The developing members considered that the
  increase in the restraint levels by the
  application of stage 1 growth rate factor of 16
  to the existing growth rates as carried over from
  the former MFA was misleading.
• Without meaningful integration and with the
  increase in the restraints being minimal, these
  processes could not be counted upon to produce a
  smooth and effective integration.

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THE APPLICATION OF GROWTH RATE FACTORS

• The developed country members, however,
  considered that the provisions of enhanced growth
  rates would operate to give substantial increase
  in the volume of the restraints concerned.
• The application of growth rate factors was
  cumulative and exponential, providing a valuable
  part of the integration process.

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THE APPLICATION OF GROWTH RATE FACTORS

• The developed members were also of the view that
  the accelerated growth rates would no longer
  operate as a limitation well before the ten year
  transition period was completed.
• The effect of growth on the restraints,
  particularly in view of the slower growth rate in
  their domestic markets.
• For many or all of the restraints that were
  currently being filled, the restraint growth
  would cause them to no longer be true restraints.

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REMOVAL OF QUANTITATIVE RESTRICTIONS OTHER THAN
MFA RESTRAINTS ARTICLE 3

• Notification Requirement
• Restrictions May Be Maintained or Must Be Phase
  Out
• Reverse Notification

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NOTIFICATION REQUIREMENT

• All restrictions maintained by members on Textile
  and Clothing products whether they were
  consistent with GATT 1994 or not were to be
  notified under Article 3.
• This did not apply to restrictions formerly
  maintained under the MFA, which were covered by
  the provisions of Article 2.

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RESTRICTIONS MAY BE MAINTAINED OR MUST BE PHASED
OUT

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

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REVERSE NOTIFICATION

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

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THE TRANSITIONAL SAFEGUARD MECHANISM

• General
• Two-step Approach for Application of the
  Safeguard
• Consultation and Application of Measures
• Unilateral Action
• TMB Review

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GENERAL

• A key aspect of ATC was the provision in Article
  6 for a special transitional Safeguard Mechanism,
  separate and distinct from the normal GATT
  safeguard in Article XIX.
• This was intended to protect members against
  damaging surges in imports during the ATC period.
• This safeguard permitted measures against imports
  of specific products from a particular source or
  sources.

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GENERAL

• Article 6 applied to goods which caused or
  threaten to cause serious damage to the industry
  in another member simply because of the increased
  levels of exports of these products.
• If, for instance, damage was being caused by a
  product which benefited from export subsidies or
  was dumped, then the GATT/WTO subsidy and
  anti-dumping rules would apply.

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TWO-STEP APPROACH FOR APPLICATION OF THE
SAFEGUARD

• Should be applied as sparingly as possible
  (Article 6.1). It was based on a two-tier
  approach.
• A particular product was being imported in such
  increased quantities from all sources so as to
  cause serious damage or actual threat thereof, to
  its domestic industry.
• The member must also demonstrate that the serious
  damage or threat to the industry was the result
  of the increase in total imports.

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TWO-STEP APPROACH FOR APPLICATION OF THE
SAFEGUARD

• In the second step (Article 6.4) the member must
  proceed to determine to which exporting member or
  members this damage was attributable.
• There must be a sharp and substantial increase
  in imports, actual or imminent, from such a
  member or members individually.

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CONSULTATION AND APPLICATION OF MEASURES

• The importing member must then consult with the
  specific member(s) to which serious damage or
  threat was attributed.
• If the consultations lead to an agreed solution,
  i.e. to a mutual understanding that the situation
  called for a restraint, the restraint level may
  not be lower than the actual level of imports
  from that exporting member during a recent
  12-month period (Article 6.8), and the action
  taken may remain in place for up to three years
  (Article 6.12).

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UNILATERAL ACTION

• If a mutual solution was not found through the
  consultation process within 60 days unilateral
  action may be taken by the importing member, but
  at the same time the matter must be referred to
  the TMB (Part XI) for prompt review (Article
  6.10).

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UNILATERAL ACTION

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

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TMB REVIEW

• Agreed restraints were subject to TMB review to
  determine whether they were justified within the
  provisions of this Article (Article 6.9).
• Where agreement was not reached (Article 6.10) or
  where a restraint was imposed provisionally
  (Article 6.11) the TMB was required to promptly
  conduct an examination and make appropriate
  recommendations.

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MONITORING, SURVEILLANCE AND REVIEW ARTICLE 8 -

• Textiles Monitoring Body
• Principal Functions of the TMB
• Composition of the TMB
• Alternates
• The WTO Council for Trade in Goods

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TEXTILES MONITORING BODY

• The ATC established Textiles Monitoring Body
  (TMB) as a standing body which consisted of a
  Chairman and ten members.
• The ATC required that the membership of the TMB
  shall be balanced and broadly representative of
  the WTO members, and shall provide for rotation
  at appropriate intervals.
• TMB members appointed by WTO members, were
  required to discharge their function on an ad
  personam basis.

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TEXTILES MONITORING BODY

• The TMB took all of its decisions by consensus
  however, consensus within the body did not
  require assent or concurrence of TMB members
  appointed by WTO members involved in an
  unresolved issue under review.
• These characteristics made the TMB a unique
  institution within the WTO framework. The TMB had
  also developed its own working procedures.

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PRINCIPAL FUNCTIONS OF THE TMB

• The principal function of the TMB was to
  supervise the implementation of the ATC and in so
  doing to examine all measures taken under its
  provisions and their conformity, and to take
  various actions specifically required of it by
  the ATC. These included the review of
• Notifications submitted by members of restraints
  in place at the beginning of the transition
  period and members observations thereon

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PRINCIPAL FUNCTIONS OF THE TMB

• Members programmes for the integration of
  products into GATT 1994
• Members notifications with respect to non-MFA
  restrictions and their programmes for phasing out
  restrictions not justified under a provision of
  GATT 1994
• Bilaterally-agreed restraint measures under
  Article 6 to ensure they were in accordance with
  the provisions of the Agreements
• Unilaterally introduced restraints where an
  agreement was not reached through bilateral
  consultation and to make recommendations as
  appropriate

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PRINCIPAL FUNCTIONS OF THE TMB

• The implementation of the Agreement at least five
  months before the end of each stage of the
  integration process and to provide a
  comprehensive report on this to the Council for
  Trade in Goods.
• The TMBs recommendations and findings were
  communicated to the Members directly concerned
  and were also communicated to the Council for
  Trade in Goods for its information .

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COMPOSITION OF TMB

• Period 1st January 02 to 31st December 04
• Ten constituencies as follows
• The ASEAN Member countries
• Canada and Norway
• China and Pakistan (this constituency will
  appoint Macao, China as a second alternate it
  will not rotate with the member or with the first
  alternate)
• The European Communities
• India and Egypt/Morocco/Tunisia (India to
  alternate with one of the three)
• Japan
• Korea and Hong Kong, China

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COMPOSITION OF TMB

• Latin American and Carribean Member Countries
  (this constituency will appoint two alternates)
• Turkey, Switzerland and Bulgaria/ Croatia/ Czech
  Republic/ Hungary/ Lithuania/ Poland/ Romania/
  Slovak Republic/ Slovenia (this constituency will
  appoint two alternates)
• The United States
• The ten persons serving on the TMB were appointed
  by the WTO members designated from the above
  constituencies. TMB members may appoint their
  respective alternates.

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COMPOSITION OF TMB

• There would be second alternate from a least
  developed textile exporting member in
  constituency which would not rotate with the
  member or with the first alternate.
• Two non-participating observers would be
  appointed by members not already represented in
  the TMB, one each being designated from Africa
  and Asia.

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NOTIFICATION OBLIGATIONS

• Notification Obligations
• Notifying the starting point and the integration
  stages
• Elimination of Non-MFA QRs
• Safeguard Notifications
• Other Notifications

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NOTIFICATION OBLIGATIONS

• ATC required the notification of the actions
  which must be taken at each stage in the
  integration process, to document them both for
  review purposes by the TMB and to inform all WTO
  members, for information and transparency.
• In total, the ATC contained 37 references to
  notifications by WTO members, most of which were
  to the TMB.

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NOTIFYING THE STARTING POINT AND THE INTEGRATION
STAGES

• A number of notifications were required in 1995
  to set the starting points for the transition.
• Further, notifications of the second and third
  integration stages were required of members by
  the end of 1996 and 1999.
• Notification was also required of any actions
  taken in relation to this process, such as early
  integration of products or the elimination of
  restraints.

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ELIMINATION OF NON-MFA QRs

• A second important goal of the ATC was the
  elimination of all quantitative restrictions
  (QRs) on textiles and clothing outside the MFA
  which were not consistent with GATT rules.
• This required notification in 1995 of the initial
  situation in each member, that was, the listing
  of all QRs maintained by WTO members, whether
  GATT-consistent or not, followed by notification
  of programmes created to deal with any of these
  QRs which were not GATT-consistent.
• These provisions were contained in Article 3.

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SAFEGUARD NOTIFICATIONS

• The third main area was the special safeguard
  mechanism in Article 6 which had up to eight
  notification requirements when recourse was had
  to this Article.
• The notification requirements of the various
  steps in the safeguard process ensured that the
  carefully negotiated criteria for taking such
  action would be met and full transparency
  provided.
• The TMB was, of course, called upon to review
  every aspect of safeguard actions.

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OTHER NOTIFICATIONS

• Other Articles also required notification of
  virtually every action taken and in many cases
  provided for recourse to the TMB by affected
  members if they felt their rights were being
  infringed by the actions of others.
• In the CTGs major reviews, references were also
  made to the importance of all members fully
  meeting their notification obligations in a
  timely manner.
• It was noted that notifications were important
  not only for transparency but also had elements
  of legal rights and obligations.

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THANK YOU