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WTO textile ruling stuns
India
By D Ravi Kanth
GENEVA
- A World Trade Organization (WTO) dispute settlement
panel last Friday created a watershed when it summarily
ruled that the United States' controversial rules of
origin for textile and apparel products - instituted in 1996
to restrict burgeoning textile imports from Asia - do not
violate the core principles of the trade body's
rules-of-origin agreement.
In a dispute raised by India
against the United States' rules of origin for textile and
apparel products, a three-member dispute settlement panel said in
an interim "confidential" ruling that New Delhi
had failed to show how the purported measures by
Washington undermined Indian textile exports.
The
US rules of origin led to a storm of protests in various
Asian capitals in July 1996.
"This is
an astonishing ruling given the fact that Washington's
real goal in changing the rules of origin on July 1,
1996, were primarily aimed at achieving trade
objectives," said Munir Ahmed, executive director of the
Geneva-based International Textile and Clothing Bureau,
a pressure group for developing countries to seek fair
trade in textiles.
The ruling - handed over to the two parties last Friday -
is a watershed given the appalling US track record of
losing all its textile disputes until now, said another
textile trade analyst in Hong Kong.
Previously, the US had lost all three major textile disputes
raised by WTO members. In the first textile dispute raised
at the WTO, Costa Rica secured a major victory against
the US over Washington's restriction on Costa
Rican underwear exports. Subsequently, India won a major
case against US restrictions on Indian wool shirts
and blouses. And in a third dispute, Pakistan succeeded in
proving that the United States' restriction on Pakistani
cotton-yarn exports was illegal.
The WTO's dispute settlement body, which is regarded as
the "jewel in the crown" in deciding more than 225
trade disputes, until now has caused sleepless nights for successive
administrations in Washington.
Recently, the
US lost comprehensively in two major trade disputes -
the Byrd amendment to encourage US industry to raise
anti-dumping and countervailing cases against foreign
companies, and President George W Bush's infamous
safeguard measures to restrict imports of steel products
in 2002.
Against this backdrop, trade analysts
expected the US to lose the rules-of-origin dispute
hands down because the measures were allegedly aimed at
helping its domestic textile producers. Currently, the
US Congress is assessing whether the WTO rulings are
biased against US laws.
The WTO's complex
rules-of-origin agreement allow most customs
administrations to decide the origin of goods according
to where the product underwent the last substantial
transformation. The most widely applied criterion
attributes origin to a country if the product was
sufficiently changed there to move its customs
classification from one heading to another.
In
textile trade, the rules of origin play a major role
because of the existing quotas perpetrated by the
industrialized countries on textile imports from
developing countries.
At the core of this
dispute is whether the US-amended Section 334 of the
Uruguay Round Agreements Act that brought substantial
changes in the rules of origin governing textile and
apparel products in 1996, Section 405 of the US Trade
and Development Act of 2000, and the customs regulations
to implement these provisions violate the application of
WTO's rules-of-origin agreement.
India said that
Section 334 - introduced by the administration of
president Bill Clinton in July 1996 - effected a major
change in the application of rules of origin to textile
and apparel products as it departed from the
"substantial transformation" rule that was at the core
of the rules-of-origin agreement. Washington was
actually pursuing its trade objectives through the
Section 334 amendment, India charged.
New Delhi
said that faced with a major trade dispute with India
and the European Union, Washington struck a bilateral
deal with Brussels through a "process verbal" to take on
board the EU's concerns.
In short, the US not
only pursued trade objectives through amendments to
rules of origin, which are banned under the WTO's
rules-of-origin agreement, but further discriminated
against the Indian exports over exports from the EU
member countries, India charged.
More important,
India charged that Washington's sole purpose in pursuing
these changes in its rules of origin for textile and
apparel products is to further its trade-policy goals,
banned under the WTO agreement.
Also, India's
dispute was bolstered by realities at the WTO, where
some members, particularly the US, repeatedly stalled
attempts to establish the new harmonized rules of
origin, which were to be completed by July 1998, a trade
analyst said.
India fails to
convince
But the panel was unconvinced by India's
reasoning. It said New Delhi could not show hard
evidence as to how its exports were restricted over the
past seven years due to the US measure.
Therefore, the panel dismissed the Indian claims
on all three major grounds that New Delhi raised in its
complaint. The panel said India was unable to provide
evidence that Section 334 of the Uruguay Round
Agreements Act is inconsistent with Articles 2(b) or
2(c) of the rules-of-origin agreement. These two
provisions - Articles 2(b) and 2(c) - require that WTO
members not pursue rules of origin for "trade
objectives" and that they do not create "restrictive,
distorting, or disruptive effects on international
trade".
Similarly, the panel dismissed India's
complaint against Section 405 of the US Trade and
Development Act on the ground that its was consistent
with Articles 2(b), 2(c) or 2(d) of the trade body's
rules-of-origin agreement.
The latest verdict is
only an "interim" one in nature but rarely do they
undergo changes when are made final. The final ruling
will be issued only to the parties in about 30 days and
subsequently, it will be made public after another 30
days.
India will have no other alternative but
to challenge the panel's verdict before the Appellate
Body, the WTO's highest appeals body, to overturn the
ruling. "One is confident that the Appellate Body would
overturn this ruling," said Munir Ahmed.
(©2003
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