WORLD TRADE G/TMB/9
8November 1996
ORGANIZATION(96-4745)
Textiles Monitoring Body
TWENTY-FIRST MEETING OFTHE TMB
Note bytheChairman
1. TheTextiles Monitoring Body meton4to6November 1996.
2. TheTMB authorized itsChairman toprovide WTO Members withthefollowing information.
Brazil/Hong Kong: notifications under Article 6.11oftheAgreement onTextiles andClothing (ATC)
3. Pursuant toparagraph 11ofArticle 6,theTMB reviewed communications byBrazil and
Hong Kong ofarequest forconsultation made byBrazil toHong Kong pursuant toparagraph 11of
Article 6,following theintroduction byBrazil on1June1996 ofprovisional restraint measures on
imports ofproducts ofcategories 618(woven artificial filament fabrics) and838(men’sandboys’
shirts, knitted orcrocheted, ofother textile materials) fromHong Kong.1During these consultations
theparties didnotreach mutual understanding thatthesituations called forrestraints. TheTMB came
tothefollowing findings, conclusions andrecommendations onthese matters, which arereproduced
below.
Category 618(woven artificial filament fabrics)
4. TheTMB examined thefactual datapresented toitpursuant toparagraph 7ofArticle 6,as
wellastherelevant information andarguments provided byBrazil andHong Kong.
5. TheTMB recalled thatparagraph 7ofArticle 6states that“therequest forconsultations shall
beaccompanied byspecific andrelevant factual information, asup-to-date aspossible ”,andstipulates
thatthis“information shallberelated, asclosely aspossible, toidentifiable segments ofproduction
andtothereference period setoutinparagraph 8”ofArticle 6.Inthisrespect, theTMB, while noting
theefforts made byBrazil toprovide toHong Kong dataasrelevant andup-to-date aspossible atthe
timetherequest forconsultation hadbeenmade andduring consultations, observed thatsome ofthe
datapresented byBrazil related toawider segment ofproduction thanthatofcategory 618(woven
artificial filament fabrics). TheTMB alsoobserved thattheevolution ofimports ofsuchproducts
intheperiod preceding therequest forconsultation hadnotbeendocumented, inspiteofthefactthat
Brazil hadchosen tohaverecourse totheprovisions ofparagraph 11ofArticle 6,which refertohighly
unusual andcritical circumstances, andtointroduce thesafeguard measure provisionally, atthetime
ithadrequested consultations withHong Kong. TheTMB alsonoted that,withrespect totheelements
mentioned inparagraphs 2and3ofArticle 6,Brazil hadnotprovided information ontrends, either
atthetimetherequest forconsultation wasmade, orduring theconsultations withHong Kong.
1TheTMB hadstarted thisreview atitsmeeting of9to11September 1996 (G/TMB/R/16, paragraph 4).G/TMB/9
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6. TheTMB observed thatimports ofproducts ofcategory 618intoBrazil fromallsources had
increased by229percentfrom 1994 to1995. TheTMB therefore examined whether Brazil had
demonstrated, inaccordance withparagraphs 2and3ofArticle 6,thatitsindustry producing these
products wasbeing seriously damaged, andthatthisdamage wascaused bysuchincreased quantities
inimports.
7. Production ofproducts ofcategory 618hadincreased by3.2percentinvolume from 1994
to1995. During thatperiod theBrazilian market hadexpanded significantly faster thandomestic
production: theapparent consumption ofproducts ofcategory 618hadincreased byover84percent,
andtheshare heldbydomestic manufacturers hadgonedown from64to35percent. Inconsidering
these developments, theTMB observed thattheAgreement onTextiles andClothing doesnotprovide
forguaranteedmarketshares;moreover,itstatesthat“Membersshouldallowforcontinuousautonomous
industrial adjustment andincreased competition intheirmarkets ”(paragraph 5ofArticle 1).
8. Theaverage domestic price forproducts ofcategory 618fellby15.6percentfrom 1994 to
1995. Thiswas,atleastinpart,duetothefactthattheindustry wasfacing heavy competition, in
particular fromimports, whose average price, lower thantheaverage domestic priceinUSdollar terms,
hadfallen by17.6percentduring thesameperiod. Itwasalsonoted that,asaresult ofreduced prices
ofBrazilian products, thevalue ofdomestic production ofproducts ofcategory 618,expressed in
USdollars, haddecreased during thesame period.
9. Employment inthissector registered adecrease of17.6percentbetween 1994and1995, and
ofsome 29percentintheregion ofAmericana, themainproduction centre inBrazil forartificial and
synthetic fabrics. Thenumber offirms inBrazil declined from832in1994to621inmid-1996. Since
these datareferred tothewhole weaving industry, itwasdifficult toassess theextent towhich this
could beattributed totheevolution ofthemarket incategory 618products.
10. Productivity intheartificial andsynthetic fibreindustry registered anincrease of10.8percent
during theperiod considered. Suchdevelopment could beunderstood asahealthy signofanindustry
becoming more efficient. Itcould alsobeanindication thattheindustry wasrestructuring. TheTMB
noted inthisregard thestatement ofBrazil thatthisincrease inproductivity wasmainly aresult of
decreases inemployment. Itwasconsidered thattheevolution ofproductivity hadtobeseeninthe
context oftheevolution oftheother variables relevant inthecontext ofArticle 6.
11. Average wages increased by26.75 percentduring theperiod considered, afactgenerally
associated withahealthy industry. Thisincrease inpartcompensated theriseinthegeneral priceindex
(15.39 percent)while theremainder, inessence, reflected productivity gains (10.8 percent); account
hadalsotobetaken ofthechange inthesalary structure oftheindustry, aslay-offs hadbeen
concentrated inthelower endofthesalary scale.
12. Capacity utilization inthefactories producing artificial andsynthetic fabrics hadfallen from
60percentin1994 to40percentin1995. Thiscould beattributed, atleastinpart,toinvestments
innewmachinery made bytheBrazilian industry, which hadresulted inanincrease ininstalled capacity.
Onthebasis ofdatasupplied foraperiod tooshort toprovide atrend, itwasnoted, however, that
thevolume ofinvestment hadremained relatively modest compared tothetotalinstalled capacity, and
thatithaddecreased.
13. Inventories remained atlowlevels during theperiod considered, usually ahealthy sign.
However, theTMB noted theargument byBrazil according towhich, inviewofBrazil ’spastexperience
withhighinflation andhighinterests rates, theindustry hadbeenforced toworkonthebasisofarotation
ofstocks ofabout 30days.G/TMB/9
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14. Thevolume ofexports ofproducts ofcategory 618hadincreased by34percentfrom 1994
to1995. TheTMB noted, however, thattheyaccounted forarelatively small share ofdomestic
production (5.1percentin1995), andthatthisincrease wasmuch smaller thantheincrease inimports
(imports were 34times larger thanexports involume in1995).
15. According tothedatasubmitted byBrazil, thegreat majority ofenterprises registered losses
in1995, upto15percent.
16. TheTMB considered allthefactors mentioned above, noneofwhich, either alone orcombined
withother factors, cannecessarily givedecisive guidance, inassessing whether theBrazilian industry
producing products ofcategory 618wasexperiencing serious damage. Ittherefore reached thefollowing
conclusions.
17. TheBrazilian industry wasshowing somewhat contradictory symptoms andtheevolution of
anumber ofeconomic indicators andtheirpossible inter-relation could leadtodiverging interpretations.
Theslight increase inproduction, improvement ofproductivity, increase ofexports andriseinwages
could allow aninterpretation thattheindustry hadalready been relatively successful interms of
re-structuring andadjusting tothenewcompetitive conditions. Developments regarding employment,
thenumber ofenterprises, capacity utilization, profits andinvestment could point totheopposite
direction. Thedataprovided anunambiguous indication thattheindustry hadbeenunable totake
advantage ofthesubstantial increase initsdomestic market. Partofthestrength ofthedomestic demand
could beattributed totheimplementation oftheeconomic stabilization programme, andinparticular
totheliberalization ofimports undertaken byBrazil during thelastdecade. Adjustment efforts had
beenundertaken, which hadnotenabled theBrazilian industry tocompete successfully withimports,
inparticular given theprice levels prevailing intheBrazilian market. TheTMB tooktheviewthat,
under thesecircumstances, theBrazilian industry producing, interalia,woven artificial filament fabrics
wasexperiencing serious damage.
18. Onthebasisofthedatasubmitted byBrazil, itwasdifficult toassess theextent towhich this
damage could beattributed specifically tothedifficulties experienced bytheproducers ofproducts
ofcategory 618.TheTMB, while accepting thatserious damage totheindustry producing category 618
could bedemonstrated, expressed concern that,withrespect tosome variables, ithadtorelyon
arguments byinference, inviewofthelackofsufficiently specific datarelating tothecategory itself.
19. TheTMB therefore hadtoconsider whether thisserious damage could beattributed toimports
from Hong Kong, inaccordance withparagraph 4ofArticle 6oftheATC. Indoing so,theTMB,
mindful ofthefactthat,according tothisparagraph “noneofthese factors, either alone orcombined
withother factors, cannecessarily givedecisive guidance ”,noted thefollowing:
- imports from Hong Kong hadshown asubstantial increase between 1994 and1995;
- thisincrease inimports from Hong Kong hadtaken place inthecontext ofaneven
greater increase inimports from allsources;
- theshare ofimports from Hong Kong inBrazil ’sapparent consumption ofproducts
ofcategory 618hadincreased from 1994 to1995;
- theaverage import price forHong Kong wasbelow domestic prices forproducts at
acomparable stage ofcommercial transaction. Inthisrespect theTMB considered the
argument thatproducts imported fromHong Kong wereaddressing adifferent segmentG/TMB/9
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ofthemarket from thataddressed bydomestic products, but,duetothelackof
necessary technical information, could notreach aconclusion onthis.
SuchelementsallowedtheTMBtoconcludethattheseriousdamageexperiencedbytheBrazilianindustry
could beattributed inparttoimports from Hong Kong inaccordance withparagraph 4ofArticle 6.
20. TheTMB noted thatBrazil hadinvoked theprovisions ofparagraph 11ofArticle 6andapplied
therestraint provisionally, asithadconsidered thatitsindustry wasexperiencing “highly unusual and
critical circumstances, where delay would cause damage which would bedifficult torepair ”.Ittook
noteofthelimited information provided byBrazil toHong Kong onthismatter, andoftheinformation
ithadprovided totheTMB, according towhich afurther increase inimports wasimminent, inview
oftheamount ofimport licences issued, aswellasoftheamounts ofgoods thatcould beimported
intoBrazil atshortnotice fromBrazilian customs 'warehouses. TheTMB noted thattheseexpectations
hadnotmaterialized.
21. TheTMB wasoftheviewthatincases where theprovisions ofparagraph 11ofArticle 6were
invoked, theexpectation wasthattheelements envisaged inparagraphs 2,3and4ofArticle 6would
indicate asunambiguously aspossible thehighly unusual andcritical character ofthecircumstances.
TheTMBwasalsooftheviewthat,unlesssuchcircumstancesweremet,anyactiontakenunderArticle6
should bepreceded byconsultations between theparties.
22. TheTMBobservedthatparagraph11ofArticle6requiresittopromptlyconductanexamination
ofthematter, andtomake appropriate recommendations totheMembers concerned. Inthisregard
theTMB noted thatithadarrived attheconclusions according towhich:
(a) serious damage totheindustry producing products category 618,caused byincreased
quantities intotalimports ofthese products, could bedemonstrated;
(b) theserious damage experienced bytheBrazilian industry could beattributed inpart
toimports from Hong Kong inaccordance withparagraph 4ofArticle 6.
23. Itobserved, however, thatthere were indications totheeffect thattheBrazilian industry
producingproductsofcategory618hadalreadybeenundertakingimportantrestructuringandadjustment.
InlightofthistheTMB considered thatashorter period oftimethanthemaximum time-frame envisaged
inparagraph 12(a) ofArticle 6should enable theindustry inBrazil tosuccessfully accomplish its
adjustment tothechanged competitive environment. TheTMB recommended therefore thatthemeasure
taken byBrazil against imports fromHong Kong ofproducts ofcategory 618should berescinded at
latest by31December 1997.
Category 838(men’sandboys’shirts, knitted orcrocheted, ofother textile materials)
24. TheTMB examined thefactual datapresented toitpursuant toparagraph 7ofArticle 6,as
wellastherelevant information andarguments provided byBrazil andHong Kong.
25. TheTMB recalled thatparagraph 7ofArticle 6states that“therequest forconsultations shall
beaccompanied byspecific andrelevant factual information, asup-to-date aspossible ”,andstipulates
thatthis“information shallberelated, asclosely aspossible, toidentifiable segments ofproduction
andtothereference period setoutinparagraph 8”ofArticle 6.Inthisrespect, theTMB noted the
efforts made byBrazil toprovide toHong Kong dataasrelevant andup-to-date aspossible atthetime
therequest forconsultation hadbeenmade andduring consultations. TheTMB observed, however,
thatinformation onemployment, productivity, investment, utilization ofcapacity andprofits wassoG/TMB/9
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aggregated thatitwasnotpossible torelate ittothesituation developing intheBrazilian industry
producing men’sandboys’shirts, knitted orcrocheted, ofother textile materials (category 838).
26. TheTMB observed thatimports ofproducts ofcategory 838hadincreased significantly from
1994to1995. Therefore, itexamined allthose elements envisaged inparagraphs 2and3ofArticle 6
which itcould relate tothedomestic industry producing likeand/or directly competitive products.
27. TheTMB noted thatimports hadincreased fromalowlevel. During thesameperiod domestic
productionhaddecreasedonlymarginally.Thevolumeofexportswassosmallthatitwasnotconsidered
asignificant factor. TheTMB further noted thatthese increased imports hadentered theBrazilian
market atanaverage price higher thantheaverage domestic price.
28. Onthebasisoftheabove considerations, theTMB came totheconclusion thatBrazil hadnot
demonstrated thattheBrazilian industry producing products ofcategory 838hadexperienced serious
damage, asenvisaged inparagraph 2ofArticle 6,andrecommended thatBrazil rescind themeasure.
29. TheTMB equally observed thattherecourse byBrazil totheprovisions ofparagraph 11of
Article 6wasnotappropriate. TheTMB reiterated itsviewthatincases where these provisions were
invoked, theexpectation wasthattheelements envisaged inparagraphs 2,3and4ofArticle 6would
indicate asunambiguously aspossible thehighly unusual andcritical character ofthecircumstances,
andthat,unless suchcircumstances were met,anyaction taken under Article 6should bepreceded
byconsultations between theparties.
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30. Thetwenty-second meeting oftheTMB isscheduled for25to27November 1996.
31. Thefullreport ofthismeeting willbecirculated atalaterstage.