WORLD TRADE
ORGANIZATIONG/TMB/18
29 April 1999
(99-1738)
Textiles Monitoring Body
FIFTY-FOURTH MEETING OF THE TMB
Note by the Chairman
1. The Textiles Monitoring Body met on 7 to 9, 20 to 22 and 27 April 1999.
2. The TMB authorized its Chairman to provide WTO Members with the following information.
Notification under Article 6.10 of the Agreement on Textiles and Clothing
United States/Pakistan:  imports of combed cotton yarn (US category 301)
3. On 5 March 1999, the United States notified to the TMB, pursuant to Article 6.10 of the ATC,
that the United States had decided to take a safeguard action with respect to imports of products of
category 301 (combed cotton yarn) from Pakistan.  This action took effect on 17 March 1999.  The
restraint level for the first year was set at 5,262,665 kg, which corresponded to the rollback levelenvisaged in Article 6.8.
4. On 24 December 1998, the United States had requested consultations with Pakistan pursuant
to Article 6.7 and had provided it with factual info rmation, as referred to in the same article, which
had also been communicated to the Chairman of the TMB.  Consultations had been held between the
two Members, which had not resulted in a mutual understanding as to whether the situation called forrestraint on the imports of products of category 301 from Pakistan.
5. Article 6.10 requires the TMB to “promptly conduct an examination of the matter, including
the determination of serious damage, or actual threat thereof, and its causes, and make appropriate
recommendations to the Members concerned within 30 days”.  The TMB, therefore, decided to
conduct this examination at its meeting scheduled to start on 19 March 1999, and invited the
participation of representatives of Pakistan and the United States.  In view of the unavailability of one
delegation, and in consultation with Pakistan and the United States, the meeting of the TMB wasre-scheduled to 7 to 9 April 1999.  Due to the complexity of the matter, the meeting was later
extended to 20 to 22 April 1999 and 27 April 1999.
6. Article 6.10 further states that “[i]n order to conduct such examination, the TMB shall have
available to it the factual data provided to the Chai rman of the TMB, referred to in paragraph 7 [of
Article 6], as well as any other relevant information provided by the Members concerned”.  A detailedexamination of the factual data referred to above, submitted by the United States, revealed, inter alia ,
that:
- in response to a substantial increase in imports of combed cotton yarn for sale, chief
weight combed cotton spun, identified as category 301
1, the United States
Government (USG) had undertaken an investigation of the conditions prevailing inthe domestic market for this product and the circumstances affecting its domestic
producers.  The purpose of this investigation was to determine whether the subject
                                                     
1 According to the information provided by the United States, category 301, as defined above, had been
part of the United States’ textile category system since 1978.G/TMB/18
Page 2
yarn was imported into the territory of the United States in such increased quantities
as to cause serious damage, or actual threat thereof, to the domestic industry
producing like and/or directly competitive products, as provided for in Article 6.2 of
the ATC;
- for purposes of its investigation, the USG had defined the “domestic industry
producing like and/or directly competitive products” to be the domestic
establishments (or “mills”) engaged in the production of the subject yarn for sale to
other firms;
- the investigation considered only the domestic market for combed cotton yarn for sale
and not such yarn produced by vertically integrated firms, as vertically integrated
firms do not normally sell the yarn they produce in the domestic market and their
production does not compete directly with imports in the “yarn for sale” market of theUnited States
2;
- the investigation conducted by the USG had included an examination of the level of
total imports and the effect of the increase in imports of the subject product on the
defined domestic industry, as reflected in such economic variables as output,
productivity, utilization of capacity, inventories, market share, exports, wages,employment, domestic prices, profits and investment;
- the investigation, covering the period 1996, 1997 and January-August 1998, had
revealed that imports from all sources had increased significantly, and that an
examination of, inter alia , all of the relevant economic variables mentioned in
Article 6.3 showed evidence that the increased imports had caused serious damage, oractual threat thereof, to the domestic industry producing like and/or directly
competitive products. The USG had further determined that such damage or actual
threat thereof was demonstrably caused by such increased quantities of imports and
was not attributable to other factors such  as technological changes or change in
consumer preferences.  The USG had also determined that such damage or actualthreat thereof was attributable to imports from Pakistan, based upon a sharp and
substantial increase, both in absolute terms and as a percentage of total imports, in
imports of the subject yarn from Pakistan;
                                                     
2 In an Appendix to the factual information, the United States stated, inter alia , the following:
“The distinction between combed cotton yarn “produced for sale” and yarns produced by
vertically integrated firms is that firms produci ng combed cotton yarn for sale sell their yarn to
other firms who convert purchased yarn into fabric while combed cotton yarn produced invertically integrated firms is consumed by th ose same firms in their production of fabric.
Therefore, the market for sale yarn firms is the yarn they produce, and the market for vertically
integrated firms is fabric.
There is a small grey area whereby vertically integrated firms will on occasion balance their
internal yarn production with their fabric production by purchasing outside yarn.  They mayalso on rare occasions sell excess yarn production.   Vertically integrated firms try to balance
their production as closely as possible at each stage of the production process.  The key wordis “balance”, which is the point where manufacturing efficiency  is at the maximum.  The USG
verified that less than five per cent of the integrated sector’s yarn consumption was purchased
from the “for sale” market during the period covered by the investigation.
In the case of yarns included in Category 301, the relationship between yarns produced for sale
and yarns produced in vertically integrated firms for their own use remained essentially
constant”.G/TMB/18
Page 3
- the USG was aware that a dispute settlement panel report could be construed as
suggesting that “serious damage” and “actual threat thereof” could constitute separate
concepts and that it may thus be necessary to engage in separate analyses in order to
sustain a determination of serious damage or actual threat thereof.  The USG did not
acquiesce in this view, and noted that no panel had yet ruled on this issue in a mannerdispositive of the matter before it.  Nevertheless, without prejudice to any position it
might wish to assert in any matter that might subsequently arise under the WTO
Dispute Settlement Understanding, the USG had made a separate determination,
supported by analysis, on the question of “actual threat thereof”;
- on the basis of the analysis referred to above the USG had also determined that
increases in imports of the subject yarn from all sources constituted an actual threat of
serious damage or the exacerbation of serious damage to the domestic industryproducing like and/or directly competitive products, and that, based on sharp and
substantial increases in imports of the subject product from Pakistan, such threat was
attributable to imports from Pakistan.
7. In reply to the TMB’s invitation, Pakistan and the United States sent representatives to
present their respective cases.  The two Members made presentations and provided replies toquestions posed by the TMB.
8. In this context, the representative of the United States stated, inter alia :
- the United States had defined the industry experiencing serious damage or actual
threat thereof as the yarn industry producing combed cotton yarn (category 301).
This yarn was also produced in the United States by 25 integrated mills belonging tothe fabric industry for their own internal  consumption.  Since the integrated mills
tried to balance their production as closely as possible at each stage of the production
process, such yarn entered the market on rare occasions only, at which time, and at
which time only, it was counted in the US production statistics of combed cotton
yarn.  The United States had also verified that these integrated mills played a smallrole in the purchase of category 301 yarn on the market.  It had been estimated that
the vertically integrated mills had purchased, during the period under review, no more
than two per cent of their yarn requirements from the market, and that no more than
one per cent of their output had been sold on the market;
- with respect to the status of the domestic industry producing combed cotton yarn for
sale, all the relevant economic variables mentioned in Article 6.3 had been examined
for the period 1996, 1997 and January-August 1998, as well as additional economicvariables such as shipments, unfilled orders, man-hours worked, apparent domestic
market and import penetration.  Since not all the data for the eleven economic
variables listed in Article 6.3 were available from government sources, data had been
obtained, at the Government’s request, from  the American Yarn Spinners Association
(AYSA), the industry association representative of the US yarn for sale industry.These data had been verified by the Government and were consistent with publicly
available data.  They were representative of 100 per cent of the domestic combed
cotton yarn for sale industry, with the exception of data on profits, which represented
about 90 per cent of the industry.  The United States had concluded that the increase
in imports in 1998 had caused serious damage or actual threat thereof to the industryas reflected in the industry’s declining production and shipments, the substantial
increase in inventories, the industry’s deteriorating financial performance, and the
significant fall in unfilled orders and employment.  All the economic variables
mentioned in Article 6.3, with the exception of wages, were indicative of serious
damage.  The fact that imports had caused serious damage to the industry was alsoG/TMB/18
Page 4
reflected in the lower value of imports relative to US domestic producers’ prices.
Also, the market for combed cotton yarn had remained constant during the period
covered by the investigation, indicating that there had been no change in consumer
preference for these products.  There had been no significant new technological
changes in the US combed cotton yarn industry during that period that would haveaccounted for, or contributed to, the adverse trend in the industry’s market position.
Contrary to what Pakistan had alleged, exports of combed cotton yarn from the
United States had not played a significant role in the situation experienced by the
defined industry, as these exports were a small fraction of production;
- therefore, the United States asked the TMB to positively reaffirm the US’ conclusion
that serious damage or actual threat thereof existed with respect to US domestic
producers of combed cotton yarn for sale in category 301 as a result of increasedimports, and to find that the establishment of a safeguard measure under the
provisions of Article 6 was fully justified.
9. The representative of Pakistan stated, inter alia , that the measure introduced by the
United States was not justifiable under Article 6.10 for the following main reasons:
- the US determination was based on an arbitrary definition of its domestic industry,
which had been used to distort the data.  If such a definition were maintained it would
amount to allowing the insulation of a significant portion of the US’ domestic
production from competition.  It would also effectively mean the exclusion of this
production from the coverage of the ATC;
- the United States had presented its data using a shorter time-period (i.e. eight months)
than that envisaged in the ATC;
- the US had relied upon confidential data provided by an unreliable source of
information, i.e. a private trade association (the American Yarn Spinners Association
– AYSA) which stood to benefit from the restraint applied by the United States.  The
data were unreliable, as highlighted by the inconsistencies between the summary ofthe private survey and publicly available data, as well as by past experience with
AYSA survey information;
- in addition, the United States had failed to demonstrate that any damage had been
made to its industry by increased imports.  For example, production had decreased in
1998, but this was from an unprecedented high 1997 level.  The wage increases were
not due to increased imports.  Capacity utilization had fallen between 1996 and 1997
while production had increased, indicating that the production capacity had increased.This undermined the US’ allegations that imports had caused decreases in capacity
utilization.  The reliability of profit data could be questioned as one of the nine firms
had not responded.  Information regarding investment  indicated that it had been
geared at updating equipment, modernising and automating, processes which
inevitably resulted in job losses.  These job losses could not, therefore, be attributedto increased imports.  The drop in US exports experienced in January-August 1998
was due to the fact that Mexico, which had recently received about two-thirds of US
exports of combed cotton yarn, was no longer importing as much combed cotton yarn
from the United States, since it was producing that yarn itself.  This was a significant
factor that had not been addressed in the US statement;
- factors other than imports had been at play, such as the ongoing restructuring of the
US industry, vertically integrated firms becoming more and more common.  Once a
mill producing combed cotton yarn had been bought by a fabric manufacturer, itsG/TMB/18
Page 5
production was no longer reported in the US production data of combed cotton yarn,
which had the effect of reducing US production of that yarn.  Another important
factor was the relocation of production capacity outside the United States, in
particular in Mexico.  Also, the United States had not demonstrated, but merely
asserted, that there had been no change in consumer preference;
- Pakistan also disagreed with the assertion of the United States that there had been a
threat of serious damage to its industry.  More recent data on imports (after
October 1998) demonstrated that imports of combed cotton yarn other than from
Mexico were no longer increasing.  Furthermore, the preliminary data such as that
provided by AYSA, suggesting that production was declining and predicting further
declines was, according to Pakistan’s past experience, questionable;
- the United States had, therefore, failed to demonstrate that its domestic industry had
been seriously damaged or that it had been threatened with serious damage.  Pakistan
urged the TMB to recommend the prompt removal of the unjustified unilateral
restriction on trade.
10. In starting its examination of the measure referred to it, the TMB recalled that, according to
Article 6.2, “[s]afeguard action may be taken under this Article when, on the basis of a determinationby a Member, it is demonstrated that a particular product is being imported into its territory in such
increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry
producing like and/or directly competitive products.  Serious damage or actual threat thereof must
demonstrably be caused by such increased quantities in total imports of that product and not by such
other factors as technological changes or changes in consumer preference”.  It followed from this thatthe factual information referred to in Article 6.7 had to be provided with respect to the domestic
industry producing like and/or directly competitive products.
11. The TMB noted that the particular product subject to the safeguard measure introduced by the
United States was combed cotton yarn identified as US category 301.  The TMB observed,
furthermore, that in terms of its characteristics any combed cotton yarn was identical, i.e. alike in all
respects, including common end-uses, with respect to  the particular product subject to the safeguard
measure in question.
12. The TMB noted that the United States had defined the domestic industry producing products
like and/or directly competitive with imports of co mbed cotton yarn (category 301) as the US industry
segment that produced spun yarn for sale, chief weight combed cotton defined as category 301, sold
to other firms for use in the manufacture of fabric a nd finished textile products.  It followed from this
that the United States had provided information regarding all the economic variables referred to in
Article 6.3 with respect to that segment of the industry.  As regards the other segment of the US
industry producing cotton spun yarn, chief weight combed cotton, the United States had explained
that this segment had been composed of vertically integrated firms whose yarn did not ordinarily enter
normal channels of trade and did not compete with yarn produced for sale in the open market.
13. In its explanation, which had essentially been based on the allegedly different economic
function of this segment, the United States expressed the view that the variance between the ratio of
yarn for sale to vertical production was insignificant, with vertically integrated firms exercising no
influence on the ups and downs in the yarn for sale ma rket.  The United States provided in the factual
data referred to above the following information in support of this view:G/TMB/18
Page 6
1996 1997
Yarn produced for sale, category 301 (1,000 Kilograms) 142,047 144,361
Yarn produced vertically (1,000 Kilograms) 69,486 68,755
Total (1,000 Kilograms) 211,533 213,116
Percent sales yarn 67.2 67.7
The TMB noted that the United States had not provided output data for the vertically integrated firms
related to the period January-August 1998.  The TMB also observed that, according to the
United States, the vertically integrated firms on occasion bought combed cotton yarn from the “for
sale” market.  During the period under investigation, the USG had verified that less than five per cent
of the vertically integrated sector’s yarn consumption  had been purchased from the “for sale” market.
The TMB noted, furthermore, that according to the information provided by the United States,vertically integrated firms, on rare occasions, might also sell excess yarn production in the domestic
market.  The TMB further noted that the United States had subsequently estimated that the vertically
integrated mills had purchased, during the period under review, no more than two per cent of their
yarn requirement from the market, and that no more than one per cent of their output had been sold on
the market
14. The TMB noted that the United States had provided arguments why, in its view, the combed
cotton yarn production of the vertically integrated mills should be excluded from the scope of the
investigation and, by extension, why it had not provided data pursuant to Article 6.3 with respect to
this segment of production.  The TMB observed that it would ordinarily be up to the Body, on the
basis of the detailed information provided pursuant to Article 6.7, to determine whether it wasjustified to exclude a particular segment of production.  Therefore the TMB would have expected to
receive, to the extent practicable, sufficient information to allow it to do so.
15. In the view of the TMB, the issues identified in paragraphs 10 to 14 above limited the Body’s
ability to reach an appropriate conclusion regarding the determination of whether or not the
US’ domestic industry producing like products and/or products directly competitive with combedcotton yarn (category 301) was experiencing serious damage or actual threat thereof, as required
under Article 6.3
16. Without prejudice to the above, the TMB decided to proceed to the detailed examination of
the factual information related to the yarn for sale segment of the domestic production.  The TMB
noted in this regard that the United States had provided data on the economic variables specified inArticle 6.3 on a comparable basis, respectively, for 1996, 1997, and for the periods
January-August 1997 and January-August 1998.
17. The production data provided by the United States at the time of the request for consultations
covered the production of combed cotton yarn (category 301) by all the US firms that produced such
yarn for sale in the market.  That production represented approximately two-thirds of the total combed
yarn produced in the United States, the other third being produced by the vertically integrated
producers for their own use.  Pakistan, while questioning the validity of the data presented by theUnited States (see paragraph 9  above), stated (i) that the decline in output in 1998 could have been
atypical because production had increased on average since 1989 to reach unprecedented highs in
1997, and (ii) the decline in 1998 might be attributable to US investments in Mexico and to a
restructuring of the US cotton yarn industry, i.e. th e result of an adjustment process and not that of
increased imports.  The United States contested these two statements.  First, US investments inMexico were too recent to have had an imp act on US production; moreover these were not
investments to produce combed cotton yarn but to produce carded cotton yarn for further processingG/TMB/18
Page 7
in Mexico.  Also, though some restructuring was taking place in the cotton yarn industry, such
restructuring did not affect the combed cotton yarn for sale industry.  Second, the production data
prior to 1996 were not relevant to the determination of serious damage or actual threat thereof.
18. Production of combed cotton yarn of category 301 for sale on the market had increased by
1.6 percent between 1996 and 1997, but had, on the contrary, decreased by 10.2 per cent betweenJanuary-August 1997 and the same period in 1998.  Inventories had increased in 1997 and were
43.8 per cent higher at the end of 1997 than at the end of 1996, and 145.9 per cent higher at the end of
August 1998 compared to the level at the end of August 1997.  The backlog of unfilled orders had
decreased by 22.8 per cent at the end of 1997 and by 15.8 per cent at the end of August 1998,
compared to the August 1997 level.  Thus dome stic shipments had fallen by 0.4 per cent between
1996 and 1997, and by a further 14.2 percent between January-August 1997 and
January-August 1998.  Capacity utilization in the industry producing the subject yarn had dropped by3.6 percentage points from 1996 to 1997, and by 8.6 percentage points between the first eight months
of 1997 and 1998 respectively.  During those respective periods, the apparent US domestic market
had remained essentially stable;  exports had increased by 2.8 per cent in volume from 1996 to 1997,
but decreased by 32.9 per cent from January-August 1997 to January-August 1998.  The US
producers’ share of the apparent domestic market had fallen by 1.6 per cent between 1996 and 1997,and by 11.2 per cent between January-August 1997 and January-August 1998.
19. Employment in the defined industry had decreased by 1.6 per cent from 1996 to 1997, and by
a further 6.6 per cent during the first eight months of 1998 as compared to the same period in 1997.
Three out of the 22 establishments that produced the subject yarn for sale on the US market had
closed, one in 1997 and two during January-August 1998.  In the view of the United States this wasdue to the adverse impact of imports of products of category 301.  Pakistan contested this view,
pointing to the fact that no yarn spinners had applied for Trade Adjustment Assistance (TAA) during
the time of the investigation, which they could have done if the situation they were facing was
attributable to increased imports.  The United States argued that US companies or their workers were
not requested to register for TAA, that in an industry where workers were not unionised it was lesslikely that the employees would seek TAA and that, in any event, the fact that no application had been
made in no way contradicted the existence of serious damage or threat thereof to the US companies
producing combed cotton yarn for sale.  Pakistan also argued that the fall in employment could be a
result of the restructuring of the US yarn industry.  As mergers took place, workers previously
counted in the yarn for sale industry could have become registered in the fabric industry, while still
maintaining their jobs.  In the view of the Unites States, the restructuring referred to by Pakistan did
not affect the combed cotton yarn for sale industry, where there had been job losses unrelated to therestructuring.   The average hourly wages of production workers in the industry producing the yarn of
category 301 had increased by 4 per cent from 1996 to 1997, and by the same rate between the first
eight months of 1997 and the same period in 1998.  According to the United States this increase was
attributable to the upward pressure exerted by exogenous factors outside the control of the companies
in this industry, including the influence of the mandated rise in the US minimum wage, relatively lowunemployment rates, competition from firms in other industries for skilled workers and the
consequence of significant labour attrition in the defined industry.
20. Productivity calculated by the United States as output per man-hour had increased by
0.4 per cent in 1997 over the previous year, and decreased by 4 per cent in the first eight months of
1998 as compared to the same period in 1997.
21. Profitability in eight of the nine firms owning  the mills producing combed cotton yarn for sale
(representing 90 per cent of domestic production of the yarn for sale) had overall dropped, as the ratio
of operating income to net sales had declined from 4 per cent in 1996 to 3.5 per cent in 1997, and
from 3.9 per cent during January-August 1997 to 2.1 per cent during the same period in 1998.G/TMB/18
Page 8
22. According to US industry reports, investment in recent years had been to update and replace
equipment with the aim of cutting costs in an effort  to become as competitive as possible, rather than
to create new productive capacity.  Domestic spinners of the defined industry had invested significant
amounts to modernise and automate the production process.  Because of intense price competition
from imports and the resulting low return on investment, domestic companies were increasinglyhard-pressed to continue this strategy.  The same reports stated that the current conditions did not
warrant further investment; rather than choosing to further upgrade existing industry capacity,
investors had reportedly refused such opportunities recently.  No information had been made available
by AYSA on the value of such investments.  In Pakistan’s view, however, reports from the mills
themselves contradicted the US’ assertion that investment had not been designed, inter alia , to
increase production capacity.  Also, investments had been made in Mexico by the US industry that
could have had an impact on the performance of the domestic industry.  The United Statesmaintained, however, that no investment had been made to increase production capacity in the
domestic combed cotton yarn for sale industry, and that there had been no US investment in Mexico
in the combed cotton yarn industry.
23. Imports of products of category 301 had entered the United States during the first eight
months of 1998 at an average landed duty-paid value 7.8 per cent below the average US producers’price for the yarn of category 301 sold on the domestic market.  No data were available, however, on
the evolution of the average US producers’ price during the period under review.
24. The TMB noted that the United States had determined that the January-August 1998 increase
in imports of yarn of category 301 had caused serious damage to the industry in the United States
producing like and/or directly competitive yarn, as reflected in the industry’s declining production andshipments, the substantial increase in inventories,  the industry’s deteriorating financial performance,
and the significant fall in unfilled orders and employment.  This serious damage was also reflected,
according to the United States, in the lower value of imports relative to the US domestic producers’
prices.  The market for category 301 yarn had remained in essence constant during the period covered
by the investigation, indicating that there had been no change in consumer preference for theseproducts.  Also, the United States was of the view that there had not been any significant new
technological changes in the defined industry during the period under consideration that would have
accounted for, or contributed to, the adverse trend in the industry’s market position.  Therefore, it was
the USG’s determination that the increased imports had caused serious damage to the industry
producing category 301 yarn.
25. In view of the scheduling problems of one delegation, and without prejudice as to whether or
not the TMB could come to the conclusion that the United States had successfully demonstrated thatits industry was experiencing serious damage or actual threat thereof, the TMB decided to hear both
the United States’ and Pakistan’s presentations as to whether any such damage or actual threat thereof
could be attributed, inter alia , to imports from Pakistan, in accordance with  Article 6.4.
26. In this regard, the representative of the United States stated, inter alia , the following:
- imports into the United States of combed cotton yarn (category 301) had increased by
283 per cent in January-August 1998 as compared to the same period in 1997, to
3,612,652 kilograms, a sharp and substantial increase;
- Pakistan had become the second largest supplier of combed cotton yarn to the
United States.  Mexico was a major supplier of that yarn.  However trade in textiles
and apparel between the United States and Mexico was governed by the NorthAmerican Free Trade Agreement (NAFTA), which was consistent with the
US’ obligations under Article XXIV of th e GATT 1994.  The ATC clearly stated that
a restraint invoked pursuant to the provisions of Article 6 shall be applied on a
country-by-country basis, and that serious damage or actual threat thereof isG/TMB/18
Page 9
attributed to a country individually – in this case Pakistan.  Nothing in the ATC called
for the application of a safeguard measure on all the unrestrained suppliers, or to
restrain those suppliers in a particular order;
- imports of combed cotton yarn from Pakistan had increased from 8.8 per cent of total
US imports in January-August 1997 to  17.5 per cent in January-August 1998;
- imports from Pakistan were priced at an average duty-paid landed value 26 per cent
below the US producers’ price for combed cotton yarn for sale during
January-August 1998;
- Pakistan’s yarn did not enter the US market because its combed cotton yarn was of
better quality but purely on the basis of lower prices;
- during its investigation, the United States had unveiled numerous examples of lost
sales attributable to the price differential between the US producers’ price and landedduty-paid prices for Pakistani chief weight combed cotton yarn.
27. The representative of Pakistan made, inter alia , the following points:
- while the United States had established a restraint only on products of Pakistan, the
TMB’s analysis of the imports to which any alleged damage or threat could be
attributed could not be limited to the products of Pakistan where there was asubstantially larger unrestrained supplier to the US market, Mexico, that could only
be described as the dominant supplier to the US market;
- in the absence of action by the US against imports of that product from Mexico the
action against Pakistan was discriminatory.  The fact that Mexico was a party to a
free-trade agreement with the United States was not a basis for the US to disregardproducts of Mexico.  Article XXIV of the GATT 1994 did not provide a basis for
acting solely against imports from Pakistan.  To the contrary, Article XXIV explicitly
stated that “the purpose of a customs union or a free trade area should be to facilitate
trade between the constituent territories and not raise barriers to the trade of other
contracting parties with such territories”;
- moreover, the ATC did not support discrimination.  Under the ATC, safeguard action
must fit within the requirements of Article 6.  The US’ actions taken under Article 6
to date supported the view that discrimination among unrestrained suppliers to whom
serious damage or threat is attributed is not appropriate.  Further, the WTO Dispute
Settlement Body, in its panel decision involving underwear from Costa Rica had
made clear that such discrimination was not appropriate;
- the United States had failed to take action against imports of combed cotton yarn
from Mexico.  It had issued its request for consultations to Pakistan just days before
the duties on originating combed cotton yarn from Mexico were scheduled to be
reduced to zero;
- to the extent that the United States now contended that the alleged serious damage or
threat was attributable to both Mexico and Pakistan, the United States should notlimit its actions to products of Pakistan, in particular given the respective sizes of
US' imports of combed cotton yarn from Pakistan and Mexico;
- the US’ practice in the past with respect to the invocation of Article 6 had been to
take action against more than one Member at a time.  A derogation from that practiceG/TMB/18
Page 10
now constituted an inconsistency that had to be justified by the US as it bore the
burden of proof;
- the Dispute Settlement Panel in the case involving US imports of underwear from
Costa Rica had stated the need for the importing Member to undertake a comparative
assessment of competing imports and to justify how damage may be attributed to theproducts of one Member when others were permitted to ship substantially greater
quantities;
- the increase of Pakistan’s exports of combed cotton yarn to the US market, as well as
Pakistan’s share of imports into the United States of that product, had been
substantially lower than those of Mexico.  Under these circumstances it was
inappropriate to characterise the increase in Pakistan’s exports to the US market as
sharp and substantial;
- notwithstanding the purported lower price of imports from Pakistan, the Pakistani
combed cotton yarn was not competing well with Mexican produced combed cotton
yarn, as Mexico continued to erode gains previously achieved by Pakistan in the US
market.  Furthermore, the US price of combed cotton yarn had not eroded, a fact
which did not reflect price pressure exerted by imports of cotton yarn from Pakistan;
- the United States, in seeking to establish a restraint under Article 6, bore the burden
of proof, inter alia , with respect to the attribution of serious damage, or actual threat
thereof, to imports from Pakistan.
28. Having heard the presentations of both Members with respect to the attribution of serious
damage, or actual threat thereof, the TMB reverted  to its determination of the existence of serious
damage.
29. In making an assessment of its examination of the safeguard action introduced by the
United States, including the determination of serious damage, or actual threat thereof and its causes,
the TMB based itself essentially on the information which had been made available by the
United States pursuant to Article 6.7.
30. The TMB noted that the United States had chosen to exclude from its definition of the
domestic industry producing products like and/or directly competitive with combed cotton yarn
(category 301) a segment of its domestic industry producing such yarn essentially for its own internal
consumption.  This segment represented about one third of the total US production of combed cotton
yarn.  As a consequence, the United States had provided information pursuant to Article 6.3 only with
respect to that particular segment of the industry which produced combed cotton yarn for sale,
excluding information that pertained to the evoluti on of that part of the industry that produced combed
cotton yarn essentially for its own consumption.  The TMB was not, in the present case, in a position
to assess whether or not, on the basis of the information provided, the domestic industry producing
like and/or directly competitive products had been correctly identified by the United States.
31. The TMB further noted that the information provided by the United States on its domestic
industry had been on an eight-month basis.  It observed that this in itself  hampered the Body’s task ofassessing whether or not serious damage, or  actual threat thereof, had been demonstrated, particularly
in view of the fact that a longer period might better reflect all the factors that could have had an effect
on the evolution of the data.  The TMB also noted that some aspects concerning the developments in,
and state of its domestic industry had remained unclear (such as the evolution of employment, the
closure of plants, investment and the restructuring that could have taken place in the domestic cottonyarn industry), as the discussion that had taken place during TMB’s consideration of the matter, in
particular the cause of the change in the industry, had revealed.G/TMB/18
Page 11
32. The TMB, therefore, considered that in view of the serious limitations mentioned above, it
was not in a position to assess without doubt whether or not serious damage had been caused to the
US’ industry producing products like and/or directly competitive with combed cotton yarn by
increased imports of combed cotton yarn. Consequently, in the view of the TMB, the United States
had not demonstrated successfully that combed cotton yarn were being imported into its territory insuch increased quantities as to cause serious damage, or actual threat thereof, to its domestic industry
producing like and/or directly competitive products. The TMB, recommended, therefore, that the
measure introduced by the United States on imports of combed cotton yarn from Pakistan should be
rescinded.
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33. The fifty-fifth meeting of the TMB is scheduled for 19 to 21 May 1999.
34. The full report of the fifty-fourth meeting will be circulated at a later stage.
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