WORLD TRADE
ORGANIZATIONG/TMB/N/405
8 August 2001
(01-3929)
Textiles Monitoring Body Original:  English
AGREEMENT ON TEXTILES AND CLOTHING
Communication from the United States
The Textiles Monitoring Body has received a communication from the United States in reply
to its request for additional information in the context of the preparation of the Body's ComprehensiveReport on the implementation of the ATC during its second stage, in accordance with Article 8.11.
The TMB is circulating this communication to WTO Members for their information.G/TMB/N/405
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Executive Office of the President
Office of the United States Trade Representative
Geneva
18 April 2001
The Honourable András Szepesi
Chairman
Textiles Monitoring BodyWorld Trade Organization
Geneva, Switzerland
Dear Ambassador Szepesi,
I refer to G/TMB/24 requesting information related to the preparation of the TMB's
comprehensive report on the second stage of the ATC.  Attached are papers related to transshipment,
industrial adjustment and market access.
Sincerely,
(Signed)
William Tagliani
AttacheG/TMB/N/405
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Transshipment
During the second stage of the ATC integration schedule, the United States remained extremely
concerned about the adequacy of international cooperation to prevent illegal textile transshipment.
We asked a number of our trading partners to work w ith us to strengthen enforcement in this area, so
that the integrity of the ATC regime is maintained throughout the course of the phase-out period.
Illegal transshipment does not serve the  purposes of restrained exporting Members, nor will it be
tolerated in the United States.  Attached to this submission is a report on enforcement and cooperative
efforts by the US Customs Service to detect and prevent illegal textile transshipment.  The report
covers calendar year 1999 activities.  In 2000, US Cu stoms continued to work closely with its foreign
counterparts to address the increasing problem of illegal transshipment and to use the Textile
Production Verification Visit as a major tool in uncovering the problem.
The major cause of concern continues to be the movement of Chinese-made goods through third
countries.  Through sophisticated targeting techniques, US Customs has been able to increase the
efficiency of its team visits.  As a result, in many countries and territories, problems have been
uncovered in up to 50 per cent of the factories visited.  These problems include goods continuing to beexported to the United States from closed factories, accompanied by documents indicating that the
closed factory is in fact the manufacturer/producer.  In addition, in many instances factories are
unable to provide records that support the production of the merchandise shipped to the United States
or do not have the factory capacity to produce goods so shipped.  Finally, actual transshipment has
been uncovered and statements made by factory operators have corroborated this activity.
The year 2000 also saw greater interaction with sub-Saharan African nations that will participate in
the Trade and Development Act 2000.  As part of this US legislative package Sub-Saharan African
nations will be able to receive duty-free and quota-free treatment for wearing apparel.  US Customs
will continue to work with their African counterpar ts to ensure that the benefits afforded by this
legislation accrue to the African countries and not to third countries attempting to introduce wearing
apparel into the US by illegal means.
Finally, there has been an increase in the number of instances of attempts to introduce illegally
transshipped textiles into the US by smuggling.   In some instances the wearing apparel wasmisdescribed in the hope that the actual goods woul d not be examined at the port of entry.  In some
cases, the cooperation and diligence of our foreign counterparts uncovered this fraud.G/TMB/N/405
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US Customs Service Report
In 1999, in one investigation, US Customs seized 42 containers of illegally transshipped textiles and
wearing apparel from China valued at approximat ely $13 million. The investigation is ongoing and
indictments and arrests are anticipated.
Another investigation resulted in agents seizing 25 containers of textiles and wearing apparel, also
smuggled from China, valued at $2 million. The seizure was part of an undercover operation, where
evidence was collected that identified suspects w ho smuggled in over 400 containers of textiles and
wearing apparel from China.
As a direct result of facts uncovered during these investigations, textile smuggling organizations will
be targeted under an expanded program to combat both illegal transshipment and smuggling to avoidquota/visa requirements. Overall activities for calendar year 1999 relating to textiles and apparel are
as follows:
Activity Number
Textile Related Cases Over 700
Arrests 11
Indictments 7
Convictions 6
Penalties 2
During 1999, Customs Officers visited the following countries to determine production capabilities of
textile and apparel manufacturers. Both Hong Kong and Macau were visited twice
Malaysia
Hong Kong
Singapore
Indonesia
MacauCzech Republic
Problems uncovered in these visits involved lack of documentation, value-related  issues, and suspect
production records. Over 160 companies were suspected of illegally transhipping merchandise.
Country Specific Initiatives
The majority of illegally transshipped goods originate in China and transit economies near
China. The problem had been most prevalent in Hong Kong and Macau.
Hong Kong
Joint observation visits were conducted with Hong Kong officials in late January 1999 and early
September 1999. The first visit found 27 of the 55 factories visited suspected of being involved in
transshipment, or close to a 50 per cent suspicion rate. The second visit found 24 of the 51 factories
visited suspected of being involved in transshipment, again close to a 50 per cent suspicion rate.
This count does not include the factories that were referred for a pre-issue check or factory audit
check, which would raise the suspicion percentage even higher. This suspicion finding rate has been
consistent with previous visits. If the enforcement measures being taken by Hong Kong were havingG/TMB/N/405
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an impact, you would expect to see an improvement in our visits and a lower  percentage of
companies suspected of transshipment.
Finally, in 1999 US Customs officials in Hong Kong  transmitted the names of an additional 124
factories convicted of transshipment, bringing the total number  published on the administrative list
since the initiative began in 1997 up to the end of 1999 to 364. Of the 364 factories that appear, 56have been convicted multiple times for textile transshipment, some as many as four times.
MacauCustoms sent two Textile Production Verification Trips (TPVTs) into Macau in 1999, the first
occurring in January, while the second visit occurred in September. The January TPVT visited
117 factories and found 39 to be either closed, tran shipping, unable to provide production records or
with limited capacity to produce, or a 33 per cent suspicion rate.
 The September TPVT visited 65 factories and found 14 either to be closed, transhipping or unable to
provide production records, or a  22 per cent suspicion rate. While this is an improvement from the
first visit, it should be noted any suspicion rates are not reliable due to the difficulty in targetingmanufacturers in Macau because of the MID (manufacturer identification) problem. Therefore, if you
have identified a particular manufacturer in Macau for transhipping and you want to target them to
identify shipments, it is extremely hard to iden tify that manufacturer's shipment without a unique
identifier code.
Macau has not been as cooperative as Hong Kong in supplying us with information on those
companies assessed administrative penalties for being involved in textile transshipment. In response
to this lack of cooperation and their own concerns with transshipment, CITA excluded the products of
77 factories in Macau that were found closed or that could not provide production records based on
TPVT visits within the last two years. This list has been subsequently reduced to 74 based on petitionsfiled by the factories for relief.
Hong Kong Administrative ListFrom judicial records in Hong Kong, the US Customs Service has identified 364 companies in
Hong Kong that have been convicted for false claims  of Hong Kong as country of origin for textile
products shipped to the United States.G/TMB/N/405
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Market Access
During the second stage of the ATC integration schedule, the United States continued to emphasize
the importance of ensuring that all aspects of the ATC are  faithfully implemented on schedule.  As in
the first stage of integration, it is clear that more work needs to be done in the market access area.
Despite commitments to take the necessary steps under the WTO agreements to achieve marketaccess for all members, certain Members continue to maintain closed markets.
We have a number of concerns about measures taken by exporting Members to protect their domestic
textile and apparel markets.  During the second stage, the United States initiated WTO dispute
settlement proceedings against illegal import prohibitions on consumer goods (primarily textiles), and
prevailed in that case through the Appellate Body.  The United States will continue to closely monitor
implementation of commitments to dismantle these prohibitions.  In addition, the United Statespursued and reached a mutually satisfactory resolution concerning the establishment and notification
of WTO tariff bindings on a wide range of textile and apparel products of importance to US exporters,
and again, the US will closely monitor implementation of this agreement.  Further, we participated in
a WTO dispute settlement case against discriminatory import financing requirements, and  have
initiated new cases where we believe customs valuation violations exist, and we are continuing tomonitor other countries’ practices in this regard.
Numerous other measures also affect the conditions for access to exporting Member markets.
So-called "temporary" tariff increases were introduced and kept in place for two years in one country.
Another exporting country has insisted on keeping import bans in place, and has established Customs
procedures to, at a minimum, impede and deter imports that are not prohibited outright.  In addition,
we have raised a number of specific concerns in the WTO Committee on Customs Valuation and on
Subsidies and Countervailing Measures.  We have also noted concerns regarding lack of access to
markets in the Trade Policy Review of various Members, and we have very serious concerns about at
least one other Member attempting to abrogate it s Balance of Payments commitments to eliminate
their prohibitions on textile and apparel imports.
US industry has also raised a series of concerns regarding a number of other measures that are being
used to impede access to the markets of exporting countries.  These measures include:  additional
import taxes and charges, some of which may be forgiven for goods destined for the export market,excessive and impractical marking and labelling requirements, reference pricing and non-automatic
licensing, burdensome certificates of origin requirements, and pre-shipment inspection requirements.
Ironically, some of the Members with the most protect ed internal markets are also the most significant
beneficiaries of the ATC’s quota liberalization and elimination provisions, as applied by the United
States. The United States will continue its efforts to work within the WTO and with our trading
partners in the third stage of the ATC integration schedule to ensure that all countries meet their WTOobligations to open their market to textile and apparel products.
Finally, the United States also took the initiative, in the context of WTO accession negotiations, to
seek to negotiate a general framework of relative harmonization of textile tariffs, so as to establish a
growing textile trading network of countries that are open for expanding textile and apparel trade.  Aswe move forward to the third stage of integration, we hope that other Members also seek to serve as a
model for countries joining the WTO, in the area of textile and apparel market access commitments.G/TMB/N/405
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Industrial Adjustment
Since the WTO came into effect, US imports of textiles and apparel have increased by over
90 per cent (in volume)
US imports of textiles and apparel increased by 90.2 per cent overall since the WTO entered into
force, or by an average rate of 11.3 per cent each year (in square meters equivalent).  In value terms,imports of textiles and apparel increased absolutely by 79.4 per cent, or by an average rate of
10.2 per cent each year since the WTO has entered into force.   Over the last five years, even with
quota arrangements in place, US imports of textiles and apparel grew at a faster rate than US non-oil
imports (60.7 per cent versus 59.5 per cent in absolute terms, or 9.95 per cent versus 9.79 per cent
average annual growth).
The United States textile and apparel industries continued their adjustment efforts, in the face of
significantly deteriorating economic conditions in recent years.  Job losses have been significant:  the
industries have lost 534,000 jobs, which is equivalent to approximately 89,000 jobs per year since the
WTO came into effect, or, in total, nearly one-third of the work force, with a particular impact on the
apparel sector.  Although textile industry profits have been declining in recent years, the textile
industry experienced its first quarterly loss in almost  five years (which was also the largest quarterly
loss in more than twenty years, and will likely contri bute to the first annual loss in fifty years) in the
third quarter of 2000.  Textile and apparel plants have closed or announced closings at a rapid rate.
Since the beginning of 1998, in excess of 150 plants have closed.
__________US Imports of T extiles and Apparel 
Under the WT O /AT C
16000180002000022000240002600028000300003200034000
1994 2000Million Square Meters Equivalent