WORLD TRADE
ORGANIZATIONG/C/W/304
26 September 2001
(01-4566)
Council for Trade in Goods Original:  English
SECOND MAJOR REVIEW OF THE IMPLEMENTATION OF THE AGREEMENT
ON TEXTILES AND CLOTHING BY THE COUNCIL FOR TRADE IN GOODS
Communication from Uruguay
The following communication, dated 24 September 2001, has been received from the
Permanent Mission of Uruguay on behalf of members of the ITCB1 that are also Members or
observers of the WTO, for circulation to Members.
                                                     
1 The ITCB members and observers of the WTO are Argentina; Bangladesh; Brazil; China; Colombia;
Costa Rica; Egypt; El Salvador; Guatemala; Honduras; H ong Kong, China; India; Indonesia; Republic of Korea;
Macau, China; Maldives; Mexico; Pakistan; Paraguay; Peru; Sri Lanka; Thailand, Uruguay and Vietnam.G/C/W/304
Page 2
Second Major Review of the Implementation of the Agreement
on Textiles and Clothing by the Council for Trade in Goods
Communication from Uruguay on behalf of members of ITCB
Introduction
1. The ATC is a transitional agreement with a duration of ten years in which the textile and
clothing sector is to be fully integrated into the normal rules and disciplines of the GATT/WTO.  In
accordance with Article IV of the WTO Agreemen t, the Council for Trade in Goods (CTG) is
responsible for overseeing the functioning of the Agreement.  In addition, the ATC specifically
mandated the CTG to conduct three major reviews of its implementation during this period.  Thesecond, i.e., the present, review is effectively the most important because it comes at a time when the
integration programmes for the final three years of the process have already been notified to the WTO
and, unless further steps are taken, these will cover the remaining period of the transition.  The last of
the three reviews will only be conducted shortly before the full and irreversible integration of the
sector into the GATT.
2. The ATC provided for the major reviews so as to forestall any problems along the way, and to
take corrective steps to ensure that the process of integration is on track.  It is therefore critical that the
CTG conduct a thorough review of all main aspects of ATC implementation.
3. The ATC also specified the purpose of the major review. Article 8:12 of the Agreement
requires that, in light of its review, ‘the CTG shall take such decisions as it deems appropriate to
ensure that the balance of rights and obligatio ns embodied in [the] Agreement is not being
impaired’  (emphasis added).  Therefore, besides being thorough, it is also imperative that the CTG
make an assessment of whether there has been any impairment to rights and obligations under the
ATC and, in light of this assessment, take appropriate decisions to restore the balance.
4. To assist the CTG in its review, the Text iles Monitoring Body has provided a rather
voluminous comprehensive report (G/L/459), quoting extensively from its previous reports and
reproducing, in several instances, importing Members’ notifications.  It is a useful contribution to the
review.  However in order for the review to be efficient, it is important to sift, from extensive details
contained in the report, the main elements that are germane to the CTG’s assessment of whether the
balance of rights and obligations has or has not been impaired.  Such an approach is essential so as to
avoid losing sight of the purpose of the review.
5. Moreover, useful as the TMB report is, it cannot substitute for the CTG’s own review.  In
view of its mandate pursuant to Article 8:12 of the ATC, the CTG review needs be broader in scope
and focus, in particular, on making an assessment on whether the balance of rights and obligations
embodied in the ATC is being maintained.
6. The ATC is well into the seventh year of its implementation. After less than four months,
only three years would be left to complete the proce ss. It follows, therefore, that substantial progress
should have been made towards that end.  Unfortunately, however, little meaningful progress has been
achieved  On the contrary, for reasons detailed below, the balance of rights accruing to developing
country Members whose exports have long been restrained by quotas (hereinafter restrainedMembers) has been seriously impaired.
Elimination of restrictions on imports from certain non-Members
7. The issue is dealt with in the TMB report in paragraphs 641 to 646, and 710 to 713.G/C/W/304
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8. In a nutshell, there are several instances in which the European Community eliminated quota
restrictions on non-WTO Members while keeping them on WTO Members for the same products.
9. Article 1:6 of the ATC provides that "Unless otherwise provided in [the ATC], its provisions
shall not affect the rights and obligations of Members under the provisions of the WTO Agreement
and the Multilateral Trade Agreements".  As such, the elimination of quotas on non-WTO Memberswhile maintaining them on WTO Members is inconsistent with EC’s obligation under the GATT,
especially its Articles I and XIII, in as much as these are not excepted from the ATC by virtue of
Article 1:6 of the ATC quoted here.
10. Unfortunately, in the TMB, the EC asserted that this matter did not fall under the purview of
the TMB, although it did not contest the facts or offer any defence (paragraph 643).
11. In paragraph 646, the TMB accepts that the issue raises a valid question as to whether rights
and obligations of WTO Members under GATT 1994 had been affected.  However it goes on to
observe that it could not pronounce itself on the issue because none of the provisions of the ATC,
including its Article 1:6, authorize the TMB to do so.  To find support for this observation, the TMB
makes a far-fetched argument from an unrelated provision of the ATC.
12. The TMB’s refusal to examine an issue having such an important bearing on a determination
of whether rights and obligations under the ATC had been impaired is surprising.  All the more so
when, with respect to the treatment of a different issue the Body itself observes that "the ATC…does
not contain any provision regarding regional arrangements and initiatives…  However, against the
background of certain perceptions that a lot of developments in textiles and clothing trade during theATC implementation have been related to regional arrangements and initiatives, the TMB felt that it
was necessary to address this issue…" (paragraph 618).
13. The above notwithstanding, it is imperative that the CTG examine the matter.
14. The basic principle of MFN (as, e.g., in Article I of GATT 1994) relates to imports from all
countries, whether WTO Members or non-WTO Members. Any favour accorded by a WTO Memberto any country, whether or not it is a WTO Member, must also be accorded immediately and
unconditionally to all WTO Members.
15. The favour accorded to non-WTO Members in this case is the elimination of quota
restrictions on imports of textile and clothing products. In accordance with Article I of the GATT
summarized above, this favour should also be immediately and unconditionally accorded to imports
from all WTO Members.  If this is not done and non-WTO Members are treated more favourably than
WTO Members, the balance of rights and obligations under the WTO is lost. Such more favourabletreatment is inconsistent with the MFN principle, which cannot be departed from unless provided for
in the ATC.
16. Likewise, pursuant to Article XIII:1 of the GATT, no restriction shall be applied on imports
from any Member unless imports of like products from all third countries are similarly restricted.
17. ATC is an integral part of the WTO Agreement. By virtue of Article 1:6 of the ATC, the
obligations of restraining Members are not excepted from the provisions of GATT 1994 unless
specifically provided for in the ATC.  Since the ATC does not provide for such specific exception, the
elimination of quotas with respect to non-WTO Members while keeping them in place on WTO
Members is inconsistent with EC’s obligation as to Articles I and XIII of GATT 1994, and
consequently Article 1:6 of the ATC.
The integration process
18. Central to the framework of the ATC is the mechanism for securing integration of the sector
into normal rules and disciplines of the GATT th rough progressive dismantling of GATT-inconsistentG/C/W/304
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quota restrictions and requirements.  The preamble to the Agreement is explicit in emphasizing that
the process of integration should be "progressive in character".  In addition, Article 1:5 of the ATC
provides that "in order to facilitate the integration of textiles and clothing into GATT 1994, Members
should allow for  continuous autonomous industrial adjustment and increased competition in their
markets" (emphasis added).
19. The term "integration" should not be seen in the abstract. In accordance with the customary
rules of interpretation of public international law, it s hould be viewed in its context and in light of the
object and purpose of the ATC.  In this connection, it should be recalled that the context of
"integration" in the ATC is the prior existence of GATT-inconsistent quota restrictions and their
attendant requirements, and the agreement to eliminate them in a progressive manner.  This is clearly
borne out by the second preambular paragraph of the ATC, through its reference to the April 1989
decision of the Trade Negotiations Committee.  The decision provided that the process of integrationof the textile sector into GATT cover the phasing out of restrictions under the MFA and other
restrictions not consistent with GATT rules and disciplines.
20. Therefore in assessing the integration process, it is necessary to distinguish, between the
implementation of integration programmes by WTO Members that maintained quota restrictions
under the MFA from the programmes of those that did not.  The integration programmes of the lattergroup are not relevant to the elimination of pre-existing quota restrictions.  They are relevant only in
the limited context of retention, by those Members, of the right to safeguards during the transitional
period.  The TMB also recognizes this distinction in paragraph 12 of its report.  Therefore, the
emphasis needs to be on the programmes of the former group and on progress achieved in the
elimination of quota restrictions.  In the following appraisal, these Members are referred to as"restraining Members".
21. Concerning the implementation of the integration process by restraining Members, the
following points highlight the fact that, on balance, with the exception of Norway, these Members
have failed to fulfil their obligation consistent with the object and purpose of the ATC.
22. Firstly, as highlighted in paragraph 16  above, Article 1:5 of the ATC required the Members to
"allow for " continuous adjustment and increased competition in their markets.  Contrary to this
however, at the very start of the integration process, the United States declared that it "will ensure that
integration of the most sensitive products will be deferred until the end of the ten-year period" (cf.,
US Statement of Administrative Action on Urugua y Round Agreements Act).  Similarly the EC has
followed an open policy in which it has "considered appropriate to retain control over quotas with a
view to keeping the possibility of using them as a bargaining chip to obtain better market access inthird countries" (cf., EC Commission website, Trade in Goods, the textile sector, November 2000).
These actions by the US and the EU amounted to withholding and impeding rather than "allowing"
continuous industrial adjustment.
23. Secondly, the comprehensive report of the TMB includes an extensive account of
developments in relation to the integration process (paragraphs 10 to 114 and 675 to 682).  The
following points come out of this account.
24. In the case of Canada and the EU, even in a formalistic sense, the obligation for the required
minimum percentages of integration were not  fulfilled. Thus,
• Canada’s integration programme for Stage 2 fell short of the minimum required.  Despite
the fact that all Members were requested to verify their programmes, Canada asserted that
its programme met the required percentage.  It is virtually four  years after  the
implementation of this programme that Canada rectified the shortfall.  Notwithstanding
this rectification, it cannot be denied that Canada’s programme did not fulfil the
requirement during practically the entire duration of Stage 2.  Moreover, even in carrying
out the correction, unlike Japan, Norway and some developing countries, Canada did notG/C/W/304
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follow an approach which could be deemed consistent with the object of facilitating the
integration process. It elected to shift some products to Stage 2 from among those that had
already been integrated by it in Stage 1 (paragraphs 78 and 82).
• Likewise, the EU programme for Stage 1 remained short of the minimum required.  It
also carried out a rectification which , according to the TMB, was based on subjective
estimates about whether certain products actually belonged to the textile and clothingsector.  The TMB further recognized that it was not in a position to verify EU’s estimates.
Moreover in rectifying its programme, the EU also adopted a formalistic approach
without due regard to the object of facilitating the integration process.  It simply shifted
certain products, from the programme that had already been notified for Stage 2, to make
up the shortfall in Stage 1 (paragraph 35).
25. Thirdly, the integration programmes of the US, EU and Canada have not been implemented in
keeping with the object and purpose of "progressive" elimination of quota restrictions.  Thus, even
with the implementation of Stage 3 programmes, the large bulk of quotas carried over from the MFA
will still remain in place: 701 quotas out of a total of 757 in the case of the US; 164 out of a total of
219 in the case the EU; 241 out of a total of 295 in the case of Canada.  In paragraph 677, the TMB
gives its own numbers which are very close to those given here, signifying the meagre progress
achieved in the integration process.
26. Looking at the integration process from a different perspective, the integration programmes
have amounted to only pro forma implementation of the ATC, i.e., with little regard to the purpose of
phasing out the quota restrictions.  From amongst trade in products that were under specific quota
restrictions, barely 20% of restrained imports woul d have been liberalized by the US and 21% by the
EU up to Stage 3; a far cry from the 51% that have  been shown as integrated. Even in this meagre
20/21%, the major proportion accounts for low value products or those in which utilization rates have
been extremely low or imports were largely from  developed sources  (The TMB report brings out
these phenomena in the last indent of paragraphs 677).
27. Finally, the US has yet to confirm that the visa requirement with respect to products notified
for integration in Stage 3 would be eliminated.
28. All in all, in conducting the major review, the CTG needs to make a broader assessment of the
integration process than merely looking at whether specific technical requirements have or have not
been met.  The central objective of the ATC is liberalization of trade by elimination of quota
restrictions.  The Agreement provided that the process needed to be progressive in character.  Indeed,the TMB also recognized steady progress in the process as one of the conditions for full and faithful
implementation of the ATC.  It is apparent however that actual  implementation has not measured up
to this requirement.  On the contrary, the approach adopted by restraining Members has amounted to
impeding the realization of the objective of the Agreement.
Augmentation in growth rates does not justify pro forma integration:
29. The issue of increases in growth rates is dealt with in the TMB report in paragraphs 257, 272,
276 to 281 and 326 to 330.  In addition, some references appear in paragraphs 678 and 679.
30. As brought out earlier and also recognized by the TMB, "the ATC is intended to permit a
progressive transition  from an initial situation of a wide network of trade restrictions to one in which
solely the rules and disciplines of GATT 1994 apply.  This involves the elimination of all restrictions
maintained under the MFA…" (paragraph 244).  Therefore, although ATC also provided for increasesin growth rates of quotas during the transitional period, such increases cannot substitute for the
integration of relevant products.G/C/W/304
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31. Contrary to the above,  however, the restraining countries appear to disagree with the ITCB
assessment provided to the Body in comments submitted in connection with the preparations of its
comprehensive report that, in any event, the increm ents in growth rates have not resulted in any
significant decrease in the restrictive nature of quotas (paragraph 328).
32. The TMB also goes on to observe that any reliable assessment with respect to the effect of
increases in growth rates required a detailed analysis  and that in the absence of information relating to
several factors "[it] is not in a position to conduct a… thorough analysis".  Even so,  it provides a table
calculating the increases in growth rates on the basis of different initial growth rates taken over from
the MFA regime (paragraphs 329 – 330).
33. A few observations are therefore necessary.34. For one thing, the calculations offered by the TMB are only indicative.  In order to make an
overall assessment, however, it is essential to base  it on quota weighted average growth rates from the
pre-ATC situation, which were as follows:  3.44% in the case of EU, 4.61% in case of US, and 5.26%
in the case of Canada.  Based on these pre-ATC rates, the average yearly augmentation  in access
during the first two stages of the ATC amounted to only 0.73% in EU, 1.03% in the US, and 1.22% in
Canada.  Such minuscule additions did not result in any significant increases in access.
35. Moreover, in any event,  the TMB has also observed that it is "in agreement with the comment
that an augmentation of access should not be viewed as a substitute for the integration of the products
concerned…" (paragraph 327).
Article 2:15 :
36. Article 2:15 provides that "in considering the elimination of [any] restrictions [prior to the
integration of relevant products], the Members concerned shall take into account the treatment of
similar exports from other Members".
37. The experience with respect to implementation of this provision has been dealt with in
paragraphs 255 to 256, 260 to 267, 274 to 275 and 331 to 334 of the TMB report.
38. In brief, there have been several instances in which restraining Members eliminated certain
restrictions pursuant to Article 2:15.  While Canada and Norway eliminated such restrictions on MFN
basis, i.e., on all WTO Members, the US did so only with respect to one Member, without providingany information if any consideration had been given to the treatment of exports from other Members
as required under Article 2:15.
39. The TMB in its report states that "the last sentence of Article 2:15 contains the unambiguous
obligation that in considering [the early elimination of any restriction], the [restraining] Members
concerned shall take into account the treatment of similar exports from other [restrained] Members".In a surprise conclusion, however, it goes on to say that "the language of this provision does not
contain any explicit requirement or obligation" whether Members are obliged, or not, to provide
indications on how they complied with the requirement defined in the sentence, although the TMB
itself recognizes that "without any indication in this regard, Members will not know… how these
requirements were met".  On the basis of this reasoning, it concludes that "in future notifications tothe TMB pursuant to Article 2:15, [Members] should include such references as well" (paragraphs
331 and 332).
40. Notwithstanding the TMB’s reluctance to pronounce itself clearly, it cannot be denied that the
US has not claimed that it took into account the treatment of exports of relevant products from other
restrained Members.  Nor can it be inferred that the US gave any consideration to its obligation withrespect to this provision.  It only follows that this was not the case, and that the US failed to fulfil its
obligation under the relevant provision of the ATC.G/C/W/304
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Important provisions of ATC not given any/due weight
41. The ATC incorporated important principles that needed to guide the implementation process.
As the following analysis shows, the restraining Members either totally ignored these principles or did
not give them due weight, thus upsetting or impairing the balance of rights otherwise accruing to the
concerned  restrained Members under the ATC.
Provision regarding small suppliers:
42. The TMB report deals with the treatment of small suppliers in paragraphs 283 to 295, 337 to
339, 581 to 582, and 596 and 704.
43. For a proper appraisal of whether or not the provisions on favourable treatment for small
suppliers have been faithfully implemented by restraining Members, it is appropriate to reproduce the
relevant provisions of the ATC.
Article 1:2:
"Members agree to use the provisions of paragraph 18 of Article 2 and paragraph 6(b)
of Article 6 in such a way as to permit meaningful increases in access possibilities for
small suppliers…".
Article 2:18:
"As regards those Members whose exports are subject to restrictions on the day
before the entry into force of the WTO Agreement and whose restrictions represent
1.2 percent or less of the total volume of the restrictions applied by an importing
Member as of 31 December 1991 and notified under this Article, meaningfulimprovement in access for their exports sha ll be provided, at the entry into force of
the WTO Agreement and for the duration of this Agreement, through advancement by
one stage of the growth rates set out in paragraphs 13 and 14, or through at least
equivalent changes as may be mutually agreed with respect to a different mix of base
levels, growth and flexibility provisions.  Such improvements shall be notified to theTMB".
44. It may be noted from the above provisions th at the implementation of Article 2:18 had to be
guided by the principle laid down in Article 1:2.  In this respect, the use of the term " in such a way as
to permit meaningful increases in access possibilities" leaves no ambiguity.
45. Contrary to that, the restraining Members appear to have interpreted that what was required
was simply to advance the increases in growth rates from Stage 2 to Stage 1, and from Stage 3 to
Stage 2 for small suppliers.  Then, too, Canada and the US used a different methodology than the oneemployed by the EU.  The EU calculated the increases in growth rates for Stage 1 by increasing them
first by 16% and second by 25% i.e., cumulatively. However, Canada and US did not do so.  They
simply "substituted" Stage 2 increases for Stage 1, increasing the pre-ATC growth rates by 25% only.
46. In reviewing the different methodologies used  by the restraining Members in implementing
the same provision of the ATC, the TMB did not pronounce itself on whether they measured up to theobject and purpose of providing meaningful increases in access possibilities for small suppliers.  On
the other hand, in the present comprehensive report, it contents itself by inviting Members concerned
to make every effort possible to ensure that meaningful improvements in access possibilities be
provided during Stage 3 (paragraph 704, indent 2).  This, however, is an invitation for the future only.
47. It is imperative to assess whether the preferential provision in favour of small suppliers has
been implemented faithfully and consistently with the ATC.  As noted above, the guiding principle
was to use the provision of Article 2:18 "in such a way as to permit meaningful increases in accessG/C/W/304
Page 8
possibilities".  The term "advancement by one stage" in Article 2:18 did not mean simply
"substituting" the second stage growth factor for the first stage growth factor.  The stages in the ATC
growth rates had to have cumulative effect. It was merely incidental that the growth enhancement
factors for later stages were higher than for earlier stages.  It was therefore only logical that, in
determining the growth rates for Stage 1, the growth factor for Stage 2 had to be applied in addition to
the Stage 1 growth factor.  Moreover, it bears re-emphasizing that Article 2:18 was to be implemented
within the context and the general meaning of the AT C, i.e., to provide significant increases in access
possibilities for small suppliers.
48. Despite the fact that exporting Members have repeatedly highlighted the problem, it is only in
the present comprehensive report that the TMB appears to have made some amends.  In paragraph
339 of the report, it observes that the notion of "advancement" in Article 2:18 appeared to be
ambiguous, raising doubts as to the drafters’ intention.  It goes on to state that "a better and moreresult-oriented approach in reading the language of Article 2:18 is to put the emphasis on the
objectives [that] this provision is designed to achieve" which is "meaningful improvements in access
possibilities…".  Unfortunately, however, the TMB does not take its doubt with respect to the
interpretation of the term "advancement" to its logical conclusion.  Had the drafters intended the
growth factors for later stages to merely substitute for the earlier stage growth factors, they wouldhave used the term "substitution" and constructed the provision accordingly.
49. In light of the above, it is apparent that the interpretation placed by Canada and the US on the
term "advancement by one stage" and the methodology employed by them has not been consistent
with the object and purpose of the provision in favour of small suppliers.
Provision regarding least-developed country Members:
50. The TMB Report contains an account of the treatment of least-developed country Members in
paragraphs 573 to 580, 595 to 597 and 703.  In addition, paragraphs 283 to 295 also include
references to least-developed country Members in connection with the implementation of differential
provisions for small suppliers.
51. In a nutshell, the ATC envisaged that special treatment be accorded to least-developed
country Members.  It further provided that, to the extent possible, these Members may also benefit
from meaningful improvements in access possibilities as for small suppliers (cf., the preamble to the
ATC and footnote to Article 1:2).
52. The Ministerial decision on measures in favour of least-developed countries adopted at the
conclusion of the Uruguay Round also provided that the various agreements and instruments should
be applied in a flexible and supportive manner for the least-developed countries.  It also provided that,
to this effect, sympathetic consideration shall be given to specific and motivated concerns raised bythe least developed countries.
53. It is appreciated that the EU did not maintain or apply any quota restrictions on least-
developed country Members.  However, as the follo wing paragraphs reveal, Canada and the US did
not give any meaning to the above provisions with  respect to these Members, thus ignoring their
implementation altogether.
54. At the outset, it should be emphasized that in accordance with the principle of effective treaty
interpretation, all provisions of the ATC should be accorded full meaning.
55. As concerns the actual implementation of the ATC provisions in favour of least-developed
country Members, it is necessary first to offer a clarification with regard to paragraph 576 of the TMB
Report.  The way this paragraph is presented gives the impression as though Canada and the USextended special treatment to Lesotho, Myanmar (in case of Canada) and Haiti on the ground of their
being least-developed country Members.  The fact however is that these least-developed country
Members happened to be small suppliers as well.  Canada and the US provided them with increasedG/C/W/304
Page 9
growth rates under Article 2:18 by virtue of their being small suppliers, not as least-developed country
Members.  This is apparent from the account in paragraphs 285 and 286 of the TMB report (relating
to small suppliers).  That being the case, it follow s that no special treatment has been provided to any
least-developed country Member in the implementation of the ATC (because with respect to
Bangladesh and Myanmar – the other two least-developed country Members -, the restrainingMembers did not accord the benefit of Article 2:18).
56. In paragraph 578 of the report, Canada argues as though these Members did benefit from
better access opportunities.  The issue however is (i) whether these Members were allowed the
treatment extended to small suppliers, and (ii) whether any additional benefits (i.e., additional to what
has been due even to normal suppliers) was accorded to them during the implementation of the ATC.
Any access that may have been provided to these Members before the ATC is not relevant.  Nor canthe additional access falling due to all suppliers be claimed to be special treatment to least-developed
country Members.
57. As regards the US, in any case it has not claimed if it provided any additional access or
special treatment to least-developed country Members.
58. It follows that both Canada and the US did not give full meaning to the relevant provisions,
which has had a negative bearing on the balance of rights otherwise due to least-developed countryMembers.
Provision regarding cotton-producing exporting Members:
59. The TMB report contains an account of the treatment of cotton-producing exporting Members
in paragraphs 584 to 588, 595, 598 to 600 and 705.
60. As in the case of small suppliers and least-developed country Members, it is appropriate to
reproduce the relevant provision of the ATC.
 "Members agree that the particular interests of cotton-producing exporting Members
should, in consultation with them, be reflected in the implementation of the
provisions of [the ATC]". (Article 1:4)
61. It bears mentioning that the language related to the implementation of the "provisions" (in
plural) of the ATC, i.e.,  including the integration programmes, growth rates, transitional safeguards,
any changes in rules and procedures, etc.   It also follows that restraining Members were required to
consult with the concerned cotton-producing exporting Members, and reflect any specific instances of
implementation as such.
62. In the account provided in paragraphs 584 to 588, and paragraph 598, the restraining
Members claim as if such consultations were held and the provision was faithfully implemented.  A
close scrutiny however proves to be otherwise.
• Canada claims that it "held consultations with exporting countries, including
cotton-producing exporting countries, during the period immediately preceding
the start of the ATC…" (paragraphs 586 and 598).
• EU states that "as to the cotton-producing exporting Members, the EC has
consulted such Members at earlier stages of the ATC’s integration process and
afforded full scope for consultation prior to its third stage of integration, by
specifically offering consultations with all exporting WTO Members against
which it maintained restrictions" (paragraphs 587 and 598).
• The US claims that it "consulted with cotton-producing countries before the entry
into force of the ATC and reached agreements that were done with the provisionsG/C/W/304
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of Article 1:4 in mind.  We have subsequently engaged in consultations with
cotton-producing countries to resolve issu es raised by them… with an eye to
Article 1:4 and have been considered successful by all participants" (paragraphs
588 and 598).
63. Firstly any consultations held before the entry into force of the ATC could not be relevant to
the implementation of this provision "during the ATC".  Secondly any consultation having been
"offered to all exporting Members" as claimed by the EU or "held with an eye to Article 1:4" as
claimed by the US cannot be construed as consultations specifically offered or held under Article 1:4.
Thirdly, no information has been provided with regard to any specific instances of the implementation
of this provision, whether with regard to the integration programmes, or growth rates, transitionalsafeguards, changes in rules and procedures, etc.
64. Unfortunately the TMB has avoided making a clear assessment with respect to actual
implementation of this provision. In paragraph 599 of its report, it merely contents itself by stating
that "no WTO Member referred to it any specif ic issue with respect to the implementation of
Article 1:4", and that "it is not aware that the provisions of Article 8:4 have been used by any
cotton-producing exporting Members or by any restraining Member for this purpose".
65. Notwithstanding the TMB’s reluctance, from the account analyzed above, it can only be
concluded that the restraining Members entirely ignored the provision of Article 1:4 in their
implementation of the ATC, with adverse implications for the balance of rights accruing to
cotton-producing exporting Members.
Measures impeding the realization of ATC’s objective
New restrictions on textile products inconsistently with the ATC:
66. Article 2:4 of the ATC provides that "no new restrictions in terms of products or Members
shall be introduced except under the provisions of  [the ATC] or relevant GATT 1994 provisions".  A
footnote provides that the relevant GATT 1994 prov isions shall not include Article XIX in respect of
products not integrated… In other words, no new re striction on ATC products can be validly applied
outside the ATC.
67. Contrary to the above, the US has imposed ce rtain new restrictions on ATC products without
any justification under the ATC. One such restriction, which has received extensive consideration
(including in the TMB and the CTG), relates to the introduction of a restriction on Turkey’s exports of
cotton and man-made fibre underwear pursuant to a bilateral agreement. A detailed account with
respect to this issue is contained in the comprehensive report of the TMB in paragraphs 317, 488 to503 and 715 to 716.
68. In short, after in-depth review of the restriction, the TMB concluded that the measure agreed
upon between Turkey and the US could not be justified under any provision of the ATC. Thereafter ,
several members of the ITCB also referred this matter to the CTG under the CTG's responsibility of
overseeing the functioning and implementation of the Agreement.
69. In CTG deliberations, both Turkey and US have asserted that the measure had been agreed
between the two under "a provision of the ATC which did not require notification to the TMB".
Further that the issue under reference should be dealt with under the major review of the
implementation of the ATC. (It is for this reason, too, that the CTG make an assessment of this and
other such measures.)
70. The matter has profound systemic implications for the implementation of the ATC and the
realization of its objectives.  It undermines confidence in the multilateral trading system and can
generate pressures for similar unilateral measures or bilateral deals.G/C/W/304
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71. As determined by the TMB, the measure is clearly invalid under the ATC.  Nor can it be
justified under any other provision of GATT 1994. For one thing, new restrictions on products
covered by the ATC cannot be resorted to except under the ATC, due to the un-ambiguous language
of Article 2:4 quoted above.  For another, any bilateral or voluntary export/import arrangements are
prohibited pursuant to Article 11 of the Agreement on Safeguards. (It may be relevant here to mentionthat the Agreement on Safeguards is incorporated into the ATC by reference through ATC Article 1:6.
It stipulates that "unless otherwise provided in [the ATC], its provisions shall not affect the…
obligations of Members under the provisions of  the WTO Agreement and the Multilateral Trade
Agreements").
72. It follows that the introduction and continuation of the restriction in question amounts to
impeding the attainment  of the objective of the ATC.  It also hampers the ability of the TMB in
carrying out its mandate to supervise the implementation of the Agreement and to examine the
conformity of all measures taken under it.
73. In this context, it is also relevant to men tion that Turkey imposed restrictions on imports from
a number of developing countries following the establishment of a Customs Union between Turkey
and the EC.  These restrictions were also subsequently found by a dispute settlement panel and theAppellate Body to be inconsistent with Turkey’s obligations under Article 2:4 of the ATC.  These
restrictions however still continued to be in place.
Continuation of visa requirement on integrated products:
74. The issue has been dealt with in the comprehensive report in paragraphs 58 to 62, 85 and 504.
75. Visas are a requirement additional to normal shipping documents.  They were devised as an
administrative arrangement to help control and monitor the exports of textile and clothing products
under quota restriction with a view to keeping these exports within the applicable quantitative limits.
Visas are not required from all exporting countries, only from those against whose exports quotas
have been applied and maintained.  They are discriminatory and therefore contrary to GATT principleof MFN treatment.  They add to the cost of doing business by way of increasing the expenses on
processing of export shipments and transactions.
76. During Stage 2, the US agreed to eliminate the requirement only after ITCB Members
challenged their continuation with respect to integrated products.  Yet, in relation to products to be
integrated by the US in Stage 3, it has not given an assurance that the visa requirement will be
withdrawn.  On the contrary, it has informed the TMB that a decision will be made only later in thisyear. In the comprehensive report, the TMB merely expresses an "expectation" that the Body will be
informed as soon as possible of the outcome of any follow-up considerations to be given to this matter
by the United States (paragraph 85).
77. As brought out above, the visa arrangement is contrary to normal GATT rules and
disciplines.  In paragraph 85 of its comprehensive report, the TMB also points out that the respectivevisa arrangements had been notified as part of administrative arrangements, and that these
arrangements could only be deemed necessary in relation to the implementation of quota restrictions
applied under the ATC.  It is apparent therefore that, to be consistent with the obligation to fully
integrate the relevant products, the visa requirements also need to be abolished.  More than being a
merely procedural matter, the issue involves the restoration of the fundamental principle of non-discriminatory treatment to trade in the sector.  It can oblige the exporting developing countries to
unnecessarily have to invoke lengthy and expensive dispute settlement procedures.
78. Therefore  unless the US confirms  withdrawal of the visa arrangements , it may not be deemed
to have complied with its obligation to fully integrate the relevant products.G/C/W/304
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Application of transitional safeguard mechanism
79. Paragraphs 115 to 243, and 683 to 688 of the TMB report are devoted to this issue.
80. As the TMB report also brings out, no doubt there has been a noticeable decrease in the
invocation of safeguard actions by the United States, the only restraining Member having had such
recourse during the period of the ATC. However, in the context of the purpose of the major review,i.e., to ensure that the balance of rights and obligations embodied in the ATC is not being impaired, it
is imperative to note a few points with regard to these actions.
81. Firstly, the frequency and the manner in which these measures were initiated and applied
amounted to a continuation of the same pattern of protection as had been practiced under the pre-ATC
dispensations.
82. Secondly, as also brought out in the TMB report (paragraph 235), the examination of the
requests for consultations and resulting safeguard measures led to the conclusion that, in all but a fewcases, the United States had not complied with its obligations under the ATC.
83. Thirdly, these measures disrupted the normal development of trade under the Agreement,
affecting over $1 billion worth of exports from the concerned exporting Members.
84. Fourthly, many of these measures (10 out of a total of 28) involved exports from a number of
small suppliers for whom the ATC provided that in the application of transitional safeguard actions,"…due account will be taken, pursuant to paragraphs 2 and 3 of Article 1, of the future possibilities
for the development of their trade and the need to allow commercial quantities of imports from them".
85. Fifthly, even when several measures were found to be inconsistent with US obligations, it
persisted in maintaining the restrictions until the end of the maximum three years permitted under theATC, using the long processes of the dispute settlement system, first through the TMB and then
through dispute panels and the Appellate Body.  If this pattern is continued in the remaining years of
the ATC, the effective implementation of the Agreement could be undermined.
86. In conclusion, it may be recalled that Article 6 of the ATC provided that "transitional
safeguard should be applied…consistently with the provisions of this Article and the effective
implementation of the integration process …"  (emphasis added).  From the facts above, however, it
follows that, overall, the application of safeguards by the United States has not been consistent with
this requirement.
Changes in rules and procedures
Changes in rules of origin:
87. The TMB report details the developments with re spect to the changes in US rules of origin in
paragraphs 384 to 406, 415 to 417, 571 to 572, 689 to 691, and attachments 1 and 2 on pages 143 and144.
88. In brief, the United States fundamentally modified its rules of origin pertaining to textile and
clothing products with effect from July 1996 pursuant to its Uruguay Round Agreements Act.  These
changes were specifically undertaken for trade policy reasons. And no such changes were effected inrules of origin for any other sector.
89. As the modifications were inconsistent with US obligations under the WTO Agreement and
the ATC, a number of WTO Members including the European Union protested.  These changes
disrupted the utilization of existing access under the ATC, thereby upsetting the rights accruing to
exporting Members.  Following an EU challenge unde r the DSU, the US partially reinstated the pre-
ATC rules.  However, rules for some products of particular export interest to developing country
Members were not restored. Moreover, in implementing the changes following the EU challenge, theG/C/W/304
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US altered the definition of some cotton products.  Thus, under the modified rules, made-up articles
containing as little as 16% by weight of cotton are considered to be that of cotton.
90. As mentioned above, the changes in rules are clearly inconsistent with US’s obligations. They
have been adopted for trade policy reasons and thus inconsistent with Article 2 of the Agreement on
Rules of Origin.  They could not be justified as changes under Article 4 of the ATC as they did notfall under the changes necessary "in the implementation of restrictions" under the ATC.  They
adversely affected the access available to restrained Members under the ATC, and impeded the full
utilization of such access.
91. The fact that the US reverted to pre-ATC rules following  the dispute settlement challenge by
the EU leaves no doubt that the changes brought about were inconsistent with US obligations, thereby
impairing the rights of all other exporting Members.
92. The TMB has avoided making a ruling on these changes, although it recognizes that the US
did not defend the measure (paragraph 406 and 415).  The Body merely argues that "it had not
received any notification requesting it to review any aspect of this matter under Article 4:2 and 4:4
and to make recommendations as provided for in Article 8".  It adds that "neither has [the Body] been
specifically requested to take up this matter nor has the TMB acquired sufficient technical expertiseand knowledge to provide an assessment on these developments" (paragraph 416).
93. Despite the formalistic approach by the TMB, the fact is that the US changes have been
inconsistent with its obligations under the ATC and the Agreement on Rules of Origin, impairing
rights accruing to the restrained countries.
Anti-circumvention measures:
94. The matter has been dealt with in the TMB report in paragraphs 430 to 481 and 692 to 695.
95. In short, the restraining Members, particularly the US, have continued to claim widespread
circumvention of quota restrictions, including by its comments to the TMB in paragraphs 467 – 468 of
the Body’s report.  They have established a variety of procedures and requirements with the ostensible
purpose of preventing circumvention.  For example, in 1999, the  US Customs issued a regulation
providing that textile products will be denied entry where the manufacturer named in the entry
document is, inter alia , "unable to produce records to verify production".  Pursuant to this regulation,
imports from companies from a number of restrained Members are denied entry and are placed on the
so-called convicted list.
96. In the first place the claim about widespread circumvention is not supported by facts.
According to US Customs’ own report relating to  the year 1999, shipments seized as transshipped,
including even those detained as suspected transshipments, amounted to only 0.068% of its total
imports in the year.  The report also showed that this percentage was a drop from 0.125% in 1997 and
0.105% in 1998. It follows that the extent of circumvention is greatly exaggerated.  And the measures
put in place to prevent circumvention are in excess of being necessary or proportionate.
97. The TMB acknowledges that the problem "will not go away until the full elimination of
restrictions applied under the ATC…" (paragraph 694).  However, it avoids making any ruling on
whether the measures adopted with the alleged purpo se of preventing circumvention were necessary
and proportionate within the meaning of the relevant provisions of the ATC.  Nor does it conclude
that the additional burden caused by these measures impedes the utilization of access available to
restrained Members under the ATC.
98. Notwithstanding the above, there is little doubt that the institution of disproportionate
measures impacts negatively on the full utilization of access by the restrained Members.G/C/W/304
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Other issues
Market access:
99. The TMB report contains the treatment of this issue in paragraphs 550 to 563 and 697 to 702.
In addition, the relevant provisions of Article 7, the comments of the TMB in its first comprehensivereport, the conclusions of the CTG on that occa sion, and the views and comments of WTO Members
in response to TMB’s request in connection with the preparation of the present report, have been
reproduced in paragraphs 531 to 549.
100. In brief, the TMB notes that no particular problems have been brought to its attention.  It also
agrees with the ITCB that "on the basis of available information, no non-compliance with any specific
market access commitment undertaken by WTO Members as a result of the Uruguay Round has been
notified".  Despite that, it goes on to note that "almost all the responses received from Membersincluded a number of comments related to tariffs" and that "it is up to WTO Members to discuss them,
if they so wish, while conducting the major review in the CTG" (paragraph 558).
101. In view of the fact that there has b een no non-compliance of specific commitments
undertaken in the Uruguay Round with respect to market access, it appears unnecessary for the CTG
to devote any further time to this issue.
Anti-dumping actions
102. The TMB consideration of this issue is contained in paragraphs 565 to 570, and 701 and 702
of the comprehensive report.
103. TMB acknowledges that in its view, "…protracted or repeated investigations [into alleged
dumping], even if they do not result in the imposition of provisional or final anti-dumping duties,create uncertainties to the exporters of the products in question" (paragraph 701 and 570).  In this
connection, the report lists the anti-dumping proceedings "initiated in 1998, 1999 and 2000".
104. Unfortunately, however, the TMB report does not include a consideration of whether or not
anti-dumping actions taken during the period of the ATC, actually upset the rights and obligations of
Members under the Agreement.  Moreover, it omits a number of anti-dumping actions , which though
initiated by the EC prior to 1998, remained in place during the period of this review.
105. In the context of the balance of rights and obligations under the ATC, it is imperative to recall
that central to such balance is the access available under Article 2 of the ATC.  Exporting Members
legitimately expect that this access would not be frustrated by importing Members taking improper
recourse to anti-dumping actions, etc.
106. That being the case, it is important for the CTG to review the anti-dumping actions taken by
the European Communities with respect to products that have been under quota restrictions.
107. The TMB report contains a lengthy account of the EC anti-dumping action on bed linen from
India and notes that it was determined by a dispute settlement panel and the Appellate Body to be
inconsistent with EC’s obligations under the WTO agreement.  (It may be recalled that the anti-
dumping measure on bed linen also involved imports from Egypt and Pakistan.  These measures werealso adopted on the basis of the same grounds as were determined by the panel to be violative of EC’s
obligations in the Indian case).
108. In addition to the bed linen case, the EU has had repeated recourse to anti-dumping
investigations into imports of cotton fabrics and man-made fibre fabrics from several countries whose
exports were already under quota restriction.  The action on cotton fabrics involved imports fromEgypt, India, Indonesia, Pakistan, Turkey and China.  The one  on man-made fibre fabrics involved
exports from India, Indonesia, Pakistan and Thailand.  Although these invocations did not result in theG/C/W/304
Page 15
imposition of final anti-dumping duties, they nevertheless resulted in upsetting exports from these
Members.
109. The following table demonstrates, in concrete terms, that the exports of Members were
seriously affected.
Changes in shares of countries subject to anti-dumping actions
in Extra-EU imports
Product Before Following After
action action termination
Woven fabrics of synthetic fibres 1993 1995 1997
Value 50.24% 52.89% 56.53%
Volume 66.64% 63.57% 70.44%
Cotton fabrics 1993 1998 2000
Value 55.83% 38.58% 42.36%
Volume 59.04% 37.60% 40.44%
Bed linen 1993 2000
Value 49.00% 41.31% measure
Volume 51.84% 44.65% continues
Sacks and bags 1994 1997
Value 52.86% 21.14% measure
Volume 57.76% 22.93% continues
Data source: Eurostat, Intra and Extra EU-trade.
110. Given that the dispute settlement panel and the Appellate Body determined that the EC
violated its obligation in the case of the anti-dumping measure on bed linen, and that the TMB has
also concluded that protracted and repeated investigations create serious uncertainties to the exportersof the products in question, it follows that the EC actions have had a negative bearing on access
accruing to the concerned exporting Members under the ATC.
Autonomous industrial adjustment and increased competition in Members’ markets:
111. The relevant paragraphs of the TMB report related to this issue are 601 to 617, and 706.
112. The TMB states that it "does not have sufficient information at its disposal to make a [.]
thorough analysis and assessment on the extent to which autonomous industrial adjustment and
increased competition in Members’ markets, in the sense of Article 1:5, has been achieved, though it
appeared from the information provided [by the re straining Members] that increased competition
seemed to have taken place in Canada, the European Community and  the United States(paragraph 617).
113. Unfortunately however, the report also observes  that in response to the Body’s request for
comments in connection with the preparation of its comprehensive report "it appeared from the reply
received from the ITCB members that they considered Article 1:5 as applicable, in essence, by the
restraining Members…, whereas some other Members may consider  that this Article was of more
general application" (paragraph 613).G/C/W/304
Page 16
114. In the event, it is necessary to offer several comments.
115. Firstly, with respect to the scope of Article 1:5 of the ATC.  The language of Article 1:5 reads
as follows:  "In order to facilitate the integration of textiles and clothing into GATT 1994, Members
should allow for continuous autonomous industrial adjustment and increased competition in their
markets".
116. It is well established in WTO jurisprudence that in accordance with customary rules of
interpretation of public law, a treaty be interpreted in good faith in accordance with the ordinary
meaning of the terms of the treaty in their cont ext and in the light of its object and purpose.
117. It is apparent from a plain reading of Article 1:5 that the immediate context of the terms
"continuous industrial adjustment" in this Article is integration of the textile and clothing sector into
GATT.
118. As for the object and purpose of the term "integration" in the ATC, it is specified in
paragraph 2 of the preamble to the ATC, which incorporates, by reference, the decision of the Trade
Negotiations Committee of April 1989.  The relevant portion of the decision reads as follows:
"3(b)…modalities for the process of integration into GATT on the basis of
strengthened GATT rules and disciplines should inter alia  cover the phasing out of
restrictions under the Multi-fibre Arrangement and other restrictions on textiles
and clothing not consistent with GATT rules and disciplines , the time span for
such process of integration and the progressive character of this process...".
119. It follows from the paragraph above, that the context, and the object and purpose of
"integration" is the phasing out of restrictions under the Multi-fibre Arrangement and otherrestrictions on textiles and clothing not consistent  with GATT rules and disciplines.  And such
GATT-inconsistent restrictions having been mainta ined by the restraining Members, the application
of Article 1:5 is directed, in essence, at the restraining Members.
120. Secondly, the operative words in Article 1:5 are that Members "should allow for" continuous
industrial adjustment.  However, as also brought out earlier in paragraph 20, the restraining Membershave followed a declared policy of deferring or  withholding the integration of so-called sensitive
products until the end of the 10-year period, thereby impeding, rather than allowing, continuous
industrial adjustment in their markets.
121. Thirdly, the information provided by the restraining Members and included in paragraphs 606
to 611 of the TMB report cannot justify a conclusion that they have demonstrated concrete efforts in
allowing the integration of restrained products.
Conclusions
122. The analysis in this paper demonstrates that, for reasons summarized below, the
implementation of the ATC by developed importing countries has impaired the balance of rights
accruing to developing exporting countries under the Agreement:
• Quota restrictions on certain non-WTO members have been eliminated while maintaining
them on WTO Members, which is inconsistent with Article 1:6 of the ATC.
• The restraining countries have failed generally to faithfully carry out their obligation under
Article 1:5 of the ATC.  They have demonstrated little concrete efforts in allowing continuousindustrial adjustment in their markets, deferring the integration of so-called sensitive products
until the end of the 10-year period or to use quota restrictions as a bargaining chip for
securing additional market access concessions from developing countries.G/C/W/304
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• The integration programmes of Canada and EU did not fulfil the required minimum
percentages of integration.
• The implementation of the integration process has remained inconsistent with its explicit
object and purpose under the ATC.  It has not been progressive in character in as much as
only few quota restrictions have been phased out, leaving the large bulk to be eliminated only
at the end of the 10-year period.  Merely 20% of trade that was actually restrained by quotas
has been liberalized, a far cry from 51% shown as integrated.
• Inconsistently with its obligation to fully inte grate the relevant products, a restraining country
has failed to announce the elimination of non-MFN visa requirements in respect of productsto be integrated by it in Stage 3.
• In certain cases, new restrictions have been introduced and maintained inconsistently with
Article 2:4 of the ATC.
• In eliminating certain restrictions, no account had been taken of the treatment of similar
exports from other restrained Members, contrary to the requirement of Article 2:15 of the
ATC.
• The differential provisions in favour of small suppliers have not been implemented
consistently with the relevant provisions of the ATC, while such provisions with respect toleast-developed countries and cotton producing exporting countries have been ignored.
• The application of Article 6 safeguard measures has not been in accordance with its
requirement that these be "consistent with effective implementation of the integrationprocess".  These measures affected over $1 billion worth of exports, whereas the restraining
country concerned was subsequently found not to be in compliance with its obligations underthe ATC in all but a few cases.
• Besides being inconsistent with relevant obligations under the WTO, anti-dumping actions on
products already under quota restriction (affecting over Euro 1 billion worth of exports),
changes in rules of origin relating to textile and clothing products, and the institution of
procedural requirements disproportionate to the alleged problem of circumvention, all
impeded the utilization of access accruing to the exporting countries concerned.
123. We therefore urge that, in accordance with its mandate under Article 8:12 of the ATC, the
CTG take appropriate decisions to ensure that this balance is restored.  We believe that such decisionsare feasible within the existing provisions of the Agreement.
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