RESTRICTEDWORLD TRADE
ORGANIZATIONG/TMB/R/97
2 May 2003
(03-2344)
Textiles Monitoring Body
REPORT OF THE NINETY-EIGHTH MEETING
1. The Textiles Monitoring Body held its ninety-eighth meeting on 24 March 2003.
2. Present at this meeting were the following members and/or alternates:  Messrs. Dalela;
Gough;  Lee;  Seppey;  Sorensen;  Tagliani;  Ms. Ünal;  Mr. Yoshikawa;  Ms. Zhang.
3. The TMB adopted the report of its ninety-seventh meeting (G/TMB/R/96).
Notification under Articles 2.8(b) and 2.11 of th e Agreement on Textiles and Clothing (ATC)
4. The TMB reverted to its examination of a notification received pursuant to Article 2.8(b) and
2.11 from Bolivia1, also on the basis of an additional notification from Bolivia in response to the
TMB's request for clarification.  The TMB decided to seek clarification from Bolivia regarding certain
aspects of this additional notification.
Notifications under Article 6.9 of the ATC
Brazil/Chinese Taipei:  imports by Brazil of certain woven fabrics from Chinese Taipei
5. The TMB resumed its review2, pursuant to Article 6.9, of the notification by Brazil of a
restraint measure agreed with Chinese Taipei on imports from Chinese Taipei of other woven fabrics,
containing 85 per cent or more by weight of te xtured polyester filaments, dyed, without rubber
filaments (HS/NCM Code 5407.5210)3 and of other woven fabrics, containing 85 per cent or more by
weight of non-textured polyester filament s (HS/NCM Code 5407.6100).  According to this
notification, a limit of 16,731,305 kg. was agreed for the first quota year (i.e. 27 January 2003 to
26 January 2004).  The rollback level envisaged in Article 6.8 was 16,165,512 kg.  For the second
quota year, the quota level would be increased by 8 per cent.  The measure will remain in force until
31 December 2004.  It was also noted that the request for consultations was made on
30 October 2002.  The TMB observed, inter alia , that the specific and relevant factual information
provided by Brazil in accordance with Article 6.7 contained data with respect to developments in total
imports as well as several economic variables, including production, production capacity and capacity
utilization, exports and prices, for three subseq uent twelve-months periods, up to the period
September 2000–August 2001.  Furthermore, Brazil provided information for the period August 2001
to September 2002 (the period referred to in Article 6.8) on imports, as well as 2002 data for severalother economic variables (share of imports in the apparent consumption, production, domestic sales,
exports, import and domestic prices, as well as preliminary indications regarding profitability). The
TMB recalled that pursuant to Article 6.9, in order to determine whether the agreement was justified
in accordance with the provisions of Article 6, it shall have available to it the factual data provided in
accordance with Article 6.7, as well as any other relevant information provided by the Membersconcerned.
                                                     
1 See G/TMB/R/81, paragraph 6 and G/TMB/R/86, paragraph 13.
2 See G/TMB/R/96, paragraph 12.
3 NCM: Mercosul Common Tariff ("Nomenclature Comun do Mercosul")G/TMB/R/97
Page 2
6. The TMB observed that, although the products of HS/NCM Code 5407.5210 corresponded to
a specific HS line in the Annex to the ATC, the products of HS/NCM Code 5407.6100 did not.  The
TMB noted that changes had taken place in the Harmonized Commodity Description and Coding
System (HS) in 1996 whereby HS Code 5407.60 had become HS Code 5407.61.  Therefore, the
products of HS/NCM Code 5407.6100 corresponded to  the products of HS Code 5407.60 in the ATC
Annex, and both products subject to the agreement fell under the coverage of the ATC.  Furthermore,
the TMB observed that neither the products of HS/NCM Code 5407.5210 nor those of HS/NCM Code
5407.6100 had been integrated by Brazil in any of its three integration stages.
7. According to the specific and relevant factual information provided by Brazil, the Industrial
Weavers' Union of Americana, Nova Odessa, Santa Bárbara d'Oeste and Sumaré (SINDITEC) had
filed a request with the Brazilian Government to establish a quota (i.e. to introduce a transitional
safeguard measure pursuant to the provisions of Article 6 of the ATC) on the imports of the productssubject to the present agreement.  SINDITEC, which represented 64 companies that produced
synthetic woven fabrics, claimed that the increasing volume and low prices of imports of the products
in question were causing serious damage to the domestic producers of these woven fabrics.  Imports
of the products subject to the investigation had increased by 306.1 per cent in volume terms between
September 1998 - August 1999 (P1) and Septem ber 1999 - August 2000 (P2), and by 206.5 per cent
in the following 12-month period (P3).  In value terms, such imports had increased by 127.8 per cent
between P1 and P2 and by 189.8 per cent between P2 and P3.  Imports continued to increase after the
latter period:  at 38,944 tons, the volume of imports for the period August 2001 to July 2002 (the
period mentioned in Article 6.8) was 7.26 per cent higher than that for the period September 2000 to
August 2001.  The average f.o.b. price of imports had decreased by 43.9 per cent between P1 and P2and by 46.9 per cent between P1 and P3.  The increase in imports had led to a number of adverse
effects in the region where the industry was located, including the shutdown of more than 100
companies, unemployment, loss of revenue for the municipalities and social unrest.  The factual
information provided by Brazil was based on questionnaires filled by 32 companies of the 64
SINDITEC members, representing 65 per cent of the Brazilian production of the products subject tothe investigation, and on a data survey conducted by an independent market research institute hired by
SINDITEC.  This information indicated that production  had increased by 15.48 per cent in volume
terms between P1 and P2 but had decreased by 25.17 per cent between P2 and P3.   The overall
decline of 13.6 per cent between P1 and P3 in volume terms (9.3 per cent in value terms) was higher
that the overall 0.7 per cent drop of the volume of production for the whole textile industry during the
same period.  This, according to Brazil, revealed the impact of a large and concentrated production
decline over the industry investigated.  Furthermore, production of the investigated industry continuedto show a downward trend between 2001 and 2002, w ith a decline of about 4 per cent in volume
terms.  Production capacity  of the investigated industry expanded by 1.5 per cent from P1 to P3,
while the that of the weaving industry, as a whole, expanded by over 10 per cent.  This expansion was
concentrated on investment in modern and more efficient equipment designed to manufacture more
sophisticated products.  As a result, capacity utilization  levels reached in the period September 2000
to August 2001 (P3) were the worst ever experienced by the investigated industry, much worse than
the capacity utilization rates experienced by the Brazilian textile industry or by the transformation
industries in Brazil during the same period.  The level of inventories  of the 32 companies investigated
increased by 18.3 per cent between 1999 and 2001, reaching a level of 2,366 tons, with an inventory-
to-production ratio of 18.8 per cent in P3 reflecting the critical situation of domestic sales .  Domestic
sales  increased by 15.6 per cent from P1 to P2 but declined by 29.1 per cent from P2 to P3, as a
consequence of the significant increase in imported fabrics.  Exports  of the investigated fabrics were
negligible, representing around 3 per cent of production and, therefore, the growth of exports in
volume terms (64.7 per cent between P1 and P3) should not have been regarded as a positive sign, in
particular since the export prices had been decreasing.  Exports had remained at an insignificant levelin 2002, dropping by about 20 per cent from the previous year.  With regard to prices , Brazil
explained that the increase in the average prices of the investigated domestic products from P1 to P3
reflected the industry's strategy to concentrate on high-end segments of the market with a view to
competing with imports.  The average price of the imported products at a similar stage of commercialG/TMB/R/97
Page 3
transaction had become inferior to that of the domestic products in P2 (by 14.94 per cent) and became
33.56 per cent lower than domestic prices in P3.  According to Brazil, this difference had significantly
contributed to the increase of 206.5 per cent in the volume of imports of the investigated fabrics from
P2 to P3.  In 2002, import prices remained relatively stable (an increase of 5.7 per cent compared with
P3), while domestic prices showed a downward inflection, albeit remaining 1.73 per cent above the
price of the imported products.  Employment  declined continuously over the period, by 0.8 per cent
from P1 to P2 and by 8.7 per cent from P2 to P3.  This latter decline was higher than that of the
Brazilian textile sector, or in Brazil in general, du ring the same period.  Over 1000 jobs were lost from
P1 to P3 in the domestic production sector.  Productivity  declined by 4.5 per cent over the period
under investigation.  Nominal wages  increased by 5.5 per cent in 1999, 4.5 per cent in 2000 and
8 per cent in 2001, essentially as a result of the implementation of wage agreements.  However, taking
into account inflation, wages remained relatively stable in real terms from 1999 to 2001.  The nominalincrease also reflected the recruitment of more qualified personnel required to operate the modern
equipment acquired by companies, as well as the shift of production to higher value articles.  The
average profitability , calculated as a percentage over the companies' gross intakes, was 3.3 per cent
in 1998, 2.4 per cent in 1999 and -0.6 per cent in 2000.  From January to August 2001, profitability
reached losses of 12.5 per cent.  Preliminary indications showed that the industry continued toexperience important losses also in 2002.  Investment  stood at US$36 million in 1999, US$41 million
in 2000 and US$26 million in 2001.  Brazil attributed this downturn in investment to the pessimism of
the domestic producers in light of low financial returns.  The sector's expenditures had primarily
involved the acquisition of new, more efficient and more productive equipment and had not
necessarily reflected an increase in production capacity.  As it stood, the Brazilian textile industrialmachinery and equipment was on par with that of its competitors in other developing countries.  The
increase in imports had not, therefore, resulted from Brazil's lack of technological capacity.  As
regards consumer preference  referred to in Article 6.2, Brazil stated that Brazilian woven fabrics
were of superior quality and appealed to both domestic and foreign consumers.  Foreign products had
been imported increasingly because of their significantly lower prices, as they were often sold inclearance sales of discontinued or out of season merchandise. The domestic market had been sharply
affected by imports.  Domestic production had accounted for 97.4 per cent of apparent consumption in
the first period analysed (P1), which fell to 73.8 per cent in P2 and 36.7 per cent in P3, representing a
loss of market share  of 60.7 percentage points over the period analysed.  In the period
September 2000 to August 2001, the share of the apparent Brazilian market held by imports was
68.8 per cent.  This share remained at about the same level in the calendar year 2002.
8. According to Brazil, during the period covered by the investigation, the successive increases
in imports into Brazil of the investigated synthetic fabrics had a strong impact on the domestic
industry of this segment.  The growing share of th e domestic market held by imports eroded the base
of domestic production:  in volume terms, production had decreased by 13.6 per cent between P1 and
P3.  Imports had increased in such quantities as to cause serious damage to this sector of the domestic
industry.  Moreover, the data presented demonstrat ed the causal link between the substantial increase
in imports and that damage.  They also indicated that irremediable damage would be caused to the
domestic industry – which had already experienced the closing down and bankruptcy of
110 companies and the loss of 1,042 jobs – unless safeguard measures were adopted.
9. In terms of attributing to certain Members the serious damage being caused to the Brazilian
domestic industry, according to the specific and relevant factual information provided by Brazil,imports from Chinese Taipei of the products subject to the investigation had increased in volume
terms by almost 700 per cent from Septembe r 1998 - August 1999 (P1) to September 1999 –
August 2000 (P2), and by almost 600 per cent in th e following 12-month period (P3).  Furthermore,
imports during the period mentioned in Article 6.8 (i.e. August 2001 to July 2002) followed the same
pattern, further increasing.  In terms of market share, imports from Chinese Taipei increased from1.3 per cent of Brazilian apparent consumption during P1 to 19.3 per cent during P2 and 42.7 per cent
during P3.  The average price of imports from Chinese Taipei at a similar stage of commercialG/TMB/R/97
Page 4
transaction to that of the corresponding domestic products decreased from US$10.10  per kilogram
during P1 to US$6.59  per kilogram during P2 and US$4.18 per kilogram during P3.
10. The TMB recalled that according to Article 6.9, it had to determine whether the agreement
reached between Brazil and Chinese Taipei was justified in accordance with the provisions of
Article 6.  In order to make its determination, the TMB first had to examine whether Brazil hadsuccessfully demonstrated pursuant to the provisions of Articles 6.2 and 6.3 that the products subject
to the agreed restraint were being imported into it s territory in such increased quantities as to cause
serious damage to its domestic industry producing like and/or directly competitive products.  In the
affirmative, the TMB would have to consider, as a next step, whether Brazil had been right, pursuant
to the provisions of Article 6.4, in attributing the serious damage to a sharp and substantial increase in
imports from Chinese Taipei.  Should the TMB conclude that Brazil had acted in conformity with
Articles 6.2, 6.3 and 6.4, it would have to examine whether the respective agreement complied withthe applicable provisions of Article 6 (such as Article 6.8 regarding the level of the agreed restraint,
Article 6.12 concerning the duration of the measure, Article 6.13 as regards the growth rates and
flexibility provisions) and, if appropriate, whether it met other requirements specified by the ATC.
(a) Developments in total imports of Brazil
11. The TMB recalled that the volume of Brazilian imports from all sources of the two products
taken together had dynamically increased during September 1999 – August 2000, compared with the
corresponding previous 12-month period.  This in crease of 306.1 per cent had been followed by a
significant further increase of 206.5 per cent during the period September 2000 – August 2001.  As a
result, during the three successive 12-month periods considered, the volume of total imports of the
two products concerned had reached an overall increase of 1,144.8 per cent.  It was also noted that thevolume of total imports amounted to 38.944 tons during August 2001 – July 2002 (i.e. the period
referred to in Article 6.8).  Though this figure could not be directly compared to the import data
provided for September 2000 – August 2001 (36.308 tons) because of the one-month overlap between
the two periods, it provided a clear indication that during the most recent period, from an already
significantly increased base, imports had continued to  increase.  While it was true that the rate of thisincrease appeared to slow down, the continuously  upward trend could not be halted.  Thus, the
volume of total imports had increased more than twelvefold during a period of slightly less than four
years, by any standard a significant development that warranted a close examination of the possible
impact of such increased imports on the state of the Brazilian domestic industry producing like and/or
directly competitive products.
(b) Examination of the serious damage claimed and its causes
12. The TMB turned, therefore, to the examination of the effect of the marked increase of total
imports on the state of the domestic industry of Brazil, as reflected in changes in the relevant
economic variables set out in Article 6.3.  Before reviewing and analysing the reported developments
in these economic variables, the TMB first addressed some issues arising from the methodology
followed by Brazil in collecting data and providing factual information in support of its case.
(i) The Brazilian domestic industry for which factual information had been provided pursuant to
Article 6.7 and the methodology used for collecting such information.
13. The TMB noted that the investigation and the resulting measure had been initiated at the
request of a regional industry association, SI NDITEC, which represented 64 companies that produce
synthetic woven fabrics.  As indicated in the factual information provided by Brazil, 32 of these 64
companies declared that "they had produced, from September 1998 to August 2001, a total of 43,973tons of the woven fabrics classified under the two […] tariff lines [covering the products subject to the
safeguard measure].  This volume corresponds to 65 per cent of domestic production of synthetic
woven fabrics, according to the Institute for Research and Industrial Marketing (IEMI), anG/TMB/R/97
Page 5
independent entity hired by the petitioner to carry out a data survey on the companies that produce
synthetic woven fabrics for apparel".
14. In the view of the TMB, the latter part of this statement, which was included in the factual
information submitted by Brazil, raised a few questions.  First, the information provided appeared to
be ambiguous as to whether the volume reported for the period September 1998 to August 2001amounted to 65 per cent of the domestic production of all types of synthetic woven fabrics or to only
that of the two specific products subject to the re straint agreed between Brazil and Chinese Taipei.  If
this share was related to the production of synthetic woven fabrics as a whole, covering a broader
range of products than that of the two products in question, issues concerning the definition of the
products covered by the safeguard measure or the methodology adopted by Brazil in collecting and
providing specific and relevant factual information could also have arisen.  However, the manner in
which this information had been relied on and further developed throughout the factual informationprovided by Brazil, as explained in paragraph 16 below, led the TMB to assume that while the
domestic industry producing the products subject to the agreed restraint corresponded to the broader
industrial segment producing different types of synthetic woven fabrics, the volume of 65 per cent
reported had to be related to the output of the two specific products for which serious damage had
been claimed.
15. Second, questions could also be raised regarding the extent to which the situation in the
domestic industry producing like and/or directly competitive products had been captured by the
factual information submitted by Brazil.  A careful reading of the detailed factual information led the
TMB to conclude that the entire domestic industry  consisted of and was limited to the 64 companies
represented by SINDITEC.  Thirty-two of the 64 companies "that answered the questionnaire"produced around 65 per cent of the total domestic production and the other 32 companies apparently
had not provided specific information for the purpose of the investigation.
16. The TMB recalled in this context that it had already observed on previous occasions
4 that
although the ATC does not provide a definition of what constitutes the domestic industry producing
like and/or directly competitive products (for the purpose of an investigation and a safeguard measureto be adopted pursuant to Article 6), the failure to provide information on a significant part of such an
industry could bring about important uncertainties and could, therefore, hamper the ability of both the
importing Member and the TMB to assess the situation of the domestic industry in question.  The
TMB noted and appreciated the fact that Brazil seemed to have shared similar concerns and that it had
made efforts to remedy this situation by trying to provide information which was supposed to cover
the entire domestic industry.  Since half of the companies concerned had not provided any
information, this was essentially achieved by extrapolating the data received from the other 32companies, whose production volume in the period September 1998 to August 2001 was reported to
correspond to 65 per cent of the total domestic production.  The TMB understood that the resulting
data had been checked and further assessed by the entity hired for the purpose of conducting the data
survey.  While recognizing that this methodology could provide a good indication of the volume of
total domestic output and some related economic variables, the TMB observed also that theextrapolated data could not necessarily be fully reliable.  Uncertainties could stem from the
assumption underlying the methodology of extrapolat ion, i.e. that the share in the total production
volume of the companies that had not answered the questionnaire had remained stable, representing
35 per cent, throughout the three-year period considered.  This assumption of continuous unchanged
share could not reflect certain developments that could or would have taken place over time and couldhave had some relevance in the examination of the serious damage claimed by those domestic
producers that had requested the initiation of the investigation and the introduction of the safeguard
measure.  This observation notwithstanding, the TMB accepted that Brazil had sought to provide
factual information covering the entire domestic industry producing like and/or directly competitive
products.
                                                     
4 See, in particular, G/TMB/R/49, paragraph 19 and G/TMB/R/51, paragraph 21.G/TMB/R/97
Page 6
(ii) Specificity of the factual information provided by Brazil
17. In demonstrating serious damage pursuant to Article 6.2, the factual information concerning
the economic variables listed in Article 6.3 should be related, in a particular case, to what constitutes
the domestic industry producing like and/or directly competitive products, and, to the extent possible,
be specific to that particular industry in respect of which the serious damage is being claimed.  TheTMB recalled that, on a previous occasion, it had already emphasized that "in case of recourse to
Article 6, it was important to provide as much factual information and data as possible that was
specific to the product […] itself [i.e. to the product(s) subject to the transitional safeguard measure],
as product-specific information and data should have a major impact on the overall assessment
whether serious damage or actual threat thereof could be demonstrated".
5   It was also understood that
there could be a situation where it had not been possible for the importing Member to provide
product-specific information and data with respect to each and every economic variable envisaged inArticle 6.3.  The TMB had also expressed the view that in such a case and in respect of such variables,
factual information and data that related as closely as possible to the product(s) in question should be
examined and submitted.
6
18. Bearing in mind the above, the TMB also noted that Brazil had provided factual information
on each of the economic variables listed in Article 6.3.  In addition, the information had covereddomestic sales, which is not explicitly mentioned in the same Article.  Furthermore, the factual
information provided by Brazil was specific to the products subject to the safeguard measures in
relation to  output, inventories, market share, exports, capacity utilization, domestic prices and
productivity, whereas, data regarding employment, wages, profits and investments were related to a
somewhat broader segment of the industry. Taking all the above into consideration, the TMB notedthat Brazil had essentially complied with the requirements of providing specific and relevant factual
information for the  period covered by its investigation in  order to substantiate its case.
(iii) Examination of changes in the relevant economic variables, as reported by Brazil
19. It was noted that the volume of domestic output  had increased by 15.5 per cent during the
second period (P2) compared with the first period (P1).  During the same period, however, apparentconsumption showed an increase of 52 per cent and, as a result, the greater part of this latter increase
had been covered by the significant increase in total imports.  The serious difficulties had begun
during the third period (P3), when domestic production had decreased by 25.2 per cent (or by
13.6 per cent if compared with P1), while appa rent consumption had increased by a further
50.5 per cent and imports had registered an increase of 206.5 per cent.  It was also recalled that,
according to the supplementary information received from Brazil, in 2002 domestic output had shown
a further decline of around 4 per cent in comparison with the performance of 2001.  The TMB notedthat the significant decline of domestic output that had begun during the third period pointed to an
industry facing serious difficulties since both im ports and apparent consumption had shown a further
dynamic growth during the same period.
20. It was observed that the utilization of production capacity  had reached very low levels
throughout the period investigated (26.4 per cent, 29.8 per cent and 25.1 per cent, respectively, duringP1, P2 and P3).  However, Brazil had also recogniz ed in the factual information provided that these
rates would indicate higher levels if other parcels of artificial and synthetic woven fabric production
not covered by the investigation were included.  The TMB noted that the rate of utilization had
decreased during P3, but was of the view that this trend could not be directly attributed to the effects
of increased imports since the same machinery, equipment and labour force could be used for theproduction of other goods by the industry producing ar tificial and synthetic woven fabrics.  In any
event, it was considered that the information relate d to the utilization of capacity would not provide
                                                     
5 See G/TMB/R/26, paragraph 25.
6 See G/TMB/R/26, paragraph 26.G/TMB/R/97
Page 7
important guidance in assessing the overall state of the domestic industry as affected by the claimed
pressure of significantly increased imports.
21. In the view of the TMB, no meaningful conc lusion could be drawn from the information
related to inventories  either, especially since this information was only partial, due to the fact that it
was limited to the data on inventories provided by the 32 companies requesting the initiation of theinvestigation.  Though the inventory-to-production ratio of these companies indicated a clear
deterioration, in particular in P3, this could constitute, at most, a slightly negative factor in the overall
picture revealed by the domestic industry.
22. The TMB recalled that information regarding domestic sales , an economic variable not listed
in Article 6.3, demonstrated an increase of 15.6 per cent in P2, followed by a significant drop in P3
(29.1 per cent compared with P2 and 18.0 per cent compared with P1).  It was observed that the
respective data had been derived from the information available regarding output, exports andinventories.  While recognizing the unfavourable developments that had started during P3, it had to be
kept in mind that data related to inventories were only partial (see paragraph  21 above) and this could
inject an element of distortion or uncertainty into the constructed figures provided by Brazil regarding
domestic sales.
23. The TMB noted that exports  of the two products represented a very small fragment of the
domestic output (1.45 per cent during P1, 1.96 per cent during P2 and 2.77 per cent during P3).
Furthermore, exports had continued to remain at an insignificant level in 2002;  their total volume had
actually decreased by around 20 per cent compared wi th 2001.  The TMB agreed that developments in
exports, given their very limited magnitude, were essentially irrelevant to the examination of the
determination of serious damage.
24. It was observed that the average prices  of the domestic products had increased by
19.6 per cent during P2 and by a further 21.3 per cent during P3, while average import prices had
revealed an opposite movement (a significant drop of 43.9 per cent during P2 and a further decrease
of 5.2 per cent during P3).  In the supplementary information, Brazil reported that in 2002 import
prices had remained relatively stable, while domestic prices had shown an important downwardinflexion, although remaining above the average level of import prices.  The TMB noted that the
changes in the ratio between average imports prices and domestic prices appeared to be particularly
relevant for the purpose of assessing the possible impact of increased imports on the state of the
Brazilian domestic industry.  While this ratio achieved 171.43 per cent in P1, it dropped practically by
half to 85.1 per cent in P2 and decreased further to 66.4 per cent in P3.  In reflecting on these changes
and the respective opposite movements of domestic and imports prices, it was observed that the
Brazilian industry had not reacted i mmediately to the pressure arising from the significant drop of the
average import prices as could be expected, since the average domestic prices had continued to
increase even in these circumstances.  The likely explanation was that, as indicated also by Brazil in
the factual information, the domestic industry had sought to move to higher-end segments of the
market, thereby allowing imports to take over the lower-end segments.  This strategy had apparently
failed, since the Brazilian industry had proved unable to compete with the flux of imports (and theirrespective price level) and had lost further ground.  The TMB observed that, independent of the
industry's strategy, the significant price gap that had prevailed, in particular during P3, had created
insurmountable difficulties to the domestic producers, which had been reflected in the decline of their
production and in the significant drop in their share of the market.
25. Turning to the developments related to employment , it was observed that the information
provided by Brazil was related to a broader segment of the domestic industry and did not contain data
regarding absolute figures for total employment.   Although it was not possible to make a well-
informed judgment on the changes reported in this area, it appeared to the TMB that the job losses had
been quite significant (around 10 per cent of the total workforce) during P3.  In view of the
geographical concentration of the domestic industry (within certain municipalities in the State of  SãoG/TMB/R/97
Page 8
Paolo), the marked decline in employment could create serious difficulties in the areas and
populations concerned.  However, it was not possible to assess the extent to which these job losses
could be linked directly to the effects of the competition caused by increased quantities of imports of
the two products in question.
26. The TMB observed that the reported decrease of 4.5 per cent in productivity  (calculated as
the annual volume produced per employee) pointed to problems encountered by the domestic
industry, but this could not be considered as a crucial indicator in assessing the overall situation,
because the same workforce could also be moved to other production lines of the artificial and
synthetic woven fabric industry.
27. Turning to the evolution of wages , the TMB noted that nominal wages had steadily increased
during the three periods examined.  Since the domestic industry had experienced serious problems
allegedly linked to increasing low-priced imports, wages should normally have shown a decreasingtrend.  It could thus be argued that wage increases had caused a kind of self-inflicted weakness to the
industry.  The TMB understood, however, that the Br azilian companies had to comply with relatively
rigid labour statutes (which had been conceived to offset high inflation rates that had occurred in the
past).  Furthermore, wages had remained virtually at the same level in real terms during the three
twelve-month periods considered (in fact, the combined  rate of inflation had slightly exceeded the rate
of increase in nominal wages).  In this context, the evolution in wages could not provide sufficient
guidance in the overall assessment of the state of the domestic industry.
28. Data regarding average profitability  of the investigated companies revealed a continuous
deteriorating trend, indicating important losses starting in P3 and apparently continuing beyond that
period.  The TMB observed, on the one hand, that these data had been related to a broader segment ofthe domestic industry and, therefore, the problems experienced could not be explained solely by the
pressure caused by the increased volume and the respective low price level of total imports.  The
TMB accepted, on the other hand, that the longer-term viability of the Brazilian domestic industry
could not be sustained in circumstances when th e industry in question was experiencing important
losses.  It had to be assumed that the negative profitability could be, at least partially, the result of thecompetition of low-priced imports of the two products in question.
29. It was observed that, according to the factual information provided by Brazil, the sector had
continued to make investments  during the three periods examined, but the amount invested during P3
had decreased by around one third compared with the previous period.  The TMB noted that, in the
view of Brazil, this downturn in investments had been caused by the pessimism of domestic producers
in light of the low financial returns.  It was also noted that investments had primarily been designed to
acquire more efficient and more productive equipment.  The data and information at the TMB'sdisposal in this regard pointed to a domestic industry which was struggling to survive and trying to
adjust.  It was also observed, however, that the new and more efficient machinery and equipment
acquired could be used in other production lines as well.
30. As regards the data provided concerning the market share  held by the domestic producers,
the TMB recognized that the loss of around 60 percentage points over the period examined, with theapparent consolidation of this loss during the most recent period, indicated an industry that had been
facing serious difficulties and that its longer term viability could also be called into question unless
remedial steps were taken rapidly.
(iv) Overall assessment
31. Recalling that pursuant to Article 6.2, "[…] serious damage […] 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", the TMB noted the view expressed by
Brazil that Brazilian textile industrial equipment was currently on par with competitors in otherG/TMB/R/97
Page 9
developing countries.  The factual information, which stated that nearly all investments in plant
modernization had been targeted toward acquiring equipment that contained technological innovation
more suitable for working with synthetic weave, seemed to support the validity of this view.
32. Furthermore, the TMB had no reason and no grounds to question Brazil's statement to the
effect that woven fabrics produced by its domestic industry "contain superior quality which pleasesboth domestic and foreign consumers".
33. In light of paragraphs 31 and 32 above, the TMB accepted Brazil's view that the difficulties
experienced by the Brazilian domestic industry could not result from technological changes or
changes in consumer preference.
34. The TMB recalled that, according to Article 6.3, "[i]n making a determination of serious
damage […] the Member shall examine the effect of [such increased quantities of ] imports on the
state of the particular industry, as reflected in changes in […] relevant economic variables [listed inArticle 6.3];  none of which, either alone or combined with other factors, can necessarily give decisive
guidance".  After having considered the changes reported by Brazil in each of the relevant economic
variables, the TMB concluded that the significant in crease of the volume of total imports of the two
products, coupled with their low price level, had caused serious damage to the Brazilian domestic
industry, as reflected, in particular, in the significant drop in output and domestic sales (both startingduring the third period examined), the significant loss of market share and the decline and subsequent
negative profitability of the companies concerned.  This conclusion was also supported, to a certain
extent, by the decrease in the employment level an d by the trends observed regarding the investments
made.  The TMB observed, furthermore, that the evolution of exports was largely irrelevant given the
insignificant quantities involved, while information regarding other economic variables such ascapacity utilization, inventories, productivity and wages did not provide meaningful guidance in
assessing the overall state of the domestic industry as affected by the significant increase in total
imports.
35. Accordingly, the TMB found that Brazil had successfully demonstrated, pursuant to the
provisions of Articles 6.2 and 6.3, that the two products subject to the agreed restraint were beingimported into its territory in such increased quantities as to cause serious damage to its domestic
industry producing like and/or directly competitive products.
(c) Attribution of the serious damage to imports from Chinese Taipei
36.  The TMB recalled that according to Article 6.4 "[…] [t]he Member or Members to whom
serious damage, or actual threat thereof, referred to in paragraphs 2 and 3 [of Article 6], is attributed,
shall be determined on the basis of a sharp and substantial increase in imports, actual or imminent,
from such a Member or Members individually, and on the basis of the level of imports as comparedwith imports from other sources, market share, and import and domestic prices at a comparable stage
of commercial transaction;  none of these factors, either alone or combined with other factors, can
necessarily give decisive guidance. […]".
37. It was noted that imports from Chinese Taipei of the two products subject to the agreed
restraint had increased by 695 per cent in P2 and by a further 576 per cent in P3 compared with therespective previous 12-month periods.  Though not directly comparable, such imports also continued
to increase during August 2001 to July 2002, the reference period established pursuant to Article 6.8.
Therefore, imports from Chinese Taipei showed a sharp and substantial increase during the period
analysed.  The share of Chinese Taipei in total imports of Brazil amounted to 9.9 per cent in P1,
19.3 per cent in P2, 42.3 per cent in P3 and 41.5 per cent during the reference period, makingChinese Taipei the major foreign supplier to the Brazilian market.  The share of the two products
imported from Chinese Taipei in the total apparent consumption of Brazil represented 1.25 per cent
during P1, 6.53 per cent during P2 and 29.34 per cent during P3.  Since apparent consumption hadG/TMB/R/97
Page 10
more than doubled from P1 to P3, the almost 30 per cent share achieved in P3 corresponded to a
significant portion of the Brazilian market.  The ra tio of the average price level of products imported
from Chinese Taipei to the average price level of domestic production, examined at a comparable
stage of commercial transaction, amounted to 187.4 per cent during P1, 108.2 per cent during P2 and
56.6 per cent during P3, a clear indication that in P3 the domestic producers had been unable tocompete with the significantly lower-priced imports originating from Chinese Taipei.
38. Having considered all the relevant facts, the TMB agreed with Brazil that the serious damage
caused to its domestic industry could be attributed, inter alia , to imports from Chinese Taipei.
(d) Review of the main elements of the agreement reached
39. The TMB noted that the agreed restraint had been applied as from 27 January 2003 and would
remain in force until 31 December 2004.  Furthermore, the level of the restraint established for the
first year exceeded by 3.5 per cent the rollback level as specified in Article 6.8.  For the second yearof application, the restraint level would be increased by 8 per cent.  The agreement reached between
Brazil and Chinese Taipei provided also for the possibility of carryover of 10 per cent and carry
forward of 10 per cent.  Thus, the agreed restraint would be implemented fully in accordance with the
requirements specified in Article 6.13.
40. An Annex to the agreement laid down the related administrative procedures to be applied for
the implementation and control of the restraint.  Th e TMB noted that the procedures contained in the
Annex largely corresponded to the provisions of administrative arrangements referred to in
Article 2.17.  Also in line with the provisions of Article 4.1, the restraint would be administered by
the exporting Member through the issuance of export licenses.  The Brazilian authorities would issue
the import authorization upon presentation by the importers of the corresponding exportauthorizations.  The administrative procedures ag reed specified the format and model of the export
authorizations to be used and also provided fo r the transitional arrangements to be applied to
shipments for which import authorizations had already been issued before the entry into force of the
agreed measure.  The TMB took note of the administrative procedures contained in the Annex to the
agreement.
(e) Overall conclusion
41. Bearing in mind, in particular, the conclusions reflected in paragraphs 35, 38, 39 and 40
above, the TMB determined that the agreement reached between Brazil and Chinese Taipei was
justified in accordance with the provisions of Article 6.
Brazil/Korea:  imports by Brazil of certain woven fabrics from Korea
42. The TMB resumed its review7, pursuant to Article 6.9, of the notification by Brazil of a
restraint measure agreed with Korea on imports from Korea of other woven fabrics, containing85 per cent or more by weight of textured polye ster filaments, dyed, without rubber filaments
(HS/NCM Code 5407.5210)
8 and of other woven fabrics, containing 85 per cent or more by weight of
non-textured polyester filaments (HS/NCM Code 5407.61 00).  According to this notification, a limit
of 15,606,527 kg. was agreed for the first quota year (i.e. 27 January 2003 to 26 January 2004).  The
rollback level envisaged in Article 6.8 was 15,078,770 kg.  For the second quota year, the quota levelwould be increased by 8 per cent.  The measure was set to remain in force until 31 December 2004.  It
was also noted that the request for consultations had been made on 30 October 2002.  The TMB
observed, inter alia , that the specific and relevant factual information provided by Brazil in
accordance with Article 6.7 contained data with respect to developments in total imports as well as
                                                     
7 See G/TMB/R/96, paragraph 13.
8 NCM: Mercosul Common Tariff ("Nomenclature Comun do Mercosul")G/TMB/R/97
Page 11
several economic variables, including production, production capacity and capacity utilization,
exports and prices, for three subsequent twelve-months periods, up to the period September 2000 –
August 2001.  Furthermore Brazil provided information for the period August 2001 to
September 2002 (the period referred to in Article 6.8) on imports, as well as 2002 data for several
other economic variables (share of imports in the apparent consumption, production, domestic sales,exports, import and domestic prices, as well as preliminary indications regarding profitability).  The
TMB recalled that pursuant to Article 6.9, in order to determine whether the agreement was justified
in accordance with the provisions of Article 6, it shall have available to it the factual data provided in
accordance with Article 6.7, as well as any other relevant information provided by the Members
concerned.
43. Brazil provided the same specific and relevant factual information to Korea as it had provided
in the case of the restraint measure agreed with Chinese Taipei (see paragraphs 7 and 8 above).  Asregards the attribution to certain Members of th e serious damage being caused to the Brazilian
domestic industry, according to that information, imports from Korea of the products subject to the
investigation had increased in volume terms by about 547 per cent from September 1998 –
August 1999 (P1) to September 1999 - August 2000 (P2) , and by almost 155 per cent in the following
12-month period (P3).  Furthermore, imports duri ng the period referred to in Article 6.8 (i.e.
August 2001 to July 2002) followed the same pattern, further increasing.  In terms of market share,
imports from Korea increased from 3.4 per cent of Brazilian apparent consumption during P1 to 14.6
per cent during P2 and 35.9 per cent during P3.  The average price of imports from Korea at a similar
stage of commercial transaction to that of the corresponding domestic products decreased from
US$9.47 per kilogram during P1 to US$5.40 per kilogram during P2 and increased slightly toUS$5.69 per kilogram during P3.
(a) Developments in total imports of Brazil and examination of the serious damage claimed and
its causes
44. The TMB observed that the request for consultations pursuant to Article 6.7 had been
addressed by Brazil to Korea on the same date as a similar request addressed to Chinese Taipei,9 and
that it covered the same two products (i.e. other woven fabrics, containing 85 per cent or more by
weight of textured polyester filaments, dye d, without rubber filaments (HS/NCM Code 5407.5210)
and other woven fabrics, containing 85 per cent or more by weight of non-textured polyester filaments
(HS/NCM Code 5407.6100).  Moreover, the TMB observed that the specific and relevant factual
information provided to Korea together with the request for consultations pursuant to Article 6.7,
concerning developments in total imports and the factors referred to in Article 6.3, on which Brazil
had based the determination of the existence of serious damage, was the same as that provided toChinese Taipei, referred to above.
10  Therefore, the TMB considered that its examination of the
information provided, as detailed in paragraphs 11 to 34 above, and its finding that Brazil had
successfully demonstrated, pursuant to the provisions of Articles 6.2 and 6.3, that the two products
subject to the agreed restraint were being imported in to its territory in such increased quantities as to
cause serious damage to its domestic industry producing like and/or directly competitive products11
applied also to the case of the restraint agreed between Brazil and Korea.
(b) Attribution of the serious damage to imports from Korea
45. The TMB recalled that, according to Article 6.4, "[…] [t]he Member or Members to whom
serious damage, or actual threat thereof, referred to in paragraphs 2 and  3[of Article 6], is attributed,
shall be determined on the basis of a sharp and substantial increase in imports, actual or imminent,from such a Member or Members individually, and on the basis of the level of imports as compared
                                                     
9 See G/TMB/R/96, paragraphs 13 and 12, respectively.
10 See paragraph 7 above.
11 See paragraph 35 above.G/TMB/R/97
Page 12
with imports from other sources, market share, and import and domestic prices at a comparable stage
of commercial transaction;  none of these factors, either alone or combined with other factors, can
necessarily give decisive guidance. […]".
46. It was noted that imports from Korea of the two products subject to the agreed restraint had
increased by 547 per cent in P2 and by a further 155 per cent in P3 compared with the respectiveprevious 12-month periods.  Though not directly comp arable, such imports also continued to increase
during August 2001 to July 2002, the reference period established pursuant to Article 6.8.  Therefore,
imports from Korea showed a sharp and substantial increase during the period analysed.  The share of
Korea in total imports of Brazil amounted to 27.2 per cent during P1, 43.3 per cent during P2,
35.9 per cent during P3 and 38.7 per cent during the reference period.  Thus, Korea had become the
second main foreign supplier to the Brazilian market with more than one third of overall imports.  The
share of the two products imported from Korea in the total apparent consumption of Brazilrepresented 3.44 per cent in P1, 14.63 per cent in P2 and 24.73 per cent in P3, a significant portion of
the Brazilian market.  The ratio of the average price level of products imported from Korea to the
average price level of domestic production, examined at a comparable stage of commercial
transaction, amounted to 175.7 per cent during P1, 88.7 per cent during P2 and 77.0 per cent during
P3, which was a clear indication that, during P2 and in particular P3, the domestic producers had beenunable to compete with the significantly lo wer-priced imports originating from Korea.
47. Having considered all the relevant facts, the TMB agreed with Brazil that the serious damage
caused to its domestic industry could be attributed, inter alia , to imports from Korea.
(c) Review of the main elements of the agreement reached
48. The TMB noted that the agreed restraint had been applied as from 27 January 2003 and would
remain in force until 31 December 2004.  Furthermore, the level of the restraint established for the
first year exceeded by 3.5 per cent the rollback level as specified in Article 6.8.  For the second year
of application, the restraint level would be increased by 8 per cent.  The agreement reached between
Brazil and Korea provided also for the possibility of carryover of 10 per cent and carry forward of
10 per cent.  Thus, the agreed restraint would be implemented fully in accordance with therequirements specified in Article 6.13.
49. An Annex to the agreement laid down the related administrative procedures to be applied for
the implementation and control of the restraint.  Th e TMB noted that the procedures contained in the
Annex largely corresponded to the provisions of administrative arrangements referred to in
Article 2.17.  Also in line with the provisions of Article 4.1, the restraint would be administered by
the exporting Member through the issuance of export licenses.  The Brazilian authorities would issue
the import authorization upon presentation by the importers of the corresponding exportauthorizations.  The administrative procedures ag reed specified the format and model of the export
authorizations to be used and also provided fo r the transitional arrangements to be applied to
shipments for which import authorizations had already been issued before the entry into force of the
agreed measure.  The TMB took note of the administrative procedures contained in the Annex to the
agreement.
50. Bearing in mind, in particular, the conclusions reflected in paragraphs 44, 47, 48 and 49
above, the TMB determined that the agreement reached between Brazil and Korea was justified in
accordance with the provisions of Article 6.G/TMB/R/97
Page 13
Notification under Article 3.2(b)
51. The TMB observed that the notification made by Brazil under Article 6.9 of a restraint
measure agreed with Chinese Taipei, examined above12, contained, in addition, a bilateral agreement
between the two Members with reference to the pha se-out programme of the quantitative restriction
maintained by Brazil on imports from Chinese Taipei of certain man-made knitted or crochetedfabrics, notified by Brazil pursuant to Article 3.2(b).
13  This phase-out programme had been examined
by the TMB at its meeting in July 2002.14  According to this agreement, the restraint level for the last
quota year (i.e. 15 September 2002 to 14 September 2003) was increased by 43.75 per cent and the
termination of the restriction was brought forward to 30 June 2003.  The TMB took note of this
notification.
_____________
                                                     
12 See paragraphs 5 to 41 above.
13 See G/TMB/N/453.
14 See G/TMB/R/90, paragraph 56.