RESTRICTEDWORLD TRADE
ORGANIZATIONG/TMB/R/92
15 November 2002
(02-6355)
Textiles Monitoring Body
REPORT OF THE NINETY-THIRD MEETING
1. The Textiles Monitoring Body held its ninety-third meeting on 15 October 2002.
2. Present at this meeting were the following members and/or alternates: Messrs. Alvarado;
Ekawat; Farahat/Dalela; Karapinar; Lee; Sorensen; Tagliani; Wentzel/Seppey; Yoshikawa;
Ms Zhang.
3. The TMB adopted the report of its ninety-second meeting (G/TMB/R/91).
Notifications under Article 2.1 of the Agreement on Textiles and Clothing (ATC)
4. The TMB reverted to its examination of a notification received pursuant to Article 2.1 from
the European Communities following the accession of China to the WTO.  The TMB considered in
particular the question of the growth rates for European fairs quotas, in the light of the observations
made by China in this regard (G/TMB/N/436), and of the additiona l information provided by the
European Communities in response to TMB's questions (G/TMB/N/60/Add.5/Suppl.2).  The TMB
decided to seek the EC's confirmation of the Body's  understanding that the European fairs quota levels
notified for 2001 by the European Communities1 had already been made available to China in 2002,
and that this would continue in 2003 and 2004, in addition to the regular quotas;  it being further
understood that such additional quotas may be used by China exclusively at European fairs.
5. The TMB reverted to its examination of a notification received pursuant to Article 2.1 from
the United States following the accession of China to the WTO, also on the basis of additional
information received from the United States (G/T MB/N/63/Add.12/Suppl.4) in response to a question
put by the TMB concerning one US product sub-category.  According to the explanations provided by
the United States, as a result of the integration in Stage 3 of products belonging to one US sub-
category, the United States had inadvertently deducted the average trade for these products not from
the corresponding group limit, but from another one.  The TMB noted that on 29 August 2002 theUnited States had made an administrative correction and deducted the average trade for those
products from the proper group limit, while re-crediting the group limit from which the inappropriate
deduction had been made.
Notifications under Article 2.17 of the ATC
Administrative arrangements between the European Communities and China
6. The TMB concluded the review, pursuant to Article 2.21, of the notification of administrative
arrangements agreed between the European Communities and China (G/TMB/N/444), taking also into
account the replies provided in response to the TM B's request for additional information by both the
European Communities (G/TMB/N/444/Adds.1, 2, and 3) and China (G/TMB/N/451 and Add.1).2
The TMB noted that the administrative arrangements had been bilaterally agreed and that they had
been jointly notified by the two Members concerned.
7. The TMB observed that the administrative arrangements contained detailed provisions
regarding product classification, rules of origin, a double-checking system, comprising the issuance of
                                                     
1 See G/TMB/N/60/Add.5, Appendix B to Annex I – Part 1.
2 See G/TMB/R/87, paragraph 14;  G/TMB/R/89, paragraph 14 and G/TMB/R/90, paragraph 52.G/TMB/R/92
Page 2
export licences and the corresponding import authorization, the operation of a "reserve" available
exclusively to the EC's industry for a defined time-period, additional amounts reserved for use at
European fairs, outward processing and imports to the European Communities for re-export after
processing, products exempt from quantitative restrictions under certain conditions (cottage industry,
handloom and folklore products), exchange of statistical information, circumvention, "regionalconcentration", consultation procedures and administrative cooperation.
8. Recalling that according to Article 2.17 "[a]dmin istrative arrangements, as deemed necessary
in relation to the implementation of any provision of [Article 2], shall be a matter for agreement
between the Members concerned", the TMB noted that most of the provisions of administrative
arrangements agreed between the European Communities and China were designed to ensure the
implementation of measures notified by the European Communities under Article 2.  It was observed,
however, that not all the provisions of these administrative arrangements were fully or directly relatedto the implementation of provisions of Article 2, but that they also dealt with matters that were
addressed in some other articles of the ATC.  In this context, the TMB noted that with the agreement
of the parties, the administrative arrangements also applied  mutatis mutandis  to the quantitative limits
notified by the European Communities under Article 3 of the ATC.  The TMB considered that this
provision was helpful in clarifying the rules and pr ocedures applicable to the administration of such
restrictions and also for the purpose of implementing their progressive phase out in the sense of
Article 3.2(b).
9. Turning to the main elements included into the administrative arrangements, the TMB
considered that detailed rules and procedures concerning classification of products, determination of
their origin as well as export and import control were necessary for ensuring the proper administrationof the restrictions notified and maintained under the ATC.  It was noted in this context that the
respective provisions of the administrative arrangements do not affect the exporting Member's ability
to administer the restrictions in question, as provided for in the first sentence of Article 4.1.  Also, the
double-checking system instituted by these arrangements could be intended to implement the
provision contained in the second sentence of Article 4.1, which says that "[i]mporting Members shallnot be obliged to accept shipments in excess of th e restrictions notified […]".  According to the
administrative arrangements any amendment to the EC's Combined Nomenclature or any decision
which results in a modification of the classification of products "shall not have the effect of reducing
the People's Republic of China's ability to use the quantitative limits established under Article 2 of the
ATC".  Similarly "[i]f any amendment is made to th e rules of origin, the Community shall, with the
agreement of the People's Republic of China, take all appropriate measures to avoid any possible
consequent reduction of the People's Republic of China's ability to use the quantitative limitsestablished under Article 2 […]".  The TMB  noted that these provisions were in conformity with the
requirements specified in Article 4.2, namely that "[…] the introduction of changes […] in the
implementation or administration of those restrictions notified or applied under this Agreement should
not:  upset the balance of rights and obligations between the Members concerned under this
Agreement;  adversely affect the access available to a Member;  impede the full utilization of suchaccess;  or disrupt trade under this Agreement".  The application of the special consultation
procedures included into the administrative arrangements is explicitly mentioned in the text in relation
to amendments to classification, with the stated objective of "agreeing [on] necessary adjustments to
the appropriate quantitative limits established under Article 2 of the ATC and mitigating any
disruptive effects which might arise from such a Community decision".  The TMB recalled thatArticle 4.4 provides for consultations in such cases "with a view to reaching a mutually acceptable
solution regarding appropriate and equitable adjustment" and states also that "[i]f a mutually
satisfactory solution is not reached, any Member involved may refer the matter to the TMB for
recommendations as provided in Article 8".  It was observed that provisions of the administrative
arrangements agreed pursuant to Article 2.17 could not affect or alter Members' respective rights andobligations arising from any provision of the ATC, including their right to refer matters to the TMB
with reference to a specific provision of the ATC.  It was noted that the special consultation clause
included in the administrative arrangements between the European Communities and China is of aG/TMB/R/92
Page 3
procedural nature and does not prevent any of the Members concerned from referring any specific
matter to the TMB under the applicable provisions of the ATC.
10. The TMB noted that the administrative arrangements provided both a helpful and, at the same
time, necessary clarification to the import regime applied by the European Communities by
stipulating that "[e]xports to the Community […] shall not be subject to quantitative limits establishedunder Article 2 of the ATC, provided that they are declared to be for re-export outside the Community
in the same state or after processing […]";  the arrangements also specified the related procedures to
be followed.
11. It was also noted that the administrative arrangements contained a separate provision
concerning re-imports into the European Communities after processing in China ("outward processing
traffic" or OPT).  However, the respective language regarding OPT appeared to be somewhat
ambiguous when stating that "[s]uch reimports may be provided for outside the quantitative limitsestablished under Article 2 of the ATC provided that they are effected in accordance with the
regulations on economic outward processing in force in the Community".  The TMB recalled in this
regard that a separate section (Annex I, Part 2) of the notification provided by the European
Communities pursuant to Article 2.1
3 listed the "additional Community quantitative levels for goods
re-imported under outward processing traffic", toge ther with the respective growth rates.  Such
additional quantitative levels were notified for 19 product categories and, as stated by the European
Communities in its Article 2.1 notification, they "represent a supplementary quantitative access for
products reimported".  In light of the foregoing, the TMB observed that (i)  these additional access
opportunities had been notified as specific supplementary restraint levels under Article 2.1 and,
therefore, (ii) while such re-imports in the product categories concerned were not counted against the"ordinary" restraint levels notified pursuant to Article 2.1, they could not be effected completely
"outside the quantitative limits established under Article 2", since they were subject to the additional
quantitative levels defined for re-imports under OPT and equally notified under Article 2.1.
12. The TMB noted that according to the admini strative arrangements "[w]ithin the limits
described in the notifications of the Community to the TMB under Article 2.1 of the ATC, theseparate additional amounts specified for such purposes in the notification are reserved for use at trade
fairs on the understanding that such amounts may be used exclusively at European Fairs.  Such
amounts may be modified by the flexibility provisions notified to the TMB under Article 2.1 of the
ATC".  It was recalled that in an earlier notification made pursuant to Article 2.1, in reply to the
TMB's request for clarification, the European Communities had stated, inter alia , that the quota
"levels [for European Fairs] are additional amounts fixed on an annual basis" and that "they constitute
a separate and specific arrangement […]".
4  In a subsequent communication, the European
Communities provided additional explanation by stating that "quotas which on an ad hoc  basis are
granted annually to China for participation in European fairs are to be considered as additional export
facilities above the level of the already available quotas.  They are consequently equivalent to
additional facilities of exports above the level of the underlying restrictions already agreed and to
which the agreed growth rate and pertinent provisio ns of Article 2.14 (a) and (b) do apply.  No growth
rate is foreseen for the additional annual amount or quantity for participation in fairs.  This is also
logical, since the additional amounts for fairs are gran ted for specific annual events and it would be a
contradiction in terms, under these circum stances, to talk about annual growth".5  Noting that these
explanations had been intended to respond to China's observations under Article 2.2  which stated that
"the growth rates of European Fairs' quota with the application of Article 2.14(a) and (b) of the ATC[should be specified]"
6, the TMB recalled that it had decided to seek confirmation from the European
Communities that the quota levels for European fairs notified for 2001 had already been made
available to China for 2002, and that this would be continued in 2003 and 2004.  The TMB was of the
                                                     
3 See G/TMB/N/60/Add.5.
4 See G/TMB/N/60/Add.5/Suppl.1.
5 See G/TMB/N/60/Add.5/Suppl.2.
6 See G/TMB/N/436.G/TMB/R/92
Page 4
view that, in any event, issues related to the le vel and the growth rate of such quotas should be
considered in the context of the review of the respective notifications received under Articles 2.1 and
2.2.  For the purpose of reviewing the administrative arrangements notified under Article 2.17, it was
sufficient to note that the maintenance of such quotas or additional amounts had already been notified
by the European Communities pursuant to Article 2.1, therefore, the inclusion of this provision intothe administrative arrangements could be necessary in relation to the implementation of the provisions
of Article 2.
13. A particular feature of the administrative arrangements agreed between the European
Communities and China was the provision related to the operation in certain specific product
categories of a "reserve" available exclusively to  the EC's industry for a defined time-period.  The
TMB noted that the application of such an arrangement, together with the respective amounts
allocated for this purpose in 2001, had already been part of the notification provided by the EuropeanCommunities under Article 2.1 and that it had affected altogether nine product categories in the year
2001.  In reply to the request for clarifications, the European Communities indicated that "the industry
reserve quotas are increased each year according to the same growth rates as in the respective main
category, since the amounts constitute a percentage of  the main category. These amounts are reflected in
the so called 'footnotes', meaning Appendix A to Anne x I, part 1 of the notification of quantitative limits
made by the EC under Article 2(1) of the Agreem ent on Textiles and Clothi ng (ref: G/ TMB/N/60/Add.5
of 16 January 2002). The quotas remain a priority for industry during a certain amount of time (180
days) from the beginning of the year. The EC Member States have to submit to the European
Commission their applications for industry reserv e quotas each year before the 31 December. Then,
Chinese exporters holding an authorization to expor t textile products under quota restrictions are entitled
to apply for the industry reserve quotas to the releva nt Chinese foreign trade administrative bodies, after
signing sales contracts with EC industry users. Af ter the sales contracts have been submitted to the
respective administrative bodies within the time lim it the industry reserve quotas are reserved, China
then allocates the quotas to the respective operato rs according to its planning. If the total quantity
applied for in a certain category is less than the rema ining quantity of industry reserves for that category,
all the application are satisfied. On the contrary, if  the total quantity applied for exceeds the remaining
quantity available, the allocation is made on a pro rata basis".
7
14. The TMB recalled that comments had also been pr ovided by China with respect to the operation
of the "reserve" for the European industry which read  as follows:  " From the start of the agreement
year, certain quantities are reserved for European Industry within Category 2 and Category 3 for a
period of 115 days, and within Categories 5, 6, 7, 8, 15 and 26 for a period of 180 days. European
Industry refers to some European producing and/or processing enterprises, the qualification and list ofwhom are decided by the European Commission. In cases where the industry reserve is fully utilized
within the time limit, no quota will be allocated to fu rther application; only where the industry reserve
is not fully utilized will it be credited to normal quota and utilized by Chinese exporters."
8  I n  a
subsequent communication, China indicated9 that it did not disagree with the additional information
contained in the EC's additional notification, the relevant part of which is reflected in paragraph  13above.  A further notification by the European Communities provided in response to the Chinese
observations stated the following:
"[…] the pertinent provisions as notified to the TMB clearly spell out the reserve period of
180 days for the categories 5, 6, 7, 8 15 and 26, whereas [the same notification] does not
contain any reference to the reserve period of 115 days for categories 2 and 3.
[…] the 115 day period during which a priority for industry users applies up to 50 per cent of
the agreed quantities is clearly less constraining on the exporting country than the 180 day
period notified and may therefore be more favourable than the general rule.  Further, this
                                                     
7 See G/TMB/N/444/Add.1.
8 See G/TMB/N/451.
9 See G/TMB/N/451/Add.1.G/TMB/R/92
Page 5
arrangement has been in operation since the original textiles agreement between the
Community and China was concluded and has in no way been contested by the exporting
country.  On the contrary it has been working to the mutual satisfaction of both parties
concerned.  The fact that this 115 day period for the two categories does not appear in the
official notification, […] is in fact an oversight […]  In this connection, […] it was theexporting country, China, which quite correctly drew attention to the details of this
arrangement without by the way in any way contesting its existence."
10
15. In light of the above, the TMB observed that as pects related to the elements involved in the
operation of this system had been clarified and, if applicable, rectified.  As a result, there appeared to
be no disagreement between the two Members regarding its functioning.  It was also recalled that the
European industry "reserve" system had already been in place on the day prior to the date of China's
accession and had been notified pursuant to Article 2.1.  Also, though its proper implementationrequired appropriate cooperation between the aut horities of the two parties, the allocation and
administration of the respective reserve levels will be left with China, in accordance with the
requirements of Article 4.1.  The TMB observed, furthermore, that the availability of such reserve
levels was time-bound;  consequently the quantities reserved are either fully used up during the
respective time-frame, or any unused portion can be allocated for exports to other potential EC buyersafter expiration of the respective deadlines.  Therefore,  keeping also in view :  (i) that in all cases, at
least half of a year remained available for the purpose of filling up any unused portion of the
respective "reserve" restraint levels with exports to buyers other than those of the EC's industry;  and
(ii)  that in six product categories affected the levels to be "reserved" were below 7 per cent of the
respective annual quota levels, while in two other categories
11the reserve applied up to 50 per cent of
the related quota levels, it was considered unlikely that the overall impact of the operation of this
system would hinder the ability of the exporting Member to fully utilize the export possibilities
available under the respective annual restraint levels.
16. The administrative arrangements contain provisions relating to circumvention which state,
inter alia , that the two Members "agree to cooperate fully in preventing the circumvention of these
administrative arrangements by transshipment, re-r outing or whatever other means in accordance with
Article 5 of the ATC".  The TMB sought clarification from the European Communities as to how, in
the EC's view, such provisions were deemed necessa ry in relation to the implementation of Article 2.
Furthermore, since the arrangements also state that "[f]ollowing China's accession to the WTO, cases
of circumvention taking place before the accession will also be dealt with according to [the
circumvention provisions of the administrative arrangements]", the TMB requested information as to
whether this specific provision had been invoked.  The European Communities replied as follows:"As to the question whether provisions about circumve ntion have been invoked the answer is that this
has not been the case after China's accession to the WTO.  However, since Article 5 of the ATC
explicitly deals with this question, information about this possibility is not irrelevant from the point of
view of transparency. Information about the period preceding accession is not required under ATC."
12
17. The EC's reply, as above, had not been suffici ently clear in providing answers to the issues
raised.  It was observed, however, that in relati on to another administrative arrangement reviewed
recently by the TMB, in reply to similar questions posed by the Body, the European Communities had
stated that "the provisions concerning circumventi on were considered as complementary information for
the functioning of Article 2 of the ATC.  For tran sparency reasons, the parties had agreed to include
these provisions as they might affect the manner in which quantitative restrictions were implemented.Similar dispositions existed in most of the admini strative arrangements that the European Communities
had notified to the TMB under Article 2.17".
13  The TMB assumed that the European Communities had
                                                     
10 See G/TMB/N/444/Add.2.
11 In 2001, the system applied to nine product categories;  this number was reduced to eight as from
1 January 2002, since one of the previously affected product-category was integrated during Stage 3.
12 See G/TMB/N/444/Add.1.
13 See G/TMB/R/89, paragraph 12.G/TMB/R/92
Page 6
also intended to provide the same or similar ar guments in the present case.  As regards the EC's
statement that information on the period preceding accession was not required under the ATC, the TMB
recalled that the administrative arrangements notified by the European Communities included the
possibility of dealing with "cases of circumven tion taking place before [China's] accession" under the
circumvention provisions agreed for the purpose  of Article 2.17.  From the EC's reply, the TMB
concluded that, at that time, there were no "cases  of circumvention" taking place prior to China's
accession to the WTO, regarding which the respective provisions of the administrative arrangements
could be invoked.
18. The TMB noted that the circumvention provisions notified contained explicit reference to
Article 5.  The provisions of the administrative arrangements, however, seemed to focus on one
particular remedy or appropriate action in the sense of Article 5, i.e. on the adjustment of charges to
restraint levels ("deduction of the relevant quantitative limits") to reflect the true country or place oforigin.  The TMB recalled that Article 5.4 speaks of "appropriate action, to the extent necessary to
address the problem", but the adjustment of charges to restraint levels is only one of the possible
actions that has been identified.  Moreover, Article 5.4 lays down strict procedural requirements,
including the need to notify any action agreed in th e bilateral consultations, with full justification to
the TMB.  Also, if a mutually satisfactory solution is not reached, any Member concerned may referthe matter to the TMB for prompt review and recommendation.  Recalling that the language of the
administrative arrangements makes explicit reference to Article 5, the TMB expected that the
circumvention provisions agreed and notified purs uant to Article 2.17 would be implemented by both
Members in full compliance with Article 5.
19. A special clause of the administrative arrangements deals with the issue of "regional
concentration".  In essence, while the quantitative limits notified under Article 2.1 are not broken
down by the European Communities into regional shares, in case of "a sudden and prejudicial change
in traditional trade flows", the European Communities may request consultations with China in order
to find a satisfactory solution to such problems.  Furthermore, "if the Parties are unable to reach a
satisfactory solution during the consultations, the People's Republic of China will, if so requested bythe Community, respect temporary export limits for one or more regions of the Community …".
Explanation was requested as to how, in the view of the European Communities, this provision of the
administrative arrangements would fit with Article 2.4.  The European Communities replied that this
provision "[…] underlines the advantage derived from the establishment of the internal market within
the European Union, by which regional restrictions were abolished. In return this provision aims at
avoiding excessive concentration of exports to specific regions implying radical changes in traditional
trade patterns".
14  Subsequently, the European Communities notified the following:
"Concerning the regional concentration clause of the administrative arrangement between
China and the Community it is naturally not in the intention of the Community to deviate
from the pertinent provisions of the ATC. Consequently, [the Community] can confirm […]
that the implementation of the administrative arrangement and its provisions are not meant to
constitute a derogation from the provisions of the ATC."15
20. The TMB recalled in this regard that the noti fications provided by the European Communities
pursuant to Articles 2.1 and 3.1 contained quantitative restrictions applicable at the level of the
European Communities, as a single entity and that they had not included any reference to the
possibility of introducing temporary limitations that could apply to "one or more regions" of the
European Communities.  It was noted that the European Communities had never had recourse in thepast to the provisions of the "regional concentration clause".  Notwithstanding this, one could
conceive circumstances in which the application of this provision would run against obligations
undertaken by the European Communities under the ATC.  The TMB recalled in this regard the
provisions included in Article 2.4 as well as in the last sentence of Article 6.4.  Therefore, it was
                                                     
14 See G/TMB/N/444/Add.1.
15 See G/TMB/N/444/Add.3.G/TMB/R/92
Page 7
important to note the statement of the European Comm unities that it was not their intention to deviate
from the pertinent provisions of the ATC.  The TM B observed that this statement should provide
guidance in assessing possible future recourse, if any, to the clause in question.
21. The TMB also noted the confirmation of the Eu ropean Communities that "the implementation
of the administrative arrangements and its provisions are not meant to constitute a derogation from theprovisions of the ATC".  In light of this, in taking note of the arrangements agreed between the
European Communities and China, the TMB expected that the provisions of the administrative
arrangements would be implemented by the Members concerned in full compliance with the relevant
provisions of the ATC.
Administrative arrangements between the United States and China
22. The TMB concluded the review, pursuant to Article 2.21, of the notification made by the
United States of administrative arrangements with  China (G/TMB/N/450), also taking into account
the replies provided by the United States (G/T MB/N/450/Add.1) and the information provided by
China in reply to the TMB's requests for clarification on a number of aspects concerning the US'
notification.16
23. The TMB observed that the introductory paragraph of the notification stated that "the
provisions [notified] are drawn from the United States – China bilateral textile and apparelMemorandum of Understanding of 1 February 1997 and have been agreed […] to be necessary for the
proper implementation of restrictions notified to the Textiles Monitoring Body under Article 2.1 of
the Agreement on Textiles and Clothing".  The TMB recalled that all the administrative arrangements
previously notified by the United States had also been characterized by the approach of keeping in
force certain provisions of former bilateral agreements with a view to constituting the provisions ofthe administrative arrangements in the sense of Article 2.17.  The TMB had already observed in this
regard that such an approach "resulted in some respects in texts which are not easily understood and,
also in some instances, appear to give the impressi on that some of the provisions of the administrative
arrangements are not fully consistent with the others".
17  In the case of the administrative
arrangements with China, some elements included in the notification had already become obsoleteindependent of China's accession to the WTO, whereas several others did not reflect developments
that had occurred as a result of China's membership.  This explains why the United States had found it
necessary to offer the following introductory comm ents in its responses to the TMB regarding the
questions raised in relation to different elements in its notification:  "The TMB may wish to bear in
mind first, that the administrative provisions were drawn from an existing bilateral agreement, rather
than being drafted anew and were not prospectively adjusted to account for changes that would occur
upon China's accession to the WTO.  Second, at the time the Memorandum of Understanding wasconcluded, neither Member anticipated the delay to China's eventual accession the WTO late in
2001".
18
24. The TMB noted that the administrative arrangements contained detailed provisions regarding
product coverage and related issues of classification and categorization, the structure of the
restrictions applied (group limits and specific li mits), flexibility adjustments, cooperation in the
prevention of circumvention, the application of a visa system, commercial samples and personal
shipments.  In addition, annexes to the arrangements included a detailed description of the US textile
and apparel category system (together with the conversion factors applied);  the restraint levels in
force in 1997, 1998, 1999 and 2000, with the indication of the respective annual growth rates;  an
"exempt certification arrangement for Chinese floor coverings" and the full text of the visaarrangement agreed between the two Members.
                                                     
16 See G/TMB/R/89, paragraph 15;  G/TMB/R/90, paragraph 54 and G/TMB/R/91, paragraph 19.
17 See G/TMB/R/31, paragraph 8.
18 See G/TMB/N/450/Add.1.G/TMB/R/92
Page 8
25. Recalling that according to Article 2.17, "[a]dm inistrative arrangements, as deemed necessary
in relation to the implementation of any provision of [Article 2], shall be a matter for agreement
between the Members concerned", the TMB noted that most of the provisions of the administrative
arrangements notified were related to the implementation of restrictions falling under Article 2.1.  It
was observed, however, that not all the provisions of the arrangements were fully or directly related tothe implementation of provisions of Article 2, but that they also dealt with matters that were addressed
in some other articles of the ATC.  This applied, in  particular, to the provisions related to cooperation
in the prevention of circumvention.
26. As regards the product coverage, the respective provision states that "the textiles and textile
products covered [by the arrangements] are thos e summarized in Annex A [of the notification
provided under Article 2.17]".  Since this Annex provides a full description of the entire US textiles
and apparel category system, the TMB sought conf irmation of its understanding from both Members
that the products covered by the administrative arrangements were limited to those covered by the
ATC and not yet integrated into GATT 1994 as a result of the implementation of the provisions of
Articles 2.6, 2.8(a) and 2.8(b).  In response, the United States stated that the TMB's understanding
was correct
19, whereas China noted that some of the products listed in the Annex in question had
already been integrated as a result of the implementation of the relevant articles of the ATC.  Chinaalso provided a list of product categories that had already been integrated or partially integrated.
20
27. The TMB observed that the respective provision of the administrative arrangement states that
"[c]overage under this [provision] is intended to be identical with the terms of the WTO Agreement
on Textiles and Clothing".  On the basis of the replies provided, it was established that, in conformity
with Article 2.17, the products covered by the arrangements were limited to those ATC products thathad not been integrated as yet and were still subject to import restrictions notified by the United States
under Article 2.1.  Therefore, this provision and the related Annex of the administrative arrangements
should be read in conjunction with the US' and China's confirmation of the TMB's understanding of
this matter.  Consequently, product categories fully or partially integrated should be disregarded from
the Annex which listed the product categories that were covered by the arrangements.
28. According to the administrative arrangements, "[t]extiles and textile products covered [by the
arrangements] shall be subject to the Group Limits and Specific Limits set out in Annex B".  The
TMB assumed that the limits contained in this Annex had only been provided for historical reasons,
since they referred to a period prior to China's accession to the WTO (i.e. to the period 1997 to 2000)
and had been not been implemented under the ATC.  In response to a request for clarification, both
China and the United States confirmed that the TMB's understanding and assumptions were correct.
21
29. It was noted that certain handmade products in Annex C of the arrangements were exempt
from quotas and visa requirements if properly certified.  The products subject to exemption were
textile floor coverings belonging to three US product categories, falling under the provisions of the
Harmonized Tariff Schedule of the United States specified in the respective Annex which also spelt
out the production method and the relevant product characteristics that conferred the rights of
benefiting from this treatment.  Since one of the paragraphs of the respective Annex spoke of areduction of a group limit to be implemented in 1997, clarification was sought by the TMB from the
Members concerned.  The United States indicated th at this had been a historical adjustment that
predated the notification made under Article 2.1.
22  China confirmed the US' statement by stating that
"the United States reduced the quota level of [this group] for the year 1997 as a result of [the
                                                     
19 See G/TMB/N/450/Add.1.
20 See G/TMB/N/455.
21 See G/TMB/N/455 and G/TMB/N/450/Add.1.
22 See G/TMB/N/450/Add.1.G/TMB/R/92
Page 9
implementation of] the Exempt Certification Agreement for Chinese floor coverings.  This is already
an outdated provision".23
30. Turning to the flexibility adjustments, the TMB noted that the relevant provisions of the
administrative arrangements contained detailed rule s and procedures applicable to swing between
group limits, specific limits and sub-limits, as well as to carryover and carry forward that can beutilized within the same group or specific limits.  It was also noted that this detailed description
essentially corresponded to the flexibility provisions notified by the United States pursuant to
Article 2.1.  The TMB observed that following ag reement in consultations between the parties,
percentages higher than those otherwise automatically available could be utilized for the purpose of
implementing carryover and carry forward in specific  limits and that, in such cases, the combination
of carryover and carry forward could reach 10 per cent of the "receiving agreement year's applicable
limit" instead of the otherwise applicable 3 per cent.  Also in this context, the TMB recalled that in its
observations made pursuant to Article 2.2, China had stated with regard to the implementation of
Article 2.16, that  "[t]he United States still  maintains specific caps on the combined use of carryover
and carry forward.  In China's view, the original intention of the Article is that quantitative limits shall
be imposed neither on the combined use of all the three of swing, carryover and carry forward, nor on
the combined use of any two".
24  This issue had also been addressed by the TMB at a previous
meeting.  On that occasion, the TMB had expressed the view that a plain reading of Article 2.16
"indicated that no quantitative limit should be placed  or maintained on the combined use of swing,
carryover and carry forward, at the same time.  However, it was not clear whether the language of
Article 2.16 allowed the use of a cap on the combined use of carryover and carry forward.  It was
observed that arguments could be found in support of either reading.  Regarding the original intentionof Article 2.16, as referred to by China, no reliable indications were at the TMB's disposal on the
drafting history of this provision of the ATC.  Therefore the TMB could not express a view on this
argument.  The TMB considered that it could revert to this matter in light of possible additional
elements and arguments that could be provided by the Members concerned".
25
31. The TMB was  of the view that the issue of a cap on the combined use of carryover and carry
forward was a matter to be pursued in the context of the review of the respective notifications
received under Articles 2.1 and 2.2.  For the purpose of reviewing the administrative arrangements
notified under Article 2.17, it was sufficient to note that the flexibility provisions which were in
application on the day prior to the date of China's accession to the WTO had been notified by the
United States pursuant to Article 2.1.  Therefore, the inclusion of a provision devoted to the flexibility
adjustments into the administrative arrangements could be found to be necessary vis-à-vis  the
implementation of the provisions of Article 2.
32. The administrative arrangements keep in force the previous visa system and the full text of
the visa arrangements was notified as an attachment.  This system requires China to issue a visa for
each shipment of textiles or textile articles and this visa has to be presented to the US Customs
Service before entry, or withdrawal from warehouse for consumption, into the customs territory of the
United States.  The visa arrangement specifies all the related requirements and procedures.  Since, inthe sense of Article 2.17, administrative arrangements are related to the implementation of provisions
of Article 2, the TMB sought confirmation from the United States that no visa requirements would be
applied to the imports from China for any of the products integrated into GATT 1994 by the
United States as a result of the implementation of its Stages 1 to 3 integration programmes.  In reply,
the United States confirmed the TMB's understanding of this matter.
26
33. In light of the overview reflected in paragraphs 26 to 32 and relying, in particular, on the
clarifications provided to the TMB's specific queries, it could be ascertained that the provisions of the
                                                     
23 See G/TMB/N/455.
24 See G/TMB/N/445/Add.1.
25 See G/TMB/R/91, paragraph 13.
26 See G/TMB/N/450/Add.1.G/TMB/R/92
Page 10
administrative arrangements related to product coverage, flexibility provisions and the application of
the visa system enable the exporting Member to admi nister the restrictions referred to in Article 2.
The TMB noted that this was in line with the requirements of Article 4.1.  The same applied to the
right of checking and controlling conferred to the US Customs authorities by virtue of the related
provisions of the visa arrangement.
34. It could be observed that the most detailed and elaborated provisions of the administrative
arrangements dealt with the issue of cooperation in the prevention of circumvention.  The TMB had
requested the United States to provide an explanation as to why such provisions were necessary in
relation to the implementation of any provision of Article 2.  Furthermore, the arrangements
contained, inter alia , a provision enabling the importing Member to impose, in particular
circumstances, triple charges on quotas, though Article 5 of the ATC does not mention such a
possibility.  An explanation was also requested in this regard.
35. In reply, the United States stated the following:
"Article 5.1 of the ATC states that circumvention by transshipment and other means
'frustrates the implementation of this Agreement to integrate the textiles and clothing sector
into GATT 1994' and calls on Members to cooperate fully to address this problem.
Furthermore, Article 5.2 makes clear that transshipment and other practices can circumventthe ATC.  Thus, Article 5 expresses the understanding of the WTO Members that
transshipment and other practices that result in circumvention of the quantitative restrictions
notified under Article 2 undermine these restrictions and frustrate the integration process set
out in Article 2.  Accordingly, the United States and China have agreed that the provisions of
paragraph 13 [of the administrative arrangements], which address circumvention, arenecessary in relation to the implementation of Article 2 of the ATC.
Paragraph 13(E) is part of an administrative arrangement that the United States and China
agreed was necessary in relation to the implementation of Article 2 of the ATC for the
reasons set forth in response to the previous question. We do not believe that each provision
of such an arrangement requires separate justification, as Paragraph 13 as a whole is clearlyan administrative arrangement within the scope of Article 2.17.  The United States will
implement this administrative arrangement in c onformity with all relevant provisions of the
ATC.  The United States notified similar provisions in agreed administrative arrangements
with the following WTO Members:   Bangladesh, Brazil, Colombia, Costa Rica, Dominican
Republic, Egypt, Guatemala, Haiti, Hungary,  India, Indonesia, Jamaica, Korea, Macau,
Malaysia, Mauritius, Oman, Pakistan, Philippines, Poland, Qatar, Romania, Sri Lanka,
Chinese Taipei, Thailand, Turkey, Uruguay and United Arab Emirates."
27
36. In assessing these provisions of the administrative arrangements along with the US' reply
above, the TMB recalled that Article 5 of the ATC contains detailed rules and procedures to be
followed in order to enhance cooperation between Members in the prevention of circumvention.  The
TMB noted that the arrangements notified incorporate, almost word-for-word, certain parts of the
language of Article 5.  At the same time, both in terms of certain substantive elements and proceduralaspects, the provisions of the administrative arrangements appear to go beyond what is stipulated in
the text of Article 5.  While addressing such aspects, the TMB found it necessary to note that the
respective provisions of the arrangements did not only refer to Article 5 of the ATC, but that they also
clearly spelt out the following:  "The Parties recognize that, after China becomes a Member of the
WTO and the United States applies the Agreement Esta blishing the WTO to China, in the event of a
conflict between [the circumvention provisions of the administrative arrangements] and Article 5 of
the ATC that impairs the operation of the ATC, the ATC shall prevail".
                                                     
27 See G/TMB/N/450/Add.1.G/TMB/R/92
Page 11
37. Keeping also in mind the above, the TMB made the following observations:
• As reflected in the structure and language of Article 5, the central objective of its
provisions is to prevent, to investigate and, if necessary, to take appropriate actions
against circumvention practices by establishing the necessary legal and administrative
procedures by the Members and relying on the cooperation, consistent with their
domestic laws and procedures, between the Members concerned.  While therespective provisions of the administrative arrangements provide for necessary
consultations between China and the United States, the operational rules seem to
focus on the situations where the two parties are unable to reach a mutually
satisfactory solution to the matter subject to these consultations.
• According to the arrangements notified, should the parties be unable to reach a
satisfactory solution during consultations related to cases referred to underArticles 5.4 and 5.6, the United States may deduct from the respective quantitative
limits amounts equivalent to the amount of products transshipped or subject to falsedeclaration or classification, and any such action shall be notified to the TMB with
full justification.  It was recalled in this regard that Article 5.4 speaks of "appropriate
action, to the extent necessary to address the problem" but the adjustment of charges
to restraint levels is only one of the possible actions that has been specified by the
ATC.  Moreover, Article 5.4 lays down strict procedural requirements, including theobligation to notify any action agreed in the bilateral consultations, with full
justification to the TMB.  Also, if a mutually satisfactory solution is not reached, any
Member concerned may refer the matter to the TMB for prompt review and
recommendations.  As concerns Article 5.6, its language does not specify the possible
remedial actions.  It simply states that appropriate measures, consistent with domesticlaws and regulations, should be taken against the exporters or importers involved and
when no or inadequate administrative measures are applied, the Members concerned
should consult promptly with a view to seeking a mutually satisfactory solution. If
such a solution is not reached, the matter may be referred to the TMB for
recommendations by any Member involved.
• It flows also from the above, that Article 5.4 appears to provide some flexibility in
terms of remedies or agreed actions that could be foreseen in cases wherecircumvention has occurred.  This is also supported by the sentence in Article 5.4
which states that "[t]he Members concerned may agree on other remedies [i.e. on
remedies other than those specifically listed in that Article] in consultation".
However, Article 5 contains no reference to the possibility for the importing Memberto impose triple charges on quotas as a deterrent to circumvention as foreseen in the
administrative arrangements.  While noting that according to the respective
provisions "… any such action shall be notified to the TMB with full justification", it
was also recalled that in its reply concerning this particular aspect of the
arrangements, the United States had stated that it would "implement this
administrative arrangement in conformity with all relevant provisions of the ATC".
28
Furthermore, the language of the arrangements also states, in no ambiguous terms
that in the event of a conflict between the respective provision of the administrative
arrangement and Article 5, the latter shall prevail.29  The TMB took note of the US'
statement as well as the respective commitment included in the arrangements.
38. In addition, the TMB recalled that when it had examined the administrative arrangements
concluded by the United States with several WTO Members, in June 1997, the United States hadprovided written replies to the TMB’s request for clarification.  In light of these replies, as regards the
                                                     
28 See G/TMB/N/450/Add.1 and paragraph 35 above.
29 See paragraph 36 above.G/TMB/R/92
Page 12
correct understanding of the product coverage of these administrative arrangements, the TMB "took
note of the precision provided by the United States according to which only products subject to
restraints under paragraph 1 of Article 2 were subject to the administrative arrangements".30
Furthermore, "the United States had stated that when provisions of the administrative arrangementswere inconsistent with the ATC, the provisions of the ATC would apply.  The TMB understood thatthis statement applied to each and every provision of the arrangements notified.  The TMB expected,
therefore, that all the provisions of these administrative arrangements would be implemented by the
respective Members in conformity with the relevant provisions of the ATC".
31  Against this
background, confirmation was requested if the above statement made by the United States also
applied to the administrative arrangements concluded between the United States and China.  In
response, the United States replied  that "[t]he TMB's understanding is confirmed".32
39. Therefore, in taking note of the notification received pursuant to Article 2.17, the TMB
expected that all the provisions of the administra tive arrangements with China would be implemented
by the Members concerned in full compliance with the relevant provisions of the ATC.
Administrative arrangements between the United States and Chinese Taipei
40. The TMB concluded the review, pursuant to Article 2.21, of the notification of administrative
arrangements agreed between the United States a nd Chinese Taipei (G/TMB/N/449), taking also into
account the replies provided in response to the TM B's request for additional information by both the
United States (G/TMB/N/449/Add.1) a nd Chinese Taipei (G/TMB/N/454).33
41. The TMB observed that the introductory paragraph of the notification stated that the
"provisions [notified] are drawn from the Agreement Between The Taipei Economic and Cultural
Representative Office34 and The American Institute in Taiwan Concerning Trade in Textile and
Apparel Products dated 10 December 1997, and have been agreed by the United States and Chinese
Taipei to be necessary in relation to the implementation of restrictions notified to the Textiles
Monitoring Body under Article 2.1 of the Agreement on Textiles and Clothing".  The TMB recalled
that all the administrative arrangements previously notified by the United States had also been
characterized by the approach of keeping in force certain provisions of former bilateral agreementswith a view to constituting the provisions of the administrative arrangements in the sense of
Article 2.17.  In this regard, the TMB had already made the observations referred to in paragraph  23
above.  In the case of the administrative arrangements with Chinese Taipei, some elements included in
the notification had become obsolete, either before Chinese Taipei's accession to the WTO and
independent of it, while several other did not reflect the developments that had taken place as a result
of Chinese Taipei's membership.  In this regard, the United States stated that "[t]he TMB may wish to
bear in mind first, that the administrative provisio ns were drawn from an existing bilateral agreement,
rather than being drafted anew and were not prospectively adjusted to account for changes that would
occur upon Chinese Taipei’s accession to the WTO.  Second, at the time the bilateral agreement was
concluded, neither Member anticipated the delay to Chinese Taipei’s eventual accession to the WTO
on 1 January 2002".
35
42. The TMB noted that the administrative arrangements contained detailed provisions regarding
product coverage and related issues of classification and categorization, the structure of the
restrictions applied (group limits and specific li mits), flexibility adjustments, implementation and
                                                     
30 See G/TMB/R/31, paragraph 10.
31 See G/TMB/R/31, paragraph 21.
32 See G/TMB/N/450/Add.1.
33 See G/TMB/R/89, paragraph 16 and G/TMB/R/90, paragraph 53.
34 In that Agreement, the Taipei Economic and Cultural Representative Office (TECRO) represented
the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei).  Referencesthroughout the text of that Agreement to the territory represented by TECRO refer to the Separate Customs
Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei).
35 See G/TMB/N/449/Add.1.G/TMB/R/92
Page 13
administration of the arrangements, visa system, exchange of information, cooperation in the
prevention of circumvention and consultation.  In addition, annexes to the administrative
arrangements included a detailed description of the US textile and apparel category system (together
with the conversion factors applied), the restraint levels in force in 1998, 1999 and 2000 with their
respective annual growth rates, a list of "exempt products requiring exempt certification", and the fulltext of the visa arrangement concluded between the two Members.
43. Recalling that according to Article 2.17 "[a]dministrative arrangements, as deemed necessary
in relation to the implementation of any provision of [Article 2], shall be a matter for agreement
between the Members concerned", the TMB noted that most of the provisions of the administrative
arrangements notified were related to the implementation of restrictions falling under Article 2.1.  It
was observed, however, that not all the provisions of these arrangements were fully or directly related
to the implementation of provisions of Article 2 but that they also dealt with matters that were
addressed in some other articles of the ATC.  This applied in particular to the provisions related to
cooperation in the prevention of circumvention.
44. As regards the product coverage, the administrative arrangements provided a description of
the products covered, referring to the annexed listing of the entire US textile and apparel category
system.  In this regard, the TMB sought confirmation from both Members of its understanding that theproducts covered by the administrative arrangements were limited to those covered by the ATC and
not yet integrated as a result of the implementation of the provisions of Articles 2.6, 2.8(a) and 2.8(b)
of the ATC.  In response the United States stated that the TMB's understanding was correct
36, while
Chinese Taipei stated that it "confirm[ed] that the scope of textile and apparel products covered in the
Administrative Arrangement are in conformity with the coverage of the products in the Annex of the
ATC, and that they are products which have not been integrated into GATT 1994 as stipulated in
Article 2.6, 2.8(a) and 2.8(b) of the ATC.  The products listed in the notification [made pursuant to
Article 2.1], which have already been integrated into GATT 1994 under the provisions of Article 2.6,
2.8(a) and 2.8(b) of the ATC, are not covered by the Administrative Arrangement".37  On that basis, it
could be established that, in conformity with Article 2.17, the products covered by the arrangementswere limited to those ATC products that had not yet been integrated and were subject to import
restrictions notified by the United States under Article 2.1.  Therefore, this provision and the related
annex of the administrative arrangements should be read in conjunction with both the US' and Chinese
Taipei's confirmation of the TMB's understanding and, consequently, the product categories fully or
partially integrated should be dismissed from the listings regarding the coverage of the administrative
arrangements.
45. According to the administrative arrangements, exports to the United States of textiles and
textile products shall be limited "to the group limits, sub-group limits, specific limits and sub-limits
set forth in Annex A [of the administrative arra ngements], as such limits may be adjusted in
accordance with the paragraphs [dealing with the flexibility adjustments].  The groups and specific
limits set out in Annex A are without such adjustments".  The TMB assumed that the limits contained
in this Annex had only been provided for historical  reasons, since they referred to a period prior to
Chinese Taipei's being a Member of the WTO (i.e. to the period 1998 to 2000) and had not been
implemented under the ATC.  In reply to the TMB's request for clarifications, both the United States
and Chinese Taipei confirmed that the TMB's understanding and assumptions were correct.
38
46. It was noted that certain handmade products in Annex C of the arrangements were exempt
from quotas and visa requirements if properly cer tified.  The products subject to exemption were
certain garments and made up textile products as described in the Annex.  As regards the fact that
Annex C referred to "exempt products requiring exempt certification", the TMB sought confirmation
from both Members of its understanding that the exemption referred to the fact that the products in
                                                     
36 See G/TMB/N/449/Add.1.
37 See G/TMB/N/454.
38 See G/TMB/N/449/Add.1 and G/TMB/N/454.G/TMB/R/92
Page 14
question were, if properly certified, not subject to quantitative limit under the ATC.  In its reply, the
United States confirmed the TMB's understanding.39  Chinese Taipei stated that "[t]he products listed
in Annex C of the Administrative Arrangement are traditional handicrafts and traditional garments.
Chinese Taipei confirms that the products are not under quota restriction according to paragraph 4(b)
of the Administrative Arrangement".40
47. Turning to the flexibility adjustments, the TMB noted that the relevant provisions of the
administrative arrangements contained detailed rules applicable to swing between group limits,
specific limits and sub-limits, as well as to carryover and carry forward that can be utilized within the
same group or specific limits.  In addition, provision was made for special shift between certain
categories.  It was noted that these essentially corresponded to the flexibility provisions notified by
the United States pursuant to Article 2.1.
48. The administrative arrangements keep in force the previously agreed visa system between the
two parties and the full text of the visa arrangement was notified as an attachment.  This system
requires Chinese Taipei to issue a visa for each shipment of textiles or textile articles and this visa has
to be presented to the US Customs Service before entry, or withdrawal from warehouse for
consumption, into the customs territory of the Unit ed States. The visa arrangement specifies all the
related requirements and procedures.  Since, in the sense of Article 2.17, administrative arrangementsare related to the implementation of provisions of  Article 2, the TMB sought confirmation from the
United States of its understanding that no visa requirements would be applied to the imports from
Chinese Taipei of any of the products integrated into GATT 1994 by the United States as a result of
the Stages 1 to 3 integration programmes.  In its reply the United States confirmed the TMB's
understanding of this matter.
41
49. The TMB observed that the administrative arrangements contained provisions regarding
possible changes in the implementation and administration, addressing issues such as those mentioned
in Article 4 of the ATC.  It sought confirmation of its understanding that in cases where changes such
as those mentioned in those provisions of the administrative arrangements would take place, the
provisions of Article 4 of the ATC would prevail.  The United States replied that the "TMB’sassumption that paragraph 11 (a) [related to 'changes in the implementation and interpretation' of the
administrative arrangements] has been superseded by ATC Article 4 is correct"
42, and Chinese Taipei
stated that "[p]aragraph 11(a) is complementary information to the implementation of Article 2 of the
ATC.  Chinese Taipei confirms that in a case where changes such as mentioned in paragraph 11(a)
occur and affect the implementation and management of the ATC, any action taken will be in
accordance with the provisions of Article 4 of the ATC".43
50. In light of the overview reflected in paragraphs 44 to 49 and relying in particular on the
clarifications provided in response to the TMB's specific queries, it could be ascertained that the
provisions of the administrative arrangements related to product coverage, flexibility provisions and
the application of the visa system enabled the exporting Member to administer the restrictions referred
to in Article 2.  The TMB noted that this was in line with the requirements of Article 4.1.
51. The administrative arrangements also contained very detailed provisions on the issue of
cooperation in the prevention of circumvention.  The TMB requested the United States to provide an
explanation as to how, in its view, such provis ions were deemed necessary in relation to the
implementation of any provision of Article 2. Furthermore, the arrangements contained a provision
(paragraph 18 (E)) enabling the importing Member to impose, in particular circumstances, triple
                                                     
39 See G/TMB/N/449/Add.1.
40 See G/TMB/N/454.
41 See G/TMB/N/449/Add.1.
42 See G/TMB/N/449/Add.1.
43 See G/TMB/N/454.G/TMB/R/92
Page 15
charges on quotas, though Article 5 of the ATC does not mention such a possibility.  The TMB also
requested explanations in this regard.
52. In its reply, the United States stated the following: "Article 5.1 of the ATC states that
circumvention by transshipment and other means 'frustrates the implementation of this Agreement to
integrate the textiles and clothing sector into GATT 1994' and calls on Members to cooperate fully to
address this problem. Furthermore, Article 5.2 makes clear that transshipment and other practices can
circumvent the ATC.  Thus, Article 5 expresses the understanding of the WTO Members that
transshipment and other practices that result in circumvention of the quantitative restrictions notified
under Article 2 undermine these restrictions and frustrate the integration process set out in Article 2.
Accordingly, the United States and Chinese Taipei have agreed that the provisions of paragraph 18 [of
the administrative arrangements], which address circumvention, are necessary in relation to the
implementation of Article 2 of the ATC.  Paragraph 18(E) is part of an administrative arrangementthat the United States and Chinese Taipei agreed was necessary in relation to the implementation of
Article 2 of the ATC for the reasons set forth [above]. We do not believe that each provision of such
an arrangement requires separate justification, as Paragraph 18 as a whole is clearly an administrative
arrangement within the scope of Article 2.17.  The United States will implement this administrative
arrangement in conformity with all relevant provisions of the ATC.  The United States notified similarprovisions in agreed administrative arrangements with the following WTO Members:  Bangladesh,
Brazil, China, Colombia, Costa Rica, Dominican Republic, Egypt, Guatemala, Haiti, Hungary, India,
Indonesia, Jamaica, Korea, Macau, Malaysia, Mauritius, Oman, Pakistan, Philippines, Poland, Qatar,
Romania, Sri Lanka, Thailand, Turkey, Uruguay and United Arab Emirates".
44  For its part, Chinese
Taipei stated that the provision on cooperation in the prevention of circumvention was a supplementto the former bilateral textile agreement between the two parties.  It "[was] following the precedents
of agreements contracted between the U.S. and other countries, which Chinese Taipei and the United
States consulted upon the renewal of Bilateral Textile Agreement in 1995.  For transparency reasons
and considering that the similar provisions also exist in the administrative arrangements concluded
between the U.S. and other WTO members, Chinese Taipei agrees to include this paragraph in theAdministrative Arrangement".
45
53. In assessing these provisions of the administrative arrangements, also in light of the replies
reflected above, the TMB recalled that Article 5 of the ATC contains detailed rules and procedures to
be followed with a view to enhancing coope ration between Members in the prevention of
circumvention.  The TMB noted that the arrangements notified incorporated a few elements of the
language of Article 5.  At the same time, in terms of both some substantive elements and some
procedural aspects, the provisions of the administ rative arrangements appeared to go beyond what is
stipulated in the text of Article 5.  In this regard, the TMB made the following observations:
• As reflected in the structure and language of Article 5, the central objective of its
provisions is to prevent, to investigate and, if necessary, to take appropriate actions
against circumvention practices by establishing the necessary legal and administrative
procedures by the Members and relying on the cooperation, consistent with their
domestic laws and procedures, between, the Members concerned.  While the specificprovisions of the administrative arrangements provide for the necessary consultations
between Chinese Taipei and the United States, the operational rules seemed to focus
on those situations when the two parties are unable to reach a mutually satisfactory
solution to the matter subject to those consultations.
• According to the arrangements notified, should the parties be unable to reach a
satisfactory solution during consultations regarding cases referred to under
Articles 5.4 and 5.6, the United States may deduct from the respective quantitative
limit amounts at least equivalent to the amount of products transshipped or subject to
                                                     
44 See G/TMB/N/449/Add.1.
45 See G/TMB/N/454.G/TMB/R/92
Page 16
false declaration or classification, and any such action shall be notified to the TMB.
It was recalled in this regard that Article 5.4 speaks of "appropriate action, to the
extent necessary to address the problem", the adjustments of charges to restraint
levels being only one of the possible actions that has been specified by the ATC.
Moreover, Article 5.4 lays down strict procedural requirements, including theobligation to notify any action agreed in the bilateral consultations, with full
justification to the TMB.  Also, if a mutually satisfactory solution is not reached, any
Member concerned may refer the matter to the TMB for prompt review and
recommendation.  As concerns Article 5.6, its language does not specify the possible
remedial actions.  It simply states that appropriate measures, consistent with domestic
laws and regulations, should be taken against the exporters or importers involved and,
in cases when no or inadequate administrative measures are being applied, theMembers concerned should consult promptly with a view to seeking a mutually
satisfactory solution.  If such a solution is not reached, the matter may be referred by
any Member involved to the TMB for recommendations.
• It flows also from the above that Article 5.4 appears to provide some flexibility in
terms of remedies or agreed actions that could be foreseen in cases when
circumvention has occurred.  This is also supported by the sentence included inArticle 5.4 stating that "[t]he Members concerned may agree on other remedies [i.e.
other remedies than those specifically listed in that Article] in consultation."
However, Article 5 contains no reference to the possibility for the importing Member
to impose triple charges on quotas, as a deterrent to circumvention foreseen in the
administrative arrangements.  While noting that according to the respective provision
"[a]ny action taken under this paragraph shall be notified to the Textiles Monitoring
Body", it was also recalled that in its reply related to this particular aspect of the
arrangements notified, the United States had stated that it would "implement this
administrative arrangement in conformity with all relevant provisions of the ATC".
46
The TMB took note of the US' statement.
54. In addition, the TMB recalled that when it had examined the administrative arrangements
concluded by the United States with several WTO Members, in June 1997, the United States had
provided written replies to the TMB’s request for clarification.  In light of these replies, as regards the
correct understanding of the product coverage of these administrative arrangements, the TMB "took
note of the precision provided by the United States according to which only products subject torestraints under paragraph 1 of Article 2 were subject to the administrative arrangements".
47
Furthermore, "the United States had stated that when provisions of the administrative arrangementswere inconsistent with the ATC, the provisions of the ATC would apply.  The TMB understood that
this statement applied to each and every provision of the arrangements notified.  The TMB expected,
therefore, that all the provisions of these administrative arrangements would be implemented by the
respective Members in conformity with the relevant provisions of the ATC".
48  Against this
background, the TMB requested confirmation that the above statement made by the United States alsoapplied to the administrative arrangements with Chinese Taipei.  In its reply the United States stated
that "[t]he TMB’s understanding is confirmed".
49
55. Therefore, in taking note of the notification received pursuant to Article 2.17, the TMB
expected that all the provisions of the administrative arrangements between the United States and
Chinese Taipei would be implemented by the two Members concerned in full compliance with therelevant provisions of the ATC.
                                                     
46 See paragraph 52 above.
47 See G/TMB/R/31, paragraph 10.
48 See G/TMB/R/31, paragraph 21.
49 See G/TMB/N/449/Add.1.G/TMB/R/92
Page 17
Notification under Articles 3.1 and 3.2(b) of the ATC
56. The TMB continued its examination of the notification received pursuant to Article 3.1 from
China, following its accession to the WTO, also on the basis of additional information submitted by
China in response to clarifications sought by the TMB50 (G/TMB/N/426 and Add.1).  In its response,
China specified that the export quotas notified, affecting silk yarn and woven fabrics of silk, wereapplied on a global basis.  In practice, the Ministry of Foreign Trade and Economic Cooperation
(MOFTEC) allocated quotas to provinces based on past performances.  Provincial Offices of
MOFTEC further allocated quotas to different enterprises, taking into consideration past
performances, enterprise capacities and market situation.  A quota-holding enterprise could then make
applications to the provisional Office of MOFTEC for export license within its quota limit.  China
also confirmed that the units for woven fabrics were meters.  Furthermore, it provided what
constituted a phase-out programme, in the sense of Article 3.2(b), of the restrictions maintained byChina under Article 3.  After having examined some elements included in the reply provided by
China, the TMB decided to revert to its examination at a subsequent meeting.
Report (2002) by the TMB
57. The TMB considered and adopted its report for 2002 (G/L/574).
Schedule of TMB meetings for 2003
58. The TMB approved its tentative schedule of meetings for 2003.  Meetings are scheduled as
followed: 27 to 29 January, 24 to 26 February, 24 to 26 March, 28 to 30 April, 26 to 28 May, 23 to
25 June, 28 to 30 July, 22 to 24 September, 20 to 22 October, 17 to 19 November and 10 to
12 December.
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50 See G/TMB/R/86, paragraph 10.