WORLD TRADE G/TMB/R/20
28November 1996
ORGANIZATION(96-5051)
Textiles Monitoring Body
REPORT OFTHE TWENTY-FIRST MEETING
1. TheTextiles Monitoring Body helditstwenty-first meeting on4to6November 1996.
2. Present atthismeeting werethefollowing members andalternates: Messrs. Berz; Kacar/Rey;
Malik/Lam; Saeki; Ms.Shahin; Messrs. Suboh; Tagliani; Tong/Kim; Vanerio; andWentzel.
3. TheTMB adopted thereport ofitstwentieth meeting (G/TMB/R/19).
Notifications under Article 6.11oftheAgreement onTextiles andClothing (ATC)
Brazil/Hong Kong: imports ofwoven artificial filament fabrics (category 618)
4. TheTMB reverted toitsexamination ofthesafeguard measure introduced provisionally by
Brazil, pursuant toparagraph 11ofArticle 6oftheATC, onimports ofproducts ofcategory 618(woven
artificial filament fabric) from Hong Kong. Themeasure hadbeenintroduced witheffect asfrom
1June1996. Consultations hadtaken place between theparties, buthadnotresulted inamutual
understanding thatthesituation called forarestraint. Both parties hadinformed theTMB ofthis
outcome, andhadrequested theTMB toconduct anexamination ofthematter. TheTMB hadstarted
thisexamination atitsseventeenth meeting andhadinvited theparticipation ofBrazil andHong Kong.
Atthatmeeting, bothparties hadmade presentations andprovided replies toquestions withrespect
tothissafeguard action, andtheTMB hadstarted itsin-depth discussion but,inviewofthecomplexity
oftheissue andthelackoftimeavailable, hadbeenunable toconclude it.Ithad,therefore, decided
torevert toitsexamination attheearliest possible dateacceptable tobothparties, which hadbeeninvited
tosendrepresentatives upon theTMB’sresumption ofthisexamination.1TheTMB noted thatdue
tothescheduling problems oftheparties, thisresumption hadnotbeenpossible earlier thanatits
twenty-first meeting. Atthatmeeting bothparties replied tofurther questions withrespect tothis
measure.
5. Therepresentative ofBrazil submitted thattheaction hisGovernment hadtaken wasjustified
forthefollowing main reasons:
- Brazil hadfullycomplied withtheprocedures forthedetermination ofserious damage aswell
astheestablishment ofacausal linkbetween theincreased imports fromHong Kong andthe
serious damage suffered byBrazil ’sdomestic industry. Ithaddonesobearing inmind the
factthatArticle 6oftheATC wasanintegral partofthebalance ofrights andobligations of
theWTO Agreements, andthatmany Members hadreserved theirrighttouseitsprovisions;
these wereclearindications thatArticle 6oftheATC wasmeant tobeused. Brazil hadalso
beenmindful ofthefactthatthisArticle wastobeused“assparingly aspossible ”.Brazil
believed thatithadalsobeenjustified inimposing thetransitional safeguard provisionally,
inaccordance withparagraph 11ofArticle 6;
1SeeG/TMB/R/16, paragraph 4.G/TMB/R/20
Page2
- Theexistence ofserious damage being caused tothedomestic industry, defined astheindustry
producing products ofcategories 611,618,619,620and627(artificial orsynthetic woven
fabrics), hadbeenassessed taking intoaccount thefactors mentioned inparagraph 3ofArticle 6.
Production ofproducts ofcategory 618hadshown aslight increase of3.2percentbetween
1994 and1995, buthadbeen unable tocope withanincrease of84percentinapparent
consumption. Furthermore, asaresult ofafallinprices, thevalue ofproduction (expressed
inUSdollars) haddecreased by12.8percent. Thevolume ofoutput oftheproducts ofthe
fivecategories produced bythisindustry, taken asawhole, hadalsofallen by7.6percent.
Theincrease inproductivity (defined astheratio between production andthenumber of
employees) during theperiod considered didnotreflect ahealthy development, butwasrather
aresult oftheindustry laying-off workers inresponse tothesurge inimports. Capacity
utilization haddropped from60percentto40percent.Inventories werenotavalidindicator
ofthelevelofeconomic activity inBrazil since companies could notmaintain highinventories
inviewofthehighcostofcapital. Theshare ofdomestic consumption heldbythedomestic
industry hadbeencutinhalfinoneyear, falling from64percentto35percentbetween 1994
and1995. Meanwhile, exports hadincreased but,since theyamounted tolessthan3percent
ofimports, could notcompensate theincrease inimports. Average wages hadincreased during
thatperiod, butthishadbeentheresult ofrestructuring, partofitaccounting forproductivity
increases, partmerely compensating theincrease inconsumer prices. There hadalsobeensome
change inthewage structure, aslay-offs hadbeenconcentrated inthelower endofthepay
scale. Employment hadfallen by17.6percentintheweaving industry, andbymore than
28percentintheregion where mostoftheindustry waslocated. Domestic prices hadfallen
by15.6percentduring thatperiod, andmostoftheindustry hadregistered losses in1995,
ofupto15percent. Investment hadfallen bytwo-thirds between 1994and1995. There was,
therefore, overwhelming evidence thattheindustry wassuffering serious damage;
- Imports fromHong Kong hadincreased by120percentinvolume between 1994 and1995,
anincrease thatwasbothsharp andsubstantial. Theshare oftheBrazilian market forproducts
ofcategory 618heldbyimports from Hong Kong hadincreased from 7.06 percentto
8.44percentduring thesame period. Theaverage price ofimports from Hong Kong was
two-thirds ofthatofdomestic prices. Theserious damage experienced bytheBrazilian industry
could, therefore, beattributed toincreased imports from Hong Kong.
6. Therepresentative fromHong Kong stated thatinhisGovernment 'sviewtheaction wasnot
justified inaccordance withtheprovisions ofArticle 6oftheATC forthefollowing main reasons:
- Brazil hadfailed tomeet theobligations ofArticle 6withrespect toproviding specific and
up-to-date market data,sinceonly1994and1995datahadbeenprovided. Submitting up-to-date
informationwasofparticularimportancewhenhavingrecoursetotheprovisionsofparagraph11
ofArticle 6;
- Brazil hadalsofailed todemonstrate thattherelevant Brazilian domestic industry wassuffering
seriousdamagecausedbyimportsofproductsofcategory618.Thechangeintheimportpattern
experienced byBrazil in1994 and1995 wasduetoarevival ofdemand resulting from the
factthathyper-inflation hadbeenhalted andthatconsumers could afford tobuyimported goods.
Dataoninvestment, shown tobeimportant (US$ 150million in1994, US$50million in1995),
could notbeasignthatserious damage hadoccurred. Neither could theincrease inproduction
in1995. Similarly the10.8percentincrease inproductivity in1995 wasnotasignofan
industry experiencing serious damage. Thedecrease incapacity utilization in1995wasaresult
ofstrong investment inmachinery. Inventories werekeptatlowlevels, anditwasdifficult
tobelieve thattherecould beserious damage toanindustry withsuchaquick turnover ofstock.
Thedropinthedomestic market share heldbyBrazilian manufacturers experienced in1995G/TMB/R/20
Page3
wasmore aresult oftheveryrapid expansion ofthedomestic market thanthatofadamaged
domestic industry. Exports hadexpanded from1994to1995; wages toohadincreased during
thesame period, ahealthy sign. Thereduction registered inemployment could havebeen
anatural consequence ofinvestment inmachinery bythedomestic industry. Losses registered
byenterprises in1995could beattributed toheavy investment inmachinery andmodernization
offactories, and,without knowing thetrendofprofit margins intherecent years, itwasdifficult
toconclude thatimports hadcaused serious damage;
- without prejudice totheposition ofHong Kong astotheexistence ofserious damage caused
totheBrazilian industry, itwasnoted thatimports fromHong Kong hadregistered thesmallest
growth among themain suppliers in1995, thatHong Kong’sshare ofimports haddropped
from1994 to1995, andthatitcould alsobeargued, inlightoftheevolution ofaverage unit
prices ofdomestic andimported products ofcategory 618,thatimports from Hong Kong
addressed adifferent segment ofthemarket thantheBrazilian production did;
- consequently, intheHong Kong'sview, Brazil hadfailed todemonstrate thattheBrazilian
industry producing products ofcategory 618wasexperiencing serious damage. Suchserious
damage could not,therefore, beattributed toimports from Hong Kong. Inaddition, inthe
viewofHong Kong, therecourse byBrazil totheprovisions ofparagraph 11ofArticle 6was
notjustified. Hong Kong, therefore, requested theTMB torecommend thatthesafeguard
action taken byBrazil berescinded.
7. TheTMB examined thefactual datapresented toitpursuant toparagraph 7ofArticle 6,as
wellastherelevant information andarguments provided byBrazil andHong Kong.
8. TheTMB recalled thatparagraph 7ofArticle 6states that“therequest forconsultations shall
beaccompanied byspecific andrelevant factual information, asup-to-date aspossible ”,andstipulates
thatthis“information shallberelated, asclosely aspossible, toidentifiable segments ofproduction
andtothereference period setoutinparagraph 8”ofArticle 6.Inthisrespect, theTMB, while noting
theefforts made byBrazil toprovide Hong Kong withdataasrelevant andup-to-date aspossible at
thetimeoftherequest forconsultation andduring theconsultations, observed thatsome ofthedata
presented byBrazil related toawider segment ofproduction thanthatofcategory 618(woven artificial
filament fabrics). TheTMB alsoobserved thattheevolution ofimports ofsuchproducts intheperiod
preceding therequest forconsultation hadnotbeendocumented, inspiteofthefactthatBrazil had
chosen tohaverecourse totheprovisions ofparagraph 11ofArticle 6,which refertohighly unusual
andcritical circumstances, andtointroduce thesafeguard measure provisionally, atthetimeithad
requested consultations withHong Kong. TheTMB alsonoted that,withrespect totheelements
mentioned inparagraphs 2and3ofArticle 6,Brazil hadnotprovided information ontrends, either
atthetimetherequest forconsultation wasmade, orduring theconsultations withHong Kong.
9. TheTMB observed thatimports ofproducts ofcategory 618intoBrazil fromallsources had
increased by229percentfrom 1994 to1995. TheTMB therefore examined whether Brazil had
demonstrated, inaccordance withparagraphs 2and3ofArticle 6,thatitsindustry producing these
products wasbeing seriously damaged, andthatthisdamage wascaused bysuchincreased quantities
inimports.
10. Production ofproducts ofcategory 618hadincreased by3.2percentinvolume from 1994
to1995. During thatperiod theBrazilian market hadexpanded significantly faster thandomestic
production: theapparent consumption ofproducts ofcategory 618hadincreased byover84percent,
andtheshare heldbydomestic manufacturers hadgonedown from64to35percent. Inconsidering
these developments, theTMB observed thattheAgreement onTextiles andClothing doesnotprovideG/TMB/R/20
Page4
forguaranteedmarketshares;moreover,itstatesthat“Membersshouldallowforcontinuousautonomous
industrial adjustment andincreased competition intheirmarkets ”(paragraph 5ofArticle 1).
11. Theaverage domestic price forproducts ofcategory 618fellby15.6percentfrom 1994 to
1995. Thiswas,atleastinpart,duetothefactthattheindustry wasfacing heavy competition, in
particular fromimports, whose average price, lower thantheaverage domestic priceinUSdollar terms,
hadfallen by17.6percentduring thesameperiod. Itwasalsonoted that,asaresult ofreduced prices
ofBrazilian products, thevalue ofdomestic production ofproducts ofcategory 618,expressed in
USdollars, haddecreased during thesame period.
12. Employment inthissector registered adecrease of17.6percentbetween 1994and1995, and
ofsome 29percentintheregion ofAmericana, themainproduction centre inBrazil forartificial and
synthetic fabrics. Thenumber offirms inBrazil declined from832in1994to621inmid-1996. Since
these datareferred tothewhole weaving industry, itwasdifficult toassess theextent towhich this
could beattributed totheevolution ofthemarket incategory 618products.
13. Productivity intheartificial andsynthetic fibreindustry registered anincrease of10.8percent
during theperiod considered. Suchdevelopment could beunderstood asahealthy signofanindustry
becoming more efficient. Itcould alsobeanindication thattheindustry wasrestructuring. TheTMB
noted inthisregard thestatement ofBrazil thatthisincrease inproductivity wasmainly aresult of
decreases inemployment. Itwasconsidered thattheevolution ofproductivity hadtobeseeninthe
context oftheevolution oftheother variables relevant inthecontext ofArticle 6.
14. Average wages increased by26.75 percentduring theperiod considered, afactgenerally
associated withahealthy industry. Thisincrease inpartcompensated theriseinthegeneral priceindex
(15.39 percent)while theremainder, inessence, reflected productivity gains (10.8 percent); account
hadalsotobetaken ofthechange inthesalary structure oftheindustry, aslay-offs hadbeen
concentrated inthelower endofthesalary scale.
15. Capacity utilization inthefactories producing artificial andsynthetic fabrics hadfallen from
60percentin1994 to40percentin1995. Thiscould beattributed, atleastinpart,toinvestments
innewmachinery made bytheBrazilian industry, which hadresulted inanincrease ininstalled capacity.
Onthebasis ofdatasupplied foraperiod tooshort toprovide atrend, itwasnoted, however, that
thevolume ofinvestment hadremained relatively modest compared tothetotalinstalled capacity, and
thatithaddecreased.
16. Inventories remained atlowlevels during theperiod considered, usually ahealthy sign.
However, theTMB noted theargument byBrazil according towhich, inviewofBrazil ’spastexperience
withhighinflation andhighinterests rates, theindustry hadbeenforced toworkonthebasisofarotation
ofstocks ofabout 30days.
17. Thevolume ofexports ofproducts ofcategory 618hadincreased by34percentfrom 1994
to1995. TheTMB noted, however, thattheyaccounted forarelatively small share ofdomestic
production (5.1percentin1995), andthatthisincrease wasmuch smaller thantheincrease inimports
(imports were 34times larger thanexports involume in1995).
18. According tothedatasubmitted byBrazil, thegreat majority ofenterprises registered losses
in1995, upto15percent.
19. TheTMB considered allthefactors mentioned above, noneofwhich, either alone orcombined
withother factors, cannecessarily givedecisive guidance, inassessing whether theBrazilian industryG/TMB/R/20
Page5
producing products ofcategory 618wasexperiencing serious damage. Ittherefore reached thefollowing
conclusions.
20. TheBrazilian industry wasshowing somewhat contradictory symptoms andtheevolution of
anumber ofeconomic indicators andtheirpossible inter-relation could leadtodiverging interpretations.
Theslight increase inproduction, improvement ofproductivity, increase ofexports andriseinwages
could allow aninterpretation thattheindustry hadalready been relatively successful interms of
re-structuring andadjusting tothenewcompetitive conditions. Developments regarding employment,
thenumber ofenterprises, capacity utilization, profits andinvestment could point totheopposite
direction. Thedataprovided anunambiguous indication thattheindustry hadbeenunable totake
advantage ofthesubstantial increase initsdomestic market. Partofthestrength ofthedomestic demand
could beattributed totheimplementation oftheeconomic stabilization programme, andinparticular
totheliberalization ofimports undertaken byBrazil during thelastdecade. Adjustment efforts had
beenundertaken, which hadnotenabled theBrazilian industry tocompete successfully withimports,
inparticular given theprice levels prevailing intheBrazilian market. TheTMB tooktheviewthat,
under thesecircumstances, theBrazilian industry producing, interalia,woven artificial filament fabrics
wasexperiencing serious damage.
21. Onthebasisofthedatasubmitted byBrazil, itwasdifficult toassess theextent towhich this
damage could beattributed specifically tothedifficulties experienced bytheproducers ofproducts
ofcategory 618.TheTMB, while accepting thatserious damage totheindustry producing category 618
could bedemonstrated, expressed concern that,withrespect tosome variables, ithadtorelyon
arguments byinference, inviewofthelackofsufficiently specific datarelating tothecategory itself.
22. TheTMB therefore hadtoconsider whether thisserious damage could beattributed toimports
from Hong Kong, inaccordance withparagraph 4ofArticle 6oftheATC. Indoing so,theTMB,
mindful ofthefactthat,according tothisparagraph “noneofthese factors, either alone orcombined
withother factors, cannecessarily givedecisive guidance ”,noted thefollowing:
- imports from Hong Kong hadshown asubstantial increase between 1994 and1995;
- thisincrease inimports from Hong Kong hadtaken place inthecontext ofaneven
greater increase inimports from allsources;
- theshare ofimports from Hong Kong inBrazil ’sapparent consumption ofproducts
ofcategory 618hadincreased from 1994 to1995;
- theaverage import price forHong Kong wasbelow domestic prices forproducts at
acomparable stage ofcommercial transaction. Inthisrespect theTMB considered the
argument thatproducts imported fromHong Kong wereaddressing adifferent segment
ofthemarket from thataddressed bydomestic products, but,duetothelackof
necessary technical information, could notreach aconclusion onthis.
SuchelementsallowedtheTMBtoconcludethattheseriousdamageexperiencedbytheBrazilianindustry
could beattributed inparttoimports from Hong Kong inaccordance withparagraph 4ofArticle 6.
23. TheTMB noted thatBrazil hadinvoked theprovisions ofparagraph 11ofArticle 6andapplied
therestraint provisionally, asithadconsidered thatitsindustry wasexperiencing “highly unusual and
critical circumstances, where delay would cause damage which would bedifficult torepair ”.Ittook
noteofthelimited information provided byBrazil toHong Kong onthismatter, andoftheinformation
ithadprovided totheTMB, according towhich afurther increase inimports wasimminent, inview
oftheamount ofimport licences issued, aswellasoftheamounts ofgoods thatcould beimportedG/TMB/R/20
Page6
intoBrazil atshortnotice fromBrazilian customs 'warehouses. TheTMB noted thattheseexpectations
hadnotmaterialized.
24. TheTMB wasoftheviewthatincases where theprovisions ofparagraph 11ofArticle 6were
invoked, theexpectation wasthattheelements envisaged inparagraphs 2,3and4ofArticle 6would
indicate asunambiguously aspossible thehighly unusual andcritical character ofthecircumstances.
TheTMBwasalsooftheviewthat,unlesssuchcircumstancesweremet,anyactiontakenunderArticle6
should bepreceded byconsultations between theparties.
25. TheTMBobservedthatparagraph11ofArticle6requiresittopromptlyconductanexamination
ofthematter, andtomake appropriate recommendations totheMembers concerned. Inthisregard
theTMB noted thatithadarrived attheconclusions according towhich:
(a) serious damage totheindustry producing products category 618,caused byincreased
quantities intotalimports ofthese products, could bedemonstrated;
(b) theserious damage experienced bytheBrazilian industry could beattributed inpart
toimports from Hong Kong inaccordance withparagraph 4ofArticle 6.
26. Itobserved, however, thatthere were indications totheeffect thattheBrazilian industry
producingproductsofcategory618hadalreadybeenundertakingimportantrestructuringandadjustment.
InlightofthistheTMB considered thatashorter period oftimethanthemaximum time-frame envisaged
inparagraph 12(a) ofArticle 6should enable theindustry inBrazil tosuccessfully accomplish its
adjustment tothechanged competitive environment. TheTMB recommended therefore thatthemeasure
taken byBrazil against imports fromHong Kong ofproducts ofcategory 618should berescinded at
latest by31December 1997.
Brazil/Hong Kong: imports ofmen’sandboys’shirts, knitted orcrocheted, ofother textile
materials (category 838)
27. TheTMB reverted toitsexamination ofthesafeguard measure introduced provisionally by
Brazil, pursuant toparagraph 11ofArticle 6oftheATC, onimports ofproducts ofcategory 838
(men’sandboys’shirts, knitted orcrocheted, ofothertextile materials) fromHong Kong. Themeasure
hadbeenintroduced witheffect asfrom1June1996. Consultations hadtaken placebetween theparties,
buthadnotresulted inamutual understanding thatthesituation called forarestraint. Bothparties
hadinformed theTMB ofthisoutcome, andhadrequested theTMB toconduct anexamination of
thematter. TheTMB hadstarted thisexamination atitsseventeenth meeting andhadinvited the
participation ofBrazil andHong Kong. Atthatmeeting, bothparties hadmade presentations and
provided replies toquestions withrespect tothissafeguard action, andtheTMB hadstarted itsin-depth
discussion but,inviewofthecomplexity oftheissue andthelackoftimeavailable, hadbeenunable
toconclude it.Ithad,therefore, decided torevert toitsexamination attheearliest possible date
acceptable tobothparties, which hadbeeninvited tosendrepresentatives upontheTMB’sresumption
ofthisexamination.2TheTMB noted thatduetothescheduling problems oftheparties, thisresumption
hadnotbeenpossible earlier thanatitstwenty-first meeting. Atthatmeeting bothparties replied to
further questions withrespect tothismeasure.
2SeeG/TMB/R/16, paragraph 4.G/TMB/R/20
Page7
28. Therepresentative ofBrazil submitted thattheaction hisGovernment hadtaken wasjustified
forthefollowing main reasons:
- Brazil hadfullycomplied withtheprocedures forthedetermination ofserious damage aswell
astheestablishment ofacausal linkbetween theincreased imports fromHong Kong andthe
serious damage suffered byBrazil ’sdomestic industry. Ithaddonesobearing inmind the
factthatArticle 6oftheATC wasanintegral partofthebalance ofrights andobligations of
theWTO Agreements, andthatmany Members hadreserved theirrighttouseitsprovisions;
these wereclearindications thatArticle 6oftheATC wasmeant tobeused. Brazil hadalso
beenmindful ofthefactthatthisArticle wastobeused“assparingly aspossible ”.Brazil
hadalsobeenjustified inimposing thetransitional safeguard provisionally, inaccordance with
paragraph 11ofArticle 6;
- Production ofproducts ofcategory 838haddecreased by2percentinvolume, andby
8.2percentinvalue, between 1994and1995. During thesame period, productivity (defined
astheratiobetween production andthenumber ofemployees) intheapparel andclothing
industries hadfallen by1.85percent, andcapacity utilization from analready lowlevel of
43.5percentto40.04 percent. Inventories, keptatlowlevels inBrazil because ofthehigh
costofcapital, werenotavalidindicator ofthelevelofeconomic activity inBrazil. Theshare
ofdomestic consumption ofproducts ofcategory 838heldbythedomestic industry hadfallen
from99.5percentto85.6percent,while Hong Kong’sshare hadincreased from0.2percent
to4.04percentduring theperiod considered. Theincrease inwages registered during this
period wasaconsequence ofrestructuring, rather thanasignofthehealth oftheindustry.
Partofitcompensated theriseinproductivity, parttheincrease inconsumer prices, andpart
wasaresult ofthefactthatthelay-offs thathadtaken place hadbeenconcentrated inthelower
endofthesalary scale. Employment hadbeenstable intheclothing industry during theperiod
considered. Domestic prices hadfallen by6.34percent,andtheclothing industry hadrecorded
anaverage profit margin of2.5percent, farbelow thecostofcapital inBrazil;
- There was,therefore, clearevidence ofserious damage tothedomestic industry. Imports from
Hong Kong hadincreased 23times from1994to1995, withHong Kong’sshare oftheBrazilian
market (apparent consumption) increasing tomore than4percent. Thus, thisdamage could
beattributed, interalia,toimports from Hong Kong.
29. Therepresentative ofHong Kong stated thatinhisGovernment 'sviewtheaction byBrazil
wasnotjustified inaccordance withtheprovisions ofArticle 6forthefollowing main reasons:
- Brazil hadfailed tomeetArticle 6obligations withrespect toproviding specific andup-to-date
information. Only1994and1995datahadbeenprovided, andthedataprovided withrespect
toseveral economic variables referred totheclothing industry asawhole andnottothesegment
oftheindustry producing knitted shirts, orshirts;
- Thechange intheimport patterns experienced byBrazil in1994and1995wasduetoarevival
ofdomestic demand resulting from thefactthathyper-inflation hadbeen halted andthat
consumers could afford tobuyimported goods;
- Brazil hadfailed todemonstrate, onthebasisoftheeconomic variables envisaged inparagraph 3
ofArticle 6,theexistence ofserious damage being caused tothedomestic industry producing
men’sandboys’shirts, knitted orcrocheted, ofother textile materials. Investment in1995
inmachinery andequipment intheclothing industry, asimports intoBrazil showed, hadbeen
important andcontinuous. Thedecline inproduction in1995 hadbeensmall, andnodata
hadbeenprovided toshow atrend. Furthermore, partofthisdecline hadbeenaccounted forG/TMB/R/20
Page8
byadecrease inexports. Data onproductivity were onlyavailable forthewhole apparel
industry, and,therefore, could notbeconsidered forthepurpose ofparagraph 3ofArticle 6.
Thesame applied forcapacity utilization, employment andprofits. Inventories werekeptat
lowlevels, anditwasdifficult tobelieve thatthere could beserious damage toanindustry
withsuchaquick turnover ofstock. Thedropinthemarket share heldbythedomestic
manufacturers ofproducts ofcategory 838,which wasminimal, hadtobeviewed inthelight
ofexpanding domestic consumption. TheBrazilian average priceforproducts ofcategory 838
haddropped tolessthantheaverage price ofimports. Inviewofthese elements, andofthe
lackofdataspecific tocategory 838tosubstantiate Brazil ’sclaim, Hong Kong didnotagree
thatserious damage hadbeen demonstrated byBrazil. It,consequently, regretted that
paragraph 11ofArticle 6hadbeeninvoked. Hong Kong, therefore, requested theTMB to
recommend thatthesafeguard action taken byBrazil berescinded.
30. TheTMB examined thefactual datapresented toitpursuant toparagraph 7ofArticle 6,as
wellastherelevant information andarguments provided byBrazil andHong Kong.
31. TheTMB recalled thatparagraph 7ofArticle 6states that“therequest forconsultations shall
beaccompanied byspecific andrelevant factual information, asup-to-date aspossible ”,andstipulates
thatthis“information shallberelated, asclosely aspossible, toidentifiable segments ofproduction
andtothereference period setoutinparagraph 8”ofArticle 6.Inthisrespect, theTMB noted the
efforts made byBrazil toprovide Hong Kong withdataasrelevant andup-to-date aspossible atthe
timeoftherequest forconsultation andduring theconsultations. TheTMB observed, however, that
information onemployment, productivity, investment, utilization ofcapacity andprofits wasso
aggregated thatitwasnotpossible torelate ittothesituation developing intheBrazilian industry
producing men’sandboys’shirts, knitted orcrocheted, ofother textile materials (category 838).
32. TheTMB observed thatimports ofproducts ofcategory 838hadincreased significantly from
1994to1995. Therefore, itexamined allthose elements envisaged inparagraphs 2and3ofArticle 6
which itcould relate tothedomestic industry producing likeand/or directly competitive products.
33. TheTMB noted thatimports hadincreased fromalowlevel. During thesameperiod domestic
productionhaddecreasedonlymarginally.Thevolumeofexportswassosmallthatitwasnotconsidered
asignificant factor. TheTMB further noted thatthese increased imports hadentered theBrazilian
market atanaverage price higher thantheaverage domestic price.
34. Onthebasisoftheabove considerations, theTMB came totheconclusion thatBrazil hadnot
demonstrated thattheBrazilian industry producing products ofcategory 838hadexperienced serious
damage, asenvisaged inparagraph 2ofArticle 6,andrecommended thatBrazil rescind themeasure.
35. TheTMB equally observed thattherecourse byBrazil totheprovisions ofparagraph 11of
Article 6wasnotappropriate. TheTMB reiterated itsviewthatincases where these provisions were
invoked, theexpectation wasthattheelements envisaged inparagraphs 2,3and4ofArticle 6would
indicate asunambiguously aspossible thehighly unusual andcritical character ofthecircumstances,
andthat,unless suchcircumstances were met,anyaction taken under Article 6should bepreceded
byconsultations between theparties.