WORLD TRADE
ORGANIZATIONG/L/459
31 July 2001
(01-3839)
COMPREHENSIVE REPORT OF THE TEXTILES MONITORING BODY
TO THE COUNCIL FOR TRADE IN GOODS
ON THE IMPLEMENTATION OF THE AGREEMENT ON TEXTILES AND CLOTHING
DURING THE SECOND STAGE OF THE INTEGRATION PROCESS
I. This comprehensive report on the implementation of the Agreement on Textiles and
Clothing (ATC) during the second stage of the integration process is transmitted, pursuant to
Article 8.11,  by the Textiles Monitoring Body  (TMB) to the Council for Trade in Goods to assist the
Council in the conduct of its second major review of the implementation of the ATC.  In compliance
with the deadline defined in Article 8.11 of the ATC, the report covers the period 1 January 1998 to
20 July 2001.
II. Article 8.11 requires that the comprehensive report cover implementation, in particular in
matters with regard to the integration process, the application of the transitional safeguard
mechanism, and relating to the application of GATT 1994 rules and disciplines as defined in
Articles 2, 3, 6 and 7, respectively.  The integration process is dealt with in Chapter II of the report,the application of the transitional safeguard mechanism in Chapter III.  Matters relating to the
application of GATT 1994 rules and disciplines, as defined in Articles 2, 3, 6 and 7, respectively, are
addressed in Chapters II, IV, V and IX.  Chapters VI to VIII and X to XIII cover other aspects of the
implementation of the ATC and related matters.  Prac tically each of the chapters listed above also
includes comments and observations as well as assessments by the TMB, whenever applicable.
III. According to Article 8.11, the TMB's comprehensive report may include any recommendation
as deemed appropriate by the TMB to the Council for Trade in Goods.  Chapter XIV of the report is
devoted to the overall assessment of the state of the implementation of the ATC.  It also summarizes
some of the main observations and includes recommendations for the consideration of the Council for
Trade in Goods.G/L/459
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TABLE OF CONTENTS
I. INTRO DUCTION ................................................................................................................. .12
II. INTEGRATION PROCESS ..................................................................................................14
A. B ACKGROUND :  FIRST STAGE OF INTEGRATION (1995-1997)...................................................15
1. Integration Pursuant to Articles 2.6 and 2.7(a)....................................................................15
(a) Integration programmes notified before the entering into fo rce of the ATC............................15
(b) Implications of integrating products belonging to HS lines in the Annex to the  ATC
for which only part of the respective lines  fall under the coverage of the ATC .......................16
2. Integration Pursuant to Articles 2.6 and 2.7(b), Including Notifications Made
Under Article 6.1.............................................................................................................. .......17
(a) Notifications pursu ant to Arti cle 6.1....................................................................................... ..17
(b) Notifications pursuant to  Articles 2.6 and 2.7(b)......................................................................17
(c) Implications of integrating products belonging to "ex HS lines" in the Annex to the
ATC ............................................................................................................................ ..............18
B. DEVELOPMENTS IN RESPECT OF FIRST STAGE INTEGRATION PROGRAMMES SINCE THE
ADOPTION OF THE TMB 'S FIRST COMPREHENSIVE REPORT ........................................................19
1. Notifications Received Pu rsuant to Article 6.1.....................................................................19
2. Additional or New Notifications Receiv ed with Reference to Articles 2.6 and
2.7(b) ......................................................................................................................... ...............19
3. Implications of Integrating Products Be longing to "ex HS lines" in the Annex to
the ATC and Related Matters................................................................................................20
(a) Members referred to  in Article 2.7(a) ....................................................................................... 20
(i) European Community .......................................................................................................... .....20
(ii) Norway..................................................................................................................... .................24
(iii) United States............................................................................................................. ................24
(iv) Canada..................................................................................................................... .................25
(b) Members referred to  in Article 2.7(b)....................................................................................... 25
C. SECOND STAGE INTEGRATION PROGRAMMES AND THEIR IMPLEMENTATION ...........................27
1. Integration Programmes of Members Maintaining Restrictions Falling Under
Article 2.1.................................................................................................................... .............27
(a) Summary of the main elements of the no tifications made before the end of 1996...................27
(b) Developments that have affected the respective integration programmes since the
adoption of the TMB's first comprehensive report:  adjustments made in response to
integrating products belonging to "ex HS lines" and related matters .......................................28
(c) Implementation of the Stag e 2 integration programmes...........................................................30
(i) Integration implemente d on 1 January 1998 ............................................................................30
(ii) Visa requirements by the United States in respect of products integrated during
Stage 2 ........................................................................................................................ ..............30
(iii) No recourse to the provisions of Arti cle 2.10 (advanced or ea rlier integr ation) .....................31G/L/459
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2. Integration Programmes of Members Retaining the Right to Use the Provisions
of Article 6 ................................................................................................................... ............31
(a) Integration programmes notified prior to the adoption of the TMB's first
comprehensiv e report........................................................................................................... .....31
(b) Developments since the adoption of th e TMB's first compre hensive report ............................32
(i) New notifications received with re ference to Articles 2.8(a) and 2.11.....................................32
(ii) Implications of integrating products belonging to "ex HS lines" in the Annex to
the ATC ........................................................................................................................ .............32
(iii) Completion of the review by the TMB of several notifications made pursuant to
Articles 2.8(a) and 2.11 ....................................................................................................... .....33
(c) Implementation of integr ation during Stage 2 ..........................................................................33
3. Conclusions Adopted by the CTG in February 1998 in its First Major Review...............34
4. Additional Comments and Observatio ns of the TMB with Respect to the
Implementation of In tegration so Far...................................................................................36
D. T HIRD STAGE OF INTEGRATION , TO BE IMPLEMENTED ON 1 JANUARY  2002...........................37
1. Review of the Integration Programmes of Members that had Notified
Restrictions Pursuant to Article 2.1 ......................................................................................38
2. Review of Integration Programmes of Members which had Retained the Right to
Use the Provisions of Article 6 ...............................................................................................4 1
3. Further Assessment and Additional Observations by the TMB with Respect to
the Third Stage Integr ation Programmes.............................................................................42
(a) Integration programmes of Members that had notified restrictions pursuant to
Article 2.1 .................................................................................................................... .............42
(i) Canada...................................................................................................................... ................42
(ii) European Community ......................................................................................................... ......52
(iii) No rway.................................................................................................................... ..................54
(iv) United States.............................................................................................................. ...............55
(b) Integration programmes of Members which had retained the right to use the
provisions of  Article 6 ........................................................................................................ ......61
III. APPLICATION OF THE TRANSIT IONAL SAFEGUARD MECHANISM ..................61
A. THE APPLICATION OF THE TRANSITIONAL SAFEGUARD MECHANISM DURING THE
PERIOD COVERED BY THE TMB 'S FIRST COMPREHENSIVE REPORT :  A BRIEF OVERVIEW ..........62
B. A PPLICATION OF THE TRANSITIONAL SAFEGUARD MECHANISM DURING THE SECOND
STAGE OF THE INTEGRATION PROCESS INCLUDING RELATED DEVELOPMENTS IN THE
DSB............................................................................................................................ ...............63
1. Application by the United States ...........................................................................................64
(a) Imports of artificial staple fibre yarn (US category 603) from Thailand..................................64
(b) Imports of combed cotton yarn (US category 301) from Pakistan ...........................................65
2. Application by Colombia...................................................................................................... ..70
(a) Imports of denim fa bric ..................................................................................................... .......70
(i) Chile, Peru and Venezuela................................................................................................... .....71G/L/459
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(ii) Brazil and India ........................................................................................................... .............71
(b) Imports of plain polyester fi laments ........................................................................................ .72
(i) Malaysia and the United States .............................................................................................. ..72
(ii) Korea and Thailand......................................................................................................... .........72
3. Requests for Consultations by Poland ..................................................................................76
(a) Imports of woven fabrics of synt hetic filament yarn  from Korea.............................................76
(b) Imports of certain acrylic or mod acrylic staple fibr es from Romania ......................................76
4. Application by Argentina..................................................................................................... ..76
(a) Imports of high tenacity yarn of polyester filaments from Indonesia, Korea and
Malaysia and staple fibres of polyester from Korea .................................................................76
(b) Imports of woven fabrics of cotton and cotton mixtures (categories 218, 219/220,
224, 313/317 and 613/617/627) ................................................................................................77
(i) Brazil...................................................................................................................... ...................77
(ii) Paki stan ................................................................................................................... .................84
(c) Imports of woven fabrics of synthetic filament, whether or not impregnated
(categories 229/629, 619 a nd 620) from Korea ........................................................................87
C. CONCLUSIONS ADOPTED BY THE CTG IN FEBRUARY 1998 IN ITS FIRST MAJOR REVIEW ...........92
D. VIEWS AND COMMENTS OF WTO MEMBERS IN RESPONSE TO THE TMB 'S GENERAL
REQUEST FOR INFORMATION .....................................................................................................93
E. T HE TMB 'S COMMENTS AND ASSESSMENTS OF THE APPLICATION OF THE
TRANSITIONAL SAFEGUARD MECHANISM DURING THE SECOND STAGE OF THE
INTEGRATION PROCESS .............................................................................................................93
IV. QUANTITATIVE RESTRICTIONS NOTIFIED PURSUANT TO ARTICLE 2.
ISSUES RELATED TO THE IMPLEMENTATION OF THE PROVISIONS
OF ARTICLE 2 EXCEPT THOSE CONCERNING INTE GRATION ............................96
A. SCOPE OF THE RESTRICTIONS TAKEN OVER FROM THE MFA REGIME :  STATUS AND
DEVELOPMENTS DURING THE FIRST STAGE OF THE INTEGRATION PROCESS .............................97
1. Notifications Made Purs uant to Article 2.1 ..........................................................................97
2. Observations With Respect to Notifications Made Pursuant to Article 2.1 ......................99
3. Changes Implemented During Stage 1:  Elimination of Restrictions Pursuant to
Article 2.15 or Si milar Mea sures...........................................................................................99
4. Implementation of the Provisions Related to Growth and Flexibility .............................100
5. Implementation of Other Provisions of Article 2, in Particular Articles 2.17 and
2.18 ........................................................................................................................... ..............100
B. S TAGE 2:  DEVELOPMENTS IN AND IMPLEMENTATION OF THE RESTRICTIONS NOTIFIED
UNDER ARTICLE 2....................................................................................................................100
1. New Notifications Received With Reference to Article 2.1 ...............................................100
2. Changes in Restrictions Previously Notified Under Article 2.1........................................100
(a) Removal of restrictions by way of integration........................................................................100
(b) Notifications made pursuant to Article 2.15:  elimination of restrictions without
integration .................................................................................................................... ...........101G/L/459
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(c) Elimination or non-application of restrictions to imports from certain WTO Members ........102
(d) Suspension of the application of restrict ions to imports from  certain Members ....................103
(e) Increase in certain restraint levels, ot her than pursuant to  Article 2.14(a) .............................103
(f) Adjustments implemented in the level of certain restrictions as a result of integration
of parts of restrictions no tified under Article 2.1....................................................................103
(g) Views and comments of WTO Members in response to the TMB's request for
information and/or to further specif ic questions raised  by the TMB......................................104
3. Implementation of the Provisions Related to Growth (Article 2.14(a)) ...........................104
(a) Information at th e TMB's disposal..........................................................................................1 04
(b) Conclusions adopted by the CTG in Fe bruary 1998 in its fi rst major review ........................104
(c) Views and comments of WTO Members in response to the TMB's request for
information and/or to further specif ic questions raised  by the TMB......................................105
4. Implementation of the Flexibil ity Provisions (Article 2.16) ..............................................106
5. Implementation of the Pr ovisions of Article 2.18...............................................................106
(a) Implementation during Stage 1............................................................................................... 106
(b) Implementation during Stage 2............................................................................................... 107
(c) Conclusions adopted by the CTG in Fe bruary 1998 in its fi rst major review ........................108
(d) Views and comments of WTO Members in response to the TMB's general request for
information and/or to further que ries to certain WTO Members............................................109
6. Administrative Arrangements Agreed Between Members Following the
Provisions of  Article 2.17..................................................................................................... .110
(a) Administrative arrangements  notified durin g Stage 1 ............................................................110
(b) Developments during Stage 2 ................................................................................................. 112
(i) New notifications made with  reference to Article 2.17...........................................................112
(ii) Other matters referred to the TM B with reference to Article 2.17 .........................................113
(iii) Implementation of the adm inistrative a rrangements ..............................................................113
C. I NTRODUCTION OF NEW RESTRICTIONS DURING STAGE 2 (ARTICLE 2.4)................................114
1. Turkey: Restrictions on Imports of  Textile and Clothing Products.................................114
2. United States:  Measures Affecting Textile and Apparel Products as a Result of
the Change to the US  Rules of Origin .................................................................................114
3. Colombia – Transitional Safeguard Measure on Imports of Plain Polyester
Filaments from  Thailand......................................................................................................11 4
4. Argentina – Transitional Safeguard Measures on Imports of Woven Fabrics of
Cotton and Cotton Mixtures Originating in Brazil ...........................................................115
5. United States – Transitional Safeguard Measures on Combed Cotton Yarn from
Pakistan....................................................................................................................... ...........115
6. United States – Introduction of a New Restraint on Certain Imports from
Turkey, as Part of a Broader Understanding Reached by the Two Members................115
7. Requests for consultations with Brazil and Romania with reference, inter alia , to
Article 2 of the ATC by the United States ..........................................................................115G/L/459
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D. OTHER PROVISIONS OF ARTICLE 2 ...........................................................................................115
1. Observations, if any, Brought to the Attention of the TMB, Pursuant to
Article 2.2.................................................................................................................... ...........115
2. Arrangements to Bring Restrictions into Line with Agreement Year (Article 2.3)
and Treatment of MFA Article 3 Measures (Article 2.5)..................................................116
3. Safeguard Measures Initiated Under Article XIX of GATT 1994 in Terms of
Articles 2.19 and 2.20 of the ATC........................................................................................116
E. R EVIEW OF THE IMPLEMENTATION OF ARTICLE 2 BY THE TMB (PURSUANT TO
ARTICLE  2.21) ......................................................................................................................... 116
F. F URTHER COMMENTS AND OBSERVATIONS OF THE TMB.......................................................117
1. The Effect of the Growth Provisions on Actual Trade and on Trading
Opportunities .................................................................................................................. ......117
2. Issues Related to the Implem entation of Ar ticle 2.15 ........................................................118
3. Implications of the Implementation of the US Trade and Development Act of
2000 ........................................................................................................................... .............119
4. Suspension of the Application of Restrictions ....................................................................119
5. Implementation of the Pr ovisions of Article 2.18...............................................................119
V. RESTRICTIONS OTHER THAN THOSE TAKEN OVER FROM THE
FORMER MFA REGIME...................................................................................................120
A. RESTRICTIONS NOTIFIED PURSUANT TO ARTICLE 3.1..............................................................120
1. Notifications Received During Stage 1 and Their Review.................................................120
2. Notification Made With Reference to Article 3.1 During Stage 2 ....................................122
B. P ROGRESSIVE PHASING OUT OF RESTRICTIONS NOT JUSTIFIED OR THEIR BEING
BROUGHT INTO CONFORMITY WITH  GATT 1994 .....................................................................123
1. Measures Brought Into Conformity With GATT 1994 (Article 3.2(a))...........................123
2. Programmes for the Progressive Phasing-out of Restrictions Within a Period
Not Exceeding the Duration of the ATC (Article 3.2(b))...................................................123
(a) Programmes notified during Stage 1 and their respective implementation during the
same stage..................................................................................................................... ..........123
(b) Developments in the implementation of the respective programmes during Stage 2.............124
C. INFORMATION WITH RESPECT TO NEW RESTRICTIONS OR CHANGES IN EXISTING
RESTRICTIONS PURSUANT TO ARTICLE 3.3..............................................................................125
1. Developments During the First  Stage of the Integration Process....................................125
(a) Communications received with  reference to Article 3.3.........................................................125
(b) Observations made by the TMB in  its first compre hensive report .........................................125
2. Developments Since the Adoption of the TMB's First Comprehensive Report ..............126
(a) Communications received by  the TMB under Article 3.3......................................................126
(b) Reverse notifications and restrict ions not notified (Article 3.4).............................................127
D. OBSERVATIONS WITH RESPECT TO THE APPLICATION OF ARTICLE 3 DURING STAGE 2...........127
1. Quantitative Restrictions Introduced by Turkey...............................................................128G/L/459
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2. Quantitative Restrictions Maintained by India on Imports of, inter alia , Textile
Products ....................................................................................................................... ..........129
3. Changes, if Applicable, in Restrictions Applied with Reference to Article
XVIII:B of GATT 1994 by Some WTO Members.............................................................131
E. V IEWS AND COMMENTS OF WTO M EMBERS IN RESPONSE TO TMB' S REQUEST FOR
INFORMATION AND /OR TO FURTHER SPECIFIC QUESTIONS RAISED BY THE TMB...................132
VI. ADMINISTRATION OF RESTRICTIONS NOTIFIED UNDER ARTICLE 2.
CHANGES IN PRACTICES, RULES, PROCEDURES AND
CATEGORIZATION OF PRODUCTS.  CHANGES IN THE LEVEL OF
RESTRICTIONS AS A RESULT OF INTEGRATION OF PARTS OF THE
RESPECTIVE RESTRICTIONS.  (IMPLEMENTATION OF THE
PROVISIONS OF ARTICLE 4)..........................................................................................133
A. A DMINISTRATION OF RESTRICTIONS (ARTICLE 4.1)................................................................133
B. CHANGES IN THE SENSE OF ARTICLE 4.2 IN THE IMPLEMENTATION OR
ADMINISTRATION OF RESTRICTIONS APPLIED UNDER THE ATC AND RELATED ACTIONS
UNDER ARTICLE 4.4.................................................................................................................133
1. Developments Regarding the Implementation of Articles 4.2 and 4.4 During the
Period Covered by the First Comprehensive Report:  Changes in the Rules ofOrigin Applied by the United States ...................................................................................134
2. Developments During the Second Stage of the Integration Process.................................136
3. Views and Comments of WTO Members in Response to the TMB's General
Request for Information and/or to Further Queries to Certain WTO Members ...........137
C.
INTEGRATION OF PARTS OF A RESTRICTION (ARTICLE 4.3) AND RELATED ACTIONS
UNDER ARTICLE 4.4.................................................................................................................138
1. Developments During the Second Stage of the Integration Process.................................138
2. Views and Comments of WTO Members in Response to the TMB's General
Request for Information and/or to Further Queries to Certain WTO Members ...........138
D. RELATED ISSUES ......................................................................................................................139
E. COMMENTS AND OBSERVATIONS BY THE TMB ........................................................................139
1. Changes in the Rules of Origin Applied by the United States ..........................................139
2. Changes in Classification of Products/Categories and in Technical Requirements
During Stage 2................................................................................................................. ......140
3. The Effect of Integration of Parts of a Restriction ............................................................141
(a) Implementation during Stage 2 of the integra tion process .....................................................141
(b) Outlook fo r Stage 3......................................................................................................... ........141
VII. IMPLEMENTATION OF THE PROVISIONS RELATED TO PROBLEMS
ARISING FROM POTENTIAL CIRCUMVENTION OF THE ATC (ARTICLE
5) ............................................................................................................................. ................146
A. S TAGE 1:  I SSUES RELEVANT IN THE CONTEXT OF THE IMPLEMENTATION OF ARTICLE
5 .............................................................................................................................. ................146
B. D EVELOPMENTS SINCE THE ADOPTION OF THE TMB 'S FIRST COMPREHENSIVE REPORT .........148
1. The TMB's Examination of the Communications Made by Pakistan and the
United States.................................................................................................................. ........148G/L/459
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(a) Reduction of the debit made by the United States to Pakistan's category 361 quota..............149
(b) Introduction of a limit on man-made fibre bedsheets and pillowcases...................................150
(c) Resolution of matters concerning ch anges in the US ru les of or igin......................................153
2. Communication by Pakistan and its Follow-up .................................................................154
3. Joint Communication Received from Pakistan and the United States ............................154
4. Other Matters Referred to the TMB under Article 5........................................................158
C. CONCLUSIONS ADOPTED BY THE CTG IN FEBRUARY  1998 IN ITS FIRST MAJOR REVIEW .........158
D. VIEWS AND COMMENTS OF WTO MEMBERS IN RESPONSE TO THE TMB 'S GENERAL
REQUEST FOR INFORMATION AND /OR TO FURTHER QUERIES TO CERTAIN WTO
MEMBERS ............................................................................................................................... .158
E. ADDITIONAL COMMENTS BY THE TMB ....................................................................................162
VIII. ISSUES REFERRED TO OR TAKEN UP BY THE TMB WITH REFERENCE
TO THE PROVISIONS OF ARTICLE 8 OF THE ATC .................................................163
A. I SSUES REFERRED TO AND /OR TAKEN UP BY THE TMB WITH REFERENCE TO THE
PROVISIONS OF ARTICLE 8.1....................................................................................................164
1. United States/Turkey:  Introduction of a New Restriction ...............................................164
(a) Examination of the m easure by the TMB ...............................................................................164
(b) Subsequent developm ents..................................................................................................... ..166
(c) Follow-up by the TMB ........................................................................................................ ...168
2. Visa Requirements by the United Stat es in Respect of Products Integrated
During Stage 2................................................................................................................. ......168
B. MATTERS BROUGHT TO THE TMB PURSUANT TO ARTICLES 8.5 AND/OR 8.6............................169
1. Communications Made by Honduras Pursuant to Articles 8.5 and 8.6...........................169
(a) Consideration of the comm unications by the TMB................................................................169
(b) Comments made subsequently  in the Gene ral Council ..........................................................172
(c) Views and comments of WTO Members in response to the TMB's general request for
inform ation.................................................................................................................... ..........173
(d) Additional comment s by the TMB .........................................................................................173
2. Communication Received from Pakistan ...........................................................................174
C. THE TMB 'S SURVEILLANCE OF THE IMPLEMENTATION OF ITS RECOMMENDATIONS
PURSUANT TO ARTICLE 8.9......................................................................................................174
D. I SSUES REFERRED TO THE TMB PURSUANT TO THE PROVISIONS OF ARTICLE  8.10..................175
IX. ACTIONS REFERRED TO IN ARTICLE 7 WITH A VIEW TO ABIDING BY
GATT 1994 RULES AND DISCIPLINES SO AS TO ACHIEVE IMPROVED
ACCESS TO MARKETS AND ENSURE THE APPLICATION OF POLICIES
RELATING TO FAIR AND EQUITABLE TRADING CONDITIONS -
IMPLEMENTATION OF THE PR OVISIONS OF ARTICLE 7....................................175
A. T HE PROVISIONS OF ARTICLE  7 ..............................................................................................175
B. COMMENTS MADE BY THE TMB IN ITS FIRST COMPREHENSIVE REPORT ..................................176
C. CONCLUSIONS ADOPTED BY THE COUNCIL FOR TRADE IN GOODS IN FEBRUARY  1998
IN ITS FIRST MAJOR REVIEW ....................................................................................................176G/L/459
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D. NOTIFICATIONS OF MEMBERS AND /OR THEIR ASSESSMENTS REGARDING
DEVELOPMENTS DURING THE SECOND STAGE OF THE INTEGRATION PROCESS .......................178
1. Notifications Falling Under the Provisions of Articles 7.2 and 7.3...................................178
2. Information, Views and Comments of WTO Members in Response to the TMB's
Request........................................................................................................................ ...........179
(a) Canada ...................................................................................................................... ..............179
(b) European Community .......................................................................................................... ...179
(c) ITCB members................................................................................................................ ........180
(d) Japan ....................................................................................................................... ................181
(e) Turkey...................................................................................................................... ...............181
(f) United States............................................................................................................... ............182
3. Additional Communications Received by the TMB ..........................................................183
(a) European Community .......................................................................................................... ...183
(b) ITCB members................................................................................................................ ........185
(c) United States............................................................................................................... ............185
E. COMMENTS OF THE TMB WITH RESPECT TO THE IMPLEMENTATION OF THE PROVISIONS
OF ARTICLE  7.  ADDITIONAL OBSERVATIONS IN RELATION TO SOME OF THE ISSUES
RAISED BY MEMBERS IN THEIR RESPECTIVE RESPONSES TO THE TMB 'S REQUEST FOR
INFORMATION ..........................................................................................................................185
1. Some Remarks Related to the Obligations Incorporated into Article 7 ..........................186
2. Implementation of the Provisions of  Article 7.1(a) (Market Access) ...............................187
3. Other Issues Raised by Members in the Context of the Provisions of Article
7.1(a)......................................................................................................................... ..............188
4. Implementation of the Provi sions of Article 7.1(b)............................................................189
5. Implementation of the Provi sions of Article 7.1(c) ............................................................192
X. IMPLEMENTATION OF PROVISIONS IN THE ATC RELATED TO
SPECIAL INTERESTS OR PARTICULAR SITUATIONS OF CERTAIN WTO
MEMBERS........................................................................................................................ ....193
A. LEAST -DEVELOPED COUNTRY MEMBERS ................................................................................193
1. Articles 6.6(a) and 6.6(b) ................................................................................................... ...194
2. Article 2.18................................................................................................................. ............194
B. SMALL SUPPLIERS AND NEW ENTRANTS IN THE FIELD OF TEXTILES AND CLOTHING
TRADE ............................................................................................................................... .......195
C. SPECIAL TREATMENT AFFORDED TO MEMB ERS WHICH HAVE NOT ACCEPTED THE
MULTIFIBRE ARRANGEMENT (MFA) EXTENSION PROTOCOL SINCE 1986...............................195
D. COTTON -PRODUCING EXPORTING MEMBERS ...........................................................................196
E. WOOL -PRODUCING EXPORTING MEMBERS ..............................................................................197
F. MORE FAVOURABLE TREATMENT TO BE ACCORDED TO RE -IMPORTS IN APPLYING THE
TRANSITIONAL SAFEGUARD MECHANISM ...............................................................................197
G. TREATMENT ACCORDED TO DEVELOPING COUNTRY MEMBERS ..............................................197G/L/459
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1. Special Provision in Favour of Developing Country Members ........................................197
2. Other Provisions Which Could be Applied in Such a Way as to Provide
Favourable Treatment, inter alia , to Developing Country Members...............................197
H. CONCLUSIONS ADOPTED BY THE CTG IN FEBRUARY 1998 IN ITS FIRST MAJOR REVIEW .........198
1. Least-Developed Country Members ...................................................................................198
2. Small Suppliers and New Entrants in the Field of Textiles and Clothing Trade............1983. Cotton-Producing Exporting Members ..............................................................................198
4. Conclusion of the Major Review by the CTG in February 1998......................................199
I.
FURTHER COMMENTS AND OBSERVATIONS BY THE TMB ........................................................199
XI. OTHER ISSUES ................................................................................................................ ...200
A. A UTONOMOUS INDUSTRIAL ADJUSTMENT AND INCREASED COMPETITION IN
MEMBERS ' MARKETS ...............................................................................................................200
1. Information and/or Comments Provided by WTO Members in Response to the
TMB's Request.................................................................................................................. ....201
(a) Canada ...................................................................................................................... ..............201
(b) European Community .......................................................................................................... ...203
(c) Japan ....................................................................................................................... ................204
(d) Turkey...................................................................................................................... ...............204
(e) United States............................................................................................................... ............204
(f) Comments made by the ITCB members.................................................................................205
2. Additional Comments and Observations of the TMB .......................................................205
B. R EGIONAL ARRANGEMENTS AND INITIATIVES ........................................................................207
1. NAF TA........................................................................................................................ ...........207
(a) Trade in  textiles ........................................................................................................... ...........207
(b) Trade in clothing........................................................................................................... ..........208
2. Agreements Concluded by the European Community......................................................209
(a) Trade in  textiles ........................................................................................................... ...........209
(b) Trade in clothing........................................................................................................... ..........209
3. US Trade Arrangements with Countries of the Caribbean Basin....................................210
4. African Growth and Opportunity Ac t Adopted by the United States .............................211
5. Recent Indications Regarding Developments in Trade in 2000........................................211
C. ELIMINATION OF RESTRICTIONS ON IMPORTS FROM CERTAIN NON -WTO MEMBERS ...............212
D. ACCESSION OF NEW MEMBERS TO THE WTO ............................................................................214
XII. COMPLIANCE WITH NOTIFICATION REQUIREMENTS UNDER
THE ATC........................................................................................................................ .......214
XIII. FUNCTIONS OF AND WORK CARRIED OUT BY THE TMB ...................................215
A. DISCHARGING FUNCTIONS ON AN AD PERSONAM BASIS ..........................................................215
1. TMB Working Procedures...................................................................................................215G/L/459
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2. Decision of the CTG.......................................................................................................... ....216
3. Code of Conduct Adopted by the DSB................................................................................216
B. CIRCULATION OF REPORTS AND NOTIFICATIONS ;  DERESTRICTION OF DOCUMENTS ..............216
1. Circulation of Reports ....................................................................................................... ...216
2. Circulation of Notifications................................................................................................. .216
3. Derestriction................................................................................................................ ..........217
C. NUMBER OF MEETINGS , SCHEDULING OF MEETINGS ...............................................................217
D. TRANSPARENCY .......................................................................................................................217
E. DECISION -TAKING ...................................................................................................................218
F. VIEWS AND COMMENTS OF WTO MEMBERS IN RESPONSE TO THE TMB 'S GENERAL
REQUEST FOR INFORMATION AND COMMENTS ........................................................................218
XIV. OVERALL ASSESSMENT OF THE IMPLEMENTATION OF THE ATC AND
RECOMMENDATIONS TO  THE CT G............................................................................219
1. Integration Process.  Restrictions Taken Over From the MFA Regime..........................219
2. Use of the Transitional Safeguard Mechanism ..................................................................222
3. Changes in Practices, Rules, Procedures and Categorization of Products......................224
4. Circumv ention................................................................................................................ .......225
5. Implementation of the Pr ovisions of Article 7....................................................................225
6. ATC Provisions Related to Special Interests or Particular Situations of Certain
WTO Me mbers .................................................................................................................... .227
(a) Least-developed c ountry Members.........................................................................................227
(b) Small s upplie rs............................................................................................................. ...........227
(c) Cotton-producing e xporting Members....................................................................................228
7. Autonomous Industrial Adjustment and Increased Competition in Members'
Markets........................................................................................................................ ..........228
8. Regional Arrangements and Initiatives ..............................................................................229
9. Elimination of Restrictions on Imports from Certain Non-WTO Members...................229
10. Compliance with Notification Requir ements Under the ATC.  Cooperation by
Members in Responding to Requests Made by the TMB.  Members Own
Initiative to Provide Information on Matters Affecting the Implementation of
the ATC or Referring Matters to the TMB ........................................................................230G/L/459
Page 12
I. INTRODUCTION
1. Article 8.11 of the Agreement on Textiles and Clothing (ATC)1 stipulates the following:  "In
order to oversee the implementation of this Agreem ent, the Council for Trade in Goods shall conduct
a major review before the end of each stage of the integration process.  To assist in this review, the
TMB shall, at least five months before the end of each stage, transmit to the Council for Trade in
Goods a comprehensive report on the implementation of this Agreement during the stage underreview, in particular in matters with regard to the integration process, the application of the
transitional safeguard mechanism, and relating to the application of GATT 1994 rules and disciplines
as defined in Articles 2, 3, 6 and 7 respectively.  The TMB's comprehensive report may include any
recommendation as deemed appropriate by the TMB to the Council for Trade in Goods".
2. The ATC defines three successive stages for the integration process (1995-97, 1998-2001,
2002-2004), following which, on 1 January 2005, the textiles and clothing sector shall be fully
integrated into GATT 1994.  In compliance with the requirements of Article 8.11, the TextilesMonitoring Body (TMB) adopted its Comprehensive Report to the Council for Trade in Goods on the
Implementation of the Agreement on Textiles and Clothing during the First Stage of the Integration
Process (hereafter referred to as the first comprehensive report of the TMB
2) on 24 July 1997.  The
report covered the period 1 January 1995 to 24 July 1997.  The major review of the Council for Trade
in Goods (CTG) started during its meeting of 6 October 1997 (during which the TMB's report wasalso introduced), the review was conducted through a number of formal and informal meetings of the
Council
3 and its outcome was adopted by the CTG at its meeting of 16 February 1998.4  T h e  t e x t
adopted mentions that "[t]he Council took note of the comprehensive report that had been prepared by
the TMB and considered that it provided a substantial background for the review".5  A l s o ,  i n
describing the different important elements considered by the CTG during its major review, the textadopted by the Council makes specific references to the respective sections of the TMB's first
comprehensive report.
3. As the second stage of the integration process under the ATC comprises the period
1 January 1998 to 31 December 2001, the CTG is expected to conduct its second major review before
the end of 2001.  The present comprehensive report on the implementation of the ATC during thesecond stage of the integration process was adopted and is being transmitted by the TMB pursuant to
the provisions of Article 8.11.
4. The report addresses all of the operational provisions of the ATC.  As required by
Article 8.11, particular emphasis has been put on matters with regard to the integration process, the
application of the transitional safeguard mechanism, as well as those relating to the application ofGATT 1994 rules and disciplines as defined in Articles 2, 3, 6 and 7, respectively.
5. The report is essentially based on notifications submitted by the Members to the TMB and on
the actions taken by the TMB with respect to thes e notifications.  According to Article 8.3, the TMB
"… shall rely on notifications and information supplied by the Members under the relevant Articles of
this Agreement, supplemented by any additional information or necessary details they may submit or
it may decide to seek from them …".  Keeping also in mind this provision, in February 2001, the
TMB issued a request to WTO Members, inviting  them to submit notifications or information
regarding the implementation of particular ATC provisions, for the purpose of preparing the TMB's
comprehensive report (G/TMB/24).  Replies received from Members to this request and also to
subsequent specific requests for clarification and comments addressed to a number of Members, have
                                                     
1 Unless otherwise specified, all Articles mentioned refer to the ATC.
2 G/L/179.
3 The minutes of the formal meetings are contained in G/C/M/23 to 29.
4 See G/L/224.
5 See G/L/224, paragraph 3.G/L/459
Page 13
also been taken into consideration in the relevant sections of this report.6  Article 8.3 provides,
furthermore, that the TMB "… may also rely on notifications to and reports from other WTO bodies
and from such other sources as it may deem appropriate".  Relevant notifications to, and reports from,
other WTO bodies have also been considered, to the extent necessary, in the preparation of the report.
6. The TMB adopted detailed reports after each of its meetings.7  It also provided to the CTG,
annual reports (in November 1997, November 1998, September 1999 and October 20008), which
contained a summary of the matters referred to and/or taken up by the TMB during the reporting
periods, together with the main elements of the conclusions it reached and the related actions it took
with respect to them.  The present comprehensive re port, in conformity with the mandate confined to
the TMB under Article 8.11, covers the period 1 January 1998 to 20 July 2001, the date of its
adoption.  Furthermore, the report also incorporates, to the extent necessary, issues and developments
that took place during the first stage of the integration process, whether already reflected or not in the
first comprehensive report adopted by the Body.  This was done for the following main reasons:
• certain developments that occurred during Stage 2 cannot be fully understood and
assessed without providing their necessary background;
• a number of important measures that were notified during Stage 1, continued to be
applied also during Stage 2, and therefore formed part of the measures applied underthe ATC during the period subject to the present report;
• also, some developments that took place during the last few months of the
implementation of the first stage of the integration process, could not be included inthe first comprehensive report;
• certain changes notified during Stage 2 affected matters relevant to Stage 1 or had
their roots in developments that had taken place during that Stage.
7. In addition, since the notification of integration programmes for Stage 3 was required by the
end of the year 2000, the report includes factual information on these integration programmes and
provides an assessment on them.
8. While in conformity with what is indicated in paragraph 5, this report relies to a large extent
on the notifications received by the TMB and the actions taken by it with respect to them, the Bodyhas also provided further observations, comments, an alysis and assessment with respect to different
topics examined, for the consideration of Members.  The concluding part of the report is devoted to
the overall assessment of the state of the implementation of the ATC;  it summarizes some of the main
observations made and also includes recommendations as deemed appropriate by the Body to the
CTG.
9. Bearing in mind the second major review to be conducted by the CTG, the TMB decided to
request the WTO Secretariat to provide Members, as a background document, statistical information
with respect to international trade in textiles and cl othing.  It is expected that this document will be
issued and circulated to Members around the middle of September 2001.
                                                     
6 Such replies were received from the following Members: Canada; European Community;
Hong Kong, China; Japan; Macau, China; Uruguay (on behalf of ITCB members, this contribution beingreferred to hereafter as the submission of ITCB members); Turkey; United States.
7 For the reports adopted since the adoption of the TMB's first comprehensive report, see G/TMB/R/35
to G/TMB/R/80.
8 These annual reports are contained, respectively, in G/L/206, G/L/270, G/L/318 and G/L/398.G/L/459
Page 14
II. INTEGRATION PROCESS
10. In accordance with the provisions of its Articles 1.1 and 9, the ATC provides for a transitional
period of 10 years, during which the textiles and clothing sector, defined in terms of the products
listed, together with their respective classification under the Harmonized Commodity Description and
Coding System (HS) Nomenclature in the Annex to the ATC, has to be progressively integrated into
the general rules of GATT 1994.  As specified in Article 9, the ATC and all restrictions thereundershall stand terminated on 1 January 2005, on which date the textiles and clothing sector shall be fully
integrated into GATT 1994.  Article 9 also states that "[t]here shall be no extension" of the ATC.
11. It also follows from the above that integration is a key concept embodied in the ATC, since it
brings international trade in the sector under the general rules and disciplines of GATT 1994.  The
rules and requirements governing integration are defined in Articles 2.6 to 2.11.  Integration has to be
formally implemented by all WTO Members, even if they did not apply restrictions under the pre-
ATC (i.e. MFA
9) regime and, therefore, did not carry over such restrictions to the ATC.  Integration is
a progressive, staged process, unless Members specifically renounced the right to use the transitional
safeguard mechanism (Article 6) of the ATC, in which case they are deemed to have already
integrated, at the very beginning of the transitional period, all the products covered by the ATC into
GATT 1994.  For all other Members, integration takes place, as a main rule, in four stages, on
1 January 1995, 1 January 1998, 1 January 2002 and 1 January 2005.10 The choice of products to be
integrated in any of the stages is left to the Members, within the parameters mentioned below.
Integration programmes that were implemented during the first two stages and those that are to be
implemented in Stage 3 had to meet the following two basic requirements:
• they had to include products which accounted for not less than a specific percentage
(16 per cent in Stage 1;  17 per cent in Stage 2 and 18 per cent in Stage 3) of the total
volume of the respective Members' 1990 imports of the products covered by theATC;
• they also had to include, for each stage, products from each of the four main product
groups (i.e. tops and yarns, fabrics, made-up textile products and clothing).
In addition, the respective programmes of integration had to be notified in detail to the TMB within
the deadlines specified in the ATC.  Once received, the integration programmes were circulated by the
TMB, without delay, to all Members and were review ed by the Body in conformity with the relevant
provisions of the ATC.
12. Under the ATC, the technical requirements, in broad terms, are the same in respect of all
Members which notified integration programmes for the first three stages.  However, Article 2.7
makes a distinction between Members which maintained restrictions under the MFA (these Members
are referred to in Article 2.7(a)) and those Members which retained the right to use the transitional
safeguard mechanism of the ATC (these latter Members are referred to in Article 2.7(b)).  As it has
already been observed by the TMB in its first comprehensive report
11, this distinction between
Members is important from two  inter-related points of view:
• the trade regime the Members carried over to the ATC;  and
• the implication of integrating products into GATT 1994.
                                                     
9 Arrangement Regarding International Trade in Textiles, or Multifiber Arrangement.
10 This, however, does not preclude the possibility of integrating products earlier than provided for in
an integration programme applicable to any of these stages (see the provisions of Article 2.10).
11 See G/L/179, paragraphs 66 and 67.G/L/459
Page 15
Members referred to in Article 2.7(a) notified restrictions maintained under the MFA regime and
carried them over to the ATC.  In the case of these Members, the integration of a product into
GATT 1994 has two consequences:  first, the transi tional safeguard mechanism cannot be used with
respect to imports of such a product;  second, any quantitative restriction maintained on such a
product under the ATC (notified pursuant to Article 2.1) is, by virtue of integration, eliminated.  For
the Members referred to in Article 2.7(b), the effect of integration is to remove, with respect to theproducts integrated, the possibility of having recourse to the transitional safeguard mechanism.  Since
integration ipso facto  removes restrictions maintained under the ATC (as opposed to those justified
under GATT 1994), the effect of having selected products for integration is substantially different for
Members referred to in Articles 2.7(a) and 2.7(b).
A. B
ACKGROUND :  FIRST STAGE OF INTEGRATION (1995-1997)
13. Integration programmes notified by Members for the first stage of the integration process are
dealt with in detail in the first comprehensive report adopted by the TMB at the end of July 1997.12
However, for the sake of completeness and also due to the fact that there were subsequentdevelopments affecting a number of Stage 1 integration programmes
13, a summary is provided below,
based on the information at the TMB's disposal at the time of the adoption of the first comprehensive
report.
14. The requirements for the first stage of integration are defined in Article 2.6, which states that
"[o]n the date of entry into force of the WTO Agreement, each Member shall integrate into GATT
1994 products which accounted for not less than 16 per cent of the total volume of the Members' 1990
imports of the products in the Annex, in terms of HS lines or categories.  The products to be
integrated shall encompass products from each of the following four groups:  tops and yarns, fabrics,made-up textile products and clothing".
1. Integration Pursuant to Articles 2.6 and 2.7(a)
(a) Integration programmes notified before the entering into force of the ATC
15. Pursuant to Articles 2.6 and 2.7(a), the Members which had maintained restrictions under the
MFA had to notify their respective integration programmes to the GATT Secretariat no later than1 October 1994, in accordance with a decision taken by Ministers at Marrakesh on 15 April 1994.
Canada, the European Community, Norway and the United States submitted notifications under these
provisions within the deadline prescribed. In reviewing these notifications, the TMB noted that, in
accordance with Article 2.6, the volume of products integrated by Canada, the European Community,
Norway and the United States amounted to at least 16 per cent of the total volume of the respectiveMembers’ 1990 imports of the products falling under the coverage of the ATC and included products
from each of the main product groups. Canada integrated 16.34 per cent
14 of the volume of its 1990
imports of the products in the Annex, of which 59 per cent were of tops and yarns, 26 per cent of
fabrics, 8 per cent of made-ups and 7 per cent of clothing products.  The European Community15
notified that it would integrate 16.4 per cent of the volume of the Community’s 1990 imports of theproducts in the Annex, of which 27 per cent were tops and yarns, 49 per cent fabrics, 22 per cent
                                                     
12 See G/L/179, paragraphs 11 to 38.
13 For subsequent developments, see paragraphs 29 to 45.
14 The percentages indicated were subsequently revised as a result of corrections made by Canada
during Stage 1 and in the context of the notification by Canada of its Stage 3 integration programme (see
paragraphs  39, 40 and 82).
15 EC 12 (at the time the notification was made, the European Community comprised 12 member States;
since it was anticipated that it would comprise 16 member States by 1 January 1995, data for those 16 Members
were also provided).G/L/459
Page 16
made-ups and 2 per cent clothing products.16 According to its notification, Norway integrated
16.26 per cent of the volume of its 1990 imports of the products in the Annex, of which 22 per cent
were tops and yarns, 73 per cent fabrics, 4 per cent made-ups and 1 per cent clothing products.17  The
United States integrated 16.21 per cent of the volume of its 1990 imports of the products in the
Annex, of which 52 per cent were tops and yarns, 15 per cent fabrics, 20 per cent made-ups and
13 per cent clothing products.
16. In its 1996 (annual) report and in the first comprehensive report, the TMB made a number of
observations regarding the integration programmes notified pursuant to Articles 2.6 and 2.7(a).  It
noted, inter alia , that the products integrated, with the exception of Canada for one product (work
gloves), had not been, prior to their integration into GATT 1994, subject to the quantitative
restrictions notified under Article 2.1.  The TMB also observed that though the respective integration
programmes included products from each of the product groups specified in Article 2.6, the share of
tops and yarns, and fabrics was significantly higher than that of made-up textile products and clothing.
Furthermore, since the products integrated were concentrated in the relatively less value-added range
of products, it appeared that the share of products integrated, expressed in value terms, was smaller
than that expressed in volume.
17. In the first comprehensive report, the TMB noted also that no notification under Article 2.1018
on advanced or earlier integration of products during Stage 1 had been made by Members having
submitted integration programmes under Article 2.7(a).
(b) Implications of integrating products belonging to HS lines in the Annex to the  ATC for
which only part of the respective lines fall under the coverage of the ATC
18. In February 1997, the TMB received a notification from Colombia, also on behalf of a
number of other WTO Members that are also members of the International Textiles and ClothingBureau (ITCB), alleging certain discrepancies in the programme of integration notified by the
European Community under Article 2.6, and requesting the TMB to review this matter in terms of
Article 2.21.  In particular, in the view of Colombia, the European Community had integrated in the
first stage certain textile and clothing products of HS Chapters 30  to 49 and 64 to 96 for which the
European Community had counted the volume of trade for the entire six-digit HS lines instead ofcounting trade for the specific products of the "ex positions" referred to under the ATC.
19 According
to Colombia, if the volume of imports which did not qualify were excluded, the EC's integration
programme would account for less than 16 per cent of the EC's total volume of 1990 imports.
19. The TMB considered this communication at its meetings held in March, April and May 1997,
with the participation of both Colombia and the European Community.  Following its detailed review,reflected in its report of the May 1997 meeting
20, the TMB reached, inter alia , the following overall
conclusions:
• the TMB agreed with Colombia that the integration programme of the European
Community for the first stage had also included certain imports which did not qualify
                                                     
16 The percentages indicated were subsequently revised as a result of corrections and revisions made in
the integration programme initially notified (see paragraph 34).
17 The percentages indicated were subsequently revised as a result of corrections and revisions made in
the integration programme initially notified (see paragraph 36).
18 Article 2.10 states, inter alia , that "[n]othing in this Agreement shall prevent a Member which has
submitted an integration programme pursuant to paragraph 6 or 8 [of Article 2] from integrating products into
GATT 1994 earlier than provided for in such a programme".
19 The Annex to the ATC which defines its product coverage, contains all in all 14 "ex positions" or
"ex HS lines" at the 6-digit level, out of which 12 such "ex HS lines" were included into the first stageintegration programme notified by the European Community before the end of 1994.
20 See G/TMB/R/29.G/L/459
Page 17
for integration as they did not fall under the coverage of the ATC, as defined in its
Annex. The TMB was of the view, on the other hand, that the likely share of non-ATC
imports and of the corresponding trade volume thus not properly integrated, was less
than claimed by Colombia;
• also due to the lack of reliable statistical information, the TMB was not in a position to
pronounce itself on the magnitude of the discrepancies which had occurred.  It
appeared, however, possible that after necessary corrections, the EC's integration
programme could account for less than 16 per cent of the EC's total volume of
1990 imports.  The TMB believed that the size of the shortfall, if any, could best be
assessed by the importing Member itself. The TMB, therefore, recommended that the
European Community re-examine its first stage integration programme in light of the
TMB's comments and findings, as reflected in its detailed report.
The European Community subsequently info rmed the TMB that, following the TMB's
recommendation, it was reviewing its integration programme and would communicate the results of
this review to the TMB as soon as completed.21
2. Integration Pursuant to Articles 2.6 and 2.7(b), Including Notifications Made Under
Article 6.1
(a) Notifications pursuant to Article 6.1
20. Article 6.1 states that "Members not maintaining restrictions falling under Article  2 shall notify
the TMB ... as to whether or not they wish to retain the right to use the provisions of this Article".  By
the end of July 1997, 64 WTO Members submitted notifications under this provision to the TMB,several after the deadline specified by the ATC. Th e following 55 Members notified that they wished to
retain the right to use the provisions of Article 6:   Argentina; Bangladesh; Bolivia; Brazil; Burkina Faso;
Colombia; Costa Rica; Côte d'Ivoire; Cyprus; Czech Republic; Dominican Republic; Ecuador; Egypt;
El Salvador; Guatemala; Honduras; Hungary; India; Indonesia; Israe l; Jamaica; Japan; Kenya; Korea;
Lesotho; Liechtenstein; Malaysia; Malta; Mauritius;  Mexico; Morocco; Myanmar; Nicaragua; Nigeria;
Pakistan; Paraguay; Peru; Philippines; Poland; Romania; Saint  Kitts and Nevis; Senegal;
Slovak Republic; Slovenia; South Africa; Sri Lank a; Switzerland; Thailand; Trinidad and Tobago;
Tunisia; Turkey; United Arab Emirates; Uruguay; Ve nezuela and Zambia. With respect to notifications
addressed to it after the deadline had passed, the TMB st ated that its taking note of late notifications was
without prejudice to the legal status of such notifications.
21. The following nine WTO Members notified that they did not wish to retain the right to use the
provisions of Article 6:  Australia; Brunei Darussalam; Chile; Cuba; Hong Kong
22; Iceland; Macau23;
New Zealand and Singapore. According to Article  2.9, "Members which have notified, pursuant to
paragraph 1 of Article 6, their intention not to retain th e right to use the provisions of Article  6 shall, for
the purposes of this Agreement, be deemed to have integrated their textiles and clothing products into
GATT 1994. Such Members shall, therefore, be ex empted from complying with the provisions of
paragraphs 6 to 8 and 11" of the same Article.
(b) Notifications pursuant to Articles 2.6 and 2.7(b)
22. By the end of July 1997, 45 Members submitted notifications  pursuant to Articles 2.6 and
2.7(b) (Argentina; Bangladesh; Bolivia; Brazil; Colombia; Costa Rica; Cyprus; Czech Republic;
Dominican Republic; Egypt; El Salvador; Guatemala;  Honduras; Hungary; India; Indonesia; Israel;
Japan; Korea; Liechtenstein; Malaysia; Malta; Mauritius; Mexico; Morocco; Myanmar; Nicaragua;
                                                     
21 See paragraphs 31  to 35 .
22 As from 1 July 1997:  Hong Kong, China (see WT/L/218).
23 As from 20 December 1999:  Macau, China (see WT/L/333).G/L/459
Page 18
Pakistan; Paraguay; Peru; Philippines; Poland; Romania; Saint Kitts and Nevis; Slovak Republic;
Slovenia; South Africa; Sri Lanka; Switzerland; Thailand; Tunisia; Turkey; Uruguay; Venezuela and
Zambia).  By the date of the adoption of the first comprehensive report, the TMB had completed the
review of 42 of them.  In this review, the TMB noted that, in all cases the products integrated
amounted to at least 16 per cent of the respective Members’ total imports of the products falling under
the coverage of the ATC (in most cases in volume of 1990 imports, in some other cases in valueand/or with a different base-year), and that in all cases products from each of the four groups (tops
and yarns, fabrics, made-up textile products, and clothing) had been integrated. The review of the
notifications made by Israel, Myanmar and Saint Ki tts and Nevis could not be concluded without the
submission of additional information sought by the TMB from these Members.
24
23. As noted above, the TMB in some instances took note of integration programmes which, in
certain respects, did not fully meet the technical criteria established under Article 2.6. This concerned
cases where the data were not available in volume, or for the year 1990, or where the share ofintegration was calculated relative to data for the textiles and clothing sector as a whole since data for
the exact product coverage of the ATC were not available.  Prior to taking note of such notifications,
the TMB was assured that no better data could be obtained.
24. In its 1996 (annual) report and in the first comprehensive report, the TMB observed,
inter alia , that out of the 55 Members which had chosen to retain the right to use the provisions of
Article  6, ten
 Members (Burkina Faso; Côte d'Ivoire; Ec uador; Jamaica; Kenya;  Lesotho; Nigeria;
Senegal; Trinidad and Tobago and the United Arab Emirates) had not submitted a notification under
Articles  2.6 and 2.7(b).25 The TMB drew the attention of Members to the fact that the notification
requirement contained in Article 6.1, and the resultin g notification requirement contained in Articles  2.6
and 2.7(b), were mandatory and had to be submitted to the TMB within prescribed deadlines.  It wasalso observed that the Members which had not maintained restrictions falling under Article  2 had,
pursuant to Article 6.1, the obligation to notify within a spec ific time-frame whether or not they wished
to retain the right to use the provisions of Article  6, and that a significant number of such Members had
not submitted any notification under this provisi on.  The TMB noted also that no notification on
advanced or faster integration (Article 2.10) of products had been made during Stage 1 by Members
having notified integration programmes under Articles 2.6 and 2.7(b).
(c) Implications of integrating products belonging to "ex HS lines" in the Annex to the ATC
25. During the review mentioned in paragraph 19 above, the TMB noted the statement of the
EC's representative that several other WTO Members had included in the list of products to be
integrated in the first (and second) stage(s) of impl ementation of the ATC products of those HS  lines in
the Annex for which only part of the line fell under the coverage of the ATC (indicated as "ex  HS lines"
in the ATC Annex). In a subsequent communication, the European Community, stressing the
importance that the same principles, which had been applied in respect of the TMB's findings in thematter raised by Colombia, should be  applied to other Members in the same position, requested the
TMB, pursuant to Article 2.21, to review whether or not the Members which had integrated productsof those HS lines in the Annex for which only part of the line fell under the coverage of the ATC hadprovided statistical data for the whole HS lines or only for those portions of the HS lines covered bythe ATC.
26. With regard to the programmes for the first stage of integration which had already been
reviewed by the TMB, the Body noted that it had not ascertained whether the statistical informationprovided by Members for the integrated products under these HS lines referred to the whole HS lines
or only to that portion of the HS lines covered by the ATC. The TMB, therefore, decided to verify
                                                     
24 Such additional information was subsequently received only from Myanmar (see paragraphs 29
and 30).
25 No notifications have been received from these Members since then.G/L/459
Page 19
with the 21 Members concerned whether the volume of imports they had notified for the "ex HS
lines" (and, consequently, the data for total imports) related precisely to the products described in the
Annex.  At the time of the adoption of its first comprehensive report, the TMB was only able to
finalize the review of one such reply that had been  received in response to the questions posed by the
TMB.  South Africa answered that the trade counted for the "ex items" contained in its list of products
integrated only pertained to those products covered by  the ATC, and provided statistics to substantiate
this answer.
B. DEVELOPMENTS IN RESPECT OF FIRST STAGE INTEGRATION PROGRAMMES SINCE THE
ADOPTION OF THE TMB 'S FIRST COMPREHENSIVE REPORT
1. Notifications Received Pursuant to Article 6.1
27. In February 1998, Haiti addressed a communication to the TMB according to which "the
Haitian Government no longer applies restrictions of any kind on imports of textiles and clothing and
therefore wishes to be considered to have brought this trade under the multilateral disciplines inaccordance with Article 2.9".  In May 2000, the TMB received a notification from Mongolia, with
reference to Article 6.1, that it did not retain the right to use the provisions of Article 6.  As a result,
the total number of Members that specifically notified the decision of not retaining the right to use the
transitional safeguard mechanism of the ATC , and thereby falling under the provisions of Article 2.9,
increased to 11.
28. In August 1998, Panama notified, pursuant to Article
 6.1, that it wished to avail itself of the
transitional safeguard mechanism.  A similar notification was made under the same Article by Latvia,
in August 2000, stating that it wished to retain th e right to use the transitional safeguard provided for
in Article 6, and by Estonia, in April 2001, stating that it wished to retain the transitional safeguard
provided for in Article 6.1.
2. Additional or New Notifications Received with Reference to Articles 2.6 and 2.7(b)
29. Panama notified its first stage integration programme in October 1998.  In November 1998,
Nicaragua submitted a revision of the notification made under Articles 2.6 and 2.7(b) which replaced
the lists first notified in 1995, and subsequently corrected (in 1996).  In January 1999, Myanmar
provided an addendum to its initial notification (made in 1996), which contained information in replyto the clarifications sought by the TMB.  In August 2000, Latvia submitted a notification containing
the list of products integrated during Stage 1.  Estonia provided a notification of its list of first stage
integration in April 2001.
30. In reviewing, pursuant to Article 2.21, the notifications mentioned above, the TMB noted that
in all five cases, the products integrated amounted to at least 16 per cent of the volume of therespective Members' total imports of the products falling under the coverage of the ATC (in the case
of Panama, the data were based on imports in 1990;  for Nicaragua, on those for 1995; while
Myanmar used data for 1992-93;  and Latvia as well as Estonia for 1994).  The TMB also noted that,
in all cases, products from each of the four groups (tops and yarns, fabrics, made-up textile products
and clothing) had been included in the integration programmes.  The TMB made a number of
additional observations with respect to the integration programmes notified, as follows:
• as regards the products falling under "ex HS lines" included in the first stage
integration programme notified by Panama, the TMB observed that even if all the
imports of such "ex HS lines" were not counted in the volume of imports integrated, it
would still amount to not less than 16 per cent of the total volume of Panama's 1990
imports of the products in the Annex to the ATC;G/L/459
Page 20
• noting the explanations by Nicaragua that 1995 trade data had been used in the
revised programme, since this was the first year for which reliable data on an HS line
basis were available, and since this was the only possible way for Nicaragua to
provide import volume data that could be used consistently for the successive
integration programmes, the TMB also observed that all the products listed in the
original notification made under Articles 2.6 and 2.7(b) had been included in the
revised notification;
• with respect to the fact that the calculation of the share of the products integrated had
been made on the basis of data for 1992-93 by Myanmar, the TMB was informed that
this was the first period for which data were available under the HS categorization
system.  The TMB also noted that the notification contained no "ex HS lines".  The
TMB further noted that two products included in the notification did not fall withinthe coverage of the ATC.  In this respect the TMB observed that such products could
not form part of an integration programme.  It further observed that even if the
imports of these two products were not counted, the volume of products integrated
would amount to not less than 16 per cent of the volume of Myanmar's total imports
in 1992-93 of the products falling under the coverage of the ATC;
• the TMB noted that the integration programme of Latvia was based on import data
for 1994, as this was the first full statistical year for which data were available on the
basis of the Harmonized Commodity Descri ption and Coding System (HS).  The
TMB observed that the integration programme included some products belonging to
those HS lines in the Annex to the ATC for which only part of the respective lines
("ex HS lines") fell under the coverage of the Agreement.  The TMB further
observed, however, that even if the volume of imports of the "ex HS line" productswere not counted, the volume of imports of the products integrated in Stages 1 and 2,
taken together, would still amount to not less than 33  per cent (i.e. the 16 per cent
mentioned in Article 2.6 plus the 17 per cent mentioned in Article 2.8(a)) of the
volume of Latvia’s total imports in 1994 of the products falling under the coverage of
the ATC
26;
• the TMB also noted that the import data included in the programme notified by
Estonia were based on figures available for 1994 since, as explained by Estonia, that
year represented "the first reliable statistical year based on the Harmonised System"
in that country;
• with respect to notifications addressed to the TMB after the relevant deadlines, the
TMB reiterated that its taking note of late notifications was without prejudice to thelegal status of such notifications.
3. Implications of Integrating Products Belonging to "ex HS lines" in the Annex to the
ATC and Related Matters
(a) Members referred to in Article 2.7(a)
(i) European Community
31. Following the TMB's recommendation that the European Community re-examine its first
stage integration programme in the light of the TMB' s comments and findings (set out in the report of
                                                     
26 This observation could be made on the grounds that Latvia simultaneously notified the first and
second stage integration programmes.  See also paragraph 66.G/L/459
Page 21
the May 1997 meeting of the Body)27, the European Community notified, in November 1997, a
corrected and revised first stage integration programme.  In January 1998, at the request of the TMB,
the European Community provided a detailed explanation on this corrected and revised integration
programme.  The TMB conducted a detailed examination of these communications during its meeting
in March 1998.
32. The detailed examination of the EC's explanations and revised integration programme
showed, inter alia , the following.
HS Chapter 39
• regarding the three ex HS numbers under Chapter 39 (ex 3921 12, ex 3921 13 and
ex 3921 90: woven, knitted or non-woven fabrics coated, covered or laminated with
plastics), the European Community stated  that it had checked the information
available to it concerning the nature and quantity of imports under the HS lines in
question.  The Notes of the Harmonized System for Chapters 56 and 59 expresslyexcluded certain textiles combined with plastics.  All such products fell under
Chapter 39 and were important imports as raw materials, in particular for luggage,
shoes and technical products.  As such, they formed the bulk of products imported
under the HS lines in question.  In addition, the Community had reviewed all the
rulings on binding tariff information given by the relevant Community authorities inrespect of these HS numbers and these rulings were representative of actual trade in
the lines in question.  Of 83 given, 77 related to combinations of textiles with plastics.
In these circumstances the European Community had revised the amounts for imports
in respect of these lines to correspond with its assessment that at least 90 per cent of
the 6-digit HS lines related to textiles combined with plastics and so fell within thedefinition of the ATC Annex;
• the TMB observed that the re-assessment made by the European Community, which
resulted in a reduction by ten per cent of the trade covered under the relevant "ex HSlines", was in line with the assessment that had been made by the representative of the
European Community at the TMB meeting in May 1997.  The TMB noted that therevision made by the European Community resulted from an estimate which
amounted to 90 per cent of the trade of the three six-digit "ex HS lines" notified under
Chapter 39 being included.  The TMB observed, however, that it was not in a position
to verify estimates provided by Members.
HS Chapter 42
• regarding the four ex HS numbers under Chapter 42 (ex 4202 12, ex 4202 22,
ex 4202 32 and ex 4202 92:  luggage, handbags and flat goods with an outer surface
predominantly of textile materials), the European Community stated that it had
effected a further review of the information available, including rulings in respect of
binding tariff information.  The products included in sub-chapter 4202 were intendedto be durable.  Given the nature and durability of the products in question, textiles
formed an important component of these products.  This was borne out by the rulings
on binding tariff information given by th e competent Community authorities.  The
European Community, on the basis of a highly conservative assessment, revised eight
HS 8-digit positions in question (i.e. 4202.12.11, 4202.12.19, 4202.12.50,
4202.22.10, 4202.32.10, 4202.92.11 4202.92.15 and 4202.92.19) to include in the
products counted for the purpose of integration 45 per cent of imports;
                                                     
27 See paragraphs 18 and 19.G/L/459
Page 22
• in considering the review made by the European Community, the TMB observed that
the European Community had, based on estimates resulting in a 55 per cent reduction
for eight out of the 15 eight-digit HS lines in question, reduced by about 15 per cent
the volume of imports covered by the ATC under the "ex HS lines" of Chapter 42
contained in the original notification of its first stage of integration. The TMB
observed, however, that it was not in a position to verify estimates provided by
Members.
HS Chapter 64
• with respect to the HS line ex 6406 10 (footwear of which 50 per cent or more of the
external surface area is textile material), the European Community stated that it had
followed the findings of the TMB, confirming the submission by Colombia, inrespect of positions 6406 10 11 and 6406 10 19, and had, therefore, excluded the
totality of imports under these lines from its corrected and revised first stage of
integration, leaving position 6406 10 90 (in full) corresponding with the description
in the ATC Annex.  As regards HS line ex 6406 99 (legwarmers and gaiters of textile
material), the European Community stated that, as a result of its re-examination, it
had excluded imports in respect of products under positions 6406 99 30 and
6406 99 50 which the TMB, confirming the submission by Colombia, considered notto correspond to the product description of the ATC.  The European Community
considered that legwarmers fell within position 6406 99 90.  However, since the
position was defined by reference to "other", the European Community had revised
the amount of imports to 50 per cent to ensure that the amount was attributable to the
factual description of the ATC Annex;
• the TMB noted that, as a result of its re-examination, the European Community had
reduced by about 87 per cent the volume of imports covered by the ATC under the
"ex HS lines" of Chapter 64 contained in the original notification of its first stage of
integration, since the volume of imports of four out of the seven 8-digit HS lines in
question had been discounted.  With respect to imports of leg warmers, the TMBreiterated its observation that it was not in a position to verify estimates provided by
Members.
HS Chapter 70
• with respect to HS ex 7019.10 (yarns of fibre glass), the European Community stated
that, following re-examination, it had revised its first stage integration by excludingimports under position 7019 10 10, (chopped strands) in agreement with Colombia.
The European Community had continued to include imports in respect of products
covered by position 7019 10 51 (rovings);
• the TMB observed that, as a result of the re-examination by the European
Community, the volume of imports covered by the ATC under the "ex HS lines" ofChapter 70 contained in the original notification of its first stage of integration had
overall been reduced by 9.7 per cent (considering also imports under HS line
7019 20, which were not challenged by Colombia).
HS Chapter 96
• regarding the products falling under HS 9612.10, the European Community stated
that in its re-examination of the volume of trade covered by the ATC under the two"ex HS lines" of Chapter 96 included in its first stage integration programme, it had
followed the findings of the TMB, confirming the submission of Colombia, andG/L/459
Page 23
excluded imports of products under position 9612 10 10, counting only the volume of
imports under position 9612 10 90;
• the TMB observed that, as a result of the re-examination by the
European Community, the volume of imports covered by the ATC under the "ex HSlines" of Chapter 96 contained in the original notification of its first stage of
integration had been reduced by 68 per cent, since the volume of imports of one ofthe two 8-digit HS lines in question had been discounted.
33. In summarizing the outcome of the re-examination by the European Community of its first
stage integration programme in light of the TMB's comments and findings, the TMB noted that:
• the totality of the volume of trade covered by six 8-digit HS lines had been
discounted, in agreement with the assessment made by Colombia, also on behalf of a
number of other WTO Members that are also members of the ITCB;
• the totality of the trade covered by eleven 8-digit HS lines had been counted, also in
agreement with the assessment made by Colombia;
• the volume of trade covered by twelve 8-digit HS lines had been reduced, albeit  not
as much as claimed by Colombia;
• the totality of the volume of trade covered by two 8-digit HS lines had been
maintained. The TMB had found, in the case of one line, that the sub-position could
also include ATC products;  in the case of the other, it had not been able to reach a
definitive conclusion as to whether the sub-position could correspond to the definition
in the ATC .
34. As a result of the corrections made in trade data relating to some products, detailed in
paragraph 32  above, the European Community also had to revise the figure previously provided for
the volume of total imports effected in 1990 of products falling under the coverage of the ATC (by
subtracting the amount which proved to be non-ATC trade).  This revision reduced the total volume of
1990 imports by around 1.58 per cent.  Despite this reduction, due to the fact that part of the volume
of 1990 imports previously given for the relevant "ex HS lines" was also discounted, a shortfall of themagnitude of 0.97 per cent occurred (i.e. the original list of products integrated for Stage 1 amounted
only to 15.03 per cent of the total volume of the 1990 imports as corrected).  In order to compensate
this shortfall, the European Community included four  additional 6-digit HS lines in the first stage of
integration by transferring them from the list notified for the Stage 2 integration programme.  As a
result, the revision made by the European Community  showed that the volume of products integrated
for Stage 1 amounted to 16.20 per cent of 1990 imports.  The TMB took note of this modification and
of the fact that the integration programme, as revised, met the requirements defined in Articles 2.6.  It
should be noted that the revision that had been made also had an effect on the share of the different
product groups integrated during Stage 1.
28  Of the products integrated, 33 per cent were tops and
yarns;  45 per cent were fabrics;  20 per cent made-up textile products;  and 2 per cent clothing items.
35. In taking note of the communication received from the European Community, the TMB also
observed that, while the approach chosen by the European Community was inherent in the TMB’s
own conclusions of May 1997, the revisions implemented by the Community had been based on
estimates with respect to a number of ex HS positions.  The TMB reiterated that it was not in a
position to verify estimates provided by Members.  The TMB also recalled that, as also requested by
the European Community, it had decided to verify with respect to a number of other WTO Members
whether the volume of imports notified in their respective integration programmes for "ex HS lines"
                                                     
28 See paragraph 15.G/L/459
Page 24
(and, consequently, the data for the total imports) related precisely to the products described in the
Annex to the ATC.  The TMB observed that a number of such Members, in their respective responses,
had opted for solutions which consisted, inter alia , in adding products to their first stage integration
programme, so that the volume of products integrated for Stage 1 would be above the requirement
defined in Article 2.6 even if the volume of imports of the "ex HS lines" with statistical difficulties
were to be deducted in its entirety.29
(ii) Norway
36. In October 1997, the TMB took note of tw o communications by Norway related, inter alia , to
the notification of its first stage integration.  No rway’s first stage integration programme included
11 products corresponding to "ex HS lines" in the Annex to the ATC.  After having re-examined the
statistical information available for all products cove red by the ATC at the 8-digit level, Norway had
concluded that imports under one "ex HS line" should not have been counted in the basis for calculation
of integration under Stage 1 as well as that of tota l imports in 1990 of ATC products, and that it was also
possible that a second "ex HS line" should not have  been counted either.  In addition, imports under
another "ex HS line" (which had, however, not been included in the first stage integration programme),
should not have been included in the calculation of total imports in 1990 of ATC products.  In the other
cases, more precise import data or calculations other than those previously given could not be provided.
Though Norway had accordingly revised the figure for the volume of total imports in 1990, it also
considered that, in these latter cases, the given leve ls of 1990 imports must be said to correspond to the
respective product descriptions contained in the Annex to the ATC.  In a subsequent notification, noting
that no WTO Member had so far contested the va lidity of its integration notifications, Norway
confirmed that it was not possible for it to provid e a breakdown of certain HS positions to the level
specified in the Annex to the ATC and that in th e absence of more detailed statistics it found it
unreasonable and contrary to the ATC to disregard the recorded imports at the nearest aggregated level.
However, in order to dispel any doubts about the fu lfilment of its obligations under the ATC, regardless
of the method of calculation, Norway had decided to  make certain corrections and additions to its
integration notifications.  With respect to its first stage integration programme, Norway, while
maintaining all the products originally notified, decided to include several additional products
(corresponding to two HS lines at the 4-digit and one  at the 6-digit level) into the list of products
integrated during Stage 1 (by transferring them fro m the list previously notified for integration during
Stage 2).  As a result, the volume of the products integrated for Stage 1 amounted to 26.32 per cent of
the volume of imports in 1990 of the products fallin g under the coverage of the Agreement (of which
10.31 per cent of the volume of 1990 imports covered imports of products falling under "ex  HS lines",implying that even if the imports of all these products were not counted, the volume of imports
integrated in Stage 1 would still amount to not less th an 16 per cent in conformity with Article 2.6).  It
could also be observed that the corrections and revisi ons made in the list of products for integration in
Stage 1 brought about some changes in the structure of  the integration programme to the effect that the
share of fabrics and made-up products became predominant (roughly 45 and 40 per cent, respectively),
while tops and yarns represented about 14  per cent and clothing products less than 1 per cent.
30
(iii) United States
37. The United States included altogether 6 products corresponding to "ex HS lines" in its first
stage integration programme.  Not only were 1990 imports of the products concerned negligible, and
therefore, practically having no impact on the percentage of imports integrated, but also the detailed
tariff structure applied by the United States (HTS 1990) ensured that only imports effected in the
products defined in the Annex to the ATC were counted.
                                                     
29 See paragraphs 36 and 44.
30 See paragraph 15.G/L/459
Page 25
(iv) Canada
38. The first stage integration programme of Canada included one "ex HS line" in the Annex to
the ATC.  Since classification under the same ex HS position had already been examined by the TMB
(in the context of the review of the EC's list of integration) and, in particular, in view of the detailed
specification applied by Canada (HS numbers at the 10-digit level), in this particular case, it could be
ascertained that Canada's first stage integration programme did not include imports of products notfalling under the coverage of the ATC.  The subsequent reply provided by Canada to the TMB's
request for clarification regarding imports counted with respect to products falling under
"ex HS lines" and to be integrated during Stage 2 also seemed to confirm the validity of this
conclusion.
31
39. Much later, in March 2001, Canada notified that, as a result of including certain "ex HS lines"
in its programme of Stage 3 integration, regarding which the volume of trade previously reported had
to be revised downwards, the figure for the to tal imports in 1990 also had to be corrected.
Consequently the products integrated during Stage 1 were reported to represent 16.7 per cent of the
1990 imports, up from 16.35 per cent.32
40. However, in a subsequent communication provided in May 2001, in reply to clarifications
sought by the TMB with respect to Canada's Stag e 3 integration programme, Canada, having made an
extensive review of the data submitted by it for the purpose of integrating products under Articles 2.6,2.8(a) and 2.8(b), informed the TMB that it had decided to withdraw from the list of products covered
by the ATC and from the total volume of imports in 1990 of those products, several 10-digit tariff
lines and made adjustments to the trade covered by one additional 10-digit tariff line.  Since these
products were part of Canada's second stage integration programme and in order to maintain the level
of integration previously achieved for each of the three stages in volume terms, Canada had decided tomake a number of adjustments, inter alia,  by transferring certain products from the first to the second
stage.  The TMB took note of the statement of Canada that this transfer was not strictly required to
reach the minimum threshold of 17 per cent stipulated in the ATC for the second stage and that
Canada had chosen to transfer this volume because of its approach of maintaining the levels of
integration that Canada had notified for each of the three stages.  As a result of this latest correction,the products integrated by Canada during the first stage amounted to 16.36 per cent of the volume of
its 1990 imports, as corrected, of the products in the Annex to the ATC.
33
41. It has to be emphasised that the TMB's taking note of the statement of Canada was related and
limited to the technical explanation provided by the Canadian authorities and did not touch upon the
issue of the legal justification, or lack thereof, of transferring in 2001 certain products from the firststage of integration, implemented on 1 January1995, to the second stage, implemented three years
later.  Integration, in the sense of the ATC, implies that once a product is integrated it is removed
from the scope of application of the ATC.  Therefore, the transfer from Stage 1 to Stage 2, as
suggested by Canada, cannot find justification under the ATC.
(b) Members referred to in Article 2.7(b)
42. As indicated in paragraph 25, the TMB had noted that several other WTO Members had also
included in the lists of products to be integrated in the first and/or second stages, products of those HSlines in the Annex for which only part of the line fell under the coverage of the ATC.  The TMB,
therefore, decided to verify with the Members c oncerned whether the volume of imports they had
notified for the "ex HS lines" related precisely to the products described in the Annex.  Subsequently,
in October 1997, the TMB decided to send reminders to those Members from which replies were still
                                                     
31 See paragraph 54.
32 See paragraph 82.
33 See paragraphs 56 and 82.G/L/459
Page 26
pending in relation to this particular question (whether related to the list of the first or the second
stage integration programme, or both).
43. All those Members whose first stage integration programmes included products
corresponding to "ex HS lines", provided replies which the TMB considered to be technically
satisfactory, and which it also took note of.  The only exceptions were Costa Rica and Mexico, since
they only provided interim replies to which no follow-up communications were received.  The list ofproducts integrated by Saint Kitts and Nevis also contained products belonging to "ex HS lines".
34
44. The replies provided by Members can be grouped as follows:
• a few Members (Cyprus; Czech Republic and Uruguay) were in a position to report
that the import data indicated in their respective first stage integration programmescorresponded fully to the product description contained in the Annex to the ATC.
The Czech Republic and Uruguay provided additional information (statistical
breakdown or more detailed product description) to substantiate their statements;
• a number of Members (Brazil; Poland, Philippines and Turkey) stated that their
respective programmes included, inter alia , import levels which did not correspond
fully to the precise product description in the Annex to the ATC or that it was not
possible to indicate whether or not they corresponded to the respective product
description.  However, even if the totality of imports under the respective
"ex HS lines" were to be deducted from the total imports, the integration programmesfor Stage 1 would still be within the percentage requirements defined in Article 2.6,
i.e. it would still amount to not less than 16 per cent;
• one Member (Pakistan) acknowledged that  its programme contained two HS lines
which did not entirely fall under the coverage of the ATC.  However, these two lines
had not been counted in the total volume integrated;
• several Members (Hungary; Japan; Liechtenstein; Slovenia; Sri Lanka; Switzerland
and Thailand) recognized that their respective integration programmes included
imports which should either have not been counted or, regarding which, in the
absence of any detailed statistical information, it was not possible to make an
assessment on the portion of imports effected in ATC and in non-ATC products.Therefore, these Members decided to revise their integration programmes by
including additional products so as to ensure that the respective programmes would
amount to not less than 16 per cent of total imports even if the "ex HS lines" were not
counted.  In doing so, Switzerland stated that this was without prejudice to any legal
interpretation which could be given to the a posteriori  integration of the tariff lines in
question in its first stage programme and that it had been done in order to respond, as
practically and as constructively as possible, to the concerns of certain WTO
Members and that of the TMB.
45. During its July 1997 meeting, the TMB had a broader, follow-up discussion on the matter of
integrating  "ex HS lines", which led to a conclusion whereby, in principle, all the Members which had
notified integration programmes could be affected by technical problems resulting essentially from the
non-availability of statistical information correspond ing to the precise product descriptions contained in
the Annex to the ATC, independently of whether or  not they had included "ex HS items" in their
respective integration programmes for Stage 1 (and/or  Stage 2).  This resulted from the fact that, in
quantifying and notifying the total volume of 1990 imports, each Member concerned had to include the
relevant data related to the "ex HS lines" defined in  the Annex to the ATC.  Therefore, the TMB decided
                                                     
34 See paragraph 22 and footnote 24.G/L/459
Page 27
to request that all Members which had submitted in tegration programmes, including those which had not
as yet included "ex HS items" in such programmes, ascertain whether the statistical data counted in
calculating the total volume of the Member’s 1990 impor ts of the products in the Annex referred to the
whole HS lines, or only to that portion of those HS lines which was covered by the ATC.  The TMB
expected that Members would report to it on the ou tcome of such verification.  While almost all
Members which had included such items in their first (or second) stage integration programmesprovided replies and clarification to the TMB, no such answer was received from those Members which
had not included "ex HS lines" during the first tw o stages.  However, the TMB did not pursue this
matter further, since it took the vi ew that these latter Members w ould either integrate such products
during Stage 3 (in which case the necessary clarificat ion would be sought), or  that they would only
integrate these items in the last stage (which would not absolutely necessitate a verification of whether
only trade in products covered by the ATC had been counted).
C. 
SECOND STAGE INTEGRATION PROGRAMMES AND THEIR IMPLEMENTATION
46. According to Article 2.8(a), "the remaining products, i.e. the products not integrated into
GATT 1994 under paragraph 6 [of Article 2], shall be integrated, in terms of HS lines or categories,
… as follows:  on the first day of the 37th month that the WTO Agreement is in effect [i.e. on
1 January 1998], products which accounted for not less than 17 per cent of the total volume of the
Member's 1990 imports of the products in the Annex.  The products to be integrated by the Membersshall encompass products from each of the following four groups:  tops and yarns, fabrics, made-up
textile products and clothing".  In accordance with the requirements of Article 2.11, the respective
integration programmes had to be notified in detail to the TMB, at least 12 months before the coming
into effect (i.e. by the end of 1996) and had to be circulated by the TMB to all Members.
Consequently, due to the fact that Stage 2 integration programmes were notified to the TMB duringthe period of the implementation of the Stage 1 integration process, the first comprehensive report of
the TMB has already covered, in sufficient detail, the fulfilment of this notification obligation.
35
However, subsequent developments (corrections and revisions of previous notifications) and, inparticular, any report or assessment on the actual implementation of the second stage integration
programmes require that their main elements be also summarized in the present report.
1. Integration Programmes of Members Maintaining Restrictions Falling Under
Article 2.1
(a) Summary of the main elements of the notifications made before the end of 1996
47. In reviewing the respective notifications, during the first half of 1997,  the TMB noted that, in
accordance with Article 2.8(a), the volume of products to be integrated by Canada, the EuropeanCommunity, Norway and the United States amounted to at least 17 per cent of the total volume of the
respective Members’ 1990 imports of the products falling under the coverage of the ATC.  Canada
reported that it would integrate 18.61 per cent
36 of the volume of its 1990 imports of the products falling
under the coverage of the ATC, of which 3.5 per ce nt were tops and yarns, 11.3 per cent fabrics,
76.4 per cent made-up textile products and 8.8 per cent  clothing products. The TMB noted that Canada
would integrate 30 products, of which fi ve were of tops and yarns, three of fabrics, 16 of made-up textile
products and of six of clothing.  The TMB further not ed that two products (handbags of textile materials
and tailored-collar shirts), with re spect to which Canada maintained restrictions under the ATC, had
been included in the integration programme and that, th erefore, such restrictions would be eliminated on
1 January 1998.  Restraints on these two products affected overall 22 WTO Members. The integration of
these products would lead to the elimination of 23 sp ecific limits.  In addition, Canada had informed the
TMB that, pending the integration of tailored-collar shirts into the GATT 1994 on 1 January 1998, andwith effect from 1 July 1997, it would not enforce ex isting restrictions on imports of tailored-collar
                                                     
35 See G/L/179, paragraphs 33 to 62.
36 The percentages indicated were subsequently revised. See paragraphs 55 and 56.G/L/459
Page 28
shirts from restrained WTO Members, and that th e Members concerned had been informed by Canada
accordingly.
48. The European Community reported its intention to integrate 17.99 per cent37 of the total volume
of its 1990 imports of the products falling under the coverage of the ATC, of which 65 per cent were
tops and yarns, 12 per cent fabrics, 11 per cent made-up textiles and 12 per cent clothing products. The
TMB noted that the European Community would inte grate 23 EC product categor ies, of which four of
tops and yarns, four of fabrics, six of made-up te xtile products and nine of clothing.  The TMB further
noted that 12 EC categories, with respect to whic h the European Community maintained restrictions
under the ATC, had been included in the integration programme and that, therefore, such restrictions
would be eliminated on 1 January 1998. Restraints  on these 12 EC categories affected overall
five WTO Members and the integration of the respect ive products would lead to the elimination of 14
specific limits.
49. Norway reported its intention to integrate 24.26 per cent38 of the total volume of its 1990
imports of the products falling under the coverage of the ATC, of which 27 per cent were tops and
yarns, 10 per cent fabrics, 46 per cent made-ups and 17 per cent clothing products. The TMB observed
that the notification contained no product for which re strictions were then maintained by Norway.  In
this regard, the TMB noted the statement by Norway  that it "is committed to a continuation of a policy
of gradual liberalization and expects to be able to notify later in the year 1997 to the TMB (and theWTO Members directly concerned) further steps take n pursuant to Article 2, Section 15, of the ATC".
The TMB noted, however, that one of the products , for which the restrictions affecting 16 WTO
Members, which had been eliminated, pursuant to  Article  2.15 as from 1 January 1996, would be
integrated.
39
50. The United States reported that it would integrate 17.03 per cent of the total volume of its 1990
imports of the products falling under the coverage of the ATC, of which 47 per cent were tops and
yarns, 14.7 per cent fabrics, 26.7 per cent made-ups  and 11.6 per cent clothi ng products. The TMB noted
that the United States would integrate 38 US product ca tegories in their entirety (one of fabric, three of
made-ups and 34 of clothing), and 12 US product categories partially (one  of yarns, six of made-ups and
five of clothing).  The TMB further noted that 24 US  categories or parts of categories, with respect to
which the United States maintained restrictions unde r the ATC, had been included in the integration
programme and that, therefore, such restrictions would be eliminated on 1 January 1998.  Restraints on
these 24 US categories or part of categories aff ected overall 14 WTO Members. Some of the restraints
which would be eliminated were in the form of speci fic limits (i.e. the categories themselves were under
quantitative limit), while, in most cases, the category inte grated was, prior to its integration, subject to a
quantitative restriction because, although the category itself was not under specific limit, it fell under an
aggregate or group limit.  On the basis of the notif ications provided by the United States pursuant to
Article 2.1, the TMB could ascertain that as a result of integration three specific limits and, in addition,
part of another specific limit (affectin g six Members) would be eliminated.
(b) Developments that have affected the respective integration programmes since the adoption of
the TMB's first comprehensive report:  adjustments made in response to integrating products
belonging to "ex HS lines" and related matters
51. The second stage programme of integration notified by the European Community did not
include products belonging to HS lines in the Annex to the ATC for which only part of the respective
lines fall under the coverage of the ATC (ex HS lines).  However, in the context of and in conjunction
with the examination of the EC's first stage in tegration programme, the second stage integration
programme was also revised by excluding four 6-digit HS lines from the original notification.40  The
                                                     
37 The percentages indicated were subsequently revised.  See paragraph 51.
38 The percentages indicated were subsequently revised.  See paragraph 52.
39 See paragraph 255.
40 See also paragraph 34.G/L/459
Page 29
deleted HS lines corresponded to one category in the EC's categorization system of textile and
clothing products (category 126: artificial staple fibres) and the imports of this product had not been
subject to restrictions notified under Article 2.1.  As a result of these changes and also due to the
correction made in the figure related to the volume of total 1990 imports, the revised volume of
imports of the products integrated for Stage 2 amounted to 17.11 per cent.  This revision also led to
slight modifications in the structure of the products integrated.  Tops and yarns represented62.1 per cent, fabrics 13.2 per cent, while the share of made-up textile products and clothing was
12.2 per cent and 12.5 per cent, respectively.
52. Norway's integration programme for the second stage did not contain products corresponding
to "ex HS lines" in the Annex to the ATC.  However, in order to dispel any doubts about the
fulfilment of obligations under the ATC with respect to its first stage integration programme
41,
Norway decided to transfer several products previously notified for integration in Stage 2 to the
products integrated under Stage 1.  The resulting shortfall in the Stage 2 integration programme wascompensated by the inclusion of some additional HS lines (one at the 4-digit level and three at the 6-
digit level) in the list of products integrated.  These additional items (carpets of different kind and
other textile floor coverings) represented 2.91 per cent of the volume of Norway's total 1990 imports.
As a result, the volume of Norway's imports of the products integrated during Stage 2 amounted to
17.02 per cent of the total 1990 imports.  The share of the four product groups in the list of productsintegrated changed as follows:  37.9 per cent of tops and yarns;  14.0 per cent of fabric;  23.4 per cent
of made-up products and 24.5 per cent of clothing.
53. The United States included a number of products pertaining to the "ex HS lines" in the Annex
to the ATC.  However, the detailed tariff nomenclature used by the United States and the resulting
precise product definitions contained therein ensured that only imports of products covered by theATC had been counted and included in the Stage 2 integration programme.
54. Canada included 10 products falling under "ex HS lines" in the Annex to the ATC into its
second stage integration programme.  The share of these products in the import volume integrated was
significant.  In reply to the TMB's request for clarifications in this regard, Canada stated that "the
level of imports included in Canada's Stage 2 integration list for the HS lines that fall outside Chapters50 to 63 […] correspond to the product description contained in the Annex to the Agreement on
Textiles and Clothing".
42
55. In March 2001, Canada notified corrections in the calculations made for the figures of total
imports in 1990 (as a result of including some "ex HS lines" in its Stage 3 integration programme).
As a consequence, the percentage level for integration during Stage 2 was reported to increase to19.0 per cent.
56. However, in a subsequent communication provided in May 2001, in reply to clarifications
sought by the TMB with respect to Canada's Stag e 3 integration programme, Canada, having made an
extensive review of the data submitted by it for the purpose of integrating products under Articles 2.6,
2.8(a) and 2.8(b), informed the TMB that it had decided to withdraw from the list of products covered
by the ATC and from the total volume of imports in 1990 of those products, several 10-digit tariff
lines and made adjustments to the trade covered by one additional 10-digit tariff line.  Since theseproducts were part of Canada's second stage integration programme and in order to maintain the level
of integration previously achieved for each of the three stages in volume terms, Canada had decided to
make a number of adjustments, inter alia,  by transferring certain products from the first to the second
stage, and by transferring some products to be integrated for the third stage to the second stage.  As a
                                                     
41 See also paragraph 36.
42 See G/TMB/N/214/Add.1.G/L/459
Page 30
result of these corrections, the products integrated by Canada for the second stage amounted to
18.70 per cent of the volume of its 1990 imports, as corrected, of the products covered by the ATC.43
(c) Implementation of the Stage 2 integration programmes
(i) Integration implemented on 1 January 1998
57. In conformity with Article 2.8(a), the second stage of integration had to be implemented on
1 January 1998.  As of that date, the imports of products included in the respective integrationprogrammes ceased to be subject to the (special) rules of the ATC and are solely governed by the
(general) rules and disciplines of GATT 1994.  In conformity with the provisions of Article 2.21, the
TMB is required to keep under review, inter alia , the implementation of the integration process.  This
is accomplished by reviewing any particular matter referred to it by any Member and by also relying
on any relevant communication or information th at can be brought to the Body's attention.
(ii) Visa requirements by the United States in respect of products integrated during Stage 2
58. In June 1998, the TMB received a communication from Hong Kong, China; India and
Pakistan, jointly requesting the TMB "to review, in accordance with Articles 8.1 and 2.21 of the
Agreement on Textiles and Clothing, the implementation of the Stage 2 integration  programme of the
United States of America with respect to the continuation of visa requirements for products included
in this programme".  The communication stated, inter alia , that such visa requirements had been
"notified to the Textiles Monitoring Body as administrative arrangements under Article 2.17 of theAgreement on Textiles and Clothing.  […]  The measures applied pursuant to the ATC should cease
to apply to products when they are integrated.  If, instead, some of these measures continue to apply,
it follows that the products have not been fully integrated into the GATT 1994".  Since the Committee
for the Implementation of Textile Agreements of the United States had announced in a notice, dated
29 September 1997, that the United States would continue to require visas for products integrated onand after 1 January 1998 before entry is permitted in the United States, it was the notifying Members’
view that "in maintaining the visa  requirements for integrated products, the United States of America
is not fulfilling its obligations under Article 2.8(a) of the Agreement on Textiles and Clothing.
Accordingly, these Members request the TMB to re view the matter in terms of Article 8.1 and 2.21 of
the ATC and make appropriate recommendations".  Subsequently, in a letter addressed to the TMBand the three Members concerned, the United States stated that its government "[was] seriously
considering the issues raised by … the representatives of Hong Kong, China; Pakistan and India".
Though the communication by the United States stated that it "[would] not be in a position to respond
to these issues in time [for the review scheduled by the TMB], it was the US' intention to provide a
definitive response by the time of the [following] meeting of the TMB".  Following thiscommunication and in consultation with the Members involved, it was decided to postpone, by a few
days, the review by the TMB.
59. Prior to the meeting of the TMB, Hong Kong, China addressed a letter to the US which was
also copied to the TMB, whereas the United States  informed the Body that "[…] without conceding
its right to maintain such measures, the United States […] would eliminate visa requirements with
respect to products integrated in Stage 2, without condition and as soon as practicable, but in any
event no later than 31 December 1998".  Subsequently India and Pakistan addressed letters to theUnited States, copied to the TMB.
60. At the start of the meeting of the TMB reviewing their communication, the representatives of
Hong Kong, China; India and Pakistan communicated to the TMB the contents of a joint letter
addressed by the three Governments to the Chairman of the TMB, stating that while remaining of the
view "that the maintenance of visa requirement for integrated products is not consistent withobligations under Article 2.8(a) of the ATC", and "on the clear understanding that the said
                                                     
43 See paragraphs 40, 41 and 82.G/L/459
Page 31
United States visa requirement is to be eliminated, without conditions and as soon as practicable, but
in any event not later than 31 December 1998, we agree that it is not necessary for the TMB to
continue with the review under Article 2.21 of the ATC requested in our earlier letter, subject to the
records of the TMB incorporating, inter alia , the texts of the relevant correspondence you have
received relating to this review.  This is without prejudice to the right of any of us to submit a further
request for a similar review should this become necessary".
61. In light of the above, the TMB took note of the communication by the United States, that as a
definitive response to the issues raised "without conceding its right to maintain such measures, the
United States […] would eliminate visa requirements with respect to products integrated in Stage 2,
without condition and as soon as practicable, but in  any event no later than 31 December 1998".  It
was the TMB’s understanding that such elimination of visa requirements would be effected on a MFN
basis.  The TMB also took note of the communicati on of Hong Kong, China; India and Pakistan that
under the conditions contained in their letter, referred  to above, they agreed that it was not necessary
for the TMB to continue with the review under Ar ticle 2.21.  The TMB agreed to keep in view this
matter under the provisions of Article 2.21.  The TMB expected that it would be informed by the
United States at the time the visa requirements with respect to products integrated in Stage 2 would be
eliminated.
62. In December 1998, the TMB received a communication from the United States in which  the
United States forwarded, for the TMB's information, a US Federal Register Notice "eliminating the
visa requirements for various textile categories [as from 1 January 1999], consistent with the TMB's
decision on this matter".  The Members involved had be en informed of this fact by the United States.
The TMB took note of this communication.
(iii) No recourse to the provisions of Article 2.10 (advanced or earlier integration)
63. In its first comprehensive report, on the basis of its detailed considerations, related, in
particular, to the potential trade effects of the integration programmes implemented during Stage 1
and notified for Stage 2, and in view of  the fact that the large majority of the products subject to
restrictions under Article 2 will have to be integrated during a period of only 36 months (i.e.
1 January 2002 to 1 January 2005), the TMB observed that "the final objective of the integration ofthe textiles and clothing sector into GATT 1994 would be facilitated if the Members would, whenever
possible, have recourse to the provisions of Articles 2.10 and 2.15".
44  Against this background, it also
has to be noted that during the implementation of the second stage of the integration process, the
TMB has not received any notification invoking the provisions of Article 2.10 from any of the
Members maintaining restrictions under Article 2.1.
2. Integration Programmes of Members Retaining the Right to Use the Provisions of
Article 6
(a) Integration programmes notified prior to the adoption of the TMB's first comprehensive
report
64. As noted in the first comprehensive report45, by the date of its adoption, 36 Members
(Argentina, Bolivia; Brazil; Colombia; Costa Ri ca; Czech Republic; Dominican Republic; Egypt;
El Salvador; Hungary; India; I ndonesia; Japan; Korea; Liechtenstein; Malaysia; Malta; Mauritius;
Mexico; Morocco; Nicaragua; Pakistan; Peru; Philippi nes; Poland; Romania; Saint  Kitts and Nevis,
Slovak Republic; Slovenia; Sri Lanka; Switzerla nd; Thailand; Tunisia; Turkey; Uruguay and
Venezuela) notified integration programmes under Artic le 2.8(a).  The TMB completed the review of 17
of the notifications received.  In its review the TMB noted that, in all cases, the products integrated
amounted to at  least 17 per cent of the respective Members’ total imports of the products falling under
                                                     
44 See G/L/179, paragraph 73.  For developments related to Article 2.15, see paragraphs 261  to 267.
45 See G/L/179, paragraph 45.G/L/459
Page 32
the coverage of the ATC (in most cases, in volume of 1990 imports, in some other cases, in value and/or
with a different base-year), and that, in all cases, products from each of the four groups (tops and yarns,
fabrics, made-up textile products, and clothing) had b een integrated. With respect to those notifications
for which the review was not completed, the TMB deci ded to seek further information and clarification
from the Members concerned, and to revert to its review at a subsequent meeting, when satisfactory
replies would have been provided.
65. As was the case for the notifications made pursuant to Article 2.7(b), the TMB, in some
instances, took note of integrati on programmes which, in certain respects, did not fully meet the
technical criteria established under Article 2.8(a). This concerned cases where the data were not
available in volume, or for the year 1990, or where the share of integration was calculated relative to
data for the textiles and clothing sector as a whole since data for the exact product coverage of the ATC
were not available.  Prior to taking note of such notifications, the TMB was assured that no better data
could be obtained, and verified that the basis of the data for each Member was the same as that used forits first stage of integration. Therefore, their respect ive stages of integration would be implemented in a
consistent manner.
(b) Developments since the adoption of the TMB's first comprehensive report
(i) New notifications received with reference to Articles 2.8(a) and 2.11
66. Nine Members provided new notifications containing their respective integration programmes
for Stage 2:  Bangladesh (in February 1998); Cyprus (in January and April 1998); Estonia (in
April 2001); Guatemala (in September and Octo ber 1997 and in February 1998); Honduras (in
December 1997 and October 1998); Latvia (in August 2000); Panama (in October 1998); Paraguay (in
April and December 1998 and July 1999) and South Africa (in October 1997).  In reviewing these
notifications (in several cases, after additional clarification was sought from the Members concerned),the TMB noted that, in all cases, the products integrated amounted to at least 17 per cent of the
respective Members' volume (for Bangladesh and Cyprus: the value) of total 1990 imports (in the case
of Latvia and Estonia:  for the year 1994), and that, in all cases, products from each of the four main
product groups had been included in the integration programmes.  The programmes notified by
Honduras and Panama included some products belonging to the "ex HS lines" in the Annex to theATC.  In response to the question put by the TMB, Honduras stated that the import data provided with
respect to these three items were estimates which corresponded to the precise product description
contained in the Annex.  As regards Panama, the TMB observed that even if all the imports of the
"ex HS lines" were not counted in the volume of imports integrated, it would still amount to not less
than 17 per cent of the total volume of Panama's 1990 imports of the products covered by the ATC.With respect to all the notifications listed in this paragraph, the TMB also reiterated that its taking
note of late notifications was without prejudice to the legal status of such notifications.
(ii) Implications of integrating products belonging to "ex HS lines" in the Annex to the ATC
67. As indicated in the TMB's first comprehensive report46, the TMB decided to verify with the
Members concerned, prior to finalizing its review of the notifications already received pursuant to
Articles 2.8(a) and 2.11, that the volume of imports they had notified for the "ex HS lines" (and,
consequently, the data for total imports) related precis ely to the products described in the Annex to the
ATC.  Practically all Members concerned provided answers and clarification in reply to the TMB's
request.  These answers were considered to be technically satisfactory by the TMB and the Body took
note of them.
• some Members (Argentina; Colombia; Nicaragua and Uruguay) confirmed that the
import levels indicated in their respective second stage integration programmes fully
                                                     
46 See G/L/179, paragraph 49.G/L/459
Page 33
corresponded to the product descriptions contained in the Annex to the ATC.
Argentina, Colombia and Uruguay provided additional information and explanation
in support of their position taken;
• one Member (Dominican Republic) also stated that the headings corresponding to "ex
HS lines" related precisely to the description of these products as in the Annex.  This
was also confirmed by the import statistics and the tariff structure applied by thecountry.  However, in order to avoid any confusion, the Dominican Republic decided
to replace one such heading by five other tariff lines;
• several Members (Brazil; Hungary; Korea; Liechtenstein; Poland; Slovenia;
Switzerland and Thailand) recognized that their respective integration programmes
also included imports which did not fall under the coverage of the ATC or, regardingwhich it was not possible to distinguish between imports of ATC and non-ATC
products.  Most of these Members, with the exception of Poland and Slovenia,
decided, therefore, to revise their Stage 2 lists of integration by withdrawing products
corresponding to the "ex HS lines" in question and replacing them by other products,
ensuring that the requirements of Article 2.8(a) in terms of products and volume of
imports covered would be met in all cases.  Poland did not withdraw any product
from the original integration programme, but amended it by adding five tariff lines, sothat even if imports in the "ex HS lines" in question were not taken into account, the
amount integrated would not be less than 17 per cent.  Slovenia excluded the products
corresponding to "ex HS lines" from its Stage 2 integration programme, but the share
of the products integrated still amounted to well above 17 per cent of the volume of
imports of the products covered by the ATC.
(iii) Completion of the review by the TMB of several notifications made pursuant to Articles 2.8(a)
and 2.11
68. The review of several Stage 2 integration programmes could not be completed by the TMB by
the date of the adoption of the first comprehensive report because of the lack of replies andclarification from the Members concerned to the questions posed by the TMB which were related to
different technical aspects of the respective notifications, including, if applicable, the imports counted
in case of integrating "ex HS lines".  Since then the necessary clarifications have been received in
most cases, enabling the TMB to take note of the integration programmes notified by Argentina;
Brazil; Colombia; Dominican Republic; El Salvador; Hungary; Indonesia; Korea; Liechtenstein;Nicaragua; Poland; Slovak Republic; Slovenia; Switzerland; Thailand; Tunisia; Turkey and Uruguay.
In all these cases, the Stage 2 integration programmes, subsequently corrected and revised whenever
applicable, met the basic requirements defined in Article 2.8(a).
69. Of the 48 Members which notified first stage integration programmes pursuant to Articles 2.6
and 2.7(b)
47, 46 provided notifications with respect to integration during Stage 2, while two Members
(Myanmar and Zambia) did not.  The TMB was in a position to complete the review of 43 such
notifications and took note of them.  With respect to the remaining three (notifications by Israel;Mexico and Saint Kitts and Nevis) the TMB will not be able take further action, unless the
clarifications sought from these Members are provided.
(c) Implementation of integration during Stage 2
70. Since no communication has been received indicating the contrary, the TMB assumes that the
Stage 2 integration programmes notified to it were implemented on 1 January 1998 or, in those caseswhen the notifications had been made after 1 January 1998, at latest on the date of the submission of
                                                     
47 See paragraphs 22 and 29.G/L/459
Page 34
such notifications (or, if applicable, of their revised versions of which the TMB could take note).  It is
noteworthy that of the Members retaining the right to use the provisions of Article 6 and complying
with the obligations under Articles 2.6 and 2.7(b) as well as 2.8(a) and 2.11, three (Argentina;
Colombia and Poland) invoked the provisions of the transitional safeguard mechanism during the
second stage of the integration process.48
71. As regards advanced or earlier integration, in the sense of Article 2.10, the TMB received one
notification with reference to this provision of the ATC.  In December 1996, Turkey notified that it
had decided to bring forward the implementation of the integration of some products49, which would
otherwise form part of the third stage of integration, to take effect on 1 January 1998.  These products
represented 29.07 per cent of the volume of Turkey's total imports in 1990.  The TMB took note of
this notification.
72. The notification of Turkey stated, inter alia , that: "by the integration of the products included
in the notification by Turkey of the second stage of integration pursuant to paragraphs 8(a) and 11 ofArticle 2 of the Agreement on Textiles and Clothing , together with the products included in this
notification, Turkey and the European Community, which form a customs union, will continue to
apply the same duties and other regulations of commerce to the trade of territories not included in the
union in respect of products covered by the Agreement on Textiles and Clothing".
50
3. Conclusions Adopted by the CTG in Fe bruary 1998 in its First Major Review
73. The conclusions adopted by the CTG in February 1998 devoted much attention to the process
of integration.  The conclusions include, inter alia , the following:
"10. In the Council's discussion of the integration process, some Members stressed the
importance of non-discriminatory trade in textiles and clothing to the economic and social
development of their countries, it being a key foreign exchange earner and an importantsource of employment.  Consequently, an open and liberal trading system for textiles and
clothing was of considerable importance.  Some Members were of the view that the
integration programmes of the four Members maintaining restraints carried over from the
MFA were a different matter from those of the other Members as they involved the
elimination of quantitative restraints while the others did not involve the elimination ofquantitative restraints.  Accordingly, they directed their comments primarily at the integration
programmes notified by these four Members.  They pointed out that, notwithstanding the fact
that the required percentages of products to be integrated had been met (with the exception of
a shortfall in one Member which was being addressed in the TMB), the integration
programmes of the importing Members for Stages 1 and 2 were not commercially meaningfulfor developing exporting Members:  the products selected for integration were concentrated in
less value-added products such as tops, yarns and fabrics, with only small shares of made-up
textile products and clothing;  furthermore, the shares of integrated products were
substantially lower in terms of value of trade than in volume of trade while more of the
integrated trade was being accounted for by imports from developed countries than from
developing countries.  These Members noted that the proportion of the integrated trade in
respect of products that were under restraint was in the range of only 0-3 per cent of1990 imports of products covered by the ATC.  As the first and second stages of integration
would have little or no impact on the restraints, with over 96 per cent of restricted trade
remaining to be integrated even after seven years of implementation, there would be no
benefits for developing countries.  These Members also considered that this "back-loading" of
integration with virtually all meaningful integration being left to the last three years of the
                                                     
48 See paragraphs 152 to 230.
49 Waste of synthetic fibres;  corresponding to EC category 124, excluding position HS 5505.10 which
was integrated in Stage 2.
50 See G/TMB/N/240.G/L/459
Page 35
ATC, coupled with the use of other trade-restricting instruments, would not be conducive to
meeting the objectives of trade liberalization.  The process of integration was far from being
"progressive in character" as envisioned in the ATC.  Another area of concern to these
Members was the lack of information on the process of autonomous industrial adjustment
mentioned in Article 1.5 of the ATC in order to facilitate integration.  Such adjustment would
be all the more necessary with integration being effectively left to the last three years of thetransition.
11. Some other Members, noting that the objective of the ATC was the integration of the
textiles and clothing sector into GATT 1994 rules and disciplines by 1 January 2005,
responded that the ATC, including the provisions relating to integration, applied to all
Members and not just to four Members.  They were of the view that the integration process
could only be examined with reference to the specific provisions of the ATC.  In response tothe points raised by other Members, they stressed  that nothing in the ATC stated that a certain
percentage of products under quota would be required to be integrated at each stage and that it
was the right of each Member to choose the products from the Annex to the ATC for
integration.  In this context the Members maintaining restrictions notified under Article 2
stressed that they had met all of their obligations in respect of both Stages 1 and 2;  further,they confirmed their commitment to achieve full integration by 2005.  They noted that their
integration programmes included some restrained products for the second stage.  They also
observed that not all benefits to be achieved through the integration process could be met at
the outset or at any particular stage.  These Members further observed that the pattern of
integration of products seemed to be a universal phenomenon followed by most Memberswith integration programmes.  One Member noted that, in its particular case, over 50 per cent
of the products it integrated were textile made-up products.  It had also announced the
removal of a number of quotas on one product, using Article 2.15.  Another Member had
undertaken to eliminate restrictions, applying Article 2.15 of the ATC, so that by the end
of 1998, 94 per cent of its quotas would be removed.  With respect to autonomous industrialadjustment in terms of Article 1.5, another Member noted that there had been substantial
adjustment under the MFA and it was continuing at the present time.  Some Members had
provided information in this regard to the TMB, which was noted in its report.
[…]13. The Council noted that, subject to certain corrections, the legal requirements for
integration of textile and clothing products into GATT 1994 in the first two stages had been
fulfilled.  The Council noted, however, that the integration programmes of the major
importing Members during the first stage, and as announced for the second stage, included
only a small number of products which had actually been under quota restrictions, therefore,
leaving a large number of products for which quota restrictions would need to be eliminatedduring the remainder of the transition period.
14. The Council recalled the importance attached by Ministers in their Declaration at the
first Ministerial Conference in Singapore to the implementation of the ATC so as to ensure an
effective transition to GATT 1994 by way of integration, which is progressive in character.  Italso welcomed that two Members had applied the provisions of Article 2.15 for the early
elimination of quantitative restraints and enco uraged Members to continue to have recourse,
where appropriate, to the provisions of Article 2.15, and to Article 2.10 on advanced
integration.
15. The Council recalled that Members should allow for continuous autonomous
industrial adjustment and increased competition in their markets in order to facilitate theG/L/459
Page 36
integration of the textiles and clothing sector into GATT 1994.  The Council noted that
further information in this regard would facilitate the review of progress."51
4. Additional Comments and Observations  of the TMB with Respect to the
Implementation of Integration so Far
74. The TMB notes that the conclusions adopted by the CTG, reproduced in paragraph 73, were
in line with the respective analysis provided by the TMB in its first comprehensive report.  The fact
that the main elements of the conclusions of the CTG appear to support the TMB's comments,
observations and assessment and that, in some respects, they also appear to rely on them, indicates
that in compliance with the tasks confined to the Body in Article 8.11, the first comprehensive report
could provide some assistance to the Council in the context of its major review.
75. As regards the impact of integration implemented during the first and second stages by the
Members that carried over restrictions from the MFA to the ATC, it is observed that the TMBprovided a detailed factual assessment in paragraphs 51 to 59 (Stage 2 integration) as well as further
and broader reflections in paragraphs 65 to 77 (Stages 1 and 2 taken together) in the first
comprehensive report.  The TMB is of the view that these assessments and reflections proved to be
correct and remain valid.
76. It can also be observed that, as subsequently noted by the conclusions of the CTG, the TMB
had, in its first comprehensive report
52, already drawn the attention to the importance and necessity of
steady progress in terms of autonomous structural adjustment and also, as a result of this, increased
competition in the Members' markets.
77. The TMB believes that it is important to reiterate some of the observations made in the first
comprehensive report.  The TMB had stated, inter alia , the following:
"71. The ATC includes a number of particular features which should be taken into
consideration in providing an overall assessment of the integration process.  It is important to
note in this regard:
- the broad product coverage of the Annex;- the use of 1990 as a base-year for providing statistical information;- the fact that integration is implemented on the basis of total volume of imports as
opposed to the respective value;
- that Members are free to choose products/categories for integration provided that
their selection meets the essential technical requirements;  and
- that, in conformity with the ATC, 67 pe r cent may remain to be integrated after
Stage 2.
72. The notifications made pursuant to Articles 2.6 and 2.8(a) reviewed by the TMB met
the requirements contained in these Articles, subject to subsequent corrections to be made, if
applicable, to ensure that the volume of imports integrated corresponds fully to the product
descriptions contained in the Annex of the ATC. However, up to 67 per cent of the total
volume of 1990 imports may remain to be integrated during a period of only 36 months(1 January 2002 to 1 January 2005), and the large majority of the products subject to
restrictions under Article 2.1 will have to be integrated during the same period.
                                                     
51 G/L/224.
52 See G/L/179, paragraphs 74 to 77.  The present report deals with this issue in paragraphs 602 to 617.G/L/459
Page 37
73. On the basis of considerations detailed in the preceding paragraphs, the TMB
observes that the final objective of the integration of the textiles and clothing sector into the
GATT 1994 would be facilitated if the Members would, whenever possible, have recourse to
the provisions of Articles 2.10 and 2.15."53
78. Practically four years after the adoption of the first comprehensive report, the following
comments can be offered in regard to the above:
• it can be confirmed that the first and second stage integration programmes of the
European Community, Norway and the United States met the requirements defined inArticles 2.6 and 2.8(a).  Whenever problems were encountered in ensuring that the
volume of imports integrated corresponded fully to the product descriptions in the
Annex to the ATC, the necessary technical corrections were made and implemented
by the European Community and Norway.  On the other hand, Canada's Stage 2integration programme corresponded to the requirements specified in Article2.8(a)
only after the implementation of the corrections and adjustments reported in
paragraph 56 above.  The TMB understood that these corrections and adjustments
were related to the statistical difficulties encountered by Canada in attributing imports
with respect to certain products belonging to "ex HS lines" in the Annex to the ATC.Noting the corrections and adjustments made, the TMB had difficulties in reconciling
this with the statement made by Canada, in June 1997, that the respective levels of
imports corresponded to the product descriptions contained in the Annex to the ATC.
The TMB expresses its concern that the necessary corrections were made only after
more than three years of the implementation of the Stage 2 integration.
• since the beginning of the implementation of the second stage of the integration
process, no notifications have been made by Canada, the European Community,
Norway and the United States with reference to Article 2.10.  Thus, no further
products, in addition to those included in their respective first and second stage
integration programmes, have been or will be integrated by these Members prior tothe implementation of the Stage 3 integration programmes.  Therefore, integration in
terms of scope of products will remain unchanged for four consecutive years at the
level it had already reached on 1 January 1998.
D. T
HIRD STAGE OF INTEGRATION , TO BE IMPLEMENTED ON 1 JANUARY  2002
79. Article 2.8(b) provides that "[t]he remaining products, i.e. products not integrated into
GATT 1994 [during the first and the second stages] shall be integrated, in terms of HS lines or
categories, … as follows:  … on the first day of 85th month that the WTO Agreement is in effect [i.e.
on 1 January 2002], products which accounted for not less than 18 per cent of the total volume of
Member's 1990 imports of the products in the Annex.  The products to be integrated shall encompass
products from each of the following four groups:  tops and yarns, fabrics, made-up textile products
and clothing …".  Following the provisions of Article 2.11, "[t]he respective programmes ofintegration, in pursuance of paragraph 8, shall be notified in detail to the TMB at least 12 months
before their coming into effect, and circulated by the TMB to all Members".  Therefore, Stage 3
integration programmes had to be notified to the TMB by the end of the year 2000.
80. In accordance with the requirements of Article 2.11, the TMB has circulated, without delay,
all the notifications it has received pursuant to Articles 2.8(b) and 2.11, and has also started to reviewthese integration programmes pursuant to Article 2.21.
                                                     
53 G/L/179.G/L/459
Page 38
1. Review of the Integration Programmes of Members that had Notified Restrictions
Pursuant to Article 2.1
81. In reviewing the respective integration programmes, as notified and, whenever applicable,
subsequently corrected and supplemented, the TMB noted that, in accordance with the requirements
of Article 2.8(b), the volume of products to be integrated, as from 1 January 2002, by Canada, the
European Community, Norway and the United States amounted to at least 18 per cent of the volumeof the respective Members' total imports of 1990 of the products falling under the coverage of the
ATC.  It could also be ascertained that products from each of the four groups, referred to in
Article 2.8(b), would be integrated by each of these Members.  Prior to its taking note of the
notifications concerned, the TMB sought clarifications and additional information with respect to a
number of particular aspects of the respective integration programmes of Canada, the
European Community, Norway and the United States.
82. Canada reported that, in accordance with Article 2.8(b), the volume of imports to be
integrated amounted to 18.16 per cent of the total volume of imports into Canada in 1990 of the
products falling under the coverage of the Agreement.  Products from each of the four groups referred
to in Article 2.8(b) would be integrated, which would represent the following percentages of the
volume of imports in 1990 in Canada: tops and yarns (5.51 per cent), fabrics (1.05 per cent), made-up
textile products (7.77 per cent) and clothing (3.83 per cent).  The TMB noted that Canada wouldintegrate products from 10 Canadian categories, 16 sub-categories, as well as eight products not
attributed by Canada to a specific category.  The TMB further noted that, of these, 3 categories and
2 sub-categories, for which Canada maintained restrictions under Article 2.1, would be integrated in
full and that, therefore, restrictions affecting such  categories or sub-categories would be eliminated.
In a number of other cases, however, such categories were part of merged categories and/or sub-categories subject to restraint and, in these cases, th e restrictions would only be partially eliminated,
affecting overall 20 WTO Members, since the non-integrated parts of the merged categories and/or
sub-categories would remain under restraint.  In addition, products from seventeen other categories or
sub-categories would be integrated for which restrict ions would be only partially eliminated, affecting
overall 27 WTO Members.  With respect to the HS lines in the notification which corresponded toproducts described in the Annex of the ATC as "ex" positions of HS 6-digit lines, Canada, having
made, upon observations made by the TMB in this regard, an extensive review of the data available
and having consequently modified the list of the products to be integrated, confirmed that the trade
attributed to such HS lines corresponded precisely to the product description as contained in the
Annex to the ATC.  Similarly, with respect to several other HS lines marked in the third stageintegration programme as an "ex" position of the respective HS 10-digit line, the TMB took note of
the statement by Canada that it would be integrating only that portion of the respective lines related to
overalls, as indicated, and that the relevant import data had been estimated to reflect the volume of
imports corresponding to the products integrated.
54  With respect to the fact that one HS line at the 10-
digit level, included in the notification for Stage 3, seemed to have been already included in Canada's
integration programme for Stage 1, the TMB took note of Canada's statement that the products under
the relevant tariff line were being integrated by Canada in two phases (i.e. in Stage 1 and Stage 3),and that only the trade corresponding precisely to the product integrated in each Stage under the
relevant HS 10-digit line had been counted.  As regards a discrepancy which had been observed by
the TMB between the trade data submitted by Canada at the time of the negotiation of the WTO
Agreement and the data submitted by Canada for the purpose of integrating products under
Articles 2.6 and 2.8, Canada, having made an extensive review of the data, withdrew from the listproducts covered by the ATC, and from the total volume of imports in 1990 of those products, several
10-digit tariff lines and made adjustments to the volume of trade covered by one additional 10-digit
tariff line.  Since these products were part of Canada's second stage of integration and in order to
maintain the level of integration previously achieve d for each of the three stages in volume terms,
                                                     
54 The TMB had already observed on previous occasions that it was not in a position to verify estimates
provided by Members.G/L/459
Page 39
Canada decided (i) to transfer products from the first to the second stage, (ii) to transfer products
scheduled to be integrated for the third stage to the second stage and (iii) to add products not yet
integrated to the list of products to be integrated for the third stage on 1 January 2002.  With respect to
the transfer of products from the first to the second stage, the TMB took note of the statement by
Canada that this transfer was not strictly required to reach the minimum threshold of 17 per cent
stipulated under the ATC for the second stage and that Canada had chosen to transfer this volumebecause of its approach of maintaining the levels of integration that Canada had notified during each
of the three stages (i.e. 16.35 per cent for the first stage, 18.70 per cent for the second stage and
18.16 per cent for the third stage), as opposed to simply reaching the required minimum threshold in
each stage.
55  The TMB also took note of the statement by Canada that when a product or a category
would be integrated that was representing only part of a restrained category, merged category or sub-
category, the level for the respective remaining restraints (category, merged category or sub-category)
would not be reduced to reflect the removal of these products from the restriction.
83. The European Community reported that, in accordance with Article 2.8(b), the volume of
imports to be integrated amounted to 18.08 per cent of the total volume of imports into the
European Community in 1990 of the products falling under the coverage of the Agreement.  Products
from each of the four groups referred to in Article 2.8(b) would be integrated, representing the
following percentages of the volume of imports in  1990 in the European Community:  tops and yarns
(3.82 per cent), fabrics (3.60 per cent), made-up textile products (4.44 per cent) and clothing
(6.22 per cent).  The TMB noted that the European Community would integrate 57 EC product
categories, of which 16 of tops and yarns, 14 of fabrics, 18 of made-up textile products and nine of
clothing.  In addition, the European Community w ould integrate four made-up textile products which
are not classified in any specific EC product category.  The TMB further noted that 11 EC categories,for which the European Community maintained restrictions under Article 2.1, had been included in
the integration programme and that, therefore, such restrictions would be eliminated on
1 January 2002.  Restraints on these 11  EC categories affected overall nine WTO Members.  With
respect to the two "ex HS lines" contained in the integration programme, the TMB noted the statement
and explanation by the European Community that "the correspondence of the imports counted inrespect of these lines with the relevant product descriptions was verified on the basis of the EC's
Combined Nomenclature to ensure their conformity  with the Annex of the ATC".  (To support this
statement, detailed information was provided to the TMB on the relevant sections of the Combined
Nomenclature in the form of a working document.)
84. According to its notification, in accordance with Article 2.8(b), Norway would integrate
21.65 per cent of the total volume of imports into Norway in 1990 of the products falling under the
coverage of the Agreement.  Products from each of the four groups referred to in Article 2.8(b) would
be integrated, which would represent the following percentages of the volume of imports in 1990 in
Norway:  tops and yarns (2.73 per cent), fabrics (6.27 per cent), made-up textile products
(5.09 per cent) and clothing (7.57 per cent).  The TMB, being aware that all restrictions previously
maintained by Norway under the ATC had been eliminated pursuant to Article 2.15, as from
1 January 2001
56, noted that the integration programme contained products falling under two product
categories which had been subject to quantitative restrictions under Stage 1 or 2, affecting 16 WTO
Members.
85. In its notification the United States reported that the volume of imports to be integrated
amounted to 18.11 per cent of the total volume of imports into the United States in 1990 of the
products falling under the coverage of the Agreement.  Products from each of the four groups referredto in Article 2.8(b) would be integrated, and woul d represent the following percentages of the volume
of imports in 1990 in the United States:  tops and yarns (3.26 per cent), fabrics (3.91 per cent), made-
up textile products (8.40 per cent) and clothing (2.55 per cent).  The TMB noted that the United States
                                                     
55 See also paragraph 40.
56 See paragraph 264.G/L/459
Page 40
would integrate products from 41 US categories, of whic h four of tops and yarns, five of fabrics, eight
of made-up textile products and 24 of clothi ng.  The TMB further noted that, products from
38 US categories, for which the United States maintained restrictions under Article 2.1, had been
included in the integration programme and that, therefore, restrictions affecting such products would
be eliminated on 1 January 2002.  Restraints on these products affected overall 20 WTO Members.
Some of the restraints would be fully eliminated because they constituted specific limits coveringsingle or merged categories which would be integrated in their entirety.  In a number of other cases,
products included in the programme of integration formed only part of product categories, therefore,
restrictions affecting such categories would be only  partially eliminated.  In several other cases, the
category integrated was, prior to its integration, subject to a quantitative restriction because, although
the category itself was not under specific limit, it fell under an aggregate or group limit.  As regards
the HS lines in the notification which corresponded to products described in the Annex of the ATC as
"ex" positions of HS 6-digit lines, the TMB noted the confirmation by the United States that the tradeattributed to such HS lines corresponded precisely to products covered by the ATC.  With respect to
the fact that several HS lines (at the 10-digit level) included in the notification had already been
included in the US' integration programme for Stage 2, albeit  with a different product description,
under a different product category and with diff erent trade data, the TMB took note of the
US' statement that, in order to achieve integration of a category or part of a category, in some cases,the respective US imports in 1990, expressed in terms of HS 1990, had to be prorated using 1994
trade data.  Thus, an individual 1990 HS line item could appear more than once in the integration
schedule.  As to the consequences of the integration of the products listed as imports into the
United States of products forming only part of a category or subject to group or aggregate limits, the
TMB noted the US' statement that the United States "will be in contact with [its] textiles agreement
partners during the course of this year [i.e. 2001], concerning the effects of integration in the
year 2002 on specific, group and aggregate limits.  Adjustment to limits will be based on trade that
has occurred in the products to be integrated, and [the United States'] agreements partners will be
given the opportunity to consult with [the United States] on this issue".  In this regard, the TMB
recalled that, in conformity with the provisions  of Article 4, any change in the level of such
restrictions shall not adversely affect the access available to a Member and upset the balance of rights
and obligations of the Members concerned under the ATC.  The TMB observed that the products
integrated were subject, prior to their integration, to visa requirements, and sought confirmation that
no visa requirements would be applied to any of the products integrated into GATT 1994 as a result of
the Stage 3 integration programme as from 1 January 2002.  The United States stated in this regardthat "a decision will be made later this year, after consultation with our bilateral textile visa
arrangement partners, as to whether or not a visa requirement will be retained for goods exported in
2002 that were integrated in that year".  The TMB recalled that the respective visa arrangements had
been notified to the TMB by the United States, pursuant to Article 2.17, as parts of administrative
arrangements and that, under Article 2.17, administrative arrangements could only be deemed
necessary in relation to the implementation of restrictions applied under Article 2.  The TMB further
recalled that, in June 1998, several WTO Members had requested the TMB to review, in accordancewith Articles 8.1 and 2.21, the implementation of th e US' Stage 2 integration programme with respect
to the continuation of visa requirements for products included in this programme.  In that context, the
TMB had, inter alia , taken note of a communication by the United States that, as a definitive response
to the issues raised "without conceding its right to  maintain such measures, the United States […]
would eliminate visa requirements with respect to products integrated in Stage 2, without conditionand as soon as practicable, but in any event no later than 31 December 1998".  It was the TMB’s
understanding that such elimination of visa requirements would be effected on a MFN basis.
57
Subsequently, the United States had forwarded to the TMB, for its information, a US Federal Register
Notice "eliminating the visa requirements for various textile categories, consistent with the TMB's
decision on this matter".58  Against this background, the TMB expected that it would be informed as
                                                     
57 See paragraphs 58 to 61.
58 See paragraph 62.G/L/459
Page 41
soon as possible of the outcome of any follow-up considerations to be given to this matter by the
United States.
2. Review of Integration Programmes of Members which had Retained the Right to Use
the Provisions of Article 6
86. By the end of July 2001, of the 46 Members that had retained the right to use the provisions
of Article 6 and had notified integration programmes both for Stages 1 and 2, 36 providednotifications with respect to integration programmes to be implemented during Stage 3, several of
them after the expiration of the deadline foreseen in Article 2.11. Ten of the 46 Members
(Bangladesh; Bolivia; Egypt; Hondu ras; Israel; Malaysia; Saint Kitts and Nevis; South Africa;
Thailand and Venezuela) had not notified the integration programme to be implemented for Stage 3.
87. The TMB started its review of these notifications, pursuant to Article 2.21, as soon as they
were received. In most cases, the TMB had to re-review these notifications on the basis of additional
information and clarification that had been requested from the Members concerned.  Similarly, thereview of some other notifications is still pending due to the fact that the information or clarification
requested have not as yet been provided by the Members.  The TMB will revert to these notifications
once the information requested is received.   By the end of July, the TMB was, therefore, able to
conclude the review of 27 such notifications.
88. Pakistan notified that it had decided to integrate its entire textiles sector as part of the Stage  3
integration and, accordingly, the whole of the textiles and clothing sector will henceforth be governed
by the rules of GATT 1994.  The TMB commended Pakistan for this decision.  In the case of 26 other
notifications (Argentina; Brazil; Colombia; Costa Rica; Czech Republic; Dominican Republic;
Estonia;  Hungary;  India;  Indonesia;  Japan;  Korea;  Latvia;  Liechtenstein; Malta;  Mauritius;
Panama;  Peru;  Philippines;  Poland; Romania;  Slovenia;  Sri Lanka;  Switzerland; Turkey andUruguay), the TMB noted that, in each case, the products to be integrated amounted to at least
18 per cent of the respective Members' total imports falling under the coverage of the ATC (in most
cases, in volume of the 1990 imports, in some other cases, in value and/or with a different base-year),
and that, in all cases, products from each of the four groups (tops and yarns, fabrics, made-up textile
products and clothing) would be integrated.
89. Similar to what had been done with respect to the notifications made pursuant to Articles 2.6
and 2.8(a), the TMB in some instances took note of integration programmes which, in certain
respects, did not fully meet the technical criteria established under Article 2.8(b).  This concerned
cases where the data were not available in volume, or for the year 1990, or where the share of
integration was calculated relative to data for the textiles and clothing sector as a whole, since data forthe exact product coverage of the ATC were not available.  Prior to taking note of such notifications,
the TMB was assured that no better data could be obtained, and verified that the basis of the data for
each Member was the same as that used for its first and second stages of integration.  Their respective
stages of integration would, therefore, be implemented in a consistent manner.
90. The review by the TMB of 8 notifications of Stage 3 integration programmes (Cyprus;
Guatemala;  Mexico;  Morocco;  Nicaragua;  Paraguay; Slovak Republic and Tunisia) could not be
completed, since fully satisfactory replies have not as yet been received from them to the specific
questions raised and clarifications sought by the TM B.  A reply was received from El Salvador shortly
before the adoption of the present report and will be examined by the TMB at its next meeting.
91. It should be noted that in reviewing the integration programmes, listed in paragraph 88 above,
in all cases where it was applicable the TMB checked, inter alia , that in respect of products belonging
to HS lines in the Annex to the ATC for which only part of the respective line falls under the coverageof the Agreement ("ex HS lines"), the imports that had been counted and included in the respective
integration programmes, corresponded to the product description in the ATC Annex.  In reply to theG/L/459
Page 42
TMB's request for clarification in this regard, the Czech Republic confirmed that some such "ex HS
lines" forming part of its integration programme corresponded precisely to the product description in
the Annex, while with respect to some other such tariff positions it was difficult to determine the
exact import volume to be attributed to the respective products as defined by the ATC.  Consequently,
the Czech Republic withdrew these latter products from the integration list and replaced them by
including additional items.  With respect to the Dominican Republic which included four productscorresponding to "ex HS lines" in the Annex, the TMB took note of the Dominican Republic's
explanation that its notification had been based on the Brussels Tariff Nomenclature (BTN) before
being transposed to the HS and there were no such "ex HS lines" in the Dominican Republic's national
tariff structure.  Therefore, in switching from the BTN to the HS, the Dominican Republic had found
that these lines in the national tariff corresponded most closely to the description in the corresponding
lines of the ATC Annex.  As regards Malta, the TMB observed that the integration programme
contained 14 products defined as "ex HS lines".  However, even if all the imports of such lines werenot counted in the volume of imports to be integrated, that volume would still amount to not less than
18 per cent of the total volume of Malta's 1990 imports of the products listed in the Annex to the
ATC.  Latvia decided to delete the two "ex HS lines" initially included in its integration programme,
because the product description provided by Latvia in respect of these products did not seem to
correspond to that of the Annex to the ATC.  Notw ithstanding this deletion, the volume of imports to
be integrated still amounted to not less than 18 per cent of total volume of imports by Latvia during
the base period.  With respect to Turkey, the TMB observed that the integration programme contained
two products defined as "ex HS lines" in the ATC Annex and that even if all imports of such lines
were not counted, the volume of imports of the products to be integrated would still amount to not less
than 18 per cent of the total volume of Turkey's 1990 imports in the Annex, as envisaged inArticle 2.8(b).
3. Further Assessment and Additional Observations by the TMB with Respect to the Third
Stage Integration Programmes
(a) Integration programmes of Members that had notified restrictions pursuant to Article 2.1
92. Since their respective initial notifications had not contained information in this regard, the
TMB decided to seek information from the Members concerned on the extent to which the
quantitative restrictions maintained by them under the ATC (in the case of Norway, products covered
by previously maintained restrictions59) would be affected by the implementation of their respective
third stage integration programmes.  The information received from these Members is reflected in the
following paragraphs, together with further analysis and additional comments made by the TMB.
(i) Canada
93. In its replies to the TMB, Canada provided two detailed tables (as well as, subsequent
corrections and additions to them).  The first one li sted those Canadian restraint categories, for which
all products would be integrated by the start of the third stage of the integration process, together with
the enumeration of those WTO Members that would be affected by the consequential elimination of
these restraints (reproduced as Table 1 of the present report).  The other table indicated those
categories from which certain products would be integrated in the third stage, with the result that theseproducts would be removed from the coverage of the respective remaining quantitative restrictions
(reproduced, together with the subsequent adjustments, as Table 2 of the report).  Canada also
provided a detailed list identifying the quota categories and the corresponding 2001 tariff lines
affected by the implementation of its integration programme.
60
                                                     
59 See paragraph 84.
60 Not reproduced in the present report.  See G/TMB/N/370/Corr.3, Annex 4.G/L/459
Page 43
Table 1
CANADA
List of Categories and WTO Members:  Product Categories Subject to Full Quota Elimination
(as notified by Canada)
Category/product Gender/size WTO Members
Women's & girls' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
Category 4.1 (k/c) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
Suits
Women's & girls' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
(woven) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
(k/c) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
(woven) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
______________________________________________________________________________________________________
Ensembles *Women's & girls' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
(k/c) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
(*removed from *Women's & girls' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
restraint in 1998) (woven) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
(k/c) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia,
(woven) Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_________________________________________________________________________________________________________________
Category 7  (includes all of 7.1, 7.2 and 7.3)
Woven Shirts Men's & boys' Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
(*removed from *Children's Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
restraint in 1998) (male) Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Woven Shirts, Women's & girls' Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
blouses & shirt-blouses Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
(*removed from *Children’s Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
restraint in 1998) (female) Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Woven Tops Men’s & boys’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Women’s & girls’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Children’s Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
(male) Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Children’s Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
(female) Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Other woven singlets & vests
(not underwear Men’s & boys’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
type) Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Women’s & girls’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Children's Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
(male) Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E. 
___________________________________________________________________________________
Children's Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Myanmar,
(female) Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------G/L/459
Page 44
Category/product Gender/size WTO Members
___________________________________________________________________________________________________________________________
Category 8.1  Men's & boys' Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
 Knit Shirts Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand,  U.A.E.
___________________________________________________________________________________
(*removed from *Children's Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
restraint in 1998) Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Knit Shirts, blouses *Women's & girl's Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
or shirts-blouses Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
(*removed from *Children's Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
restraint in 1998) Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Other knit singlets & vests
(not underwear Men’s & boys’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
type) Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Women’s & girls’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
 Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Children’s Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
 Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Knit Tops Men’s & boys’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
 Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E.
___________________________________________________________________________________
Women’s & girls’ Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
 Philippines, Qatar, Ro mania, Singapore, South Africa, Sr i Lanka, Swaziland, Thailand,  U.A.E.
___________________________________________________________________________________
Children’s Bangladesh, Hong Kong/China, India, Indonesia, Korea, Macau/China, Malaysia, Pakistan,
 Philippines, Qatar, Romania, Singapore, South Africa, Sri Lanka, Swaziland, Thailand, U.A.E
_______________________________________________________________________________________________________
Men's & boys' Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
 (k/c) Swaziland, Thailand
Category 12 Men's & boys' Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
Swimwear (woven) Swaziland, Thailand
___________________________________________________________________________________
(Refer to Notice to Women's & girls' Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
Importers 391 (k/c) Swaziland, Thailand
dated May 2,1990)
Women's & girls' Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
(woven) Swaziland, Thailand
___________________________________________________________________________________
Children's Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
(male)(k/c) Swaziland, Thailand
Children's Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
(male) (woven) Swaziland, Thailand
____________________________________________________________________________________
Children's Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
(female)(k/c) Swaziland, Thailand
Children's Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar, Sri Lanka,
(female) (woven) Swaziland, Thailand
_________________________________________________________________________________________________________________G/L/459
Page 45
Category/product Gender/size WTO Members
___________________________________________________________________________________________________________________________
Category 14 (includes all of 14.1, 14.2, 14.3, 14.4, 14.5, 14.6, 14.7, 14.8 and 14.9)
*Babies'(k/c) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
Coats, snowsuits, Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
jackets and similar articles
(*removed from *Babies’(woven) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
restraint in 1998) Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Trousers, breeches , Babies'(k/c) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
bib and brace overalls,  Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
coveralls and shorts
Babies’(woven) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Babies'(k/c) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
Shirts, blouses and Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
similar articles
Babies(woven) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
T-shirts and Babies’ (k/c) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar,
sweatshirts Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Babies'(k/c) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar,
Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
Dresses and skirts
Babies’(woven) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar,
Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Babies'(k/c) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Qatar, Romania
Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
Sleepwear
Babies’(woven) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Qatar, Romania
Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Babies'(k/c) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar,
Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
Underclothing
Babies’(woven) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar,
Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_______________________________________________________________________________________________________
Jerseys, pullovers, Babies'(k/c) Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines, Qatar,
cardigans and Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
sweaters _______________________________________________________________________________________________________
Other garments Babies' (k/c) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
not elsewhere Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
specified
Babies’ (woven) Bangladesh, Hong Kong/China, Indonesia, Korea, Macau/China, Malaysia, Philippines,
Qatar, Singapore, Sri Lanka, Swaziland, Thailand, U.A.E.
_________________________________________________________________________________________________________________G/L/459
Page 46
Table 2
CANADA
List of Categories and WTO Members:  Product Ca tegories Subject to Partial Quota Elimination
(as notified by Canada)
Category/product Gender/size WTO Members
Categories 2 and 5.4
Bib and brace overalls Men's & boys' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
(k/c) Malaysia, Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak
Rep., South Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
(Braces and bib must be Men's & boys' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
permanently attached to (woven) Malaysia, Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak
the trouser) Rep., South Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
________________________________________________________________________________
Women's & girls' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
(k/c) Malaysia, Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak
Rep., South Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
Women's & girls' Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
(woven) Malaysia, Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak
Rep., South Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
________________________________________________________________________________
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
(male)(k/c) Malaysia, Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak
Rep., South Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
(male)(woven) Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak Rep., South
Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
________________________________________________________________________________
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
(female)(k/c) Malaysia, Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak
Rep., South Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
Children's Bangladesh, Bulgaria, Hong Kong/China, India, Indonesia, Korea, Lesotho, Macau/China,
(female)(woven) Malaysia, Mauritius, Myanmar, Nepal, Pakistan, Philippines, Qatar, Romania, Singapore, Slovak
Rep., South Africa, Sri Lanka, Swaziland, Thailand, Turkey, U.A.E.
________________________________________________________________________________
Category 22.1
Nylon filament yarn  Korea
------------------------------------------------------------------------------------------------------------------------------- ------
Category 22.2
Nylon staple yarn  Korea
________________________________________________________________________________
Category 23.1
Polyester filament yarn Korea
________________________________________________________________________________
Category 31.1
Combed Wool Fabric  Bulgaria, Czech Rep., India, Korea, Poland, Romania, Slovak Rep., Uruguay
________________________________________________________________________________________________
Category 32.1
Unbleached Cotton Fabric Hong Kong/China
________________________________________________________________________________
Category 32.2
Finished Cotton Fabric Hong Kong/China
_______________________________________________________________________________________________
Category 35
Polyester Filament Fabric Korea, Poland
________________________________________________________________________________________________
Categories 32.3, 34.2, 36.2,
37.1, 37.2
Coated Fabrics Hong Kong/China, India, Poland, Korea, Thailand
________________________________________________________________________________________________
Category 43.2
Hosiery Babies' Singapore, Korea, Thailand
________________________________________________________________________________________________G/L/459
Page 47
94. On the basis of the information provided regardin g the restraints to be fully eliminated, it can
be observed that:
• of the product categories notified as being subject to full quota elimination,
three constitute entire product categories in the Canadian system of categorization(category 7, which has 3 sub-categories – ca tegories 7.1, 7.2 and 7.3;  and categories
12 and 14), while the two remaining other items (categories 4.1 and 8.1) are, in fact,only parts of broader product categories;
• even though the listing of WTO Members affected is repeated on a number of
occasions due to the detailed product specifications provided, this does not mean thatspecific sub-quotas or sub-limits are being applied (and would, therefore, be
eliminated) on different fractions of the product categories/parts of categories inquestion.
95. Keeping in mind the above observations, it would appear that restraints affecting three
product categories in full will be eliminated, namely:
• in category 7, affecting altogether 17 WTO Members
61;
• in category 12, affecting altogether 10 WTO Members, and
• in category 14, affecting altogether 13 WTO Members.
96. Furthermore, two parts of categories (i.e. sub-categories) will also be freed from restraints;
sub-category 4.1 affecting 17 WTO Members and s ub-category 8.1, also affecting 17 WTO Members.
It should be also noted that as a result of "ex-quota treatment" provided by Canada from
1 January 199862, specific parts under categories 7 and 14, as well as under sub-categories 4.1 and 8.1
had already been removed from restraints.63
97. It has to be observed, however, that the above overview does not provide a precise and fully
reliable picture on the number of restraints (i.e. specific limits and sub-limits) which would be fully
eliminated as a result of Stage 3 integration, because the system of restraints applied by Canada is, in
most cases, more complex, whereby a single product category or sub-category does not necessarily
cover all the products subject to a specific restraint.  This is largely due to the fact that, in a number ofcases, the specific limits and sub-limits are comprised of merged product categories and sub-
categories.  In an attempt to better understand the implications of the Canadian integration
programme, the TMB further analysed the information provided by Canada, as reflected in Table 1,
by comparing the relevant information contained therein with Canada's detailed notification on the
restraints maintained pursuant to Article 2.1.
64  The TMB is aware that the results of this analysis
should be regarded with caution because the comparison made on the basis of technically complex
notifications can bring about technical errors and cannot, perhaps, reveal certain factual elements
which would be otherwise inherent in the quota system applied by Canada.  This reservation
notwithstanding, this examination led the TMB to conclude that the "List of Categories and WTO
Members:  Product Categories Subject to Full Quota Elimination", as notified by Canada in Table 1incorporates two types of restraints, namely:
                                                     
61 It should be noted that, though listed by Canada in the information provided, Nepal is not a Member
of the WTO.
62 See paragraph 266.
63 See Table 1.
64 See G/TMB/N/62 and Addenda.G/L/459
Page 48
• specific limits and sub-limits, comprised of single or merged categories and sub-
categories which will be fully eliminated, as a result of the implementation of the
Stage 3 integration programme;  and
• specific limits and sub-limits which will only be partially eliminated resulting from
the inclusion in the integration programme of parts of categories or sub-categoriessubject to restraints.
98. The TMB has listed the specific limits to be fu lly eliminated in Table 3, while limits subject
to partial elimination are detailed in Table 4.
65  In this approach, categories and sub-categories listed
in Table 4 constitute an addition to the respective listing (Table 2) provided by Canada.  It should be
noted that Tables 3 and 4 do not include a few aggregate or group restraints which, in the view of the
TMB, would also belong to the group of restraints that will be partially eliminated.  They are thefollowing:
• group limits affecting, inter alia , categories 4.0, 7.0, 8.1, 8.2, 8.3 and 8.4 with respect
to India (categories 4.1, 7.0 and 8.1 will become integrated);
• group level affecting sub-categories 4.1 and 4.2 in relation to Macau, China (sub-
category 4.1 will be integrated);
• group levels affecting, among others, categories 7.0 and 8.0 with respect to Macau,
China (categories 7.0 and 8.1 will be integrated);
• an overall limit (so-called OOA) covering categories 1.0 to 14.0 maintained on
imports from Qatar;
• an overall group limit (categories 1.0, 14.0 and 16.0) affecting Macao, China
(categories 12.0 and 14.0 will be integrated).
Table 3
Specific Limits and Sub-limits, Comp rised of Single or Merged Categories
and Sub-categories to be Fully Eliminated by Canada as a Result of the Implementation
of its Stage 3 Integration Programme
Category/Sub-category/Merged
Categories
Subject to RestraintWTO Members Affected
7.0** Myanmar;  Pakistan
7.0/8.1** Romania;  Sri Lanka*;  Thailand*
7.1, 7.2/8.1** Hong Kong, China*;  Korea*
12.0 Hong Kong, China*;  Qatar;  Philippines;  Sri Lanka;  Swaziland;  Thailand
14.0 Bangladesh;  Hong Kong, China;  Indonesia; Korea;  Malaysia;  Philippines;  Qatar;
Singapore;  Sri Lanka;  Swaziland;  Thailand;  United Arab Emirates
14.1 Philippines
14.6 Romania
*Denotes sub-limits to be fully eliminated, while a part of the respective (broader) specific limits will continue to be
maintained (see also in Table 4)
**Part of the respective category/sub-categories were al ready removed from restraints on 1 January 1998 pursuant to
Article 2.15.
                                                     
65 The TMB requested the Canadian authorities to check the content of Tables 3 and 4.  While Canada
had no comment with respect to Table 3, its proposed adjustments have been taken into consideration in
finalizing Table 4.G/L/459
Page 49
Table 4
Specific Limits and Sub-limits, Compri sed of Single or Merged Categories and
Sub-categories to be Partially Eliminated by Canada Resulting fr om the Inclusion of Parts of Categories or Sub-categories
Subject to Restraints in the Stage 3 Integration Programme
Category/Sub-
category/Merged
Categories
Subject to RestraintPart of the Respective
Category/Sub-category to be
integratedWTO Members Affected
3.0/4.0 4.1** Philippines;  Sri Lanka;  United Arab Emirates
3.2/4.0 4.1** Malaysia; Philippines*;  Romania;  Singapore
3.2/4.1, 4.2 4.1** Bangladesh;  Hong Kong, China;  Pakistan
4.0 4.1** Bulgaria;  Indonesia;  Korea;  Swaziland;  Thailand
7.0/8.0 7.0/8.1** Hong Kong, China;  Indonesia; Malaysia;  Sri Lanka;
Thailand
7.0/8.1, 8.4 7.0/8.1** Bangladesh
7.0/8.1, 8.2, 8.3 7.0/8.1** Korea; Oman;  Qatar;  Philippines;  Singapore;
South Africa;  Swaziland, United Arab Emirates
8.1, 8.2, 8.3 8.1** Pakistan
12.0/13.0 12.0 Korea
*Denotes sub-limit.**Part of the respective category/sub-categories were al ready removed from restraints on 1 January 1998 pursuant to
Article 2.15.
99. Based on the TMB's analysis, as reflected in Tabl es 3 and 4, it would appear that with the
implementation of its Stage 3 integration programme Canada will fully eliminate altogether
27 specific restrictions (limits or sub-limits).  In addition, a number of specific limits or sub-limits
will be partially eliminated.  With respect to this, it is important to note the additional clarifications
provided by Canada, as follows:
• in a communication addressed to the TMB, Canada stated, inter alia , that "the table
[…], entitled 'List of Categories and WTO Members:  Product Categories Subject to
Partial Quota Elimination'[66] indicates those categories from which certain apparel,
yarns, fabric and made-up products will be integrated in the third stage, with the
result that these products will be removed from the coverage of quantitative
restrictions under these categories.  In order to maximize the benefits of this
integration to exporters, the restraint levels for these categories will not be reduced toreflect the removal of these products from the restraint coverage".
• in a subsequent communication, further clarification was provided regarding the
treatment of the restraint level for those cases where one or more categories fall undera group or combined restraint level.  "For example, in some of Canada's bilateral
arrangements, category 7.0 (and hence categories 7.1, 7.2 and 7.3) is grouped orcombined with category 8.0 (and hence categories 8.1, 8.2, 8.3 and 8.4) under one
restraint level covering all these products.  As a result of the third stage of integration,
the products under category 7.0 and category 8.1 will be removed from this restraint
on 1 January 2002, but the remaining products under categories 8.2, 8.3 and 8.4 will
remain subject to restraint.  In all such  instances where a category identified in
[Table 1 of this report] falls under a broader group or combined restraint under a
bilateral arrangement, the restraint level for these group or combined restraints will
not be reduced to reflect the removal from  these restraint level of products in the
categories integrated fully on 1 January 2002 under the third stage of integration, […]
resulting in a de facto  increase in the restraint level, and hence access to the Canadian
market, for the products remaining under restraint during the last phase of the ATC's
                                                     
66 See Table 2 of the present report.G/L/459
Page 50
transition period.  In other words, the same treatment will apply in those instances
where specific products will be removed from restraint under a larger compilation or
aggregate restraint level maintained by Canada".
100. In the light of the above, the TMB observed that while the restraints affecting the categories
or sub-categories listed in Tables 2 and 4 would only be partially removed, the decision of Canada ofnot implementing any (downward) adjustment in the respective restraint levels can provide, to a
varying extent, increased access opportunities in the products that would continue to be subject to
restraint in the respective limits or sub-limits.
67
101. Though it cannot serve as a basis for making a reliable assessment of the potential
significance to trade of the integration of specific limits and sub-limits which would be fully
eliminated as from 1 January 2002, information can be obtained on their respective rate of utilization
during the quota year 2000 (see Table 5).68  It has to be noted, however, that one (if not the major)
limitation which is implied in such indications as a kind of snap-shot, is that it only reflects the
performance realized during one specific calendar year.  As a result, there is no further indication to
the effect as to whether a given percentage of utilization of a given specific limit by a Member in the
year 2000 can or should be mainly attributed to circumstances that prevailed only in that year or
whether they can be a reflection of the continuation of a trend that was started much earlier (and,therefore, to take the extreme situations, the spec ific limits have been continuously and significantly
under utilized, or their respective rate of utilization has been continuously very high).  Another factor
to be kept in mind is the varying size of each specific limit or sub-limit, in absolute terms and relative
to the export potential of the respective Members.
Table 5
Canada
Utilization of the Specific Limits and Sub-limits to be fully eliminated as
a Result of the Implementation of Canada's Stage 3 Integration Programme*
Year 2000
Category/Sub-category/
Merged Categories WTO Member AffectedRate of Utilization **
%
7.0 Myanmar
Pakistan9
5
7.0/8.1 Romania
Sri Lanka
Thailand2
68
97
7.1, 7.2/8.1 Hong Kong, China
Korea95
91
12.0 Hong Kong, China
QatarPhilippines
Sri Lanka
Swaziland
Thailand4
06
24
0
2
                                                     
67 See also paragraph 103.
68 The TMB requested the Canadian authorities to check Table 5.  The Canadian authorities responded
that there were no comments with respect to Table 5.G/L/459
Page 51
Category/Sub-category/
Merged Categories WTO Member AffectedRate of Utilization **
%
14.0 Bangladesh
Hong Kong, China
IndonesiaKorea
Malaysia
Philippines
Qatar
SingaporeSri Lanka
Swaziland
ThailandUnited Arab Emirates55
77
4782
40
18
0
9
49
0
9530
14.1 Philippines 0
14.6 Romania 0
*Source:  Department of Foreign Affairs and International Trade, Ottawa;  website.**Rate of utilization, if applicable, of the specific levels adjusted as a result of using available flexibility provisions .
102. The information regarding the utilization of the specific restraints in the year 2000 reveals
very varying situations.  Based on these indications, the possible impact on trade opportunities would
be nil with respect to sub-categories 14.1 and 14.6, practically non-existent as regards category 7.0
and almost the same can be said in relation to category 12.0.  On the other hand, the specific limit
composed of sub-categories 7.1 and 7.2 and of sub-category 8.1 indicates a very high rate of
utilization.  Therefore, the potential significance to trade  of integrating all the products falling underthese sub-categories appears to be important for the two WTO Members (Hong Kong, China;  Korea)
affected.  The integration of category 14.0 products apparently would not have any impact on the
trading interests of Members having zero or very low rate of utilization (Qatar;  Swaziland;
Singapore; United Arab Emirates);  for a group of other Members, with slightly below or above
50 per cent of utilization, the potential impact of integration cannot be assessed, whereas thesignificance to trade  can be of some importance for Members with a relatively high rate of utilization,
such as Hong Kong, China;  Korea and Thailand.  This also applies to Thailand as far as integration of
category 7.0/8.1 products is concerned.
103. The TMB has neither sufficient information at its disposal, nor the necessary analytical tools
to conduct a detailed examination, limit-per-lim it, of the potential impact on the WTO Members
affected in terms of increased opportunities for access to the Canadian market in those cases when, as
a result of partial integration, parts of specific limits will be lifted, while restraints will continue to be
applied on other products falling under the same specific limits (since these latter products will not be
integrated).  It is important to recall in this regard the decision notified by Canada to keep the level of
the remaining respective restraints unchanged and, ther efore, not to reduce them with reference to the
fact that their product coverage will be reduced.  It would appear that the potential impact or, to put it
differently, the potential significance to trade of partial integration, coupled with maintaining the samerestraint level for the products that will continue to fall under restriction should be assessed case by
case.  However, a few observations of a more general nature can be made.  First, the relative share or
significance of the imports of products to be integrated from a broader specific limit seems to be of
crucial importance:  when this share is modest, the potential significance to trade of both integration
and keeping the restraint level unchanged, would be, in all likelihood, also relatively modest.  In theopposite case (i.e. when imports of products to be integrated represent a relatively high share of the
broader restraint level), the potential impact can also be important for trade in products which will
continue to remain under restraint.  With respec t to this latter situation, the assessment may become
more nuanced if information on the rate of utilizat ion of the respective specific limits can also be
brought into the picture.  The potential significance to  trade  would appear to be the greatest in those
cases when the rate of utilization of parts of limits to be integrated and also of the other part which
would not be integrated is relatively high, or when the restraint level corresponding to the part of limitG/L/459
Page 52
to be integrated is under utilized, while the remaining part is highly utilized.  It would appear that the
decision of Canada not to adjust downward the respective restraint levels could bring about a real
increase in access opportunities in some cases, when the ability and capacity of producing and
exporting more is assured and keeping the restraint levels unchanged amounts to a one-time
significant increase in access opportunities for the respective products remaining under restriction.
(ii) European Community
104. In its reply to the TMB's request for information, the European Community provided a table
showing the impact of the EC's Stage 3 integration programme on the quantitative restrictions
maintained under Article 2.1, together with a listing of the WTO Members affected.  This table is
reproduced as Table 6 in the present report.  The TMB observed that the EC quota system was
relatively simple and transparent, in which th e specific restraints applied fully covered and
corresponded to the products falling under the respective product categories.  As noted earlier69, 11
product categories, which are at present subject to restraints, would be integrated in full, affectingaltogether nine WTO Members.  No parts of restrict ions would be integrated.  Therefore, based on the
indications contained in Table 6, it would appear that, as a result of the implementation of its Stage 3
integration programme, the European Community woul d eliminate altogether 37 specific restraints on
1 January 2002.
Table 6
Quantitative Restrictions Affected by EC Third Stage of Integration
(as notified by the European Community)
Category Product Descripti on WTO Members affected
10 Gloves, mittens and mitts, knitted or crocheted Hong Kong, China; Philippines;
Korea; Thailand
18 Men's or boys' singlets and other vests, underpants, briefs,
nightshirts, pyjamas, bathrobes, dressing gowns and similar
articles, other than knitted or croc heted.  Women's or girls' singlets
and other vests, slips, petticoats, briefs, panties, nightdresses,pyjamas, negligees, dressing gowns and similar articles, other than
knitted or crochetedHong Kong, China; Macau, China;
Pakistan; Korea
21 Parkas;  anoraks, windcheaters, waister jackets and the like, other
than knitted or crocheted, of wool, of cotton or of man-made fibres;
upper parts of tracksuits with lining, other than category 16 or 29,
of cotton or of man-made fibresHong Kong, China; Indonesia;
Macau, China; Philippines; Korea;
Sri Lanka; Thailand
24 Men's or boys' nightshirts, pyjamas, bathrobes, dressing gowns
and similar articles, knitted or crocheted.
Women's or girls' nightdresses, pyjamas, negligees, dressing
gowns and similar articles, other than knitted or crochetedHong Kong, China; India; Macau,
China; Korea; Thailand
27 Women's or girls' skirts, including di vided skirts Hong Kong, China; India; Macau,
China; Korea
32 Woven pile fabrics and chenille fabrics (other than terry towelling or
terry fabrics of cotton and narrow woven fabrics) and tufted textile
surfaces, of wool, of cotton or of man-made textile fibresHong Kong, China; Korea
33 Woven fabrics of synthetic filament yarn obtained from strip or the
like of polyethylene or polypropylene, less than 3m wide.  Sacks
and bags, of a kind used for the packing of goods, not knitted orcrocheted, obtained from strip or the likeIndonesia; Korea
36 Woven fabrics of continuous artifi cial fibres, other than those for
tyres of category 114Korea
37 Woven fabrics of artificial staple fibres Korea
                                                     
69 See paragraph 83.G/L/459
Page 53
Category Product Descripti on WTO Members affected
68 Babies' garments and clothing accessories, excluding babies'
gloves, mittens and mitts of categories 10 and 87, and babies'
stockings, socks and sockettes, other than knitted or crocheted, ofcategory 88Hong Kong, China; Korea
73 Track suits of knitted or crocheted fabric, of wool, of cotton or of
man-made textile fibresHong Kong, China; Macau, China;
Philippines; Korea; Thailand
105. As observed earlier, no reliable assessment can be made of the potential significance to trade
of the integration during Stage 3 of the product categories which are at present subject to restraints.
Information is, however, accessible regarding the rate of utilization of these restraints during the
year 2000 (see Table 7).70  With all the limitations that such type of information imply71, it can be
observed that the spread of the rates of utilization appears to be very broad:  from 1.35 per cent
(category 24 - Hong Kong, China) up to above 100 per cent (category 21 – Macau, China).  One
would have an overall impression that these restraints were not heavily utilized in the year 2000:  in
28 of the 37 specific restraints concerned, the rate of utilization remained below 50 per cent.  Acategory by category examination would lead to a somewhat more nuanced assessment.  There are a
number of categories for which low utilization is shown, such as categories 18, 32, 37 and 73.  In the
other categories, while for some Members the rates of  utilization of the restraints are relatively low,
for some other Members with a higher utilization rate the same restraint could constitute an
impediment to expand exports, of which some exampl es are category 10:  Philippines 18.26 per cent –
Korea 80.08 per cent;  category 21:  Philippines 10.81 per cent;  Sri Lanka 14.99 per cent – Macau,
China 103.38 per cent;  Hong Kong, China 87.31 per cent.
Table 7
European Community
Quota utilization of the Categories to be Integrated in Stage 3
Year:  2000*
Category WTO Member AffectedQuota
utilization (%)
10 Hong Kong, China
Philippines
Korea
Thailand38.06
18.26
80.08
44.33
18 Hong Kong, China
Macau, China
Pakistan
Korea12.41
41.36
30.51
14.26
21 Hong Kong, China
Indonesia
Macau, ChinaPhilippines
Korea
Sri LankaThailand87.31
64.50
103.38
**
10.81
29.50
14.99
30.51
                                                     
70 The TMB requested the European Community to check the content of Table7.  See footnote * to the
table.
71 See paragraph 101.G/L/459
Page 54
Category WTO Member AffectedQuota
utilization (%)
24 Hong Kong, China
India
Macau, ChinaKorea
Thailand1.35
78.97
89.91
6.97
23.84
27 Hong Kong, China
India
Macau, China
Korea12.40
89.80
39.91
45.46
32 Hong Kong, China
Korea4.34
19.03
33 Indonesia
Korea22.44
42.52
36 Korea 55.41
37 Korea 36.33
68 Hong Kong, China
Korea41.13
52.50
73 Hong Kong, China
Macau, ChinaPhilippines
Korea
Thailand15.35
12.1113.04
18.06
37.52
*Source:  Commission of the European Communities;  DG Trade's SIGL  website.  The European
Community confirms that these utilisation rates reflected use on 26 June 2001.  Small variations
may occur thereafter, where, for example, lic ences notified to the Community authorities as
unused are re-credited to the relevant quotas.
** Working levels following the use of flexibility provisions can be greater than 100 per cent and
are shown separately in the SIGL website.
(iii) Norway
106. Though, as a result of subsequent measures notified pursuant to Article 2.15, Norway no
longer maintains any restrictions under the ATC, it provided information to the TMB on the extent to
which products previously subject to restraints under Article 2.1 had been or would be integrated.This information can be summarized as follows:
• the second stage integration programme included the following products which
earlier, i.e. until 1 January 1996, had been subject to quantitative restrictions:
products in categories 1 (jackets) and 2 (trousers) classified under HS 62.10.40 or
62.10.50.  Affected Members:  Czech Republic;  Hong Kong, China;  Hungary;
India;  Indonesia;  Korea,  Macau, China;  Malaysia;  Pakistan;  Philippines;  Poland;Romania;  Singapore;  Slovak Republic;  Sri Lanka and Thailand;
• the third stage integration programme included the following products which during
part of the two earlier stages had been subject to quantitative restrictions:  products in
categories 1 (jackets) and 2 (trousers) classified under HS 62.04.11, 62.04.12,
62.04.13, 62.04.19, 62.04.21, 62.04.22, 62.04.23, 62.04.29, 62.04.31, 62.04.32,62.04.33, 62.04.39, 62.04.6109, 62.04.6209, 62.04.6309 or 62.04.6909.  Affected
Members:  Czech Republic;  Hong Kong, China;  Hungary;  India;  Indonesia;
Korea;  Macau, China;  Malaysia;  Pakistan;  Philippines;  Poland;  Romania;
Singapore; Slovak Republic;  Sri Lanka;  and Thailand.  These products were
liberalized in three steps, i.e. 1 January 1996, 1 January 1998 or 1 January 1999.G/L/459
Page 55
107. By integrating these latter products during Stage 3, Norway renounced the right to invoke the
provisions of the transitional safeguard mechanism with respect to them as of 1 January 2002.
(iv) United States
108. For its part, in reply to the request for clarifications by the TMB, the United States provided a
chart listing the restrictions applicable to WTO Members affected by the third stage integration
programme (reproduced as Table 8 of the present report).  Since this chart did not specify whether, ina given category, the restraints maintained on imports from a Member were specific limits or group
(aggregate) limits (or eventually both), the TMB de cided to seek further information in the form of
separate tables listing specific limits and WTO Members affected on the one hand, and group or
aggregate limits and Members affected on the other.  The United States subsequently provided this
information, as requested.
72
Table 8
Restrictions Applicable to WTO Members Affected by the US' Third Stage of Integration
(as notified by the United States)
Product
GroupingTextile
CategoryBrief Description WTO Members
Apparel 331 Knit Gloves Bahrain, Bangladesh, Brazil, Hong Kong, India, Indonesia, Jamaica, Korea, Malaysia, Pakistan,
Philippines, Singapore, Sri Lanka, Thailand
Apparel 350 Robes & Dressing Gowns Bahrain, Brazil, Haiti, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines,
Romania, Sri Lanka, Thailand, Turkey
Apparel 359 Headwear Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Romania, Thailand
Apparel 359 Knit Neckwear Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Romania, Thailand
Apparel 359 Martial Arts Uniforms Bahrain, Brazil, Hong Kong, India, Indonesia, Malaysia, Philippines, Romania, Thailand
Apparel 359 Shawls & Scarves Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Romania, Thailand
Apparel 359 Pantyhose & Tights Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Romania, Thailand
Apparel 431 Gloves Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 459 Body Supporting Garments Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 459 Knit Neckwear Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 459 Shawls & Scarves Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 459 Pantyhose & Tights Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 631 Knit Gloves Bahrain, Brazil, Hong Kong, India, Indonesia, Jamaica, Korea, Malaysia, Pakistan, Philippines,
Singapore, Sri Lanka, Thailand
Apparel 649 Bra's & Body Supporting
GarmentsBahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 650 Robes & Dressing Gowns Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Sri Lanka, Thailand
Apparel 659 Knit Neckwear Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 659 Shawls & Scarves Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 659 Pantyhose & Tights Bahrain, Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 831 Gloves Bahrain, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 833 Coats and Jackets Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Romania, Thailand
Apparel 834 Coats and Jackets Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 835 Coats and Jackets Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Romania, Sri
Lanka, Thailand, UAE
Apparel 836 Dresses Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Sri Lanka, Thailand
Apparel 838 Shirts and Blouses Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Sri Lanka, Thailand
                                                     
72 See G/TMB/N/360/Add.2.  Since this notification comprised of 10 pages (only the tables), and as the
TMB decided to further analyse the information contained therein, this chart is not reproduced in this report.G/L/459
Page 56
Product
GroupingTextile
CategoryBrief Description WTO Members
Apparel 840 Shirts and Blouses Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Romania, Sri
Lanka, Thailand
Apparel 842 Skirts Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Sri Lanka, Thailand
Apparel 843 Suits Bahrain, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 844 Suits Bahrain, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 847 Trousers Bahrain, Bangladesh, Burma, Hong Kong, India, Indonesia, Korea, Macau, Malaysia,
Philippines, Sri Lanka, Thailand, UAE
Apparel 850 Robes & Dressing Gowns Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 851 Nightwear Bahrain, Hong Kong, India, Indonesia, Korea, Macau, Malaysia, Philippines, Thailand
Apparel 858 Neckwear Bahrain, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 859 Shawls & Scarves Bahrain, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 859 Pantyhose & Tights Bahrain, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Apparel 859 Bra's & Body Supporting
GarmentsBahrain, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Fabric 222 Knit Fabric Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore
Fabric 223 Non-woven Fabric Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines
Fabric 621 Impression Fabric Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines
Fabric 622 Glass Fibre Fabric Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines
Fabric 810 Silk Blend and Vegetable-fibre
Fabric
Made-ups 369 Luggage Brazil, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Romania, UAE
Made-ups 369 Bar-mops Brazil, Hong Kong, Indonesia, Korea, Malaysia, Pakistan, Philippines, Romania, UAE
Made-ups 369 Brazil, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Romania, UAE Except made-ups included inStage 2 and pillow covers,
knitted table linen, shop towels
and dishcloths
Made-ups 464 Blankets Brazil, Hong Kong, Indonesia, Korea, Macau, Malaysia, Philippines
Made-ups 469 Brazil, Hong Kong, Indonesia, Korea, Macau, Malaysia, Philippines Except made-ups included in
Stage 2 and bed linen
Made-ups 666 Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Romania Except made-ups included in
Stage 2 and bed linen
Made-ups 669 Bags Brazil, Hong Kong, India, Korea, Malaysia, Philippines, Thailand
Made-ups 669 Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines Labels, sacks, tar paulins,
awnings, tents, cords, laces andneedlecraft sets
Made-ups 670 Luggage Brazil, Hong Kong, India, Korea, Malaysia, Philippines
670 Flatgoods, handbags Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines
Made-ups 870 Luggage Korea
Made-ups 871 Luggage
Yarn 600 Textured Filament Yarn Hong Kong, India, Korea, Malaysia, Philippines
Yarn 606 Non-textured Filament Yarn Hong Kong, India, Indonesia, Korea, Malaysia, Philippines
Yarn 607 Staple Fibre Yarn Brazil, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Thailand
Yarn 800 Silk Blend and Vegetable-fibre
Yarn
109. As was also the case with Canada73, the detailed information in the charts provided by the
United States did not permit the identification of those specific restraints which would be fully
eliminated as a result of the implementation of the US' Stage 3 integration programme.  This stemmed
from the complex nature of the system of restraints maintained by the United States;  in a number of
                                                     
73 See paragraph 97.G/L/459
Page 57
cases, the products covered by a category correspond fully to a specific restraint applied, while in an
important number of other cases they do not.  The main reason for this is that, in several instances, a
specific restraint is composed of merged categories, of which only one or a few would be integrated,
while the restraints would continue to be applie d with respect to the other(s).  In addition, the
United States would also integrate certain parts of single categories, resulting in a partial elimination
of the restrictions concerned.  In an attempt to better understand the implications of the US'sintegration programme, the TMB further analysed the information provided by the United States, by
comparing it with the detailed notifications submitted by the United States on the restraints
maintained under Article 2.1.
74  As a result, with all the caution mentioned and reservations made in
relation to the similar examination of the effects of the Canadian integration programme75, the TMB
came to the view that the impact of the implementation of the US's Stage 3 integration programme
would result in four types of different situations, as follows:76
• in a number of cases, specific limits comprised of single or merged product categories
would be fully eliminated (listed in Table 9);
• in several other cases, specific limits would be partially lifted, as a result of
integrating certain categories from broader merged categories subject to restraints
(see Table 10);
• in a few cases, specific limits would be partially eliminated because parts of the
respective categories, subject to restraints, would become integrated (listed in
Table 11);
• in an important number of cases, broader (aggregate or group) limits would continue
to be maintained, but their product coverage would be reduced by the exclusion of therespective products which would become integrated.
Table 9
Specific Limits Comprised of Single or Merged Categories to be Fully Eliminated
by the United States as a Result of the Implementation of its Stage 3 Integration Programme
Category/Merged
Categories
Subject to RestraintBrief Product Description WTO Members Affected
222 Knit fabric Singapore
350 Robes and dressing gowns Brazil*; Haiti; Hong Kong, China*; Korea*;
Philippines; Romania; Turkey
350/650 Robes and dressing gowns Indonesia; Malaysia; Sri Lanka
350/850 Robes and dressing gowns Macau, China
359H Headwear Korea*
369D Dishtowels Brazil*; India; Sri Lanka; Thailand
369F Cotton dishtowels Pakistan
431 Gloves Philippines
607 Staple fibre yarn Brazil*; Korea*; Thailand
649 Bras and body supporting garments Hong Kong, China*; Philippines
650 Robes and dressing gowns Hong Kong, China*; Korea*; Philippines
669 Bags Brazil*; Korea*; Thailand
834 Coats and jackets Hong Kong, China*
835 Coats and jackets Hong Kong, China*; Korea*; Malaysia**
836 Dresses Hong Kong, China*
                                                     
74 See G/TMB/N/63 and Addenda.
75 See paragraph 97.
76 The TMB requested the United States to check the content of Tables 9, 10 and 11.  No answer was
received from the United States.G/L/459
Page 58
Category/Merged
Categories
Subject to RestraintBrief Product Description WTO Members Affected
840 Shirts and blouses Hong Kong, China*; Sri Lanka
842 Skirts Hong Kong, China*
847 Trousers Bangladesh; Hong Kong, China*; Indonesia;
Philippines; United Arab Emirates
*Broader (aggregate or group) limit s will continue to be applied for products not to be integrated.
**Denotes a sub-limit.
110. It was the TMB's view that providing a listing of the products falling under the last category
(aggregate or group limits) would not bring about much more clarity, therefore, it refrained from
including such a chart in the report.  It noted, however that:
• while, in several cases, the products to be integrated fell, at the same time, both under
specific limits and aggregate or group limits;
• in a number of other cases, only aggregate or group limits affected the respective
products which would be integrated during Stage 3.
111. On the basis of the analysis made by the TMB, it would appear that altogether 43 specific
limits would be fully eliminated by the United States on 1 January 2002, as a result of the
implementation of its Stage 3 integration programme (see Table 9).
Table 10
Specific Limits to be Partially Eliminated by the United States Resulting from the
Inclusion in the Stage 3 Integration Programme of Certain Categories from Broader
Merged Categories Subject to Restraints
Category(ies)
Subject to Specific RestraintCategory(ies) to be
IntegratedWTO Members Affected
333/833 833 Romania
333/334/335/
833/834/835833, 834, 835 Macau, China
333/334/335/835 835 Malaysia
335/635/835 835 Thailand;  United Arab Emirates
335/835 835 Mauritius; Romania, Sri Lanka
336/636/836 836 Sri Lanka
336/836 836 Macau, China
341/840 840 Romania
342/642/842 842 Malaysia;  Sri Lanka
347/348/847 847 Macau, China;  Sri Lanka;  Thailand*
351/851 851 Macau, China
359H/659H 359H Thailand
443/444/643/644/
843/844843, 844 Hong Kong, China*
638/639/838 838 Macau, China;  Sri Lanka
641/840 840 Macau, China
642/842 842 Macau, China
647/648/847 847 Mauritius
*Also subject to aggregate or group limits.G/L/459
Page 59
Table 11
Specific Limits to be Partially Eliminated by the United States Resulting from the
Inclusion in the Stage 3 Integration Programme of Parts of Categories Subject to Restraints
Category Subject
to RestraintPart of the Respective Category
to be Integrated
(brief product description)WTO Members Affected
331 Cotton gloves (only knitted) Bangladesh; Haiti; Hong Kong, China; Indonesia;
Jamaica; Malaysia; Pakistan; Philippines;Singapore; Sri Lanka; Thailand
359 Cotton pantyhose and tights, shawls and
scarvesKorea*; Romania*; Thailand*
369 [Cotton] dishtowels, luggage, knitted table
linen, shop towels and dish clothsPakistan; Romania; United Arab Emirates
631 Man-made fibre gloves (only knitted) Hong Kong, China*; Indonesia; Jamaica; Korea*;
Malaysia; Pakistan; Philippines; Singapore;
Sri Lanka; Thailand*
666 Furnishings, except bed sheets, pillow
cases and certain linenRomania
*Also subject to aggregate or group limits.
112. In view of the relatively significant number of products under restrictions which would be
subject to partial integration (as reflected in Tables 10 and 11, as well as in the number of group oraggregate limits), it is of particular relevance to get indications on the extent to which the levels of the
respective remaining restraints would be affected as a result of integration of well specified parts of
their present product coverage.  As indicated earlier
77, in reply to the question posed by the TMB in
this regard, the United States stated that it "[would] be in contact with [its] textiles agreement partners
during the course of this year [i.e. 2001], concerning the effects of integration in the year 2002 onspecific, group and aggregate limits.  Adjustment to limits will be based on trade that [had] occurred
in the products to be integrated, and [the United States'] agreements partners would be given the
opportunity to consult with [the United States] on this issue".
113. As was the case with Canada and the European Community, information could also be
obtained on the rate of utilization in the year 2000 of those specific limits which would be completely
phased out by the United States as a result of the implementation of its Stage 3 integration
programme.  This information is contained in Table 12
78 of the present report.  Keeping again in mind
the reservations made and the limitations already referred to earlier79, a brief examination of this table
would indicate that the spread of the respective rates of utilization was wide, ranging from 0 per cent
up to 100 per cent.  In a few instances (category 607:  Brazil and Korea;  category 835:  Malaysia) no
imports took place at all;  in some other categories the utilization was very low (e.g. category 222);
while in some other categories low utilization by some Members is opposed to high rates of utilizationby others (for example, category 350:  Romania 4.0 per cent – Philippines 87.5 per cent;
category 369D;  Sri Lanka 14.6 per cent – India: 85.5 per cent;  category 669-P:  Korea 4.1 per cent –
Thailand 75.7 per cent;  category 847:  Philippines 20.3 per cent – Bangladesh:  100.0 per cent).  Out
of the 43 specific limits, in 21 cases the utilization was below 50 per cent;  in 13 cases between 50 to
75 per cent;  in 8 cases above 75 per cent (in one case no indication could be obtained).
                                                     
77 See paragraph 85.
78 The TMB requested the United States to check the content of Table 12. No answer was received
from the United States.
79 See paragraph 101.G/L/459
Page 60
Table 12
Rate of Utilization of the Specific Limits to be Fully Eliminated by the United States
as a Result of the Implementation of its Stage 3 Integration Programme
Year 2000*
Category/Merged
Categories Subject
to RestraintBrief Product Description WTO Mem ber Affected Quota Utilization
222 Knit fabric Singapore 13.5
350 Robes and dressing gowns Brazil 34.5
Haiti n.a
Hong Kong, China 78.3
Korea 67.9
Philippines 87.5
Romania 4.0
Turkey 96.5
350/650 Robes and dressing gowns Indonesia 71.3
Malaysia 42.0
Sri Lanka 82.9
350/850 Robes and dressing gowns Macau, China 59.9
359-H Headwear Korea 27.6
369-D Dishtowels Brazil 32.5
India 85.5
Sri Lanka 14.6
Thailand 65.0
369-F Cotton dishtowels Pakistan 70.4
431 Gloves Philippines 18.1
607 Staple fibre yarn Brazil 0.0
Korea 0.0
Thailand 20.4
649 Bras and body supporting
garmentsHong Kong, China 69.0
Philippines 35.8
650 Robes and dressing gowns Hong Kong, China 48.1
Korea 67.4
Philippines 92.5
669-P Bags Brazil 12.1
Korea 4.1
Thailand 75.7
834 Coats and jackets Hong Kong, China 14.3
835 Coats and jackets Hong Kong, China 50.3
Korea 24.2
Malaysia 0.0
836 Dresses Hong Kong, China 58.0
840 Shirts and blouses Hong Kong, China 68.7
Sri Lanka 61.2
842 Skirts Hong Kong, China 12.7
847 Trousers Bangladesh 100.0
Hong Kong, China 57.9
Indonesia 64.9
Philippines 20.3
United Arab Emirates 25.3
*Source:  US Customs website – Quota inform ation, Textiles Status report dated 31.12.2000.G/L/459
Page 61
(b) Integration programmes of Members which had retained the right to use the provisions of
Article 6
114. As explained earlier, integration programmes of Members, other than those which took over
restraints from the pre-ATC regime, are relevant in the context of their retention of the right to have
recourse to the provisions of the transitional safeguard mechanism of the ATC.  Even in this narrow
context, the manner in which the scope of the produc ts to be included in the respective integration
programmes was defined can be of some importance.  Without trying to provide a detailed analysis of
the individual integration programmes (which are ve ry much different in most respects), one would
observe that essentially two basic approaches were followed by the Members concerned and that this
was done consistently for the consecutive stages of integration.  One approach, adopted by a number
of Members, was to include only very few products, corresponding to a limited number of HS lines in
the respective programmes, including those related to Stage 3.  This approach was apparently
preferred by those Members whose total imports in the base year (i.e. in most cases 1990) appeared tobe heavily concentrated on a few items.  Therefore, including only one or two products for each of the
four main product groups could fully meet the requirements defined in Article 2.8(b), since the
volume of imports in products to be integrated amounted to not less than the 18 per cent threshold
requirement.  The other approach, followed by several Members, consisted of long and diversified
lists of products to be integrated.  The main reason for adopting this latter approach could be the moredispersed nature of imports in the base year, resulting in the need of including many products in the
respective lists of integration in order to ensure that the imports of the items covered added up to not
less than the threshold requirement.  The main difference between these two basic approaches, in
terms of their potential impact for the period covered by the third stage of the integration process, is
that, in the first case, the universe of products that can be subject to measures under Article 6 is stillextremely broad, while in the other case, it is much more narrowed down (though this has to be
assessed against the particular tariff structure of the Members concerned).  However, the limited and
sparing use of the transitional safeguard mechanism by most of these Members, up to now, would
indicate that this difference in the potential impact is more theoretical than real.
III. APPLICATION OF THE TRANSITIONAL SAFEGUARD MECHANISM
115. This Chapter describes all the developments which followed each of the requests for
consultation made by Members pursuant to Article 6 of the ATC since the TMB's adoption of the first
comprehensive report, i.e. as from 25 July 1997.  Actions pursuant to Article 8 or within the broader
WTO framework such as the Dispute Settlement Understanding (DSU), which might have followedArticle 6 actions, are also included in the overview provided below.
116. Article 6 of the ATC provides for the possibility of applying transitional safeguard measures
on imports of products covered by the ATC and not yet integrated into GATT 1994 that cause serious
damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive
products.  Article 6.1 specifies that the transitional safeguard should be applied as sparingly as
possible, consistently with the provisions of Article 6 and the effective implementation of the
integration process under the ATC.  According to Article 6.7, "the Member proposing to takesafeguard action shall seek consultations with the Member or Members which would be affected by
such action".  Such consultations may result, if no agreement is reached, in a restraint measure being
applied unilaterally by the importing Member under Article 6.10, or in a restraint measure being
agreed between the parties and notified under Article 6.9.  Also, as a result of such consultations, the
importing Members may decide not to introduce the safeguard measure envisaged.  In cases where arestraint measure is introduced unilaterally, the TMB shall, according to Article 6.10, "promptly
conduct an examination of the matter, including the determination of serious damage, or actual threat
thereof, and its causes, and make appropriate recommendations to the Members concerned within
30 days".  In cases where a measure is agreed between the Members, Article 6.9 states that "the TMB
shall determine whether the agreement is justif ied in accordance with the provisions of thisG/L/459
Page 62
Article ...  The TMB may make such recommendations as it deems appropriate to the Members
concerned".  In addition, Article 6.11 provides that "in highly unusual and critical circumstances,
where delay would cause damage which would be difficult to repair, action under paragraph 10 may
be taken provisionally on the condition that the request for consultations and notification to the TMB
shall be effected within no more than five workin g days after taking the action".  In such cases, if
consultations do not produce agreement, the TMB shall promptly conduct an examination of thematter, and make appropriate recommendations to the Members concerned within 30 days of the
notification of the conclusion of consultations.  If consultations do produce agreement, such
agreement shall be notified to the TMB by the Members concerned, to which the TMB may make
such recommendations as it deems appropriate.
117. Articles 6.2, 6.3 and 6.4 establish parameters for taking safeguard action under the ATC.
These parameters have to be considered by the Members and by the TMB in assessing the conformity
of an action with the ATC.  Article 6.2 relates to the determination by a Member, and itsdemonstration to the Member or Members concerned, and eventually to the TMB, that a particular
product is being imported into its territory in such increased quantities as to cause serious damage, or
actual threat thereof, to the domestic industry producing like and/or directly competitive products.
Serious damage or actual threat thereof must demonstrably be caused by such increased quantities in
total imports of that product and not by such other factors as technological changes or changes inconsumer preference.  Article 6.3 specifies that in making a determination of serious damage, or
actual threat thereof, the Member invoking the provis ions of Article 6 has to examine the effect of the
increased quantities of total imports on the state of the particular industry, as reflected in changes in
the economic variables listed in the same provision.  Article 6.4 outlines circumstances under which
such serious damage, or actual threat thereof, can be attributed to imports from certain Members.
118. Article 8.9 states that "Members shall endeavour to accept in full the recommendations of the
TMB, which shall exercise proper surveillance of the implementation of such recommendations".
However, Article 8.10 provides the possibility to a Member which "considers itself unable to conform
with the recommendations of the TMB", to "provide the TMB with the reasons therefor not later than
one month after receipt of such recommendations.  Following thorough consideration of the reasonsgiven, the TMB shall issue any further recommendations it considers appropriate forthwith. If, after
such further recommendations, the matter remains unresolved, either Member may bring the matter
before the Dispute Settlement Body and invoke paragraph 2 of Article XXIII of GATT 1994 and the
relevant provisions of the Dispute Settlement Understanding".
A. 
THE APPLICATION OF THE TRANSITIONAL SAFEGUARD MECHANISM DURING THE PERIOD
COVERED BY THE TMB 'S FIRST COMPREHENSIVE REPORT :  A BRIEF OVERVIEW
119. During this period (i.e. from 1 January 1995 to 24 July 1997), the TMB received notification
of 33 requests for consultation pursuant to Article 6, comprising 26 by the United States under
Article 6.7 and seven by Brazil under Article 6.11.  Of the 26 requests made by the United States, 24
were made in 1995 (on products imported from Brazil; Colombia; Costa Rica; Dominican Republic;
El Salvador; Guatemala; Honduras; Hong Kong; India;  Jamaica; Philippines; Sri Lanka; Thailand and
Turkey), one in 1996 ( vis-a-vis  El Salvador) and one in 1997 (on products imported from Pakistan).
Twelve resulted in restraint measures being agreed either during the consultation period, prior to, or
during the review of the measure by the TMB (in addition, one restraint measure was agreed after the
TMB had completed its review of the action pursuant to Article 6.10).  In two cases, the United States
eventually decided not to apply a safeguard measure.  Five unilaterally applied measures were
dropped by the United States before their review by the TMB, and an additional one during thereview.  The TMB, therefore, completed the review of seven safeguard measures applied under
Article 6.10 by the United States.  In three of the seven measures, the Members affected by the
application of the restraints subsequently requested the establishment of dispute settlement panels.
The Dispute Settlement Body (DSB) established the pa nels pursuant to these requests.  In two cases,
the reports of the panels and the related reports of the Appellate Body were adopted by the DSB,G/L/459
Page 63
while in the third case, the importing Member decided to remove the restraint, and the complainant
requested the termination of the panel proceedings.  As to the restraints agreed between the
United States and the Members concerned, the United States rescinded three restraints before their
review scheduled by the TMB.  Thus, the TMB reviewed ten agreed restraints notified pursuant to
Article 6.9.80
120. Brazil made seven requests for consultation under Article 6.7, in June 1997, with respect to
imports of six product categories (two requests on imports from Hong Kong, five on imports from
Korea), at the same time introducing provisional safeguard measures pursuant to Article 6.11.  Brazil
and Korea reached an agreement on the measures introduced by Brazil.  The agreement related to all
five product categories in question and was reviewed by the TMB.  The TMB also completed its
review of the two remaining unilateral measures  introduced by Brazil on imports from Hong Kong.81
121. In addition, the TMB considered a notification by Korea of safeguard measures applied by
Ecuador with reference, inter alia , to the provisions of Article 6 against imports from Korea and
Hong Kong.82
B. APPLICATION OF THE TRANSITIONAL SAFEGUARD MECHANISM DURING THE SECOND STAGE
OF THE INTEGRATION PROCESS83 INCLUDING RELATED DEVELOPMENTS IN THE DSB
122. During the second stage, the TMB received notification of 29 requests for consultations
pursuant to Article 6.7 or 6.11, ten in 1998, 18 in 1999 and one in 2001.  No such recourse was madein 2000.
123. The United States made one request for consultation, pursuant to Article 6.7, during the
second stage of integration, in 1998.  This request related to certain products imported from Pakistan
and resulted in the unilateral application of a safeguard action pursuant to Article 6.10, which the
TMB reviewed under that provision, and, subsequently, also pursuant to Article 8.10.  In addition, arequest made by the United States during Stage 1 (in August 1997) is included below since it could
not be dealt with in the Body’s first comprehensive report. This request for consultation was made on
certain products imported from Thailand and resulted in the introduction of a restraint measure agreed
between the United States and Thailand pursuant to the provisions of Article 6.9.  The TMB reviewed
this agreed restraint measure pursuant to that provision.
124. Colombia made nine requests for consultation, pursuant to Article 6.7, in 1998, on imports of
denim fabric from Brazil; Chile; India; Peru and Venezuela and on imports of plain polyester
filaments from Korea, Malaysia, Thailand and the United States.  In five cases, Colombia decided not
to introduce a safeguard measure;  whereas, in four cases, it introduced safeguard measures
unilaterally, which the TMB reviewed in accordance with the provisions of Article 6.10.
125. Poland made one request for consultation pursuant to Article 6.7, in 1999, on certain products
imported from Korea but eventually decided not to apply a safeguard measure. In April 2001, Poland
requested consultations under the same Article on certain products imported from Romania.
126. Argentina made four requests for consultations pursuant to Article 6.7, in 1999, on imports of
products from Indonesia, Korea (two products) and Malaysia.  In those four cases, Argentina decided
not to apply a safeguard measure.  In addition, Argentina had recourse in 13 instances, in 1999, to the
provisions of Article 6.11 (referring to highly unusual and critical circumstances, where delay wouldcause damage which would be difficult to repair), introducing safeguard measures provisionally on
                                                     
80 See G/L/179, paragraphs 89 to 146.
81 See G/L/179, paragraphs 147 to 165.
82 See G/L/179, paragraphs 166 to 170.
83 Including all requests for consultations made pursuant to Article 6.7 since the adoption of the TMB's
first comprehensive report.G/L/459
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certain imports from Korea (3 products), Brazil (5 products) and Pakistan (5 products), at the same
time as requesting consultations with the respective Members and notifying the TMB of its actions.
The TMB, therefore, completed the review of these 13 safeguard measures.
1. Application by the United States
(a) Imports of artificial staple fibre yarn (US category 603) from Thailand
127. At the end of August 1997, the United States requested consultations with Thailand pursuant
to Article 6.7.  Consultations produced agreement that the situation called for a restraint, for a three-
year period, on imports of yarn for sale, 85 per cent or more by weight artificial staple fibre
(US category 603) from Thailand.  The agreed restraint was notified by the United States pursuant to
Article 6.9, which the TMB reviewed at its meeting in April 1998.
128.  While examining the specific and relevant factual information made available, pursuant to
Article 6.7, by the United States to Thailand at the time it had requested consultations, the TMB
observed that considerable efforts had been made by the United States to match the data as closely aspossible to the requirements of Articles 6.2, 6.3 and 6.4.  With regard to the definition of the domestic
industry producing like and/or directly competitive products, however, the TMB observed that yarn
85 per cent or more by weight artificial staple fibre was produced in the United States both by the
domestic industry producing yarn for sale and by vertically integrated firms engaged in the production
of fabric for which this yarn was an input.  In the relevant factual information, provided pursuant to
Article 6.7, the United States had not given information on those vertically integrated firms.
129. The TMB sought additional information from the United States on the extent to which the
vertically integrated firms that produce artificial staple fibre yarn internally, for their own
consumption, also bought or sold such yarn on the commercial market during the period under
consideration.  The TMB also sought information on the relative sizes of the vertically integratedsector and of the sector that produced yarn for sale.  The United States responded that since integrated
mills had tried to balance their production as closely as possible at each stage of the production
process, it was estimated that less than 5 per cent of the integrated sector’s yarn consumption was
purchased from the "for sale" market.  Vertica lly integrated companies produced yarn that was
consumed internally and made into fabric; the fabric, not the yarn, was what these companies sold.As to the relative sizes of the two sectors, th e TMB noted that, according to the United States,
production of category 603 yarn for sale had amounted to 58.1 million pounds in 1996, while
integrated mills had produced and consumed 78.4 million pounds of artificial staple fibre yarn.
130. The TMB observed, on the one hand, that Article 6 gave the possibility to provide safeguard
to an industry, and not to part of an industry, producing a particular product, and that the artificialstaple yarn produced by both the "yarn for sale" producers and by the vertically integrated firms could
be substitutable.  On the other hand, the TMB noted that, in this particular case, the yarn produced by
the vertically integrated firms was not sold in the "yarn for sale" market in competition with the yarn
produced by the "yarn for sale" producers.  Instead, the vertically integrated firms produced yarn for
their own use only, and also purchased a small amount of yarn from the "for sale" market.
131. As far as the imports of products of category 603 were concerned, the TMB noted that they
were substitutable for both the artificial staple yarn produced by the "yarn for sale" producers and forthat produced by the vertically integrated firms.  The TMB further noted that the status of competition
between the imports of category 603 products and the yarns produced by the two domestic sources, in
particular the extent to which imports could affect purchases of the vertically integrated firms, could
not be accurately assessed, owing to the lack of da ta that would show trends over a period of time.
However, the TMB observed that the vertically integrated firms did not sell the yarn they produced onthe domestic market, and it could be contended that their production did not compete directly with
imports on the US’ "yarn for sale" market. The TMB also noted that category 603, defined as yarn forG/L/459
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sale, 85 per cent or more by weight artificial staple fibre, had not been constructed specifically in the
context of this request for consultation but had been part of the US categorization system for many
years. Based on information presented to the TMB, the Body understood that the segment of the
industry represented by the vertically integrated firms was relatively stable and independent of
developments in the "yarn for sale" market.  Any evidence of serious damage caused by imports
would, therefore, reflect essentially the situation in the domestic industry producing yarn for sale,
85 per cent or more by weight artificial staple fibre.
132. The TMB observed that the volume of imports into the United States from all sources of
category 603 products had increased in 1996, and had continued to increase in the first half of 1997,
albeit  at a slower pace.  With respect to certain of the economic variables mentioned in Article 6.3,
the TMB observed that their evolution from 1995 to the first quarter of 1997, such as the declining
domestic production of artificial staple yarn for sale, the reduction in the share of the market held by
domestic manufacturers of yarn for sale, the decrease in employment and in capacity utilization, theinventory build-up and the pressure put on domestic prices by import prices, indicated that the US
industry producing yarn for sale, 85 per cent or more by weight artificial staple fibre was experiencing
problems as a result of increased imports.  On the other hand, some other economic variables, in
particular, the evolution of average wages per worker and the increase in productivity could point in a
different direction.  The TMB, while noting that none of these factors, either alone or combined withother factors, could necessarily give decisive guidance, and that, according to the specific and relevant
factual information made available pursuant to Article 6.7 by the United States, the damage could not
be attributed to such other factors as technological changes or changes in consumer preference,
concluded that, taking into account all the elements mentioned above, the circumstances described in
Article 6.2 had been observed in the United States market for imports of yarn for sale, 85 per cent ormore by weight artificial staple fibre.
133. The TMB further observed that imports of category 603 products into the United States from
Thailand had increased significantly in 1996, and had continued to increase in the first half of 1997,
so that Thailand had become the second largest supplier to the United States market.  This had taken
place in the context of increased imports from severa l other sources, both restrained and unrestrained,
whose share of overall imports was smaller than that of Thailand, and of declining imports from the
main supplier to the US market, whose imports were not subject to restriction.  Thailand’s exports
were, on average, priced significantly below the US average domestic price, and below the average
price of imports.  The TMB, therefore, considered that the circumstances described in Article 6.2
could be attributed, inter alia , to increased imports from Thailand.
134. The TMB noted that the total level of the agre ed restraint was substantially above the level
envisaged in Article 6.8 (the rollback level) and that the growth provided amounted to 6 per cent
per annum.
135. On the basis of the considerations mentioned above, the TMB concluded that this restraint
measure agreed between the United States and Thailand was justified in accordance with the
provisions of Article 6.
(b) Imports of combed cotton yarn (US category 301) from Pakistan
136. In December 1998, the United States requested consultations with Pakistan, pursuant to
Article 6.7, with respect to imports of products of US category 301 (combed cotton yarn for sale)
from Pakistan. As the consultations did not produce agreement, the United States decided to take a
safeguard action on these imports, under Article 6.10, with effect as from March 1999, and notified
the TMB of this decision.
137. The TMB examined this safeguard measure at its April 1999 meeting with the participation of
representatives of both parties.  During this review, the TMB noted, inter alia , that the particularG/L/459
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product subject to the safeguard measure introduced by the United States was combed cotton yarn
identified as US category 301.  It observed, furthermore, that in terms of its characteristics any
combed cotton yarn was identical, i.e. alike in a ll respects, including common end-uses, with respect
to the particular product subject to the safeguard measure in question.  The United States had defined
the domestic industry producing products like and/or directly competitive with imports of combed
cotton yarn (category 301), as the US industry segment that produced spun yarn for sale, chief weightcombed cotton defined as category 301, sold to other firms for use in the manufacture of fabric and
finished textile products.  It followed from this that the United States had provided information
regarding all the economic variables referred to in Article 6.3 with respect to that segment of the
industry.  As regards the other segment of the US industry producing cotton spun yarn, chief weight
combed cotton, the United States had explained that this segment had been composed of vertically
integrated firms whose yarn did not ordinarily enter normal channels of trade and did not compete
with yarn produced for sale in the open market.  The TMB noted that the United States had providedarguments why, in its view, the combed cotton ya rn production of the vertically integrated mills
should be excluded from the scope of the investigation and, by extension, why it had not provided
data pursuant to Article 6.3 with respect to this segment of production.  The TMB observed, however,
that it would ordinarily be up to the Body, on the basis of the detailed information provided pursuant
to Article 6.7, to determine whether it was justified to exclude a particular segment of production.Therefore, the TMB would have expected to receive, to the extent practicable, sufficient information
to allow it to do so.  In the view of the TMB, th ese issues limited its ability to reach an appropriate
conclusion regarding the determination of whether or not the US’ domestic industry producing like
products and/or products directly competitive with combed cotton yarn (category 301) was
experiencing serious damage or actual threat thereof, as required under Article 6.3.
138. Without prejudice to the above, the TMB decided to proceed to the detailed examination of
the factual information related to the yarn for sale segment of the domestic production.  The TMB
noted in this regard that the United States had provided data on the economic variables, specified in
Article 6.3, on a comparable basis, respectively, for 1996, 1997, and for the periods January-
August 1997 and January-August 1998.  The Body analysed in detail the data and informationprovided with respect to production, inventories, domestic sales, market share, capacity utilization,
employment, wages, productivity, profitability a nd investments, together with the arguments
presented by the representatives of Pakistan and the United States.
139. In making an assessment of its examination of the safeguard action introduced by the
United States, including the determination of serious damage, or actual threat thereof and its causes,the TMB based itself essentially on the information which had been made available by the
United States pursuant to Article 6.7.  The TMB noted that the United States had chosen to exclude
from its definition of the domestic industry producing products like and/or directly competitive with
combed cotton yarn (category 301), a segment of its domestic industry producing such yarn
essentially for its own internal consumption.  This  segment represented about one-third of the total
US production of combed cotton yarn.  As a consequence, the United States had provided information
pursuant to Article 6.3 only with respect to that particular segment of the industry which producedcombed cotton yarn for sale, excluding information that pertained to the evolution of that part of the
industry that produced combed cotton yarn essentially for its own consumption.  The TMB was not, in
this particular case, in a position to assess whether or not, on the basis of the information provided, the
domestic industry producing like and/or directly competitive products had been correctly identified by
the United States.
140. The TMB further noted that the information provided by the United States on its domestic
industry had been on an eight-month basis.  It observed that this in itself hampered the Body’s task of
assessing whether or not serious damage, or  actual threat thereof, had been demonstrated, particularly
in view of the fact that a longer period might better reflect all the factors that could have had an effect
on the evolution of the data.  The TMB also noted that some aspects concerning the developments inand the state of the US domestic industry had remained unclear (such as the evolution of employment,G/L/459
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the closure of plants, investment and the restructuring that could have taken place in the domestic
cotton yarn industry), which the discussion that ha d taken place during the TMB’s consideration of
the matter, in particular the cause of the change in the industry, had revealed
141. The TMB, therefore, considered that in view of the serious limitations mentioned above, it
was not in a position to assess without doubt whether or not serious damage had been caused to the
US’ industry producing products like and/or directly competitive with combed cotton yarn byincreased imports of combed cotton yarn. Consequently, in the view of the TMB, the United States
had not demonstrated successfully that combed cotton yarn was being imported into its territory in
such increased quantities as to cause serious damage, or actual threat thereof, to its domestic industry
producing like and/or directly competitive products. The TMB, recommended, therefore, that the
measure introduced by the United States on imports of combed cotton yarn from Pakistan should be
rescinded.
142. Subsequently, in May 1999, the TMB received a communication from the United States under
Article 8.10 in which the United States conveyed its inability to conform with the recommendation
made by the TMB and requested that the TMB reconsider its recommendation that the measure on
imports of combed cotton yarn from Pakistan be rescinded.  At the invitation of the TMB, Pakistan
sent a delegation to participate in the TMB's review, whereas the United States chose not to be
represented.
143. In conducting a thorough examination of the reasons presented by the United States for its
inability to conform to the TMB's recommendations, the TMB addressed one-by-one the arguments
made by the United States.  As regards the definition of the domestic industry producing like and/or
directly competitive products, the TMB examined, inter alia , the basic differences between the
approach adopted by the United States and that adopted by the TMB.  The United States had claimedthat, in view of the lack of "direct competitiveness" between the two segments of the industry, the
vertically integrated segment should be excluded from the definition of the domestic industry and,
therefore, from the investigation conducted under Ar ticle 6 without the necessity to provide specific
information on the economic variables, pursuant to Article 6.7, regarding the vertically integrated
firms.  The TMB, on the other hand, guided by the fact that the domestic industry producing combedcotton yarn encompassed two segments (i.e. that of the "for sale" companies as well as that of the
vertically integrated firms), had held the view that:
• information reflecting the status of the vertically integrated firms should also have
been provided by the United States, to the extent practicable, regarding the economicvariables defined in Article 6.3;  and
• on the basis of this information, the TMB could have determined whether, for the
purpose of the particular investigation, it was justified, or not, to exclude this segmentof the production from the scope of the domestic industry producing like and/or
directly competitive products for which serious damage, or actual threat thereof, as a
result of increased imports, had been claimed.
144. The TMB next examined the arguments that the United States had raised in its
communication in order to justify that the vertically  integrated firms should be excluded from the
definition of the domestic industry producing like and/or directly competitive products.  In essence,
the United States stated that this exclusion had been justified:
• on the grounds of interpreting the relevant provisions of the ATC;
• on the basis of the facts involved in the case;G/L/459
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• since the United States had provided information regarding the integrated mills which
was relevant to the TMB's understanding of such mills and the distinction between
the yarn for sale industry and the integrated mills;
• as the US textile category system established in 1974 - which had never previously
been challenged – was designed to reflect industry definitions.
The United States also observed that, in a previous case, an identical analysis of industry definition
had been performed to determine the existence of serious damage, or actual threat thereof, and the
TMB had found that the measure was justified in accordance with the provisions of Article 6.
145. As to the legal arguments raised by the United States, the TMB observed, among others, that
the ATC did not provide a definition of what constitutes the domestic industry producing like and/ordirectly competitive products.  It could be observed, however, that whether or not combed cotton yarn
was sold or further processed within a vertically integrated company would not affect the product
characteristics of such combed cotton yarn.  Indeed, combed cotton yarn produced by vertically
integrated plants bore the same physical characteristics as combed cotton yarn produced for sale,
therefore, in the view of the TMB, the two product s could be considered as "like" products.  The fact
that the United States acknowledged that a small proportion of the combed cotton yarn produced by
vertically integrated mills was actually sold, confirmed that the further use of combed cotton yarn didnot affect the nature of the product as such.  Furthermore, the factual arguments made by the
United States did not provide, in the view of the TMB, additional information compared to what had
already been available pursuant to Article 6.7.  Concerning the information provided on the integrated
mills, the TMB recalled that the actual data provided by the United States, in the sense of Article 6.3,
had been limited to the volume of combed cotton yarn produced by these mills in 1996 and 1997.No data on output had been provided for these firms related to the period of January-August 1998,
which was the period during which, as claimed by the United States, the alleged serious damage or
actual threat thereof had occurred to the domestic industry.  Therefore, even with respect to this one
economic variable for which some information had been provided, the TMB had not been placed in a
position to check what the developments had been during the first eight months of 1998, a period thathad been decisive in the US' determination of serious damage or actual threat thereof.  Furthermore,
no information had been presented regarding the ten other economic variables listed in Article 6.3
with respect to the integrated mills.  In the view of the TMB, the reference to the US textile category
system did not seem to have much relevance in th e context of the examination of the measure at hand.
The stated congruence of the US category system with industry definitions had, indeed, never beenchallenged by the TMB.  It had never previously been argued either by the United States that its
category system was designed to reflect industry definitions.  In this context, the TMB considered that
the US categories as notified under the ATC related to products defined by HS lines and not to
industries as such.  Finally, as to the reference to the review by the TMB of a restraint measure agreed
between the United States and Thailand, the TMB observed that the circumstances in which the
examination of the US/Thailand and the US/Pakistan cases had been conducted were different, having
also an impact on the TMB's consideration of the particular issues.  While Thailand had not brought tothe TMB's attention any possible problem related to the definition of domestic industry provided by
the 
United States , the Body, on its own initiative, had taken the decision to seek clarifications from the
United States in this regard.  The TMB had had to reach a conclusion, pursuant to Article 6.9, on the
basis of the limited additional information received from the United States.  The TMB's report
regarding the US/Thailand case reflected the uneasiness with which the TMB had considered thisparticular aspect of the case, stemming, inter alia , from the fact that the United States had not
provided information, pursuant to Article 6.7, on the vertically integrated firms.  On the other hand, in
the US/Pakistan case, the definition of the domestic industry and the related requirements in terms of
information to be provided, pursuant to Article 6.7, had already become a core issue during the
bilateral consultations held pursuant to Article 6.7, and this was subsequently confirmed during theexamination conducted by the TMB pursuant to Article 6.10.  The detailed arguments made by the
two Members, their respective positions regarding the justification under the ATC, or the lack thereof,G/L/459
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to exclude a segment of the domestic industry producing like and/or directly competitive products
from the scope of the investigation as well as a number of additional factual information offered by
the two parties relevant to this aspect of the particular case, led the TMB to identify this aspect as one
of the most important issues to be addressed during its consideration.
146. As regards the time-period covered by the information provided, though it was the view of the
United States that it would be unreasonable to expect the collection of data to be more up-to-date thanAugust 1998, the TMB observed that consultations had been requested with Pakistan at the end of
December 1998 and that, therefore, the reference period, referred to in Article 6.8, would normally
include September 1998.  Furthermore, data provid ed on a year-ending August 1998 basis could have
perhaps shed additional light on developments affecting the industry in question.
147. After addressing some arguments related to developments in and the state of the domestic
industry such as the evolution of employment, the closure of plants, investment and restructuring in
the US domestic cotton industry, the TMB offered comments in respect of the review it had conductedunder Article 6.10.  The TMB recalled that the United States had provided information on all the
economic variables listed in Article 6.3 together with two other additional variables, but only
pertaining to the domestic industry as defined by it.  The fact that the TMB had not been able to
assess, on the basis of the information so provided, whether or not serious damage had been caused to
the US industry producing products like and/or dire ctly competitive with combed cotton yarn, did not
mean that the TMB had raised the level of requir ements regarding the information to be provided.
Nor did it mean that "these additional requirements had been applied in a non-transparent and
arbitrary manner".  The TMB held the view that it was not an additional requirement, nor an increase
in the level of requirements, that on the basis of th e information provided pursuant to Article 6.7 the
Body had to be placed in a position whereby it would be able to determine whether the measure
referred to it was justified, or not, under the provisions of Article 6.  In examining the measure
referred to it pursuant to Article 6.10, the TMB had found, in particular, that only limited information,
in the sense of Article 6.3, had been provided by the United States regarding a segment of the
domestic industry representing about one-third of the total domestic production of combed cotton
yarn.  The fact that the TMB was faced with these limitations on the information which would haveenabled it to decide whether or not the domestic industry producing like and/or directly competitive
products had been correctly identified by the United States, was instrumental in leading the Body to
conclude that it had not been in a position to assess whether or not the US measure was justified in
accordance with Article 6.  In respect of the contention of the United States that the TMB had
introduced a "without doubt" standard going beyond its mandate under the ATC, the Body wanted tomake it clear what its conclusions actually meant: the reference to "without doubt" arose from the
serious limitations stemming from the information provided, as a result of which the TMB had not
been in a position to make a finding as to whether the determination on the existence of serious
damage or actual threat thereof made by the United States was justified, or not, under the provisions
of the ATC.
148. Having given thorough consideration to the reasons presented by the United States for its
inability to conform to the TMB's recommendation, the TMB concluded that these reasons did notlead it to change the conclusions and recommendation arrived at by it during its examination of the
measure pursuant to Article 6.10.  The TMB recommended, therefore, that the United States
reconsider its position and that the measure introduced by the United States on the imports of
category 301 products from Pakistan should be rescinded forthwith.
149. Following this examination, the TMB received a communication from the United States, in
August 1999, informing the Body that after having car efully examined the conclusions reached by the
TMB "the US remains convinced that the US action is justified under the provisions of Article 6 of
the ATC. We have therefore decided to maintain th is restraint in place. We will, however, keep trade
and production trends under review".  The TMB took note of this communication at its meeting of
September 1999, recalling that the safeguard measure in question had already been dealt with in detailG/L/459
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by it on two previous occasions, initially during its re view of the matter pursuant to Article 6.10 and,
subsequently, under Article 8.10. The TMB observed that following the recommendation it had made
pursuant to Article 8.10, the Body was not mandated under the ATC to review this communication,
and noted that Article 8.10 of the ATC states that "[i]f, after such further recommendations, the matter
remains unresolved, either Member may bring the matter before the Dispute Settlement Body and
invoke paragraph 2 of Article XXIII of GATT 19 94 and the relevant provisions of the Dispute
Settlement Understanding".
150. In April 2000, Pakistan requested the establishment of a panel pursuant to Article XX III:2 of
GATT 199484 which the DSB established.85  The Panel issued its report in May 2001.86  The Panel
concluded that "that the transitional safeguard measure (quantitative restriction) imposed by the
United States on imports of combed cotton yarn from Pakistan as of 17 March 1999, and extended as
of 17 March 2000 for a further year is inconsistent with the provisions of Article 6 of the ATC".
Specifically, the Panel found that "inconsistently with its obligations under 6.2, the United Statesexcluded the production of combed cotton yarn by vertically integrated producers for their own use
from the scope of the 'domestic industry producing like and/or directly competitive products' with
imported combed cotton yarn".  It also found that "inconsistently with its obligations under Article
6.4, the United States did not examine the effect of imports from Mexico (and possibly other
appropriate Members) individually" and that "inconsistently with its obligations under Articles 6.2and 6.4, the United States did not demonstrate that the subject imports caused an 'actual threat' of
serious damage to the domestic industry".  But these findings were provided on the basis that the
United States had defined the domestic industry in conformity with Article 6.2, which had not been
the case.  With respect to other claims the Panel found that "Pakistan did not establish that the
measure at issue was inconsistent with the US obligations under Article 6 of the ATC".  However, thislatter conclusion had to be read in light of the Panel's finding that the United States had not properly
defined the domestic industry.  Specifically, the Panel found that "Pakistan did not establish that the
US determination of serious damage was not justified based on the data used by the US investigating
authority", that "Pakistan did not establish that the US determination of serious damage was not
justified regarding the evaluation by the US investigating authority of establishments that ceasedproducing combed cotton yarn" and that "Pakistan did not establish that the US determinations of
serious damage and causation thereof were not justified based upon an inappropriately chosen period
of investigation and period of incidence of serious damage and causation thereof".  Since "pursuant to
Article 3.8 of the DSU which provides that 'In cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered prima facie  to constitute a case of
nullification and impairment', [the Panel concluded that] the said US measure nullified and impaired
the benefits of Pakistan under the WTO Agreement, in particular under the ATC".  Noting that
"Pakistan requested that the Panel suggest in accordance with Article 19.1, second sentence, of the
DSU that the most appropriate way to implement the Panel's ruling would be to rescind the safeguard
action forthwith", the Panel recommended "that the Dispute Settlement Body request that the United
States bring the measure at issue into conformity with its obligations under the ATC.  We suggest that
this can best be achieved by prompt removal of the import restriction".
151. On 9 July 2001, the United States notified its decision to appeal to the Appellate Body certain
issues of law covered in the Panel report and certain legal interpretations developed by the Panel.
2. Application by Colombia
(a) Imports of denim fabric
152. In April 1998, Colombia requested consultations with Brazil; Chile; India; Peru and
Venezuela with a view to applying transitional safeguard measures on imports of denim fabric from
                                                     
84 See WT/DS192/1.
85 See WT/DSB/M/84.
86 See WT/DS192/R.G/L/459
Page 71
these Members.  Colombia provided them with factual information as referred to in Article 6.7, which
had also been communicated to the Chairman of the TMB.
(i) Chile, Peru and Venezuela
153. With respect to Chile, Peru and Venezuela, Co lombia decided not to introduce a restraint
measure on imports of denim fabric from these WTO Members.
(ii) Brazil and India
154. Colombia held consultations with Brazil and India respectively, which did not result in a
mutual understanding that the situation called for restraint on the imports of denim fabric from these
two Members.  Pursuant to Article 6, Colombia notified to the TMB that it had introduced, in
July 1998, transitional safeguard measures on imports of denim fabric (tariff heading 52.09.42) from
Brazil and India, for a period of three years.  Though it was not specified in the notification, the TMB
understood that the restraint had been applied pursuant to Article 6.10.
155. The TMB considered these safeguard measures at its meeting held at the end of July 1998,
with the participation of representatives from Brazil, Colombia and India.  In starting its examination
of the matter, the TMB first had to assess the determination of serious damage resulting from
increased quantities in total imports made by Colo mbia.  In order to make this assessment, the TMB
had to check, inter alia , that the volume of imports of denim into Colombia had increased, the effect
of those increased imports on the state of the particular industry as reflected in changes in theeconomic variables listed in Article 6.3, and that the damage was caused by such increased quantities
in total imports of denim and not by such other factors as technological changes or changes in
consumer preference.
156. Before proceeding to such a systematic detailed examination, however, the TMB addressed
the time-lag of about fifteen months that had taken place between the investigation concluded by theColombian Foreign Trade Institute (INCOMEX) and the time at which Colombia had requested
consultations with, inter alia , Brazil and India.  The TMB recalled in this respect that, according to
Article 6.7, the information referred to in Articles 6.3 and 6.4 shall be related, as closely as possible,
to the reference period set out in Article 6.8, i. e. the 12-month period terminating two months
preceding the month in which the request for consultation was made (i.e. in this case, the periodFebruary 1997 to January 1998).  The TMB recognised that this formulation allowed for some
flexibility, in particular in view of the availability of most recent data.  In the view of the TMB,
however, this did not provide for the possibility of taking a safeguard measure on the basis of
economic variables describing the status of the indust ry almost two years before the time at which the
request for consultation had been made.  In this regard, the TMB noted that Article 6.2 referred to asituation where "a particular product is being imported  […] in such increased quantities as to cause
serious damage, or actual threat thereof, to the domestic industry" (emphasis added).  This causal link
seemed to indicate that the serious damage had to occur in a period close to the time at which the
request for consultation was made.  It followed th at the information provided to demonstrate the
serious damage had to be recent.
157. The time-lag between the conclusion of the investigation and the request for consultations had
resulted in the consideration by Colombia of data for a period which, in the view of the TMB, wasclearly not related as closely as possible to the reference period set out in Article 6.8.  Claiming
serious damage, in April 1998, on the basis of data referring to the state of an industry in the first half
of 1996 at the latest, could not be found to be in accordance with the requirements of Article 6.  The
evolution of the economic situation since then could have resulted in significant developments.  In
particular, it was clear from the information provided by both Brazil and India that, although totalimports of denim into Colombia had increased in 1994, 1995 and 1996, such imports had decreased in
1997.G/L/459
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158. The TMB further observed that Article 6.10 required that a restraint be introduced at the latest
"within 30 days following the 60-day period for consultations".  Colombia had requested
consultations with Brazil and India on 17 April 1998 and the transitional safeguard measures had been
introduced on 17 July 1998, after the deadline had lapsed.
159. In view of the elements mentioned above, the TMB found that since Colombia had failed to
demonstrate that its industry producing denim was experiencing serious damage caused by increasedquantities in total imports of that product, the restraint measures it had introduced on imports of denim
from Brazil and India were not justified in accordance with Article 6. The TMB, therefore,
recommended that Colombia rescind these measures.
160. The TMB subsequently received and took note of a communication from Colombia pursuant
to Article 8.9 that Colombia had annulled the resolution imposing a transitional safeguard measure on
imports of denim from Brazil and India.
(b) Imports of plain polyester filaments
161. In August 1998, Colombia requested consultations, pursuant to Article 6.7, with Korea,
Malaysia, Thailand and the United States with a view to applying transitional safeguard measures on
imports of plain polyester filaments and provided them with factual information, as referred to in
Article 6.7, which had also been communicated to the Chairman of the TMB.  Colombia held
consultations with the four Members.
(i) Malaysia and the United States
162. Colombia excluded Malaysia from the Members to which it would apply the safeguard
measure since "when the consultations [had been ] concluded, it [had] found that the attribution of
damage [to Malaysia, on the basis of which the consultations had been sought,] had been uncertain",
and notified the TMB accordingly.  As regards consultations between Colombia and theUnited States, the TMB subsequently received a communication from Colombia that, following the
completion of these consultations, Colombia had found that no damage was attributable to imports
from the United States.  The level of imports from the United States was, according to the
communication, lower than had originally been estimated, owing to an error in the customs
documentation prepared by the importer.  The TMB took note of this communication.
(ii) Korea and Thailand
163. Consultations with Korea and Thailand did not result in a mutual understanding as to whether
the situation called for restraint on the imports from these two Members.  In November 1998,
Colombia notified the TMB that it had decided, on 26 October 1998, to apply transitional safeguard
measures on imports of plain polyester filaments from Korea and Thailand, for a period of one year.
164. The TMB considered these safeguard measures at its meeting of November 1998 and invited
the participation of representatives of Colombia, Korea and Thailand.  The TMB recalled that,
pursuant to Article 6.2, Colombia had to demonstrate that the particular product (plain polyester
filaments) was being imported into its territory in such increased quantities as to cause serious
damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive
products.  The TMB noted that the volume of total imports into Colombia of the product in question
had increased significantly during the period considered, which included the period set out inArticle 6.8 and covered also the years 1995 to 1997.  However, Colombia had provided information
regarding the economic variables referred to in Article 6.3 which reflected data pertaining only to one
company which represented, on average, 62 per cent of the total domestic production of plain
polyester filaments.  The TMB observed in this respect that the ATC does not provide a definition of
what constitutes the domestic industry.  It noted, however, that Colombia had failed to provideinformation on a significant part of its domestic industry producing plain polyester filaments.  ThisG/L/459
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lack of information brought about important uncert ainties and, therefore, hampered the TMB’s ability
to assess the situation of the Colombian industry producing plain polyester filaments.
165. The TMB also noted Colombia’s efforts to provide information related to plain polyester
filaments.   It observed, however, as was confirmed by Colombia, that the company regarding which
data had been provided, produced a number of products falling under HS 54 02 including plain
polyester filaments.  The TMB observed in this respect that the ATC does not provide a definition ofwhat constitutes like and/or directly competitive products.  The TMB noted, however, that in the case
of plain polyester filaments, HS lines having descriptions quite similar could be like and/or directly
competitive products.  This created difficulties for the TMB in assessing the matter.
166. Despite the fact that, in the view of the TMB, these issues limited its ability to reach an
appropriate conclusion regarding the determination of whether or not the Colombian domestic
industry producing like products and/or products dire ctly competitive with plain polyester filaments
was experiencing serious damage, as required under Article 6.3, the TMB decided to make anexamination of the possible effects of the increased quantities in total imports of plain polyester
filaments on the state of the particular industry, as specified in Article 6.3, on the basis of the
information available.  The TMB noted in this respec t that it could not base its assessment regarding
the state of the industry on estimates provided by Colombia for the year 1998;  and that the monthly
averages provided by Colombia could not be considered in most cases as providing reliableindications.  For data to be meaningful, Colombia would have had in the present case to have
provided comparisons either on a January/May basis (i.e. January-May 1998 compared to January-
May of the previous years) or on a year-ending May basis (i.e. June 1997 to May 1998, compared to
the corresponding previous period).  This further complicated the task of examining Colombia’s
determination that the domestic industry in question had been suffering serious damage.  Within theselimitations, the TMB was of the view that the evolution of some variables such as output, capacity
utilization, inventories, market share, employment,  domestic prices, profits and investments could be
a signal of the existence of serious damage.  The TMB could not obtain any significant indication
from the evolution of variables such as productivity, exports and wages.
167. In view of the serious limitations mentioned above, it was not possible to assess whether or
not serious damage had been caused to Colombia’s industry producing like and/or directly
competitive products by increased imports of plain polyester filaments.  Therefore, in the view of the
TMB, Colombia had not demonstrated successfully that plain polyester filaments were being imported
into its territory in such increased quantities as to cause serious damage, or actual threat thereof, to its
domestic industry producing like and/or directly competitive products.  The TMB recommended,therefore, that the measures introduced by Colombia on imports of plain polyester filaments from
Korea and Thailand should be rescinded.
168. In December 1998, the TMB received a communi cation from Colombia, under Article 8.10,
in which Colombia conveyed its inability to conform with the Body’s recommendation that the
measures introduced by Colombia should be rescinded.  Colombia considered that the measures
adopted were compatible with the requirements of Article 6, and that the interpretations and
conclusions of the TMB were not in keeping with the legal requirements of the ATC.  The TMBreviewed this matter at its meeting in February 1999 with the participation of the representatives of
the parties concerned.
169. After having heard the arguments presented by the representatives of Colombia, Korea and
Thailand, the TMB carefully considered them, in particular, by addressing in detail the reasons given
by Colombia for its inability to  conform with the Body's recommendations.  In doing so, the TMB
recalled, inter alia , that the communication of Colombia stated that the "TMB found that there had
been a substantial increase in imports and that tre nds in eight of the eleven variables referred to in
Article 6.3 appeared to indicate serious damage."  However, "[a]ccording to the TMB, there wereG/L/459
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three reasons" for concluding that it was not possible to assess whether or not serious damage had
been caused to Colombia’s industry, namely:
• the information submitted in respect of damage did not cover 100 per cent of the
Colombian producers of plain polyester filaments;
• the product subject to the measures did not represent all like and/or directly
competitive products under HS Chapter 54;  and
• the information on damage did not concern an elapsed year.
In the view of Colombia, none of the three reasons had legal foundation under the provisions of
Article 6.
170. As to the definition of the domestic industry producing plain polyester filaments, the TMB,
bearing in mind in particular the information that had been made available by Colombia pursuant toArticle 6.7, continued to be of the view that in th e absence of any information on a significant part of
the domestic industry, it had not been possible to assess the state of the industry producing plain
polyester filaments, in particular the effect of  increased imports on the companies constituting the
domestic industry producing the particular product.  Therefore, it had been impossible to determine
whether the difficulties encountered by the company requesting the investigation could be attributed
to a possible damage caused by the increased volume of total imports or to other factors.
Furthermore, the TMB could not agree with the contention of Colombia that the Body had consideredthat information on the domestic industry producing like and/or directly competitive products should
cover 100 per cent of the domestic producers of such products.  The TMB observed that it had not
provided any interpretation of the definition of the term "domestic industry".  Similarly, the TMB had
not suggested that the information on the domestic industry should cover 100  per cent of the domestic
producers of such products.  It was merely a factual statement applying to the particular case that"Colombia had failed to provide information on a significant part of its domestic industry producing
plain polyester filaments".  It could not be questioned in the particular case that 38  per cent of the
overall domestic production constituted a significant part of the domestic industry, whether this was
the output of one single company or of a number of producers.  The lack of interest in participating in
the investigation by one company could not be a just ification for not providing any information at all
on that portion of the industry.  The TMB considered that it was the responsibility of the authorities of
a Member invoking the provisions of Article 6 to demonstrate to the Member(s) affected and to the
TMB that increased imports caused serious damage to the domestic industry.  Moreover, there was a
range of possibilities between providing no information at all and offering all the specific and relevant
information required by the relevant provisions of Article 6.  In the particular case, the TMB was ofthe view that the Colombian authorities should have  provided more information on the rest of the
domestic industry.  At least, it could have been explained why Colombia considered that information
on 38 per cent of the domestic production could be completely, or for the most part, dismissed, or why
Colombia believed that bringing the production of the given company into the scope of the
examination would not alter its conclusions based solely on the data provided by the applicantcompany representing on average 62 per cent of the domestic production.
171. During the consideration of the matter, it was also stated that contrary to what had been
suggested by Colombia, the TMB had expressed no view on the selection of the product subject to the
safeguard measures, but had made observations on the lack of appropriate information regarding what
constituted the domestic industry producing like and/or directly competitive products in the particular
case.  If Colombia considered that the only like products, and/or the products directly competitive
with plain polyester filaments (tariff heading 54.02.43) were those falling under the same 6-digit tariffheading, it was up to Colombia to explain convincingly why HS lines having descriptions quite
similar to the product subject to the safeguard measures should not be considered as constituting like
and/or directly competitive products (for the purpose of defining the industry affected by imports).G/L/459
Page 75
But without any information or in the absence of a convincing explanation, it was not possible to
determine whether the decline of the domestic production of yarn of polyester filaments, single,
untwisted  was attributable to the damage caused by increased quantities of total imports, or to other
factors which could be part of a normal business decision, such as the shifting of the production of
this product to another which could constitute a like and/or directly competitive product to the plain
polyester filaments.
172. The TMB agreed with Colombia that Article 6 did not lay down a single methodology for the
presentation of information regarding imports or economic variables referred to in Article 6.3.
However, the Body continued to be of the view that in the case referred to it by Colombia, the
presentation of information was such that it did not allow a reliable comparison of the developments
or changes in the relevant economic variables referred to in Article 6.3.  The reference of the TMB to
the January/May comparisons was not an interpretation and was not contrary to any provision of
Article 6, since the Body had not suggested that this information should have been provided in lieu of
the information submitted, but in addition to what had been made available.  Without such additional
information, it was not possible for the TMB to assess whether developments during the first five
months of 1998 could be an indication of seri ous damage caused by imports or whether they
constituted a seasonal phenomenon which had characterised the domestic industry in the same period
of the preceding years as well.  The TMB recogniz ed that Colombia had explained that the product
subject to safeguard measures was not subject to seasonal factors.  This statement, however, had not
been substantiated by the information presented pursuant to Article 6.7.
173. It was also noted that with reference to Articles 6.10 and 8.3, Colombia had revised and
supplemented in its notification, under Article 8.10, certain elements of the detailed factual
information previously provided.  In this regard, the TMB expressed the view that it could not beexpected to conduct a de novo  examination of the determination of the serious damage caused to the
domestic producers of the like and/or directly competitive products.  The TMB reiterated its earlier
statement that "its review of the measures introduced by Colombia had to be based essentially on the
information made available by Colombia in accordan ce with Article 6.7 at the time the request for
consultations had been made".
174. In conclusion, after examining in detail all the arguments presented by Colombia, and
following the thorough consideration of the reasons given by Colombia, the TMB recommended that
Colombia reconsider its position and that the measures introduced by Colombia on imports of plain
polyester filaments from Korea and Thailand should be rescinded forthwith.
175. At its meeting in April 1999, bearing in mind that Article 8.9 of the ATC states that "[t]he
Members shall endeavour to accept in full the recommendations of the TMB, which shall exercise
proper surveillance of the implementation of such re commendations", and in view of the fact that it
had received no information from Colombia on the implementation of this recommendation, the TMB
decided to request such information from Colombia.  Following an interim reply in May 1999, the
TMB received a further communication from Colombia  in June 1999. This communication briefly set
out the reasons why the Government of Colombia considered that the measures in question complied
with the provisions of Article 6 and that, therefore, in its view, the safeguards applied to imports ofplain polyester filaments from Thailand and Korea were justified.  Colombia would, therefore,
maintain the safeguards as notified to the TMB.
176. In taking note of this latter communication, the TMB observed that following the
recommendation it had made pursuant to Article 8.10, the Body was not mandated under the ATC to
address the substantive elements of this communication, including the reasons provided by Colombia;the safeguard measures in question had already been dealt with in detail by the TMB on two
occasions, initially during its review of the matter pursuant to Article 6.10 and, subsequently, pursuant
to  Article 8.10.  The TMB observed that the measures had been introduced by Colombia as from
26 October 1998 for a period of one year and would, consequently expire on 25 October 1999.  TheG/L/459
Page 76
TMB recognized that Article 8.10 does not define a deadline for action to be taken by the Member(s)
concerned pursuant to a recommendation made by the TMB under its provisions.  The TMB
expressed concern, however, that it had taken Colombia almost five months to inform the TMB about
its decision.  Recalling the provisions of Article 8.9 that "[t]he Members shall endeavour to accept in
full the recommendations of the TMB, which shall exercise proper surveillance of the implementation
of such recommendations", the TMB emphasized that such a proper surveillance required Members toinform the TMB without undue delay of their deci sions with regard to the implementation of its
recommendations.  Furthermore, in the view of the TMB, this was the only way to ensure that the
rights of any of the affected Members under Article 8.10 would be fully protected.
177. In September 1999, Thailand requested the establishment of a panel pursuant to Article XXIII
of the GATT 1994, Article 6 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes (DSU) and Article 8 and other releva nt provisions of the Agreement on Textiles and
Clothing, with respect to Colombia's safeguard measure establishing a unilateral restraint on importsof plain polyester filaments from Thailand.  According to Thailand, the measure was inconsistent with
at least the following WTO Agreement obligations: (i) the requirements of Article 6 of the ATC
regarding the application by the Members of a transitional safeguard mechanism; and (ii) the
provisions contained in Article 2 of the ATC regarding the introduction and the application of
restrictions by the Members.  The DSB considered this request at its meeting in September 1999.Korea, having substantial interests in this case, reserved its third party-rights if a panel were to be
established.  At subsequent meetings of the DSB in October and November 1999, the measure in
question having expired and Colombia having confirmed that the measure had expired, and that it had
not been and could not be extended, Thailand withdrew its request for the establishment of a panel.
3. Requests for Consultations by Poland
(a) Imports of woven fabrics of synthetic filament yarn from Korea
178. In April 1999, Poland requested consultations with Korea, pursuant to Article 6.7, with a view
to introducing a safeguard measure on imports of woven fabrics of synthetic filament yarn from Korea
and communicated the request to the Chairman of th e TMB, in accordance with the provisions of that
Article.  The TMB did not receive information on the outcome of the consultations. However, thedeadline specified in Article 6 for applying the restraint lapsed without such a restraint being
introduced by Poland.
(b) Imports of certain acrylic or modacrylic staple fibres from Romania
179. On 23 April 2001, Poland requested consultations with Romania, pursuant to Article 6.7,
concerning a proposed safeguard action on impor ts from Romania of products falling under
HS 550931, 550932 and 550961.  By the date of the adoption of this report, the TMB had not received
any follow-up communication related to this matter.
4. Application by Argentina
(a) Imports of high tenacity yarn of polyester filaments from Indonesia, Korea and Malaysia and
staple fibres of polyester from Korea
180. At its meeting of October 1999, the TMB t ook note of a communication by Argentina
informing the TMB that, following consultations held by Argentina with Indonesia; Korea andMalaysia pursuant to Article 6.7, the Argentine authorities had decided not to apply the safeguard
measure envisaged for imports of polyester fibre yarn from Indonesia, Korea and Malaysia, and for
imports of polyester fibre from Korea.G/L/459
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(b) Imports of woven fabrics of cotton and cotton mixtures (categories 218, 219/220, 224,
313/317 and 613/617/627)
(i) Brazil
181. In July 1999, Argentina requested consultations with Brazil, pursuant to Article 6.11, and
provided it with factual information, as referred to in Article 6.7.  Such information was at the same
time communicated to the Chairman of the TMB.  Argentina had decided to introduce, with effectfrom 31 July 1999 and for a duration of three years, a provisional safeguard measure on imports of
woven fabrics of cotton and cotton mixtures, consisting of five quotas on imports from Brazil of
products of categories 218 (woven cotton and cotton mi xtures fabrics of yarns of different colours),
219/220 (duck/special-weave cotton and cotton mixtures fabrics), 224 (pile tufted cotton and cotton
mixtures fabrics), 313/317 (sheeting/twill cotto n and cotton mixtures fabric) and 613/617/627
(sheeting fabrics/twill and satin/staple-filament fibre combinations of cotton and cotton mixtures).
Consultations were held between the two Members, which did not result in a mutual understanding as
to whether the situation called for restraint on the imports of the above-mentioned products. In
September 1999, Brazil notified to the TMB, pursuant to Article 6.11, that these consultations had not
resulted in agreement and requested the TMB to examine the matter and make appropriate
recommendations, in accordance with Article 6.11.
182. The TMB examined the matter at its meeting of October 1999, with the participation of
representatives of Argentina and Brazil.  Before  turning to the examination of the transitional
safeguard measures category by category, the TMB noted that in the introductory part of the
information submitted by Argentina as referred to in Article 6.7, containing the general considerations
applicable to the sector comprised of the five categories that were subject to the safeguard measure,
specific information had been provided for the period 1995-1998, i.e. for four calendar years.  It wasfurther noted that, in the detailed category-specific information, data had been presented for the same
period as well as for the period May 1998/April 1999.  The TMB recalled that the relevant provisions
of the ATC (Article 6.7) required, inter alia , that "[i]n respect of requests [for consultations] made
under this paragraph, the information shall be related, as closely as possible, to identifiable segments
of production and to the reference period set out in paragraph 8" of Article 6.  In the particular casesreferred to the TMB and subject to its review, this reference period, in accordance with Article 6.8,
corresponded to the period May 1998/April 1999, for which category-specific information had been
provided by Argentina.  It had to be observed, however, that in the factual information given by
Argentina, developments of this most recent period could not be compared to the state of the domestic
industry as reflected in the different variables during a preceding corresponding period, i.e. duringMay 1997/April 1998, since all other data had been provided on a calendar-year basis.  Though
Argentina gave indications (expressed in terms of percentages) regarding "changes over 12 months",
these indications could not be considered to provide a reliable basis, as they compared data relating to
May 1998/April 1999 to those reported for January/December 1998.  Therefore, between the two data
series compared there had been an overlap of eight months.  Reliable indications cannot be obtained
but by comparing data for identical time-periods. Though Argentina had explained that there had not
been indications referring to the existence of seas onal factors, the TMB was of the view that the
availability of data for the calendar-year 1998 and for the period May 1998/April 1999 could give an
indication for comparing trends between January to April 1998 and the same period in 1999, but did
not allow for more far-reaching comparisons.
183. The TMB also noted that providing data for a relatively longer time-period, like in the present
cases from 1995-1998, could be useful for having a better understanding of the trends characterisingdevelopments that occurred to the domestic industry.  Such an approach was particularly helpful in
identifying whether certain developments had reflected lasting phenomena or rather had been of a
temporary nature.  At the same time, the TMB reiterated that in examining and assessing the
determination of serious damage, or actual threat thereof, caused to the domestic industry producing
like and/or directly competitive products by increased quantities of imports, decisive guidance had toG/L/459
Page 78
be provided by the developments which had occurred in the most recent period, while data related to
the longer time-period provided supplementary inform ation that could support the justification of the
determination made.  The evidence that developments in the most recent period should have a
decisive role in such a determination was, in the view of the TMB, supported by the time-frame
referred to in Articles 6.7 and 6.8, by the requirements defined in Article 6.2 that in a determination it
has to be demonstrated that a particular product "is being imported" in increased quantities, and by theperiod of validity of a determination of serious damage or actual threat thereof for the purpose of
invoking safeguard as stated in Article 6.5.  Also, the object and the nature of the ATC (constituting
an agreement for a transition period) as well as Article 6.12 (allowing for the maintenance of a
transitional safeguard measure for up to three years without extension), confirmed that a
determination of serious damage, in the sense of Article 6, could not be based on developments that
had affected the domestic industry years before the actual determination was being made.
184. With respect to imports of products of category 218 (woven cotton and cotton mixtures
fabrics of yarns of different colours), the TMB observed that imports in 1998 had decreased by
15 per cent in volume terms compared to 1997, and that this trend had not been reversed during the
most recent period for which data were available.  The TMB also observed that the evolution of
imports and output from 1996 to 1998 (both had increased in 1997 and decreased in 1998) did not
point to the direction of the existence of a causal link between a possible damage to the industry andthe evolution of imports.  In view of such considerations, the TMB concluded that it had not been
demonstrated that products of category 218 were being imported into Argentina at the time Argentina
had decided to introduce a safeguard measure, pursuant to Article 6.11, in such increased quantities as
to cause serious damage to the domestic industry producing like and/or directly competitive products.
Therefore, the TMB recommended that Argentina rescind the transitional safeguard measureintroduced on imports of these products originating in Brazil.
185. With respect to imports of products of category 219/220 (duck/special-weave cotton and
cotton mixtures fabrics), the TMB observed that imports in 1998 had decreased by about 50 per cent
compared to 1997.  While the data related to May 1998/April 1999 could not reliably be compared to
those for the calendar year 1998, imports during this most recent period did not show an importantincrease.  As to the trends for the previous years, though the increase from 1995 to 1996 had been
sizeable, imports had started to decrease in 1997.  The TMB concluded, therefore, that it had not been
demonstrated that products of category 219/220 were being imported into Argentina, at the time
Argentina had decided to introduce a safeguard measure pursuant to Article 6.11, in such increased
quantities as to cause serious damage to the domestic industry producing like and/or directlycompetitive products.  The TMB recommended, therefore, that Argentina rescind the transitional
safeguard measure introduced on imports of these products originating in Brazil.
186. Regarding imports of products of category 224 (pile tufted cotton and cotton mixtures
fabrics), the TMB noted that while total imports of the products of category 224 had increased by
54 per cent from 1995 to 1996, and by a further 36.5 per cent from 1996 to 1997, they had decreased
by 1.8 per cent in 1998 compared to 1997.  While the data related to May 1998/April 1999 could not
reliably be compared to those for the calendar year 1998, imports during this most recent periodshowed show a further decrease.  Against this background, the TMB noted that in those years when
imports had increased significantly (i.e. 1996 and 1997), output had also increased (respectively, by
10 and 3 per cent).  In 1998, output had decreased by 10.4 per cent, and imports had also declined.
Although the market share of imports and inventor ies had continuously increased and domestic prices
had decreased, the information at hand, in particular developments in output and in the apparentconsumption did not support a conclusion that a causal link between the situation experienced by the
industry at the time Argentina had introduced th e safeguard measure and the evolution of imports
could be established.  In the view of the TMB, the recent developments in the domestic industry could
rather have been the result of business decisions taken by the industry, like the shifting of production
to other lines of products, or of structural probl ems or broader macroeconomic developments such as
a contraction of the economy resulting from a recession.G/L/459
Page 79
187. In view of the considerations stated above, the TMB concluded that it had not been
demonstrated that products of category 224 were being imported into Argentina, at the time Argentina
had decided to introduce a safeguard measure pursuant to Article 6.11, in such increased quantities as
to cause serious damage to the domestic industry producing like and/or directly competitive products.
Therefore, the TMB recommended that Argentina rescind the transitional safeguard measure
introduced on imports of these products originating in Brazil.
188. With respect to imports of products of category 313/317 (sheeting/twill cotton and cotton
mixtures fabric), the TMB noted that following a period of significant increase (1996/1995:
100 per cent; 1997/1996: 27.7 per cent) imports had decreased by 4.6 per cent in 1998, compared
to 1997.  The TMB also noted that Argentina had, in addition, provided data for imports for the period
May 1998/April 1999 which showed that imports were, during this 12-month period, at a level
1.4 per cent higher than that of the level of imports for the calendar year 1998.  Against this
background, the Body observed that domestic production had varied in parallel with the evolution ofdomestic demand: it had increased in 1996 and 1997 (respectively, by 22 and 3 per cent), and fallen
(by 10 per cent) in 1998.  These trends had paralleled the evolution of imports.  Production capacity
had increased by 13 per cent in 1996, and had remained at the same level thereafter.  Capacity
utilization had fallen in 1998, below the 1995 rate, after an upward trend from 1995 to 1997.
Employment had increased significantly from 1995 to 1996, and decreased in 1997 and 1998,reaching a level higher, however, than that of 1995.  Average productivity, on the other hand, had
increased throughout the period 1995-1998 (though the dynamics of this increase had slowed down in
1998).  End-product inventories had increased by 57 per cent from 1995 to 1998, while average
domestic prices had decreased by about 11 per cent.  Overall, in the view of the TMB, though some
variables, in particular output, domestic sales, inventories and domestic prices, reflected unfavourabledevelopments and could point to a direction of an industry being seriously damaged, others seemed to
indicate the possibility of the existence of structural problems or of the impact of a recession.
189. In this context, the TMB observed that the imports of the products of category 313/317 had
decreased in 1998 compared to 1997, the period for which directly comparable data were available,
closest to that when Argentina had decided to introduce a safeguard measure on imports of theproducts of category 313/317 from Brazil.  The TMB also noted that the data provided by Argentina
for the period May 1998 to April 1999 showed that the level of imports reached for that 12-month
period was 1.4 per cent higher than that of the calendar year 1998.  In this regard, the TMB observed
that the data for the two periods could not be directly compared, and that, furthermore, it was not in a
position to assess whether this latest evolution relating to the period January-April 1999, indicated alasting trend or was that of a temporary nature.
190. In view of the considerations stated above, the TMB concluded that it had not been
demonstrated that products of category 313/317 were being imported into Argentina, at the time
Argentina had decided to introduce a safeguard measure pursuant to Article 6.11, in such increased
quantities as to cause serious damage to the domestic industry producing like and/or directly
competitive products.  The TMB recommended, therefore, that Argentina rescind the transitional
safeguard measure introduced on imports of these products originating in Brazil.
191. With respect to imports of products of category 613/617/627 (sheeting fabrics/twill and
satin/staple-filament fibre combinations of cotton and cotton mixtures), the TMB noted that, in the
view of Argentina, as reflected in the information submitted pursuant to Article 6.7, as a result of
excessive imports between 1995 and the year-ending April 1999, the domestic producers had lost an
important share of apparent consumption, while during the same period the ratio of imports todomestic production had increased by 300 per cent.  Though the sector including, among others,
category 613/617/627 products had continued to make substantial investments in order to maintain
competitiveness, the excessive increase in imports  during the period under investigation had caused
serious damage to the domestic industry manufacturing goods pertaining to this category, and this
damage could not be attributed to technological innovation or changes in consumer preferences.G/L/459
Page 80
192. The TMB observed that in 1998 total imports of products of category 613/617/627 had
increased by 17.4 per cent compared to 1997.  Though data provided for May 1998/April 1999 could
not be compared due to the lack of information for the preceding corresponding period, they indicated
that in the period of January/April 1999 imports had remained at the high level already achieved.
Regarding trends, it could be observed that the rate of increase from 1996 to 1997 amounted to
63.4 per cent, while the corresponding figure for 1996/1995 was 58.0 per cent.  Therefore, there wasan increase in the quantity of total imports during the period for which comparable data had been
provided and this trend had been continuous since 1995.
193. In view of the above, the TMB proceeded to the examination of the determination of serious
damage resulting from increased quantities of tota l imports made by Argentina.  First, the TMB
addressed the possible effect of those increased imports on the state of the particular industry as
reflected in changes in the economic variables listed in Article 6.3 and in a few other indicators
reported by Argentina.  Overall, the TMB re cognized that the industry producing products of
category 613/617/627 had been affected by unfavourable developments, and that the difficulties
experienced did not seem to be over.
194. In the view of the TMB, it could be argued that the data related to output, sales, imports and
prices pointed to the direction of serious damage caused by increased quantities of imports, and other
indicators either confirmed or did not contradict such a possible conclusion.  Following thisreasoning, the continuous and important increase of the volume of total imports, coupled with a price
level below average domestic prices, had exercised an important pressure on and had caused
difficulties to the domestic producers of like and/or directly competitive products.  Domestic output
had fallen during the most recent period; domestic sales of the production had shown a declining trend
both in absolute terms and relative to the output; inventories had increased and, as a result of thesedevelopments, the market share held by imports had increased significantly.  The domestic producers
had tried to adjust to these circumstances, in particular by cutting back the production capacity and
also perhaps by making investments.  As a result, there had also been some positive developments,
such as the increase in the average productivity.  However, these efforts did not seem to be sufficient
to halt the negative trends affecting the domestic producers.
195. It could also be argued, however, that the difficulties experienced by the industry had
primarily been of a structural nature and that the trends in imports had simply reflected, as a symptom,
the basic roots, i.e. the structural problem.  Efforts had been made to adjust, inter alia , through
reducing production capacity, and though these measures had had some favourable impact, they had
not been sufficient as yet to redress the situation.  Similarly, it could be argued that business decisionstaken by the integrated industry could also have contributed to the trends characterising the overall
state of the industry.  Despite the changes in the level of output, domestic producers' own
consumption had remained relatively stable in rela tion to the total output.  This could point to the
possibility of shifting to more profitable production lines, and also to reduced demand of further
processed products for which products of categ ory 613/617/627 had been an input.  Also, the
increased reliance on less expensive inputs could not be excluded, as part of a business strategy.
There could also be a reading according to which the main reasons for the state of the domesticindustry had to be sought in broader macroeconomic developments such as a general contraction of
the economy resulting from a recession.
196. In reflecting on the possible explanation of the causes of the problems identified as affecting
the domestic producers of products of category 613/617/627, the TMB reached the preliminary
conclusion that such difficulties could arise from multiple reasons having a mutually reinforcingeffect, as described above.  Concerns were expressed about the lack of possible evidence and
information at the Body’s disposal that would ha ve enabled it to reach a definitive conclusion on
whether imports were the primary reason for the industry’s difficulties.  The TMB did not make a
final determination as to whether increased imports of products of category 613/617/627 had caused
serious damage to the domestic industry producing like and/or directly competitive products.G/L/459
Page 81
Notwithstanding that fact, keeping also in mind that the transitional safeguard measure had already
been implemented as from 31 July 1999 and that the TMB had to make appropriate recommendations
to the Members concerned, the Body noted that imports by Argentina of products of
category 613/617/627 originating in Brazil had not increased sharply and substantially during the
period referred to in Article 6.8 (imports from Brazil had actually decreased by 20.8 per cent in 1998
compared to 1997, and this declining trend seemed to continue during the period January-April 1999).The TMB recommended, therefore, that Argentina rescind the safeguard measure introduced against
imports of products of this category originating in Brazil.
197. The TMB noted that Argentina had invoked the provisions of Article 6.11 which provided
that "[i]n highly unusual and critical circumstances, where delay would cause damage which would be
difficult to repair, action under paragraph 10 [of Article 6] may be taken provisionally on the
condition that the request for consultations and notification to the TMB shall be effected within no
more than five working days after taking the action.  In the case that consultations do not produceagreement, the TMB shall be notified at the conclusion of consultations, but in any case no later than
60 days from the date of the implementation of the action".  The TMB noted that the procedural
requirements defined in Article 6.11 had been met.  However, it was observed that, inter alia , apart
from references to continuing damage, the information given by Argentina did not provide an analysis
of the highly unusual and critical circumstances that would have warranted an action pursuant toArticle 6.11.  The TMB reiterated its view, expressed earlier, that in cases where the provisions of
Article 6.11 were invoked the expectation was that the elements envisaged in Articles 6.2, 6.3 and 6.4
would indicate as unambiguously as possible the highly unusual and critical nature of the
circumstances.  The TMB was of the view that unless such circumstances were met, any action taken
under Article 6 should be preceded by consultations between the parties.  In the light of theconclusions reached with respect to the specific categories subject to safeguard and the above
observations, the TMB noted that the recourse by Argentina to the provisions of Article 6.11 had not
been appropriate.
198. In November 1999, following the examination summarized above, the TMB received a
communication from Argentina, under Article 8.10, in which it conveyed its inability to conform withthe recommendations the TMB had made that the safeguard measures introduced on imports from
Brazil of products of categories 218, 219/220, 224, 313/317 and 613/617/627 should be rescinded.
The TMB examined this matter at its meeting of December 1999, with the participation of
representatives from Argentina and Brazil.  The communication of Argentina provided six main
reasons for its inability to conform with the recommendations of the TMB:
• Argentina considered that it had complied with the provisions of Article 6 and that
the elements demonstrating the existence of serious damage caused by an increase inimports were contained in the presentation made at the time Argentina had requested
consultation with Brazil;
• the analysis made by the TMB of the reasons put forward by Argentina to justify the
application of a transitional safeguard measure, did not satisfy the provisions ofArticle 8.5 concerning the need to give the matter thorough consideration;
• the TMB, inter alia , by suggesting that statistical information should have been made
available by Argentina in order to compare the data provided for the most recentperiod available (i.e. May 1998 to April 1999) to a similar preceding period, appeared
to impose a standard of requirement far beyond what was prescribed in Article 6;
• the TMB’s recommendation seemed to entail an increase of the Member’s obligations
under the ATC, as it inferred that an absolu te increase in imports had to occur during
the period referred to in Article 6.8 in order to be in a position to apply a safeguard
measure pursuant to Article 6.  According to Argentina, the period specified inG/L/459
Page 82
Article 6.8 was defined solely for the purposes of calculating the quantitative
restriction should the Member conclude that it was necessary to apply a transitional
safeguard measure;
• in categories 313/317 and 613/617/627, where its analysis had been a little more
extensive, the TMB had preferred to attribute the damage caused to the domestic
industry to factors other than imports without giving Argentina the opportunity tochallenge this line of argument;
• Argentina's recourse to the provisions of Article 6.11, which demand the existence of
"highly unusual and critical circumstances, where delay would cause damage whichwould be difficult to repair" had been questioned by the TMB.  Argentina believed
that such a recourse had been justified by the circumstances, as it had beensubstantiated by the information Argentina had provided.
199. In giving thorough consideration to the reasons provided by Argentina, the TMB stated that in
its examination of the measures, it had not challenged the compliance by Argentina with the
provisions of Articles 6.1 and 6.6, nor with the procedural requirements of Article 6, but had
examined the determination made by Argentina as to whether particular products were being imported
into its territory in such increased quantities as to cause serious damage to its domestic industryproducing like and/or directly competitive products.  As to whether the analysis made by the TMB did
or did not satisfy the provisions of Article 8.5, the TMB observed that Argentina had notified the
safeguard measures under Article 6.11.  The TMB also observed that Article 8.5 referred to situations
where there was an "absence of any mutually agreed solution in the bilateral consultations provided
for in this Agreement". Such situations were of  a more general nature than those specifically
envisaged in Article 6.11 where, in cases when the consultations envisaged in that same Article did
not produce agreement, the TMB shall "promptly conduct an examination of the matter, and make
appropriate recommendations to the Members concerned within 30 days".  The TMB was of the view,
however, that in its prompt examination of the matter it had given thorough consideration to it, as
witnessed, inter alia , by the amount of time it had taken to conduct and to conclude the examination
and by the detailed elements contained in the Body’s report of that examination.  Moreover, Argentina
seemed to attribute the perceived lack of thorough examination of the matter to the TMB’s decision
not to continue the detailed analysis pursuant to Article 6.3 in those categories where it had found that
imports had not been increasing.  In this regard the TMB made the following observations.
200. The TMB recalled that Article 6.2 states that "[s]afeguard action may be taken under this
Article when, on the basis of a determination by a Member, it is demonstrated that a particular product
is being imported into its territory in such increased quantities as to cause serious damage, or actual
threat thereof, to the domestic industry producing like and/or directly competitive products"(emphasis added).  It followed from this language that this condition had to be met at the time which
was close to the one when a Member was requesting consultations pursuant to Article 6.7 with a view
to introducing a safeguard action (or when it decided to take the safeguard measures provisionally
pursuant to Article 6.11).  This appeared not to be the case for categories 218, 219/220, 224 and313/317.  In emphasising in its report
87 that a determination of serious damage in the sense of
Article 6 could not be based on developments that had affected the domestic industry years before the
actual determination was being made, the TMB had st ated that in examining such a determination,
"… decisive guidance had to be provided by the developments which had occurred in the most recent
period".  The first basic precondition for applying a transitional safeguard measure as defined inArticle 6.2 implied, in the view of the TMB, that imports (that may have started to increase in the
past) should have increased in the period which is close to the time when the safeguard measure is
being provisionally imposed or the request for consultations is being made.  This also means that an
absolute increase in imports is a necessary conditi on to be met.  The best practical way to ascertain
                                                     
87 See G/TMB/R/58.G/L/459
Page 83
that the products were being imported in increased quantities was to observe whether imports had
increased during the period referred to in Article 6.8.  Following its finding that total imports had not
increased in the recent period, the TMB could only conclude that these particular products were not
being imported into Argentina in increased quantitie s close to the time when Argentina had requested
consultations and introduced safeguard measures pursuant to Article 6.11.  The TMB could not agree
with Argentina that the standards applied by it entailed an increase of Argentina’s obligations underthe ATC.  In addition, these standards corresponded to the ones adopted by the TMB in its previous
examinations of measures referred to it under Article 6.  Regarding the need to consider the increase
in imports not only in absolute terms, but "also in relation to the parameters for determining the
damage mentioned in Article 6.3", as claimed by  Argentina, the TMB observed that the conditions
defined in Article 6.2 did not allow for the application of transitional safeguard measures in cases
where imports were declining, even though their share in the apparent market were increasing.
201. As to whether the TMB was required, or not, to continue the analysis provided for in
Article 6.3 when it had established that imports had not been increasing in the recent period, the TMB
noted that a determination of serious damage caused by increased quantities of imports was a staged
process comprised of the following parts:
• verification of whether the product in question was being imported in increased
quantities;
• determination of serious damage caused to the domestic industry;
• establishment of the causal link between the increased quantities of imports and the
serious damage.
If any of the three conditions above had not been  met, the safeguard measures could not be found to
be justified in accordance with the provisions of Article 6 and, in such a case, the TMB, therefore,was not required to make findings and conclusions on all the three parts.  This was in accordance with
the practice established by the TMB.
202. Regarding the issue of data comparability, the TMB referred to the detailed explanation it had
already provided during the examination of the same matter under Article 6.11.  On the issue ofwhether damage claimed to the domestic industry could be attributed to imports or to some other
factors, the TMB recalled that:
• in the factual information provided, Argentina itself had recognized that concepts
such as recession and market penetration of imports had co-existed and wereelements to be considered;
• a general contraction of the economy had been identified by the TMB as only one of
the possible elements that could have affected the domestic industry.  The TMB alsoobserved that in its communication, made pursuant to Article 8.10, Argentina had not
provided arguments that would have refuted the possible role and effect of difficulties
of a structural nature and of possible business decisions.  Noting that Argentina
recognized that the due process had been observed during the TMB’s examination ofthe matter pursuant to Article 6.11, the TMB expressed the view that, under Article 6,
it was for the Member introducing a provisional safeguard measure to demonstrate
that the serious damage claimed had been caused by increased quantities in total
imports.  In the view of the TMB, this statement also answered the contention of
Argentina that it had not been given the opportunity to challenge certain lines of
arguments adopted by the TMB.G/L/459
Page 84
203. The TMB noted the statement of Argentina that it had adopted a prudent position, and that
developments in total imports "would have fully justified taking action earlier according to
[Article 6]".  The TMB understood that this stat ement was meant to justify the recourse to the
provisions of Article 6.11 which requires the existence of "highly unusual and critical circumstances,
where delay would cause damage which would be difficult to repair".  The TMB observed that it was
difficult to reconcile Argentina’s contention that the changes in the economic variables had takenplace over several years with the provisions requiring "highly unusual and critical circumstances".  In
this connection, the TMB continued to be of the view that, in cases where the provision of
Article 6.11 were to be invoked, the expectation was that the elements envisaged in Articles 6.2, 6.3
and 6.4 would indicate as unambiguously as possible the highly unusual and critical nature of the
circumstances.  The TMB was of the view that unless such circumstances were met, any action taken
under Article 6 should be preceded by consultations between the parties.
204. On the basis of the above considerations, the TMB concluded that the reasons given by
Argentina did not lead it to change the conclusions and recommendations arrived at during its
examination of the measures pursuant to Article 6.11.  The TMB recommended, therefore, that
Argentina reconsider its position and that the transitional safeguard measures introduced provisionally
by Argentina on the imports from Brazil of produ cts of categories 218, 219/220, 224, 313/317 and
613/617/627 be rescinded forthwith.
205. In February 2000, Brazil, noting that the matter remained unresolved, requested the
establishment of a panel pursuant to Article XXIII of GATT 1994, Article 6 of the Understanding on
Rules and Procedures Governing the Settlement of disputes (DSU) and Article 8 of the Agreement on
Textiles and Clothing (ATC).
88  The  Dispute Settlement Body established the Panel at its meeting in
March 2000.   On 27 June 2000, Argentina and Brazil notified jointly a mutually agreed solution89
which stated that Argentina had withdrawn the transitional safeguard measures on imports of textile
products of categories 218, 219/220, 224, 313/ 317 and 613/617/627 that were subject to
recommendations of the TMB.  Therefore, Brazil and Argentina agreed to suspend, for a period not
exceeding 12 months, the procedures for the composition of the Panel.  It was also agreed that, within
the next 12 months, the complaining party would retain the right to resume the procedures for thecomposition of the Panel from the point where it stood.
(ii) Pakistan
206. In August 1999, Argentina requested consultations with Pakistan, pursuant to Article 6.11,
and introduced provisionally, with effect from 31 July 1999, a transitional safeguard measure for a
duration of three years on imports of woven fabrics of cotton and cotton mixtures, consisting of fivequotas on imports from Pakistan of products of categories 218 (woven cotton and cotton mixtures
fabrics of yarns of different colours), 219/220 (duck/special-weave cotton and cotton mixtures
fabrics), 224 (pile tufted cotton and cotton mixtures fabrics), 313/317 (sheeting/twill cotton and cotton
mixtures fabrics) and 613/617/627 (sheeting fabrics/twill and satin/staple-filament fibre combinations
of cotton and cotton mixtures).  Consultations were held between the two Members, which did not
result in a mutual understanding as to whether the situation called for restraint on the imports of the
above-mentioned products.
207. In mid-November 1999, Pakistan notified to the TMB, pursuant to Article 6.11, that these
consultations had not resulted in agreement and requested the TMB to examine the matter and make
appropriate recommendations in accordance with Article 6.11.  Though, under normal circumstances,
the review of the measures should have taken place at the TMB's December 1999 meeting, Pakistan
requested that this item be placed on the agenda of the TMB's January 2000 meeting, due to certaindifficulties concerning its delegation's availability at the December meeting.
                                                     
88 See WT/DS190/1.
89 See WT/DS190/2.G/L/459
Page 85
208. The TMB examined the matter at its meeting in January 2000.  In starting its examination, it
recalled that similar measures affecting products of the same product categories had been taken
provisionally by Argentina, for the same period and pursuant to the same provisions of the ATC,
against imports of these products originating in Brazil.  The TMB noted that the factual information
provided by Argentina pursuant to Article 6.7, when it had invoked the provisions of Article 6.11 vis-
à-vis  Pakistan, was the same as that which had been provided when it had invoked the provisions of
Article 6.11 vis-à-vis  Brazil.  The TMB also recalled that the measures introduced provisionally on
imports from Brazil had already been examined in detail by the Body, first pursuant to Article 6.11
and, subsequently, pursuant to Article 8.10.
209. Having examined, inter alia , the arguments put forward by Argentina and Pakistan in this
regard, the TMB agreed with Pakistan that, as far as categories 218, 219/220, 224 and 313/317 were
concerned, in re-examining the determination of serious damage caused by total imports to the
Argentinian domestic industry producing like and/or directly competitive products on the basis of thesame factual information, the Body would reach the same conclusions.  Consequently, it was not
necessary for the TMB to proceed to a more detailed examination regarding these categories. The
TMB, therefore, recalled the conclusions it had reached when it had examined the measures applied
by Argentina on imports from Brazil of products of categories 218, 219/220, 224 and 313/317, and
decided not to undertake any further examination of the measures affecting imports of the products ofthese categories.
210. The TMB held the view, however, that the same did not apply to the measure affecting
imports of the products of category 613/617/627.  It was recalled in this regard that, in examining the
determination made by Argentina of the serious damage caused to the domestic industry by increased
quantities of imports, the TMB had reached preliminary conclusions but, as reflected in the reportadopted by the Body, "[t]he TMB did not make a final determination as to whether increased imports
of products of category 613/617/627 had caused se rious damage to the domestic industry producing
like and/or directly competitive products".  In this particular case, the TMB had reached conclusions
and adopted a recommendation on the basis of additional considerations which, at least at first sight,
would not necessarily be applicable to the measure affecting imports from Pakistan.  Therefore, theTMB concluded that, in the case of this category, it could not simply reconfirm outright the
conclusions and recommendation already made when it had examined the measure taken on imports
from Brazil and decided to proceed to its examination of the measure taken vis-a-vis  Pakistan.
211. The TMB, observed that there had been an increase in the quantity of total imports during the
periods for which comparable data had been made available and that this trend had been continuoussince 1995, though since 1998 the rate of increase in imports had started to decelerate.  The Body,
therefore, conducted an examination of the possible effects of the increased imports on the state of the
domestic industry, as reflected in changes in the economic variables listed in Article 6.3 and in the
other indicators reported by Argentina.  It conc luded that the Argentinian industry producing products
of category 613/617/627 had been affected by unfavourable developments and that the difficulties
experienced did not seem to be over.  The TMB recalled that, in examining the safeguard measure
affecting imports of these products from Brazil, it had reached the preliminary conclusion that thedifficulties facing the Argentinian industry could arise from multiple reasons having a mutually
reinforcing effect, these possible reasons being:
• a potential serious damage caused by increased quantities of imports;
• difficulties of a structural nature;
• possible business decisions taken by the integrated industry, such as shifting the
production to other lines, or reduced demand of further processed products, for which
the products of category 613/617/627 were an input;G/L/459
Page 86
• a general contraction of the economy resulting from a recession.
212. With a view to reaching a definitive conclusion whether imports had been the primary cause
for the industry's difficulties, the TMB decided to reflect further on the arguments reflected in the 2nd
to 4th indents above.  It assumed that when the economy contracts, consumption, output as well as
imports tend to decline, and as a result of the decrease in imports, serious damage in the sense of
Article 6 cannot be demonstrated.  In the present case, however, consumption remained relatively
stable and output dropped significantly, while imports continued to increase.  Therefore, the recession
affecting Argentina's economy could not explain the difficulties experienced by the domestic industry
producing category 613/617/627 products.  The TMB also noted that in response to problems, perhapsalso of a structural nature, the Argentinian industry had already made efforts to adjust, but the
continued growth in imports had not made it possible as yet to achieve a more lasting reversal of the
unfavourable trends.  Furthermore, in the view of the TMB, an analysis of the information and data
related to the five product categories subject to the provisional safeguard measures could not lead to a
conclusion that a possible shift in the production among these products would explain the difficultiesexperienced by the industry producing category 613/617/627 products.  Also, there was no evidence
to suggest that a possible shift to the production of goods other than those subject to the provisional
safeguard measures could be held responsible for the overall state of the domestic industry producing
this category of products.
213. On the basis of the above considerations, the TMB reached the conclusion that the difficulties
identified with respect to the domestic industry producing category 613/617/627 products had been
caused by the increased quantities in imports.  The TMB, therefore, determined, pursuant to
Articles 6.2 and 6.3, that the increased imports of products of this category had caused serious damage
to the domestic industry producing like and/or directly competitive products.
214. The TMB next turned to the examination of th e determination made by Argentina according
to which the serious damage caused by increased total imports of category 613/617/627 products
could be attributed, inter alia , to the imports originating in Pakistan.  The TMB found that there had
been a sharp and substantial increase in imports from Pakistan and that these imports held a majority
share in total imports as well as an increasing share of the Argentinian apparent consumption.  Also,
the average price of the imported goods from Pakistan was below the average domestic price
prevailing for Argentinian products.  Recalling that, according to Article 6.4, none of the above-listed
factors, either alone or combined with other factors, can necessarily give decisive guidance indetermining the attribution of serious damage to a Member, the TMB reached the overall conclusion
that the serious damage caused to the Argentin e industry producing product s of category 613/617/627
could be attributed, inter alia , to imports from Pakistan.  As regards the recourse by Argentina to the
provisions of Article 6.11, the TMB recalled that it had already addressed in detail the issue of
recourse to Article 6.11 during the examination of the safeguard measure applied on imports of thesame products from Brazil. On these occasions, the Body had already found that the recourse by
Argentina to Article 6.11 had not been appropriate.  Having addressed this aspect in further detail, the
TMB continued to be of the view that Argentina's r ecourse to the procedures laid down in Article 6.11
had not been appropriate.  Whether such an inappropriate recourse to Article 6.11 could invalidate a
transitional safeguard measure or not, was, in the view of the TMB, a decision to be taken case bycase, on the basis of the consideration of all the relevant elements involved.  In the present case, the
TMB found, on the one hand, that serious damage caused by increased imports had been
demonstrated and that it could be attributed, inter alia , to imports from Pakistan.  Furthermore, the
procedural requirements under Article 6.11 had been met.  On the other hand, the detailed
examination of the determination of serious damage as well as the lack of convincing explanations,pursuant to Article 6.11, revealed that the recourse to this provision, i.e. to apply the restraint
provisionally, without having exhausted the possibility of prior consultations, had not been justified.
The TMB came to the overall conclusion, however, that in this particular case the inappropriate
recourse to Article 6.11, although it constituted an important shortcoming, would not lead to the
conclusion that the safeguard measure should be rejected on that basis.G/L/459
Page 87
215. With respect to imports of products of categories 218, 219/220, 224 and 313/317, the TMB
reiterated its previous conclusions that Argentina had not demonstrated that such products were being
imported into Argentina, at the time it had decided to introduce the safeguard measures pursuant to
the provisions of Article 6.11, in such increased quantities as to cause serious damage to the domestic
industry producing like and/or directly competitive products.  The TMB recommended, therefore, that
Argentina rescind the provisional safeguard measures introduced on imports of these products fromPakistan.  As regards imports of products of ca tegory 613/617/627, the TMB concluded that it had
been demonstrated that such products were being imported into Argentina, at the time Argentina had
decided to introduce a safeguard measure pursuant to the provisions of Article 6.11, in such increased
quantities as to cause serious damage to its domestic industry producing like and/or directly
competitive products.  The TMB found also that the serious damage caused to the Argentinian
industry could be attributed, inter alia , to increased imports from Pakistan.  The TMB noted,
however, that the Argentinian industry producin g products of category 613/617/627 had already
started to make adjustments and that these efforts had already produced temporary results, such as a
slight increase in output in 1997.  Hence, the TMB was of the view that a shorter period of time than
the maximum timeframe envisaged in Article 6.12(a ) seemed to be sufficient for the Argentinian
industry to adjust.  Therefore, the TMB reco mmended that Argentina rescind the transitional
safeguard measure on imports from Pakistan of  category 613/617/627 products by 31 January 2001,
i.e. after 18 months of application.
216. At its meeting of March 2000, the TMB took note of a communication by Argentina that it
intended to comply with the recommendations made  by the TMB regarding the transitional safeguard
measures applied, pursuant to Article 6.11, to imports of woven fabrics of cotton and its mixtures
originating in Pakistan (categories 218, 219/220, 2 24, 313/317 and 613/617/627).  At its meeting in
June 2000, the TMB took note of a communication received from Argentina transmitting a resolution
of the Argentinian Ministry of the Economy and Public Works and Services implementing in full the
above-mentioned recommendations.
(c) Imports of woven fabrics of synthetic filament, whether or not impregnated
(categories 229/629, 619 and 620) from Korea
217. The TMB received a communication from Korea referring to the transitional safeguard
measure applied provisionally by Argentina, pursuant to Article 6.11, and taking effect from
29 October 1999 for a duration of three years, on imports of woven fabrics of synthetic filament,
whether or not impregnated.  This safeguard measure consisted of three quotas, on products of
categories 619 (woven fabrics of pure polyester filament), 620 (other woven fabrics of syntheticfilament) and 229/629 (special woven fabrics/other woven fabrics of mixed filaments).  The bilateral
consultations between Korea and Argentina had not produced agreement and Korea requested that the
TMB examine the matter and make appropriate recommendations.  The TMB had scheduled to
conduct this examination during its March 2000 meeting and had invited the participation of
representatives from both Argentina and Korea.  However, the TMB subsequently received a further
communication from Korea requesting it to defer its examination of the matter until a further
communication was made, in view of the fact that  the consultations had resumed between Korea and
Argentina.  The TMB took note of this request.  On 31 March 2000, Korea further communicated to
the TMB that the resumed bilateral consultations had failed to produce agreement and, thus, requested
that the TMB examine the matter, and make appropriate recommendations, in accordance with
Article 6.
218. The TMB examined the safeguard measure at its meeting of April 2000, with the participation
of representatives of the two Members.  The TMB considered that before embarking, in accordance
with Articles 6.2, 6.3 and, if appropriate, 6.4, on a systematic examination of the safeguard measures
applied provisionally by Argentina, it would be necessary to address certain procedural and
substantive aspects involved in these cases, also in the light of some of the arguments raised by Korea,
applicable to all the three categories.  First, th e TMB addressed the question of compliance with theG/L/459
Page 88
deadlines specified in Article 6.11.  The TMB observed in this respect that the resolution establishing
the safeguard measures had entered into force on 29 October 1999 and that the respective request for
consultation and the notification to the TMB had been effected on 5 November 1999 which was
within the deadline of "no more than five workin g days after taking the action".  The TMB further
observed, inter alia , that Argentina had not submitted any notification regarding the outcome of the
consultations required in Article 6.11, either before or after the expiration of the relevant deadline,while Korea had requested the TMB to examine the matter pursuant to the provisions of Article 6
more than two months after the expiration of 60 days from the date of the implementation of the
safeguards.  Thus, the respective deadline had not been respected by either of the two Members and
this, in the view of the TMB, gave rise to concerns.
219. Second, the TMB addressed the question of the time-period covered by the factual
information and data provided by Argentina and related issues.  The TMB, inter alia , noted the
argument of Korea that there had been a five-month gap between the end of the period investigatedand the application of the safeguard measures.  Korea held the view that, as a result of this gap,
Argentina had failed to establish the substantial increase in imports in the sense of Article 6.2 and had
violated the provisions of Article 6.7.  Also, the specific and relevant factual information provided by
Argentina had not established that the domestic industry had suffered from serious damage, because
this information could not reflect the situation of the industry at the time of the introduction of thesafeguard measures.  With reference to the five-month gap between the end of the period investigated
and the provisional application of the safeguard measures in question, the TMB considered that it
would be inappropriate for it to comment on the inte rnal administrative procedures involved in any
Member’s recourse to the provisions of the ATC.  The Body observed, however, that possible delays
in taking decisions, as a result of such procedures, could have an impact on the findings andconclusions the TMB could reach, in accordance with the provisions of the ATC, regarding the
justification of the measures in question or aspects thereof.  As regards the time-period covered by the
factual information submitted by Argentina, the TMB continued to be of the view that the best
practical way to ascertain that the products were being imported in increased quantities was to observe
whether imports had increased during the period referred to in Article 6.8.  In the present case,Argentina submitted data regarding developments in total imports as well as the economic variables
listed in Article 6.3 for four calendar years (1995 to 1998) and in addition, for two rolling-year
periods (June 1997 to May 1998 and June 1998 to May 1999).  In the view of the TMB, Argentina
should have provided in the relevant factual data information at least with respect to the developments
in total imports and imports from Korea for the period August 1998 to July 1999.  At the same time,the TMB recognized that the formulation of Article 6.7 (i.e. that the information shall be related as
closely as possible to the reference period) permitted certain flexibility in providing information on
the different economic variables listed in Article 6.3, depending on the availability of the relevant data
and information.  However, the safeguard measures in question had been applied by Argentina
pursuant to the provisions of Article 6.11, which required the existence of "highly unusual and critical
circumstances, where delay would cause damage which would be difficult to repair".  The TMB was
of the view that the existence of such circumstances could only be proven if information wereprovided regarding developments which occurred in the very recent period, i.e. during or very close to
the reference period.
220. As to Argentina’s recourse to the procedures of Article 6.11, the TMB, considering the view
expressed by Korea that Argentina had not demonstrated that the situation its industry was facing was
that of "highly unusual and critical circumstances, where delay would cause damage which would bedifficult to repair", observed that on a number of occasions, in the context of earlier examinations of
recourses to the provisions of Article 6.11, the Body had already made a number of observations
which had defined the TMB’s attitude towards the examination of similar cases.  Though some
aspects affecting also the recourse to Article 6.11 had already been addressed (as above), the TMB
was of the view that, like in any other case involving the use of the provisions of this Article,substantive aspects of such a recourse and their possible implications on the conclusions to beG/L/459
Page 89
reached, would have to be taken up in the context of the detailed examination of the three restraints
provisionally applied.
221. The TMB turned to the detailed examination of the safeguard measures category by category.
With respect to products of category 229/629, it could be established that the volume of total imports
of these products had significantly increased during the period investigated, though it appeared that
this increase had decelerated in the most recent period for which data were available.  The TMB,therefore, examined in detail the possible effects of increased imports on the state of the Argentine
industry, as reflected in the changes of the economic variables listed in Article 6.3.  In its overall
assessment, the TMB recognized that the factua l information submitted by Argentina revealed a
domestic industry facing difficulties.  In particular, it appeared from the data that some of the
difficulties experienced by the domestic industry had started in 1997 and accentuated in 1998.  An
analysis of the changes that occurred in 1998, pointed to a situation where the domestic industry could
suffer serious damage as a result, inter alia , of increased imports.  However, during the latest period
for which comparable data had been provided, i.e. June 1998-May 1999, imports continued to
increase, but at a slower rate, and while output declined further, the decrease of the domestic sales of
local output significantly slowed down.  Furthermore, as the information at the Body’s disposal did
not go beyond May 1999, the TMB had no knowledge of the developments that had taken place in
June and July 1999, a period which was part of the reference period set out in Article 6.8.  There wereindications, however, that total imports slowed  down further in June-July 1999.  Against this
background, the TMB came to the conclusion that the overall situation in the most recent period had
not been characterized by the existence of highly unusual and critical circumstances, where delay in
taking the action would have caused damage which would be difficult to repair.  The difficulties
experienced by the industry had started earlier and the situation, overall, had not worsened during thelatest period.  At the end of July 1999, the data available for June 1998-May 1999 had not
substantiated the existence of highly unusual and critical circumstances.  The TMB observed that
though Argentina had decided to apply the measure provisionally pursuant to the provisions of
Article 6.11, it had not provided any explanation or information in the relevant factual data which
would  call into question the above conclusion.
222. The TMB recalled that in examining a previous  case involving recourse to the provisions of
Article 6.11 it had stated, inter alia , the following: "[w]hether … an inappropriate recourse to
Article 6.11 can invalidate a transitional safeguard measure or not, was, in the view of the TMB, a
decision to be taken case-by-case, on the basis of the consideration of all the relevant elements
involved" ( emphasis added ).90  In the present case, the TMB, in its thorough analysis of the
developments affecting the Argentinian industry, was unable to identify any significant element of the
case where it could be found that the situation corresponded to the circumstances defined in
Article 6.11.
223. The TMB concluded that Argentina had not demonstrated successfully that the products of
category 229/629 were being imported into Argentina in the reference period in such increased
quantities as to cause serious damage to the domestic industry producing like and/or directly
competitive products and, in particular, as to substantiate the highly unusual and criticalcircumstances where delay would cause damage that would be difficult to repair.  The TMB
recommended, therefore, that Argentina rescind the safeguard measure applied provisionally on
imports of these products originating from Korea.
224. With respect to products of category 619, it could be established that the volume of total
imports of these products had significantly increased during the last period for which comparable datahad been made available by Argentina in the factual information and that this significant increase had
been continuous throughout the period investigated.  Also, with a view to refuting possible statements
that this trend could be reversed if one considered developments during the reference period, the
                                                     
90 G/TMB/R/61, paragraph 55.G/L/459
Page 90
representative of Argentina provided import data, during the TMB’s deliberations, for the period
August 1998 to July 1999 and the corresponding previous period, showing that total imports had
increased by roughly 22 per cent during this most recent period.  The TMB, while emphasising that it
had to rely essentially on the information that had been made available pursuant to Article 6.7 when
the request for consultations had been made, noted that this additional information did not call into
question the conclusion it had reached above.  In the period August 1998 to July 1999, though the rateof increase in total imports had started to decelerate, the increase remained substantial.
225. After having examined in detail developments related to the different economic variables
listed in Article 6.3, the TMB, in its overall assessment, recognized that the factual information
submitted by Argentina revealed a domestic industry facing serious difficulties which could have
begun earlier, but which had become accentuated as from the beginning of 1998.  A thorough analysis
of changes, in particular in output, domestic sales of local production, market share, inventories and
domestic prices on the one hand, and in the volume of imports and their price level, on the other,revealed a situation where the domestic industry had been suffering serious damage as a result of
increased imports.  It could be concluded, therefore, that Argentina had successfully demonstrated
that increased imports of products of this category had caused serious damage in 1998 and in
June 1998-May 1999 to the Argentinian domestic industry producing like and/or directly competitive
products.
226. Therefore, the TMB proceeded to the examination of the attribution of serious damage to
imports from Korea and considering all the elements at its disposal, the Body concluded that the
serious damage experienced by the domestic industry of Argentina in 1998 and during the 12 months
ending May 1999 could be attributed, inter alia , to imports originating in Korea.
227. Recalling that Argentina had decided to apply provisionally the safeguard measure on imports
from Korea pursuant to Article 6.11, the TMB came to the view that at the end of July 1999 the
existence of the highly unusual and critical circumstances had been demonstrated on the basis of data
covering the period June 1998-May 1999.  Practically all the elements examined supported such a
conclusion: the sharp and continuous rise of imports, both from all sources and from Korea; the
significant and continuous decline of output and domestic sales of local production, whileconsumption continued to increase dynamically; the decline in productivity and employment; the low
rate of utilization of capacity and, not least, the important pressure import prices put on the domestic
market.  All these, i.e. the elements envisaged in Articles 6.2, 6.3 and 6.4, seemed to indicate without
ambiguity the existence of the highly unusual and, in particular, the critical nature of the
circumstances.  The TMB was aware, however, that this first finding made by the competentArgentinian authority had been transformed into a decision of the Government of Argentina only
three months later and, in view of lack of rele vant updated information the Body could not assess
whether (and to what extent) the highly unusual and critical circumstances had continued to exist
close to the time when the decision had been taken by the Government.  Given the difficulties the
industry had been facing at the end of May 1999, and considering that the period June-July 1999
could be, in any case, too short to halt and reverse the overall very serious situation, the TMB
accepted that the recourse of Argentina, in this particular case, to the provisions of Article 6.11 hadbeen justified.
228. The TMB noted that the gap of three months between establishing the existence of highly
unusual and critical circumstances and taking the formal action could have implications on
substantive elements involved in the safeguard measure in question.  Had Argentina applied the
urgent procedure foreseen in Article 6.11 properly, the restraint on imports from Korea, pursuant tothe provisions of Article 6.8, should have been fixed at a level not lower than the level of imports
from Korea during the period June 1998-May 1999, which amounted to 4,868,640 kg.  However, the
quota established by Argentina was of 3,701,667 kg., i.e. 24 per cent below the minimum level
otherwise applicable during the reference period.  The TMB recommended, therefore, that:G/L/459
Page 91
• Argentina increase the level of the restraint during its first year of application to a
level not lower than 4,868,640 kg.;  and
• should the restraint remain in place for more than one year, the provisions of
Article 6.13 be fully implemented by Argentina.
229. As regards products of category 620, it could be established, on the basis of the information
supplied by Argentina in the factual information referr ed to in Article 6.7, that the volume of total
imports of these products had significantly increased from 1995 to 1996 and from 1997 to 1998.
However, the rate of increase had been much smaller in the latest period for which comparable data
were available.  After having conducted a detailed examination, pursuant to Article 6.3, the TMB
made the overall assessment that the state of the industry producing category 620 products revealed a
domestic industry facing difficulties.  These difficulties were reflected, in particular, in developmentsregarding output, domestic sales of local production, inventories, market share and exports.  In
examining in detail all the related information provided by Argentina and the arguments raised by
Korea, the TMB came, however, to the view that Argentina had failed to demonstrate a causal
relationship between the state of the domestic industry and the increased quantities in total imports, in
particular in view of the only slight increase in imports registered during the most recent period for
which comparable data were available and also of the fact that imports appeared to have decelerated
since the beginning of 1999.  It appeared to the TMB that the industry's difficulties could stem fromproblems which had already existed in 1995 (or perhaps even earlier), as evidenced by the fact that
domestic output had not increased at all during the period investigated.  Also, though not formally
examining, pursuant to Article 6.4, the attribution of the serious damage claimed to imports from
Korea, the TMB also noted, in particular in the context of a safeguard measure introduced
provisionally under the provisions of Article 6.11, that during the 12-month period ending May 1999,imports from Korea had not shown a sharp and substantial increase, since they had only increased by
4 per cent (whereas the overall increase in total imports was 8 per cent).   In reaching these
conclusions, the TMB also found that the recourse to the procedures of Article 6.11 by Argentina had
not been appropriate in this particular case.  Nothing in the factual information provided by Argentina
had substantiated the existence of highly unusual and critical circumstances in the most recent period,where delay would cause damage which would be difficult to repair.  The TMB reiterated its views,
expressed on earlier occasions, regarding the invocation of the provisions of Article 6.11.  On the
basis of its detailed examination, the TMB concluded that Argentina had not demonstrated
successfully that products of category 620 were being imported into Argentina in such increased
quantities as to cause serious damage to its domestic industry producing like and/or directlycompetitive products.  This also implied that Argentina’s recourse to the procedures of Article 6.11
had not been appropriate.  The TMB recommended, th erefore, that Argentina rescind the provisional
safeguard measure applied on imports of these products from Korea.
230. At its meeting of July 2000, the TMB observed, with reference to Article 8.9, that it had not
as yet received any official information from Argentina on the implementation of the
recommendations the Body had made, as a result of its examination of the transitional safeguard
measure applied provisionally by Argentina pursuant to Article 6.11, with effect from29 October 1999, on imports from Korea of woven fabrics of synthetic filament, whether impregnated
or not, consisting of three quotas on products of categories 619, 620 and 229/629.  The TMB decided
to request information from Argentina on the implementation of these recommendations.  At its
subsequent meeting, the TMB took note of communications received from Argentina transmitting a
Resolution of the Ministry of the Economy.  This Resolution eliminated the restraints imposed onimports from Korea of products of categories 620 and 229/629 and increased the level of the restraint
for products of category 619 during its first year of application to a level of 4,868,640 kg.
Furthermore, the Resolution also provided for an annual increase of that level of 6 per cent for the
subsequent years, in accordance with Article 6.13.  This resolution implemented in full the relevant
recommendations made by the TMB.G/L/459
Page 92
C. CONCLUSIONS ADOPTED BY THE CTG IN FEBRUARY 1998 IN ITS FIRST MAJOR REVIEW
231. The conclusions of the CTG of its major review of the implementation of the ATC during the
first stage of the integration process contain the following:
"20. In the review of the application of the safeguard mechanism in the first stage of the
implementation of the ATC, some Members consid ered that the introduction of an exceptionally
large number of safeguard measures in the firs t year of the Agreement could not be considered
as sparing use of the safeguard, particularly wh en, in most cases, the recourse had been found to
be unjustified.  As such there had been a mani festation of protectionism which resulted in a
serious negative impact on the implementation of the ATC.  This had caused great concern for
some Members with respect to the manner in which the obligations of the ATC were being
applied and, in more general terms,  with respect to liberalization in  this sector.  It was, however,
not only the number of safeguard measures whic h caused concern to these Members but also the
trade distortive implications of such actions.  In cases where recourse to Article 6 had been
found to be unjustified, legitimate export trade had suffered unwarranted harassment.  Requests
for consultations on a safeguard action had often led to a range of potentially adverse
implications, causing disruptive effects for ex isting exports and creating uncertainty in the
marketplace with very serious impact on the well -being of the exporting Member's industry and
economy.  There was, in effect, a multiplier eff ect to the use of the safeguard, not only on the
producer of the product in question but on export earnings, employment and overall prosperity
associated with trade liberalization.  Some Memb ers felt that the use of transitional safeguards
had not been sparing;  additional restrictions imposed as a result of the application of
transitional safeguards severely offset and hindered the progress towards achieving any
effective implementation of the integration pr ocess.  These Members considered that one
particular Member had failed to comply with the requirements for invoking Article 6.  These
Members also considered that this had been conf irmed by the TMB.  None of the actions of this
Member challenged before the TMB and/or the dispute settlement panels were found to be
justified.
21. Some other Members considered it was the right of those Members which had fully
complied with their relevant notification oblig ations to apply the safeguard mechanism in
accordance with the ATC. In practice, only two Members had so far chosen to apply safeguards
and there was a noticeable decreasing trend in th e application of such measures in the recent
period.  These Members stated that the safeguard mechanism had been applied in fullconformity with the provisions of the ATC.  Of the 34 safeguard actions that had been taken,
most were in the first six months of the ATC.  Some Members considered that the significant
change in the use of the safeguard from the fi rst six months in 1995 should be noted by all
Members.  In addition to the quantitative change in the safeguard actions taken, the TMB and
dispute settlement panels' findings had provid ed important clarifications regarding the
application of the provisions of Article 6.  It was also stated that, in the case of a Member that
had chosen to retain the right to use Article 6, recourse to the transitional safeguard was an
indication of changes in trade patterns.  Noting that the purpose of Article 6 of the ATC was to
address serious damage or actual threat thereo f to domestic textile producers during a transition
period, they made the point that if imports were  to increase to the extent that they caused or
threatened to cause serious damage, any Memb er could exercise its rights under Article 6.
[…]
23. The Council observed that recourse to safeguard actions under the Agreement had been
made by two Members.  It noted the concerns expressed by exporting Members and the panel
decisions with respect to two of these safeguard actions by one Member, and the guidance thatthese decisions give when taking such actions.  Recognizing the right of Members to use theG/L/459
Page 93
safeguard provisions of the ATC, the Council reca lled the Ministerial Declaration at Singapore
that such use, in accordance with ATC prov isions, should be as sparing as possible."91
D. VIEWS AND COMMENTS OF WTO MEMBERS IN RESPONSE TO THE TMB 'S GENERAL REQUEST FOR
INFORMATION
232. In their response to the TMB's request for information and comments in the context of the
preparation of the present report, the ITCB members stated that "the TMB may note the deceleration
of safeguard actions by restraining Members.  However, we hope that the report brings out the fact
that a restraining Member refused to accept a TMB recommendation to withdraw the measure.  While
the exporting Member concerned requested a dispute panel to rule on the conformity of the measure,
the restriction remains in place damaging its access opportunities.  It is also our strong expectation
that the TMB emphasize the importance of foll owing the guidelines emanating from dispute
settlement panels and the Appellate Body".  The same contribution recognized "the improvement inthe transparency of TMB findings during the second stage, particularly as concerns the review of
safeguard actions.  It needs, however, to be pointed out that its findings and reports have not always
been consistent.  Thus, for example, while it found certain actions to be inconsistent with restraining
Member's obligations, another action taken on the same basis was declared to be justified.  And the
TMB neglected to rectify the error".
233. In its response to the TMB's request for information and comments in the context of the
preparation of the present report, Canada stated that it had not made use of the transitional safeguard
of Article 6.  Similarly, the European Community stated that it had not had recourse to the provisions
of Article 6 of the ATC.
E. T
HE TMB 'S COMMENTS AND ASSESSMENTS OF THE APPLICATION OF THE TRANSITIONAL
SAFEGUARD MECHANISM DURING THE SECOND STAGE OF THE INTEGRATION PROCESS
234. An assessment of the use of the provisions of the transitional safeguard mechanism during the
second stage of the integration process should be started by briefly recalling, as a background, the
facts that characterized developments in this area during the first stage of the integration process.
During the period covered by the TMB's first comprehensive report (1 January 1995 to end ofJuly 1997), two Members invoked the provisions of Article 6, involving 33 cases in total.
92  A
breakdown of such invocations by qua rters showed the following pattern93:
Year Quarter Requests Invoking Member
1995 First quarter
Second quarterThird quarterFourth quarter10 requests
14 requestsnonenoneUnited States
United States
1996 First quarter
Second quarterThird quarterFourth quarter1 request
7 requestsnonenoneUnited States
Brazil
1997 First quarter
Second quarternone
1 request United States
TOTAL 33 requests
235. As can be seen from the above breakdown, the bulk of the requests for consultations
(altogether 24) was concentrated in the first half of 1995, and thus coincided with the entry into force
of the ATC and the other Uruguay Round agreements.  As already observed by the TMB, this
                                                     
91 See G/L/224.
92 See paragraphs  119 and 120.
93 See G/L/179, paragraph 173.G/L/459
Page 94
concentration in terms of timing and, in particular, the large number of cases, caused serious concerns
to certain Members, as expressed by them in the TMB, as well as to a number of others, as expressed
in the CTG.94  In addition, the examination of the requests for consultations and of the resulting
measures made by the TMB and, in some cases, subsequently, DSB panels, led to the conclusion that,
in most cases, the United States had not complied with important obligations arising from Article 6.95
236. Against this background, the recourse to the provisions of Article 6 since the adoption of the
TMB's first comprehensive report can be summarized as follows:
Period Invoking Member Number of Requests for
Consultations (* together with provisional
application under Article 6.11 )
1997 Second half United States 1
1998 First half
Second halfSecond halfColombia
ColombiaUnited States5
41
1999 First half
First halfSecond halfPoland
ArgentinaArgentina1
4
13*
2000 First half
Second halfNone
NoneNone
None
2001 First half Poland 1
Total:
of which during Stage 2 :30
29
237. As also reflected in the overview above, since the beginning of the implementation of the
second stage of the integration process, recourse to the provisions of Article 6 has been made in
altogether 29 cases.  Four Members invoked these provisions (Argentina – 17 cases;  Colombia –
9 cases;  Poland – 2 cases;  United States – 1 case).  While the number of requests for consultation
was non-negligible (altogether 10) in 1998, this was followed by a further increase (18 cases) in 1999and the decision by one Member to apply provisiona lly, with immediate effect the restraint measures
in 13 cases.  As regards the number of safeguard measures which were actually introduced and
subsequently maintained, the picture is more nuanced.  Of the 10 cases initiated in 1998, no measure
was taken, after consultations conducted pursuant to Article 6.7, in five cases (Colombia).  In two
further cases (Colombia), the restraints introduced  were eliminated following the recommendations
made by the TMB.  In the three remaining cases (Colombia – 2 and United States - 1), the Members
concerned decided to maintain the measures in place, despite the recommendations of the TMB.  In
two of these cases (Colombia), the restraints were abolished after one year of application, while in the
third case (United States), though it was maintained, the recently circulated report of the Panel largely
confirmed and upheld the conclusions reached by the TMB.  The Panel recommended that theUnited States bring the measure at issue into conformity with its obligations under the ATC and
suggested that this could be best achieved by prompt removal of the import restriction.
96  In this
regard, the TMB also noted that under the ATC, Members shall endeavour to accept in full the
recommendations of the TMB, which is not a legal obligation to fully comply with them.
Notwithstanding this, the adverse effects on trading opportunities of all these cases where the
Members concerned continued to maintain the restrictions, despite the recommendations made by the
TMB, should not be ignored.  As regards development concerning the 18 cases initiated in 1999, nomeasure was taken after consultations with the Members affected in five cases (Argentina – 4 and
Poland – 1), while of the 13 measures (Argentina), provisionally applied under Article 6.11, 11 were
                                                     
94 See G/L/179, paragraph 175.
95 Ibid, paragraph 176.
96 Subsequently, on 9 July 2001, the United States appealed certain issues of law covered by the Panel
report and certain legal interpretations developed by the Panel.G/L/459
Page 95
subsequently rescinded97 in conformity with the TMB's recommendations, one was rescinded after
18 months of application (again in accordance with the TMB's recommendation), whereas another
continues to be maintained ( albeit  with a significantly higher level of restraint, as recommended by
the TMB).
238. It is important to note that the main user of the provisions of Article 6 during Stage 1 has not
had frequent recourse to them during Stage 2, and that the other user of these provisions did not haverecourse to them at all during Stage 2.  It is also noteworthy that the three other Members concerned,
which had retained their right under Article 6.1, did not have recourse to the provisions of Article 6
prior to Stage 2.  The TMB noted the shift in terms of the Members having recourse to these
provisions.  No recourse was made to the provisions of Article 6 in 2000, while one request for
consultations was made during the first six months of 2001.  The TMB observed, therefore, a
substantial decline in the use of the transitional safeguard mechanism as from the beginning of the
year 2000.  In this light, it can be noted that there has been a noticeable deceleration of the recourse tothe provisions of Article 6 during the whole period covered by the present comprehensive report.
239. There are certainly multiple possible reasons and explanations for this trend of deceleration in
the use of the transitional safeguard mechanism.  While the sustained growth in the world economy,
up until the last quarter of 2000, may have also played a considerable role, the disciplines embodied in
and the control exercised by the WTO system has made, in the view of the TMB, a significantcontribution in this regard.  The dispute settlement system, through the respective panel and Appellate
Body reports, has set jurisprudence, provided detailed guidelines to Members and established
appropriate standards on which the TMB has been able to rely, or from which it has been able to take
further inspiration.
240. Against the background of difficulties in this area experienced by the TMB during the early
part of the ATC implementation, and of the related concerns expressed by WTO Members, the TMB
believes that the significant improvement in the Body's performance that has been achieved over time
and that manifested itself during Stage 2 should be noted.  The TMB applies tight, credible and
transparent standards in examining all the safeguard measures referred to it under the provisions ofArticle 6, and subsequently, if applicable, under Arti cle 8.10.  It conducts very thorough and detailed
examinations in each and every case, considers in full the arguments presented by the respective
Members and measures them very carefully, together with the evidence presented, against the
requirements embodied in the applicable provisions of  the ATC.  It also appears that the examination
of the different cases, each of them on their own merit, has brought out certain methodological,procedural and substantive aspects, regarding which the position taken by the TMB, in the respective
cases, can be viewed as providing further guidance for both WTO Members and the Body in the
future.  The TMB considers that its record over tim e has significantly improved in terms of efficiency
and transparency.  In an average case, when dealing with a transitional safeguard measure or a set of
such measures as a dispute, either under Article 6 or Article 8.10, usually over a period of three tofive days, full opportunity has been provided to the WTO Members concerned to present their
respective case and arguments, and to answer the questions posed by the members of the TMB.
Subsequently, the Body conducted a detailed examination, reached agreement on the findings,
conclusions and on the recommendation and, finally, examined and adopted a relatively detailed
report, together with the conclusions and recommendations.  Such reports were subsequentlycirculated to WTO Members, for their information, in a matter of days.  Representatives of the WTO
Members involved in these cases could be present throughout the Body's deliberations and, with the
exception of the final drafting stage, could make interventions related to any aspect of the matter
which was under examination.  The reports adopted in such cases provided full details of the
arguments presented by the parties, a detailed summary of the different steps and elements involved in
                                                     
97 In five out of these 11 cases, the measures were rescinded only after the formal decision taken by the
DSB to establish a dispute settlement panel.G/L/459
Page 96
the Body's examination together with its observations, findings and recommendations, and the
common rationale behind them all.
241. It should be also observed that though there were a few exceptions, Members' implementation
of the TMB's recommendations has shown a relatively good record.  This, in the view of the TMB,
can be attributed, among other things, to the thorough process of examination, to the consistentlyapplied standards of review and also to the transparency related to all these activities of the Body.  It
also deserves mentioning that, pursuant to Article 8.9, the TMB made the utmost efforts to exercise
proper surveillance of the implementation of its recommendations.
242. In reflecting on the comments made by ITCB Members about the consistency of the TMB's
reports and in particular on the case which was specifically referred to by them in their submission
98,
the TMB observes that the arguments included in paragraph 145 above would not only provide an
adequate background but would also, at least in part, answer the concerns expressed.  Furthermore, as
to whether or not the TMB "neglected to rectify the error", as stated in the submission in question, it
was observed that:
• the Member which was party to the agreement of the restraint in question (Thailand),
has not brought any perceived problem to the TMB's attention either with respect to
the TMB's overall examination and findings, or regarding the specific issue
(definition of domestic industry);
• the ATC does not provide for the re-examination and re-opening of the conclusions
reached by the TMB in its examination of measures referred to it under Article 6,unless a Member, pursuant to Article 8.10, considers itself unable to conform with the
recommendations made.
The TMB is of the view that the two specific case s referred to the Body should be seen in their
sequence, and that the specific provisions of the ATC under which they had been examined, as well as
the lack of any indication from the Member affected should also be taken into consideration.  In view
of this, and keeping also in mind the possible legal implications of re-opening a case on its own
initiative, the TMB cannot agree with the particular comments made in this regard.
243. In conclusion, the TMB recalled the conclusions adopted by the CTG in February 1998,
which stated, inter alia , the following:  "Recognizing the right of Members to use the safeguard
provisions of the ATC, the Council recalled the Ministerial Declaration at Singapore that such use, in
accordance with ATC provisions, should be as sparing as possible".
99  It can be observed that
developments in this regard during Stage 2, in particular as from the beginning of 2000, correspondedto a large extent to the Council's statement.
IV. QUANTITATIVE RESTRICTIONS NOTIFIED PURSUANT TO ARTICLE 2.
ISSUES RELATED TO THE IMPLEMENTATION OF THE PROVISIONS OFARTICLE 2 EXCEPT THOSE CONCERNING INTEGRATION
244. The ATC is intended to permit a progressive transition from an initial situation of a wide
network of trade restrictions to one in which solely the rules and disciplines of GATT 1994 apply.
This involves the elimination of all the restrictions maintained under the  MFA (Article 2 of the ATC)
and also bringing into conformity with the provisions of GATT 1994, or phasing out, the other
restrictions not justified under the provisions of GATT 1994
100 (Article 3 of the ATC).  The starting-
point of this transition process was the notificati on, pursuant to Article 2.1, of all  MFA or MFA-type
                                                     
98 See paragraph 232.
99 See paragraph 231.
100 For these latter restrictions, see paragraphs 355 to 362.G/L/459
Page 97
restrictions in place on 31 December 1994, which the maintaining Members decided to roll over to the
ATC.  In accordance with Article 2.4, the restrictions notified under Article 2.1 were deemed to
constitute the totality of such restrictions applied by the respective Members.  Article 2.4 goes on to
state, inter alia , that "[n]o new restrictions in terms of products or Members shall be introduced
except under the provisions of the Agreement or related GATT 1994 provisions".
245. The universe of the restrictions notified under Article 2.1 is subject to the rules and
procedures laid down in the other provisions of Article 2.  A restriction is ipso facto  removed if the
product concerned (in terms of HS line or category) is integrated according to the provisions of
Articles 2.6 or 2.8, or integrated earlier than provided for in an integration programme submitted
under those Articles, according to the provisions of Article 2.10.  It is also possible to eliminate a
restriction at the beginning of any agreement year , pursuant to Article 2.15, without integrating the
product concerned (and thereby reserving the right to invoke the provisions of Article 6 with respect
to such a product).  As long as a product is subject to a restriction notified under Article 2.1, the ATCprovides for the gradual increase in export opportunities in the product concerned (the growth
provision).  This is an automatic process which goes in parallel with the progressive integration, since
as from the very beginning of each stage of integration, an increased growth rate had to be or has to be
applied to the level of the respective restraints.  The starting-point was, once again, the base level of
the restrictions applied on the day before the entr y into force of the WTO Agreement (Article 2.12).
This level had to be increased annually by not less than the initial growth rate under the MFA regime,
increased by 16 per cent during Stage 1 (Article 2.13) .  For Stage 2, the growth rate applicable during
Stage 1 had to be increased annually by not less than 25 per cent (Article 2.14(a)).  The respective
flexibility provisions which are essentially the same as provided for under the MFA regime, are dealt
with in Article 2.16.  Small suppliers, new entrants and, to the extent possible, least-developedcountry Members benefit from higher or accelerated growth rates, pursuant to the provisions of
Article 2.18.  While the administration of the restrictions (i.e. essentially the allocation and
distribution of licences among potential suppliers) is done by the exporting Members
101, Article 2.17,
authorizes the importing and exporting Members concerned to agree on administrative arrangements,
as deemed necessary, in relation to the implementation of any provisions under Article 2.  Thesupervisory role of the TMB, with the task of keeping under review the implementation of Article 2,
is defined in Article 2.21.
A. 
SCOPE OF THE RESTRICTIONS TAKEN OVER FROM THE MFA REGIME :  STATUS AND
DEVELOPMENTS DURING THE FIRST STAGE OF THE INTEGRATION PROCESS
246. Article 2.1 requires that all quantitative restrict ions within bilateral agreements maintained
under Article 4 of the MFA or notified under Article 7 or 8 of the MFA in force on the day before the
entry into force of the WTO Agreemen t shall, within 60 days following su ch entry into force, be notified
in detail, including the restraint levels, growth rates and flexibility provisions, by the Members
maintaining such restrictions to th e Textiles Monitoring Body.  All such restrictions maintained between
GATT 1947 contracting parties and in place on 31 December 1994 are governed by the ATC.  In
practice, these obligations applied to four WTO Members, Canada, the European Community, Norway
and the United States.  Each of these Members complied with these notification requirements.  Anoverview of these notifications has already been pr ovided in the first comprehensive report adopted by
the TMB.
102  Since restrictions falling under Article 2.1 constitute the universe of such measures which
will have to be phased-out during the transitional period of 10 years, a summary is provided below,
together with subsequent developm ents that took place during Stage 1.
1. Notifications Made Pursuant to Article 2.1
247. On 1 March 1995, Canada provided a combined notification of restraints under Articles 2.1
and 3.1 which included bilateral agreements maintained under Article  4 of the MFA or notified under
                                                     
101 See Article 4.1 of the ATC and paragraph 381.
102 See G/L/179, paragraphs 183 to 191.G/L/459
Page 98
Article 7 or 8 of the MFA with 26 WTO Members (Bangladesh; Brazil; Costa Rica; Czech Republic;
Dominican Republic; Hong Kong; Hungary; India;  Indonesia; Jamaica; Korea; Macau; Malaysia;
Mauritius; Myanmar; Pakistan; Philippines; Roma nia; Singapore; Slovak  Republic; South Africa;
Sri Lanka; Swaziland; Thailand; Turkey and Uruguay) .  The notification also provided information on
unilateral restraints notified under Articles  7 and 8 of the MFA and not covered by Article 2 of the
ATC, with 17 exporters comprising GATT 1947 contra cting parties that were not yet WTO Members
and trading partners that were neither GATT 1947 cont racting parties nor WTO Members.  It was stated
that ATC benefits would be extended to GATT cont racting parties upon the entry into force of the
WTO Agreement for those Members.  With resp ect to non-WTO/non-GATT trading partners, these
matters would be governed by the terms of their acces sion to the WTO.  The notification also listed the
respective growth and flexibility provisions.
248. Reflecting the status of WTO membership as at  1 March 1995, Canada's Article 2.1 notification
comprised 205 specific limits as well as 39 sub-limits affecting 26  WTO Members.  It also contained
two export authorization requirements without establishing quantitative levels (Hong Kong) and a
number of group limits (India; Macau and Swaziland).  Subsequently, with the WTO membership of
former GATT contracting parties and the accession of  new Members, the total number of specific limits,
sub-limits and group or aggregate limits in respec t of WTO Members was brought to altogether 295.
249. The European Community listed all restrictions covered by Article 2 vis-à-vis  GATT
contracting parties which were then Members of the WTO.  These were separated into two categories
of measures: Community level quantitative restrictions for direct imports and additional Community
quantitative levels for goods re-imported under outward processing trade (OPT) programmes.  Growth
and flexibility provisions were also given.  The notification of restrictions for direct imports involved
14 Members (Argentina; Brazil; Hong Kong; India; Indonesia; Macau; Malaysia; Pakistan; Peru;Philippines; Singapore; Korea; Sri Lanka and Thailand) with a total of 198 specific quota levels plus
20 sub-limits.  Thus the number of specific limits and sub-limits taken together, applied against
WTO Members amounted to 218.  The notification of additional levels for OPT covered nine of these
Members (India; Indonesia; Macau; Malaysia; Pakistan; Philippines; Singapore; Sri Lanka and
Thailand) and a total of 35 limits.  As the European Community was enlarged to 15 member States onthe same day as the ATC entered into force, the notification presented both the amounts foreseen in
the bilateral agreements for 1994, and adjusted quota  levels to take into account the enlargement.
250. Norway notified the 54 specific limits it maintained on imports from 16 WTO Members
(Czech Republic; Hong Kong; Hungary; India; Indonesia; Korea; Macau; Malaysia; Pakistan;
Philippines; Poland; Romania; Singapore; Slovak Republic; Sri Lanka and Thailand). The notificationalso set out growth and flexibility provisions for each of these restrictions.
251. The United States notified measures maintained with 25 WTO Members (Bahrain;
Bangladesh; Brazil; Costa Rica; Czech Republic; Do minican Republic; Hong Kong; Hungary; India;
Indonesia; Jamaica; Kenya; Korea; Macau; Malaysia; Mauritius; Pakistan; Philippines; Romania
103;
Singapore; Slovak Republic; Sri Lanka; Thailand; Turkey and Uruguay) and, for information
purposes, the measures maintained with 12 non-WTO Members at that time (Bulgaria; China;
Chinese Taipei; Colombia; Egypt; El Salvador ; Fiji; Guatemala; Nepal; Oman; Poland and
the United Arab Emirates).  The notification of measures with WTO Members listed 650 specific
limits comprising single categories, parts of categories or groupings of categories.  Provision was
made for group limits in 12 of the Members listed and an aggregate limit in one of them.  The
notification of measures maintained with non-WTO Members comprised 251 specific limits and three
countries with group limits.  The notifications included information on the 1995 levels as well asgrowth rates and flexibility provisions.
                                                     
103The notification with respect to Romania was without prejudice to the US' invocation of Article XIII of
the WTO Agreement.G/L/459
Page 99
252. In subsequent addenda to the original notification, those exporters which had become
WTO Members were moved from the listing provided "for information only" to the list of measures in
place with WTO Members, that is, Bulgaria; Egypt; Fiji; Guatemala; Haiti; Poland; Qatar and the
United Arab Emirates.  In addition, following the consent by the United States to the application
between the United States and Romania of the WTO Agreement and the Multilateral Trade
Agreements in its Annexes, the quantitative restrictions maintained by the United States on importsfrom Romania in force on the day before the implementation of the decision by the United States were
notified, together with applicable growth rates and flexibility provisions.
253. Also in a subsequent addendum, the United States corrected its notification of guaranteed
access levels (GALs
104) with Costa Rica; Dominican Republic; El Salvador; Guatemala; Haiti and
Jamaica originally made under Article 3.1.  Since, under the MFA, these restrictions had been notified
to the Textiles Surveillance Body and had been in force on 31 December 1994, the United States
concluded that this notification should have been made under Article 2.1.  It also corrected thenotification of three restrictions with Kuwait, from Article 3.1 to Article 2.1.  As a result of the
addenda and corrections made, the total number of specific limits and sub-limits in respect of
WTO Members increased to 751 (696 specific limits and 55 sub-limits).
2. Observations With Respect to Notifications Made Pursuant to Article 2.1
254. Pursuant to Article 2.2, any Member could bring before the TMB any observation it deemed
appropriate with regard to notifications made under Article 2.1, within 60 days of the circulation of
such notifications.  Four notifications were made under this provision by Colombia, Hong Kong and
Macau (each in respect of the notification of the United States) and by Korea (in relation to the
notifications of Canada; the European Community and the United States).  The TMB reviewed each
of these notifications.
105  The outcome of these reviews, apart from technical changes (reflected in the
corrigenda or addenda to the notifications made under Article 2.1), does not alter the overall picture
regarding the number of restrictions rolled over into the ATC.
3. Changes Implemented During Stage 1:  Elimination of Restrictions Pursuant to
Article 2.15 or Similar Measures
255. In September 1995, Norway notified the TMB and the Members concerned of its elimination
of certain restrictions maintained under the ATC effective 1 January 1996, citing Article 2.15.
Specifically, Norway removed restrictions on:  (i) one-piece suits (part of category 1);  (ii) trousers
(category 2), both affecting 14 exporting countries;  (iii) products falling under HS 6210 (part of
category 1 and category 2) affecting respectively 16  and 2 exporting c ountries;  (iv) knitted bed-linen
(part of category 7) affecting 15 exporting countries; and, traps and pots (part of category 70)affecting six countries.  As a result, fourteen out of the 54 specific restraints had been eliminated, as
well as restraints on part categories. The TMB commended Norway for the early elimination of some
of its ATC restrictions.
106
256. As indicated in Chapter II107, Canada decided to include tailored-collar shirts, with respect to
which it had maintained restrictions in its list of products to be integrated during Stage 2.  Canada also
informed the TMB that with effect from 1 July 1997, it would not enforce existing restrictions on
imports of this product from the 22 WTO Members affected by the restraint.  These Members werethe following:  Bangladesh; Bulgaria; Cuba; Hong Kong; India; Indonesia; Korea; Macau; Malaysia;
Mauritius; Myanmar; Pakistan; Philippines; Pola nd; Qatar; Romania; Si ngapore; South Africa;
                                                     
104 Guaranteed Access Levels (GALs) are quantities of products of a category that a country can export
to the United States provided the actual product shipped qualifies for such treatment, inter alia , by being made
of "US Components".
105 See G/L/179, paragraphs 192 to 196.
106 G/L/179, paragraph 203.
107 See paragraph 47.G/L/459
Page 100
Sri Lanka; Swaziland; Thailand and the United Arab Emirates.  Though Canada did not specifically
refer to the provisions of Article 2.15 (since the restraints de jure  remained in place till
31 December 1997), the 22 restrictions de facto  ceased to apply during the last six months of the first
stage of the integration process (following which, by way of integration, they were formally
eliminated).
4. Implementation of the Provisions Related to Growth and Flexibility
257. As already noted in the TMB's first comprehensive report108, growth and flexibility provisions
had been notified along with the restraint levels under Article 2.1 and these had not been challenged
by any Member.  The TMB received no information which would have indicated that a problem had
arisen in the implementation of Articles 2.13 and 2.16.  Further, the TMB did not see any indication
of quantitative limits being placed on the combined use of swing, carryover and carry forward.
5. Implementation of Other Provisions of Article 2, in Particular Articles 2.17 and 2.18
258. The manner in which the provisions of Article 2.18 (related to small suppliers, new entrants
and, to the extent possible, least-developed country Members) had been implemented by the
respective Members in Stage 1 also had implications on the implementation of the same provisions
during Stage 2.  Accordingly, the present report deals with this matter in the context of developments
that took place during the second stage of the integration process.109  The same applies to the
administrative arrangements notified pursuant to Article 2.17 during Stage 1 since these samearrangements continued to apply during Stage 2.
110
B. STAGE 2:  DEVELOPMENTS IN AND IMPLEMENTATION OF THE RESTRICTIONS NOTIFIED UNDER
ARTICLE 2
1. New Notifications Received With Reference to Article 2.1
259. In early February 2001, the United States submitted an addition to its notification under
Article 2.1, following Oman’s accession to the WTO.  This notification was made pursuant to the
provisions of Oman’s Protocol of Accession to the WTO, in which it is stated, inter alia , that "the
quantitative restrictions on imports of textiles and clothing products originating in Oman between
Oman and WTO members that were in force on the date prior to the date of accession of Oman to the
WTO should be notified to the Textiles Monitori ng Body (TMB) by the Member maintaining such
restrictions and would be applied for the purpose of Article 2 of the Agreement on Textiles and
Clothing".  According to this notification, the United States applied specific limits on imports of
seven clothing items (defined as combined categories) from Oman.  The TMB took note of this
notification.
2. Changes in Restrictions Previously Notified Under Article 2.1
(a) Removal of restrictions by way of integration
260. As indicated earlier, if a product that has been subject to a restraint notified under Article 2.1
were to be integrated into GATT 1994 during Stage 2, imports of that product would be removed as a
result of integration, from the scope and provisions of the ATC, implying also that the respective
restraints had to be lifted.  Members maintaining restrictions falling under Article 2.1 included some
                                                     
108 G/L/179, paragraph 205.
109 See paragraphs 283 to 295.
110 See paragraphs 296 to 309.G/L/459
Page 101
products previously subject to restraints in their respective second stage integration programmes.
These developments are reported in detail in Chapter II of the present report.111
(b) Notifications made pursuant to Article 2.15:  elimination of restrictions without integration
261. In reply to specific questions put by the TMB (which were related to the process of
integration in a broader context), in June 1997, Norway stated, inter alia , that it "was committed to a
continuation of a policy of gradual liberalisation and expects to be able to notify later this year [1997] tothe TMB (and to WTO Members directly concerned) further steps taken pursuant to Article 2,
Section 15, of the ATC. Norway ma intains restraints for a very limited group of products, and in this
situation Norway had not found liberalisation by way of integration the best way to proceed, but had
pursued a policy of gradual liberalisation of pr oducts under restraint under Article 2.15. Norway was
committed to continuing this policy".
112
262. In September 1997, following the statement above, Norway submitted a notification with
particular reference to Article 2.15, indicating the e limination in two steps of most of the restrictions
remaining under the ATC with respect to WTO Member s.  The first step was implemented as from the
end of 1997 (in practice, as of 1 January 1998) and th e second step took effect at the end of 1998 (i.e.
from 1 January 1999).  The restrictions and WTO Members affected were the following:
First step
• restraints on imports of products of category 1 (woven jackets):  with respect to the
Czech Republic; Hungary; India; Indonesia; Korea; Malaysia; Pakistan; Philippines;Poland; Romania; Singapore; Slovak Republic; Sri Lanka and Thailand;
• restraints on imports of products of Category 2 (woven trousers):  with respect to
Hong Kong and Macau;
• restraints on imports of products of category 7 (bed linen);  with respect to the
Czech Republic; Hong Kong; Hungary; Indonesia; Korea; Macau, Malaysia;Philippines; Poland; Romania; Singapore; Slovak Republic; Sri Lanka and Thailand;
• restraints on imports or products of category 70 (fishing nets) with respect to Poland
and Romania.
Second step
• restraints on imports of products of category 1 (woven jackets):  with respect to
Hong Kong and Macau;
• restraints on imports of products of category 7 (bed linen) with respect to India and
Pakistan;
• restraints on imports of products of category 70 (fishing nets) with respect to Korea.
263. As a result, as from 1 January 1998, 32 restrictions affecting altogether 16 WTO Members
were eliminated, followed (one year later) by th e elimination of five further restraints affecting
five WTO Members.  The Members affected had been informed by Norway in advance, in accordancewith Article 2.15.  In taking note of this notification, the TMB commended Norway for the early
elimination of most of the restrictions it maintained under the ATC.
                                                     
111 See paragraphs 47 to 50.
112 See G/L/179, paragraph 204.G/L/459
Page 102
264. In September 2000, Norway made another notification under Article 2.15.  According to this
notification, in order to contribute to the objective of integration of textiles and clothing into
GATT 1994 and with particular reference to Article 2.15, Norway had decided to eliminate all
remaining quantitative restrictions on textile imports.  Therefore, the restraints applied on imports
from Indonesia, Malaysia and Thailand of products of category 70 (fishing nets) were, in accordance
with Article 2.15, rescinded on 1 January 2001.  The Members affected had been informed inadvance, in accordance with Article 2.15.  The TMB commended Norway for the early elimination of
all the restrictions it maintained under this Agreement.
265. In November 1997, the United States notified, with reference to the provisions of
Article 2.15, the elimination of restraints applied on imports of products belonging to several product
categories from Romania.  According to the notification, restraints on 11 US product categories were
to be eliminated effective 1 January 1998.  Romania had been informed in advance.
266. In mid-January 1998, Canada submitted a communication pursuant to Article 2.15, that it had
accorded "ex-quota treatment" to imports from all sources of: children’s blouses and shirts of
categories 7.3 and 8.1;  women’s and girls’ knitted blouses and shirts of category 8.1; women’s and
girls’ blouses and shirts of silk;  women’s and girls’ blouses and shirts of tariff item 6206.90.00.00;
saris of category 4.3;  women’s and girls’ ensembles of category 4.1;  babies’ snowsuits;  coats and
jackets of category 14.1;  and rainwear of category 1.3.  As a result, Canada would no longer request
export licences for those products as a condition for import into Canada.  However, these products
remained subject to Canadian import permit requirements for monitoring and surveillance purposes.
The TMB understood that "ex-quota treatment" implied the elimination of restrictions notified
pursuant to Article 2.1 by Canada with respect to the products involved.  It observed that Article 2.15
contained certain specific deadlines for notification which had not been met by Canada;  on the otherhand, the TMB observed that the affected WTO Members had been informed accordingly. The TMB
took note of this communication.
267. In June 2001, Canada submitted an additional communication pursuant to Article 2.15,
according to which Canada would remove the restraints on baby garments of category 17, effective
1 January 2002.  According to Canada, this measure was taken following Canada's decision to removeall baby apparel from restraint.  The Member affected by the removal from restraint of baby garments
of category 17 would be Korea.  Canada further stated that it will not be reducing the category 17
restraint level of this Member to account for the removal of baby garments from restraint, thereby
providing a further de facto  increase in access for it to the Canadian market, and that as a result of the
action under Article 2.15, all remaining restraints on baby apparel would be eliminatedby 1 January 2002.
(c) Elimination or non-application of restrictions to imports from certain WTO Members
268. The Trade and Development Act of 2000, adopted by the US Congress and which was
implemented as of 1 October 2000, appears to offer, as part of the Caribbean Basin Trade Partnership
Act (CBPTA), duty-free and quota-free treatment to Caribbean countries, with some products eligible
for benefits on an unlimited basis and others subject to an annual regional cap.
269. Another portion of the Trade and Developmen t Act of 2000 (the African Growth and
Opportunity Act) is related to treatment offered to imports from 48 Sub-Saharan African countries
which, according to indications, provides, inter alia , that certain clothing items produced in
beneficiary countries are eligible to enter the US market, both duty free and quota free, provided that
certain conditions are met.
270. The TMB requested detailed information from the United States regarding the African
Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act, in particular on the
impact of their entering into force on the implemen tation of specific provisions of the ATC, such asG/L/459
Page 103
the application of restrictions notified under Article 2.1.  The United States answered, inter alia , that
it would provide full information to the WTO at the time it would seek a waiver from WTO Members
for the operation of various aspects of the Trade and Development Act of 2000.113  According to the
US communication, in the interim, detailed information concerning the Trade and Development Act
may be found on US Otexa's website.114
(d) Suspension of the application of restrictions to imports from certain Members
271.  In response to the TMB's request for information and notification made in the context of the
preparation of the present report and of issues related to Article 7, the European Community stated,
inter alia , that it had "entered into a Memorandum of Understanding with one WTO Member, Sri
Lanka, concerning market access in the textiles and clothing sector.115  This involved reduction and
bindings of tariffs and commitments concerning non-tariff barriers on the side of Sri Lanka and the
suspension of the application of the quotas on the EC side.  The quotas have not been eliminated but
their application has been suspended subject to ongoing compliance by Sri Lanka with the terms ofthe agreement.  Therefore, the European Community  considers that its agreement with Sri Lanka is
not covered by the requirements of Article 2(15) of the ATC".
(e) Increase in certain restraint levels, other than pursuant to Article 2.14(a)
272. In January 1998, Canada informed the TMB that it had decided to increase by 10 per cent, as
of 1 January 1998, the 1998 restraint levels for winter outerwear (falling under category 2.0) inrespect of imports from WTO Members.  According to the notification, this permanent, one-time
increase would be applied after adjusting the 1997 restraint levels in accordance with the growth
provisions of the ATC, including Article 2.14.  Canada also indicated that for the subsequent years the
growth provisions of the ATC would be applied on the basis of this higher 1998 restraint level.  On
the basis of related information available to the TMB, it could be established that this one-timeincrease affected 18 WTO Members (Bangladesh; Bulgaria; Hong Kong, China; India; Indonesia;
Korea; Macau; Malaysia, Mauritius; Myanmar, Pakistan; Philippines; Romania; Singapore; Sri Lanka,
Swaziland; Thailand and the United Arab Emirates).
(f) Adjustments implemented in the level of certain restrictions as a result of integration of parts
of restrictions notified under Article 2.1
273. The United States integrated into GATT 1994, during Stage 2 a part of one category
(category 239) which had been subject to specific restraints and also a number of other product
categories which had been falling under group or aggregate limits.116  Canada also integrated one
product falling under a broader (aggregate) restraint applied on imports from two Members.  Since
Article 4.3 deals specifically with situations in which a product constituting only part of a restrictionis notified for integration pursuant to the provisions of Article 2, this subject is dealt with, in more
details, in the Chapter regarding the implementation of the provisions of Article 4.
117
                                                     
113 See also paragraphs 636  and 637.
114 Since website information is not a substitute for official notifications and communications to be addressed
to appropriate WTO bodies, and also keeping in mind the tight time constraint for finalizing this report, the TMBpreferred to wait for the official communications of the United States as indicated in the US reply.
115 Memorandum of Understanding between the European Community and the Democratic Socialist
Republic of Sri Lanka on arrangements in the area of market access for textile and clothing products, Official Journal No L 80 of 20/3/2001.
116 See paragraph 50.
117 See paragraphs 407 to 413.G/L/459
Page 104
(g) Views and comments of WTO Members in response to the TMB's request for information
and/or to further specific questions raised by the TMB
274. In their reply to the TMB's request for information and notification made in the context of the
preparation of the present report, ITCB members that are also Members or observers of the WTO
stated, inter alia , that "[t]hree restraining Members, namely Norway, Canada and the US, notified
their elimination of certain quota restrictions pursuant to Article 2.15 of the ATC.  But while Norwayand Canada acted on an MFN basis, the US did so only with respect to restrictions on a single
Member.  It did not eliminate quotas on the same products from other Members.  Nor did it provide
any information regarding any consideration that might have been given to the treatment of exports of
those products from such other Members".
275. In reply to the TMB's request for information and notification, the European Community
stated, inter alia , that "the EC is engaged in active negotiation with a number of other WTO partners
creating the potential for further agreements of a similar kind [to the Memorandum of Understanding
concluded with Sri Lanka
118] and hopes thus to contribute to further improving market access in the
sector in advance of 2005.  In this respect, the EC would like to emphasise that Article 2.15 of the
ATC explicitly acknowledges the right of Members to eliminate restrictions towards individual
countries during the integration phase.  This deviation from Article I of the GATT 1994 ensures that
such additional liberalisation of trade in textiles is not de facto  inhibited by the application of the
general MFN principle".
3. Implementation of the Provisions Related to Growth (Article 2.14(a))
(a) Information at the TMB's disposal
276. Pursuant to Article 2.14(a), the growth rates carried over from the pre-ATC regime and
already increased by not less than 16 per cent annually during Stage 1 had to be further increased bynot less than 25 per cent annually during the second stage of the integration process.  There is no
obligation under Article 2 for restraining Members to submit notifications regarding their compliance
with this requirement.  However, any particular matter with reference to the implementation of the
provisions of Article 2 including the one related to growth, can be referred by any Member to the
TMB.  No issue has been brought before the TMB or  to its attention with respect to the application
and implementation of the growth rate factors.  Therefore, it can be assumed that the requirements
stipulated in Article 2.14(a) have been met by the Members maintaining restrictions under Article 2.1.
(b) Conclusions adopted by the CTG in February 1998 in its first major review
277. The conclusions of the major review of the implementation of the ATC in the first stage of the
integration process, as adopted by the CTG, contain, inter alia , the following:
"17. Some Members were of the view that the ATC had anticipated two paths to the
progressive liberalization of textile and clothing  trade;  one was integration and the other was
the application of growth rate factors.  The two paths were not substitutes;  rather, the intention
was that they would proceed in parallel.  In cal culating the effects of the increased growth rates
they considered that the increase in the quota le vels in the first stage by the application of
growth rate factors was misleading.  A number of Members felt that the application of the
growth rate factors would not significantly in crease market access.  Any assessment of the
economic effect of the growth rate increases woul d have to take into account the fact that quotas
with low rates of utilization tended to have high er growth rates.  The point being made was that
without meaningful integration and with the increases in the quotas being minimal, these
processes could not be counted upon to produce a sm ooth and effective integration of this sector
into WTO rules.
                                                     
118 See paragraph 271.G/L/459
Page 105
18. Some other Members considered that th e provisions for enhanced growth rates
contained in Articles 2.13 and 2.14 of the ATC would operate to give substantial increases in
the volumes of the restrictions concerned.  The application of the growth rate factors was
cumulative and exponential, providing a valuable part of the integration process.  They also
considered that the accelerated growth rates would cause quotas to increase from their presentlevels to levels where they would no longer operate as a limitation well before the ten-year
transition was completed.  The important point was the effect of quota growth on the restraint,
particularly in view of the slower growth rate in the domestic markets.  Over the ten-year
time-span, for many or all of the quotas that were currently being filled, the quota growth
would cause them to no longer be true restraints."
(c) Views and comments of WTO Members in response to the TMB's request for information
and/or to further specific questions raised by the TMB
278. In the communication of the ITCB members provided in response to the request of the TMB,
it is stated that ITCB members "are cognizant of the increases in growth factors pursuant to the
relevant provisions of Article 2.  However, … an augmentation of access should not be viewed as a
substitute for the integration of relevant products by means of complete elimination of quotarestrictions … . In this regard, we also wish the TMB to note that, notwithstanding the increments in
growth rates, the restrictive nature of quota restri ctions has not lessened when seen in the light of
actual trade".
279. In the communication of Canada provided in response to the request of the TMB and to
further specific questions raised by the TMB, Canada stated that "many of the growth rates underCanada's bilateral arrangements under the MFA were 6 per cent in 1994.  As a result, taking into
account both the original growth provisions stipulated  in Canada's bilateral restraint arrangements and
the ATC growth-related provisions, most restraint levels on these apparel restraints have increased by
70.9 per cent from 1995 to 2001 as compared to the 50.3 per cent increase that would have resulted
under the bilateral arrangements alone.  During the same period, the Canadian domestic market grewby less than 10 per cent, with imports from the developing countries alone increasing their market
share from 31 per cent to 47 per cent from 1994 to 2000.  The ATC also requires the growth rates to
be increased again on 1 January 2002 by an additional 27 per cent, which further expands the market
opportunities provided under the ATC for products still remaining under restraint during the last three
years of the ATC".
280. In the communication of the European Community provided in response to the request of the
TMB and to further specific questions raised by the TMB, the European Community stated that "the
contention that notwithstanding increments in growth the restrictive nature of trade has not lessened
when seen in the light of actual trade is incorrect.   Total EU trade in textiles and clothing (T&C)
represented € 110 billion in total (import/export) in year 2000.  EU imports in 2000 reached
€ 69.5 billion, an increase of 16.6 per cent over 1999 and an increase of 54 per cent over 1995.  In
2000 EU imports of product categories subject to quotas were € 19.7 or 28.4 per cent of total T&Cimports: the share is up from the 25.3 per cent recorded in 1998.  Thus the value of the share of
imports represented by goods under quota has increased in the context of an overall growing market.
The share of imports under quota has remained stable for non-WTO countries since 1998 but there
has been a marked increase for WTO countries (over 7 percentage points).  In addition total T&C
imports from countries subject to quotas has substantially increased in these two years(+ 34 per cent)".
281. In the communication of the United States prov ided in response to the request of the TMB
and to further specific questions raised by the TMB, the United States stated that "in contrast to the
statement of the ITCB, [the United States] would reiterate that, as said in the [US'] submission, US
imports of textiles and apparel have increased by over 90 per cent (in volume) since the WTO cameG/L/459
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into effect, or by an average rate of 11.3 per cent each year (in square meter equivalent).  In value
terms, imports of textiles and apparel increased absolutely by 79.4 per cent, or by an average rate of
10.2 percent each year since the WTO has entered into force.  US imports of textiles and apparel from
ITCB members have increased even faster  [emphasis supplied], or by 104.3 per cent in absolute terms
or by 12.65 per cent each year (in square meters equivalent) since the WTO entered into force.  In
value terms, imports of textiles and apparel from ITCB members have increased by 90.1 per centabsolutely, or by an average annual rate of 11.3 per cent since the WTO entered into force.  Over the
last five years, even with quota arrangements in place, US imports of textiles and apparel grew at a
faster rate than US non-oil imports (60.7 per cent versus 59.5 per cent in absolute terms, or
9.95 per cent versus 9.79 per cent average annual growth)".
4. Implementation of the Flexibility Provisions (Article 2.16)
282. No specific problem or difficulty has been reported to the TMB regarding the implementation
of the provisions of Article 2.16.  It appears that  the technique of swing, carryover and carry forward
has been and continues to be widely used by the Members whose exports are subject to restraints.
5. Implementation of the Provisions of Article 2.18
283. Article 2.18 states that, with respect to the Members whose exports were subject to
restrictions on 31 December 1994 and whose restrictions represented 1.2 per cent or less of the total
volume of the restrictions applied by an importing Member as of 31 December 1991 and notifiedunder Article 2, meaningful improvement in access for their exports shall be provided at the entry into
force of the WTO Agreement and for the duration of the ATC through advancement by one stage of
the growth rates set out in Articles 2.13 and 2.14, or through at least equivalent changes as may be
mutually agreed with respect to a different mix of base levels, growth and flexibility provisions.  This
provision should be read in conjunction with the language of Article 1.2 which states the following:
"Members agree to use the provisions of paragraph 18 of Article 2 […] in such a way as to
permit meaningful increases in access possibilities for small suppliers and the development of
commercially significant trading opportunities for new entrants in the fields of textile and
clothing trade."
A footnote to Article 1.2 specifies that "[t]o the extent possible, exports from a least-developed
country Member may also benefit from this provision".
284. It can be observed that while the provisions of Articles 1.2 and 2.18 are closely linked to each
other, the definition of the small suppliers and new entrants as the potential beneficiaries is providedin Article 2.18, namely in relation to their respective share in the total volume of the restrictions
applied by the restraining Members concerned.
(a) Implementation during Stage 1
285. The TMB received notifications from Canada, the United States and the European
Community on the improvements in access provided to those Members whose exports were subject to
restrictions on 31 December 1994 and whose restrictions represented 1.2 per cent or less of the total
volume of the importing Members' restrictions  on 31 December 1991.  The TMB understood that no
exporting Member qualified under this provision in the case of Norway.  Canada listed 16 Members
which qualified for improved access under this provision:  Costa Rica; Cuba; Czech Re public;
Dominican Republic; Hungary; Jamaica; Lesotho; Macau; Mauritius; Myanmar; Poland;
Slovak Republic; South Africa; Sri Lanka; Swazila nd and Uruguay.  In addition, Canada applied this
provision to the restraints applied on imports from Bulgaria when Bulgaria joined the WTO, as it metthe criteria of Article 2.18.  This improvement in access was effected by increasing the annual growth
rates for the restrictions in force on 31 December 1994 by 25 per cent, in lieu of 16 per cent.  CanadaG/L/459
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included in this list not only the Members qualified on 31 December 1991 but also those qualified on
31 December 1994, the two groups of Members representing altogether over 9 per cent of the volume
of Canada's total restraints.
286. The United States listed 22 Members qualified under this Article for improved access:
Bahrain; Colombia; Costa Rica; Czech Republic; Dominican Republic; Egypt; El Salvador; Fiji;
Guatemala; Haiti; Hungary; Jamaica; Kenya; Kuwait; Macau; Mauritius; Poland; Qatar; Romania;Slovak Republic; United Arab Emirates and Uruguay.  For these Members, the annual growth rates
applicable to the restraints were advanced by one stage by increasing them by 25 per cent for the first
stage, in lieu of 16 per cent.
287. The European Community notified that two Members were qualified under this Article for
improved access: Peru and Sri Lanka. For these Members, the annual growth rates applicable to the
restraints were advanced by one stage by increasing the annual growth rates applied to the restraints
for the first stage first by 16 per cent and second by 25 per cent, in lieu of 16 per cent.
288. In reviewing the notifications above, the TMB observed that the implementation of this
provision of the ATC had been made by the Members concerned using different methodologies and
that no Member had used the option of equivalent changes with respect to a different mix of base
levels, growth and flexibility provisions.  It was observed that Article 2.18 does not provide precise
guidance as to how to implement the advancement by one stage of the growth rates set out inArticles 2.13 and 2.14, or how to apply "at least equivalent changes as may be mutually agreed with
respect to a different mix of base levels, growth and flexibility provisions".  However, it was noted
that the result in terms of market access in th e first stage would have been improved if the
methodology chosen for the advancement by one stag e of the growth rates had included the growth
factor of the first stage, as done by one Member.
289. Subsequently, in preparing its first comprehensive report, the TMB had another discussion on
whether it could provide further clarification with respect to the methodology to be used in calculating
the advancement by one stage of growth for small s uppliers.  This discussion confirmed the view that
Article 2.18 does not provide precise guidance in this regard.  Attention was drawn, however, once
again, to the fact that the methodology chosen by the European Community for the implementation ofthis provision was more beneficial in terms of providing meaningful improvement in access to the
market for their exports.  The TMB also expressed its expectation that the Members which had
notified restrictions pursuant to Article 2.1 would, in due course, but in any case prior to the
implementation, notify to the TMB as to how they intended to implement the provisions of
Article 2.18 during the second stage of integration.
(b) Implementation during Stage 2
290. In the absence of communications from Canada, the European Community and the
United States in this regard, the TMB, at its m eeting of November 1997, decided to renew its request
for information from the Members concerned regarding their respective implementation of the
provisions of Article 2.18 during the second stage of the integration process.  The replies received can
be summarized as follows:
• Canada stated that in respect of the Members which were qualified for improved
access under Article 2.18, the growth rates for the restrictions in effect on
31 December 1997 would be increased by 27 per cent.  Canada reconfirmed also that
in determining eligibility for this treat ment it had included not only those Members
that accounted for less than 1.2 per cent of Canada's total restraints in effect on
31 December 1991, but also those which were qualified on the basis of the same
criteria, on 31 December 1994;G/L/459
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• the European Community confirmed that the Members qualified for improved access
were Peru and Sri Lanka.  With regard to Peru, the two restrictions, notified under
Article 2, had growth rates of 5 per cent and 7 per cent, which would become
9.21 per cent and 12.89 per cent, respectively, for the second stage of integration.
The four restrictions concerning Sri Lanka, notified under Article 2, had growth rates
of 7 per cent (for three) and 8 per cent (for the remaining restriction), which would
become 12.89 per cent and 14.73 per cent, respectively, for the second stage ofintegration.  These growth rates resulted from the application of the increase in
growth rate normally applicable for the third stage (27 per cent) to the growth rates
used for these countries during the first stage (where the European Community took
the growth rates notified under Article 2 increased by 16 per cent and then further by
25 per cent);
• the United States indicated that the growth rates for the restrictions applied against
imports from small suppliers would be increased by 27 per cent for the second stage.
Bulgaria (which became a Member of the WTO after the entering into force of the
WTO Agreement) was added to the list of beneficiaries of this treatment.
291. The TMB has not received any information that would indicate that these accelerated growth
rates have not been implemented in the way they were reported by the restraining Members, in respectof imports from the beneficiaries listed in the respective communications.
(c) Conclusions adopted by the CTG in February 1998 in its first major review
292. The relevant part of the conclusions adopted by the CTG on the major review of the
implementation of the ATC during the first stage of the integration process reads as follows:
"44. A number of Members referred to Article 1.2 of the ATC which provided that
Members would use Articles 2.18 […] of the ATC in such a way as to permit meaningful
increases in access possibilities for small suppliers and the development of commercially
significant trading opportunities for new entrants in the field of textiles and clothing trade.  A
footnote to this provision stated that to the extent possible, exports from a least-developed
country Member may also benefit from this provision.  However, they noted that in theimplementation of Article 2.18, the methodologies used by only one of the Members
maintaining restraints of increasing the respective growth rates first by 16 per cent and then
by 25 per cent had fulfilled the requirements of Article 1.2.  They noted that two Members
maintaining restraints had applied only a 25 per cent increase.  These Members made
reference to the observation that the results in terms of market access in the first stage would
have been improved if the methodology chosen for the advancement by one stage of the
growth rates had included the growth factors of  the first stage, as done by one Member […].
They considered that the term "advancement by one stage" in Article 2.18 did not mean
substitution of the second stage growth factor for the first stage growth factor.  The stages had
cumulative effect and it was incidental that the growth enhancement factors for later stages
were higher than in earlier stages, therefore, the growth factor for Stage 2 was to be applied in
addition to the Stage 1 growth factor.  Aside from this technical aspect, Article 2.18 should beimplemented both within the context and general meaning of the ATC which was
liberalization of trade and the purpose of the special provisions regarding small suppliers, that
is to provide significant increases in access to them in terms of advancement by one stage of
the growth rates with a view to contribute to th e future possibilities of developing their trade.
[…]
45. In response to these points, other Members considered that they had met their
obligations and had implemented the provisions of Article 2.18 faithfully.  One MemberG/L/459
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confirmed that it had increased the growth rates first by 16 per cent and then by 25 per cent.
Some other Members considered that these matt ers, in general, had not been the subject of
consultations and concern was expressed that some Members were bypassing the provisions
and procedures in the ATC and bringing the matters directly to the Council.  As regards the
application of Article 2.18, the intent of the language of this Article was that "advancement"
should mean substitution of the second stage grow th rate for the first stage growth rate, not
cumulation of the first and second stage growth rates.  In this way, small suppliers would
receive a meaningful increase in their market access by "front-loading" these considerably
faster growth rates.  In addition one Member had extended Article 2.18 to six additional
Members by applying this provision on the basis of 1991 and 1994 imports, whereas
Article 2.18 refers only to applying this provision on the basis of 1991 imports".
(d) Views and comments of WTO Members in response to the TMB's general request for
information and/or to further queries to certain WTO Members
293. In their response to the TMB's request for information and comments in the context of the
preparation of the present report, the ITCB members stated, inter alia , that "Article 1.2 provided for
implementation of the growth-on-growth provision of  Article 2 in such a way as to permit meaningful
increases in access possibilities for small suppliers.  It also provided that the same treatment beextended to least developed Members.  The US and Canada failed to implement this provision
consistently with its object and purpose.  In particular, the methodology employed by them in
implementing the growth factors of the Agreement fell short of providing meaningful increases in
access possibilities for small suppliers.  The report should also emphasize that, with respect to least
developed country Members, they failed to give any meaning to the provision.  We wish to point outthat the TMB also seemed to overlook the importance of full and faithful application of the principle
embodied in this provision in its review of the implementation of Article 2".
294. In the communication of Canada provided in response to the request of the TMB for
information and comments, and to further specific questions raised by the TMB, Canada stated that
"in compliance with the requirement to advance the growth rate for small suppliers as stipulated by
ATC Article 2.18, Canada increased the growth rate for these exporters by 25 per cent on
1 January 1995 and again by 27 per cent on 1 January 1998.  As a result, the annual growth rates on
restraints remaining for most small suppliers and least developed countries now exceed 9 per  cent
and will increase to over 12.0 per cent on 1 January 2002 as a result of the 27 per cent increase in
growth rates at the start of the third stage required by the ATC.  At the same time, at the onset of theATC, Canada decided to expand the small suppliers provision to cover more exporters by applying
Article 2.18 to the exporters who qualified in either 1991 or 1994, thereby taking into account
exporters who entered the Canadian market after 1991 and before 1995.  This allowed six more
suppliers to benefit from the advancement of the growth rate provision.  In addition, Canada applied
the small [suppliers] provision to the restraints on Bulgaria when it joined the WTO as it also met the
Article 2.18 criteria.  In addition, 17 small suppliers and least developed counties benefited directly
when Canada increased unilaterally its restraint level on winter outerwear by 10 per cent on1 January 1998.  Small suppliers and least developed countries have also benefited from the removal
of quantitative restraints into the Canadian market.  Ten small suppliers and least developed countries
benefited in the case of the elimination of restraints on tailor collared shirts on 1 July 1997
(Bangladesh, Bulgaria, Cuba (its only restraint), Macau, Mauritius, Myanmar, Poland, South Africa,
Sri Lanka and Swaziland), while 9 of these Members benefited from the removal of various apparelitems from restraints on 1 January1998 under ATC Article 2.15 (Bangladesh, Bulgaria, Hungary,
Macau, Myanmar, Poland, South Africa, Sri Lanka and Swaziland).  In the latter case, Canada
provided further market opportunities for these members by not reducing the restraint levels on the
products remaining under restraint in the affected categories.  Thirteen small suppliers and least
developed countries will also benefit directly as a result of the elimination of restraints and theremoval of products from restraint on 1 January 2002 as a result of the third stage of integration.  AsG/L/459
Page 110
in the earlier case, Canada will not be adjusting the restraint levels where restraints are partially
liberalized, further expanding market opportunities for the affected Members".
295. In the communication of the European Community provided in response to the request of the
TMB for information and comments, the European Community stated that it "has applied the
provisions of Article 2.18 concerning small suppliers by increasing the growth rates during the first
stage of integration first by 16 per cent secondly by an additional 25 per cent.  These rates wereincreased by an additional 27 per cent in stage 2".
6. Administrative Arrangements Agreed Between Members Following the Provisions of
Article 2.17
296. According to Article 2.17, "[a]dministrative arra ngements, as deemed necessary in relation to
the implementation of any provision of this Article, shall be a matter for agreement between the
Members concerned.  Any such arrangements shall be notified to the TMB".  Such administrative
arrangements, since they are related to the implementation of Article 2 and, in particular, to theimplementation of the restrictions notified under Article 2.1, were agreed between the Members
concerned during the early part of the implementation of the ATC and have been dealt with in the first
comprehensive report adopted by the TMB.
119  However, as these arrangements have remained in
force during the second stage of the integration process and have been relied on by the Members
concerned with respect to issues covered by the arrangements, it is also necessary to summarize thembelow.
(a) Administrative arrangements notified during Stage 1
297. Canada notified administrative arrangements concluded with 24 WTO Members (Bangladesh;
Brazil; Costa Rica; Cuba; Hong Kong; Hungary; Indi a; Indonesia; Korea; Lesotho; Macau; Malaysia;
Mauritius; Pakistan; Philippines; Poland; Romania; Singapore; Slovak Republic; Sri Lanka;Swaziland; Thailand; Turkey and Uruguay).  In its examination, the TMB noted that these
arrangements had been bilaterally agreed and contained provisions which implemented administrative
aspects of the export control systems (export licenses, monitoring of exports, quota flexibility
provisions, exchange of statistics, re-exports by Canada and consultations).
298. The TMB also examined the administrative arrangements concluded between the
European Community and 13 Members (Argentina; Hong Kong; India; Indonesia; Korea; Macau;
Malaysia; Pakistan; Peru; Philippines; Singapore; Sri Lanka and Thailand).  The TMB observed that,
in the case of India; Indonesia; Korea; Macau; Malaysia; Pakistan; Peru; Philippines; Singapore;
Sri Lanka and Thailand, the administrative arrangements reproduced certain provisions of previous
bilateral textile agreements. In the case of Argentina, provisions of the previous agreement werenotified, which, as agreed between the two Members, would be notified as administrative
arrangements under Article 2.17.  The European Community and Hong Kong had negotiated a self-
contained administrative arrangement.
299. The administrative arrangements notified by the European Community, though differing in
some aspects, all addressed the issues of product classification, determination of origin, treatment of
re-imports after processing and imports for re-export after the same, exchange of statistical
information, cooperation in preventing circumvention, "regional concentration", consultationprocedures, double-checking systems for products subject to restraints and administrative cooperation
and, in the majority of cases, exemption of hand-made cottage industry products and traditional
folklore handicraft products from quantitative restrictions under certain criteria.
300. The TMB recalled that, pursuant to Article 2.17, Members could agree on administrative
arrangements as deemed necessary in relation to the implementation of the provisions of this Article.
                                                     
119 See G/L/179, paragraphs 214 to 222.G/L/459
Page 111
It recognized that a number of provisions in the administrative arrangements notified, designed to
ensure the proper administration of the restrictions notified under Article 2.1, fell within the
parameters defined in Article 2.17.  It observed, however, that not all the provisions in these
arrangements were fully related to the implementation of the provisions of ATC Article 2, but could
have been addressed in some of its other Articles.  It noted that the European Community and the
Members concerned had deemed it necessary to include in the administrative arrangements provisionsof the previous bilateral agreements which could have a potential effect on the implementation and
administration of quantitative restrictions notified by the European Community pursuant to
Article 2.1.  In addition, the attention of the TMB was drawn to the provisions of the EC's
implementing legislation on the common import regime for textile and clothing products, which
clarified that the implementation of provisions such as the ones included in the administrative
arrangements was not intended to constitute a derogation from the provisions of the ATC.  In light of
the above, the TMB expected that these administrative arrangements would be implemented by therespective Members in conformity with the relevant provisions of the ATC.
301. The United States notified administrative arrangements bilaterally agreed between the
United States and Bangladesh; Brazil; Colombia; Costa Rica; Dominican Republic; Egypt; Fiji;
Guatemala; Haiti; Hungary; Indi a; Indonesia; Jamaica; Kenya; Korea; Macau; Malaysia; Mauritius;
Pakistan; Philippines; Poland; Qatar; Romania; Sri Lanka; Thailand; Turkey; United Arab Emiratesand Uruguay, respectively. These arrangements were in the form of provisions which had been drawn
from previous bilateral agreements concluded between the United States and the Members concerned;
these provisions had been agreed as being necessary for the proper implementation of restrictions
notified to the TMB by the United States under Article 2.1.  The TMB observed that this approach
resulted in some respects in texts which were not easily understood, and also in some instances gavethe impression that some of the provisions of the administrative arrangements were not fully
consistent with others.  The written replies of the United States to the TMB's requests for clarification
provided some guidance in this regard.
302. While the structure and language of these administrative arrangements differed from one
another, they all addressed issues such as: product coverage and related issues of classification;flexibility adjustments;  overshipment charges;  spacing provisions;  exchange of data and
information;  US assistance in implementing the limitation provisions; consultation on
implementation questions; "mutually satisfactory administrative arrangements";  and cooperation in
the prevention of circumvention.  The majority also contained provisions related to a correct
category/quantity visa system and to commercial samples and personal shipments.  Some alsocontained provisions concerning the treatment of imports of handloom products.
303. In reviewing these arrangements pursuant to Article 2.21, the TMB observed that in several
instances the consistency of some provisions of the administrative arrangements with the ATC could
be questioned, such as, for example, the possibil ity for the parties to the United States/Guatemala
arrangements "to agree to put up new categories under quota"; or the possibility for the
Dominican Republic, Guatemala and Haiti to apply for new guaranteed access levels; or a provision
in the context of flexibility adjustments of some arrangements which enabled the United States to"supply adjustments ... to any specific limit whenever that adjustment appears appropriate to facilitate
the flow of trade and the sound administration" of the administrative arrangement. In reply to
clarifications sought by the TMB, the United States stated that when provisions of the administrative
arrangements were inconsistent with the ATC, the provisions of the ATC would apply.
304. The TMB noted that a number of the provisions of the administrative arrangements were
related to the implementation of the restrictions notified pursuant to Article 2.1 and, thus, were
qualified for inclusion into the arrangements agreed upon under Article 2.17.  The TMB observed,
however, that some of the provisions could have been addressed in some Articles other than Article 2.
This applied in particular to the provisions related to cooperation in the prevention of circumvention.
The TMB noted, inter alia , that Article 5.4 seemed to provide some flexibility in terms of remedies orG/L/459
Page 112
agreed actions that could be foreseen in cases when circumvention had occurred, but observed,
however, that Article 5 contained no reference to the possibility for the importing Member to impose
triple charges on quotas, as a deterrent to circumvention.  The TMB noted in this regard that this
provision had not been utilized by the United States. The TMB recalled that the United States had
stated that when provisions of the administrative arrangements were inconsistent with the ATC, the
provisions of the ATC would apply.  The TMB understood that this statement applied to each andevery provision of the arrangements notified, and 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.  The TMB’s taking note of the administrative arrangements
notified by the United States was without prejudic e to the rights and obligations of WTO Members
arising from the ATC.
305. No notification pursuant to Article 2.17 was received from Norway. The TMB understood in
this respect that administrative arrangements for the purpose of implementing the provisions ofArticle 2 had not been deemed necessary.
(b) Developments during Stage 2
(i) New notifications made with reference to Article 2.17
306. In April 1997, Canada provided a detailed notification of administrative arrangements
concluded with the Czech Republic.  The arrangements had been bilaterally agreed and containedprovisions which implemented, in accordance with the provisions of Article 4.1, administrative
aspects of the respective export control systems (export licences, monitoring of exports, quota
flexibility provisions, exchange of statistics, re-exports by Canada, consultations).  The TMB took
note of this notification.
307. In February 2001, the United States notified the administrative arrangements agreed with
Oman which are associated with the restrictions the United States maintained with respect to the
imports from Oman under Article 2.1, following the accession of that country to the WTO. The TMB
recalled that according to Article 2.17 "administrat ive arrangements deemed necessary in relation to
the implementation of any provision of [Article 2], shall be a matter for agreement between the
Members concerned", and noted that the administrative arrangements notified by the United Stateshad been bilaterally agreed between United States and Oman.  The TMB observed that the
arrangements contain, inter alia , provisions related to product coverage, spacing of exports, exchange
of respective import and export data and cooperation in the prevention of circumvention, including the
provision enabling the United States to impose, in particular circumstances, triple charges on quotas.
The TMB recalled that when it had examined the administrative arrangements concluded by theUnited 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 to restraints
under paragraph 1 of Article 2 were subject to the administrative arrangements" .  Furthermore, "the
United States had stated that when provisions of the administrative arrangements were inconsistent
with the ATC, the provisions of the ATC would apply".  The TMB also recalled that with respect tothe provisions on circumvention, contained in the administrative arrangements concluded and notified
by the United States, it had sought information as to how such provisions were deemed necessary in
relation to the implementation of any provision of Article 2.  It had also asked for explanations as to
how these provisions, especially that enabling the importing Member to impose, in particular
circumstances, triple charges on quotas, would fit within the provisions of the ATC.  In reply, theUnited States had stated that circumvention often damages a country's legitimate trade by making it
impossible to administer effectively its Article 2.1 quotas.  The United States and the Members
concerned had deemed the circumvention provisions to be necessary for the implementation of these
quotas.  Triple charging, which had been agreed upon in most of the administrative arrangements, hadG/L/459
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also been deemed by the United States and the respective Members to be a necessary deterrent to
circumvention.  Since its application would affect the restraint levels contained in the US' Article 2.1
notifications, these particular provisions were, in the view of the United States, appropriately included
in the administrative arrangements.  Noting that all the provisions of the administrative arrangements,
including those related to cooperation in the prev ention of circumvention, had been agreed between
the Members concerned, the TMB had observed that Article 5 contains detailed descriptions of therules and procedures to be followed.  The TMB had noted, inter alia , that Article 5.4 seems to provide
some flexibility in terms of remedies or agreed actions that could be foreseen in cases when
circumvention has occurred.  It had observed, however, that Article 5 contains no reference to the
possibility for the importing Member to impose triple charges on quotas, as a deterrent to
circumvention.  The TMB had noted in this regard that this provision had not been utilized by the
United States.  The TMB had recalled that the United States had stated that when provisions of the
administrative arrangements were inconsistent with the ATC, the provisions of the ATC would apply.The TMB had understood that this statement applied to each and every provision of the arrangements
notified.  The TMB had expected, therefore, that all the provisions of these administrative
arrangements, including those related to circumvention, would be implemented by the respective
Members in conformity with the relevant provisions of the ATC.  In light of the above, the TMB
sought confirmation from the United States of its understanding that the statements made by the
United States, as mentioned above, also apply to the administrative arrangements concluded between
the United States and Oman.  The United States confirmed the Body's understanding.
(ii) Other matters referred to the TMB with reference to Article 2.17
308. In July 1997, Pakistan notified to the TMB, pursuant to the provisions of Article 2.17, the text
of a Memorandum of Understanding signed by the representatives of the Government of Pakistan andthe Government of the United States in March 1996.  This notification was preceded by a
communication from the United States, made pursuant to Article 5 and received in October 1996,
informing the TMB of the main features of a mutually acceptable solution reached with Pakistan, as
also reflected in the Memorandum of Understanding attached to Pakistan's July 1997 notification.
Since the two communications regarding the same matter had been made pursuant to two different
provisions of the ATC (i.e. Article 2.17 by Pakistan and Article 5 by the United States), the TMB
decided to seek clarification from the two Members concerned.  As a result, the Body could not
review the respective notifications prior to the beginning of the implementation of Stage 2.  Since the
Memorandum of Understanding notified by Pakistan under Article 2.17 had its roots in an action
taken by the United States on grounds of alleged transhipment by Pakistani exporters with respect tocertain products, the present report deals with all aspects of the issue, including the notifications made
by Pakistan with reference to Article 2.17, in the Chapter devoted to the circumvention provisions of
the ATC.
120
(iii) Implementation of the administrative arrangements
309. Apart from the issue mentioned in paragraph  308 and the continuation by the United States
of requiring visas for products included in its Stage 2 integration programme121 no other matter has
been referred to or been raised in the TMB th at would have touched upon the implementation of the
administrative arrangements agreed between the Members concerned and notified to the TMB
pursuant to Article 2.17.122
                                                     
120 See paragraphs 434 to 464.
121 See paragraphs 58 to 62.
122 In reply to the clarifications sought by the TMB when reviewing the administrative arrangements
during Stage 1, the United States confirmed that the visa arrangements were part of the administrative
arrangements.G/L/459
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C. INTRODUCTION OF NEW RESTRICTIONS DURING STAGE 2 (ARTICLE 2.4)
310. Article 2.4 states that "[t]he restrictions notified under paragraph 1 [of Article 2] shall be
deemed to constitute the totality of such restri ctions applied by the respective Members on the day
before the entry into force of the WTO Agreement.  No new restrictions in terms of products or
Members shall be introduced except under the provisions of this Agreement or relevant GATT 1994
provisions [footnote omitted] …".
311. During the second stage of the implementation of the integration process, on the basis of
information available to the TMB, it can be establis hed that in a specific case referred to the DSB it
was concluded that the measures applied by a Member had been inconsistent, inter alia , with the
provisions of Article 2.4 (see paragraph 312).123  In an other case, the Panel concluded124 that the
transitional safeguard measure imposed by a Member was inconsistent with its obligations under
different specific provisions of Article 6 and, th erefore, one could add, by implication, that it was
inconsistent with Article 2.4 (see paragraph 316).  In addition, in some communications addressed to
the DSB by certain Members, non-compliance, inter alia , with the provisions of Article 2.4 (or of
Article 2) was also claimed (see paragraphs 313 to 315, and paragraph 318 ).  On a few occasions, the
conclusions reached by the TMB also implied that the measures examined would not be consistent
with Article 2.4 (see paragraphs 314 to 317).  The above cases are summarized as follows:
1. Turkey: Restrictions on Imports of Textile and Clothing Products
312. The Panel established by the DSB, at the request of India, to examine the imposition of
quantitative restrictions by Turkey on a broad range of textile and clothing products, concluded that
the measures adopted by Turkey against India were inconsistent with Articles XI and XIII of GATT,
and consequently, with Article 2.4 of the ATC.  This conclusion was also upheld by the Appellate
Body.  The two reports were adopted by the DSB in November 1999.125
2. United States:  Measures Affecting Textile and Apparel Products as a Result of the
Change to the US Rules of Origin
313. In November 1998, in its renewed request for consultations, the European Community
considered, inter alia , that the changes in question "[were] not in conformity with the obligation of the
United States under the WTO Agreement on Textiles a nd Clothing.  Article 2.4 [of the ATC] requires
that no new restriction in terms of products or Members shall be introduced …".  Subsequently, the
two parties reached a mutually agreed solution to this dispute in the sense of Article 3.6 of the
DSU.126
3. Colombia – Transitional Safeguard Measure on Imports of Plain Polyester Filaments
from Thailand
314. In September 1998, in its request for the establishment of a panel, Thailand considered that
the continued application of this safeguard meas ure (in spite of the recommendations made by the
TMB) meant that Colombia had failed to carry out its obligations under the WTO Agreement,
including Article 2 of the ATC.  Subsequently, w ith the expiration of the measure contested, Thailand
withdrew its request for the establishment of a panel.127
                                                     
123 As regards cases of violations (US-Costa Rica and US-India) and alleged violation (US-
European Community) of the provisions of Article 2.4 during Stage 1, refer to G/L/179, paragraphs 200 to 202.
124 This Panel report has been appealed under Article 16.4 of the DSU.
125 For more details, see paragraph 377.
126 See paragraphs 400 to 402.
127 See paragraphs 163 to 177.G/L/459
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4. Argentina – Transitional Safeguard Measures on Imports of Woven Fabrics of Cotton
and Cotton Mixtures Originating in Brazil
315. In February 2000, in its request for the establishment of a panel, Brazil stated that in spite of
the TMB's recommendations, the matter remained unresolved.  Brazil was of the view that the
measures applied by Argentina were inconsistent with Argentina's obligations, inter alia , under
Article 2 of the ATC.  Subsequently, Argentina eliminated the measures in question and the twoMembers notified a mutually agreed solution to the DSB.
128
5. United States – Transitional Safeguard Measures on Combed Cotton Yarn from
Pakistan
316. In April 2000, in its request for the establishment of a panel, Pakistan indicated that the
United States had continued to maintain its unilateral restraint on imports from Pakistan despite the
recommendation of the TMB.  Pakistan considered that the measure was inconsistent, inter alia , with
Article 2.4 of the ATC.  The DSB established a panel.  The Panel concluded, inter alia , that the
measure was inconsistent with the provisions of Ar ticle 6 of the ATC.  Therefore, one could add, by
implication, it was also inconsistent with Article2.4.129
6. United States – Introduction of a New Restraint on Certain Imports from Turkey, as
Part of a Broader Understanding Reached by the Two Members
317. In December 1999, in considering this measure on the basis of the information available to it,
the TMB, after having specifically recalled the provisions of Article 2.4, concluded that the measure
agreed between Turkey and the United States, affecting imports by the United States of products of
category 352/652, had not been demonstrated to be in conformity with the provisions of the ATC.130
7. Requests for consultations with Brazil and Romania with reference, inter alia , to
Article 2 of the ATC by the United States
318. The TMB received two communications from the United States, for the Body's information.
These consisted of copies of two DSB documents whereby on 30 May 2000 the United States
requested consultations with Brazil and Romania under the provisions of the DSU, claiming that the
respective statutes and regulations applied by them appeared to be inconsistent, inter alia , with the
provisions of Article 2 of the ATC.131  The TMB is not aware of the follow-up that has been given to
these two communications.
D. OTHER PROVISIONS OF ARTICLE 2
1. Observations, if any, Brought to the Attention of the TMB, Pursuant to Article 2.2
319. According to Article 2.2, "…[i]t is open to any Member to bring to the attention of the TMB,
within 60 days of the circulation of the notifications [made pursuant to Article 2.1], any observationsit deems appropriate with regard to such notifications …".  As also reflected in the 60-day deadline
specified, this provision was particularly relevant at the beginning of the implementation period of the
ATC, when most of the notifications, pursuant to Article 2.1, were made.
132  The TMB has not
received any communication during Stage 2 with reference to Article 2.2.
                                                     
128 See paragraphs 181 to 205.
129 See paragraphs 150  and 151 .
130 See paragraphs 488 to 495.
131 See paragraphs 535 and 536.
132 See paragraph 254.G/L/459
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2. Arrangements to Bring Restrictions into Li ne with Agreement Year (Article 2.3) and
Treatment of MFA Article 3 Measures (Article 2.5)
320. Articles 2.3 and 2.5 were designed to provide a "bridge" between the former MFA regime and
the entry into force of the ATC.  Article 2.3 provides a means for bringing into line any period of
restriction having a 12-month time-frame which is different from the calendar year envisaged in the
ATC.  Members could set a notional level for the 12-month period ending 31 December 1994.  Whileno notifications were made under this provision during the first stage of the integration process, the
TMB understood that, in certain cases, some adjustments had been made and incorporated into the
notifications of restraint levels under Article 2.1  These latter notifications were made during the early
part of the ATC implementation.  No notification was made with reference to Article 2.3 during
Stage 2.
321. Article 2.5 was intended to provide for the treatment of MFA Article 3 actions taken before
1 January 1995, whereby they would be permitted to remain in effect for up to 12 months with reviewof their consistency either by the Textiles Surveill ance Body (TSB) up to 31 December 1994 or by the
TMB thereafter, but under MFA rules.  Further prov ision was made for the handling of disputes in
respect of MFA Article 4 agreements, initiated before 1 January 1995, whereby they could be
reviewed later by the TMB, applying MFA rules.  No notifications were made citing these provisions
during the first stage of the implementation.  The same applies to Stage 2, all the more sinceArticle 2.5 is a transitory provision that could be invoked only during a relatively limited period of
time, after which the provision itself became de facto  inapplicable.
3. Safeguard Measures Initiated Under Article XIX of GATT 1994 in Terms of
Articles 2.19 and 2.20 of the ATC
322. Articles 2.19 and 2.20 refer to safeguard measures applied under Article XIX of GATT 1994
during the duration of the ATC but during a period of one year immediately following integration of
the products concerned pursuant to Article 2 of the ATC.  Article 2.20 sets out provisions which can
be applied if the GATT Article XIX safeguard measure is applied using non-tariff means.  To the
knowledge of the TMB, no safeguard measures have been taken either during Stage 1 or Stage 2 that
would have fallen under the provisions of Articles 2.19 and 2.20.
E. R
EVIEW OF THE IMPLEMENTATION OF ARTICLE 2 BY THE TMB (PURSUANT TO ARTICLE  2.21)
323. Article 2.21 requires the TMB to keep the implementation of Article 2 under review.  During
the second stage of the integration process, the TMB reviewed notifications made by Members
pursuant to Articles 2.1, 2.6 and 2.7(b), 2.8(a) and 2.11, 2.8(b) and 2.11, 2.10, 2.15 and 2.17.133
324. Further, according to Article 2.21, the TMB "shall, at the request of any Member, review any
particular matter with reference to the implementation of the provisions of [Article 2]".  During
Stage 2, one such request had been made, which specifically referred to Article 2.21.  This request
was jointly made by Hong Kong, China; India and Pakistan, asking the TMB to review, in accordance
with Articles 8.1 and 2.21, the implementation of the Stage 2 integration programme of the
United States with respect to the continuation of visa requirements for products included in this
programme.134  It has to be noted that the examination of previous communications addressed to the
TMB (during Stage 1) with reference to Article 2.21 (Colombia, also on behalf of several other WTOMembers that are members of the ITCB:  allocation of products into the four groups for the purpose
of integration;  discrepancies in the first stage integration programme notified by the
European Community;  European Community:  inte grating products belonging to "ex HS lines" by
                                                     
133 The review and assessments of the TMB of integration programmes (Articles 2.6 and 2.7, 2.8(a) and
2.11, 2.8(b)  and 2.11) are reported in paragraphs 15 to 114.
134 See paragraphs 58 to 62.G/L/459
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any WTO Members) have also continued to provide guidance to the TMB during Stage 2, while
reviewing particular aspects of integration programmes notified.
F. FURTHER COMMENTS AND OBSERVATIONS OF THE TMB.
325. In providing an overview of the implementation of the provisions of Article 2 (except those
concerning the integration process), as reflected in Sections A to E of this Chapter, a number of
important matters could be identified, in particular on the basis of views and comments provided byMembers in response to the TMB's request, which would require further reflection.  Members might
wish to elaborate further on some of these matters, or to provide additional comments with respect to
them in conducting in the CTG the major review fo reseen in Article 8.11.  The following paragraphs,
reflecting some further comments and observations of the TMB, are designed to make a contribution
to the Members' consideration of these matters.
1. The Effect of the Growth Provisions on Actual Trade and on Trading Opportunities
326. The TMB recalled that ITCB members had stated in their communication that they were
"cognizant of the increases in quota factors pursuant to […] Article 2.  However, […] an
augmentation of access should not be viewed as a substitute for the integration of relevant products by
means of complete elimination of quota restrictions.  […]  In this regard, […] notwithstanding the
increments in quota rates, the restrictive nature of quota restrictions has not lessened when seen in the
light of actual trade".
135
327. As regards the role of the growth provisions, the statement of the ITCB members also
recognises that their implementation, overall, could and, in fact, increased market access
opportunities.  The TMB is in agreement with the comment that an augmentation of access should not
be viewed as a substitute for the integration of the products concerned, and is not aware of any
statement by a Member that would challenge this comment by the ITCB members.  Observing that acomplete elimination of quota restrictions may not necessarily amount to the integration of the
products concerned in the sense of the provisions of the ATC (since restrictions can also be
eliminated, without integration, under Article 2.15), the TMB recalled that, pursuant to Article 9, the
ATC and all restrictions thereunder shall stand terminated on 1 January 2005, on which date the
textiles and clothing sector shall be fully integrated into GATT 1994.
328. In their responses, Canada, the European Community and the United States
136 disagree with
the assessment of ITCB members according to which the restrictive nature of quota restrictions has
not lessened.  Some of the arguments provided (Canada: the large difference between the dynamics of
growth of imports from developing country Me mbers and the growth of the market overall;
European Community: the volume of the share of impor ts in products still subject to restrictions has
increased in the context of an overall growing market; United States: the increase in imports of
textiles and apparel, in volume and value terms, since the WTO entered into force, particularly from
ITCB members, and the fact that these imports grew at a faster rate than non-oil imports) would
indicate that actual imports in several restrained products also increased.  Notwithstanding this, it can
be equally true that with respect to several products with high rate of quota utilization, the restrictions
continued to limit the expansion of exports for which otherwise the demand would be manifest.
329. In the view of the TMB, any reliable assessment of this issue would require a much more
detailed analysis, practically on a product-by-product, or specific restriction-by-specific restriction
basis.  Such an analysis would have to consider a combination of a number of elements, such as:
• the size of the initial growth rate taken over from the former MFA regime as well as
the size of the respective original quantitative restriction;
                                                     
135 See paragraph 278.
136 See paragraphs 279 to 281.G/L/459
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• the rate of utilization of the respective restraints during a representative period;
• the evolution of demand for the respective products in the markets concerned;
• the potential to satisfy such demand in competitive terms (quality, price, time of
delivery, etc.) by the Members subject to such restrictions.
330. In the absence of such information, the TMB is not in a position to conduct such a thorough
analysis.  With a view to facilitating Members' further reflection, it provides, however, a table on the
potential effects of the implementation of the growth provisions of the ATC (see Table 13).
Table 13
Effect of the Growth Provisions on Article 2 on Different Initial Growth Rates Taken Over
From the Former MFA Regime
Growth rate and quota 1% 100 2% 100 3% 100 4% 100 5% 100 6% 100 7% 100
Stage 1 1995 16% 1.16% 101.16 2.32% 102.32 3.48% 103.48 4.64% 104.64 5.80% 105.80 6.96% 106.96 8.12% 108.12
 1996 1.16% 102.33 2.32% 104.69 3.48% 107.08 4.64% 109.50 5.80% 111.94 6.96% 114.40 8.12% 116.90
 1997 1.16% 103.52 2.32% 107.12 3.48% 110.81 4.64% 114.58 5.80% 118.43 6.96% 122.37 8.12% 126.39
Stage 2 1998 25% 1.45% 105.02 2.90% 110.23 4.35% 115.63 5.80% 121.22 7.25% 127.01 8.70% 133.01 10.15% 139.22
 1999 1.45% 106.54 2.90% 113.43 4.35% 120.66 5.80% 128.25 7.25% 136.22 8.70% 144.59 10.15% 153.35
 2000 1.45% 108.09 2.90% 116.72 4.35% 125.91 5.80% 135.69 7.25% 146.10 8.70% 157.16 10.15% 168.92
 2001 1.45% 109.66 2.90% 120.10 4.35% 131.38 5.80% 143.56 7.25% 156.69 8.70% 170.84 10.15% 186.06
Stage 3 2002 27% 1.84% 111.68 3.68% 124.52 5.52% 138.64 7.37% 154.14 9.21% 171.12 11.05% 189.71 12.89% 210.05
 2003 1.84% 113.73 3.68% 129.11 5.52% 146.30 7.37% 165.49 9.21% 186.87 11.05% 210.67 12.89% 237.12
 2004 1.84% 115.83 3.68% 133.86 5.52% 154.38 7.37% 177.68 9.21% 204.08 11.05% 233.95 12.89% 267.69
2. Issues Related to the Implementation of Article 2.15
331. Article 2.15 reads as follows: "Nothing in this Agreement shall prevent a Member from
eliminating any restriction maintained pursuant to this Article, effective at the beginning of any
agreement year during the transition period, provided the exporting Member concerned and the TMB
are notified at least three months prior to the e limination coming into effect.  The period for prior
notification may be shortened to 30 days with the agreement of the restrained Member.  The TMB
shall circulate such notifications to all Members.  In considering the elimination of restrictions as
envisaged in this paragraph, the Members concerned shall take into account the treatment of similarexports from other Members".
332. Keeping in mind the language quoted above, the TMB considered the comments made by the
ITCB Members and the European Community, included, respectively, in paragraphs 274 and 275.
The TMB is of the view that, on the one hand, it  would be inappropriate to infer that removing
restraints affecting one Member or some Members, but keeping the same restraint in place vis-à-vis
imports from some other Members would, in itself, constitute a breach of the respective obligations
inscribed in Article 2.15.  On the other hand, it would be similarly inappropriate to suggest that
Article 2.15 constitutes a positive encouragement to Members for eliminating restrictions on a
selective basis, i.e. to eliminate them on impor ts of some and to continue to apply them  vis-à-vis
some other Members.  The last sentence of Article 2.15 contains the unambiguous obligation that inconsidering actions that may be taken under this Article, the Members concerned shall take into
account the treatment of similar exports from other Members.
333. In light of the above, the issue of the US' Article 2.15 measures should be narrowed down to
the observation of ITCB members that the United States did not provide any information regarding
any consideration that might have been given to the treatment of exports of the same product of otherG/L/459
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Members.  The TMB agrees with this observation.  The question arises as to whether Members are
obliged, or not, to provide indications on how they complied with the requirements defined in the last
sentence of Article 2.15.  On the one hand, the language of this provision does not contain any such
explicit requirement or obligation.  On the other hand, it can be argued that without any indication inthis regard, Members will not know to what extent and how these requirements were met.
334. Consequently, it is recommended that Members, in making future notifications to the TMB
pursuant to Article 2.15, should include such references as well.
3. Implications of the Implementation of the US Trade and Development Act of 2000
335. The TMB noted that the United States would provide full information to the WTO regarding
the African Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act at the time it
would seek a waiver from WTO Members for the operation of various aspects of the Trade and
Development Act of 2000.  The TMB observed, however, that since at least certain aspects of the Act
in relation to certain Members, affecting also perhaps restrictions notified under Article 2.1, could beimplemented as from 1 October 2000, it would be appropriate for the United States to provide someindications to this effect at the earliest possible date.
4.  Suspension of the Application of Restrictions
336. The TMB noted the response provided by the European Community, as reflected in
paragraph 271 above, indicating that the restrictions maintained on imports from Sri Lanka had not
been eliminated, but had been suspended and th at, in the view of the European Community, its
agreement with Sri Lanka was not covered by the requirements of Article 2.15.  In light of this
indication, it would appear that these restrictions, as notified under Article 2.1, are de jure  still in
place.  The TMB observed that Article 2 does not  contain any provision which would envisage the
suspension of the application of restrictions notified under Article 2.1.  However, suspension implies a
de facto  non-application of the restraints previously notified and, therefore, could have an effect on
the implementation of specific measures maintained under the ATC.  In view of this, it would appear
that, without prejudice to any provision of the ATC and to any subsequent consideration of the matter,
the fact that restraints were suspended is a matter that should be notified or brought to the attention ofthe TMB and, through the TMB, to WTO Members.
5. Implementation of the Provisions of Article 2.18
337. It is observed that the methodology chosen by the respective Members for the implementation
of the provisions of Article 2.18 during Stage 1 predetermined the possible impact of theimplementation of the same provisions during Stage 2.  Though, unlike during the first stage, the
methodology used for the second stage by the three Members concerned was the same (i.e. the growth
rate normally applicable for Stage 3 (27 per cent) was applied instead of the 25 per cent defined in
Articles 2.14(a)), the effect was different in the case of the European Community, on the one hand,
and Canada and the United States, on the other.  The cumulative approach adopted by theEuropean Community during Stage 1, whereby the advancement by one stage of the growth rate
included the growth factors of both the first and se cond stages, also resulted in higher growth for
Stage 2, when compared to the advancement, referred to in Article 2.18, as implemented by Canada
and the United States.  It is also noteworthy that, following the pattern that characterized the
implementation during the first stage, no Member used the possibility of agreeing on equivalentchanges with respect to a different mix of base levels, growth and flexibility provisions during thesecond stage either.
338. The TMB recalled that it had already observed that the language of Article 2.18 does not
provide precise guidance as to how to implement th e advancement by one stage of the growth rates set
out in Articles 2.13 and 2.14.  On the same occasion, the TMB noted, however, that the result in terms
of market access (in the fist stage) would have been improved if the methodology chosen for theG/L/459
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advancement by one stage of the growth rates had also included the growth factor of the first stage, as
done by one Member.
339. Reflecting further on this issue in preparing the present report, the TMB was of the
impression that the notion of "advancement" appeared to be ambiguous, raising, therefore, doubts asto what could have been the drafters' intention in using this notion.  A better and more result-oriented
approach in reading the language of Article 2.18 is to put the emphasis on the objectives this
provision is designed to achieve.  These objectives are clearly defined by stating that "meaningful
improvement in access […] shall be provided, at the entry into force  of the WTO Agreement and for
the duration of this Agreement" (emphasis supplied).  It goes without saying that the methodology
used by the European Community provides more  meaningful improvement in access.  The TMB
observed that, notwithstanding the methodology applied by the Members concerned for the
advancement by one stage of the respective growth rates, meaningful improvement in access had to be
provided by them for the whole duration of the ATC implementation.  Therefore, in a way,
independent of the methodology chosen previously, every effort has to be made by the threerestraining Members to ensure that meaningful improvement in access for the exports of small
suppliers be provided during Stage 3.  To achieve this goal, the possibility of providing "at least
equivalent changes as may be mutually agreed with  respect to a different mix of base level, growth
and flexibility provisions" is, in the view of the TMB, still an option to be considered.
V. RESTRICTIONS OTHER THAN THOSE TAKEN OVER FROM THE FORMER
MFA REGIME
340. The ATC contains provisions with respect to all restrictions affecting imports of products
falling under its coverage, as defined in the Annex to the Agreement.  While the restrictions carried
over from the former MFA regime are covered by the provisions of Article 2
137, all other restrictions,
whether justified or not under GATT 1994, are dealt with in Article 3.  All such restrictions had to be
notified to the TMB, within a specified time-frame together, whenever applicable, with information
related to their justification under GATT 1994.  If and as long as they are justified, they are covered
by the applicable provisions of GATT 1994, and can continue to be maintained.  However, for
purposes of transparency, information has to be provided to the TMB with respect to any new
restriction or changes in existing restrictions taken under any GATT 1994 provision.  Restrictions not
justified under GATT 1994 have to be either brought into conformity with GATT 1994 or be phasedout during the duration of the ATC, according to the modalities defined in Article 3.
A. 
RESTRICTIONS NOTIFIED PURSUANT TO ARTICLE 3.1
341. Article 3.1 provides for the notification, within 60 days following the entry into force of the
WTO Agreement, of all restrictions on textile and clothing products, other than those maintained
under the MFA and covered by Article 2 of the ATC whether consistent with GATT 1994 or not.  Thenotifications were to indicate, where applicable, the GATT 1994 justification for the restrictions.  It
follows from the deadline specified in Article 3.1 that these notifications had to be submitted during
the early part of the implementation of the ATC and have been covered by the first comprehensive
report adopted by the TMB.
138  Notwithstanding this, the measures notified are also summarized
below, since the bulk of these measures continued to be applied during Stage 2 as well, and also,because the relevant changes can only be understood and assessed if a background is provided.
1. Notifications Received During Stage 1 and Their Review
342. Twenty-nine Members submitted notifications under Article 3.1.  Of these, ten Members
(though  not required under the provisions of Article 3) reported that they maintained no restrictions
                                                     
137 See Chapter IV of this report.
138 See G/L/179, paragraphs 228 to 236.G/L/459
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of the type referred to in this Article (Chile; Indonesia; Kenya; Macau; Mauritius; New Zealand;
Philippines; Saint Kitts and Nevis; Singapore and Sri Lanka).  The TMB took note of these
notifications.
343. Nineteen Members (Bangladesh; Canada; Cyprus; Egypt; European Community; Hungary;
India; Japan; Korea; Malaysia; Malta; Mexico; Morocco; Pakistan; Peru; Slovenia; Thailand;
United States and Venezuela) notified quantitative restrictions, usually on specific textile and clothingproducts, although some measures were broader in their coverage.  In most of these cases, the TMB
sought further information or clarification, in orde r to ensure a better understanding of the measures in
question for WTO Members.
344. Canada and the United States provided notifications under Article 3.1 to set out the quantitative
restrictions in place with exporters which were not WTO Members at that time.  In the case of Canada, a
combined notification under Articles 2.1 and 3.1 was pr ovided in order to present a total picture of all
quantitative restrictions with WTO Members, plus GATT 1947 contracting parties that were not yetWTO Members and trading partners that were neither GATT 1947 participants nor WTO Members
(Bulgaria; Cambodia; Ch ina; Cuba; North Korea; Laos; Le banon; Lesotho; Nepal; Oman; Poland;
Qatar; Russia; Syria; Chinese Taipei; United Arab Emirates and Vietnam).  The United States notified
quantitative restrictions in place with GATT contracting parties which had not yet become
WTO Members and with countries which were ne ither GATT contracting parties nor WTO Members
(Haiti; Laos; Former Yugoslav Republic of Macedonia; Qatar and Ukraine).  The United States
subsequently reported amendments to this notification, all of which were noted by the TMB.  In the
TMB's review of these notifications, measures applicable to countries which had since become
Members of the WTO and would fall under the coverage of Article 2.1 were examined under the
provisions of that Article.
139
345. The European Community provided two notifications, one for its quantitative limits with
Bulgaria; the Czech Republic; Hungary; Poland; Romania and Slovakia, which were covered by
Additional Protocols to the Europe Agreements notified to the GATT/WTO under Article XXIV.
These Additional Protocols provided for the elimination of the restrictions by 1 January 1998.  The
other notification referred to consultation levels maintained with Egypt; Malta; Morocco; Tunisia andTurkey in the context of preferential trade agreements notified under GATT Article XXIV.  The
notification also stated that the consultation levels with Egypt, Morocco and Tunisia would be
eliminated through the expected completion of free-trade areas with these countries while in the case
of Malta and Turkey the consultation levels would be eliminated in the context of the expected
customs unions with these countries.
346. In three notifications under Article 3.1, the provisions of GATT Article XVIII:B were cited
with the measures being part of the overall reviews of such restrictions by the Committee on Balance-
of-Payments Restrictions (Bangladesh; India and Pakistan).  The list of restricted products submitted
by Bangladesh comprised a wide variety of woollen and knitted fabrics of cotton and synthetic fibres
plus second-hand clothing.  The notification of Pakistan extended to woven fabrics of cotton and
synthetic fibres, carpets, knitted fabrics, made-up textile articles and clothing.  India, in response to a
request for clarification, informed the TMB that all products in the Annex to the ATC had beencovered by quantitative restrictions in terms of GATT Article XVIII:B as of 1 January 1995;
however, imports of several textile and clothing items had been liberalized in February 1995 with a
number of fibres, yarns and industrial fabrics permitted to be imported freely by all persons without
an import licence and a number of fabrics, made-ups and garments permitted to be imported against
special import licences.
                                                     
139 It should be noted that, at present, practically no ne of the restrictions notified by Canada and the
United States falls under the provisions of Article 3, b ecause the countries or custom s territories affected either
became WTO Members (and the respective restrictions were covered by Article 2), or are still outside the WTO
(and Article 3 of the ATC does not apply to trade with non-Members of the WTO).G/L/459
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347. In addition, two notifications (Egypt; Korea) referred also to measures which had been
maintained with reference to Article XVIII:B and which would continue to remain in place for a
certain period of time after the formal disinvocation of the said provisions.  Korea provided
information on its restriction on imports of silk yarn and certain silk fabrics under Article XVIII:B.
The TMB noted that these measures were covered by Korea's programme of liberalization of balance-
of-payments measures notified to the GATT Council in 1994 and were scheduled to be removed orbrought into conformity with GATT on 1 July 1997.
140  Also in response to a request for more
information on the restrictions in place, Egypt reported that it was maintaining a conditional
prohibition on imports of textiles until 1 January 1998 and on clothing until 1 January 2003, as part of
its programme for the disinvocation of Article XVIII:B undertaken in 1995 whereon the Committee
on Balance-of-Payment Restrictions stated that "the Committee understood that Egypt has thus
disinvoked Article XVIII:B with effect from 30 June 1995, and that, on the basis of the
implementation of the commitments by Egypt in Schedule LXIII, Members would exercise duerestraint in the application of their rights under the Multilateral Agreements on Trade in Goods in
relation to fabrics, apparel and made-up items remaining subject to conditional prohibition".
348. Four Members reported restrictions on the importati on of used or worn clothing, three citing the
provisions of GATT Article XX(b) (Morocco; Pe ru; Venezuela).  The TMB took note of these
notifications.   According to its notification, Mexi co maintained a ban on imports of used clothing,
which found its "basis and justification in the Protocol of Accession of Mexico to GATT 1947, which
forms an integral part of GATT 1994 in accordance with Annex 1A, paragraph 1(b)(ii) of the Final Act
of the Uruguay Round".  The TMB sought additiona l information from Mexico  with respect to the
particular provision of the Protocol of Accessi on under which this import prohibition fell.  In the
absence of additional information from Mexico, despite further reminders, the TMB decided to concludethe consideration of this notification, noting that Mexico had not provided the additional information
which had been requested by the TMB.  Malta reported quantitative restrictions on the importation of
hand-made lace, which, according to the notification, had been justified under the terms of
GATT Article XX(f).
349. The TMB noted that Malaysia maintained a non-automatic licensing measure on batik
sarongs which, according to the notification, was justified under GATT Article XVIII:C and had been
notified to GATT 1947 in July 1984.
350. Thailand notified that it maintained non-automatic import licensing under
GATT Article XVIII:C on silk yarn and jute bags, applicable to all sources.  The TMB sought more
detailed information from Thailand on this non-automatic import licensing system, including whetherit had been notified to the GATT or to the WTO.  In the absence of additional information, despite
further reminders, the TMB decided to conclude the consideration of this notification, noting that
Thailand had not provided the additional information.
351. Other  notifications of quantitative restrictions, submitted by Hungary; Japan and Slovenia,
provided phase-out programmes pursuant to Article 3.2(b)
141, while the notification by Cyprus was
ultimately considered to be more appropriate to Article 3.2(a).142
2. Notification Made With Reference to Article 3.1 During Stage 2
352. In May 2000, Mongolia submitted a notification with reference to Article 3.1, stating that it
did not maintain any restrictions on textile and clothing products.  The TMB took note of this
notification.
                                                     
140 The restrictions applied by Korea were removed on the date indicated.
141 See paragraphs 355 to 362.
142 See paragraph 354.G/L/459
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B. PROGRESSIVE PHASING OUT OF RESTRICTIONS NOT JUSTIFIED OR THEIR BEING BROUGHT INTO
CONFORMITY WITH  GATT 1994
353. Article 3.2 provides that "Members maintaining restrictions falling under paragraph 1, except
those justified under GATT 1994 provision, shall either:
(a) bring them into conformity with GATT 1994 within one year following the entry into
force of the WTO Agreement, and notify this action to the TMB for its information:or
(b) phase them out progressively according to a programme to be presented to the TMB
by the Member maintaining the restrictions not later than six months after the date of
entry into force of the WTO Agreement.  This programme shall provide for all
restrictions to be phased out within a period not exceeding the duration of this
Agreement.  The TMB may make recommendations to the Member concerned withrespect to such a programme".
1. Measures Brought Into Conformity With GATT 1994 (Article 3.2(a))
354. Cyprus notified restrictions on imports of several textile and clothing products, including a
prohibition on imports of fishing nets and nets for catching birds, which, according to the notification,was applied under GATT Article XX(b) in order to protect the environment.  Subsequently, the
restrictions were eliminated with effect as from 1 January 1996, with the exception of imports of
fishing nets which remained subject to import licensing.  The TMB took note of this notification.
This licensing requirement was also notified to the Committee on Import Licensing.
2. Programmes for the Progressive Phasing-out of Restrictions Within a Period Not
Exceeding the Duration of the ATC (Article 3.2(b))
(a) Programmes notified during Stage 1 and their respective implementation during the same
stage
355. Three Members notified phase-out programmes pursuant to Article 3.2.(b):  Hungary; Japan
and Slovenia.  The TMB took note of these programmes.  In the case of Hungary, a four-stepprogramme was reported which would remove the restrictions on five categories of textile and
clothing products maintained under a consumer goods global quota.  On 1 January 1995, 20 per cent
of the total volume of 1992 imports of textile and clothing products subject to these quotas was
liberalized, to be followed by a further 25 per cent of the remaining volume on 1 January 1998, then a
further 50 per cent of the remaining volume on 1 January 2002;  the remaining restrictions would beliberalized on 1 January 2005.  The TMB observed that in view of the general nature of this
programme, it expected that the details of its implementation in the respective stages would be
notified to the TMB, prior to their implementation, for its consideration.
356. In the case of Japan, it was reported that the removal of the measures relating to the
importation of silk yarns and fabrics from Kore a would be achieved within the parameters of
Article 3.2(b) i.e. "within ten years after the date of the entering into force of the WTO Agreement".
However, the specific programme was to be linked to the import system for raw silk which would notbe finalized until the last year of the implementation of the Agreement on Agriculture.  Hence, the
final terms of the phase out for fabrics and yarns could only be provided by 31 March 2001, when
Japan would review the necessity of further maintaining the measures in question.  In this context
Japan stated that "should it be decided that the measures related to Korea are to be further maintained
even after the 'implementation period' [of the Agreement on Agriculture] is over, trade level withKorea, thereafter, will be annually increased from the level of the preceding year, until the phase out
is completely achieved within the duration of the ATC".  The TMB expressed the expectation that theG/L/459
Page 124
implementation of the programme, in conformity with Article 3.2(b), would be such as to provide, as
from the beginning, appropriate progressive increases to the level of restrictions on imports of silk
yarn and silk fabric from Korea.  Subsequently, Japan provided information to the TMB on the
consultations held with Korea, as a result of which the two governments "came to share the
recognition" of specified trade levels in the two products concerned for the Japanese fiscal year 1996.
The TMB could observe that the restraint levels ag reed provided some increases compared to the
previous period.  At the same time, the TMB accepted, in accordance with its working procedures143,
the request made by one of the parties that the relevant information on the specific levels should be
kept confidential.
357. Slovenia notified a three-phase programme to remove quantitative restrictions on an extensive
list of textile and clothing products, identifying the specific products for liberalization on
1 January 1997, 1 January 2001 and 1 January 2005.  In addition, the quota levels for 1996 had been
increased by 7 per cent.  Slovenia subsequently confirmed that restrictions had been abolished on1 January 1997, as scheduled, for 95 of the total of 140 products.
(b) Developments in the implementation of the respective programmes during Stage 2
358. In a communication made in December 1997, Hungar y indicated that it would, in addition to
the phase-out programme previously notified, liberalize as of 1 January 1998 not only a further
25 per cent of the import volume of textiles and clothing subject to global quota, but all remainingtextile and clothing global quota restrictions notified under Article 3.1 vis-à-vis  all WTO Members.
The TMB commended Hungary for the early elimination of all its restrictions.
359. Japan kept the TMB informed on the respective trade levels applied to imports of silk yarn
and silk fabrics  for the fiscal years 1998, 1999 and 2000 which were the result of consultations held
with Korea.  It was observed that small increases in the respective levels had been achieved.
360. In a subsequent communication, dated 3 April 2001, Japan provided information on "the
continuation of the measures on importation of silk yarn and silk fabric from the Republic of Korea
after April 2001".  The communication referred to the notification made by Japan in 1996, in which it
had been indicated that Japan would review the necessity of further maintaining the measures in
question and that the results would be notified to the TMB before 31 March 2001.  According to thecommunication, based on the Uruguay Round Agreemen t on Agriculture, import restrictions applied
to imports of raw silk, from which silk yarn and silk fabric are made, were converted into ordinary
customs duties in April 1995.  According to this tariff system, the tariff equivalent imposed on the
imported raw silk was 6,978 yen per kilogramme for the Japanese Fiscal Year 2000.  "Consequently,
the Japanese domestic silk industry is still unable to obtain raw silk at the international market price.This tariff equivalent would be maintained until th e WTO agricultural negotiation is concluded.  Since
the negotiation is still underway, the situation surrounding Japan's import of silk will not change from
this April.  Therefore, the Government is not in th e position to review the necessity to maintain the
measures.  Thus the Government has decided to postpone the review and maintain the present
mesures".
361. In taking note of the above communication of Japan, the TMB recalled that, pursuant to
Article 3.2(b) and to the related commitment undertaken by Japan, these measures had to becompletely phased out over the duration of the ATC.  Furthermore, the TMB reiterated its expectation
that the implementation of the continued phase-out programme, in conformity with Article 3.2(b),
would be such as to provide appropriate progressive increases to the level of restrictions on imports of
silk yarn and silk fabric from Korea.
                                                     
143 Point 4.4 of the working procedures adopted by the TMB (see G/RMB/R/1) states that "information
provided to the TMB by WTO Members shall remain confidential to the TMB, if supplied on a confidential
basis".G/L/459
Page 125
362. In January 2001, the TMB sought information from Slovenia on the implementation of the
second phase of its progressive phase-out programme.144  In reply, Slovenia confirmed that the
quantitative restrictions which were to be eliminated on 1 January 2001, according to the phase-out
programme already presented,  had actually been eliminated.
C. INFORMATION WITH RESPECT TO NEW RESTRICTI ONS OR CHANGES IN EXISTING RESTRICTIONS
PURSUANT TO ARTICLE 3.3
363. Article 3.3 requires that Members provide to the TMB, for its information, notifications
submitted to any other WTO body with respect to any new restrictions or changes in existing
restrictions on textile and clothing products, taken under any GATT 1994 provision, within 60 days of
their coming into effect.
1. Developments During the First  Stage of the Integration Process
(a) Communications received with reference to Article 3.3
364. During Stage 1 and prior to the adoption of the TMB's first comprehensive report, the TMB
received three communications with reference to Article 3.3 from the European Community.  Two
notifications contained agreed changes increasing the quantitative limits maintained vis-à-vis  the
Czech Republic; Hungary; Poland; Romania and the Slovak Republic, and increasing the consultation
levels with Egypt; Malta; Morocco and Tunisia.  The third notification stated that, as a result of the
completion of the customs union between the European Community and Turkey, the consultationlevels notified by the EC under Article 3.1 vis-à-vis  Turkey had been eliminated as of 1 January 1996.
The TMB took note of this information.
(b) Observations made by the TMB in its first comprehensive report
365. In its first comprehensive report, the TMB recalled in particular the provision in Article 3.3
calling on Members to provide to the TMB "notifications submitted to any other WTO bodies withrespect to any new restrictions or changes in existing restrictions on textile and clothing products,
taken under any GATT 1994 provisions ...".  In this regard, the TMB was aware that some measures
had been taken resulting in the introduction of quantitative restrictions or changes in existing
quantitative restrictions on textile and clothing trade.  Citing Article 2 of the ATC, Hong Kong had
formally requested consultations with Turkey in February 1996 under GATT Article XXII:1 andpursuant to DSU Article 4, regarding the unilateral imposition of quantitative restrictions by Turkey
on imports of a broad range of textile and clothing products from Hong Kong, effective
1 January 1996.  Hong Kong had considered these restrictions to be inconsistent with certain
GATT Articles and with obligations under Article 2 of the ATC.  Turkey had accepted to enter into
bilateral consultations with Hong Kong in order to discuss this matter, which, in the view of Turkey,was covered by Article XXIV:8(a) of the GATT 1994.  Turkey further stated that the measures in
question had been adopted in order to fulfil the obligations pursuant to the relevant decision of the
EC-Turkey Association Council under which Turkey  was expected to transpose the EC's import
regulation into its domestic legislation.  Subsequently, requests to join in these consultations pursuant
to DSU Article 4.11 were made by Brazil; Canada; European Community; India; Korea; Malaysia;
Peru; Philippines and Thailand.  India, in March 1996, and Thailand, in June 1996, formally requested
consultations with Turkey under GATT Article XXIII:1 and Article 4 of the DSU, also citingArticle 2 of the ATC.  Hong Kong and India had provided copies of their requests for consultation
with Turkey to the TMB.  The TMB observed that the notification of these measures, which it
understood had been submitted to the relevant WTO body, had not been provided by the Member
adopting them to the TMB for its information, in accordance with Article 3.3.
145
                                                     
144 See paragraph 357.
145 G/L/179, paragraph 245.G/L/459
Page 126
366. The TMB also stated that some measures had been reported to the Committee on Balance-of-
Payments Restrictions, which appeared to represent changes in existing restrictions affecting textiles
and clothing trade.  Nigeria reported the removal of textile fabrics and articles from its Import
Prohibition List;  Pakistan referred to the elimination of certain products from its Negative List with
the imports of most textile items being allowed as from 1994-1995;  Tunisia reported that the list of
products subject to import restriction (List B) had been shortened in November 1995 by eliminatingmade-up textile products;  India advised of a liberalization of its import regime with restrictions being
lifted on a number of products including some clothi ng.  In addition, India notified to the Committee a
liberalization of quantitative restrictions maintained on imports since December  1995. The TMB
observed that none of the notifications of these m easures had been provided to the TMB, for its
information, by the Members concerned.  It is impor tant that the TMB also be informed about the
changes in existing restrictions on textile and clothing products taken under any GATT 1994 provision,
in accordance with Article 3.3.
146
2. Developments Since the Adoption of the TMB's First Comprehensive Report
(a) Communications received by the TMB under Article 3.3
367. In November 1997, the TMB received a joint communication from the European Community
and Turkey under Article 3.3.  This communication consisted of a copy, for the TMB’s information,
of the standard format notification made to the Chairman of the Committee on Regional TradeAgreements concerning the customs union between the two parties, as well as of the details of new
quantitative limits introduced by Turkey with effect from 1 January 1996, in respect of imports of
certain textile and clothing products from certain WTO Members which, according to the notification,
were necessary to give effect to the customs union in accordance with Article XXIV of GATT 1994.
The TMB took note of this information.  The TMB recalled that notifications under Article 3.3 haveto be provided to the TMB within 60 days of any new restrictions or changes in existing restrictions
on textile and clothing products, taken under any GATT 1994 provision, coming into effect.
368. In May 1998, the European Community and Turkey addressed another joint communication
to the TMB, referring to Article 3.3.  It contained a copy, for the TMB's information, of a joint
communication from the parties to the European Co mmunity/Turkey Customs Union to the Chairman of
the Committee on Regional Trade Agreements, "concerning details of changes, effective as from
1 January 1998, in respect of the quantitative limits applied by Turkey on imports of certain textiles and
clothing products from certain WTO Members in conf ormity with its commitments arising out of the
customs union and with the provisi ons of Article XXIV of GATT 1994 ".  The TMB took note of this
information.  The TMB recalled that notifications under Article  3.3 have to be provided to the TMBwithin 60 days of any new restrictions or change s in existing restrictions on textile and clothing
products, taken under any GATT 1994 provision, coming in to effect.  It should be noted that according
to the communication, "arising from [its] commitment s and obligations, Turkey no longer maintain[ed]
any quantitative limits vis-à-vis  the Czech Republic, Hungary, Poland, Romania, the Slovak Republic,
Bulgaria, Mongolia, Malta, Morocco and Tunisia as from 1 January 1998".  The communication listed
in detail the restrictions applied on imports fro m the following WTO Members:  Argentina; Brazil;
Egypt; Hong Kong, China; India; Indonesia; Korea, Macau; Malaysia; Pakistan; Peru; Philippines;Singapore; Sri Lanka and Thailand.
369. In another joint communication, dated  April 2000, the European Community and Turkey
provided a copy, for the TMB's information, pursuant to Article 3.3, of a joint communication from
the parties to the European Community/Turkey Cu stoms Union to the Chairman of the Committee on
Regional Trade Agreements, "concerning details of changes for the year 2000 in respect of thequantitative limits applied by Turkey on its imports of certain textiles and clothing products from
certain WTO Members in conformity with its commitments arising out of the customs union and with
                                                     
146 G/L/179 paragraphs 246 and 247.G/L/459
Page 127
the provisions of Article XXIV of GATT 1994".  The TMB took note of this information.  This taking
note was without prejudice to the rights and obligations of Members under the WTO.147
370. In January 1998, the European Community informed the TMB, pursuant to Article 3.3, that,
with effect from 1 January 1998, it no longer maintained any consultation levels on imports from
Malta; Morocco and Tunisia.  In another communication, the European Community provided
information on agreed changes to th e consultation levels it maintained vis-à-vis  certain imports from
Egypt.  According to this notification, these consultations levels, established for 1998 and 1999, had
been introduced in the context of a preferential tr ade agreement with Egypt and were being notified
under Article XXIV of the GATT.
371. Subsequently, in January 2000, the TMB considered another notification received from the
European Community under Article 3.3, for the Body's information, of agreed changes to the
consultation levels maintained in respect of two product categories vis-à vis  Egypt.  According to this
notification, since such consultation levels had been introduced in the context of a preferential tradeagreement with Egypt, the agreed  changes affecting the consultation levels for 2000 and 2001 would
be notified under Article XXIV of the GATT.  The TMB took note of these notifications.
372. In January 1998, the European Community notified, under Article 3.3, that it no longer
maintained any quantitative limits vis-à-vis  imports from Bulgaria; the Czech Republic; Hungary;
Poland; Romania and the Slovak Republic, with effect from 1 January 1998.  The TMB took note ofthis information.
(b) Reverse notifications and restrictions not notified (Article 3.4)
373. Article 3.4 allows any Member to make reverse notifications to the TMB for information
purposes, in regard to the GATT 1994 justification for measures maintained, or in regard to any
restrictions that may not have been notified under the pr ovisions of this Article.  Actions with respect to
such notifications may be pursued under releva nt GATT 1994 provisions or procedures in the
appropriate WTO body.  No notification was made explic itly under this provision (nor during the first or
the second stage of the integration process).
D. OBSERVATIONS WITH RESPECT TO THE APPLICATION OF ARTICLE 3 DURING STAGE 2
374. Since Article 3.1 specifies a short time-frame (i.e. within  60 days following the entry into
force of the WTO Agreement) for providing notifica tions on restrictions other than those maintained
under Article 2.1, it is not surprising that practically no substantive notification was addressed to the
TMB during Stage 2, with reference to the provisions of Article 3.1.  While the only notification
received (from Mongolia148) served essentially transparency purposes, it has to be reiterated that
Article 3 does not require Members to provide notifications to the effect that they do not maintainrestrictions falling under the provisions of this Article.
375. As regards the implementation of the programmes of progressive phase-out of restrictions
pursuant to Article 3.2(b), one Member (Hungary) im plemented its respective programmes in full and
well ahead of schedule, while another Member (Slovenia) is on track with the implementation of its
programme notified.  The communication received from another Member (Japan) implied that while,
for the time being, the measures in question would continue to be applied, they would be completely
phased out at the latest by the date of the termination of the ATC.
                                                     
147 It is appropriate to observe that no information was provided to the TMB regarding the quantitative
limits applied by Turkey for the years 1999 and 2001.
148 See paragraph 352.G/L/459
Page 128
376. In the view of the TMB, compliance with the provisions of Article 3.3 has also not been fully
satisfactory during the second stage of the integration process.149  While it is true that the measures
referred to in Article 3.3 are not taken under the ATC, rather under the provisions of GATT 1994, it is
also appropriate to re-emphasize the importance, fo r transparency purposes, of providing to the TMB
(and through the TMB, pursuant to Article 3.5, to all WTO Members) timely information on any new
restriction, or on changes in existing restrictions, taken under any GATT 1994 provision.Furthermore, any change to a measure that can result from a ruling of the Dispute Settlement Body by
the Members concerned, giving rise to changes in existing restrictions and notified to any other WTO
body should also be provided to the TMB, under  Article 3.3, for its information.  Likewise,
disinvocation of an applicable GATT 1994 provision by the Members concerned can also lead to
changes in existing restrictions in the sense of Article 3.3 and, therefore, should be provided to the
TMB under this provision, for its information.
377. With regard to the previous paragraph, relying on notifications to and reports of other WTO
bodies, the TMB makes the observations as follows.
1. Quantitative Restrictions Introduced by Turkey
• In March 1998, the DSB established a panel, pursuant to the request by India, to
examine, in light of GATT and the ATC, the imposition of quantitative restrictions byTurkey on a broad range of textile and clothing products from India as from
1 March 1996.  India claimed that the restrictions imposed by Turkey wereinconsistent with Turkey's obligations under Articles XI and XIII of GATT and were
not justified by Article XXIV of GATT, which did not authorize the imposition of
discriminatory quantitative restrictions, and that the restrictions were inconsistent
with Turkey's obligations under Article 2 of the ATC.  India also claimed that the
restrictions appeared to nullify or impair benefits accruing to it directly or indirectlyunder GATT and the ATC.  The Panel concluded that the measures adopted by
Turkey were inconsistent with the provisions of Articles XI and XIII of GATT, and
consequently, with those of Article 2.4 of the ATC.  The Panel rejected Turkey's
defence that the introduction of any such otherwise GATT/WTO incompatible import
restrictions would be permitted by Article XXIV of GATT.  The Panel alsoconcluded that, to the extent that Turkey had acted inconsistently with the provisions
of covered agreements, it had nullified or impaired benefits accruing to India under
these agreements.  The Panel recommended that the DSB request Turkey to bring its
measures into conformity with its obligations under the WTO Agreement.
Subsequently, Turkey appealed certain issues of law and legal interpretations in thePanel report.  While the Appellate Body concluded that the Panel had erred in its
legal reasoning regarding certain aspects involved in the case, it upheld the Panel's
conclusion that Article XXIV did not allow Turkey to adopt, upon the formation of
the customs union  between the European Communities and Turkey, quantitative
restrictions on imports of textile and clothing products which had been found to be
inconsistent with Articles XI and XIII of the GATT 1994 and Article 2.4 of the ATC.
At its meeting of 19 November, the DSB adopted the Appellate Body report and thePanel report, as modified by the Appellate Body report.  Furthermore, Turkey stated
its intention to comply with the recommendations and rulings of the DSB;
• Pursuant to Article 21.3(b) of the DSU, India and Turkey reached a mutual agreement
with respect to the reasonable period of time for Turkey's implementation of the DSB
recommendations and rulings.  This was notified to the Chairman of the DSB inJanuary 2000.  According to this agreement, the reasonable period of time would
expire on 19 February 2001.  Turkey confirmed that it maintained quantitative
                                                     
149 For the TMB's observations with respect to compliance during Stage 1, see paragraphs 365 and 366.G/L/459
Page 129
restrictions against imports from India on only 19 categories of textile and clothing
products, as notified earlier, and it undertook to refrain from making more restrictive
the import arrangements affecting any of the 19 items.  Furthermore, Turkey would
increase the size of the quotas in 6 categories for the year 2000 by 50 per cent over
the year-2000 levels initially published150, and for the remaining part of the
reasonable period of time by 50 per cent over the year-2000 levels, on a pro rata
basis.  Finally, Turkey would grant to India treatment no less favourable than that
granted to any other WTO Member with respect to the elimination or modification of
the quantitative restrictions in question.  While Turkey had implemented the increase
of the size of the relevant quotas, its periodic status reports provided to the DSB were
limited to mentioning that the necessary preparatory work and consultative process
has been undertaken, without indicating how Turkey planned to implement the panel
recommendations and rulings by the expiration of the reasonable period of time;
• In a subsequent joint communication, dated 8 March 2001, India and Turkey
informed the Chairman of the DSB about "agreed procedures between India and
Turkey under Articles 21 and 22 of the DSU in the follow up to the dispute" in
question.  According to this communication, which the DSB formally took note of,
the two parties would hold consultations within 30 days to discuss compliance of therecommendations of the DSB by Turkey, while reserving all the rights accruing to
India under the DSB.
151
• At the meeting of the DSB on 16 May 2001, as the consultations mentioned above
were still ongoing between India and Turkey, India stated, inter alia , that "the
progress achieved thus far had not been entirely satisfactory.  While India continuedits efforts in this regard, the matter could not be prolonged unduly, in particular since
the reasonable period of time had already expired on 19 February 2001.  Therefore, if
a mutually acceptable solution could not be agreed within the next few days, India
might be left with no alternative but to exercise its rights under the bilateral
agreement of 8 march 2001 and the DSU provisions".  According to Turkey, acounter-proposal had been submitted to India and Turkey was awaiting a response.
• On 6 July 2001, India and Turkey notified the DSB that they had reached a mutually
satisfactory solution regarding implementation by Turkey of the conclusions andrecommendations adopted by the DSB.
2. Quantitative Restrictions Maintained by India on Imports of, inter alia , Textile Products
• At the request of the United States, the DSB  established a panel in November 1997
to examine the quantitative restrictions maintained by India on a number of
agricultural, textile and industrial products. (As far as textile products are concerned,
these restrictions had been notified by India under Article 3.1 of the ATC, citing
Article XVIII:B of GATT 1994 as their justification.
152)  The United States
considered that quantitative restrictions maintained by India, including, but not
limited to, the more than 2,700 agricultural and industrial product tariff lines notified
to the WTO, appeared to be inconsistent with India's obligations under Articles XI:1
and XVIII:1 of GATT 1994 and Article 4.2 of the Agreement on Agriculture.
Furthermore, the import licensing procedures and practices of the Government of
India were inconsistent with fundamental WTO requirements as provided in
                                                     
150 For the year 2000, this is also reflected in the joint communication by the European Community and
Turkey submitted to the TMB under Article 3.3.  See paragraph 369.
151 See WT/DS34/13.
152 See paragraph 346.G/L/459
Page 130
Article XIII of GATT 1994 and Article 3 of the Agreement on Import Licensing
Procedures;
• It should be noted that India had been consulting regularly under Article XVIII:B in
the Committee on Balance-of-Payments Restrictions since 1957.  Full consultationsstarted in December 1995 and resumed in January 1997.  In May 1997, India notified
to the Committee the import restrictions under Article XVIII:B that were beingmaintained for the period 1997-2002, together with a time-schedule for their removal
during nine years.  In June 1997, India submitted a plan containing a time-schedule of
seven years, under which most of the import restrictions would be eliminated in two
phases of a length of three years each and a number of items of high sensitivity or
bound at very low rates of duty would be eliminated during the third phase, reduced
from three years to one.  However, since no consensus on the revised proposal on the
time-schedule could be reached, the meeting was closed on 1 July 1997, noting thatthe report of the Committee to the General Council would record the views expressed
in the Committee.  Subsequent to the impasse in the Committee, India held
consultations under GATT Article XXII with Canada; Switzerland; the European
Communities; Australia; New Zealand and the United States.  During these
consultations, India arrived at a mutually agreed solution with all the above Members,except the United States, on the basis of a six-year time-schedule for removal of its
import restrictions;
• The Panel established against this background concluded, inter alia , that the measures
in question, applied by India, violated Ar ticles XI:1 and XVIII:1 of GATT 1994 and
were not justified by GATT Article XVIII:B.  The Panel recommended that the DSBrequest India to bring these measures into conformity with its obligations under the
WTO Agreement.  The Panel stressed, however, that its findings and
recommendations did not imply that the measures at issue had to be removed
instantly.  The Panel referred also to the fact that "the DSU provides for 'prompt
compliance' with recommendations of the DSB but it contemplates the possibility thatit might be impractical for a Member to comply immediately, in which case 'the
Member shall have a reasonable period of time in which to do so' (Article 2.13)".
Finally, it suggested that the parties negotiate an implementation/phase-out period.
Though India appealed certain issues of law and legal interpretation developed by the
Panel, the Appellate Body upheld all of the findings of the Panel.  The Panel reportand the Appellate Body report were adopted on 22 September 1999 by the DSB;
• Subsequently, on 28 December 1999, India and the United States notified to the DSB
that they had reached a mutual agreement under Article 21.3(b) of the DSU withrespect to the reasonable period of time for India's implementation of the DSB rulings
and recommendations.  According to this joint notification, "the reasonable period oftime shall finally expire on 1 April 2001, as follows:
(a) on or before 1 April 2000, India may notify to the United States a
listing of up to but no more than 715 items of the 1,429 items on
which India currently maintains quantitative restrictions, and with
respect to the up to 715 items so notified, the reasonable period of
time shall expire on 1 April 2001;  and
(b) with respect to all the other items, the reasonable period of time
shall expire on 1 April 2000";
• In a status report on implementation, India notified the DSB (in July 2000) that
pursuant to the mutual agreement, as above, "on 31 March 2000, India notified to theG/L/459
Page 131
United States a list of 715 items in respect of which India maintains quantitative
restrictions and for which the reasonable period of time will expire on 1 April 2001.
In respect of all other items for which the reasonable period of time expired on
1 April 2000, […] India had implemented the recommendations and rulings of the
DSB by 1 April 2000".  In April 2001, India announced at the meeting of the DSB
that, with effect from 1 April 2001, it had removed the quantitative restrictions onimports in respect of the remaining 715 items and had thus implemented the DSB's
recommendations;
• As a result, as regards restrictions on imports of textile and clothing products, India
ceased to maintain measures falling under Article 3 of the ATC.  While observing
that India had eliminated all the restrictions previously notified under Article 3.1, the
TMB also observes that it has not been provided with information, pursuant to
Article 3.3, regarding the gradual and subsequent full elimination of theserestrictions.
3. Changes, if Applicable, in Restrictions Applied with Reference to Article XVIII:B of
GATT 1994 by Some WTO Members
• The TMB observes that though there was no information to suggest that Egypt had
not removed the conditional import prohibition on textiles, as scheduled (i.e. on
1 January 1998)
153, no information has been provided pursuant to Article 3.3 by
Egypt to that effect.
• In November 1998, Pakistan presented to the Committee on Balance-of Payments
Restrictions a three-year time table for the removal of its remaining import
restrictions by the fiscal year 2001 (i.e. until June 2002).  At the meeting of theCommittee, held in May 2000, it was accepted that Pakistan would present a full
notification regarding the status of implementation of its phase-out plan, and any
other measures taken for balance-of-payments purposes.  In a further notification,
made on 4 July 2000, under paragraph 9 of the Understanding on the Balance-of-
Payments provisions of GATT 1994, Pakistan stated, inter alia , the following:  "As
for the phase-out schedule for quantitative restrictions maintained under Article
XVIII(b) of GATT 1994 submitted in Nove mber 1998, the Government of Pakistan
has been obliged to suspend the implementation of the schedule due to the adverse
balance-of-payments position presently faced by Pakistan.  Nevertheless, Pakistan
remains committed to the removal of restrictions as soon as feasible.  The timing ofsuch a phase-out will depend upon the impr ovement of our BOP position.  Pakistan's
BOP situation can improve if increased market access is provided by our major
trading partners in areas of export interest to Pakistan, especially in the field of
textiles, and that there is timely disbursement of funding from International Financial
Institutions".  Consultations with Pakistan were resumed in the Committee inNovember 2000.  Appreciation was expressed by Members for Pakistan's decision to
implement its existing phase-out plan, in spite of the fragility of the country's BOP
situation.  The Committee took note of Pakistan's commitment to remove the first
portion of the balance-of-payment restrictions before the end of the year and to
remove in two portions all the remaining restrictions by the end of June 2001 and
2002, respectively, according to the scheduled phase-out.  In a subsequent
notification, made in December 2000, which constituted a follow-up to theCommittee's deliberations of the previous month, Pakistan advised the Committee on
Balance-of-Payments Restrictions of changes implemented in the so-called Import
Trade and Procedures Order, listing a number textile and clothing items (altogether 8
                                                     
153 See paragraph 347.G/L/459
Page 132
"serial numbers", consisting of several HS headings) regarding which imports had
been permitted.  The TMB assumes that this brought about changes in the restrictions
maintained by Pakistan referred to in Article 3.1, and, therefore, information in this
regard should also have been provided to the TMB in accordance with Article 3.3;
• In December 2000, Bangladesh provided a notification to the Committee on Balance-
of-Payments Restrictions listing all the items restricted under Article XVIII:B,
including several products falling under the coverage of the ATC.  This same
notification included a phase-out plan for all these restrictions, a few affecting textile
and clothing products to be eliminated on 1 January 2003, followed by the lifting of a
few other restrictions one year later, while the remaining restrictions will be abolished
on 1 January 2005.
E. VIEWS AND COMMENTS OF WTO M EMBERS IN RESPONSE TO TMB' S REQUEST FOR
INFORMATION AND /OR TO FURTHER SPECIFIC QUESTIONS RAISED BY THE TMB
378. In reply to the TMB's request for information in the context of the preparation of the present
report, with reference to the provisions of Article 3.3, Turkey stated the following:
"With regards to the product categories orig inating in the countries contained in the
notification dated 5 January 2001 and coded G/TMB/N/364 [154] which was submitted in
compliance with the provisions of Article 3.3;
- The quota limits have been increased by the growth rates applied in accordance with
Article 2 of the ATC.
- In addition to that, since the list of integrated products shall enter into effect as of
1 January 2002, the product categories contained in that list will consequently be
excluded from the products subject to quantitative restrictions.
There is not any other change apart from those mentioned above."
379. In light of the above, the TMB decided to seek clarification from Turkey as to whether this
statement suggested that, as a consequence, the product categories not contained in that list would not
be excluded from the products subject to quantitative restrictions and that, therefore, the restrictions
referred to in G/TMB/N/352 would remain in effect  to the extent that the products in question would
not be integrated on 1 January 2002.  If this reading were correct, the TMB appreciated receiving
information on the WTO provision under which these quantitative restrictions would continue to be
maintained.
380. In response, Turkey stated that "the preliminary information provided by Turkey concentrates
mainly on the implementation issues and developments of the second integration stage; and it does not
intend to cover third integration stage implementation is sues that it considers early at this stage.  The
only information pertaining to the third stage refers to Turkey's notification made on 22 December[2000] on its integration programme for third stage.  Therefore, the scope of the information supplied
by Turkey is confined to the limits of this programme, and does not cover non-integrated items".
                                                     
154 This appears to be a mistaken reference, since G/TMB/N/364 contains notification of the Stage 3
integration programme.  Turkey probably referred to G/TMB/N/352 (joint notification of the European
Community and Turkey) made under Article 3.3.G/L/459
Page 133
VI. ADMINISTRATION OF RESTRICTIONS NOTIFIED UNDER ARTICLE 2.
CHANGES IN PRACTICES, RULES, PROCEDURES AND CATEGORIZATION OF
PRODUCTS.  CHANGES IN THE LEVEL OF RESTRICTIONS AS A RESULT OF
INTEGRATION OF PARTS OF THE RESPECTIVE RESTRICTIONS.
(IMPLEMENTATION OF THE PROVISIONS OF ARTICLE 4)
A. ADMINISTRATION OF RESTRICTIONS (ARTICLE 4.1)
381. Article 4.1 states that "restrictions referred to in Article 2, and those applied under Article 6,
shall be administered by the exporting Members.  Importing Members shall not be obliged to accept
shipments in excess of the restrictions notified under Article 2, or of restrictions applied pursuant to
Article 6".
382. During Stage 1, the TMB had reviewed the admi nistrative arrangements notified by Canada,
the European Community and the United States.155  Such administrative arrangements entrusted the
exporting countries with the administration of restrictions.  The TMB had noted that some of thearrangements concluded by one importing Member (United States) provided that Member with the
possibility of making adjustments to the levels of existing restrictions.  The TMB expected in this
respect that all the provisions of these administrative arrangements would be implemented by the
respective Members in conformity with the relevant provisions of the ATC, including Article 4.1.
383. Since then, in April 1998, Canada submitted a detailed notification of administrative
arrangements concluded with the Czech Republic.  In addition, the TMB also received a notification
of administrative arrangements concluded between the United States and Oman.  The arrangements
concluded with Oman also provided the importing Member with the possibility of making
adjustments to the levels of existing restrictions.  The TMB sought confirmation from the United
States, inter alia , of its understanding that the statement, made by the United States when the TMB
had examined the administrative arrangements concluded by the United States with several other
WTO Members, that "when provisions of the administrative arrangements were inconsistent with the
ATC, the provisions of the ATC would apply", also applied to the administrative arrangements
concluded between the United States and Oman.  The United States confirmed the Body's
understanding.  Apart from the notification of these additional administrative arrangements, the TMBhas not received, during Stage 2, any specific notification directly related to the implementation of the
provisions of Article 4.1.
B. 
CHANGES IN THE SENSE OF ARTICLE 4.2 IN THE IMPLEMENTATION OR ADMINISTRATION OF
RESTRICTIONS APPLIED UNDER THE ATC AND RELATED ACTIONS UNDER ARTICLE 4.4
384. According to Article 4.2, "... the introduction of changes, such as changes in practices, rules,
procedures and categorization of textile and clothing products, including those changes related to the
Harmonized System, 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 such access;  or disrupt trade under this Agreement".
385. The administrative arrangements agreed between the European Community and the respective
exporting Members included certain provisions related to subject matters covered by Article 4.2.These provisions confirmed that any amendment to the rules of origin, to the tariff and statistical
nomenclatures in force in the European Community or any decision which resulted in a modification
of classification of products shall not have the effect of reducing any quantitative limit (maintained
under the ATC).  The administrative arrangements concluded by Canada and the United States did not
contain similar provisions.
                                                     
155 See paragraphs 297 to 304.G/L/459
Page 134
386. Article 4.4 provides that where changes mentioned in Article 4.2 are necessary, the Members
initiating such changes inform and, wherever possible, initiate consultations with the affected Member
or Members with a view to reaching a mutually acceptable solution regarding appropriate and
equitable adjustments.  Consultations, wherever possible, shall be held prior to the implementation of
the changes.  If this is not feasible, consultations at the request of the Member(s) concerned have to be
held, if possible, within a period of 60 days.  If a mutually satisfactory solution is not reached, any ofthe Members involved may refer the matter to the TMB for recommendations as provided for in
Article 8 of the ATC.
387. The administrative arrangements concluded by the European Community foresee
consultations with the exporting Members with a view to honouring these obligations (see
paragraph 385).  The administrative arrangements concluded by Canada and the United States do not
contain specific provisions for similar types of cases.
1. Developments Regarding the Implementation of Articles 4.2 and 4.4 During the Period
Covered by the First Comprehensive Report:  Changes in the Rules of Origin Applied
by the United States
388. During Stage 1, the TMB received only one communication which referred specifically to the
provisions of Article 4.  In July 1996, the Philippines submitted a communication, pursuant to
Articles 8.5 and 4.2, regarding changes in the US rules of origin
156, which, it was argued, adversely
affected imports into the United States of certain textile products from the Philippines and upset the
balance of rights and obligations between the two pa rties under the ATC.  At its meeting in July 1996,
the TMB was informed by the Philippines and the United States that they had decided to continue
consultations on the matter, and therefore, requested the TMB to defer its consideration of this
communication.  At the request of the Philippines, this issue was kept on the agenda of subsequentTMB meetings, but its consideration was repeatedly deferred, as both Members indicated that they
preferred to wait for the outcome of their bilateral consultations.  At its meeting in March 1997, the
TMB took note of a further communication from the Philippines whereby it requested that the matter
it had raised regarding changes in the US rules of origin be removed from the TMB's agenda, in view
of a mutually agreed solution between the Philippines and the United States.  The Philippines statedthat this was without prejudice to its rights under the ATC, in particular under the provisions of
Article 8.  Since then the TMB has not received any further communication from the parties.
389. As noted in Chapter VII, the mutually satisfa ctory solution reached between Pakistan and the
United States following debits made by the United States to Pakistan's quotas of bedsheets on account
of alleged circumvention of Pakistani companies, also provided a resolution of matters on US rules of
origin charges with respect to imports of bedsheets and pillowcases from Pakistan to the
United States.
157  As observed by the TMB, neither of the two Members concerned had previously
referred to the Body any matter regarding the chan ges in US rules of origin affecting the above
products.  Nor did the communications received from the United States and Pakistan refer to theprovisions of Article 4.
390. The TMB was informed that, on 22 May 1997, the European Community had requested
consultations with the United States pursuant to Article 4 of the Understanding of Rules and
Procedures Governing the Settlement of Disputes, Article 8.4 of the Agreement on Textiles and
Clothing, Article 7 of the Agreement on Rules of Origin, Article 14 of the Agreement on Technical
Barriers to Trade and Article XXII of the GATT 1994 regarding the change to US rules of origin for
textile and clothing products.  In this submission, the European Community referred to the fact that
the United States had introduced changes to its rules of origin for textile and clothing products, which
entered  into force on 1 July 1996.  Some of these rules, in particular the rules contained in
Section 334 of the Uruguay Round Agreements Act and implemented through customs regulation,
                                                     
156 These changes were implemented by the United States on 1 July 1996.
157 See paragraph  456.G/L/459
Page 135
adversely affected exports of EC's fabrics, scarves and other flat textile products to the United States.
As a result of this change, the European Community products were no longer recognized in the
United States as being of EC origin and had lost the free access to the US market that they enjoyed
before.
391. The request for consultations stated, inter alia , the following: "The European Community
considers that these changes are not in conformity with the obligations of the United States under the
WTO Agreement on Textiles and Clothing.  Articl e 2.4 of the Agreement on Textiles and Clothing
requires that no new restriction in terms of products or Members shall be introduced.  Article 4.2 of
the same Agreement prescribes that the introduction of changes in the implementation oradministration of restrictions notified to the WTO shall not:  upset the balance of rights and
obligations between the Members; adversely affect the access available to a Member; impede the full
utilisation of such access;  or disrupt trade under the Agreement.  The European Community is of the
view that the change in US rules of origin causes precisely those effects and that the United States
should have initiated consultations with the European Community prior to the implementation of suchchanges, in accordance with Article 4.4 of the Agreement".
392. In communications, dated June 1997, addressed to the Dispute Settlement Body and to the
two Members concerned, the Dominican Republic; Honduras; Hong Kong, China; India; Japan;
Pakistan and Switzerland notified that they considered themselves to have a substantial trade interest
in the consultations requested by the European Co mmunity and, therefore, wished to join in these
consultations.
393. The European Community did not refer the is sue subject to its complaint to the TMB.
However, the European Community commented on this issue in a communication to the TMB in
response to the TMB's request for information regarding the implementation of particular ATC
provisions, in the context of the TMB's preparation of its first comprehensive report.
158
394. The issue of contemplated changes in the US ru les of origin was also raised in the Committee
on Rules of Origin, at its meeting in March 1996.  The representatives of Canada, the
European Community and Switzerland expressed concern with respect to these changes, whereas the
representative of Hong Kong stated, inter alia , that the changes were expected to have a severe impact
on textiles and clothing trade with the United States.  It was also regretted that major changes were to
be introduced at a time when work was in progress on the Harmonization Work Programme which
was intended to bring about a uniform set of harmonized rules for application to all non-preferentialtrade purposes.  The representative of the United States took note of the comments made.
395. During a discussion in the CTG, in the Autumn of 1996, on the implementation of the ATC,
concerns were expressed that the United States had implemented changes in its rules of origin for
textile and clothing products as an instrument of trade policy.  This, it was argued, was contrary to the
provisions of the Agreement on Rules of Origin as well as Article 4 of the ATC, and had introducedgreat uncertainty and unpredictability with adverse effects on the exports of a large number of
Members.  It was also claimed that these changes had had the effect of restricting the access of certain
items for certain Members where no MFA restrictions existed before.
396. In response, the representative of the United States stated that Article 4 of the ATC involved
changes such as those in the rules and practices concerning the implementation and administration ofrestrictions maintained under the ATC.  On rules of origin, Members requesting consultations under
Article 4 were required to show that there had been a change in the implementation of the restrictions
and if that were the case, that they had been adversely affected or trade disrupted.  In a number of
consultations with various Members it could be established that the implementation of restrictions on
some of the trade had in fact not changed.  In ot her cases, where change could be demonstrated, the
United States was working towards a mutually satisfactory solution.  No country had brought to the
                                                     
158 See G/L/179, paragraph 262.G/L/459
Page 136
TMB, as required by the ATC, any difficulties that they could have had with the revised US rules of
origin.159
397. The CTG also considered this issue in the context of its major review of the first stage of
implementation of the ATC, in accordance with Article 8.11.  Some Members considered that the
changes made in rules of origin by one Member (the United States) were having a disruptive effect
and were causing serious problems in the administration of quotas.  Administrative regulations suchas rules of origin were as powerful a tool for protectionism as the quota system and the overall effect
of the new rules of origin had been to make access to that market more difficult for exporters.  A
number of Members expressed their concern over the unilateral imposition of these rules and the
apparent inconsistency of this action with the Agreement on Rules of Origin, the ATC and Article I of
GATT 1994.  Consequently, there had been a negative contribution to progressive liberalization,
further upsetting the balance of rights and obligations.  In sum, the changes in rules of origin had
upset the balance of rights and obligations, adversely affected access, impeded full utilization ofquotas and had disrupted trade in textiles and clothing from exporting Members.  The Member
concerned explained that the rules of origin had been implemented quite smoothly as there had been
more than adequate time for exporters to prepare for the implementation of these rules.  There had
been no violation of the MFN principle, the provisions were universal and applied to all Members.
The ATC contained specific provisions on consultation procedures and the concerned Memberremained ready to consult with any Member that felt it had a problem with the rules of origin changes.
The CTG noted the concerns of some Members on issues involving rules of origin under Article 4 of
the ATC.  It called on Members to use the mechanisms available in the WTO, including those under
the ATC providing for consultations, with a view to reaching a mutually satisfactory solution
regarding appropriate and equitable adjustments when  addressing matters on rules of origin, so that
the balance of rights and obligations between  the Members concerned would not be upset.
160
2. Developments During the Second Stage of the Integration Process
398. During Stage 2, the TMB did not receive any not ification which refer to the implementation
of the provisions of Articles 4.2 and 4.4.  However, as communicated by the parties, a new
Memorandum of Understanding, signed in May 2000, by the Governments of the United States andPakistan, also included issues concerning bedsheets and pillowcase categories of both cotton and
man-made fibre which had been raised under Articles 4 and 5 of the ATC.
161  Furthermore, the TMB
was informed that further developments had taken pl ace with respect to the issue of the changes to US
rules of origin for textile and clothing products, referred to, in particular, in paragraphs 390 to 397
above.
399. At the DSB meeting in January 1998, Hong Kong, China expressed concern with regard to
the lack of notification of a mutually agreed so lution regarding the issue raised by the European
Community with respect to the chan ge to US rules of origin for textile and clothing products.  In
February 1998, the United States and the European Community notified the details of the mutually
agreed solution they had reached regarding this issue to the DSB and the relevant WTO bodies,
including the TMB.
400. In November 1998, the European Community requested consultations with the United States
regarding the same issue, pursuant to Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes, Article 8.4 of the Agreement on Textiles and Clothing,
Article 7 of the Agreement on Rules of Origin, Arti cle 14.1 of the Agreement on Technical Barriers to
Trade (TBT Agreement) and Article XXII of the GATT 1994.  The European Community considered
that the United States had not implemented its commitments as contained in the mutually agreed
solution, with the result that, in the view of the European Community, the situation remained
                                                     
159 See G/L/134, paragraphs 16.22 and 16.23.
160 See G/L/224, paragraphs 25, 26 and 28.
161 See paragraphs  459 to 464.G/L/459
Page 137
inconsistent with US obligations under WTO rules.  The submission stated, inter alia , that the
changes in the US rules of origin caused precisely the effects listed in Article 4.2 and, therefore, the
United States should have initiated consultati ons with the European Community prior to the
implementation of such changes.
401. In communications addressed to the Dispute Settlement Body and to the two Members
concerned, the Dominican Republic; El Salvador; Honduras; Hong Kong, China; India; Japan;Pakistan and Switzerland notified that they considered themselves to have a substantial trade interest
in the consultations requested by the European Co mmunity and, therefore, wished to join in these
consultations.
402. This issue was not referred to the TMB.  In July 2000, the United States and the European
Community notified to the DSB and to the relevant WTO bodies, including the TMB the details of the
new mutually agreed solution of this issue that th ey had reached in their consultations.  According to
this notification, the new agreement (reflected in a Proces-Verbal) amended the previous one(concluded by the two parties in July 1997) "with  a view to achieving a mutually satisfactory
resolution toward facilitating and developing trade in fabrics imported into the
European Communities at loom state to be dyed, printed and further finished in the EC, and certain
flat products resulting therefrom".  In essence, the agreement re-established the pre-1996 rules of
determining origin of fabric and some made-up products (such as bedlinen, table linen, tents, quilts,etc.) of export interest to the EC companies.  Acco rding to these rules, if the products in question were
to undergo dyeing and printing and at least two subsequent finishing operations, the origin would be
determined by where the product was processed.  The United States also accepted that a single import
visaed invoice/licence could be used by the European Community on multiple shipments of such
goods, if certain conditions were met.
3. Views and Comments of WTO Members in Re sponse to the TMB's General Request for
Information and/or to Further Queries to Certain WTO Members
403. One of the replies received from Members to the TMB's request for information regarding the
implementation of particular ATC provisions also addressed the changes in the US rules of origin.
The contribution received from the ITCB members stated that "the TMB should detail further changesmade by the US in its rules of origin for selected products following a bilateral deal with the EU.  The
report should bring out that theses changes failed to restore the pre-ATC situation with respect to a
number of other products that are of substantial export interest to restrained Members.  It should also
bring out that, contrary to the principle of Article 1.6, the US failed to provide non-discriminatory
treatment with respect to single visas for multiple  shipments, that was extended to imports of products
from the member states of the EU".  The report should also "bring transparency on changes in
classification of products/categories, and in technica l requirements effected during the implementation
process".  It was also hoped that the report would "also provide an assessment of the effect of theses
changes and measures on the rights of restrained Members particularly in light of the object and
purpose of the ATC and the meagre results towards the attainment of its objectives".
404. In response to additional clarifications sought by the TMB, the ITCB members stated that
"following a bilateral deal [between the United States and the European Community regarding the
changes effected by the United States to its rules of origins with respect to textile and clothing
products effected in July 1996], the US rectified th e situation mainly with respect to products of
export interest to the EU through Section 405 of its Trade and Development Act of 2000 enacted on
18 May 2000."  The submission made by the ITCB members detailed these changes (see
Attachments 1 and 2 to this Chapter).  Furthermore, with respect to the rule permitting a single visafor multiple shipments only from the member states of the European Union, the ITCB members
"confirm the reference to document WT/DS151/10 of 31 July 2000.  The discriminatory treatment
entailed by this provision vis-à-vis other WTO Members does not appear to be justified under the
fundamental WTO principle of non-discrimination which, as stated earlier [by the ITCB], is notG/L/459
Page 138
derogated or excepted from the ATC by virtue of Article 1.6 thereof".  As regards changes in
classification of products/categories, ITCB members urged the TMB to ascertain the necessary
information from the restraining Members.  By way of illustration they attached a list of selected
changes effected by the United States (see Attachment 3 to this Chapter).
405. In reply to additional clarifications sought by the TMB, Canada stated that it "has not changed
or altered its classification of products/categories for the purposes of Canada's restraints since the startof the ATC".  The European Community replied that "the EC has not effected any changes to its
classification of products/categories giving rise to any difficulties, of which it is aware, with WTO
Members against which it maintains restrictions".
406. Neither the communication of the United States in response to the TMB's general request for
information and comments, nor its reply to additional clarifications sought by the TMB addressed
issues related to changes in rules of origin and in classification of product categories.
C. 
INTEGRATION OF PARTS OF A RESTRICTION (ARTICLE 4.3) AND RELATED ACTIONS UNDER
ARTICLE 4.4
1. Developments During the Second Stage of the Integration Process
407. Article 4.3 provides that "if a product which constitutes only part of a restriction is notified
for integration pursuant to the provisions of Article 2, Members agree that any change in the level of
that restriction shall not upset the balance of rights and obligations between the Members concernedunder this Agreement".
408. Since no part of a restriction was integrated during the first stage of the integration process,
the provisions of Article 4.3 were not invoked.  This statement, however, does not apply to Stage 2,
since, in certain cases, parts of restrictions became integrated and corresponding changes in the level
of the respective remaining restrictions were implemented.  This applied in particular to theUnited States, which integrated a part of a category subject to specific restraint and also a number of
other categories which had been falling under group or aggregate limits, and it would appear that the
United States implemented downwards adjustments in the levels of the respective restraints or limits.
Canada made similar adjustments in two cases.
409. It should be noted, however, that no matter has been referred to the TMB with specific
reference the provisions of Articles 4.3 and 4.4.
2. Views and Comments of WTO Members in Re sponse to the TMB's General Request for
Information and/or to Further Queries to Certain WTO Members
410. One of the replies received from Members to the TMB's request for information regarding the
implementation of particular ATC provisions, addr essed the issue of "the downward adjustment of
quotas as a result of partial integration of certain product categories in stage 2".  According to the
communication received from members of the ITCB, the TMB should also "comment on the results of
the methodology employed by the restraining Members and the outlook for stage 3".  It was also
hoped, as mentioned in paragraph 403, that the report would "also provide an assessment of the effect
of theses changes and measures on the rights of restrained Members particularly in light of the object
and purpose of the ATC and the meagre results towards the attainment of its objectives".
411. In the communication of Canada, provided in response to the specific question put by the
TMB with respect to the issue raised in paragraph 408, it was stated that "the only time Canada has
adjusted downward any restraint level when products have been removed from coverage under a
restraint (i.e. partial restraint liberalization) was in July 1997 when Canada removed the restraints on
tailor-collared shirts.  This product fell under an a ggregate restraint in the case of two Members, India
and Macau, China, and Canada reduced the aggregate level accordingly.  The restraints against theG/L/459
Page 139
other 21 WTO Members affected were specific restraints on tailor-collared shirts and consequently
the restraints were removed entirely.  Canada did not adjust downward the restraint levels when it
removed a number of products, such as rainwear, babies outwear, women's and girls' ensembles and
various women's, girls' and children's blouses and shirts, from restraint on 1 January 1998, pursuant to
ATC Article 2.15.  Canada will also not be adjusting any of the levels of the restraints it is partially
integrating in the third phase.  This has resulted, and will result, in a de facto increase in the restraintlevel for the remaining products under restraint".
412. In reply to some additional clarifications sought by the TMB, the European Community
confirmed that it "has not made any downward reductions of quota".
413. The response of the United States to additional clarifications sought by the TMB contained,
inter alia , the following: "As provided for in Articles 4.3 and 4.4, the adjustment of quotas pursuant to
the second stage of integration was conducted in such a way as to ensure that the balance of rights and
obligations between Members was scrupulously maintained.  Article 4.4 requires that Members benotified in advance of such action, rather than the TMB, and the United States fully complied with the
notification requirement.  Of course, any individual  exporting Member was free to refer any disputes
arising from the adjustment of quotas to account for the implementation of our second stage
integration commitments to the TMB in the event of  a dispute, but no exporting country chose to do
so".
D. 
RELATED ISSUES
414. In examining, pursuant to the provisions of Article 8.1 and on the basis of the limited
information available to it, the introduction by the United States of a new restriction on Turkey’s
exports of certain textile products, as part of a broader understanding reached between the two
Members, the TMB, inter alia , made a number of comments and observations in relation to the
possibility of introducing new restraints with reference to the provisions of Article 4.162
E. COMMENTS AND OBSERVATIONS BY THE TMB
1. Changes in the Rules of Origin Applied by the United States
415. As reflected in Section B of this Chapter, the changes implemented in 1996 by the
United States in its rules of origin caused serious concern to several WTO Members.  During Stage 2,following the renewed request for consultations by  the European Community, a new mutually agreed
solution was found between the European Community and the United States, which was subsequently
notified to the DSB.
163  The ITCB members observed in their replies to the TMB that while this
bilateral solution rectified the situation mainly with  respect to products of export interest to the
European Community, these changes failed to restore the pre-ATC situation with respect to a numberof products of substantial export interest to restrained Members.
164  The TMB also noted that none of
the comments received from the United States included any reference to this subject matter.
416. The TMB recalled that during the second stage of the integration process it had not received
any notification requesting it to review any aspect of this matter under Articles 4.2 and 4.4 and to
make recommendations as provided for in Article 8.  Against this background, neither has it been
specifically requested to take up this matter, nor has the TMB acquired sufficient technical expertise
and knowledge to provide an assessment on these developments.  Noting the serious concernsexpressed and relevant additional details provided by  the ITCB members in their contributions in the
form of comments, the TMB understood that several Members continued to perceive the changes
implemented in the US rules of origin as having an adverse effect on their trading interests and their
                                                     
162 See paragraphs 488 to 495.
163 See paragraph 402.
164 See paragraphs 403 and 404.G/L/459
Page 140
rights under the ATC.  The TMB observed that, pursuant to Article 4.2, the introduction of changes,
inter alia , of rules of origin "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 such access;  or disrupt trade under this Agreement".  Furthermore,
Article 4.4 provides the possibility of requesting consultations and in the absence of a mutually
satisfactory solution, of referring the matter to the TMB for its recommendations.  In case ofcontinued problems in this area and of perceived lack of observance of the requirements defined in
Article 4.2, the Members concerned should make us e of the provisions provided by Article 4.4.
417. In addition, against this background, it would be appropriate for Members not to implement
important changes in their respective rules of origin during the remaining period of ATC
implementation.
418. With respect to the issue of single visa for multiple shipments, the TMB noted that the visa
arrangements concluded between the United States and its trading partners formed part of theadministrative arrangements notified by the United States under Article 2.17.  These administrative
arrangements also provide for consultation with a view to addressing issues related to their
implementation.  Therefore, it seems to the TMB that perceived problems regarding this specific
matter could also be pursued under the provisions of Article 2.17 and, if necessary, pursuant to
Article 2.21.
2. Changes in Classification of Products/Cat egories and in Technical Requirements During
Stage 2
419. The TMB recalled that ITCB members had requested that "the report should bring
transparency on changes in classification of products/categories, and in technical requirements
effected during the implementation process".  Since the TMB did not have any information at itsdisposal in this regard and also that no such matter had been referred to it by any Member under the
provisions of Article 4, it decided to seek additional information and comments related, among others,
to this issue from Canada, the European Community and the United States.  The replies of Canada and
the European Community are reflected in paragraph 405, while the United States did not provide any
comment with respect to this matter.
420. The TMB noted with appreciation that ITCB members had provided it with a selected list of
such changes implemented by the United States (see Attachment 3 to this Chapter).  It was observed,
inter alia , that:
• the bulk of the changes reported related to the period of the first stage of the
integration process;
• the type of changes listed was very wide-ranging and some of these changes were of a
very technical nature.  Therefore, it was not possible for the TMB to assess theirimpact without more information and the necessary technical knowledge;
• the list contained certain issues such as the implementation of minimum bond
requirements, whose potential adverse effect could be easily understood (though the
TMB had no knowledge of the reasons that could motivate such a decision);
• with respect to some other issues, such as the modification of the flammability
standards, it appeared to be questionable on what grounds they could be challenged
(unless the modification of the requirements was proven to be unjustified).G/L/459
Page 141
421. In any event, the TMB reiterated that the type of changes referred to in Article 4.2 should be
implemented in full compliance with the provisions of that Article, and that the provisions of
Article 4.4 are also available, should the need arise.
3. The Effect of Integration of Parts of a Restriction
422. Recalling that ITCB members expected th e TMB to comment on the methodology employed
by the restraining Members in adjusting the levels of restraints as a result of partial integration duringStage 2 and also on the outlook for Stage 3 in this regard, the TMB made the points reflected below.
(a) Implementation during Stage 2 of the integration process
423. The provisions of Article 4.3 were not applied by the European Community (since it did not
integrate products forming part of restrictions), while, as reported by it, Canada reduced the respective
aggregate levels on two occasions.  Though the United States did not provide details in this regard,
based on all indications, it would appear that the United States implemented downwards adjustments
in the respective (mostly aggregate or group) levels in each and every case when only part of arestriction became integrated.
424. The TMB noted that, in the view of the United States, the adjustment of the respective
restraint levels was conducted in such a way as to ensure that the balance of rights and obligations
between Members was scrupulously maintaine d.  The TMB observed, however, that while the
United States had emphasized that it had fully complied with the requirements of Article 4.4 toprovide advance notification to the Members concerned, Article 4.4 also provided "… wherever
possible, [to] initiate consultations with the affe cted Member or Members prior to the implementation
of such changes, with a view to reaching a mutually acceptable solution…".
425. In the reading of the TMB, Article 4.3 allows for such adjustments (i.e. downwards
adjustments) though these are not mandatory.  However, if such adjustments are made, "any change inthe level of that restriction shall not upset the balance of rights and obligations between the Members
concerned under [the ATC]".  In implementing such changes, the provisions of Article 4.4 shall also
apply.  Therefore, if a Member considers that appropriate information has not been received and no
consultations have taken place prior or immediately after the implementation of the changes, or that
such consultations did not result in a mutually satisfactory solution, any Member involved may referthe matter to the TMB for recommendations.  The TM B recalled that no such matter had been referred
to it by any Member.
(b) Outlook for Stage 3
426. As reflected in details in Chapter II of this report, Canada will integrate parts of respective
specific limits or sub-limits in an important number of cases during Stage 3.  Canada also notified that"in order to maximize the benefits of this integr ation to exporters, the restraint levels for these
categories will not be reduced to reflect the removal of these products from the restraint coverage".
The TMB observed, inter alia , that the decision of Canada not to adjust downwards the respective
restraint levels could bring about a real increase in access opportunities, when the ability and capacity
of producing and exporting more is assured, and keeping the restraint levels unchanged amounts to a
one-time significant increase in access opportunities for the respective products remaining under
restriction.
165
427. The European Community will not integrate parts of restrictions and, therefore, the provisions
of Articles 4.3 and 4.4 will not apply in this regard.
                                                     
165 See paragraph 103.G/L/459
Page 142
428. The United States' Sage 3 integration programme includes a number of products which form
part of broader restrictions (categories to be partially integrated; categories to be integrated from
merged categories; products to be integrated falling under group or aggregate limits).  As indicated in
Chapter II, regarding consequences of the integration of the products listed as imports into the
United States of products forming only part of a category or subject to group or aggregate limits, the
United States stated that it "will be in contact with [its] textiles agreement partners during the courseof this year [i.e. 2001], concerning the effects of integration in the year 2002 on specific, group and
aggregate limits.  Adjustment to limits will be based on trade that has occurred in the products to be
integrated, and [the United States'] agreements partners will be given the opportunity to consult with
[the United States] on this issue".  In this regard the TMB already recalled that, in conformity with the
provisions of Article 4, any change in the level of such restrictions shall not adversely affect the
access available to a Member and upset the balance of rights and obligations of the Members
concerned under the ATC.
429. The TMB reiterates its statement in paragraph 428 and expects that the Members concerned
will make full use of their consultations in conformity with the provisions of Articles 4.3 and 4.4.  In
the view of the TMB, prior to its implementation, any such adjustment should be mutually agreed
between the United States and its trading partners in the framework of the consultations envisaged in
Article 4.4.G/L/459
Page 143
Attachment 1
Changes in US Rules of Origin for Textile and Clothing Products
(as communicated by ITCB members in response to  additional clarifications sought by the TMB)
The US changed its rules of origin with respect to te xtile and clothing products as part of its Uruguay Round
Agreements Act.  These changes became effective from July 1996 and introduced substantial alterations in the pre-ATC
rules.
The EU challenged these changes.  Following a bilateral deal  between the two, the US rectified the situation
mainly with respect to products of export interest to the EU through Section 405 of its Trade and Development Act 2000
enacted on 18 May 2000.  Thus
(a) For processed fabrics, the origin reverted to  the pre-1996 rule.  Consequently, such fabrics are
conferred origin of the country where they ar e both dyed and printed and undergo two or more of the
following finishing operations:  bl eaching, shrinking, fulling, nappi ng, decating, permanent stiffening,
weighting, permanent embossing or moireing.
However the same rule does not apply to fabrics made of wool .  In other words, for fabrics of wool, origin remains
where the basic fabric is formed.
(b) For made-up articles, for 16 specified categorie s of made-up articles, the 1996 change established the
origin as the country where the constituent greige f abric was formed by weaving or knitting, regardless of
any further processing such as dyeing and printing of fabric, and subsequent conversion of fabric to
made-up articles.
With respect to some of these 16 articles, the or igin rule has been changed by the Trade and Development Act
2000.  The products concerned are listed in an Appendix to  this note.  The new changes are summarized below:
(i) For non-cotton and non-wool made-up articles (i.e., only for those of silk, MMF or other
vegetable fibres), the rule now recognize s dyeing and printing as origin conferring.
Accordingly the origin is the country where the constituent fabric is dyed and printed and
undergoes two or more finishing operations (r egardless however of where it may be further
processed).
But, if these same products are made from cotton or wool fabric, the origin continues to be deemed the
country where the basic cotton or wool fabric is formed.
(ii) What is more, the definition of cotton m ade-ups has been enlarged.  Now an article containing
16 per cent or more by weight of cotton is considered as that of cotton.
(iii) And for all made-up articles, contrary to pre- ATC rules, the new rule continues to disregard
processing operations such as designing, cu tting, hemming, sewing, etc., that may be
undertaken on the fabric to convert it to made-up articles.
(c) For apparel products, no further modification has been effected.  Consequently, origin continues to be
determined on the basis of rules as modified and implemented with effect from July 1996.G/L/459
Page 144
Attachment 2
Changes in US Rules of Origin for Textile and Clothing Products+
(as summarized by ITCB members in response to  additional clarifications sought by the TMB)
US Rules of Origin
Treatment of 16 Specified Categories of Made-up Articles
Products for which rules
were changed in 1996 Whether affected under the Year
2000 changes
HTS No. Brief Description
1. 5609 Twine, cordage, ropes No change
2. 5807 Labels, badges, not embroidered No change
3. 5811 Quilted products No change
4. 6209.20.5040 Diapers of cotton No change
5. 6213 Handkerchiefs Changed
6. 6214 Shawls, scarves, mufflers Changed
7. 6301 Blankets, travelling rugs No change
8. 6302 Bed, table, toilet, kitchen linen Changed with respect to HTS
6302.22, 29, 52, 53, 59, 92, 93, 99
9. 6303 Curtains, bed valances Changed with respect to 6303.92,
99
10. 6304 Other furnishing articles Changed with respect to 6304.19,
93, 99
11. 6305 Sacks and bags No change
12. 6306 Tarpaulins, tents, camping goods No change
13. 6307.10 Floor and dish cloth, dusters, etc. No change
14. 6307.90 Other made up articles No change
15. 6308 Sets consisting of fabric and yarn for making into rugs,
tapestries, etc.No change
16. 9404.90 Quilts, cushions, comforters Changed with respect to
940490.85, 95
--- 6117.10* Shawls, scarves, mufflers, knit Changed
*This HTS number has been included only in the 2000 legislation.
Note:  These 16 product categories are those for which the 1996 rule established origin as the country in which the
constituent fabric is made in its basic greige form.
+In the response of ITCB members, this Attachment was an appendix to Attachment 1.G/L/459
Page 145
Attachment 3
US Changes in Classification of Products/Categories, and Technical Requirements
Effected During the ATC Transitional Period
(as communicated by ITCB members in response to  additional clarifications sought by the TMB)
During the year 1995:
1. US Customs modified its previous rulings to request the country of origin to be noted as the country where the
fabric was woven for flat sheets.  The product used fabr ic woven in country A, cut and hemmed, with piping or
capping added in country B and shipped to the US.  Previously , the origin was conferred to where the fabric was
altered.
2. US Customs detained importer's goods (women's cotton bo xer-style briefs) and determined it as women's woven
cotton shorts in HTSUS 6204624055 and quota category 348 instead of HTSUS 61082100 and quota
category 352 as declared by the importer in early 1995.  Court of International Tr ade (CIT) upheld the declaration
by the importer because of the physical characteristics of the product and the evidence educed at trial that they
are designed and marketed as underwear.
3. 1995 Correlation amended to include 5 changes relating to textiles and clothing.
4. US Customs classified colour ink sheet rolls used in co lour thermal transfer printers as typewriter and similar
ribbons in HTSUS 96121090.  Importer declared it as parts  of printers in HTSUS 84733040.  CIT agreed with the
importer that the products are not typewriter ribbons.
During the year 1996:
1. Committee for the Implementation of Textile Agreements (CITA) issued a notice reminding interested parties that
shipments made in one year exceeding the quota level for that year are in violation of the terms of the
agreements.  It has been the practice of CITA to charge the excess to the quota for the immediate following quota
period.  CITA now says it reserves the right to deny entry permanently to these excess shipments.
2. CITA changed certain HTSUS classification numbers of a ll import controls for goods entered in categories 647W
and 669P.
3. The US Customs changed its 1996 harmonized tariff sc hedule, affecting products under HS No. 6117, 6217 and
6307.
4. The Consumer Product Safety Commission is seeking to  reinstate information collection requirements for
regulations implementing flammab ility standards for rugs and carpets.
5. 1996 Correlation contained changes affecting categories 229, 611, 618 and 629.
6. The Consumer Product Safety Commission modified t he flammability standards for children's sleepwear in
September.
During the year 1997:
1. US Customs implemented minimum bond requirement, for all companies importing textiles, of 2 per cent of the
value of their world-wide imports of textiles.
2. 1997 correlation was modified affecting category 301.  CITA amended the correlation effective 23 June 1997.  The
products affected are classified under HS No. 5205.
During the year 1998:
1. CITA announced revision to the 1998 correlation for textile -covered cooler bags affecting categories 369, 670, 859
and 870.
2. Some HTSUS classification numbers were c hanged for products in part-categories 369L and 670L.
3. CITA made change to 1998 Correlation affecting categories 222 and 362.G/L/459
Page 146
VII. IMPLEMENTATION OF THE PROVISIONS RELATED TO PROBLEMS ARISING
FROM POTENTIAL CIRCUMVENTION OF THE ATC (ARTICLE 5)
430. Article 5 provides detailed rules and procedures for addressing problems arising from the
potential circumvention of the ATC by transhipment , re-routing, false declaration concerning country
or place of origin, fibre content, quantities, description or classification of merchandise and
falsification of official documents.  In essence, these provisions are based on a combination of thefollowing elements:
• establishing the necessary legal provisions and/or administrative procedures to
address and take action against circumvention by transhipment, re-routing, false
declaration concerning country or place of origin, fibre content, quantities,
description or classification of merchandise and falsification of official documents;
• agreeing to take necessary action, consistent with Members' domestic laws and
procedures, to prevent, to investigate, and, where appropriate, to take legal and/oradministrative action against circumvention practices within their territory;
• committing to cooperate fully, consistent with Members' domestic laws and
procedures, to establish the relevant facts in instances of circumvention or alleged
circumvention;
• should a Member believe that the ATC is being circumvented, it should consult with
the Member(s) concerned with a view to seek ing a mutually satisfactory solution;  if
such a solution is not reached, the matter may be referred to the TMB for
recommendations by any of the Members involved;
• where, as a result of investigation, there is sufficient evidence that circumvention has
occurred, appropriate action may be taken after consultations with a view to arriving
at a mutually satisfactory solution between the Members concerned;  any such actionshall be notified to the TMB with full justification and the TMB may make such
recommendations to the Members concerned as it deems appropriate;  if a mutually
satisfactory solution is not reached, any Member may refer the matter to the TMB for
prompt review and recommendations.
A. S
TAGE 1:  I SSUES RELEVANT IN THE CONTEXT OF THE IMPLEMENTATION OF ARTICLE 5
431. As noted in Chapter IV of this report and also in the TMB's first comprehensive report166, the
administrative arrangements concluded, respectively by the European Community and the
United States with a great number of Members included provisions related to circumvention.  In light
of the explanations received, the TMB noted that the European Community and the Membersconcerned had deemed it necessary to include provisions of the previous bilateral agreements in the
administrative arrangements, including provisions on circumvention, which could have a potential
effect on the implementation and administration of quantitative restrictions notified by the
European Community pursuant to Article 2.1.  As an overall conclusion of its review of the
administrative arrangements notified by the Eu ropean Community, the TMB expected that these
arrangements, including the provisions on circumvention, would be implemented by the respective
Members in conformity with the relevant provisions of the ATC.
432. With respect to the provisions on circumvention, contained in the administrative
arrangements concluded and notified by the United States, the TMB sought information as to how
such provisions were deemed necessary in relation to the implementation of any provision of Article 2
                                                     
166 See G/L/179, paragraphs 267 to 269.G/L/459
Page 147
of the ATC.  It also asked for explanations as to how these provisions, in particular that enabling the
importing Member to impose, in particular circumst ances, triple charges on quotas, would fit within
the provisions of the ATC.  In reply, the United States stated that circumvention often damaged a
country's legitimate trade by making it impossible to administer effectively its Article 2.1 quotas.  The
United States and the Members concerned had deemed the circumvention provisions to be necessary
for the implementation of these quotas.  Triple charging, which was agreed upon in most of theadministrative arrangements, had also been deemed by the United States and the respective Members
to be a necessary deterrent to circumvention.  Since its application would affect the restraint levels
contained in the US' Article 2.1 notifications, these particular provisions were, in the view of the
United States, appropriately included in the administrative arrangements.
433. Noting that all the provisions of the administ rative arrangements, including those related to
cooperation in the prevention of circumvention, had been agreed between the Members concerned, the
TMB observed that Article 5 contained detailed descriptions of the rules and procedures to befollowed.  The TMB noted, inter alia , that Article 5.4 seemed to provide some flexibility in terms of
remedies or agreed actions that could be foreseen in cases when circumvention has occurred.  It
observed, however, that Article 5 contained no reference to the possibility for the importing Member
to impose triple charges on quotas, as a deterrent to circumvention.  The TMB noted in this regard
that this provision had not been utilized by the United States.  The TMB recalled that theUnited States had stated that when provisions of the administrative arrangements were 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, including those related to circumvention,
would be implemented by the respective Members in conformity with the relevant provisions of theATC.
434. During Stage 1, only one specific matter was referred to the TMB with reference to,
inter alia , Article 5.  In November 1995, the TMB received a notification from Pakistan, pursuant to
Articles 5.4 and 8.5, which referred to debits made by the United States to Pakistan's quotas for
US category 361 products (bedsheets) on account of alleged circumvention by Pakistani companies.The TMB began its consideration of this notification at its meetings in February and March 1996 with
the participation of delegations from both Members.  At its March 1996  meeting, the TMB was
informed by the two delegations that, following c onsultations, a mutually satisfactory understanding
had been reached between them, and that this understanding would be notified to the TMB.
Subsequently, the TMB received a notification from the United States, in October 1996, pursuant toArticle 5, informing the TMB of the main features of "a mutually satisfactory solution [reached with
Pakistan on 22 March 1996] with respect to the transshipment charges for [US] category 361 (cotton
[bed]sheets) made by the United States [to Pakistan's quota for these products] on 11 August 1995",
on account of alleged circumvention by Pakistani companies.  According to this communication, the
two "governments also reached a mutually satisfactory solution with respect to cotton bedsheets
entering the United States incorrectly marked as man-made fibre".  Furthermore, "in the context of
this agreement, a mutually acceptable solution to the rules of origin changes [implemented by the
United States] with respect to products in [some] categories had [also] been reached".  However,
before the TMB could start its consideration of this communication, Pakistan requested that this
consideration be deferred, as there was a possibility that the two Members would submit a joint
notification to the TMB.  The United States consented to this request.  In response to subsequent
inquiries by the TMB for this joint communication, the request for deferral was successively repeated.In July 1997, a communication was received from Pakistan on the same matter, pursuant to
Article 2.17 of the ATC.  The Memorandum of Understanding (MOU) reached on 22 March 1996
between Pakistan and the United States was attached to this communication.  Pakistan also stated inG/L/459
Page 148
the communication that the operative paragraphs of the MOU were subject to the provisions of its
preamble167 and were without prejudice to the rights and obligations of Pakistan under the ATC.
B. DEVELOPMENTS SINCE THE ADOPTION OF THE TMB 'S FIRST COMPREHENSIVE REPORT
1. The TMB's Examination of the Communications Made by Pakistan and the
United States
435. The TMB started its consideration of both communications referred to in paragraph  434
above, i.e. that by Pakistan submitted under Article 2.17 and that the United States notified under
Article 5, at its meeting in September 1997.  Since the two communications regarding the same
mutually satisfactory solution had been made pursuant to two different articles of the ATC, the TMB
decided to seek clarification from the two Members concerned and to revert to its review, also on the
basis of the answers provided, at a subsequent meeting.   In particular, the TMB sought clarification
from Pakistan as to the reasons why the notification of the MOU had been submitted pursuant to
Article 2.17, and from the United States why the notification of the mutually satisfactory solution hadbeen submitted pursuant to Article 5.
436. In spite of reminders, no reply was received from either Member.  Furthermore, there were no
indications that any reply would be forthcoming.  Therefore, at its meeting of January 1998, the TMB
came to the view that, in such circumstances, it ha d to proceed with the examination of the substantive
elements of the two communications, keeping also in  mind the respective provisions under which they
had been submitted.  This decision was taken without prejudice as to whether the TMB would be in a
position to reach a definitive conclusion on the justification of the measures in accordance with the
provisions of the ATC, based on the information made available to it and bearing in mind, in
particular, the fact that the communications by Paki stan and the United States had been made pursuant
to two different provisions of the ATC.  The TMB expressed its most serious concern about the lackof cooperation by the two Members to provide th e Body with replies to the questions that had
officially been put to them.  The TMB recalled that, according to Article 8.3, the Body "shall rely on
notifications and information supplied by the Members under the relevant Articles of this Agreement,
supplemented by any additional information or necessary details … it may decide to seek from them".
In the view of the TMB, by not providing additiona l information or necessary details in response to
the clarifications sought by the TMB, Pakistan and the United States had failed to comply with an
important obligation under the ATC.  These circumstances could have a serious impact on the TMB's
ability to discharge its functions as required under the Agreement.  Furthermore, the unduly long
delay in submitting the respective notifications prevented the TMB from conducting a prompt
examination of the matter.
437. The TMB resumed the review of the two communications at its meeting in March 1998.  The
discussion continued during its meetings in May and June 1998 and was concluded at the 46
th
meeting, in July 1998.
438. The TMB noted that, though the respective notifications had been submitted to it in different
forms and invoking different provisions of the ATC, both communications confirmed that the solution
notified had been mutually agreed between Pakistan and the United States, and were an indication that
both Members considered that the measures notified had been taken under the ATC.  The TMBrecalled that according to Article 8.1 of the ATC, the TMB's task was, inter alia , "to examine all
measures taken under this Agreement and their conformity therewith".  However, the TMB found it
unusual that the same mutually agreed solution had been referred to it by the Members concerned
under two different provisions of the ATC, which notwithstanding the requirements defined in
Article 8.1 and cited above, conferred different tasks on the TMB in reviewing the measures broughtbefore it.  The review provision of Article 2, namely Article 2.21, provides that "[t]he TMB shall keep
                                                     
167 The preamble of the MOU stated that the agreement between the two governments was "without
prejudice to their rights and obligations under the Uruguay Round Agreement on Textiles and Clothing".G/L/459
Page 149
under review the implementation of this Article.  It shall, at the request of any Member, review any
particular matter with reference to the implementation of the provisions of this Article.  It shall make
appropriate recommendations or findings within 30 days to the Member or Members concerned, after
inviting the participation of such Members".  Recalling that the notification of Pakistan had been
submitted in July 1997, pursuant to Article 2.17, the TMB observed that no request, in the sense of the
second sentence of Article 2.21, had been addressed to it by Pakistan.  Therefore, a review of thisnotification under Article 2.21 should be confined to the provisions of the first sentence of this
Article.  Under Article 5, the only provision which specifically required the notification of a mutually
satisfactory solution to the TMB and, subsequently, a review by the TMB, as a result of which the
Body "may make such recommendations to the Members concerned as it deems appropriate", was
contained in Article 5.4.  It was recalled that the notification submitted by the United States was made
pursuant to Article 5, with no further specification of a paragraph under this Article.
439. The TMB also observed that, in addition to the above, neither of the two communications
provided sufficient explanation for the different el ements forming part of the mutually satisfactory
solution reached between the two Members.  Th e same applied to the possible link among the
different elements so agreed.  The MOU did not cont ain any such explanation or justification, and the
accompanying notification submitted by Pakistan also remained silent in this regard.  The notification
by the United States provided some reasoning for one of the particular elements agreed, but not forthe others, and in the absence of any indication or explanation from Pakistan the particular reasoning
given by the United States had to be seen as the vi ews of one of the parties.  In any event, the amount
and quality of the information provided by the two Members put limitations on the TMB's ability to
review these communications as required under the ATC.
440. The TMB understood that the mutually satisfactory solution agreed between Pakistan and the
United States contained three main elements, which it considered in sequence:
• a reduction of the debit made by the United States to Pakistan’s category 361 quota
for 1995 to the extent of and in respect to cotton fitted sheets (subsequently, after
discussions with Pakistan, the United States had decided to make the reductions in
charges to the category 361 quota for 1996);
• the introduction of restrictions on man-made fibre bedsheets and pillowcases
(US categories 666-S and -P);  the increase in the base limits for categories 360and 361; and
• the resolution of matters concerning US rules of origin changes with respect to
imports of bedsheets and pillowcases from Pakistan into the United States.
(a) Reduction of the debit made by the United States to Pakistan's category 361 quota
441. With respect to the first main element, the TMB took note of the adjustment to the quota level
for category 361 resulting from a reduction of the charges made by the United States, a reduction
which had been applied to the 1996 limit.  The TMB also took note that, accordingly, Pakistan had
decided to withdraw its requests of 30 November 1995 and 4 March 1996 that the TMB review theUS charges to category 361.  In doing so, the TMB expressed concern that, in 1995, when it had made
the debits to Pakistan's quota, the United States had not notified it to the TMB with full justification,
as required in Article 5.4.  The TMB also reiterated its concern that the mutually satisfactory solution
which had been reached between Pakistan and the United States, had not been notified to the TMB for
over six months.  Moreover, the TMB observed th at the respective communications submitted by
Pakistan and the United States had not provided explicit reasoning or justification for the adjustment
agreed between the parties.  It should also be noted that prior to reaching these conclusions, the TMBconsidered a number or elements involved in this aspect of the case.  The Body stated, inter alia , that
the ATC did not provide for cases whereby measures were decided after the entering into force of theG/L/459
Page 150
ATC with reference to actions that had taken place under the previous MFA regime.  It also observed
that there could be explanations for notifying this element of the MOU either under Article 2.17 or
under Article 5.4.
(b) Introduction of a limit on man-made fibre bedsheets and pillowcases
442. With respect to the second main element (and in  particular the introduction of restrictions on
man-made fibre bedsheets and pillowcases (US categories 666 -S and P), in the absence of additionalinformation from the Members concerned, the TMB considered the introduction of these new
restrictions pursuant to those ATC provisions (i.e. Articles 2.17 and 5) under which the respective
notifications had been referred to the Body.  Having examined the introduction of these restrictions in
the context of Article 2.17, the TMB concluded that there appeared to be no justification to apply new
quantitative restrictions under that Article.
443. Turning to the consideration of the same restrictions in the context of Article 5 of the ATC,
the TMB recalled, inter alia , that the communication had been submitted by the United States
pursuant to Article 5, without mentioning any particular provision of that Article, and that under that
Article the only provision that specifically required the notification of a mutually satisfactory solution
agreed between Members was contained in Article 5.4.  The TMB, therefore, examined the issue of
the introduction of the new restrictions in the context of that provision. The TMB observed, inter alia ,
that, apart from the third sentence of Article 5.4, the introduction of a new restriction, even if mutuallyagreed between the Members concerned, was not mentioned in Article 5.4 as an "appropriate action,
to the extent necessary to address the problem" when circumvention, as defined in Article 5.1, had
occurred.  Furthermore, the TMB understood that the introduction of restrictions, set out in the third
sentence of Article 5.4, related only to cases where there had been evidence of the involvement of the
territories of third-party Members in the transshipment.  This provision, therefore, could not per se
allow the introduction of new restrictions on impor ts from Pakistan in the particular case when
circumvention had occurred.
444. The TMB also observed that while the second and third sentences of Article 5.4 specified
possible actions that could be taken when circumvention had occurred, they did not provide an
exhaustive list for such actions.  This was made clear by the language of the second sentence as wellas by the fifth sentence of Article 5.4, the latter providing that "[t]he Members concerned may agree
on other remedies in consultation".
445. As for the fifth sentence of Article 5.4, the TMB observed that the Agreement did not specify
what, in the context of this paragraph, could or could not constitute the "other remedies". It could be
argued that the "other remedies" referred to in Article 5.4 did not include the permission to introducenew quantitative restrictions, since Article 5.4 in itself, as well as the broader context as determined
by the ATC, provided sufficient guidance to the Members concerned to develop a correct
understanding on what could or could not constitute su ch "other remedies" in the sense of Article 5.4.
It could be contended that Article 5.4 was sufficiently specific in defining what type of actions could
be taken in response to well defined circumstances.  The formulation of the second sentence of
Article 5.4 seemed to imply that the action taken should affect the product that was subject to
circumvention.  Since only the exports of products th at had already been subject to restrictions could
be circumvented, the remedy for such circumvention could not affect products other than those with
respect to which circumvention had been claimed.  Reading this second sentence in conjunction with
the fifth sentence, it appeared, therefore, that the two Members could have agreed on adjustments of
charges to the restraint level established for the category 361 products or on "other remedies"
affecting the same products, but not on "other re medies" affecting other products, like category 666 -S
and 666-P products.  In addition, the third sentence of Article 5.4 explicitly allowed the introduction
of new restrictions, but did so only in cases wh ere there was evidence of the involvement of the
territories of (third-party) Members through which the goods had been transhipped.  If this provision
were read together with the fifth sentence of Article 5.4, it would appear that remedies other than theG/L/459
Page 151
introduction of restrictions on imports of category 361 products could also have been foreseen, but
these actions had to be limited to the products transshipped and to the Member through which the
transshipment was effected.  This sentence did not provide authorization for the introduction of new
restrictions on imports from Pakistan.
446. It could also be contended that the broader context as defined by the ATC (i.e. since the
Agreement sets out provisions to be applied by Members during a transition period for the integrationof the textiles and clothing sector into GATT 1994 and, thus, the ultimate objective of the Agreement
is to ensure the full integration of trade in the covered products into the GATT 1994 rules and
disciplines, the ATC carefully circumscribes the possibilities for maintaining or introducing
quantitative restrictions) also confirmed the two statements above.
447. It could also appear, however, that the language of the fifth sentence of Article 5.4 was vague
and permissive, not setting any limitation on the kind of actions that would constitute possible "other
remedies".  It could, therefore, be argued that this formulation provided broad discretion to theMembers concerned in reaching an agreement, in consultation, on what they consider in a particular
case to be appropriate remedies (other than those defined in the preceding sentences of the same
Article).  On the basis of such a reasoning, one could not exclude an argument that the introduction of
restrictions on products previously not subject to such restrictions could be considered as a possibility
for providing "other remedies".
448. Due to the fact that Article 5.4 had not been specifically invoked by either of the Members,
and full justification for the action had not been provided, the TMB refrained at that stage from taking
a definitive view on the applicability of this provision, as well as on the conformity of the actions
taken with Article 5.4.  The TMB noted that Article 5.4 envisaged that where there was sufficient
evidence that circumvention had occurred the action taken should be "appropriate" and "to the extentnecessary to address the problem".  Even if the arguments, that Article 5.4 provides broad discretion
to the Members concerned to reach an agreement through consultations as to what they consider in a
particular case to be appropriate remedies, were to be retained, it would also be necessary to assess
whether the action was appropriate and whether it addressed the problem identified "to the extent
necessary".
449. The TMB observed that if one followed the reasoning that the introduction of new restrictions
could be considered as a possibility for providing "other remedies" in the sense of Article 5.4, the
action would be seen as being appropriate.  Therefore, it could be viewed as being justified, provided
that it corresponded to what was perceived as the necessary extent to address the problem.  Since,
according to the explanation given by the United States, the problem had been related to theimplementation of restrictions notified pursuant to Article 2.1 (by mis-marking goods that were
subject to such restrictions), one could argue that the mutually acceptable solution reached between
the two Members did not go beyond what was necessary, for the following reasons:
• although it provided a disincentive for mis-marking the products in question by
putting restrictions on the products that had been subject to such practices;
• it, at the same time, allowed trade to proceed.
450. There could, however, be arguments against reaching such a conclusion.  First, if the
reasoning prevailed that the introduction of the new restrictions, even if mutually agreed between the
two Members, could not be justified under Article 5.4, the action taken could not be viewed, by
definition, as being appropriate.  Second, notwithstanding the arguments that the introduction of new
restrictions could be considered as a possibility fo r providing "other remedies" in the sense of Article
5.4, it could be argued that the introduction of the new restrictions did not meet the requirement thatthe actions taken should be "to the extent necessary to address the problem".  If the problem stemmed
from the mis-marking of the man-made fibre products, introducing restrictions on them did not seemG/L/459
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to address the problem at all, or to the extent necessary, as it allowed for the continuation of mis-
marking up to a certain limit which amounted to the level of the new restrictions.  Taking an action
"to the extent necessary to address the problem" involved another aspect too, which was related to the
duration of the measure in question.  On the basis of the respective communications, the TMB
understood that the new restrictions would remain in place until the expiration of the ATC, i.e. for
almost nine years.  This was a much longer duration than the one envisaged in Article 6, whichexplicitly authorized the introduction of new restrictions provided the necessary conditions were met.
The maximum time-frame envisaged in Article 6 was three years, this being a ceiling, not a duration
that had to be automatically agreed or imposed.  Since the proposed duration of the particular action at
issue went very much beyond that three-year ceiling, the reasons why this had been deemed necessary
by the two Members should have been at least explained to the TMB convincingly.  The TMB noted
in this regard that no such explanation had been provided to it by either of the Members.  On the basis
of these arguments, one could conclude that the introduction of the new restrictions was notappropriate, nor did it address the problem to the extent necessary.
451. Since the communication of the United States had been submitted pursuant to Article 5,
without specifying the particular provision under this Article that had been considered to be
applicable to the particular case, the TMB also examined the introduction of the new restrictions in
the context of Article 5.6, in order to address all possible options. The TMB observed that theUnited States had stated that the overwhelming majo rity of  textile shipments (i.e. cotton bedsheets)
from Pakistan to the United States had been incorrectly marked as man-made fibre.  The TMB further
observed that this statement by the United States had not been formally contested, nor confirmed, by
Pakistan.
452. The TMB was of the view that it was arguable whether or not such incorrect marking
corresponded to a false declaration concerning fibre content, quantities, description or classification of
merchandise, as set out in Article 5.6.  It could be argued that Article 5.6 did not allow for taking such
measures as the introduction of new quantitative restrictions.  The second sentence of Article 5.6
envisaged that appropriate measures, consistent with domestic laws and procedures, should be taken
against the exporters or importers involved.  Therefore, it appeared that a mutually satisfactorysolution reached pursuant to this provision would encompass appropriate measures against the firms
involved (exporters and/or importers), as opposed to those against governments.  In addition, while
Article 5.6 was not precise in providing Members with modalities for taking "appropriate measures"
in cases where false declarations had been made for purposes of circumvention, it could be contended
that the loose disciplines attached to this provision (e.g. there was no requirement to notify theappropriate measures agreed to the TMB), compared  to other provisions concerning the taking of
measures having a restrictive effect embodied in the ATC, raised doubts as to whether the
introduction of new restrictions could be contemplated under this particular provision.  Based on these
considerations, as well as on the analysis regarding the broader context defined by the ATC, as
reflected above, it could be argued that the introduction of the new restraints, even if mutually agreed
between the two Members, could not be justified in the context of Article 5.6
453. It could also be argued, that if one were to accept that (i) incorrect marking of cotton
bedsheets had been, at least in part, the root of the problem identified and that (ii) this practice
amounted to a false declaration as defined in Article 5.6, the language of this Article would authorize
the Members concerned to agree, in cases where no, or inadequate, administrative measures were
being applied to address and/or to take action against such circumvention, on any kind of mutually
satisfactory solution, possibly including the introduction of new restraints.  Such a conclusion  wouldrely, inter alia , on the lack in this language of any explicit indication regarding the possible nature of
the measures that could be agreed between the Me mbers as a mutually satisfactory solution.  The
TMB declined to take a definitive position at that stage on the applicability of this provision, as well
as on the conformity of the actions taken with Article 5.6.G/L/459
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454. Having summarized its detailed considerations of the matter the TMB wished, in terms of
findings, to draw the attention, in particular, to the following points:
• the actions referred to above had been agreed apparently in response to developments
that had taken place prior to the entering into force of the ATC;
• any mutually satisfactory solution between Members under the ATC shall be
consistent with the relevant provisions of the ATC, shall not nullify or impair benefits
accruing to any Member under the Agreement, nor impede the attainment of any ofits objectives;
• there  appeared to be no justification for the introduction of new restrictions pursuant
to Article 2.17, which was the only provision of the ATC invoked by Pakistan;
• it appeared to be more relevant to consider these measures in the context of Article 5,
which was the provision referred to by the United States.  The United States,
however, had not provided further precision regarding the applicable paragraph under
Article 5;
• in the absence of appropriate explanation and justification provided to it, the TMB
carefully considered all possible options, arguments and counter-arguments in the
context of Article 5.  Though for the reasons explained above, the TMB had not beenplaced in a position to take a definitive stand, at that stage, on the conformity, or lack
thereof, of the measures discussed with the ATC, the Body was of the view that its
detailed considerations, especially those regarding the examination of the
introduction of the new restrictions in the context of Article 5 and, in particular,
Article 5.4, would not only require, but also facilitate further reflection by Pakistan
and the United States.
455. Consequently, the TMB recommended that Pakistan and the United States re-examine the
measures in question, in the light of the Body's  comments and considerations.  With a view to
exercising proper surveillance of the implementa tion of its recommendation, the Body expected that
the two parties would report back to it on the outcome of this re-examination, in a way that would
enable the TMB to make a definitive statement on the justification and conformity of the actions withthe relevant provisions of the ATC.
(c) Resolution of matters concerning changes in the US rules of origin
456. With respect to the third main element (i.e. the resolution of matters concerning changes in
the US rules of origin), the TMB recalled that, according to both notifications, the mutually
acceptable solution also resolved matters concerning changes to US rules of origin with respect to
imports of bedsheets and pillowcases (products of categories 360, 361, 666 - S and 666 - P) from
Pakistan into the United States.  The TMB recalled that neither Pakistan nor the United States had
previously referred to the TMB any matter regarding the changes in US rules of origin affecting the
products mentioned above.  Furthermore, the communications by Pakistan and the United States had
been submitted, respectively, pursuant to Articles 2.17 and 5, whereas the relevant provisions of theATC addressing issues related, inter alia , to changes in practices, rules, procedures and categorization
of textile and clothing products, were contained in Article 4.  In taking note of this element of the
communications, the TMB observed that Article 4.4 explicitly required the TMB to review such
issues in cases where a mutually satisfactory solution was not reached between the Members
concerned and when any of those Members decided to refer the matter to the TMB for
recommendations as provided for in Article 8.G/L/459
Page 154
2. Communication by Pakistan and its Follow-up
457. Despite repeated informal reminders, no communication was submitted by either of the two
parties on the implementation of the TMB's recommendation, reflected in paragraph  455, until
April 2000 when Pakistan submitted a communication to the TMB pursuant Article 8.  In this
communication Pakistan reported that "following careful and detailed re-examination of the matter
relating to the 'introduction of a limit on man-made fibre bedsheets and pillowcases (category 666-Sand -P)' in light of the Body’s comments and considerations, [the] Government of Pakistan agrees that
the subject restrictions did not conform to the provisions of the ATC.  Consequently it requested
consultations with the Government of the United States.  Regrettably, during consultations held
between [the] two governments, it had not been pos sible to arrive at a mutually agreed solution
conforming to the provisions of the ATC."  In view of that, Pakistan requested the TMB to "consider
the matter pursuant to Article 8 (in particular to paragraph 5 thereof) and recommend that the
United States withdraw the limits on Pakistan’s exports of category 666-S and -P".  At the verybeginning of the consideration of this matter by the TMB, during its meeting of May 2000, the
representative of the United States requested that the consideration by the TMB be suspended to allow
for further consultations between the two Members.  Pakistan agreed to this request and the TMB,
therefore, suspended its consideration.  Subsequently, the representatives of both Pakistan and the
United States informed the Body that the renewed consultations had been productive and requestedthe TMB to postpone its further consideration of this matter, since they expected that this would allow
them to finalize a mutually agreed solution.  They al so indicated that they would report back to the
TMB in due course on the outcome of their consultations.  The TMB agreed to this request.
458. At its June 2000 meeting, the TMB took note of a communication by Pakistan in which it
informed the Body that it had held bilateral consulta tions with the United States and stated that until
such time as the results of these resumed bilateral consultations were notified to the TMB, "the review
of the matter may be postponed".  The TMB agreed, as suggested by Pakistan, to postpone its review
of the matter until such time as the notification referred to in the communication of Pakistan was
received.
3. Joint Communication Received from  Pakistan and the United States
459. In September 2000, the TMB received a joint communication from Pakistan and the
United States, in which the two Members "refer to the request made by the TMB to our two
governments contained in G/TMB/R/45 that we re-examine issues related to the Memorandum of
Understanding signed by representatives of our  two governments on March 22, 1996".  According to
the communication, a new Memorandum of Understanding signed on 25 May 2000, attached to thecommunication, "reflects the results of this re-examination and constitutes a mutually satisfactory
solution of the issues related to Articles 4 and 5 of the ATC contained in the MOU dated March 22,
1996".
460. The TMB considered this joint communication during its meeting in October 2000. It recalled
that two previous communications related to the present one had been referred to the Body at its
meetings in May and June 2000.   These communications had been made by Pakistan following the
review by the Body, in  1998, of the mutually sa tisfactory solution reached by Pakistan and the
United States on 22 March 1996.   The TMB observed that the new Memorandum of Understanding
presented the recently held consultations as a continuation of the consultations begun in March 1996
between Pakistan and the United States with regard to deductions made on 11 August 1995 by the
United States to Pakistan’s category 361 quota under Article 5.  The recent consultations, according to
the MOU, "also included related issues concerning bedsheet and pillowcases categories in both cottonand man-made fibre raised under Articles 4 and 5 of the ATC".  Furthermore, the MOU also stated
that "Pakistan […] withdraws its request dated 5 April 2000 for Textiles Monitoring Body review
pursuant to ATC Article 8, paragraph 5, of the limits on [imports of] 666-P and 666-S [products]".
The TMB observed that the new MOU amended the MOU of 22 March 1996, in so far as it increasedG/L/459
Page 155
the base limits for categories 666-P and 666-S for the year 2000, provided for increased growth rates
for the period 2001 to 2004 and provided additional flexibility for those categories.
461. In taking note of the withdrawal by Pakistan  of its request for the TMB’s review, pursuant
Article 8.5, of the limits on imports of 666-P and 666-S products as stated in the MOU attached to the
communication, the TMB observed that this communication, while reporting to constitute a mutually
satisfactory solution between the two Members, did not contain explanation or justification for the
introduction of a restriction on imports of products of category 666-S and 666-P and did not specify
the particular provision of the ATC which would justify, in the view of the parties, the application of
such a measure.  The TMB recalled that, already in 1998, these had been the same reasons why it had
not been in a position to take a definitive stand on the conformity, or lack thereof, of this measure
with the ATC.  Consequently, the TMB had recommended that the parties re-examine the measure in
question, in light of the Body’s detailed comments  and considerations.   In the continued absence of
appropriate explanation and justification from the two Members, the TMB reiterated that unlessadditional information in this regard was provided, the Body would not be in a position to determine,
as required, the conformity, or lack thereof, of this  measure with the ATC.  It was expected that this
additional information would be received in the near future.
462. At its December 2000 meeting, the TMB reverted to the joint communication received from
Pakistan and the United States. The Body observed that though it had expected to receive additionalinformation from the parties, as regards explanation and justification for the introduction of new
restrictions on imports from Pakistan of product s of category 666-S and 666-P, no such additional
information had been received up to that time and that there was no indication as to whether such
additional information would be provided in the near future.  The TMB decided, therefore, to put
more specific questions to both parties with resp ect to the joint communication received and to the
new Memorandum of Understanding (MOU), signed  on 25 May 2000, so as to be in a position to
determine, as required, the conformity or lack ther eof, of the said measures with the ATC.  These
questions were as follows:
"The TMB noted that the joint communication had been made with reference to a
mutually satisfactory solution of the issues related to Articles 4 and 5 of the ATC contained inthe MOU dated 22 March 1996.  This seemed to indicate that both Members considered that
the mutually satisfactory solution contained in the MOU dated 25 May 2000 and, by
implication, also in that of the MOU of 22 March 1996, had been reached under the ATC.
The TMB expected that both Members would provide confirmation in this regard.
The TMB observed that the joint communicatio n referred to the request made by the
TMB, contained in paragraph 51 of G/TMB/ R/45, 'that Pakistan and the United States
re-examine the measures in question [i.e. the new restrictions introduced in 1996 on imports
from Pakistan of products of categories 666 - P and 666 - S for a duration of almost nine
years], in the light of the Body's comments and considerations.  With a view to exercising
proper surveillance of the implementation of its recommendation, the Body expected that the
two parties would report back to it on the outcome of this re-examination, in a way that wouldenable the TMB to pronounce itself definitively on the justification and conformity of the
actions with the relevant provisions of the ATC'.  The joint communication stated that '[t]he
attached Memorandum of Understanding reflects the results of this re-examination and
constitutes a mutually satisfactory solution of the issues related to Articles 4 and 5 of the ATC
contained in the MOU dated 22 March 1996'.  The TMB noted that while its request forre-examination had been related to the possible justification, or lack thereof, of the
introduction of new restrictions under the provisions of the ATC invoked by the parties at that
time (Article 2.17 by Pakistan and Article 5 by the United States, respectively), the joint
communication and the attached MOU did not seem to provide a direct reply to this core
question.  Therefore, it was not clear, for the TMB, in what sense and to what extent themutually satisfactory solution reached in May 2000 was the result of the re-examination ofG/L/459
Page 156
the measures in question in the light of the Body’s comments and considerations as contained
in G/TMB/R/45, in particular paragraphs 29 to 42.  The TMB expected clarification from the
parties in this regard.
The TMB further observed that the MOU, dated 25 May 2000, stated that
representatives of Pakistan and the United States had met on 24-25 May 2000 'to continueconsultations begun on 20-22 March 1996 with regard to deductions made on 11 August 1995
to Pakistan’s category 361 quota under Article 5 of the Agreement on Textiles and Clothing
(ATC).  Such consultations also included rela ted issues concerning bedsheet and pillowcase
categories in both cotton and man-made fibres raised under Articles 4 and 5 of the ATC.
Having obtained a mutually satisfactory solution resolving these issues', the parties agreed to
certain remedies in the form of amendments to the remedies obtained under the MOU dated
22 March 1996.  These remedies essentially consisted of increases in the levels of therestrictions applied for the years 2000 to 2004 to imports of products of categories 666-P and
666-S, as well as provision for certain special flexibility regarding the application of these
restrictions. The question arose as to the exact relationship between these new remedies and
(i) the deductions made on 11 August 1995 to Pakistan’s category 361 quota under Article 5
of the ATC and, in particular, (ii) the related issues concerning bedsheet and pillowcasescategories in both cotton and man-made fibres raised under Articles 4 and 5 of the ATC.
With respect to the latter, an explanation of what were 'the related issues concerning bedsheet
and pillowcase categories in both cotton and man-made fibres under Articles 4 and 5 of the
ATC' would also be helpful for the TMB in order to have a better understanding regarding the
facts involved in this case.  The TMB, therefore, requested further elaboration from theparties on these questions.
Turning to the key issue of conformity, or lack thereof, of the new restrictions with
the provisions of the ATC, the TMB recalled that during its seventieth meeting it had made
the following observations: the joint communication 'while reporting to constitute a mutuallysatisfactory solution between the two Members, did not contain explanation or justification
for the introduction of a restriction on imports of products of category 666-S and 666-P and
did not specify the particular provision of the ATC which would justify, in the view of the
parties, the application of such a measure.  The TMB recalled that, already in 1998, these had
been the same reasons why it had not been in a position to take a definitive stand on theconformity, or lack thereof, of this measure with the ATC.  Consequently, the TMB had
recommended that the parties re-examine the measure in question, in light of the Body’s
detailed comments and considerations. In the continued absence of appropriate explanation
and justification from the two Members, the TMB reiterated that unless additional
information in this regard was provided, the B ody was not put in a position to determine, as
required, the conformity, or lack thereof, of this measure with the ATC.'
With a view to providing more precision in this regard, the TMB observed that whilst
the respective communications of the mutually satisfactory solution reached between Pakistan
and the United States on 22 March 1996 had been made under Article 2.17 by Pakistan and
under Article 5 by the United States, the recent joint communication referred to 'a mutually
satisfactory solution of the issues related to Articles 4 and 5 of the ATC contained in theMOU dated 22 March 1996', making no reference to Article 2.17.  It seemed, therefore, that
the reference to Article 2.17 was no longer applicable, at least in so far as the mutually
satisfactory solution reached on 25 May 2000 was concerned.  The TMB sought confirmation
by the parties in this regard.
Furthermore, the TMB recalled that in re viewing the communications received from
both Pakistan and the United States related to the MOU of 1996, and in particular the
introduction of a limit on imports from Pakistan of man-made fibre bedsheets and pillowcases
(categories 666-S and 666-P), the Body had found, inter alia , that:G/L/459
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- 'there appeared to be no justification for the introduction of new restrictions
pursuant to Article 2.17, which was the only provision of the ATC invoked by
Pakistan;
- it appeared to be more relevant to consider these measures in the context of
Article 5 of the ATC, which was the provision referred to by the United States.
The United States, however, had not provided further precision regarding the
applicable paragraph under Article 5;
- in the absence of appropriate explanation and justification provided to it, the
TMB carefully considered all possible options, arguments and counter-
arguments in the context of Article 5.  Though for the reasons explained [in itsdetailed report], the TMB had not been placed in a position to take a definitive
stand at this stage on the conformity, or lack thereof, of the measures discussed
with the ATC, the Body was of the view that its detailed considerations,
especially as reproduced in paragraphs 29 to 42 [of G/TMB/R/45] would not
only require, but also facilitate further reflection by Pakistan and theUnited States.'
The TMB noted in this respect that the only provisions of the ATC referred to in the
recent joint communication, and in the MOU attached to it, were Articles 4 and 5, and that the
specific provisions of those Articles which the parties considered to be relevant in the contextof the introduction of new restrictions had not been identified, nor had any explanation or
reasoning on the purpose for the invocation of these provisions been provided.  Recalling its
examination and findings as reflected in G/TMB/R/45, the TMB reiterated that such
information would be of crucial importance for its further examination of the joint
communication and urged the parties to provide it to the TMB.
In particular, if the parties considered that new restrictions could be introduced in
respect of the case at hand pursuant to Article 5, the TMB expected them to specify the
particular paragraph of the said Article under which such measures had been agreed upon.  In
so doing, they should also reflect on the detailed arguments made by the TMB inparagraphs 29 to 50 of G/TMB/R/45 and make their respective views on them known to the
TMB.  Furthermore, as regards Article 4, the TMB noted that this Article had not been
specifically referred to by either party prior to the recent joint notification, and that no
information had been provided as to whether this reference had been made in the context of
the resolution of the matters concerning the US rules of origin changes with respect to
bedsheets and pillowcase imports from Pakistan into the United States, or whether it had been
made in the context of the introduction of ne w restrictions on imports of man-made fibre
bedsheets and pillowcases.   With respect to the latter the TMB wished to recall that it had
already reflected, though in a different context, upon the possibility of introducing a new
restriction under Article 4 of the ATC and reached certain conclusions in this regard."
463. The TMB expressed its concern that it had not been in a position to determine, as required,
the conformity, or lack thereof, of the measures agreed between Pakistan and the United States with
the ATC.  In particular, with reference to Article 8.3, it noted that full cooperation from the Members
concerned was indispensable in facilitating the TMB’s task of examining the measures referred to it
under the ATC and of determining their conformity  therewith.  Continued failure to provide the
requested information could seriously hamper the TMB’s ability to discharge its functions inaccordance with the requirements of the ATC.  Therefore, the Body urged both parties to provide
replies to the questions, as set out in paragraph 462, without delay.G/L/459
Page 158
464. In the context of the preparation of the comprehensive report, the TMB decided to seek
further clarifications or elaboration on a number of specific issues from certain Members.  In this
framework, the TMB had called the attention of Pakistan and the United States to its repeated requests
for information and clarifications.  Despite these reminders, no further communications were provided
by either of the two Members on this matter.  Under these circumstances, the TMB reiterates its
serious concerns as already reflected in some of the above paragraphs, in particular in paragraph 463.
4. Other Matters Referred to the TMB under Article 5
465. Apart from the issue detailed in paragraphs 434 to 464, no other specific matter has been
referred to the TMB with reference to the provisions of Article 5.
C. CONCLUSIONS ADOPTED BY THE CTG IN FEBRUARY  1998 IN ITS FIRST MAJOR REVIEW
466. In the conclusions adopted by the CTG regarding the implementation of the ATC in the first
stage of the integration process, the following was reflected.
" Some Members stated that there was a co ntinuing problem with circumvention that
showed no sign of diminishing over time.  One Member pointed out that there had been a steady
increase in the number of court cases in that country where exporters had systematically
circumvented the restraints on textile imports.  These Members considered that the exporting
countries involved had a responsibility to incr ease their vigilance in combatting this problem.
[…]
The Council noted the concern of some Memb ers with regard to  issues relating to
circumvention and reiterated the importance of full observance of the provisions of this
Agreement."168
D. VIEWS AND COMMENTS OF WTO MEMBERS IN RESPONSE TO THE TMB 'S GENERAL REQUEST FOR
INFORMATION AND /OR TO FURTHER QUERIES TO CERTAIN WTO MEMBERS
467. In reply to the TMB's request for notifications and information, the United States devoted
particular attention to the issue of transshipment.  According to this communication, during thesecond stage of the ATC integration schedule, the United States remained extremely concerned about
the adequacy of international cooperation to prevent illegal textile transshipment.  The United States
asked a number of its trading partners to work with it to strengthen enforcement in this area so that the
integrity of the ATC regime would be maintained throughout the course of the phase-out period.
Furthermore, the communication stated that illegal transshipment did not serve the purposes ofrestrained exporting Members, nor would it be to lerated in the United States.  The communication
went on to state that the major cause of concer n continued to be the movement of Chinese-made
goods through third countries.  Through sophisticated targeting techniques, the US Customs had been
able to increase the efficiency of its team visits.  As a result, in many countries and territories,
problems had been uncovered in up to 50 per cent of the factories visited.  These problems included
goods continuing to be exported to the United States from closed factories, accompanied by
documents indicating that the closed factory was in fact the manufacturer/producer.  In addition, inmany instances factories were unable to provide records that supported the production of the
merchandise shipped to the United States or did not have the factory capacity to produce the goods
shipped.  Finally, actual transshipment had been uncovered and statements made by factory operators
that corroborated this activity.  There had also been an increase in the number of instances of attempts
to introduce illegally transshipped textiles into the United States by smuggling.   In some instances thewearing apparel was misdescribed in the hope that th e actual goods would not be examined at the port
of entry.  In some cases, the cooperation and diligence of foreign counterparts uncovered this fraud.
                                                     
168 G/L/224, paragraphs 56 and 58.G/L/459
Page 159
468. In its submission, the United States also mentioned that the year 2000 had also seen greater
interaction with Sub-Saharan African nations that  will participate in the Trade and Development
Act 2000.  As part of this US legislative, package Sub-Saharan African nations would be able to
receive duty-free and quota-free treatment for wearin g apparel.  The US Customs would continue to
work with their African counterparts to ensure that the benefits afforded by this legislation accrue to
the African countries and not to third countries attempting to introduce wearing apparel into the
United States by illegal means.
469. A brief report on enforcement and cooperative efforts by the US Customs Service to detect
and prevent illegal textile transshipment was attached to the submission, covering activities during the
calendar year 1999.169  According to this report, inter alia , 42 containers of illegally transshipped
textiles and wearing apparel from China had been seized by the US Customs as a result of one
investigation, 25 containers from the same source  as a result of another.  During 1999 US Customs
officers visited the Czech Republic; Hong Kong, China; Indonesia; Macau, China; Malaysia; andSingapore.  Problems uncovered in these visits involved lack of documentation, value-related issues
and suspect production records.  Over 160 companies were suspected of illegally transhipping
merchandise. According to the report, the majority of  illegally transshipped goods originated in China
and transit economies near China.  The problem had been more prevalent in Hong Kong, China and
Macau, China.  With respect to Hong Kong, China, joint observation visits had been conducted withHong Kong, China officials in late January and early September 1999.  The first visit found 27 of the
55 factories visited suspected of being involved in transshipment, or close to a 50 per cent suspicion
rate.  The second visit found 24 of the 51 factories visited suspected of being involved in
transshipment, again close to a 50 per cent suspicion rate.  If the enforcement measures being taken by
Hong Kong, China were having an impact, such an impact would have been measured by thepercentage of companies suspected of transshipm ent.  In 1999, US Customs officials in Hong Kong,
China, transmitted the names of 124 additional factories convicted of transshipment, bringing the total
number published in the administrative lists since the initiative began in 1997 to 364.  Of these, 56
had been convicted multiple times of textile transshipment, some as many as four times.  As regards
Macau, China, two verifications were made by the US Customs in Macau, China in January andSeptember 1999.  In January 117 factories were visited and 39 were found either to be closed,
transhipping or unable to provide production records, or with limited capacity to produce, i.e. a
33 per cent suspicion rate.  In September, 65 factories were visited and 14 found to be either closed
transhipping or unable to provide production records, a 22 per cent suspicion rate.  While this was an
improvement over the first 1999 visit, it should be noted that suspicion rates are not reliable due to thedifficulty in targeting manufacturers in Macau, China because of the MID (manufacturers
identification) problem.   According to the US  Customs report, Macau, China had not been as
cooperative as Hong Kong, China in supplying th e US Customs with information on the companies
which had been assessed administrative penalties for being involved in textile transhipment.  In
response to this lack of cooperation, the US Committee for the Implementation of Textile Agreements
(CITA) had excluded the products of 77 factories in Macau, China that were found closed or that
could not provide production records based on the US Customs production verification visits within
the previous two years.  This had subsequently b een reduced to 74 factories, on the basis of petitions
filed by the factories for relief.
470. The communication received from the ITCB members also touched upon the issue of
circumvention.  According to this communicat ion, restraining Members, particularly the
United States, continued to allege widespread circumvention of quota restrictions. They hadestablished a variety of procedures and requirements with the ostensible purpose of preventing
circumvention. Thus, for example, in 1999, the  US Customs had issued a regulation providing that
textile products would be denied entry where the manufacturer named in the entry document was,
                                                     
169 The TMB inquired as to whether a similar report was available for the year 2000.  The United States
answered that "Customs is considering whether to upda te the report, but has not made a final decision on a
subsequent edition at this time".G/L/459
Page 160
inter alia, "unable to produce records to verify production". This requirement established a
presumption of circumvention causing adverse cons equences for exporters and importers. Pursuant to
these requirements, imports from companies in a number of restrained Members were denied entry
and were placed on the so-called convicted list.   The submission emphasized that the ITCB members
did not condone any circumvention of quotas. But it appeared that the extent of the problem was
greatly exaggerated. According to the  US Customs' own report, actual shipments seized as
transshipped or detained as suspected transshipment in 1999 amounted to only 0.068 per cent of its
total imports in that year. What was of particular concern was the fact that while investigations into
instances of alleged circumvention are made unilaterally in a summary manner, the burden of proving
innocence is placed entirely on the exporters concerned. By tarnishing the image of these exporters,
the utilization of restrained Members' access is adversely affected.
471. Due to the markedly opposing views and comments made the United States and the ITCB
members, the TMB decided to seek further comments  and information from them with respect to each
other's assessment and information provided.  The Body also decided to request additional
information from Canada and the European Commun ity with respect to this subject-matter, in
particular in light of the comments that had been made in the ITCB's submission.  Furthermore, since
the US Customs Service report (referred to in paragraph 469) had devoted particular attention to
specific initiatives related to Hong Kong, China and Macau, China, comments and information werealso sought from these two Members.
472. In reply to the TMB, the ITCB members commented that the US's statement did not establish
wide-spread circumvention of quotas, as alleged.  Based on the US Customs' own report relating to
the year 1999, shipments seized as transshipped, including those detailed as suspected transshipments,
amounted to only 0.068 per cent of the total imports in  the year.  The report also showed that this
percentage was a drop from 0.125 per cent in 1997 and 0.105 per cent in 1988.  In any event, it
followed that the extent of circumvention was greatly exaggerated.  And the measures put in place,
ostensibly to prevent circumvention, appeared to be far in excess of being "necessary" or
proportionate.  In this connection, a US regulation, pursuant to which, according to the ITCB
members, excessive documentation requirements from exporters have been prescribed, was attachedto the ITCB's communication.  On the basis of that regulation, a listing of documents demanded by
the US Customs from importers could be established, as follows:
• factory production records demonstrating that raw materials were obtained by the
factory and were available for production;
• bills of lading and Customs clearance records, if raw materials or parts are moved
between countries;
• mill certificates;
• cutting records for products assembled from cut components;
• assembly or production records maintained on the factory floor by production
manager;
• list of number and types of machinery available for production;
• time records and salary records to show that employees identified were actually
working during the time-period;
• electricity bills;G/L/459
Page 161
• documentation from the sub-contractor in the case of outward processing assembly
work and sub-contracting.
473. The comments received from Hong Kong, China were the following:
"… Hong Kong, China takes the issue of illegal transshipment seriously.  We do not
condone any illegal textile transshipment and are determined to take necessary actions to
uphold the integrity of our textiles export control system.
The US Customs Service Report on Hong Kong, China in the US submission covers
activities in 1999.  Since then, Hong Kong, China has stepped up the enforcement actions
vigorously and has introduced new measures to tackle the problem, including strengthening
our Customs' intelligence system to target unscrupulous traders, examination of consignments
at the boundary and real time production checks at factories.  These enhanced enforcement
measures have resulted in increased seizures and prosecutions.
At the same time, Hong Kong, China has also enhanced its co-operation with the US
over enforcement.  The US Customs Administ ration fully acknowledges Hong Kong, China's
efforts and co-operation.  We will continue our efforts in this direction in the days to come.
The so-called suspect rate of the joint visits mentioned in the US Customs Service
Report must also be viewed in their proper perspective.  They only refer to companies
referred for further investigation, which may or may not result in the establishment of illegal
transshipment.  Meanwhile, it should be pointed out that in the latest round of joint visits
conducted in Hong Kong, China in November 2000, a higher rate of factories found in orderwas recorded, which shows that our enhanced enforcement measures have been successful.
Finally, […] the problem of illegal transshipment will not go away until the
elimination of quotas in 2005.  In this inte rim, Hong Kong, China remains determined and
committed to combating this problem."
474. According to the comments received from Macau, China, the US' statement that the
22 per cent suspicion rate is "not reliable due to the difficulty in targeting manufacturers in Macau,
China because of the MID (manufacturer identification) problem" was incorrect, as the Macau
Economic Service (MES), following extensive correspondence and a request from the US CustomsService, issued a circular letter requiring the local industry to identify factory names only, in block
letters, which they had been doing ever since.  This information had been transmitted to the US
authorities and it was Macau, China's view that this difficulty should not be stated as a problem
because MID requirements were already in place since 16 April 1999.  Moreover, after the first
production verification made by the US Customs authorities in Macau, China in January 1999, it was
agreed that the relevant US Customs report would be submitted to Macau, China "in a couple of
months", along with further information on a number of issues that would enable the MacauEconomic Service to better undertake its own investigations on any problematic findings of the US
authorities.  The response to Macau, China's request was belated.  In fact copy (incomplete) of the
January report was only provided to Macau, China in the course of the September pr oduction
verification.  According to Macau, China, it should be stressed that where cooperation was concerned
Macau, China had always kept its commitments under the international agreements to the fullestextent.  Macau, China had forwarded to the US authorities information and support requested, even to
the extreme of its own domestic laws.  Therefore, Macau, China did not see the rationale for CITA's
issuance of the "black listing" of 77 local factories.  Moreover, 51 of those included therein had
already been reported to the US authorities as clos ed.  Macau, China also wanted to point out that it
did not seem fair to say that this list had subsequently been reduced to 74 based on petitions filed bythe factories for relief, as these factories should no t have been included in the list in the first place
since they were complying with all domestic and international rules.G/L/459
Page 162
475. According to the comments received from Ca nada, Canada's own experience suggested that
circumvention remained an on-going problem that requires constant monitoring.  While Canada had
not, in recent years, encountered wide-spread circumvention, it would be difficult to conclude whether
this would remain the case in the absen ce of effective monitoring and controls.
476. According to comments from the European Community, "the EC agrees with the United
States, that circumvention is contrary to Article 5 of the ATC.  Where, as a result of investigation,there is sufficient evidence that circumvention has occurred, Members may take certain remedies,
including the adjustment of charges to restraint leve ls to reflect the country or place of true origin.
The EC would like to recall that the question of circumvention is therefore essentially one of fact and
does not depend on the “guilt” or “innocence” of the country or place from which the goods have
been exported in circumvention of the quota in question".
477. According to comments from the United States, "Customs entry regulations are based on the
informed compliance standard, under which US importers are required to ascertain the veracity ofclaims related to the entry of goods.  On occasion, Customs may require that information and
documentation be presented to demonstrate the veracity of claims.  In contrast to the ITCB statement
that these requirements create a presumption of circumvention, in fact, requests for additional
documentary evidence are only invoked where there is a reason to suspect circumvention.  In addition,
it should be noted that very few of the companies on the "Customs Administrative List" are listedbecause of a failure to provide documentation to support entry claims.  The overwhelming majority of
companies listed are there because they were found to be closed or to be actually engaged in illegal
transshipment.  Of the companies that are listed because they were actually engaged in illegal
transshipment, some are listed because they were the subject of enforcement efforts by our trading
partners, including those that were prosecuted and convicted in courts or otherwise penalized.  Thecompanies that were listed as a result of US-initi ated enforcement activities were listed only after the
following steps occurred: (a) an actual verification visit to the factory by US Customs officials with
the authorities of the exporting country, (b) reporting of results of the verification visit to the
authorities of the exporting country, (c) follow-up reporting of results to the exporting party, with a
specific request to provide details on their enforcem ent efforts, pertaining to the companies at issue,
and then, only if the United States remained dissat isfied that adequate enforcement efforts were being
undertaken.  It should also be noted that the United States has registered strong concern with several
of our exporting country trading partners that export visas have been issued to companies without
adequate verification, on their own responsibility, of actual production, and indeed visas have, in
some instances, been issued in respect of goods produced in factories that have been closed for anumber of years".
E. 
ADDITIONAL COMMENTS BY THE TMB
478. As reflected in the structure and the 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,
applicable to their territory;  and
• relying on the cooperation, consistent with their domestic laws and procedures,
between the Members concerned.
479. Though they also reveal important differences, the comments and information provided by
Members appear to confirm the importance attached to achieving this objective.  They also reflect that
a lot of effort was made in this area and that the Members concerned give particular importance toenhanced cooperation between them. While several Members were of the view that the extent of the
problem of circumvention by transshipment was greatly exaggerated, one Member stated that itG/L/459
Page 163
remained extremely concerned about the adequacy of international cooperation to prevent illegal
transshipment.  Though the TMB does not have sufficient information on the basis of which it could
take a position in this regard, the Body tends to agree with the comment made by Hong Kong, China
that "the problem of illegal transshipment will not go away until the elimination of the quotas
in 2005".
480. In addressing issues related to the implementation of the provisions of Article 5, the
legitimate interests of both the exporting and the importing Members should be taken into account in
a balanced way.  As implied in the comments of Canada (and, in fact, in all other contributions
received), effective monitoring and controls wi ll continue.  The TMB holds the view that such
monitoring and controls
• should be based on the fullest possible cooperation between the Members concerned;
• should not be more burdensome than strictly necessary, in terms of administrative
requirements;
• should concentrate the maximum of possible efforts on the prevention of
circumvention practices;
• should focus on the establishment of facts in regard to questionable or disputed cases.
481. On the basis of the comments provided by Members, it would appear that Members have
invested substantial efforts with a view to addressing problems arising from the potentialcircumvention of the ATC, despite the sensitive and controversial nature of this subject.  The fact that
only one specific matter which would fall under the provisions of Article 5 has been referred to the
Body since the entering into force of the ATC, is a clear manifestation of these efforts.  The TMB
encourages Members to further strengthen their coope ration in this regard in a balanced manner which
would, one the one hand, reconcile the requirements of efficiency while not causing unnecessaryadditional burden for the respective authorities and economic operators involved, on the other.
VIII.  ISSUES REFERRED TO OR TAKEN UP BY THE TMB WITH REFERENCE TO
THE PROVISIONS OF ARTICLE 8 OF THE ATC
482. While several provisions of the ATC (such as Articles 2.21, 3.2, 4.4, 5.2, 5.4, 5.6, 6.9, 6.10,
6.11, 8.5, 8.6, 8.9 and 8.10) define specific requirements vis-à-vis  the TMB regarding the kind of
action that has to be carried out or taken by it when addressing issues in the context of the particular
ATC provision invoked in a given case, Article 8.1 lays down a more general or all-encompassing
mandate for the Body.  According to the language of Article 8.1, the TMB is established "[i]n order to
supervise the implementation of this Agreement, to examine all measures taken under this Agreement,and to take the actions specifically required of it by this Agreement …".
483. Article 8.5 states that "[i]n the absence of any mutually agreed solution in the bilateral
consultations provided for in this Agreement, the TMB shall, at the request of either Member, and
following a thorough and prompt consideration of the matter, make recommendations to the Members
concerned".
484. Article 8.6 reads as follows:  "At the request of any Member, the TMB shall review promptly
any particular matter which that Member consider s to be detrimental to its interests under this
Agreement and where consultations between it and the Member or Members concerned have failed to
produce a mutually satisfactory solution.  On such matters, the TMB may make such observations as
it deems appropriate to the Members concerned and for the purposes of the review provided for in
paragraph 11" [of Article 8].G/L/459
Page 164
485. Article 8.9 states that "[t]he Members shall endeavour to accept in full the recommendations
of the TMB which shall exercise proper surveillance of the implementation of such
recommendations".
486. Furthermore, according to Article 8.10, "[i]f a Member considers itself unable to conform
with the recommendations of the TMB, it shall provide the TMB with the reasons therefor not later
than one month after receipt of such recommendations.  Following thorough consideration of thereasons given, the TMB shall issue any further recommendations it considers appropriate forthwith.
If, after such further recommendations, the matter remains unresolved, either Member may bring the
matter before the Dispute Settlement Body and invoke paragraph 2 of Article XXIII of GATT 1994
and the relevant provisions of the Dispute Settlement Understanding".
487. This Chapter provides an overview of the issues referred to and/or taken up by the TMB
during the second stage of the integration process under any of the provisions cited in paragraphs  482
to 486 , together with their respective follow-up, if applicable.
A. I
SSUES REFERRED TO AND /OR TAKEN UP BY THE TMB WITH REFERENCE TO THE PROVISIONS
OF ARTICLE 8.1
1. United States/Turkey:  Introduction of a New Restriction
(a) Examination of the measure by the TMB
488. At its meeting of May 1999, the TMB had a discussion in relation to the points raised in a
statement made on behalf of a number of WTO Members, that are also members of the ITCB, at the
Informal Intersessional Meeting of the General Council on 26 October 1998.  The TMB recalled that
in the view of those Members "concerns … remain[ed] in respect of measures adopted by an
importing Member that [were] not formally notifie d to the TMB, although these [were] published
under the importing Member's domestic procedures and [were], thus, widely known".  In the TMB's
discussion, it was identified that this observation referred to the introduction by the United States of a
new restriction on Turkey’s exports of certain te xtile products, as part of a broader understanding
reached between the two Members.  The TMB decided to seek clarification from both Turkey and the
United States as to whether or not this measure was being applied pursuant  to the Agreement on
Textiles and Clothing and, if this were the case, under which provision of the ATC this restriction hadbeen introduced.
489. Interim replies were received from the United States in July and September 1999, the latter
indicating that the measure concerned Turkey’s exports of cotton and man-made fibre underwear
(US category 352/652).  Consequently, in a joint communication, received on 29 September 1999,
Turkey and the United States stated, inter alia , that "this measure [affecting Turkey's exports of
products of US category 352/652], which was part  of a broader agreement contributing to the
objective of further liberalizing trade, was mutually agreed between our [two] governments, was
consistent with our rights under the ATC, and was taken pursuant to a provision of the ATC which
does not require notification to the TMB".  The TMB decided to seek further information from
Turkey and the United States on the measure itself, as well as on the particular provision of the ATC
under which the measure had been agreed.  The TMB also decided, pursuant to Article 8.1, to
examine the measure in question at a further meeting and agreed to proceed with this examination assoon as possible.
490. As of mid December 1999, no further information had been received from Turkey and/or
from the United States.  Against this background, and also since there was no indication that a further
communication from the two Members would be forthcoming, the TMB examined the measure in
question, pursuant to Article 8.1, on the basis of the limited information available to it.G/L/459
Page 165
491. The TMB recalled that Article 8.1 requires the Body, inter alia , "… to examine all measures
taken under [the ATC] and their conformity therewith…".  In starting its examination the TMB also
recalled that in the joint communication referred to above, Turkey and the United States had indicated
that the measure "was taken pursuant to a provision of the ATC which does not require notification to
the TMB".  In view of the fact that no information had been provided as to the particular provision of
the ATC under which the measure had been agreed, the Body undertook to examine briefly all theprovisions of the ATC with a view to identifying the provision under which such a measure could
have been agreed without requiring its notification to the TMB.
492. The TMB observed, inter alia , that Articles 1, 7, 8 and 9 does not provide the possibility of
introducing restraint measures on imports from other WTO Members.  Restrictions maintained under
Article 2 had to be notified, in detail, within 60 days following the entry into force of the WTO
Agreement.  A measure that had not been notified at all, obviously could not fall under the provisions
of Article 2, and no provision under Article 2 provides the possibility of introducing new restrictions.Since restrictions, other than those covered by the provisions of Article 2, also had to be notified
within 60 days following the date of entry into force of the WTO Agreement, the TMB observed that
the restraint could not have been agreed between Turkey and the United States under the provisions of
Article 3.1 either.  Article 3.3 does not exclude the possibility, inter alia , of introducing new
restrictions on textile and clothing products.  Rath er, it contains not only the requirement of "double"
notification (i.e. to the appropriate WTO body and also to the TMB, for its information), but also
limits the possibility of applying, inter alia , new restrictions to those cases where the measures were
taken under any GATT 1994 provision;  however, the restraint between Turkey and the United States,
had been agreed pursuant to a provision of the ATC.  Article 6 specifically provides the possibility of
introducing transitional safeguard which takes the form of restraint measures.  However, the restraintmeasure or measures taken under this Article have to be notified to the TMB, whether agreed or
applied unilaterally, so as to enable the TMB to examine the measure(s) in question, as required by
the provisions of Article 6.  Both Members though had stated to the TMB that the measure had been
taken "pursuant to a provision of the ATC which does not require notification to the TMB".  With
respect to Article 5, the TMB observed, inter alia , that it referred to situations of "circumvention by
transshipment, re-routing, false declaration concerning country or place of origin, and falsification of
official documents", and that neither Turkey nor the United States had invoked or reported such a
situation.  Without prejudice as to whether in particular circumstances a new restriction could be
introduced, or not, pursuant to the provisions of Article 5, the TMB, on the basis of the information
available to it, concluded that the provision of the ATC referred to by both Turkey and theUnited States could not be Article 5.
493. In concluding that the measure in question coul d not have been taken pursuant to Articles 1,
2, 3, 5, 6, 7, 8 and 9, the TMB turned to the examination of the new restraint in the context of the
provisions of Article 4.  It observed that Article 4.1 deals with the administration of "restrictions
referred to in Article 2, and those applied under Article 6".  Article 4.4 provides the possibility to
reach a "mutually acceptable solution regarding appropriate and equitable adjustment" between
Members when necessary changes, in the sense of Article 4.2, are introduced in the implementation oradministration of existing restrictions.  The TMB noted that, according to Article 4.4, such mutually
acceptable solutions did not have to be notified to the TMB.  The TMB recalled its findings that the
new restriction could not have been agreed pursuant to the provisions of Articles 2 and 6. It was also
observed that Article 4.4 did not provide explicit guidance regarding the scope of the adjustment that
could be agreed between the Members concerned in the framework of the mutually acceptablesolution.  A reading that the introduction of a new restriction, in the sense of Article 2.4, could be
agreed upon pursuant to Article 4.4 as an adjustment to balance possible improvements in the
implementation or administration of restrictions maintained pursuant to Article 2 was, however, in the
view of the TMB, not consistent with the intention of the drafters of the ATC, since Article 4 related
to the implementation or administration of the restrict ions referred to in Article  2, or applied under
Article 6.  Also, the construction of Article 4 and its language seemed to suggest that when changes,
in the sense of Article 4.2 are introduced, the appropriate and equitable adjustment referred to inG/L/459
Page 166
Article 4.4 can only involve and affect the restrictions that have already been in place and have been
notified pursuant to Article 2 or Article 6.
494. The TMB regretted that, despite its repeated requests and given that almost seven months had
lapsed since it had first requested information on the measure, the parties had not provided the
information the Body had sought from them on the measure itself, as well as on the particular
provision of the ATC under which it had been agreed.  The TMB recalled, in this regard, that fullcooperation from the Members was indispensable for facilitating the Body’s task of examining, in
accordance with Article 8.1, the measures taken under the Agreement and their conformity therewith
and that failure to provide information by Members hampered the TMB's ability to discharge its
functions in accordance with the requirements of the ATC.
495. In concluding its examination of the measure mutually agreed between Turkey and the
United States, the TMB recalled that Article 2.4 states that "[n]o new restrictions in terms of products
or Members shall be introduced except under the pr ovisions of this Agreement or relevant GATT
1994 provisions".  After having considered the new measure against the different provisions of the
ATC on the basis of the information available to it, the TMB concluded that the measure agreed upon
by Turkey and the United States, affecting imports by the United States of category 352/652 products,
had not been demonstrated to be in conformity with the provisions of the ATC.
(b) Subsequent developments
496. At the meeting of the CTG of 15 November 2000, when the Council took note of the annual
reports of the subsidiary bodies, including that of  the TMB, the representative of Hong Kong, China
noted that the TMB report summarized the Body's review of a bilateral restraint agreed between the
United States and Turkey on Turkey's exports of cotton and man-made fibre underwear to the
United States.  The TMB had concluded that the restraint measure agreed upon by Turkey and theUnited States had not been demonstrated to be in conformity with the provisions of the ATC.  He
appreciated that the TMB had taken the initiative to examine the measures concerned but he
understood that the restrictive measure in question still remained in force.  Under paragraph 5 of
Article IV of the Agreement establishing the WTO, the CTG had the overall responsibility for
overseeing the functioning of the multilateral trade agreements pertaining to trade in goods.  He hopedthat the CTG would urge the United States to take appropriate action in the light of the conclusion of
the TMB on this matter.  The representatives of India and Pakistan associated their delegations with
the views expressed by Hong Kong, China.  The representative of the United States did not share the
opinion of the three delegations and suggested that the Chairman of the CTG consult to clarify exactly
what was being asked.  The Chairman accepted to initiate informal consultations with interestedMembers in an attempt to clarify the contents and scope of additional consultations on this particular
item.
170
497. At the following meeting of the Council, held on 14 March 2001, the Chairman reported that
though consultations had been held on this matter, they had not been successful in clarifying the scope
and the contents of additional consultations on this particular item.  The representative of Hong Kong,
China stated, inter alia , that his delegation had a serious systemic concern about certain new restraints
on textiles and clothing products being implemented by certain Members.  This new restraint was,after the TMB's examination, clearly inconsistent with the ATC.  He was even more concerned with
the difficulty that the TMB encountered during the examination process – where this body was
refused essential information from the two parties concerned.  He believed that the CTG had a
responsibility for overseeing the functioning of the ATC.  He reiterated that his delegation was not
disputing the contents of the TMB's report.  Indeed he commended the TMB for its meticulous workin the absence of certain essential information from the Members concerned.  In addition, the new
restraint was not a single isolated incident.  The TMB was reviewing a new restriction introduced by a
                                                     
170 See G/C/M/46.G/L/459
Page 167
restraining country on imports of certain textile products from a developing country Member.  So far,
appropriate explanation or justification of such a measure had not been forthcoming.  If these
measures were not clarified and rectified promptly, the objective of liberalization of textile and
clothing sector and its full and faithful re-integ ration into GATT rules would be defeated and the
confidence in the multilateral trading system seriously undermined.  Moreover, the effective
functioning of the TMB would be hampered.  Despite the TMB's efforts, the questionable measuresremained to be clarified or rectified and the CTG had a crucial role to play in this respect.  While this
issue might be raised towards the end of 2001 when the CTG will conduct the second major review of
the implementation of the ATC under Article 8 of that Agreement, the systemic concern was so
serious that he saw the urgency to address it as soon as possible.  To restore confidence in multilateral
disciplines, he asked the Council to request all Members, particularly the restraining countries, to
promptly provide detailed information to the TMB of any new restraints which have not been properly
notified and to take necessary steps to bring them into conformity with the provisions of the ATC.The representatives of Brazil, India and Pakistan shared the systemic concern on the issue voiced by
Hong Kong, China.
498. In reply, the representative of the United States noted, inter alia , that she had systemic
concerns about how the process in the WTO should be conducted.  There would be in 2001 a review,
as provided for under Article 8 of the ATC, on the implementation of the ATC.  Article 8 referencedthe fact that the TMB was to prepare a comprehensive report which included its work in its oversight
of the integration process and other parts of the ATC.  Therefore, this issue should have been raised in
the context of rules already provided for under the ATC.  Noting that reference had been made to
Article IV of the WTO Agreement, she said that under customary international law, agreements with a
specific provision would have precedence over a general provision.  Here, the ATC had a specificprovision related to its role in overseeing the implementation of the ATC.  Notwithstanding the fact
that the WTO Agreement included in Article IV the oversight provided of the TMB in the context of
the ATC, there was also a specific provision in Article 8 of the ATC dealing with the CTG's role in
overseeing the implementation of the ATC.  The United States did not support the premise or context
for the request, nor the request.  She believed that the measure as notified was consistent with theATC and that there were grounds under the ATC for such a measure.  She contended that if the item
came up again she considered the discussion to have been exhausted.  The representative of Turkey
shared the views expressed by the United States.  The representative of the EC said that at the heart of
this matter was Article 8.6 of the ATC, where there were provisions in case the examinations at the
request of a Member did not lead to a satisfactory result.  These pointed at the review and not at theindividual case-by-case examination of the CTG.  He agreed with those who saw Article 8.11 where
the oversight of the implementation of the Agreement was meant, would be the more appropriate
course to address this matter.
499. The Council took note of the statements made and noted that the issue would be kept in the
agenda of the next meeting of the CTG, as a reque st from India;  Pakistan and Hong Kong, China.
171
500. On 6 April 2001, Colombia;  Costa Rica;  Hong Kong, China;  India;  Indonesia;  Pakistan
and Peru submitted a joint communication entitled "CTG's Oversight Function Pursuant to Article IVof the Agreement Establishing the WTO – Transparency Regarding New Restrictions on Textile and
Clothing Products Commented Upon by  the Textiles Monitoring Body".
172  The communication, after
providing a detailed background on why its sponsors deemed it important that measures taken in
textiles and clothing products covered by the ATC be carefully monitored and scrutinized, and re-
stating in details the position expressed by Hong Kong, China in the previous meeting of the CTG,proposed that the CTG
                                                     
171 See G/C/M/47.
172 See G/C/W/260.G/L/459
Page 168
• request all Members to promptly provide full details of any new restrictions to the
TMB along with the specific provisions of the ATC justifying their introduction;
• invite the Members concerned to clarify and rectify the measures that have already
been the subject of TMB review and comments;
• re-emphasize the need, particularly for the restraining Members, to ensure the
conformity of all measures with their obligations under the Agreement".
501. The joint communication was introduced during the meeting of the CTG on 18 April 2001.
The delegations of the United States and Turkey, emphasizing that the measure in question was
bilaterally agreed and that they considered it to be consistent with the ATC, opposed the adoption of
the actions proposed by the proponents of the joint communication.  The Chairman indicated that he
would hold consultations on the matter and report back at a future Council meeting.
502. At the CTG meeting on 5 July 2001, the proponents of the joint communication reiterated
their concern that the bilateral restraint agreed between the United States and Turkey was in violation
of the ATC, and that this had serious systemic implications for the implementation of the ATC.  They
had brought this measure to the CTG as it had a specific oversight role in the ATC, and reiterated
their position that the Council adopt certain recommendations to preclude such a situation arising in
the future.  The United States, supported by Turkey, repeated its argument that the issue at stake did
not require action by the CTG at that stage but should be dealt with under the appropriate provisionsof the ATC which require the CTG to conduct a major review of the implementation of the ATC; this
review was scheduled to begin in mid-September 2001.  In view of the continuing disagreement, the
Chairman of the CTG undertook to hold consultations, both on the procedural and on the substantive
aspects of the matter.
(c) Follow-up by the TMB
503. In the context of the preparation of this comprehensive report, the TMB decided to seek
further clarifications or elaboration on a number of specific issues from certain Members.  In this
framework, the TMB had called the attention of Turkey and the United States to the measures agreed
between them for which information had been sought by the TMB but had not been provided and on
which the TMB had reached certain conclusions on the basis of the limited information available.Turkey stated, in response to the TMB, that this issue "is still considered by the Turkish competent
authorities.  There is no further development in this area at the moment.  The TMB will be informed
of any future development accordingly".  The United  States did not offer any comment with respect to
this matter.
2. Visa Requirements by the United States in Respect of Products Integrated During
Stage 2
504. In June 1998, the TMB received a communicati on from Hong Kong, China;  India and
Pakistan, jointly requesting the TMB "to review, in accordance with Articles 8.1 and 2.21 of the
Agreement on Textiles and Clothing, the implementation of the Stage 2 integration programme of the
United States of America with respect to the continuation of visa requirements for products includedin this programme".  Since the communication referred not only to Article 8.1, but also to Article 2.21
and its subject-matter was closely related to the implementation of specific provisions under Article 2,
the details of the communication and the related follow-up are reported in the Section dealing with the
implementation of the Stage 2 integration programmes.
173
                                                     
173 See paragraphs 58 to 62.G/L/459
Page 169
B. MATTERS BROUGHT TO THE TMB PURSUANT TO ARTICLES 8.5 AND/OR 8.6
1. Communications Made by Honduras Pursuant to Articles 8.5 and 8.6.
(a) Consideration of the communications by the TMB
505. In early January 1998, Honduras addressed a communication to the TMB expressing the view
that there was no justification for the United States to maintain the restraint measure previously
agreed between Honduras and the United States in respect of exports of cotton and man-made fibreunderwear (category 352/652) from Honduras.  As the continuation of the restraint was detrimental to
Honduras' interests under the ATC, and since consultations held by Honduras with the United States
had failed to produce a mutually satisfactory solution, Honduras requested the TMB, pursuant to
Articles 8.5 and 8.6, to promptly consider the matter and recommend that the United States withdraw
the measure forthwith.
506. The TMB considered this communication during its January 1998 meeting, with the
participation of representatives of the two parties.  In conducting its review of the matter brought to it
by Honduras, the TMB r ecalled that the measure in question had been agreed with the United States for
a period of three years ending on 26 March 1998, and had been notified pursuant to Article 6.9.  The
TMB also noted that when it had reviewed this agreed restraint measure, in December 1995, it had, inter
alia, recalled that at its second meeting, when review ing the action taken by the United States pursuant
to Article 6.10 against imports of category 352/ 652 from Costa Rica and Honduras under Articles 6.2
and 6.3, it had found that serious damage, as envisaged in these provisions, had not been demonstrated.
The TMB had not, however, reached consensus on the existence of actual threat of serious damage.  The
TMB was aware of the fact that, during this revi ew, it had not pronounced itself on the justification of
this agreed restraint measure in accordance with the provisions of Article 6.  The TMB had also noted,
in December 1995, that the total level of the agreed re straint, as well as that portion of the restraint
which was available unconditionally to Honduras (i.e. the specific limit) were both substantially above
the rollback level as defined in Article 6.8.
507. The TMB further noted that Honduras considered  that the continuation of the measure was
detrimental to its interests because  (i) when the TMB had reviewed the agreed restraint measure it had
not determined whether this agreement was justified in accordance with the provisions of Article  6;
(ii)  a WTO panel, subsequently reviewing th e market statement, on the basis of which the
United  States had made requests for consulta tions pursuant to Article 6.7 of the ATC on
category 352/652 vis-à-vis  a number of WTO Members including  Honduras, had concluded that the
United States had violated its obligations under Ar ticle 6 of the ATC by imposing restrictions on
imports from Costa  Rica and that, therefore, in th e view of Honduras, there was no legal basis for the
United  States to maintain the measure;  (iii)  imports from Honduras of products of category 352/652
continued to be restrained at the levels set in th e bilateral agreement despite the fact that restraint
measures applied by the United States under Article 6 on imports of the same products from some other
sources had ceased to exist, thereby adversely affecting business opportunities.
508. The TMB also noted that the United States did not agree that the continuation of the measure
was detrimental to Honduras’ interests, in particular, in  view of the fact that the restraint had never been
fully utilized by Honduras.  The United States emphasized that this measure had been bilaterally agreedwith Honduras.  It also stated th at Honduras had not been a party in the consideration of the matter
raised by Costa Rica in the DSB.
509. The TMB was aware of the conclusions of the report of the Panel, as modified by the
Appellate Body report, adopted by the DSB in Fe bruary 1997, referred to by Honduras.  The TMB also
noted the explanation by the United States that th e measure at issue with Costa Rica had expired on
28 March 1997 without being extended.  The TMB further noted that, according to Honduras, theG/L/459
Page 170
United States had provided on request in the recent past substantial increases in the restraint measure
applied on the same product to another WTO Member.
510. The TMB observed that the agreed restraint measure had been introduced for a three-year
period. It understood, as confirmed by the United St ates, that the measure would end at latest on
26  March 1998.  The TMB further observed that, in accordance with Article 6.12, this measure could
not be extended.
511. The TMB, bearing in mind its December 1995 review of the agreed measure, the evolution of
imports from Honduras into the United States of  products of category 352/652 and the corresponding
level of the restraint, the fact th at the restraint was due to expire at latest on 26  March 1998, and the
statement and arguments by Honduras that its ma intenance was detrimental to Honduras’ interests,
invited the United States to reconsider the necessity to maintain the restraint in force until its scheduled
expiration date.
512. The TMB noted that until the expiration of the measure positive consideration could be given
by the United States to any possible concern that woul d be brought to its attention by Honduras, so as to
avoid future exports of this product to the Unite d States from Honduras being adversely affected.
513. On 5 February 1998, Honduras addressed anot her communication to the TMB requesting it,
pursuant to Articles 8.5 and 8.6, to make a specific determination under Article 6.9 whether the restraint
maintained by the United States on imports of cat egory 352/652 products was justified.  This issue was
considered by the TMB during its subsequent mee ting (held in three sessions, on 16 and 17 February,
24 February and 3 March 1998).  The TMB noted, inter alia , that subsequent to its consideration, at its
meeting in January 1998, of the issue raised by Honduras, Honduras had communicated a written
request to the United States, requesting the United Stat es to take action to either remove the Article 6
restraint on category 352/652 products or to elimin ate the US  Customs entry requirements for that
category.  The TMB also noted that the United States was reviewing this request in light of the TMB’s
January statement and indicated that  it would respond to Honduras when  this review was completed.  In
light of further clarifications provided by the representative of Honduras, the TMB understood that the
concerns brought to its attention by Honduras were twofold: (i) the absence of determination by the
TMB, pursuant to Article 6.9, of the justification of the restraint in accordance with the provisions of
Article  6;  and (ii) the lack of positive reaction from the United States following the consideration by
the TMB of the previous co mmunication made by Honduras.
514. In reviewing the request by Honduras to ma ke, pursuant to Articles 8.5 and 8.6, a specific
determination under Article 6.9 of the justificati on of the restraint, the TMB addressed a number of
issues, including (i) the procedural requirements for invoking and re-invoking, respectively, the
provisions of Articles 8.5 and 8.6 and (ii) whether a reference to Article 8.5 or 8.6, or to both articles,
could trigger the resumption of the review of an agr eed restraint measure that had been notified pursuant
to Article 6.9 and had already been reviewed.  The TM B noted the statement of the representative of the
United States that, in her view, the consultations co ntemplated in both Articles  8.5 and 8.6, invoked by
Honduras, had not taken place between the two Members on the particular matter, the subject of the
communication by Honduras on 5 February 1998.  The TMB also noted the view of the representative
of Honduras that this matter had already been raised with the United States on a number of occasionsand was also inherent in the latest exchange of  letters that had taken place subsequent to the
January 1998 meeting of the TMB.  Furthermore, the TMB considered that the ATC did not provide for
the re-reviewing, pursuant to Article 6.9, of agr eed restraints, reviews of which had already been
completed by the Body.  The TMB recognized, on the other hand, that during its review of the agreed
restraint in 1995 it had not been able to make a determination on the justification of this measure, asituation which was not foreseen in the ATC.  C onsidering the legal, procedural and substantive
elements involved, and keeping also in mind the tim ing of the request of Honduras, the TMB considered
that, under Articles 8.5 and 8.6, it was not in a pos ition to make a specific determination under
Article 6.9 whether the restraint maintained by  the United States on imports of category 352/652G/L/459
Page 171
products was justified.  The TMB observed that such a determination would have, in any event, been of
limited practical purpose, since the restraint was due to expire in about 30 days.
515. As to the other aspect of  Honduras' concern, th e TMB recalled that, at its previous meeting, it
had, inter alia , invited the United States to reconsider the n ecessity to maintain the restraint in force until
its scheduled expiration date, i.e. 26 March 1998.  The TMB considered that this invitation called for a
quick and thorough follow-up by the United States.  In these circumstances, the TMB had concerns that
neither Honduras nor the Body had yet been info rmed by the United States of the outcome of its
consideration of the matter.
516. The TMB decided to extend its meeting and to  resume the consideration of the issue on
24 February 1998.  During this resumption, the TMB wa s informed by the United States that it was in
the process of revising its customs entry requi rements for category 352/652 products from Honduras, in
order to alleviate pressure on the specific limit on such imports.  The details of this action would be
communicated to the TMB shortly. In view of this , and mindful of the f act that Honduras had, on
28 January 1998, requested the United States to take action to either remove the Article 6 restraint on
category 352/652 or to eliminate the US Customs entr y requirements for that category, the TMB decided
to postpone its consideration of the matter until 3  March 1998 by which time, the TMB understood, the
details of the US' action would have been communicated to it.
517. The United States, in a letter dated 2 March 1998, stated inter alia that "the TMB's decision on
22 January 1998 concerning Honduras category 352/652 noted that the United  States can give positive
consideration to concerns brought to its attention by Honduras.  The United  States later received a letter
from Honduras requesting the implementation of flexibili ty available for this category. The U.S. [had]
given this flexibility to Honduras through a notice published in the Federal Register.  The letter also
stated that U.S. companies were contacting Hondur as with requests for additional specific limit quota
for shipments scheduled before the expiration of the restraint on 26  March 1998.  The United States
would like to facilitate this reque st from Honduras in the following wa y. In order to prevent disruption
to shipments chargeable to the category 352/652 speci fic limit, the authorities in Washington will charge
to the 352/652 GAL[174] shipments in excess of the specific lim it.  As the TMB is aware, the GAL for
this category is quite large and can easily accommodate this".
518. Honduras responded with a further letter, date d 2 March 1998, stating that this technical
proposal to charge specific limits shipments to th e GAL would violate the US' own rules regulating
quota merchandise and that it woul d expose Honduras to charges of circumvention.  Honduras could not
support actions that would undercut the commitment of both the government and the private sector to
strictly abide by the legal requirements.  Honduras, therefore, requested the TMB to recommend to the
United States to rescind the restraint or to remove  the entry requirements for this category in accordance
with the procedure that had been established in the case of two previous restraints regarding Costa Rica
and India, involving actions under Article  6 of the ATC.
519. In resuming its consideration of the matter on 3 March 1998, the TMB considered the
additional communications received from Honduras and the United States.  The Body understood
from the communication of the United States that while the United States would maintain the restraint
in place until its scheduled expiration date, i.e. 26 March 1998, it had decided as from 2 March 1998to implement this measure in such a way that expo rts from Honduras would not, in practical terms, be
embargoed.  The TMB considered that, although the United States had not removed the Article 6
restraint on category 352/652 products or eliminated the US Customs entry requirements for that
category, as requested by Honduras, it had taken steps to ensure that the practical concerns raised by
Honduras, in particular during the January 1998 meeting, had been responded to positively.
                                                     
     174Guaranteed Access Levels (GALs) are quantities of products of a category that a country can export
to the United States without being subject to quantitative limitation, provided the actual product shipped qualifies
for such treatment, inter alia , by being made of "US components".G/L/459
Page 172
520. The letter by Honduras, dated 2 March 1998, confirmed that it had requested the TMB to
recommend to the United States to either rescind th e restraint or to remove the entry requirements for
this category in accordance with the procedure that had been established in the case of two previous
restraints with regard to Costa Rica and India, involving action under Article  6 of the ATC. With
respect to the first option, the TMB recalled that, it considered that, under Articles 8.5 and 8.6, as
requested by Honduras, it was not in a position to make a specific determination under Article 6.9whether the restraint maintained by the United States on imports of category 352/652 products was
justified.  With respect to the second option, the TMB understood that though the US' revision of its
customs entry requirements would not meet all the c oncerns of Honduras, it had responded to most of
the practical concerns Honduras had expressed.
521. The TMB considered that it was not within its jurisdiction to ascertain whether the US' action,
notified in the letter from the United States on 2 March 1998, would violate the US' own rules
regulating quota merchandise, as stated by Honduras.  The TMB noted the concerns expressed byHonduras, in this regard.  The TMB observed, however, that in view of the low utilization rate of the
specific limit and of the fact that the restraint was due to expire in 23 days, it was unlikely that, in
practice, the United States would have to charge  to the 352/652 GAL shipments in excess of the
specific limit.  In these circumstances, the concerns expressed by Honduras would, therefore, be
unlikely to materialize.  For the same reasons, the TMB did not consider it appropriate to discuss thepossibility of taking further action on this particular matter.  Bearing in mind all the elements
mentioned above, the TMB took note of the communications made by both Honduras and the
United States, as well as of the action taken by the United States, and considered that it had completed
its review of the matter.
(b) Comments made subsequently in the General Council
522. During the meeting of 9 to 11 and 18 December 1998 of the General Council, in taking note
of the annual reports of other WTO bodies, a few statements were made which also touched upon
aspects of the TMB's review of the matter referred to it by Honduras.  Referring to the TMB's annual
report and more specifically to those paragraphs which summarized the Body's review of this issue,
the representative of Honduras stated, inter alia , that in light of the unequivocal ruling of the Panel
and the Appellate Body in the US/Costa Rica cas e (affecting the same products), Honduras had
expected that the TMB would reverse its previous decision.  Despite the clearcut ruling of the Panel,
the TMB had merely invited the party to reconsider the need for maintaining the restraints until the
stated expiry date.  It was necessary for the TMB's review process to be effective in order to ensure
that protectionist measures did not remain in effect if they did not meet the criteria of the Agreement.The continued restraint referred to was prejudicial to the trading interests of Honduras under the
Agreement and put it in a position of inequality vis-à-vis  other trading partners, thus, leading to an
additional burden on the Honduran industry.
523. The representative of India strongly endorsed the point made by Honduras.  After there was a
report of a panel or the Appellate Body regarding a particular restriction, the TMB had a
responsibility to take into account that particular report and to review the restriction if this was called
for under the ATC.  He understood that the TMB had not discharged its responsibility.  He trusted andhoped that it would be possible for the TMB in future to take on board the decisions and rulings
contained in panel and Appellate Body reports.  The TMB should ensure that it applied the standards
applied in panel reports and Appellate Body reports, and that all of the measures taken under the ATC
were taken into consideration and appropriately reviewed as required in Article 8.1.  The
representative of the Dominican Republic also supported the statement by Honduras.  Therepresentative of Brazil said that, regarding the impact of panel reports and decisions, it was the well-G/L/459
Page 173
known position of Brazil that decisions relating to specific dispute settlement cases applied only to
those cases.175
(c) Views and comments of WTO Members in response to the TMB's general request for
information
524. In the contribution provided by the ITCB Members to the request for notifications and
information made by the TMB in the context of the preparation of the present report, it is mentioned
(under the heading dealing with the functioning of the TMB) that "although a restraint measure had
been found by a dispute panel to be inconsistent with the ATC the TMB refused to declare another
measure on the same product adopted on the basis of the same market statement to be inconsistent.  In
the process, the TMB failed to observe the standard of review established by the panel process".  It
appears that these comments are related to the re view of the TMB of the issue raised by Honduras.
(d) Additional comments by the TMB
525. In reflecting on this matter, in particular in light of the comments of ITCB members, in
paragraph 524, the TMB made the following points:
• Honduras, in its request to the TMB, invoked two provisions of the ATC, namely
Articles 8.5 and 8.6.  Article 8.5 requires the TMB to have a thorough and prompt
consideration of the matter refered to it and to make recommendations to the
Members concerned.  Article 8.6 requires a prompt review and, pursuant to this
provision, "the TMB may make such observations it deems appropriate to theMembers concerned and for the purposes of the review provided for in paragraph 11
[of Article 8]".  The review conducted by the TMB met the requirements established
in Article 8.6 and, to the extent that it considered the matter promptly and thoroughly,
its review was in line with the provisions of Article 8.5 as well.  On the other hand,
the TMB recognized that it had not made the recommendation requested byHonduras, but offered comments and invited the United States to reconsider the
necessity to maintain the restraint in force until its scheduled expiration date;
• the scheduled expiration date was one element in the TMB's consideration, since the
issue had been referred to the TMB less than three months before the final date of
expiration of the measure in question.  It can be of some interest as well that thedecision by the DSB to which Honduras made reference was taken in February 1997,
while the first communication of Honduras was addressed to the TMB in
January 1998.  The timing and the fact that the restraint was far from being fully
utilised provided additional elements to the TMB's consideration of the more
substantive aspects which would have involved the re-opening of a review alreadyconducted and concluded much earlier, pursuant to Article 6.9;
• as recalled earlier, the root of the problem was the TMB's inability to make a
determination on the justification of the measure when it had reviewed it underArticle 6.9 in 1995.  The TMB is of the view that, as clearly reflected in Chapter III,
it had drawn the full consequences with respect to the Body's examination ofmeasures referred to it pursuant to Article 6;
• the standards of review established by the Panel process were not available in 1995,
and Honduras had not participated, not even as third party, in the panel proceedingsin question.  Had the TMB decided in 1998 to re-open its examination conducted in
1995 and had it reached conclusions and recommendations different from the panel's
                                                     
175 See WT/GC/M/32.G/L/459
Page 174
ruling and recommendation, a failure to observe the standard of review established by
the panel process could have been claimed.
2. Communication Received from Pakistan
526. On 6 April 2000, the TMB received a communication from Pakistan under Article 8.  This
followed the review by the TMB in 1998, of two communications made by Pakistan and the
United States, of a mutually satisfactory solution reached between those two Members,
on 22 March 1996, with respect to matters related to transshipment charges for US category 361
(cotton bedsheets).  Whereas the United States had made its communication pursuant to Article 5, the
communication by Pakistan had been made pursuant  to Article 2.17.  In the recent communication,
Pakistan reported that "following careful and detailed re-examination of the matter relating to the
‘introduction of a limit on man-made fibre bedsheet s and pillowcases (category 666-S and -P)’ in light
of the Body’s comments and considerations, [the] Go vernment of Pakistan agrees that the subject
restrictions did not conform to the provisions of the ATC.  Consequently it requested consultations
with the Government of the United States.  Regrettably, during consultations held between [the] two
governments, it had not been possible to arrive at a mutually agreed solution conforming to the
provisions of the ATC."  In view of that, Pakistan requested the TMB to "consider the matter pursuant
to Article 8 (in particular to paragraph 5 thereof) and recommend that the United States withdraw thelimits on Pakistan’s exports of category 666-S and -P".
527. The TMB scheduled to examine this communication during its meeting of May 2000, with the
participation of representatives of both Members.  At the beginning of the consideration of this matter,
the representative of the United States requested that the consideration by the TMB be suspended to
allow for further consultations between the two Members.  Pakistan agreed to this request and theTMB, therefore, suspended its consideration.  Subsequently, the representatives of both Pakistan and
the United States informed the Body that the renewed consultations had been productive and
requested the TMB to postpone its further consideration of this matter, since they expected that this
would allow them to finalize a mutually agreed solu tion.  They also indicated that they would report
back to the TMB in due course on the outcome of their consultations.  The TMB agreed to thisrequest.
528. Since in a mutually satisfactory solution subsequently notified jointly by Pakistan and the
United States, "Pakistan […] withdraws its request […] for the Textiles Monitoring Body review
pursuant to ATC Article 8, paragraph 5, of the limits on [imports of] 666-P and 666-S [products]", no
follow-up has been given to this communication under the provisions of Article 8.5.  The wholebackground to the matters raised in this communication as well as subsequent developments are
reported in detail in Chapter VII of this report.
176
C. THE TMB 'S SURVEILLANCE OF THE IMPLEMENTATION OF ITS RECOMMENDATIONS PURSUANT
TO ARTICLE 8.9
529. Throughout the period covered by the present report, the TMB has kept in mind its
obligations under Article 8.9 which is to exercise proper surveillance of the implementation of the
recommendations made by the Body.  This surveillance was particularly relevant in the context of theexaminations conducted and recommendations made  with respect to the transitional safeguard
measures, referred to the Body either under the provisions of Article 6, or pursuant to Article 8.10.  In
all these cases, when the Members concerned had not informed the TMB of their intention regarding
the implementation of the recommendation(s) made by the TMB and/or their respective decisions, the
TMB decided to seek this information from them. Replies were provided by Members to all suchrequests by the TMB.
                                                     
176 See paragraphs 435 to 464.G/L/459
Page 175
D. ISSUES REFERRED TO THE TMB PURSUANT TO THE PROVISIONS OF ARTICLE  8.10
530. During the second stage of the integration process, on a number of occasions, the Members
concerned considered themselves unable to conform with the respective recommendations made by
the TMB and provided the Body, pursuant to the provisions of Article 8.10, the reasons for their
inability not later than one month after the receipt of such recommendations.  All these cases
concerned recommendations of the TMB in relation to transitional safeguard measures introducedunder Article 6.10 (United States/Pakistan;  Colombia/Korea and Thailand) or applied provisionally
with reference to Article 6.11 (A rgentina/Brazil).  In all these cases, the TMB gave thorough
consideration of the reasons given and, in light of the outcome of such consideration, issued further
recommendations to the Members concerned.  It should be observed that, in each of these cases, the
conclusions reached and recommendations made by the TMB upheld the conclusions and
recommendations adopted by the Body as a result of its examination of the measures in question
pursuant to the applicable provision of Article 6.  All the cases referred to the TMB underArticle 8.10, together with the related consideration of  the Body, are reported in detail in the Chapter
dealing with the application of the transitional safeguard mechanism.
177
IX. ACTIONS REFERRED TO IN ARTICLE 7 WITH A VIEW TO ABIDING BY
GATT 1994 RULES AND DISCIPLINES SO AS TO ACHIEVE IMPROVED ACCESSTO MARKETS AND ENSURE THE APPLICATION OF POLICIES RELATING TO
FAIR AND EQUITABLE TRADING CONDITIONS - IMPLEMENTATION OF THE
PROVISIONS OF ARTICLE 7
A. T
HE PROVISIONS OF ARTICLE  7
531. Article 7 reads as follows:
"1. As part of the integration process and with reference to the specific commitments
undertaken by the Members as a result of the Uruguay Round, all Members shall take such
actions as may be necessary to abide by GATT 1994 rules and disciplines so as to:
(a) achieve improved access to markets for textile and clothing products through such
measures as tariff reductions and bindings, reduction or elimination of non-tariff
barriers, and facilitation of customs, administrative and licensing formalities;
(b) ensure the application of policies relating to fair and equitable trading conditions as
regards textiles and clothing in such areas as dumping and anti-dumping rules andprocedures, subsidies and countervailing measures, and protection of intellectual
property rights;  and
(c) avoid discrimination against imports in the textiles and clothing sector when taking
measures for general trade policy reasons.
Such actions shall be without prejudice to the rights and obligations of Members under
GATT 1994.
2. Members shall notify to the TMB the actions referred to in paragraph 1 which have a
bearing on the implementation of this Agreement.  To the extent that these have been notified
to other WTO bodies, a summary, with reference to the original notification, shall besufficient to fulfil the requirements under this paragraph.  It shall be open to any Member to
make reverse notifications to the TMB.
                                                     
177 See Chapter III.G/L/459
Page 176
3. Where any Member considers that another Member has not taken the actions referred
to in paragraph 1, and that the balance of rights and obligations under this Agreement has
been upset, that Member may bring the matte r before the relevant WTO bodies and inform
the TMB.  Any subsequent findings or conclusions by the WTO bodies concerned shall form
a part of the TMB's comprehensive report."
B. COMMENTS MADE BY THE TMB IN ITS FIRST COMPREHENSIVE REPORT
532. In its first comprehensive report the TMB offered the following comments with respect to the
implementation of the provisions of Article 7:
"297 While noting the concerns expressed by some Members in this regard [in
paragraphs 280 and 295 of the report], the information submitted or available to the TMB
suggests that, apart from the issues raised in the Council for Trade in Goods and in the MarketAccess Committee [see paragraph 282 of the report] the implementation of specific market-
access commitments undertaken as a result of the Uruguay Round and affecting the products
covered by the ATC has not given rise to particular problems.
298. As to the 'maintenance of balance-of-payment provisions affecting textiles and
clothing' and the increases in tariff rates beyond the bound rates, as raised by a Member in its
response to the TMB, the TMB observed that these issues were dealt with in other appropriate
WTO bodies, under the relevant provisions of GATT 1994.
299. The TMB also noted the concerns expressed in the Committee on Anti-Dumping
Practices as well as those formulated by one Member in its communication to the TMB
regarding the use of anti-dumping procedures and their potential effects.  It recalled that
taking such actions as may be necessary to abide by GATT 1994 rules and disciplines, so as
to ensure the application of policies relating to fair and equitable trading conditions as regards
textiles and clothing in the area of dumping and anti-dumping rules and procedures, asreferred to in Article 7.1(b), is an obligation to be respected by all Members.  The TMB
observed that no notification or reverse notification indicating a bearing of such measures on
the implementation of the ATC had been addressed to it pursuant to Article 7.2.  It also
observed that the consistency or otherwise of measures with the relevant provisions of
GATT 1994 and/or the applicable Uruguay R ound Agreements, is a matter which may be
brought before the relevant WTO bodies, in which case the TMB shall be informed
accordingly.
300. The TMB observed furthermore that the compliance of Members with the notification
requirements of Article 7.2 had not been satisfactory.  The TMB expressed the hope that
progress would be achieved in this regard in the upcoming period."
178
C. CONCLUSIONS ADOPTED BY THE COUNCIL FOR TRADE IN GOODS IN FEBRUARY  1998 IN ITS
FIRST MAJOR REVIEW
533. The conclusions adopted by the CTG contained, inter alia , the following:
"32. The provisions concerning market access in Article 7.1 state that as part of the
integration process and with reference to the specific commitments undertaken by theMembers as a result of the Uruguay Round to take such actions as may be necessary to abide
by GATT 1994 rules and disciplines so as to, inter alia , achieve improved market access for
textile and clothing products, ensure the application of policies relating to fair and equitable
                                                     
178 See G/L/179.G/L/459
Page 177
trading conditions as regards textiles and clothing, and avoid discrimination against imports in
the textiles and clothing sector when taking measures for general trade policy reasons.
33. Some Members noted that in certain Members little had been done to improve access
conditions and in some cases there had been tariff increases, the introduction of specific
duties, minimum import pricing regimes, labelling and certification requirements and themaintenance of balance-of-payments provisions affecting textiles and clothing.  It was
important that improved access be achieved in real terms.  Concerns existed that, while the
stages of integration to 1 January 2005 will result in the disappearance of all restraints, certain
Members will have done little to improve access to their own markets.
34. Other Members noted that such market access could not be considered as a pre-
requisite for the removal of the MFA restrictions, and that no problem regarding non-fulfilment of specific commitments undertaken by the Members during the Uruguay Round
had been raised in the appropriate WTO bodies.  They felt that these issues should be dealt
with under the relevant provisions of GATT 1994 in the appropriate WTO bodies.  Some
Members felt that the reciprocal approach advanced by one Member at offering more
meaningful integration in exchange for gr eater market access in exporting developing
countries was not justified.
35. The comprehensive report of the TMB provides information on the topic of market
access in Section VIII, Sub-Sections D and E.
36. As part of the integration process and with reference to the specific commitments
undertaken by the Members as a result of the Uruguay Round, the Council recalled the
provisions of Article 7.1 of the ATC and called on all Members to take such actions as may
be necessary to abide by GATT 1994 rules and disciplines so as to, inter alia , achieve
improved market access to markets for textile and clothing products or through such measuresas tariff reductions and bindings, reduction or elimination of non-tariff barriers, and
facilitation of customs, administrative and licensing formalities.
37. With reference to anti-dumping actions, some Members were concerned in particular
that the largest number of actions taken by one Member had been targeted at textile productsand often involved products which were subject to quantitative restrictions under the ATC.
Those Members expressed concern about the way and the pattern in which anti-dumping
measures were initiated in respect of textiles and clothing.  In practice double protection was
being exercised through this type of action.  The use of anti-dumping action against products
under quota and repeated actions against the same products touched the very essence of the
objective of trade liberalization which the ATC was meant to bring about and could be
considered as tantamount to trade harassment.  The application of anti-dumping actions, whilecontinuing to invoke the provisions of the ATC, would appear to be uncalled for and a
negative contribution to progressive liberalization, further upsetting the balance of rights and
obligations embodied in the ATC.
38. One Member stated in reply that it applied its anti-dumping legislation, which was
fully in conformity with WTO rules, in a transparent and non-discriminatory manner across
all sectors.  No special provisions existed for the textiles sector and there was no pattern in
respect of this sector or Members.  The Member concerned noted that imports affected by
anti-dumping duties represented 0.32 per cent of total imports in this sector in 1996.  An anti-
dumping or subsidy investigation must be opened upon receipt of a complaint containingprima facie evidence of dumping or subsidization and resulting injury.  The Member
concerned, noting that the ATC did not condone dumping, invited any Member to avail itself
of consultations under the relevant WTO Agreement.  Some Members indicated that any
Member had the right under the WTO to use anti-dumping measures whenever theG/L/459
Page 178
circumstances called for it, whether for products covered by the ATC or for any other
product.
39. The comprehensive report of the TMB provides information on anti-dumping
measures in Section VIII, paragraphs 287 and 299."179
D. NOTIFICATIONS OF MEMBERS AND /OR THEIR ASSESSMENTS REGARDING DEVELOPMENTS
DURING THE SECOND STAGE OF THE INTEGRATION PROCESS
1. Notifications Falling Under the Provisions of Articles 7.2 and 7.3
534. No notifications or reverse notifications have been addressed to the TMB with specific
reference to the provisions of Article 7.2 since the beginning of the implementation of the second
stage integration process.180
535. Though they were not referred to the TMB with specific reference to either Article 7.2 or
Article 7.3, the TMB received two communications from the United States for its information.  Both
communications consisted of copies of official DSB documents requesting consultations on
30 May 2000 under the provisions of the DSU and ot her applicable Multilateral Trade Agreements.
One of these communications, requesting consultations with Brazil, stated, inter alia , the following:
"On 13 February 1998, Brazil established under Decree No. 2.498/98 and other related
statutes and regulations a system to verify the declared values of imported goods.  In practice,
however, Brazil utilizes this verification system – in conjunction with non-automatic import
licensing procedures – to prohibit or restrict the import of products with declared values
below the arbitrarily determined minimum prices .  This situation appears inconsistent with
Articles 1 through 7, and 12 of the Agreement on Customs Valuation;  general notes 1, 2 and4 of Annex 1 of the Agreement on Customs Valuation;  Articles II and XI of the GATT 1994;
Articles 1 and 3 of the Agreement on Import Lice nsing Procedures;  Articles 2 and 7 of the
Agreement on Textiles and Clothing;  and Article 4.2 of the Agreement on Agriculture."
181
536. The other communication, requesting cons ultations with Romania, contained, inter alia , the
following:
"Pursuant to its Customs Code of 1997 (L141/1997), the Ministry of Finance General
Customs Directive (Ordinance No. 5, 4 August 1998), and other related statutes and
regulations, Romania has arbitrarily established minimum and maximum import prices for
such products as meat, eggs, fruits and vegeta bles, clothing, footwear and certain distilled
spirits.  Additionally, Romania has instituted burdensome procedures for investigating import
prices when the c.i.f. value falls below the minimum import price.  This situation appears
inconsistent with Articles 1 through 7, and 12 of the Agreement on Customs Valuation;
general notes 1, 2 and 4 of Annex 1 of the Agreement on Customs Valuation;  Articles II, X
and XI of the GATT 1994;  Article 4.2 of the Agreement on Agriculture;  and Articles 2 and 7
of the Agreement on Textiles and Clothing."182
537. The TMB is not aware of the follow-up that has been given to the communications reflected
in paragraphs 535 and 536.  In the context of the preparation of the present report, the TMB invited
Members to submit notifications or information, as appropriate, in relation to, among others,
Article 7.1, with special regard to Article 7.2 which provides that "Members shall notify to the TMB
                                                     
179 See G/L/224.
180 Actually, no such notifications were received since the adoption of the TMB's first comprehensive
report.  Nor were such notifications addressed to the TMB during the first stage of the integration process.
181 See WT/DS197/1.
182 See WT/DS198/1.G/L/459
Page 179
the actions referred to [in Article 7.1] which have a bearing on the implementation of this Agreement.
To the extent that these have been notified to other WTO bodies, a summary, with reference to the
original notification, shall be sufficient to fulfil the requirements under this paragraph".183
2. Information, Views and Comments of WTO Members in Response to the TMB's
Request
538. In response to the TMB's request, six contributions were received from Members, touching
upon aspects relevant to the consideration of the implementation of the provisions of Article 7.  These
contributions were made by Canada; the European Community; ITCB members; Japan; Turkey and
the United States and are reflected in the paragraphs below.
(a) Canada
539. In relation to Article 7.1, the communication of Canada stated the following:
"Pursuant to the commitments made by Canada during the Uruguay Round, MFN tariffs on
textile and apparel products, for those items that are not already duty-free, continue to decline.Textile tariffs, which were bound in the range of 16 per cent-22 per cent prior to 1995, are
now in the range of 14 per cent-16 per cent and will decrease to 12 per cent-14 per cent upon
full implementation of Uruguay Round tariff ob ligations.  Similarly, the MFN bound tariff on
most apparel has decreased to 20 per cent from 25 per cent prior to 1995 and will decrease to
18 per cent by 1 January 2004.  At the same time, 29 per cent of Canada's applied textile andapparel tariff items (8 digits) are currently duty free.
Further, Canada has a policy of unilaterally removing tariffs on manufacturing inputs to
enhance the competitiveness of Canadian downstream producers, where such action would
not have an adverse impact on other Canadian manufacturers.  This policy has resulted inmore than $25 million in duty reductions on imported textile products since 1994.
Canadian authorities would note that Canada's tariffs on textiles and apparel, while high
relative to other Canadian tariffs, remain si gnificantly lower than in a number of exporting
countries."
(b) European Community
540. Under the heading entitled "Market Access", the communication of the European Community
included the following:
"During the second stage the Community has remained preoccupied that certain Members do
not consider the obligation to achieve improved access to markets for textile and clothing
products as an important part of the integration process, as set out in Article 7 of the ATC.
Thus, there is a concern that while the stages of integration up to 1 January 2005 will ensure
the removal of quotas by the restraining Members, certain Members will have done little or
nothing to improve conditions for access to their own markets for imports.
EU tariffs for textile and clothing imports ar e low and will go down further due to the EU's
commitments in the WTO.  Present rates are on average 0.7 per cent for raw materials,
5.3 per cent for yarns and fibres, 6.3 per cent for fabrics and 11.9 per cent for clothing – an
overall average of 9 per cent.  However, these rates are applied only to a small share of the
EU's textile and clothing imports, because of EU commitments under the Generalised System
of Preferences (GSP) and other arrangements.  Roughly 44 per cent is imported free of tariffs
                                                     
183 See G/TMB/24.G/L/459
Page 180
and 46 per cent enjoys a GSP reduction of 15 per cent of the MFN tariff rate, thus leaving
only about 10 per cent of imports for which the full MFN rate is levied.
The EU's low tariffs and the absence of non-tariff barriers compare with average tariffs for the
whole sector ranging between 14 per cent in Indonesia and 25 per cent in Thailand and
39 per cent in India.  Tariff peaks, for example, abound in the sector.  In addition, high tariffsare often combined with additional taxes and frequently changing non-tariff barriers.
Creating an environment, in which traders worldwide will face substantially the same market
access conditions after 2005 is thus the EU's main objective.  The Community thus thinks that
in the process of integration under the ATC Members, who have so far done little to open
their markets, should implement less prohibitive tariff levels, as well as remove non-tariff
barriers to trade."
(c) ITCB members
541. Under the heading "Article 7 - Strengthened GATT rules and disciplines", ITCB Members
offered the views and comments as follows:
"On the basis of available information, no non-compliance with any specific market-
access commitments undertaken by WTO Members as a result of the Uruguay Round has
been notified.  We expect the TMB to bring out this important fact.
We also expect the TMB to bring out that demands for additional market-access
commitments from restrained Members as a condition for full and faithful implementation ofthe integration process are not justified under the ATC.
On the other hand, we wish to stress that Article 7.1(c) provided that Members avoid
discrimination against imports in the textile a nd clothing sector when taking measures for
general trade policy reasons.  Yet there have been several instances of singling out the sector(particularly for imports from restrained Members) in violation of this principle.  In this
regard, we wish to draw the TMB's attention to the following:
(i) The EU's declared policy to 'keep the possibility of using existing quotas as a
bargaining chip to obtain better market access in third [restrained] countries'.
(ii) The US action to defer the integration of so-called most sensitive products
until the end of the transition period.
(iii) US changes in its rules of origin involving only textile and clothing products.We also wish the TMB to note the anti-dumping actions on imports of textile and
clothing products from countries whose exports of these products were already under severe
quota restriction.  While we recognize the right to anti-dumping actions, we wish to
emphasize that the targeting of restrained products has had the effect of causing double
jeopardy to the exporting countries concerned and of impairing their right to utilize access
under the Agreement.
In this regard, the TMB might already be aware of three anti-dumping measures by
the EU involving bed linen, one of which, adopted on similar basis, has since been found to
be illegal by the Appellate Body.  In addition, although withdrawn without imposition of
definitive duties, EU measures involving cotton fabrics also nevertheless caused substantialimpairment of benefits accruing to the restrained exporting countries concerned.  Finally theG/L/459
Page 181
TMB report should note the anti-dumping a nd countervailing duty measures which the US
decided to maintain on cotton shop towels from three exporting countries.
In substance, the discriminatory singling out of textile and clothing products for
general trade policy reasons, together with anti-dumping and countervailing duty measures,
has had obvious negative bearing on the balance of rights of restrained countries on the onehand and the implementation of the ATC on the other.  We hope the TMB report would
incorporate this in its assessment."
(d) Japan
542. In its communication Japan stated that it had "levied definitive duties on Pakistani cotton yarn
of 20-21 count in August 1995.  Several duty rates for new suppliers were conducted in March 1996,
May 1998, and new dumping margins have been notified to the WTO.  The measures were revoked inJuly 2000 (G/ADP/N/72/JPN)".
(e) Turkey
543. Turkey's response contained the following in re lation to Article 7.1, with special regard to
Article 7.2:
"The most considerable improvement made by Turkey in terms of facilitating market access
for textile and clothing products is, its putting into effect, for the products in question, the
customs tariffs that is equivalent to the Common Customs Tariffs of the EU, as a result of the
Turkish - EU Customs Union which had entered into force by 1 January 1996.  The protection
obtained by these tariffs are highly below the official applicable rates and the rates
consolidated to GATT.  As much as the quantitative restrictions which came into effect afterthe Customs Union are concerned, the quota increases are implemented in accordance with
the growth rates in accordance with the provisions of ATC.  The products subject to quota are
also being integrated into GATT according to the integration schedule and in harmony with
the EU.
The practices regarding anti-dumping and countervailing duty are performed in compliance
with the GATT rules.  A list is also enclosed which contains detailed information concerning
the textile products and countries subject to measures in form of definitive anti-dumping
duties, and the dumping investigations that are still continued."
544. The list referred to in the submission of Turkey is reproduced in Table 14.G/L/459
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Table 14
TURKEY
The Items on Which Definitive Measures in Form of Anti-Dumping Duty are Being Applied
Customs Tariffs and
Statistical PositionsItem Definition Country Communiqué
No.Date and No. of the
Turkish Official
Gazette Containing the
Definitive MeasureRate/Amount of
Anti-dumping Duty
5503.20.00.00.00 Polyester Fiber Rep. of Belarus*
South KoreaIndonesia98/3
2000/22000/229.05.1998//23356
13.03.2000/2399213.03.2000/2399219%
11.9% - 24.6%
6.2% - 37.4%
5402.33 Texturized
Polyester YarnsIndia
TaiwanSouth Korea2000/7
2000/727.06.2000/24092
28.06.2000/240936.8% - 20.3%
9.9% - 28.6%
33.70%
5402.43 Polyester Spun
YarnsSouth Korea 99/7 30.11.1999/23892m 0% - 21.2%
55.13
55.1455.1555.16Woven Textiles
made of Syntheticor Man-madeStaple FibersPeople's Republic
of China2001/2 15.02.2001/24319 87%
Continuing Dumping Investigations
Customs Tariffs and
Statistical PositionsItem Definition Country Communiqué No.Date and No. of the
Turkish Official Gazette
Containing the Initiation
of Investigation Process
54.07 Woven Textiles made of
Synthetic FilamentSouth Korea
People's Rep. of China
MalaysiaThailandTaiwan2000/9 01.11.2000/24217
*Put into effect as consequence of the Reviewing Investigation.
(f) United States
545. Under the heading "Market Access", the communication of the United States stated the
following:
"During the second stage of the ATC integration schedule, the United States continued to
emphasize the importance of ensuring that all aspects of the ATC are faithfully implemented
on schedule.  As in the first stage of integration, it is clear that more work needs to be done inthe market access area.  Despite commitments to take the necessary steps under the WTO
agreements to achieve market access for all Members, certain Members continue to maintain
closed markets.
We have a number of concerns about measures taken by exporting Members to protect their
domestic textile and apparel markets.  During the second stage, the United States initiated
WTO dispute settlement proceedings against illegal import prohibitions on consumer goods
(primarily textiles), and prevailed in that case through the Appellate Body.  The United States
will continue to closely monitor implemen tation of commitments to dismantle these
prohibitions.  In addition, the United States pursued and reached a mutually satisfactoryresolution concerning the establishment and notification of WTO tariff bindings on a wide
range of textile and apparel products of importance to US exporters, and again, the US will
closely monitor implementation of this agreement.   Further, we participated in a WTO dispute
settlement case against discriminatory import financing requirements, and have initiated new
cases where we believe customs valuation violations exist, and we are continuing to monitorother countries' practices in this regard.G/L/459
Page 183
Numerous other measures also affect the conditions for access to exporting Member markets.
So-called 'temporary' tariff increases were introduced and kept in place for two years in one
country.  Another exporting country has insisted on keeping import bans in place, and has
established Customs procedures to, at a minimum, impede and deter imports that are not
prohibited outright.  In addition, we have raised a number of specific concerns in the WTOCommittee on Customs Valuation and on Subsidies and Countervailing Measures.  We have
also noted concerns regarding lack of access to markets in the Trade Policy Review of various
Members, and we have very serious concerns about at least one other Member attempting to
abrogate its Balance-of-Payments commitments to eliminate their prohibitions on textile and
apparel imports.
US industry has also raised a series of concerns regarding a number of other measures that are
being used to impede access to the markets of exporting countries.  These measures include:
additional import taxes and charges, some of which may be forgiven for goods destined for
the export market, excessive and impractical marking and labelling requirements, reference
pricing and non-automatic licensing, burdensome certificates of origin requirements, and
pre-shipment inspection requirements.
Ironically, some of the Members with the most protected internal markets are also the most
significant beneficiaries of the ATC's quota liberalization and elimination provisions, as
applied by the United States.  The United States will continue its efforts to work within the
WTO and with our trading partners in the third stage of the ATC integration schedule toensure that all countries meet their WTO obligations to open their market to textile and
apparel products.
Finally, the United States also took the initiative, in the context of WTO accession
negotiations, to seek to negotiate a general framework of relative harmonization of textiletariffs, so as to establish a growing textile trading network of countries that are open for
expanding textile and apparel trade.  As we move forward to the third stage of integration, we
hope that other Members also seek to serve as a model for countries joining the WTO, in the
area of textile and apparel market-access commitments."
3. Additional Communications Received by the TMB
546. Since the contents of the communications rece ived from the European Community and the
United States, on the one hand, and from the ITCB Members on the other, were very much different
and appeared to contradict each other on a number of aspects, the TMB decided to transmit the
respective parts of the communications to the other parties and requested information and comments
regarding the issues raised in the respective communications.  The European Community, the ITCB
Members and the United States availed themselves with this opportunity and provided furthercomments to the TMB, which are reproduced in the following paragraphs.
(a) European Community
547. The additional comments of the European Community contained the following:
"The EC has not made it’s ATC integration process conditional on the fulfilment of demands
for additional market access.
The EC has fully complied with its ATC obligations relating to integration and a considerable
degree of liberalisation will result from its integration programme to date, in particular from
the third stage where quotas on gloves, underwear, anoraks, nightwear, skirts, a number of
woven fabric categories, baby clothes and tracksuits will all be eliminated by integration.G/L/459
Page 184
The EC considers that Article 7 of the ATC is an important part of the ATC.  In particular
Article 7(1)(a) represents a positive, self-standing obligation and not merely a reminder that
obligations exist in other domains.  As the TMB is aware, it states:
'As part of the integration process and with reference to the specific commitments
undertaken by the Members as a result of the Uruguay Round, all Members shall take
such actions as may be necessary to abide by GATT 1994 rules and disciplines so as
to  … achieve improved access to markets for textiles and clothing products
through such actions as tariff reductions  and bindings, reduction or elimination of
non-tariff barriers, and the facilitation of customs, administrative and licensing
formalities.' (emphasis supplied)
The EC has consistently pointed out that, in addition to the ongoing liberalisation resulting
from the ATC, by 2005 it will apply no quotas under the ATC, will have a very liberal import
regime and will apply low tariffs.  However, for some other WTO Members access to their
markets is highly restricted by high tariffs and/or non-tariff barriers.  It appears likely that this
same degree of highly restricted access to their markets will barely change throughout theten-year period of the ATC.
As a result of these difficulties the EC, at the same time as it adopted the third stage of
integration, also set up a framework allowing for bilateral negotiations on market access
going beyond the liberalisation and improvement arising from the EC's ATC commitments.Thus, the EC is prepared to examine the possibility of improving access to its market for
textile and clothing products going beyond the European Community's full compliance under
the ATC where WTO Members subject to quota are prepared to consider their own position in
this regard.  The EC has not made any demands of WTO Members but it has explained to
them the nature of this framework for possible discussion.
To date, the EC has entered into a Memorandum of Understanding with one WTO Member,
Sri Lanka, concerning market access in the textiles and clothing sector.  This involves
reduction and bindings of tariffs and commitments concerning non-tariff barriers on the side
of Sri Lanka and the suspension of the application of the quotas on the EC side.  The quotashave not been eliminated but their application has been suspended subject to ongoing
compliance by Sri Lanka with the terms of the agreement.  Therefore, the EC considers that
its agreement with Sri Lanka is not covered by the requirements of Article 2(15) of the ATC.
The EC is engaged in active negotiation with a number of other WTO partners creating the
potential for further agreements of a similar kind and hopes thus to contribute to further
improving market access in the sector in advance of 2005.  In this respect, the EC would liketo emphasise that Article 2.15 of the ATC explicitly acknowledges the right of Members to
eliminate restrictions towards individual countries during the integration phase.  This
deviation from Article I of the GATT 1994 ensures that such additional liberalisation of trade
in textiles is not de facto  inhibited by the application of the general MFN principle.
[…]
The EC's overall policy, as outlined above, has favoured trade and provided the potential for
improved access, which has been taken up by a number of exporting countries as is shown
above.  The EC has not taken any action to provide additional access going beyond the abovein regard to the United States and/or Canada."G/L/459
Page 185
(b) ITCB members
548. The additional comments received from ITCB Members were as follows:
"With respect to the issue of market access, we wish to emphasize that developing
countries have implemented all specific commitments undertaken as a result of the
Uruguay Round.  In this regard, it may be interesting to quote from the
European Commission's own report dated 12 July 2000 to the EC Council pursuant to Council
Regulation 3030/93.  The Commission stated, inter alia , that 'Article 7 underlines the need to
achieve improved market access generally' and that 'in the specific context of Article 7 of the
ATC, most WTO Members are generally comply ing with their specific commitments and
with the relevant GATT 1994 rules and disciplines'.
Aside from the above, the EU and US submissions […] do not reveal in any manner
if they themselves took any action to provid e additional access to their markets.  On the
contrary, as pointed out in our [previous] submission, a number of actions have been adopted
by them which have had a negative bearing on the balance of rights otherwise accruing to
restrained Members under the ATC.  In this connection, we wish to reiterate our concerns
regarding, among other things, the singling out of textile and clothing products for general
trade policy reasons, such as for changes in rules or origin, using quotas as a bargaining chipfor demanding increased access in developing countries, etc., contrary to Article 7.1(c), and
the targeting of restrained products for repeated and unjustified anti-dumping actions contrary
to Article 7.1(b)."
(c) United States
549. The additional comments received from the United States were as follows:
"First, while the point made by the ITCB is true as far as it goes, it cannot be
concluded from the lack of notifications under Article 7 that there is no problem with
compliance with market access commitments under WTO Agreements.  Indeed, the
United States has made one of its most important priorities the enforcement of textile marketaccess commitments, and we have included information on several relevant initiatives in our
submission.  We have taken note of the ITCB's comment regarding an additional notification
under Article 7 and will review our position on the merits of this suggestion.  As to the second
comment, we are unaware of any demands for additional market access commitments from
restrained Members as a condition for the implementation of the ATC.  However, the ATCitself in Article 7 strongly encourages additional market opening efforts, and to the extent that
requests may be made in connection with demands by restrained Members for additional
access over and above the scheduled ATC liberalization, that would seem entirely appropriate
and fully within the scope of the Agreement".
E. 
COMMENTS OF THE TMB WITH RESPECT TO THE IMPLEMENTATION OF THE PROVISIONS OF
ARTICLE  7.  ADDITIONAL OBSERVATIONS IN RELATION TO SOME OF THE ISSUES RAISED BY
MEMBERS IN THEIR RESPECTIVE RESPONSES TO THE TMB 'S REQUEST FOR INFORMATION
550. Though, as reflected in other chapters of this report, the information and comments received
from Members in response to the TMB's request contain a number of differing and, in most respects,
opposing views and assessments, this applies even more to the comments and assessments provided in
relation to the matters raised in the context of the implementation of Article 7.  Independent of thesubstance of the information provided, each of the responses received, with the exception of one
(United States), contains some indications or vi ews regarding the implementation of some of the
issues covered by Article 7 by the Member(s) submitting such contributions.  At the same time, three
of the contributions received (European Community; ITCB members; United States) put clearly in theG/L/459
Page 186
forefront claims of problems experienced by them and non-compliance by others with some of the
important provisions of Article 7.
1. Some Remarks Related to the Obligations Incorporated into Article 7
551. The TMB recalled that Article 7.2 contains the obligation applicable to all Members to notify
to the TMB the actions referred to in Article 7.1 " which have a bearing on the implementation of
this Agreement " (emphasis added).  In addition, "[i]t shall be open to any Member to make reverse
notifications to the TMB."  Article 7.3 provides the possibility for bringing matters before the relevant
WTO bodies and informing the TMB.  Against this background, it is important to reiterate that, during
the second stage of the integration process, the TMB received only two communications which would
fall under the provisions of Article 7, even though it was not specified by the Member concerned
whether these communications had been made with reference to Article 7.2 or Article 7.3.  The same
background should be recalled also, when assessing the relatively detailed and, in most respects,
differing comments and replies provided by some Members in response to the TMB's request made inthe context of the preparation of the present report.  It should be noted that:
• providing notifications to the TMB regarding the actions referred to in Article 7.1
which have a bearing on the implementation of the ATC, is a positive obligation,
applicable to all Members pursuant to Article 7.2;
• the same Article 7.2 also provides the possibility of making reverse notifications to
the TMB;
• on the one hand, Members hardly made any formal notification to the TMB under the
provisions of Article 7;
• on the other hand, several of them decided to include a number of serious concerns
regarding the implementation of Article 7 by some other Members, when providing
information and comments in response to the TMB's request.
552. The only specific task conferred to the TMB under Article 7 is contained in the last sentence
of Article 7.3, stating that "[a]ny subsequent findings or conclusions by the [relevant] WTO bodies
concerned [with respect to matters brought before them by WTO Members] shall form part of the
TMB's comprehensive report".  Even if this were to be read in conjunction with the broad mandatedefined for the TMB in Article 8.1, the TMB has come to the view that it is neither required under the
ATC, nor is it a reasonable expectation to take up and address, in substance, each and every comment
included in the responses received from Members.  The TMB is of the view that it has already made a
contribution pursuant to Article 8.11 to the Members' consideration of these matters by inviting
Members to offer information and comments and by faithfully reflecting their replies inparagraphs 539 to 549.
553. Notwithstanding the above, the TMB has decided to offer some comments and observations,
in order to contribute to Members' future discussions and assessments regarding the implementation
of the ATC in general and of the provisions of Article 7 in particular.
554. The first observation of the TMB is related to the perception one might get regarding
Members' reading of the obligations incorporated into the provisions of Article 7.1.  Some of the
comments and replies received from Members appear to emphasize or to give particular importance to
certain portions or elements of the language of Article 7.1, while more or less ignoring some other
elements also forming part of the language of this Article.  The TMB is of the view that the language
of Article 7.1 should be read in its entirety, incl uding the context in which the obligations thereunder
are defined, the relevant obligations themselves and the objectives they are designed to accomplish,G/L/459
Page 187
together with the confirmation that "[s]uch actions [referred to in the introductory sentence of
Article 7.1] shall be without prejudice to the righ ts and obligations of Members under GATT 1994".
2. Implementation of the Provisions of Article 7.1(a) (Market Access)
555. The TMB does not have sufficient information at its disposal that would enable it to offer a
well considered assessment on the extent to which Members have complied with the substantive
obligations defined in Article 7.1(a).  To the extent that no formal notifications have been addressedto it indicating the contrary and that no such notifications made to other WTO bodies have been
brought by Members to the TMB's attention, the Body agrees with the statement made by ITCB
members according to which "[o]n the basis of available information, no non-compliance with any
specific market-access commitments undertaken by WTO Members as a result of the Uruguay Round
has been notified".  However, Article 7.1 speaks of "specific commitments" which appear to be a
somewhat broader notion than specific market-access commitments.  In addition, the reference to
these specific commitments is perhaps a central, but not the only element included in the provisions ofArticle 7.1(a), if the Chapeau of Article 7.1 and the language of sub-paragraph (a) were to be
considered together.  Furthermore, the TMB is not in a position to assess whether the two
communications received from the United States (requesting consultations, respectively, with Brazil
and Romania) also involved aspects related to specific (market-access) commitments.
556. The TMB assumes that the Committee on Market Access, in supervising the implementation
of concessions made in the Uruguay Round with respect to tariffs and non-tariff measures, has
continued to rely on cross- or reverse notifications in identifying potential problems that might arise
out of the implementation of such concessions.  The TMB notes that no particular problems have been
brought to its attention.  This statement notwithstanding, relying on notifications addressed to the
Committee on Market Access, it would appear that, at least in two cases, in the area of rectificationsand modifications of schedules, some issues involving essentially textile and clothing products were
raised and subsequently resolved as a result of consultations held and agreements reached between the
Members concerned.  In one case, in December 1999, India notified rectifications and modifications
to its schedule, apparently incorporating the arrangements reached with the European Community and
the United States at the end of the Uruguay Round in the area of market access for textiles.Subsequently, in October 2000, India submitted a revision of this notification, reflecting the
agreements reached in consultations with the two Members concerned.
184  The other case involved
Pakistan's notification, in October 1999, of its tariff commitments undertaken in an agreement on
market access for textile products reached with the European Community in March 1996.  A
corrigendum to this notification was issued in May 2000.185  The TMB observed that in both cases
these notifications had not been referred to the TMB as envisaged in Article 7.2.
557. Developments with respect to restrictions notified under Article XVIII of GATT 1994, which
can also have relevance in considering the implemen tation of Article 7.1(a), are reported in detail in
Chapter V of this report.186  It should also be mentioned that during the period covering the second
stage implementation, a few Members (Bulgaria; Ro mania; Slovak Republic) introduced or continued
to apply temporary import surcharges affecting, inter alia , textile and clothing products with reference
to the provisions of Article XII of GATT 1994.  All these measures which were gradually phased out,had been examined by the Committee on Balance-of Payments Restrictions.
558. The TMB noted that almost all the responses received from Members included a number of
comments related to tariffs.  It  would appear that it is up to the WTO Members to discuss them, if
they so wish, while conducting the major review in the CTG.  In this context a number of issues can
be considered, among others, such as:
                                                     
184 See G/MA/TAR/RS/63 and Rev.1.
185 See G/MA/TAR/RS/61 and Corr.1.
186 See paragraphs 346 to 350 and paragraph 377.G/L/459
Page 188
• whether it is justified to claim that significant reductions in tariff levels represent
considerable improvements in terms of facilitating market access at this stage,
particularly in cases where reductions had been accompanied by the introduction of
new restrictions affecting imports from several Members (and, in a particular case,
the DSB found these restrictions to be inconsistent with the provisions invoked);
• whether it is appropriate at this stage to suggest a comparison between one's low
tariffs and, in particular, the absence of non-tariff barriers with high tariff rates
applied by others, when an important number of restrictions notified under Article 2.1
will not, in all likelihood, be eliminated before the expiration of the ATC transitional
period, or whether it is appropriate to refer to the situation when those restrictions are
removed in 2005;
• whether, in the context of Article 7.1(a), there are arguments for reducing high tariff
rates, if these rates are within the specific commitments made by the respectiveMembers as a result of the Uruguay R ound, without reference to any change in
market access;
• whether there is also a need to compare, within a Member's tariff structure and
schedule of concessions, the level of the rates applicable to textile and clothingproducts as opposed to that applied to products of other industrial sectors;
• what does the notion of relative harmonization of textile tariffs mean and which is the
most appropriate general framework for harmonization of the respective tariff rates.
559. As regards other measures listed in Article 7.1(a), some developing countries continued to use
a reference price or a minimum price system, often af fecting imports of textile and clothing products.
It is the understanding of the TMB that all such requests (of delaying the application of certainprovisions of the Agreement on the Application of Article VII of GATT 1994) were referred to the
Committee on Customs Valuation or were covered by waivers granted by higher WTO bodies.  The
TMB is also aware that a number of Members provided notifications to the Committee on Import
Licensing of their respective licensing procedures which also covered textile and clothing products.
During the second stage of the integration process, 17 notifications were addressed to the Committeeon Technical Barriers for Trade affecting (also) textile and clothing products (mostly labelling
requirements or standards).  Three such notifications were submitted by Slovenia, two by the
United States and one, respectively, by Australia; Belgium; Brazil; Czech Republic;
European Community; Egypt; El Salvador; Jamaica; Korea; Latvia; Netherlands and Spain.  The
TMB is of the view that Members should decide whether to reflect further, and if so, in what manner,on matters related to facilitation of customs, administrative and licensing formalities.  Such further
reflection can also include some relevant aspects covered in other chapters of this report, such as visa
arrangements and rules of origin.
3. Other Issues Raised by Members in the Co ntext of the Provisions of Article 7.1(a)
560. As indicated earlier
187, the ITCB members expressed concern that demands for additional
market-access commitments from restrained Members as a condition for full and faithful
implementation of the integration are not justified under the ATC.
561. The TMB recalled that, in its additional comments188, the European Community had provided
detailed explanation as well as information regarding the fact that "at the same time as it adopted the
third stage of integration, [it] also set up a framework allowing for bilateral negotiations on market
                                                     
187 See paragraph 541.
188 See paragraph 547.G/L/459
Page 189
access going beyond the liberalisation and improvement arising from the EC's ATC commitments.
Thus, the EC is prepared to examine the possibility of improving access to its market for textile and
clothing products going beyond the European Community's full compliance under the ATC where
WTO Members subject to quota are prepared to consider their own position in this regard.  The EC
has not made any demands of WTO Members but it has explained to them the nature of this
framework for possible discussion".
562. The TMB further recalled that the United States, in its additional comments189, had stated,
inter alia , that "the ATC itself in Article 7 strongly encourages additional market opening efforts, and
to the extent that requests may be made in connection with demands by restrained Members for
additional access over and above the scheduled ATC liberalization, that would seem entirely
appropriate and fully within the scope of the Agreement".
563. The TMB noted, however, that the European Community, in the same additional comments,
had stated that the European Community had not made its ATC integration process conditional on thefulfilment of demands for additional market access.
190  Furthermore, the United States also stated that
it was "unaware of any demands for additional market access commitments from restrained Members
as a condition for the implementation of the ATC".191
564.  The TMB took note of the statements reflected in paragraph 563.
4. Implementation of the Provisions of Article 7.1(b)
565. The TMB recalled that the comments from the ITCB members had requested the TMB to
note, inter alia , that:
"anti-dumping actions on imports of textile and clothing products from countries whose
exports of these products were already under severe quota restriction.  While we recognize the
right to anti-dumping actions, we wish to emphasize that the targeting of restrained productshas had the effect of causing double jeopardy to the exporting countries concerned and of
impairing their right to utilize access under the Agreement.
In this regard, the TMB might already be aware of three anti-dumping measures by
the EU involving bed linen, one of which, adopted on similar basis, has since been found tobe illegal by the Appellate Body.  In addition, although withdrawn without imposition of
definitive duties, EU measures involving cotton fabrics also nevertheless caused substantial
impairment of benefits accruing to the restrained exporting countries concerned.  Finally the
TMB report should note the anti-dumping a nd countervailing duty measures which the US
decided to maintain on cotton shop towels from three exporting countries."
192
The Body also recalled that the submission of the United States had stated, inter alia , that the
United States had raised a number of specific concerns, among others, in the Committee on Subsidies
and Countervailing Measures.193
566. The TMB is aware that, in September 1998, India requested the establishment of a dispute
settlement panel on the anti-dumping duties levied by the European Community on imports of cotton-type bedlinen from India.  The request was related to Commission Regulation (EC) N° 2398/97 of
28 November 1997 on imports of cotton-type bed-linen from India.  India asserted that the
European Community had initiated anti-dumping proceedings against the import of cotton- type bed-
                                                     
189 See paragraph 549.
190 See paragraph 547.
191 See paragraph 549.
192 See paragraph 541.
193 See paragraph 545.G/L/459
Page 190
linen from India by publishing a notice of initia tion in September 1996.  Provisional anti-dumping
duties were imposed by EC Commission Regulation N° 1069/97 of 12 June 1997.  This was followed
by the imposition of final duties in accordance with the above-mentioned EC Council Regulation of
28 November 1997.  India contended that the determination of standing, the initiation, the
determination of dumping and injury as well as the explanations of the EC authorities' findings were
inconsistent with WTO law.  India was also of the view that EC authorities' establishment of the factswas not proper and that the EC's evaluation of facts was not unbiased and objective.  India also
contended that the European Community had not taken into account the special situation of India as a
developing country.  India alleged violations  of Articles 2.2.2, 3.1, 3.2, 3.4, 3.5, 5.2, 5.3, 5.4, 5.8, 6,
12.2.2, and 15 of the Anti-Dumping Agreement, and Articles I and VI of the GATT 1994.  At its
meeting on 27 October 1999, the DSB established a panel.  Egypt; Japan and the United States
reserved their third-party rights. The Panel Report was circulated on 30 October 2000. The Panel
concluded that the European Community did not act inconsistently with its obligations under
Articles 2.2, 2.2.2, 3.1, 3.4, 3.5, 5.3, 5.4, and 12.2.2 of the Anti-Dumping Agreement in:
(a) calculating the amount for profit in construc ting normal value; (b) considering all imports from
India (and Egypt and Pakistan) as dumped in the analysis of injury caused by dumped imports; (c)
considering information for producers comprising the domestic industry but not among the sampled
producers in analyzing the state of the industry; (d) examining the accuracy and adequacy of the
evidence prior to initiation; (e) establishing industry support for the application; and (f) providing
public notice of its final determination. The Panel, however, also concluded that the European
Community acted inconsistently with its obligations under Articles 2.4.2, 3.4, and 15 of the Anti-
Dumping Agreement in: (a) determ ining the existence of margins of dumping on the basis of a
methodology incorporating the practice of zeroing; (b) failing to evaluate all relevant factors having a
bearing on the state of the domestic industry, and specifically all the factors set forth in Article 3.4; (c)
considering information for producers not part of the domestic industry as defined by the investigating
authority in analyzing the state of the industry; and (d) failing to explore possibilities of constructive
remedies before applying anti-dumping duties. On 1 December 2000, the European Community
notified the DSB of its intention to appeal certain issues of law covered in the Panel Report and legalinterpretations developed by the Panel. The Appellate Body circulated its report on 1  March 2001.
The Appellate Body (1) upheld the finding of the Panel that the practice of "zeroing" when
establishing "the existence of margins of dumping", as applied by the European Community in the
anti-dumping investigation at issue in this dispute,  was inconsistent with Article 2.4.2 of the Anti-
Dumping Agreement;  and (2) reversed the findings of the Panel that: (a) the method for calculatingamounts for administrative, selling and general costs and profits provided for in Article 2.2.2(ii) of the
Anti-Dumping Agreement may be applied where there is data on administrative, selling and general
costs and profits for only one other exporter or producer; and (b) in calculating the amount for profits
under Article 2.2.2(ii) of the Anti-Dumping Agreement, a Member may exclude sales by other
exporters or producers that are not made in the ordinary course of trade; and (3), as a consequence,
concluded that the European Community, in calculating amounts for administrative, selling and
general costs and profits in the anti-dumping investigation at issue in this dispute, acted inconsistentlywith Article 2.2.2(ii) of the Anti-Dumping Agreement. At its meeting of 12 March 2001, the DSB
adopted the Panel report, as modified by the Appellate Body report.
567. In August 1998, India also requested consultations with the European Community in respect
of alleged repeated recourse by the European Community to anti-dumping actions on unbleached
cotton fabrics, from India.  India considered, in the light of the information which had becomeavailable before and after the adoption of Regulation 773/98, that the determination of standing, the
initiation, the selection of the sample, the determination of dumping and the injury were inconsistent
with the EC's WTO obligations.  India was also of the view that EC's establishment of the facts had
not been proper and that EC's evaluation of f acts was not unbiased and objective.  India also
contended that European Community had not taken into account the special situation of India as a
developing country.  India alleged violati ons of Articles 2.2.1, 2.4.1, 2.4.2, 2.6, 3.3, 3.2, 3.4, 3.5,
4.1(I), 5.2, 5.3, 5.4, 5.5, 5.8, 6.10, 7.1(I), 7.4, 9.1, 9.2, 12.1, 12.2 and 15 of the Anti-Dumping
Agreement, and Articles I and VI of GATT 1994.  I ndia also alleged nullification and impairment ofG/L/459
Page 191
benefits accruing to it under the cited agreements.  To the TMB's knowledge, this request was not
followed by a formal request for the establishment of a panel, since the European Community decided
not to impose definitive anti-dumping duties on imports of these products.
568. It should be noted as well that, during the recent past, several Members initiated anti-dumping
investigations on imports of certain textile products from other Members, in a number of cases
leading to the imposition of provisional and/or definitive anti-dumping duties.  Table 15  provides an
illustrative summary of actions initiated in 1998, 1999 and 2000, based on documents circulated by
the Committee on Anti-dumping Practices.
Table 15
Anti-dumping Proceedings Initiated in 1998, 1999 and 2000 *
Date of
Initiating Members Members Affected Product Description
InitiationProvisional
MeasuresDefinitive Measures
Argentina Korea
Korea
Chile
BrazilWoven fabric of
nylon or polyamide
Fabrics of acetate
filament
Fabrics ofpolypropylene
Denim fabrics22.06.99
2.12.99
21.11.00
29.04.9925.01.00
23.11.00
No dumping found:
01.11.0022.06.00
Australia Belgium}
Colombia}United Kingdom}United States}Woven
polypropylenecarpet backingfabric09.07.98 09.12.98 28.01.99
Brazil Korea Nylon yarn 12.01.00 No final measure:
11.12.00
European
CommunityCzech. Rep.}
Hungary}Poland}
India}
Korea}
Australia}
Indonesia}Thailand}
India}
Korea}Binder and baler
twine
Polyester textured
filaments yarn
Polyester staple
fibre
Polyester staple
fibre28.02.98
21.08.98
22.04.99
21.12.99
07.10.9902.10.98
-
21.01.00
06.07.00
06.07.0020.03.99
16.06.99
(No final)
14.07.00
28.12.00
28.12.00
(Korea:
undertaking)
India Italy}
Japan}Portugal}Spain}Mexico}
Indonesia}
Korea}Thailand}
Indonesia}
Korea}
Thailand}
EC}Acrylic fibres
Polyester staple
fibre
Nylon cord fabric
Acrylic fibre07.01.98
30.07.98
25.01.99
26.02.99
{26.03.9917.11.98
-
27.09.99
05.10.9922.01.99
16.07.99
21.01.00
22.02.00G/L/459
Page 192
Date of
Initiating Members Members Affected Product Description
InitiationProvisional
MeasuresDefinitive Measures
India (cont'd) Hungary}
Turkey}{28.07.99
{26.03.9913.10.99
13.10.99No final
24.03.00
Israel Mexico}
United States}Denim 02.02.98 - 21.03.99
(No final)
Mexico Korea
Peru}
Spain}Turkey}Textile polyester
filament
Acrylic fibre21.12.99
19.04.0003.10.00
South Africa Hong Kong, China}
India}Korea}Turkey}
Malawi}
Pakistan}Blankets
Bedlinen08.04.98
17.12.9918.12.98
10.11.0018.06.99
Trinidad and
TobagoIndia Polypropylene rope 11.05.99 22.02.00
Turkey Korea
India}
Korea}Thailand}
Indonesia}
Korea}Polyester yarn (mm
staple fibre)
Polyester textured
yarn
Polyester synthetic
staple fibre27.11.98
04.03.99
04.03.99- 30.11.99
27.06.00
13.03.00
United States Korea Certain polyester
staple fibre29.04.99 08.11.99 25.05.00
*Source:  WTO Database.
569. The TMB observed that it could not identify those specific concerns which, according the
United States, had been raised by that Member, presumably in relation to programmes and/or actions
affecting textile and clothing products from the reports adopted by the Committee on Subsidies andCountervailing Measures.
570. The TMB observed that the right of any Member to initiate anti-dumping proceedings and to
take the necessary actions as a result of such investigation was not being contested.  In their
comments, the ITCB members also "recognize the righ t to antidumping-actions".  Also, as reflected in
Table 15, a number of WTO Members applied such measures in the recent past.  At the same time, the
TMB noted the concerns of the ITCB members that the targeting of restrained products had had the
effect of causing double jeopardy to the exporting countries concerned and of impairing their rights toutilize access under the ATC.  In the view of the TMB, protracted or repeated investigations, even if
they do not result in the imposition of provisional or final anti-dumping duties, can cause serious
uncertainties to the exporters of the products in question.  Keeping in mind the concerns, as above, the
Members concerned should act with extreme care when having recourse to anti-dumping proceedings
and also in deciding to take actions as a result of such investigations.
5. Implementation of the Provisions of Article 7.1(c)
571. The TMB recalled that in the view of the ITCB members, there had been several instances of
singling out the textiles sector when taking measures for general trade policy reasons and, therefore,
these actions violated the principle laid down in Article 7.1(c). In this regard the following cases were
cited by the ITCB members:G/L/459
Page 193
"(i) The EU's declared policy to 'keep the possibility of using existing quotas as a
bargaining chip to obtain better market access in third [restrained] countries'.
(ii) The US action to defer the integration of so-called most sensitive products
until the end of the transition period.
(iii) US changes in its rules of origin involving only textile and clothing products." 194
572. In reflecting on these comments, the TMB recalled that Article 7.1(c) spoke of "[avoidance
of] discrimination against imports in the textiles and clothing sector when taking measures for general
trade policy reasons".  The TMB is of the view that  a typical example of violation of the provisions of
Article 7.1(c) would be if a Member were to introduce restrictive measures for general trade policy
reasons (for example pursuant to Articles XII or XVIII of GATT 1994 for balance-of-paymentconsiderations) which would only or mainly affect textile and clothing items, while other products
would be excluded from the scope of application.  While it is evident that ITCB members have
concerns with respect to the substantive aspects of each of the issues listed above, the TMB
considered that, in particular, the first two matt ers raised would hardly amount to a discriminatory
singling out of ATC products for general trade policy reasons.  In any case, all the three issuesmentioned by ITCB members are addressed by the TMB in the relevant chapters of the present report.
X. IMPLEMENTATION OF PROVISIONS IN THE ATC RELATED TO SPECIAL
INTERESTS OR PARTICULAR SITUATIONS OF CERTAIN WTO MEMBERS
A. 
LEAST -DEVELOPED COUNTRY MEMBERS
573. The provisions of the ATC explicitly mentioning the least-developed country Members can
be summarized, as follows:
• the third preambular paragraph recalls that "it was agreed that special treatment
should be accorded to least-developed country Members";
• a footnote to Article 1.2 specifies that to the extent possible, exports from
least-developed country Members may also benefit from this provision.  (According
to Article 1.2, the provisions of Article 2.18 (improved access for small suppliers)
and 6.6(b) (differential and more favourable treatment in the fixing of the economic
terms of transitional safeguard measures taken pursuant to Article 6) shall be used in
such a manner as to permit meaningful increases in access possibilities for small
suppliers and the development of commercially significant trading opportunities fornew entrants in the field of textiles and clothing trade);
• Article 6.6(a) provides that in the application of the transitional safeguard,
least-developed country Members shall be accorded treatment significantly morefavourable than that provided to the othe r groups of Members referred to in the same
Article, preferably in all its elements, but at least, on overall terms.
574. As to the implementation of the provisions detailed in paragraph 573, the following
observations can be made:
                                                     
194 See paragraph 541.G/L/459
Page 194
1. Articles 6.6(a) and 6.6(b)
575. Since no safeguard action has been taken by any Member on imports from any least-
developed country Member during the period under review, this paragraph, therefore, has not applied.
2. Article 2.18
576. To the extent that least-developed country Members are concerned by the implementation of
this provision, the TMB has noted that only Canada and the United States had notified restrictionsunder Article 2.1 vis-à-vis  least-developed country Members, as follows:
• Canada notified restrictions on imports from Bangladesh; Lesotho and Myanmar.
Improvement in access in the sense of Article 2.18 was provided with respect to
exports from Lesotho and Myanmar through the advancement by one stage, both
during Stages 1 and 2, of the growth rates set out in Articles 2.13 and 2.14(a);
• the United States notified restrictions on imports from Bangladesh; Haiti and
Myanmar.  Improvement in access in the sense of Article 2.18 was provided withrespect to exports from Haiti through the advancement by one stage, both during
Stages 1 and 2, of the growth rates set out in Articles 2.13 and 2.14(a).
195
577. In reply to the TMB's request for information and comments made in the context of the
preparation of the present report, the ITCB members stated, inter alia , that "Article 1.2 provided for
implementation of the growth-on-growth provision of  Article 2 in such a way as to permit meaningful
increases in access possibilities for small suppliers.  It also provided that the same treatment be
extended to least developed Members.  The US and Canada failed to implement this provision
consistently with its object and purpose. … The report [of the TMB] should also emphasise that, with
respect to least developed country Members, they fa iled to give any meaning to the provision".  The
ITCB members also "wish[ed] to point out that the TMB also seemed to overlook the importance offull and faithful application of the principle em bodied in this provision in its review of the
implementation of Article 2".
578. Canada, in its reply to the TMB's request for information and comments, stated, inter alia ,
that "in compliance with the requirement to advanc e the growth rate for small suppliers as stipulated
by ATC Article 2.18, Canada increased the growth rate for these exporters by 25 per cent on1 January 1995 and again by 27 per cent on  1 January 1998.  As a result, the annual growth rates on
restraints remaining for most small suppliers and least developed countries now exceed 9 per cent and
will increase to over 12.0 per cent on 1 January  2002 as a result of the 27 per cent increase in growth
rates at the start of the third stage required by the ATC.  At the same time, at the onset of the ATC,
Canada decided to expand the small suppliers provision to cover more exporters by applyingArticle 2.18 to the exporters who qualified in either 1991 or 1994, thereby taking into account
exporters who entered the Canadian market after 1991 and before 1995.  This allowed six more
suppliers to benefit from the advancement of the growth rate provision.  In addition, 17 small
suppliers and least developed counties benefited directly when Canada increased unilaterally its
restraint level on winter outerwear by 10 per cent on 1 January 1998.  Small suppliers and least
developed countries have also benefited from the removal of quantitative restraints into the Canadian
market.  Ten small suppliers and least developed countries benefited in the case of the elimination ofrestraints on tailor collared shirts on 1 July  1997 (Bangladesh, Bulgaria, Cuba (its only restraint),
Macau, Mauritius, Myanmar, Poland, South Africa, Sri Lanka and Swaziland), while 9 of these
Members benefited from the removal of various apparel items from restraints on 1 January 1998
under ATC Article 2.15 (Bangladesh, Bulgaria, Hungary, Macau, Myanmar, Poland, South Africa,
Sri Lanka and Swaziland).  In the latter case, Canada provided further market opportunities for these
                                                     
195 See paragraphs 285, 286 and 290.G/L/459
Page 195
Members by not reducing the restraint levels on the products remaining under restraint in the affected
categories.  Thirteen small suppliers and least developed countries will also benefit directly as a result
of the elimination of restraints and the removal of products from restraint on 1 January 2002 as a
result of the third stage of integration.  As in the earlier case, Canada will not be adjusting the restraint
levels where restraints are partially liberalized, further expanding market opportunities for the affected
Members".
579. The European Community, in its reply to the TMB's request for information and comments,
stated, that "in so far as least-developed country Members are concerned, the European Community
does not maintain any restrictions on products covered by the ATC.  In addition, whether as a result of
the Lomé Convention or the General System of Preferences (GSP), most imports to the Community
from LLDCs benefit from zero duty provisions concerning tariffs. This includes large garment
suppliers such as Bangladesh, who became in 2000 the EU's seventh supplier of textiles and clothing
products".
580. Japan, in its reply to the TMB's request for information and comments, stated that "in
accordance with the commitment of the Uruguay Round negotiation, Japan is implementing tariff
reductions on textile and clothing products in ten years, from Fiscal Year (FY) 1995 to FY 2004
(average rate of tariff will be reduced from 11.5 per cent in FY 1994 to 7.8 per cent in FY 2004).
About 340 items of the textile and clothing products,  which have formerly been exemptions to GSP
system, are duty free and quota free for LDCs.  By this measure, all the textile and clothing products
from LDCs are duty free and quota free from 1 April 2001.  All 48 LDCs are able to benefit from this
system, while so far the coverage was 42 LDCs".
B. SMALL SUPPLIERS AND NEW ENTRANTS IN THE FIELD OF TEXTILES AND CLOTHING TRADE
581. Article 2.18 of the ATC is primarily intended to provide improvement in access to exports of
a specific group of countries, as defined in the Article itself (i.e. Members whose restrictions represent
1.2 per cent or less of the total volume of the restrictions applied by an importing Member as of
31 December 1991 and notified under Article 2).196
582. Article 6.6(b) provides that, if a safeguard measure is taken on imports from Members whose
total volume of textile and clothing exports is small in comparison with the total volume of exports ofother Members and who account for only a small percentage of total imports of that product into the
importing Member, differential and more favourable tr eatment shall be accorded in fixing the level of
the restraint, its growth rate and the applicable flexibility provisions.  The Members corresponding to
this definition are not necessarily the same as the Members envisaged in Article 2.18.  The TMB
received no information as to whether or not the Members with respect to which the United States,Colombia and Argentina had introduced restrictions under Article 6 fell within the definition in
Article 6.6(b), and whether, consequently, the provisions of Article 6.6(b) had been taken into
account.  It would appear, however, that during St age 2 the measure taken by the United States under
Article 6 did not affect a Member defined in Article 6.6(b), and that this seemed also to be the case
with respect to the measures taken by Argentina and Colombia.
C. 
SPECIAL TREATMENT AFFORDED TO MEMBERS WHICH HAVE NOT ACCEPTED THE MULTIFIBRE
ARRANGEMENT (MFA) EXTENSION PROTOCOL SINCE 1986
583. Article 1.3 states that "Members shall have due regard to the situation of those Members
which have not accepted the Protocols extending ... the MFA since 1986 and, to the extent possible,
shall afford them special treatment in applying the pr ovisions of this Agreement".  As it had been the
case for its first comprehensive report, the TMB received no information on the extent to which
recourse was made to this provision of the ATC.  It can be noted, however, that consultations wererequested, pursuant to Article 6.7, in two cases against imports of Members falling under Article 1.3,
                                                     
196 For the implementation of Article 2.18, see paragraphs 283  to 295 .G/L/459
Page 196
i.e. on imports of denim fabric into Colombia from both Chile and Venezuela, but that in both cases
no safeguard measure was introduced.
D. COTTON -PRODUCING EXPORTING MEMBERS
584. Article 1.4 provides that "the particular interests of the cotton-producing exporting Members
should, in consultation with them, be reflected in the implementation of the provisions of this
Agreement".   In its comprehensive report on the implementation of the ATC during its first stage theTMB had observed that on the basis of the information and statements provided by some Members,
and following a discussion that had taken place in the Council for Trade in Goods on issues related to
the implementation of the ATC "it appears to the TMB that Members have different perceptions on
how the particular interests of the cotton-producing exporting Members should be - and were -
reflected in the implementation of the provisions of the ATC. The TMB notes in this respect that the
Members maintaining restrictions under Article 2 had stated that they were prepared to have
consultations on this matter with the Members concerned. The TMB encourages interested Membersto enter into consultations with a view to clarifying the issues related to the implementation of
Article 1.4. The TMB also recalls in this regard that, should the need arise, the provisions of
Article 8.4 are available for this purpose".
197
585. In their reply to the TMB's request for information and notification made in the context of the
preparation of the present report, the ITCB member s stated that "no specific information has been
notified by the restraining Members as to the manner in which this principle might have been
reflected in their implementation; in, for example, the choice of products for integration or invocation
of safeguard actions.  Given the fact that cotton products have long been targeted for quota
restrictions, the report should bring out that the application of Article 1.4 has been altogether
ignored".
586. Canada, in its reply to the TMB's request for information and comments, stated that "Canada
held consultations with exporting countries, including cotton-producing exporting countries, during
the period immediately preceding the start of the AT C and, as a result of these consultations, made a
number of improvements to Canada's restraints to accommodate the cotton-producing exporting
Members' requests.  Since these consultations, no cotton-producing exporting Member hasapproached Canada with specific concerns of access for cotton products.  As a general comment, the
structure of Canada's apparel categories does not differentiate between products according to fibre
type.  Cotton-producing exporting Members have benefited directly from the removal of restraints on
apparel products with high cotton-content, including tailor-collared shirts in 1997 and various
women's, girls' and children's clothing items (e.g., blouses and shirts) in 1998.  These exporters willfurther benefit from the elimination of restraints on cotton products under Canada's third stage of
integration".
587. The European Community, in its reply to the TMB's request for information and comments,
stated that "as to the cotton-producing exporting Members, the EC has consulted such members at
earlier stages of the ATC's integration process and afforded full scope for consultation prior to
establishing its third stage of integration, by specifically offering consultations with all exporting
WTO Members against which it maintained restrictions."
588. The United States, in its reply to the TMB's request for information and comments, stated that
"the United States consulted with cotton producing countries before the entry into force of the ATC
and reached agreements that were done with the provisions of Article 1.4 in mind.  We have
subsequently engaged in consultations with cotton producing countries to resolve issues raised by
them.  These consultations were also conducted with an eye to Article 1.4 and have been consideredsuccessful by all participants".
                                                     
197 See G/L/179, paragraphs 313 to 316.G/L/459
Page 197
E. WOOL -PRODUCING EXPORTING MEMBERS
589. The only explicit provision in the ATC referring to wool-producing developing country
Members is Article 6.6(c), which provides that "with respect to wool products from wool-producing
developing country Members whose economy and textiles and clothing trade are dependent on the
wool sector, whose total textile and clothing export s consist almost exclusively of wool products, and
whose volume of textiles and clothing trade is comparatively small in the markets of the importingMembers, special consideration shall be given to th e export needs of such Members when considering
quota levels, growth rates and flexibility".  No safeguard action was taken under Article 6 during
Stage 2, as had been the case during Stage 1, affect ing exports of wool products.  This provision has,
therefore, not been applied.
F. 
MORE FAVOURABLE TREATMENT TO BE ACCORDED TO RE -IMPORTS IN APPLYING THE
TRANSITIONAL SAFEGUARD MECHANISM
590. Article 6.6(d) states that "more favourable treatment shall be accorded to re-imports by a
Member of textile and clothing products which that Member has exported to another Member for
processing and subsequent reimportation, as defined by the laws and practices of the importing
Member, and subject to satisfactory control and certification procedures, when these products are
imported from a Member for which this type of trade represents a significant proportion of its total
exports of textiles and clothing".  Contrary to what had been the case during Stage 1198, none of the
restraints introduced pursuant to the provisions of Article 6 during Stage 2 provided more favourable
treatment to the products envisaged in paragraph 6.6(d), since this type of trade did not represent a
significant proportion of the total exports of the Members affected.  This provision has, therefore, not
been applied with respect to the transitional safeguard measures taken during Stage 2.
G. TREATMENT ACCORDED TO DEVELOPING COUNTRY MEMBERS
591. The ATC contains a specific provision granting special treatment to imports of certain
categories of products imported from developing  country Members.  In addition, some other
provisions of the ATC can be applied in such a way as to provide favourable treatment, inter alia , to
imports from such Members.
1. Special Provision in Favour of Developing Country Members
592. Paragraph 3(a) of the Annex to the ATC provides that actions under the transitional safeguard
provisions in Article 6 of the ATC shall not apply to developing country Members' exports of
handloom fabrics of the cottage industry, or hand-made cottage industry products made of such
handloom fabrics, or traditional folklore handicraft textile and clothing products, provided that such
products are properly certified under arrangements established between the Members concerned.Consistent with this provision, no safeguard action under Article 6 was introduced on such products.
2. Other Provisions Which Could be Applied in Such a Way as to Provide Favourable
Treatment, inter alia , to Developing Country Members
593. Some of the provisions of the ATC provide favourable treatment to a  particular category of
Members.  Apart from the provisions related explicitly to the least-developed country Members
(i.e the footnote to Article 1.2 and Article 6.6(a)), Members qualifying for the status of small suppliers
and new entrants (Article 2.18) were mostly developing countries/territories.
594. In its first comprehensive report, adopted pursuant to Article 8.11, the TMB had reiterated
that "in addition to the provisions specifically designed to provide favourable treatment to exports of
textile and clothing products from developing coun try and/or least-developed country Members, and
                                                     
198 See G/L/179, paragraphs 319 and 320.G/L/459
Page 198
in addition to the Articles already mentioned in this  Chapter, there are several other provisions in the
ATC which, although not specifically applicable only to such Members, could be applied in such a
way as to provide favourable treatment, or to be beneficial, inter alia , to them.  Such provisions
include, among others, those related to the integration process (Articles 2.6, 2.7. 2.8 and 2.10),
provisions regarding growth rates (Articles 2.13 and 2.14), elimination of quantitative restrictions
(Article 2.15), phasing out of non-MFA restrictions (Article 3.2), changes (i.e. reductions) in existingrestrictions (Article 3.3), improved access to markets and the application of policies relating to fair
and equitable trading conditions (Article 7.1)".
199
H. CONCLUSIONS ADOPTED BY THE CTG IN FEBRUARY 1998 IN ITS FIRST MAJOR REVIEW
595. The conclusions of the major review of the implementation of the ATC in the first stage of the
implementation process, as adopted by the CTG, contain, inter alia , the following200:
1. Least-Developed Country Members
"48. With respect to the treatment of the least-developed country Members, some
Members pointed out that certain least-developed countries had benefited from the provisions
of Article 2.18 while one Member had not.  This was discriminatory as between least-
developed countries and inconsistent with the objectives of the ATC.  The Members stressed
the importance of taking into account the special concerns of the least-developed Members in
order to ensure improved market access for their products.
49. One Member maintaining restraints indicated that it maintained no restrictions in
respect of least-developed countries, the exports of which normally benefited from a zero
duty rate under the GSP or other preferential arrangements.  With respect to two other
Members maintaining restraints, they indicated that they took this obligation seriously and
had implemented it.  In particular, they had prov ided considerably higher growth rates for the
least-developed Member referred to in paragraph 48 above. In addition one Member had
recently removed the restraints on one of the most important export categories for the one
least-developed Member that did not qualify under the specific provisions of Article 2.18."
2. Small Suppliers and New Entrants in the Field of Textiles and Clothing Trade
The relevant portion of the conclusions adopted by the CTG in February 1998 in its first major review
are reproduced in paragraph 292.
3. Cotton-Producing Exporting Members
"52. Some Members made reference to Articl e 1.4 of the ATC which states that the
particular interests of cotton-producing exporting Members should, in consultation with them,
be reflected in the implementation of the provisions of the Agreement.  These Members noted
that the Members maintaining restraints ha d not allowed special concessions to cotton-
producing, exporting countries which would have been in conformity with the letter and spirit
of the ATC.
53. In response, with respect to the case of cotton-producing Members, two Members
maintaining restraints considered that they we re in full compliance with the ATC having held
consultations with these exporters.  In the case of the third Member maintaining restraints, it
also considered that it had acted fully in compliance with this provision.  No-one had
approached it on the matter, possibly because only a few of its restraints were based on fibre
                                                     
199 See G/L/179, paragraph 323.
200 The paragraph numbers refer to G/L/224.G/L/459
Page 199
content;  nevertheless, it remained ready to enter consultations if any other Member so
wished."
4. Conclusion of the Major Review by the CTG in February 1998
"55. The Council recalled the provisions of the ATC in favour of small suppliers, new
entrants, least-developed country Members and cotton-producing exporting Members, andreiterated the importance of the full implementation of these provisions."
I. 
FURTHER COMMENTS AND OBSERVATIONS BY THE TMB
596. With respect to the special treatment to be accorded to least-developed country Members,
ITCB members stated that "the US and Canada failed to implement this provision consistently with its
object and purpose".  In this regard the TMB observes that the provisions of Article 2.18 were applied
by Canada to restrictions on imports from Lesotho and Myanmar, but not to those from Bangladesh,and by the United States to restrictions on imports from Haiti, but not to those from Bangladesh and
Myanmar.  The TMB notes that, according to Canada, as a result of the application of the provisions
of Article 2.18, inter alia , the annual growth rates on the restraints remaining for most small suppliers
and least developed countries now exceed 9 per  cent and will increase to over 12 per cent on
1 January 2002, and that the least-developed countries benefited also from the various liberalizingmeasures taken by Canada, as noted in paragraph 578 above.  The TMB also notes that the European
Community does not maintain any restrictions on the imports of products covered by the ATC from
the least-developed country Members, and that no recourse to the provisions of Article 6 had been
made by a WTO Member on the imports from least-developed country Members.  It is also noted that
the reply of the United States to the TMB's request for information and comments did not coveraspects related to the treatment provided to least-developed country Members.
597. The TMB observes that footnote 1 to Article 1.2 states that least-developed country Members
may benefit, to the extent possible, from the provision of that Article by using the provisions of
Article 2.18 and 6.6(b) in order to permit meaningful increases in access possibilities and the
development of commercially significant trading opportunities.  While noting that no Article 6 actionhas been taken on imports from any least-developed country Member, the TMB reiterates the
particular importance of a full and faithful implementation of the provisions of the ATC in favour of
least-developed country Members, and invites Members to examine the possibilities for providing,
whenever possible, substantially increased market access opportunities for the textile and clothing
products of the least-developed country Members.  Measures that may be taken to this end would alsostrengthen the confidence in the multilateral trading system as embodied in the WTO Agreement.
598. As regards the particular interests of the cotton-producing exporting Members, the TMB notes
the statement by ITCB members that "no specific information has been notified by the restraining
Members as to the manner in which this principle mi ght have been reflected in their implementation".
The TMB also notes the statement by Canada that consultations with, inter alia , cotton producing
exporting countries were held immediately prior to the start of the ATC and that, as a result, a number
of improvements had been made to Canada's restraints in order to accommodate the cotton producingexporting Members' requests, and that since then no such Member had approached Canada with
specific concerns of access for cotton products.  The TMB further notes the EC's statement that it had
consulted such Members at earlier stages of the ATC's integration process and afforded full scope for
consultation prior to establishing its third stage of integration, by specifically offering consultations
with all exporting WTO Members against which it maintained restrictions.  The TMB notes similarlythe US' statement that it had consulted with cotton producing countries before the entry into force of
the ATC and reached agreements that were done with the provisions of Article 1.4 in mind, that the
United States had subsequently engaged in consultations with cotton producing countries to resolve
issues raised by them and that these consultations, which had been considered successful by all
participants, were also conducted having Article 1.4 in mind.G/L/459
Page 200
599. Furthermore, the TMB observes that in its first comprehensive report, it had, inter alia ,
encouraged interested Members to enter into consulta tions with a view to clarifying the issues related
to the implementation of Article 1.4.  In this regard, the TMB recalled that, should the need arise, the
provisions of Article 8.4 are available for this purpose.  In this respect the TMB notes that no WTO
Member referred to it any specific issue with respec t to the implementation of Article 1.4, and that it
is not aware that the provisions of Article 8.4 have been used by any cotton-producing exportingMembers or by any restraining Member for this purpose.  In these circumstances, the TMB reiterates
its encouragement to interested Members to enter in to consultations with a view to clarifying the
issues related to the implementation of Article 1.4 and recalls in this regard that, should the need arise,
the provisions of Article 8.4 are available for this purpose.
600. In addition, Members should consider the possibility that in notifying measures taken under
different provisions of the ATC it should be also indicated, if possible and applicable, how the
provisions of Article 1.4 have been reflected in the implementation of the measures in question.
XI. OTHER ISSUES
601. This Chapter addresses the following issues:
• continuous autonomous industrial adjustment and increased competition in Members'
markets in the sense of Article 1.5;
• regional arrangements and initiatives;
• elimination of restrictions on imports from certain non-WTO Members, while
keeping them in place for WTO Members;
• accession of new Members.
A. A
UTONOMOUS INDUSTRIAL ADJUSTMENT AND INCREASED COMPETITION IN MEMBERS '
MARKETS
602. Article 1.5 states that "[i]n order to facilitate the integration of the textiles and clothing sector
into GATT 1994, Members should allow for cont inuous autonomous industrial adjustment and
increased competition in their markets".  While being aware that the ATC deals with this matter in the
context of facilitating integration and that, therefore, autonomous industrial adjustment and the stateof competition in Members' markets could also have been taken up in the Chapter of this report
dealing with integration, the TMB considered that if this context were to be kept in mind, it could be
equally appropriate to devote a separate section to this important subject-matter under another Chapter
of the report.
201
603. The TMB recalled that it had already stated the following in its first comprehensive report:
"One preoccupation of the TMB is how the implementation of the integration provisions of
the ATC has ensured the full and faithful implementation of the ATC within the time-frames
established therein.  In the view of the TMB, one of the conditions of such an implementation
is a steady progress in terms of structural adjustment and, also, as a result of this, an increased
competition in the Members' markets.  This inte rrelation is recognized by Article 1.5.  […] In
its request for information addressed to WTO Members the TMB sought information,
                                                     
201 One main reason for this was that Chapter II of the report, dealing with the integration process, puts
the primary focus on the description, analysis and assessments of the integration programmes already
implemented (during Stages 1 and 2) or notified  (for Stage 3).G/L/459
Page 201
inter alia , on the implementation of Article 1.5.  Only two Members [Colombia and the
European Community] provided replies to this specific issue.  Apart from the indications
[given by the two Members], the TMB does not have information or empirical evidence
regarding what has been the progress and accomplishment in terms of increasing the
competition and implementing autonomous industrial adjustment.  The TMB believes that it
would be useful to have a better appreciat ion of the progress and trends of autonomous
industrial adjustment, as foreseen in Article 1.5."202
604. In the conclusions of its first major review adopted by the CTG in February 1998, it is
reflected, inter alia , that in the Council's discussion of the integration process, "[an] area of concern to
[some] Members was the lack of information on the process of autonomous industrial adjustment
mentioned in Article 1.5 of the ATC in order to facilitate integration.  Such adjustment would be all
the more necessary with integration being effectively left to the last three years of the transition".  […]"With respect to autonomous industrial adjustment in terms of Article 1.5, another Member noted that
there had been substantial adjustment under the MFA and it was continuing at the present time.  Some
Members had provided information in this regard to the TMB, which was noted in its report."  […]
"The Council recalled that Members should allow for continuous autonomous industrial adjustment
and increased competition in their markets in order to facilitate the integration of the textiles andclothing sector into GATT 1994.  The Council noted that further information in this regard would
facilitate the review of progress."
203
605. Against this background and in the context of the preparation of the present comprehensive
report, the TMB invited Members to submit information, inter alia , in relation to developments in
allowing for continuous autonomous industrial adjustment and increased competition in theirmarkets.
204
1. Information and/or Comments Provided by WTO Members in Response to the TMB's
Request
606. Five Members provided information regardin g developments in allowing for continuous
autonomous industrial adjustment and increased competition in their markets and, in addition, theITCB members also offered comments in relation to this issue.  All these contributions are reproduced
in the paragraphs below.
(a) Canada
607. The communication received from Canada contained the following:
"The key elements of the Agreement on Textiles and Clothing (ATC) integration process are
the 10-year transition period, the three phases of integration during this transition period, and
the growth provisions for restraint levels.  Th ese negotiated provisions provide the framework
within the ATC for autonomous industrial adjust ment to further increased import competition
in the Canadian market.
The Canadian textile and apparel sectors have been undergoing continuous industrial
adjustment to increased import competition, including in restrained products, since the mid-1970s.  At that time, the Canadian textile and apparel market was essentially supplied by
domestic producers, who employed over 350,000 workers.  Today, the Canadian textile and
apparel sectors employ 148,000 workers (down from 179,000 workers in the late 1980s),
maintains less than 50 per cent of the domestic market and, in the case of primary textiles and
apparel, has shifted its focus increasingly to export markets.
                                                     
202 See G/L/179, paragraphs 74 to 77.
203 See G/L/224, paragraphs 10, 11 and 15.
204 G/TMB/24.G/L/459
Page 202
The total Canadian market for apparel has grown by an annual rate of 1.5 per cent since 1995
and now stands at an estimated $10.3 billion.  Canadian producers, however, have continued
to lose market share to imports since the start of the ATC, with imports increasing their
market share by an estimated 18 percentage points to 59 per cent from 1994 to 2000.
Total apparel imports have increased by 71 per cent from 1994 to 2000, from $2.8 billion to
$4.8 billion, with imports from developing countries rising by 79 per cent from $2.1 billion to
$3.8 billion, despite the fact that the domestic market increased by less than 10  per cent
during the same period.  Apparel imports from developed countries grew by 30 per cent
during the same period.  In 1994, imports from developing countries held an estimated
31 per cent of the Canadian market as compared to 10 per cent by imports from developed
country imports.  In 2000, an estimated 47 per cent of the Canadian market was captured byimports from developing countries, while imports from developed countries held a 12 per cent
market share.
The market access opportunities for developing countries exporting to the Canadian market
has been enhanced during the ATC transition period in a number of ways.  First, opportunitieswere enhanced by the removal of restraints, such as the elimination on 1 July 1997 of the
restraints on tailor-collared shirts and, under ATC Article 2.15, the removal from restraint on
1 January 1998 of a number of apparel items, such as various women's, girls' and children's
blouses and shirts, women's and girls' ense mbles, rainwear and baby outwear, without
adjusting the restraint levels on the remaining products.  Second, as a result of the ATCprovisions relating to growth rates and grow th-on-growth, the level of many of Canada's
restraints have increased faster than they would have otherwise under the MFA arrangements
(e.g. many of Canada's MFA growth rates were 6 per cent and as a result of the ATC,
increased by 57 per cent from 1995 to 2000 (70.9 per cent by 2001) as opposed to 42 per cent
without the ATC during the 1995-2000 period.  Third, on 1 January 1998, Canada increasedunilaterally the restraint level for winter outerwear (i.e., category 2) by 10 per cent, over and
above the increases specified in the ATC.
The Canadian apparel industry, on the other hand, has continued to lose market share since
1994.  The industry has experienced plant closures as producers consolidated their operationsand increasingly specialized their production.  Employment has shrunk to 93,152 workers,
down by 15.46 per cent since 1990.
While the Canadian apparel industry has traditionally not been export oriented, the Canadian
industry has also adjusted by shifting its production to export markets, particularly to the USA
but also to other markets such as Japan and the EU in areas such as men's and boys' apparel.
Canadian apparel exports have doubled since 1994, albeit  from a low base of $879 million.
At present, exports account for nearly 40 per cent of domestic production.
The total Canadian textiles market (yarns, fabrics and made-ups) reached over $10 billion in
2000.  As in the case of apparel, Canadian textile producers have had to adjust to increased
import competition.  There have been relatively few restraints in the Canadian textile sector,with the vast majority of yarns, fabrics and made-ups entering Canada unrestrained (based on
1990 import data).  Still, the textile industry has seen its share of the domestic market fall
from 59 per cent in 1994 to around 35 per cent in 2000, with imports doubling over a period
of time when the domestic market grew by less than 30 per cent.  The Canadian textiles
industry has responded by reducing costs, increasing investment in capital-intensiveproduction methods and shifting to export markets in specialized product areas such as
industrial and home furnishing textiles.G/L/459
Page 203
The decline in the number of primary textiles establishments that started in the early 1980s
continued, with a fall by 20 per cent since 1990.  The remaining primary textiles firms have
been relatively successful in in creasing their competitiveness, in part through exporting to the
USA and other foreign markets, in such capital intensive sectors as man-made yarns.  As a
result, employment, after falling by one-third during the 1980s from around 30,000 to 20,000,
grew by 13.02 per cent since 1994 to reach 21,284 in 2000.
The domestic textile products industry has seen approximately one in four establishments
disappear since 1990, a much higher rate than in the case of the primary textiles sector.  Its
largest sub-group, the carpet, mat and rug industry, has faced the disappearance of
approximately half of its establishments in the last decade.  Still, the textile products sector
has practically doubled its exports since 1994, with the result that employment went from
28,147 in 1994 to 33,383 in 2000."
(b) European Community
608. The communication received from the European Community contained the following
concerning industrial adjustment:
"The textiles and clothing sector continues to occupy a central position in the economy of the
European Community with around 2,100,000 employees.
Over recent years the sector has made efforts to increase competitiveness against a backdrop
of continuous market opening.  It has not been possible, however, to reverse the general
downward trend in production and employment.
In 1999 production in the EU clothing sector we nt down 10.1 per cent, while the textile sector
witnessed a 4.1 per cent reduction as compared to 1998.  This reduction was the continuation
of a steady downward trend in both sectors between 1995 and 1999, that was interrupted by a
brief production increase in the textile sector in 1997, only to be followed by a renewed slumpin 1998.
Of the 2.1 million people employed in textiles and clothing in 1999, about 1,159,300 worked
in the textile sector and 923,500 in the clothing sector.  In 1999 altogether some 92,000 jobs
were lost in the Community's textiles and clot hing industry, which amounted to a reduction of
4.2 per cent of the work force as compared to the previous year.  This fall in employment was
greater than the one witnessed in 1998 (46,000 jobs) and 1997 (27,000 jobs).  Employment in
the textile sector went down 3.3 per cent in 19 99, while employment in the clothing sector
decreased by 5.3 per cent.
The level of investment in the clothing sector fell by 13.4 per cent in 1999, as compared to
1998.  In the textile sector the reduction was 3.2 per cent.  Capacity utilisation was at80 per cent in the clothing sector and at 82 per cent in textiles.
Against this background the textiles and clothing sector has, nonetheless, improved its
competitivity at an international level in particular as a result of its specialisation in the high
added value end of the sector and an active exporting strategy.
A series of Community programmes assist structural adjustment.  Thus, the textiles and
clothing sector is in a position to take an advantage of a series of Community programmes
destined to favour autonomous adjustment such as reconversion and modernisation by way of
assistance from the structural funds in regions most affected by permanent adaptation in thesector.  The European social fund provides an important instrument to assist the
requalification or conversion of workers in all sectors affected by restructuring includingG/L/459
Page 204
textiles and clothing.  The textiles and clothing sector can also take advantage of programmes
concerning technological research and development and small and medium enterprises."
(c) Japan
609. The communication of Japan stated the following:
"The textile and clothing industry, which creates about 2 million employment, is one of the
key industries in Japan.  But in recent years, the situation surrounding the industry is facing
the difficulties caused by the contraction of economic growth rate, maturity of domestic
market and an ailing of Japanese domestic market.  Under the severe circumstances
mentioned above, the 'Vision of Japan's Textile Industry and Ideal Policies for the Industry'
was made public in December 1998.  The goal of the new textile policy is to promote the
reforms for the development of the Japanese textile and clothing industry.  To achieve this
goal, the Japanese government is making use of the general industrial policy measures, nottargeted specifically at the textile and clothi ng industry as it used to be.  Following the
principle, the Law for the Structural Improvement of the Textile Industry, which had been the
legal basis in supporting textile and clothing industry, was abolished in June 1999.  At the
same time, the Textile Industry Restructuring Agency, which had been operating various
measures based on the Law, was also abolished."
(d) Turkey
610. The information provided by Turkey was as follows:
"On the basis of sub-sectors of textiles, the number of companies is high only when the
production code 1723 (production of ropes, strings, twines and nets) is involved.  Similarly,manufacturing of clothing except those made of fur, preparation and spinning of textile fibers
and weaving of textiles are the sectors in which exist a lot of companies with intensive
competition.  In recent years the production of products with a high value added have
increased.  However considerable advancements st ill remains to be fulfilled in future, in the
areas of both the production based on fashion and trade mark in the ready-made garmentsector, and the production of industrial textiles.
Since there is no updated information available regarding the sectoral production structures
and competitivity indicators of the countries that are specialised in the production of textiles
and ready made clothing, it seems impossible for the time being from our country'sperspective, to make a comparison and an exact evaluation."
(e) United States
611. The communication of the United States included  the following with respect to industrial
adjustment:
"Since the WTO came into effect, US imports of textiles and apparel have increased by over
90 per cent (in volume):G/L/459
Page 205
U.S. Imports of Textiles and Apparel 
Under the WTO/ATC
16000180002000022000240002600028000300003200034000
1994 2000
US imports of textiles and apparel increased by 90.2 per cent overall since the WTO entered
into force, or by an average rate of 11.3 per cent each year (in square meters equivalent).  Invalue terms, imports of textiles and apparel increased absolutely by 79.4 per cent, or by an
average rate of 10.2 per cent each year since the WTO has entered into force.  Over the last
five years, even with quota arrangements in place, US imports of textiles and apparel grew at
a faster rate than US non-oil imports (60.7 per cent versus 59.5 per cent in absolute terms, or
9.95 per cent versus 9.79 per cent average annual growth).
The United States textile and apparel industries continued their adjustment efforts, in the face
of significantly deteriorating economic conditions in recent years.  Job losses have been
significant:  the industries have lost 534,000 jobs, which is equivalent to approximately
89,000 jobs per year since the WTO came into effect, or, in total, nearly one-third of the work
force, with a particular impact on the apparel sector.  Although textile industry profits have
been declining in recent years, the textile industry experienced its first quarterly loss in almostfive years (which was also the largest quarterly loss in more than twenty years, and will likely
contribute to the first annual loss in fifty years) in the third quarter of 2000.  Textile and
apparel plants have closed or announced closings at a rapid rate.  Since the beginning of 1998,
in excess of 150 plants have closed."
(f) Comments made by the ITCB members
612. The contribution received from the ITCB Members contained the following comments with
respect to this topic:
"Article 1.5 provided that in order to facilita te the integration process, Members should allow
for continuous autonomous industrial adjustment and increased competition in their markets.Based on available information, and taking into account the implementation of Articles 1 and
2 in particular, the TMB report should include an assessment of the extent to which regard has
been given to the observance of this principle by restraining Members who have so far
demonstrated little concrete efforts in the in tegration of commercially meaningful restrained
products before the end of the transitional period."
2. Additional Comments and Observations of the TMB
613. In considering the information and comments received, the TMB recalled that five Members
had provided relevant information in the context of the implementation of the provisions of
Article 1.5.  Since there had not been any standard format for submitting information, it was upon thediscretion of the Members concerned to decide on how to approach this issue, what kind of
information should be provided and also, which aspects of the broader notion of structural adjustment
and competition in the market should be highlighted.  As reflected in paragraphs  607 to 611 above,G/L/459
Page 206
some of the replies received were more detailed than others;  certain included aspects which were not
included in others;  some focused more on the internal adjustment efforts, while others paid, at least,
similar attention to bring out facts which were designed to demonstrate that competition had
significantly increased in their respective markets.  It appeared from the reply received from the ITCB
members that they considered Article 1.5 as applicable, in essence, by the restraining Members in
order to facilitate the integration of the textiles and clothing sector into GATT 1994, whereas someother Members may consider that this Article was of more general application.  This is also implied in
the fact that in addition to Canada, the European Community and the United States, two other
Members (Japan and Turkey) also provided information to the TMB regarding developments in this
area.
614. It would appear that the replies and informa tion provided by the three Members maintaining
restrictions under Article 2.1 contained some elements which were more or less common and were
included in each contribution such as:
• in particular, during the period of ATC implementation, imports have increased
significantly (Canada, as compared to the growth of the market for textiles andclothing;  US, as compared to all non-oil imports);
• employment has continuously decreased in the sector, and it would appear that this
could be attributed only in part to new investments made and more modern
technology applied;
• the closing of a number of textile and clothing plants as a result of problems
encountered in terms of efficiency and competitiveness combined with the effects of
increased competition resulting from imports;
• these trends notwithstanding, the textiles and clothing sector improved its
competitivity at an international level as a result of its specialization in the high added
value end of the sector and an active export strategy (European Community);  the
remaining primary textile firms have been relatively successful in increasing their
competitiveness, in part through exporting,  in capital intensive sectors (Canada) and
the clothing industry has also adjusted by shifting its production to export markets
(Canada), also having a favourable effect on employment (Canada).
615. It is interesting to note that neither of thes e communications made any reference to the trend
of increasing recourse to important offshore assembly operations, in particular to nearby countries,
which phenomenon in itself can be a manifestati on of ongoing adjustment and may have different
implications on different branches or production segments (for instance, to promote the textilesindustry as opposed to the clothing industry).  It is  equally noteworthy that, in reply to the request for
information formulated in very general terms, the information provided remained also at a general,
aggregate level and did not offer more insight into trends experienced by or affecting the different
branches of the textiles and clothing sector.
616. It would also appear that several other Members could also have reported some developments
in the area of structural adjustment and/or lifting certain barriers to potentially increased competition
in their markets.  For the sake of examples, one could refer to press reports according to which several
Members have worked out or are working on specific industry, production and marketing strategies to
prepare their respective industries for the period succeeding the ATC.
617. All in all, apart from the observations reflected in the previous paragraphs, the TMB does not
have sufficient information at its disposal to make a more thorough analysis and assessment on the
extent to which autonomous industrial adjustment and increased competition in Members' markets, inthe sense of Article 1.5, has been achieved, though it appeared from the information provided thatG/L/459
Page 207
increased competition seemed to have taken place in Canada, the European Community and the
United States.  As regards the reference to the integration programmes already implemented and to be
implemented on 1 January 2002205, the TMB recalls that developments relating to the integration
process are dealt with in details in other parts of the present report.
B. REGIONAL ARRANGEMENTS AND INITIATIVES
618. The ATC, being an agreement applied during a transition period with the final objective (and,
at the same time, irrevocable legal obligation) of integrating the textiles and clothing sector into the
rules and disciplines of GATT 1994, does not contain any provision regarding regional arrangements
and initiatives, since these are covered, to the extent applicable, by provisions of the WTO Agreement
and other Multilateral Trade Agreements.  However, against the background of some perceptions that
a lot of developments in textiles and clothing trade during the ATC implementation have been related
to regional arrangements and initiatives, the TMB felt that it was necessary to address this issue, to the
extent possible, while drawing up its comprehensive report.
619. Speaking of regional arrangements and initiatives, and in particular of their potential impact
on textile and clothing trade flows, the most obvious examples which come immediately to mind are
NAFTA, the EC-Turkey Customs Union Agreement, the Mediterranean Agreements or the Europe
Agreements concluded by the European Community.  All these agreements were referred to the WTO
under the provisions of Article XXIV of GATT 1994 and were or are being examined by the relevantWTO body(ies).  As to the possible impact of the implementation of these regional agreements on
trade in textiles and clothing, the lack of sufficiently detailed, appropriate statistical information and
the fact that in most instances statistics cannot and do not differentiate between trade effected on
preferential or non-preferential terms, seriousl y hamper the TMB's ability to conduct a thorough
examination and reach reliable conclusions.  Keeping in mind these limitations, on the basis of thepreliminary version of the background statistical info rmation with respect to trade in textiles and
clothing (made available to the TMB in April 2001)
206, the following points can be made:
1. NAFTA
(a) Trade in textiles
620. The share of the value of intra-exports (i.e. exports directed to NAFTA countries) shows a
continuously increasing trend within the total exports:  it increased from 42.3 per cent in 1990 to
61.7 per cent in 1998 and 68.9 per cent in 1999.
621. Regarding textile imports of the United States from the two other NAFTA countries, these
increased from Canada by 65 per cent (in value terms) from 1995 to 1999 and the share of Canada
within overall textile imports increased from 10.33 per cent in 1995 to 12.45 per cent in 1999.Imports of textiles from Mexico increased by 82 per cent from 1995 to the year 1999 and the share of
these imports within total imports increased from 7.02 per cent in 1995 to 9.38 per cent in 1999.  Both
in the years 1995 and 1999, of the WTO Members, Canada and Mexico were, respectively, the second
and the third major exporters of textiles to the US market.  Notwithstanding this, during the period
1995 to 1999 the European Community kept its rank as first supplier, though its share decreased from
22.77 per cent in 1995 to 18.18 per cent in 1999 (as opposed to the combined share of Canada and
Mexico which increased during the same period from 17.35 per cent to 21.83 per cent).  Overall, itwould appear that the "slice" of the market for textile imports held by the NAFTA partners of the
United States amounted to slightly more than one fift h of the total imports.  It would also appear that
                                                     
205 See paragraph 612.
206 This document, prepared by the WTO Secretariat, at the TMB's request, contains information for the
period 1995 to 1999.  The updated version, including data for the year 2000, will be issued by the Secretariat forthe information of WTO Members, as a background docum ent to the second major review to be conducted by
the CTG.G/L/459
Page 208
the combined gain in the market share of some 4.5 percentage points of Canada and Mexico, by and
large corresponded to the loss of the respective share by the European Community during the same
period, while imports from Asia largely held (even slightly increased) their market share
(48.74 per cent in 1995;  50.01 per cent in 1999).
622. In Canada's textile imports, the United States preserved and strengthened its dominant role as
main supplier, increasing its share in imports from 61.70 per cent in 1995 to 65.32 per cent in 1999.While imports from Mexico increased by 56.6 per cent during the same period, its share remained
very modest (1.58 per cent in 1995 and 1.98 per cent in 1999).  Essentially, due to the importance of
imports from the United States, three fourths of the Canadian market for imports was held by
developed countries.
(b) Trade in clothing
623. The share of the value of "intra-exports" within NAFTA also indicates an important increase:
while such exports represented 42.7 per cent of total exports in 1990, this share increased to67.0 per cent and 70.2 per cent, respectively, in 1998 and 1999.
624. An overview of trends and developments of  US imports of clothing products reveals,
inter alia , that:
• total imports increased significantly during the period 1995 to 1999 (by
42.1 per cent);
• slightly more than 90 per cent of these imports originated in developing economies;
• there appears to be an undeniable change in the dynamics in the sense that the rate of
growth of imports from Asia was significantly lower in the period 1995 to 1999 than
that from Latin America;
• Mexico has become the number one supplier to the US market, while Canada
represents no more than 3 per cent of total US imports;
• data also indicate that imports from some countries in the Caribbean region increased
to a significant extent
207;
• during the period examined, the share of  the market gained by Latin American
exporters corresponded more or less to the loss experienced by Asian exporters
(roughly 8 percentage points).
625. As far as Canadian imports are concerned, it can be established that:
• total imports increased by 22 per cent from 1995 to 1999;
• Asia maintained its share in the market (64,58 per cent in 1995;  65.94 per cent in
1999) and though imports from Latin America increased by 116.2 per cent, the share
of these imports still remained relatively modest (3.68 per cent in 1995;  6.52 per centin 1998);
• while imports from Mexico increased by the impressive rate of 286.5 per cent;
Mexico's share amounted only to 3.36 per cent in 1999 (from 1.06 per cent in 1995);
                                                     
207 See also paragraph 635.G/L/459
Page 209
• the share of imports from developing economies increased (from 69.98 per cent to
74.62 per cent);
• the increase of the market share of the developing economies was achieved at the
expense of commensurate loss of some share by the United States (from 18.42
per cent to 17.17 per cent), Western Europe (from 10.23 per cent to 7.80 per cent) and
transition economies (from 1.45 per cent to 1.01 per cent).
626. The TMB reiterates, however, that the trends and developments described in paragraphs  620
to 625 should be seen against the background of sign ificant overall growth of imports in the US and
Canadian market and also that, on the basis of available statistical information, it cannot be
established what was the share of imports from NAFTA countries that had been effected on a
preferential basis ("NAFTA treatment").
2. Agreements Concluded by the European Community
(a) Trade in textiles
627. While the value of total imports of textiles by the European Community showed a somewhat
fluctuating trend (slight decrease in 1996, followed by an increase of 5.63 per cent in 1997 and by a
further increase of 6.07 per cent in 1998, imports decreased by 7.52 per cent in 1999), in comparing
imports effected in 1995 to those of 1999 (i.e. US$ 17,939 million), a modest increase of the
magnitude of 1.92 per cent can be established.  During the same period, imports  from developingeconomies increased by 2.78 per cent, slightly increasing their share in total imports (from
62.26 per cent in 1995 to 63.15 per cent in 1999);  and the same applies to the major source of imports
in terms of regions, namely Asia (the value of its imports increased by 4.75 per cent and its share of
imports went from 44.98 per cent in 1995 to 46.50 per cent in 1999).  During the same period, the
share of imports from Western Europe registered a slight decrease from 20.58 per cent in 1995 to19.52 per cent in 1999, while the share of imports from the United States also showed a slight
decrease from 8.94 per cent in 1995 to 8.58 per cent in 1999.  On the other hand the share of imports
from transition economies increased from 10.42 per cent in 1995 to 13.09 per cent in 1999.
628. It can be observed that during the same period, imports from Turkey, with which the
European Community had entered into a Customs Union Agreement notified under Article XXIV ofGATT 1994, increased by 43.06 per cent, resulting in an increase of Turkey's share in total imports
(7.60 per cent in 1995;  10.73 per cent in 1999) and also making Turkey the number one exporter
among WTO Members to the EC market.
629. Imports from those Central and Eastern European countries that concluded, at different points
in time, so-called Europe Agreements with the European Community (equally notified underArticle XXIV) increased by 21.25 per cent from 1995 to 1999, reaching a share of 12.73 per cent of
total imports in 1999.
630. Since developing economies taken altogether, and among them Asia, preserved their share in
total imports, the increases indicated in paragraphs 628 and 629 were mainly compensated by some
loss of the share of imports from developed countries and also from some developing regions
(Middle East, Africa and Latin America).
(b) Trade in clothing
631. The value of total imports of clothing products increased by 16.9 per cent from 1995 to 1999,
to US$ 50,166 million.  The value of imports from developing countries increased by 16.75 per cent
from 1995 to 1999, while its share of imports remained stable (79.62 per cent in 1995;  79.51 per cent
in 1999);  with small changes affecting different regions (Asia:  an increase of 1.28 percentage pointsG/L/459
Page 210
to 50.88 per cent;  Africa:  a decrease of 0.28 percentage points to 12.93 per cent;  Middle East:  a
decrease of 0.42 percentage points to 1.58 per cent, and Latin America:  a decrease of 0.13 percentage
points to 0.64 per cent).
632. Imports of clothing from Turkey followed the general trend.  They increased by
16.94 per cent from 1995 to 1999.  The share of Turkey in total imports remained constant
(10.92 per cent) and Turkey was the number one exporter of clothing to the EC market among WTOMembers (second exporter overall), both in 1995 and 1999.
633. Imports from the Central and Eastern European countries referred to in paragraph 629,
increased by 20.62 per cent during the period considered.  As a result, their share in total imports of
the European Community slightly increased (to 16.72 per cent in 1999).
634. As in the case of NAFTA, the TMB is of the view that apart from describing certain
developments, as reflected in paragraphs 627 to 633, no reliable conclusions can be drawn on the
effect of regional arrangements and initiatives on trade flows of the European Community either.There are multiple reasons for this, such as:
• though the EC-Turkey Customs Union Agreement entered into force only in 1996,
Turkey had already been the first supplier among WTO Members of clothing
products to the European Community in 1995 and its share within total imports did
not increase during the period considered;
• the European Community also concluded agreements with reference to Article XXIV
with several Mediterranean countries, whose trade flows are not mentioned in thepreceding paragraphs;
• it would appear that outward processing trade played an important role in the EC's
trade in textiles and clothing, in particular with Mediterranean countries and countries
in the Central and Eastern European region.  This can be mainly explained by thegeographical proximity and the well-established cooperation among economic
operators, while the Article XXIV Agreements were concluded only subsequently
and most of the developments in trade flows can hardly be attributed to the
implementation and effect of these agreements;
• in the context of the above, it is also noteworthy, however, that the European
Community also has well-established outward processing arrangements also with anumber of other Members, not forming part of any regional arrangement with the
European Community (the Community notified under Article2.1 additional levels for
such types of imports with respect to India; Indonesia; Macau, China; Malaysia;
Pakistan; Philippines; Singapore; Sri Lanka and Thailand);
• in any case, an assessment of regional arrangements and initiatives would not be
complete without analysing trade effected with ACP countries under the Lomé
Convention, which the TMB is unable to do, due the lack of sufficient information
and of the necessary knowledge and underst anding of how the system of preferences
has operated.
3. US Trade Arrangements with Countries of the Caribbean Basin
635. As already indicated earlier
208, US clothing imports from so me countries of the Caribbean
region increased to a significant extent during the period 1995 to 1999.  In all likelihood, part of these
                                                     
208 See paragraph 624.G/L/459
Page 211
developments was attributable to the implementation of the CBI programme (Caribbean Basin
Initiative), which, inter alia , provided important market access opportunities under guaranteed access
levels (GALs) for apparel assembled in these countries using fabrics formed and cut in the
United States.  Since available statistical information does not identify the amount or share of trade
that took place under such special programmes and the amount of other ("ordinary") imports, the
TMB is not in a position to offer any evaluation of the effect of the implementation of the CBIprogramme.
636. The Trade and Development Act of 2000 adopted by the US Congress and which was
implemented as of 1 October 2000, appears to offer duty-free and quota-free treatment to Caribbean
countries, with some products eligible for benefits on an unlimited basis and others subject to an
annual regional cap.  In response to the TMB's request for information, the United States answered
that it would seek for a waiver from WTO Members for the operation of various aspects of the Trade
and Development Act of 2000 and provide full information to the WTO at that time.  According to theUS communication, in the interim, detailed information concerning the Trade and Development Act
may be found on US Otexa's website.
209
4. African Growth and Opportunity Act Adopted by the United States
637. The other portion of the Trade and Development Act of 2000 was related to treatment offered
to imports from 48 Sub-Saharan African countries which, according to indications, provides, inter
alia, that certain clothing items produced in beneficiary countries are eligible to enter the US market,
both duty free and quota free, provided that certain conditions are met.210
5. Recent Indications Regarding Developments in Trade in 2000
638. Recent indications211 reveal, inter alia , that in the year 2000, the previously observed rapid
growth of US imports from its two NAFTA partners  somewhat slowed down.  This continued a trend
first observed in 1999.  Combined imports of textiles and clothing from Mexico and Canada grew
more slowly in 2000 than imports from all sources.  While imports from all sources increased, in
volume terms, by 14.8 per cent, those from Canada increased by 13.0 per cent and from Mexico by
14.6 per cent.  More significantly, while total imports of clothing from all sources grew by
13.7 per cent in volume terms, imports from Mexico increased by 9.5 per cent.  Rather than NAFTAcountries, the driving force behind the increase of textile and clothing imports in 2000 was apparently
a surge of imports from Asia, in particular from ASEAN countries (+16.6 per cent), Pakistan
(+29.3 per cent) and Bangladesh (+24.2 per cent).  Textile and clothing imports (combined) from
some other Asian Members remained, however, mu ch below the average growth rate (Hong Kong,
China: an increase of 10.4 per cent; India: +8.6 per cent; Korea: +7.3 per cent).
639. Based on the same sources, it would also appear that textile and clothing imports of the
European Community during the first ten months of 2000 from the restrained developing Members
(former MFA Members) rose by 20.7 per cent in value (against a 10.4 per cent increase of EC imports
from all non-EC sources).  In volume terms, however, this growth was significantly smaller
(7.1 per cent).  EC imports from the Mediterranean countries, during the same period, increased by
14 per cent in value and 11 per cent in volume.  The value of textile and clothing imports from Turkey
grew by 15.5 per cent and from the Central and Eastern European countries taken together, importsincreased by 13 per cent in value terms.
640. These indications in paragraphs 638 and 639 also seem to highlight that the issue of potential
effect of regional arrangements and initiatives should be approached and assessed with the necessary
caution.
                                                     
209 See also paragraph 270.
210 See also paragraph 636.
211 Textile Outlook International, March 2001.G/L/459
Page 212
C. ELIMINATION OF RESTRICTIONS ON IMPORTS FROM CERTAIN NON -WTO MEMBERS
641. The contribution received from ITCB members in response to the TMB's request for
information and comments contained, inter alia , the following:
"Article 1.6 provided that the rights and obligations of Members under the WTO were
not affected, save to the extent provided in the ATC.
There are numerous instances in which quota restrictions on non-WTO Members
have been eliminated while keeping them in place for WTO Members.  Thus, restrictions on
Russia and a host of other countries have been withdrawn.  The TMB may detail full
information with respect to such instance s and assess their consistency with the ATC.
We believe that in light of above facts, the TMB report ought to conclude that the
restraining Members failed to give full meaning to these basic principles of Article 1 of the
ATC.[212]  It should suggest that the CTG recommend to the restraining Members to take
necessary steps to do so."
642. In reply to the TMB's subsequent request for further clarifications, in a further
communication, ITCB Members stated the following:
"With respect to the elimination of quota restrictions on non-WTO Members while
keeping them in place for WTO Members, we note  that restrictions previously applied by the
EU on imports of certain textile and clothing products from Russia, Ukraine, Bosnia-
Herzegovina, etc. have been eliminated.  Extracts from relevant Official Journals of the
European Communities [...] showing the prior existence of quota restrictions on thesecountries and their subsequent elimination are attached. [
213] There might be other similar
instances, information about which, we hope, the TMB would be able to obtain and detail in
its report.
The basic principle of MFN (as, e.g., in Article I of GATT 1994) relates to imports
from all countries, whether WTO Members or non-WTO Members, i.e., any favour accorded
by a WTO Member to any country, whether or not it is a WTO Member, must also be
accorded to all WTO Members.  If this is not done and non-WTO Members are treated more
favourably than WTO Members, the balance of rights and obligations under the WTO is lost.
Such more favourable treatment is inconsistent with the MFN principle, which cannot bedeparted from unless specifically provided for in the ATC.
[…] We expect the TMB to assess the consistency of elimination of such restrictions
on non-WTO Members.  We believe that, ATC being an integral part of the WTO Agreement,
such elimination is not consistent with EU's obligation as to Article XIII of GATT 1994 in as
much as it is not excepted from the ATC by virtue of its Article 1.6.
With regard to the elimination of restrictions vis-à-vis  some of these countries that
have since joined the WTO, the issue of conformity arises by virtue of the last sentence of
ATC's Article 2.15.  Absent any notification to the TMB that, in considering the elimination
of those restrictions, the treatment of similar exports from other WTO Members had been
taken into account, it is apparent that this was not the case."
643. In a follow-up communication to its first repl y to the TMB's request for information and
comments, the European Community stated the following:
                                                     
212 The facts referred to in this sentence seem also to include issues covered by Articles 1.2, 1.4
and 1.5.
213 Not reproduced in this report.  See G/TMB/N/403/Add.1.G/L/459
Page 213
"… Concerning its agreements with non-WTO Members, the European Communities (the
'EC') considers that these matters do not fall under the purview of the Textiles Monitoring
Body (the 'TMB').
However, for the purpose of transparency, the EC is pleased to inform the TMB that in 1998
the EC agreed with the Russian Federation to apply the provisions of the Partnership andCo-operation Agreement between them to trade in textile and clothing products and  removed
all quotas on textiles and clothing products.
Similarly, the EC has by agreement removed its quotas with Ukraine.Equally, the EC has removed restrictions with Bosnia-Herzegovina by agreement initialled on
24 November 2000 and also those maintained against Croatia by agreement initialled on8 November 2000 prior to Croatia's accession to the WTO on 30 November 2000.  Previously
the restrictions were maintained jointly against Bosnia-Herzegovina and Croatia.  The EC is
currently in the process of signing or exploring Stabilisation and Association Agreements, i.e.
free trade agreements with these countries.
In addition, these above-cited arrangements are designed to foster improved trade relations,
and in particular improved access in the textiles and clothing sector for both parties.  They
therefore promote trade liberalisation within the context of mutually beneficial arrangements.
As stated above, however, issues of these agreements and arrangements are not relevant to the
TMB's review of the second stage of integration as foreseen by Article 8.11 of the Agreement
on Textiles and Clothing (the 'ATC')."
214
644. In reflecting on the concerns expressed and the views adopted by the ITCB members as well
as on the replies provided and the positions taken by the European Community, the TMB brieflyaddressed different aspects (economic significance, possible political considerations involved, legal
issues) of the cases mentioned and the arguments made.
645. It could be argued that the economic significance of the measures in question had to be seen
in the context of their likely very limited conseque nces on trade flows.  According to this argument,
most, if not all of the countries concerned are very small suppliers to the EC market; they do not havea well developed industry and infrastructure which would allow them to take a real advantage of the
elimination of the restrictions.  It could be also argued, however, that there can be WTO Members
which are even smaller suppliers against which the European Community applies quantitative
restrictions.  The argument was also made that if the restraints can be abolished with respect to the
imports of some countries, the whole rationale behind continuing to maintain restrictions against
imports from others can be called into question.  A counter-argument to this latter observation was
that the size, the production capacity and, therefore, the export potential were to be taken intoconsideration.  As regards possible political considerations involved, it was observed, however, that
such considerations do not fall under the purview of any discussion the TMB can have on these
matters.
646. Turning to the central issue raised, i.e. to the legal arguments made and the possible legal
implications of such measures, the TMB recognized that the issue raised questions as to whetherrights and obligations of WTO Members had been affected under the WTO Agreement, in particular
under GATT 1994.  The argument made by the ITCB members claimed breach of obligations under
GATT 1994 and linked them to the provisions of Article 1.6 (of the ATC).  The TMB observed in this
                                                     
214 Footnotes to the EC communication are omitted.  They provided references to those official EC
documents in which the respective agreements had been published.  For the communication, see
G/TMB/N/407/Add.1G/L/459
Page 214
regard that none of the provisions of the ATC, including its Article 1.6, authorized the TMB to
consider and to pronounce itself on whether rights and obligations of Members had been affected, or
not, under the provisions of GATT 1994.  In s upport of this observation, the TMB referred, as an
example, to the restrictions notified under Article3.1.  If a restriction were claimed to be justified
under any GATT 1994 provision by the Member concerned, any possible challenge to this claim,
pursuant to Article 3.4, may be pursued under the re levant GATT 1994 provisions or procedures in
the appropriate WTO body, but not in the TMB.
D. ACCESSION OF NEW MEMBERS TO THE WTO
647. The TMB was of the view that, based on developments up to now, it should offer two brief
comments with respect to the issue of accession of new Members to the WTO.  First, the Body
recalled that unless the respective protocols of accession and/or reports of the accession working
parties provide otherwise, the WTO Agreement and all the Multilateral Trade Agreements falling
thereunder, including the ATC, enter into force on th e first day of the application of these instruments
to the newly acceded Members.  Therefore, all the relevant notification obligations under the ATC
(such as those made pursuant to Articles 2 and 3 as well as Article 6.1) are also due to be submitted at
that time.  It could be observed that none of the new Members had complied with such obligations in
time and, therefore, their respective notifications, if any, fell in the category of "late notifications",
regarding which the TMB observed, on each and every occasion, that with respect to notificationsaddressed to the TMB after the relevant deadlines, the TMB's taking note was without prejudice to the
legal status of such notifications.
648. Second, a new Member's accession took place, by definition, after the implementation of
certain measures by WTO Members, pursuant to specific provisions of the ATC (integration
programmes;  elimination of certain restrictions, if applicable, etc.).  It could be observed that newly
acceded WTO Members have been provided with the same treatment as the that which had been
provided to former Members in terms of extending th e benefits of the respective integration stages as
well as, if applicable, of those related to the elimination of restrictions by way of integration.
XII. COMPLIANCE WITH NOTIFICATION REQUIREMENTS UNDER THE ATC
649. The ATC contains a broad range of notification requirements to be complied with by the
Members.  Most of these notification obligations are time-bound, some others are ad hoc  in nature.
650. In order to provide assistance, in particular to developing country and least-developed country
Members, the WTO Secretariat issued a Technical Cooperation Handbook on Notification
Requirements.  The handbook consists of self-contained sections - one per agreement - and the firstset of these sections, including, inter alia , that related to the ATC (WT/TC/NOTIF/TEX/1), was
published in August 1996.
651. The TMB had suggested in its first compre hensive report "that the Council for Trade in
Goods recall to Members the particular importance, both legally and for transparency purposes, of
strict compliance with the notification requirements of the ATC".
215  In the conclusions adopted by the
CTG in February 1998, as a result of its major review of the implementation of the ATC during the
first stage of the integration process, in order "to ensure maximum transparency in the implementationof the ATC and to facilitate the work of the Textiles Monitoring Body, the Council called upon
Members to comply, in a complete and timely manner, with all notification obligations of
the ATC".
216
                                                     
215 See G/L/179, paragraph 330.
216 See G/L/224, paragraph 61.G/L/459
Page 215
652. Adherence to the time-bound notification obligations has, however, deteriorated over time.
While 52 Members submitted notifications pursuant to Articles 2.6 and 2.7 (first stage integration
programme), and 50 notified their second stage integration programme, only 40 Members had, as of
20 July 2001, submitted their programme of integration for Stage 3.  Furthermore, 25 of such
Members had submitted the notification of their programme of integration for Stage 3 only after the
deadline prescribed in the ATC had lapsed.  Non-compliance with notification requirements,including the deadlines, may have serious implications on Members' rights and obligations under the
ATC.
653. In some instances certain Members took certain measures allegedly under the ATC without
providing notification or information to the TMB.  In some other cases, the Member or Members
concerned considered that the particular measure taken did not fall under a particular provision of the
ATC and, therefore, the measure was not notified, even though it would appear that, as a measure
related to trade in products falling under the coverage of the ATC, it should have been notified to the
TMB, or information on it should have been made available to the TMB, for example under the
provisions of Article 3.3.  In a number of specific cases, despite repeated requests, no reply was
provided to the TMB's request for clarification, precisions or additional information by the Members
concerned.
654. In the context of the preparation for the present comprehensive report, the TMB issued, in
February and in April 2001, a request for notifications and information to WTO Members, again
reminding them of certain notification obligations contained in the ATC.  The TMB received replies
to that requests and to follow-up questions it raised with certain Members from eight Members (one
of these submitting a reply on behalf of ITCB members).
XIII.  FUNCTIONS OF AND WORK CARRIED OUT BY THE TMB
655. According to Article 8.1, the TMB was established in order to supervise the implementation
of the ATC, to examine all measures taken under its provisions and their conformity therewith, and to
take the actions specifically required of it by the ATC.
656. The composition of the TMB for the second stage of implementation of the ATC (1998 to
2001) was decided by the General Council on 10 December 1997 (WT/L/253).
Ambassador András Szepesi was re-appointed Chairman of the TMB by the General Council on
10 December 1997, for three years beginning on 1 January 1998 (WT/GC/M/25), and for a
subsequent period of four years (i.e. until 31 December 2004) on 15 December 2000 (WT/GC/M/61).
The list of TMB members, alternates, observers, and successive changes, are contained in the reportsof the TMB.
A. 
DISCHARGING FUNCTIONS ON AN AD PERSONAM BASIS
1. TMB Working Procedures
657. Article 8.1 of the ATC states that TMB members discharge their function on an ad personam
basis.  The working procedures adopted by the TMB specify that "in discharging their functions ... ,
TMB members and alternates undertake not to solicit, accept or act upon instructions from
governments, nor to be influenced by any other organisations or undue extraneous factors. They shalldisclose to the Chairman any information that they  may consider likely to impede their capacity to
discharge their functions on an ad personam  basis.  Should serious doubts arise during the
deliberations of the TMB regarding the ability of a TMB member to act on an ad personam basis, they
shall be communicated to the Chairman. The Chairman shall deal with the particular matter as
necessary".G/L/459
Page 216
2. Decision of the CTG
658. When adopting its working procedures, the TMB invited its Chairman to submit to the CTG
the following for appropriate action:  "WTO Members which, pursuant to the decision of the General
Council of 31 January 1995, appoint TMB members under Article 8.1 of the Agreement on Textiles
and Clothing accept that TMB members serve in their ad personam  basis and not as government
representatives.  Consequently, they shall not give TMB members instructions, nor seek to influencethem, with regard to matters before the TMB. The same applies to alternates".  This proposal was
transmitted to the CTG in July 1995.
659. In the context of its 1996 annual report to the CTG (G/L/113, paragraph 107), the TMB
requested the Council to take appropriate action on this proposal.  On 12 February 1997, the CTG,
following consultations held by its Chairman, adopted a decision on the ad personam  status of TMB
members, as follows: "WTO Members which, pursuant to the decision of the General Council of
31 January 1995, appoint TMB members under Article 8 .1 of the Agreement on Textiles and Clothing
accept that TMB members discharge their function on an ad personam  basis and not as government
representatives.  Consequently, they shall not give TMB members instructions, nor seek to influence
them, with regard to matters before the TMB.  The same applies to alternates" (G/C/W/20/Rev.1).
3. Code of Conduct Adopted by the DSB
660. The TMB took note of the decision of the DSB, on 3 December 1996, to adopt the Rules of
Conduct for the Understanding on Rules and Procedures Governing the Settlement of Disputes
(WT/DSB/RC/1), in view of the fact that such Rules apply, inter alia , to the Chairman of the TMB
and other members of the TMB secretariat called upon to assist the TMB in formulating
recommendations, findings or observations pursuant to the ATC, as well as, to the extent prescribed in
the relevant Section of the Rules, to me mbers of the TMB (G/TMB/R/22, paragraph 17).
B. 
CIRCULATION OF REPORTS AND NOTIFICATIONS ;  DERESTRICTION OF DOCUMENTS
1. Circulation of Reports
661. During the period considered, the TMB adopted reports of its meetings, which were circulated
to WTO Members for their information (G/TMB/R/35 to 80).  The TMB adopts such reports at the
subsequent meeting at the latest, on the basis of a draft proposed by the TMB secretariat incorporatingthe text of any recommendation, finding and observation by the TMB; these texts themselves have
already been adopted by the TMB.  The TMB’s reports are, therefore, normally circulated to WTO
Members about a month after each meeting of the TMB.  In view of this time-lag, the TMB also
continued its practice, during Stage 2, of authorizing its Chairman on several instances, in particular
when the TMB had reviewed dispute cases between WTO Members, to issue a note forwardinginformation on the TMB’s recommendations, findings and observations to WTO Members
(G/TMB/13 to 23).
662. The TMB continued to submit reports annually pursuant to the decision adopted by the
General Council on 15 November 1995 on the procedures for an annual overview of WTO activities
and for reporting under the WTO (WT/L/105).  The third annual report was submitted in
November 1997 (G/L/206), the fourth in Novemb er 1998 (G/L/270), the fifth in September 1999
(G/L/318) and the sixth in October 2000 (G/L/398).
2. Circulation of Notifications
663. In conformity with its working procedures (G/T MB/R/1 and 11), notifications received by the
TMB pursuant to Articles 2.1, 2.2, 2.7(a) and (b), 2.8(a) and (b), 2.10, 2.11, 2.15, 3.1, 3.3, 3.4, 6.1
and 7.2 of the Agreement have been circulated to WTO Members without delay, it being understoodG/L/459
Page 217
that the TMB may examine or review these notifications at a later stage.  Notifications addressed to
the TMB for review other than those above were, after such review, also circulated to WTO Members.
3. Derestriction
664. Following the decision adopted by the General Council at its meeting on 18 July 1996, the
TMB had considered the question of the derestriction of its working documents (G/TMB/W/- and
G/TMB/SPEC/- series).  The TMB had recalled th at in adopting its own working procedures on
13 July 1995 it had agreed that it would " ... decide on the implementation of the decision of the
General Council on derestriction of documents when the General Council has adopted its decision on
this matter" (G/TMB/R/1).  The TMB had taken note of the General Council’s decision and decided
that it would act in full compliance with it (G/TMB/R/16), which it has done since then.
C. NUMBER OF MEETINGS , SCHEDULING OF MEETINGS
665. From August 1997217 until the end of July 2001, the TMB held 46 meetings totalling overall
100 working days.  It completed its review of five safeguard measures introduced pursuant toArticle 6.10, as well as 13 safeguard measures applied under Article 6.11.  The TMB also reviewed
three matters referred to it under Article 8, for which it had invited participation of the Members
concerned, in accordance with its working procedures.  It also reviewed one restraint measure agreed
and notified pursuant to Article 6.9 (the respective request for consultation, pursuant to Article 6.7,
had been made during Stage 1 but could not be dealt with in the comprehensive report of the TMB forStage 1).  In addition, the TMB reviewed, inter alia , three new notifications and 28 additions,
revisions or corrections to notifications made pursuant to Articles 2.6 and 2.7(a) and (b), 10 new
notifications and 30 corrections, additions or revisions to previous notifications made under
Articles 2.8(a) and 2.11, as well as 31 notifications under Articles 2.8(b) and 2.11.  The TMB has also
started the review of 9 notifications under Articl es 2.8(b) and 2.11.  Furthermore, the TMB reviewed
two notifications under Article 3.1, and took note of two additional administrative arrangements
notified under Article 2.17, as well as of four additional notifications under Article 6.1.  For this
purpose, the TMB, in many instances, sought additional information or explanations from the
Members before the review could be completed.  This, in many cases, led to modifications of the
original notifications, with a view to bringing them in line with the relevant provisions of the ATC.
666. Though the TMB established its tentative schedules of meetings before the end of each year
for the following calendar year, in view of the larg e number of parallel meetings of other WTO bodies
the TMB was obliged, on a number of occasions, to make adjustments in its scheduled meeting dates.
The same need arose, in a number of other instances,  due to the agenda of the respective meetings (in
particular, when disputes between Members were referred to the Body which had to be examined
within well defined time-frames).
D. 
TRANSPARENCY
667. The TMB has pursued its efforts to ensure and to improve the transparency of its proceedings.
It has circulated most of the notifications received to WTO Members without delay, in conformity
with its working procedures218.  It has also provided as much information as possible in its reports,
reproducing in particular in details the views of the parties to a dispute, and also giving, to the extentpossible, full details of the reasons for the decisions reached by consensus, including of the rationale
for its findings and recommendations.  Furthermore, the concern for transparency was germane to the
fact that in developing its working procedures the TMB agreed that, in dispute cases, representatives
of the Members involved could be present and participate in the discussion, within certain limits,
throughout the review, up to, and in some cases, incl uding, the drafting of the recommendations.  The
TMB had also continued the practice of authorizing its Chairman to circulate a note to WTO
                                                     
217 The first comprehensive report of the TMB covered the period up to 24 July 1997.
218 See also paragraph 663.G/L/459
Page 218
Members immediately following the conclusion of its review of dispute cases, so that its
recommendations or findings would be available to WTO Members in advance of the circulation of
the relevant report of the TMB.
668. In the Singapore Ministerial Declarati on adopted on 13 December 1996, Ministers “agree
that, keeping in view its quasi-judicial nature, the Textiles Monitoring Body (TMB) should achieve
transparency in providing rationale for its findings  and recommendations".  In particular since this
Ministerial Conference, the TMB has endeavoured to improve the quality of the explanations it
provided in terms of the rationale for its findings and recommendations.
E. DECISION -TAKING
669. In conformity with the relevant decision of the General Council (WT/L/26, paragraph 6), the
TMB takes all its decisions by consensus. Consensus does not require the assent or concurrence of
members appointed by Members involved in an unresolved issue under review by the TMB
(Article 8.2).
670. This rule of decision-taking implies that not only in cases of disputes between WTO
Members, but practically in all instances, including the taking note of notifications and the adoption of
its reports, the TMB has to proceed by consensus.   The TMB noted, in this regard, the important
number of matters it had to consider.  It has to be noted that, the TMB succeeded, during the period
under review, to reach consensus decisions with respect to all the matters it considered and to makeappropriate findings and recommendations.
F. 
VIEWS AND COMMENTS OF WTO MEMBERS IN RESPONSE TO THE TMB 'S GENERAL REQUEST FOR
INFORMATION AND COMMENTS
671. In reply to the TMB's request for information and comments, made in the context of the
preparation of the present report, ITCB members stated, inter alia , that "we recognize the
improvement in the transparency of TMB findings during the second stage, particularly as concerns
the review of safeguard actions.  It needs, however, to be pointed out that [the TMB's] findings and
reports have not always been consistent.  Thus, for example, while it found certain actions to be
inconsistent with restraining Members' obligations, another action taken on the same basis was
declared to be justified.  And the TMB neglected to rectify the error[219].  Similarly although a
restraint measure had been found by a dispute panel to be inconsistent with the ATC, the TMB
refused to declare another measure on the same product adopted on the basis of the same market
statement to be inconsistent.  In the process, the TMB failed to observe the standard of review
established by the panel process[220].  We also wish to remind the TMB of its mandate to keep the
integration process under review (Article 2.21) as it is essential to ensuring effective application of thebasic principles of Article 1 as well as the implementation of the integration process in general.  We
hope that the TMB also follow on its findings and recommendations".
672. In reply to the TMB's request for information and comments made in the context of the
preparation of the present report, the European Community stated that it "considers that the TMB has
exercised its role in a more transparent manner over time and fully supports the TMB in continuing
this approach".
                                                     
219 See paragraph 232.
220 See paragraph 524.G/L/459
Page 219
XIV. OVERALL ASSESSMENT OF THE IMPLEMENTATION OF THE ATC AND
RECOMMENDATIONS TO THE CTG
673. The ATC provides for a transitional period of 10 years, during which the textiles and clothing
sector has to be progressively integrated into the general rules and disciplines of GATT 1994.  Upon
expiration of this transitional period, i.e. on 1 January 2005, the ATC and all restrictions thereunder
shall stand terminated and the textiles and clothing  sector shall be fully integrated into GATT 1994.
There shall be no extension of the ATC.
674. At the date of the adoption of the present comprehensive report by the TMB, more than six
and a half years will have elapsed out of the 10 year transitional period.  The preceding chapters
provide a comprehensive overview of the developments relating to the implementation of the specific
provisions of the ATC up until now, with the main focus on the implementation during the second
stage of the integration process.  In addition, information, together with an analysis and some
comments on Stage 3 integration programmes, are also included.  Therefore, as regards the keyconcept of integration, without prejudice to possible future measures on advanced integration, a full
picture is available for the entire transitional period of 10 years.  All these elements will assist the
CTG, in conducting the second major review of the implementation of the ATC, to make a well-
considered assessment of the state of the implementation of the Agreement, in particular on what has
been achieved so far and what remains to be accomplished.  The following paragraphs constitute theTMB's contribution to such an overall assessment.  While this contribution does not cover all the
matters raised in the different chapters of this  report, it makes an attempt at drawing Members'
attention to several important issues and, in conformity with the provisions of Article 8.11, also
includes a number of recommendations to the CTG.
1. Integration Process.  Restrictions Taken Over From the MFA Regime
675. Following certain corrections, the technical requ irements for integration of the textile and
clothing products into GATT 1994 in the first two stages have been met by those Members which
have submitted notifications.  The same applies to the third stage integration programmes notified
and, if applicable, subsequently corrected or revise d, of which the TMB could take note.  Stages 1, 2
and 3 combined, the requirement is to integrate products into GATT 1994 which account for not lessthan 51 per cent of the total volume of the respective Members' 1990 imports of the products falling
under the coverage of the ATC.
676. Of the Members that had carried over quantitative restrictions from the MFA regime, with the
implementation of the Stage 3 programmes Canada will have integrated, on 1 January 2002,
altogether 53.21 per cent, the European Community 51.39 per cent, Norway 64.99 per cent and theUnited States 51.35 per cent of their respective volume of 1990 imports of the products included in
the Annex to the ATC.
677. An overall assessment of the respective integration programmes and related measures
affecting quantitative restrictions (taken under the provisions of Article 2 and, if applicable, pursuant
to Article 4), includes the following elements:
• of the 295 specific limits, sub-limits and group limits carried over by Canada from the
MFA regime, six were eliminated as a result of integration during Stage 1;  23 during
Stage 2;  and 27 will be eliminated on 1 January 2002, since the products covered willbe integrated as part of the Stage 3 integration programme.  Therefore, as from
1 January 2002, Canada will continue to maintain 239 specific limits, sub-limits or
group limits;
• as a result of integration of parts of restrictions during Stage 2, Canada reduced the
level of the respective group levels for two Members, with reference to the provisionsG/L/459
Page 220
of Article 4.3.  Also, as from January 1998, by providing "ex-quota" treatment to
some items, Canada reduced the product coverage of some restraints, while not
adjusting their respective levels.  As a result of the implementation of the Stage 3
integration programme, several specific limits and sub-limits will be partially
eliminated, because parts of the respective categories or sub-categories will become
integrated.  Canada has decided to keep the level of the remaining respectiverestraints unchanged (i.e. not to reduce these levels with reference to the fact that
their product coverage will be reduced).  While the determination of the potential
impact of this decision would require a case-by-case assessment, it would appear that,
in some cases, this decision would amount to a significant one-time increase in access
opportunities for the products concerned remaining under restrictions;
• the European Community took over 218 specific restrictions from the MFA regime to
the ATC.  None of these restrictions were eliminated during Stage 1; 14 were
eliminated with the implementation of Stage 2;  and 27 will be lifted as a result of
integration for Stage 3.  The European Community has not integrated parts of
restrictions applied.  Nor has it had recourse to the provisions of Article 2.15 during
Stage 1 or Stage 2.  As a result of the above, the European Community will continue
to maintain 167 specific restraints as of 1 January 2002.
• Norway had maintained altogether 54 specific limits taken over from the MFA.  All
of these restrictions were gradually eliminated pursuant to the provisions of
Article 2.15;  14 on 1 January 1996;  32 on 1 January 1998;  five on 1 January 1999
and the remaining three on 1 January 2001.  Thus, Norway no longer maintains any
restrictions under the ATC.  Moreover, some of the products previously subject torestraint were already integrated during Stage 2 or will be integrated during Stage 3;
• as a result of taking over restrictions from the MFA and the accession of new
Members, the total number of specific limits and sub-limits applied by theUnited States amounted to 758.  No restriction was phased out during Stage 1;  while
three specific limits were eliminated as a result of integration during Stage 2, a further11 restraints were eliminated on 1 January 1998 with reference to Article 2.15.
Furthermore, as a result of Stage 3 integration, 43 specific limits or sub-limits will be
fully abolished on 1 January 2002, and as of that date, the United States will continue
to maintain 701 specific limits or sub-limits;
• during Stage 2, the United States implemen ted downward adjustments in the restraint
levels (mostly group or aggregate) in all ca ses when only part of a restriction became
integrated.  The US' Stage 3 integration programme includes several products which
form part of a broader restriction (categories to be partially integrated, categories to
be integrated from merged categories, products to be integrated falling under group or
aggregate limits).  Regarding the level of limits for the products/categories or groupsremaining under restraint, it is the US' intention to implement adjustments based on
trade that has occurred in the products to be integrated.  In doing so, according to its
communication, the United States will provide Members concerned with the
opportunity to consult with the United States on this issue;
• in the first comprehensive report, the TMB observed that "the final objective of the
integration of the textiles and clothing sector into the GATT 1994 would be
facilitated if the Members would, whenever possible, have recourse to the provisionsof Articles 2.10 and 2.15".  In the conclusions of the first major review, adopted by
the CTG in February 1998, the Council "… encouraged Members to continue to have
recourse, where appropriate, to the provisi ons of Article 2.15, and to Article 2.10 on
advanced integration".  Also against this background, it should be recalled, thatG/L/459
Page 221
though Norway systematically relied on the provisions of Article 2.15 for its process
of gradual elimination of all the quantitative restrictions maintained and, that though
Canada and the United States had also invoked these provisions, none of the
Members taking over restrictions from the MFA had had recourse to Article 2.10
(advanced integration) during Stage 1 or Stage 2;
• regarding the potential significance to trade caused by these Members'
implementation of integration programmes during Stages 1 and 2, the TMB hadobserved, in its first comprehensive report that "in terms of products selected for
integration the concentration on the less value-added range of products [was]
confirmed".  Though the Stage 3 integration programmes notified by Canada, the
European Community and the United States consist of a relatively higher share of
clothing and/or made-up products compared  to the previous stages, it would appear
that this will not bring about major qualitative changes overall.  Taken together, theshare of clothing products integrated during the three successive integration stages is
below 7 per cent of the volume of total imports in textiles and clothing (1990) in the
case of Canada, around 6 per  cent in the case of the European Community, and
roughly 6.5 per cent for the United States.  This also implies that, in all probability,
the products integrated during the three stages would account for less in value termsthan that expressed in volume and that clothing products representing roughly 20 to
30 per cent of the total volume of the respective Members' 1990 imports may only
become integrated on 1 January 2005.
678. The main features of the above assessment, particularly the significant number of restrictions
still in place and the perceived lack of integration of products having a potential significance to trade,
have caused serious disappointment to exporting Members in terms of expectations towards
progressive integration and pro rata  implementation of the provisions of the ATC.  ITCB members
also stated that in sharp contrast to the integrati on percentage of 51 per cent, only about 20 per cent of
imports under specific quota restriction would have been liberalized by the United States and theEuropean Community at the beginning of the third stage of integration, and that increases in the
restraint levels and the resulting augmentation of access should not be viewed as a substitute for the
eventual integration of the products or categories concerned.
679. On the other hand, restraining Members argue that  implementation is, overall, on track.  Such
arguments include, among others, their compliance with the integration requirements, the continuousincrease, during the period of the ATC implementation, of their imports of textiles and clothing,
including imports of products subject to restraint, the continued application of the growth provisions
of the ATC and, in particular, its effect during the remaining 3 years of ATC implementation, and the
ongoing autonomous industrial adjustment.  All of th ese, they argue, will ensure a smooth transition
to the full implementation of the ATC
680. It should be noted that Canada, the European Community and the United States have
reiterated, on a number of occasions, in various higher WTO bodies, their commitment towards a fulland timely implementation of the ATC.
681. In the view of the TMB, in assessing developments related to the integration process, a
number of particular features of the ATC should be kept in mind.  Features, such as the broad product
coverage, the use of 1990 as a base-year for providin g statistical information, the fact that integration
is implemented on the basis of total volume of imports as opposed to the respective value, thatMembers are free to choose products or categories for integration provided that the selection meets
the basic technical requirements and that, in conformity with the respective provisions, products or
categories accounting for 49 per cent of the total volume of the respective Members' 1990 imports
falling under the coverage of the ATC may still rema in to be integrated after the implementation of
the Stage 3 integration programmes (on 1 January 2002) and, at the latest, on 1 January 2005.G/L/459
Page 222
Notwithstanding, in the view of the TMB, measures can be taken during the implementation of the
third stage of the integration process under the relevant provisions of Article 2, resulting in increased
opportunities for exports in products still subject to restraints.
682. Also in view of the above, the TMB recommends to the CTG that the Council:
• take note of the reiterated statements of Canada, the European Community and the
United States that they are fully committe d to the full and timely implementation of
the ATC;
• invite the Members concerned to have recourse, whenever possible, to the provisions
of Article 2.10 (advanced integration) and 2.15 (early elimination of quantitative
restrictions), during the period of implementation of the third stage of the integration
process;
• recommend that in future notifications, to be made pursuant to Article 2.15,
information should also be provided, if applicable, on the consideration given to the
treatment of exports of the same products from other Members, in conformity with
the last sentence of Article 2.15;
• note with appreciation that as a result of successive steps taken under Article 2.15,
Norway no longer maintains any restrictions under the ATC;
• note that Canada's decision to keep the level of the respective remaining restraints
unchanged, in case of partial integration during Stage 3 of products or categories that
are at present subject to restraint, could also constitute, in some cases, a one-time
significant increase in access opportunities in the products remaining under
restriction;
• recall that if a product which constitutes only part of a restriction were to be notified
for integration  during Stage 3, any adjustment to be implemented in the level of the
respective restrictions, shall not upset the balance of rights and obligations between
the Members concerned under the ATC, in compliance with the provisions of
Article 4.3;
• recommend that prior to its implementation, any such adjustment should be mutually
agreed between the United States and the Members concerned in the framework of
the consultations envisaged in Article 4.4.
2. Use of the Transitional Safeguard Mechanism
683. During the first stage of the integration process, two Members had recourse to the provisions
of the transitional safeguard mechanism (Article 6), involving 34 cases in total (United States:27 cases;  Brazil:  7 cases).  The bulk of the requests for consultations under Article 6.7 was
concentrated in the first half of 1995 (United States:  24 requests) and this timing, as well as the large
number of cases involved caused serious concerns to several Members.  They also placed the TMB in
a situation which made it difficult for it to cope with these cases and all other types of notifications it
had to review.  In addition, the examination of the requests for consultations and of the resultingmeasures made by the TMB and, in some cases, subse quently, by dispute settlement panels, led to the
conclusion that in most cases the United States had not complied with important obligations arising
from Article 6.
684. Since the beginning of the implementation of the second stage  integration process, recourse
to the provisions of Article 6 has been made in altogether 29 cases.  Four Members invoked theseG/L/459
Page 223
provisions (Argentina – 17 cases;  Colombia – 9 cases;  Poland – 2 cases;  United States – 1 case).
While the number of requests for consultation was non-negligible (altogether 10) in 1998, this was
followed by a further increase (18 cases) in 1999 and the decision by one Member to apply
provisionally, with immediate effect the restraint measures in 13 cases.  As regards the number of
safeguard measures which were actually introduced and subsequently maintained, of the 10 cases
initiated in 1998, no measure was taken in five cases  (Colombia).  In two further cases (Colombia),
the restraints introduced were eliminated following the recommendations made by the TMB.  In the
three remaining cases (Colombia – 2 and United States –1), the Members concerned decided to
maintain the measures in place, despite the reco mmendations of the TMB.  In two of these cases
(Colombia), the restraints were abolished after one year of application, while in the third case
(United States), though it was maintained, the recently circulated report of the Panel largely
confirmed and upheld the conclusions reached by the TMB.  The Panel recommended that the
United States bring the measure at issue into conformity with its obligations under the ATC andsuggested that this could be best achieved by prompt removal of the import restriction.  Subsequently,
the United States decided to appeal certain issues of law covered by the Panel report and certain legal
interpretations developed by the Panel.  As regards the 18 cases initiated in 1999, no measure was
taken after consultations with the Members affected in five cases (Argentina – 4 and Poland - 1),
while of the 13 measures (Argentina), provisionally applied under Article 6.11, 11 were subsequentlyrescinded, also in conformity with the TMB's recommendations, one was rescinded after 18 months of
application (again in accordance with the TMB's recommendation), whereas another continues to be
maintained ( albeit  with a significantly higher level of restraint, as recommended by the TMB).
685. It is important to note that the main user of the provisions of Article 6 during Stage 1 has not
had frequent recourse to them during Stage 2, while th e other user did not have recourse to them at all
during Stage 2.  It is also noteworthy that the th ree other Members, which had retained their right
under Article 6.1 and had recourse to the provisions of Article 6 during Stage 2, did not have recourse
to such provisions prior to Stage 2.  The TMB noted the shift in terms of the Members having
recourse to these provisions.  No recourse was made to the provisions of Article 6 in 2000, while
one request for consultations was made during the first six months of 2001.  The TMB observed,therefore, a substantial decline in the use of the transitional safeguard mechanism as from the
beginning of the year 2000.  In this light, a noticeable deceleration of the recourse to the provisions of
Article 6, during the whole period covered by the present comprehensive report can be noted.
686. While there can be multiple reasons and explanations for this trend of deceleration in the
recourse to the provisions of the transitional safeguard mechanism, the evolving jurisprudence of thedispute settlement system, through the respective panel and Appellate Body reports, has made a
significant contribution in this regard.  These ruli ngs provided detailed guidelines to Members and
established appropriate standards on which the TMB has been able to rely in its respective
examinations.  The significant improvement in th e TMB's performance in this area, which has been
achieved over time and manifested itself during the second stage of the integration process, should
also be noted.  The examination of the different cases, each of them on their own merit, has brought
out certain methodological, procedural and substan tive aspects, regarding which the position taken by
the TMB, in the respective cases, can also be vi ewed as providing further guidance for both WTO
Members and the Body in the future.
687. All in all, developments during Stage 2 and, in particular, the substantial decline in the use of
the provisions of Article 6 as from the beginning of 2000, would correspond to the requirement
defined in Article 6.1, according to which the transitional safeguard should be applied as sparingly aspossible.G/L/459
Page 224
688. The TMB recommends to the CTG that the Council:
• while recognizing the right of Members to use the transitional safeguard provisions of
the ATC, recall that such use, in accordance with Article 6.1, should be as sparing as
possible;
• invite Members when considering possible recourse to these provisions, to study
carefully and follow the guidelines emanating from the respective reports of dispute
settlement panels and the Appellate Body as well as the standards of review appliedby the TMB, as reflected in its respective reports, and also to keep in mind that the
ATC will expire at the end of 2004.
3. Changes in Practices, Rules, Procedures and Categorization of Products
689. The United States implemented important chan ges in its rules of origin affecting ATC
products on 1 July 1996. The TMB noted that, in the view of several Members, the changes
introduced by the United States had adversely affected market access possibilities in some products,
by disturbing security and predictability related to the exports of the products concerned, and that they
disrupted trade under the ATC.  Such changes are, however, foreseen under the ATC, provided that
the conditions specified in Article 4.2 are met.  In case of problems, the provisions of Article 4.4
provide for consultations and in the absence of a mutually satisfactory solution, the matter may be
referred to the TMB.  During Stage 1, the TMB received only one communication which referredspecifically to Article 4.2 and to the changes in the US rules of origin.  Subsequently, the notifying
Member requested that this issue be removed from the TMB's agenda, in view of a mutually agreed
solution reached between the two Members.
690. The TMB recalled that it had not received any notification requesting it to review any aspect
of this matter under Articles 4.2 and 4.4 and to make recommendations as provided for in Article 8during the second stage of the integration process.  Following an initial agreement reached with the
United States in July 1997, the European Community submitted a renewed request for consultations
under the DSU during Stage 2.  As a result of the consultations held, a new mutually agreed solution
was agreed between the two Members which was subsequently notified to the DSB.  The TMB noted
that, in the view of several Members, while this bilateral solution rectified the situation mainly withrespect to products of export interest to the Euro pean Community, the changes failed to restore the
situation with respect to a number of products of substantial export interest to restrained Members.
691. Keeping in mind the above, the TMB recommends to the CTG that the Council:
• recall to Members that, pursuant to Article 4.2, the introduction of changes, such as
changes of rules of origin "should not:  upset the balance of rights and obligations
between the Members concerned under this Agreement;  adversely affect the accessavailable to a Member;  impede the full utilization of such access;  or disrupt trade
under this Agreement".  Also, Article 4.4 provides the possibility of requesting
consultations and in the absence of a mutually satisfactory solution, of referring the
matter to the TMB for its recommendations;
• invite Members not to implement any changes, except if multilaterally agreed, in their
respective rules of origin during the remaining period of ATC, or, in any event, to
follow scrupulously the relevant provisions of Article 4 if they consider such changes
unavoidable;
• also invite Members concerned to use the provisions of Article 4.4 with a view to
reaching a mutually satisfactory solution, if applicable, regarding appropriate andG/L/459
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equitable adjustments, with respect to any other significant changes in practices,
rules, procedures and categorization of textile products.
4. Circumvention
692. The TMB noted that although Members had divergent assessments regarding the significance
of problems encountered in terms of preventing and addressing issues arising from the potentialcircumvention of the ATC by transshipment, re-routin g, false declaration concerning country or place
of origin, fibre content, quantities, description or classification of merchandise and falsification of
official documents, none of them condoned any such practices.  However, while several Members
were of the view that the extent of the problem of circumvention was greatly exaggerated, another
Member stated that it remained extremely concerned about the adequacy of international cooperation
to prevent illegal transshipment.
693. On the basis of the information and comments received from Members, it appeared to the
TMB that a lot of effort had been made in this area by the Members concerned and that they
continued to give particular importance to enhanced cooperation between them in this regard.  The
mere fact that only one specific matter, which would fall under the provisions of Article 5, has been
referred to the TMB since the entering into force of the ATC, is a clear manifestation of these efforts.
694. The TMB shared the view that the problem of circumvention, in particular that of
transshipment will not go away until the full elimination of restrictions applied under the ATC and
that the best way to address such problems is to rely on the cooperation, consistent with their domestic
laws and procedures, between the Members concerned.
695. The TMB, therefore, recommends to the CTG
 that the Council:
• invite Members to take  into account the legitimate interests of both the exporting and
the importing Members in a balanced manner when addressing issues related to
potential circumvention in the sense of Article 5,
• recommend that actions to be taken in this area be based on the fullest possible
cooperation between the Members concerned;
• recall that such strengthened cooperation should be efficient and effective, without
causing unnecessary additional burden for all those involved (be they authorities or
economic operators).
5. Implementation of the Provisions of Article 7
696. The TMB noted that several Members had pointed out that no non-compliance with any
specific market-access commitments undertaken by WTO Members as a result of the Uruguay Roundhad been notified.  In the view of these Members, demands for additional market-access commitments
from restrained Members as a condition of full and faithful implementation of the integration process
are not justified under the ATC.  While recognizing the right to anti-dumping actions, the same
Members emphasized that the targeting of restrained products had had the effect of causing double
jeopardy to the exporting Members concerned and of impairing their right to utilize access under theATC.  These Members also identified cases when, in their view, discriminatory singling out of textile
and clothing products for general trade policy reasons had taken place.
697. The TMB also noted that the European Community and the United States had expressed
preoccupations that certain Members did not consider the obligation to achieve improved access to
markets as an important part of the integration process and that despite commitments to take the
necessary steps under the WTO Agreements to achieve market access for all Members, someG/L/459
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Members continued to maintain closed markets.  St ating that more work needed to be done in the
market access area, the European Community and, in particular, the United States listed a number of
cases and measures, which affected the conditions for access to exporting Members' markets.
698. In additional information and clarifications provided to the TMB, the European Community
stated that it had not made its ATC integration process conditional on the fulfilment of demands for
additional market access.  The United States emphasized that it was unaware of any demands foradditional market access commitments from restrained Members as a condition for the
implementation of the ATC.  In the view of the United States, however, Article 7 strongly encourages
market opening efforts and to the extent that requests may be made in connection with demands by
restrained Members for additional access over and above the scheduled ATC liberalization, that
would seem entirely appropriate and within the scope of the ATC.
699. In connection with the above, the TMB noted that no notifications or reverse notifications had
been addressed to it with specific reference to Article 7.2 since the beginning of the implementation ofthe second stage integration process.  The only two communications received by the TMB, for its
information, consisted of copies of official DSB documents, requesting consultations under the DSU
and other applicable agreements.  The TMB also noted that:
• providing notifications to the TMB regarding the actions referred to in Article 7.1
which have a bearing on the implementation of the ATC, is a positive obligation,
applicable to all Members pursuant to Article 7.2;
• the same Article 7.2 also provides the possibility of making reverse notifications to
the TMB;
• on the one hand, Members had hardly made any formal notification to the TMB
pursuant to the provisions of Article 7;
• on the other hand, several of them had decided to include a number of serious
concerns regarding the implementation of Article 7 by some other Members, whenproviding information and comments in response to the TMB's request.
700. The TMB observed that some of the comments and replies provided by Members appeared to
give particular importance to certain portions or elements of the language of Article 7.1, while moreor less ignoring some other elements also forming part of the language of this Article.  The TMB is of
the view that the language of Article 7.1 should be read in its entirety, including the context in which
the obligations thereunder are defined, the relevant obligations themselves and the objectives they are
designed to accomplish, together with the confir mation that "[s]uch actions [referred to in the
introductory sentence of Article 7.1] shall be without prejudice to the rights and obligations ofMembers under GATT 1994".
701. The TMB also noted that almost all the responses provided by WTO Members to the TMB's
request for information included a number of comments related to tariffs, which could be discussed in
the CTG when conducting the major review on the implementation of the ATC during the
second stage of the integration process.  Furthermore, it observed that the right of any Member toinitiate anti-dumping proceedings and to take the ne cessary actions as a result of such investigation
was not being contested.  However, in the view of the TMB, protracted or repeated investigations,
even if they do not result in the imposition of provisional or final anti-dumping duties, create
uncertainties to the exporters of the products in question.  With respect to the avoidance of
discrimination against imports in textiles and clothing sector when taking measures for general trade
policy reasons, the TMB, while expressing doubts as to whether the issues raised in this regard
amounted to a discriminatory singling out of ATC products for general trade policy reasons, alsonoted that all the issues mentioned had been addresse d by it in the relevant chapters of this report.G/L/459
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702. The TMB recommends to the CTG that the Council:
• note the statements made by the European Community and the United States, that the
full implementation of the integration process under the ATC is not conditional on the
fulfilment of demands for additional market access by the restrained Members;
• recall that the provisions of Article 7, like any other provision of the ATC, have to be
complied with by Members;
• invite Members to notify to the TMB, pursuant to Article 7.2, the actions referred to
in Article 7.1, which have a bearing on the implementation of the ATC;
• clarify further, if it deems appropriate, the nature and scope of the obligations
outlined in Article 7.1;
• urge Members concerned to act with due care when having recourse to anti-dumping
proceedings;
• recall also, that in accordance with Article 7.1(c), when taking measures for general
trade policy reasons, discrimination against imports in the textiles and clothing sector
should be avoided.
6. ATC Provisions Related to Special Interests or Particular Situations of Certain WTO
Members
(a) Least-developed country Members
703. On the basis of the considerations detailed in Section A of Chapter X of this report, the TMB
recommends to the CTG that the Council:
• re-emphasize the particular importance of a full and faithful implementation of the
provisions of the ATC in favour of least-developed country Members;
• invite Members to examine the possibilities for providing, whenever possible,
substantially increased market access opportunities for the textile and clothing
exports of least-developed country Members;
• also invite Members to notify all the measures to be taken to this end to the TMB.
(b) Small suppliers
704. Recalling, inter alia , that the methodology chosen by the respective Members for the
implementation of the provisions of Article 2.18 during Stage 1 pre-determined the impact of the
implementation of the same provisions during Stage 2, the TMB recommends to the CTG that the
Council:
• recall that, pursuant to the provisions of Article 2.18, for small suppliers whose
exports are subject to restrictions, meaningful improvement in access shall be
provided for the duration of the ATC implementation;
• invite the Members concerned, notwithstanding the methodology applied by them
during Stage 1 for the advancement by one stage of the respective growth rates
defined by the ATC, to make every effort possible to ensure that meaningful
improvement in access for the exports of small suppliers be provided during Stage 3;G/L/459
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• recall to the same Members that the possibility of providing "at least equivalent
changes as may be mutually agreed with respect to a different mix of base levels,
growth and flexibility provisions" can stil l be used in order to provide meaningful
improvement in access;
• recall also that all such improvements shall be notified to the TMB.
(c) Cotton-producing exporting Members
705. Based on the considerations and views reported in Section D of Chapter X, the TMB
recommends to the CTG that the Council:
• recall that, in accordance with the provisions of Article 1.4, the particular interests of
the cotton-producing exporting Members should, in consultation with them, be
reflected in the implementation of the provisions of the ATC;
• encourage Members concerned to enter into consultations with a view to clarifying
the issues related to the implementation of the above and recall that, should the need
arise, the provisions of Article 8.4 are available for the purpose of initiating such
consultations;
• invite Members to consider the possibility that in notifying measures taken under
different provisions of the ATC, it should be also indicated, if applicable, how the
provisions of Article 1.4 have been reflected in the implementation of the measures in
question.
7. Autonomous Industrial Adjustment and Increased Competition in Members' Markets
706. While Article 1.5 states that "[i]n order to facilitate the integration of the textiles and clothing
sector into GATT 1994, Members should allow for continuous autonomous industrial adjustment and
increased competition in their markets", the ATC does not require Members to provide notifications
or information on developments in this area.  In reply to the request for information by the TMB, five
Members provided some information in this regard.  All these replies are reflected in full in Section A
of Chapter XI of this report, together with some comments offered by a group of Members.  The
replies provided have enabled the TMB to make a few observations, but it does not have sufficientinformation at its disposal to make a more thorough analysis and assessment on the extent to which
autonomous industrial adjustment and increased competition in Members' markets, in the sense of
Article 1.5, have been achieved.  While some progress may have already been reported, it would
appear that there is a continuing need for adjustment in order to ensure the smooth transition from the
ATC to the GATT 1994 regime.
707. On the basis of the above, the TMB recommends to the CTG that the Council:
• draw, once again, the attention  of Members to the provisions of Article 1.5;
• re-emphasize the need for continued autonomous industrial adjustment and increased
competition in Members' markets in order to  facilitate integration and to ensure the
smooth transition to the sole application of the GATT 1994 rules and disciplines;
• encourage Members to provide, from tim e to time, information to the TMB on
progress achieved in this area.G/L/459
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8. Regional Arrangements and Initiatives
708. The ATC does not contain any provision regarding regional arrangements and initiatives,
since these are covered, to the extent applicable, by provisions of the WTO Agreement and other
applicable Multilateral Trade Agreements.  However, against the background of certain perceptions
that many developments in textiles and clothing trade during the ATC implementation have been
related to regional arrangements and initiatives, the TMB briefly addressed this issue, on the basis ofthe limited statistical information available to it.  An important conclusion of the TMB's brief
overview was that the issue of potential effect of regional arrangements and initiatives should be
approached and assessed with the necessary caution.  Regional arrangements represent an undeniably
important phenomenon in trade in textile and clothing products and, in all likelihood, this will also
continue to be the case in years to come.  In certain cases (offshore assembly operations), these trade
flows can also be viewed as part of the ongoing adjustment process.  To the extent that one can rely
on available statistical data, regional arrangements, in most cases, have the effect of increasing theshare of reciprocal trade between the parties in the overall trade of the Members concerned.
Therefore, such trade flows could have implications for the trading opportunities of those Members
which do not form part of the regional arrangements concerned.  However, it could be also noted that,
in some cases, the increased trade with preferential partners was achieved not at the expense of
imports from other restrained Members, but rather caused loss in market share of some other(developed) suppliers.  In any event, the lack of sufficiently detailed and specific information does not
allow more far-reaching conclusions to be drawn at this stage.  It is also noteworthy that, in some
cases, the regional (preferential) trade flows cannot be captured on the basis of data regarding global
trade flows.  Moreover, no information has been prov ided up to now (not only to the TMB, but to the
WTO system as a whole) on certain regional initiatives whose implementation have alreadycommenced.
709. In light of the above, the TMB recommends to the CTG that the Council:
• note that regional arrangements and initiatives represent an aspect that should be
taken into consideration in analyzing trade effected in textile and clothing products;
• invite Members to provide the necessary notifications and/or information to
appropriate WTO bodies, including the TMB, on any new regional arrangement or
initiatives (involving trade in ATC products).
9. Elimination of Restrictions on Imports from Certain Non-WTO Members
710. The TMB noted that several Members had pointed out that there had been "numerous
instances in which quota restrictions on non-WTO Members had been eliminated while keeping themin place for WTO Members".  In the view of these Members, such actions are inconsistent with the
MFN principle (Article I of GATT 1994) and with Article XIII of GATT 1994 and as a result of such
actions, the balance of rights and obligations under th e ATC is lost, since Article 1.6 provides that the
rights and obligations of Members under the provisions of the WTO Agreement and the Multilateral
Trade Agreements shall not be affected by the provisions of the ATC unless otherwise provided in the
Agreement itself.
711. The TMB also noted that, in the view of the European Community, its agreements with non-
WTO Members "do not fall under the purview of the TMB" and they are not "relevant to the TMB's
review of the second stage of integration as foreseen by Article 8.11 of the ATC".  The
European Community also stated that these arrang ements were designed to foster improved trade
relations, and in particular improved access in the textiles and clothing sector for both parties.  They,
therefore, promoted trade liberalization within th e context of mutually beneficial arrangements.G/L/459
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712. Reflecting on the above views, the TMB briefly addressed different aspects of the arguments
made.  With regard to the concerns expressed above in this regard, the TMB noted that it raised
questions as to whether rights and obligations of WTO Members had been affected under the WTO
Agreement, in particular under GATT 1994.  The TMB observed, however, that none of the
provisions of the ATC, including its Article 1.6, authorized the TMB to pronounce itself on whether
rights and obligations of Members had been affect ed, or not, under the provisions of GATT 1994.
713. In these circumstances the TMB recommends to the CTG that the Council:
• note the views and concerns expressed by Members as reflected above;
• reflect further, if it deems appropriate, on these issues.
10. Compliance with Notification Requirements Under the ATC.  Cooperation by Members
in Responding to Requests Made by the TMB.  Members Own Initiative to ProvideInformation on Matters Affecting the Implem entation of the ATC or Referring Matters
to the TMB
714. As reflected in this report, WTO Members' compliance with time-bound notification
obligations under the ATC has not improved, rather it has further deteriorated over time.  As a result,
an increasing number of Members has not provided any notification when such notifications were due
and there has also been an increase in the number of late notifications.  The TMB noted that such non-
compliance with basic notification requirements, including the deadlines, may have legal implicationson Members' rights and obligations arising from the ATC.
715. It is an equally serious concern to the TMB that, in a number of specific cases, despite its
repeated requests for clarifications, precisions, additional information from the Members concerned,
no reply was provided.  The TMB reiterates that full cooperation from Members has been and
continues to be indispensable to enable the TMB to review or to facilitate its task of examining, underthe applicable provisions of the ATC, all the measures taken under the ATC and of reaching
appropriate conclusions on their conformity therewit h.  Continued failure to provide information and
clarifications has hampered the TMB's ability, in these cases, to discharge its functions in accordance
with the requirements of the ATC.
716. There were a few instances when Members took certain measures allegedly under the ATC,
but no notification or information was provided by them to the TMB.  There were and continue to be
cases when the Members concerned considered that a particular measure taken did not fall under a
particular provision of the ATC and that, therefore, it should not be notified at all.  However, it would
appear that such measures were related to trade in products covered by the ATC and could have an
effect on the ATC implementation.  Therefore, at  the minimum, for transparency purposes, such
measures should be either notified to the TMB or brought to its attention in the form of appropriate
information.
717. Some of the information and comments provided by Members, in reply to the TMB's request,
made in the context of the preparation of the present report, revealed certain concerns, or were related
to matters, that could have been formally referred to the TMB by the Members concerned under the
applicable provisions of the ATC.  While the TMB appreciates all the contributions received and has
decided to reflect them as fully as possible in the relevant parts of this comprehensive report, itobserves that providing such views and comments is not a substitute for, and does not amount to, a
formal proceeding that can be initiated under the respective provisions of the ATC.
718. All the above highlight the fact that the efficient functioning of the TMB and its supervisory
role under the ATC is also dependent on the cooperation of Members and on their attitude in referring
issues which can adversely affect their rights and trading interests under the ATC to the TMB.G/L/459
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719. The TMB recommends to the CTG that the Council:
• invite Members to fully comply with their respective notification obligations during
the remaining period of ATC implementation;
• recall to Members the importance of cooperating with the TMB, in particular in
providing it with the information that it had decided to seek from them;
• invite Members to submit timely notifications or information, as appropriate, to the
TMB on all measures taken under the provisions of the ATC and also on actions that
can affect ATC implementation and the rights and obligations arising from the
Agreement;
• invite Members to refer to the TMB, if and when the need arises, the matters which
can adversely affect their rights or they c onsider to be detrimental to their interests
under the ATC.
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