United States General Accounting Office

GAO Report to Congressional Requesters

September 1996 TEXTILE TRADE

Operations of the

Committee for the

Implementation of

Textile Agreements

G O A

years

1921 - 1996

GAO/NSIAD-96-186

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-261750 

September 19, 1996

The Honorable Charles E. Grassley

United States Senate

The Honorable William V. Roth, Jr.

United States Senate

The Honorable William Archer

House of Representatives

The Honorable Philip M. Crane

House of Representatives

This report responds to your request that we examine the operations of

the U.S. Committee for the Implementation of Textile Agreements (CITA) in

its role in administering the U.S. textile program in light of the 1994

Uruguay Round Agreement on Textiles and Clothing (ATC). ATC, which took

effect January 1, 1995, calls for the phaseout of quotas under the prior

Arrangement Regarding International Trade in Textiles, known as the

Multifiber Arrangement (MFA).

Specifically, you asked us to (1) identify CITA’s authority, functions,

resources, and costs under MFA and ATC; (2) determine CITA’s

decision-making process for imposing quotas, including the level of

transparency (openness) in its process; (3) review CITA’s use of data to

make quota decisions; and (4) evaluate CITA’s use of ATC transitional

safeguards (temporary import quotas) in 1995. You also asked us to

examine the European Union (EU),1

 Canadian, and Japanese use of quotas

under MFA and ATC and their processes for imposing quotas. In addition,

you asked us to describe the safeguard process administered by the U.S.

International Trade Commission (ITC).

Background Historically, the U.S. textile and apparel (clothing) industries, including

yarn, fabric, apparel, and a variety of home furnishings and industrial

products, have faced intense competition in the U.S. marketplace from

countries with low labor costs. Textile and apparel imports represented 

7 percent of total U.S. imports in 1994. In that same year, there was a

1

The EU consists of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,

Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

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$34-billion trade deficit in textile and apparel products. (See app. I for data

concerning the U.S. textile and apparel industries.)

CITA is chaired by the Department of Commerce and composed of

representatives from the Departments of State, Labor, and the Treasury;

and the Office of the U.S. Trade Representative (USTR). CITA was

established in 1972 to supervise the implementation of all U.S.

international textile agreements. (See app. II for a discussion of CITA’s

role.) One of CITA’s main functions is to decide whether and when to

impose quotas on textile and apparel products. Because these products

have historically been vulnerable to low-priced imports, textile and

apparel trade has not been subject to General Agreement on Tariffs and

Trade (GATT)2

 disciplines (practices). Rather, textile trade has been

primarily governed by successive multilateral agreements that set forth a

separate framework of rules, including the authority to impose quotas.

From 1974 though 1994, CITA supervised the U.S. implementation of MFA,

which governed worldwide textile trade and sought to provide for its

sustained, orderly expansion. Among other things, under MFA, the United

States entered into a number of bilateral agreements containing negotiated

textile import quota levels. MFA also contained a “safeguard” provision,

which allowed importing countries to impose unilateral quotas when it

determined that imports were causing actual or threatened serious

damage to the U.S. domestic market based on factors specified in MFA. CITA

is now responsible for supervising the U.S. implementation of ATC. Along

with continuing its role of implementing textile agreements, under ATC,

CITA is to supervise a 10-year phaseout of textile and apparel quotas in four

stages ending in 2005. ATC will have a major long-term impact on the U.S.

textile and apparel industry by integrating all textile products into GATT

rules and disciplines.3

During the first stage (1995-97), virtually no products currently under

quota are to be integrated into GATT trade rules by any of the major

importing countries. That is, the products integrated in the first stage are

products that have never been under quota. The U.S. Statement of

Administrative Action (SAA) accompanying the Uruguay Round

implementing legislation provided that CITA would ensure that integration

2

GATT contains rules and disciplines covering its members’ trade practices, including

nondiscriminatory treatment of trade in goods. The Final Act resulting from the Uruguay Round of

GATT negotiations was signed in 1994.

3

The United States had originally sought a 15-year phaseout during ATC negotiations, as well as greater

openness of foreign markets to textile and apparel trade.

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of the most sensitive products would be deferred until the end of the

10-year period.4

 In fact, under the U.S. integration schedule, 89 percent of

all U.S. apparel products (apparel products are considered sensitive),

47 percent of all textile products (textile products are considered less

sensitive), and 67 percent of textile and apparel products combined, under

quota in 1990, will not be integrated until the final stage in 2005. Importer

and retailer representatives have referred to the final stage as “the cliff,”

because of the potential shock to the U.S. domestic market when a

majority of textile and apparel quotas will be lifted at one time.

During the 10-year transition period, the United States may impose a

temporary quota on another World Trade Organization (WTO)5

 member

country under ATC only through the use of a “transitional safeguard.” This

safeguard applies to products not yet integrated into GATT rules. After

determining that imports of a particular product are causing “serious

damage or actual threat thereof”6

 to domestic producers, CITA issues a

“call,” or a request for consultations to discuss the matter with an

exporting country believed to be causing the damage.7

 Following the

consultations, CITA may impose a quota—with or without the agreement of

the exporting country. (See app. III for detailed information on ATC and

MFA.)

As of May 1996, CITA had 884 quotas in place on individual textile and

apparel categories. These quotas covered 44 countries and 123 out of 148

CITA categories.

Results in Brief Our review of CITA operations indicated the following:

• Under ATC and formerly under MFA, Congress and the President have

delegated broad authority to CITA to make determinations about invoking

4

During 1995, as required by SAA, CITA published in the Federal Register its proposed list of products

to be integrated at each of the four integration stages (no other country has published its list beyond

the first stage). CITA requested written comments from all interested parties and held public hearings

to obtain comments on its integration plan for stages two, three, and four. CITA published the final

integration plan in the Federal Register on May 1, 1995.

5

The WTO was established on January 1, 1995, and is a legal and institutional foundation of the

multilateral trading system, and the successor to GATT. The United States is a member of WTO.

6

For ease of discussion, the report may refer to this safeguard standard as “serious damage” without

repeating the phrase “actual or threat thereof.”

7

CITA may impose quotas on non-WTO member countries without regard to ATC rules pursuant to the

authority of section 204 of the Agricultural Act of 1956, as amended. (7 U.S.C. § 1854.) In addition,

quotas on non-WTO members are not subject to the 10-year phaseout.

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safeguards. Since CITA’s main function, to implement textile agreements,

remains the same under ATC as MFA, it does not expect any significant work

load changes in the near future related to the 10-year phaseout of quotas.

CITA receives about $3.6 million annually and has a staff of 33 within the

Department of Commerce.

• By majority vote, CITA can impose quotas when it determines that imports

are causing serious damage to domestic industry. Through the continuous

monitoring of industry data, CITA is generally proactive in identifying cases

of serious damage. CITA’s support staff generally obtains information from

domestic producers before deciding to request consultations with an

exporting country. CITA contacts U.S. importers and retailers after

requesting consultations with the foreign government to impose a quota.

• In deciding whether to request consultations to impose quotas, CITA uses

various U.S. government economic statistics. CITA seeks to match import

data and domestic production data to establish a causal link between

imports and serious damage to domestic industry. Because agencies

collecting the data use different classification systems, some compatibility

problems exist.

• CITA does not base its safeguard decisions on specific thresholds of import

increases and domestic production declines; rather it makes decisions on

a case-by-case basis. Of the 166 calls for consultations CITA issued from

1990 to 1995, we found that the most recent median yearly production

decline was 6.4 percent and the comparable median import increase was

9.6 percent.8

 The most recent median import increase was 17.6 percent.9

The change in the most recent import data ranged from a fall of 15 percent

to an increase of 195 percent. The change in domestic production ranged

from a decrease of 51 percent to an increase of 25 percent.

Through June 1996, the United States has been the only country that has

imposed quotas under ATC since it went into effect in January 1995.10 CITA

issued 28 calls in 1995.11 Nineteen calls were on WTO member countries,

8

Median yearly changes are for the last 2 years of data as presented in CITA’s market statements

(proposals supporting calls). We chose the most recent period for consistency, since the market

statements almost always included data for the most recent 2 years, but in some cases they included

data for up to 60 months.

9

Import data is more current than production data because it is provided monthly while production

data is provided quarterly. In our analysis, we considered both import data comparable to production

data and the most recent import data, which were generally not comparable. The most recent import

data were generally from 1 to 3 months prior to the issuance of the market statement, while

production data can be up to 12 months old.

10In June 1996, Brazil notified the Textile Monitoring Body (TMB) that it had requested consultations to

impose quotas under ATC. TMB replaces the Textiles Surveillance Body, which reviewed safeguard

decisions under MFA.

11From January through August 1996, CITA issued two calls.

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and 9 calls were on non-WTO member countries at the time of the call.12

The EU and Canada imposed quotas under MFA, but Japan has never

imposed quotas.

The ITC process for determining injury (for all goods under GATT) due to

increased imports differs significantly from CITA’s in that it is based on U.S.

legislation that stipulates specific procedures and time frames that must

be followed. ITC is required to obtain the views of interested parties

through public hearings.

CITA’s Authority,

Functions, Resources,

and Costs

CITA has broad authority to carry out its main function of regulating textile

imports on behalf of the United States through implementing textile

agreements, including determining the existence of serious damage to

support a safeguard action. This mandate remains the same under ATC as it

was under MFA.

The U.S. Constitution vests in Congress the power to regulate commerce

between the United States and foreign nations. In the case of textiles and

apparel, Congress has granted to the President extraordinary discretion to

regulate U.S. imports.13 The President, in turn, has delegated authority for

implementing textile agreements to CITA.

14 Neither Congress, nor the

President since 1989, has provided procedural requirements to guide CITA

in making its safeguard determinations.15 Moreover, CITA’s decisions are

conclusive and are not reviewed or approved by other executive branch

officials.16 Finally, given that CITA has been allowed significant discretion

to regulate textile imports, courts have held that CITA’s serious damage

determinations and the underlying reasoning for those determinations are

not subject to judicial scrutiny.17

According to CITA officials, CITA’s primary function under ATC is to “ensure

that there is a gradual and orderly liberalization of trade which will allow

12El Salvador, Colombia, and Guatemala have subsequently become WTO members.

137 U.S.C. § 1054; American Association of Exporters & Importers v. U.S., 583 F. Supp. 591 (1984).

14Executive Order 11651 (May 3, 1972).

15A 1983 presidential directive suggested discretionary numerical thresholds for imposing quotas. Since

1989, CITA has not considered this directive to be policy.

16From 1975 to about 1987, a Textile Trade Policy Group provided broad policy guidance to CITA.

Currently, CITA representatives may confer with higher-level officials within their respective agencies

on proposed calls as necessary.

17American Association of Exporters & Importers v. U.S.

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U.S. companies sufficient time to further modernize and prepare for

greater international competition.” During the 10-year transition period,

CITA can issue calls under the ATC transitional safeguard mechanism.

Bilateral agreements in place with WTO members under MFA are now folded

into ATC, obviating the need for CITA to renegotiate these agreements.

CITA is expected also to continue performing many other pre-ATC functions.

The committee will continue to participate in negotiations (led by USTR)

for bilateral quota agreements with non-WTO member countries. It also has

a role in efforts aimed at preventing the illegal routing of textile and

apparel imports through third countries (transshipment violations) and

commenting on regulations concerning the origin of textile and apparel

products.

CITA has no budget of its own, but portions of the individual budgets of the

five principal agencies related to CITA functions added up to $3.6 million in

fiscal year 1995. The Department of Commerce’s Office of Textiles and

Apparel (OTEXA) has a staff of 41, 33 of whom support CITA’s operations,

monitoring and analyzing textile trade and production data. About 

17 percent (or $2.8 million) of OTEXA’s budget supports CITA operations.18

OTEXA’s resources and costs remained constant between fiscal years 1994

and 1995, the first year of ATC. CITA does not expect to undergo any

significant reduction in its work load in the near term due specifically to

the 10-year quota phaseout, according to representatives of the five CITA

agencies.

Decision-making

Process for Imposing

Quotas

CITA is proactive in determining whether to impose a quota, relying heavily

on OTEXA’s continuous monitoring and analysis of trade and economic data

as a source for its information. OTEXA’s data monitoring generally provides

the impetus for CITA to issue a call. Although OTEXA considers an array of

data, it focuses primarily on two factors: a surge in imports and a decline

in domestic production. OTEXA also examines some other economic factors

listed in ATC, including domestic employment, prices, and market share.

Under U.S. law, CITA does not have procedural requirements it must follow

to determine whether to make a call. To date, CITA has not published

guidelines or documented procedures that describe its decision-making

process for imposing quotas.

18A large portion OTEXA’s budget is devoted to two research and development grants administered by

OTEXA.

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Once OTEXA’s analysis identifies a potential case of serious damage, OTEXA

may contact domestic producers to obtain additional information on the

effect of imports on the domestic industry. OTEXA then prepares a proposal

(also known as a “statement of serious damage or actual threat thereof”

and referred to hereafter as a “market statement”) for CITA to request

consultations with an exporting country. The proposal serves as the basis

for CITA to vote on whether to request consultations with a foreign

government.

According to CITA officials, the committee currently uses majority voting to

make decisions on calls.19 Generally speaking, each CITA agency considers

the need for import restraints while taking into account the concerns of

U.S. industry, workers, importers and retailers, consumers. However, each

agency brings a unique perspective to the decision process. Commerce

and Labor consider the interests of textile and apparel producers and

workers, State evaluates U.S. foreign policy concerns, and the Treasury

analyzes the net economic benefit to consumers, producers, and importers

and retailers. (The Treasury is also concerned with the appropriateness

and enforceability of CITA recommendations and directives.) Some

balancing of views is provided by USTR. In theory, if CITA decided by

consensus, one CITA principal would have the ability to block a request for

consultation. For example, CITA principals did not reach consensus on 64,

or about 30 percent, of the 204 votes taken on whether to impose a quota

from 1990 through 1995, since these votes were not unanimous. CITA is not

required to publish its voting records or minutes of its monthly meetings,

and it does not do so.

If CITA votes in favor of issuing a call, the committee requests consultations

with the exporting country through diplomatic note to impose a quota.

Under ATC, once the exporting country receives the note, the two

governments have 60 days to consult. No quota is put in place during the

consultation period.

Once CITA contacts the exporting country to request consultations, OTEXA

publishes in the Federal Register details of the request, a summary of the

market statement supporting the call, and a request for written comments

19In the early 1980s, CITA made decisions on the basis of consensus, wherein one member could veto a

call decision. The executive order establishing CITA provided that decisions of the Chairman are to be

implemented unless a majority of the CITA members oppose the action.

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B-261750 

from interested parties.20 Before the consultations take place, CITA also

notifies and generally schedules meetings with both U.S domestic

producers and importers and retailers to brief them and obtain their

input.21

For a number of years, importers and retailers have advocated the use of

open, public hearings that would allow for public comment before CITA

makes a decision on whether to call a foreign government. Importers and

retailers currently have an opportunity to provide input after CITA requests

consultations with a foreign government but not to comment before a call

is made. However, according to CITA officials, if importers and retailers

were notified before a call is made, imports might surge further as firms

attempt to import products before a quota is applied, and domestic

producers might subsequently be hurt. Although importers and retailers

maintain that they would not have enough time to place an import order

and thereby enhance an import surge, CITA officials have not been

convinced by this argument.

U.S. importers and retailers and domestic producers also disagree about

the amount of information OTEXA provides them about consultations after

the call is made. Importers and retailers said they are not provided with as

much information as domestic producers about upcoming consultations;

on the other hand, domestic producers said that, in their view, importers

and retailers receive additional information from the foreign exporting

country involved in the consultations. CITA does not keep written records

of its meetings or contacts with industry representatives, so the amount of

information provided to domestic producers and the importer and retailing

community cannot be determined. (See app. IV for further information on

CITA’s decision-making process.)

CITA’s Data Sources In deciding whether to impose quotas, CITA uses government statistics

collected by the U.S. Customs Service, the Census Bureau, and the Bureau

of Labor Statistics (BLS). These statistics are subject to the internal quality

control processes of the three agencies. OTEXA officials attempt to match

20In our 1983 report, Implementation of Trade Restrictions for Textiles and Apparel

(GAO/NSIAD-84-18, Nov. 4, 1983), we recommended that a summary of CITA’s justification for a call

be published in the Federal Register. CITA has implemented this recommendation. However, in the

same report we also recommended that, to the extent practical, OTEXA indicate in its proposals to

CITA justifying a potential call, why other major suppliers have not been the subjects of a call. CITA

has not implemented this recommendation.

21In the past, CITA relied on the “cleared advisors” program, a formal advisory group composed of

importers, retailers, and producers who would be privy to sensitive information. However, due to

budget constraints and other factors, about 2 years ago the Department of State stopped processing

security clearances for this program, and the last clearances expired in 1995.

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these data, including production, domestic price, and employment data, to

CITA’s product categories.22 However, because Customs, Census, and BLS

use different methods to collect their data, some compatibility problems

occur when OTEXA attempts to make this match. CITA’s textile and apparel

categories consist of combinations of International Harmonized Tariff

Schedule (HTS)23 codes, but not all of the previously mentioned

government agencies collect the data under an HTS-based system.

While Customs collects import data using HTS, the Census Bureau collects

production and domestic price data using Census’ product descriptions.

BLS collects employment data using Standard Industrial Classification (SIC)

product codes.24 We found that OTEXA can match the production data with

a high degree of accuracy, but for price and employment data this

matching is necessarily done with a much lesser degree of accuracy.

Therefore, while import and production data were generally reliable and

valid, price and employment data may only provide OTEXA with broad

indications of trends in the domestic textile and apparel industries. (See

app. V for more information on OTEXA’s data collection.)

How CITA Uses Data

to Support Calls

In the 166 market statements we examined for calls CITA issued between

1990 and 1995, we found that the committee relied primarily on data

contained in OTEXA market statements for evidence of import surges and

production declines, and to a lesser degree on price and employment data.

CITA officials told us that they exercise considerable judgment, treat their

determinations on a case-by-case basis, and apply no specific numerical

threshold (such as a minimum increase in imports or a minimum decline

in production) in making their decisions.

Our review of import increases and production falls in the 166 market

statements indicated the following:

• CITA issued calls when production declined by a median of 6.4 percent

during the most recent period for which this data were available, while

comparable yearly imports of a particular category of textiles or apparel

increased by a median of 9.6 percent. The most recent median import

22CITA uses 148 product categories to track import surges. For example, one CITA category includes

women’s and girls’ wool coats.

23HTS is an extension of the 6-digit Harmonized Commodity and Coding System, the internationally

recognized classification system for commodities.

24SIC is the statistical classification standard underlying all establishment-based (plant-level) federal

economic statistics classified by industry. The classification covers the entire field of economic

activity and defines industries in accordance with the composition and structure of the economy.

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increase was 17.6 percent. The change in the most recent import data

ranged from a decrease of 15 percent to an increase of 195 percent. The

change in domestic production ranged from a decrease of 51 percent to an

increase of 25 percent.

• CITA did not issue calls in some cases where there were import increases

and production falls. In examining annual import and production data

between 1992 and 1994 for 94 CITA categories, including categories both

called and not called, no calls were made in 21 instances where yearly

production fell in a category by more than 5 percent and yearly imports

rose in a category by 5 percent or more.

• CITA issued some calls when either domestic production fell or import

increases were fairly small. For example, 26 percent of the calls occurred

when the most recent year’s production declines were less than 2 percent;

20 percent of the calls occurred when the most recent year’s import

increases were less than 2 percent. Both small production declines and

small import increases occurred at the same time in less than 4 percent of

the calls.

• CITA requested consultations with countries whose imports of the product

in question represented a median of 2.5 percent of total U.S. imports of

that commodity in the most recent 12 months for which data were

available. The percent of total imports from individual countries ranged

from 0.09 percent to 84 percent.

In the 166 market statements we reviewed, CITA assumed a causal link

between import rises and production falls because, according to OTEXA

officials, this link is extremely difficult to prove. CITA also assumed in the

market statements that textile and apparel imported products falling under

the same CITA product category were like and/or competitive products to

those being produced by domestic manufacturers of items under that

category.25 However, we found that the HTS codes under some CITA

categories represent varied products. Since CITA imposes quotas at the

category level, all of the items under that category then become the

product subject to quota. For example, in a 1995 call, CITA requested

consultations with India over imports of category 435—women’s and girls’

wool coats—and imposed a quota. Category 435 includes suit-type jackets

as well as overcoats and ski jackets. Thus, the quota was imposed not only

on wool coats but also on suit-type jackets and ski jackets. (CITA later

rescinded the restraint.) The producer prices of some HTS codes within

CITA categories also varied, illustrating that the products may not be like

and/or directly competitive. (See app. VI for more information on CITA’s

use of data.)

25ATC does not define “like and/or directly competitive products.”

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Outcome of 1995 U.S.

Calls

In 1995, CITA issued 28 calls. Under ATC, all safeguard decisions are to be

reviewed by a newly created international Textiles Monitoring Body in

Geneva, consisting of representatives from 10 countries, including the

United States. TMB supervises the implementation of ATC. Among other

responsibilities, TMB conducts examinations of all safeguard actions,

including those involving disputes and those resulting in agreements, and

makes appropriate recommendations. To date, TMB has completed its

review of seven of the U.S. calls (where initially no agreement was reached

with the exporting country) and found that the United States had

demonstrated the threat of serious damage to domestic industry

attributable to the called country in one case. In three cases, TMB found

that the United States had not demonstrated serious damage to its

domestic industry, and the United States subsequently rescinded the

quotas; in three other cases, TMB could not reach consensus.

TMB has not published details about the reasons for its recommendations,

but some individual TMB members expressed concerns to us about the

nature and timing of the 1995 U.S. calls (as of May 1996, the United States

was the only country that had imposed quotas under ATC). Some TMB

members told us that they considered ATC a liberalizing agreement and,

thus, had not expected over 20 calls early in its first year.26 Although 28

calls was not unusually large compared to the number of calls made in

previous years under MFA, some TMB members were concerned that the

United States was treating calls under ATC as “business as usual.”

In addition, individual TMB members we interviewed questioned how the

United States used data to justify its calls. For example, they questioned

(1) whether in some cases import increases had been “sharp and

substantial” as required under ATC, (2) why changes occurred in the

direction of data levels—in one case in U.S. domestic production levels

and in another case in U.S. employment levels—between the consultation

period and the TMB review, (3) whether the United States had adequately

considered the exporting country’s world market share of the products in

question, and (4) whether reimports under the U.S. Special Access

Program27 could damage U.S. producers. In addition, some TMB members

wanted to see more evidence that the United States had considered the

extent to which the domestic producers being damaged by imports were

26According to OTEXA, 6 of the 28 calls had originally been made in 1994 under MFA but were not

resolved and thus were carried over into 1995 under ATC.

27The Special Access Program provides for more favorable quota treatment for imports from

Caribbean Basin countries of apparel products assembled from fabric cut and formed in the United

States.

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producing like and/or competitive products. (See app. VII for more

information on 1995 calls.)

Other Countries’

Processes for

Imposing Import

Quotas

The data Canada and the EU use to make determinations of serious damage

are similar to the type of data used by CITA. However, the Canadian and EU

processes for making safeguard calls differ from the U.S. safeguard

process in several ways. For example, the EU’s decisions to request

consultations to impose quotas have been initiated by complaints from

domestic producers rather than based on their own governments’

monitoring efforts. While importers and retailers can lobby the EU

Commission, which chairs the intergovernmental committee responsible

for setting quotas, they are not notified officially when a call is being

considered. The Canadian government monitors trade flows and initiates

safeguard actions. If the government intends to make a call, it notifies

Canadian manufacturers, retailers, and importers and allows them to

comment 2 to 3 weeks before issuing the call. In addition, Canadian and EU

officials stated that they are not concerned about possible import surges

before a call is made, for various reasons. Japan has not invoked safeguard

measures under MFA or ATC. (See app. VIII for more information on the

foreign systems.)

ITC’s Process for

Imposing Import

Quotas

Like CITA, ITC has the authority to determine whether an article is being

imported into the United States in such increased quantities as to damage

domestic industry, although their respective processes differ. ITC

administers the GATT safeguard provision under section 201-04 of the Trade

Act of 1974 as amended.28 Specifically, any relief imposed through the

section 201 process applies to merchandise from all countries. ITC has no

consultation period with any foreign government. The act requires ITC’s

investigation to be triggered by a petition from an affected party and sets

out specific procedures and time frames that must be followed. The act

mandates that ITC hold public hearings, solicit briefs from interested

parties, and issue public reports throughout the course of its investigation.

During the past few years, retail and importer trade associations have

maintained that the ITC process for imposing import restraints could be a

potential alternative to CITA’s safeguard process. In addition, in 1995, a bill

was introduced in the U.S. House to transfer CITA activities relating to ATC

safeguard measures to ITC. (See app. IX for more information on the ITC

safeguard process.)

2819 U.S.C. §§ 2251-54.

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Matters for

Congressional

Consideration

We believe that the material and analyses we have presented are the most

comprehensive recent examination of the way that CITA operates and

arrives at its decisions related to invoking ATC transitional safeguards.

On the basis of this information, Congress may decide that it is satisfied

with CITA as it is, or it may want to consider changing some of CITA’s

operations. For example, if Congress is dissatisfied with the amount of

transparency in CITA’s operations, it might wish to consider such measures

as requiring CITA to publish its operating procedures, the minutes of its

meetings (edited to protect proprietary or other sensitive information),

and voting records.

In the area of decision-making, Congress might wish to consider

establishing threshold levels for import increases or production declines

that would prompt consideration of imposing quotas. Or, Congress might

wish to consider directing CITA to make quota decisions on the basis of

consensus among its members.

In the area of oversight, Congress might wish to consider establishing a

high-level interagency body to review CITA’s decisions to impose quotas.

This body could be similar to the Textile Trade Policy Group that existed

between 1975 and 1987.

Agency Comments In commenting on a draft of this report, CITA stated that much of the report

represented a thorough and factual account of the operation of the U.S.

textile program. However, CITA expressed some concern about our

methodology for analyzing its use of data to support safeguard calls. CITA

maintained that we did not accurately characterize how it applied data to

issue a call. We evaluated CITA’s specific concerns and made some

modifications to the report. However, we disagree with CITA’s overall

comment on our assessment of CITA’s use of data. We believe our

methodology and analysis are sound and accurately reflect how CITA uses

data in deciding to impose an import quota. CITA’s comments are provided

in their entirety in appendix XI, along with our point-by-point response.

We did not provide CITA an opportunity to comment on the Matters for

Congressional Consideration. (See app. X for information on our scope

and methodology.)

Unless you publicly announce its contents earlier, we plan no further

distribution of this report until 30 days from the date of this letter. At that

time, we will send copies of this report to the Secretaries of Commerce,

Page 13 GAO/NSIAD-96-186 Textile Trade
B-261750 

State, Labor, and the Treasury; and the U.S. Trade Representative; and

appropriate congressional committees. We will also make copies available

to others upon request.

Please contact me at (202) 512-8984 if you or your staff have any questions

concerning this report. Major contributors to this report are listed in

appendix XII.

JayEtta Z. Hecker

Associate Director

International Relations and

 Trade Issues

Page 14 GAO/NSIAD-96-186 Textile Trade
Page 15 GAO/NSIAD-96-186 Textile Trade
Contents

Letter 1

Appendix I 

Overview of the U.S.

Textile and Apparel

Industries

22

Textile Trade Patterns 24

Apparel Trade Patterns 26

Appendix II 

The Committee for

the Implementation of

Textile Agreements:

Functions, Resources,

and Costs

30

CITA’s Resources and Costs 31

Appendix III 

Changes in

Multilateral Textile

Rules Required by

ATC

33

Appendix IV 

CITA’s

Decision-making

Process to Impose

Import Restraints

40

Appendix V 

CITA’s Data Sources

44

OTEXA Matches U.S. Government Data to CITA Categories 44

Import Data 47

Production Data 49

Price Data 51

Employment Data 51

Page 16 GAO/NSIAD-96-186 Textile Trade
Contents

Appendix VI 

Use of Data

Supporting Serious

Damage

Determinations

53

CITA’s Calls Between 1990 and 1995 54

Market Statements Reflected Production Declines and Import

Increases

55

Some Market Statements Reflected Unique Trends in Production

and Import Levels

56

CITA Requested Consultations With Some Small Suppliers 58

CITA Called Some Categories That Contained a Variety of

Products at Varied Producer Prices

59

Appendix VII 

ATC Safeguards

Invoked in 1995

61

Calls Issued by CITA in 1995 61

The Textiles Monitoring Body 63

TMB’s Review of 1995 Safeguards 64

Views of Individual TMB Members Concerning Calls 66

Case Study of One CITA Call 67

Appendix VIII 

Safeguard Procedures

in the EU, Canada,

and Japan

77

The EU’s Textile and Apparel Industries 77

The EU’s Safeguard Call Process 78

Canada’s Textile and Apparel Industries 81

Canada’s Safeguard Call Process 82

Japan’s Textile and Apparel Industries 84

Japanese Safeguard Issues 84

Appendix IX 

ITC’s Safeguard

Process

86

Appendix X 

Scope and

Methodology

92

Page 17 GAO/NSIAD-96-186 Textile Trade
Contents

Appendix XI 

Comments From the

Department of

Commerce

94

Appendix XII 

Major Contributors to

This Report

111

Tables Table I.1: U.S. Import Categories by SIC, in 1994 24

Table I.2: Suppliers of Textiles to the U.S. Market 1995 25

Table I.3: Markets for U.S. Textile Products, 1995 26

Table I.4: Suppliers of Apparel to the U.S. Market, 1995 27

Table I.5: World Apparel Imports by Developed Countries and

Country Groups, 1990-93

28

Table I.6: Markets for U.S. Apparel Exports, 1995 29

Table II.1: CITA Personnel and Estimated Fiscal Year 1995

Budget

31

Table II.2: OTEXA Budget, Fiscal Years 1990-95 32

Table III.1: Integration Schedule for Textile and Apparel Products

Under Quota

33

Table III.2: Examples of ATC Quota Growth Rates, 1995-2004 35

Table V.1: Illustration of One CITA Category’s Corresponding

HTS Codes

44

Table V.2: Illustration of Problems in Matching Bureau of Labor

Statistics and Census Data to CITA Categories

47

Table VI.1: CITA Calls, 1990-1995 54

Table VI.2: Median Import Rises, Production Declines, and

Domestic Market Share Falls for CITA Calls, 1990-95

56

Table VI.3: Calls With Relatively Small Recent Import Increases

or Production Falls, 1990-95

57

Table VI.4: CITA Calls With Various Combinations of Production

and Import Data, 1990-95

57

Table VI.5: Median Percent of Imports and U.S. Market Share for

Countries Receiving Calls, 1990-95

58

Table VI.6: Prices for Two HTS Codes Under Category

359-C/659-C in CITA Call to the Philippines

60

Page 18 GAO/NSIAD-96-186 Textile Trade
Contents

Table VII.1: Production, Import, and World Market Share Data

from Market Statements for CITA’s 1995 Calls

62

Table VII.2: CITA’s 1995 Calls 64

Table VII.3: Countries Called, Domestic Production, and Total

Imports for CITA Category 351/651, 1982-95

70

Table VII.4: U.S. Imports From Major Suppliers Under CITA

Category 351/651, 1993-March 1995

71

Table VII.5: Quotas Resulting From Consultations on Category

351/651

75

Figures Figure III.1: Comparison of Safeguard Standards Under Article 3

of MFA and Article 6 of ATC

37

Figure IV.1: CITA’s Process for Imposing Import Quotas Under

ATC

41

Figure VII.1: Domestic Production and Imports Under CITA

Category 351/651, 1987-95

69

Figure IX.1: ITC Process for Imposing Safeguards 87

Page 19 GAO/NSIAD-96-186 Textile Trade
Contents

Abbreviations

ATC Agreement on Textiles and Clothing

BLS Bureau of Labor Statistics

CBI Caribbean Basin Initiative

CIR Current Industrial Reports

CITA Committee for the Implementation of Textile Agreements

DFAIT Department of Foreign Affairs and International Trade

DSB Dispute Settlement Body

EU European Union

GAL guaranteed access level

GATT General Agreement on Tarriffs and Trade

GDP gross domestic product

GSP General System of Preferences

HTS Harmonized Tariff Schedule

ITC International Trade Commission

MFA Multifiber Arrangement

MITI Ministry of International Trade and Industry

MMF manmade fiber

MOU memorandum of understanding

NAFTA North American Free Trade Agreement

NTC National Textile Center

OECD Organization for Economic Cooperation and Development

OTEXA Office of Textiles and Apparel

R&D research and development

SAA Statement of Administrative Action

SIC Standard Industrial Classification

SL specific limit

SME square meter equivalent

TC2 Textile/Clothing Technology Corporation

TMB Textiles Monitoring Body

TSB Textiles Surveillance Body

USTR Office of the U.S. Trade Representative

WTO World Trade Organization

Page 20 GAO/NSIAD-96-186 Textile Trade
Page 21 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

The U.S. textile and apparel industries accounted for 0.8 percent of the

U.S. gross domestic product (GDP) in 1993, making it the 10th largest

manufacturing sector. Yet, with about 1.6 million workers employed in

U.S. textile and apparel manufacturing industries, it was the second largest

source of nondurable manufacturing employment in the United States in

1995. In the same year, the U.S. textile and apparel industry represented

1.4 percent of total employment in all sectors in the United States.

The textile industry generally consists of producers of yarn and thread,

fabric, and various finished goods.1

 These goods include home furnishings,

such as sheets, towels, furniture covering, and carpets; and goods used for

industrial purposes, ranging from automobile upholstery to industrial bags

and belts. According to the U.S. International Trade Commission (ITC),2

 the

apparel industry consists of both vertically integrated firms (that make

both the fabric and the finished products) producing various knitwear

products, such as hosiery, underwear, and sweaters, and firms that

principally cut and sew products from purchased materials.3

 While the

apparel industry is dominated by small establishments, a few segments of

the industry are highly concentrated.4

Employment in the U.S. textile and apparel industries has been shrinking

over the past two decades.5

 At its peak in the early 1970s, the textile

industry employed 1 million people, while the apparel industry employed

1.4 million. In 1995, the textile industry employed 667,000, and the apparel

industry employed 930,000. According to Census Bureau statistics, the

number of U.S. textile and apparel establishments declined from 31,021 in

1982 to 28,935 in 1992.

Wages in the textile and apparel industries are relatively low. Although

average hourly earnings have been rising at an average rate of 2.8 percent

1

The textile industry is generally classified under the Standard Industrial Classification (SIC) 22, the

category for textile mill products.

2

ITC has a Textile and Apparel Branch, with a staff of five analysts, that publishes reports about the

textile and apparel industry.

3

The apparel industry is generally classified under SIC 23, the category for apparel and other textile

products. According to ITC, firms in this category account for about 85 percent of annual U.S. apparel

shipments. However, vertically integrated knitting mills that produce knitwear, such as hosiery and

underwear, directly from yarn or from fabric knit in the same mill are classified under SIC 22, the

category for textile mill products.

4

According to ITC, in segments such as men’s trousers and men’s underwear and nightwear, the four

largest firms in the United States account for roughly 60 percent of the respective industry shipments.

5

Employment, wage, and establishment data are reported based on industry definitions of SIC 22 for

textiles and SIC 23 for apparel.

Page 22 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

in the textile industry, and by 2.5 percent in the apparel industry over the

period 1988-95, wages in both industries are still relatively low when

compared to the manufacturing sector as a whole. In 1995, a textile worker

on average earned $9.41 per hour, and an apparel worker $7.64 per hour,

compared to $12.37 per hour for manufacturing workers overall.

The U.S. textile and apparel industries, and the apparel products industry

in particular, have traditionally been very sensitive to import competition

from lower-cost, developing country suppliers.6

 However, the textile

industry has gradually become relatively competitive and is less labor

intensive than the apparel industry. According to the Congressional

Budget Office, the textile industry is approximately as labor intensive as

the rest of U.S. manufacturing.

According to ITC, U.S. textile and apparel industries have implemented a

number of strategies in recent years to respond to growing market

competition. These strategies include adopting new technologies and

improving manufacturing, marketing, and distribution methods.

Table I.1 shows the top 10 import categories in 1994. Textile and apparel

imports were the fourth largest import category in 1994, with a higher

value than crude oil and natural gas imports that year. In contrast, textile

and apparel exports, at $11.3 billion in 1994, were 2.3 percent of all

exports, the 10th largest category of exports.

6

Generally, labor costs are considered to be a key factor in making apparel sensitive to imports from

low-cost foreign suppliers. However, according to ITC, while the ratio of labor costs to value added in

the apparel industry is still higher than that for the manufacturing sector as a whole, in recent years

the relative importance of labor costs to the U.S. apparel industry has been diminishing.

Page 23 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

Table I.1: U.S. Import Categories by

SIC, in 1994 Dollars in millions

SIC-based product category

Imports for

consumption Percent of total

Transportation equipment $115,998 17.6

Electric and electronic

equipment 94,332 14.3

Machinery, except electrical 89,705 13.6

 Textiles and apparel 45,095 6.9

Crude petroleum and natural

gas 44,949 6.8

Chemicals and allied

products 31,697 4.8

Primary metal products 30,106 4.6

Miscellaneous manufactured commodities 26,830 4.1

Instruments and related

products 24,410 3.7

Food and kindred products 17,342 2.6

All others 137,420 20.9

Total imports for consumption $657,884 100a

aPercents do not total 100 percent due to rounding.

Source: Statistical Abstract of the United States, U.S. Bureau of the Census (Washington, D.C.:

Sept. 1995).

Textile Trade Patterns Total textile imports reached 9.1 billion square meter equivalents (SME) in

1995, an increase of 2.3 percent from the prior year.7

 Table I.2 shows the

top 10 suppliers of U.S. textile imports in 1995, the most recent year that

data were available.

7

Includes Multifiber Arrangement (MFA)-covered products (cotton, wool, manmade fiber [MMF],

noncotton vegetable, and silk blend products of yarn, fabric, and made-ups (various household items,

such as sheets, towels, and draperies). Does not include 100-percent silk products.

Page 24 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

Table I.2: Suppliers of Textiles to the

U.S. Market (MFA Products) 1995

Country

Millions

of SME

Percent of

total U.S

imports

Canada 1,436 15.9

European Union (EU) 1,169 13.0

China 910 10.1

Mexico 776 8.6

Pakistan 594 6.6

Taiwan 576 6.4

India 493 5.4

South Korea 455 5.0

Thailand 420 4.6

Japan 247 2.7

All othersa 1,983 21.9

Total 9,059 100b

aAll others includes at least 41 other countries.

bPercents do not total 100 percent due to rounding.

Source: Major Shippers: Textiles and Apparel, U.S. Department of Commerce, Office of Textiles

and Apparel (OTEXA), (Washington, D.C.: Feb. 1996).

The total dollar value of U.S. textile exports rose by nearly 52 percent

between 1990 and 1995, approaching $7 billion by 1995.8

 Half of U.S. textile

products were shipped to Organization for Economic Cooperation and

Development (OECD) countries in 1995.9

 Table I.3 shows the top 10 markets

for U.S. textile products.

8

Data for textile exports do not include products of raw cotton, unspun wool, and MMF fiber that have

not been processed into yarns with twist.

9

The OECD countries are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland,

France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New

Zealand, Mexico, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the

United States.

Page 25 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

Table I.3: Markets for U.S. Textile

Products, 1995 (F.A.S. Value) Dollars in millions

Country

Amount of

U.S. exports

Percent of

total U.S.

exports

Canada $2,035 29.2

EU 1,209 17.4

Mexico 924 13.3

Japan 295 4.2

Hong Kong 226 3.2

Dominican Republic 188 2.7

Brazil 139 2.0

Australia 136 2.0

Saudi Arabia 125 1.8

South Korea 117 1.8

All othersa 1,574 22.6

Total $6,968 100b

Note: F.A.S. (free-alongside-ship) value is a method of export and import valuation whereby the

seller’s price includes charges for delivery of goods up to the port of departure. The seller

handles the cost of unloading and wharfage; the buyer handles the cost of loading, ocean

transportation, and insurance.

aAll others includes 30 other countries.

bPercents do not total 100 percent due to rounding.

Source: Export Market Report, U.S. Department of Commerce, OTEXA (Washington D.C.:

Dec. 1995).

Apparel Trade

Patterns

Apparel imports have risen dramatically in the last decade. According to

ITC, during the last 10 years, notwithstanding quota restrictions and

relatively high tariffs, U.S. apparel imports grew by 90 percent, to

$34 billion, and doubled their share of the U.S. market to more than

40 percent.10 Between 1989 and 1993, U.S. apparel imports rose by

38 percent. U.S. apparel manufacturers face growing competition from

low-wage developing countries. Table I.4 shows the top 10 suppliers of

apparel to the United States in 1995, all of which were developing

countries. China continues to be the largest apparel supplier to the U.S.

market, followed by Hong Kong. In 1995, Mexico displaced Taiwan as the

third largest apparel supplier to the United States. However, combined

exports of these three countries only accounted for 26 percent of total U.S.

10Industry and Trade Summary: Apparel, Publication 2853, ITC (Washington D.C.: Jan. 1995).

Page 26 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

apparel imports in 1995; imports originated from at least another 

68 countries as well.

Table I.4: Suppliers of Apparel to the

U.S. Market, 1995 (MFA Products)

Country

Millions

of SME

Percent of

total U.S.

imports

China 862 9.3

Hong Kong 821 8.9

Mexico 774 8.4

Dominican Republic 632 6.8

Taiwan 598 6.5

Bangladesh 519 5.6

Philippines 465 5.0

South Korea 343 3.7

Honduras 329 3.6

Indonesia 310 3.4

All othersa 3,602 38.9

Total 9,255 100b

aAll others includes 61 other countries.

bPercents do not total 100 percent due to rounding.

Source: Major Shippers: Textiles and Apparel.

According to ITC, in the past 30 years approximately half of the productive

capacity in the apparel industry has shifted from developed to developing

countries.11 This is part of a global trend for apparel producers to shift

production offshore in order to lower production costs. In addition, in the

past few years apparel importers have shifted their sourcing of goods to

countries that do not face U.S. quotas.

From 1993 to 1995, apparel imports from Mexico and the Caribbean

increased 63 percent, and in 1995 they accounted for 30 percent of total

U.S. apparel imports. Several trade initiatives provide incentives to U.S.

and foreign producers to assemble apparel products in these countries

from U.S. fabric or fabric cut in the United States. For example, the United

States provides special access arrangements to Caribbean Basin countries.

In addition, there is a partial duty exemption for goods assembled abroad

from U.S. components (the tariff is applied only to the value added

11Industry and Trade Summary: Apparel.

Page 27 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

abroad), and Mexico benefits from provisions in the North American Free

Trade Agreement (NAFTA), which took effect in 1994.

The United States is not the only developed country experiencing

significant import penetration. Table I.5 shows the level of and change in

world apparel imports by developed countries and country groups from

1990 to 1993. For example, while U.S. imports increased 32 percent from

1990 to 1993, imports to Japan increased 44 percent over that period, and

imports to the EU increased 33 percent from 1990 to 1992 (the latest year

for which data were available).

Table I.5: World Apparel Imports by

Developed Countries and Country

Groups, 1990-93

Dollars in millions

Country/group 1990 1991 1992 1993

Percent

change,

1990-93

United States $26,977 $27,696 $32,951 $35,605 32

Canada 2,388 2,207 2,434 2,513 5

Japan 8,737 9,396 11,191 12,588 44

EUa 26,981 32,867 35,843 NA 33b

Legend

NA = Not available.

Note: Data compiled from unpublished United Nations data for Standard International Trade

Classification division 84, articles of apparel and clothing accessories (Revision 3) and published

data from the General Agreement on Tariffs and Trade (GATT), International Trade 1993 -

Statistics (Geneva: 1993). Includes apparel accessories made from nontextile products.

aExcludes intra-EU trade.

bPercent change for 1990-92.

Source: Industry and Trade Summary: Apparel.

The total dollar value of U.S. apparel exports nearly tripled from 1990 to

1995, reaching $6.2 billion by 1995. Table I.6 shows the top 10 markets for

U.S. apparel exports.12 Over 90 percent of this increase can be attributed

to increased U.S. exports to Mexico, Japan, Canada, and Caribbean Basin

countries. The majority of apparel exports to Caribbean Basin countries

are cut fabric goods shipped there for assembly and reimported to the

United States. Current data do not allow the separation of apparel parts

exported for assembly from those that are wholly consumed abroad.

12Data for apparel exports do not include apparel made of plastic, fur, or leather.

Page 28 GAO/NSIAD-96-186 Textile Trade
Appendix I 

Overview of the U.S. Textile and Apparel

Industries

Table I.6: Markets for U.S. Apparel

Exports, 1995 (F.A.S. Value) Dollars in millions

Country

Amount of

U.S.

exports

Percent of

total U.S.

exports

Mexico $1,324 21.4

Japan 851 13.8

Dominican Republic 782 12.7

Canada 513 8.3

Honduras 404 6.5

Costa Rica 395 6.4

Jamaica 384 6.2

El Salvador 216 3.5

Guatemala 209 3.4

Colombia 137 2.2

All othersa 965 15.6

Total $6,180 100

aAll others includes at least 25 other countries.

Source: Export Market Report.

Page 29 GAO/NSIAD-96-186 Textile Trade
Appendix II 

The Committee for the Implementation of

Textile Agreements: Functions, Resources,

and Costs

The Committee for the Implementation of Textile Agreements CITA1 carries

on several functions beyond overseeing the gradual integration of quotas

and utilizing the Agreement on Textiles and Clothing’s (ATC) transitional

safeguard mechanism. As under MFA, CITA’s work load includes a number

of tasks related to assuring compliance with U.S. trade agreements that

are not directly associated with imposing quotas. These tasks involve

• coordinating U.S. government efforts to prevent fraud and illegal routing

of U.S. textile and apparel imports through third countries (transshipment

violations),

• implementing penalties against violators and assuring that the U.S.

Customs Service enforces these penalties, and

• reviewing and commenting on regulations concerning the origin of textile

and apparel products in cooperation with the U.S. Customs Service.

CITA is also responsible for performing many functions that are not

associated with ATC, including

• negotiating new, and periodically renewing old, bilateral and

memorandum of understanding (MOU)2

 agreements, with non-World Trade

Organization (WTO) member countries, such as China (according to an

OTEXA official, in 1995 CITA negotiated 16 such agreements with foreign

governments, including both bilateral and MOU agreements);

• implementing a program that provides, under certain circumstances,

special access arrangements to Caribbean Basin countries to export

apparel products to the United States; and

• overseeing the implementation of provisions within NAFTA that pertain to

textile and apparel trade.

As under MFA, OTEXA provides CITA with its principal support staff; 33 of

OTEXA’s 41 staff work on CITA-related matters.3 OTEXA has three divisions

that perform CITA-related functions—the Agreements, Industry

1

CITA representatives currently are the Deputy Assistant Secretary for Textiles, Apparel, and

Consumer Goods Industries, Department of Commerce; the Acting Director, Division of International

Commodities, Department of Labor; the Chief, Textile Trade Policy and Agreements Division,

Department of State; Economist, Office of the Assistant Secretary for International Affairs,

Department of the Treasury; and the Ambassador and Chief Textile Negotiator, Office of the U.S.

Trade Representative (USTR). CITA representatives vote on all calls but may confer about proposed

calls with higher-level officials within their respective agencies as necessary.

2

According to an OTEXA official, an MOU may be signed within the context of an existing bilateral

agreement between the United States and a foreign government when only individual textile or apparel

product categories are the subject of negotiations. (MOUs can be used for a variety of purposes,

including bilaterals with non-WTO members.)

3

These numbers include staff as of May 1995 (includes one part-time staff person).

Page 30 GAO/NSIAD-96-186 Textile Trade
Appendix II 

The Committee for the Implementation of

Textile Agreements: Functions, Resources,

and Costs

Assessment, and Trade and Data Divisions. Their functions include

monitoring import activity for safeguard and transshipment purposes,

conducting evaluations of the general state of the U.S. textile and apparel

industries, and participating in any U.S. negotiations that may affect those

industries.

The fourth division is the Market Expansion division, whose work has

nothing to do with CITA. This division’s main objective is to promote U.S.

textile and apparel exports by sponsoring domestic and international

export seminars, trade shows, missions, and exhibits; and by providing

counseling to companies on export issues. According to the division’s

Director, since the program began in 1979, about 2,570 U.S. companies

have participated in export trade events that the division has sponsored.

OTEXA officials report that they believe the companies’ participation

generated about $3.5 billion in U.S. exports.

CITA’s Resources and

Costs

Table II.1 shows each CITA agency’s fiscal year 1995 CITA-related costs,

share of total CITA costs, and number of staff that supported CITA’s

operations. In fiscal year 1995, OTEXA accounted for over 79 percent of

CITA’s total $3.6 million costs, at $2.8 million.

Table II.1: CITA Personnel and

Estimated Fiscal Year 1995 Budget Dollars in thousands

Agency Cost

Percent of

total cost Personnel

Commerce $2,845 79.5 33

State 319 8.9 6

USTR 309 8.6 3

Labor 78 2.2 3

Treasury 27 0.8 2

Total $3,578 100.0 47

Note: Cost data provided by agencies are not uniform.

Source: CITA.

Table II.2 shows that from fiscal year 1990 to fiscal year 1995, OTEXA’s

budget more than doubled. However, over 96 percent of the budget

increase was due to increases in the two research and development (R&D)

technology transfer grant programs administered by OTEXA—one to the

Textile/Clothing Technology Corporation ([TC])2

 and another to the

Page 31 GAO/NSIAD-96-186 Textile Trade
Appendix II 

The Committee for the Implementation of

Textile Agreements: Functions, Resources,

and Costs

National Textile Center (NTC).4 In fiscal year 1995, these two grants

accounted for over 75 percent of OTEXA’s $16.4 million budget. According

to OTEXA, although funds for the grant programs are included in OTEXA’s

budget by Congress and OTEXA has a role in administering the grants, the

grant funds do not cover any of OTEXA’s administration costs.

Table II.2: OTEXA Budget, Fiscal Years 1990-95

Thousands of dollars

1990 1991 1992 1993 1994 1995

Grants $3,315 $3,215 $11,096 $10,391 $12,163 $12,400

Export promotion 585 818 881 800 491 578

Pay and benefits 2,256 2,435 2,472 2,201 2,881 2,844

Other costsa 762 605 692 1,127 825 549

Total cost $6,917 $7,073 $15,141 $14,519 $16,360 $16,371

aOther costs include all those other than payroll and other benefits (travel, equipment, etc.).

Source: OTEXA.

4

The (TC)2 is a not-for-profit consortium of 200 fiber, textile, sewn products, retail, labor, and

governmental organizations dedicated to increasing the long-term competitiveness of the U.S. textile

and apparel industry through demonstration projects, education, and R&D. NTC is a research

consortium of four universities that work collaboratively to develop and transfer new technologies and

manufacturing processes to the U.S. textile industry. The (TC)2’s R&D effort and the NTC’s work are

funded solely by federal grant funds.

Page 32 GAO/NSIAD-96-186 Textile Trade
Appendix III 

Changes in Multilateral Textile Rules

Required by ATC

The primary change in multilateral textile rules under ATC is the required

integration of textile and apparel products into GATT rules in four stages

over a 10-year period ending in 2005. Product integration entails the

permanent removal of textile and apparel quotas maintained under ATC,

with freedom to choose which products to integrate at each stage. 

Table III.1 shows the list of products to be integrated at each of the four

stages specified in ATC, as published by the Department of Commerce.

Table III.1: Integration Schedule for Textile and Apparel Products Under Quota

Stage 1 (Jan. 1,

1995-Dec. 31, 1997)

Stage 2 (Jan. 1,

1998-Dec. 31, 2001)

Stage 3 (Jan. 1,

2002-Dec. 31, 2004) Stage 4 (Jan. 1, 2005)

Apparel No textile or apparel

products under quota

integrated in stage 1

Babies’ apparel 

Handkerchiefs

Hosierya

Bras & body-supporting

 garmentsa

Down apparel

Footwear

Silk apparel

Other silk blend &

 vegetable apparel

Gloves

Robes and dressing

 gowns

Headwear and judo &

 karate uniforms

Knit neckwear, shawls,

scarves, pantyhose, &

 tights

Neckwear

Bras and body

 supporting

 garmentsa

Coats & jacketsa

Shirts & blousesa

Dresses & skirtsa

Suits, trousers, &

 nightweara

Playsuits

Diapers

Woven gloves

Hosierya

Coats & jacketsa

Dresses & skirtsa

Shirts and blousesa

Suitsa

Sweaters

Trousers & shortsa

Nightwearb

Underwear

Other cottone

Other woolc

Fabric Specialty fabric Knit fabric

Nonwoven fabric

MMF impression fabric

Glass fiber fabric

Silk blend & vegetable

 fabric

Cotton & MMF

 broadwoven

Pile

Wool

Made-ups Carpets

Certain wadding &

 footwear

Silk blends, vegetable,

 other made-ups &

miscellaneous

Luggage

Wool blankets

Other cottond

Other woole

Other MMFf

Bed linen

Towels, shop towels, &

 dishcloths

Knitted table linen

National flags of the

 United States

Yarn No yarn products under

quota integrated in

stage 2

Textured filament

Nontextured filament

Other stable fiber yarn

Silk blend and vegetable

 fiber

Sewing thread & yarn

(Table notes on next page)

Page 33 GAO/NSIAD-96-186 Textile Trade
Appendix III 

Changes in Multilateral Textile Rules

Required by ATC

aIn some cases, apparel products grouped into separate categories according to fiber content

are to be integrated in different stages.

bIncludes other cotton apparel except pantyhose and tights, scarves, knit neckwear, judo and

karate uniforms, and headwear.

cIncludes other wool and MMF apparel except pantyhose and tights, scarves, and knit neckwear.

ddIncludes all other cotton manufactures except pillow covers, knitted table linen, shop towels,

and dishcloths.

eIncludes all other wool manufactures except bed linen.

f

Includes all other MMF furnishings and manufactures.

Source: OTEXA.

ATC also contains provisions that ensure that any quota levels imposed

pursuant to MFA and in place when ATC went into effect will increase and

become less restrictive with time. MFA required that bilateral agreements

contain provisions to ensure the automatic increase in the quota quantities

over time, that is, “quota growth.” Table III.2 provides an example of how,

through a mechanism called “growth-on-growth,” the size of quotas on

products not yet integrated will increase in three stages over the 10-year

period.1

 Under ATC, baseline quota rates previously set under MFA bilateral

agreements will increase by 16, 25, and 27 percent in stage 1 (1995-97),

stage 2 (1998-2001), and stage 3 (2002-04), respectively. The

growth-on-growth mechanism would result in, for example, an original

6-percent growth rate increasing to an 11-percent growth rate for the third

stage. All quotas imposed under ATC transitional safeguard provisions will

have growth rates of at least 6 percent per year and can last up to 3 years

(with the exception of wool products, which can increase only 2 percent

yearly).

1

The growth-on-growth rates only apply to quotas in place at the effective date of ATC and not to

quotas subsequently imposed on products through the ATC’s transitional safeguard mechanism. The

latter quotas will have growth rates of not less than 6 percent per year and last up to 3 years, but will

not receive growth-on-growth treatment.

Page 34 GAO/NSIAD-96-186 Textile Trade
Appendix III 

Changes in Multilateral Textile Rules

Required by ATC

Table III.2: Examples of ATC Quota

Growth Rates, 1995-2004 ATC growth rates

MFA growth ratesa

(percent)

Stage I

16% increase

(1995-1997)

Stage II

25% increase

(1998-2001)

Stage III

27% increase

(2002-2004)

1 1.16 1.45 1.8415

2 2.32 2.90 3.6830

3 3.48 4.35 5.5245

4 4.64 5.80 7.3660

5 5.80 7.25 9.2075

6 6.96 8.70 11.0490

7 8.12 10.15 12.8905

aOriginal growth rates under MFA that serve as baseline rates for growth-on-growth mechanism

under ATC.

Source: OTEXA.

ATC also changes the rules concerning the imposition of new quotas during

the 10-year period. Because its purpose is to integrate textile products into

GATT, article 6 of ATC, unlike MFA, does not permit countries to negotiate

and impose quotas unless the importing country finds actual or threat of

serious damage to its domestic industry. Under article 4 of MFA, countries

were permitted to enter into bilateral agreements limiting imports in order

to eliminate “real risks of market disruption.”

Under ATC, a WTO member country may impose a quota on another WTO

member country only through the use of a transitional safeguard—a

temporary quota on a particular foreign supplier. The standard for

applying a transitional safeguard under ATC is comparable to article 3 of

MFA. Before making a direct comparison between the two standards,

however, it is useful to describe the ATC standard. Article 6 of ATC provides

that a safeguard action may be taken based on a determination that total

imports of a particular product are being imported 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 serious damage or actual threat thereof must be “demonstrably

caused by” an increase in quantities in “total imports of that product” and

not by such other factors as “technological changes or changes in

consumer preference.”

ATC further provides that the importing country shall examine the effect of

those imports on the state of the industry as reflected in relevant

Page 35 GAO/NSIAD-96-186 Textile Trade
Appendix III 

Changes in Multilateral Textile Rules

Required by ATC

economic variables. It lists 11 variables that may be considered but states

that none, either alone or combined with other factors, “can necessarily

give decisive guidance.” (These factors are output, productivity, utilization

of capacity, inventories, market share, exports, wages, employment,

domestic prices, profits, and investment.) According to CITA, language on

these factors was developed specifically because of the difficulty of

establishing formulas to account for varying situations.

Once the importing country determines that imports are causing serious

damage or actual threat thereof to its domestic industry, it must attribute

the serious damage on a country-by-country basis. Country attribution

may be made on the basis of “a sharp and substantial increase in imports”

from a particular country and on the basis of “the level of imports from

other sources, market share, and import and domestic prices.”

The ATC safeguard standard is very similar to the MFA standard and

contains essentially the same terminology (see fig. III.1). Both safeguard

provisions allow a country to request consultations to impose quotas on an

exporting country’s product based on its determination of serious damage

or actual threat thereof. Like MFA, ATC affords countries broad discretion in

choosing among listed (similar but not identical) factors to be considered

as well as the weight, if any, to be given any one factor. Neither agreement

provides guidance on how the criteria are to be applied. For example, ATC

and MFA do not specify a minimum increase in imports or a minimum

decrease in domestic production to justify imposing a quota. The primary

difference between the two safeguard standards is that ATC requires a

finding that total imports of the product are causing serious damage or

actual threat thereof, while no such finding was required by MFA. The MFA

safeguard provision required that a country determine that imports of a

particular product from a particular source were causing serious damage

or actual threat thereof. Similar to language in MFA, ATC specifies that

transitional safeguards are to be applied “sparingly.”

Page 36 GAO/NSIAD-96-186 Textile Trade
Appendix III 

Changes in Multilateral Textile Rules

Required by ATC

Figure III.1: Comparison of Safeguard Standards Under Article 3 of MFA and Article 6 of ATC

Elements Required For Applying Safeguard 

Measure

Safeguard Standard Under Article 3 of MFA 

"Market Disruption"

(1) Serious damage or threat thereof to domestic industry exists

Factors that may be considered

Productivity

Utilization of capacity

Profits

Investments

Export performance

Employment

Market share

Volume of disruptive and other imports

Turnover

Production

(2) Damage caused by imports

Factors to be considered

Sharp and substantial increase or imminent increase of particular

 products from particular sources

Products' prices substantially below those for similar goods in

 importing country

c

b

a

Elements required

Page 37 GAO/NSIAD-96-186 Textile Trade
Appendix III 

Changes in Multilateral Textile Rules

Required by ATC

Safeguard Standard Under Article 6 of ATC 

"Serious Damage or Actual Threat Thereof "

(1) Serious damage or threat thereof to domestic industry exists

Factors that may be considered

Productivity

Utilization of capacity

Profits

Investment

Exports

Employment

Market share

Inventories

Wages

Domestic prices

Output

(2) Damage caused by increase in total imports of that product

(3) Damage is attributable to imports from a particular country

Factors to be considered

Sharp and substantial increase in imports from country

Level of imports as compared with imports from other sources

Market share

Import and domestic prices (at comparable stage of commercial 

 transaction)

c

d

d

Elements required 

Page 38 GAO/NSIAD-96-186 Textile Trade
Appendix III 

Changes in Multilateral Textile Rules

Required by ATC

aAlthough article 3 of MFA described the safeguard standard as “market disruption,” Annex A to

MFA provided that the determination of market disruption shall be based on the existence of

serious damage to domestic producers or actual threat thereof.

bMFA provided that “no one or several of these factors can necessarily give decisive guidance.”

cSerious damage or actual threat thereof cannot be caused by other factors such as

technological changes or changes in consumer preferences.

dATC provides that none of these factors, “either alone or combined, can necessarily give

decisive guidance.”

Page 39 GAO/NSIAD-96-186 Textile Trade
Appendix IV 

CITA’s Decision-making Process to Impose

Import Restraints

Through OTEXA’s continuous monitoring of industry data, CITA is generally

proactive in identifying cases of actual or threatened serious damage. On a

weekly and monthly basis, OTEXA is responsible for monitoring U.S. import

and domestic production data, which are the key indicators OTEXA uses to

identify changes in data that may show that imports are causing serious

damage to U.S. textile and apparel producers. In addition, OTEXA monitors

other economic factors that are outlined in ATC. (See fig. IV.1 for an

illustration of CITA’s quota imposition process.)

Page 40 GAO/NSIAD-96-186 Textile Trade
Appendix IV 

CITA’s Decision-making Process to Impose

Import Restraints

Figure IV.1: CITA’s Process for Imposing Import Quotas Under ATC

OTEXA

identifies

import

surge

OTEXA gathers

production,

other economic data

OTEXA recommends

case to CITA chair

CITA Chair:

Present case to

CITA principals?

OTEXA circulates

 statement to 

CITA

CITA principals

discuss case at

CITA meeting

CITA:

Is there serious

damage or threat

thereof?

Discard 

case

Diplomatic note

requesting consultations

sent to foreign government

and TMB notified

no

no

Discard 

case

yes

yes

Confirmation that

diplomatic note 

was delivered

Notice placed in 

Federal Register

announcing call and

requesting public 

comment; copy of 

statement made available 

to public in Commerce's 

Trade Reference Room

60

Days

Is agreement on

restraint reached

with foreign

government?

CITA notifies TMB of agreed 

quota and begins

application

CITA applies

quota and refers 

matter to TMB

 TMB reviews case 

and makes 

recommendations

yes

no

ATC Article 6 

consultation period 

concluded with foreign 

government

CITA consults with 

industry advisors

Apply 

quota

unilaterally?

Rescind

call

no

30

Days

30

Days

yes

TMB reviews agreement

a

Page 41 GAO/NSIAD-96-186 Textile Trade
Appendix IV 

CITA’s Decision-making Process to Impose

Import Restraints

aNon-WTO member countries are not subject to ATC requirements; therefore, quota

determinations involving those countries are not notified or referred to the Textile Monitoring Body

(TMB), and negotiations with them do not have specified time limits.

The first step in the process is for OTEXA to identify an import increase that

could indicate a “surge” in a particular product category. OTEXA then looks

at domestic production data and gathers other relevant economic

information for the same category . While OTEXA usually initiates tracking

of likely cases of potential damage, industry representatives also maintain

contact with OTEXA staff to inform them of their industry’s economic

conditions.

When OTEXA believes that the economic indicators appear to signal serious

damage to domestic producers, OTEXA staff contacts industry

representatives and/or their trade associations to obtain more detailed

information on the current situation and confirm production figures. When

a case for serious damage appears strong, OTEXA staff forwards it to

Commerce’s Deputy Assistant Secretary for Textiles, Apparel, and

Consumer Goods Industries, who is also the CITA Chair, to decide whether

to propose a call to the other CITA principals. If the CITA Chair decides

positively, then the OTEXA staff prepare a statement of serious damage or

actual threat thereof. The statement, which is classified as confidential at

this point, is distributed to the CITA principals about 1 week before a CITA

meeting. At the meeting the principals have an opportunity to discuss the

merits of and vote on the cases presented. If the principals approve the

call by majority vote, the Department of State then prepares a diplomatic

note. The note, sent to the foreign government, contains the statement and

requests consultations. In cases involving WTO member countries, TMB is

simultaneously notified. The decision to request consultations does not

cause a quota to be imposed immediately on the product. After CITA

receives confirmation that the diplomatic note has been delivered, the

statement is declassified and made public through a Department of

Commerce telephone recording announcing the call. It is also published in

the Federal Register, which provides notice of the request for

consultations and a summary of the statement along with a request for

public comment. Commerce opens a public comment file on each call.

Commerce also makes the statement available in its Trade Reference

Room.

Before consultations with the foreign government begin, affected parties

have an opportunity to meet with U.S. negotiators. USTR notifies industry

advisors, including representatives of both the domestic producers and the

Page 42 GAO/NSIAD-96-186 Textile Trade
Appendix IV 

CITA’s Decision-making Process to Impose

Import Restraints

importing and retailing community that may be affected. USTR and OTEXA

officials meet with industry representatives for various reasons, including

advising them of the call, obtaining information about the current market

situation, and seeking guidance on the appropriate quota level. In addition,

industry advisors, on their own initiative and expense, may accompany the

U.S. government negotiating team on consultations abroad. However, they

do not participate in the actual negotiations.

ATC requires that consultations with WTO governments are to be completed

within 60 days of the date on which the request was received. If agreement

is reached between the countries, a quota reflecting the agreed-to level

may be imposed at the end of the consultation period, and details of the

agreed quota level are notified within 60 days to TMB. TMB, established to

supervise the implementation of ATC, is a 10-person body made up of 

5 representatives from importing countries and 5 representatives from

exporting countries. TMB will review all safeguard actions under ATC and

will determine whether agreements are justified and have been reached in

accordance with ATC provisions. It will make all decisions on a consensus

basis.

However, if the countries are unable to reach agreement within 60 days,

the country proposing to take action may impose the quota within the

following 30-day period. The restraint will be imposed at a level not lower

than the import level during the 12-month period ending 2 months before

the month the consultations were requested. TMB will examine the case,

including the determination of serious damage, and make

recommendations within 30 days. During this period, the two parties to the

dispute will present their cases before TMB, responding to TMB members’

questions and providing information that may support their case.

Page 43 GAO/NSIAD-96-186 Textile Trade
Appendix V 

CITA’s Data Sources

CITA officials match U.S. government import, production, domestic price,

and employment data with CITA’s textile and apparel categories. Our

review found that CITA combines import categories and production

categories to match the broader CITA categories. We also found that some

compatibility problems exist between the domestic producer price and

employment data CITA uses and the CITA categories. Because of the

difficulty in matching price and employment data to these categories, the

data CITA uses may only provide broad indications of trends in the

domestic textile and apparel industry.

OTEXA Matches U.S.

Government Data to

CITA Categories

CITA uses textile and apparel categories that are aggregations based on

Harmonized Tariff Schedule (HTS) codes. Table V.1 shows the varied

number of different HTS codes that are included in one CITA

category—women’s and girls’ wool coats. For example, 36 HTS codes,

including 6102.90.9010 (overcoats), 6104.31.0000 (suit-type jackets), and

6202.91.2011 (ski-jackets), are all under one CITA category, number 435.

Table V.1: Illustration of One CITA

Category’s Corresponding HTS Codes CITA category 435-women’s and girls’(W/G) wool coats

HTS code Description

6102.10.0000 W/G overcoats, carcoats, etc., of wool/fine

animal hair, knit

6102.30.1000 W/G overcoats, etc., of manmade fiber

containing >= 23% weight wool/fine animal

hair, knit

6102.90.9010 W/G overcoats, etc., of other textile

material subject to wool restraint, knit

6104.21.0010 W/G ensembles of garments of tariff

heading 6102 & 6104 of wool knit

6104.23.0010 W/G ensembles of overcoats, jackets, etc.,

of synthetic fiber >= 23% wool, knit

6104.29.2012 W/G ensembles of overcoats, etc., other

textile material subject to wool restraint, knit

6104.31.0000 W/G suit-type jackets and blazers of wool,

knit

6104.33.1000 W/G suit-type jackets of synthetic fiber

containing 23% more wool, knit

6104.39.2020 W/G suit-type jackets of other textile

material subject to wool restraint, knit

6117.90.9045 Parts of coats and jackets of wool, knit

6202.11.0010 Women’s overcoats, carcoats & smaller

coats of wool, not knit

(continued)

Page 44 GAO/NSIAD-96-186 Textile Trade
Appendix V 

CITA’s Data Sources

CITA category 435-women’s and girls’(W/G) wool coats

HTS code Description

6202.11.0020 Girls’ overcoats, carcoats & smaller coats

of wool, not knit

6202.13.3010 Women’s overcoats and smaller coats of

MMF >= 36% wool, not knit

6202.13.3020 Girls’ overcoats and smaller coats of MMF

>= 36% wool, not knit

6202.19.9020 W/G overcoats and smaller coats of other

material subject to wool restraint, not knit

6202.91.2011 Women’s anorak ski-jackets and smaller of

artificial wool, not knit

6202.91.2021 Girls’ anorak ski-jackets and smaller of

artificial wool, not knit

6202.93.4011 Women’s anorak and smaller articles of

MMF >= 36% wool, not knit

6202.93.4021 Girls’ anorak and smaller articles of MMF

>= 36% wool, not knit

6202.99.9021 W/G anoraks and smaller articles of textile

material subject to wool restraint, not knit

6204.21.0010 W/G ensembles of tariff heading 6202 &

6204 of wool, not knit

6204.23.0005 W/G ensembles of tariff heading 6202 &

6204 synthetic fiber >= 36% wool/fine

animal hair, woven

6204.29.4012 W/G ensembles of tariff heading 6202 &

6204 other textile material subject to wool

restraint, woven

6204.31.1010 Women’s suit-type jackets of wool >= 30%

silk, not knit

6204.31.1020 Girls’ suit-type jackets of wool >30% silk,

not knit

6204.31.2010 Women’s suit-type jackets of wool not

>30% silk, not knit

6204.31.2020 Girls’ suit-type jackets of wool

6204.33.4010 Women’s suit-type jackets of synthetic

fiber >36% wool, not knit

6204.33.4020 Girls’ suit-type jackets of synthetic fiber

>36% wool, not knit

6204.39.2010 Women’s suit-type jackets of artificial fiber

>36% wool, not knit

6204.39.2020 Girls’ suit-type jackets of artificial fiber

>36% wool, not knit

6204.39.8020 W/G suit-type jackets of other textile

material subject to wool restraint, not knit

(continued)

Page 45 GAO/NSIAD-96-186 Textile Trade
Appendix V 

CITA’s Data Sources

CITA category 435-women’s and girls’(W/G) wool coats

HTS code Description

6211.20.5400 W/G ski-suit anorak & similar articles of

wool, not knit

6211.41.0020 W/G track suits excluding trousers of wool,

not knit or crocheted

6211.41.0055 W/G other jackets & jacket types, not

elsewhere specified or included, of

wool/fine animal hair, not knit or crocheted

6217.90.9030 Parts of coats and jackets of wool, not knit

or crocheted

Source: 1995 Correlation: Textile and Apparel Categories with the Harmonized Tariff Schedule of

the United States (Washington D.C: International Trade Administration, Department of

Commerce).

Table V.2 shows the collection method (coding schemes) of the U.S.

government agencies from which CITA obtains data, the extent to which

they are compatible with CITA categories, and OTEXA’s procedures to

facilitate a category match. Import (quantity) data, production (quantity)

data, and import price data are relatively more compatible with the CITA

categories than are domestic production price and employment data.

Page 46 GAO/NSIAD-96-186 Textile Trade
Appendix V 

CITA’s Data Sources

Table V.2: Illustration of Problems in Matching Bureau of Labor Statistics and Census Data to CITA Categories

Data type Source Coding scheme

Extent to which data

match CITA categorya

OTEXA’s matching

procedures

Import (quantity) U.S. Customs/

Census Bureau

HTS HTS codes are

combined to match each

CITA category.

OTEXA combines HTS

codes.

Production (quantity) Census Bureau Census’ product

descriptions

Data already combined

like CITA category but

not identical.

Data collected in

fiber-specific way.

OTEXA uses judgment to

complete match.

Domestic 

producer

price

Census Bureau Census’ product

descriptions

Data already combined

like CITA category but

not identical.

Data not collected in

fiber-specific way. Data

not compatible to CITA

categories.

OTEXA relies on own

judgment and

manufacturers’ reports to

convert Census data into

CITA categories.

Import 

price

U.S. Customs/

Census Bureau

HTS HTS codes must be

combined to match each

CITA category.

OTEXA calculates an

average price of the HTS

codes in each category.

Employment Bureau of Labor

Statistics (BLS)

SIC Data collected by

manufacturer’s primary

product.b

Data not fiber specific.

Data not compatible with

CITA categories.

OTEXA applies a

complex formula and its

own judgment and uses

manufacturers’ reports to

adjust for better match.

aCITA categories are fiber specific.

bSince data are collected by a manufacturer’s primary product, reported data will not include

information on lesser products produced by the manufacturer.

Because of the difficulty in matching the price and employment data to the

CITA categories, CITA may only be able to obtain broad indications of trends

in the domestic textile and apparel categories.

Import Data The U.S. Customs Service collects import (quantity) data from

submissions required of all importers or their brokers for all imports

entering the United States. After performing a series of edit checks,

Customs sends the import data to Census, which performs its own edit

checks and prepares data tapes it makes available to OTEXA on a monthly

basis. U.S. import data, in general, are considered to provide reasonably

good estimates of imports because of the revenue-generating aspect of

merchandise imports. Textile and apparel import data, in particular, are

Page 47 GAO/NSIAD-96-186 Textile Trade
Appendix V 

CITA’s Data Sources

subject to special scrutiny because of the need to ensure that import

quotas are not exceeded. However, Customs officials caution that because

of some importers’ efforts to circumvent quotas, the textile and apparel

data may not be as reliable as other import data.

The quality of textile and apparel data is assured primarily through

physical inspection of import shipments and computerized data checks.

Customs officials report that, normally, they inspect between 4 and

5 percent of all U.S. import shipments; in the case of textile and apparel

imports, they inspect between 6 and 7 percent. If they note a particular

problem with a commodity or an importing country, they can inspect

100 percent of all that commodity’s or that country’s imports for a specific

time period. For example, from February to April 1995, Customs officials

stopped all handwoven fabrics from India and inspected samples to verify

the consignments. To help assure the quality of the computerized data,

Customs performs a series of edit checks that rely on a set of parameters

within which the import quantity and values are expected to fall. If these

parameters are exceeded, the computer operator must make a manual

intervention. Customs said it has very detailed checks in place in response

to textile provisions contained in legislation and international agreements,

including the General System of Preferences (GSP),1

 the Caribbean Basin

Initiative (CBI),2

 and NAFTA. While Census also performs edit checks, these

have been widely criticized because they rely on very broad parameters

that have rarely been exceeded.

In addition to inspections and edit checks, Customs and OTEXA officials

collaborate when particular issues or problems arise. For example,

Customs reports working closely with OTEXA whenever a foreign nation

requests a “data discrepancy analysis” because that nation’s export data

for a particular textile or apparel product do not agree with U.S. import

data. These analyses scrutinize the data in question and attempt to resolve

discrepancies. According to Customs, discrepancy analyses occur about

once or twice a month. Customs also reports working closely with OTEXA

when some calls are being considered and OTEXA wants to ensure that the

data supporting them are reliable and accurate. In these instances, OTEXA

and Customs scrutinize particular imports from particular countries and

1

GSP is a unilateral U.S. program that extends duty-free access to imported products from developing

countries.

2

CBI was adopted in 1982 to promote investment and expand the economies of Caribbean Basin

countries through several mechanisms, including tax incentives for investment and duty-free import

access to the U.S. market.

Page 48 GAO/NSIAD-96-186 Textile Trade
Appendix V 

CITA’s Data Sources

consider the data, requesting additional information from the importer of

record if necessary.

Textile and apparel import data are particularly prone to a number of

problems, according to Customs. Exporters in nations subject to quota can

use illegal routing of textile and apparel imports through third countries

(i.e., textile transshipments) to circumvent quotas. Intentional or

unintentional misclassification is also a major issue for textile and apparel

imports. Intentional misclassification occurs when importers falsely claim

their shipments are in a category not under quota or when they

deliberately mislabel the shipment’s country of origin. Unintentional

misclassification can occur because of the large number of codes for

textile and apparel commodities. According to Customs, there are more

than 4,000 HTS codes with which to classify textile and apparel imports and

exports. Some importers can make honest mistakes when they classify

their commodities because of their limited knowledge of these codes.

Overall, Customs notes that textile and apparel import data receive more

scrutiny than any other commodity’s import data. They do not know if the

extra scrutiny counterbalances the additional problems. However,

Customs does not believe that any CITA calls have been made based on

erroneous import data.

Production Data Apparel production (quantity) data are collected on a quarterly and annual

basis by the Census Bureau, as part of its Census of Manufactures, Current

Industrial Reports (CIR) program. This program has compiled data on

industry activity since the beginning of this century. In 1983, we reported

that, while the data were considered thorough and accurate, there were

problems with timeliness.3

 At that time, CITA relied on annual production

surveys, and the data used were between 10 and 32 months old. Since

then, quarterly surveys have been implemented, and Census currently

makes apparel production data available to OTEXA about 2 to 3 months

after the end of each quarter.

The quarterly apparel survey covers manufacturers, government

contractors, and jobbers4

 that cut and sew apparel. It is mailed to more

than 1,200 large manufacturers that account for over 90 percent of total

3

See (GAO/NSIAD-84-18, Nov. 4, 1983).

4

The apparel industry is characterized by three types of operations — manufacturers, jobbers, and

contractors. The manufacturer purchases material and cuts, sews, and sells the product. The jobber is

involved in the product’s actual processing done under contract in an outside factory. The contractor

does not own the finished product or sell the finished good.

Page 49 GAO/NSIAD-96-186 Textile Trade
Appendix V 

CITA’s Data Sources

cuttings of apparel items. In addition, approximately 3,000 small

manufacturers receive an annual short form of this survey. Both surveys

collect data on the quantity of production and the total value of shipments

for men’s, women’s, children’s, and infants’ apparel. The data collected

include garments cut in the United States and sent outside the country to

be sewn. According to Census, the quarterly survey has response rates that

usually exceed 90 percent and coverage rates that are usually about

95 percent. Census officials believe that coverage, which is the percent of

shipments accounted for by the respondents, is the more important

measure. According to Census, the quarterly and annual surveys combined

have coverage rates of about 96 to 97 percent of total U.S. apparel

shipments.

Census uses computerized edit checks to identify responses that vary

significantly from those provided in previous surveys and telephones

respondents to verify the accuracy of these responses. Census does not

perform any site visits to check on responses. In addition to Census’ own

verification procedures, an OTEXA official is authorized to examine the

production data before they are published, thus providing another level of

cross-checks.

The Census Bureau collects production data at a fairly aggregated level.

Before OTEXA can use these product description data, it must match the

Census product descriptions to CITA’s own categories, which are also fairly

aggregated even though they are based on data collected at a very

disaggregated level. In general, the Census product descriptions, when

broken down by the type of fiber used, are very similar to the CITA

categories. Nevertheless, Census’ product descriptions and CITA’s

categories cannot be matched exactly primarily because (1) respondents

to the apparel quarterly surveys do not always specify the type of fabric by

fiber they used; when this occurs, OTEXA makes judgments on what

proportion of fiber is to be given to the various product categories and

(2) a complete concordance between Census’ product descriptions and

CITA categories does not exist. Typically, the product descriptions contain

a few products that are not in the corresponding CITA category, while the

CITA categories contain a few products that are not in the corresponding

Census product description. In some cases, adjustments are made, based

on an OTEXA official’s industry knowledge, other data sources, and

judgment.

Census also collects data on textile production through a series of annual

and quarterly surveys. Because some of these surveys are annual instead

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Appendix V 

CITA’s Data Sources

of quarterly or monthly, some textile production data are much less timely

than apparel production data. It is important to note that there are a few

textile and apparel categories for which Census does not collect any data,

including luggage, handkerchiefs, and hosiery. OTEXA monitors these

categories using industry data sources, such as the National Cotton

Council’s “Cotton Counts its Customers” production surveys. According to

industry representatives, OTEXA has discussed the surveys and

methodologies used by these representatives, and OTEXA is satisfied that

their data are reliable and valid.

Price Data Census’ quarterly and annual production surveys also collect data on the

net value of the products produced, or the production price. However,

value data are not collected by fiber type and therefore cannot be

accurately matched to CITA’s fiber-specific categories. For example, the

Census value data do not distinguish between the prices of clothing made

of cotton, wool, MMF or other fiber types. Whenever CITA is considering

issuing a call, OTEXA contacts a limited number of manufacturers based on

industry recommendations and adjusts the Census value data based on the

information obtained. Given the limitations of the Census data and OTEXA’s

data collection methods, the producer price data published in the market

statements provides broad approximations of producer prices by category,

rather than precise estimates.

Employment Data BLS collects employment, payroll, and hours worked data from textile and

apparel manufacturers on a monthly basis. While these data are generally

considered timely, they are collected using the SIC system’s categories for

textile and apparel products. These categories are neither fiber specific

nor directly compatible with CITA’s categories. Moreover, the BLS data are

collected by the primary manufacturing activity, according to the SIC

categories, of the establishment surveyed. For example, an apparel

manufacturer who produces three product categories is reported as

producing only the one it makes in the greatest quantity, and all its

employment and payroll data will be attributed to that category.

In 1995, OTEXA developed a new methodology to derive textile and apparel

employment data by CITA categories. This methodology involves a number

of stages and apportions the SIC employment data to CITA categories using

algorithms derived from CIR production data and other data that Census

supplies. After deriving employment data by CITA categories, OTEXA also

considers data from the Labor Department’s and the Commerce

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Appendix V 

CITA’s Data Sources

Department’s Trade Adjustment Assistance programs5 and consults

industry representatives and manufacturers. OTEXA officials may make

adjustments to the data by category, on a case-by-case basis, depending on

what they learn from these sources. While this methodology utilizes the

available data sources in a reasonable fashion, it cannot overcome all the

problems involved in matching SIC-collected data with HTS-collected data

aggregated into CITA categories. Therefore, employment data by CITA

categories provide approximations of actual trends rather than precise

estimates.

5

Trade adjustment assistance, managed through the Department of Labor, is available to workers who

lose their jobs or whose hours of work and wages are reduced as a result of increased imports.

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

CITA bases its determinations of serious damage, and its decision to request

consultations to impose quotas, in part on the data and analysis presented

by OTEXA in its market statements. We examined all of the market

statements provided by OTEXA for calls issued over the last 6 years1

—from

1990 through 1994 under MFA, and in 1995 under ATC.

2

In the market statements, OTEXA generally focused on import surges and

domestic production declines and assumed a causal link between the two

factors.3 OTEXA also included in the market statements the import price and

the domestic producer price of the product in question. In the 1995

statements, OTEXA also provided employment data, but as noted in

appendix V, there are problems relating these data to CITA categories.

The import and production data in the market statements describe

changes for time periods that usually ended several months before the

statement’s issuance. The statements did not always present data over a

standardized time period. Typically, the data go back 2 to 5 years.4

Because of the way the data are presented in the statements, we could

only consistently examine yearly change over the most recent 2 years of

data for each of the 166 statements.5

 Recognizing that OTEXA also

considered longer-term historical trends before issuing a request for

consultations, we examined changes over the last 3 calendar years for the

126 market statements that contained these longer-term data.

Consistent with its authority under U.S. law, MFA, and ATC, the range in

import and domestic production levels in the market statements indicated

that CITA made its serious damage determinations on a case-by-case basis

1

We did not evaluate other factors not contained in the market statements, such as foreign policy

concerns that may have been considered by the five CITA principals.

2

Because MFA and ATC safeguard standards are similar, OTEXA analyzed virtually the same data from

1990 to 1994 under MFA as it did under ATC in 1995 to make determinations of serious damage.

3

OTEXA officials told us that they had considered and thoroughly explored the possibility of using

econometric analysis to evaluate the link between declines in U.S. production and rising imports. They

dismissed this approach because they believe that (1) the existence of quotas on textile and apparel

products over the past 30 years has distorted any correlation between domestic imports and domestic

demand and (2) economic modeling is best applied to broad measures of economic activity rather than

to specific products.

4

Because OTEXA issued market statements throughout the year, they frequently presented

year-to-date or year-ending data for the most recent 2 years of comparable import and production data.

In addition, they would also usually present calendar year data for the last 3 years. However, in some

instances, they presented 1 calendar year of data, and in others, they presented 5 calendar years of

data.

5

Much of the most recent yearly data are presented on a year-ending basis. The import data are

available on a monthly basis, and the production data are available on a quarterly basis.

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

rather than on specific import rises or production falls. For example, in

1995, the most recent comparable yearly increases of imports reported in

the market statements ranged from 4 percent to 116 percent, and

production declines ranged from less than 1 percent to 24 percent. Over

the full 6-year period, the most recent yearly import data ranged from a

decline of 15 percent to an increase of 195 percent; the most recent

comparable year production data ranged from an increase of 25 percent to

a decrease of 51 percent. In the statements, CITA supported its decisions to

request consultations on import surges and production declines that had

occurred over differing time periods. For example, in some instances CITA

emphasized changes that had occurred over the last 3 calendar years; in

others, it emphasized changes that had occurred in the last 2 calendar

years, and in still others it emphasized changes since the beginning of the

calendar year.

CITA’s Calls Between

1990 and 1995

We analyzed a total of 1666 market statements from 1990 through 1995 (see

table VI.1). The number of calls averaged 28 per year. The 166 calls

involved imports from 43 different countries and 59 different joint or

combined textile and apparel categories. Thailand was the nation that

received the most calls (22), followed by the United Arab Emirates

(15) and India (11). The categories called the most frequently were cotton

and MMF nightwear and pajamas (14); cotton and MMF men’s and boy’s

shirts, not knit (10); and cotton and MMF underwear (8).

Table VI.1: CITA Calls, 1990-1995

Year

Number of

calls

Number of

categories

called

Number of

countries

called

1990 35 23 12

1991 22 15 14

1992 43 20 22

1993 15 11 12

1994 23 18 14

1995 28 10 18

Source: GAO analysis of OTEXA market statements.

6

We examined all the statements that OTEXA provided us for the 1990-95 time frame.

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

Market Statements

Reflected Production

Declines and Import

Increases

From 1990-1995, the most recent production data showed a median7 yearly

decline of 6.4 percent, and the comparable8

 import data showed an

increase of 9.6 percent. Furthermore, the U.S. domestic market share9

declined by a median of about 4 percentage points for calls issued from

1990 through 1995. As previously noted, OTEXA officials stated that they

also considered longer-term historical trends, as well as more recent

changes. Although the available data limited our ability to analyze these

longer-term trends, we examined production declines and import

increases for the 3 full calendar years prior to the call when these data

were available. In the 126 market statements that contained these data, the

median production decline was 17 percent and the median import increase

was 12.4 percent. Import data are more current than production data

because it is provided monthly, while production data is provided

quarterly. In our analysis, we considered both import data comparable to

production data and the most recent import data, which are generally not

comparable. The most recent import data rose by 17.6 percent.10 The data

in table VI.2 show the median changes over the most recent comparable

years for imports, production, and domestic market share, from 1990 to

1995.

7

In the tables that follow, we use medians as the measure of central tendency because, in each year, a

few outliers slightly skewed the averages. For example, while the median yearly import increase for

the last 2 years in question was 9.6 percent, the average import increase was 14.2 percent. Similarly,

while the median yearly production fall was 6.4 percent, the average production fall was 9 percent. The

median has the advantage of measuring central tendency without being affected by the outliers. It is

the midpoint for the range when all the data points are arrayed in order, and can be interpreted thus:

roughly half of the cases were greater than the median, and roughly half were less.

8

These analyses focus on the most recent comparable yearly changes in production and import data.

As import data are made available on a monthly basis and production data are made available on a

quarterly basis, the market statements typically present import data that are slightly more recent than

the production data. Although OTEXA officials report that they pay great attention to the most recent

import data, we focus on comparable production and import data because of the need to establish a

casual link between the two. Because statements are issued at different points in time during the year,

we focused on the most recent yearly change data OTEXA presented in the market statements.

Sometimes this was calendar year data, and sometimes this was year-ending data.

9

U.S. domestic market share is defined as production divided by imports plus production.

10The most recent import data reflect information generally from 1 to 3 months before the market

statement is issued. Production data can be up to 12 months old.

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

Table VI.2: Median Import Rises, Production Declines, and Domestic Market Share Falls for CITA Calls, 1990-95

Year

Import increases

comparable to

production data

(percent)

Import increases

using most recent

import data

Declines in

production

(percent)

Declines in

domestic

market share

(percent)

1990 7.3 12.9 –9.7 –2.0

1991 20.8 13.2 –19.4 –7.1

1992 5.6 19.3 –4.8 –3.2

1993 5.8 19.7 –4.0 –4.8

1994 14.5 12.8 –3.3 –5.0

1995 13.4 21.8 –6.4 –5.0

Median

1990-95 10.3 17.6 –6.4 –4.4

Note 1: Median yearly changes are for the most recent 2 years of comparable import and

production data presented in the market statements.

Note 2: The decline in market share is calculated as the change in percentage points. Therefore,

the declines are not directly comparable with the changes in imports or production, which are

calculated as percentages of actual production.

Source: GAO analysis of OTEXA market statements.

Some Market

Statements Reflected

Unique Trends in

Production and

Import Levels

Although some calls were supported by either a small recent production

decline or a small import increase, very few were supported by both a

small production decline and a small import increase. Between 1990 and

1995, 45 calls were issued when the most recent year’s production falls

were less than 2 percent, and 32 calls were issued when the most recent

year’s import increases were less than 2 percent. Our review of the market

statements found many instances when small production falls were

accompanied by larger import increases, or vice versa. We found only 

6 instances (out of 166) of calls being issued between 1990 and 1995 when

production had fallen by less than 2 percent and imports had risen by less

than 2 percent (see table VI.3). Of these, only one occurred in the last

3 years, and none occurred under ATC.

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

Table VI.3: Calls With Relatively Small

Recent Import Increases or Production

Falls, 1990-95

Year

Calls in which most

recent yearly

production fell by

less than 2 percent

Calls in which recent

yearly imports rose

by less than

2 percent

Calls in which

production fell by

less than 

2 percent and

imports rose by less

than 2 percent

1990 10 10 4

1991 1 4 0

1992 15 12 1

1993 4 5 1

1994 7 1 0

1995 8 0 0

Total 1990-95 45 32 6

Note: Median yearly changes over the most recent 2 years of comparable import and production

data presented in the market statements.

Source: GAO analysis of OTEXA market statements.

As shown in table VI.4, in 102 of the 166 calls made by CITA during 1990-95,

production declined and total category imports rose during the most

recent calendar year where data existed for both variables. In 56 other

calls, either production rose or imports declined (in 8 calls, data were

incomplete). Most of the calls issued when production rose or imports fell

during the most recent year occurred before 1993; none of these calls were

issued in 1995 under ATC.

Table VI.4: CITA Calls With Various Combinations of Production and Import Data, 1990-95

1990-95 calls

Calls where

production

declined and

imports rose

Calls where both

production and

imports declined

Calls where both

production and

imports increased

Calls where

production

increased and

imports declined

Calls where

data were

incomplete

Total 102 28 24 4 8

Source: GAO analysis of OTEXA market statements.

OTEXA officials told us that, in those calls where imports had fallen in the

most recent comparable year, they had risen over a shorter or a longer

time period. Similarly, they told us that even if production had increased

over the most recent time period, it had decreased over an alternative time

period. Our data analysis confirmed these points. For example, in some

cases OTEXA compared the most recent calendar year production data with

that of 2, 3, or 4 years earlier. Further, OTEXA sometimes compared the

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

most recent year-ending or partial year production data with a comparable

time period. OTEXA used similar time period comparisons in those calls

where calendar year imports declined over the previous year. In a few

instances, the import increase occurred after the decline in domestic

production.

Regarding import data, OTEXA presented the most recent import data

available. Since production data lag behind data, CITA often presented

import data that were from a different time period than production data.

CITA Requested

Consultations With

Some Small Suppliers

From 1990 through 1995, CITA requested consultations with many countries

that were small suppliers of U.S. textile and apparel imports. Over this

period, half of the countries called were responsible for less than

2.5 percent of the total category imports from all sources (see table VI.5).

As it was fairly common for CITA to request consultations with more than

one country for a particular category, we calculated the combined

percentages of world imports for all countries called per category per year

and found that this had a median of 4.8 percent.

Table VI.5: Median Percent of Imports

and U.S. Market Share for Countries

Receiving Calls, 1990-95

Year

Country’s percentage

share of total U.S. imports

of the category called

1990 2.4

1991 4.0

1992 1.7

1993 1.9

1994 1.8

1995 4.0

Median

1990-95 2.5

Note: Medians are based on the last 12 months of data presented in the market statements.

Source: GAO analysis of OTEXA market statements.

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

CITA Called Some

Categories That

Contained a Variety of

Products at Varied

Producer Prices

As described in appendix V, CITA classifies goods into 148 categories that

consist of a total of 4,000 HTS codes averaging 27 HTS codes per category.

Because CITA imposes quotas at the category level, any quota imposed

restricts imports of the category and its corresponding HTS codes. Article 6

of ATC provides that a WTO member country may take a safeguard action on

imports of products causing serious damage to its domestic industry

producing like and/or competitive products. ATC, however, does not define

the standard “like and/or competitive products.”

In making its determinations on damage to domestic industry, CITA

assumed that the HTS codes11 within the same CITA category were like

and/or directly competitive products to those being produced by domestic

manufacturers of items under that category. However, we found that some

of the categories CITA called from 1990 to 1994 contained HTS codes that

appeared to include dissimilar products based on their descriptions and

the import and producer prices reported in the market statements.

Along with product descriptions, product prices also varied within CITA

categories. In the 138 market statements we examined for 1990-94,12 OTEXA

reported estimated domestic producer prices and import prices at the HTS

level. We found that in some market statements, (1) U.S. producer prices

and import prices within the same category differed from one HTS code to

another and (2) U.S. producer prices and import prices for the same HTS

code varied significantly from one call to another.

For example, in July 1991, CITA issued a call to the Philippines for

category 359-C/659-C—cotton and MMF fiber overalls and coveralls. The

market statement indicated that approximately 73 percent of the imports

in this category entered the United States under two HTS codes. Table VI.6

shows the import prices and U.S. producer prices listed in the market

statement for each code. The import prices for each code were $145.43

and $9.47, respectively. The U.S. producer price was $230-$240 for one

code and only $25-$35 for the other code.

11As described earlier in appendix V, each of CITA’s 148 categories consists of a number of HTS codes.

12Effective January 1, 1995, under ATC, OTEXA market statements compare average U.S. domestic

producer price with import prices at the category level rather than the HTS level.

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Appendix VI 

Use of Data Supporting Serious Damage

Determinations

Table VI.6: Prices for Two HTS Codes

Under Category 359-C/659-C in CITA

Call to the Philippines HTS code

Import prices

(U.S. dollars)

U.S. producer prices

(U.S. dollars)

6203.42.2010 $145.43 $230-240

6210.10.4015 9.47 25-35

In response to our question about the variation in prices among HTS codes

within this category, OTEXA officials responded in writing that the price

difference reflected the fact that the items imported under these HTS codes

were very different garments, with different prices. However, the officials

also said that the garments were “like and/or competing garments”

because they were both being used for the same purpose—“to cover and

protect the under clothing and the body.” They said that this common

purpose “will dictate the type and quality one purchases.”

Page 60 GAO/NSIAD-96-186 Textile Trade
Appendix VII 

ATC Safeguards Invoked in 1995

This appendix examines in detail the transitional safeguards invoked in

1995 under ATC, including the number of safeguards, their status, an

analysis of data CITA applied to its decision to impose the safeguards, and

information on the TMB’s review of the safeguards. Finally, a case study on

one category—nightwear and pajamas—presents an overview of a

disputed safeguard action.

Calls Issued by CITA

in 1995

CITA issued 28 calls in 1995, covering 10 product categories, to 11 WTO

member countries and 7 non-WTO member countries. Of the 28 calls, the

United States and the exporting countries reached agreement on 14 and

the United States ultimately rescinded 11.1

 For the remaining calls, quotas

remain without agreement on two, and consultations between the United

States and the exporting country are ongoing for one case (see table VII.2).

Table VII.1 shows U.S. domestic production, import, and world import

data by country for the 28 calls issued in 1995. The data shows that CITA

does not apply any standard numerical thresholds in finding damage to

U.S. industry and in deciding to request consultations to impose quotas.

The rise in total imports for each category ranged from 3.7 percent for

category 342/642 (cotton and MMF suits) to 116 percent for category 440

(woven wool shirts and blouses). Production declines ranged from

1.7 percent for category 670-L (MMF luggage) to 23.9 percent for 

category 444 (women’s and girls’ wool suits.)

In 1995, CITA requested consultations with some small suppliers. 

Table VII.1 also shows the country percent of world imports—countries

called according to their import share of the category in question, from the

entire world. Under ATC, the United States called countries with world

import shares of a particular product of less than 2 percent in seven

instances, and world import shares of less than 5 percent in 17 instances.

For category 351/651 (nightwear), all four countries called had world

import shares of less than 5 percent, as did three countries called under

category 435 (women’s and girls’ wool coats.) The country with the highest

world import market share was India, for woven wool blouses and shirts

(category 440), at 54.2 percent. The data did not show any significant

differences in CITA calls issued to WTO member countries as compared to

nonmember countries.

1

In May 1996, the United States and Sri Lanka agreed to cancel their agreement on MMF luggage.

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ATC Safeguards Invoked in 1995

Table VII.1: Production, Import, and World Market Share Data From Market Statements for CITA’s 1995 Calls

Category Description

Percent change

in U.S.

productiona

Percent change

in total U.S.

importsa

Countries

called

Country percent

of world imports

into United

Statesb

342/642 Cotton & MMF skirts –5.2% 3.7% Guatemala* 4.0%

351/651 Cotton & MMF nightwear –3.0 4.9 El Salvador* 2.3

Honduras 1.4

Jamaica 4.0

Costa Rica 1.5

Total 9.1

352/652 Cotton & MMF underwear –6.4 15.0 Colombia* 1.6

Costa Rica 14.8

Dominican

Republic 16.9

El Salvador* 3.8

Honduras 6.7

Thailand 1.6

Turkey 1.3

Total 46.7

434 Men’s and boys’ wool coats –1.9 26.7 Brazil 5.0

India 24.2

Macedonia* 4.4

Total 33.6

435 Women’s and girls’ wool coats –1.8 8.4 Honduras 1.2

India 3.1

Russia* 3.6

Total 7.9

440 Woven wool shirts and blouses –12.5 116 Hong Kong 3.8

India 54.2

Total 58.0

444 Women’s and girls’ wool suits –23.9 4.0 Colombia 11.7

Philippines 6.7

Bulgaria* 4.6

Total 23.0

603 Spun yarn –10.0 26.9 Thailand 9.6

642 MMF skirts –7.6 17.6 Nepal* 1.9

(continued)

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ATC Safeguards Invoked in 1995

Category Description

Percent change

in U.S.

productiona

Percent change

in total U.S.

importsa

Countries

called

Country percent

of world imports

into United

Statesb

670-L MMF luggage –1.7 11.9 Philippines 8.8

Sri Lanka 3.9

Thailand 22.6

Total 35.4

Note: Countries with asterisks are not WTO members.

aProduction declines and import increases are for the most recent comparable yearly changes

(presented in the market statements).

bCountry percents of world imports are for the most recent yearly import data (presented in the

market statements).

Source: GAO analysis of OTEXA market statements.

The Textiles

Monitoring Body

Among other things, TMB is charged with reviewing quotas that are

disputed as well as those agreed to following a call to ensure that the

safeguard conforms to the terms of ATC. The 10 TMB members are broadly

representative of WTO member countries; 1995 members included

representatives from Brazil, Canada, the EU, Hong Kong, India, Indonesia,

Japan, Norway, Pakistan, and the United States. With respect to disputed

safeguard actions, TMB’s examination typically results in a determination of

whether serious damage or actual threat thereof, within the meaning of

ATC, has been demonstrated. In one case, however, TMB issued a

recommendation on the basis of interpreting other ATC provisions. TMB is

required to promptly conduct examinations and make appropriate

recommendations. ATC provides that member countries will endeavor to

accept in full those recommendations.

TMB does not have formal rules of practice and procedure or rules of

evidence. While its working procedures state that TMB reports of disputed

cases shall include “a factual presentation of the issues examined” and

“the common rationale” for its recommendations, the reports to date have

not provided detailed reasoning supporting TMB’s conclusions about the

existence of serious damage or actual threat thereof. In this regard, a TMB

member stated that TMB recommendations should not be viewed as

precedent or definitive guidance to member countries; instead, he noted

that safeguard cases are reviewed on a case-by-case basis. One TMB

member emphasized the role of TMB as a facilitator of ATC implementation,

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ATC Safeguards Invoked in 1995

noting that TMB is not a substitute for WTO dispute settlement. WTO’s

Dispute Settlement Body (DSB) can consider disputes that were the subject

of TMB reviews or recommendations.2

Much of TMB’s review requires interpreting ATC provisions. TMB members

hold differing views about the meaning of various ATC provisions. Despite

the number of TMB members, their diverse cultural backgrounds, and ATC

language that is often subject to interpretation, TMB makes all of its

recommendations by consensus.

TMB’s Review of 1995

Safeguards

During 1995, TMB completed its review of and issued reports on seven

disputed U.S. safeguard actions involving five product categories. TMB

found that one call was justified based on a finding that the United States

had demonstrated the threat of serious damage to domestic industry

attributable to the called country. For two calls, TMB found that the United

States had not demonstrated serious damage or threat thereof to its

domestic industry. For three calls, involving two categories, TMB stated

that the United States had not demonstrated serious damage, but TMB

members could not reach a consensus on whether a threat of serious

damage had been demonstrated. Finally, TMB found that one call was not

justified under ATC but did not address the propriety of the U.S.

determination of serious damage or its attribution to the called country3

(see table VII.2).

Table VII.2: CITA’s 1995 Calls

Country Category Description TMB review? TMB ruling* Status of case

WTO members

Honduras 351/651 Cotton & MMF

nightwear and

pajamas

Yes a Rescinded

Honduras 352/652 Cotton & MMF

underwear

Yes b Agreement

Jamaica 351/651 Cotton & MMF

nightwear & pajamas

No NA Agreement

Dominican

Republic

352/652 Cotton & MMF

underwear

No NA Agreement

(continued)

2

Two pending DSB cases involve safeguard actions that TMB reviewed—Costa Rica, regarding

categories 352/652 (cotton and MMF underwear) and India regarding category 440 (woven wool

blouses and skirts).

3

TMB concluded in this case that the application of a safeguard measure to Hong Kong for category

440 products was not justified under ATC because Hong Kong exports of these products were already

under quota under an existing group limit.

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ATC Safeguards Invoked in 1995

Country Category Description TMB review? TMB ruling* Status of case

Thailand 352/652 Cotton & MMF

underwear

Yes Rescinded before

TMB ruling

Rescinded

Costa Rica 352/652 Cotton & MMF

underwear

Yes b Restraint remains***

Turkey 352/652 Cotton & MMF

underwear

Yes Parties agreed before

TMB ruling

Agreement

India 434 Men’s & boys’ wool

coats other than suit

type

Yes a Rescinded

India 435 Women’s & girls’

wool coats

Yes b Rescinded***

India 440 Woven wool shirts

and blouses

Yes c Restraint remains***

Honduras 435 Women’s & girls’

wool coats

Yes Parties agreed before

TMB ruling

Agreement

Philippines 670-L MMF luggage No NA Rescinded

Brazil** 434 Men’s & boys’ wool

coats other than suit

type

No NA Rescinded call

Hong Kong 440 Woven wool shirts

and blouses

Yes TMB recommended

rescission due to

group limit

Rescinded

Sri Lanka** 670-L MMF luggage No NA Agreement

(canceled)

Thailand 603 Spun yarn containing

85% or more by

weight artificial

staple fiber

No NA Rescinded

Thailand 670-L MMF luggage No NA Rescinded

Philippines 444 Women’s & girls’

wool suits

No NA Rescinded

Costa

Rica

351/651 Cotton & MMF

nightwear and

pajamas

No NA Rescinded

Non-WTO members (at time of call)

El Salvador 351/651 Cotton & MMF

nightwear and

pajamas

NA NA Agreement

El Salvador 352/652 Cotton & MMF

underwear

NA NA Agreement

Colombia 352/652 Cotton & MMF

underwear

NA NA Agreement

Macedonia 434 Men’s & Boys’ wool

coats other than Suit

type

NA NA Consultations

continuing

Guatemala 342/642 Cotton & MMF skirts NA NA Agreement

(continued)

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ATC Safeguards Invoked in 1995

Country Category Description TMB review? TMB ruling* Status of case

Colombia** 444 Women’s & girls’

wool suits

NA NA Agreement

Russia** 435 Women’s & Girls’

wool coats

NA NA Agreement

Bulgaria** 4 44 W omen’s & N Girls’

wool suits

A N A A greement

Nepal** 642 MMF skirts NA NA Agreement

Legend

* = TMB must eventually review all agreements.

** = No unilateral quota imposed on country.

*** = Referred to WTO DSB.

NA = Not applicable.

aTMB found no serious damage or threat thereof.

bTMB found no serious damage but did not reach consensus on threat thereof.

cTMB found no serious damage but found threat thereof.

Views of Individual

TMB Members

Concerning Calls

TMB members discharge their functions on an ad personam basis—they do

not necessarily represent their respective home country views, but rather

offer opinions and make recommendations as individuals. The views

expressed in this section are purely the general observations of the

individual TMB members given to us in interviews.

Some TMB members we interviewed indicated that they had not expected

the United States to issue over 20 calls in the early part of 1995 under ATC.

Although calls under MFA had actually averaged about 28 per year over the

previous 5 years, the members emphasized their belief that ATC was a

liberalizing agreement and was not expected to result in the same level of

safeguard activity as occurred under MFA.

Some members questioned whether import increases and production

declines had been sharp enough to trigger calls, although members did not

support issuing specific numerical thresholds for either factor. Some of

the members believed that the United States had not adequately

considered the amount of a country’s world market share of the category

in question when making a call.

Some TMB members expressed concerns about U.S. calls involving

products exported under the Special Access Program. The program

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ATC Safeguards Invoked in 1995

provides for more favorable quota treatment for imports from Caribbean

Basin countries of apparel assembled from fabric formed and cut in the

United States. Some members questioned how such “reimports” could

damage U.S. domestic industry, when U.S. apparel manufacturers cut the

parts, sent them offshore for assembly, and reimported them for finishing

and marketing.

Case Study of One

CITA Call

To better illustrate the complex process of imposing quotas, the following

case study provides an account of a CITA call on category 351/651—cotton

and MMF nightwear and pajamas. The case study includes (1) background

on the category called, (2) CITA’s support for imposing the quota based on

information presented in OTEXA’s market statement, (3) the outcome of the

U.S. consultations with the exporting countries, (4) the U.S. and the

exporting countries’ presentations before TMB, and (5) TMB’s final

recommendations.

Following an import increase of cotton and manmade fiber nightwear and

pajamas in 1994, CITA requested consultations in March 1995 with the

governments of Jamaica and Honduras under ATC. CITA also requested

consultations with El Salvador, which at that time was not a WTO member.

Asserting that a sharp and substantial increase of total imports of 

category 351/651 was causing serious damage to U.S. domestic industry,

CITA said that the damage could be attributed to these countries. In June

1995, CITA requested consultations with Costa Rica.4

 In the June call, CITA

provided updated data from its March statement.

The United States and Honduras were unable to reach an agreement

within the 60 days required under ATC. Thus, the United States imposed a

quota on Honduras, and the case was referred to TMB. After reviewing the

case and hearing presentations by both the U.S. and Honduran

delegations, TMB found that neither serious damage nor a threat had been

demonstrated; TMB recommended that the United States rescind the quota.

In September 1995, the United States did so.

The United States and Costa Rica also failed to reach agreement, and the

United States imposed a quota. The United States later rescinded the

restraint, before any TMB consideration on the matter.

4

CITA reported that, although down in March, new first quarter 1995 import data showed that Costa

Rican imports had risen by 129 percent during that quarter compared to the first quarter of 1994.

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ATC Safeguards Invoked in 1995

Concerning Jamaica and El Salvador, each of the two countries signed an

MOU with the United States agreeing to establish a specific limit on imports

as well as a guaranteed access level (GAL).5

Background on Trade in

Category 351/651

Domestic production of cotton and MMF nightwear and pajamas in CITA

category 351/651 has been trending downward in recent years. As

illustrated in figure VII.1, from 1987-91 U.S. domestic production fell from

16.2 million dozen to 10.8 million dozen (a 33.5-percent decrease); from

1992-95 production dropped from 11.6 million dozen to 8.8 million dozen

(a 24-percent decrease).6

 Total imports from all sources rose at an average

annual rate of 11.6 percent in 1987-94, while total imports rose from

11.4 million dozen to 11.9 million dozen (a 4.5-percent increase) in 1994-95.

5

Under the Special Access Program, Caribbean Basin countries are granted larger quotas, or GALs, if

they use fabric cut and/or formed in the United States.

6

In 1992, Census established a new benchmark for its Census of Manufacturers Survey. Therefore,

domestic production data for 1992 forward is not comparable to previous years’ data.

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ATC Safeguards Invoked in 1995

Figure VII.1: Domestic Production and Imports Under CITA Category 351/651, 1987-95

1987 1988 1989 1990 1991 1992 1993 1994 1995

0

5

10

15

20

Millions of dozens

U.S. Production Imports

Note: Due to a new benchmark established with the 1992 Census of Manufacturers Survey,

domestic production data for 1992 forward is not comparable to previous years’ data. Production

data for 1995 is preliminary.

Source: OTEXA quarterly production and import report.

As shown in table VII.3, since 1982 (the earliest data made available to

GAO) CITA has issued calls on category 351/651 in every year except 1987

and 1988.

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ATC Safeguards Invoked in 1995

Table VII.3: Countries Called, Domestic

Production, and Total Imports for CITA

Category 351/651, 1982-95

Millions of dozens

Year Countries called

Domestic production Total imports

1982 China (351 only) 22.2 2.6

1983 Haiti (351 only) 22.8 2.8

1984 Hong Kong (651 only) 21.3 3.4

1985 China (651)

Taiwan (651) 19.9 4.4

1986 Hong Kong (651 only)

Sri Lanka (351 only) 19.2 5.2

1987 None 16.2 5.4

1988 None 15.4 5.8

1989 Dominican Republic

Bangladesh

Turkey 14.2 7.3

1990 Brazil

Fiji

Mauritius

Thailand

United Arab Emirates 11.7 7.7

1991 India 10.8 8.1

1992 India 11.6 9.4

1993 Guatemala 11.3 10.8

1994 Myanmar

Hungary 10.6 11.4

1995 Jamaica

El Salvador

Costa Rica

Honduras 8.8a 11.9

Note 1: Due to a new benchmark established with the 1992 Census of Manufacturers Survey,

domestic production data for 1992 forward is not comparable to previous years’ data. Production

data for 1995 was not available at time of printing.

Note 2: Data presented in this table does not necessarily reflect data available to CITA at the time

of the call.

aProduction data for 1995 are preliminary.

Source: U.S. Imports, Production, Markets, Import Production Ratios and Domestic Market Shares

for Textile and Apparel Products Categories: Quarterly Reports, U.S. Department of Commerce

International Trade Administration, OTEXA (Washington D.C.: various issues).

In both its March and June 1995 market statements, CITA included a list of

category 351/651 suppliers to the U.S. market. Information from the June

statement is excerpted in table VII.4. The table shows the volume of total

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ATC Safeguards Invoked in 1995

imports from each supplier for 1993 and 1994. Table VII.4 shows that in

1994 over 76 percent of total imports of category 351/651 items came from

countries already under a specific limit (quota). Including the 1995 calls,

85 percent of category 351/651 imports came from countries subject to

quotas.

Table VII.4 also shows that some suppliers whose imports have increased

have not been subject to quotas. For example, in 1994, imports from Egypt

were 6.5 times its 1993 level. Yet imports from Egypt are not subject to

specific limits.7

Table VII.4: U.S. Imports From Major Suppliers Under CITA Category 351/651, 1993-March 1995

Thousands of dozens

Limit Country 1993 1994

Year

ending

3/94

Year

ending

3/95

Percent change,

year ending 3/95

Percent of total

imports, year

ending 3/95

World 10,832 11,406 10,984 11,507 4.76 100.00

SL Dominican Republic 1,498 1,468 1,525 1,487 –2.51 12.92

SL Hong Kong 1,377 1,406 1,397 1,379 –1.31 11.98

SL China 1,210 1,052 1,151 1,096 –4.74 9.53

SL Taiwan 868 846 935 822 –1.50 7.15

FTAsa 738 726 713 764 7.15 6.64

SL Turkey 617 725 670 755 12.76 6.56

SL Philippines 430 538 441 596 35.15 5.18

SL Bangladesh 481 549 472 577 22.15 5.01

Jamaica 227 453 289 403 39.34 3.50

SL Indonesia 453 367 417 352 –15.55 3.06

El Salvador 119 260 132 294 123.04 2.56

SL Sri Lanka 350 215 349 244 –30.01 2.12

SL Pakistan 175 239 205 234 14.58 2.04

Egypt 27 175 49 193 293.39 1.68

SL Malaysia 181 212 200 193 –3.62 1.68

Costa Rica 154 143 146 171 16.77 1.49

SL S. Korea 203 173 171 167 –2.22 1.45

Honduras 92 158 112 167 48.98 1.45

SL Thailand 186 189 188 148 –21.12 1.29

SL Hungary 116 144 125 145 16.07 1.26

SL India 156 114 132 130 –1.78 1.13

(continued)

7

Egypt’s percent of total imports (import market share) is only 1.7 percent. However, this market share

is higher than the import market share of several countries that are subject to a specific limit.

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ATC Safeguards Invoked in 1995

Thousands of dozens

Limit Country 1993 1994

Year

ending

3/94

Year

ending

3/95

Percent change,

year ending 3/95

Percent of total

imports, year

ending 3/95

SL United Arab Emirates 154 152 146 127 –12.90 1.11

Fiji 98 108 95 117 23.34 1.02

EU 69 106 71 117 64.92 1.02

SL Guatemala 172 133 198 113 –43.06 0.98

Colombia 129 102 124 100 –19.51 0.87

SL Macaub 37 73 32 87 169.81 0.76

Oman 58 82 68 82 20.38 0.71

Haiti 164 39 162 50 –68.99 0.44

Nepal 25 37 32 47 47.83 0.41

Brazil 72 69 81 42 –48.20 0.37

Singapore 31 36 33 40 22.67 0.35

SL Mauritius 30 63 57 34 –40.59 0.30

SL Myanmar 56 52 73 33 –53.95 0.29

Note: “SL” designates where a specific limit (quota) is already in place. Countries in bold were

called by CITA as of June 1995. Year-ending data reflects most recent data available at the time

of call for the preceding 12-month period.

aFTAs designates the countries that have signed free trade agreements with the United States:

Canada, Mexico, and Israel.

bImports from Macau in CITA categories 351 and 851 are subject to an SL.

Source: OTEXA market statements.

CITA’s Support for Its Requests

for Consultations to Impose

Quotas

CITA supported its request for consultations to impose quotas for category

351/651 products with data presented in two market statements.8 CITA

provided category 351/651 data on imports, domestic production,

employment, and both import price and producer price in its March and

June statements. It updated all but the import price data in its June

statement. Anecdotal information about loss of jobs in the industry was

repeated in both statements.

The import increase from the countries called in the March statement was

dramatic. Imports from Jamaica rose by nearly 30 percent in 1993 over

1992. In 1994, Jamaican imports nearly doubled. Imports from Honduras

rose nearly fivefold from 1992 to 1993. Imports from El Salvador reached

8

CITA provided a market statement in March 1995 when it first requested consultations with Honduras,

Jamaica, and El Salvador. When CITA requested consultations in June 1995 with Costa Rica, it

provided a second market statement, including data on Costa Rica and some updated data from the

first market statement.

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ATC Safeguards Invoked in 1995

nearly 260,000 dozen by 1994, an increase of over sevenfold from their

1992 level.

Regarding Costa Rican imports, CITA noted in its June statement that “[a]t

the time of the initial determination of serious damage imports from Costa

Rica were down. Imports from Costa Rica are now surging, increasing

17 percent for the year ending March 1995 when compared with the same

period a year earlier, and are up 129 percent during the first quarter of

1995 when compared with the same period in 1994.”

Both market statements supplied the same anecdotal industry information,

which, OTEXA said, was collected through a survey of individual firms

producing cotton and MMF nightwear. The information described the loss

of jobs occurring as a result of low-priced imports and the movement of

production offshore. According to the statement, “Sales of

U.S.-manufactured nightwear are estimated by the industry to have

dropped as much as 65-70 percent in the past two years.” Further, “Profits

have been non-existent for some firms.”

In an effort to reflect the most current available data, CITA presented

revised data in its June statement that differed significantly from that in its

March statement.9

 For example, data changed for its domestic production,

number of establishments, number of production workers, and estimate of

annual shipments.

The June revised and updated domestic production data indicated that

production was not falling by as much as was indicated in March, when

the most up-to-date data was listed through September 1994. In June, the

full 1994 calendar year data showed domestic production levels falling by

0.4 percent over 1993. Domestic production data in the March statement

indicated a 10.3 percent decline in 1993 from 1992; for the year ending

September 1994, production fell by 3 percent.

The domestic industry described in the June market statement was much

larger than the one described in the March statement. This is indicated by

the following data revisions supplied in June:

• The number of U.S. establishments manufacturing category 351/651

products was revised from 37 to 130.

9

Article 6.7 of ATC states that “the request for consultations shall be accompanied by specific and

relevant factual information, as up-to-date as possible. . . .”

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ATC Safeguards Invoked in 1995

• The percentage of apparel workers employed in the U.S. industry changed

from 1 percent in the March statement to 2 percent in the June statement.

• The number of production workers changed from 3,527 in the March

statement to 14,275 in June.

• The estimate of annual shipments from establishments in the industry

changed from $265 million in the March statement to $1 billion in June.

In addition, the domestic industry portrayed in the June market statement

was different than that described in the March statement, as the following

revisions indicate:

• The rate of decline in employment decreased in the revised statistics. The

figures supplied in March indicated employment declines of 7.5 percent in

1993 and 2.2 percent in 1994. The June figures indicated employment

declines of 3.8 percent in 1993 and 1.6 percent in 1994.

• Total annual wages, previously listed as $44.7 million for 1994, were

revised to $187.4 million in the June statement. While the March statement

indicated that total annual wages fell by nearly 1 percent in 1994 over

1993, the June statement indicated that total annual wages rose by just

over 1 percent in 1994 compared to 1993.

Total category imports showed a slightly more moderate rate of increase.

Imports rose by 5.3 percent in calendar year 1994, according to the March

statement. The June statement showed that imports rose by 4.8 percent for

the year ending March 1995.

Outcome of the U.S.

Consultations With the

Exporting Countries

As described earlier, the United States reached agreement by signing an

MOU with Jamaica and El Salvador on quotas in June and July 1995,

respectively. The United States did not reach agreement with Costa Rica

or Honduras. Table VII.5 shows the quotas agreed to between the United

States and Jamaica, and the United States and El Salvador. The table also

shows the U.S. quotas, later rescinded, imposed on Honduras and Costa

Rica.

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ATC Safeguards Invoked in 1995

Table VII.5: Quotas Resulting From

Consultations on Category 351/651 Thousands of dozens

Country called

1994

imports

Specific

limit—

1995

Specific

limit—

1996

GAL for

1995

GAL for

1996

Jamaica 453 500 375 none 1000

El Salvador 260 500a 366b none 500

Costa Rica 171 171c NA NA NA

Honduras 158 158d NA NA NA

Legend

NA = Not applicable.

aCITA raised the SL to 535,000 dozen in November 1995.

bCITA raised the SL to 457,500 dozen in April 1996.

cCITA rescinded its quota in November 1995.

dCITA rescinded its quota in September 1995.

TMB Review The U.S. safeguard action with Honduras was referred to TMB for review.10

Representatives from the United States and Honduras made presentations

to TMB in July 1995.

The following excerpt from TMB’s published report summarizes the reasons

presented by the U.S. representative to TMB about why imports of 

category 351/651 products were causing actual or threatened serious

damage. It also summarizes the reasons presented by the Honduran

representative concerning why the United States had not presented

credible evidence of damage to U.S. industry.

The U.S. delegation explained that the increase in total category 351/651

imports was causing actual or threatened serious damage to the U.S.

industry for the following reasons. These reasons were supported by the

data CITA had provided in its market statements.

• A decrease in domestic production, a loss in domestic market share, an

increased import penetration reaching very high levels, and a decline in

employment, average work hours, total annual production and workers’

wages had occurred;

10The United States agreed to rescind its quota on Costa Rica before TMB issued a report.

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ATC Safeguards Invoked in 1995

• A significant number of facilities producing goods ascribed to category

351/651, or of workers employed in such facilities, had received trade

adjustment assistance, as it was found that they were adversely affected

by imports;

• Imports were entering the United States at prices below the average U.S.

producer price. The inability of U.S. producers to compete with these

lower prices was cited as the main reason for “declines in domestic

operations.”

The Honduran delegation presented the following arguments before TMB:

• The United States had not shown that any possible serious damage was

caused by a sharp and substantial rise in imports of like and/or directly

competitive products at prices below those prevailing for similar goods of

comparable quality in the U.S. market.

• The two U.S. market statements contained some inconsistencies, in

particular with respect to U.S. producers’ prices, employment, and work

hours. These called into question the validity of the U.S. determination of

actual or threatened serious damage. The Honduran representative

objected to using information that had not been provided when the quota

had been introduced as a basis for TMB’s recommendation.

• The United States had not taken into account the importance of outward

processing11 trade with Honduras in this category. The representative

claimed there could be no conclusion that serious damage had occurred to

an industry that depended on this coproduction for up to 30 percent of its

output.

• The import level agreed to in U.S. bilateral agreements with two other

countries following the determination of serious damage in this category

was substantially above the level of Honduran imports.

TMB Recommendation In reviewing the U.S. safeguard measure against category 351/651 imports

from Honduras, TMB found that neither serious damage, nor actual threat

thereof, had been demonstrated. TMB recommended that the United States

rescind the measure.

The United States rescinded the quota against Honduras on September 29,

1995.

11“Outward processing” refers to programs, similar to the U.S. Special Access Program for Caribbean

Basin countries, whereby textile and apparel products are cut to shape in the domestic market, then

assembled abroad and brought back to the domestic market.

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Appendix VIII 

Safeguard Procedures in the EU, Canada,

and Japan

As of June 1996, no country other than the United States had imposed

safeguards under ATC.

1

 Both the EU and Canada imposed quotas under MFA

and have well-established processes for determining whether to make a

call to a foreign country for consultations. While Japan has never invoked

quotas under either MFA or ATC, the Japanese government recently

published a document noting the increase in textile and apparel imports

and outlining guidelines related to imposing quotas.

The EU’s Textile and

Apparel Industries

The EU’s textile and apparel industries together employ about 2.3 million

workers (about 6 percent of the EU’s total manufacturing work force),

down from over 3 million in 1988. In 1994, the EU exported about

$25 billion in textile and apparel goods and imported approximately

$37 billion (about a $12-billion trade deficit).2

 The textile and apparel

industries account for about 6 percent of EU exports.

The EU textile industry alone employed about 1.3 million workers in 1994,

down from 1.7 million in 1988. In 1994, the EU imported about $11.6 billion

in textiles (approximately 7 percent of its domestic market), up from

almost $8 billion in 1988.3

 Switzerland and India were the EU’s main textile

suppliers, each exporting approximately $1 billion to the EU, followed

closely by the United States ($878 million), and China ($860 million). The

EU textile industry exported approximately $14.2 billion in 1994. Its

primary export markets were the United States, Poland, and Austria.

The EU apparel industry employed around 971,000 workers in 1994, 

a 19-percent decrease from 1988. In 1994, the EU imported about $25 billion

in apparel items, up from $16 billion in 1990. Its primary supplier, China,

exported $3.6 billion to the EU, followed by Turkey with $2.4 billion, and

Hong Kong with $2.2 billion. India was the EU’s fourth largest supplier,

exporting $1.8 billion in apparel to the EU.

In 1994, the EU apparel industry exported approximately $11 billion in

apparel goods, up from about $8 billion in 1990. Switzerland was its

primary customer, importing $1.5 billion. Austria and the United States

each imported approximately $1.2 billion, with Japan importing about

$1.1 billion.

1

In June 1996, Brazil notified TMB that it had requested consultations to impose quotas under ATC.

2

Data for 1994 are estimates.

3

“Domestic market” is defined here as EU consumption in value, excluding value added tax.

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Safeguard Procedures in the EU, Canada,

and Japan

The EU also has a program similar to the U.S. Special Access Program. The

outward processing trade program, or OPT, was established in 1992 and

maintains separate quotas for goods made with European fabric. Tariffs

are based on the value added in assembling the goods. OPT goods

comprise about 4 to 5 percent of total EU imports.

The EU’s Safeguard

Call Process

During 1990-94, the EU made 42 calls under MFA. (Twelve of these were

made in 1992 to replace previous member state restrictions with EU-wide

restraints when the single EU market came into being.) All of these calls

were made under the EU’s “basket exit” mechanism,4

 which was

introduced into all bilateral agreements in the early 1980s. The mechanism

was used to “trigger” bilateral calls under MFA. When ATC was enacted, the

basket exit mechanism was abolished for WTO countries.

The EU’s Chief Textile Negotiator told us that the EU is unlikely to invoke

safeguards under ATC because more than 400 EU product categories are

already under quota. He also noted that the EU has free trade agreements

with many of its neighbors.

The EU’s Chief Textile Negotiator also told us that the EU Commission

believes that the criteria for imposing quotas under ATC are more rigorous

than those under MFA. If, however, the EU decides to make a call under ATC,

he stated that the call process itself would work the same as it did under

MFA, but without the basket exit mechanism.

Because all 15 EU member countries are involved in deciding whether a

safeguard call should be made, the EU process for making quota decisions

is somewhat more cumbersome than that of the United States or Canada.

The EU call process begins when the Textile Inter-Service Group, housed

within the EU Commission,5

 receives a complaint from a member state or

industry. (The Textile Inter-Service Group comprises all the executive

level departments of the EU Commission that have some interest in

textiles, including those that focus on competition, employment, consumer

protection, legal services, customs, and commerce.) An industry may

4

Under the basket exit mechanism, bilateral agreements contained import penetration thresholds that

could have triggered a corresponding quota. If an import penetration threshold were reached, the EU

had the right to request consultations with the exporting country. According to the EU’s Chief Textile

Negotiator, very few basket exit cases where the threshold was reached actually resulted in the

imposition of quotas. For example, in 1993-94, the EU Commission received 593 requests for basket

exits from member states and producers, but implemented only 12.

5

The European Commission is the initiator of Community policies and generally has the sole right to

propose Community legislation. It is also the executive arm of the EU government, implementing or

overseeing the implementation of the policies decided upon.

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Safeguard Procedures in the EU, Canada,

and Japan

submit the complaint to its own government or directly to the EU

Commission. In practice, however, an industry usually submits the

complaint to the Commission.

The entity submitting the complaint must include in its petition detailed

information on how a surge in imports has affected its industry. According

to the EU’s Chief Textile Negotiator, the EU Commission primarily

examines whether an import increase has adversely affected domestic

production and/or prices, and what, if anything, has changed regarding

domestic demand. For example, the Chief Textile Negotiator told us that

even if a country’s exports to the EU had increased over 500 percent, the EU

would not impose quotas if the Commission determined that the import

increase was due to a growth in demand for a product not produced by EU

manufacturers. Such a situation occurred several years ago when EU

producers were slow to react to changes in European apparel fashion

trends. The Chief Textile Negotiator emphasized that the relationship

between imports, domestic production, demand, and prices is critical to

whether a call is made—not, for example, only an increase in imports or

decrease in production. He also stated that while the EU does not have any

specific threshold levels, in practice, calls under MFA were not made if

imports of a good from a country had risen less than 25 percent and if

domestic production had fallen less than 20 percent.

Based on the information provided by the petitioner, the Textile

Inter-Service Committee decides whether the complaint has sufficient

merit to be passed on to member state representatives. If the Committee

believes the petitioner has a reasonable case, the complaint is sent

forward to the Textile Management Committee. This committee, chaired

by the EU Commission, includes representatives from each of the 15

member states (one from each member’s import licensing department and

one from each member’s trade department). Committee members review

the complaint and make comments regarding its validity. The EU

Commission then decides whether to recommend that quotas be imposed,

taking into account the opinions of the member state representatives. The

Textile Management Committee then votes on whether to impose a quota.

A qualified majority6

 in favor of the complaint is needed for the Committee

to move forward on the complaint.

If a qualified majority is not reached, the EU Commission may withdraw

the complaint. If the Commission believes the complaint should be

6

A qualified majority voting system is where votes are weighted so that the larger EU member states

exert a greater influence.

Page 79 GAO/NSIAD-96-186 Textile Trade
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Safeguard Procedures in the EU, Canada,

and Japan

approved, regardless of the vote by member state officials, the case is sent

to a committee that deals with trade regulations and is seated on the EU’s

Council of Ministers.7

 According to the Chief Textile Negotiator, cases are

rarely sent to this committee. In almost all cases under MFA, the EU

Commission’s recommendation was approved by consensus or a qualified

majority vote of member state representatives on the Textile Management

Committee.

The EU call process can be completed as quickly as 3 to 4 weeks after the

complaint is sent to the Commission. However, if there is a problem with

the data, the process could last several months.

While the EU has no formal advisory committees, the Chief Textile

Negotiator told us that importers and retailers have been “very active” in

the EU’s call process. Importers and retailers are free to lobby the EU

Commission, the Textile Management Committee, and individual member

states. He said the importers and retailers are able to make their point

“loud and clear.” However, he also commented that the EU member states

that have large textile and apparel industries are not as concerned with the

views of importers and retailers. They are more concerned about

protecting their domestic industries.

The Director of Euratex8

 explained that while organizations such as his

are not official advisors to the EU, they do informally advise the EU

Commission and believe they are part of the system in an informal way. On

the other hand, an official from an EU importer and retailer association

stated that he does not believe importers and retailers are part of the

system. He noted that while word spreads quickly in the EU that a call is

pending, importers and retailers are not notified officially.

Finally, the EU’s Chief Textile Negotiator commented that the EU

Commission is not concerned about possible import surges before a call is

made and quotas applied. He said that because of the cumbersome EU call

procedures, “Everybody knows everything anyway.” He said that it is

counterproductive to try and keep the call a secret and that, generally, a

surge has already occurred—which is why the call was made in the first

place.

7

The EU’s Council of Ministers is comprised of government ministers from each of the member states,

and is the main decision-making body of the CEU.

8

Euratex is an EU association representing European textile and apparel industries.

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Appendix VIII 

Safeguard Procedures in the EU, Canada,

and Japan

Canada’s Textile and

Apparel Industries

Canada’s textile and apparel industries account for 4.4 percent of its GDP

for all manufacturing industries and employ about 8 percent of its

manufacturing work force. In addition, $11.8 billion of Canada’s

$310 billion in manufacturing shipments (domestic shipments plus

exports) can be attributed to these two industries. Canada’s textile and

apparel industries ran a trade deficit of about $4.8 billion in 1994.

Two major segments constitute the Canadian textile industry: producers of

primary textiles, including MMF and filaments, yarns, and broadwoven

fabrics; and producers of textile products (excluding clothing) such as

carpets and canvas goods. According to a 1992 Canadian government

document, Canada’s textile industry is highly modernized and capital

intensive. In 1994, about 45,000 workers were employed in the Canadian

textile industry, down from about 63,000 in 1988. In 1993, 85 percent of

Canadian textile firms (945 establishments) had fewer than 100 employees.

The United States is by far Canada’s most important textile trading

partner. In 1994, Canada imported $4.3 billion in textiles, up from about 

$3 billion in 1990. Canada’s 1994 imports constituted about 48 percent of

its $9-billion domestic textile market, with about $2.7 billion coming from

the United States. China was the next largest supplier, exporting

$233 million in textiles to Canada. In that same year, Canada exported

almost $1.9 billion in textiles (up from about $1 billion in 1990), with the

United States purchasing almost 80 percent of the exports.

According to a Canadian government document, many Canadian

producers have adopted aggressive strategies to increase productivity by

incorporating leading technologies at all levels of textile production. While

this document notes that the Canadian textile industry is not a “major

player on the world stage,” it points out that the investments the industry

is making, such as in state-of-the-art machinery and equipment, will help

the industry compete internationally.

In 1994, about 84,000 workers were employed in the apparel industry,

down from 103,000 in 1990. In 1993, about three-quarters of apparel

companies had fewer than 50 employees in a total of about 1,900

establishments.

In 1994, Canada imported about $3.3 billion in apparel, up from $2.9 billion

in 1990. Canadian imports in 1994 constituted approximately 40 percent of

its $8.4-billion domestic apparel market. Its top supplier that year was

China, with $606 million, followed closely by the United States

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Safeguard Procedures in the EU, Canada,

and Japan

($573 million). Hong Kong was Canada’s third largest supplier, exporting

$471 million. In 1994, Canada exported about $1 billion in apparel,

compared to $322 million in 1990. In 1994, U.S. purchasers imported most

of Canada’s apparel exports (over $944 million).

Canadian apparel products do not usually compete directly with low-cost

imports. However, in the market segments where these products do

compete, Canadian apparel manufacturers have developed marketing

strategies to influence the customer’s buying decisions, such as using

strategic pricing. Nevertheless, according to a 1995 Canadian government

document, imports are expected to increase their share of the Canadian

market due to the value they offer to retailers and consumers.

Canada does not have an import program similar to the U.S. special access

program. However, according to a Canadian government official, about

40 percent of all Canadian apparel imports under quota are imported by

Canadian manufacturing firms. While, in general, Canadian apparel firms

are not establishing offshore affiliates, they are entering into contracts

with foreign suppliers to produce goods specifically for their firms.

As of May 1996, 43 countries exported products to Canada that were under

quota from MFA. Thirty-one of these are WTO countries. Of the 12 remaining

countries, 11 had entered into bilateral agreements with Canada, and

Canada had taken unilateral action against the remaining one. All textile

and apparel categories have at least one product under quota.

Canada’s Safeguard

Call Process

From 1990 to 1994, Canada made 29 calls under MFA. As of May 1996,

Canada had made no calls under ATC. According to the Deputy Director of

the Textile and Clothing Section of Canada’s Department of Foreign

Affairs and International Trade (DFAIT), there has been little or no interest

on the part of the textile and apparel industry in initiating new safeguard

calls since ATC’s inception. He stated that the apparel industry has adjusted

considerably to global competition over the last few years and has not

pushed recently for new quotas. He also noted that the textile industry has

begun producing more sophisticated goods, which have found a niche in

Canadian and foreign markets. The possibility exists for calls in the future,

and this official indicated that Canada maintains its right under ATC to

initiate calls if necessary.

Canada’s call process works as follows: Canada’s DFAIT monitors trade

flows and watches for sharp increases in imports of a specific product

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Safeguard Procedures in the EU, Canada,

and Japan

from a particular country. All textile and apparel products are on an

import control list (which includes products that are under quota and

those that are not), and all importers are required to have an import

permit. The permit is presented at the border, and the import data are

inputted into a computer log.

The key factors in determining whether a call is made include import

surges, domestic production, and market share. (These were the key

factors Canada considered under MFA and will remain the salient factors in

determining the extent of market disruption under ATC.) The Deputy

Director we interviewed noted the difficulty in assessing how domestic

employment is affected by trade flows because of the complexity in

ascribing a decline in employment to imports from any one country.

Import surges are usually analyzed first. While the Canadian government

does not have any formal thresholds that trigger a call, it has several

general “rules of thumb” that guide its decision-making. For example, a

steady upward trend in imports of a certain category at a relatively sharp

rate will alert DFAIT to a possible problem. The Canadian government is

also particularly sensitive to unrestrained shipments coming in at levels

higher than those from countries with restraints.

DFAIT consults with Canada’s Department of Industry regarding the

possibility of a call.9

 If the government decides to make a call, DFAIT

notifies manufacturers and brokers by electronic mail that a call is

pending. (Brokers then, in turn, notify the importers and retailers they

work with.) Interested parties are given 2 to 3 weeks to respond.

According to the Deputy Director we interviewed, this 2 to 3 week window

gives importers time to take care of their immediate commitments before

the call is made and is short enough in duration to prevent traders from

circumventing, at the last minute, an impending quota. He noted that

orders are usually made months in advance and that Canadian

manufacturers are not particularly concerned about surges during this

time period.

Importers and retailers concerned about an impending call will usually

contact DFAIT to make their position known. The official noted that in

almost all cases, the importers and retailers oppose the call. He stated that

9

With respect to textile and apparel quotas, DFAIT is primarily responsible for monitoring trade flows,

implementing ATC, and negotiating bilateral restraint arrangements. DFAIT also administers quotas

through the issuance of import permits. Canada’s Department of Industry is primarily responsible for

advising DFAIT on whether new quotas are warranted by assessing the sensitivity of domestic

production to low-cost imports.

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Safeguard Procedures in the EU, Canada,

and Japan

his department has traditionally been more concerned with protecting

Canadian textile and apparel producers than retailers and importers.

However, because so many goods are now imported by Canadian

manufacturers, producers themselves are usually cautious about

advocating calls.

The Minister for International Trade, one of DFAIT’s ministers, decides

whether a call will be made, based in part on the views of manufacturers,

importers, and retailers. (In some cases, the Canadian government decides

not to proceed with a call because of a lack of concern on the part of

Canadian manufacturers.) DFAIT sends written notices to interested parties

announcing that a call has been made and publishes the outcome of these

negotiations in a bulletin.

Japan’s Textile and

Apparel Industries

In 1993, the Japanese textile industry employed about 543,000 workers; its

apparel industry employed approximately 580,000. (These two industries

together employed about 10 percent of all workers in Japan’s

manufacturing sector in that same year.) In 1994, Japan exported 

$5.4 billion in textile products and $575 million in apparel products. In that

same year, Japan imported about $3 billion in textiles (for a trade surplus

of more than $2 billion) and $17.3 billion in apparel (resulting in a trade

deficit of about $16.8 billion).

In 1995, Japan imported about $25 billion in textile and apparel products,

up from $16 billion in 1991 (an increase of 57 percent). In that same year,

Japanese imports of these products comprised about 58 percent of its

domestic textile and apparel market. China was Japan’s top supplier of

these goods in 1995, accounting for about 51 percent of textile and apparel

imports.

Japanese Safeguard

Issues

Although Japan has not invoked safeguards under either MFA or ATC, a 1994

Japanese government document10 notes the increase in Japanese imports

of textiles and apparel since 1987. It lays out a framework for determining

when to implement textile quotas, based in part on increases in imports

and their effect on domestic industry (such as on domestic production and

employment).

The Ministry of International Trade and Industry (MITI) officials we

interviewed briefly summarized how their safeguard process would

10Measures for Safeguarding Textiles (Consumer Goods Industries Bureau, Tokyo, Japan: Sept. 1994).

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Safeguard Procedures in the EU, Canada,

and Japan

proceed if an industry requests an investigation. They explained that the

Minister of International Trade and Industry may initiate an investigation

within 2 months from the time industry makes a request and that the

investigation should be concluded within 12 months. Interested parties are

given a specific time period in which they can submit their arguments, and

MITI may also gather data from these parties by sending them a

questionnaire.

These officials also noted the efforts of the Japanese textile and apparel

industries to restructure within a 5- to 10-year period in order to become

more “consumer-oriented.” Japanese government officials explained that

the industries are trying to become more responsive to changes in

consumer tastes.

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Appendix IX 

ITC’s Safeguard Process

Under GATT article XIX (the so-called GATT “escape clause”), member

countries are permitted to escape from international obligations and take

temporary safeguard action to protect a domestic industry from actual or

threatened serious injury caused by imports. The Uruguay Round

Agreement on Safeguards spells out the conditions under which WTO

countries may impose the temporary safeguards.

In the United States, ITC determines whether an industry is eligible for

relief and, if so, recommends an appropriate action to the President. The

President makes the final decision on whether to impose quotas

authorized by article XIX. Under sections 201-04 of the Trade Act of 1974,

as amended (19 U.S.C. §§ 2251-54), ITC conducts investigations concerning

whether an article is being imported into the United States in such

increased quantities as to be a substantial cause of actual or threatened

serious injury to the domestic industry producing a like or directly

competitive product (see fig. IX.I for an illustration of the ITC’s safeguard

process).

Page 86 GAO/NSIAD-96-186 Textile Trade
Appendix IX 

ITC’s Safeguard Process

Figure IX.1: ITC Process for Imposing Safeguards

Petition 

Filed

ITC initiates

investigation and

begins collecting 

information

ITC holds public hearing

Commissioners:

Has injury

occurred?

ITC holds public hearing 

on remedy 

ITC staff prepares remedy 

analysis

Commissioners decide on 

remedy

no

120 

days

ITC staff prepares report 

and sends to 

commissioners

yes

President:

Remedy or

no remedy?

Interagency committee 

forwards options to 

President

President

imposes

remedy

ITC monitors

industry efforts

to adjust

60 

days

yes

ITC report sent to President,

Interagency Committee

No remedy 

taken

180 

days

Interagency committee 

reviews ITC report and 

prepares option 

no

Page 87 GAO/NSIAD-96-186 Textile Trade
Appendix IX 

ITC’s Safeguard Process

In practice, ITC investigations under section 201 are usually initiated as a

result of a petition by industry.1 ITC investigations are generally conducted

in two phases—(1) an injury phase, during which ITC considers issues

related to injury and, if the injury determination is affirmative and (2) a

remedy phase. During the injury determination phase, ITC sends out

questionnaires to domestic producers that ask for data relating to sales,

production, employment, and financial performance for the preceding

5-year period. The questionnaires also address such issues as whether the

imported and domestically produced goods are directly competitive, what

factors have precipitated changes in demand for the imported goods, and

what injury has occurred to domestic producers. In addition, producers

are asked about their efforts to compete with imports and the competitive

adjustment measures they are likely to undertake if relief is granted.2

ITC holds a public hearing during the injury phase of a section 201 case.

Pre- and post-hearing briefs are submitted. Any interested party can

participate in the hearing and may submit a brief and other written

statements.3

 Each side is given about 1 hour to present its case, and the

Commissioners usually spend 1 or 2 additional hours questioning each of

the two opposing sides.

During the injury phase, ITC is also required to seek information on actions

being taken, and/or planned to be taken, by firms and workers in the

industry to adjust to import competition. Petitioners are encouraged to

submit, at any time before the ITC injury determination, a plan to promote

positive adjustment to import competition.4

After the injury hearing is held, questionnaire results compiled, and field

work completed, ITC staff send the Commissioners a report that contains

the information developed. The Commissioners are responsible for

determining whether the industry is seriously injured or threatened with

1

Since 1990, only five section 201 cases have been initiated. In recent years, industry has preferred to

use other statutory authorities to address import problems, such as antidumping and countervailing

duty laws. Under the antidumping and countervailing duty laws, duties may be imposed to offset

dumping and foreign subsidies.

2

Recipients are given about 30 days to complete the ITC questionnaire. Completing the questionnaires

is mandatory, and ITC may issue subpoenas to ensure that recipients complete and return them.

3

To help parties argue their respective positions, ITC is authorized to release confidential business

information under an administrative protective order to authorized representatives of interested

parties, such as their outside counsel. Such information may not be shared with company officials.

4

Section 201 provides that positive adjustment occurs when (1) the domestic industry is able to

compete successfully with imports after actions taken terminate, or the domestic industry experiences

an orderly transfer of resources to other productive pursuits; and (2) dislocated workers in the

industry experience an orderly transition to productive pursuits.

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ITC’s Safeguard Process

serious injury. They are also required to take into account all the economic

factors specified in the statute.

Generally, the Commissioners must make their injury determination no

later than 120 days after ITC receives the petition or request.5

 The

Commissioners vote on injury in a public meeting. If ITC makes a negative

determination, it does not recommend a remedy. If the Commissioners

decide that injury has occurred, they must recommend an action to the

President that would address the injury and be effective in facilitating

efforts by domestic industry to make a positive adjustment. (If the

Commissioners are equally divided on injury, the President has the option

of accepting the determination of either group of Commissioners. In

practice, the President has always accepted the negative determination.)

Before the Commissioners make their remedy recommendation, ITC holds

a second hearing on the remedy measures. Parties are provided an

opportunity to testify and submit briefs. ITC staff then generally furnish the

Commissioners with an analysis of the various remedy options. The

Commissioners have 60 days to decide on appropriate remedies and

usually indicate the nature of the remedy recommendation at a public

meeting. The Commissioners then send a report to the President that

includes their injury determinations, any remedy recommendations, their

written “views” in support of their determinations and recommendations,

and a summary of the information obtained from the investigation. This

report is referred to an interagency committee, chaired by USTR, which also

makes a recommendation to the President. (Shortly after the report is sent

to the President, ITC releases a public version of this report that contains

no confidential business information.) The President has 60 days to decide

whether to provide relief and, if so, in what form and amount.

The President can choose among various remedy options, including an

increase or imposition of a duty, imposition of a tariff-rate quota system6

or quantitative restriction, implementation of one or more adjustment

measures (including trade adjustment assistance), the negotiation of

agreements with foreign countries, or any other action within the

5

Exceptions occur in a number of instances. For example, if the petition alleges that critical

circumstances exist, ITC must first determine, within 60 days of the petition’s receipt, whether these

circumstances exist, and if so, recommend an appropriate remedy to the President. The President then

has 30 days to decide what remedy, if any, to impose. Critical circumstances exist when ITC

determines that there is “clear evidence” that increased imports of a product are a substantial cause of

actual or threatened serious injury to the domestic industry and that “delay in taking action would

cause damage to that industry that would be difficult to repair.”

6

A tariff-rate quota system applies one tariff to imports up to a particular amount and a different,

higher tariff rate to imports in excess of that amount.

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Appendix IX 

ITC’s Safeguard Process

President’s power. In determining what action is appropriate, the

President must consider a number of factors, including the adjustment

plans of the firms and/or industry, the probable effect of the remedy

measures on adjustment, and other factors related to U.S. national

economic and security interests. Relief measures are subject to a number

of limitations. For example, the President may impose relief for an initial

period of no more than 4 years and may extend the measure one or more

times. However, the overall period of relief may not exceed 8 years.

(Safeguard action under ATC may be imposed for a maximum of 3 years.)

If the President imposes safeguards, ITC is required to monitor

developments in the industry, including efforts by the domestic industry to

adjust during the time that the remedies are in effect. The President may

reduce, modify, or terminate the safeguard if either (1) the domestic

industry requests it on the basis that it has made a positive adjustment or

(2) the President determines that changed circumstances warrant a

change in the measure. Before extending a safeguard, and upon request of

the President or a petition on behalf of the industry concerned, ITC is

required to conduct an investigation to determine whether (1) relief

measures continue to be necessary to prevent or remedy serious injury

and (2) there is evidence that the industry is making a positive adjustment

to import competition. ITC must hold a public hearing in the course of its

investigation and send a report to the President 60 days before the

measure is due to expire. After the measure ends, ITC is required to

evaluate how well it has facilitated adjustment by the domestic industry

and submit a report to the President and Congress within 180 days.

When ITC submits a report containing an affirmative injury determination

and remedy recommendation, the President often determines either to

take no action or to impose a different or less restrictive measure than that

recommended by the ITC Commissioners. From 1975 to 1995, ITC

conducted 64 section 201 investigations. In 34 of these cases (including 

5 tie votes), ITC Commissioners decided injury had occurred. In only 13 of

the 34 cases did the President decide to provide relief, and in many of

these cases relief measures imposed were less onerous than those

recommended by ITC.

7

 In six additional cases, the President directed that

the Secretaries of Commerce and Labor give expeditious consideration to

petitions filed for trade adjustment assistance. According to ITC officials,

7

If the President takes action that is different from that recommended by ITC or declines to take any

action, Congress may, by a joint resolution adopted within 90 legislative days, direct the President to

impose the relief recommended by ITC. According to ITC officials, Congress has never adopted such a

resolution.

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Appendix IX 

ITC’s Safeguard Process

this reflects the latitude the President has in considering all economic and

political concerns when making a decision on possible remedies.

Page 91 GAO/NSIAD-96-186 Textile Trade
Appendix X 

Scope and Methodology

To identify and describe CITA’s authority, functions, resources, and costs

under MFA and ATC, we reviewed pertinent CITA agency and other

government documents, including (1) the executive order establishing

CITA’s authority in textile trade matters; (2) U.S. legislation to implement

ATC; and (3) budget data provided to us by officials of USTR and the

Departments of Commerce, Labor, State, and the Treasury. We also

interviewed officials of all the CITA agencies, including all CITA principals.

In addition, we interviewed and obtained documentation from officials of

the U.S. Customs Service concerning CITA’s coordination of certain

functions with Customs.

We also reviewed and compared the MFA and ATC agreements. We sent a

letter to CITA requesting information about CITA’s implementation of ATC,

and we reviewed documentation CITA provided in response. In addition, we

reviewed CITA’s plans to implement ATC quota liberalization mechanisms.

Finally, we obtained and reviewed (1) testimonial statements concerning

CITA’s integration plans; (2) public comments to Federal Register notices;

and (3) reports on ATC implementation and other documentation from

representative associations of domestic textile and apparel producers,

importers, and retailers.

To understand CITA’s decision-making process for imposing quotas and the

framework for the transitional safeguard mechanism, we relied primarily

on interviews with Commerce officials and reviewed ATC provisions.

However, we also sought the perspectives of officials from the other four

CITA agencies and representatives of the U.S. private sector, including

various textile and apparel trade associations. Specifically, we interviewed

six representatives of the domestic textile and apparel producers’

community and eight representatives of importer and retailer groups,

whose representatives also discussed issues related to the transparency of

CITA’s decision-making process. In addition, we reviewed congressional

testimony from 1994 to 1996 related to textile and apparel issues.

We studied how CITA uses textile and apparel import data, production data,

price data, and employment data by reviewing expert studies of these data

and previous reports on these data. In addition, we interviewed officials of

Customs, Census, and OTEXA.

To study how CITA uses these data to support its decisions to issue calls,

we studied market statements CITA issued, which contain CITA’s reasons for

issuing the call and the data used to justify the call. We requested market

statements from CITA going back to 1980, and CITA supplied us with

Page 92 GAO/NSIAD-96-186 Textile Trade
Appendix X 

Scope and Methodology

statements issued between January 1, 1990, and December 31, 1995. We

computerized all the data contained in those statements and studied

trends and patterns for the period in question.

To better illustrate the complex process of invoking safeguards, we

conducted a case study of one call on one CITA category using market

statements and TMB’s publicly available reports.

We interviewed CITA officials, including CITA principals, to understand the

extent to which CITA invoked the transitional safeguard mechanism in 1995

and to learn about the outcome of these calls. We also met with several

countries’ representatives to TMB to obtain their perspective on the U.S.

calls and TMB’s review of these calls. Specifically, we met with the Chair of

TMB and seven TMB representatives. We also reviewed official TMB reports

on 1995 TMB proceedings.

To determine the EU, Canadian, and Japanese use of quotas under MFA and

ATC and describe their safeguard procedures, we interviewed officials from

these three governments in Geneva, Brussels, and Tokyo and reviewed

available government documents. We also conducted phone interviews

with Canadian government officials in Ottawa and representatives of the

Canadian textile, apparel, and importer/retailers trade associations in

Ottawa and Toronto. In addition, we met with representatives from the

EU’s textile and apparel trade association and an importer/retailer trade

group in Brussels.

To understand ITC’s process for imposing safeguard measures, we

interviewed ITC officials, reviewed ITC documents regarding the disposition

of section 201 cases since 1975, and reviewed the U.S. trade statute

regarding safeguard procedures.

We did our work from May 1995 through May 1996 in Washington D.C.;

Brussels, Belgium; Geneva, Switzerland; and Tokyo, Japan, in accordance

with generally accepted government auditing standards.

Page 93 GAO/NSIAD-96-186 Textile Trade
Appendix XI 

Comments From the Department of

Commerce

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 94 GAO/NSIAD-96-186 Textile Trade
Appendix XI 

Comments From the Department of

Commerce

See comment 1.

See comment 2.

Page 95 GAO/NSIAD-96-186 Textile Trade
Appendix XI 

Comments From the Department of

Commerce

See comment 2.

See comment 3.

See comment 4.

See comment 5.

Now on p.2.

See comment 6.

Now on pp. 2 and 3.

Now on p. 2.

Page 96 GAO/NSIAD-96-186 Textile Trade
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Commerce

Now on p. 3.

Now on p. 2.

See comment 7.

Now on p. 3.

Now on p. 3.

See comment 8.

Now on pp. 4, 6, and 28.

See comment 9.

Now on pp. 4, 6, and 27.

See comment 2.

Now on pp. 4 and 9.

Now on p. 4.

See comment 1.

Now on pp. 5 and 13.

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Commerce

See comment 10.

Now on p. 5.

Now on pp. 5 and 6.

See comment 11.

Now on p. 6.

See comment 12.

Now on p. 6.

Now on p. 7.

Now on p. 7.

See comment 13.

Now on p. 7.

Now on p. 7.

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Commerce

See comment 14.

Now on p. 10.

See comment 14.

Now on p. 10.

See comment 15.

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Commerce

See comment 3.

Now on pp. 10, 58, and

60.

See comment 16.

See comment 17.

Now on pp. 10 and 59.

See comment 18.

Now on pp. 11 and 64.

See comment 5.

Now on pp. 11 and 66.

Now on p. 19.

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Commerce

Now on p. 22.

Now on pp. 22 and 23.

See comment 19.

Now on p. 24.

Now on p. 24.

Now on p. 27.

Now on p. 28.

Now on p. 28.

See comment 20.

Now on p. 30.

Now on p. 30.

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Commerce

Now on p. 31.

See comment 4.

Now on p. 33.

Now on p. 34.

Now on p. 35.

Now on p. 35.

Now on p. 35.

See comment 21.

Now on p. 37.

Now on p. 41.

Now on pp. 50-51.

Now on p. 53.

See comment 22.

Now on p. 53.

See comment 16.

Now on p. 53.

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Commerce

See comment 23.

Now on p. 58.

See comment 24.

Now on p. 59.

Now on pp. 61 and 65.

Now on p. 61.

See comment 25.

Now on p. 62.

Now on p. 66.

Now on p. 67.

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Now on p. 68.

See comment 26.

Now on p. 69.

Now on p. 70.

See comment 27.

Now on p. 69.

Now on p. 73.

See comment 28.

Now on pp. 61-76.

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The following are GAO’s comments on the Department of Commerce’s

letter dated July 29, 1996.

GAO Comments 1. We note in our report the many procedural and statutory differences

between section 201 safeguard actions administered by ITC and CITA’s

administration of the U.S. textile program under ATC (see p. 5 and app. IX).

With regard to MFN (most-favored-nation treatment), we note that the 201

process “applies to merchandise from all countries,” that is, on a

most-favored-nation basis. Throughout our report we repeatedly highlight

the flexibility granted to CITA in safeguarding U.S. textile and apparel

products.

2. We disagree with CITA’s comment that we did not analyze the most

recent import data, given that we refer to these data several times in our

report. On page 4, we note that the most recent median import increase

was 17.6 percent, a point we develop in footnote 9 and repeat on page 10.

On page 55, we also explain that import data is more current than

production data, and subsequently present the most recent import data,

year by year, in table VI.2.

The median represents the best descriptive statistic for the data elements

we considered (see fn. 7, p. 55, for a more technical explanation of this

point), and we used medians to summarize the output of CITA’s

deliberations, variable by variable, for each of the 6 years we considered.

In order to provide more information regarding these statistics, we also

present the ranges around some medians (for example, on pp. 4 and

54) and breakdowns on the number of import and production calls that fell

below particular thresholds (on pp. 10 and 56-57). Finally, we note that the

data we used to establish our medians were contained in CITA’s market

statements, to which we believe the CITA principals had access at the time

of their deliberations.

While CITA states that it never recommended a safeguard action when

imports were down or U.S. production was up, our review of CITA’s 166

market statements for calls CITA made during 1990-95 found 56 cases

where imports were down or production was up in the most recent

calendar year listed in the statement. (See p. 57.)

3. We draw no conclusions about the cumulative effects of small suppliers.

We note that when suppliers are aggregated by product category and by

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Comments From the Department of

Commerce

year, median imports represent 4.8 percent of all that category’s imports

into the United States. (See p. 58.)

We found no evidence to support CITA’s conclusion that this median of

4.8 percent demonstrates that their actions forestall “country hopping.”

Even when suppliers are aggregated by category by year, the total imports

from the countries called are still small. For example, about 25 percent of

the categories called affected suppliers whose combined imports were less

than 2 percent of U.S. imports of that category.

4. We state on page 33 that ATC allows the “freedom to choose which

products to integrate at each stage.” We do not imply in our report that the

U.S. integration schedule was inconsistent with ATC. Finally, while we

agree that the EU and Canada generally only included those products not

under quota in the first stage of integration, Canada did include one item

that had been under quota.

5. We believe our discussion of TMB member views on pages. 63-64 and

66-67 is appropriately qualified.

6. Regarding the comment pertaining to page 7, we recognize that

ultimately the United States, through USTR, consults with foreign

governments. However, it is CITA’s responsibility to decide whether

consultations should be requested.

7. See our discussion of the liberalizing effects of ATC, on page 34.

8. We state on page 2 that CITA is a committee with representation from

five different agencies and on page 6 that CITA has no budget of its own. We

reported fiscal year 1995 data because we wanted to examine fiscal year

data for a full year for all CITA agencies, and the costs of several agencies

are not known until the end of the fiscal year. Our discussion in appendix

II describes CITA’s responsibilities for implementing textile agreements and

OTEXA’s role as CITA’s principal support staff. This discussion also includes

information on OTEXA’s non-CITA related responsibilities (see pp. 30-32).

9. We believe our description of CITA functions on pages 4, 7, and 8 are

accurate. The distinct role that USTR and other CITA member agencies have

in facilitating CITA’s decision-making process for imposing quotas is

explained in appendix IV.

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Comments From the Department of

Commerce

10. There is no formal review mechanism with authority to overturn CITA

decisions. In addition, our interviews with CITA officials indicate that

consultation with higher-level officials occurs infrequently.

11. See our description of the call process in appendix IV.

12. ATC does not contain procedural requirements detailing how individual

countries make these determinations. We believe we have adequately

described the substantive requirements of ATC in appendix III.

13. Our 1983 report found that CITA made decisions on the basis of

consensus; this point was not refuted by CITA officials at the time. More

recently, a former CITA Chairman told us that prior to 1983, CITA operated

on a consensus basis.

14. We believe that our analysis is an accurate characterization of CITA’s

use of data to make safeguard decisions. (See comment 2.) Our review of

all 166 market statements found that CITA bases its recommendations for

safeguards almost exclusively on changes in imports and production.

While other factors were sometimes mentioned, the basis for the calls

always rested with changes in imports and production (see pp. 6 and 53).

Even in 1995, after more data were included in the market statements, this

remained the case. We note the importance of import and production data

on pages 6 and 53 of our report.

We focused on comparable import and production data precisely because

of the need to demonstrate that import surges harm U.S. industry. While

CITA states it “should be apparent” that increased imports displace

domestic production, its own data show this is not always the case. For

example, import and production data for all CITA categories show many

instances where imports and production both rose or fell for the same

category during the same time periods.

Our main point regarding calls with fairly small changes in production and

imports is that although some calls were supported by either a small

recent production decline or a small import increase, very few were

supported by both a small production decline and a small import increase

(see p. 56). This point remains true no matter what time periods we

considered, including the most recent import data that CITA states is “key”

in its decision-making process.

Page 108 GAO/NSIAD-96-186 Textile Trade
Appendix XI 

Comments From the Department of

Commerce

In our analysis of CITA’s data use, we considered all data elements that CITA

cites. For example, we present data on domestic market share for 1990-95

(see p. 56). Although we considered partial year data, we concentrated on

the year-ending data to avoid distortions that might result from products

imported on a seasonal basis. We could not consider data on productivity,

capacity utilization, inventories, profits, and investment because CITA

provided these data in its market statements only on an ad hoc basis.

Moreover, the data was based on anecdotal information. Finally, we did

not analyze CITA’s data on domestic prices, employment, and wages

because of the data’s serious limitations at the category level. We explain

these limitations in appendix V.

15. We cannot respond to this comment without more specific

information. (Also see comment 2.)

16. We point out on page 10 that CITA assumes that imports and

domestically produced goods within a given CITA category are substitutes.

As noted in footnote 3 of appendix VI, OTEXA officials told us that they had

not empirically examined the relationship between imports and domestic

production. It is standard practice in economic analysis to examine the

degree to which the products under study are substitutable for one

another.

17. We did not recommend increasing the number of CITA categories. We

point out that in some cases, a consequence of reducing over 4,000 HTS

codes into 148 CITA categories is that some categories may contain

products that do not appear to be like products. This has a direct bearing

on the issue of whether or not changes in imports cause changes in

domestic production. If the imports in question have different

characteristics than domestically produced goods, the goods would be

unlikely to compete with each other in the same market, weakening the

assumption that changes in all imports in a CITA category cause changes in

domestic production.

18. We believe our characterization of TMB rulings is accurate.

19. Footnote deleted.

20. As indicated on page 30, our discussion is not intended to include an

exhaustive list of CITA’s functions related to non-ATC work.

Page 109 GAO/NSIAD-96-186 Textile Trade
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Comments From the Department of

Commerce

21. Our graphic is not intended to imply that these are steps, but as noted,

are elements required for imposing safeguards under ATC.

22. We believe our footnote adequately describes OTEXA’s analysis under

MFA and ATC. As we note in comment 2, we based our analysis on the

information provided in the market statements. CITA did not provide us

with any additional data or analysis to supplement the market statements.

23. Our determination that 28 calls were made when production had risen

in the most recent year (indicated in table VI.4) is based on data in market

statements produced and available to CITA at the time CITA issued the calls.

(See also comment 2.)

24. On page 59, we present one example from CITA’s commentary (out of

three examples provided by CITA) on the differences in prices within

categories. All three examples presented similar scenarios. We determined

that the example we chose provided the best illustration of the issue in

question.

25. Table VII.1 presents data that CITA examines in order to support the

two necessary conditions under ATC for a call: (1) total category imports

are rising at a sharp and substantial rate and (2) domestic industry is being

injured as a result. In addition to determining that a call is warranted

under ATC, the importing country determines that individual countries are

responsible for the increase in total category imports. To make such a

determination, we believe the more relevant variable is country imports as

a percentage of total category imports because it serves as a base-line. For

example, a 20-percent increase in in country imports from a base-line of

2 percent is less significant than a 20-percent increase in country imports

from a base-line of 10 percent.

26. See table note, page 70.

27. We were not given access to documents explaining why calls were not

made. We note that imports from Egypt had risen and that Egypt was a

larger supplier than some countries that were subject to quotas, yet Egypt

was not called.

28. See page 73 for a discussion of CITA’s use of revised data.

Page 110 GAO/NSIAD-96-186 Textile Trade
Appendix XII 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Elizabeth J. Sirois, Assistant Director

Nina Pfeiffer, Evaluator-in-Charge

Elizabeth Morrison, Senior Evaluator

Carolyn M. Black-Bagdoyan, Evaluator

Mary M. Park, Evaluator

Rona Mendelsohn, Senior Evaluator (Communications Analyst)

General Government

Division, Washington,

D.C.

Scott Einhorn, Senior Evaluator

Martin de Alteriis, Social Science Analyst

Office of the Chief

Economist,

Washington, D.C.

Daniel E. Coates, Senior Economist

Office of General

Counsel, Washington,

D.C.

Richard P. Burkard, Senior Attorney

(280128) Page 111 GAO/NSIAD-96-186 Textile Trade
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