2000/667/EC: Commission Decision of 20 October 2000 terminating the examination procedure concerning changes made by the United States of America in their rules of origin for textiles and apparel products (notified under document number C(2000) 3070)
Date: 2000-10-20
Institutions: European Commission
Subjects: United States, clothing, international organisation, international trade, originating product, textile product

31.10.2000

EN

Official Journal of the European Communities

L 278/35

COMMISSION DECISION

of 20 October 2000

terminating the examination procedure concerning changes made by the United States of America
in their rules of origin for textiles and apparel products

(notified under document number C(2000) 3070)

(2000/667/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 3286/94 of 22
December 1994 laying down Community procedures in the
field of the common commercial policy in order to ensure the
exercise of the Community's rights under international trade
rules, in particular those established under the auspices of the
World Trade Organisation (1), as last amended by Regulation
(EC) No 356/95 (2), and in particular Article 11(1) thereof,

After consulting the Advisory Committee.

Whereas:

(1)

(2)

A. PROCEDURAL BACKGROUND

On 11 October 1996, Federtessile (Italian Federation of
Textile Industries) lodged a complaint under Article 4 of
Regulation (EC) No 3286/94 (hereinafter ‘the Regula-
tion’) on behalf of
the association representing the
Italian silk industry and the association representing the
Italian luxury finishing textile
industry and their
members, concerning the new US rules of origin for
textile and apparel products, as foreseen under the
Uruguay Round Agreements Act adopted by the US
Congress in July 1995.

The complainant alleged that the changes made by the
USA to their rules of origin legislation for textile prod-
ucts constituted an obstacle to trade within the meaning
of Article 2(1) of the Regulation. More specifically, the
complainant referred to two Agreements annexed to the
Agreement Establishing the World Trade Organisation
(hereinafter ‘the WTO Agreement’): Article 4(2) of the
Agreement on Textiles and Clothing and Article 2(b) and
(c) of the Agreement on Rules of Origin. According to
the complainant, these new rules refused Community
originating status to products which have been dyed,
printed and finished in the Community on loom-state
fabrics produced in non-member countries. Under
previous US legislation, that was prior to July 1995,

(1) OJ L 349, 31.12.1994, p. 71.
(2) OJ L 41, 23.2.1995, p. 3.

(3)

(4)

these products had Community origin. Under the new
1995 rules, certain fabrics,
silk handkerchiefs and
scarves were considered to originate where the base
fabric was knit and woven, notwithstanding any further
processing.

of

textile

exports

Community

The complainant pointed out that this change threat-
ened
products.
Community exports no longer benefited from the free
access to the US market that they had enjoyed previ-
ously but were subject to any quantitative restrictions
that the USA was maintaining vis-à-vis the third country
where the weaving of the grey cloth (i.e. the fabric on
which subsequent finishing operations were made in the
EC) took place. A second category of effects invoked by
the
the
concerned the
Community products exported into the USA. For
instance, silk scarves made of Chinese fabrics processed
in Italy could no longer be sold under the label ‘made in
Italy’ but had to indicate ‘made in China’, in some cases
just next to the trade mark. This marking requirement
clearly affected the brand image,
in particular since
products exported from the European Communities to
the USA are in the high-quality/high-value bracket.

labelling of

complainant

the

examined

admissibility of

After having
the
complaint, the European Commission considered that
the complaint contained sufficient evidence to justify the
initiation of a procedure under the Regulation. The
European Commission considered that Article 4(2) of
the Agreement on Textiles and Clothing could provide
the basis for an action for all Community textile exports
to the USA which would have been or may have been
subject to the quantitative restrictions imposed by the
USA on fibre producers. This situation is expressly
provided for by Article 4(2) of
the Agreement on
Textiles and Clothing, which specifies, inter alia, that the
introduction of changes in rules on the implementation
or administration of
those restrictions notified or
applied under the Agreement should not adversely affect
the access available to a member or disrupt trade in
textiles products.

L 278/36

EN

Official Journal of the European Communities

31.10.2000

(5)

The Commission also considered that a significant
aspect of the problem lay in the requirement to label the
products in question as originating in the country which
produced the loom-state fabric and not in the European
Community or one of its Member States. This practice
likely to turn the US consumer away from
was
Community exports of the textiles in question because
they could no longer be identified as such. Hence the
Commission considered that the Agreement on Rules of
Origin should also be used as a basis of the action,
because Article 2 of that Agreement provides that rules
of origin may not be used to pursue trade objectives
directly or indirectly and may not themselves create
restrictive, distorting or disruptive effects on inter-
national trade.

(6)

An examination procedure was therefore initiated on 22
November 1996 (1).

ty's interest to act rapidly against the US through official
action.

(10) A Commission Decision to initiate a WTO dispute settle-
ment procedure, taken in accordance with Article 14 of
the Regulation, was published in the Official Journal of the
European Communities on 4 March 1997 (2).

(11) On 22 May 1997, the European Community requested
consultations with the United States of America in the
World Trade Organisation (WT/DS85/1) pursuant
to
Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes, Article 8(4) of the
Agreement on Textiles and Clothing, Article 7 of the
Agreement on Rules of Origin, Article 14(1) of
the
Agreement on Technical Barriers to Trade (TBT Agree-
ment) and Article XXII of the General Agreement on
Tariffs and Trade 1994 (GATT 94) regarding the change
to US rules of origin for textiles and apparel products.

(12)

(13)

B. THE INITIATION OF A DISPUTE SETTLEMENT
PROCEDURE IN THE WORLD TRADE ORGAN-
ISATION

(7)

(8)

On publishing the notice of initiation of the examination
procedure, the Commission commenced an investigation
in order to complete its legal analysis and to determine
the actual extent
to which exports of Community
textiles would be affected by the new US rules. In March
information so far
1997,
gathered by the Commission already provided sufficient
proof of certain adverse trade effects and their possible
build-up.

it appeared that the factual

Moreover, it had emerged from the many consultations
held before and after the initiation of an examination
the European
procedure between representatives of
Commission and the USA in view of finding a satisfac-
tory solution to the problem, that only a further change
to US legislation on origin rules for textiles would
restore the security of Community exporters. Therefore,
the European Commission took the view that until the
US Congress examined such an amendment,
further
consultations with the US administration would not
produce final and satisfactory results since it did not
have the power to enter into any undertaking.

(9)

Hence, in the absence of a bill to amend US rules of
origin for textiles put before the US Congress and
resulting in the adoption of legislation in full compliance
with US commitments arising from the Uruguay Round,
the Commission considered that it was in the Communi-

for consultations first pointed out

The request
that
Article 2.4 of the Agreement on Textile and Clothing
requires that no new restriction in terms of products or
Members shall be introduced. Article 4(2) of the same
Agreement prescribes that the introduction of changes
in the implementation or administration of restrictions
notified to the WTO shall not: upset the balance of
rights and obligations between the members; adversely
affect the access available to a member; impede the full
utilisation of such access; or disrupt trade under the
Agreement. In this respect, the European Communities
took the view that the 1995 change in US rules of origin
caused precisely those effects and that the United States
should have initiated consultations with the European
Communities prior
such
changes, in accordance with Article 4(4) of the Agree-
ment.

to the implementation of

The request
for consultations further questioned the
compatibility of the above mentioned changes in US
rules of origin with Article 2 of the Agreement on Rules
of Origin which contains disciplines that a Member must
abide by when changing its rules of origin during the
transitional period. These disciplines prescribe, inter alia,
that the rules may not be used as instruments to pursue
trade objectives, directly or indirectly; that they should
not themselves create restrictive, distorting or disruptive
effects on international trade; and that they must be
impartial and
administered in a consistent, uniform,
reasonable manner.
European Communities
expressed the view that the 1995 US rules of origin did
not respect such requirements.

The

(1) OJ C 351, 22.11.1996, p. 6.

(2) OJ L 62, 4.3.1997, p. 43.

31.10.2000

EN

Official Journal of the European Communities

L 278/37

(14)

Finally, the request for consultations expressed the view
that the US requirements on country of origin marking
corresponded to a technical regulation as defined in
Annex I to be TBT Agreement and, as applied since the
changes to the US rules of origin, do not guarantee to
imported Community products a treatment equivalent to
the one granted to domestic products; a difference in
treatment which was not compatible with Article III of
GATT 94 and Article 2 of the TBT Agreement.

C. CONTINUATION OF THE INVESTIGATION

(15) Meanwhile the investigation was continued with a view
to establishing more accurately the effects of the US
practice on Community exports of the products in ques-
tion.

(16) An investigation report was transmitted to the EC
Member States on 28 May 1997. The findings of the
investigation confirmed that the new US origin rules
introduced on 1 July 1996 were contrary to Articles 2(4)
the WTO Agreement on Textiles and
and 4(2) of
Clothing, Article 2 of the WTO Agreement on Rules of
Origin, Article 2 of the TBT and Article III of GATT 94.
According to the Commission, the implementation of
this system was adversely affecting EC exports into the
USA of dyed and printed fabrics and flat products
resulting therefrom (such as scarves, bed and table linen,
handkerchiefs, etc) and that
Italy was particularly
affected.

D. NEGOTIATED SOLUTION TO THE DISPUTE

(17)

The WTO dispute settlement procedure was suspended
on 15 July 1997, in the light of an apparent negotiated
solution to the dispute,
laid down in a procès-verbal
concluded between the two parties that same day. In this
procès-verbal,
the US Administration agreed to bring
about legislative change in view of reintroducing the
pre-Uruguay Round Act rules of origin for those textiles
affected by the procedure. This solution was notified to
the Chairman of the WTO Dispute Settlement Body on
11 February 1998. Unfortunately, the United States did
not implement the commitments as contained in this
notification. Thus, in the European Communities' view,
the situation remained inconsistent with the US obliga-
tions under the WTO rules.

(18) A new request for WTO consultations was therefore
circulated on 25 November 1998 (WT/DS151/1).
Consultations were held in Geneva on 15 January 1999,
in presence of El Salvador, Honduras, Hong Kong,

India,

China,
consultations failed to solve the dispute.

Japan, Pakistan and Switzerland. These

(19) As a result of further bilateral negotiations, the United
States and the EC finally found common ground to settle
the dispute and on 16 August 1999 both parties signed
a second procès-verbal. This new compromise took note
of the fact that the 1997 procès-verbal had not led to a
rapid solution and that it was therefore agreed to amend
the 1997 procès-verbal. The new arrangement obligated
legislation which
the US Administration to submit
amends the rule-of-origin requirements in section 334 of
the Uruguay Round Agreements Act in order to allow
dyeing, printing, and two or more finishing operations
to confer origin on certain fabrics and goods. In partic-
ular, it was agreed that: (1) the US Administration would
propose to Congress that it adopt a Bill as annexed to
the procès-verbal, containing an amendment to the US
origin rules, set forth in 19 U.S.C. 3592 and to make its
best efforts to ensure that the Congress enact this Bill
expeditiously, and (2) new rules on visas would provide
that a single import visaed invoice/licence could be used
on multiple shipments of textile products of cotton or
consisting of fibre blends containing 16 % or more by
weight of cotton exported from the EC or products of
cotton when these products are made up in the EC from
fabric which is dyed and printed in the EC and has
undergone in the EC two or more finishing operations.

(20)

In implementation of point (2) of the procès-verbal, the
US Administration published in the Federal Register of 6
December 1999 (Vol. 64 NO 233/Notices) an ‘Amend-
ment of export visa and quota requirements for certain
textile products produced and manufactured in all coun-
It
tries and made up in the European Community’.
amends the United States' visa and quota systems to
permit the use of a single visaed document for certain
types of products exported from the EC on and after 16
August 1999. These products are: textile products of
cotton or consisting of fibre blends containing 16 % or
more by weight of cotton exported from the EC or
products of cotton made up in the EC from fabric, if
they are dyed and printed in the EC and have undergone
in the EC two or more finishing operations, and
provided that the original visaed invoice/licence is valid
and the quantity is not exceeded.

(21)

In implementation of point (1) of the procès-verbal, an
amendment to the US origin rules was attached to the
Bill on the Trade and Development Act of 2000. The
Trade and Development Act of 2000 was adopted by
the US House of Representatives on 2 May 2000, by the
US Senate on 11 May 2000 and enacted by the US
President on 21 May 2000.

L 278/38

EN

Official Journal of the European Communities

31.10.2000

(22)

Section 405 thereof, entitled ‘Clarification of Section 33
of the Uruguay Round Agreements Act’, reinstates the
rules of origin that existed prior to the Uruguay Round
Agreements Act for certain products. Specifically, the
new rules confer origin as to the country in which
dyeing, printing, and two or more finishing operations
were done on fabrics classified under the HTS as silk,
cotton, man-made and vegetable fibres. It also applies to
various products classified in 18 identified HS headings
(mostly flat products) except
for goods made from
cotton, wool or fibre blends containing 16 % or more
cotton.

(23) After careful examination of the ‘Amendment of export
visa and quota requirements for certain textile products
produced and manufactured in all countries and made
up in the European Community’ and section 405 of the
Trade and Development Act of 2000, and after consulta-
tions with the complainant, who expressed his satisfac-
tion, the European Commission concluded that section
405 of the Trade and Development Act of 2000 was in
conformity with the US commitments under the procès-
verbal of 16 August 1999 and effectively removed the
obstacles to trade addressed in Federtessile's complaint
of 11 October 1996.

E. RECOMMENDATION

(24)

The examination procedure concerning changes made
by the United States of America in their rules of origin
for textiles and apparel products should therefore be
terminated,

HAS DECIDED AS FOLLOWS:

Sole Article

The examination procedure concerning changes made by the
United States of America in their rules of origin for textiles and
apparel products initiated on 22 November 1996 is hereby
terminated.

Done at Brussels, 20 October 2000.

For the Commission

Pascal LAMY

Member of the Commission