Feb 8, 1990

TEXTILES: SOUTH AND NORTH REJECT U.S. PROPOSALS FOR GLOBAL QUOTAS.

GENEVA, FEBRUARY 6 (BY CHAKRAVARTHI RAGHAVAN)— Third World textile and clothing exporting countries, as well as the EEC and the Nordics have rejected in GATT this week U.S. proposals for integrating the trade in this sector into the GATT through a gradual global quota system to replace the current MFA quotas.

Canada would appear to have been the only supporter of the U.S.

In a statement on behalf of the members of the International Textiles and Clothing Bureau, Amb. Hassan Kartadjoemena of Indonesia, chairman of the ITCB rejected the U.S. approach as "not appropriate" for achievement of the group's mandate.

The statement was supported by a number of Third World countries who made individual statements.

The EEC, Nordics and Austria were among the Industrial Countries that came out in criticism of the U.S. proposals.

The U.S. put forward its proposals Monday in the Uruguay Round GATT negotiating group on textiles and clothing.

The U.S. proposals on modalities for integrating the trade into GATT envisage continuance of MFA-type restrictions till December 31, 2001 and application of GATT disciplines from the next day as one participant put it through a "quantum leap" in U.S. industry views and trade policy regime and its administration.

Under the U.S. proposals the present restrictions of product-wise country-quotas, under bilateral agreements concluded under the MFA, would continue during the transition, but with country being gradually reduced in favour of global quotas with some annual growth rates, varying accord to the sensitivity of the product.

Currently, the U.S. has bilateral restraint agreements under the MFA-4 on exports of Third World countries, China, East European countries, and outside of the MFA with the Soviet Union. Imports into the U.S. of textiles and clothing from Industrial Nations are not under restraint.

The U.S. is silent whether the transitionary arrangements and the restrictions under it (both country quotas and global quotas) would apply only to those against whom now restraints are in force or also to others.

If latter, the U.S. import regime during the transition would be even more restrictive than now, and the position of the Third World countries would be worse off.

Even if it applies to everyone, the Third World countries would still be worse off, specially in the context of the U.S. demands for other GATT disciplines, including expansion of antidumping and countervailing measures against Third World exports, which currently in GATT could be subsidised to offset other disadvantages and actionable only on "serious injury".

While the U.S. proposal is silent on what would happen on 1 January 2002, beyond the statement that normal GATT disciplines would apply, in discussions the U.S. would appear to have suggested that overnight the global quota system would disappear.

However, many other participants, both from the Third World and the Industrial Nations would appear to have pointed out that this was not credible, and the likely scenario was of the U.S. industry immediately claiming "serious injury" because of sudden increase in imports, and the U.S. government reimposing global quotas under the normal safeguard provisions of the GATT, and the Third World countries would have gained nothing through the transition but could be even worse off.

Third World countries, it was pointed out, had been suffering for 30 years under the discriminatory regime, and paying a price for adjustment by the industry in the industrialised world, and were now being asked to continue to suffer for another ten years and pay a price in the context of the Uruguay Round, merely to have one set of restrictions replaced by another.

The process of integration suggested by it, the U.S. paper underscores, should ensure that all "relevant" trade measures affecting the trade in textiles and clothing are integrated and that GATT rules and disciplines have been "sufficiently strengthened" to make integration viable.

The Punta del Este declaration mandates negotiators to formulate modalities that would permit eventual integration of trade in Textiles and Clothing into GATT on the basis of strengthened GATT rules and disciplines and thereby also contributing to the objective of further liberalisation of trade.

Trade in this sector has been under a special regime, in derogation of GATT rules, from 1961-62. Since then each new arrangement for continuing the temporary special regime, and bilateral agreements under them, have been more restrictive than earlier ones vis-a-vis Third World exporting countries.

The U.S. transition scheme envisages a comprehensive quantitative limit, by product category, to be divided among country-allocations, and a non-selective "global basket" that would expand to provide growth.

The system illustrated in graphic charts annexed to the U.S. proposal would suggest that at end of 1991, the total imports of dresses of cotton and man-made fibbers, for example, could be less than 50 percent more than in 1992.

In the first year, the global basket would be increased by a small growth factor and would be open for competition from all parties, including those with country allocations.

Countries having quotas could contribute their quotas to the octal basket or to other countries.

Each year, over the ten-year timeframe, the country allocations would shrink by one-tenth of the original amount, and the global basket would increase by a growth factor and the ten percent taken from each country's allocations.

In the U.S. proposal, the growth factor during the ten-year transition would be determined through multilateral negotiations, but would vary depending on the import sensitivity of the product and would increase over time.

The global basket would gradually take over country-shares of the quotas in each category, and in the final year of the transition the overall quota would be in place in the form of a global basket, with the transition system ending at end of the tenth year or 31 December 2001.

The U.S. views the idea of a tariff-quota system, with a structure and duration similar to the global or non-selective quota system outlined by it, as an additional modality that could be used to integrate the trade into GATT.

The tariff rate quota system, the U.S. envisages, would have a two-tier tariff system with country allocations and a global basket allowed to be imported under a lower tariff.

Imports within the quantitative limits of the lower tier would enter at applicable duty rates, but with additional imports above and beyond the quantitative limits permitted at "substantially higher penalty rates".

Any tariff-quota system, the U.S. has said, would be conditional on the establishment of a special mechanism to ensure that exports from non-market economies are subject to equivalent tariff disciplines as those from market economies.

The U.S. has further made clear that while it had no definitive views on the form of this special mechanism, it should be an essential part of any tariff-based transition modality.

The transition from a product-wise country-wise quota system to a global quota system, the U.S. argues, would be simple, equitable, transparent, predictable and certain. The mechanism would allow trade patterns to be driven by market forces as early as possible and to the maximum extent possible, and allow for an adjustment to GATT rules concomitant with the operation of market forces.

A multilaterally agreed global or non-selective quota system or a tariff quota system, the U.S. claims, had some concrete advantages over a mechanism based on the MFA, and would enable a gradual opening of markets to competitive forces, transparency, equity and certainty.

The ITCB statement tuesday said that the U.S. proposals for global or tariff quotas was totally different from the MFA-based approach put forward by many participants.

The mandate of the TNC in April 1989, Kartadjoemena pointed out, had specifically mentioned the phasing out of the MFA restrictions - a route that would permit progressive liberalisation of trade as restrictions were phased out.

The global quota proposed by the U.S., an the other hand, "would lead to an increase in restrictions as many supplying countries and products presently unrestrained will also be covered

by it".

"The global quotas will increase competition among the supplying countries, but, the domestic industry will continued to be protected by the global quotas and be insulated from competition and market forces".

"Furthermore, the changeover from the present system to an entirely different one in the transition period could lead to dislocation and uncertainties in the market. These are some of .the reasons which lead us to consider that this approach is not appropriate for achievement of our mandate".

Referring to some Canadian ideas, in a similar vein, outlined orally, the ITCB said it could not examine them in the absence of a written text but that the views on the U.S. "should be equally applicable" to the Canadian proposals.

The ITCB members were also concerned over the Canadian proposals for "certain derogations" from the disciplines of Article XIX of the General Agreement (safeguard provisions in conditions of "serious injury" to domestic producers) and "consider these to be equally inappropriate".

Kartadjoemena added: "I would like to emphasise once more that in negotiating an approach to integrated the textiles and clothing sector into the GATT the group will need to bear fully in mind that the restrictions maintained under the current MFA constitute the starting point for integration, and any approach will have to ensure a smooth transition into GATT".

"In other words, we are not negotiating in a vacuum and any solution proposed will not only have to be intellectually accept able but will have to address the realities of world trade in textiles and clothing".