Aug 5, 1986

MFA-4, WITH WIDER COVERAGE AND MORE RESTRICTIONS ADOPTED.

GENEVA AUGUST 1 (IFDA/CHAKRAVARTHI RAGHAVAN) -- A new protocol, for extending the life of the Multifibre Arrangement (MFA) till July 31, 1991, and extending its coverage and enabling importing countries to put in more restrictions was adopted Friday evening by the GATT Textiles Committee.

The U.S. succeeded partially in putting further restraints on third world exports to the U.S. market, but failed to inject a new doctrine of "destabilising effect" of increased imports of one or more products on other products or industry.

The extended fibre coverage obtained by the U.S. enables restraints being placed on textiles and clothing products made of remy, a vegetable fibre, made into fabrics by China, South Korea and Philippines, and exported to the U.S..

Pure silk and pure silk products (a growing major export item of Thailand and India) would be exempt.

Third world countries expressed at the Textiles Committee deep disappointment over the restrictive MFA-4, contrasting its provisions with the talk of trade liberalisation through a new round heard in the very same halls of the GATT building Thursday during the PREPCOM meeting.

Some of these countries suggested that the new MFA protocol did not bode for the efforts to launch a new round and undertake trade liberalisation.

Third world delegates said that perhaps their best success in the negotiations had been "damage limitation", in turning back the determined efforts of the U.S.A. and EEC to put more restrictions, and force third world countries to import textiles and products from the industrial world.

The third world countries also beat back the EEC efforts to put in a so-called "social clause", which would have enabled imports to be curbed on the ground of wages and working conditions in the exporting countries.

Also, the third world countries prevented the injection of the so-called "intellectual property rights" into the MFA, and merely agreed to a superfluous a provision to the effect that infringement of registered trademarks and designs in this trade could be dealt with "in accordance with relevant national laws and regulations".

The industrial countries had in effect sought a power, in cases of infringement, to restrain or cut back the quotas of the offending country.

The protocol also strengthens some of the existing disciplines of the MFA, and calls for "improvements" when bilateral accords are negotiated, and blocks negative growth in respect of dominant suppliers (an aim of the U.S. and EEC with far east dominant suppliers).

There are also some provisions for special consideration for exports of cotton textiles from cotton producing countries, to be reflected in improvements in their bilateral accords.

But some of these and other assurances and improvements would very much depend on the interpretation to be given by the administrators of the importing countries, and in the case of the U.S. the next administration and its officials would not even be bound by them.

In the chapeau to the protocol, there is a language to the effect that the final objective of liberalising trade in this sector should be "the application of GATT rules to trade in textiles" – a reference to the call for phase-out of MFA by India and Brazil.

The terms of the protocol were negotiated in tough and almost continuous negotiations over the last 48 hours, with negotiations that began Thursday evening going on till 0915 GMT of Friday, and the protocol itself being formally approved a few hours later.

To get around the problem of the current MFA-3 expiring on Thursday midnight, the clocks were "stopped" at 2100 GMT, so that technically everyone could pretend the agreement had been reached before MFA-3 expired.

The new protocol of extension in effect extends the fibre coverage and enables an importing country to restrict, in certain circumstances, imports of textiles and fibres made of "vegetable fibres", blends of vegetable fibres with MFA fibres (cotton, wool or man-made fibres), are not affected.

Though there are specified conditions to be fulfilled before the extended fibre coverage provision could be invoked, and there are also specified exceptions.

But overall the effect is that MFA-4 brings under its discriminatory restrictive ambit a wider range of the textiles and clothing trade than any of its predecessors.

Of the total world trade of a little over 100 billion dollars (in 1984) in textiles and clothing, the trade of the 43 signatories to the MFA amount to 88.6 billion dollars, but this include exports to all destinations, and intra-EEC trade.

But not all of this is governed by the MFA.

Only about 48.1 billion dollars or 48 percent of trade is covered by the MFA.

Trade flows where bilateral agreements negotiated under the MFA, essentially restricting exports of third world countries and East European Socialists with industrial countries, as well as Japan’s exports to the U.S.A., amount to 23.4 billion dollars.

In effect this means that only 23 percent of the world exports in this sector, originating from third world countries and East Europeans mainly, and destined to industrial country markets, are put under restraint, while other exports, including the intra-industrial country trade is unrestrained.

When the Textiles Committee adopted Friday evening the Para in the protocol for extending the fibre coverage, the delegations of China and India (which had fought this during the negotiations) placed their reserves, and said their respective governments would be carefully examining the implications of the paragraphs before deciding whether to sign the agreement.

The United States, which has been campaigning for the extended coverage "objected" to the reserve, and said if China and India entered formal reservations at the time of signing the MFA-4, the protocol would not apply as between the U.S. and these two countries.

The implications of these statements were not immediately clear.

Under the Vienna law of treaties, a signatory to a treaty could enter reservations, unless the treaty itself expressly forbids it, so long as it does not defeat the objectives of the treaty.

Much would depend on the actual reservations that India and China might attach when signing the treaty, and the U.S. counter-reservations.

But on the face of it, if the U.S. is not to apply the MFA, it would then have to apply the normal GATT rules and principles.

Under the protocol, the importing country could invoke the provisions of the MFA, in respect of textiles and products of the new fibres, and seek consultations with the exporting country with a view to restrain imports.

The products of the new fibres should be directly competitive with textiles of cotton, wool, or man-made fibres.

Any or all of these new fibres used in combination should represent either the chief value of the fibres in the product or 50 percent or more by weight of the products.

The protocol however provides that the restraints would not be applied to "historically traded" textiles which were internationally traded in "commercially significant" quantities prior to 1982, "such as bags, macks, carpet-backing, cordage, luggage, mats, mattings and carpets typically made from fibres such as jute, coir, sisal, abaca, maguey and henequen".

Before the textile negotiations had begun, U.S. industry and American negotiators had been saying that they want to extend the coverage to include remy, silk and linen, which they said were being used as a blend or substitute for the MFA-fibre products which were under restraint.

But the much wider definition now used, and the way the exceptions have been worded, gave rise to controversy outside, with the U.S. industry claiming that all the products from China and elsewhere about which it was complaining could still come in, and that the U.S. Congress should act by going ahead with over-riding actin over the Jenkins Bill.

The administration itself has been using the threat of Jenkins Bill, and congressional protectionism actions, to extract concessions from its trading partners and the third world countries.

There are enough indications that Congress itself might not be too serious about such bills, but merely using it to coerce others to adopt measures to restrain imports into the U.S., and increase imports from the U.S.

In comments inside the Textiles Committees several of the third world countries noted that they had been forced to negotiate under the threat of a Congressional action to override the veto.

South Korea in underlining this point said if the new protocol served to prevent the congressional action, it was the price that had to be paid by the agreement.

India said that it would be necessary for third world countries to consider the implications of the agreement for the new trade round, particularly since the MFA-4 had now taken "a more restrictive direction", particularly in relation to the coverage, and against the context of talk of trade liberalisation as a whole.

In any assessment of the negotiations and results of MFA-4 by the third world countries, while the extended product coverage had to be put on the negative side, there are some plus points too, both in what the new protocol provides for and what it does not.

The gains are however "intangibles" in a sense, and depend on how the authorities in the importing countries, and specially the two main importing markets (U.S. and EEC) implement them in practice.

Also, some of the private assurances given by the U.S. negotiators (in how they view the provisions of the new MFA-4) may not necessarily be adhered to, by any new administration that comes into office after the 1988 elections, or even any new officials that might come into office under the present administration.

For the third world exporting countries, the gains are:

--The protocol now gives recognition to the concept of an eventual return of this trade to the rules and principles of GATT.

But there is nothing in the protocol that actually provides for such a phase-out or even for gradual liberalisation.

--it calls for measures to secure "a substantial increase" in export earnings through textiles and clothing exports of the third world countries "through improvement in bilateral agreements under this agreement, which should provided for increased effective access in overall terms".

This would mean increasing quota levels, and no freeze or cutbacks in some products and product lines from the dominant and major exporting countries.

A separate provision relating to the "predominant" exporting countries, while opening the way for "mutually acceptable solutions" between the exporting and importing counties and growth and flexibility provisions, it makes clear that "in no case should such growth and flexibility be negative".

--Cotton textiles exporters (whose exports have been under restraint since 1961, 12 years before the MFA regime came into being) have been provided special treatment.

Where restraints are applied, these countries are to be given "more favourable treatment" in terms of quotas, growth rates and flexibility (to adjust among quota levels of individual products). This special consideration, the protocol says, should be reflected "in the improvements in bilateral agreements".

--The so-called MVD (Minimum Viable Production) clause, applicable to importing countries with small markets (like the Nordics) has also been improved in favour of the exporting countries.

While these countries could provide for lower positive growth rates (than the six percent in the original MFA) and lower flexibility (on mutually acceptable basis), they have committed themselves to contribute to liberalisation of trade in this sector, and provide "meaningful improvements" on growth rates and flexibility over their existing bilateral.

--A number of distinctive improvements have also been made in strengthening the operational side of the MFA – in the importing countries having to provide more factual and detailed information about "market disruption" to identifiable segments of production, and in procedures for consultations and bilateral negotiations before restraints are imposed.

Also, factors to be weighed before restraints are imposed would include the state of the domestic industry in the importing country and its export performance and the market share held. This means that merely because imports are taking up a higher share of the domestic market, restraints could not be imposed, when the industry of the importing country is having a good export performance.

Other improvements include some marginal strengthening of the role of textiles surveillance body.

Among the negative gains or "damage control" achieved by the third world countries have been:

--The U.S. demand for a wide ranging power to curb imports through a new concept of the so-called "destabilising influence of a product or line of products on domestic industry", with "industry" itself defined very widely, was given up. Even the other importing countries did not accept the U.S. view.

--Rejection of the EEC demand for a "social clause", under which the level of wages and working conditions in an exporting country (compared to that of the importing country) could be used to curb imports as "unfairly competitive".

--The U.S. and EEC demands that third world countries should open up their own markets for textile and clothing imports from abroad was also rejected.

--The demand for "protection of intellectual property rights" in textiles and clothing sector was watered down to make it meaningless and superfluous.

The importing countries wanted to use their judgement of the level of protection granted in the exporting countries as a basis to enable them to curb imports or reduce quotas.

The provision finally agreed, merely notes the concern of (importing countries) over the problem of "infringement of registered trademarks and designs" in this trade, and noted that "such problems could be dealt with in accordance with the relevant national laws and regulations".

--The demand of importing countries for automatic "adjustment" in cases of so-called circumvention and fraud was also killed.

The U.S. and EEC had sought powers of adjustment under which, if products form country "A" was exported to country "B", which merely puts its own labels and exports them to an importing country (where there are no quotas set for "B"), the importing country could adjust the quotas of "A", by taking account of the imports from "B".

While "adjustment" could still be made, it would be through co-operation of the authorities of the countries involved and by establishing the relevant facts. The adjustment should be through mutual accord, and failing that, by a ruling of the TSB.