Oct 24, 1989

TEXTILES: TRADE RESTRICTIONS MUST-GO FOR SUCCESS OF URUGUAY ROUND.

GENEVA, OCTOBER 21 (BY CHAKRAVARTHI RAGHAVAN)— The removal of restrictions on textiles and clothing exports of third world countries is essential for success of the Uruguay Round, and without it no balanced outcome in the round can be contemplated.

India has put forward this view in a communication outlining Indian proposals on the modalities for integration of the textiles and clothing sector into GATT. The communication has been circulated to the Uruguay Round negotiating group on textiles and clothing, and will come up at its next meeting later this month.

The Indian proposal calls for an agreement that there would be no further extensions of the MFA when the present protocol for MFA-4 expires on 31 July 1991. From August 1, 1991 there will be a transitional period, lasting for no more than five years, to phase out the MFA restrictions.

Trade in the textiles and clothing sector is not governed by GATT rules, but through the multifibre arrangement (MFA), a derogation from GATT rules and permitting the application of discriminatory quota restrictions on imports, used mainly against exports from the third world.

The integration of this trade into the GATT under strengthened GATT disciplines is one of the mandates of the Punta del Este declaration. The industrial countries are resisting this by all kinds of cross-linkages to negotiations in other areas (ranging from safeguards and subsidies to intellectual property rights) and acceptance by the third world of the demands of the north in these areas.

In its communication, India has said that the first basic step for the integration process must be a freeze on new restrictions.

In no other sector of trade, India has underlined, is there a greater need for fulfilment of the objectives of the Uruguay Round, spelt out in the preamble to the Punta del Este declaration halting and reversing protectionism and removing trade distortions; preserving the basic principles of GATT; and developing more open, viable and durable multilateral trading system.

For 30 years the trade in this sector have been under arrangements that have "transgressed" the basic principles and rules GATT in letter and spirit.

Protectionism has progressively increased both in intensity and coverage. Starting with cotton, it has now spread to all other fibres – natural, manmade and synthetic.

While part IV of GATT and the enabling clause embody the philosophy of differential and more favourable treatment to the third world countries, these countries have been denied even the non -discriminatory treatment which is the corner-stone of GATT.

"Unless the textiles and clothing sector is integrated into GATT without further loss of time, the credibility of the GATT system as a whole will be in jeopardy", India has said.

The capacity of third world countries to liberalise their import restrictions depends crucially on their capacity to export. Foreign borrowings, foreign equity investment or foreign aid could not by themselves be sufficient to finance the imports of the third world over the longer run.

And if third world countries are to sustain increasing imports on an enduring basis without running serious bop problems, "it is imperative that they are enabled to increase their exports, especially their manufactured exports, in a significant and sustained manner", India has said.

This means that the third world countries should get increased access to advanced technology and investment resources on reasonable terms, and unrestricted access to markets of industrial countries for their exports, especially manufactured exports.

"Thus", India has said in the paper, "the significance of removing all restrictions on the exports of developing-countries in the textiles and clothing sector goes far beyond the issue of treatment of this sector in GATT; in fact it is essential for the very success of the Uruguay Round negotiations, as no balanced outcome in the Round can be contemplated without the integration of this sector into GATT".

In accordance with the mid-term accord in this area, India has said, the negotiating group should concentrate its work on the integration process by phase-out of MFA restrictions, determining the time-span for phase-out, elaborating the progressive character of the phase-out, and deciding on the date of commencement of the phase-out.

The specific proposals that India has put forward call for:

A freeze on any new restrictions, effective January 1, 1990, which would also imply an embargo on "calls" on exporting countries for consultations under the MFA.

No renewal of MFA after the current protocol of extension expires on 31 July 1991.

The transitionary period of five years will start from August 1, and during that period there shall be phase-out of restrictions and progressive integration of the trade into GATT.

With the expiry of MFA, all bilateral agreements under the MFA shall also cease to have effect and the restrictions in force at that time shall be eliminated over the transitionary period, according to an agreed formula.

The transitional arrangements will provide, effective 1 August 1991, for elimination of several of the existing restrictions:

-- Restrictions on exports from the least developed countries,

-- Products made from new fibres brought under the purview of MFA-4 in the 1986 extension protocol,

-- Handloom and handicrafts products,

-- Outward processing trade,

-- Aggregate and/or group ceilings as well as subdivision of quotas among member-states of a customs union, and

-- Quotas on categories in which utilisation has been less 50 percent in the most recent representative period.

The remaining quotas, under the Indian proposal, are to be phased out over a five-year period, by 31 July 1996, with 20 percent of the total number of quotas in each importing country being eliminated every year.

But the specific quotas to be eliminated every year by each importing country is to be decided multilaterally on the basis of clearly established and multilaterally agreed criteria, and not settled bilaterally.

During the phase-out period, products under restraint would be provided growth rates progressively: 15 percent in the first year, 20 percent in the second year, 25 percent in the third, twenty-five percent in the fourth, 30 percent in the fourth and 35 percent in the fifth year.

There is also to be flexibility in the operation of quota levels during the transitional period, with carry over of quotas allowed for 20 percent, carry forward allowed for 15 percent, and swing allowed for 20 percent.

The transitional arrangements are to be supervised by a surveillance body set up in the GATT for that purpose.

Any bilateral agreements should deal exclusively with administrative aspects of implementation of the transitional arrangements.

In regard to product categories not under restraint at the time of introduction of phase-out or those phased out during the transition, any sudden import increases causing injury to like products in the importing countries should be dealt with under normal safeguard provisions of the GATT that might be negotiated during the Uruguay Round, India has further suggested.