Nov 22, 1990

TEXTILES: CHAIRMAN'S TEXT SEEN AS STRUCTURALLY FLAWED.

GENEVA, NOVEMBER 20 (BY CHAKRAVARTHI RAGHAVAN)— A draft text for a Uruguay Round agreement on Textiles and Clothing which is coming up for ministerial decisions at Brussels meeting is so structured that it gives the illusion of progress towards phase-out of the MFA, but in fact would enable major importing countries to maintain, till year 2002, most of existing restraints.

The price to be paid by Third World countries, in return, would include a TRIPs agreement, a subsidies agreement that would cripple their capacity to overcome market imperfections and promote industrialisation through subsidies and a variety of other "give aways" to ensure TNC control and domination of their economies.

If the Ministers from the textile exporting Third World countries "buy" this structure and the illusion of a phase-out and liberalisation of the trade, it will be in the "belief" that in five years after 2002, the U.S. and EEC would remove all restrictions in their "most sensitive" categories of textile and clothing imports.

The draft text has been put forward by the chairman of the negotiating group, Mr. Lindsay Duthie of Australia, and technically provides a structure of an agreement for integrating the textiles and clothing trade into the GATT on an MFA-based modality.

GATT officials have said that while the Ministers would have to determine things like the length of the transitional period for integrating the trade (ranging between 10 and 15 years), the pace of liberalisation, and conditions for emergency safeguard actions during the transition, the structure provides for a process of liberalisation and integration of the trade into GATT. This view, also shared by some Third World participants on a first reading of the draft, appears to be on the basis that while one could quarrel over the time and pace, at least the structure of the agreement is in the right direction.

However, on a closer reading this appears to be a faulty view.

The Punta del Este mandate had called for integration of the trade in Textiles and Clothing into GATT on basis of strengthened GATT rules and disciplines.

The 1989 April TNC mid-term review accord called for modalities for integration "on basis of strengthened GATT rules and disciplines should inter alia cover the phasing out of restrictions under the MFA and other restrictions on textiles and clothing no consistent with GATT rules and disciplines".

A starting point in judging the Duthie text or any ultimate com, a basic question is as to what is going to be integrated.

Since 1961, as a result of successive agreements and protocols, the trade in this sector (starting with cotton textiles and gradually encompassing all fibres and products) has been governed by a derogation from GATT rules enabling among others discriminatory safeguards against individual sources of supply.

However, the trade among the ICs themselves (excepting for g while against exports by Japan) were in fact conducted by GATT rules and without restrictions.

Even now, while technically all the exports of all the Third World countries are covered by the MFA regime and exports could be restrained, in fact probably about 40 percent (by volume) has no real quota restraints or other restrictions, though the potential threat of demands for restraints hangs over them.

The EC classifies its "external" (other than intra-EC trade) imports under four categories - category I "most sensitive", category II "sensitive", category III "non-sensitive", and category IV "rest" - with restraints imposed on imports from the Third World according to the category.

In 1989 import terms, in percentages of volumes slightly more than 30 percent of imports are considered to be in category III "not sensitive" and thus under little or no restraints.

About 9 percent of textile imports and 17 percent of clothing imports fall under category II - "sensitive" products (some of, which are restricted, and others less).

Some 27.37 percent of textile imports and 15.9 percent of clothing imports (like shirts, blouses, etc.) or 32 percent fall in the "most sensitive" categories whose imports from the Third World countries are severely restricted.

The draft does not provide for integration on the basis of the share of world trade covered by MFA restrictions but of the world trade in textiles and clothing as a whole in three stages, with the span of each stage and the total period to be agreed upon.

In terms of the timespans being talked about, the EC and U.S. want the first two stages to cover ten years and the third and final stage five years or a total of 15 while GATT officials suggest a total of 12 years as compromise.

The mandate and the April 1989 TNC mid-term accord called for progressive integration by phasing out the MFA restrictions, implying the integration process being related to the restrictions.

The Duthie text puts all the textiles and clothing products traded (both those now not restrained and those under restraint), into one annex (annex 2), and in another annex (annex 4) grouping them in four categories based on degree of processing for elimination in four stages each of whose time-span is to be agreed upon by Ministers. The volume to be integrated in each of the stages is mentioned in the text, but in square brackets meaning disagreement.

It then provides for integration into GATT on 1 January 1992, when the agreement is to enter into force, of 10 percent of total volume of imports of products covered by the agreement.

In the second stage, a 15 percent of total volume of 1990 imports will be integrated, encompassing all four groups, and another 15 percent in the third stage, while in the final stage all "restrictions" would have been eliminated and the sector would stand fully integrated into GATT. Thus, under this structure for integration, even at end of the ten year transitional period, in year 2002 by when 45 percent of the import share by volume would have been integrated, all "the most sensitive" imports would remain in the restricted category.

Observers said that it strains credulity to think that having kept this 40 percent of 1990 volume of imports under restraint till 2002, the EC would derestrain all of them over next five years.

It perhaps could only be on the basis that the Third World countries by then would have lost all control over their economies and the TNCs based in the north would have taken over.

But under the Duthie structure at the end of the ten year period, in the case of the EC, about percent of volume of imports under restraint under the "most sensitive" category would continue to be under restraint.

Again, the restraints and their gradual liberalisation are in volume terms. This would mean that heavy volume items, like carpets, which are not even under restraint, could be put into the various phases in sub-product categories and the less volume, more profitable categories kept under restraint.

The proposals for transitional safeguards also appear to provide the importing countries greater rights than under the MFA.

If the objective were integration of the trade into GATT, it should mean that transitional safeguards should only enable maintenance or continuance of the MFA-type safeguards (namely product and source wide), but with lessening vigour.

In the Duthie draft the safeguard system is being tilted in favour of the importers and the criteria has been changed to make it easier to invoke the safeguards.

A provision about GATT rules and disciplines would oblige all parties to promote improved access to their markets for textiles and clothing through such measures as tariff reductions and bindings, reduction or elimination of non-tariff barriers and facilitation of customs, administrative and licensing formalities.

The tariff negotiations in the tariff and non-tariff groups are on the basis of reciprocal concessions and bargaining. Here in textiles the importers want something extra as compensation without giving any thing in return, for future real integration, when no compensation was given in the past for the derogation.

Parties are also to ensure in the textiles and clothing trade application of provisions relating to "fair and equitable" trading conditions (according to some observers, a potentially illiberal concept in a GATT professing to promote free trade, as illiberal as the "market disruption" concept in the MFA).

These would involve such areas as dumping and anti-dumping rules and procedures, subsidies and countervailing measures and protection of intellectual property rights.

They are also to avoid discrimination against imports in the textiles and clothing sector when taking measures for general trade policy reasons.

While all these obligations is to be without prejudice to rights and obligations of parties under GATT and thus seemingly safeguards of rights of exporting countries the reality would prove to be something different.

For example, Third World countries are now entitled to put in place trade restrictions (by tariff or other ways) as a general trade policy measure to protect their BOP, in terms of Art. XVIII: b. In applying the restrictions, they could determine the incidence on imports of different products or classes of products in such a way as to give priority to imports of more essential products in the light of the country's policy of economic development.

While there is an effort to deprive the Third World countries of their BOP rights in the negotiations on GATT articles, even if they do stave it off there under the Duthie text, when they take trade policy measures for BOP reasons, they would not be able to restrain imports of say luxury or fashion products in textiles and clothing in favour of say capital goods machinery to manufacture such products.

The attempt to cover dumping and anti-dumping in terms of disciplines by exporting countries appears to have no rational justification, since by definition "dumping" is by enterprises, and it is for importing country, subject to the GATT disciplines against abuse, to deal with this.