8:22 AM Apr 17, 1996

WASH DAY AT THE WTO

Geneva 17 Apr (Chakravarthi Raghavan) -- It was Wash Day at the WTO when the Dispute Settlement Body met and heard two disputes and requests for panel establishment over US restrictions against imports from India, and was advised about Hong Kong's efforts to consult with Turkey on textile quotas and the EC Commission,, as an interested third party trying to run the consultations.

In the two disputes brought up by India against the US, where the issue came up before the DSB for the second time, panels were established, with the US not opposing but demurring that India was persisting in taking the issues to the panels, even though under the Agreement on Textiles and Clothing (ATC), India had the right to do so.

In these, as in other restraints imposed by it in 1995, the US had pleaded both 'serious damage' caused to its producers because of the imports, as well as 'actual threat of serious damage' - a double pleading to which the exporting countries have been objecting.

A number of importing countries including Canada, the EU and Norway, who all maintain quotas against developing countries announced their interest as third parties to participate before the panel, with Canada, EC and Norway expressing misgivings that by the exercise of the right to take the issue in appeal to a panel, the TMB process was being undermined!

The Indian statement to the DSB, before it acted to set up the panel, provided a strong indictment of the way the US was dealing with the ATC, and trying to promote bilateralism and undermine the multilateral processes. It was also an indictment of the functioning of the TMB in promoting such "bilateral solutions"

It brought into the open over a year-old complaints of exporting countries over the WTO processes in the administration of the ATC -- an issue which the WTO Director-General who has been going around the world trying to promote new agendas for increasing WTO credibility, has seldom seen fit to refer to.

Behind the disputes between India and the US, and the Hong Kong's complaint against Turkey, with several other interested third parties trying to participate and the EC allegedly attempting to decide who has the third party rights and who has not, is the messy way the WTO Agreement on Textiles and Clothing is being administered and run by the Textiles Monitoring Body (TMB), how the industrial countries band together against developing countries in these and other matters, and the way the two majors, the US and EU, are trying run the WTO processes for their own ends.

Several of the exporting countries have already made clear that at the Singapore Ministerial meeting, one of the questions that has to come up under the agenda item of 'implementation' would be the way the ATC is being implemented and the functioning and processes of the TMB.

Turkey which imposed the quota restrictions from 1 January had said it was doing so because of its customs union with the EU.

The dispute over Turkey's actions (on which Hong Kong has sought consultations, and separately India too) came up under 'any other business', with Hong Kong bringing it up to advise the DSB on how its 'consultations' with Turkey were proceeding, or rather not proceeding, with several of the countries who have sought to participate as interested third parties, intervening to make some direct and more oblique comments about the EU, itself an interested third party, was trying to run the consultations Tuesday, and deciding who had the right to participate as an interested third party and who had not.

The India-US disputes involve two items of clothing exports from India to the US - quotas against imports from India of trade category 435 (women's and girls' woolcoats) and category 440 (woven wool shirts and blouses).

On the first, the TMB was unable to decide by consensus whether the US had demonstrated 'actual threat of serious damage' to US domestic producers because of imports from India.

The US however has continued the restraints.

On the second, the TMB agreed by consensus that the US had demonstrated 'actual threat of serious injury' to US domestic producers, but remained silent on whether the US (which had also pleaded 'serious damage' to justify its restraints) had demonstrated such 'serious damage'.

On review in both cases, the TMB said it had nothing to add to its earlier decisions.

India thereupon brought up the issue before the DSB and asked for establishment of panels, in exercise of its right to do so under Art. 8.10 of the ATC.

On the women's and girls' woolcoats imports, India told the DSB that the US unilateral restraints had been in place for a year now. At the last meeting of the DSB, where India had brought it up, the US had said that several months ago it had been convinced that restraints on this category were no longer necessary, but that the US chief textile negotiator would be communicating directly to the Indian counterpart on the US decision to drop the restraints.

In a communication of 15 April from the US chief textile negotiator, while stating that the US had concluded the restraint might be rescinded, the US insisted however that this was an issue which it wanted to raise bilaterally with India and "if no mutual solution is reached, I am content to leave the restraint in place and defend the safeguard action to a dispute settlement panel".

The Indian ambassador, Mr. S. Narayanan charged that a "rather misleading statement" had been made by the US at the last meeting of the DSB. At that time, the US had made the categorical statement that it had become convinced that the restraints were no longer needed and would be communicating directly about the restraints being dropped, the communication from the US textile negotiator did not confirm this. The US action last time before the DSB, "in making an inaccurate or non-serious statement" was neither consistent with the stature of the DSB nor its smooth functioning.

Also, having reached a conclusion 'several months ago' that the restraints were not necessary, the US was continuing to maintain the restraints. What the DSB had before it was a situation where an importing country tells the DSB that it was entitled to continue an unilateral restraint unquestioned, even after it considered the restraint not necessary. This was a 'strange interpretation' of the ATC.

The episode also showed the US attitude in treating every textile matter as a "purely bilateral matter" despite the entry into force of the multilateral agreement on 1 January 1995. "Our greatest grievance with regard to what is happening in the textile area since 1, January 1995 is that at every stage efforts are being made to undermine the multilateral processes and institutions and promote bilateralism... Today we are told that for dropping a restraint, the continuation of which the importing country considers unnecessary, we should have a bilateral consultations".

While the ATC provides for bilateral consultations before a restraint is imposed, the US was now saying bilateral consultations were necessary for dropping a restraint.

As he had pointed to the DSB last time, perhaps the US was expecting a significant concessions from India to remove the restraint. India had pointed out in other (WTO) fora that a large number of 'calls' for restraints had been made by the importing country, knowing these were totally unjustified, in order to pressure exporting countries to accept some restraints, by giving an impression that restraints on other categories were being rescinded.

What the US was offering today was "to gracefully withdraw one unjustified restraint, if the exporting country accepted another unjustified restraint" and this was what the US was euphemistically calling as 'mutual solution'. This was not in conformity with either the letter and spirit of the ATC. India's greatest concern was that instead of deciding on the merits of each case individually, as it was expected to do under Art. 8, the TMB was promoting these socalled "mutual solutions" implying trade-offs between categories.

In a response, the US adverted to its efforts to hold 'bilateral consultations', and regretted that India had been unable to postpone its request for panel establishment before textile negotiators of the two countries could meet.

On the second dispute, regarding Category No 440, where the TMB gave no finding as to whether the US had demonstrated serious injury, but gave a finding of US demonstrating 'serious threat', the Indian representative said that its request for a panel was in pursuance of its right under Art. 8.10 of the ATC and India did not "accept the argument that by exercising this right, we are undermining the credibility or effectiveness of the TMB process, just as we do not think the credibility of the panel system is undermined by appeals to the Appellate body". As Art 3.10 of the DSU has said, use of dispute settlement procedures should not be considered a "contentious act" and as required by the DSU, if a dispute arises, all Members are to engage in procedures in good faith.

In its response, the US regretted India was having recourse to the panel processes even though the TMB had twice upheld the US actions.

In raising 'under any other business', the state of the consultations with Turkey, Hong Kong noted that it had sought bilateral consultations with Turkey and the two sides had agreed to consult on 16-17 April, thus mutually agreeing to extend the 30-day period for consultations. The extended period would expire at 1 PM of 17 April.

In addition to Turkey agreeing to hold the consultations, the EU Commission had notified its desire to join the consultations, as an interested party, under 4:11 of the DSU.

(A number of other countries had also notified the WTO secretariat, and Turkey and Hong Kong, of their desire to join the consultations. These included Canada, Brazil, Peru, India, Pakistan, Malaysia, Thailand and the Philippines).

Narrating what 'happened' on Tuesday afternoon, Hong Kong told the DSB that Turkey and Hong Kong had met at the WTO in the presence of a number of parties that had asked to join the consultations.

But it proved impossible to hold the consultations since Turkey and the EC insisted, contrary to Hong Kong's position, that the consultations could not be held to be between Hong Kong and Turkey as two consulting parties, with others participating under 4:11 of the DSU. Instead, Turkey demanded that Hong Kong hold consultations with Turkey and the EC as a "joint exercise".

Hong Kong delegation would remain available in the WTO building for the consultations until 1 PM of Wednesday, as originally set and, if consultations were not joined by then, Hong Kong would consider the consultation period as having expired (enabling Hong Kong to invoke a panel).

In other statements, Thailand, also speaking for Malaysia and the Philippines that a response from Turkey to their request to join the consultations was received only on 15 April. The way Turkey had handled the DSU procedures "only raised doubts in our mind as to Turkey's intentions and desire of entering into consultations in good faith".

Turkey's response, Thailand said, was difficult to comprehend and there was no clear answer as to whether Turkey agreed to their request to join the consultations. Asked to provide a clarification, Turkey was not explicit in giving an affirmative or negative answer and went so far as to suggest the three ASEAN members would be put as "Observers" in the consultations - a status that was not provided for anywhere in Art. 4:11 of the DSU.

While the consultations between Hong Kong and Turkey went ahead Tuesday, their own status in the consultations was yet to be fully and clearly addressed by Turkey. As a result the three ASEAN countries reserved their rights and would further pursue the remedies open to them.

India said that it had received oral confirmation from Turkey about its joining the consultations only on 12 April and, at extremely short notice, Indian official team had come to Geneva from Delhi at short notice, with the delegation having to rush to the meeting straight from the airport. But the meeting was deadlocked.

In an oblique reference to the EC's efforts to run the consultations and decide who could or could not join the consultations, India said it did not find any provision in the DSU or Art XXII of the GATT which would enable a Member which had requested under Art. 4:11 to join in the consultations (as the EC had done) to suddenly acquire the right to conduct these consultations as a "joint exercise".

Canada had earlier said that it had not been asked to establish any "substantial trade interest".

Referring to this, India said that like Canada, India too had not been asked by Turkey to establish the "substantial trade interest", and had participated in the Art XXII consultations. If there was no established trade interest for India, Narayanan asked: "why were any quantitative restrictions imposed?"

After the DSB meeting, some of the delegations involved privately said that at yesterday's meeting, where the EC was represented by its top trade negotiator, Mr. Abbot, the consultations were being practically run by the EC, which insisted on its being a joint exercise. It was the EC that told the three ASEAN that they could only get observer status, and subsequently tried to regulate what the others could do.

At that stage, when Hong Kong challenged the EC's right (as an interested party in the consultations) to run the consultations, or with Turkey to insist on its being a joint exercise, and that this was contrary to the DSU, the EC representative reportedly said "The DSU has to be innovative".

The consultations thus ended on a procedural dispute, they said.

After the DSB meeting, Hong Kong as well as the others seeking to join the consultations, were at the WTO building and the room set for the meeting, but no meeting took place.