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WTO ANALYTICAL INDEX: TEXTILES AND CLOTHING

Agreement on Textiles and Clothing

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The texts reproduced here do not have the legal standing of the original documents which are entrusted and kept at the WTO Secretariat in Geneva.

> General
> Preamble
> Article 1
> Article 2
> Article 3
> Article 4
> Article 5
> Article 6
> Article 7
> Article 8
> Article 9
> Annex

 

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I. General     back to top

1.     The Agreement on Textiles and Clothing (ATC) was negotiated in the Uruguay Round of Trade Negotiations. It replaced the Arrangement Regarding International Trade in Textiles (MFA, or Multi-Fibre Arrangement) of 20 December 1973. The ATC provided for all then-existing textile and clothing trade restrictions to be notified and eliminated over a period of 10 years from the date of entry into force of the WTO Agreement. The ATC also provided that the ATC itself would be terminated at the beginning of the 12th year of the WTO, together with all of the remaining restrictions within its scope. As this termination duly took place on 1 January 2005, the ATC is no longer in effect.

2.     For additional information on practice under the ATC during the 1995–2005 period, see earlier editions of the WTO Analytical Index.

 

II. Preamble     back to top

A. Text of the Preamble

Members,

 

     Recalling that Ministers agreed at Punta del Este that “negotiations in the area of textiles and clothing shall aim to formulate modalities that would permit the eventual integration of this sector into GATT on the basis of strengthened GATT rules and disciplines, thereby also contributing to the objective of further liberalization of trade”;

 

     Recalling also that in the April 1989 Decision of the Trade Negotiations Committee it was agreed that the process of integration should commence following the conclusion of the Uruguay Round of Multilateral Trade Negotiations and should be progressive in character;

 

     Recalling further that it was agreed that special treatment should be accorded to the least-developed country Members;

 

Hereby agree as follows:

 
B. Interpretation and Application of the Preamble

No jurisprudence or decision of a competent WTO body.

 

III. Article 1     back to top

A. Text of Article 1

Article 1

1.     This Agreement sets out provisions to be applied by Members during a transition period for the integration of the textiles and clothing sector into GATT 1994.

 

2.     Members agree to use the provisions of paragraph 18 of Article 2 and paragraph 6(b) of Article 6 in such a way as to permit meaningful increases in access possibilities for small suppliers and the development of commercially significant trading opportunities for new entrants in the field of textiles and clothing trade.(1)

 

(footnote original) 1 To the extent possible, exports from a least-developed country Member may also benefit from this provision.

 

3.     Members shall have due regard to the situation of those Members which have not accepted the Protocols extending the Arrangement Regarding International Trade in Textiles (referred to in this Agreement as the “MFA”) since 1986 and, to the extent possible, shall afford them special treatment in applying the provisions of this Agreement.

 

4.     Members agree that the particular interests of the cotton-producing exporting Members should, in consultation with them, be reflected in the implementation of the provisions of this Agreement.

 

5.     In order to facilitate the integration of the textiles and clothing sector into GATT 1994, Members should allow for continuous autonomous industrial adjustment and increased competition in their markets.

 

6.     Unless otherwise provided in this Agreement, its provisions shall not affect the rights and obligations of Members under the provisions of the WTO Agreement and the Multilateral Trade Agreements.

 

7.     The textile and clothing products to which this Agreement applies are set out in the Annex.(1)

 
B. Interpretation and Application of Article 1

1. General: Purpose and interpretation of the ATC

3.     The Panel in US — Underwear examined whether a transitional safeguard measure imposed by the United States was consistent with Article 6. In so doing, the Panel referred to Article 1 in explaining the overall purpose of the ATC:

“[T]he overall purpose of the ATC is to integrate the textiles and clothing sector into GATT 1994. Article 1 of the ATC makes this point clear. To this effect, the ATC requires notification of all existing quantitative restrictions (Article 2 of the ATC) and provides that they will have to be terminated by the year 2004 (Article 9 of the ATC).” (2)

4.     In Turkey — Textiles, the Panel noted (in relation to the notification requirement of Article 2.1) that “since the purpose of the ATC is to provide exceptions to the general application of Articles XI and XIII of GATT during an integration period to be completed by 1 January 2005, these exceptions should be interpreted narrowly”.(3)

 

IV. Article 2     back to top

A. Text of Article 2

Article 2

1.     All quantitative restrictions within bilateral agreements maintained under Article 4 or notified under Article 7 or 8 of the MFA in force on the day before the entry into force of the WTO Agreement shall, within 60 days following such entry into force, be notified in detail, including the restraint levels, growth rates and flexibility provisions, by the Members maintaining such restrictions to the Textiles Monitoring Body provided for in Article 8 (referred to in this Agreement as the “TMB”). Members agree that as of the date of entry into force of the WTO Agreement, all such restrictions maintained between GATT 1947 contracting parties, and in place on the day before such entry into force, shall be governed by the provisions of this Agreement.

 

2.     The TMB shall circulate these notifications to all Members for their information. It is open to any Member to bring to the attention of the TMB, within 60 days of the circulation of the notifications, any observations it deems appropriate with regard to such notifications. Such observations shall be circulated to the other Members for their information. The TMB may make recommendations, as appropriate, to the Members concerned.

 

3.     When the 12-month period of restrictions to be notified under paragraph 1 does not coincide with the 12-month period immediately preceding the date of entry into force of the WTO Agreement, the Members concerned should mutually agree on arrangements to bring the period of restrictions into line with the agreement year(2), and to establish notional base levels of such restrictions in order to implement the provisions of this Article. Concerned Members agree to enter into consultations promptly upon request with a view to reaching such mutual agreement. Any such arrangements shall take into account, inter alia, seasonal patterns of shipments in recent years. The results of these consultations shall be notified to the TMB, which shall make such recommendations as it deems appropriate to the Members concerned.

 

(footnote original) 2 The “agreement year” is defined to mean a 12-month period beginning from the date of entry into force of the WTO Agreement and at the subsequent 12-month intervals.

 

4.     The restrictions notified under paragraph 1 shall be deemed to constitute the totality of such restrictions applied by the respective Members on the day before the entry into force of the WTO Agreement. No new restrictions in terms of products or Members shall be introduced except under the provisions of this Agreement or relevant GATT 1994 provisions.(3) Restrictions not notified within 60 days of the date of entry into force of the WTO Agreement shall be terminated forthwith.

 

(footnote original) 3 The relevant GATT 1994 provisions shall not include Article XIX in respect of products not yet integrated into GATT 1994, except as specifically provided in paragraph 3 of the Annex.

 

5.     Any unilateral measure taken under Article 3 of the MFA prior to the date of entry into force of the WTO Agreement may remain in effect for the duration specified therein, but not exceeding 12 months, if it has been reviewed by the Textiles Surveillance Body (referred to in this Agreement as the “TSB”) established under the MFA. Should the TSB not have had the opportunity to review any such unilateral measure, it shall be reviewed by the TMB in accordance with the rules and procedures governing Article 3 measures under the MFA. Any measure applied under an MFA Article 4 agreement prior to the date of entry into force of the WTO Agreement that is the subject of a dispute which the TSB has not had the opportunity to review shall also be reviewed by the TMB in accordance with the MFA rules and procedures applicable for such a review.

 

6.     On the date of entry into force of the WTO Agreement, each Member shall integrate into GATT 1994 products which accounted for not less than 16 per cent of the total volume of the Member’s 1990 imports of the products in the Annex, in terms of HS lines or categories. The products to be integrated shall encompass products from each of the following four groups: tops and yarns, fabrics, made-up textile products, and clothing.(4)

 

7.     Full details of the actions to be taken pursuant to paragraph 6 shall be notified by the Members concerned according to the following:

 

(a)     Members maintaining restrictions falling under paragraph 1 undertake, notwithstanding the date of entry into force of the WTO Agreement, to notify such details to the GATT Secretariat not later than the date determined by the Ministerial Decision of 15 April 1994. The GATT Secretariat shall promptly circulate these notifications to the other participants for information. These notifications will be made available to the TMB, when established, for the purposes of paragraph 21;

 

(b)     Members which have, pursuant to paragraph 1 of Article 6, retained the right to use the provisions of Article 6, shall notify such details to the TMB not later than 60 days following the date of entry into force of the WTO Agreement, or, in the case of those Members covered by paragraph 3 of Article 1, not later than at the end of the 12th month that the WTO Agreement is in effect. The TMB shall circulate these notifications to the other Members for information and review them as provided in paragraph 21.

 

8.     The remaining products, i.e. the products not integrated into GATT 1994 under paragraph 6, shall be integrated, in terms of HS lines or categories, in three stages, as follows:

 

(a)     on the first day of the 37th month that the WTO Agreement is in effect, products which accounted for not less than 17 per cent of the total volume of the Member’s 1990 imports of the products in the Annex. The products to be integrated by the Members shall encompass products from each of the following four groups: tops and yarns, fabrics, made-up textile products, and clothing;

 

(b)     on the first day of the 85th month that the WTO Agreement is in effect, products which accounted for not less than 18 per cent of the total volume of the Member’s 1990 imports of the products in the Annex. The products to be integrated by the Members shall encompass products from each of the following four groups: tops and yarns, fabrics, made-up textile products, and clothing;

 

(c)     on the first day of the 121st month that the WTO Agreement is in effect, the textiles and clothing sector shall stand integrated into GATT 1994, all restrictions under this Agreement having been eliminated.

 

9.     Members which have notified, pursuant to paragraph 1 of Article 6, their intention not to retain the right to use the provisions of Article 6 shall, for the purposes of this Agreement, be deemed to have integrated their textiles and clothing products into GATT 1994. Such Members shall, therefore, be exempted from complying with the provisions of paragraphs 6 to 8 and 11.

 

10.     Nothing in this Agreement shall prevent a Member which has submitted an integration programme pursuant to paragraph 6 or 8 from integrating products into GATT 1994 earlier than provided for in such a programme. However, any such integration of products shall take effect at the beginning of an agreement year, and details shall be notified to the TMB at least three months prior thereto for circulation to all Members.

 

11.     The respective programmes of integration, in pursuance of paragraph 8, shall be notified in detail to the TMB at least 12 months before their coming into effect, and circulated by the TMB to all Members.

 

12.     The base levels of the restrictions on the remaining products, mentioned in paragraph 8, shall be the restraint levels referred to in paragraph 1.

 

13.     During Stage 1 of this Agreement (from the date of entry into force of the WTO Agreement to the 36th month that it is in effect, inclusive) the level of each restriction under MFA bilateral agreements in force for the 12-month period prior to the date of entry into force of the WTO Agreement shall be increased annually by not less than the growth rate established for the respective restrictions, increased by 16 per cent.

 

14.     Except where the Council for Trade in Goods or the Dispute Settlement Body decides otherwise under paragraph 12 of Article 8, the level of each remaining restriction shall be increased annually during subsequent stages of this Agreement by not less than the following:

 

(a)     for Stage 2 (from the 37th to the 84th month that the WTO Agreement is in effect, inclusive), the growth rate for the respective restrictions during Stage 1, increased by 25 per cent;

 

(b)     for Stage 3 (from the 85th to the 120th month that the WTO Agreement is in effect, inclusive), the growth rate for the respective restrictions during Stage 2, increased by 27 per cent.

 

15.     Nothing in this Agreement shall prevent a Member from eliminating any restriction maintained pursuant to this Article, effective at the beginning of any agreement year during the transition period, provided the exporting Member concerned and the TMB are notified at least three months prior to the elimination coming into effect. The period for prior notification may be shortened to 30 days with the agreement of the restrained Member. The TMB shall circulate such notifications to all Members. In considering the elimination of restrictions as envisaged in this paragraph, the Members concerned shall take into account the treatment of similar exports from other Members.

 

16.     Flexibility provisions, i.e. swing, carryover and carry forward, applicable to all restrictions maintained pursuant to this Article, shall be the same as those provided for in MFA bilateral agreements for the 12-month period prior to the entry into force of the WTO Agreement. No quantitative limits shall be placed or maintained on the combined use of swing, carryover and carry forward.

 

17.     Administrative arrangements, as deemed necessary in relation to the implementation of any provision of this Article, shall be a matter for agreement between the Members concerned. Any such arrangements shall be notified to the TMB.

 

18.     As regards those Members whose exports are subject to restrictions on the day before the entry into force of the WTO Agreement and whose restrictions represent 1.2 per cent or less of the total volume of the restrictions applied by an importing Member as of 31 December 1991 and notified under this Article, meaningful improvement in access for their exports shall be provided, at the entry into force of the WTO Agreement and for the duration of this Agreement, through advancement by one stage of the growth rates set out in paragraphs 13 and 14, or through at least equivalent changes as may be mutually agreed with respect to a different mix of base levels, growth and flexibility provisions. Such improvements shall be notified to the TMB.

 

19.     In any case, during the duration of this Agreement, in which a safeguard measure is initiated by a Member under Article XIX of GATT 1994 in respect of a particular product during a period of one year immediately following the integration of that product into GATT 1994 in accordance with the provisions of this Article, the provisions of Article XIX, as interpreted by the Agreement on Safeguards, will apply, save as set out in paragraph 20.

 

20.     Where such a measure is applied using non-tariff means, the importing Member concerned shall apply the measure in a manner as set forth in paragraph 2(d) of Article XIII of GATT 1994 at the request of any exporting Member whose exports of such products were subject to restrictions under this Agreement at any time in the one-year period immediately prior to the initiation of the safeguard measure. The exporting Member concerned shall administer such a measure. The applicable level shall not reduce the relevant exports below the level of a recent representative period, which shall normally be the average of exports from the Member concerned in the last three representative years for which statistics are available. Furthermore, when the safeguard measure is applied for more than one year, the applicable level shall be progressively liberalized at regular intervals during the period of application. In such cases the exporting Member concerned shall not exercise the right of suspending substantially equivalent concessions or other obligations under paragraph 3(a) of Article XIX of GATT 1994.

 

21.     The TMB shall keep under review the implementation of this Article. It shall, at the request of any Member, review any particular matter with reference to the implementation of the provisions of this Article. It shall make appropriate recommendations or findings within 30 days to the Member or Members concerned, after inviting the participation of such Members.

 
B. Interpretation and Application of Article 2

1. General

5.     Article 2 provided for (1) notification of all restrictions imposed under the MFA as of the day before the date of entry into force of the WTO Agreement; (2) a ban on introduction or maintenance of restrictions except as provided by Article 2(4); (3) elimination of all the notified restrictions, in four stages, supervised by the TMB; and (4) provisions regarding application of Article XIX of the GATT 1994 to products covered by the ATC, during the duration of the ATC.

6.     ATC Articles 2 and 3 both required notifications thereunder to be submitted within 60 days following the date of entry into force of the WTO Agreement. Most such notifications were received in the 60 days following 1 January 1995. However, where the terms of an accession protocol provide that “those obligations in the Multilateral Trade Agreements annexed to the WTO Agreement that are to be implemented over a period of time starting with the entry into force of that Agreement shall be implemented by [the acceding Member] as if it had accepted that Agreement on the date of its entry into force”, the 60-day window started on the date of accession. Accordingly, notifications under Article 2 and 3 were also received by and in respect of newly acceded Members, until termination of the ATC on 1 January 2005.

7.     At its meeting in December 1999, the TMB addressed the concern expressed by a number of Members that the United States had introduced a new restraint measure on exports of certain products from Turkey. The measure had been published under the United States domestic procedures, but not notified to the TMB, since, according to the United States and Turkey, it “was taken pursuant to a provision of the ATC which does not require notification to the TMB”.(5) The TMB “examine[d] briefly all the provisions of the ATC with a view to identifying under which provision such a measure could have been agreed without requiring its notification to the TMB”, stating as follows:

“[R]estrictions maintained under Article 2 had to be notified, in detail, within 60 days following the entry into force of the WTO Agreement. A measure that had not been notified at all, obviously could not fall under the provisions of Article 2. … no provision under Article 2 provides the possibility of introducing new restrictions. The TMB noted, therefore, that the particular measure subject to its examination could not have been taken pursuant to Article 2.”(6)

2. Article 2.1

8.     In Turkey — Textiles, the Panel found that Article 2.1 established a mandatory requirement to notify all MFA restrictions within a 60-day time window after entry into force of the WTO Agreement. The Panel noted that all Members that could notify such MFA-derived restrictions had done so, and no others could be notified later:

“The lists of restrictions notified pursuant to Article 2.1 set the starting point for the treatment of the restraints carried over from the former MFA regime. Four WTO Members notified the TMB pursuant to Article 2.1 of the ATC: Canada, the European Communities, Norway and the United States. We consider that the notification requirement of 60 days referred to in Article 2.1 of the ATC is mandatory both for formal and substantive reasons. The wording of Article 2.1 is unequivocal with the use of the term ‘shall’. Moreover, since the purpose of the ATC is to provide exceptions to the general application of Articles XI and XIII of GATT during an integration period to be completed by 1 January 2005, these exceptions should be interpreted narrowly.(7) Stemming from this provision, only the four Members above had the right to and did notify measures which allowed them to maintain MFA-derived quantitative restrictions for a maximum period of 10 years during which import quotas must increase annually until the products they cover are integrated into GATT. In the absence of an exception under the ATC or a justification under GATT, no new quantitative restrictions introduced by a Member can benefit from the exceptions provided for in Article 2.1 of the ATC after this 60 day period.”(8)

3. Article 2.4

(a) Jurisprudence

9.     In Turkey — Textiles, the Panel held that any increase of an existing restriction was a ‘new measure’ and hence a violation of Article 2.4:

“The prohibition on ‘new restrictions’ must be interpreted taking into account the preceding sentence: ‘The restrictions notified under paragraph 1 shall be deemed to constitute the totality of such restrictions applied by the respective Members on the day before the entry into force of the WTO Agreement’. The ordinary meaning of the words indicates that WTO Members intended that as of 1 January 1995, the incidence of restrictions under the ATC could only be reduced. We are of the view that any legal fiction whereby an existing restriction could simply be increased and not constitute a ‘new restriction’, would defeat the clear purpose of the ATC which is to reduce the scope of such restrictions, starting from 1 January 1995 (but for the exceptional situations referred to in Article 2.4 of the ATC). Thus, we consider that, setting aside the possibility of exceptions and justifications mentioned in Article 2.4 of the ATC, any increase of an ATC compatible quantitative restriction notified under Article 2.1 of the ATC, constitutes a ‘new’ restriction.”(9)

(b) TMB statements

10.     In its report of the meeting in December 1999, when examining a new restriction introduced by the United States on Turkey’s exports of certain textile products, as part of a broader understanding reached between the two Members, the TMB stated:(10)

“In concluding its examination of the measure mutually agreed between Turkey and the United States, the TMB recalled that Article 2.4 of the ATC states that ‘[n]o new restrictions in terms of products or Members shall be introduced except under the provisions of this Agreement or relevant GATT 1994 provisions’. After having considered the new measure against the different provisions of the ATC on the basis of the information available to it […], the TMB concluded that the measure agreed upon by Turkey and the United States, affecting imports by the United States of category 352/652 products, had not been demonstrated to be in conformity with the provisions of the ATC.”(11)

4. Article 2.17

11.     Concerning a mutually agreed solution notified by Pakistan under Article 2.17 and by the United States under Article 5, which provided for, inter alia, the introduction of a new restraint (on United States imports from Pakistan on products falling under US categories 666-S and 666-P), the TMB noted that the restrictions in question “had not been notified pursuant to Article 2.1 and, therefore, did not fall under the scope of the provisions of Article 2” and that “there appeared to be no justification to apply new quantitative restrictions under Article 2.17.” (12)

 

V. Article 3     back to top

A. Text of Article 3

Article 3

1.     Within 60 days following the date of entry into force of the WTO Agreement, Members maintaining restrictions(4) on textile and clothing products (other than restrictions maintained under the MFA and covered by the provisions of Article 2), whether consistent with GATT 1994 or not, shall (a) notify them in detail to the TMB, or (b) provide to the TMB notifications with respect to them which have been submitted to any other WTO body. The notifications should, wherever applicable, provide information with respect to any GATT 1994 justification for the restrictions, including GATT 1994 provisions on which they are based.

 

(footnote original) 4 Restrictions denote all unilateral quantitative restrictions, bilateral arrangements and other measures having a similar effect.

 

2.     Members maintaining restrictions falling under paragraph 1, except those justified under a GATT 1994 provision, shall either:

 

(a)     bring them into conformity with GATT 1994 within one year following the entry into force of the WTO Agreement, and notify this action to the TMB for its information; or

 

(b)     phase them out progressively according to a programme to be presented to the TMB by the Member maintaining the restrictions not later than six months after the date of entry into force of the WTO Agreement. This programme shall provide for all restrictions to be phased out within a period not exceeding the duration of this Agreement. The TMB may make recommendations to the Member concerned with respect to such a programme.

 

3.     During the duration of this Agreement, Members shall provide to the TMB, for its information, notifications submitted to any other WTO bodies with respect to any new restrictions or changes in existing restrictions on textile and clothing products, taken under any GATT 1994 provision, within 60 days of their coming into effect.

 

4.     It shall be open to any Member to make reverse notifications to the TMB, for its information, in regard to the GATT 1994 justification, or in regard to any restrictions that may not have been notified under the provisions of this Article. Actions with respect to such notifications may be pursued by any Member under relevant GATT 1994 provisions or procedures in the appropriate WTO body.

 

5.     The TMB shall circulate the notifications made pursuant to this Article to all Members for their information.

 
B. Interpretation and Application of Article 3

1. General

12.     With respect to the measure concerning the United States and Turkey, the TMB confirmed that all restrictive measures that touch upon the subject matter of the ATC, even if adopted on a non-ATC basis, had to be notified to the TMB:

Article 3.3 does not exclude the possibility, inter alia, of introducing new restrictions on textile and clothing products. However, it contains not only the requirement of ‘double’ notification (i.e. to the appropriate WTO body and also to the TMB, for its information), but also limits the possibility of applying, inter alia, new restrictions to those cases where the measures were taken under any GATT 1994 provision.”(13)

2. Article 3.1

(a) “restrictions”

13.     At its meeting in November 2002, while reviewing an Article 3.1 notification by China following its accession to the WTO,(14) the TMB considered, inter alia, whether Article 3 also applied to export restrictions. The TMB noted:

[A]rticle 3.1 uses the word ‘restrictions’ without any additional qualifications and that the footnote to this provision related to the same term states the following: ‘Restrictions denote all unilateral quantitative restrictions, bilateral arrangements and other measures having a similar effect.’(15) The language of Article 3 does not limit the application of this provision to any specific type of restriction. The export quotas maintained by China affecting silk yarn and woven fabrics of silk are, undoubtedly, unilateral quantitative restrictions, corresponding to the definition provided in the footnote referred to above. Therefore, also in view of the lack of any further precision in the respective provision of the ATC, export restrictions are not a priori excluded from the scope of application of Article 3. This conclusion is also in line with past practice in the TMB, whereby the notification under Article 3 of certain measures affecting exports of some textile products was not questioned.(16)

 

The TMB noted, furthermore, that the additional notification by China referred to ‘restrictions on certain textile products which fall under the coverage of the ATC and are subject to Article 3 of [that] Agreement’. This reference presumably indicated that, in the view of China, the measures in question should be considered under the applicable provisions of the ATC. It was observed that the notification of these export restrictions under Articles 3.1 and 3.2(b) did not appear to be in contradiction with the relevant portion of the Report of the Working Party on the Accession of China.(17)”(18)

 

VI. Article 4     back to top

A. Text of Article 4

Article 4

1.     Restrictions referred to in Article 2, and those applied under Article 6, shall be administered by the exporting Members. Importing Members shall not be obliged to accept shipments in excess of the restrictions notified under Article 2, or of restrictions applied pursuant to Article 6.

 

2.     Members agree that the introduction of changes, such as changes in practices, rules, procedures and categorization of textile and clothing products, including those changes relating to the Harmonized System, in the implementation or administration of those restrictions notified or applied under this Agreement should not: upset the balance of rights and obligations between the Members concerned under this Agreement; adversely affect the access available to a Member; impede the full utilization of such access; or disrupt trade under this Agreement.

 

3.     If a product which constitutes only part of a restriction is notified for integration pursuant to the provisions of Article 2, Members agree that any change in the level of that restriction shall not upset the balance of rights and obligations between the Members concerned under this Agreement.

 

4.     When changes mentioned in paragraphs 2 and 3 are necessary, however, Members agree that the Member initiating such changes shall inform and, wherever possible, initiate consultations with the affected Member or Members prior to the implementation of such changes, with a view to reaching a mutually acceptable solution regarding appropriate and equitable adjustment. Members further agree that where consultation prior to implementation is not feasible, the Member initiating such changes will, at the request of the affected Member, consult, within 60 days if possible, with the Members concerned with a view to reaching a mutually satisfactory solution regarding appropriate and equitable adjustments. If a mutually satisfactory solution is not reached, any Member involved may refer the matter to the TMB for recommendations as provided in Article 8. Should the TSB not have had the opportunity to review a dispute concerning such changes introduced prior to the entry into force of the WTO Agreement, it shall be reviewed by the TMB in accordance with the rules and procedures of the MFA applicable for such a review.

 
B. Interpretation and Application of Article 4

14.     In the context of examining the measure introduced by the United States on exports of certain products from Turkey, the TMB held that the provisions of Article 4 have to be read in conjunction with the other provisions of the Agreement:

[A]rticle 4.1 deals with the administration of ‘restrictions referred to in Article 2, and those applied under Article 6’. Article 4.2 states that ‘Members agree that the introduction of changes, such as changes in practices, rules, procedures and categorization of textile and clothing products including those changes relating to the Harmonized System, in the implementation or administration of those restrictions notified or applied under this Agreement should not: upset the balance of rights and obligations between Members concerned under this Agreement; adversely affect the access available to a Member; impede the full utilization of such access; or disrupt trade under this Agreement.’ Article 4.4 provides, inter alia, the possibility to reach a ‘mutually acceptable solution regarding appropriate and equitable adjustment’ between Members when necessary changes, in the sense of Article 4.2, are introduced in the implementation or administration of existing restrictions. The TMB noted that, according to Article 4.4, such mutually acceptable solutions did not have to be notified to the TMB. The TMB recalled its findings that the new restriction could not have been agreed pursuant to the provisions of Articles 2 and 6. It was also observed that Article 4.4 does not provide explicit guidance regarding the scope of the adjustment that can be agreed between the Members concerned in the framework of the mutually acceptable solution. A reading according to which the introduction of a new restriction, in the sense of Article 2.4, can be agreed upon pursuant to Article 4.4 as an adjustment to balance possible improvements in the implementation or administration of restrictions maintained pursuant to Article 2 was, however, in the view of the TMB not consistent with the intention of the drafters of the ATC, since Article 4 relates to the implementation or administration of the restrictions referred to in Article 2, or applied under Article 6. Also, the construction of Article 4 and its language seem to suggest that when changes, in the sense of Article 4.2 are introduced, the appropriate and equitable adjustment referred to in Article 4.4 can only involve and affect the restrictions that have already been in place and notified pursuant to Article 2 or Article 6.”(19)

 

VII. Article 5     back to top

A. Text of Article 5

Article 5

1.     Members agree that circumvention by transshipment, re-routing, false declaration concerning country or place of origin, and falsification of official documents, frustrates the implementation of this Agreement to integrate the textiles and clothing sector into GATT 1994. Accordingly, Members should establish the necessary legal provisions and/or administrative procedures to address and take action against such circumvention. Members further agree that, consistent with their domestic laws and procedures, they will cooperate fully to address problems arising from circumvention.

 

2.     Should any Member believe that this Agreement is being circumvented by transshipment, re-routing, false declaration concerning country or place of origin, or falsification of official documents, and that no, or inadequate, measures are being applied to address and/or to take action against such circumvention, that Member should consult with the Member or Members concerned with a view to seeking a mutually satisfactory solution. Such consultations should be held promptly, and within 30 days when possible. If a mutually satisfactory solution is not reached, the matter may be referred by any Member involved to the TMB for recommendations.

 

3.     Members agree to take necessary action, consistent with their domestic laws and procedures, to prevent, to investigate and, where appropriate, to take legal and/or administrative action against circumvention practices within their territory. Members agree to cooperate fully, consistent with their domestic laws and procedures, in instances of circumvention or alleged circumvention of this Agreement, to establish the relevant facts in the places of import, export and, where applicable, transshipment. It is agreed that such cooperation, consistent with domestic laws and procedures, will include: investigation of circumvention practices which increase restrained exports to the Member maintaining such restraints; exchange of documents, correspondence, reports and other relevant information to the extent available; and facilitation of plant visits and contacts, upon request and on a case-by-case basis. Members should endeavour to clarify the circumstances of any such instances of circumvention or alleged circumvention, including the respective roles of the exporters or importers involved.

 

4.     Where, as a result of investigation, there is sufficient evidence that circumvention has occurred (e.g. where evidence is available concerning the country or place of true origin, and the circumstances of such circumvention), Members agree that appropriate action, to the extent necessary to address the problem, should be taken. Such action may include the denial of entry of goods or, where goods have entered, having due regard to the actual circumstances and the involvement of the country or place of true origin, the adjustment of charges to restraint levels to reflect the true country or place of origin. Also, where there is evidence of the involvement of the territories of the Members through which the goods have been transshipped, such action may include the introduction of restraints with respect to such Members. Any such actions, together with their timing and scope, may be taken after consultations held with a view to arriving at a mutually satisfactory solution between the concerned Members and shall be notified to the TMB with full justification. The Members concerned may agree on other remedies in consultation. Any such agreement shall also be notified to the TMB, and the TMB may make such recommendations to the Members concerned as it deems appropriate. If a mutually satisfactory solution is not reached, any Member concerned may refer the matter to the TMB for prompt review and recommendations.

 

5.     Members note that some cases of circumvention may involve shipments transiting through countries or places with no changes or alterations made to the goods contained in such shipments in the places of transit. They note that it may not be generally practicable for such places of transit to exercise control over such shipments.

 

6.     Members agree that false declaration concerning fibre content, quantities, description or classification of merchandise also frustrates the objective of this Agreement. Where there is evidence that any such false declaration has been made for purposes of circumvention, Members agree that appropriate measures, consistent with domestic laws and procedures, should be taken against the exporters or importers involved. Should any Member believe that this Agreement is being circumvented by such false declaration and that no, or inadequate, administrative measures are being applied to address and/or to take action against such circumvention, that Member should consult promptly with the Member involved with a view to seeking a mutually satisfactory solution. If such a solution is not reached, the matter may be referred by any Member involved to the TMB for recommendations. This provision is not intended to prevent Members from making technical adjustments when inadvertent errors in declarations have been made.

 
B. Interpretation and Application of Article 5

1. General

15.     In the context of examining a US restraint on exports of certain products from Turkey, referred to in paragraphs 6 and 9 above, the TMB stated that “any action taken pursuant to Article 5.4 has to be notified to the TMB. In case of evidence that the ATC is being circumvented by false declaration concerning fibre content, quantities, description or classification of merchandise, Article 5.6 allows the Members concerned to consult with a view to seeking a mutually satisfactory solution and the same Article does not require the notification of such mutually agreed solutions to the TMB.”(20)

2. Article 5.4

(a) “appropriate action, to the extent necessary to address the problem”

16.     In reviewing a number of administrative arrangements agreed between the United States and several other Members under which triple charges could be imposed on quotas to counter circumventions, the TMB “noted, inter alia, that paragraph 4 of Article 5 of the ATC seemed to provide some flexibility in terms of remedies or agreed actions that could be foreseen in cases when circumvention has occurred. It observed, however, that Article 5 contained no mention of the possibility for the importing Member to impose triple charges on quotas, as a deterrent to circumvention.”(21)

(b) “Members concerned may agree on other remedies in consultation”

17.     Concerning a mutually agreed solution notified by Pakistan under Article 2.17 and by the United States under Article 5, referenced in paragraph 11 above, which provided, inter alia, for the introduction of a new restraint, the TMB “observed that, apart from the third sentence of Article 5.4, the introduction of a new restriction, even if mutually agreed between the Members concerned, was not mentioned in Article 5.4 as an ‘appropriate action, to the extent necessary to address the problem’ when circumvention as defined in Article 5.1 had occurred. Furthermore, the TMB understood that the introduction of restrictions, set out in the third sentence of Article 5.4, related only to the true country or place of origin in case there had been evidence of its involvement in the transshipment. This provision, therefore, could not per se allow the introduction of new restrictions on imports from Pakistan in the particular case when circumvention had occurred.”(22)

18.     While examining the measure referred to in paragraph 17 above, the TMB noted with respect to the fifth sentence of Article 5.4 that “the Agreement did not specify what, in the context of this paragraph, could or could not constitute the ‘other remedies’ ”. It also held that Article 5.4 was sufficiently clear that an objective interpretation of ‘other remedies’ could not be asserted as to grant Members the right to adopt new quantitative restrictions:

“It could be argued that the ‘other remedies’ referred to in Article 5.4 did not include the permission to introduce new quantitative restrictions, since Article 5.4 in itself as well as the broader context as determined by the ATC provided sufficient guidance … The second sentence … seemed to imply that the action taken should affect the product that was subject to circumvention. Since only the exports of products that had already been subject to restrictions could be circumvented, the remedy for such circumvention could not affect products other than those with respect to which circumvention had been claimed. … the two Members could have agreed on adjustments of charges to the restraint level established for the [products already subject to restriction] or on ‘other remedies’ affecting the same products, but not on ‘other remedies’ affecting other products.”(23)

19.     With respect to the treatment of the measure at issue under Article 2.17, see the excerpts from the reports of the TMB referenced in paragraph 11 above. Also, with respect to the same issue under Article 5.6, see the excerpt from the report of the TMB referenced in paragraph 20 below.

3. Article 5.6

20.     Concerning the same agreement, the TMB held that “it could be argued that the introduction of the new restraints, even if mutually agreed between the two Members, could not be justified in the context of Article 5.6”.(24)

 

Footnotes:

1. With respect to the Annex, see Section XII. (The list of textile and clothing products is omitted.) back to text
2. Panel Report on US — Underwear, para. 7.19. back to text
3. Panel Report, Turkey — Textiles, para. 9.69 (footnote in original omitted). back to text
4. With respect to Article 2.6, in Marrakesh, the Ministerial Conference took the following Decision on Notification of First Integration under Article 2.6 of the ATC:
     “Ministers agree that the participants maintaining restrictions falling under paragraph 1 of Article 2 of the Agreement on Textiles and Clothing shall notify full details of the actions to be taken pursuant to paragraph 6 of Article 2 of that Agreement to the GATT Secretariat not later than 1 October 1994. The GATT Secretariat shall promptly circulate these notifications to the other participants for information. These notifications will be made available to the Textiles Monitoring Body, when established, for the purposes of paragraph 21 of Article 2 of the Agreement on Textiles and Clothing.” back to text
5. G/TMB/R/60, para. 29. back to text
6. G/TMB/R/60, para. 30. back to text
7. (footnote original) See for instance in Panel Report on Indonesia — Certain Measures Affecting the Automobile Industry, adopted 23 July 1998, WT/DS54, 55, 59 and 64/R, (“Indonesia — Autos”) (Not appealed), para. 14.92, where the period allowed for notification to the TRIMs Committee under Article 5 of the TRIMS Agreement, in order for a Member to benefit from the transition provisions of the TRIMs Agreement, was considered mandatory. back to text
8. Panel Report, Turkey — Textiles, para. 9.69. back to text
9. Panel Report, Turkey — Textiles, para. 9.71. back to text
10. G/TMB/R/60, para. 33. back to text
11. G/TMB/R/60, para. 33. back to text
12. G/TMB/R/45, paras. 27–28. back to text
13. G/TMB/R/60, para. 30. back to text
14. G/TMB/N/426 and Add.1. back to text
15. (footnote original) See footnote 4 of the ATC. back to text
16. (footnote original) Japan notified the application of an export approval system affecting certain products with certain specified destinations (United States, European Communities). For details see G/TMB/N/82 and G/TMB/N/175. back to text
17. (footnote original) See WT/ACC/CHN/49, paragraph 165. back to text
18. G/TMB/R/93, paras. 19–20. back to text
19. G/TMB/R/60, para. 31. back to text
20. G/TMB/R/60, para. 30. back to text
21. G/TMB/R/31, paras. 20–21. back to text
22. G/TMB/R/45, paras. 33–34. back to text
23. G/TMB/R/45, paras. 36–37. back to text
24. G/TMB/R/45, paras. 47–48. back to text

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