Topics handled by WTO committees and agreements
Issues covered by the WTO’s committees and agreements

TEXTILES: AGREEMENT
Textiles Monitoring Body (TMB)
The Agreement on Textiles and Clothing

Since 1 January 1995, international textiles and clothing trade has been going through fundamental change under the 10-year transitional programme of the WTO's Agreement on Textiles and Clothing (ATC). Before the Agreement took effect, a large portion of textiles and clothing exports from developing countries to the industrial countries was subject to quotas under a special regime outside normal GATT rules.

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Before the Agreement took effect, a large portion of textiles and clothing exports from developing countries to the industrial countries was subject to quotas under a special regime outside normal GATT rules. Under the Agreement, WTO Members have committed themselves to remove the quotas by 1 January 2005 by integrating the sector fully into GATT rules.  
  

  
Multifibre Arrangement (
MFA) 1974-1994 Back to top

Up to the end of the Uruguay Round, textile and clothing quotas were negotiated bilaterally and governed by the rules of the Multifibre Arrangement (MFA). This provided for the application of selective quantitative restrictions when surges in imports of particular products caused, or threatened to cause, serious damage to the industry of the importing country. The Multifibre Arrangement was a major departure from the basic GATT rules and particularly the principle of non-discrimination. On 1 January 1995 it was replaced by the WTO Agreement on Textiles and Clothing which sets out a transitional process for the ultimate removal of these quotas.

  
  
The WTO Agreement on Textiles and Clothing
(ATC) 1995-2004 Back to top

The ATC is a transitional instrument, built on the following key elements: (a) the product coverage, basically encompassing yarns, fabrics, made-up textile products and clothing; (b) a programme for the progressive integration of these textile and clothing products into GATT 1994 rules; (c) a liberalization process to progressively enlarge existing quotas (until they are removed) by increasing annual growth rates at each stage; (d) a special safeguard mechanism to deal with new cases of serious damage or threat thereof to domestic producers during the transition period; (e) establishment of a Textiles Monitoring Body (“TMB”) to supervise the implementation of the Agreement and ensure that the rules are faithfully followed; and (f) other provisions, including rules on circumvention of the quotas, their administration, treatment of non-MFA restrictions, and commitments undertaken elsewhere under the WTO's agreements and procedures affecting this sector.

The product coverage, listed in the Annex to the ATC, covers all products which were subject to MFA or MFA-type quotas in at least one importing country.

The integration process is laid down in ATC Article 2 and stipulates how Members shall integrate the products listed in the Annex into the rules of GATT 1994 over the 10-year period. This process is to be carried out progressively in three stages (3 years, 4 years, 3 years) with all products standing integrated at the end of the 10-year period. The first stage began on 1 January 1995 with the integration by Members of products representing not less than 16 per cent of that Member's total 1990 imports of all the products in the Annex. At stage 2, on 1 January 1998, not less than a further 17 per cent was integrated. At stage 3, on 1 January 2002, not less than a further 18 per cent will be integrated. Finally at the end, on 1 January 2005, all remaining products (amounting up to 49 per cent of 1990 imports into a Member) will stand integrated and the Agreement terminates. Each importing Member decides itself which products it will integrate at each stage to reach these thresholds. The only constraint is that the integration list must encompass products from each of the four groupings: tops and yarns, fabrics, made-up textile products and clothing.

The four WTO Members which maintained import restrictions under the former MFA (Canada, EC, Norway and the US) were required to undertake this integration process and to notify to the TMB the first phase of their programmes of integration by 1 October 1994. Other WTO Members were required, first, to notify the TMB if they wished to retain the right to use the transitional safeguard mechanism in the ATC (Article 6.1) and, if so, to provide their first stage integration lists. Fifty-five Members chose to retain this right and most of them provided lists of products for integration. Nine Members, Australia, Brunei Darussalam, Chile, Cuba, Hong Kong, Iceland, Macau, New Zealand and Singapore decided not to maintain the right to use the ATC safeguard mechanism. They are deemed to have integrated 100 per cent at the outset.

Concurrent with the integration process, there is a programme for liberalizing the existing restrictions, that is, for enlarging the bilateral quotas carried over from the former MFA on 1 January 1995 (Article 2.1) until such time as the products are integrated into GATT, at which time the quotas terminate. These former MFA quotas, when carried over into the ATC on 1 January 1995, represented the starting point for an automatic liberalization process set out in Article 2, paragraphs 12-16. The former MFA growth rates applicable to each of these quotas were increased on 1 January 1995 by a factor of 16 per cent for the first stage of the Agreement and the new growth rate was applied annually. The stage 1 growth rate was further increased by a factor of 25 per cent for the second stage on 1 January 1998; and will be increased by a further 27 per cent for the last stage beginning 1 January 2002. To illustrate this process, a 6 per cent growth rate under the MFA in 1994 became 6.9 per cent under the ATC and applied each year 1995/96/97; then it was increased to 8.7 per cent for each year 1998/99/2000/01; and then will be increased to 11.05 per cent for 2002/3/4. For small suppliers (as defined in Article 2.18) the growth factors (16 per cent, 25 per cent, 27 per cent) are to be advanced by one stage. Quotas will be eliminated either when the products concerned are integrated into GATT at one of the stages or at the end of the transition on 1 January 2005. There are additional provisions in Article 2 for early removal of quotas and integration of products.

Article 3 deals with quantitative restrictions (or measures with similar effect) other than those under the MFA. Members which had such restrictions in place, which could not be justified under a GATT provision, were required either to bring them into conformity with GATT rules or phase them out within the ten year transitional period, according to a plan to be submitted by the restraining Member to the Textiles Monitoring Body. There is no obligation to eliminate restrictions that are permitted under GATT rules.

A key aspect of the ATC is the provision in Article 6 for a special transitional safeguard mechanism intended to protect Members against damaging surges in imports during the transition period from products which have not yet been integrated into GATT and which are not already under quota. This clause is based on a two-tiered approach - first, the importing Member must determine that total imports of a specific product are causing serious damage, or actual threat thereof, to its domestic industry and second, it must then decide to which individual Member(s) this serious damage can be attributed. Specific criteria and procedures are set out for each step. The importing Member must then seek consultations with the exporting Member(s). Such safeguard measures may be applied on a selective, country-by-country basis by mutual agreement or, if agreement is not reached through the consultation process within 60 days, by unilateral action. The quota may not be lower than the actual level of imports for that exporting country during a recent 12 month period, and the action taken may remain in place for up to three years only. If the measure is in place for more than one year, growth shall, with one exception, be no less than 6 per cent. In practice, the special safeguard was invoked on 24 occasions in 1995 by the United States, 8 times in 1996 (Brazil 7, US 1), 2 times in 1997 by the United States, and 10 times in 1998 (Colombia 9, US 1).

Article 5 of the ATC contains rules and procedures concerning circumvention of the quotas through transshipment, re-routing, false declaration of origin, or falsification of official documents. These require, inter alia, consultation and full cooperation in the investigation of such practices by Members concerned. When sufficient evidence is available, possible recourse might include the denial of entry of goods. There is also a provision whereby all Members should establish, consistent with their domestic laws and procedures, the necessary legal provisions and/or administrative procedures to address and take action against circumvention.

Administration of restrictions during the transition period will remain with the exporting Members and any changes in practices, rules or procedures shall be subject to consultations with a view to reaching mutually acceptable solutions (Article 4).

Provisions relating to the commitments undertaken in all areas of the Uruguay Round as they relate to textiles and clothing require that all Members “shall take such actions as may be necessary” to abide by these rules and disciplines so as to achieve improved market access, to ensure the application of fair and equitable trading conditions and to avoid discrimination against textiles and clothing imports (Article 7). If an exporting Member is found not to be complying with its obligations, the Dispute Settlement Body or the Council for Trade in Goods may authorize an adjustment to the quota growth for that country which is otherwise an automatic growth.

The Textiles Monitoring Body has been established to supervise the implementation of the ATC and to examine all measures taken under it, to ensure that they are in conformity with the rules. It is a quasi-judicial, standing body which consists of a Chairman and ten TMB members, discharging their function on an ad personam basis and taking all decisions by consensus. The ten members are appointed by WTO Member governments according to an agreed grouping of WTO Members into constituencies. There can be rotation within the constituencies. These characteristics make the TMB a unique institution within the WTO framework. In January 1995, the General Council decided upon the composition for the TMB for the first stage. In December 1997, the General Council decided upon the composition for the second stage (1998-2001) with TMB members to be appointed by WTO Members designated from the following constituencies: (a) the ASEAN Member countries; (b) Canada and Norway; (c) Pakistan and China (after accession); (d) the European Communities; (e) Korea and Hong Kong, China; (f) India and Egypt/Morocco/Tunisia; (g) Japan; (h) Latin American and Caribbean Members; (i) the United States; and (j) Turkey, Switzerland and Bulgaria/Czech Republic/Hungary/ Poland/Romania, Slovak Republic/Slovenia. Provisions were made for alternates to be appointed by the members in each of the constituencies and in some cases second alternates; there are also two non-participating observers from Members not already represented in this structure, one from Africa and one from Asia. The TMB Chairman is Mr András Szepesi.

The TMB provided a comprehensive report to the CTG in July 1997 on the implementation of the ATC in the first stage (G/L/179); its 1998 report is in G/L/270. The Goods Council conducted a major review of the operation of the ATC in the first stage during the final quarter of 1997; its report is in G/L/224