The Role of Textiles Monitoring Body in the Agreement on textile and clothing and its Significance in International Trade

• Author: Swapneshwar Goutam
• Position: swami_swami1986@yahoo.co.in
• Pages: 41-47

I would like to thank Mr. S. Subramanium, Asst. Professor (Law), National Law University, Raipur, C.G, India; for his vital advice, comments and suggestions. The author is sincerely indebted to Mr. Saurabh Saraogi, final year Student, National Law University, Raipur and editor in Chief, JICLT, Prof. Sylvia Mercado Kierkegaard, for her help in preparing the article for publication.

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1. Introduction

Textiles and clothing are intimately allied both technically and in terms of trade policy. Transnational textiles and clothing trade have been going through deep-seated change under the 10-year transitional programme of the World Trade Organization (WTO). The WTO Agreement on Textiles and Clothing (ATC) 1995 made a large portion of textiles and clothing exports from the least developed and developing countries subject to quotas under a special regime outside the normal General Agreement on Tariffs and Trade (GATT) rules.¹

2. Historical Background

Since 1961, international trade in textiles and clothing has been almost barred from the normal rules and disciplines of the GATT. It was governed by a system of discriminatory restrictions, which deviated from some of the basic principles of the GATT. The system was first incorporated in the so-called Short-Term Cotton Arrangement ("STA"), followed by a Long-Term Arrangement ("LTA") and, later, by the Multi-fibre Arrangement ("MFA"). The MFA continued until the WTO Agreements came into effect on 01 January 1995.² The intent of the ATC is to secure the removal of restrictions currently applied by some developed countries to imports of textiles and clothing.³

This article briefly surveys some of the recent and emerging legal issues surrounding the business risk within international trade in textiles and clothing, as well as the resolution of ATC dispute by the TMB. This article also reviews the functioning of TMB and surveys how the TMB deals with the implementation of ATC. Page 42

3. Structure and Function of Textiles Monitoring Body: The Forum of Dispute Resolution

In order to supervise the operation of the agreement, the ATC established the TMB, a quasi-judicial body which functions as a forum for disputes under the agreement. The TMB supervises the implementation of this agreement (ATC), examines all measures taken under it and ensures that they are in conformity with the rules.⁴ The TMB consists of a chairman and ten members⁵ (serving in their personal capacity), who are broad representatives of the WTO membership and they rotate at appropriate intervals. The task of the TMB is to supervise the implementation of the ATC. It also examines all measures taken under the agreement on textile and clothing and makes recommendations to countries in cases of disputes. If a country cannot accept a TMB recommendation, it is free to refer the matter to the WTO dispute settlement mechanism. The TMB is a unique institution within the WTO framework⁶. It has to rely on the notifications and the information supplied by members under the relevant article of ATC. Under article 3 paragraph 5,

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

It may also rely on notifications and reports from other WTO bodies and such other sources as it may deem appropriate.⁷ From 1995 to 2001, special attention has been given by WTO on development of international trade on textiles and clothing within the member countries. In January 1995, the General Council decided upon the composition of TMB. Later in December of 1977, vital changes took place.⁸ The General Council decided upon the composition for the second stage in 1998-2001. The TMB members appointed by WTO members were designated from the following constituencies: (a) The Association of Southeast Asian Nations (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.⁹

The TMB faces a significant challenge in carrying out this duty because the ATC does not define the terms "serious damage" or "actual threat."¹⁰ The difficulty of the TMB's task is compounded by the fact that it must reach decisions by consensus, with members coming from both the developing countries, which typically favour liberal trade in the textile with apparel industries, and the developed countries, which typically favour restrictions on trade in these sectors.¹¹ In the event that countries involved in a transitional safeguard dispute are dissatisfied with decisions by the TMB, the countries can appeal decisions to the WTO's Dispute Settlement Body (DSB). ¹²The TMB is to evaluate all safeguard actions if members arrive at a bilateral agreement. The TMB is to settle on whether the agreement is acceptable by ATC in addition to this to make suitable proposals to the members concerned.¹³ If an agreement is not attained, the TMB is to swiftly conduct an examination of the matter and to "make appropriate recommendations to the members concerned within 30 days."¹⁴ Page 43

The burden of proof in intermediary safeguard substance appears to be on the members seeking to invoke safeguard¹⁵ and thus, the TMB's is required to carry out an "inquiry of the matter including the purpose of serious damage." The language suggests that the TMB shall make its own determinations without observance of the parties' realistic conclusion or conclusions regarding grave harm.¹⁶ After reviewing a matter, it must include an invitation to the members concerned to participate. The TMB then issues either an observation or a recommendation, ¹⁷ which members are "endeavoured to accept in full."¹⁸ If any member does not accept the recommendations, the member is required to provide the TMB with its reasons within one month of receiving the recommendations. Following consideration of the reasons given, the TMB is to issue further recommendations. If the matter remains unresolved, either party may refer the matter to the Dispute Settlement Body (DSB) and invoke Article XXIII of GATT 1994 and the Dispute Settlement Understanding. ¹⁹

The composition of the TMB was arguably the most important earliest problem faced by the WTO.²⁰ The ATC's declaration that TMB members should be "impartial and broadly representative" obviously lacks specificity. Importing countries, primarily led by the European Union, argue that the ten TMB seats should be evenly split between members selected by importing and exporting countries, as it had been the case with the Textile Surveillance Body [TSB]²¹ which administered the MFA²². Exporting countries asked for a majority six of seats based on the relatively large number of exporting countries²³. Importing countries argued that the TMB formation should be a sign of the size of import markets, not the number of countries concerned. Developing countries endangered to hold up all WTO committee chairperson appointments, which would have prevented the WTO from operating effectively-until the dispute was settled.²⁴

The dispute has been resolved by an agreement which for the first three years, gives exporting nations five seats, importing nation's four seats, and creates one "swing" seat to be held by the two groups alternately. Like the ATC, the Multi Fabric Agreement provided for a quasi-legal standing body, the TSB.²⁵ The ATC which replaced the so-called MFA is a transitional instrument established to supervise the application of the Agreement and ensure that the rules and other provisions, including rules on circumvention, administration of restrictions, treatment of non-MFA restrictions, and commitments undertaken elsewhere under the WTO's agreements and procedures, ²⁶ are faithfully followed;.

The decision-making duties, powers, and organization of the TMB roughly correspond with those assigned to the TSB.²⁷ The MFA authorized the TSB to conduct inquiries, to make recommendations to interested parties regarding any disputed matters, and to review annually all textiles restrictions pursuant to the MFA.²⁸ During the MFA era, the TSB shared power to interpret the MFA with the Textiles Committee, which was a larger entity consisting of all parties to the MFA. Accordingly, if the TSB failed to resolve a dispute under the MFA, the parties could report any legal findings to the Textiles Committee²⁹. Article 11(9) of the MFA further authorized the GATT Council, through normal GATT dispute settlement procedures, to hear textile disputes if the TSB was unable to resolve them³⁰. Page 44

4. Case Study: the function of TMB

It has been noted by many eminent scholars all around the world that the TMB has frequently failed to reach consensus in adjudicating disputes.³¹ In the past years, there have been many matters, which the TMB has failed to review.³² Somporn Thapanachai (2006) noted that it will upset the goal of the agreement, since the ATC provides for automatic review specifically to avoid the necessity of a formal challenge. Commonly, the TMB returns a case to the parties and asks them to reopen negotiations, after the parties have asked the TMB to make recommendations.³³ A representative of the International Textile and Clothing...