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DISPUTE SETTLEMENT: DISPUTE DS243

United States — Rules of Origin for Textiles and Apparel Products

This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

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See also: One-page summary of key findings of this dispute

Appellate Body and Panel Reports Adopted

Complaint by India.

On 11 January 2002, India requested consultations with the United States in respect of its rules of origin applicable to imports of textiles and apparel products as set out in Section 334 of the Uruguay Round Agreements Act, Section 405 of the Trade and Development Act of 2000 and the customs regulations implementing these provisions.

India argued that, prior to the abovementioned Section 334, the rule of origin applicable to textiles and apparel products was the “substantial transformation” rule. India considered that Section 334 changed the system by identifying specific processing operations which would confer origin to the various types of textiles and apparel products. In India’s view, these changes appear to have been made to protect the United States textiles and clothing industry from import competition. India indicated that the changes introduced by Section 334 had already been challenged by the European Communities on the grounds that they were incompatible with the United States’ obligations under the Agreement on Rules of Origin and other WTO Agreements (WT/DS151). India explained that that dispute was settled through a procès-verbal whereby the United States agreed to introduce legislation amending Section 334. According to India, the changes introduced by the amending legislation, i.e. Section 405, were aimed at taking account of the particular export interests of the European Communities.

India is of the view that the changes introduced by Sections 334 and 405 have resulted in extraordinary complex rules under which the criteria that confer origin vary between similar products and processing operations. India argued that the structure of the changes, the circumstances under which they were adopted and their effect on the conditions of competition for textiles and apparel products suggest that they serve trade policy purposes. On those grounds, India questioned the compatibility of those changes with paragraphs (b), (c), (d) and (e) of Article 2 of the Agreement on Rules of Origin.

On 7 May 2002, India requested the establishment of a panel. At its meeting on 22 May 2002, the DSB deferred the establishment of a panel . Further to a second request by India, the DSB established a panel at its meeting on 24 June 2002. EC, Pakistan and the Philippines reserved their third party rights. On 3 July 2002, Bangladesh reserved its third party rights. On 4 July 2002, China reserved its third party rights. On 10 October 2002, the Panel was composed. On 9 April 2003, the Chairman of the Panel informed the DSB that due to the complexity of the matter, the Panel would not be able to complete its work in six months. The Panel expects to issue its final report to the parties in early May 2003.

On 20 June 2003, the Panel Report was circulated to Members. The Panel found that:

• India failed to establish that section 334 of the Uruguay Round Agreements Act is inconsistent with Articles 2(b) or 2(c) of the RO Agreement; and
   
• India failed to establish that section 405 of the Trade and Development Act is inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement;
   
• India failed to establish that the customs regulations contained in 19 C.F.R. § 102.21 are inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement;

At its meeting on 21 July 2003, the DSB adopted the Panel Report.

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