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Issues covered by the WTO’s committees and agreements

REPERTORY OF APPELLATE BODY REPORTS

Textiles and Clothing Agreement


ON THIS PAGE:

Article 6 — Transitional safeguard
Article 6.2 — “determination”
Article 6.2 — “domestic industry”
Article 6.2 — “directly competitive products”. See also Directly Competitive or Substitutable Products (D.1)
Article 6.2 — “like products”
Article 6.4 — Attribution of serious damage. See also Principles and Concepts of General Public International Law, Proportionality (P.3.6)
Article 6.10 — No backdating of a safeguard
Article 6.11 — Provisional application of a safeguard


T.7.1 Article 6 — Transitional safeguard     back to top

T.7.1.1 US — Wool Shirts and Blouses, p. 16, DSR 1997:I, p. 323 at 337
(WT/DS33/AB/R, WT/DS33/AB/R/Corr.1)

 

We do not believe that these particular previous GATT 1947 panel reports are relevant in this case. This case concerns Article 6 of the ATC. The ATC is a transitional arrangement that, by its own terms, will terminate when trade in textiles and clothing is fully integrated into the multilateral trading system. Article 6 of the ATC is an integral part of the transitional arrangement manifested in the ATC and should be interpreted accordingly. As the Appellate Body observed in United States — Restrictions on Imports of Cotton and Man-Made Fibre Underwear with respect to Article 6.10 of the ATC, we believe Article 6 is “carefully negotiated language … which reflects an equally carefully drawn balance of rights and obligations of Members … ”. That balance must be respected.

 

T.7.1.2 US — Cotton Yarn, para. 81
(WT/DS192/AB/R)

 

There is no need for the purpose of this appeal to express a view on the question whether an importing Member would be under an obligation, flowing from the “pervasive” general principle of good faith that underlies all treaties, to withdraw a safeguard measure if post-determination evidence relating to pre-determination facts were to emerge revealing that a determination was based on such a critical factual error that one of the conditions required by Article 6 turns out never to have been met.

 
T.7.2 Article 6.2 — “determination”     back to top

T.7.2.1 US — Cotton Yarn, para. 76
(WT/DS192/AB/R)

 

Unlike Article 3 of the Agreement on Safeguards, which provides explicitly for an investigation by competent authorities of a Member, Article 6 of the ATC does not specify either the organ or the procedure through which a Member makes its “determination”. …

 

T.7.2.2 US — Cotton Yarn, para. 77
(WT/DS192/AB/R)

 

… The demonstration by a Member that a particular product is being imported into its territory in such increased quantities as to cause serious damage (or actual threat thereof) to the domestic industry can be based only on facts and evidence which existed at the time the determination was made. The urgent nature of such an investigation may not permit the Member to delay its determination in order to take into account evidence that might be available only at a future date. …

 
T.7.3 Article 6.2 — “domestic industry”     back to top

T.7.3.1 US — Cotton Yarn, para. 86
(WT/DS192/AB/R)

 

A plain reading of the phrase “domestic industry producing like and/or directly competitive products” shows clearly that the terms “like” and “directly competitive” are characteristics attached to the domestic products that are to be compared with the imported product. We are, therefore, of the view that the definition of the domestic industry must be product-oriented and not producer-oriented, and that the definition must be based on the products produced by the domestic industry which are to be compared with the imported product in terms of their being like or directly competitive.

 

T.7.3.2 US — Cotton Yarn, para. 95
(WT/DS192/AB/R)

 

… Article 6.2 permits a safeguard action to be taken in order to protect a domestic industry from serious damage (or actual threat thereof) caused by a surge in imports, provided the domestic industry is identified as the industry producing “like and/or directly competitive products” in comparison with the imported product. The criteria of “like” and “directly competitive” are characteristics attached to the domestic product in order to ensure that the domestic industry is the appropriate industry in relation to the imported product. The degree of proximity between the imported and domestic products in their competitive relationship is thus critical to underpin the reasonableness of a safeguard action against an imported product.

 
T.7.4 Article 6.2 — “directly competitive products”.
See also Directly Competitive or Substitutable Products (D.1)     back to top

T.7.4.1 US — Cotton Yarn, paras. 96-98
(WT/DS192/AB/R)

 

According to the ordinary meaning of the term “competitive”, two products are in a competitive relationship if they are commercially interchangeable, or if they offer alternative ways of satisfying the same consumer demand in the marketplace. “Competitive” is a characteristic attached to a product and denotes the capacity of a product to compete both in a current or a future situation. The word “competitive” must be distinguished from the words “competing” or “being in actual competition”. It has a wider connotation than “actually competing” and includes also the notion of a potential to compete. It is not necessary that two products be competing, or that they be in actual competition with each other, in the marketplace at a given moment in order for those products to be regarded as competitive. Indeed, products which are competitive may not be actually competing with each other in the marketplace at a given moment for a variety of reasons, such as regulatory restrictions or producers’ decisions. Thus, a static view is incorrect, for it leads to the same products being regarded as competitive at one moment in time, and not so the next, depending upon whether or not they are in the marketplace.

 

It is significant that the word “competitive” is qualified by the word “directly”, which emphasizes the degree of proximity that must obtain in the competitive relationship between the products under comparison. As noted earlier, a safeguard action under the ATC is permitted in order to protect the domestic industry against competition from an imported product. To ensure that such protection is reasonable, it is expressly provided that the domestic industry must be producing “like” and/or “directly competitive products”. …

 

When … the product produced by the domestic industry is not a “like product” as compared with the imported product, the question arises how close should be the competitive relationship between the imported product and the “unlike” domestic product. It is common knowledge that unlike or dissimilar products compete or can compete in the marketplace to varying degrees, ranging from direct or close competition to remote or indirect competition. The more unlike or dissimilar two products are, the more remote or indirect their competitive relationship will be in the marketplace. The term “competitive” has, therefore, purposely been qualified and limited by the word “directly” to signify the degree of proximity that must obtain in the competitive relationship when the products in question are unlike. Under this definition of “directly”, a safeguard action will not extend to protecting a domestic industry that produces unlike products which have only a remote or tenuous competitive relationship with the imported product.

 

T.7.4.2 US — Cotton Yarn, para. 105
(WT/DS192/AB/R)

 

… we find that combed cotton yarn produced by vertically integrated fabric producers for their internal consumption is “directly competitive” with combed cotton yarn imported from Pakistan. …

 
T.7.5 Article 6.2 — “like products”     back to top

T.7.5.1 US — Cotton Yarn, para. 97
(WT/DS192/AB/R)

 

… Like products are, necessarily, in the highest degree of competitive relationship in the marketplace. In permitting a safeguard action, the first consideration is, therefore, whether the domestic industry is producing a like product as compared with the imported product in question. If this is so, there can be no doubt as to the reasonableness of the safeguard action against the imported product.

 
T.7.6 Article 6.4 — Attribution of serious damage.
See also Principles and Concepts of General Public International Law, Proportionality (P.3.6)     back to top

T.7.6.1 US — Cotton Yarn, paras. 114-115
(WT/DS192/AB/R)

 

The first requirement is that the attribution be confined to only those Members from whom imports have shown a sharp and substantial increase. Such Members will be identified on an individual basis by virtue of the wording in Article 6.4, second sentence, “on the basis of a sharp and substantial increase in imports, actual or imminent, from such a Member or Members individually” (footnote omitted). The Panel interpreted the term “sharp” to refer to the rate of the import increase, and the term “substantial” to the amount of that increase. These interpretations of the Panel have not been appealed and are, therefore, not before us.

 

The second requirement of Article 6.4, second sentence, is a comparative analysis, in the event that there is more than one Member from whom imports have shown a sharp and substantial increase in its imports. The conduct of the comparative analysis is governed by the latter part of the second sentence of Article 6.4 …

 

T.7.6.2 US — Cotton Yarn, paras. 118-119
(WT/DS192/AB/R)

 

Article 6.4 provides, in relevant part, that “[t]he Member or Members to whom serious damage … is attributed, shall be determined on the basis of a sharp and substantial increase in imports from such a Member or Members” (emphasis added). The clear inference from this phrase is that the sharp and substantial increase of imports from such a Member determines not only the basis, but also the scope of attribution of serious damage to that Member.

 

In consequence, where imports from more than one Member contribute to serious damage, it is only that part of the total damage which is actually caused by imports from such a Member that can be attributed to that Member under Article 6.4, second sentence. Damage that is actually caused to the domestic industry by imports from one Member cannot, in our view, be attributed to a different Member, imports from whom were not the cause of that part of the damage. This would amount to a “mis-attribution” of damage and would be inconsistent with the interpretation in good faith of the terms of Article 6.4. Therefore, the part of the total serious damage attributed to an exporting Member must be proportionate to the damage caused by the imports from that Member. Contrary to the view of the United States, we believe that Article 6.4, second sentence, does not permit the attribution of the totality of serious damage to one Member, unless the imports from that Member alone have caused all the serious damage.

 

T.7.6.3 US — Cotton Yarn, para. 121
(WT/DS192/AB/R)

 

… most significantly, if the totality of serious damage could be attributed to only one of those Members the imports from whom have contributed to it, there would be no need to undertake a comparative analysis of the effects of imports from that one Member, once the imports from that Member have been found to have increased sharply and substantially; such an interpretation would reduce a whole segment of Article 6.4 to inutility.

 

T.7.6.4 US — Cotton Yarn, paras. 122-124
(WT/DS192/AB/R)

 

We now turn to the question of how to conduct the comparative analysis required by Article 6.4. This analysis is to be seen in the light of the principle of proportionality as the means of determining the scope or assessing the part of the total serious damage that can be attributed to an exporting Member. We recall that Article 6.4 enjoins the importing Member to conduct this comparative analysis on a multifactor basis including “levels of imports”, “market share” and “prices”, while specifying that none of these factors alone or in combination with other factors can necessarily give decisive guidance. The comparison is to take place between the effects of imports from the Member in question, on the one hand, and those of imports from other sources, on the other. The comparison must thus be based on a variety of factors, each of which has a different significance and weight, and is to be measured on a different scale.

 

It is of course possible to compare the level of imports of one Member with the level of imports from other sources taken together. Likewise, it is possible to establish the market share of one Member in comparison with all other imports and the output of the domestic industry. However, the full effects of the level of imports from, and the market share of, one Member can only be assessed if this level and this share are compared individually with the level of imports from, and the market share of, the other Members from whom imports have also increased sharply and substantially. This conclusion is even more obvious for the comparison of import and domestic prices. The price of imports from one Member can be compared with the average price of imports from other sources and with domestic prices. However, prices of imports from the other Members may vary widely from one another. A fair assessment of the effects of the price of imports from one Member will therefore require a comparison with the price of imports from other Members taken individually. Moreover, these different factors interact in different ways, producing different effects, under different circumstances, not to mention the possible existence of other relevant factors (and their effects) that must be taken into account in the comparison according to the proviso at the end of Article 6.4, second sentence.

 

An assessment of the share of total serious damage, which is proportionate to the damage actually caused by imports from a particular Member, requires, therefore, a comparison according to the factors envisaged in Article 6.4 with all other Members (from whom imports have also increased sharply and substantially) taken individually.

 
T.7.7 Article 6.10 — No backdating of a safeguard     back to top

T.7.7.1 US — Underwear, p. 14, DSR 1997:I, p. 11 at 22
(WT/DS24/AB/R)

 

It is essential to note that, under the express terms of Article 6.10, ATC, the restraint measure may be “applied” only “after the expiry of the period of 60 days” for consultations, without success, and only within the “window” of 30 days immediately following the 60-day period. Accordingly, we believe that, in the absence of an express authorization in Article 6.10, ATC, to backdate the effectivity of a safeguard restraint measure, a presumption arises from the very text of Article 6.10 that such a measure may be applied only prospectively. …

 

T.7.7.2 US — Underwear, p. 19, DSR 1997:I, p. 11 at 28
(WT/DS24/AB/R)

 

The conclusion we have arrived at, in respect of the issue of permissibility of backdating, is that the giving of retroactive effect to a safeguard restraint measure is no longer permissible under the regime of Article 6 of the ATC and is in fact prohibited under Article 6.10 of that Agreement. The presumption of prospective effect only, has not been overturned; it is a proposition not simply presumptively correct but one requiring our assent. …

 
T.7.8 Article 6.11 — Provisional application of a safeguard     back to top

T.7.8.1 US — Underwear, p. 20, DSR 1997:I, p. 11 at 28
(WT/DS24/AB/R)

 

… The importing Member is, however, not defenceless against a speculative “flood of imports” where it is confronted with the circumstances contemplated in Article 6.11. Its appropriate recourse is, in other words, to action under Article 6.11 of the ATC, complying in the process with the requirements of Article 6.10 and Article 6.11.

 


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