International textiles and clothing trade is going through fundamental change under the 10-year transitional programme beginning 1 January 1995 and set out in the WTO's Agreement on Textiles and Clothing (ATC). Before the agreement took effect, quotas controlled a large portion of trade in the sector. Under the agreement, WTO members have committed themselves to remove the quotas and to integrate the sector fully into GATT rules by 1 January 2005. That would also mean observing the GATT principle of non-discrimination.

  TextilesSee footnote 1 remains one of the hardest-fought issues in the GATT and WTO. For many developing countries it was the prospect of ending the quota system that encouraged them to agree to negotiate the new issues of intellectual property, services and investment in the Uruguay Round. In the run-up to the 1996 Singapore Ministerial Conference, textiles again became a focus of attention for many members. Detailed and lengthy discussions were held in the WTO's Goods Council about the implementation of the textiles agreement and related issues.

  Textiles and clothing account for about 9.1 per cent of world manufactured goods exports or of 6.5 per cent of all merchandise exports.See footnote 2 According to an estimate in 1994 by what was then the GATT Secretariat, the removal of quotas and a reduction in tariffs could add 18 per cent to the value of trade in textiles (excluding clothing) by 2005. Liberalization under the WTO would increase the value of clothing trade by as much as 69 per cent. This growth is a major factor behind the estimated 14-37 per cent expansion in exports calculated to accrue to developing and transitional economy countries as a result of the Uruguay Round.

Multifibre Arrangement 1974-94

  Up to the end of the Uruguay Round, textiles quotas were negotiated bilaterally and governed by the Multifibre Arrangement (MFA). This contained rules for the imposition of selective quantitative restraints when surges in imports caused, or threatened to cause, market disruption. The quotas incorporated annual growth rates, the standard rate being 6 per cent, although the actual rates varied considerably. The Multifibre Arrangement was a major departure from the basic GATT rules, and particularly the principle of non-discrimination. It has now been replaced by the WTO's Agreement on Textiles and Clothing and the 10-year liberalization programme. All quotas, as well as their growth

rates, existing under the Multifibre Arrangement on 31 December 1994 were carried over into the WTO agreement, but their levels will automatically increase during the 10-year transition period.

The WTO Agreement on Textiles and Clothing 1995-2005

  The WTO textiles agreement says that the sector will be integrated into GATT 1994 in four steps (marking the beginning and end of three periods). On 1 January 1995 members were required to integrate no less than 16 per cent of the total volume of 1990 imports; on 1 January 1998 a further 17 per cent will be integrated, followed by 18 per cent on 1 January 2002 and the remainder (maximum 49 per cent) when the Agreement on Textiles and Clothing itself is to disappear, on 1 January 2005. Each member chooses what products to integrate, provided they cover at least one product of each of the four groupings _ tops and yarns, fabrics, made-ups and clothing. As products are integrated into GATT, any quotas imposed on them will be removed. Through the staged integration process, the textiles and clothing products covered by the provisions of the Agreement on Textiles and Clothing will progressively shrink, and the number of quotas will diminish, until the Agreement on Textiles and Clothing's own elimination on 1 January 2005.

Phasing out quotas, growth rates for remaining quotas:

the 10-year schedule for integrating the sector into GATT rules

% of products to be integrated at start of stage (based on 1990 trade) Expansion

of growth rate for remaining quotas

Example of

quota growth, (to be applied annually), based on 6% rate under former MFA

Step 1:

1 Jan 1995

(to 31 Dec 1997)

16% Existing growth rate

x 16%
Step 2:

1 Jan 1998

(to 31 Dec 2000)

17% Resulting growth rate of step 1
x 25%
Step 3:

1 Jan 2002 (to 31 Dec 2004)

18% Resulting growth rate of step 2
x 27%
Step 4:

Full integration into GATT (and final elimination of quotas) (1 Jan 2005)


Remaining quotas are eliminated

  The task of overseeing the details of the agreement's implementation is given to the Textiles Monitoring Body (TMB), consisting of a chairman and 10 members. WTO members agreed in January 1995 on a formula for appointing the 10 members _ four seats for the four major importers (Canada, Japan, the EC and the US), five seats for the major exporting countries, including members of the Association of Southeast Asian Nations (ASEAN), Pakistan, India, Hong Kong, Korea, Macau, Egypt, Morocco, Tunisia and Latin American and Caribbean countries, and one for Norway, Turkey, Czech Republic, Hungary, Poland, Romania, Slovak Republic, and Switzerland. Once appointed, TMB members are expected to serve in their personal capacities, not as representatives of their countries.

Current Issues

  In mid-1996, when Pakistan, the United States, European CommunitiesSee footnote 3 and others presented papers to the WTO Goods Council. Pakistan, acting also on behalf of the WTO members from the Association of Southeast Asian Nations (ASEAN), Hong Kong, India, and Korea, identified 10 issues the group wanted discussed. Overall, this Asian group said the developed importing members were not living up to the liberalizing spirit of the agreement and that the interests of developing countries were not being served. Industrialized members countered that they had fully met the commitments that they had made and argued that some exporting countries retained high import barriers. The most debated points were the following:

  Quotas and integration: Developing countries say the importing countries are using the four-step schedule to postpone until the last day the integration of the bulk of commercially meaningful items. According to the exporters, this means that for most of the 10-year period they will gain little. They cite the fact that the integration programmes of 1 January 1995 saw only one quota actually removed _ a quota imposed on work gloves imported into Canada. By leaving the bulk of commercially meaningful integration until the end of the transition period, the importing countries run the risk that the last stage will be too difficult for them to implement on schedule, the developing countries add.

  The importers say the emphasis on removal of quotas paints an incomplete picture because gradual liberalization is already taking place through the increased growth rates of the quota levels that remain in force. Some negotiators have argued that in some cases the accelerated growth will make the quotas so large as to be non-binding before the end of the transition period.

  Market access: The United States, the European Communities and other importing members complain that existing high tariffs, newly raised applied tariffs, and non-tariff barriers prevent them from expanding their exports to many developing country markets. The developing countries argue their tariff schedules conform with commitments agreed in the Uruguay Round, and that no complaints have been made in the relevant WTO bodies. They oppose what they consider to be an attempt to link market access in exporting countries to the importing countries' programmes for phasing out quotas. (The debate on this point partly hinges on interpretation of Article 7 of the agreement, which deals with WTO members' commitments to achieve improved market access and maintain fair and equitable trading, but without prejudice to their rights and obligations under GATT 1994.)

  Safeguards: The agreement's special transitional safeguard provisions were intended for situations where surging imports of specific products cause serious damage (or pose a threat of damage) to the domestic industry of the importing country. In this sector, safeguard actions can be aimed at imports of specific products from specific countries, unlike the regular safeguards provisions of the WTO applied to other goods. In 1995, the first year of the agreement, the United States invoked the safeguard provisions 24 times against 14 exporting developing countries. The developing countries say that this clause should be applied as sparingly as possible and that it had been invoked on fragile grounds. The United States counters that its use of safeguards has complied with the agreed rules and procedures. Since mid-1995 the US has applied only one new measure.

  Circumvention: Developed countries express the concern that effective implementation of the agreement depends on exporting members adopting effective measures to prevent circumvention of the agreement and that closer cooperation is needed in this area. Quota limits can be avoided ("circumvention") through a number of methods, ranging from simply altering the "made in ." label to transshipment (making a product in one country, then shipping it to another and re-exporting it as a product of the second country) and falsification of documents. The developing countries say the agreement already provides sufficient procedures for dealing with circumvention and that they fully implement these. They reaffirm their commitment to full cooperation and argue that a main problem is the subjective manner in which the relevant rules are implemented.

  Rules of origin: In mid-1996, the United States changed the rules it uses to identify where a textiles or clothing product comes from. Some developing countries complain this affects their trade negatively, and that the United States has not been properly observing principles laid down in the textiles agreement and in the WTO's Rules of Origin Agreement pending harmonization of origin rules. The United States notes that it has held and is holding the necessary consultations in accordance with the textiles agreement, that the changes conform with WTO agreements, and that members are free to challenge the changes in the appropriate forum.

  Textiles Monitoring Body: Concerns are expressed by some exporting members that, in order to retain the confidence of all members, there is a particular need to make the TMB's work more transparent, notably in explaining the reasons behind its decisions, and to ensure its members really participate in their personal capacities rather than representatives of their countries so as to ensure impartiality. A number of delegations stress that overall responsibility for overseeing the functioning of the textiles agreement and the work of the Textiles Monitoring Body lies with the WTO Committee on Trade in Goods, which includes all WTO members.

  The other points discussed relate to bilaterally agreed arrangements (under the transitional safeguard), the treatment of small suppliers and least-developed country members, the particular interests of cotton-producing exporting countries, use of trade measures for non-trade purposes, and the relationship between restrictions and regionalism.

Selected Glossary

Some of the terms that frequently appear in documents on textiles trade:

ad personam Working in a personal capacity, not representing anyone. (Applies to TMB members.)

ATC The WTO Agreement on Textiles and Clothing

circumvention Avoiding quotas (and other actions such as anti-dumping measures) by transshipment, re-routing, false declaration of country or place of origin, falsification of documents, etc.

CTG Council on Trade in

Goods, in overall charge of the Agreement on Textiles and Clothing Agreement.

growth-on growth The textiles agreement says that growth rates applied annual to quotas carried over from the MFA is to be augmented in three phases by growth factors of 16, 25 and 27 percent, respectively. For example, an annual growth rate of 6 percent under the MFA would become 6.96 percent during the first three years of the ATC, 8.7 percent during the four years of the second phase, and 11.05 percent for the last three years.

integration Progressive integration of textiles and clothing products into normal GATT rules and disciplines and out of the scope of the special transitional provisions of the ATC (including phase-out of quotas and implementation of non-discrimination).

ITCB International Textiles and Clothing Bureau, representing most developing country exporters.

MFA Multifibre Arrangement (officially, Arrangement Regarding International Trade in Textiles), the multilateral agreement of 1974-94 that regulated the special rules for textiles and clothing trade. The MFA permitted bilaterally negotiated arrangements (including quotas) in specific circumstances and under specific procedures. Replaced in 1995 by the WTO Agreement on Textiles and Clothing

safeguards Temporary protection (generally quantitative restrictions) given to domestic industries in order to allow them the time required to adjust to damaging import surges. Most safeguard measures are regulated by Article XIX of GATT 1994 (as interpreted by the WTO Agreement on Safeguards), but some agreements have their own rules, for example textiles and clothing, and agriculture.

TMB Textiles Monitoring Body, with a chairman and ten members acting in a personal capacity, overseeing the implementation of the ATC. Reports to the WTO General Council.

Footnote: 1For most of this briefing document "textiles" is used loosely to include clothing, although technically the two are different sets of products.
Footnote: 2Figures for 1994, from WTO, International Trade Trends and Statistics 1997, table A7.
Footnote: 3In WTO affairs the European Union is called the European Communities.