SICE-WTO-United States

WORLD TRADE ORGANIZATION	WT/DS243/R 20 June 2003 (03-3200)
	Original: English

UNITED STATES - RULES OF ORIGIN
FOR TEXTILES AND APPAREL PRODUCTS

Report of the Panel

(Continued)

2. India's claim under Article 2(c), first sentence, of the RO Agreement

6.119 India claims that section 334 and section 405 are also inconsistent with the first and second sentences of Article 2(c) of the RO Agreement. Consistent with the structure of Article 2(c), the Panel will commence its examination with India's claim under the first sentence of Article 2(c). The Panel's first task in this respect is to consider the parties' interpretation of the first sentence of Article 2(c).

(a) Article 2(c), first sentence, of the RO Agreement

6.120 Article 2(c) provides as follows:

"Until the work programme for the harmonization of rules of origin set out in Part IV is completed, Members shall ensure that:
[�]
(c) rules of origin shall not themselves create restrictive, distorting, or disruptive effects on international trade. They shall not pose unduly strict requirements or require the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin. However, costs not directly related to manufacturing or processing may be included for the purposes of the application of an ad valorem percentage criterion consistent with subparagraph (a)[.]"

6.121 India considers that the language of Article 2(c), first sentence, that rules of origin shall not "themselves" create restrictive, distorting or disruptive effects should be read together with the language of Article 2(b) that "notwithstanding the measure or instrument of commercial policy to which they are linked, [Members shall ensure that] their rules of origin are not used as instruments to pursue trade objectives". India submits that, when the provisions in Article 2(b) and Article 2(c) are read together, it becomes clear that a measure or instrument of commercial policy may have restrictive, distorting or disruptive effects on international trade, but that the rules of origin as such (whatever the commercial policy instrument to which they are linked) should not have such adverse effects.

6.122 India also points out that the effects of the challenged rule of origin have to be "on international trade" and not only on imports. In this regard, India notes the difference between the wording used in Article 2(c) and that used in Article 3.2 of the Agreement on Import Licensing Procedures, which requires that "non-automatic licensing shall not have trade-restrictive or trade-distorting effects on imports additional to those caused by the imposition of the restriction". In addition, India considers that, under Article 2(c), first sentence, it is sufficient for a complaining party to show that the challenged rule of origin creates restrictive or distorting effects for one Member, which could be a Member other than the complaining Member.

6.123 With respect to the phrase "restrictive, distorting, or disruptive effects", India offers the following interpretation: Rules of origin create "restrictive" effects on international trade if they reduce the level of international trade. Rules of origin create "distorting" effects on international trade if they modify the pattern of international trade by changing either the type of product traded in international trade or the direction of international trade flows. Finally, rules of origin create "disruptive" effects on international trade if, for instance, they are very complex and arbitrary in nature.

6.124 In India's view, the central interpretative issue presented by Article 2(c), first sentence, however, is whether the words "create restrictive [ � ] effects" refer to the effects that the rules of origin are capable of creating or whether they refer to the effects they actually create in the market place. According to the former, "conduct-oriented" interpretation, it would be sufficient for India to demonstrate that the incentives and disincentives faced by traders as a result of the rules of origin at issue are such that they create restrictive effects. According to the latter, "result-oriented" interpretation, it would be necessary to demonstrate that the regulatory framework imposed by the United States has actually produced those effects on international trade.

6.125 India is of the view that the conduct-oriented interpretation is the correct one. What is relevant, according to India, under Article 2(c) is the nature of the rules of origin that the Member adopted, not the reaction of the market to those rules. India notes in this regard that Article 2(c), first sentence, uses the term "create" rather than "have". India points out that the New Shorter English Oxford Dictionary defines "create" as to "cause, occasion, produce, give rise to", and it defines "have" as to "possess as an attribute, function, position, etc.". India also recalls that Article 3.2 of the Agreement on Import Licensing Procedures states that "non-automatic licensing shall not have trade-restrictive or distorting effects on imports additional to those caused by the imposition of the restriction". In contrast, Article 2(c), first sentence, uses the term "create", which, in India's view, implies that Members must refrain from adopting rules of origin that create a framework capable of producing such adverse effects.

6.126 India notes that, under a conduct-oriented interpretation, Members could challenge another Member's rules of origin under Article 2(c), first sentence, as soon as they enter into force. India considers this important because, in its view, the adoption of new rules of origin can immediately stop production for a particular market or purchases from particular markets. India argues that, in contrast, under a result-oriented interpretation, a violation of Article 2(c), first sentence, has to be proven through a showing of an actual restrictive, distorting or disruptive impact on international trade reflected in trade statistics. According to India, the implication of such an interpretation is that Members wishing to challenge rules of origin under Article 2(c), first sentence, would have to wait until the rules of origin have actually produced an adverse impact and trade data are available to demonstrate this. A further implication, India maintains, is that the consistency of a rule of origin would depend on the market's reaction to it and consequently on factors that normally escape the control of Members. Moreover, India argues that, under a result-oriented interpretation, it would have to be demonstrated that the change in trade flows was caused by the rules of origin and not by other factors. India considers that, in those circumstances, Article 2(c), first sentence, would become for all practical purposes unenforceable because the effect of the rules of origin and the effect of the policy instrument to which they are linked could, in practice, not be segregated.

6.127 India submits that the question of whether the rules of international trade regulate conduct or effects has been an issue on many previous occasions. According to India, in Japanese Measures on Imports of Leather²⁴⁴, the CONTRACTING PARTIES to the GATT 1947 had to decide whether a quota restriction could be deemed to have been "made effective" within the meaning Article XI:1 of the GATT 1947 even if the quota was not exhausted and therefore did not actually restrict imports. India recalls that they decided that the mere imposition of a quota violated Article XI:1.²⁴⁵ India points out that the CONTRACTING PARTIES also had to decide whether a tax was "applied" to imported products within the meaning of Article III:2 of the GATT 1947 even if there had not yet been any imported product on which the tax had actually been imposed. According to India, the CONTRACTING PARTIES decided that the actual impact of a tax was irrelevant under Article III:2.²⁴⁶ India finally points out that the Appellate Body noted the CONTRACTING PARTIES' jurisprudence approvingly in Japan - Taxes on Alcoholic Beverages and ruled that "Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products and that it is irrelevant that 'the trade effects' of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even non-existent".²⁴⁷

6.128 India notes that Articles III and XI of the GATT 1947 have thus never been interpreted to require the attainment or avoidance of particular effects on international trade. Instead, India argues, they have been interpreted to require the establishment of a regulatory framework that enables investors and traders to foresee under what condition they will have to compete with the products of the importing country. According to India, the purpose of Articles III and XI of the GATT is to prevent the impairment of market access concessions through non-tariff measures imposed internally or at the border. India considers that the purpose of Article 2 of the RO Agreement is to prevent the impairment "of the rights of Members under GATT 1994" through rules of origin, as noted in the preamble to the RO Agreement. India submits that, since the basic rationale of these provisions is the same, the approach to their interpretation should be the same. Just like the terms "made effective" in Article XI of the GATT and "applied" in Article III:2 of the GATT, the terms "create effects" in Article 2(b) must, in India's view, be given a meaning consistent with the basic function of the world trade order, which, India notes, is to create predictability for traders and investors. India argues that the only logical conclusion that one can draw from these considerations is that Article 2(c), just as all the other provisions in WTO law designed to prevent the circumvention of market access commitments through non-tariff measures, must be interpreted as a provision prescribing conditions of competition, not the avoidance of certain trade results. What is thus relevant, according to India, is whether the rules of origin create conditions of competition with restrictive, distorting or disruptive effects, and not whether the actual application of these rules to a specific commercial policy instrument has produced such effects.

6.129 The United States points out, as a preliminary matter, that the Panel must examine whether the challenged United States rules of origin, as enacted, "create restrictive, distorting, or disruptive effects on international trade", not whether the change in United States rules altered conditions of competition. The United States notes that the text of Article 2(c) does not discipline changes in rules of origin per se; instead, it applies to rules of origin "themselves". That Article 2(c) was not meant to discipline changes per se is also borne out, in the view of the United States, by the fact that Article 2(i) of the RO Agreement contemplates changes in rules of origin.²⁴⁸

6.130 Concerning the interpretation of Article 2(c), first sentence, the United States rejects India's view. First of all, the United States rejects India's view that the Panel may assess whether rules of origin create restrictive, distorting, or disruptive effects "on international trade" by looking at the effect on one single Member's trade. In the view of the United States, this reading simply cannot be found in the words of Article 2(c), first sentence. The United States argues that if Members had wanted to proscribe rules of origin that affected one or more Members it would have been easy: the provision could have read "Members shall ensure that their rules of origin shall not themselves create restrictive, distorting or disruptive effects on another Member's trade".

6.131 The United States also rejects India's "conduct-oriented" interpretation of the terms "create [� effects on international trade". In the view of the United States, India's conduct-oriented interpretation is inconsistent with the text of Article 2(c), first sentence. The United States submits that India's interpretation is mistaken in that it equates "effects on international trade" with "effects on conditions of competition created by a Member's conduct". The United States wonders what the terms "create [�] effects on international trade" mean under this interpretation. If the drafters used those terms instead of the terms found in GATT Articles III and XI, the United States queries, is not the logical conclusion that the drafters did not intend to draw from those articles?

6.132 The United States also disagrees with India's conduct-oriented approach because, in its view, it pre-supposes that mere adoption of a rule of origin will have an immediate impact that distorts or restricts trade. The United States argues that if the drafters of the RO Agreement had wanted a per se rule, they would have adopted one, but they did not. The United States considers that this interpretation reads out of Article 2(c) its primary element, i.e., that rules of origin not create "restrictive, distorting or disruptive effects on international trade". The United States also wonders how panels should assess whether a rule of origin creates an immediate impact.

6.133 Finally, the United States rejects India's conduct-oriented interpretation because, in its view, it is, in any event, unnecessary. The United States considers that there is no need for the Panel to resort to adopting a GATT Article I, III, or XI analysis when, in addition to the terms of Article 2(c), first sentence, there is other WTO guidance, more similar to Article 2(c), first sentence, on which to rely. The United States argues that Article 6.3 of the SCM Agreement, which addresses effects of subsidies on imports and exports, is at least equally relevant to an analysis of Article 2(c), first sentence, as GATT cases that address discrimination among like products.

6.134 The United States submits that, contrary to India's view, Article 2(c), first sentence, does require a showing of actual effects on international trade. The United States argues that a determination of whether rules of origin create restrictive or distorting or disruptive effects on international trade can be made simply, by looking at trade flows. The United States also points out, however, that such an evaluation has to be qualitative as well as quantitative.

6.135 According to the United States, the second sentence of Article 2(c) indicates that rules of origin may impose strict requirements, and the preamble to the RO Agreement recognizes that rules of origin may pose obstacles. The United States further points out Article 2(a) of the RO Agreement provides that Members may maintain rules of origin that will have some effect on international trade. The United States holds the view, for example, that using ad valorem percentages as a criterion in non-preferential rules of origin is inherently distortive, because it can operate to "punish" inexpensive labour costs, is greatly affected by currency shifts, and requires excessive administrative burdens. In the view of the United States, all of this makes clear that an effect on international trade is not sufficient to rise to the level of a "restriction", "distortion", or "disruption" of international trade. The United States considers that this also makes common sense, as the RO Agreement does not operate to address constant disputes about specific origin determinations for particular products which may, for instance, have an uneven effect on one Member versus another. According to the United States, indications of whether rules of origin restrict, distort, or disrupt trade would be if they are overly burdensome to comply with; impose more strict requirements on some countries than on others; or cause confusion in the marketplace.

6.136 The Panel recalls that the text of Article 2(c), first sentence, states in relevant part: "[Rules of origin] shall not themselves create restrictive, distorting, or disruptive effects on international trade". The first element to be addressed is the term "themselves". We consider that, in the first sentence of Article 2(c), the pronoun "themselves" is used mainly to emphasise the preceding term "rules of origin". By emphasising the term "rules of origin", the pronoun "themselves" brings out very clearly that the first sentence of Article 2(c) is concerned with a Member's rules of origin, as distinct from something other than rules of origin, and that it is rules of origin, as opposed to something other than rules of origin, that must not "create restrictive, distorting, or disruptive effects on international trade".

6.137 This interpretation draws support from, and is further informed by, the provision immediately preceding Article 2(c). Article 2(b) provides that "notwithstanding the measure or instrument of commercial policy to which they are linked, [Members shall ensure that] their rules of origin are not used as instruments to pursue trade objectives". Thus, Article 2(b) contrasts rules of origin with the commercial policy instruments they are used to implement. As previously noted, Article 2(b) can be understood to mean that commercial policy instruments may pursue trade objectives, but that rules of origin may not. We consider that Article 2(b) lends force to our view that the focus in the first sentence of Article 2(c) is on rules of origin, not some other instrument or mechanism, and clarifies that the relevant other instruments or mechanisms include what Article 2(b) refers to as "the measure[s] or instrument[s] of commercial policy to which [rules of origin] are linked".

6.138Consideration of relevant context thus leads us to the conclusion that the term "themselves" is meant to highlight that, although there may be commercial policy measures which create restrictive, distorting, or disruptive effects on international trade, the rules of origin used to implement and support these commercial policy measures must not create restrictive, distorting, or disruptive effects on international trade additional to those which may be caused by the underlying commercial policy measures.²⁴⁹ Similarly, in cases where an underlying commercial policy measure does not cause any restrictive, distorting, or disruptive effects on international trade, the word "themselves" would serve to underscore that rules of origin must not create any new restrictive, distorting, or disruptive effects on international trade.

6.139 This interpretation is consistent also with the objective of Article 2(c), first sentence, which is to guarantee a certain trade-neutrality of rules of origin.

6.140 The next element of the text of the first sentence of Article 2(c) to be considered is the term "create". The ordinary meaning of the term "create" is to "cause, occasion, produce, give rise to".²⁵⁰ Thus, it is implicit in the term "create" that a Member's rules of origin only contravene the first sentence of Article 2(c) if there is a causal link between those rules and the prohibited effects specified in the first sentence.²⁵¹ In our view, the term "create" does not imply, however, that the creation of the prohibited effects necessarily needs to be deliberate.²⁵²

6.141 Turning to the prohibited effects - i.e., "restrictive, distorting, or disruptive effects" - the Panel notes that these effects constitute alternative bases for a claim under the first sentence of Article 2(c), as is confirmed by the use of the disjunctive "or". Accordingly, independent meaning and effect should be given to the concepts of "restriction", "distortion" and "disruption". In this regard, we note that the ordinary meaning of the term "restrict" is to "limit, bound, confine"; that of the term "distort" is to "alter to an unnatural shape by twisting"; and that of the term to "disrupt" is to "interrupt the normal continuity of".²⁵³ Thus, the first sentence of Article 2(c) prohibits rules of origin which create the effect of limiting the level of international trade ("restrictive" effects); of interfering with the natural pattern of international trade ("distorting" effects); or of interrupting the normal continuity of international trade ("disruptive" effects).

6.142 The first sentence of Article 2(c) states that the prohibited effects must be on "international trade". India points out in this regard that the first sentence does not refer to effects on "imports". We agree with India that the phrase "effects on international trade" encompasses, but is not limited to effects on imports of the good to which the Member concerned applies the relevant rule of origin (e.g., cotton bed linen). This gives rise to two issues. First, can the phrase "effects on international trade" also cover adverse effects on trade in goods in intermediate stages of production (e.g., cotton fabric), rather than just trade in the final, or finished, goods to which the relevant rule of origin is applied (e.g., cotton bed linen)?²⁵⁴ Second, can the phrase "effects on international trade" cover adverse effects on trade in different (but closely similar) types of finished goods? For instance, would there be a distorting effect on international trade if a rule of origin modified international trade flows by changing the type of goods traded in international trade (e.g., by increasing trade in silk scarves and decreasing trade in cotton scarves)?²⁵⁵ We will address these two issues in turn.

6.143 Beginning with the issue of effects on trade in goods in earlier stages of processing - i.e., "upstream" goods - it is not necessary, in this case, to resolve this issue. In our analysis of the measures at issue, we will assume, arguendo, that effects on relevant upstream goods can be viewed as "effects on international trade" within the meaning of the first sentence of Article 2(c).

6.144 With regard to the issue of effects on different types of finished goods, we think it is important, in considering this issue, to have regard, in particular, to the provisions of Article 2(d) of the RO Agreement. As we will explain below²⁵⁶, Article 2(d) does not require Members to apply the same rule of origin to "closely related" (but different) goods. Consequently, we cannot adopt an interpretation of Article 2(c), first sentence, which would effectively bar Members from doing what is permissible under Article 2(d).

6.145 Indeed, if we were to accept that the first sentence of Article 2(c) prohibits adverse effects on trade in a good which is different from the good subject to the relevant rule of origin, we would effectively require Members to apply a uniform rule of origin to a wide range of different goods. It could then be argued, for instance, that a rule of origin which is not uniformly applied to all competitive goods creates "distorting" effects on international trade. Potentially, therefore, the scope of Article 2(c), first sentence, would be very broad.

6.146 In view of these far-reaching potential consequences, and having regard also to the circumstance that, prior to the entry into force of the RO Agreement, rules of origin were not subject to significant GATT disciplines, we cannot assume that Members intended to bring adverse effects on different types of goods within the ambit of the prohibition set out in the first sentence of Article 2(c). Indeed, as the Appellate Body has said in a different context, "[t]o sustain such an assumption and to warrant such a far-reaching interpretation, treaty language far more specific [�] would be necessary".²⁵⁷ We consider that the same could be said of Article 2(c), first sentence.²⁵⁸

6.147 Therefore, we consider that it would not be appropriate to interpret the phrase "effects on international trade" as covering adverse effects on trade in different (but closely similar) types of finished goods. We construe the phrase "effects on international trade" to cover trade in the goods to which the relevant rule of origin is applied (e.g., cotton bed linen). Whether, in addition, this phrase covers trade in goods in intermediate stages of production (e.g., cotton fabric) is an issue which we have said we do not need to decide in this case.

6.148 Relying on the phrase "on international trade", India argues that it is sufficient for a complaining party to show that the challenged rule of origin creates restrictive or distorting effects on one Member's trade.²⁵⁹ Although it is possible to view trade between any two Members as "international trade", we are not convinced that demonstrating an adverse effect on one Member's trade would always and necessarily be sufficient. Indeed, while the use of a particular rule of origin may adversely affect the trade of one Member, it may favourably affect the trade of one or more other Members. For example, the mere fact that one Member would lose trade cannot, in our view, be regarded as conclusive, in and of itself, on the issue of whether the rule in question creates a "restrictive" effect on international trade.

6.149 Regarding the disagreement between the parties whether the phrase "create [ � ] effects" refers to the effects that the rules of origin are capable of creating or whether it refers to the effects they actually create in the market-place, we note that, for the purposes of our analysis, we need not resolve the parties' disagreement. In our examination of India's claims under the first sentence of Article 2(c), we will assume, arguendo, that India is correct in asserting that the first sentence does not require a showing of actual prohibited effects on international trade and that it is sufficient to demonstrate that the rules of origin in question "create conditions of competition with restrictive, distorting or disruptive effects on international trade"²⁶⁰, i.e., that "the incentives and disincentives faced by traders as a result of the rules of origin at issue are such as to create [ the prohibited ] effects".²⁶¹

6.150 With the foregoing considerations in mind, we now proceed to assess the consistency of the measures at issue with the first sentence of Article 2(c).

(b) Consistency of the measures at issue with Article 2(c), first sentence, of the RO Agreement

6.151 India claims that section 334 and section 405 - hereafter the "measures at issue" - are inconsistent with the first sentence of Article 2(c) because they create (i) "restrictive", (ii) "distorting", and (iii) "disruptive" effects on international trade. In support of this claim, India has advanced two sets of arguments. The first set of arguments is developed mainly in India's first written submission and primarily focuses on the effects resulting from the application of the measures at issue in the implementation of the United States' textile quotas and from the changes made to United States rules of origin in 1996 and 2000.²⁶² The second set of arguments is developed in subsequent submissions and focuses on the features of the relevant United States rules of origin as such.²⁶³ As the relationship between these two sets of arguments is not clear, the Panel will address them separately.²⁶⁴ The Panel will begin its examination with the first set of India's arguments.

(i) India's arguments as developed in India's first written submission

"Restrictive" effects on international trade

6.152 India asserts that the measures at issue reduced the level of exports from countries such as India which exported greige fabric to third countries to be further processed into made-up articles before onward export to the United States because the fabric-exporting countries' quotas were debited for such further processed articles. According to India, the measures at issue thus entailed new quantitative restrictions on Indian goods exported to third countries, which goods had previously never been subject to any restrictions.

6.153 India cites an example to illustrate the restrictive effects on international trade created by the measures at issue. Based on a fax message dated 20 July 2002 from the Cotton Textiles Export Promotion Council in Bombay to the Permanent Mission of India to the WTO²⁶⁵, India states that, prior to the adoption of section 334, greige fabrics were sent from India to Sri Lanka where they were dyed and printed, and subjected to two finishing operations and then stitched into bed linen products. India argues that these products were then exported to the United States as Sri Lankan goods. India contends that, responding to the change in the 1996 rules of origin, India started issuing visas for such consignments from 26 December 1996 to 24 December 1998. India notes that, ultimately however, in view of the non-availability of quota in the relevant category, the operations in Sri Lanka were wound up. India points out that this meant that the export of greige fabric from India to Sri Lanka, the related finishing operations in Sri Lanka, as well as the resulting exports from Sri Lanka to the United States were terminated.

6.154 The United States considers that the fax message from the Cotton Textiles Export Promotion Council does not demonstrate a causal connection between section 334 and either the rise or fall of Indian fabric exports to Sri Lanka. The United States also notes that India's charge that it has lost business in Sri Lanka as a result of section 334 stands in stark contrast to actual United States import statistics, which, according to the United States, do not demonstrate - for trade in the HTS classifications that India has identified as being affected by sections 334 and 405 - a particular pattern that would indicate trade restriction.²⁶⁶ The United States also points out that the fax message contains information which indicates that Indian fabric exporters actually benefited from section 334, as they were able to develop new business opportunities in China. The United States further asserts that United Nations data indicates that India's exports of cotton woven fabric to the world increased between 1995 and 1996 and declined slightly in 1997, but the value of exports was higher in 1997 than in 1995.

6.155 The Panel notes, as an initial matter, that India's claim with respect to the (alleged) "restrictive" effects of the fabric formation rule in section 334 concerns effects on upstream goods - greige fabric - exported by fabric-forming countries such as India which are under quota in the United States.²⁶⁷ The Panel has indicated above that it is prepared to assume, arguendo, that such effects can be viewed as "effects on international trade" within the meaning of the first sentence of Article 2(c).

6.156 It should also be noted that India's assertion is that the fabric formation rule creates a de facto restriction on international trade, not a de jure restriction.²⁶⁸ As has been observed by another panel, in circumstances where there is no de jure, or formal, restriction, "it is inevitable, as an evidentiary matter, that greater weight attaches to the actual trade impact of a measure", i.e., to factual evidence supporting the existence of such a restriction, even if the WTO provision prohibiting such a restriction protects competitive opportunities rather than trade flows.²⁶⁹

6.157 India has offered little factual evidence in support of its assertion that the fabric formation rule creates restrictive effects on trade in upstream goods, specifically, greige fabrics. India relies on a fax message from the Cotton Textiles Export Promotion Council in Bombay to the Permanent Mission of India to the WTO. In that message, the Cotton Textiles Export Promotion Council provides information, at the request of India's Permanent Mission, regarding what it considers to be the effects of section 334 on Indian textile trade.²⁷⁰

6.158 We are not persuaded from the fax message from the Cotton Textiles Export Promotion Council alone that the fabric formation rule in section 334 creates restrictive effects on India's exports of greige fabric. The fax message in question contains a number of assertions, which, however, are not supported by documentary evidence or trade data. The mere assertion, by an Indian exporters' association, that, as a result of the fabric formation rule provided for in section 334, "exports of grey fabrics from India to Sri Lanka [ � ] suffered a major setback"²⁷¹ is insufficient to establish that the level of exports of Indian greige fabric to Sri Lanka has decreased or that there exists a causal link between the fabric formation rule in section 334 and the alleged decrease in India's exports of greige fabric.

6.159 In any event, even if India had demonstrated that the fabric formation rule creates a restrictive effect on its exports of greige fabric, we have stated above that a showing of a restrictive effect on the trade of a single Member is not sufficient, in all cases, to establish restrictive effects "on international trade". In this case, we have no basis for finding that a showing of restrictive effects on India's exports of greige fabric would, by itself, be sufficient to establish an inconsistency with Article 2(c), first sentence. As we have previously pointed out²⁷², we were not provided with any evidence and/or data regarding:

� which countries are under quota in the United States with respect to relevant downstream goods (e.g, cotton bed linen);
� which countries are important suppliers of the relevant upstream goods (e.g., cotton fabric); and
� the price and quality of the upstream goods made by those countries and their production capacity.

6.160 Lacking information on the design of the United States' quota system, the market in the relevant downstream and upstream goods and the relationship between the two, we cannot simply assume that India is the only commercially viable sourcing option for Members importing the relevant greige fabric. There may be competitive suppliers other than India which are not under quota with respect to the relevant downstream goods.²⁷³ A possible decrease in Indian exports of greige fabric might then be accompanied by a corresponding increase in competitive exports by other Members, such that there would not be a restrictive effect on international trade in the relevant greige fabric.

6.161 On the basis of the foregoing considerations, we conclude that India has not established that the measures at issue create restrictive effects on international trade within the meaning of Article 2(c), first sentence.

"Distorting" effects on international trade

6.162 India submits that the measures at issue allow more favourable access to certain products over other products. An example is the different treatment being accorded to products based on their fibre composition, such as silk, cotton and wool. In India's view, the measures at issue also favour the products of export interest to the European Communities over products of export interest to developing countries. According to India, the measures at issue consequently create distorting effects on international trade within the meaning of Article 2(c). India also argues that the measures at issue create distorting effects because they shift origin from a third country where the fabric was dyed and printed and subjected to two further finishing operations to the country where the greige fabric was formed. Finally, India argues that, because of the new United States' rules of origin, importers have had to switch to new suppliers as traditional suppliers lost their access to the United States market, distorting historical trade patterns.

6.163 By way of example, India notes that the United States negotiated quota allocations for home textile products (e.g., sheets, pillowcases, comforter shells, quilts, comforters) with various countries or customs territories, such as Hong Kong or Macau, which lacked an indigenous fabric-making industry. India submits that when section 334 entered into force, these quota allocations became useless. India points out that Pac Fung, for example, a Hong Kong-based manufacturer of comforter shells, bed sheets and other home textile products, manufactured these products in Hong Kong and Macau using fabric that had been woven in China. India contends that the adoption of section 334 effectively meant that Pac Fung's Hong Kong and Macau plants were no longer able to export products to the United States as the fabric was made in China. According to India, trade was distorted because the Hong Kong-based manufacturer's goods were now considered products of China rather than of Hong Kong or Macau and they were subject to Chinese quota restrictions. India submits that, since the Chinese quotas for these goods had essentially been filled, the result was that the Hong Kong manufacturer's products were shut out of the United States market. India concludes that, in order to continue to export comforter shells to the United States, the Hong Kong manufacturer had to obtain the fabric from a source other than China, thus distorting patterns of trade.²⁷⁴

6.164 The United States argues that changes in rules of origin for quota goods will usually have quota implications that will be different for different Members, depending on their quota levels and the nature of their exports. The United States submits that Members are, however, allowed to change rules of origin during the transition period, and any interpretation of the RO Agreement that would prohibit such changes for any product, including products subject to quantitative restrictions authorized by the WTO Agreement, can therefore not be correct. The United States also argues that product differentiation is allowed under the RO Agreement and that India seems to confuse differentiation with discrimination.

6.165 The United States further submits that trade data do not bear out any claim of trade distortion for trade in the HTS classifications that India has identified as being affected by sections 334 and 405.²⁷⁵

6.166 In considering India's claim of distortion, the Panel turns, first, to India's argument that the measures at issue create distorting effects on international trade because they shifted origin from a country where the fabric of a made-up article was subjected to a DP2 operation to the country where the greige fabric was formed.²⁷⁶ In our view, the mere fact that a change in a Member's rules of origin results, for a given finished good exported to that Member (e.g., bed linen), in a different country of origin is not sufficient, in and of itself, to demonstrate a distorting effect on international trade. Indeed, if the first sentence of Article 2(c) prevented a Member from changing a rule of origin merely because that would involve a change of country of origin, then, contrary to Article 2(i) of the RO Agreement, rules of origin could never be changed.

6.167 What matters, for the purposes of Article 2(c), first sentence, is whether the new rule of origin creates distorting effects, not whether the change from the previous rule of origin to the new one creates such effects. Indeed, as noted by the United States, the previous rule may itself have created distorting effects, such that any country of origin determination resulting from that rule could be inappropriate.²⁷⁷

6.168 The second Indian argument which we consider is that the measures at issue result in certain finished goods enjoying better access to the United States market than other finished goods and that this creates distorting effects on international trade. Specifically, India argues that the measures at issue create distorting effects on trade in different types of finished goods (e.g., silk scarves versus cotton scarves).²⁷⁸ We have stated above that we do not consider that the prohibition set out in Article 2(c), first sentence, covers distorting effects on trade in different types of goods. At any rate, for India's argument to succeed, India would need to demonstrate that the goods in question are in competition with each other and that the measures at issue distort trade in those goods. But India has not demonstrated that those goods which it alleges enjoy more favourable access to the United States market (e.g., silk scarves) are in competition with those goods which it considers are given less favourable access (e.g., cotton scarves).

6.169 Nor has India established that the measures at issue create distorting effects on trade. India's argument is that the measures at issue distort trade because, pursuant to these measures, some goods are subject to the DP2 rule, while others are subject to the fabric formation rule and because this determines whether particular exports fall within quotas in the United States. We do not consider that the fact that the United States uses a fabric formation rule for some finished goods and a DP2 rule for others is of itself sufficient to demonstrate distorting effects on trade in these goods. For example, if a country which performs a DP2 operation on a particular good is under quota in the United States for that good, a DP2 rule would not necessarily result in more favourable access to the United States market than a fabric formation rule.

6.170 For these reasons, we are unable to accept India's argument that the measures at issue create distorting effects because they result in certain finished goods enjoying better access to the United States market than other finished goods.

6.171 A related argument put forward by India is that the measures at issue create distorting effects because they create artificial incentives to modify the type of inputs used (e.g., silk fabric versus cotton fabric).²⁷⁹ India has not elaborated on this argument or provided supporting factual information. In our view, this argument is no more than a variation of India's previous argument, except that it is concerned with inputs, or "upstream" goods, rather than with the finished goods.²⁸⁰ Notwithstanding this difference, our considerations relating to the previous argument apply, mutatis mutandis, to this argument as well.

6.172 The third Indian argument is that the measures at issue create distorting effects on international trade because they favour goods of export interest to the European Communities over goods of export interest to developing countries. To recall, such goods as silk scarves (a good of export interest to the European Communities) are subject to the DP2 rule, whereas such goods as cotton bed linen (a good of export interest to developing countries such as India) are subject to the fabric formation rule. Since India's argument concerns the trade implications of the application of different rules of origin to different goods, this argument, too, depends on the goods in question being in competition with each other and the measures at issue distorting trade. It is also premised on a reading of Article 2(c), first sentence, with which we do not agree, viz., that the prohibition set out in Article 2(c), first sentence, covers distorting effects on trade in different types of goods. Even disregarding this, India has not specifically established the existence of a competitive relationship between individual goods of export interest to the European Communities, on the one hand, and developing countries, on the other.²⁸¹ Nor has India established that applying a DP2 rule to goods of export interest to the European Communities would necessarily favour those goods vis-�-vis goods of export interest to developing countries which are subject to the fabric formation rule.

6.173 Finally, we turn to India's argument that, because of the new United States rules of origin, importers had to switch to new suppliers, as traditional suppliers lost their access to the United States market, which, according to India, distorted historical trade patterns.²⁸² This argument concerns effects on "upstream" trade, specifically the sourcing of inputs of a particular type (e.g., cotton fabric). We note that sourcing decisions by importers are not exclusively driven by rules of origin, such that a change in historical sourcing patterns is not necessarily attributable to a change in rules of origin. But even assuming that the measures at issue, rather than some other factor, led some importers to source particular inputs from new countries²⁸³, we do not think that these measures could, for that reason alone, be considered to create distorting effects on international trade. India has not demonstrated, for particular inputs, that the measures at issue result in importers sourcing these inputs from countries whose inputs are not comparable in relevant respects (price, quality, etc.) to the inputs they used to obtain from other countries under the previous rules of origin. In the absence of any demonstration of this kind, we are unable to accept India's argument that the measures at issue create distorting effects on trade because some importers had to source their inputs from new supplier countries.

6.174 In the light of the above, we conclude that India has not established that the measures at issue create distorting effects on international trade within the meaning of Article 2(c), first sentence.

"Disruptive" effects on international trade

6.175 India argues that the measures at issue create disruptive effects on international trade because of their sheer complexity and the arbitrary nature of the criteria used. India also argues that the measures at issue undermine informed compliance by foreign producers, thereby disrupting trade, as the same product undergoing the same production operations in Sri Lanka may be a product of Sri Lanka or India depending on the product's fibre content.

6.176 As an example of the disruptive effects of the measures at issue, India again cites the Sri Lankan case referred to above. According to India, the changes in the United States' rules of origin disrupted the trade from India to Sri Lanka. India argues that, from the perspective of the importer in Sri Lanka, the process of obtaining an allocation from India's quota imposed a burden to verify that the greige fabric was Indian. India considers that, from the perspective of the exporter in India, it also imposed difficulties. India notes that its exporters of fabric usually export to a wholesaler in bulk. India points out that, in the other country, such as Sri Lanka, the processors and manufacturers of made-up items usually purchase greige fabrics from these wholesalers, and then convert them to made-up items which could then be exported to other markets, such as the United States. Due to the complexities of this commercial chain, it was difficult, according to India, for its exporters to give information on how much of their fabrics exported to other countries were subsequently exported to the United States as made-up products.

6.177 The United States notes that India has not demonstrated that "complexity" is a prohibited criterion. The United States points out, in addition, that India has presented no evidence that the rules of origin in question have discouraged exporters from shipping their products to the United States because they simply could not understand them. The United States considers that its regime is perfectly comprehensible to businesses engaged in importing and exporting, as is demonstrated by the fact that India supplies nearly $3 billion in textiles and apparel products to the United States. The United States also recalls that importers have always had the right to ask for an interpretation of the rules with specific regard to their product.

6.178 The United States submits, furthermore, that trade data do not bear out any claim of trade disruption for trade in the HTS classifications that India has identified as being affected by sections 334 and 405.²⁸⁴

6.179 The Panel notes that India's claim of disruption is based on three separate grounds. First, India considers that the "sheer complexity" of the measures at issue creates disruptive effects on trade. However, rules of origin are, by their nature, complex. India has neither shown that the measures at issue are more complex than necessary, nor has it explained precisely how the alleged complexity of the measures at issue creates a disruptive effect on international trade. In a different context, India asserts that the complexity of the measures as issue is such that "traders have to regularly seek rulings from the United States Customs as to the determination of origin for a particular product".²⁸⁵ Given the inherent complexity of rules of origin, it is common that traders regularly seek interpretative rulings. The mere fact that they do so does not establish, in and of itself, that the measures at issue disrupt trade.²⁸⁶ In any event, as also pointed out by the United States, this Panel has seen no evidence that traders or producers stopped exporting to the United States due to the "sheer complexity" of the measures at issue. In the light of these considerations, we are unable to accept that the measures at issue create a disruptive effect on international trade because of their "sheer complexity".

6.180 Second, India asserts that the measures at issue create disruptive effects on international trade because of the "arbitrary nature" of the "criteria" used. However, the measures at issue use origin-conferring criteria which are specifically identified in Article 2(a)(iii) of the RO Agreement. To that extent, they plainly cannot be regarded as "arbitrary" criteria. India sees as "arbitrary" the fact that, pursuant to the measures at issue, the country of origin of goods can vary based on the type of good (e.g., finished cotton fabric versus cotton bed linen) or the fibre composition of the finished good (e.g., made-up articles with 15% cotton by weight versus made-up articles with 17% cotton by weight).²⁸⁷ It is true that the distinction made by the United States between certain cotton blends of flat goods is not found in the HS heading for flat goods. However, that distinction is not without rationale, since it is based on a distinction found in the HS chapter relating to classification of cotton yarn and fabrics. Nor can distinctions based on the type of good be regarded as arbitrary, unless the goods are essentially the same. In any event, even if the criteria used in the relevant United States' rules of origin were to be characterized as arbitrary, we have not been provided with evidence that exports of foreign producers have been disrupted as a result of the alleged arbitrariness of the "criteria" used in the relevant United States' rules of origin. The only argument offered by India is that the measures at issue "undermine informed compliance" by foreign producers because the same good undergoing the same production operations in, say, Sri Lanka may be a good of Sri Lanka or another Member depending on the good's fibre content. We do not find this argument persuasive. The measures at issue do not strike us as particularly complex or difficult for foreign producers to understand. Moreover, India's argument presumes that foreign producers are somehow uninformed as to the rules of origin their exports must comply with.²⁸⁸

6.181 Third, India asserts that the measures at issue create disruptive effects on international trade because they result in the imposition of certain administrative burdens. India notes that a foreign producer making bed linen from Indian cotton fabric for export to the United States would, in order to obtain an allocation from India's bed linen quota, need to verify that the greige fabric is Indian. We understand this to mean that the producer in question would need to establish to the satisfaction of India's authorities that the bed linen was made from Indian fabric. It is apparent that, in order for India to be able to verify the origin of goods exported under quotas, India needs to establish a relatively complex administrative system, the operation of which may entail some administrative burden for India's producers as well as foreign producers. However, it is not clear to us that the measures at issue are in any way linked to the verification requirement referred to by India.²⁸⁹ At any rate, India has provided no information regarding the steps producers must take in order to comply with the verification requirement in question. Nor has India explained precisely how that requirement results in the measures at issue creating a disruptive effect on trade. In these circumstances, we are unable to conclude that the measures at issue create disruptive effects on international trade.

6.182 Another administrative burden which India claims results from the application of the measures at issue and creates a disruptive effect on its trade is that it is "difficult" for Indian exporters to give information on how much of their fabrics exported to third countries are subsequently exported to the United States as made-up articles. Given the legitimate right of the United States to determine the origin of goods imported under quotas, the difficulty identified by India is unavoidable. However, it is not clear to us that the measures at issue are in any way linked to the information requirement referred to by India.²⁹⁰ At any rate, India has not explained precisely how the "difficulty" identified by India creates a disruptive effect on trade. Nor has India discussed the possibility of addressing this difficulty, for instance, through arrangements for administrative co-operation between India's authorities and the authorities of countries importing fabrics from India. In these circumstances, we are unable to accept India's claim that the measures at issue disrupt trade because they result in certain administrative difficulties for Indian exporters.

6.183 In the light of the foregoing, we conclude that India has not established that the measures at issue create disruptive effects on international trade within the meaning of Article 2(c), first sentence.

6.184 Before proceeding to examine what the Panel has referred to as the second set of India's arguments, it should be noted that the Panel takes no position on whether rules of origin which create restrictive, distorting or disruptive effects on international trade would necessarily constitute rules of origin which "themselves" create "restrictive, distorting, or disruptive effects on international trade", within the meaning of Article 2(c), first sentence.²⁹¹

(ii) India's arguments as developed subsequent to India's first written submission

6.185 India argues that the first sentence of Article 2(c) is not intended to prevent the adoption of all rules of origin changing trade patterns, but only the adoption of rules of origin with features comparable to those referred to in the second sentence of Article 2(c). Along the same lines, India argues that Article 2(c) is meant to ensure that the conferral of origin does not depend on the fulfilment by producers and traders of conditions creating restrictive, distorting or disruptive effects that are not necessary to determine the origin of products and that consequently go beyond those inevitably created by any rule of origin.

6.186 With respect to the measures at issue, India asserts that the fabric formation rule and the DP2 rule create restrictive, distorting or disruptive effects whether they are applied to the current United States' textile quota regime or any other trade policy instrument. More specifically, India asserts that the United States' rules of origin themselves create restrictive, distorting or disruptive effects on international trade because they impose requirements completely unrelated to the degree of manufacturing, processing or other economic activity that took place in the country deemed to be the originating country. India considers that the United States' rules of origin, by providing for distinctions based on the type of fabrics or fibre blends, rather than any criteria regarding the nature and extent of further processing in a third country, distort and disrupt trade flows between countries supplying different fibres. India also considers that trade is disrupted and restricted as it relates to those countries which supply fabric (such as cotton) for textiles that do not enjoy the exemptions specified in section 405. India submits that the differentiation between goods made of different fabrics or fibre blends is not necessary to determine in which country a sufficient amount of manufacturing, processing or other economic activity took place to justify the conferral of origin.

6.187 The United States argues that the United States' rules of origin at issue in this dispute reflect common international practice, are based on criteria related to production, and reflect where the most recent substantial transformation took place. The United States considers that these rules of origin themselves cannot, therefore, be found to create restrictive, distorting or disruptive effects on international trade.

6.188 The Panel notes that India's arguments are based on a reading of Article 2(c), first sentence, according to which rules of origin must not create restrictive, distorting or disruptive effects which are not necessary to determine the origin of goods. In considering India's arguments, the Panel will assume, arguendo, that this reading of Article 2(c), first sentence, is correct.

6.189 India's arguments rest on the assertion that the distinctions made in the measures at issue between goods made of different fabrics or fibre blends are not necessary to determine in which country a sufficient amount of processing or other economic activity took place to justify the conferral of origin. This is essentially a variation on India's earlier assertion, advanced in support of its claim under Article 2(b), that the fabric formation rule in section 334 neither reflects the importance of subsequent processing operations to the making of the goods to which it applies nor takes account of subsequent value-added operations. However, as we have stated in our analysis of India's claims under Article 2(b), we are not persuaded that, for the goods concerned, the United States cannot determine that fabric formation is the most significant processing operation and that a subsequent processing operation is insufficient to justify the conferral of origin, or that the United States must confer origin on the country where the most significant economic contribution to the final good has been made.²⁹² In the light of this, and having regard to the fact that India has presented no new arguments here, we find that India has failed to establish that the distinctions made in the measures at issue are not necessary to determine the origin of the relevant goods.

6.190 Since India has failed to establish the basic premise of its arguments, we need not continue our analysis. In particular, we need not decide whether India's reading of Article 2(c), first sentence, is correct. Accordingly, we conclude that, even under India's own reading, India's arguments do not establish that the measures at issue are inconsistent with Article 2(c), first sentence.

6.191 We have concluded that neither what we have referred to as the first set of Indian arguments nor what we have referred to as the second set of Indian arguments establishes that the measures at issue are inconsistent with Article 2(c), first sentence. Even considering all of India's arguments together, however, they do not support the conclusion that the measures at issue are inconsistent with Article 2(c), first sentence.

3. India's claims under Article 2(c), second sentence, of the RO Agreement

6.192 The Panel now turns to examine India's claims that section 334 and section 405 are inconsistent with the second sentence of Article 2(c) of the RO Agreement. The Panel will begin this examination by considering the provisions of the second sentence of Article 2(c).

(a) Article 2(c), second sentence, of the RO Agreement

6.193 Article 2(c) provides as follows:

"Until the work programme for the harmonization of rules of origin set out in Part IV is completed, Members shall ensure that:
[�]
(c) rules of origin shall not themselves create restrictive, distorting, or disruptive effects on international trade. They shall not pose unduly strict requirements or require the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin. However, costs not directly related to manufacturing or processing may be included for the purposes of the application of an ad valorem percentage criterion consistent with subparagraph (a)[.]"

6.194 India notes that the second sentence of Article 2(c) has two clauses. With respect to the second clause of the second sentence - "[rules of origin shall not] require the fulfilment of a certain condition not related to manufacturing or processing" - India argues that, like Article 2(a) of the RO Agreement, it reflects the significance that manufacturing or processing of a product has upon the determination of origin for that product.

6.195 With respect to the first clause of the second sentence - "[rules of origin] shall not pose unduly strict requirements" - India argues that that clause supports the view that Article 2(c) is meant to ensure that the conferral of origin does not depend on the fulfilment by producers and traders of conditions creating restrictive, distorting or disruptive effects that are not necessary to determine the origin of products and that consequently go beyond those inevitably created by any rule of origin. In India's view, this conclusion is also supported by the fourth clause of the preamble of the RO Agreement according to which this Agreement is "to ensure that rules of origin themselves do not create unnecessary obstacles to trade".

6.196 According to India, it is clear from the wording of Article 2(a) and Article 2(c) that the conferral of origin upon a product must be based on the determination of the country with which that product has a significant economic link. In India's view, it follows that the first clause of the second sentence of Article 2(c) is violated if a Member confers origin on the basis of requirements that are burdensome and are not necessary to determine the economic link between the product and the country on which origin is conferred.

6.197 The United States considers that the second clause of the second sentence of Article 2(c) qualifies the first clause. In other words, in the view of the United States, Article 2(c) does not bar "unduly strict requirements"; it bars "unduly strict requirements [�] as a prerequisite for the determination of the country of origin". Similarly, Article 2(c) does not bar "requiring the fulfilment of a certain condition not related to manufacturing or process" except "as a prerequisite for the determination of country of origin".

6.198 With respect to the second clause of the second sentence, the United States argues that an example of the fulfilment of a certain condition not related to manufacturing or processing as a prerequisite for the determination of the country of origin would be a rule of origin that requires a particular nationality of company ownership, or requires the use of personnel of a certain religious order to achieve a certain determination of origin, or requires that a good be certified by several authorities through a time-consuming process in the exporting country in order to be declared as originating in that country.

6.199 With respect to the first clause of the second sentence, the United States argues that the application of a non-preferential rule of origin that involves a 60% ad valorem criterion would likely be viewed as "strict", but not "unduly strict". By contrast, a non-preferential rule of origin that, for example, involves an even higher ad valorem criterion, combined with mandating a particular technology for manufacture may be viewed as "unduly strict".

6.200 The United States further argues that the second sentence of Article 2(c) does not stand alone, but operates to articulate the type of rules of origin that "themselves" could meet the requirement of the first sentence of Article 2(c). In other words, the United States considers that the second sentence of Article 2(c) demonstrates one manner in which rules of origin can "create restrictive, distorting, or disruptive effects on international trade". Therefore, in the view of the United States, it would be necessary to show that the existence of the elements of the second sentence of Article 2(c) created actual effects on international trade.

6.201 Thus, in determining whether a requirement is "unduly strict", for example, it is necessary, in the view of the United States, to examine the actual effects on international trade. If such a requirement had a significant impact on international trade, it would, according to the United States, support a Member's claim that the requirement is "unduly strict". If there were no trade impact, it would support a Member's position that such a requirement is not "unduly strict". On the other hand, there are some such requirements that on their face would, in the view of the United States, be correctly characterized as "unduly strict", even in the absence of a trade effect. However, even if a measure could be characterized as "unduly strict" in the absence of a trade effect, it would, in the view of the United States, only be inconsistent with Article 2(c) if the complaining Member established that the measure created actual effects on international trade in violation of the first sentence of Article 2(c). The United States submits that, similarly, a rule of origin implementing a particular measure that requires the fulfilment of a manufacturing process (e.g., "assembly" as a criterion) may have an effect on international trade, but would not necessarily be seen as a rule of origin that itself creates "restrictive, distorting, or disruptive effects on international trade". By contrast, a rule of origin that requires the fulfilment of a condition not related to manufacturing or processing (e.g., nationality of company ownership) could, according to the United States, be viewed as a rule of origin that itself creates "restrictive, distorting, or disruptive effects on international trade", if the latter situation has also been established.

6.202 The Panel commences its analysis with the first clause of Article 2(c), second sentence, according to which rules of origin must not "pose unduly strict requirements".

6.203 The United States argues that in order for requirements to be "unduly strict" within the meaning of Article 2(c), second sentence, it would be necessary to demonstrate that the challenged rules of origin create actual effects on international trade "in violation of the first sentence of Article 2(c)".²⁹³ However, in view of the position the Panel takes on India's claim in respect of the second sentence of Article 2(c), the Panel sees no need to examine whether Article 2(c), second sentence, includes the requirement referred to by the United States.

6.204 First, we need to examine what kind of "requirements" are covered by the obligation that Members must ensure that their rules of origin not "pose unduly strict requirements". In this regard, we note the view of the United States that the clause "as a prerequisite for the determination of the country of origin" qualifies also the phrase "[rules of origin] shall not pose unduly strict requirements". While the English version of Article 2(c) may be susceptible of such an interpretation, the equally authentic French version is not.²⁹⁴ Nevertheless, the clause "as a prerequisite for the determination of the country of origin" is part of the immediate context of the term "requirements". Considered as relevant context, the clause at issue lends force to the argument that the "requirements" which must not be unduly strict include the kind of requirements which must be fulfilled as a prerequisite for the determination of the country of origin. Article 2(a) of the RO Agreement provides further contextual support for such an interpretation. The first sentence of that provision states that the "requirements to be fulfilled" must be clearly defined. It is clear to us that these requirements include the substantive requirements which must be met for a good to be determined to originate in a particular country. For these reasons, we read the term "requirements" in the second sentence of Article 2(c) as encompassing the substantive origin requirements²⁹⁵ that must be met for a good to obtain origin status.²⁹⁶

6.205 Another issue presented by the phrase "unduly strict requirements" is the interpretation to be given to the adjective "strict". The most pertinent dictionary definitions of the term "strict" are "exacting"²⁹⁷ and "rigorous"²⁹⁸. Thus, a "strict" requirement is an exacting or rigorous requirement. In the specific context of Article 2 of the RO Agreement, and also bearing in mind our interpretation of the term "requirements", "strict" requirements are, therefore, those requirements which make the conferral of origin conditional on conformity with an exacting or rigorous (technical) standard.²⁹⁹

6.206 The second sentence of Article 2(c) only precludes Members from imposing requirements which are "unduly" strict. The dictionary meaning of the adverb "unduly" is "more than is warranted or natural; excessively, disproportionately".³⁰⁰ Accordingly, an origin requirement can be considered to be "unduly" strict if it is excessively strict.

6.207 India invites the Panel to adopt a particular standard in determining whether origin requirements are unduly strict. Specifically, India argues that origin requirements are unduly strict if they are burdensome and need not be imposed to determine the country with which the good in question has a significant economic link. Even if we were to agree that Article 2(a) (specifically, the three origin-criteria specifically listed in indents (i) through (iii)) and the second clause of the second sentence of Article 2(c) (specifically, the obligation not to require the fulfilment of a condition unrelated to manufacturing or processing) could broadly support the notion that origin determinations should be conditional on the existence of some economic link between the good in question and the country the origin of which it is accorded, we do not discern in Article 2(a) or Article 2(c) a requirement that there necessarily be a significant economic link. At any rate, it is not clear on what basis and how Members would distinguish between economic links that are "significant" and those that are not.

6.208 Regarding the second clause of Article 2(c), second sentence, we note that the parties have not identified specific interpretative issues. We consider that the ordinary meaning of the second clause is clear. It requires Members to ensure that the conditions their rules of origin impose as a prerequisite for the conferral of origin not include a condition which is unrelated to manufacturing or processing.³⁰¹ We note the example offered by the United States that a rule of origin would not conform to this requirement if it stated that a good can only be ascribed the origin of a country if the good has been certified by several authorities through a time-consuming process in the exporting country.

6.209 With the foregoing considerations in mind, we now proceed to assess the consistency of the measures at issue with the second sentence of Article 2(c).

(b) Consistency of the measures at issue with Article 2(c), second sentence, of the RO Agreement

6.210 India claims that section 334 and section 405 - hereafter the "measures at issue" - are inconsistent with the second clause of Article 2(c), second sentence ("fulfilment of a condition not related to manufacturing or processing"). In the alternative, India claims that the measures at issue are inconsistent with the first clause of Article 2(c), second sentence ("unduly strict requirements").³⁰² Accordingly, the Panel will first examine India's claim under the second clause of Article 2(c), second sentence.

(i) "Fulfilment of a condition not related to manufacturing or processing"

6.211 India asserts that the United States' rules of origin require the fulfilment of conditions not related to manufacturing or processing in three situations. First, when there is a distinction made between fabric of silk, cotton, man-made fibre, or vegetable fibre and fabric made of other fibres, such as wool in determining when the fabric forward rule will be applied.³⁰³ Second, when there is a distinction made between products classified under seven HTS 4-digit headings listed in section 405(a)(3)(C) and the products classified under the remaining 16 HTS headings in section 334(b)(2) in determining when origin will be conferred by a DP2 operation.³⁰⁴ Third, when within those seven HTS 4-digit headings, there is a distinction made between products made of cotton, wool, or a fibre blend with more than 16% cotton and products made of other fibres in determining when the fabric forward rule will be applied.

6.212 With respect to the first situation, India considers that there is no difference in the processing of the weaving of wool yarns into fabric from the weaving of cotton, silk or man-made fibre yarns into fabric. With respect to the second situation, India considers that there is no distinction in the processing of the products under the seven headings as compared to the remaining 16 headings. According to India, the processing of a shawl under HTS 6214 is not different from the processing of a blanket under HTS 6301. With respect to the third situation, India considers that there is no difference between the processing of a bed valance made of 83% polyester / 17% cotton blend as compared to a bed valance made of 86% polyester / 14% cotton blend. India argues that under the United States' rules of origin different determinations of origin will be made in each of these situations. India submits that these distinctions constitute conditions which are not at all related to manufacturing or processing, and therefore are clearly inconsistent with the obligation in the second clause of the second sentence of Article 2(c).

6.213 India points out that a United State' attorney, an expert in the textiles and apparel sector, has noted the absurdity of these distinctions and concluded that the United States' rules of origin containing the distinctions between fabrics, products and fibre blends were "far more motivated by a desire to protect United States wool and cotton producers than by any desire to create genuinely logical changes to rules of origin". India agrees with this interpretation, and considers that the United States' rules of origin require the fulfilment of conditions not related to manufacturing or processing as a prerequisite to the determination of country of origin, which is inconsistent with the second clause of the second sentence of Article 2(c).

6.214 The United States notes that it does not see the value of the bifurcation of India's claim in respect of the first two sentences of Article 2(c), other than to highlight the opinions of a United States attorney who often represents importers. In the view of the United States, India has not made a prima facie case that the United States' rules of origin are unrelated to the manufacturing or processing or assembly of textile and apparel products. The United States notes that it appears to be India's opinion that the United States cannot, under the RO Agreement, make a distinction between the rules of origin for silk fabrics and the rules of origin for wool fabrics.

6.215 The Panel recalls India's argument that, for the purpose of determining the applicable rule of origin, the measures at issue make distinctions between:

� fabrics of silk, cotton, man-made fibre, or vegetable fibre, on the one hand, and fabric made of other fibres, such as wool, on the other hand;
� goods classified under seven HTS 4-digit headings listed in section 405(a)(3)(C) and goods classified under the remaining 16 HTS headings in section 334(b)(2); and, within those seven HTS 4-digit headings,
� between goods made of cotton, wool, or a fibre blend with more than 16% cotton and goods made of other fibres.

6.216 In India's view, these three "distinctions" constitute "conditions" within the meaning of Article 2(c), second sentence, which are not related to manufacturing or processing.³⁰⁵ We are not persuaded by this view.

6.217 The three distinctions identified by India are nothing more than what India itself calls them, viz., product distinctions. The distinctions are maintained by the United States in order to define the product coverage of particular rules of origin, such as the fabric formation rule and the DP2 rule. Indeed, it seems to us that, unless a country applies a uniform rule of origin to all goods, product distinctions are unavoidable.

6.218 In any event, as a matter of logic, we fail to see how a "distinction" could be viewed as a "condition". Presumably, what India means is that, pursuant to the measures at issue, goods must meet a certain definition in order to be entitled to particular rules of origin. At most, we could accept that, in a very broad sense, the product definitions impose certain "conditions". These would be conditions which must be fulfilled for a good to be subject to a particular rule of origin. However, the second clause of Article 2(c), second sentence, speaks of "the fulfilment of a certain condition [�] as a prerequisite for the determination of the country of origin". It does not speak of "the fulfilment of a certain condition [�] as a prerequisite for the application of particular rules of origin". We consider, therefore, that the conditions at issue in the second clause of Article 2(c), second sentence, are those that relate to the determination of the country of origin, and not the determination of the (applicable) rule of origin.³⁰⁶ Consistent with this, we think that the conditions at issue in the second clause of Article 2(c), second sentence, are those that must be fulfilled for a qualifying good to be accorded the origin of a particular country. The third sentence of Article 2(c) reinforces our view. It plainly addresses conditions used in connection with the application of a criterion for origin determination - the ad valorem percentage criterion. It does not address the issue of how the goods which are covered by such a criterion are defined.

6.219 In the light of the foregoing considerations, we are not convinced that the three "distinctions" identified by India can be regarded as "condition[s] not related to manufacturing or processing" within the meaning of the second clause of Article 2(c), second sentence.

6.220 India has not argued that there are other conditions in section 334 or section 405 which are unrelated to manufacturing or processing. We note, furthermore, that, in response to questions regarding the criteria for the determination of origin applied in section 334 and section 405, the United States has stated that the relevant provisions of section 334 and section 405 are based on Article 2(a)(iii) of the RO Agreement.³⁰⁷ Article 2(a)(iii) relates to the criterion of "manufacturing or processing operation[s]". We have no difficulty accepting that fabric formation and DP2 operations are "manufacturing or processing operation[s]".

6.221 In the light of the above, we conclude that India has not established that the measures at issue are inconsistent with Article 2(c), second sentence, on the grounds that they "require the fulfilment of a certain condition not related manufacturing or processing, as a prerequisite for the determination of the country of origin".

(ii) "Unduly strict requirements"

6.222 In view of the Panel's conclusion with respect to India's claim under the second clause of Article 2(c), second sentence, it is necessary to examine India's claim under the first clause of Article 2(c), second sentence.

6.223 India asserts that the United States' measures at issue impose strict requirements that do not assist the United States in determining the country with which the product has the most significant economic link. For example, according to India, the requirement that bed linen made from 86% polyester and 14% cotton will be conferred origin where it is subjected to a DP2 operation, whereas bed linen made from 84% polyester and 16% cotton will be conferred origin where the greige fabric is woven is "unduly strict". India submits that this requirement bears no relation to determining the country with which the bed linen has an economic link. In India's view, it constrains the manufacturer's use of certain fibres as input for finished products.

6.224 India also argues that none of the criteria for the determination of origin listed in Article 2(a) of the RO Agreement would require the imposition of requirements as strict as those applied by the United States.

6.225 The United States rejects India's view that there has to be an "economic link" between the country on which origin is conferred and the country where the product underwent the most significant processing.

6.226 The United States further argues that India does not even make an attempt to support its allegations that the relevant rules of origin impose "unduly strict requirements", other than for the Panel to assume that the rules set out in section 334 are burdensome. In the view of the United States, India's description of the relevant United States' rules of origin disproves this claim. The United States submits that its rules are laid out in a clear, concise manner that could not be burdensome to the ordinary, reasonable importer/exporter.

6.227 The Panel recalls its view that, for the purposes of this dispute, the relevant "requirements" in the sense of the first clause of Article 2(c), second sentence, are the substantive requirements for qualifying as the country of origin.³⁰⁸ In this case, they are that the goods concerned must have undergone a specified manufacturing or processing operation - fabric formation or a DP2 operation - in the country for which origin is claimed.

6.228 India provides only one example, relating to bed linen, in support of its argument that the United States measures at issue impose unduly strict requirements.³⁰⁹ However, we have difficulty understanding how this example demonstrates that the measures at issue are "unduly strict". India's example could be understood in one of two ways. First, India could be understood as arguing that it is "unduly strict" to "require" that bed linen be made from 86% polyester and only 14% cotton to be conferred the origin of the country where that bed linen has undergone a DP2 operation. However, such an argument would not demonstrate that it is "unduly strict", with respect to the good to which the relevant rule of origin applies, to require a DP2 operation as a condition for the conferral of origin on a country. If anything, it would demonstrate that the relevant rule of origin has a narrowly defined product scope, in the sense that it excludes from its scope bed linen made from 84% polyester and 16% cotton. This does not, however, imply a requirement to produce bed linen made from 86% polyester and only 14% cotton. There may be an incentive to do so, but plainly there is no requirement to do so.³¹⁰ India also argues that the "requirement" that bed linen must be made from 86% polyester and only 14% cotton for the DP2 rule to apply "bears no relation to determining the country with which the bed linen has an economic link".³¹¹ This assertion presupposes that the "requirement" in question is intended for that purpose. As already noted, we are not convinced it is. In our view, the purpose of the "requirement" in question is to define what goods are eligible for the DP2 rule, not to establish the existence of an economic link.

6.229 Second, India could be understood as arguing that for bed linen which has been subjected to a DP2 operation and which is made of 84% polyester and 16% cotton, it would be "unduly strict" to require that, for a country to qualify as the country of origin, it needs to have woven the fabric. Even were we to assume that, for the goods concerned, the fabric formation rule could be viewed as imposing a "strict" requirement, India would still need to demonstrate that the fabric formation rule is "unduly" strict.

6.230 In this respect, India appears to argue that, for the goods concerned - i.e., for bed linen which has been subjected to a DP2 operation and which is made of 84% polyester and 16% cotton - the fabric formation requirement is "unduly" strict, inter alia, because it bears no relation to determining the country with which those goods have the most significant link, or at least a significant economic link.³¹² We have previously indicated that we see no basis in Article 2 of the RO Agreement for a requirement that there be a significant economic link between a good and the country the origin of which it is accorded.³¹³ Even if India's view were correct, however, India has not demonstrated that there is no significant economic link between bed linen which has been subjected to a DP2 operation and which is made of 84% polyester and 16% cotton and the country in which the fabric of such bed linen was formed.

6.231 In the light of the above, we are not persuaded that India's example demonstrates the "undue strictness" of the requirements set out in the relevant United States' rules of origin. Since India does not rely on any other example, we conclude that India has not established that the measures at issue are inconsistent with Article 2(c), second sentence, on the grounds that they pose "unduly strict requirements".

4. India's claim under Article 2(d) of the RO Agreement

6.232 The last of India's claims concerning the statutory provisions at issue is India's claim under Article 2(d) of the RO Agreement. That claim is limited to section 405. As with India's other claims, the Panel begins its analysis of the consistency of section 405 with Article 2(d) by considering the provisions of Article 2(d).

(a) Article 2(d) of the RO Agreement

6.233 Article 2(d) provides as follows:

"Until the work programme for the harmonization of rules of origin set out in Part IV is completed, Members shall ensure that:
[�]
(d) the rules of origin that they apply to imports and exports are not more stringent than the rules of origin they apply to determine whether or not a good is domestic and shall not discriminate between other Members, irrespective of the affiliation of the manufacturers of the good concerned²[.]"
________________________
² With respect to rules of origin applied for the purposes of government procurement, this provision shall not create obligations additional to those already assumed by Members under GATT 1994.

6.234 India's claim under Article 2(d) is based on the second clause of Article 2(d), which provides that "[rules of origin] shall not discriminate between other Members, irrespective of the affiliation of the manufacturers of the good concerned".

6.235 India considers that Article 2(d) covers not only cases of de jure discrimination - that is rules of origin that explicitly distinguish between different WTO Members - but also cases of de facto discrimination. India recalls that the concept of de facto discrimination was described by the Panel in Canada-Patent Protection of Pharmaceutical Products in the following terms:

"de facto discrimination is a general term describing the legal conclusion that an ostensibly neutral measure transgresses a non-discrimination norm because its actual effect is to impose differentially disadvantageous consequences on certain parties, and because those differential effects are found to be wrong or unjustifiable."³¹⁴

6.236 India argues that the Panel in this case should, therefore, examine whether section 405 imposes differentially disadvantageous consequences and if these different effects are justifiable. In support of this view, India notes that the Appellate Body, in the context of the non-discrimination provisions of the GATT³¹⁵ and the GATS³¹⁶, interpreted those provisions as prohibiting both de jure and de facto discrimination. In the view of India, there is no reason why this approach to the principle of non-discrimination should not also apply to the prohibition of discrimination in the RO Agreement. India believes that the danger of circumventing the purpose of Article 2(d) through product distinctions is just as great as the danger of circumventing the most-favoured-nation provisions of the GATT and the GATS through product- or service-specific distinctions. India is of the view that the case before the Panel is a clear demonstration that arbitrary distinctions between closely related products can be used to achieve the objective of favouring one WTO Member over others.

6.237 India further argues that Article 2(d), unlike Articles I and III of the GATT 1994, does not refer to measures distinguishing between products of other Members but to discrimination between other Members. According to India, the wording of Article 2(d) reflects the fact that the very purpose of the measures regulated by this provision is to determine whether a product is a product originating in another Member. India believes that Article 2(d) can, therefore, be violated by denying a product the status of originating in a Member.

6.238 India notes that, unlike Article III of the GATT 1994, Article 2(d) does not refer to discrimination between "like" products originating in different countries or to discrimination between imported and domestic products that are "directly competitive or substitutable". In India's view, this suggests that Article 2(d) can be violated even if the products distinguished in the rules of origin are neither like nor directly competitive or substitutable. India recalls that the Appellate Body decided that the question of whether two products are "like" or "directly competitive or substitutable" within the meaning of Articles III:2 and III:4 of the GATT 1994, must be answered by examining them from the perspective of the consumer in the market of the importing country. However, in India's view, two products that are "like" or "directly competitive or substitutable" from the perspective of the consumer should be accorded a different origin if they were produced in different countries. The criteria for determining whether two products are "like" or "directly competitive or substitutable" within the meaning of Article III of the GATT 1994 can therefore not be transposed to Article 2(d).

6.239 India submits that it would be equally inappropriate to transpose to Article 2(d) the concept of "like" products used in Article I of the GATT 1994. India notes that tariffs are a negotiable (and hence legitimate) instrument of protection, while rules of origin are not. India argues that, under the GATT 1994, Members are therefore permitted to make very fine product distinctions in their tariff classifications designed to protect specific domestic industries. However, under the RO Agreement, Members are not to use rules of origin to pursue trade objectives. According to India, it would, for this reason, not be logical to determine the scope of the prohibition of discrimination under the RO Agreement by using concepts that determine the scope of discrimination under Article I of the GATT 1994.

6.240 India considers that rules of origin violate Article 2(d) if they result in unjustifiably differential treatment of "closely related (Indian and European Communities) products". In India's view, textile products which are comprised of different types of fabrics or different types of fibre blends are "closely related" products. India argues that a Member cannot apply different rules of origin to textile products just because they are comprised of different types of fabrics or different types of fibre blends. India recalls that, in the case of the United States measures at issue, when a scarf is made of silk, it is conferred the origin of the country where it is subjected to a DP2 operation. On the other hand, when a scarf is made of cotton, it is conferred the origin of the country where the greige fabric is formed. India submits that, from the perspective of production techniques, these scarves are virtually identical, and that it is completely arbitrary to distinguish them for the purpose of determining their origin.

6.241The United States notes that the second clause of Article 2(d) is directed at precluding the type of discrimination, in the form of non-preferential rules of origin, that would include a criterion based on the national affiliation of a company or nationality of is employees.

6.242 The United States considers that India's interpretation of Article 2(d) is based on the flawed understanding that the RO Agreement would preclude product-specific rules of origin and that the RO Agreement precludes different rules of origin from applying to different products. However, in the view of the United States, Article 2 of the RO Agreement does not require that the same rules be used for similar products. The United States submits that, contrary to India's desire, nothing in Article 2 or any other provision of the RO Agreement mandates that Members use a particular rule for a particular manufacturing process, or for particular products. The RO Agreement clearly allows for differentiation of rules between products, as can be seen in the harmonization work programme, where Members are addressing thousands of subheadings in the tariff schedule.

6.243 The United States then turns to the question of what disciplines the RO Agreement imposes on a Member in distinguishing products. The United States submits that the RO Agreement does not require the same rule of origin for all "like" or "directly competitive" products. In the view of the United States, such a requirement is not found in the RO Agreement and cannot be inferred from any provision of Article 2, nor has India made a case that it should be so inferred. Moreover, according to the United States, the RO Agreement does not require the same rules for all products that are similar in some other sense. Again, the United States considers that such a requirement is not spelled out in the RO Agreement and cannot be inferred from any provision of the RO Agreement. The United States argues that it would, therefore, be incorrect to interpret the RO Agreement as barring Members from distinguishing in their rules between products - regardless of whether these products are "like", "directly competitive" or similar in some other manner, and even if such product-specific rules are perceived to be based on distinctions deemed in some sense "narrow".

6.244 The Panel begins its analysis by recalling India's claim that section 405 violates the second clause of Article 2(d) because it results in unjustifiably differential treatment of "closely related (Indian and European Communities) products".³¹⁷ This claim is based on three cumulative assumptions. First, it assumes that the second clause of Article 2(d) imposes an obligation on Members to apply the same rule of origin, or at least equally advantageous rules, to "closely related" products (e.g., silk scarves and cotton scarves) imported from different Members.³¹⁸ Second, it assumes that the second clause of Article 2(d) should be interpreted to prohibit not only de jure discrimination between Members, but also de facto discrimination. Third, it assumes that an assessment of whether rules of origin discriminate, de facto, between Members calls for an examination of whether those rules impose differentially disadvantageous consequences on certain Members and of whether these different consequences are justifiable.

6.245 In respect of the first of India's three assumptions, we recall that the second clause of Article 2(d) states that rules of origin "shall not discriminate between other Members, irrespective of the affiliation of the manufacturers of the good concerned". It does not state that rules of origin "shall not discriminate between closely related goods of other Members [�]". Thus, the plain terms of the second clause do not support India's reading.

6.246 Moreover, the expression "the good concerned" in the singular indicates that the second clause of Article 2(d) is not concerned with discrimination across different (but closely related) goods. Were it otherwise, the second clause would arguably have referred to "the goods concerned" in the plural. In our view, the use of the singular suggests that, for the purposes of assessing whether there is discrimination "between Members", a comparison should be made between the rule of origin applicable to a particular good when imported from one or more Members and the rule(s) of origin applicable to the same good - "the good concerned" - when imported from one or more other Members.

6.247 If the second clause of Article 2(c) were intended to preclude discrimination across different (but closely related) goods, we consider it likely that the drafters would have provided some textual guidance as to the product scope of the prohibition set forth in the second clause. Indeed, we note that other WTO non-discrimination provisions, such as Articles I, III and IX of the GATT 1994, do specify the product scope of the prohibitions they contain.³¹⁹

6.248 Finally, our reading of the second clause of Article 2(d) is consistent with the objective of that clause. In our view, the principal objective of the second clause of Article 2(d) is to ensure that, for a given good, the strictness of the requirements that must be satisfied for that good to be accorded the origin of a particular Member is the same, regardless of the provenance of the good in question (i.e., Member from which the good is imported, affiliation of the manufacturers of the good, etc.).³²⁰

6.249 In view of the above considerations, we are unable to accept India's assumption that the second clause of Article 2(d) imposes an obligation on Members to apply the same rule of origin, or at least equally advantageous rules, to "closely related" products imported from different Members.³²¹

6.250 Since we have rejected the first of three cumulative assumptions underlying India's claim under Article 2(d), and since it is not necessary to our disposition of that claim, we do not decide whether the second and third of India's assumptions are correct. Accordingly, in examining India's claim that section 405 is inconsistent with the second clause of Article 2(d), we will accept these assumptions on an arguendo basis.

(b) Consistency of section 405 with Article 2(d) of the RO Agreement

6.251 India recalls that section 405 provides exemptions to the general rules for determining origin for certain fabrics, certain goods and certain fibre blends. India acknowledges that these exemptions are, de jure, applied on an origin-neutral basis. However, in India's view, these exemptions de facto favour goods from the European Communities since the fabrics, products or fibre blends that benefit from the exemptions are mainly the type of textile and apparel products which undergo "value-added" or substantial transformation operations in the European Communities. Therefore, India argues, these products can enter the United States without being subject to any quota restraints. India notes that, in contrast, when these products are made of certain fibres such as cotton, those products will be conferred origin where the greige fabric is woven. India asserts that it is mainly developing countries under quota restraints that export cotton fabric. According to India, this demonstrates that the effect of section 405 is to impose differentially disadvantageous consequences for developing countries such as India which export cotton fabric and products thereof.

6.252 India argues, furthermore, that the differential effects created by section 405 are unjustifiable. India considers it indisputable that the United States enacted section 405 for the sole purpose of providing favourable market access for particular textile products that were of special concern to the European Communities. In India's view, the effects of section 405 are, therefore, unjustifiable.

6.253 According to India, the effects created by section 405 are also unjustifiable because, in its view, the exemptions in section 405 (which makes distinctions between certain products) bear no relation to the manufacturing or processing of those products. Specifically, India argues that the amendments in section 405 created arbitrary and inconsistent reversions to the pre-section 334 rules of origin for a group of selected textile products, without any particular regard for the degree of further processing, assembly or other operations and how the extent of those further operations would change the nature of the products. India submits that the exceptions created by section 405 were defined solely by the types of end products imported into the United States from the European Communities and for which the European Communities expressed concern. India asserts in this regard that the manufacturing and assembly of bed linen is the same whether it is made of silk or cotton. India is of the view that these products are the same. India considers in this respect that there are no technical reasons to discriminate in terms of rules of origin between products that are identical (and thus by definition are competitive or substitutable in the market) and that undergo the same manufacturing and processing.

6.254 In addition, India notes that the United States refers to its Harmonized Tariff Schedule (general note 22) which defines "wholly of" as meaning "that the goods are [�] completely of the named material". India maintains that for section 405, however, the United States arbitrarily made more than 16% cotton as the criterion to determine the applicable rule of origin (i.e., that origin would be conferred where the greige fabric is woven). India points out in this regard that the United States has noted that in response to a question from the Panel that "by establishing a rule of certain goods containing 16% or more of weight of cotton, we ensured that we would cover the products defined in our settlement agreement". India submits that by reducing the threshold of the definition of a cotton product from one that is composed completely of cotton to one that is merely 16% and above of cotton, the United States effectively brought more items under the definition of cotton, which according to section 405, would be conferred origin where the greige fabric was woven.³²²

6.255 The United States notes that India's primary claim with respect to section 405 is its charge that because the exceptions to section 334 took into account specific products of interest to the European Communities, this "favoured" the European Communities and is discriminatory. The United States notes that, of course, any settlement has to be satisfactory to the complaining party. But the United States submits that if the settlement is applicable to all Members on an MFN basis, it will in all likelihood benefit all exporting Members. In the view of the United States, India cannot rely on Canada-Autos to substantiate a claim of de facto advantage in favour of the European Communities. The United States notes that, in that dispute, the Appellate Body was addressing an advantage given to some products that was based on the country of affiliation of the producers. The United States emphasizes that, in that case, the de facto discrimination resulted because Canada was giving advantage to some of the same (like) products based on nationality. The United States considers that, in this dispute, India's charges in respect of the United States' rules of origin relate to different products. The United States further argues that, while it is true that in that report the Appellate Body made a reference to "de facto advantage", Article I:1 of the GATT 1994 is not at issue in this case. The United States notes that if India had wished to make such a claim, it could have brought a dispute under that provision.

6.256 The United States further points out that India also appears to argue a "differential treatment" theory in support of its Article 2(d) claim in respect of section 405. The United States notes in this respect that Article 2(d) addresses discrimination among Members - that is, applying different rules to different Members with respect to the same product - not discrimination between domestic versus imported products, or among imported products.

6.257 The United States argues, finally, that the Panel report in Canada-Pharmaceuticals Patents does not save India's case either. The United States considers that this dispute is not a product-discrimination case and Article 2(d) is not about product discrimination. The United States believes that, even accepting that the Panel report in that dispute were relevant to the present dispute, India has not shown that the "actual effect" of section 405 is to impose "differentially disadvantageous consequences" on India, or China or the Philippines and that those differential effects are wrong or unjustifiable, as is the basis for the Panel's reasoning in Canada-Pharmaceuticals Patents.

6.258 The Panel understands India's claim to be based on three assertions: first, that section 405 results, de facto, in differential treatment of goods, by providing an advantage to goods of concern to the European Communities which it does not provide to goods of concern to developing countries like India; second, that the goods affected by the differential treatment are goods which are "closely related"; and, third, that the differential treatment of the goods in question is unjustifiable.³²³

6.259 We accept, arguendo, India's first assertion and, accordingly, begin by examining India's second assertion - that the (assumed) differential treatment resulting from section 405 affects "closely related" goods. We recall in this respect that we have rejected India's view that the second clause of Article 2(d) imposes an obligation on Members to apply the same rule of origin, or at least equally advantageous rules, to "closely related" products imported from different Members.³²⁴ However, this does not, in itself, dispose of India's claim under Article 2(d). The reason is that the category of "closely related goods" logically comprises, as a subset, goods which are the same. It is necessary, therefore, to examine whether India has identified goods which are the same, but are differentially affected by section 405.

6.260 We note, first, that it is unclear whether India is suggesting that finished cotton fabric (i.e., fabric which has been subjected to a DP2 operation), and cotton bed sheets are "closely related" goods.³²⁵ These are goods in different stages of manufacturing, classified under different HS headings. It is not clear to us, therefore, how cotton fabric and cotton bed sheets could be viewed as the same products. In our view, merely that cotton fabric may be converted to cotton bed sheets does not make these goods the same. In any event, India has not made a prima facie case in this regard.³²⁶

6.261 Second, India could be understood as implying that wool fabric and other fabric, such as silk or cotton fabric, are "closely related" goods.³²⁷ India's submissions with respect to its claim under Article 2(d) do not specifically address wool fabric. We note that in the context of a different claim, India argues that there is no difference in the process of weaving wool yarns into fabric and the process of weaving cotton or silk yarn into fabric.³²⁸ Even ignoring the fact that this argument concerns a different claim, India has not provided any information on the processing of wool yarn and other yarn. Moreover, even if India were correct and there was no difference in the processing, it is not clear to us why this would detract from the fact that wool fabric, cotton fabric and silk fabric, which are classified under different HS headings, are quite different in their physical characteristics, quality and reputation. Thus, based on India's submissions, we are not convinced that wool fabric and other fabric, such as silk or cotton fabric, are the same for the purposes of the second clause of Article 2(d).

6.262 Third, India argues, explicitly, that silk scarves and cotton scarves are "closely related" goods. India submits that, from the perspective of production techniques, silk scarves and cotton scarves are virtually identical.³²⁹ Here again, India provides no specific information regarding the manufacturing process of scarves made of different fabric. Nor does India address why the (alleged) fact that the manufacturing process is the same makes other differences, including differences in classification under the Harmonized System, physical characteristics, quality and reputation, inconsequential. In the light of this, we consider that India's submissions are insufficient to convince us that silk scarves and cotton scarves are the same for the purposes of the second clause of Article 2(d).

6.263 We note, furthermore, that, in India's view, bed linen made of silk and bed linen made of cotton are the "same" products. This argument, too, is based on the contention that both types of bed linen undergo the same manufacturing processes.³³⁰ To that extent, mutatis mutandis, our observations in the preceding paragraph with respect to scarves apply equally here.³³¹ India could be understood to contend, in addition, that silk and cotton bed linen are "identical products" and, as such, competitive and substitutable in the market.³³² However, even were we to assume that silk bed linen and cotton bed linen could be determined to be the same on the basis of their competitive relationship, this would not assist India, since India has not submitted sufficient information for us to assess the nature and extent of a competitive relationship, if any. Consequently, we consider that India has not established that silk and cotton bed linen are the same for the purposes of the second clause of Article 2(d).

6.264 Finally, India could be understood as arguing that relevant goods made of a fibre blend with 16% or more cotton and goods made of a fibre blend with less than 16% cotton are the "same" goods.³³³ India's submissions with respect to its claim under Article 2(d) do not specifically address goods made of fibre blends. We note, however, that in the context of a different claim, India argues that there is no difference between the processing of a bed valance made of 83% polyester / 17% cotton blend as compared to a bed valance made of 86% polyester / 14% cotton blend.³³⁴ In this particular instance, it is not necessary for us to decide whether India's submissions are sufficient to establish that goods made of fabric with 16% or more cotton and goods made of fabric with less than 16% cotton are the same. This is because India has, in any event, not persuaded us that it would be unjustifiable to apply different rules of origin to goods with 16% or more cotton and goods with less than 16% cotton.

6.265 Based on the foregoing, it is clear that, with the exception of one category of goods - goods containing fabrics made of a cotton blend - where we have made no finding, India has failed to establish that the (assumed) differential treatment resulting from section 405 affects goods which are the same. As a result, India has failed to establish its claim under Article 2(d), with the possible exception of goods made of a cotton blend.

6.266 Consistent with our conclusion in the preceding paragraph, with respect to goods made of a cotton blend, we need to proceed to examine India's third assertion that the (assumed) differential effect is unjustifiable. For the purposes of this examination, we will assume that goods made of fabric containing 16% or more cotton and goods made of fabric containing less than 16% are the same and that the different rules of origin applied to such goods as a result of section 405 provides a de facto advantage to goods of concern to the European Communities.

6.267 India argues that this (assumed) differential effect is unjustifiable because section 405 was enacted for the "sole purpose"³³⁵ of favouring goods of export interest to the European Communities over goods of export interest to developing countries. However, we have already found, when examining India's claim under Article 2(b), that India has not established that the United States is using section 405 to favour goods of concern to the European Communities over goods of concern to other Members.

6.268 India appears to argue that the (assumed) differential effect is unjustifiable, in addition, because there is "no technical reason" to discriminate in terms of rules of origin between goods made of fabric containing 16% or more cotton and goods made of fabric containing less than 16%.³³⁶ India considers that it is "arbitrary" to maintain such a product distinction for rules of origin purposes and to make more than 16% cotton the criterion to determine the applicable rule of origin.³³⁷ The United States has explained that the 16% cotton threshold was established in order to implement the terms of the bilateral settlement agreement between the United States and the European Communities. The United States further points out that its definition of cotton blends is consistent with the structure of the Harmonized System. The United States points out that the Harmonized System, in Chapters 50 through 55, defines yarns and fabrics as "wholly of" a given fibre if they contain 85% or more of that fibre.³³⁸

6.269 We understand the United States to argue, in essence, that it needed to define which cotton blends, if any, should be entitled to the exception set forth in section 405(a)(3)(C), i.e., the DP2 rule. Apparently, the United States determined that only those goods which are, effectively, "wholly of" a fibre other than cotton should qualify for the DP2 rule (provided such fibre is covered by the HTS headings specified in section 405(a)(3)(C)). Thus, a bed valance made of 83% polyester / 17% cotton blend is not regarded as, in effect, a polyester bed valance. As such, it is not entitled to the DP2 rule. The (low) 16% cotton threshold would appear to be consistent with the complete exclusion from the DP2 rule of specified cotton goods which are not blends.

6.270 The 16% cotton threshold appears to be consistent with the structure of the Harmonized System, which recognizes the utility of specifying a certain percentage threshold for textile blends.³³⁹ Thus, setting a relatively low percentage threshold is consistent with the fact that cotton goods which are not blends are completely excluded from the DP2 rule. We are, therefore, not persuaded by India's assertion that the 16% cotton threshold is arbitrary and, hence, unjustifiable.³⁴⁰

6.271 Accordingly, we find that, with respect to goods made of a cotton blend, India has not established that the (assumed) differential effects created by section 405 are unjustifiable. As a consequence, we reject India's claim under Article 2(d), insofar as it concerns relevant goods made of a cotton blend.

6.272 In the light of all of the above considerations, we conclude that India has failed to demonstrate that section 405 is inconsistent with the second clause of Article 2(d).

India's claims in respect of the implementating cutoms regulations

6.273 As will be recalled, India's claims are not limited to the statutory provisions at issue in this dispute, but also concern the customs regulations contained in 19 C.F.R. � 102.21.

6.274 India notes that these customs regulations implement section 334 and section 405. India asserts that these regulations include provisions which are inconsistent with the United States' obligations under Article 2(b), (c) and (d) of the RO Agreement.

6.275 The United States argues that India has failed to establish a prima facie case that 19 C.F.R. � 102.21 breaches United States obligations.

6.276 The Panel recalls its previous conclusion that India has failed to establish that section 334 or section 405 are inconsistent with Article 2 of the RO Agreement. India agrees that the customs regulations set forth in 19 C.F.R. � 102.21 implement the principles contained in section 334 and 405. In these circumstances, the Panel could only uphold India's claims in respect of 19 C.F.R. � 102.21: (i) if, unlike in the case of India's claims in respect of section 334 and section 405, India had provided evidence and argument sufficient to establish an inconsistency with Article 2 of the RO Agreement; or (ii) if India had identified certain aspects specific to 19 C.F.R. � 102.21 which would render these regulations inconsistent with Article 2 of the RO Agreement independently of section 334 or section 405. However, India has done neither. Indeed, India has made few references to 19 C.F.R. � 102.21, and those references essentially summarize or reproduce the provisions of 19 C.F.R. � 102.21.³⁴¹

6.277 Accordingly, the Panel concludes that India has 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.

India's claims in respect of the application of the measures at issue

6.278 India also requests the Panel to find that the "application" of section 334, section 405 and the customs regulations contained in 19 C.F.R. � 102.21 is inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement.³⁴² India has not presented arguments or evidence with respect to specific instances of application, by relevant United States authorities, of the measures at issue. Nor has India argued that these measures are applied, in practice, in a manner which is not specifically provided for in those measures. In view of the lack of specific Indian submissions on the application of the measures at issue, we see no need to examine these claims further.

6.279 Accordingly, the Panel concludes that India has failed to establish that the application of section 334, section 405 or the customs regulations contained in 19 C.F.R. � 102.21 is inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement.

VII. CONCLUSION

7.1 For the reasons set forth in this Report, the Panel concludes as follows:

(a) India has 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
(b) India has 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;
(c) India has 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;

7.2 In the light of its conclusion, the Panel makes no recommendations under Article 19.1 of the DSU.

To continue with Annex A

Return to Table of Contents

244Panel Report, Panel on Japanese Measures on Imports of Leather ("Japan - Leather II (US)"), adopted 15 May 1984, BISD 31S/94.

245Ibid., p. 113.

246Panel Report, United States - Taxes on Petroleum and Certain Imported Substances ("US - Superfund"), adopted 17 June 1987, BISD 34S/136, 160.

247Appellate Body Report, Japan - Taxes on Alcoholic Beverages ("Japan - Alcoholic Beverages II "), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97, at 110.

248Article 2(i) reads:

"Until the work programme for the harmonization of rules of origin set out in Part IV is completed, Members shall ensure that:

[�]

(i) when introducing changes to their rules of origin or new rules of origin, they shall not apply such changes retroactively as defined in, and without prejudice to, their laws or regulations[.]"

249It is worth noting in this context that Article 3.2 of the Agreement on Import Licensing Procedures on non-automatic licensing contains provisions along these lines. Specifically, it states that "[n]on-automatic licensing shall not have trade-restrictive or -distortive effects on imports additional to those caused by the imposition of the restriction" (emphasis added).

250The New Shorter Oxford English Dictionary, L. Brown, ed., Clarendon Press, 1993, Vol. I, p. 198.

251It is relevant to point out here that the Appellate Body has given a similar interpretation to the previously mentioned Article 3.2 of the Agreement on Import Licensing Procedures. Appellate Body Report, European Communities - Measures Affecting the Importation of Certain Poultry Products ("EC - Poultry "), WT/DS69/AB/R, adopted 23 July 1998, DSR 1998:V, 2031, paras. 126-127.

252The parties share this view. India's reply to Panel question No. 11(a); United States' reply to Panel question No. 11(a).

253The New Shorter Oxford English Dictionary, L. Brown, ed., Clarendon Press, 1993, Vol. II, p. 2569; Vol. I, pp. 707 and 702, respectively.

254ndia argues that the phrase "effects on international trade" does cover adverse effects on trade in goods in intermediate stages of production (e.g., cotton fabric). E.g., India's second oral statement, para. 17; India's reply to Panel question No. 56.

255India considers this to be an example of distorting effects inconsistent with Article 2(c), first sentence. India's first written submission, para. 91.

256Infra, para. 6.249.

257Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones) ("EC - Hormones"), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135, para. 165.

258In response to a question from the Panel, India argues that the plural in Article 2(c) means that that provision applies both to an individual rule of origin as well as to a Member's system of rules of origin. India's reply to Panel question No. 48. Since India, in developing its claim, does not rely on this interpretation of the text of Article 2(c), it is sufficient to note that we understand the plural in Article 2(c), first sentence, to refer to a Member's "rules of origin" taken individually, i.e., to individual rules of origin as they apply to individual goods. Indeed, provisions like the second sentence of Article 2(c), the first clause of Article 2(d), Article 2(f) and Article 3(a) of the RO Agreement cannot reasonably be read to lay down disciplines for anything other than individual rules of origin.

259India's reply to Panel question No. 11(b).

260India's second written submission, paras. 48 and 60.

261India's first oral statement, para. 38.

262India's first written submission, paras. 91-96.

263India's first oral statement, para. 25; India's second written submission, para. 61; India's reply to Panel question No. 66.

264We note that India has not said that the second set of arguments was somehow intended to supersede the first set.

265Exhibit INDIA-15.

266The United States refers to exhibits US-8 and US-9.

267E.g., India's second oral statement, para. 17. We do not understand India to argue that the DP2 rule provided for in section 405 creates restrictive effects.

268India uses the term "chilling effect". India's second oral statement, para. 17.

269Panel Report, Argentina - Measures Affecting the Export of Bovine Hides and Import of Finished Leather ("Argentina - Hides and Leather"), WT/DS155/R and Corr.1, adopted 16 February 2001, para. 11.20.

270Exhibit INDIA-15, p. 1.

271bid., p. 2.

272Supra, para. 6.78.

273The United States asserts that, at the time section 334 was implemented, and thereafter, six out of the top ten world exporters of cotton fabrics, accounting for 50 percent of world trade in cotton fabric, were countries which were not subject to quotas on fabric or bed linen in the United States. United States' second oral statement, para. 6. We also recall our earlier finding regarding India's claim under Article 2(b) that India has failed to establish that the fabric formation rule necessarily, or in fact, brings more imports of downstream goods under quota in the United States. Supra, para. 6.83.

274India refers to Pac Fung Leather Co. v. The United States, 111 F.3d. 114 (Fed. Cir 1997) (exhibit INDIA-16).

275The United States refers to exhibits US-8 and US-9.

276India's first written submission, para. 96.

277United States' reply to Panel question No. 11(f).

278India's first written submission, para. 91.

279India's reply to Panel question No. 66.

280As previously pointed out, we are assuming, arguendo, that effects on upstream goods can be viewed as "effects on international trade" within the meaning of the first sentence of Article 2(c).

281India's reply to Panel question No. 58(b).

282India's reply to United States' question No. 2.

283We note in this regard that the documentary evidence provided by India in support of the example of Pac Fung, the Hong Kong-based manufacturer of comforter shells, bed sheets and other home textile products, does not seem to support India's assertion that, because of the measures at issue, Pac Fung had to obtain its inputs from a country other than China in order to continue to export to the United States. Exhibit INDIA-16.

284The United States refers to exhibits US-8 and US-9.

285India's first written submission, para. 100.

286Indeed, we note that Article 2(h) of the RO Agreement not only permits, but actually requires Members to issue, on request of an exporter or importer, assessments of the origin they would accord to individual goods. Thus, the issuance of origin assessments is apparently considered to be an integral part of the application of all rules of origin. Moreover, Article 2(h) also states that requests for assessments must be accepted even before trade in the good concerned begins and is normally valid for a period of three years. Thus, the assessment procedure need not disrupt trade. In the present case, India does not claim that the measures at issue are inconsistent with Article 2(h).

287India's first written submission, paras. 78, 82-83.

288We note in this regard that India itself considers that new rules of origin immediately change the investment and other business plans of producers and traders. India's reply to Panel question No. 26.

289The Panel has not been provided with documentary evidence of that verification requirement.

290India has not identified the legal basis for such a requirement. India's first written submission, para. 95.

291We also note that India has not established that the fabric formation and DP2 rules, when used for purposes other than quota administration, create the effects on international trade prohibited by Article 2(c), first sentence. For instance, with respect to the use of United States' rules of origin in support of marking, India merely states that it is "arguable" that the change in rules of origin disrupted trade. In any event, this assertion is based on the effect of a change in rules of origin, rather than on the effect of the new rules of origin themselves. India's reply to Panel question No. 55(b). With respect to the use of the fabric formation rule for the purpose of gathering trade statistics, India has also not substantiated its assertion that this rule creates a distorting effect on trade by skewing import statistics. Nor, in our view, has it explained how the fabric formation rule "might make it appear as if imports from a given country, say, India, were increasing, when in fact, they might not be", such that anti-dumping duties might be imposed against such imports when there is no basis for doing so. India's reply to Panel question No. 55(b).

292Supra, paras. 6.74-6.75. See also infra, para. 6.207.

293United States' reply to Panel question No. 73.

294The French version of Article 2(c), second sentence, reads as follows:

"[Les r�gles d'origine] n'imposeront pas de prescriptions ind�ment rigoureuses ni n'exigeront, comme condition pr�alable � la d�termination du pays d'origine, le respect d'une certaine condition non li�e � la fabrication ou � l'ouvraison."
The Spanish text of Article 2(c), second sentence, seems to track the French version rather than the English version. It reads:
"[Las normas de origen] [n]o impondr�n condiciones indebidamente estrictas ni exigir�n el cumplimiento de una determinada condici�n no relacionada con la fabricaci�n o elaboraci�n como requisito previo para la determinaci�n del pa�s de origen."

295For the purposes of this dispute, we need not decide whether the "requirements" mentioned in the second sentence of Article 2(c) would also encompass the formal, or administrative, requirements which may be imposed in order to assess compliance with rules of origin (e.g., documentation requirements).

296The negotiating history of the RO Agreement tends to confirm that the term "requirements" refers to the substantive origin requirements that must be met for a good to obtain origin status. The first clause of Article 2(c), second sentence, appears to originate in two provisions proposed by Japan. The first of these proposed provisions states that "the requirements to be fulfilled in the determination of origin shall be clearly defined. [ � ] Rules of origin which state only what does not confer origin [ � ] or state only abstract conditions or unduly strict conditions shall be prohibited". MTN.GNG/NG2/W/52, p. 5 (emphasis added). The other provision proposed by Japan states that " [ t] echnically excessive requirements as a prerequisite for the determination of country of origin shall be prohibited". Ibid.

297Black's Law Dictionary, B. A. Garner (ed.), West Group, 1999, p. 1434.

298Merriam-Webster OnLine Thesaurus, http://www.m-w.com (March 2003). We note that the French version of the second sentence of Article 2(c) also uses the adjective "rigoureux".

299In other words, we think that the "strictness" of requirements is to be assessed from the perspective of countries wanting to obtain origin status, rather than from the perspective of countries wanting to lose origin status.

300The New Shorter Oxford English Dictionary, L. Brown (ed.), Clarendon Press, 1993, Vol. 2, p. 3480.

301We are aware that the third sentence of Article 2(c) states that "costs not directly related to manufacturing or processing may be included for the purposes of the application of an ad valorem percentage criterion consistent with subparagraph (a)". But the third sentence opens with the word "however", which implies a contrast between the second and third sentences.

302India's second written submission, para. 43.

303India refers to section 405(a)(3)(B).

304India refers to section 405(a)(3)(C), which provided exceptions to section 334(b)(2).

305India's second written submission, para. 40.

306t is worth noting that India itself has stated that Article 2(c), second sentence, is concerned with "conditions that must be fulfilled to obtain the status of originating country". India's question No. 8 to the United States.

307United States' reply to India's question No. 2; United States' reply to Panel question No. 78.

308Supra, para. 6.207.

309India's second written submission, para. 46.

310We are not convinced, therefore, that the measures at issue impose any "constraints" of a legal nature on the use of cotton fibres in the making of bed linen, as India appears to suggest. India's second written submission, para. 46.

311India's second written submission, para. 46.

312Ibid., paras. 45-46.

313Supra, paras. 6.207.

314Panel Report, Canada - Patent Protection of Pharmaceutical Products ("Canada - Pharmaceutical Patents"), WT/DS114/R, adopted 7 April 2000, DSR 2000:V, 2295, para 7.101.

315Appellate Body Report, Canada - Certain Measures Affecting the Automotive Industry ("Canada - Autos"), WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI, 2995, para 63.

316Appellate Body Report, European Communities - Regime for the Importation, Sale and Distribution of Bananas ("EC - Bananas III "), WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591, paras. 233 to 234.

317India's reply to Panel question No. 60; India's second written submission, para. 68.

318We note that India does not offer a definition of the concept of "closely related products".

319For instance, Article I of the GATT 1994 prohibits discrimination as between "like" products only.

320The Panel notes that this is consistent with its view that Article 2 is intended to leave Members a considerable measure of discretion in designing and applying their rules of origin. Supra, para. 6.25.

321India could be understood as arguing as well that the second clause of Article 2(d) can be violated even if the products distinguished in the rules of origin are neither "like" nor "directly competitive or substitutable" products within the meaning of Article III of the GATT 1994. India's reply to Panel question No. 3. Our reasoning with respect to India's concept of "closely related products" would be equally applicable if India meant to argue that the second clause of Article 2(d) also prohibited discrimination as between products that are neither "like" nor "directly competitive or substitutable".

322India considers that the "16% and more" definition is also not consistent with the definitions as set out in Chapters 50 to 55 of the Harmonized System which provides for a definition of "85% or more" as pointed out by the United States in its replies to the Panel's questions.

323India's second written submission, paras. 70-74; India's reply to Panel question No. 60.

324Supra, para. 6.249. We note that, at the same time, we have accepted, for the sake of argument, India's assumptions: (i) that the second clause of Article 2(d) should be interpreted to prohibit not only de jure discrimination between Members, but also de facto discrimination and (ii) that an assessment of whether rules of origin discriminate, de facto, between Members calls for an examination of whether those rules impose differentially disadvantageous consequences on certain Members and of whether these different consequences are justifiable. Supra, para. 6.250.

325India's first oral statement, paras. 28-29.

326In fact, India itself seems to acknowledge that these are different "types" of product. India's first oral statement, para. 28.

327India says that, with respect to its claim under Article 2(d), it is challenging section 405(a)(3)(B), which deals with fabrics. India's reply to Panel question No. 19.

328India's second written submission, para. 40.

329India's reply to Panel question No. 60.

330India's second oral statement, para. 20.

331We note that India has not provided any information regarding the manufacturing processes for silk and cotton bed linen.

332India's second oral statement, para. 20.

333India's second written submission, footnote 33.

334Ibid., para. 40.

335India's second written submission, para. 72.

336India's second oral statement, para. 20.

337India's reply to Panel question No. 60; India's second oral statement, para. 19.

338United States' reply to Panel question No. 9.

339See Chapter 50-55 of the Harmonized System.

340We also note that India has not shown that the 16% cotton threshold operates in such a way, for instance, that producers of certain Members cannot adjust their production so as not to exceed this threshold, or can only do so at an excessive cost.

341E.g., India's reply to Panel question No. 21; India's second written submission, paras. 9-10, 14, 17 and 20.

342India's first written submission, para. 102.

	What's New? - Sitemap - Calendar Trade Agreements - FTAA Process - Trade Issues	espa�ol - fran�ais - portugu�s
		Search

WORLD TRADE ORGANIZATION

WORLD TRADE
ORGANIZATION