5.48 In a response to the Panel, the United States further explained that it did not consider that a finding of "actual threat of serious damage" required some sort of data, analysis or argumentation different from that required for a finding of "serious damage". In making its determination, the US was required to follow Article 6.2 and 6.3 of the ATC which provided the standard and some of the factors important in making a serious damage or actual threat thereof determination. Unlike the Agreement on Safeguards, there was nothing in Article 6 of the ATC providing different conditions to be met for serious damage on the one hand and actual threat thereof on the other hand. There were also no separate criteria. There was no requirement in the ATC spelling out the sort of analysis or argumentation required for serious damage or actual threat thereof. The United States did not believe it appropriate to read into the ATC any particular threat criteria.

5.49 In the view of India, there was a definite differentiation between the existence of serious damage and actual threat thereof and the absence in Article 6 of the ATC of different conditions to be met for one or the other did not remove this clear distinction. The factors contained in Article 6.3 and 6.4 of the ATC must be reviewed to determine whether or not the industry was facing a situation where serious damage existed or a situation where there was a threat of serious damage. The US Market Statement clearly identified the US determination that "serious damage" existed at the time of the request for consultations and there was no indication, or data supplied, that the limited factors reviewed by the US pointed to a condition which could be characterized as "actual threat" of serious damage to the domestic industry.

Status of the Market Statement

5.50 The United States stated that the information contained in the Market Statement constituted the totality of the information used by CITA in making its determination of serious damage, or actual threat thereof. Other relevant information had been supplied during consultations or pursuant to Article 6.10 of the ATC and was provided as updates or upon request to confirm the initial determination. The United States found no guidance in the ATC or DSU on whether the Market Statement should be the sole basis for the Panel to assess whether the US had acted in conformity with Article 6 of the ATC. Article 6 may lead one to conclude that the original data available at the time of the determination was legally relevant concerning the reasonableness of the determination of the importing Member. However, Article 6.10 of the ATC allowed additional or new/updated data for TMB review. Implicitly one would expect that if, during consultations, more data were requested, that data could be supplied, if available, to confirm a determination. Article 6.7 of the ATC only provided for data to accompany the request for consultations. In the context of consultations and Article 6.10 of the ATC, other relevant data and the TMB proceeding in this case, may only be persuasive information during Panel review. The United States believed that the December 1994 Market Statement had no legal status before this Panel since India had rejected the request for consultations based on that Statement and had demanded that the United States re-submit its request under the ATC. The Market Statement was the Statement accompanying the request under Article 6 of the ATC and the only Statement with status in this proceeding. However, some factual information in the December Market Statement was also reflected in the Market Statement in April 1995.

5.51 India argued that the United States had not fulfilled the requirements of Article 6 of the ATC in the Market Statement submitted to India in April 1995 as the basis for consultations on the proposed safeguard action. Furthermore, the US determination in this Market Statement was one of only "serious damage" which conveyed the conditions which the United States believed existed and should have been the limit of any TMB review. Also, the information contained in the Market Statement did not represent data on the "industry" which the United States claimed was experiencing "serious damage" due to increased imports but another, much larger industry and was not relevant to the economic variables to be examined in making the determination.

Sources of Data Provided By the United States

5.52 The United States explained that it had relied as much as possible on official data sources to assess objectively conditions in the domestic textile and clothing industries. Because the industry producing category 440, woven wool shirts and blouses, was a small one, there were limited published data available to supplement the official data on production and imports that formed the basis of CITA's determination of serious damage or actual threat thereof. Accordingly, in developing the additional information required to make its determination, CITA had relied heavily on information furnished by clothing manufacturers, particularly the two major companies that produced garments in category 440. This information had been collected by CITA through multiple phone calls and telefax exchanges. Because the information was collected from individual companies, it was treated on a business confidential basis. Further, the ATC did not provide a methodology for collecting data; it only noted in Article 6.7 of the ATC that when requesting consultations, the accompanying data must be "specific and relevant factual information, as up­to­date as possible."

5.53 While India accepted that Article 6.7 of the ATC required that the request for consultations be accompanied by "specific and relevant factual information, as up­to­date as possible", the requirement not to ignore the latest information available did not imply that the United States was freed of its obligation under Article 6.2 and 6.3 of the ATC to collect all the key economic data necessary to demonstrate that the domestic industry was suffering serious damage. To accept the argument of the United States on this point would turn the additional requirements set out in Article 6.7 of the ATC into an exemption from the requirements set out in Article 6.2 and 6.3 of the ATC which could not be correct.

5.54 The United States further pointed out that CITA had also used information and data provided by trade associations and labour unions which represented the companies and workers of this industry. The latter two sources were considered to be especially valuable because they had both an overview of industry information and a more objective perspective that the individual companies did not necessarily have. Using the above sources, CITA had identified the companies that manufactured woven wool shirts and blouses among the many manufacturers that produced woven shirts and blouses of all fibres and had questioned them on current business conditions, particularly the economic variables called for in Article 6 of the ATC. This information was then analyzed and detailed in the Market Statement. Because the textile and clothing programme was designed to adopt safeguard action expeditiously, it was not possible for the Office of Textiles and Apparel (OTEXA) to conduct any extensive, formal written surveys of manufacturers to obtain this information. Such formal surveys required advance notice and an extensive public comment period which would have prevented the adoption of a safeguard action in time to prevent serious damage or actual threat thereof to the industry in question.

5.55 India disagreed with some of the information in the preceding paragraph, arguing that official data on imports in category 440 were published in their entirety, including not only the aggregate imports assigned to category 440, but also the quantity, value, date of export, date of import, and country of origin for each of the HTS lines. In terms of the "official data on production", it was limited and there had been no indication that the US had been able to supplement this limited data in order to demonstrate production levels and trends of domestic production that would be comparable to all the products contained in import category 440. The specific and relevant data officially maintained by the United States on exports of products comparable to those contained in import category 440 had also been ignored by the US.

5.56 The United States pointed out, in response to a question from India, that in the case of the woven wool shirt and blouse industry, two firms accounted for a majority of US production, so the information reported was reasonably relied upon by CITA is indicative of conditions in the industry. Some information applied specifically to the woven wool shirt and blouse industry and some, in cases where the overall trend was reflective of conditions in the specific industry in question, reflected a broader scope.

E. Demonstration of Serious Damage by the United States

5.57 India argued that the United States had failed in its Market Statement to demonstrate during the consultations that imported woven wool shirts and blouses were causing serious damage to its domestic industry and, therefore, had acted inconsistently with Article 6 of the ATC. Under Article 6.2 of the ATC, a WTO Member may take a safeguard action when

"on the basis of a determination by a Member, it is demonstrated that a particular product is being imported into its territory in such increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive products".

In making such a determination, Article 6.3 of the ATC stated that a Member

"shall examine the effect of those imports on the state of the particular industry, as reflected in changes in such relevant economic variables as output, productivity, utilization of capacity, inventories, market share, exports, wages, employment, domestic prices, profits and investment; none of which, either alone or combined with other factors, can necessarily give decisive guidance".

5.58 The United States argued that CITA had determined that high levels and surging imports of woven wool shirts and blouses coincided with a deterioration in the domestic industry's condition in terms of such factors as domestic output, market share, investment, employment, man-hours worked and total annual wages. Therefore, CITA had concluded that the surge in imports of woven wool shirts and blouses had caused serious damage or actual threat thereof to the industry. In the course of CITA's investigation into serious damage or actual threat thereof to the domestic industry producing woven wool shirts and blouses, there was no indication whatsoever that technological changes and/or changes in consumer preferences had resulted in the serious damage or actual threat thereof.

5.59 The United States considered that the first step for the Panel was to decide whether, pursuant to Article 6.2 of the ATC, there was evidence supporting CITA's decision that the domestic industry producing category 440 had been seriously damaged or threatened with such damage by reason of total imports ­ not imports from India. The United States argued that it had demonstrated that total imports had caused, or actually threatened, serious damage to its highly sensitive industry producing woven wool shirts and blouses. This finding was consistent with Article 6.2 of the ATC, which provided that serious damage or actual threat thereof must demonstrably be caused by such increased quantities in "total imports" of that product and not by such other factors as technological changes or changes in consumer preference. Article 6.3 of the ATC provided that "[i]n making a determination of serious damage or actual threat thereof" the United States must examine the effect of imports on the state of the industry. In so doing the United States was to examine variables such as those listed in Article 6.3 of the ATC, "none of which, either alone or combined with other factors, can necessarily give decisive guidance." Support for the interpretation that the list was illustrative is also found in Article 6.7 of the ATC. There, data was to include "the factors, referred to in paragraph 3 [of Article 6], on which the Member invoking the action has based its determination of the existence of serious damage or actual threat thereof".

5.60 India considered that the list of factors included in Article 6.3 of the ATC was not meant to imply that the initiating Member was provided the liberty to select data for those "relevant economic variables" which were convenient or that the list of "relevant economic variables" was meant to be an exhaustive list of variables to be reviewed. Rather they represented the primary, minimum factors that should be available for review in order to make an informed and demonstrable determination of serious damage or actual threat thereof, to a specific industry.

5.61 India further argued that the issue before the Panel was not whether the ATC prescribed a specific evidentiary standard, but whether the United States had demonstrated a causal link between rising imports and declining production by noting their co­existence. India considered that rising imports and declining production must necessarily be present in all safeguard actions under the ATC, but the co­existence of the two could, therefore, not be sufficient to constitute a determination of a causal link.

India's Review of the Economic Variables

5.62 India argued that Article 6.3 of the ATC required a Member to examine the state of the particular industry, as reflected in changes in eleven factors: output, productivity, utilization of capacity, inventories, market share, exports, wages, employment, domestic prices, profits and investment. The United States' Market Statement on woven wool shirts and blouses provided figures on only four of these eleven factors: output, market share, wages and employment. In addition, the Statement included "industry statements" providing figures on domestic prices, and anecdotal information on investment and utilization of capacity. This left the Market Statement deficient with respect to four relevant economic variables, namely exports, profits, productivity and inventories.

5.63 India further argued that although Article 6.3 of the ATC indicated an illustrative list of factors, on which data had to be examined, it would be in order if an importing Member also examined other factors while making a determination. However, it would be inconsistent with Article 6.7 of the ATC if all the factors mentioned in Article 6.3 of the ATC were not taken into account by the importing Member. The "other relevant information" provided to the TMB by the US on 28 August 1995 was inconsistent with Article 6.10 of the ATC, because these were not the data supplied to the Indian delegation during the consultations. These data were also not available to the United States when it made its determination.

5.64 The United States noted that India had questioned the validity and relevance of some of the data in the Market Statement and the data furnished to the TMB in August 1995 and considered that these claims were without merit. With regard to India's claims that CITA's determination was invalid because it did not contain data on every factor listed in Article 6.3 of the ATC, the United States argued that CITA had examined factors for which information was available. The list of factors in Article 6.3 of the ATC was illustrative. The information supplied to India, and to the Panel, represented a strong case that would not be affected by data on other factors. Under Article 6.3 of the ATC, the issue was not whether CITA had discussed a particular set of factors in its entirety (even where data on some factors might not have been available), but whether CITA's examination was sufficiently meaningful so as to reasonably support the finding and to constitute a good faith application of the Article 6 standard.

5.65 The United States also pointed out that it had tried to provide information on the other, unpublished factors which India had characterized as anecdotal and unverifiable. Data on domestic prices was available from contacts with individual firms. There were about 15 firms that produced woven wool shirts and blouses in the United States and two firms accounted for at least 60 per cent of total US production. The information presented in connection with this case was based mainly on conversations with these two firms; therefore, that information was relevant and accurate.

United States Review of the Economic Variables

5.66 The United States argued that, in accordance with Article 6.3 of the ATC, it had reviewed relevant economic data such as output, market share loss, import penetration, employment, man-hours, wages, and domestic prices. It had also looked at other variables such as profits, investment, capacity, and sales. As described in the Market Statement, total imports of woven wool shirts and blouses had surged to 141,502 dozen in the year ending January 1995, nearly double the level of the year ending January 1994. The ratio of imports to domestic production had increased rapidly from 88 per cent in 1993 to 151 per cent during January-September 1994, thus indicating that imports had far surpassed the level of domestic production.

5.67 The United States further argued that these high and surging imports, at low prices, coincided with a deterioration in the industry's condition in terms of such factors as domestic output, market share, investment, employment, man-hours worked and total annual wages. Among these findings were that:

(a) US production of clothing in category 440 had declined in the first nine months of 1994 with the level falling to 61,000 dozen - 8 per cent below the 66,000 dozen produced during January-September 1993.


(b) US producers' share of the domestic market had fallen from 53 per cent in 1993 to 40 per cent in the first nine months of 1994.


(c) Employment in the industry producing woven shirts and blouses including shirts and blouses made from wool declined 6 per cent between 1993 and 1994.


(d) Total annual production worker wages in the industry producing woven shirts and blouses including shirts and blouses made from wool had fallen 3 per cent over the same time period.


(e) Average man-hours worked in the industry producing woven shirts and blouses including shirts and blouses made from wool had dropped 6 per cent between 1993 and 1994.


(f) Prices for domestically produced woven wool shirts and blouses were substantially higher than imports.


(g) Profit margins had deteriorated across the woven wool shirt and blouse industry as a result of raw material cost increases and the fact that companies were unable to raise prices because of low-priced imports.


(h) Investment levels were stagnant throughout much of the industry.


(i) Production capacity of several companies had declined, with one manufacturer of woven wool shirts and blouses reporting that the dropping of outside contracting represented the equivalent of closing four plants. That company ran at only 70 per cent of its capacity for its own manufacturing plants.


(j) Most companies had reported sales declines as they lost market share to lower priced imports; some companies reported declines of 20 per cent or more.

The Industry and the Products

(i) The Nature of the Wool Sector in the United States

5.68 The United States explained that the wool products sector of the US textile and clothing industry was very sensitive to imports. At each stage of processing, the production of wool products was more expensive and/or more complicated than production of most cotton and man-made fibre products and the sector was, therefore, more vulnerable to low-price import competition. Also, the market for wool products in the United States was very small relative to the market for cotton and man-made fibre products. Of the United States' total consumption of fibre (including the fibre content of imported products), wool accounted for only 1.9 per cent in 1995 compared to 56.9 per cent for man-made fibre and 38.5 per cent for cotton. The share of fibre consumption represented by US wool products manufacturers was even lower. With such a low share of the total textile and clothing market, US wool products manufacturers were notably exposed to serious damage or threat thereof from imports. While imports of all textile and clothing products averaged 10.0 per cent annual growth between 1990 and 1995, imports of wool products averaged 13.9 per cent annual growth.

5.69 The United States also advised that US firms producing wool clothing were in general much smaller compared to cotton and man-made fibre clothing manufacturers. The small size of wool clothing companies left them especially vulnerable to increased imports. Without the financial reserves of larger firms, wool clothing producers could not as readily withstand a sudden reduction in sales or a drop in prices due to import competition. The United States also noted that the sensitivity of the wool sector of the US textile and clothing industry had been recognized within the framework of the MFA and the ATC. Under the MFA regime, while growth rates for quotas on most man-made fibre or cotton products were traditionally set at 6 per cent per year, the United States had negotiated one per cent growth rates for wool quotas. The Textiles Surveillance Body (TSB) under the MFA allowed this exception to the standard growth rates for other fibre products. The negotiators of the ATC similarly had limited the growth rate to 2 per cent for wool products,¹⁶ whereas all other products were required to be afforded a 6 per cent annual growth rate under Article 6.13 of the ATC. In the view of the US, because of this sensitivity in the wool sector, even a relatively small increase in imports could have a very pronounced and devastating impact on US producers of wool products.

5.70 In the view of India, there were no provisions in the ATC that would merit the wool clothing industry of the United States to be treated more favourably than any other sector of the US industry or the clothing industry of any other Member. The lower growth stipulated for restraint levels introduced under Article 6 for wool products came into operation only after the stage of justifying the restraint to the TMB and arriving at the appropriate level. Moreover, US import duties for woollen clothing were lower than the corresponding duties for woollen fabrics. Thus, it would appear that the US was more concerned about protecting its weaving industry in the wool sector rather than the clothing one. The exporters of India supplying woven wool shirts and blouses to the United States were all smaller in financial size as compared to the woven wool shirts and blouses industry units of the United States. The adverse impact on such suppliers arising from a restraint had much more serious consequences than could occur to the US manufacturers from increased imports.

5.71 India further argued that it was not true that during the MFA regime a 6 per cent growth rate had applied to other textile products and 1 per cent growth rate had applied to wool products. In fact, some of the bilateral agreements of India had growth rates of less than 1 per cent for some items which were not wool products. There were several restraints under India's bilateral agreements with 6 per cent growth rate where woollen products were part of the restraints. Thus, growth rates ranging up to 6 per cent had operated under the MFA regime for several wool products and growth rates of 1 per cent or even less had operated for non­wool products also. While an informal exception had been provided in the growth rate to be provided for restrained woollen products outside the text of the ATC, there was no other formal or informal indication in the context of the ATC that the manufacturers of woollen products were eligible for any other special consideration or exceptional treatment in protection against imports. It was also not correct for the United States to state that it had negotiated 1 per cent growth rates for wool products with all countries under the MFA. For example, the reported growth rates for selected wool clothing products from Colombia and Mexico were many times higher.

5.72 The United States considered that the above views of India did not contradict the essential truth of the US submission which was that the sensitivity of the wool sector of the United States' textile and clothing industry had been recognized within the framework of the MFA and the ATC. For US bilateral textile import restraint agreements under the MFA, growth rates for quotas on most man­made fibre or cotton products were traditionally set at 6 per cent per year, while the United States negotiated 1 per cent growth rates for wool quotas. In saying this, the United States was referring to specific limits on individual categories. US wool categories under group limit as in its bilateral agreement with India had a 6 per cent growth rate. None of these categories had specific limits applicable to it alone. Finally, India's last statement was not correct. The previous MFA Agreement with Colombia provided for one per cent growth for all wool clothing categories and the same could be said for the Mexican agreement prior to the NAFTA.

5.73 The United States, in response to a question from India, further argued that it had the flexibility under Article 6.6(c) of the ATC, to give to eligible Members a growth rate of more than 2 per cent, but less than 6 per cent. Thus, even Article 6.6(c) of the ATC recognized the sensitivity of importing Member's wool production to imports. The United States noted, however, that Article 6.6(c) of the ATC clearly did not apply to India since, inter alia, India's total textile and clothing exports did not consist "almost exclusively" of wool products. India's volume was not even comparatively small in the markets of importing Members. Further, even this provision did not mandate a 6 per cent growth rate for wool after safeguard action was taken, but allowed importing Members leeway when considering quota levels, growth rate, and flexibility.

5.74 Also in response to a question from India, the United States explained that the MFA had recognized the difficulties faced by importing countries with small markets, high levels of imports and correspondingly low levels of production in both its Annex B, paragraph 2 and in paragraph 12 of the 1986 Protocol of Extension. These paragraphs authorized lower positive growth rates than normally required under MFA Annex B. Although this language did not originate as a result of the US wool textile and clothing market, it had long been apparent that the language applied to this market. As a result, the United States had negotiated restraints on wool textile and clothing exports since the early 1970s, in all cases with one per cent growth rates for all specific limits covering wool textiles and clothing. The United States had negotiated growth rates of less than one per cent for wool textiles, but had never negotiated growth rates above one per cent. These rates had been accepted by the TSB after US explanations of the difficulties facing the wool textile and clothing producers. It was noted that the US' first written submission and oral statement noted that the ATC "limits" the growth rate. To clarify, the ATC, through the Sutherland Note (see footnote 16), provided that the rate shall be "no less than" 2 per cent in the context of Article 6.13 of the ATC. Similarly, Article 6.13 required that for other products the rate could be "no less than" 6 per cent. As such, the US' argument was that the minimum threshold for wool products under the ATC was considerably less than the minimum threshold for other fibres because of the import sensitivity of wool in importing Members, particularly in the United States.

5.75 India stressed that the MFA had not provided any explicit statements concerning the vulnerability of the wool sector to harm caused by even modest increases in imports. The MFA did recognize small markets which did not refer to particular products within the overall market. Therefore, in the absence of any data supporting the US conclusion of the vulnerability of wool products in the US' market, the application of the minimum allowable rate of two per cent and the request for consultations at low levels based on the vulnerability of the wool sector had no validity in the actions taken by the United States on category 440 from India.

(ii) What Constitutes the Domestic Market

5.76 India argued that most of the facts which the United States had submitted first to India during the course of the consultations to support its claim of "serious damage", and subsequently to the TMB to support the later claim of "actual threat of serious damage", did not relate to the state of the industry producing woven wool shirts and blouses, but to the state of the industry producing woven shirts and blouses generally. These data would be irrelevant because the ATC required the United States to demonstrate that the particular industry producing woven wool shirts and blouses had suffered serious damage or threat thereof. That particular industry, however, represented less than one per cent of the employment in the industry producing woven shirts and blouses generally. The state of that industry gave, therefore, no indication of the state of the particular industry to be protected by the restraints on imports of woven wool shirts and blouses. The United States had submitted only two pieces of data that related to the particular industry designed to be protected by its safeguard action, namely, the data showing that in the first nine months of 1994, imports of woven wool shirts and blouses had increased to 92,000 dozen from a level of 43,000 dozen, i.e. an increase of 114 per cent, while domestic production of these products had marginally declined by 5,000 dozen from 66,000 dozen, that is by 8 per cent. Other information specifically related to the woven wool shirt and blouse industry on which the United States had based its determination was not positive evidence but mere allegation, including the "finding" that "production capacity of several companies had declined" without ascertaining the overall changes in capacity and the fact that it produced 5,000 dozen woven wool shirts and blouses less during a brief period of time.

5.77 India also noted that, with respect to market share loss, the US Market Statement stated that "the share of the US woven wool shirt and blouse market held by domestic manufacturers fell from 53 per cent in 1993 to 40 per cent in 1994". In Table II of the Market Statement, the term "market" was used to describe an artificial construct based on the sum of imports and domestic production, not the total quantity of woven wool shirts and blouses purchased by United States consumers. This resulted in misleading conclusions when a substantial share of domestic production was exported, as was the case for the United States industry. In the view of India, a portion of United States domestic production of woven wool shirts and blouses was exported and, therefore, must be subtracted from production figures to arrive at the portion of domestic production supplied to United States' consumers. In addition to the portion of domestic production that was not exported, domestic consumers may purchase from imported sources. The domestic market (consumption) for woven wool shirts and blouses, therefore, constituted domestic production minus exports plus imports. To determine changes in the share of imports in the domestic market, it was, consequently, necessary to examine not only changes in production and imports but also changes in exports.

5.78 Concerning the above, the United States explained that, for some time, CITA had treated the total market for a textile or clothing category as production plus imports. Similar market share findings by CITA had long been accepted by the TSB in their examination of requests by the United States. CITA had found that the market share held by domestic producers had declined in the face of surging total imports from 53 to 40 per cent. These data were public information in the Department of Commerce's publication on US imports, production, markets, import penetration rates and domestic market shares for textile and clothing product categories. India had contended that the information examined by CITA on market share was irrelevant or otherwise deficient, particularly because the market examined by CITA had not included changes in the quantity of exports. The US had repeatedly informed India, the TMB and the Panel that US export quantity data was unreliable because of the low incentive of exporters to report the data. This fact was neither new nor unique to the United States as the export data from many other Members suffered from the same problems.

5.79 The United States also noted the comparability limitation in all of its wool clothing categories. This situation was long­standing, going back to the creation of the wool clothing category system when it was determined that imported clothing of fibres other than wool but containing greater than 17 per cent by value of wool actually competed in the same market as domestically produced wool clothing, which for production data purposes had always been defined as 51 per cent or greater of wool by weight. When the United States adopted the Harmonized Tariff Schedule (HTS) in January 1989, this definition was retained in shifting from a chief value to a chief weight system by altering the definition for imported wool clothing to those containing 36 per cent or greater of wool by weight. With full awareness of the anomaly in the data, CITA had considered the situation in the domestic woven wool shirt and blouse industry, as described in the definition of the US domestic industry production data it examined, i.e. woven wool shirts and blouses with 51 per cent or greater wool content. Although the import data included like and competitive products with a wool content as low as 36 per cent, there was no indication, in the record before CITA, the TMB or the Panel that imported lower wool content products did not compete with or negatively impact upon the domestic industry. The United States also noted that products from India were actually chiefly 51 per cent or more wool and the US industry was not producing less than 51 per cent wool.

(iii) Products Manufactured Domestically

5.80 India considered that the US has mischaracterized the industry that CITA had claimed as comparable to imports in category 440. In the US Market Statement, that industry was characterized as producing woven shirts and blouses of wool fabric. However, according to the US Correlation describing products assigned to imports in category 440, it was noted that woven shirts and blouses of man­made fibre fabric were included if the fabric contained 36 per cent or more by weight of wool. These man­made fibre woven shirts or blouses accounted for 15 to 25 per cent of all US imports in category 440 but none of these blended man­made fibre/wool shirts or blouses were included in the US production or employment data. According to the official Department of Commerce export data, over 35,000 dozen of the man­made fibre shirts containing 36 per cent by weight of wool were exported in 1993. The complete exclusion of export data in conjunction with the production and market data in relation to category 440 made any conclusion regarding the linkage between imports and production for the domestic market extremely questionable.

5.81 In this regard, the United States argued that it had not mischaracterized the industry producing woven wool shirts and blouses and that it was comparable to imports in category 440. As the US had pointed out, CITA was well aware of this comparability limitation in all of its wool clothing categories. The background of this situation was well documented in the US submission. It was important to point out that the current definitions underlying the import category system have been in place for many years, was well known to all of the major participants in international textile trade and had been explicitly accepted and agreed under the MFA and the ATC. India fully understood the US category system and was thoroughly familiar with the data that CITA employed to arrive at its determinations. It was disingenuous for India to suggest that the United States "has mischaracterized the industry" and that the information the United States provided contained "significant oversights". Furthermore, given the definition of wool clothing for production data purposes, there had never been any attempt to collect domestic production data on woven man­made fibre shirts and blouses containing 36 per cent or more by weight wool. Moreover, the United States has previously stated that the US industry, as defined by the production data corresponding to category 440, did not and had never manufactured this clothing. This fact was not controverted by the existence of a US export classification that identified man­made fibre clothing containing 36 per cent or more by weight of wool. Likewise, India's use of these export data, elsewhere shown by the United States to be erroneous, did not alter the conclusion that the US industry, as defined, did not produce such clothing.

5.82 The United States further explained that US domestic manufacturers of woven wool shirts and blouses did not produce this clothing in blends of greater than 36 and less than 50 per cent by weight of wool. The majority of the woven wool shirts and blouses produced in the US was 100 per cent wool; the few products with man-made fibre blends were of more than 50 per cent by weight of wool. Therefore, the production data provided in the Market Statement related only to "wool rich" woven shirts and blouses. Official data on export quantities could not be relied upon while estimates by industry sources indicated that less than 10 percent of US woven wool shirt and blouse production was exported. Therefore, since the domestic manufacturers produced only chief weight wool woven shirts and blouses, it could be concluded that no shirts of 36 per cent or more but less than 50 per cent or more by weight wool were exported. US imports of woven shirts and blouses containing 36 per cent or more by weight of wool were deemed to be wool garments, as such, they competed directly with other domestically produced or imported woven wool shirts and blouses in category 440.

Data on Domestic Production

5.83 India noted that, in contrast to the declining production in the wool segment of the industry, production in the industry as a whole had risen from 30,509 thousand dozen in 1993 to 32,767 thousand dozen in 1994, an increase of 7.4 per cent. Declining production in the wool sector might, in fact, be explained by the rising production in shirts and blouses made from fibres other than wool, as machines were shifted from wool production lines to other lines. A plausible explanation for the shift in production within the woven shirts and blouses industry was the commercial attraction of other product lines and not increased imports. If the United States industry had been unable or unwilling to respond to the upsurge in United States consumer demand for woven wool shirts and blouses, this was not an indication of "serious damage" from imports. Also, if high capacity utilization in the production of other fibres had made more commercial sense to the woven shirt and blouse industry than the production of wool shirts and blouses, a market which had been shrinking for twelve years, then the marginal decline in the production of wool shirts and blouses could not possibly be attributed to increasing imports. According to Article 6.2 serious damage or actual threat thereof must demonstrably not be caused by "such other factors as technological change or changes in consumer preference". The statement of serious damage clearly did not constitute a good faith effort to fulfil that requirement.

5.84 In a response to the Panel, India explained its view that there was a demonstrable lack of correlation between changes in imports and changes in US domestic production and that, in general, the level of US domestic production had not changed in proportion to the level of imports. It was not correct, in India's view, to assume that this decline was caused by an increase in imports. In the Market Statement it was stated that "there are approximately 748 establishments in the United States that manufacture woven shirts and blouses including shirts and blouses made from wool". The official data on US production indicated that the total production of woven shirts and blouses had increased from 29.6 million dozen in 1992 to 30.8 million dozen in 1993, an increase of 4 per cent, and production in 1994 had grown by 5.9 per cent over the 1993 level to 32.6 million dozen. These data would indicate that the US industry producing woven shirts and blouses had increased production during the period from 1992 to 1994. India argued that a decision by these establishments as to the selection of fibre and fibre blends might have changed, but the fact that the actual production of these woven shirts and blouses had increased could not be denied.

Source: US Submission, 20 September 1996

5.85 India noted with respect to the above Table that the United States had excluded the data for 1992 which was available at the time of the Market Statement. The 1992 data would show that production had increased from 1992 to 1993 as had imports. Thus, the correlation between production declines and import increases was not demonstrated. Furthermore, if the US were to have included the export data as well, there would be significant changes in CITA's reported size of the market and perhaps different conclusions concerning the impact of declining exports on the level of US production. In India's opinion, based on the available official US data, the declining export levels would have had a greater impact on this sub­industry than any other feature. In addition, the US should have noted that the production data presented in its Table did not include any man­made fibre woven shirts and blouses containing 36 per cent or more by weight wool, while between 15 to 25 per cent of the import data contained these particular products.

5.86 In response, the United States explained that the 1992 production data for woven wool shirts and blouses that was available at the time of the April 1995 request was preliminary data. Since the preliminary data was being reviewed at that time and final 1992 production numbers would be published shortly thereafter, the United States chose not to include the preliminary 1992 production number in the Market Statement. Production data for wool clothing categories was small compared to production data for other clothing categories. Given the small quantities of wool clothing production, even minor revisions to the preliminary production numbers could result in significantly different final production numbers. However, in the particular case of category 440, woven wool shirts and blouses, the final 1992 production number was the same as the preliminary number: 80,000 dozen.

5.87 Commenting further on the above points, the United States considered that India was introducing US export data identifying shipments of man­made fibre shirts containing 36 per cent or more wool as evidence of US production of these shirts and in support of its argument that a decline in exports of these shirts accounted for the observed decline in woven wool shirt and blouse production by the US industry. The United States pointed out that it had previously stated that the US industry under consideration in this case did not and had never manufactured the clothing of low wool content defined by this export classification. Moreover, the United States had repeatedly pointed out the unreliability and inaccuracy of US export data in quantity terms, making this information unsuitable for analytical purposes.

5.88 India noted that the US had rejected its contention that a given decline in production might have been the result of reduced export demand but insisted that the decline in US exports was official and indicated a precipitous decline from 1992 to 1993 to 1994. These data appeared not only in the US Department of Commerce, Bureau of Census data, but also in the US Department of Agriculture data.

5.89 The United States replied to a question by India concerning the decline in domestic production of 5,000 dozen units in the first nine months of 1994 while imports more than doubled to 92,000 dozen in the same period in relation to the trend of the past decade when domestic production had not varied in proportion to imports. In the US view, the production data for category 440 was not comparable with data prior to 1992. However, the data made available to the TMB in August 1995 showed that for the three comparable, consecutive calendar years of production and import data, the proportion of imports to domestic production had more than tripled, increasing from 56 per cent in 1992 to 191 per cent in 1994.

TO CONTINUE WITH USA - MEASURE AFFECTING IMPORTS OF WOVEN WOOL SHIRTS AND BLOUSES FROM INDIA

¹⁶ See Note for the Record dated 16 December 1993, Chairman Peter D. Sutherland, Trade Negotiations Committee, General Agreement on Tariffs and Trade, reprinted in G/TMB/N/107, 30 June 1995.