|
|
espa�ol - fran�ais - portugu�s |
Search
|
AND MANMADE FIBRE UNDERWEAR
Report of the Panel
The report of the Panel on United
States Restrictions on Imports of Cotton and ManMade
Fibre Underwear is being circulated to all Members, pursuant to
the DSU. The report is being circulated as an unrestricted document
from 8 November 1996 pursuant to the Procedures for the Circulation
and Derestriction of WTO Documents (WT/L/160/Rev.1). Members
are reminded that in accordance with the DSU only parties to the
dispute may appeal a panel report, an appeal shall be limited
to issues of law covered in the panel report and legal interpretations
developed by the panel, and that there shall be no ex parte
communications with the panel or Appellate Body concerning matters
under consideration by the panel or Appellate Body.
II Factual Aspects
- Guaranteed Access Levels - Specific Limits - Chronology of Events - Review by the TMB - Further Consultations - Action Under the Dispute Settlement Understanding
V Main Arguments by the Parties
(March 1995 Market Statement) - Attribution to Exporting Countries - Consultations with Costa Rica
- The July 1995 Market Statement - Outcome of the TMB review
- Applying the "Fur Felt Hat" Case to the Present Case - Views of Costa Rica on Standard of Review - Views of Authors Relating to Standard of Review - Relationship to Other GATT Provisions - Deference to National Authorities 24 - Burden of Proof E. Requirements for the Application of a Safeguard Measure
- Increase in Imports into the United States - Application of Safeguard to Individual Member(s) - Obligation of Demonstration Fulfilment of Substantive Requirements - Consultations on Safeguard - Data Required for Consultations and Other Relevant Information
- The July 1995 Market Statement - Analysis of March and July Market Statements - The Counting of Re-imports
- The US Policy in Applying the Safeguard
- The Nature of Costa Rica's Exports
K. Effective Date of the Restriction L. Article 2 of the ATC M. A Member Must Endeavour to Accept Recommendations of the TMB 64 N. Nullification or Impairment of Benefits VII Findings
- Main Substantive Claims
- Burden of Proof - The Interpretation of the ATC - The Structure of Article 6 of the ATC
- Serious Damage - Overview - Output (US Production) - Market Share (Market Share Loss/Import Penetration) - Employment - Man-Hours - Sales - Profits - Investment - Utilization of Capacity - Prices - Causality - Attribution of Serious Damage to Costa Rica E. Other Claims
- Obligation to Consult - Date of Application of the Restriction - Article 2.4 of the ATC - Article 8 of the ATC ANNEX: March 1995 Market Statement
I INTRODUCTION
1.1 On 22 December 1995,
Costa Rica requested consultations with the United States
under Article 4 and other relevant provisions of the Understanding
on Rules and Procedures Governing the Settlement of Disputes
(DSU), Article XXIII of the General Agreement on Tariffs
and Trade 1994 (GATT 1994) and the corresponding provisions
of the Agreement on Textiles and Clothing (ATC) (WT/DS24/1).
Consultations were held on 18 January and 1 February 1996,
however, no mutually satisfactory solution was reached. On 22 February 1996,
Costa Rica requested the establishment of a panel (WT/DS24/2)
which was considered by the DSB at its meeting on 5 March 1996
(WT/DSB/M/12). The Dispute Settlement Body (DSB) accordingly
agreed to establish a panel with standard terms of reference in
accordance with Article 6 of the DSU.
1.2 On 19 April 1996,
the DSB was informed that the terms of reference and the composition
of the Panel (WT/DS24/3) were as follows:
Terms of Reference
Composition
1.3 The Panel heard the parties to the dispute on 2425 June 1996 and 29 July 1996. The Panel also met with the parties on 15 October 1996 to review aspects of the interim report, at the request of the parties. The Panel submitted its complete findings and conclusions to the parties to the dispute on 25 October 1996.
* * * * *
II FACTUAL ASPECTS
Outward Processing Regime:
"807 Trade" and "Guaranteed Access Levels"
2.1 In the course of the last
six years, there has been a significant change in the US cotton
and man-made fibre underwear manufacturing industry which has
significantly switched from producing and assembling underwear
domestically to producing components in the United States for
assembly in other countries and subsequent return to the same
enterprises in the United States for marketing. This pattern
of coproduction has enabled the companies in this industry
to maintain their share of the US market by making use of the
labour force available outside the country while at the same time
controlling the source of raw materials, the production timetable,
the types and amounts of underwear to be produced and the marketing
of the final product. Moreover, these co-production operations
were consistent with the policies of the United States, which
was encouraging investment and production in Mexico and the Caribbean
Basin.
2.2 Item 9802.00.80 of the Harmonized
Tariff Schedule of the United States (HTSUS)1 provides for
reimportation into the US of goods that have been assembled
abroad from USmade components; it provides the basis for
a type of outward processing regime which enables US manufacturers
of relatively labourintensive products to export US parts
for assembly abroad and return of the assembled products to the
United States with partial exemption from US duties. This programme
is not limited to apparel, although it is widely used in apparel
trade because of the high labour content and the substantial US
duties on apparel imports. To qualify for partial duty exemption
under item 9802.00.80, articles must be assembled abroad in whole
or in part of fabricated components, the product of the United
States, which has been exported in condition ready for assembly
without further fabrication; has not lost its physical identity
in such articles by change in form, shape or otherwise; and has
not been advanced in value or improved in condition abroad except
by being assembled and except by operations incidental to the
assembly process such as cleaning, lubricating and painting.
2.3 The exported articles used
in the imported goods must be "fabricated US components,"
i.e., manufactured articles ready for assembly in their exported
condition, except for operations incidental to the assembly process.
Integrated circuits, compressors, zippers, buttons and precut
or preformed sections of a garment are examples of fabricated
components in this sense. To be considered "US components,"
the exported articles do not necessarily need to be fabricated
from materials or components wholly made in the United States.
If a foreign product undergoes processing in the United States
sufficient to confer US origin for customs purposes, then the
resulting processed goods may be exported, assembled abroad and
reimported and still qualify for partial duty exemption
under item 9802.00.80. Thus, in an 807 operation, the cloth
can come from any country in the world: what is important is
to have it cut in the United States. There is no obligation
to reimport the articles assembled abroad into the United
States; producers of underwear assembled from US components could
sell the underwear to any market in the world.
2.4 An article imported under
item 9802.00.80 is treated as a foreign article for customs purposes
and recorded as a foreign article in US import statistics. Chapter 98,
Subchapter II, Note 2 of the HTSUS, provides that any
product of the US which is returned after having been advanced
in value or improved in condition abroad, or assembled abroad,
shall be a "foreign article" for the purposes of the
Tariff Act of 1930, as amended. It is not legally of US origin
even if the pieces of a garment reimported are cut in the
United States. This rule has been provided as an explicit exception
to the US rule of origin for textiles and apparel, in force up
to 30 June 1996, which normally deems such products
to originate from the place where garment pieces are cut. This
exception remains even in the revised rules of origin for textiles
which took effect on 1 July 1996. HTSUS Note 2 also
provided that textile or apparel articles are to be treated as
foreign articles even if they are assembled or processed in whole
of fabricated components that are a product of the United States
or are processed in whole of ingredients (other than water) that
are a product of the United States, in beneficiary countries
of the Caribbean Basin Initiative.
2.5 An article imported under
item 9802.00.80 is dutiable under the rate otherwise applicable
to the assembled product, but the dutiable value is reduced by
deducting the cost or value of the exported fabricated components
from the value of the imported assembled product. For instance,
the underwear reimports in the present case are subject
to customs duties at the rate applicable to underwear, but their
customs value is reduced by deducting the cost or value of the
exported garment sections, elastic, zippers, buttons, thread,
etc. used in assembling the underwear in Costa Rica. The duty
reduction (which is not regulated by the ATC) is a key factor
in making the offshore assembly operations in Costa Rica economically
viable. The "807" programme is not mandated by tax,
social or industrial requirements. However, the underlying intent
encompasses a variety of broader social and economic objectives,
such as aiding structural adjustment, assisting the economic development
of foreign countries, maintaining the competitiveness of US industry,
lowering prices for consumers, and reducing the tax burden on
US companies.
Guaranteed Access Levels
2.6 Guaranteed Access Levels,
or GALs, are provided for textile reimports under the US
Special Access Programme, a programme designed to develop and
expand manufacturing in the Caribbean Basin, Andean Trade Preference
countries and Mexico (under the North American Free Trade Agreement
(NAFTA)) by allowing guaranteed access to the US market for reimports
of apparel made with fabric formed and cut in the United States.
The United States employs this programme as a form of "more
favourable treatment" for certain reimports - those
using US formed and cut fabric - as provided for in
Article 6.6(d) of the ATC. Under this programme, guaranteed
quota access ("GALs") for particular apparel products
are specified by agreement with the relevant exporting country.
Garment pieces cut in the United States from USformed fabric
(e.g. woven or knitted in the United States) are exported
to that country, where they are assembled; the apparel assembled
from them is guaranteed access to the United States at the negotiated
level, and is entered under HTSUS subparagraph 9802.00.8015, which
corresponds to the former Item 807A in the preHTSUS tariff
nomenclature. Entries must be accompanied by an ITA 370P
form, which certifies the facts necessary for eligibility of the
goods under this subparagraph. The Special Access Programme only
affects access to the US market for textiles and apparel articles,
and does not affect the effective duty rate for imports.
Specific Limits
2.7 A specific limit (SL) refers
to the level of restraint (quota) on the exports or imports of
the product in question during a set period of time. The ATC
provision setting out the method for calculating the applicable
restraint level is found in Article 6.8.
Chronology of Events
2.8 In early 1995 the United
States Committee for the Implementation of Textiles Agreements
(CITA) reviewed data on total imports of cotton and manmade
fibre underwear (category 352/652) and examined the state of the
domestic industry producing such goods. Based on the factors
examined, the CITA determined that there was a situation of serious
damage or actual threat thereof to the US underwear industry.
The United States attributed the serious damage or actual threat
thereof, to imports from seven countries, Colombia, Costa Rica,
Dominican Republic, El Salvador, Honduras, Thailand and Turkey.
(See Section V.A.)
2.9 Based on its findings, the
United States requested consultations on 27 March 1995
with, inter alia, Costa Rica on trade in cotton
and manmade fibre underwear (US textile category 352/652),
with a view to initiating the transitional safeguard procedure
for establishing a quantitative restriction on that product in
accordance with Article 6 of the ATC and provided a statement
of serious damage setting out the factual information in the matter
(Annex). The United States proposed a level of restraint
for underwear imports from Costa Rica pursuant to Article 6.8
of the ATC. On 21 April 1995, the United States
published the contents of the request for consultations, including
the restraint level and period, in the Federal Register.
2.10 Consultations were held
on 12 June 1995 at which the United States proposed
a twopart measure comprising a specific limit (SL) of 1.25 million dozen
and a guaranteed access level (GAL) of 20 million dozen.
Costa Rica did not consider that the United States had substantiated
its case under the provisions of the ATC and the consultations
did not result in a mutually acceptable solution.
2.11 On 22 June 1995,
the United States made a new proposal for the establishment of
a quantitative restriction at a level of 1.325 million dozen
specific level (SL) with annual growth of 6 per cent
and 20 million dozen GAL for 1996.
2.12 Because no mutual agreement
had been reached between the United States and Costa Rica by the
end of 30 days after the 60-day consultation period provided for
in Article 6.7 of the ATC, the United States implemented
a restraint on imports from Costa Rica effective 23 June 1995
for a 12month quota period starting 27 March 1995
and referred the matter to the Textiles Monitoring Body (TMB),
pursuant to Article 6.10 of the ATC.
2.13 On 10 July 1995,
the United States sent Costa Rica a further proposal for
a specific limit for 1996 of 3 million dozen with 6 per cent
annual growth and a guaranteed access level of 30 million
dozen. This proposal included a provision to reduce the specific
limit to 1.5 million dozen in the event the US Congress
passed a law providing for quotafree treatment for goods
from the Caribbean Basin that prescribed certain rules of origin
(the "ratchetdown" clause). Costa Rica continued
to question the basis for the request for a restriction and did
not respond to this proposal.
2.14 On 12 July 1995
the US made a proposal to Costa Rica with the same levels
as on 10 July but which did not specify the reduction in
the specific limit in the event of the abovementioned law
being passed and subjected reduction in SL to subsequent negotiations.
Review by the TMB
2.15 The TMB reviewed this case,
and others, in accordance with Article 6.10 of the ATC and
heard presentations from the United States, Costa Rica, Honduras,
Thailand and Turkey from 1321 July 1995. During
the proceedings, the United States provided updated data and other
relevant information (July 1995 Market Statement, see paragraphs 5.135-5.138).
These data were used to update the data presented in March so
that all of the data would be consistent with the reference period
of the call, the year ending in December 1994. The United States
also supplied the TMB with additional information requested by
Members subject to the call and by the TMB members concerning
the industry, re-imports and exports.
2.16 During its review of this
safeguard action by the United States against imports of category 352/652
from inter alia Costa Rica, the TMB found that serious
damage had not been demonstrated. The TMB could not, however,
reach consensus on the existence of actual threat of serious damage.
The TMB recommended that further consultations be held between
the United States and Costa Rica,
2.17 A new round of consultations
was held on 1617 August 1995 at which a number
of issues were raised by Costa Rica with respect to the justification
of US actions. The consultations did not produce an agreement
and both parties reported the situation to the TMB.
2.18 At its meeting on 1620 October 1995,
the TMB received reports from Costa Rica and the United States
on the bilateral consultations they had had following the TMB
recommendation. It took note of the reports and of the fact that
the two parties had not reached a mutual understanding during
the consultations. The TMB's discussions confirmed the Body's
previous findings in this matter; there being no further requests
by the parties involved, the TMB considered its review of the
matter completed (G/TMB/R/5).
Further Consultations
2.19 On 22 November 1995,
a further consultation was held at which the United States made
a new restraint proposal for a specific limit of 7 million
dozen (sublimit of 4 million dozen for knit products)
and a GAL of 40 million dozen for the period 1 April 1996
to 31 March 1997 and also including the previously mentioned
"ratchetdown" clause and 6 per cent
growth. Costa Rica submitted a proposal for a specific limit
of 21 million dozen for 1996 followed by a second
proposal fixing SL and GAL access for the period corresponding
to 19961997 at 15.4 and 40 million dozen
respectively. These were not accepted by the United States.
Thereafter, Costa Rica requested consultations under Article 4
of the DSU.
2.20 The restriction, augmented
by the application of a growth rate of 6 per cent was
renewed for a second 12-month period on 27 March 1996.
* * * * *
Action Under the Dispute
Settlement Understanding
2.21 On 22 December 1995,
Costa Rica requested the US Government to hold consultations
under Article 4 of the ATC and the other relevant provisions
of the DSU, Article XXIII of GATT 1994 and the corresponding
provisions of the ATC. The two countries met on two occasions,
on 18 January and 1 February 1996.
2.22 At the first of these meetings,
Costa Rica raised a number of questions, which it subsequently
submitted in writing, requesting the earliest possible written
reply. Moreover, reiterating its view that the call for consultations
was not justified under the ATC, Costa Rica again requested that
it be withdrawn. On 18 January 1996, Costa Rica proposed
establishing, instead of a restriction, a mechanism for monitoring
the composition and patterns of trade between the two countries
in the category in question. However, this suggestion was not
accepted by the United States.
2.23 At a meeting held on 1 February
1996 the United States made a new proposal to Costa Rica offering
access for 57 million dozen during the period 27 March
1995 to 30 September 1996. In addition, access for the 18-month
period from 1 October 1996 to 26 March 1998 would be fixed at
12 million dozen SL, with a sub-limit of 6.8 million dozen for
knitwear, and 30 million GAL. This restraint proposal included
a "ratchetdown" clause, in accordance with which
SL access would be reduced to 1.5 and 1.6 million dozen for each
of the periods covered by the restriction. Once again, Costa
Rica rejected this proposal as inconsistent with the corresponding
provisions of the ATC.
2.24 The period of 60 days for
consultations provided for in the DSU ended without any satisfactory
agreement having been reached between the parties, and the United
States continued to maintain its unilateral restrictions on the
products in question. Consequently, on 5 March 1996, Costa Rica
made a request to the DSB, which was granted, for the establishment
of a Panel.
* * * * * TO CONTINUE WITH USA - RESTRICTIONS ON IMPORTS OF COTTON AND MANMADE FIBRE UNDERWEAR
1 This provision is frequently referred to as "807 trade" as it was covered by that chapter in the former US tariff schedules. |
|