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CTG to discuss ATC integration process, post-ATC adjustment

Geneva, 24 Sep (Chakravarthi Raghavan) - The WTO Council for Trade in Goods (CTG) when it meets on 1 October for a one-day session to undertakes the major review of the third stage of the integration process of the Textiles and Clothing trade into the WTO/GATT rules (as mandated by Art.8.11 of the Agreement on Textiles and Clothing, ATC) it will also have before it another agenda item: ‘Post-ATC Adjustment-Related Issues.’

This last item would appear to be based on a letter for such an item that was received from Mauritius and one or two others, but has been brought on the agenda in this form, rather than as usual, as a letter from a member or some members - and possible procedural problems.

The draft agenda that has been issued has however to be agreed to at the CTG.

All sides to this debate will be able to cite a confusing (and misleading) set of data that have come out from the World Trade Organization - in reports, ‘studies’ and documentation - as well as the even more contradictory data from some of the major importing countries (in their national currencies). The three WTO reports and documents, their data and conclusions, that will figure include the August WTO study, in its discussion papers series, the World Trade Report 2004, the WTO’s Annual International Trade Statistics (the 2004 edition has not yet been published, and the latest one is of 2003), and the ‘background statistical information’ document for the CTG issued on 20 September.

More on these later.

The item ‘post-ATC Adjustment-Related Issues’ has been brought on the draft agenda (which under the WTO rules is prepared by the Chairman of the CTG and the WTO Director-General), as a result apparently of informal consultations over two letters from Mauritius and its trade minister.

For several months this year, the textiles and clothing industries of the US, Europe and Canada, have been organising and agitating for continuance of the quota regime, and in a series of meetings with trade and industry in several of the countries that have benefited by the present situation, have been lobbying at the WTO.

Mauritius Trade Minister Cuttaree had in a July letter to the WTO Director-General had brought up the problem that several of the economies like it, which had benefited by the 10-year ATC quota regime and (rentier incomes generated by it), will now be faced from the end of 2004, with problems of adjustment to normal GATT/WTO trade rules. The item on ‘post-ATC adjustment’ has come on the CTG draft agenda as a result.

While Mauritius has become identified as a major protagonist in this matter, in fact there are a number of others, now benefiting from this ‘managed’ trade, who are in fact behind it - Mexico, Turkey and a few others.

A group of them, some 22 countries, reportedly met informally at the WTO Friday.  A few of them are hoping or planning to have discussions with China and India before the CTG meeting.

The ATC had been negotiated and agreed to, as part of the Uruguay Round agreement, and provided for a 10-year process of progressive liberalization and integration, with the quotas and quota regimes in the major importing economies that had been restraining this trade previously under successive versions of the Multifibre Agreement and its discriminatory quota regimes.

The ATC’s intention had been that the 10-year transition period would enable the US, Europe and Canada, to undertake the necessary structural adjustment of their domestic textiles and clothing industry (by a gradual and progressive liberalization) to normal trade rules.

However, the three majors back-loaded the integration process, so that a substantial part of the restraints on trade would prevail till the last day of the 10-year transition, and disappear overnight.

In this way, the industry in the US, Europe and Canada got ten extra years of protection and export subsidies (from the consumers who paid higher prices, and from the tariffs foregone in several of the outward processing arrangements), but are now faced overnight with a predicted adjustment problem.

Over the ten years, as a result of these restraints through quotas of the trade of some of the main competitive economies in this sector (China, India and a few other Asians), the industry in the North (and even some of the international financial institutions) encouraged the establishment of clothing and exporting units in a number of economies, like Mauritius, sheltered by the various quota regimes and the outward processing and preferential trade agreements and discriminatory rules of origin used to administer the quota regimes by the majors.

While a number of least developed countries, and some like Mauritius have become identified with the attempt to continue in some form the managed trade regime, behind them are also some of the countries like Mexico which has benefitted considerably by the NAFTA and the preferential access for its trade into the US market; Turkey with its customs union with Europe and again its own trade arrangements with the US has also benefited.

These will now face overnight the cold winds of competition - and there is an attempt to suggest that the beneficiaries of the end of the quota regimes (China and India) should somehow compensate the ‘losers’ from the end of the quota regime.

No one doubts that some of these beneficiaries of the quota regime, like Mauiritius or Bangladesh, will now face problems; but the substantial question is who is to compensate them: those other developing countries who have been losing by facing discriminatory trade regimes and quotas all these years and may benefit now, or the governments of the US, EU and Canada, and the industries in these countries that have benefited from the protection?

And while there will be some of these developing countries who will face sudden problems, and need assistance from the rich nations and their institutions - not in the form of loans (bilateral or multilateral) that will add to their debt burdens and have to be repaid, but in the form of grants to adjust - it is difficult to argue that other developing countries should do so, and agree on this.

Also, sheltering behind a Mauritius or Bangladesh or even Sri Lanka and their problems, are those like Mexico which benefited enormously (at the expense of other poorer developing counries) since 1994 because of the NAFTA preferences and free trade, and the restraints placed on competitors like China and India, or even some of the central American and Caribbean, and Latin American countries.

In 1990, when the old regimes applied to it, Mexico had textiles and clothing exports to the US (US official figures) of about 0.7 billion in 1990, and this jumped to $1.9 billion and $3.0 billion after respectively NAFTA and the WTO and the ATC, and the US origin rules that applied to China, India etc. In 2000, Mexico’s textiles and clothing exports (most clothing in the maquiladora industries) was $9.7 billion.

China’s exports to the US in 1990 was $3.6 billion, in 1994 it was $4.9 billion, in 1995 it was $4.8 billion and has been in the 5 to 6.5 billion dollar range from 1997 to 2000.

In the case of India, it was $0.8 billion in 1990, $1.5 billion in 1994, $1.6 billion in 1995, $1.7 billion in 1996, $2.0 billion in 1997, $2.3 billion in 1998, $2.4 billion in 1999 and $2.7 billion in 2000.

In regard to the WTO data itself, the three WTO documents, use the SITC classification divisions 65 and 84 - products thus grouped do not correspond to the definitions of textiles and clothing items under the ATC.

The division 64 has data under textile: yarn, fabrics, as well as clothing items, made-up articles and related products. The division 84 has data under clothing; but under the SITC this includes not only clothing under the various textiles (natural and synthetics), but also leather clothing - which neither for tariffs nor for the ATC quota regime come under clothing.

While the explanatory notes to the WTO’s annual International Trade Statistics and the document on textiles and clothing trade for the CTG mention that ‘textiles’ means the SITC division 64, and clothing division 84, these vagaries and departures from the ATC definitions of the trade do not figure anywhere.

That the WTO has been unable, after ten years, to require and collate from its members data on some uniform and common basis in accord with the classifications of the WTO agreements is a commentary on the WTO, its membership and its research and statistical divisions.

It is not known whether at any stage, before the WTO or after, the WTO secretariat had brought up before the UN committees dealing with statistics, the need to get trade data on a basis that would serve the interests of the WTO negotiators - it has been done neither for the services trade nor, as is evident now, on textiles and clothing trade.

Nor is it known whether at any stage, the WTO Budget Committee (which looks at budget requests for various divisions and programmes) has been advised of this problem, or discussed it on its own.

And while, the WTO for its International Trade Statistics, provides the trade data, not only of the EU member’s exports to the outside world, but also the ‘intra-trade’ or the trade among the EU members, in the statistical document for the CTG for at least two tables, where it is relevant, the EU intra-trade is not given.

As a result, for example, according to the WTO International Trade Statistics 2003, the total value of the world textiles and clothing trade in 2002 was $353 billion, whereas according to the statistical data provided to the CTG now it is only $290 billion.

Anyone using or citing these documents and data (without the explanatory notes or the footnotes), will be basing themselves on misleading information.

In the study, No. 5 in the Discussion Paper series, published in early August, the WTO gave one set of data about the trade under the ATC, and the likely ‘overnight’ effect (to the benefit of China and India) when the ATC ceases to operate.

The staff study, also took the GTAP database data for the trade in textiles and clothing for 1997 (under the quota regime) and did a modelling exercise of the ‘rentier’ incomes from the quota regimes, and used it to calculate what would have been the trade shares if there had been no quotas and applied the outcome as post-ATC, implying this would be the situation in 2005.

This was not made clear anywhere in the study.

In fact the study was also otherwise very misleading, in the data base used (GTAP 1997), as well as the way the effects of the various trade policies and quota regimes on countries were dealt with to draw some conclusions about trade under ATC and post.ATC - ignoring the problems of trade policy like rules of origin of the (US) that came into force along with the WTO and the ATC, of the various outward processing agreements and favourable tax treatment for fabrics exported and made-up apparel from these were imported, and the preferential rules of origin of the US Africa Growth and Opportunity Act (AGOA) and the EC’s various preferential regimes.

The US AGOA enabled the least developed country beneficiaries in Africa to use fabrics (without restrictions on origin) convert them into apparel and export duty free to the US (thus giving a competitive advantage to Lesotho for example), while other beneficiaries of AGOA (who got preferential tariffs) like Mauiritius could benefit only if they imported costlier textiles and fabrics from the US, made them into clothes and exported them back.

Similarly, the EC’s web of preferential schemes - GSP, duty-free-quota-free treatment for LDCs under the ‘Everything But Arms’ initiative, as well as the ACP and such other preference schemes - has come in the way of full use of preferences by Mauritius or Bangladesh.

There is no indication of any of these in the Staff Discussion paper.

However, in the World Trade Report 2004 (which also is a product of the Research division) and published on 16 September, in dealing with preferences, these problems of Mauritius visavis say Lesotho and other LDC beneficiaries of AGOA is brought out.

Surely, the staff discussion paper and the WTR, have both been overseen by the Director and others who were aware of these discrepancies, but chose neither to mention them in the staff paper nor the other way around.

It creates two doubts - whether it is a case of lack of professional competence, or something worse.

Either way it also brings into question the credibility of the WTO, and the inability of those at the top (like the Director-General and his Deputies) to ensure that the institution and staff act objectively and impartially, serving the needs and interests of all the members – SUNS5653

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