IMPORTANT ISSUSE OF WTO

TEXTILE AND CLOTHING

Iternational textiles and clothing trade is going through fundamental change under the 10year transitional programme beginning 1 January 1995 and set out in the WTO's Agreement
on Textiles and Clothing (ATC). Before the agreement took effect, quotas controlled a large
portion of trade in the sector. Under the agreement, WTO members have committed
themselves to remove the quotas and to integrate the sector fully into GATT rules by 1
January 2005. That would also mean observing the GATT principle of nondiscriminatio Textiles remains one of the hardest-fought issues in the GATT and WTO. For
many developing countries it was the prospect of ending the quota system that encouraged
them to agree to negotiate the new issues of intellectual property, services and investment in
the Uruguay Round. In the run-up to the 1996 Singapore Ministerial Conference, textiles
again became a focus of attention for many members. Detailed and lengthy discussions were
held in the WTO's Goods Council about the implementation of the textiles agreement and
related issues.
Textiles and clothing account for about 9.1 per cent of world manufactured goods exports
or of 6.5 per cent of all merchandise exports. According to an estimate in 1994 by what was
then the GATT Secretariat, the removal of quotas and a reduction in tariffs could add
18 per cent to the value of trade in textiles (excluding clothing) by 2005. Liberalization under
the WTO would increase the value of clothing trade by as much as 69 per cent. This growth
is a major factor behind the estimated 14-37 per cent expansion in exports calculated to
accrue to developing and transitional economy countries as a result of the Uruguay Round.

Multifibre Arrangement 1974-94

Up to the end of the Uruguay Round, textiles quotas were negotiated bilaterally and
governed by the Multifibre Arrangement (MFA). This contained rules for the imposition of
selective quantitative restraints when surges in imports caused, or threatened to cause, market
disruption. The quotas incorporated annual growth rates, the standard rate being 6 per cent,
although the actual rates varied considerably. The Multifibre Arrangement was a major
departure from the basic GATT rules, and particularly the principle of non-discrimination. It
has now been replaced by the WTO's Agreement on Textiles and Clothing and the 10-year
liberalization programme. All quotas, as well as their growth
rates, existing under the Multifibre Arrangement on 31 December 1994 were carried over
into the WTO agreement, but their levels will automatically increase during the 10-year
transition period.

The WTO Agreement on Textiles and Clothing 1995-2005

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

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

Quotas and integration:

Developing countries say the importing countries are using the four-step schedule to
postpone until the last day the integration of the bulk of commercially meaningful items.
According to the exporters, this means that for most of the 10-year period they will gain
little. They cite the fact that the integration programmes of 1 January 1995 saw only one
quota actually removed _ a quota imposed on work gloves imported into Canada. By leaving
the bulk of commercially meaningful integration until the end of the transition period, the
importing countries run the risk that the last stage will be too difficult for them to implement
on schedule, the developing countries add.
The importers say the emphasis on removal of quotas paints an incomplete picture because
gradual liberalization is already taking place through the increased growth rates of the quota
levels that remain in force. Some negotiators have argued that in some cases the accelerated

growth will make the quotas so large as to be non-binding before the end of the transition
period.

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

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

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

full cooperation and argue that a main problem is the subjective manner in which the relevant
rules are implemented.

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

Textiles Monitoring Body:

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

ELECTONIC COMMERCE
In 1998, the World Trade Organization (WTO) General Council launched a Work Program
on Electronic Commerce, under which four subsidiary bodies were established: the
Council for Trade in Services; the Council for Trade in Goods; the Council for TradeRelated Aspects of Intellectual Property Rights (TRIPS); and the Committee for Trade and
Development. These were directed to explore a variety of trade-related aspects of ecommerce and to report back to the General Council. They have since looked at a number
of important matters, but many of these are horizontal or cross-cutting issues beyond the
scope of a single subsidiary body. For this reason e-commerce is also being discussed in a
series of dedicated discussions on the topic, under the auspices of the General Council.
A key objective of the WTO Work Program is greater clarity in applying international
trade rules to e-commerce. The ongoing dialogue focuses on measures that can be taken to
facilitate the growth of e-commerce, reduce impediments to trade and realize the potential
benefits of electronic commerce for all WTO Members.
E-commerce will be able to expand with the adoption of improved market access
commitments for relevant goods and services sectorssomething that Canada is actively
pursuing.
Overall, Canadas objectives with respect to e-commerce trade policy are to:

Engage other Members in ongoing WTO discussions aimed at ensuring greater legal
certainty in the application of international trade rules to e-commerce.

Seek to develop key deliverables on e-commerce, including guiding general or highlevel principles with the aim of serving the needs of developed and developing
countries alike.

E Commerce Trade Policy Issues

One of the more contentious issues within WTO discussions on e-commerce is the question
of whether electronically delivered products, such as software, music and books, represent
goods or services according to international trade rules. Canada has not yet taken a position
on the classification of electronic deliverables with a physical equivalent, but it has been
examining the issue. In May 2002, under the auspices of the second dedicated discussion on
e-commerce, Canada presented a "non-paper" on the classification of software delivered
electronically; this sought to explore key issues and encourage discussion.
Members have also been looking at a number of e-commerce trade policy questions,
including the following:

Which mode of services supply best describes an e-commerce transaction: crossborder supply, where the supplier enters the jurisdiction of the consumer; or
consumption abroad, where the consumer enters the jurisdiction of the supplier?

How should international trade agreements approach the issue of domestic

regulation as it relates to e-commerce? What types of measures might represent
barriers to international trade? What measures might be needed to create a legal and
policy environment that ensures business and public confidence?

Should the current moratorium on customs duties applied to electronic transmissions

be extended?

How should WTO Members deal with intellectual property issues posed by ecommerce?

Do existing trade agreements (e.g. the General Agreement on Trade in Services)

adequately provide for the classification and scheduling of so-called "new services"
that arise in the context of electronic commerce? Examples might include application
service providers (ASPs), data warehousing, and application hosting.

Do the means of delivery of a service alter specific commitments made under

existing international trade agreements?