COSTA RICA UNDERWEAR FIGHT HEATS UP

Byline: Jim Ostroff

WASHINGTON — Costa Rica has asked the World Trade Organization to initiate a special dispute settlement process to help it resolve a hassle with the U.S. over underwear.
Ronald Saborio, Costa Rica’s ambassador to the WTO, on Friday notified Booth Gardner, his U.S. counterpart, that the Central American nation had invoked Article 23 of the WTO’s charter following months of fruitless — and reportedly acrimonious — talks with the U.S. on underwear quotas.
Under WTO rules, the U.S. has 10 working days from Dec. 22 to reply to the notice and another 20 working days to begin consultations. There is no deadline for completing this parley. But should no agreement be reached, the WTO provides for other mechanisms to resolve disputes, including arbitration by the director-general, a formal hearing panel and a Dispute Resolution Body. These groups could, in essence, order the U.S. to rescind a unilateral quota, although every effort would be made to resolve the dispute short of that.
Costa Rica’s action marks the first time since the WTO came into force in January that any trade dispute has moved to a “second level” of hearings. This summer, WTO’s Textiles Monitoring Body — designated under the WTO structure as the first body to hear textile-apparel disputes — ruled that U.S. underwear restraints, termed calls, made on Costa Rica and Honduras were taken without demonstrating that these imports threatened U.S. underwear makers. The TSB couldn’t agree unanimously, though, whether these imports might harm U.S. makers in the future and urged the two sides to resume talks. The controversies covered cotton and man-made fiber underwear, category 352/652.
The dispute with Honduras was settled with a bilateral pact, but talks between Costa Rica and the U.S. collapsed in late November. The U.S., according to reports in Costs Rica — bargaining against a unilateral underwear call level of 14.4 million dozen — first offered Costa Rica a quota of 3 million dozen in Specific Limit (SL) quota and 30 million dozen in Guaranteed Access Levels (GALs), then upped the regular quota to 7 million dozen with restrictions. An SL permits fabric from anywhere, cut anywhere, to be used for apparel exports. A GAL requires that U.S. formed and cut fabric be used and offers duty breaks, based on value added, when these apparel are imported to the U.S.
Costa Rica reportedly balked, noting that in pacts with four other nations the U.S. called in March on underwear, the SLs were about 50 percent higher than the call levels, and enormous GALs were offered, too.
Reportedly, Costa Rica sought an SL of 21 million dozen that was rejected by the U.S. in December. This leaves the 14.4 million dozen quota in place for 1996, a dire development for Costa Rican makers, most of whom are U.S. apparel firms, since annual trade now is reaching the 17 million dozen level.
Sara Lee, for one, reportedly produced more than 60 percent of Costa Rica’s underwear exports last year.
Rita Hayes, the chief U.S. textile negotiator, on Friday said she expected the U.S. would respond to Costa Rica’s WTO letter by this week.
Meanwhile, the situation with Honduras has taken an unusual turn. In working out its bilateral deal with the U.S., Honduras thought it had won 50 million dozen GALs to ship cotton and man-made fiber underwear to the U.S. in 1996, plus 10.07 million dozen in regular quotas that don’t require the use of American fabric. The two governments signed a diplomatic Memorandum of Understanding (MOU) in September formalizing this arrangement — one reached in negotiations after the U.S. sought unilaterally to limit Honduran underwear imports to 6.55 million dozen annually.
Honduras reportedly even paid to have a team of U.S. Commerce and Customs officials visit there Dec. 6 and 7 to help set up the visa system needed to keep track of apparel exports and, crucially, those that will enter the U.S. utilizing GALs under the 807(A) program.
But in a Nov. 29 Federal Register notice, published Dec. 6, the Committee for the Implementation of Textile Agreements notified Customs that the 1996 limit for this Honduran underwear was 10.07 million dozen. No mention was made of the 50 million dozen GALs, which would have afforded U.S. textile companies the opportunity to sell about 500 million square meters equivalent of fabric for underwear that would be assembled in Costa Rica.
According to CITA officials, there were no GALs because no visa arrangement was in place. And without GALs, the U.S.’s two largest firms with underwear operations in Honduras, Fruit of the Loom and Sara Lee Corp., would have to ship these exports to the U.S. under regular quotas — only 16.7 percent of what was supposed to be available in 1996. Costa Rican government officials reportedly have told underwear producers there that no exports could move as GALs without visas.
Textile negotiator Hayes said “a separate [CITA] directive will be going out on the GALs,” noting “the Honduran government was not ready to implement this” visa arrangement earlier. Hayes said there were no problems delaying the issuance of the GALs. CITA officials reportedly have said that for logistical reasons, including the ongoing partial government shutdown, it is unlikely any new notice on these GALs can be issued before year’s end.
Ronald Sorini, a Fruit of the Loom senior vice president for international development and government relations, said he believes CITA’s 1996 quota notice sans the 50 million dozen GALs “was a mistake that will have to be corrected.”
“How can you legally implement only one part of an MOU and not another?” Sorini asked. He said he did not believe this would cause any disruption in FTL’s underwear production plans for Honduras.
A Sara Lee spokeswoman said the firm was concerned about the “missing” GALs, but “hopeful the matter will be resolved soon.”
Larry Martin, the American Apparel Manufacturers Association’s president, said CITA’s failure to include the GALs in its notice “was an accidental oversight. I guess they missed the second line” that specified the 50 million GALs, Martin said. “As soon as the government is up and running again, the [CITA] notice will be republished with the GALs,” he predicted. — Fairchild News Service

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