WASHINGTON — A World Trade Organization dispute settlement panel has handed the U.S. its first textile rules victory and rejected a case brought by India challenging U.S. rules of origin.
“Today, the WTO announced that a dispute settlement panel ruled in favor of the U.S. on all counts,” said a U.S. trade official, speaking to reporters Friday on condition of anonymity. “This is the first time we have won a textile case in the WTO.”
The U.S. has previously lost three WTO textile cases.
India, which can still file an appeal, filed its WTO complaint in January 2002 and accused the U.S. of discrimination, protecting the domestic textile industry and using the rules “as instruments to pursue trade objectives,” which have created “restrictive, distorting and disruptive effects on international trade.”
However, the WTO panel asserted the Indian government failed to support those claims with facts.
In a confidential report released Friday, the WTO panel said India “spins a confusing web of theories in its efforts to find some legal basis for its claims that [U.S. rules of origin] were adopted for impermissible reasons; restrict, distort or disrupt trade; and that [one section] is discriminatory.”
“Principally, the panel found that U.S. textile rules were not adopted to protect the U.S. industry from competition, and do not improperly differentiate between other textile and apparel goods or other industrial products,” said the U.S. official.
The crux of India’s arguments centered on a special deal the U.S. made with the European Union in 1999, which India claimed discriminates against other WTO countries. Congress codified the U.S. rules of origin for textiles and apparel in 1996.
Under the current set of rules, which are known as the Breaux-Cardin rules, the country of origin for fabric is determined by where it was knitted or woven, while the origin for yarn is determined by where the cotton is spun or extruded and the origin of apparel is determined by where the most important process of formation — usually assembly — occurs.
But the EU won a special carve-out for certain fabrics and made-ups. Under U.S. rules, a fabric’s origin is based on where it is formed and not where it is finished, and the EU decided to challenge that in the WTO.
A company like Hermès that bought silk from China, but had it dyed and printed in Europe to make silk scarves, could no longer claim the scarves were made in Europe under the U.S. rules because the silk was formed in China. The same held true for European bed linens, since European companies import the bulk of greige fabric from India.
The EU filed a complaint in 1998 against the U.S. and alleged the rules for fabric and made-ups adversely affected exports of certain fabrics, scarves and other flat goods because those rules stipulated the products’ origin was not the EU, but rather the country in which the fabric was formed.
So flat goods or silk products exported from the EU, previously of EU origin and free of quota and visa requirements, were therefore subject to quota or visa restrictions that applied to the country from which the EU bought the fabric.
In the settlement with the EU, the U.S. amended its rules of origin for certain fabrics, including silk, some cotton, man-made fiber or vegetable fiber, as well as some made-ups, including silk, man-made fiber or vegetable fiber. Those changes or amendments to the rules of origin went into effect in 2000.
The U.S. allows the country of origin for the aforementioned categories to be determined by where the fabric is dyed and printed when accompanied by two or more specific finishing operations.
In Friday’s news conference, the U.S. trade official said India was concerned about rules of origin for cotton sheets, which are determined by where the fabric is woven or formed, not where it is finished.
“India argued in its complaint that these amendments should extend to [all] cotton, as well,” said the U.S. trade official. “We argued in our defense that it made logical sense to assign country of origin based on dyeing and printing for valuable silk goods, but nothing in the origin [rules] required us to do the same for cotton goods.”
Indian embassy officials did not return calls at press time.
“India contended our rules negatively impacted exports or reduced exports to the U.S.,” said the U.S. trade official. “It was India’s contention [the rules were discriminatory], but it was our defense the rules were not meant to discriminate and India failed to prove [its case].”
Brenda Jacobs, a trade lawyer in Washington, said India most likely lost business when the U.S. changed its rules of origin in 1996.
“I think India could have lost sales of fabric to the EU because EU manufacturers may have preferred fabric from non-quota producers after 1996, so they wouldn’t have to apply for quota and visas,” said Jacobs. “There was a disincentive to buy Indian fabrics for bed linens or made-ups after 1996.”
But Jacobs claimed the Indians waited too long to bring the case and should have signed on with the EU in 1998.