India is planning to appeal against the recent World Trade Organisation (WTO) ruling in the case pertaining to rules of origin imposed by the US on textiles and apparels.

The appellate body would be moved soon as both the commerce department as well as the ministry of textiles feel that the dispute settlement body (DSP) which is looking into the case has done justice to India in its report which upheld the rules imposed by the US. A number of other countries including China, Philippines and the European Union bloc have argued against certain features of the US import rules related to ‘rules of origin’ which are of major significance to countries facing quota restrictions under the multi-fiber act (MFA).

The DSP report on ‘rules of origin’ was circulated by the WTO
secretariat on June 20. Therefore, India has to file its appeal before August 19 — within 60 days of the circulation of the panel report.

According to the US rules contested by India, though textiles and
apparel are exported to US from one country, the quota allocated to a second country would be deducted if the inputs from the exported product come from the second country. For example, if another country imports unfinished fabric from India and exports finished items to the US, India’s quota would be deducted. Under the previous rule, the quota of the second country would be deducted if dyeing, printing and finishing are carried out in the second country. India moved the WTO in January ‘02 for consultation with the US on this issue as it was feared that the rules, introduced in ‘01, would hit exports from India. As the discussions did not resolve the issue, India requested the WTO to set up a DSP.

After hearing all the parties involved, the panel held that India had
failed to establish that the US rules violated WTO norms. Noting that India has failed to convince the DSP that the US rules are complex, the panel also said India has not presented any evidence to show that the US rules have discouraged exporters from shipping their products to the US. The panel — headed by Lars Anell with Mary Elizabeth Chelliah and Donald McRae as members — was also of the view that Indian exporters were
not affected because they could not understand the US rules of origin. India supplies nearly $3bn in textiles and apparel products to the US, suggesting that Indian exporters have not had too much difficulty understanding the rules. Officials of the commerce department feel that India’s case should be argued again and the appellate panel should be briefed about the complications that arise out of the revised rules.

Rather than focusing on just textile exports, officials feel the
dispute highlights violation of laid-down norms and its impact on overall trade. Since textile and garment quota restrictions are to be lifted with effect from ‘05, the impact on India’s exports would be limited. However, if a similar stand is adopted by the US to alter norms in other cases, that too in violation of WTO norms, trade partners would feel the heat. India is particularly concerned since the US is the largest market for Indian exports. Apart from the other WTO member-countries which presented their case before the DSP, Pakistan and Bangladesh were also watching the dispute closely, reserving third party rights to intervene.

The interest shown by China, Philippines and EU indicates that the issue cannot be overlooked, officials said.

Since global trade increasingly involves inputs from several countries being processed at various centres before the final product is exported, India does not want the rules of origin for textiles to set a trend. If unattended, such actions could develop into non-trade barriers like sanitary and phytosanitary standards as well as packaging and labelling rules.