At WTO, India wins against EC but loses to US

From a legal point of view, India succeeded in establishing that the anti-dumping action the EC took against it to discourage the export of bed linen was invalid. But in the case related to all varieties of textile exports, India failed to prove its charge that the US had changed the ‘rules of origin’ to favour EC exporters and its own domestic manufacturers.

Trade analysts here say the adverse ruling in the US case on April 11 more than offsets the gains India made from the favourable verdict in the EC case. Worse, it may prompt other developed countries to make similar amendments to the rules of origin to the detriment of major textile exporters like India, China and Pakistan.

The saving grace, however, is that India has the option of appealing against the decision given in the US case by a three-member dispute settlement panel. The WTO system provides an appellate body, which is in fact the authority that gave the ruling favouring India earlier this month in the EC case.

Trade analysts sympathetic to developing countries believe that India has a good chance of securing a favourable verdict from the appellate body in the US case as well. But their assessment of the verdict is tempered by the fact that none of them has actually read its reasoning.

In the peculiar system of dispute settlement in the WTO, the panel’s decision in the first instance is given in confidence only to the parties concerned and it acquires finality only 30 days after it is delivered. The interim period is meant to allow the parties to point out any factual errors in the verdict. As if that caution was not enough, the WTO makes the ruling public only 60 days after its delivery.

The confidence displayed by analysts in India’s eventual victory is because of the manner in which the US amended its rules of origin, which have a bearing on the quotas assigned by it on textile imports from various countries.

The US first changed the rules of origin in 1996 apparently to ensure that major textile exporters such as the EC and India did not circumvent the quotas allotted to them by routing some of their exports through other countries.

Prior to the changes made in 1996, textile products, like other industrial products, could be conferred the origin of a country if they could be said to have undergone ‘‘substantial transformation’’ in that country. The contention of the US is that the loosely defined provision of ‘‘substantial transformation’’ was being used to circumvent quotas. A product that is in fact substantially made in one country is allegedly passed off as having originated in another country where it might have been sent only for a finishing operation.

But in 2000, the US rolled back some of the 1996 amendments at the instance of the EC. India lodged its complaint with the WTO last year along with evidence to show that the 2000 amendments were skewed in favour of the exporters from the EC countries.

‘‘The main objective of the changes that the US introduced in 2000 appears to be modify the rules of origin in a manner that takes into account the particular export interests of the EC,’’ India alleged in writing.

Further, India accused the US of violating the WTO’s Agreement on Rules of Origin, which stipulates that the rules of origin cannot be used as instruments to pursue trade objectives or shall not be discriminatory or shall not themselves create restrictive, distorting or disruptive effects on international trade. Unconfimed reports suggest that the dispute settlement panel, despite the weighty legal arguments, decided against India mainly on the ground that it failed to substantiate that its exports to the US were undermined by the 1996 and 2000 amendments.

Whatever the basis of the verdict delivered this month, India’s imminent appeal in the matter is likely to be seen by developing countries as a test case for the credibility and impartiality of the WTO’s dispute settlement process.