Textile Trade: Operations of the Committee for the Implementation of
Textile Agreements (Letter Report, 09/19/96, GAO/NSIAD-96-186).

Pursuant to a congressional request, GAO reviewed the U.S. Committee for
the Implementation of Textile Agreements' (CITA) role in administering
the U.S. textile program, focusing on: (1) CITA authority, functions,
resources, and costs under the Multifiber Arrangement (MFA) and the 1994
Agreement on Textiles and Clothing (ATC); (2) CITA process for imposing
quotas; (3) CITA use of data to make quota decisions; (4) CITA use of
ATC temporary import quota safeguards in 1995; (5) European Union (EU),
Canadian, and Japanese use of quotas under MFA and ATC and their
processes for imposing quotas; and (6) the U.S. International Trade
Commission's (ITC) safeguard process.

GAO found that: (1) CITA has broad delegated authority to impose quotas
when it determines that imports are causing damage to the domestic
textile industry; (2) since its main function, to implement textile
agreements, has not changed under ATC, CITA does not expect its workload
to increase significantly, but it will continue to participate in
negotiations for bilateral quota agreements; (3) CITA received about
$3.6 million in fiscal year 1995 from five agencies and had a staff of
33 provided by the Department of Commerce to support CITA operations;
(4) CITA has not published guidelines or procedures describing its quota
decisionmaking process; (5) CITA tries to match import data and domestic
production data to establish a causal link between imports and damage to
domestic producers on a case-by-case basis before requesting
consultations with exporting countries and seeking comments from
interested parties; (6) CITA uses U.S. government statistics in its
quota decisionmaking process, but some data compatibility problems occur
due to varying collection methods; (7) the United States has been the
only country to impose quotas under ATC; (8) EU and Canada have imposed
quotas under MFA, but Japan has never imposed any quotas; (9) although
EU and Canada use similar import data, their decisionmaking processes
are different; and (10) the ITC quota decisionmaking process differs
significantly from CITA because it is based on U.S. legislation that
stipulates specific procedures and time-frames for imposing qu otas and
holding public hearings.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-186
     TITLE:  Textile Trade: Operations of the Committee for the 
             Implementation of Textile Agreements
      DATE:  09/19/96
   SUBJECT:  International trade
             Trade policies
             Import regulation
             Restrictive trade practices
             International agreements
             Clothing industry
             International trade restriction
             Data collection operations
IDENTIFIER:  International Harmonized Tariff Schedule
             Harmonized Commodity Description and Coding System
             Dept. of Commerce Textile and Apparel Export Program
             Dept. of Commerce Special Access Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to Congressional Requesters

September 1996

TEXTILE TRADE - OPERATIONS OF THE
COMMITTEE FOR THE IMPLEMENTATION
OF TEXTILE AGREEMENTS

GAO/NSIAD-96-186

Textile Trade

(280128)


Abbreviations
=============================================================== ABBREV

  ATC - Agreement on Textiles and Clothing
  BLS - Bureau of Labor Statistics
  CBI - Caribbean Basin Initiative
  CIR - Current Industrial Reports
  CITA - Committee for the Implementation of Textile Agreements
  DFAIT - Department of Foreign Affairs and International Trade
  DSB - Dispute Settlement Body
  EU - European Union
  GAL - guaranteed access level
  GATT - General Agreement on Tarriffs and Trade
  GDP - gross domestic product
  GSP - General System of Preferences
  HTS - Harmonized Tariff Schedule
  ITC - International Trade Commission
  MFA - Multifiber Arrangement
  MITI - Ministry of International Trade and Industry
  MMF - manmade fiber
  MOU - memorandum of understanding
  NAFTA - North American Free Trade Agreement
  NTC - National Textile Center
  OECD - Organization for Economic Cooperation and Development
  OTEXA - Office of Textiles and Apparel
  R&D - research and development
  SAA - Statement of Administrative Action
  SIC - Standard Industrial Classification
  SL - specific limit
  SME - square meter equivalent
  TC\2 - Textile/Clothing Technology Corporation
  TMB - Textiles Monitoring Body
  TSB - Textiles Surveillance Body
  USTR - Office of the U.S.  Trade Representative
  WTO - World Trade Organization

Letter
=============================================================== LETTER


B-261750

September 19, 1996

The Honorable Charles E.  Grassley
United States Senate

The Honorable William V.  Roth, Jr.
United States Senate

The Honorable William Archer
House of Representatives

The Honorable Philip M.  Crane
House of Representatives

This report responds to your request that we examine the operations
of the U.S.  Committee for the Implementation of Textile Agreements
(CITA) in its role in administering the U.S.  textile program in
light of the 1994 Uruguay Round Agreement on Textiles and Clothing
(ATC).  ATC, which took effect January 1, 1995, calls for the
phaseout of quotas under the prior Arrangement Regarding
International Trade in Textiles, known as the Multifiber Arrangement
(MFA). 

Specifically, you asked us to (1) identify CITA's authority,
functions, resources, and costs under MFA and ATC; (2) determine
CITA's decision-making process for imposing quotas, including the
level of transparency (openness) in its process; (3) review CITA's
use of data to make quota decisions; and (4) evaluate CITA's use of
ATC transitional safeguards (temporary import quotas) in 1995.  You
also asked us to examine the European Union (EU),\1 Canadian, and
Japanese use of quotas under MFA and ATC and their processes for
imposing quotas.  In addition, you asked us to describe the safeguard
process administered by the U.S.  International Trade Commission
(ITC). 


--------------------
\1 The EU consists of Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, Sweden, and the United Kingdom. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Historically, the U.S.  textile and apparel (clothing) industries,
including yarn, fabric, apparel, and a variety of home furnishings
and industrial products, have faced intense competition in the U.S. 
marketplace from countries with low labor costs.  Textile and apparel
imports represented
7 percent of total U.S.  imports in 1994.  In that same year, there
was a $34-billion trade deficit in textile and apparel products. 
(See app.  I for data concerning the U.S.  textile and apparel
industries.)

CITA is chaired by the Department of Commerce and composed of
representatives from the Departments of State, Labor, and the
Treasury; and the Office of the U.S.  Trade Representative (USTR). 
CITA was established in 1972 to supervise the implementation of all
U.S.  international textile agreements.  (See app.  II for a
discussion of CITA's role.) One of CITA's main functions is to decide
whether and when to impose quotas on textile and apparel products. 
Because these products have historically been vulnerable to
low-priced imports, textile and apparel trade has not been subject to
General Agreement on Tariffs and Trade (GATT)\2 disciplines
(practices).  Rather, textile trade has been primarily governed by
successive multilateral agreements that set forth a separate
framework of rules, including the authority to impose quotas. 

From 1974 though 1994, CITA supervised the U.S.  implementation of
MFA, which governed worldwide textile trade and sought to provide for
its sustained, orderly expansion.  Among other things, under MFA, the
United States entered into a number of bilateral agreements
containing negotiated textile import quota levels.  MFA also
contained a "safeguard" provision, which allowed importing countries
to impose unilateral quotas when it determined that imports were
causing actual or threatened serious damage to the U.S.  domestic
market based on factors specified in MFA.  CITA is now responsible
for supervising the U.S.  implementation of ATC.  Along with
continuing its role of implementing textile agreements, under ATC,
CITA is to supervise a 10-year phaseout of textile and apparel quotas
in four stages ending in 2005.  ATC will have a major long-term
impact on the U.S.  textile and apparel industry by integrating all
textile products into GATT rules and disciplines.\3

During the first stage (1995-97), virtually no products currently
under quota are to be integrated into GATT trade rules by any of the
major importing countries.  That is, the products integrated in the
first stage are products that have never been under quota.  The U.S. 
Statement of Administrative Action (SAA) accompanying the Uruguay
Round implementing legislation provided that CITA would ensure that
integration of the most sensitive products would be deferred until
the end of the 10-year period.\4 In fact, under the U.S.  integration
schedule, 89 percent of all U.S.  apparel products (apparel products
are considered sensitive), 47 percent of all textile products
(textile products are considered less sensitive), and 67 percent of
textile and apparel products combined, under quota in 1990, will not
be integrated until the final stage in 2005.  Importer and retailer
representatives have referred to the final stage as "the cliff,"
because of the potential shock to the U.S.  domestic market when a
majority of textile and apparel quotas will be lifted at one time. 

During the 10-year transition period, the United States may impose a
temporary quota on another World Trade Organization (WTO)\5 member
country under ATC only through the use of a "transitional safeguard."
This safeguard applies to products not yet integrated into GATT
rules.  After determining that imports of a particular product are
causing "serious damage or actual threat thereof"\6 to domestic
producers, CITA issues a "call," or a request for consultations to
discuss the matter with an exporting country believed to be causing
the damage.\7 Following the consultations, CITA may impose a
quota--with or without the agreement of the exporting country.  (See
app.  III for detailed information on ATC and MFA.)

As of May 1996, CITA had 884 quotas in place on individual textile
and apparel categories.  These quotas covered 44 countries and 123
out of 148 CITA categories. 


--------------------
\2 GATT contains rules and disciplines covering its members' trade
practices, including nondiscriminatory treatment of trade in goods. 
The Final Act resulting from the Uruguay Round of GATT negotiations
was signed in 1994. 

\3 The United States had originally sought a 15-year phaseout during
ATC negotiations, as well as greater openness of foreign markets to
textile and apparel trade. 

\4 During 1995, as required by SAA, CITA published in the Federal
Register its proposed list of products to be integrated at each of
the four integration stages (no other country has published its list
beyond the first stage).  CITA requested written comments from all
interested parties and held public hearings to obtain comments on its
integration plan for stages two, three, and four.  CITA published the
final integration plan in the Federal Register on May 1, 1995. 

\5 The WTO was established on January 1, 1995, and is a legal and
institutional foundation of the multilateral trading system, and the
successor to GATT.  The United States is a member of WTO. 

\6 For ease of discussion, the report may refer to this safeguard
standard as "serious damage" without repeating the phrase "actual or
threat thereof."

\7 CITA may impose quotas on non-WTO member countries without regard
to ATC rules pursuant to the authority of section 204 of the
Agricultural Act of 1956, as amended.  (7 U.S.C.  ï¿½ 1854.) In
addition, quotas on non-WTO members are not subject to the 10-year
phaseout. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Our review of CITA operations indicated the following: 

  -- Under ATC and formerly under MFA, Congress and the President
     have delegated broad authority to CITA to make determinations
     about invoking safeguards.  Since CITA's main function, to
     implement textile agreements, remains the same under ATC as MFA,
     it does not expect any significant work load changes in the near
     future related to the 10-year phaseout of quotas.  CITA receives
     about $3.6 million annually and has a staff of 33 within the
     Department of Commerce. 

  -- By majority vote, CITA can impose quotas when it determines that
     imports are causing serious damage to domestic industry. 
     Through the continuous monitoring of industry data, CITA is
     generally proactive in identifying cases of serious damage. 
     CITA's support staff generally obtains information from domestic
     producers before deciding to request consultations with an
     exporting country.  CITA contacts U.S.  importers and retailers
     after requesting consultations with the foreign government to
     impose a quota. 

  -- In deciding whether to request consultations to impose quotas,
     CITA uses various U.S.  government economic statistics.  CITA
     seeks to match import data and domestic production data to
     establish a causal link between imports and serious damage to
     domestic industry.  Because agencies collecting the data use
     different classification systems, some compatibility problems
     exist. 

  -- CITA does not base its safeguard decisions on specific
     thresholds of import increases and domestic production declines;
     rather it makes decisions on a case-by-case basis.  Of the 166
     calls for consultations CITA issued from 1990 to 1995, we found
     that the most recent median yearly production decline was 6.4
     percent and the comparable median import increase was 9.6
     percent.\8 The most recent median import increase was 17.6
     percent.\9 The change in the most recent import data ranged from
     a fall of 15 percent to an increase of 195 percent.  The change
     in domestic production ranged from a decrease of 51 percent to
     an increase of 25 percent. 

Through June 1996, the United States has been the only country that
has imposed quotas under ATC since it went into effect in January
1995.\10 CITA issued 28 calls in 1995.\11 Nineteen calls were on WTO
member countries, and 9 calls were on non-WTO member countries at the
time of the call.\12 The EU and Canada imposed quotas under MFA, but
Japan has never imposed quotas. 

The ITC process for determining injury (for all goods under GATT) due
to increased imports differs significantly from CITA's in that it is
based on U.S.  legislation that stipulates specific procedures and
time frames that must be followed.  ITC is required to obtain the
views of interested parties through public hearings. 


--------------------
\8 Median yearly changes are for the last 2 years of data as
presented in CITA's market statements (proposals supporting calls). 
We chose the most recent period for consistency, since the market
statements almost always included data for the most recent 2 years,
but in some cases they included data for up to 60 months. 

\9 Import data is more current than production data because it is
provided monthly while production data is provided quarterly.  In our
analysis, we considered both import data comparable to production
data and the most recent import data, which were generally not
comparable.  The most recent import data were generally from 1 to 3
months prior to the issuance of the market statement, while
production data can be up to 12 months old. 

\10 In June 1996, Brazil notified the Textile Monitoring Body (TMB)
that it had requested consultations to impose quotas under ATC.  TMB
replaces the Textiles Surveillance Body, which reviewed safeguard
decisions under MFA. 

\11 From January through August 1996, CITA issued two calls. 

\12 El Salvador, Colombia, and Guatemala have subsequently become WTO
members. 


   CITA'S AUTHORITY, FUNCTIONS,
   RESOURCES, AND COSTS
------------------------------------------------------------ Letter :3

CITA has broad authority to carry out its main function of regulating
textile imports on behalf of the United States through implementing
textile agreements, including determining the existence of serious
damage to support a safeguard action.  This mandate remains the same
under ATC as it was under MFA. 

The U.S.  Constitution vests in Congress the power to regulate
commerce between the United States and foreign nations.  In the case
of textiles and apparel, Congress has granted to the President
extraordinary discretion to regulate U.S.  imports.\13 The President,
in turn, has delegated authority for implementing textile agreements
to CITA.\14 Neither Congress, nor the President since 1989, has
provided procedural requirements to guide CITA in making its
safeguard determinations.\15 Moreover, CITA's decisions are
conclusive and are not reviewed or approved by other executive branch
officials.\16 Finally, given that CITA has been allowed significant
discretion to regulate textile imports, courts have held that CITA's
serious damage determinations and the underlying reasoning for those
determinations are not subject to judicial scrutiny.\17

According to CITA officials, CITA's primary function under ATC is to
"ensure that there is a gradual and orderly liberalization of trade
which will allow U.S.  companies sufficient time to further modernize
and prepare for greater international competition." During the
10-year transition period, CITA can issue calls under the ATC
transitional safeguard mechanism.  Bilateral agreements in place with
WTO members under MFA are now folded into ATC, obviating the need for
CITA to renegotiate these agreements. 

CITA is expected also to continue performing many other pre-ATC
functions.  The committee will continue to participate in
negotiations (led by USTR) for bilateral quota agreements with
non-WTO member countries.  It also has a role in efforts aimed at
preventing the illegal routing of textile and apparel imports through
third countries (transshipment violations) and commenting on
regulations concerning the origin of textile and apparel products. 

CITA has no budget of its own, but portions of the individual budgets
of the five principal agencies related to CITA functions added up to
$3.6 million in fiscal year 1995.  The Department of Commerce's
Office of Textiles and Apparel (OTEXA) has a staff of 41, 33 of whom
support CITA's operations, monitoring and analyzing textile trade and
production data.  About
17 percent (or $2.8 million) of OTEXA's budget supports CITA
operations.\18 OTEXA's resources and costs remained constant between
fiscal years 1994 and 1995, the first year of ATC.  CITA does not
expect to undergo any significant reduction in its work load in the
near term due specifically to the 10-year quota phaseout, according
to representatives of the five CITA agencies. 


--------------------
\13 7 U.S.C.  ï¿½ 1054; American Association of Exporters & Importers
v.  U.S., 583 F.  Supp.  591 (1984). 

\14 Executive Order 11651 (May 3, 1972). 

\15 A 1983 presidential directive suggested discretionary numerical
thresholds for imposing quotas.  Since 1989, CITA has not considered
this directive to be policy. 

\16 From 1975 to about 1987, a Textile Trade Policy Group provided
broad policy guidance to CITA.  Currently, CITA representatives may
confer with higher-level officials within their respective agencies
on proposed calls as necessary. 

\17 American Association of Exporters & Importers v.  U.S. 

\18 A large portion OTEXA's budget is devoted to two research and
development grants administered by OTEXA. 


   DECISION-MAKING PROCESS FOR
   IMPOSING QUOTAS
------------------------------------------------------------ Letter :4

CITA is proactive in determining whether to impose a quota, relying
heavily on OTEXA's continuous monitoring and analysis of trade and
economic data as a source for its information.  OTEXA's data
monitoring generally provides the impetus for CITA to issue a call. 
Although OTEXA considers an array of data, it focuses primarily on
two factors:  a surge in imports and a decline in domestic
production.  OTEXA also examines some other economic factors listed
in ATC, including domestic employment, prices, and market share. 
Under U.S.  law, CITA does not have procedural requirements it must
follow to determine whether to make a call.  To date, CITA has not
published guidelines or documented procedures that describe its
decision-making process for imposing quotas. 

Once OTEXA's analysis identifies a potential case of serious damage,
OTEXA may contact domestic producers to obtain additional information
on the effect of imports on the domestic industry.  OTEXA then
prepares a proposal (also known as a "statement of serious damage or
actual threat thereof" and referred to hereafter as a "market
statement") for CITA to request consultations with an exporting
country.  The proposal serves as the basis for CITA to vote on
whether to request consultations with a foreign government. 

According to CITA officials, the committee currently uses majority
voting to make decisions on calls.\19 Generally speaking, each CITA
agency considers the need for import restraints while taking into
account the concerns of U.S.  industry, workers, importers and
retailers, consumers.  However, each agency brings a unique
perspective to the decision process.  Commerce and Labor consider the
interests of textile and apparel producers and workers, State
evaluates U.S.  foreign policy concerns, and the Treasury analyzes
the net economic benefit to consumers, producers, and importers and
retailers.  (The Treasury is also concerned with the appropriateness
and enforceability of CITA recommendations and directives.) Some
balancing of views is provided by USTR.  In theory, if CITA decided
by consensus, one CITA principal would have the ability to block a
request for consultation.  For example, CITA principals did not reach
consensus on 64, or about 30 percent, of the 204 votes taken on
whether to impose a quota from 1990 through 1995, since these votes
were not unanimous.  CITA is not required to publish its voting
records or minutes of its monthly meetings, and it does not do so. 

If CITA votes in favor of issuing a call, the committee requests
consultations with the exporting country through diplomatic note to
impose a quota.  Under ATC, once the exporting country receives the
note, the two governments have 60 days to consult.  No quota is put
in place during the consultation period. 

Once CITA contacts the exporting country to request consultations,
OTEXA publishes in the Federal Register details of the request, a
summary of the market statement supporting the call, and a request
for written comments from interested parties.\20 Before the
consultations take place, CITA also notifies and generally schedules
meetings with both U.S domestic producers and importers and retailers
to brief them and obtain their input.\21

For a number of years, importers and retailers have advocated the use
of open, public hearings that would allow for public comment before
CITA makes a decision on whether to call a foreign government. 
Importers and retailers currently have an opportunity to provide
input after CITA requests consultations with a foreign government but
not to comment before a call is made.  However, according to CITA
officials, if importers and retailers were notified before a call is
made, imports might surge further as firms attempt to import products
before a quota is applied, and domestic producers might subsequently
be hurt.  Although importers and retailers maintain that they would
not have enough time to place an import order and thereby enhance an
import surge, CITA officials have not been convinced by this
argument. 

U.S.  importers and retailers and domestic producers also disagree
about the amount of information OTEXA provides them about
consultations after the call is made.  Importers and retailers said
they are not provided with as much information as domestic producers
about upcoming consultations; on the other hand, domestic producers
said that, in their view, importers and retailers receive additional
information from the foreign exporting country involved in the
consultations.  CITA does not keep written records of its meetings or
contacts with industry representatives, so the amount of information
provided to domestic producers and the importer and retailing
community cannot be determined.  (See app.  IV for further
information on CITA's decision-making process.)


--------------------
\19 In the early 1980s, CITA made decisions on the basis of
consensus, wherein one member could veto a call decision.  The
executive order establishing CITA provided that decisions of the
Chairman are to be implemented unless a majority of the CITA members
oppose the action. 

\20 In our 1983 report, Implementation of Trade Restrictions for
Textiles and Apparel (GAO/NSIAD-84-18, Nov.  4, 1983), we recommended
that a summary of CITA's justification for a call be published in the
Federal Register.  CITA has implemented this recommendation. 
However, in the same report we also recommended that, to the extent
practical, OTEXA indicate in its proposals to CITA justifying a
potential call, why other major suppliers have not been the subjects
of a call.  CITA has not implemented this recommendation. 

\21 In the past, CITA relied on the "cleared advisors" program, a
formal advisory group composed of importers, retailers, and producers
who would be privy to sensitive information.  However, due to budget
constraints and other factors, about 2 years ago the Department of
State stopped processing security clearances for this program, and
the last clearances expired in 1995. 


   CITA'S DATA SOURCES
------------------------------------------------------------ Letter :5

In deciding whether to impose quotas, CITA uses government statistics
collected by the U.S.  Customs Service, the Census Bureau, and the
Bureau of Labor Statistics (BLS).  These statistics are subject to
the internal quality control processes of the three agencies.  OTEXA
officials attempt to match these data, including production, domestic
price, and employment data, to CITA's product categories.\22

However, because Customs, Census, and BLS use different methods to
collect their data, some compatibility problems occur when OTEXA
attempts to make this match.  CITA's textile and apparel categories
consist of combinations of International Harmonized Tariff Schedule
(HTS)\23 codes, but not all of the previously mentioned government
agencies collect the data under an HTS-based system. 

While Customs collects import data using HTS, the Census Bureau
collects production and domestic price data using Census' product
descriptions.  BLS collects employment data using Standard Industrial
Classification (SIC) product codes.\24 We found that OTEXA can match
the production data with a high degree of accuracy, but for price and
employment data this matching is necessarily done with a much lesser
degree of accuracy.  Therefore, while import and production data were
generally reliable and valid, price and employment data may only
provide OTEXA with broad indications of trends in the domestic
textile and apparel industries.  (See app.  V for more information on
OTEXA's data collection.)


--------------------
\22 CITA uses 148 product categories to track import surges.  For
example, one CITA category includes women's and girls' wool coats. 

\23 HTS is an extension of the 6-digit Harmonized Commodity and
Coding System, the internationally recognized classification system
for commodities. 

\24 SIC is the statistical classification standard underlying all
establishment-based (plant-level) federal economic statistics
classified by industry.  The classification covers the entire field
of economic activity and defines industries in accordance with the
composition and structure of the economy. 


   HOW CITA USES DATA TO SUPPORT
   CALLS
------------------------------------------------------------ Letter :6

In the 166 market statements we examined for calls CITA issued
between 1990 and 1995, we found that the committee relied primarily
on data contained in OTEXA market statements for evidence of import
surges and production declines, and to a lesser degree on price and
employment data.  CITA officials told us that they exercise
considerable judgment, treat their determinations on a case-by-case
basis, and apply no specific numerical threshold (such as a minimum
increase in imports or a minimum decline in production) in making
their decisions. 

Our review of import increases and production falls in the 166 market
statements indicated the following: 

  -- CITA issued calls when production declined by a median of 6.4
     percent during the most recent period for which this data were
     available, while comparable yearly imports of a particular
     category of textiles or apparel increased by a median of 9.6
     percent.  The most recent median import increase was 17.6
     percent.  The change in the most recent import data ranged from
     a decrease of 15 percent to an increase of 195 percent.  The
     change in domestic production ranged from a decrease of 51
     percent to an increase of 25 percent. 

  -- CITA did not issue calls in some cases where there were import
     increases and production falls.  In examining annual import and
     production data between 1992 and 1994 for 94 CITA categories,
     including categories both called and not called, no calls were
     made in 21 instances where yearly production fell in a category
     by more than 5 percent and yearly imports rose in a category by
     5 percent or more. 

  -- CITA issued some calls when either domestic production fell or
     import increases were fairly small.  For example, 26 percent of
     the calls occurred when the most recent year's production
     declines were less than 2 percent; 20 percent of the calls
     occurred when the most recent year's import increases were less
     than 2 percent.  Both small production declines and small import
     increases occurred at the same time in less than 4 percent of
     the calls. 

  -- CITA requested consultations with countries whose imports of the
     product in question represented a median of 2.5 percent of total
     U.S.  imports of that commodity in the most recent 12 months for
     which data were available.  The percent of total imports from
     individual countries ranged from 0.09 percent to 84 percent. 

In the 166 market statements we reviewed, CITA assumed a causal link
between import rises and production falls because, according to OTEXA
officials, this link is extremely difficult to prove.  CITA also
assumed in the market statements that textile and apparel imported
products falling under the same CITA product category were like
and/or competitive products to those being produced by domestic
manufacturers of items under that category.\25

However, we found that the HTS codes under some CITA categories
represent varied products.  Since CITA imposes quotas at the category
level, all of the items under that category then become the product
subject to quota.  For example, in a 1995 call, CITA requested
consultations with India over imports of category 435--women's and
girls' wool coats--and imposed a quota.  Category 435 includes
suit-type jackets as well as overcoats and ski jackets.  Thus, the
quota was imposed not only on wool coats but also on suit-type
jackets and ski jackets.  (CITA later rescinded the restraint.) The
producer prices of some HTS codes within CITA categories also varied,
illustrating that the products may not be like and/or directly
competitive.  (See app.  VI for more information on CITA's use of
data.)


--------------------
\25 ATC does not define "like and/or directly competitive products."


   OUTCOME OF 1995 U.S.  CALLS
------------------------------------------------------------ Letter :7

In 1995, CITA issued 28 calls.  Under ATC, all safeguard decisions
are to be reviewed by a newly created international Textiles
Monitoring Body in Geneva, consisting of representatives from 10
countries, including the United States.  TMB supervises the
implementation of ATC.  Among other responsibilities, TMB conducts
examinations of all safeguard actions, including those involving
disputes and those resulting in agreements, and makes appropriate
recommendations.  To date, TMB has completed its review of seven of
the U.S.  calls (where initially no agreement was reached with the
exporting country) and found that the United States had demonstrated
the threat of serious damage to domestic industry attributable to the
called country in one case.  In three cases, TMB found that the
United States had not demonstrated serious damage to its domestic
industry, and the United States subsequently rescinded the quotas; in
three other cases, TMB could not reach consensus. 

TMB has not published details about the reasons for its
recommendations, but some individual TMB members expressed concerns
to us about the nature and timing of the 1995 U.S.  calls (as of May
1996, the United States was the only country that had imposed quotas
under ATC).  Some TMB members told us that they considered ATC a
liberalizing agreement and, thus, had not expected over 20 calls
early in its first year.\26 Although 28 calls was not unusually large
compared to the number of calls made in previous years under MFA,
some TMB members were concerned that the United States was treating
calls under ATC as "business as usual."

In addition, individual TMB members we interviewed questioned how the
United States used data to justify its calls.  For example, they
questioned (1) whether in some cases import increases had been "sharp
and substantial" as required under ATC, (2) why changes occurred in
the direction of data levels--in one case in U.S.  domestic
production levels and in another case in U.S.  employment
levels--between the consultation period and the TMB review, (3)
whether the United States had adequately considered the exporting
country's world market share of the products in question, and (4)
whether reimports under the U.S.  Special Access Program\27 could
damage U.S.  producers.  In addition, some TMB members wanted to see
more evidence that the United States had considered the extent to
which the domestic producers being damaged by imports were producing
like and/or competitive products.  (See app.  VII for more
information on 1995 calls.)


--------------------
\26 According to OTEXA, 6 of the 28 calls had originally been made in
1994 under MFA but were not resolved and thus were carried over into
1995 under ATC. 

\27 The Special Access Program provides for more favorable quota
treatment for imports from Caribbean Basin countries of apparel
products assembled from fabric cut and formed in the United States. 


   OTHER COUNTRIES' PROCESSES FOR
   IMPOSING IMPORT QUOTAS
------------------------------------------------------------ Letter :8

The data Canada and the EU use to make determinations of serious
damage are similar to the type of data used by CITA.  However, the
Canadian and EU processes for making safeguard calls differ from the
U.S.  safeguard process in several ways.  For example, the EU's
decisions to request consultations to impose quotas have been
initiated by complaints from domestic producers rather than based on
their own governments' monitoring efforts.  While importers and
retailers can lobby the EU Commission, which chairs the
intergovernmental committee responsible for setting quotas, they are
not notified officially when a call is being considered.  The
Canadian government monitors trade flows and initiates safeguard
actions.  If the government intends to make a call, it notifies
Canadian manufacturers, retailers, and importers and allows them to
comment 2 to 3 weeks before issuing the call.  In addition, Canadian
and EU officials stated that they are not concerned about possible
import surges before a call is made, for various reasons.  Japan has
not invoked safeguard measures under MFA or ATC.  (See app.  VIII for
more information on the foreign systems.)


   ITC'S PROCESS FOR IMPOSING
   IMPORT QUOTAS
------------------------------------------------------------ Letter :9

Like CITA, ITC has the authority to determine whether an article is
being imported into the United States in such increased quantities as
to damage domestic industry, although their respective processes
differ.  ITC administers the GATT safeguard provision under section
201-04 of the Trade Act of 1974 as amended.\28 Specifically, any
relief imposed through the section 201 process applies to merchandise
from all countries.  ITC has no consultation period with any foreign
government.  The act requires ITC's investigation to be triggered by
a petition from an affected party and sets out specific procedures
and time frames that must be followed.  The act mandates that ITC
hold public hearings, solicit briefs from interested parties, and
issue public reports throughout the course of its investigation. 

During the past few years, retail and importer trade associations
have maintained that the ITC process for imposing import restraints
could be a potential alternative to CITA's safeguard process.  In
addition, in 1995, a bill was introduced in the U.S.  House to
transfer CITA activities relating to ATC safeguard measures to ITC. 
(See app.  IX for more information on the ITC safeguard process.)


--------------------
\28 19 U.S.C.  ï¿½ï¿½ 2251-54. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
----------------------------------------------------------- Letter :10

We believe that the material and analyses we have presented are the
most comprehensive recent examination of the way that CITA operates
and arrives at its decisions related to invoking ATC transitional
safeguards. 

On the basis of this information, Congress may decide that it is
satisfied with CITA as it is, or it may want to consider changing
some of CITA's operations.  For example, if Congress is dissatisfied
with the amount of transparency in CITA's operations, it might wish
to consider such measures as requiring CITA to publish its operating
procedures, the minutes of its meetings (edited to protect
proprietary or other sensitive information), and voting records. 

In the area of decision-making, Congress might wish to consider
establishing threshold levels for import increases or production
declines that would prompt consideration of imposing quotas.  Or,
Congress might wish to consider directing CITA to make quota
decisions on the basis of consensus among its members. 

In the area of oversight, Congress might wish to consider
establishing a high-level interagency body to review CITA's decisions
to impose quotas.  This body could be similar to the Textile Trade
Policy Group that existed between 1975 and 1987. 


   AGENCY COMMENTS
----------------------------------------------------------- Letter :11

In commenting on a draft of this report, CITA stated that much of the
report represented a thorough and factual account of the operation of
the U.S.  textile program.  However, CITA expressed some concern
about our methodology for analyzing its use of data to support
safeguard calls.  CITA maintained that we did not accurately
characterize how it applied data to issue a call.  We evaluated
CITA's specific concerns and made some modifications to the report. 
However, we disagree with CITA's overall comment on our assessment of
CITA's use of data.  We believe our methodology and analysis are
sound and accurately reflect how CITA uses data in deciding to impose
an import quota.  CITA's comments are provided in their entirety in
appendix XI, along with our point-by-point response.  We did not
provide CITA an opportunity to comment on the Matters for
Congressional Consideration.  (See app.  X for information on our
scope and methodology.)

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this
letter.  At that time, we will send copies of this report to the
Secretaries of Commerce, State, Labor, and the Treasury; and the U.S. 
Trade Representative; and appropriate congressional committees.  We
will also make copies available to others upon request. 

Please contact me at (202) 512-8984 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix XII. 

JayEtta Z.  Hecker
Associate Director
International Relations and
 Trade Issues


OVERVIEW OF THE U.S.  TEXTILE AND
APPAREL INDUSTRIES
=========================================================== Appendix I

The U.S.  textile and apparel industries accounted for 0.8 percent of
the U.S.  gross domestic product (GDP) in 1993, making it the 10th
largest manufacturing sector.  Yet, with about 1.6 million workers
employed in U.S.  textile and apparel manufacturing industries, it
was the second largest source of nondurable manufacturing employment
in the United States in 1995.  In the same year, the U.S.  textile
and apparel industry represented 1.4 percent of total employment in
all sectors in the United States. 

The textile industry generally consists of producers of yarn and
thread, fabric, and various finished goods.\1 These goods include
home furnishings, such as sheets, towels, furniture covering, and
carpets; and goods used for industrial purposes, ranging from
automobile upholstery to industrial bags and belts.  According to the
U.S.  International Trade Commission (ITC),\2 the apparel industry
consists of both vertically integrated firms (that make both the
fabric and the finished products) producing various knitwear
products, such as hosiery, underwear, and sweaters, and firms that
principally cut and sew products from purchased materials.\3 While
the apparel industry is dominated by small establishments, a few
segments of the industry are highly concentrated.\4

Employment in the U.S.  textile and apparel industries has been
shrinking over the past two decades.\5 At its peak in the early
1970s, the textile industry employed 1 million people, while the
apparel industry employed 1.4 million.  In 1995, the textile industry
employed 667,000, and the apparel industry employed 930,000. 
According to Census Bureau statistics, the number of U.S.  textile
and apparel establishments declined from 31,021 in 1982 to 28,935 in
1992. 

Wages in the textile and apparel industries are relatively low. 
Although average hourly earnings have been rising at an average rate
of 2.8 percent in the textile industry, and by 2.5 percent in the
apparel industry over the period 1988-95, wages in both industries
are still relatively low when compared to the manufacturing sector as
a whole.  In 1995, a textile worker on average earned $9.41 per hour,
and an apparel worker $7.64 per hour, compared to $12.37 per hour for
manufacturing workers overall. 

The U.S.  textile and apparel industries, and the apparel products
industry in particular, have traditionally been very sensitive to
import competition from lower-cost, developing country suppliers.\6

However, the textile industry has gradually become relatively
competitive and is less labor intensive than the apparel industry. 
According to the Congressional Budget Office, the textile industry is
approximately as labor intensive as the rest of U.S.  manufacturing. 

According to ITC, U.S.  textile and apparel industries have
implemented a number of strategies in recent years to respond to
growing market competition.  These strategies include adopting new
technologies and improving manufacturing, marketing, and distribution
methods. 

Table I.1 shows the top 10 import categories in 1994.  Textile and
apparel imports were the fourth largest import category in 1994, with
a higher value than crude oil and natural gas imports that year.  In
contrast, textile and apparel exports, at $11.3 billion in 1994, were
2.3 percent of all exports, the 10th largest category of exports. 



                               Table I.1
                
                 U.S. Import Categories by SIC, in 1994

                         (Dollars in millions)

                                                   Imports
                                                       for
                                                consumptio  Percent of
SIC-based product category                               n       total
----------------------------------------------  ----------  ----------
Transportation equipment                          $115,998        17.6
Electric and electronic                             94,332        14.3
 equipment
Machinery, except electrical                        89,705        13.6
Textiles and apparel                                45,095         6.9
Crude petroleum and natural                         44,949         6.8
 gas
Chemicals and allied                                31,697         4.8
 products
Primary metal products                              30,106         4.6
Miscellaneous manufactured commodities              26,830         4.1
Instruments and related                             24,410         3.7
 products
Food and kindred products                           17,342         2.6
All others                                         137,420        20.9
======================================================================
Total imports for consumption                     $657,884       100\a
----------------------------------------------------------------------
\a Percents do not total 100 percent due to rounding. 

Source:  Statistical Abstract of the United States, U.S.  Bureau of
the Census (Washington, D.C.:  Sept.  1995). 


--------------------
\1 The textile industry is generally classified under the Standard
Industrial Classification (SIC) 22, the category for textile mill
products. 

\2 ITC has a Textile and Apparel Branch, with a staff of five
analysts, that publishes reports about the textile and apparel
industry. 

\3 The apparel industry is generally classified under SIC 23, the
category for apparel and other textile products.  According to ITC,
firms in this category account for about 85 percent of annual U.S. 
apparel shipments.  However, vertically integrated knitting mills
that produce knitwear, such as hosiery and underwear, directly from
yarn or from fabric knit in the same mill are classified under SIC
22, the category for textile mill products. 

\4 According to ITC, in segments such as men's trousers and men's
underwear and nightwear, the four largest firms in the United States
account for roughly 60 percent of the respective industry shipments. 

\5 Employment, wage, and establishment data are reported based on
industry definitions of SIC 22 for textiles and SIC 23 for apparel. 

\6 Generally, labor costs are considered to be a key factor in making
apparel sensitive to imports from low-cost foreign suppliers. 
However, according to ITC, while the ratio of labor costs to value
added in the apparel industry is still higher than that for the
manufacturing sector as a whole, in recent years the relative
importance of labor costs to the U.S.  apparel industry has been
diminishing. 


   TEXTILE TRADE PATTERNS
--------------------------------------------------------- Appendix I:1

Total textile imports reached 9.1 billion square meter equivalents
(SME) in 1995, an increase of 2.3 percent from the prior year.\7

Table I.2 shows the top 10 suppliers of U.S.  textile imports in
1995, the most recent year that data were available. 



                               Table I.2
                
                Suppliers of Textiles to the U.S. Market
                          (MFA products) 1995

                                                                Percen
                                                                  t of
                                                                 total
                                                        Millio     U.S
                                                            ns  import
Country                                                 of SME       s
------------------------------------------------------  ------  ------
Canada                                                   1,436    15.9
European Union (EU)                                      1,169    13.0
China                                                      910    10.1
Mexico                                                     776     8.6
Pakistan                                                   594     6.6
Taiwan                                                     576     6.4
India                                                      493     5.4
South Korea                                                455     5.0
Thailand                                                   420     4.6
Japan                                                      247     2.7
All others\a                                             1,983    21.9
======================================================================
Total                                                    9,059   100\b
----------------------------------------------------------------------
\a All others includes at least 41 other countries. 

\b Percents do not total 100 percent due to rounding. 

Source:  Major Shippers:  Textiles and Apparel, U.S.  Department of
Commerce, Office of Textiles and Apparel (OTEXA), (Washington, D.C.: 
Feb.  1996). 

The total dollar value of U.S.  textile exports rose by nearly 52
percent between 1990 and 1995, approaching $7 billion by 1995.\8

Half of U.S.  textile products were shipped to Organization for
Economic Cooperation and Development (OECD) countries in 1995.\9

Table I.3 shows the top 10 markets for U.S.  textile products. 



                               Table I.3
                
                Markets for U.S. Textile Products, 1995
                             (F.A.S. Value)

                         (Dollars in millions)

                                                                Percen
                                                                  t of
                                                        Amount   total
                                                            of    U.S.
                                                          U.S.  export
Country                                                exports       s
---------------------------------------------------  ---------  ------
Canada                                                  $2,035    29.2
EU                                                       1,209    17.4
Mexico                                                     924    13.3
Japan                                                      295     4.2
Hong Kong                                                  226     3.2
Dominican Republic                                         188     2.7
Brazil                                                     139     2.0
Australia                                                  136     2.0
Saudi Arabia                                               125     1.8
South Korea                                                117     1.8
All others\a                                             1,574    22.6
======================================================================
Total                                                   $6,968   100\b
----------------------------------------------------------------------
Note:  F.A.S.  (free-alongside-ship) value is a method of export and
import valuation whereby the seller's price includes charges for
delivery of goods up to the port of departure.  The seller handles
the cost of unloading and wharfage; the buyer handles the cost of
loading, ocean transportation, and insurance. 

\a All others includes 30 other countries. 

\b Percents do not total 100 percent due to rounding. 

Source:  Export Market Report, U.S.  Department of Commerce, OTEXA
(Washington D.C.:  Dec.  1995). 


--------------------
\7 Includes Multifiber Arrangement (MFA)-covered products (cotton,
wool, manmade fiber [MMF], noncotton vegetable, and silk blend
products of yarn, fabric, and made-ups (various household items, such
as sheets, towels, and draperies).  Does not include 100-percent silk
products. 

\8 Data for textile exports do not include products of raw cotton,
unspun wool, and MMF fiber that have not been processed into yarns
with twist. 

\9 The OECD countries are Australia, Austria, Belgium, Canada, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary,
Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Mexico, Norway, Portugal, Spain, Sweden, Switzerland,
Turkey, the United Kingdom, and the United States. 


   APPAREL TRADE PATTERNS
--------------------------------------------------------- Appendix I:2

Apparel imports have risen dramatically in the last decade. 
According to ITC, during the last 10 years, notwithstanding quota
restrictions and relatively high tariffs, U.S.  apparel imports grew
by 90 percent, to $34 billion, and doubled their share of the U.S. 
market to more than 40 percent.\10

Between 1989 and 1993, U.S.  apparel imports rose by 38 percent. 
U.S.  apparel manufacturers face growing competition from low-wage
developing countries.  Table I.4 shows the top 10 suppliers of
apparel to the United States in 1995, all of which were developing
countries.  China continues to be the largest apparel supplier to the
U.S.  market, followed by Hong Kong.  In 1995, Mexico displaced
Taiwan as the third largest apparel supplier to the United States. 
However, combined exports of these three countries only accounted for
26 percent of total U.S.  apparel imports in 1995; imports originated
from at least another
68 countries as well. 



                               Table I.4
                
                Suppliers of Apparel to the U.S. Market,
                          1995 (MFA products)

                                                                Percen
                                                                  t of
                                                                 total
                                                        Millio    U.S.
                                                            ns  import
Country                                                 of SME       s
------------------------------------------------------  ------  ------
China                                                      862     9.3
Hong Kong                                                  821     8.9
Mexico                                                     774     8.4
Dominican Republic                                         632     6.8
Taiwan                                                     598     6.5
Bangladesh                                                 519     5.6
Philippines                                                465     5.0
South Korea                                                343     3.7
Honduras                                                   329     3.6
Indonesia                                                  310     3.4
All others\a                                             3,602    38.9
======================================================================
Total                                                    9,255   100\b
----------------------------------------------------------------------
\a All others includes 61 other countries. 

\b Percents do not total 100 percent due to rounding. 

Source:  Major Shippers:  Textiles and Apparel. 

According to ITC, in the past 30 years approximately half of the
productive capacity in the apparel industry has shifted from
developed to developing countries.\11 This is part of a global trend
for apparel producers to shift production offshore in order to lower
production costs.  In addition, in the past few years apparel
importers have shifted their sourcing of goods to countries that do
not face U.S.  quotas. 

From 1993 to 1995, apparel imports from Mexico and the Caribbean
increased 63 percent, and in 1995 they accounted for 30 percent of
total U.S.  apparel imports.  Several trade initiatives provide
incentives to U.S.  and foreign producers to assemble apparel
products in these countries from U.S.  fabric or fabric cut in the
United States.  For example, the United States provides special
access arrangements to Caribbean Basin countries.  In addition, there
is a partial duty exemption for goods assembled abroad from U.S. 
components (the tariff is applied only to the value added abroad),
and Mexico benefits from provisions in the North American Free Trade
Agreement (NAFTA), which took effect in 1994. 

The United States is not the only developed country experiencing
significant import penetration.  Table I.5 shows the level of and
change in world apparel imports by developed countries and country
groups from 1990 to 1993.  For example, while U.S.  imports increased
32 percent from 1990 to 1993, imports to Japan increased 44 percent
over that period, and imports to the EU increased 33 percent from
1990 to 1992 (the latest year for which data were available). 



                               Table I.5
                
                   World Apparel Imports by Developed
                 Countries and Country Groups, 1990-93

                         (Dollars in millions)

                                                                Percen
                                                                     t
                                                                change
                                                                     ,
                                                                 1990-
Country/group                     1990    1991    1992    1993      93
------------------------------  ------  ------  ------  ------  ------
United States                   $26,97  $27,69  $32,95  $35,60      32
                                     7       6       1       5
Canada                           2,388   2,207   2,434   2,513       5
Japan                            8,737   9,396  11,191  12,588      44
EU\a                            26,981  32,867  35,843      NA    33\b
----------------------------------------------------------------------
Legend

NA = Not available. 

Note:  Data compiled from unpublished United Nations data for
Standard International Trade Classification division 84, articles of
apparel and clothing accessories (Revision 3) and published data from
the General Agreement on Tariffs and Trade (GATT), International
Trade 1993 - Statistics (Geneva:  1993).  Includes apparel
accessories made from nontextile products. 

\a Excludes intra-EU trade. 

\b Percent change for 1990-92. 

Source:  Industry and Trade Summary:  Apparel. 

The total dollar value of U.S.  apparel exports nearly tripled from
1990 to 1995, reaching $6.2 billion by 1995.  Table I.6 shows the top
10 markets for U.S.  apparel exports.\12 Over 90 percent of this
increase can be attributed to increased U.S.  exports to Mexico,
Japan, Canada, and Caribbean Basin countries.  The majority of
apparel exports to Caribbean Basin countries are cut fabric goods
shipped there for assembly and reimported to the United States. 
Current data do not allow the separation of apparel parts exported
for assembly from those that are wholly consumed abroad. 



                               Table I.6
                
                 Markets for U.S. Apparel Exports, 1995
                             (F.A.S. Value)

                         (Dollars in millions)

                                                                Percen
                                                        Amount    t of
                                                            of   total
                                                          U.S.    U.S.
                                                        export  export
Country                                                      s       s
------------------------------------------------------  ------  ------
Mexico                                                  $1,324    21.4
Japan                                                      851    13.8
Dominican Republic                                         782    12.7
Canada                                                     513     8.3
Honduras                                                   404     6.5
Costa Rica                                                 395     6.4
Jamaica                                                    384     6.2
El Salvador                                                216     3.5
Guatemala                                                  209     3.4
Colombia                                                   137     2.2
All others\a                                               965    15.6
======================================================================
Total                                                   $6,180     100
----------------------------------------------------------------------
\a All others includes at least 25 other countries. 

Source:  Export Market Report. 


--------------------
\10 Industry and Trade Summary:  Apparel, Publication 2853, ITC
(Washington D.C.:  Jan.  1995). 

\11 Industry and Trade Summary:  Apparel. 

\12 Data for apparel exports do not include apparel made of plastic,
fur, or leather. 


THE COMMITTEE FOR THE
IMPLEMENTATION OF TEXTILE
AGREEMENTS:  FUNCTIONS, RESOURCES,
AND COSTS
========================================================== Appendix II

The Committee for the Implementation of Textile Agreements CITA\1
carries on several functions beyond overseeing the gradual
integration of quotas and utilizing the Agreement on Textiles and
Clothing's (ATC) transitional safeguard mechanism.  As under MFA,
CITA's work load includes a number of tasks related to assuring
compliance with U.S.  trade agreements that are not directly
associated with imposing quotas.  These tasks involve

  -- coordinating U.S.  government efforts to prevent fraud and
     illegal routing of U.S.  textile and apparel imports through
     third countries (transshipment violations),

  -- implementing penalties against violators and assuring that the
     U.S.  Customs Service enforces these penalties, and

  -- reviewing and commenting on regulations concerning the origin of
     textile and apparel products in cooperation with the U.S. 
     Customs Service. 

CITA is also responsible for performing many functions that are not
associated with ATC, including

  -- negotiating new, and periodically renewing old, bilateral and
     memorandum of understanding (MOU)\2 agreements, with non-World
     Trade Organization (WTO) member countries, such as China
     (according to an OTEXA official, in 1995 CITA negotiated 16 such
     agreements with foreign governments, including both bilateral
     and MOU agreements);

  -- implementing a program that provides, under certain
     circumstances, special access arrangements to Caribbean Basin
     countries to export apparel products to the United States; and

  -- overseeing the implementation of provisions within NAFTA that
     pertain to textile and apparel trade. 

As under MFA, OTEXA provides CITA with its principal support staff;
33 of OTEXA's 41 staff work on CITA-related matters.\3 OTEXA has
three divisions that perform CITA-related functions--the Agreements,
Industry Assessment, and Trade and Data Divisions.  Their functions
include monitoring import activity for safeguard and transshipment
purposes, conducting evaluations of the general state of the U.S. 
textile and apparel industries, and participating in any U.S. 
negotiations that may affect those industries. 

The fourth division is the Market Expansion division, whose work has
nothing to do with CITA.  This division's main objective is to
promote U.S.  textile and apparel exports by sponsoring domestic and
international export seminars, trade shows, missions, and exhibits;
and by providing counseling to companies on export issues.  According
to the division's Director, since the program began in 1979, about
2,570 U.S.  companies have participated in export trade events that
the division has sponsored.  OTEXA officials report that they believe
the companies' participation generated about $3.5 billion in U.S. 
exports. 


--------------------
\1 CITA representatives currently are the Deputy Assistant Secretary
for Textiles, Apparel, and Consumer Goods Industries, Department of
Commerce; the Acting Director, Division of International Commodities,
Department of Labor; the Chief, Textile Trade Policy and Agreements
Division, Department of State; Economist, Office of the Assistant
Secretary for International Affairs, Department of the Treasury; and
the Ambassador and Chief Textile Negotiator, Office of the U.S. 
Trade Representative (USTR).  CITA representatives vote on all calls
but may confer about proposed calls with higher-level officials
within their respective agencies as necessary. 

\2 According to an OTEXA official, an MOU may be signed within the
context of an existing bilateral agreement between the United States
and a foreign government when only individual textile or apparel
product categories are the subject of negotiations.  (MOUs can be
used for a variety of purposes, including bilaterals with non-WTO
members.)

\3 These numbers include staff as of May 1995 (includes one part-time
staff person). 


   CITA'S RESOURCES AND COSTS
-------------------------------------------------------- Appendix II:1

Table II.1 shows each CITA agency's fiscal year 1995 CITA-related
costs, share of total CITA costs, and number of staff that supported
CITA's operations.  In fiscal year 1995, OTEXA accounted for over 79
percent of CITA's total $3.6 million costs, at $2.8 million. 



                               Table II.1
                
                CITA Personnel and Estimated Fiscal Year
                              1995 Budget

                         (Dollars in thousands)

                                                        Percen
                                                          t of
                                                         total  Person
Agency                                            Cost    cost     nel
----------------------------------------------  ------  ------  ------
Commerce                                        $2,845    79.5      33
State                                              319     8.9       6
USTR                                               309     8.6       3
Labor                                               78     2.2       3
Treasury                                            27     0.8       2
======================================================================
Total                                           $3,578   100.0      47
----------------------------------------------------------------------
Note:  Cost data provided by agencies are not uniform. 

Source:  CITA. 

Table II.2 shows that from fiscal year 1990 to fiscal year 1995,
OTEXA's budget more than doubled.  However, over 96 percent of the
budget increase was due to increases in the two research and
development (R&D) technology transfer grant programs administered by
OTEXA--one to the Textile/Clothing Technology Corporation ([TC])\2
and another to the National Textile Center (NTC).\4 In fiscal year
1995, these two grants accounted for over 75 percent of OTEXA's $16.4
million budget.  According to OTEXA, although funds for the grant
programs are included in OTEXA's budget by Congress and OTEXA has a
role in administering the grants, the grant funds do not cover any of
OTEXA's administration costs. 



                                    Table II.2
                     
                        OTEXA Budget, Fiscal Years 1990-95

                              (Thousands of dollars)

                                    1990    1991    1992    1993    1994    1995
--------------------------------  ------  ------  ------  ------  ------  ------
Grants                            $3,315  $3,215  $11,09  $10,39  $12,16  $12,40
                                                       6       1       3       0
Export promotion                     585     818     881     800     491     578
Pay and benefits                   2,256   2,435   2,472   2,201   2,881   2,844
Other costs\a                        762     605     692   1,127     825     549
================================================================================
Total cost                        $6,917  $7,073  $15,14  $14,51  $16,36  $16,37
                                                       1       9       0       1
--------------------------------------------------------------------------------
\a Other costs include all those other than payroll and other
benefits (travel, equipment, etc.). 

Source:  OTEXA. 


--------------------
\4 The (TC)\2 is a not-for-profit consortium of 200 fiber, textile,
sewn products, retail, labor, and governmental organizations
dedicated to increasing the long-term competitiveness of the U.S. 
textile and apparel industry through demonstration projects,
education, and R&D.  NTC is a research consortium of four
universities that work collaboratively to develop and transfer new
technologies and manufacturing processes to the U.S.  textile
industry.  The (TC)\2 's R&D effort and the NTC's work are funded
solely by federal grant funds. 


CHANGES IN MULTILATERAL TEXTILE
RULES REQUIRED BY ATC
========================================================= Appendix III

The primary change in multilateral textile rules under ATC is the
required integration of textile and apparel products into GATT rules
in four stages over a 10-year period ending in 2005.  Product
integration entails the permanent removal of textile and apparel
quotas maintained under ATC, with freedom to choose which products to
integrate at each stage. 
Table III.1 shows the list of products to be integrated at each of
the four stages specified in ATC, as published by the Department of
Commerce. 



                                   Table III.1
                     
                       Integration Schedule for Textile and
                           Apparel Products Under Quota

                Stage 1 (Jan.   Stage 2 (Jan.   Stage 3 (Jan.
                1, 1995-Dec.    1, 1998-Dec.    1, 2002-Dec.    Stage 4 (Jan. 1,
                31, 1997)       31, 2001)       31, 2004)       2005)
--------------  --------------  --------------  --------------  ----------------
Apparel         No textile or   Babies'         Gloves          Playsuits
                apparel         apparel         Robes and       Diapers
                products under  Handkerchiefs   dressing        Woven gloves
                quota           Hosiery\a       gowns           Hosiery\a
                integrated in   Bras & body-    Headwear and    Coats &
                stage 1         supporting      judo &          jackets\a
                                garments\a      karate          Dresses &
                                Down apparel    uniforms        skirts\a
                                Footwear        Knit neckwear,  Shirts and
                                Silk apparel    shawls,         blouses\a
                                Other silk      scarves,        Suits\a
                                blend &         pantyhose, &    Sweaters
                                vegetable       tights          Trousers &
                                apparel         Neckwear        shorts\a
                                                Bras and body   Nightwear\b
                                                supporting      Underwear
                                                garments\a      Other cotton\e
                                                Coats &         Other wool\c
                                                jackets\a
                                                Shirts &
                                                blouses\a
                                                Dresses &
                                                skirts\a
                                                Suits,
                                                trousers, &
                                                nightwear\a

Fabric                          Specialty       Knit fabric     Cotton & MMF
                                fabric          Nonwoven        broadwoven
                                                fabric          Pile
                                                MMF impression  Wool
                                                fabric
                                                Glass fiber
                                                fabric
                                                Silk blend &
                                                vegetable
                                                fabric


Made-ups                        Carpets         Luggage         Bed linen
                                Certain         Wool blankets   Towels, shop
                                wadding &       Other           towels, &
                                footwear        cotton\\d       dishcloths
                                Silk blends,    Other wool\e    Knitted table
                                vegetable,      Other MMF\f     linen
                                other made-                     National flags
                                ups &                           of the
                                miscellaneous                   United States


Yarn                            No yarn         Textured        Sewing thread &
                                products        filament        yarn
                                under           Nontextured
                                quota           filament
                                integrated in   Other stable
                                stage 2         fiber yarn
                                                Silk blend and
                                                vegetable
                                                fiber
--------------------------------------------------------------------------------
\a In some cases, apparel products grouped into separate categories
according to fiber content are to be integrated in different stages. 

\b Includes other cotton apparel except pantyhose and tights,
scarves, knit neckwear, judo and karate uniforms, and headwear. 

\c Includes other wool and MMF apparel except pantyhose and tights,
scarves, and knit neckwear. 

\d dIncludes all other cotton manufactures except pillow covers,
knitted table linen, shop towels, and dishcloths. 

\e Includes all other wool manufactures except bed linen. 

\f Includes all other MMF furnishings and manufactures. 

Source:  OTEXA. 

ATC also contains provisions that ensure that any quota levels
imposed pursuant to MFA and in place when ATC went into effect will
increase and become less restrictive with time.  MFA required that
bilateral agreements contain provisions to ensure the automatic
increase in the quota quantities over time, that is, "quota growth."
Table III.2 provides an example of how, through a mechanism called
"growth-on-growth," the size of quotas on products not yet integrated
will increase in three stages over the 10-year period.\1

Under ATC, baseline quota rates previously set under MFA bilateral
agreements will increase by 16, 25, and 27 percent in stage 1
(1995-97), stage 2 (1998-2001), and stage 3 (2002-04), respectively. 
The growth-on-growth mechanism would result in, for example, an
original 6-percent growth rate increasing to an 11-percent growth
rate for the third stage.  All quotas imposed under ATC transitional
safeguard provisions will have growth rates of at least 6 percent per
year and can last up to 3 years (with the exception of wool products,
which can increase only 2 percent yearly). 



                              Table III.2
                
                  Examples of ATC Quota Growth Rates,
                               1995-2004


                                       Stage I    Stage II   Stage III
                                           16%         25%         27%
                                      increase    increase    increase
MFA growth rates\a                      (1995-      (1998-      (2002-
(percent)                                1997)       2001)       2004)
----------------------------------  ----------  ----------  ----------
1                                         1.16        1.45      1.8415
2                                         2.32        2.90      3.6830
3                                         3.48        4.35      5.5245
4                                         4.64        5.80      7.3660
5                                         5.80        7.25      9.2075
6                                         6.96        8.70     11.0490
7                                         8.12       10.15     12.8905
----------------------------------------------------------------------
\a Original growth rates under MFA that serve as baseline rates for
growth-on-growth mechanism under ATC. 

Source:  OTEXA. 

ATC also changes the rules concerning the imposition of new quotas
during the 10-year period.  Because its purpose is to integrate
textile products into GATT, article 6 of ATC, unlike MFA, does not
permit countries to negotiate and impose quotas unless the importing
country finds actual or threat of serious damage to its domestic
industry.  Under article 4 of MFA, countries were permitted to enter
into bilateral agreements limiting imports in order to eliminate
"real risks of market disruption."

Under ATC, a WTO member country may impose a quota on another WTO
member country only through the use of a transitional safeguard--a
temporary quota on a particular foreign supplier.  The standard for
applying a transitional safeguard under ATC is comparable to article
3 of MFA.  Before making a direct comparison between the two
standards, however, it is useful to describe the ATC standard. 
Article 6 of ATC provides that a safeguard action may be taken based
on a determination that total imports of a particular product are
being imported in such increased quantities as to cause "serious
damage or actual threat thereof, to the domestic industry producing
like and/or directly competitive products." The serious damage or
actual threat thereof must be "demonstrably caused by" an increase in
quantities in "total imports of that product" and not by such other
factors as "technological changes or changes in consumer preference."

ATC further provides that the importing country shall examine the
effect of those imports on the state of the industry as reflected in
relevant economic variables.  It lists 11 variables that may be
considered but states that none, either alone or combined with other
factors, "can necessarily give decisive guidance." (These factors are
output, productivity, utilization of capacity, inventories, market
share, exports, wages, employment, domestic prices, profits, and
investment.) According to CITA, language on these factors was
developed specifically because of the difficulty of establishing
formulas to account for varying situations. 

Once the importing country determines that imports are causing
serious damage or actual threat thereof to its domestic industry, it
must attribute the serious damage on a country-by-country basis. 
Country attribution may be made on the basis of "a sharp and
substantial increase in imports" from a particular country and on the
basis of "the level of imports from other sources, market share, and
import and domestic prices."

The ATC safeguard standard is very similar to the MFA standard and
contains essentially the same terminology (see fig.  III.1).  Both
safeguard provisions allow a country to request consultations to
impose quotas on an exporting country's product based on its
determination of serious damage or actual threat thereof.  Like MFA,
ATC affords countries broad discretion in choosing among listed
(similar but not identical) factors to be considered as well as the
weight, if any, to be given any one factor.  Neither agreement
provides guidance on how the criteria are to be applied.  For
example, ATC and MFA do not specify a minimum increase in imports or
a minimum decrease in domestic production to justify imposing a
quota.  The primary difference between the two safeguard standards is
that ATC requires a finding that total imports of the product are
causing serious damage or actual threat thereof, while no such
finding was required by MFA.  The MFA safeguard provision required
that a country determine that imports of a particular product from a
particular source were causing serious damage or actual threat
thereof.  Similar to language in MFA, ATC specifies that transitional
safeguards are to be applied "sparingly."

   Figure III.1:  Comparison of
   Safeguard Standards Under
   Article 3 of MFA and Article 6
   of ATC

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

\a Although article 3 of MFA described the safeguard standard as
"market disruption," Annex A to MFA provided that the determination
of market disruption shall be based on the existence of serious
damage to domestic producers or actual threat thereof. 

\b MFA provided that "no one or several of these factors can
necessarily give decisive guidance."

\c Serious damage or actual threat thereof cannot be caused by other
factors such as technological changes or changes in consumer
preferences. 

\d ATC provides that none of these factors, "either alone or
combined, can necessarily give decisive guidance."


--------------------
\1 The growth-on-growth rates only apply to quotas in place at the
effective date of ATC and not to quotas subsequently imposed on
products through the ATC's transitional safeguard mechanism.  The
latter quotas will have growth rates of not less than 6 percent per
year and last up to 3 years, but will not receive growth-on-growth
treatment. 


CITA'S DECISION-MAKING PROCESS TO
IMPOSE IMPORT RESTRAINTS
========================================================== Appendix IV

Through OTEXA's continuous monitoring of industry data, CITA is
generally proactive in identifying cases of actual or threatened
serious damage.  On a weekly and monthly basis, OTEXA is responsible
for monitoring U.S.  import and domestic production data, which are
the key indicators OTEXA uses to identify changes in data that may
show that imports are causing serious damage to U.S.  textile and
apparel producers.  In addition, OTEXA monitors other economic
factors that are outlined in ATC.  (See fig.  IV.1 for an
illustration of CITA's quota imposition process.)

   Figure IV.1:  CITA's Process
   for Imposing Import Quotas
   Under ATC

   (See figure in printed
   edition.)

\a Non-WTO member countries are not subject to ATC requirements;
therefore, quota determinations involving those countries are not
notified or referred to the Textile Monitoring Body (TMB), and
negotiations with them do not have specified time limits. 

The first step in the process is for OTEXA to identify an import
increase that could indicate a "surge" in a particular product
category.  OTEXA then looks at domestic production data and gathers
other relevant economic information for the same category .  While
OTEXA usually initiates tracking of likely cases of potential damage,
industry representatives also maintain contact with OTEXA staff to
inform them of their industry's economic conditions. 

When OTEXA believes that the economic indicators appear to signal
serious damage to domestic producers, OTEXA staff contacts industry
representatives and/or their trade associations to obtain more
detailed information on the current situation and confirm production
figures.  When a case for serious damage appears strong, OTEXA staff
forwards it to Commerce's Deputy Assistant Secretary for Textiles,
Apparel, and Consumer Goods Industries, who is also the CITA Chair,
to decide whether to propose a call to the other CITA principals.  If
the CITA Chair decides positively, then the OTEXA staff prepare a
statement of serious damage or actual threat thereof.  The statement,
which is classified as confidential at this point, is distributed to
the CITA principals about 1 week before a CITA meeting.  At the
meeting the principals have an opportunity to discuss the merits of
and vote on the cases presented.  If the principals approve the call
by majority vote, the Department of State then prepares a diplomatic
note.  The note, sent to the foreign government, contains the
statement and requests consultations.  In cases involving WTO member
countries, TMB is simultaneously notified.  The decision to request
consultations does not cause a quota to be imposed immediately on the
product.  After CITA receives confirmation that the diplomatic note
has been delivered, the statement is declassified and made public
through a Department of Commerce telephone recording announcing the
call.  It is also published in the Federal Register, which provides
notice of the request for consultations and a summary of the
statement along with a request for public comment.  Commerce opens a
public comment file on each call.  Commerce also makes the statement
available in its Trade Reference Room. 

Before consultations with the foreign government begin, affected
parties have an opportunity to meet with U.S.  negotiators.  USTR
notifies industry advisors, including representatives of both the
domestic producers and the importing and retailing community that may
be affected.  USTR and OTEXA officials meet with industry
representatives for various reasons, including advising them of the
call, obtaining information about the current market situation, and
seeking guidance on the appropriate quota level.  In addition,
industry advisors, on their own initiative and expense, may accompany
the U.S.  government negotiating team on consultations abroad. 
However, they do not participate in the actual negotiations. 

ATC requires that consultations with WTO governments are to be
completed within 60 days of the date on which the request was
received.  If agreement is reached between the countries, a quota
reflecting the agreed-to level may be imposed at the end of the
consultation period, and details of the agreed quota level are
notified within 60 days to TMB.  TMB, established to supervise the
implementation of ATC, is a 10-person body made up of
5 representatives from importing countries and 5 representatives from
exporting countries.  TMB will review all safeguard actions under ATC
and will determine whether agreements are justified and have been
reached in accordance with ATC provisions.  It will make all
decisions on a consensus basis. 

However, if the countries are unable to reach agreement within 60
days, the country proposing to take action may impose the quota
within the following 30-day period.  The restraint will be imposed at
a level not lower than the import level during the 12-month period
ending 2 months before the month the consultations were requested. 
TMB will examine the case, including the determination of serious
damage, and make recommendations within 30 days.  During this period,
the two parties to the dispute will present their cases before TMB,
responding to TMB members' questions and providing information that
may support their case. 


CITA'S DATA SOURCES
=========================================================== Appendix V

CITA officials match U.S.  government import, production, domestic
price, and employment data with CITA's textile and apparel
categories.  Our review found that CITA combines import categories
and production categories to match the broader CITA categories.  We
also found that some compatibility problems exist between the
domestic producer price and employment data CITA uses and the CITA
categories.  Because of the difficulty in matching price and
employment data to these categories, the data CITA uses may only
provide broad indications of trends in the domestic textile and
apparel industry. 


   OTEXA MATCHES U.S.  GOVERNMENT
   DATA TO CITA CATEGORIES
--------------------------------------------------------- Appendix V:1

CITA uses textile and apparel categories that are aggregations based
on Harmonized Tariff Schedule (HTS) codes.  Table V.1 shows the
varied number of different HTS codes that are included in one CITA
category--women's and girls' wool coats.  For example, 36 HTS codes,
including 6102.90.9010 (overcoats), 6104.31.0000 (suit-type jackets),
and 6202.91.2011 (ski-jackets), are all under one CITA category,
number 435. 



                               Table V.1
                
                  Illustration of One CITA Category's
                        Corresponding HTS Codes


HTS code                            Description
----------------------------------  ----------------------------------
6102.10.0000                        W/G overcoats, carcoats, etc., of
                                    wool/fine animal hair, knit

6102.30.1000                        W/G overcoats, etc., of manmade
                                    fiber containing />= 23% weight
                                    wool/fine animal hair, knit

6102.90.9010                        W/G overcoats, etc., of other
                                    textile material subject to wool
                                    restraint, knit

6104.21.0010                        W/G ensembles of garments of
                                    tariff heading 6102 & 6104 of wool
                                    knit

6104.23.0010                        W/G ensembles of overcoats,
                                    jackets, etc., of synthetic fiber
                                    />= 23% wool, knit

6104.29.2012                        W/G ensembles of overcoats, etc.,
                                    other textile material subject to
                                    wool restraint, knit

6104.31.0000                        W/G suit-type jackets and blazers
                                    of wool, knit

6104.33.1000                        W/G suit-type jackets of synthetic
                                    fiber containing 23% more wool,
                                    knit

6104.39.2020                        W/G suit-type jackets of other
                                    textile material subject to wool
                                    restraint, knit

6117.90.9045                        Parts of coats and jackets of
                                    wool, knit

6202.11.0010                        Women's overcoats, carcoats &
                                    smaller coats of wool, not knit

6202.11.0020                        Girls' overcoats, carcoats &
                                    smaller coats of wool, not knit

6202.13.3010                        Women's overcoats and smaller
                                    coats of MMF />= 36% wool, not
                                    knit

6202.13.3020                        Girls' overcoats and smaller coats
                                    of MMF />= 36% wool, not knit

6202.19.9020                        W/G overcoats and smaller coats of
                                    other material subject to wool
                                    restraint, not knit

6202.91.2011                        Women's anorak ski-jackets and
                                    smaller of artificial wool, not
                                    knit

6202.91.2021                        Girls' anorak ski-jackets and
                                    smaller of artificial wool, not
                                    knit

6202.93.4011                        Women's anorak and smaller
                                    articles of MMF />= 36% wool, not
                                    knit

6202.93.4021                        Girls' anorak and smaller articles
                                    of MMF />= 36% wool, not knit

6202.99.9021                        W/G anoraks and smaller articles
                                    of textile material subject to
                                    wool restraint, not knit

6204.21.0010                        W/G ensembles of tariff heading
                                    6202 & 6204 of wool, not knit

6204.23.0005                        W/G ensembles of tariff heading
                                    6202 & 6204 synthetic fiber />=
                                    36% wool/fine animal hair, woven

6204.29.4012                        W/G ensembles of tariff heading
                                    6202 & 6204 other textile material
                                    subject to wool restraint, woven

6204.31.1010                        Women's suit-type jackets of wool
                                    />= 30% silk, not knit

6204.31.1020                        Girls' suit-type jackets of wool /
                                    >30% silk, not knit

6204.31.2010                        Women's suit-type jackets of wool
                                    not />30% silk, not knit

6204.31.2020                        Girls' suit-type jackets of wool

6204.33.4010                        Women's suit-type jackets of
                                    synthetic fiber />36% wool, not
                                    knit

6204.33.4020                        Girls' suit-type jackets of
                                    synthetic fiber />36% wool, not
                                    knit

6204.39.2010                        Women's suit-type jackets of
                                    artificial fiber />36% wool, not
                                    knit

6204.39.2020                        Girls' suit-type jackets of
                                    artificial fiber />36% wool, not
                                    knit

6204.39.8020                        W/G suit-type jackets of other
                                    textile material subject to wool
                                    restraint, not knit

6211.20.5400                        W/G ski-suit anorak & similar
                                    articles of wool, not knit

6211.41.0020                        W/G track suits excluding trousers
                                    of wool, not knit or crocheted

6211.41.0055                        W/G other jackets & jacket types,
                                    not elsewhere specified or
                                    included, of wool/fine animal
                                    hair, not knit or crocheted

6217.90.9030                        Parts of coats and jackets of
                                    wool, not knit or crocheted
----------------------------------------------------------------------
Source:  1995 Correlation:  Textile and Apparel Categories with the
Harmonized Tariff Schedule of the United States (Washington D.C: 
International Trade Administration, Department of Commerce). 

Table V.2 shows the collection method (coding schemes) of the U.S. 
government agencies from which CITA obtains data, the extent to which
they are compatible with CITA categories, and OTEXA's procedures to
facilitate a category match.  Import (quantity) data, production
(quantity) data, and import price data are relatively more compatible
with the CITA categories than are domestic production price and
employment data. 



                                    Table V.2
                     
                       Illustration of Problems in Matching
                      Bureau of Labor Statistics and Census
                             Data to CITA Categories

                                                Extent to
                                                which data
                                                match CITA      OTEXA's matching
Data type       Source          Coding scheme   category\\a     procedures
--------------  --------------  --------------  --------------  ----------------
Import          U.S. Customs/   HTS             HTS codes are   OTEXA combines
(quantity)      Census Bureau                   combined to     HTS codes.
                                                match each
                                                CITA category.

Production      Census Bureau   Census'         Data already    OTEXA uses
(quantity)                      product         combined like   judgment to
                                descriptions    CITA category   complete match.
                                                but not
                                                identical.
                                                Data collected
                                                in fiber-
                                                specific way.

Domestic        Census Bureau   Census'         Data already    OTEXA relies on
producer                        product         combined like   own judgment and
price                           descriptions    CITA category   manufacturers'
                                                but not         reports to
                                                identical.      convert Census
                                                Data not        data into CITA
                                                collected in    categories.
                                                fiber-
                                                specific way.
                                                Data not
                                                compatible to
                                                CITA
                                                categories.

Import          U.S. Customs/   HTS             HTS codes must  OTEXA calculates
price           Census Bureau                   be combined to  an average price
                                                match each      of the HTS codes
                                                CITA category.  in each
                                                                category.

Employment      Bureau of       SIC             Data collected  OTEXA applies a
                Labor                           by              complex formula
                Statistics                      manufacturer's  and its own
                (BLS)                           primary         judgment and
                                                product.\b      uses
                                                Data not fiber  manufacturers'
                                                specific.       reports to
                                                Data not        adjust for
                                                compatible      better match.
                                                with CITA
                                                categories.
--------------------------------------------------------------------------------
\a CITA categories are fiber specific. 

\b Since data are collected by a manufacturer's primary product,
reported data will not include information on lesser products
produced by the manufacturer. 

Because of the difficulty in matching the price and employment data
to the CITA categories, CITA may only be able to obtain broad
indications of trends in the domestic textile and apparel categories. 


   IMPORT DATA
--------------------------------------------------------- Appendix V:2

The U.S.  Customs Service collects import (quantity) data from
submissions required of all importers or their brokers for all
imports entering the United States.  After performing a series of
edit checks, Customs sends the import data to Census, which performs
its own edit checks and prepares data tapes it makes available to
OTEXA on a monthly basis.  U.S.  import data, in general, are
considered to provide reasonably good estimates of imports because of
the revenue-generating aspect of merchandise imports.  Textile and
apparel import data, in particular, are subject to special scrutiny
because of the need to ensure that import quotas are not exceeded. 
However, Customs officials caution that because of some importers'
efforts to circumvent quotas, the textile and apparel data may not be
as reliable as other import data. 

The quality of textile and apparel data is assured primarily through
physical inspection of import shipments and computerized data checks. 
Customs officials report that, normally, they inspect between 4 and 5
percent of all U.S.  import shipments; in the case of textile and
apparel imports, they inspect between 6 and 7 percent.  If they note
a particular problem with a commodity or an importing country, they
can inspect 100 percent of all that commodity's or that country's
imports for a specific time period.  For example, from February to
April 1995, Customs officials stopped all handwoven fabrics from
India and inspected samples to verify the consignments.  To help
assure the quality of the computerized data, Customs performs a
series of edit checks that rely on a set of parameters within which
the import quantity and values are expected to fall.  If these
parameters are exceeded, the computer operator must make a manual
intervention.  Customs said it has very detailed checks in place in
response to textile provisions contained in legislation and
international agreements, including the General System of Preferences
(GSP),\1 the Caribbean Basin Initiative (CBI),\2 and NAFTA.  While
Census also performs edit checks, these have been widely criticized
because they rely on very broad parameters that have rarely been
exceeded. 

In addition to inspections and edit checks, Customs and OTEXA
officials collaborate when particular issues or problems arise.  For
example, Customs reports working closely with OTEXA whenever a
foreign nation requests a "data discrepancy analysis" because that
nation's export data for a particular textile or apparel product do
not agree with U.S.  import data.  These analyses scrutinize the data
in question and attempt to resolve discrepancies.  According to
Customs, discrepancy analyses occur about once or twice a month. 
Customs also reports working closely with OTEXA when some calls are
being considered and OTEXA wants to ensure that the data supporting
them are reliable and accurate.  In these instances, OTEXA and
Customs scrutinize particular imports from particular countries and
consider the data, requesting additional information from the
importer of record if necessary. 

Textile and apparel import data are particularly prone to a number of
problems, according to Customs.  Exporters in nations subject to
quota can use illegal routing of textile and apparel imports through
third countries (i.e., textile transshipments) to circumvent quotas. 
Intentional or unintentional misclassification is also a major issue
for textile and apparel imports.  Intentional misclassification
occurs when importers falsely claim their shipments are in a category
not under quota or when they deliberately mislabel the shipment's
country of origin.  Unintentional misclassification can occur because
of the large number of codes for textile and apparel commodities. 
According to Customs, there are more than 4,000 HTS codes with which
to classify textile and apparel imports and exports.  Some importers
can make honest mistakes when they classify their commodities because
of their limited knowledge of these codes.  Overall, Customs notes
that textile and apparel import data receive more scrutiny than any
other commodity's import data.  They do not know if the extra
scrutiny counterbalances the additional problems.  However, Customs
does not believe that any CITA calls have been made based on
erroneous import data. 


--------------------
\1 GSP is a unilateral U.S.  program that extends duty-free access to
imported products from developing countries. 

\2 CBI was adopted in 1982 to promote investment and expand the
economies of Caribbean Basin countries through several mechanisms,
including tax incentives for investment and duty-free import access
to the U.S.  market. 


   PRODUCTION DATA
--------------------------------------------------------- Appendix V:3

Apparel production (quantity) data are collected on a quarterly and
annual basis by the Census Bureau, as part of its Census of
Manufactures, Current Industrial Reports (CIR) program.  This program
has compiled data on industry activity since the beginning of this
century.  In 1983, we reported that, while the data were considered
thorough and accurate, there were problems with timeliness.\3 At that
time, CITA relied on annual production surveys, and the data used
were between 10 and 32 months old.  Since then, quarterly surveys
have been implemented, and Census currently makes apparel production
data available to OTEXA about 2 to 3 months after the end of each
quarter. 

The quarterly apparel survey covers manufacturers, government
contractors, and jobbers\4 that cut and sew apparel.  It is mailed to
more than 1,200 large manufacturers that account for over 90 percent
of total cuttings of apparel items.  In addition, approximately 3,000
small manufacturers receive an annual short form of this survey. 
Both surveys collect data on the quantity of production and the total
value of shipments for men's, women's, children's, and infants'
apparel.  The data collected include garments cut in the United
States and sent outside the country to be sewn.  According to Census,
the quarterly survey has response rates that usually exceed 90
percent and coverage rates that are usually about 95 percent.  Census
officials believe that coverage, which is the percent of shipments
accounted for by the respondents, is the more important measure. 
According to Census, the quarterly and annual surveys combined have
coverage rates of about 96 to 97 percent of total U.S.  apparel
shipments. 

Census uses computerized edit checks to identify responses that vary
significantly from those provided in previous surveys and telephones
respondents to verify the accuracy of these responses.  Census does
not perform any site visits to check on responses.  In addition to
Census' own verification procedures, an OTEXA official is authorized
to examine the production data before they are published, thus
providing another level of cross-checks. 

The Census Bureau collects production data at a fairly aggregated
level.  Before OTEXA can use these product description data, it must
match the Census product descriptions to CITA's own categories, which
are also fairly aggregated even though they are based on data
collected at a very disaggregated level.  In general, the Census
product descriptions, when broken down by the type of fiber used, are
very similar to the CITA categories.  Nevertheless, Census' product
descriptions and CITA's categories cannot be matched exactly
primarily because (1) respondents to the apparel quarterly surveys do
not always specify the type of fabric by fiber they used; when this
occurs, OTEXA makes judgments on what proportion of fiber is to be
given to the various product categories and (2) a complete
concordance between Census' product descriptions and CITA categories
does not exist.  Typically, the product descriptions contain a few
products that are not in the corresponding CITA category, while the
CITA categories contain a few products that are not in the
corresponding Census product description.  In some cases, adjustments
are made, based on an OTEXA official's industry knowledge, other data
sources, and judgment. 

Census also collects data on textile production through a series of
annual and quarterly surveys.  Because some of these surveys are
annual instead of quarterly or monthly, some textile production data
are much less timely than apparel production data.  It is important
to note that there are a few textile and apparel categories for which
Census does not collect any data, including luggage, handkerchiefs,
and hosiery.  OTEXA monitors these categories using industry data
sources, such as the National Cotton Council's "Cotton Counts its
Customers" production surveys.  According to industry
representatives, OTEXA has discussed the surveys and methodologies
used by these representatives, and OTEXA is satisfied that their data
are reliable and valid. 


--------------------
\3 See (GAO/NSIAD-84-18, Nov.  4, 1983). 

\4 The apparel industry is characterized by three types of operations
-- manufacturers, jobbers, and contractors.  The manufacturer
purchases material and cuts, sews, and sells the product.  The jobber
is involved in the product's actual processing done under contract in
an outside factory.  The contractor does not own the finished product
or sell the finished good. 


   PRICE DATA
--------------------------------------------------------- Appendix V:4

Census' quarterly and annual production surveys also collect data on
the net value of the products produced, or the production price. 
However, value data are not collected by fiber type and therefore
cannot be accurately matched to CITA's fiber-specific categories. 
For example, the Census value data do not distinguish between the
prices of clothing made of cotton, wool, MMF or other fiber types. 
Whenever CITA is considering issuing a call, OTEXA contacts a limited
number of manufacturers based on industry recommendations and adjusts
the Census value data based on the information obtained.  Given the
limitations of the Census data and OTEXA's data collection methods,
the producer price data published in the market statements provides
broad approximations of producer prices by category, rather than
precise estimates. 


   EMPLOYMENT DATA
--------------------------------------------------------- Appendix V:5

BLS collects employment, payroll, and hours worked data from textile
and apparel manufacturers on a monthly basis.  While these data are
generally considered timely, they are collected using the SIC
system's categories for textile and apparel products.  These
categories are neither fiber specific nor directly compatible with
CITA's categories.  Moreover, the BLS data are collected by the
primary manufacturing activity, according to the SIC categories, of
the establishment surveyed.  For example, an apparel manufacturer who
produces three product categories is reported as producing only the
one it makes in the greatest quantity, and all its employment and
payroll data will be attributed to that category. 

In 1995, OTEXA developed a new methodology to derive textile and
apparel employment data by CITA categories.  This methodology
involves a number of stages and apportions the SIC employment data to
CITA categories using algorithms derived from CIR production data and
other data that Census supplies.  After deriving employment data by
CITA categories, OTEXA also considers data from the Labor
Department's and the Commerce Department's Trade Adjustment
Assistance programs\5 and consults industry representatives and
manufacturers.  OTEXA officials may make adjustments to the data by
category, on a case-by-case basis, depending on what they learn from
these sources.  While this methodology utilizes the available data
sources in a reasonable fashion, it cannot overcome all the problems
involved in matching SIC-collected data with HTS-collected data
aggregated into CITA categories.  Therefore, employment data by CITA
categories provide approximations of actual trends rather than
precise estimates. 


--------------------
\5 Trade adjustment assistance, managed through the Department of
Labor, is available to workers who lose their jobs or whose hours of
work and wages are reduced as a result of increased imports. 


USE OF DATA SUPPORTING SERIOUS
DAMAGE DETERMINATIONS
========================================================== Appendix VI

CITA bases its determinations of serious damage, and its decision to
request consultations to impose quotas, in part on the data and
analysis presented by OTEXA in its market statements.  We examined
all of the market statements provided by OTEXA for calls issued over
the last 6 years\1 --from 1990 through 1994 under MFA, and in 1995
under ATC.\2

In the market statements, OTEXA generally focused on import surges
and domestic production declines and assumed a causal link between
the two factors.\3 OTEXA also included in the market statements the
import price and the domestic producer price of the product in
question.  In the 1995 statements, OTEXA also provided employment
data, but as noted in appendix V, there are problems relating these
data to CITA categories. 

The import and production data in the market statements describe
changes for time periods that usually ended several months before the
statement's issuance.  The statements did not always present data
over a standardized time period.  Typically, the data go back 2 to 5
years.\4 Because of the way the data are presented in the statements,
we could only consistently examine yearly change over the most recent
2 years of data for each of the 166 statements.\5

Recognizing that OTEXA also considered longer-term historical trends
before issuing a request for consultations, we examined changes over
the last 3 calendar years for the 126 market statements that
contained these longer-term data. 

Consistent with its authority under U.S.  law, MFA, and ATC, the
range in import and domestic production levels in the market
statements indicated that CITA made its serious damage determinations
on a case-by-case basis rather than on specific import rises or
production falls.  For example, in 1995, the most recent comparable
yearly increases of imports reported in the market statements ranged
from 4 percent to 116 percent, and production declines ranged from
less than 1 percent to 24 percent.  Over the full 6-year period, the
most recent yearly import data ranged from a decline of 15 percent to
an increase of 195 percent; the most recent comparable year
production data ranged from an increase of 25 percent to a decrease
of 51 percent.  In the statements, CITA supported its decisions to
request consultations on import surges and production declines that
had occurred over differing time periods.  For example, in some
instances CITA emphasized changes that had occurred over the last 3
calendar years; in others, it emphasized changes that had occurred in
the last 2 calendar years, and in still others it emphasized changes
since the beginning of the calendar year. 


--------------------
\1 We did not evaluate other factors not contained in the market
statements, such as foreign policy concerns that may have been
considered by the five CITA principals. 

\2 Because MFA and ATC safeguard standards are similar, OTEXA
analyzed virtually the same data from 1990 to 1994 under MFA as it
did under ATC in 1995 to make determinations of serious damage. 

\3 OTEXA officials told us that they had considered and thoroughly
explored the possibility of using econometric analysis to evaluate
the link between declines in U.S.  production and rising imports. 
They dismissed this approach because they believe that (1) the
existence of quotas on textile and apparel products over the past 30
years has distorted any correlation between domestic imports and
domestic demand and (2) economic modeling is best applied to broad
measures of economic activity rather than to specific products. 

\4 Because OTEXA issued market statements throughout the year, they
frequently presented year-to-date or year-ending data for the most
recent 2 years of comparable import and production data.  In
addition, they would also usually present calendar year data for the
last 3 years.  However, in some instances, they presented 1 calendar
year of data, and in others, they presented 5 calendar years of data. 

\5 Much of the most recent yearly data are presented on a year-ending
basis.  The import data are available on a monthly basis, and the
production data are available on a quarterly basis. 


   CITA'S CALLS BETWEEN 1990 AND
   1995
-------------------------------------------------------- Appendix VI:1

We analyzed a total of 166\6 market statements from 1990 through 1995
(see table VI.1).  The number of calls averaged 28 per year.  The 166
calls involved imports from 43 different countries and 59 different
joint or combined textile and apparel categories.  Thailand was the
nation that received the most calls (22), followed by the United Arab
Emirates (15) and India (11).  The categories called the most
frequently were cotton and MMF nightwear and pajamas (14); cotton and
MMF men's and boy's shirts, not knit (10); and cotton and MMF
underwear (8). 



                               Table VI.1
                
                         CITA Calls, 1990-1995

                                                 Number of
                                                             Number of
                                     Number of  categories   countries
Year                                     calls      called      called
----------------------------------  ----------  ----------  ----------
1990                                        35          23          12
1991                                        22          15          14
1992                                        43          20          22
1993                                        15          11          12
1994                                        23          18          14
1995                                        28          10          18
----------------------------------------------------------------------
Source:  GAO analysis of OTEXA market statements. 


--------------------
\6 We examined all the statements that OTEXA provided us for the
1990-95 time frame. 


   MARKET STATEMENTS REFLECTED
   PRODUCTION DECLINES AND IMPORT
   INCREASES
-------------------------------------------------------- Appendix VI:2

From 1990-1995, the most recent production data showed a median\7

yearly decline of 6.4 percent, and the comparable\8 import data
showed an increase of 9.6 percent.  Furthermore, the U.S.  domestic
market share\9 declined by a median of about 4 percentage points for
calls issued from 1990 through 1995.  As previously noted, OTEXA
officials stated that they also considered longer-term historical
trends, as well as more recent changes.  Although the available data
limited our ability to analyze these longer-term trends, we examined
production declines and import increases for the 3 full calendar
years prior to the call when these data were available.  In the 126
market statements that contained these data, the median production
decline was 17 percent and the median import increase was 12.4
percent.  Import data are more current than production data because
it is provided monthly, while production data is provided quarterly. 
In our analysis, we considered both import data comparable to
production data and the most recent import data, which are generally
not comparable.  The most recent import data rose by 17.6 percent.\10
The data in table VI.2 show the median changes over the most recent
comparable years for imports, production, and domestic market share,
from 1990 to 1995. 



                                    Table VI.2
                     
                         Median Import Rises, Production
                       Declines, and Domestic Market Share
                          Falls for CITA Calls, 1990-95

                                                                        Declines
                                  Import          Import                      in
                               increases       increases    Declines    domestic
                           comparable to      using most          in      market
                              production   recent import  production       share
Year                      data (percent)            data   (percent)   (percent)
------------------------  --------------  --------------  ----------  ----------
1990                                 7.3            12.9        -9.7        -2.0
1991                                20.8            13.2       -19.4        -7.1
1992                                 5.6            19.3        -4.8        -3.2
1993                                 5.8            19.7        -4.0        -4.8
1994                                14.5            12.8        -3.3        -5.0
1995                                13.4            21.8        -6.4        -5.0
Median                              10.3            17.6        -6.4        -4.4
 1990-95
--------------------------------------------------------------------------------
Note 1:  Median yearly changes are for the most recent 2 years of
comparable import and production data presented in the market
statements. 

Note 2:  The decline in market share is calculated as the change in
percentage points.  Therefore, the declines are not directly
comparable with the changes in imports or production, which are
calculated as percentages of actual production. 

Source:  GAO analysis of OTEXA market statements. 


--------------------
\7 In the tables that follow, we use medians as the measure of
central tendency because, in each year, a few outliers slightly
skewed the averages.  For example, while the median yearly import
increase for the last 2 years in question was 9.6 percent, the
average import increase was 14.2 percent.  Similarly, while the
median yearly production fall was 6.4 percent, the average production
fall was 9 percent.  The median has the advantage of measuring
central tendency without being affected by the outliers.  It is the
midpoint for the range when all the data points are arrayed in order,
and can be interpreted thus:  roughly half of the cases were greater
than the median, and roughly half were less. 

\8 These analyses focus on the most recent comparable yearly changes
in production and import data.  As import data are made available on
a monthly basis and production data are made available on a quarterly
basis, the market statements typically present import data that are
slightly more recent than the production data.  Although OTEXA
officials report that they pay great attention to the most recent
import data, we focus on comparable production and import data
because of the need to establish a casual link between the two. 
Because statements are issued at different points in time during the
year, we focused on the most recent yearly change data OTEXA
presented in the market statements.  Sometimes this was calendar year
data, and sometimes this was year-ending data. 

\9 U.S.  domestic market share is defined as production divided by
imports plus production. 

\10 The most recent import data reflect information generally from 1
to 3 months before the market statement is issued.  Production data
can be up to 12 months old. 


   SOME MARKET STATEMENTS
   REFLECTED UNIQUE TRENDS IN
   PRODUCTION AND IMPORT LEVELS
-------------------------------------------------------- Appendix VI:3

Although some calls were supported by either a small recent
production decline or a small import increase, very few were
supported by both a small production decline and a small import
increase.  Between 1990 and 1995, 45 calls were issued when the most
recent year's production falls were less than 2 percent, and 32 calls
were issued when the most recent year's import increases were less
than 2 percent.  Our review of the market statements found many
instances when small production falls were accompanied by larger
import increases, or vice versa.  We found only
6 instances (out of 166) of calls being issued between 1990 and 1995
when production had fallen by less than 2 percent and imports had
risen by less than 2 percent (see table VI.3).  Of these, only one
occurred in the last
3 years, and none occurred under ATC. 



                               Table VI.3
                
                   Calls With Relatively Small Recent
                 Import Increases or Production Falls,
                                1990-95

                                                        Calls in which
                        Calls in which                      production
                           most recent                    fell by less
                                yearly  Calls in which            than
                            production   recent yearly   2 percent and
                               fell by    imports rose    imports rose
                           less than 2    by less than         by less
Year                           percent       2 percent  than 2 percent
----------------------  --------------  --------------  --------------
1990                                10              10               4
1991                                 1               4               0
1992                                15              12               1
1993                                 4               5               1
1994                                 7               1               0
1995                                 8               0               0
======================================================================
Total 1990-95                       45              32               6
----------------------------------------------------------------------
Note:  Median yearly changes over the most recent 2 years of
comparable import and production data presented in the market
statements. 

Source:  GAO analysis of OTEXA market statements. 

As shown in table VI.4, in 102 of the 166 calls made by CITA during
1990-95, production declined and total category imports rose during
the most recent calendar year where data existed for both variables. 
In 56 other calls, either production rose or imports declined (in 8
calls, data were incomplete).  Most of the calls issued when
production rose or imports fell during the most recent year occurred
before 1993; none of these calls were issued in 1995 under ATC. 



                                    Table VI.4
                     
                     CITA Calls With Various Combinations of
                       Production and Import Data, 1990-95

                             Calls where   Calls where   Calls where
               Calls where          both          both    production       Calls
                production    production    production     increased  where data
1990-95       declined and   and imports   and imports   and imports        were
calls         imports rose      declined     increased      declined  incomplete
------------  ------------  ------------  ------------  ------------  ----------
Total                  102            28            24             4           8
--------------------------------------------------------------------------------
Source:  GAO analysis of OTEXA market statements. 

OTEXA officials told us that, in those calls where imports had fallen
in the most recent comparable year, they had risen over a shorter or
a longer time period.  Similarly, they told us that even if
production had increased over the most recent time period, it had
decreased over an alternative time period.  Our data analysis
confirmed these points.  For example, in some cases OTEXA compared
the most recent calendar year production data with that of 2, 3, or 4
years earlier.  Further, OTEXA sometimes compared the most recent
year-ending or partial year production data with a comparable time
period.  OTEXA used similar time period comparisons in those calls
where calendar year imports declined over the previous year.  In a
few instances, the import increase occurred after the decline in
domestic production. 

Regarding import data, OTEXA presented the most recent import data
available.  Since production data lag behind data, CITA often
presented import data that were from a different time period than
production data. 


   CITA REQUESTED CONSULTATIONS
   WITH SOME SMALL SUPPLIERS
-------------------------------------------------------- Appendix VI:4

From 1990 through 1995, CITA requested consultations with many
countries that were small suppliers of U.S.  textile and apparel
imports.  Over this period, half of the countries called were
responsible for less than 2.5 percent of the total category imports
from all sources (see table VI.5).  As it was fairly common for CITA
to request consultations with more than one country for a particular
category, we calculated the combined percentages of world imports for
all countries called per category per year and found that this had a
median of 4.8 percent. 



                               Table VI.5
                
                   Median Percent of Imports and U.S.
                  Market Share for Countries Receiving
                             Calls, 1990-95

                                                             Country's
                                                      percentage share
                                                         of total U.S.
                                                        imports of the
Year                                                   category called
--------------------------------------------------  ------------------
1990                                                               2.4
1991                                                               4.0
1992                                                               1.7
1993                                                               1.9
1994                                                               1.8
1995                                                               4.0
Median                                                             2.5
 1990-95
----------------------------------------------------------------------
Note:  Medians are based on the last 12 months of data presented in
the market statements. 

Source:  GAO analysis of OTEXA market statements. 


   CITA CALLED SOME CATEGORIES
   THAT CONTAINED A VARIETY OF
   PRODUCTS AT VARIED PRODUCER
   PRICES
-------------------------------------------------------- Appendix VI:5

As described in appendix V, CITA classifies goods into 148 categories
that consist of a total of 4,000 HTS codes averaging 27 HTS codes per
category.  Because CITA imposes quotas at the category level, any
quota imposed restricts imports of the category and its corresponding
HTS codes.  Article 6 of ATC provides that a WTO member country may
take a safeguard action on imports of products causing serious damage
to its domestic industry producing like and/or competitive products. 
ATC, however, does not define the standard "like and/or competitive
products."

In making its determinations on damage to domestic industry, CITA
assumed that the HTS codes\11 within the same CITA category were like
and/or directly competitive products to those being produced by
domestic manufacturers of items under that category.  However, we
found that some of the categories CITA called from 1990 to 1994
contained HTS codes that appeared to include dissimilar products
based on their descriptions and the import and producer prices
reported in the market statements. 

Along with product descriptions, product prices also varied within
CITA categories.  In the 138 market statements we examined for
1990-94,\12 OTEXA reported estimated domestic producer prices and
import prices at the HTS level.  We found that in some market
statements, (1) U.S.  producer prices and import prices within the
same category differed from one HTS code to another and (2) U.S. 
producer prices and import prices for the same HTS code varied
significantly from one call to another. 

For example, in July 1991, CITA issued a call to the Philippines for
category 359-C/659-C--cotton and MMF fiber overalls and coveralls. 
The market statement indicated that approximately 73 percent of the
imports in this category entered the United States under two HTS
codes.  Table VI.6 shows the import prices and U.S.  producer prices
listed in the market statement for each code.  The import prices for
each code were $145.43 and $9.47, respectively.  The U.S.  producer
price was $230-$240 for one code and only $25-$35 for the other code. 



                               Table VI.6
                
                Prices for Two HTS Codes Under Category
                    359-C/659-C in CITA Call to the
                              Philippines

                                              Import
                                              prices     U.S. producer
                                               (U.S.            prices
HTS code                                    dollars)    (U.S. dollars)
--------------------------------------  ------------  ----------------
6203.42.2010                                 $145.43          $230-240
6210.10.4015                                    9.47             25-35
----------------------------------------------------------------------
In response to our question about the variation in prices among HTS
codes within this category, OTEXA officials responded in writing that
the price difference reflected the fact that the items imported under
these HTS codes were very different garments, with different prices. 
However, the officials also said that the garments were "like and/or
competing garments" because they were both being used for the same
purpose--"to cover and protect the under clothing and the body." They
said that this common purpose "will dictate the type and quality one
purchases."


--------------------
\11 As described earlier in appendix V, each of CITA's 148 categories
consists of a number of HTS codes. 

\12 Effective January 1, 1995, under ATC, OTEXA market statements
compare average U.S.  domestic producer price with import prices at
the category level rather than the HTS level. 


ATC SAFEGUARDS INVOKED IN 1995
========================================================= Appendix VII

This appendix examines in detail the transitional safeguards invoked
in 1995 under ATC, including the number of safeguards, their status,
an analysis of data CITA applied to its decision to impose the
safeguards, and information on the TMB's review of the safeguards. 
Finally, a case study on one category--nightwear and
pajamas--presents an overview of a disputed safeguard action. 


   CALLS ISSUED BY CITA IN 1995
------------------------------------------------------- Appendix VII:1

CITA issued 28 calls in 1995, covering 10 product categories, to 11
WTO member countries and 7 non-WTO member countries.  Of the 28
calls, the United States and the exporting countries reached
agreement on 14 and the United States ultimately rescinded 11.\1

For the remaining calls, quotas remain without agreement on two, and
consultations between the United States and the exporting country are
ongoing for one case (see table VII.2). 

Table VII.1 shows U.S.  domestic production, import, and world import
data by country for the 28 calls issued in 1995.  The data shows that
CITA does not apply any standard numerical thresholds in finding
damage to U.S.  industry and in deciding to request consultations to
impose quotas.  The rise in total imports for each category ranged
from 3.7 percent for category 342/642 (cotton and MMF suits) to 116
percent for category 440 (woven wool shirts and blouses).  Production
declines ranged from 1.7 percent for category 670-L (MMF luggage) to
23.9 percent for
category 444 (women's and girls' wool suits.)

In 1995, CITA requested consultations with some small suppliers. 
Table VII.1 also shows the country percent of world
imports--countries called according to their import share of the
category in question, from the entire world.  Under ATC, the United
States called countries with world import shares of a particular
product of less than 2 percent in seven instances, and world import
shares of less than 5 percent in 17 instances.  For category 351/651
(nightwear), all four countries called had world import shares of
less than 5 percent, as did three countries called under category 435
(women's and girls' wool coats.) The country with the highest world
import market share was India, for woven wool blouses and shirts
(category 440), at 54.2 percent.  The data did not show any
significant differences in CITA calls issued to WTO member countries
as compared to nonmember countries. 



                                   Table VII.1
                     
                       Production, Import, and World Market
                      Share Data from Market Statements for
                                CITA's 1995 Calls

                                                                         Country
                               Percent                                percent of
                             change in      Percent                        world
Cat                               U.S.    change in                      imports
ego                        production\   total U.S.      Countries   into United
ry   Description                     a    imports\a      called         States\b
---  --------------------  -----------  -----------  --  ----------  -----------
342  Cotton & MMF skirts         -5.2%         3.7%      Guatemala*         4.0%
/
642

351  Cotton & MMF                 -3.0          4.9      El                  2.3
/    nightwear                                           Salvador*
651

                                                         Honduras            1.4

                                                         Jamaica             4.0

                                                         Costa Rica          1.5

================================================================================
                                                      <  b>Total             9.1

352  Cotton & MMF                 -6.4         15.0      Colombia*           1.6
/    underwear
652

                                                         Costa Rica         14.8

                                                         Dominican          16.9
                                                         Republic

                                                         El                  3.8
                                                         Salvador*

                                                         Honduras            6.7

                                                         Thailand            1.6

                                                         Turkey              1.3

================================================================================
                                                      <  b>Total            46.7

434  Men's and boys' wool         -1.9         26.7      Brazil              5.0
     coats

                                                         India              24.2

                                                         Macedonia*          4.4

================================================================================
                                                         Total              33.6

435  Women's and girls'           -1.8          8.4      Honduras            1.2
     wool coats

                                                         India               3.1

                                                         Russia*             3.6

================================================================================
                                                         Total               7.9

440  Woven wool shirts           -12.5          116      Hong Kong           3.8
     and blouses

                                                         India              54.2

================================================================================
                                                         Total              58.0

444  Women's and girls'          -23.9          4.0      Colombia           11.7
     wool suits

                                                         Philippine          6.7
                                                         s

                                                         Bulgaria*           4.6

================================================================================
                                                         Total              23.0

603  Spun yarn                   -10.0         26.9      Thailand            9.6

642  MMF skirts                   -7.6         17.6      Nepal*              1.9

670  MMF luggage                  -1.7         11.9      Philippine          8.8
-L                                                       s

                                                         Sri Lanka           3.9

                                                         Thailand           22.6

================================================================================
                                                         Total              35.4
--------------------------------------------------------------------------------
Note:  Countries with asterisks are not WTO members. 

\a Production declines and import increases are for the most recent
comparable yearly changes (presented in the market statements). 

\b Country percents of world imports are for the most recent yearly
import data (presented in the market statements). 

Source:  GAO analysis of OTEXA market statements. 


--------------------
\1 In May 1996, the United States and Sri Lanka agreed to cancel
their agreement on MMF luggage. 


   THE TEXTILES MONITORING BODY
------------------------------------------------------- Appendix VII:2

Among other things, TMB is charged with reviewing quotas that are
disputed as well as those agreed to following a call to ensure that
the safeguard conforms to the terms of ATC.  The 10 TMB members are
broadly representative of WTO member countries; 1995 members included
representatives from Brazil, Canada, the EU, Hong Kong, India,
Indonesia, Japan, Norway, Pakistan, and the United States.  With
respect to disputed safeguard actions, TMB's examination typically
results in a determination of whether serious damage or actual threat
thereof, within the meaning of ATC, has been demonstrated.  In one
case, however, TMB issued a recommendation on the basis of
interpreting other ATC provisions.  TMB is required to promptly
conduct examinations and make appropriate recommendations.  ATC
provides that member countries will endeavor to accept in full those
recommendations. 

TMB does not have formal rules of practice and procedure or rules of
evidence.  While its working procedures state that TMB reports of
disputed cases shall include "a factual presentation of the issues
examined" and "the common rationale" for its recommendations, the
reports to date have not provided detailed reasoning supporting TMB's
conclusions about the existence of serious damage or actual threat
thereof.  In this regard, a TMB member stated that TMB
recommendations should not be viewed as precedent or definitive
guidance to member countries; instead, he noted that safeguard cases
are reviewed on a case-by-case basis.  One TMB member emphasized the
role of TMB as a facilitator of ATC implementation, noting that TMB
is not a substitute for WTO dispute settlement.  WTO's Dispute
Settlement Body (DSB) can consider disputes that were the subject of
TMB reviews or recommendations.\2

Much of TMB's review requires interpreting ATC provisions.  TMB
members hold differing views about the meaning of various ATC
provisions.  Despite the number of TMB members, their diverse
cultural backgrounds, and ATC language that is often subject to
interpretation, TMB makes all of its recommendations by consensus. 


--------------------
\2 Two pending DSB cases involve safeguard actions that TMB
reviewed--Costa Rica, regarding categories 352/652 (cotton and MMF
underwear) and India regarding category 440 (woven wool blouses and
skirts). 


   TMB'S REVIEW OF 1995 SAFEGUARDS
------------------------------------------------------- Appendix VII:3

During 1995, TMB completed its review of and issued reports on seven
disputed U.S.  safeguard actions involving five product categories. 
TMB found that one call was justified based on a finding that the
United States had demonstrated the threat of serious damage to
domestic industry attributable to the called country.  For two calls,
TMB found that the United States had not demonstrated serious damage
or threat thereof to its domestic industry.  For three calls,
involving two categories, TMB stated that the United States had not
demonstrated serious damage, but TMB members could not reach a
consensus on whether a threat of serious damage had been
demonstrated.  Finally, TMB found that one call was not justified
under ATC but did not address the propriety of the U.S. 
determination of serious damage or its attribution to the called
country\3 (see table VII.2). 



                                   Table VII.2
                     
                                CITA's 1995 Calls

              Categor
Country             y  Description   TMB review?   TMB ruling*   Status of case
------------  -------  ------------  ------------  ------------  ---------------
WTO members

Honduras         351/  Cotton & MMF  Yes           a             Rescinded
                  651  nightwear
                       and pajamas

Honduras         352/  Cotton & MMF  Yes           b             Agreement
                  652  underwear

Jamaica          351/  Cotton & MMF  No            NA            Agreement
                  651  nightwear &
                       pajamas

Dominican        352/  Cotton & MMF  No            NA            Agreement
Republic          652  underwear

Thailand         352/  Cotton & MMF  Yes           Rescinded     Rescinded
                  652  underwear                   before TMB
                                                   ruling

Costa Rica       352/  Cotton & MMF  Yes           b             Restraint
                  652  underwear                                 remains***

Turkey           352/  Cotton & MMF  Yes           Parties       Agreement
                  652  underwear                   agreed
                                                   before TMB
                                                   ruling

India             434  Men's &       Yes           a             Rescinded
                       boys' wool
                       coats other
                       than suit
                       type

India             435  Women's &     Yes           b             Rescinded***
                       girls' wool
                       coats

India             440  Woven wool    Yes           c             Restraint
                       shirts and                                remains***
                       blouses

Honduras          435  Women's &     Yes           Parties       Agreement
                       girls' wool                 agreed
                       coats                       before TMB
                                                   ruling

Philippines     670-L  MMF luggage   No            NA            Rescinded

Brazil**          434  Men's &       No            NA            Rescinded call
                       boys' wool
                       coats other
                       than suit
                       type

Hong Kong         440  Woven wool    Yes           TMB           Rescinded
                       shirts and                  recommended
                       blouses                     rescission
                                                   due to group
                                                   limit

Sri Lanka**     670-L  MMF luggage   No            NA            Agreement
                                                                 (canceled)

Thailand          603  Spun yarn     No            NA            Rescinded
                       containing
                       85% or more
                       by weight
                       artificial
                       staple fiber

Thailand        670-L  MMF luggage   No            NA            Rescinded

Philippines       444  Women's &     No            NA            Rescinded
                       girls' wool
                       suits

Costa            351/  Cotton & MMF  No            NA            Rescinded
Rica              651  nightwear
                       and pajamas


Non-WTO members (at time of
--------------------------------------------------------------------------------
El Salvador      351/  Cotton & MMF  NA            NA            Agreement
                  651  nightwear
                       and pajamas

El Salvador      352/  Cotton & MMF  NA            NA            Agreement
                  652  underwear

Colombia         352/  Cotton & MMF  NA            NA            Agreement
                  652  underwear

Macedonia         434  Men's &       NA            NA            Consultations
                       Boys' wool                                continuing
                       coats other
                       than Suit
                       type

Guatemala        342/  Cotton & MMF  NA            NA            Agreement
                  642  skirts

Colombia**        444  Women's &     NA            NA            Agreement
                       girls' wool
                       suits

Russia**          435  Women's &     NA            NA            Agreement
                       Girls' wool
                       coats

Bulgaria** 4     44 W  omen's & N    A N           A A           greement
                       Girls' wool
                       suits

Nepal**           642  MMF skirts    NA            NA            Agreement
--------------------------------------------------------------------------------
Legend

* = TMB must eventually review all agreements.
** = No unilateral quota imposed on country.
*** = Referred to WTO DSB.
NA = Not applicable. 

\a TMB found no serious damage or threat thereof. 

\b TMB found no serious damage but did not reach consensus on threat
thereof. 

\c TMB found no serious damage but found threat thereof. 


--------------------
\3 TMB concluded in this case that the application of a safeguard
measure to Hong Kong for category 440 products was not justified
under ATC because Hong Kong exports of these products were already
under quota under an existing group limit. 


   VIEWS OF INDIVIDUAL TMB MEMBERS
   CONCERNING CALLS
------------------------------------------------------- Appendix VII:4

TMB members discharge their functions on an ad personam basis-- they
do not necessarily represent their respective home country views, but
rather offer opinions and make recommendations as individuals.  The
views expressed in this section are purely the general observations
of the individual TMB members given to us in interviews. 

Some TMB members we interviewed indicated that they had not expected
the United States to issue over 20 calls in the early part of 1995
under ATC.  Although calls under MFA had actually averaged about 28
per year over the previous 5 years, the members emphasized their
belief that ATC was a liberalizing agreement and was not expected to
result in the same level of safeguard activity as occurred under MFA. 

Some members questioned whether import increases and production
declines had been sharp enough to trigger calls, although members did
not support issuing specific numerical thresholds for either factor. 
Some of the members believed that the United States had not
adequately considered the amount of a country's world market share of
the category in question when making a call. 

Some TMB members expressed concerns about U.S.  calls involving
products exported under the Special Access Program.  The program
provides for more favorable quota treatment for imports from
Caribbean Basin countries of apparel assembled from fabric formed and
cut in the United States.  Some members questioned how such
"reimports" could damage U.S.  domestic industry, when U.S.  apparel
manufacturers cut the parts, sent them offshore for assembly, and
reimported them for finishing and marketing. 


   CASE STUDY OF ONE CITA CALL
------------------------------------------------------- Appendix VII:5

To better illustrate the complex process of imposing quotas, the
following case study provides an account of a CITA call on category
351/651--cotton and MMF nightwear and pajamas.  The case study
includes (1) background on the category called, (2) CITA's support
for imposing the quota based on information presented in OTEXA's
market statement, (3) the outcome of the U.S.  consultations with the
exporting countries, (4) the U.S.  and the exporting countries'
presentations before TMB, and (5) TMB's final recommendations. 

Following an import increase of cotton and manmade fiber nightwear
and pajamas in 1994, CITA requested consultations in March 1995 with
the governments of Jamaica and Honduras under ATC.  CITA also
requested consultations with El Salvador, which at that time was not
a WTO member.  Asserting that a sharp and substantial increase of
total imports of
category 351/651 was causing serious damage to U.S.  domestic
industry, CITA said that the damage could be attributed to these
countries.  In June 1995, CITA requested consultations with Costa
Rica.\4 In the June call, CITA provided updated data from its March
statement. 

The United States and Honduras were unable to reach an agreement
within the 60 days required under ATC.  Thus, the United States
imposed a quota on Honduras, and the case was referred to TMB.  After
reviewing the case and hearing presentations by both the U.S.  and
Honduran delegations, TMB found that neither serious damage nor a
threat had been demonstrated; TMB recommended that the United States
rescind the quota.  In September 1995, the United States did so. 

The United States and Costa Rica also failed to reach agreement, and
the United States imposed a quota.  The United States later rescinded
the restraint, before any TMB consideration on the matter. 

Concerning Jamaica and El Salvador, each of the two countries signed
an MOU with the United States agreeing to establish a specific limit
on imports as well as a guaranteed access level (GAL).\5


--------------------
\4 CITA reported that, although down in March, new first quarter 1995
import data showed that Costa Rican imports had risen by 129 percent
during that quarter compared to the first quarter of 1994. 

\5 Under the Special Access Program, Caribbean Basin countries are
granted larger quotas, or GALs, if they use fabric cut and/or formed
in the United States. 


      BACKGROUND ON TRADE IN
      CATEGORY 351/651
----------------------------------------------------- Appendix VII:5.1

Domestic production of cotton and MMF nightwear and pajamas in CITA
category 351/651 has been trending downward in recent years.  As
illustrated in figure VII.1, from 1987-91 U.S.  domestic production
fell from 16.2 million dozen to 10.8 million dozen (a 33.5-percent
decrease); from 1992-95 production dropped from 11.6 million dozen to
8.8 million dozen (a 24-percent decrease).\6 Total imports from all
sources rose at an average annual rate of 11.6 percent in 1987-94,
while total imports rose from 11.4 million dozen to 11.9 million
dozen (a 4.5-percent increase) in 1994-95. 

   Figure VII.1:  Domestic
   Production and Imports Under
   CITA Category 351/651, 1987-95

   (See figure in printed
   edition.)

Note:  Due to a new benchmark established with the 1992 Census of
Manufacturers Survey, domestic production data for 1992 forward is
not comparable to previous years' data.  Production data for 1995 is
preliminary. 

Source:  OTEXA quarterly production and import report. 

As shown in table VII.3, since 1982 (the earliest data made available
to GAO) CITA has issued calls on category 351/651 in every year
except 1987 and 1988. 



                              Table VII.3
                
                 Countries Called, Domestic Production,
                and Total Imports for CITA Category 351/
                              651, 1982-95

                          (Millions of dozens)

                                                Domestic         Total
Year    Countries called                      production       imports
------  ------------------------------  ----------------  ------------
1982    China (351 only)                            22.2           2.6
1983    Haiti (351 only)                            22.8           2.8
1984    Hong Kong (651 only)                        21.3           3.4
1985    China (651)                                 19.9           4.4
         Taiwan (651)
1986    Hong Kong (651 only)                        19.2           5.2
         Sri Lanka (351 only)
1987    None                                        16.2           5.4
1988    None                                        15.4           5.8
1989    Dominican Republic                          14.2           7.3
         Bangladesh
         Turkey
1990    Brazil                                      11.7           7.7
         Fiji
         Mauritius
         Thailand
         United Arab Emirates
1991    India                                       10.8           8.1
1992    India                                       11.6           9.4
1993    Guatemala                                   11.3          10.8
1994    Myanmar                                     10.6          11.4
         Hungary
1995    Jamaica                                    8.8\a          11.9
         El Salvador
         Costa Rica
         Honduras
----------------------------------------------------------------------
Note 1:  Due to a new benchmark established with the 1992 Census of
Manufacturers Survey, domestic production data for 1992 forward is
not comparable to previous years' data.  Production data for 1995 was
not available at time of printing. 

Note 2:  Data presented in this table does not necessarily reflect
data available to CITA at the time of the call. 

\a Production data for 1995 are preliminary. 

Source:  U.S.  Imports, Production, Markets, Import Production Ratios
and Domestic Market Shares for Textile and Apparel Products
Categories:  Quarterly Reports, U.S.  Department of Commerce
International Trade Administration, OTEXA (Washington D.C.:  various
issues). 

In both its March and June 1995 market statements, CITA included a
list of category 351/651 suppliers to the U.S.  market.  Information
from the June statement is excerpted in table VII.4.  The table shows
the volume of total imports from each supplier for 1993 and 1994. 
Table VII.4 shows that in 1994 over 76 percent of total imports of
category 351/651 items came from countries already under a specific
limit (quota).  Including the 1995 calls, 85 percent of category
351/651 imports came from countries subject to quotas. 

Table VII.4 also shows that some suppliers whose imports have
increased have not been subject to quotas.  For example, in 1994,
imports from Egypt were 6.5 times its 1993 level.  Yet imports from
Egypt are not subject to specific limits.\7



                                   Table VII.4
                     
                     U.S. Imports From Major Suppliers Under
                      CITA Category 351/651, 1993-March 1995

                              (Thousands of dozens)

                                                                      Percent of
                                      Year    Year        Percent          total
                                    ending  ending   change, year  imports, year
Limit   Country       1993    1994    3/94    3/95    ending 3/95    ending 3/95
------  ----------  ------  ------  ------  ------  -------------  -------------
        World       10,832  11,406  10,984  11,507           4.76         100.00
SL      Dominican    1,498   1,468   1,525   1,487          -2.51          12.92
         Republic
SL      Hong Kong    1,377   1,406   1,397   1,379          -1.31          11.98
SL      China        1,210   1,052   1,151   1,096          -4.74           9.53
SL      Taiwan         868     846     935     822          -1.50           7.15
        FTAs\a         738     726     713     764           7.15           6.64
SL      Turkey         617     725     670     755          12.76           6.56
SL      Philippine     430     538     441     596          35.15           5.18
         s
SL      Bangladesh     481     549     472     577          22.15           5.01
        Jamaica        227     453     289     403          39.34           3.50
SL      Indonesia      453     367     417     352         -15.55           3.06
        El             119     260     132     294         123.04           2.56
         Salvador
SL      Sri Lanka      350     215     349     244         -30.01           2.12
SL      Pakistan       175     239     205     234          14.58           2.04
        Egypt           27     175      49     193         293.39           1.68
SL      Malaysia       181     212     200     193          -3.62           1.68
        Costa Rica     154     143     146     171          16.77           1.49
SL      S. Korea       203     173     171     167          -2.22           1.45
        Honduras        92     158     112     167          48.98           1.45
SL      Thailand       186     189     188     148         -21.12           1.29
SL      Hungary        116     144     125     145          16.07           1.26
SL      India          156     114     132     130          -1.78           1.13
SL      United         154     152     146     127         -12.90           1.11
         Arab
         Emirates
        Fiji            98     108      95     117          23.34           1.02
        EU              69     106      71     117          64.92           1.02
SL      Guatemala      172     133     198     113         -43.06           0.98
        Colombia       129     102     124     100         -19.51           0.87
SL      Macau\b         37      73      32      87         169.81           0.76
        Oman            58      82      68      82          20.38           0.71
        Haiti          164      39     162      50         -68.99           0.44
        Nepal           25      37      32      47          47.83           0.41
        Brazil          72      69      81      42         -48.20           0.37
        Singapore       31      36      33      40          22.67           0.35
SL      Mauritius       30      63      57      34         -40.59           0.30
SL      Myanmar         56      52      73      33         -53.95           0.29
--------------------------------------------------------------------------------
Note:  "SL" designates where a specific limit (quota) is already in
place.  Countries in bold were called by CITA as of June 1995. 
Year-ending data reflects most recent data available at the time of
call for the preceding 12-month period. 

\a FTAs designates the countries that have signed free trade
agreements with the United States:  Canada, Mexico, and Israel. 

\b Imports from Macau in CITA categories 351 and 851 are subject to
an SL. 

Source:  OTEXA market statements. 


--------------------
\6 In 1992, Census established a new benchmark for its Census of
Manufacturers Survey.  Therefore, domestic production data for 1992
forward is not comparable to previous years' data. 

\7 Egypt's percent of total imports (import market share) is only 1.7
percent.  However, this market share is higher than the import market
share of several countries that are subject to a specific limit. 


         CITA'S SUPPORT FOR ITS
         REQUESTS FOR
         CONSULTATIONS TO IMPOSE
         QUOTAS
--------------------------------------------------- Appendix VII:5.1.1

CITA supported its request for consultations to impose quotas for
category 351/651 products with data presented in two market
statements.\8 CITA provided category 351/651 data on imports,
domestic production, employment, and both import price and producer
price in its March and June statements.  It updated all but the
import price data in its June statement.  Anecdotal information about
loss of jobs in the industry was repeated in both statements. 

The import increase from the countries called in the March statement
was dramatic.  Imports from Jamaica rose by nearly 30 percent in 1993
over 1992.  In 1994, Jamaican imports nearly doubled.  Imports from
Honduras rose nearly fivefold from 1992 to 1993.  Imports from El
Salvador reached nearly 260,000 dozen by 1994, an increase of over
sevenfold from their 1992 level. 

Regarding Costa Rican imports, CITA noted in its June statement that
"[a]t the time of the initial determination of serious damage imports
from Costa Rica were down.  Imports from Costa Rica are now surging,
increasing 17 percent for the year ending March 1995 when compared
with the same period a year earlier, and are up 129 percent during
the first quarter of 1995 when compared with the same period in
1994."

Both market statements supplied the same anecdotal industry
information, which, OTEXA said, was collected through a survey of
individual firms producing cotton and MMF nightwear.  The information
described the loss of jobs occurring as a result of low-priced
imports and the movement of production offshore.  According to the
statement, "Sales of U.S.-manufactured nightwear are estimated by the
industry to have dropped as much as 65-70 percent in the past two
years." Further, "Profits have been non-existent for some firms."

In an effort to reflect the most current available data, CITA
presented revised data in its June statement that differed
significantly from that in its March statement.\9 For example, data
changed for its domestic production, number of establishments, number
of production workers, and estimate of annual shipments. 

The June revised and updated domestic production data indicated that
production was not falling by as much as was indicated in March, when
the most up-to-date data was listed through September 1994.  In June,
the full 1994 calendar year data showed domestic production levels
falling by 0.4 percent over 1993.  Domestic production data in the
March statement indicated a 10.3 percent decline in 1993 from 1992;
for the year ending September 1994, production fell by 3 percent. 

The domestic industry described in the June market statement was much
larger than the one described in the March statement.  This is
indicated by the following data revisions supplied in June: 

  -- The number of U.S.  establishments manufacturing category
     351/651 products was revised from 37 to 130. 

  -- The percentage of apparel workers employed in the U.S.  industry
     changed from 1 percent in the March statement to 2 percent in
     the June statement. 

  -- The number of production workers changed from 3,527 in the March
     statement to 14,275 in June. 

  -- The estimate of annual shipments from establishments in the
     industry changed from $265 million in the March statement to $1
     billion in June. 

In addition, the domestic industry portrayed in the June market
statement was different than that described in the March statement,
as the following revisions indicate: 

  -- The rate of decline in employment decreased in the revised
     statistics.  The figures supplied in March indicated employment
     declines of 7.5 percent in 1993 and 2.2 percent in 1994.  The
     June figures indicated employment declines of 3.8 percent in
     1993 and 1.6 percent in 1994. 

  -- Total annual wages, previously listed as $44.7 million for 1994,
     were revised to $187.4 million in the June statement.  While the
     March statement indicated that total annual wages fell by nearly
     1 percent in 1994 over 1993, the June statement indicated that
     total annual wages rose by just over 1 percent in 1994 compared
     to 1993. 

Total category imports showed a slightly more moderate rate of
increase.  Imports rose by 5.3 percent in calendar year 1994,
according to the March statement.  The June statement showed that
imports rose by 4.8 percent for the year ending March 1995. 


--------------------
\8 CITA provided a market statement in March 1995 when it first
requested consultations with Honduras, Jamaica, and El Salvador. 
When CITA requested consultations in June 1995 with Costa Rica, it
provided a second market statement, including data on Costa Rica and
some updated data from the first market statement. 

\9 Article 6.7 of ATC states that "the request for consultations
shall be accompanied by specific and relevant factual information, as
up-to-date as possible.  .  .  ."


      OUTCOME OF THE U.S. 
      CONSULTATIONS WITH THE
      EXPORTING COUNTRIES
----------------------------------------------------- Appendix VII:5.2

As described earlier, the United States reached agreement by signing
an MOU with Jamaica and El Salvador on quotas in June and July 1995,
respectively.  The United States did not reach agreement with Costa
Rica or Honduras.  Table VII.5 shows the quotas agreed to between the
United States and Jamaica, and the United States and El Salvador. 
The table also shows the U.S.  quotas, later rescinded, imposed on
Honduras and Costa Rica. 



                              Table VII.5
                
                 Quotas Resulting From Consultations on
                            Category 351/651

                         (Thousands of dozens)

                                        Specif  Specif
                                  1994      ic      ic     GAL     GAL
                                import  limit-  limit-     for     for
Country called                       s   -1995   -1996    1995    1996
------------------------------  ------  ------  ------  ------  ------
Jamaica                            453     500     375    none    1000
El Salvador                        260   500\a   366\b    none     500
Costa Rica                         171   171\c      NA      NA      NA
Honduras                           158   158\d      NA      NA      NA
----------------------------------------------------------------------
Legend

NA = Not applicable. 

\a CITA raised the SL to 535,000 dozen in November 1995. 

\b CITA raised the SL to 457,500 dozen in April 1996. 

\c CITA rescinded its quota in November 1995. 

\d CITA rescinded its quota in September 1995. 


      TMB REVIEW
----------------------------------------------------- Appendix VII:5.3

The U.S.  safeguard action with Honduras was referred to TMB for
review.\10 Representatives from the United States and Honduras made
presentations to TMB in July 1995. 

The following excerpt from TMB's published report summarizes the
reasons presented by the U.S.  representative to TMB about why
imports of
category 351/651 products were causing actual or threatened serious
damage.  It also summarizes the reasons presented by the Honduran
representative concerning why the United States had not presented
credible evidence of damage to U.S.  industry. 

The U.S.  delegation explained that the increase in total category
351/651 imports was causing actual or threatened serious damage to
the U.S.  industry for the following reasons.  These reasons were
supported by the data CITA had provided in its market statements. 

  -- A decrease in domestic production, a loss in domestic market
     share, an increased import penetration reaching very high
     levels, and a decline in employment, average work hours, total
     annual production and workers' wages had occurred;

  -- A significant number of facilities producing goods ascribed to
     category 351/651, or of workers employed in such facilities, had
     received trade adjustment assistance, as it was found that they
     were adversely affected by imports;

  -- Imports were entering the United States at prices below the
     average U.S.  producer price.  The inability of U.S.  producers
     to compete with these lower prices was cited as the main reason
     for "declines in domestic operations."

The Honduran delegation presented the following arguments before TMB: 

  -- The United States had not shown that any possible serious damage
     was caused by a sharp and substantial rise in imports of like
     and/or directly competitive products at prices below those
     prevailing for similar goods of comparable quality in the U.S. 
     market. 

  -- The two U.S.  market statements contained some inconsistencies,
     in particular with respect to U.S.  producers' prices,
     employment, and work hours.  These called into question the
     validity of the U.S.  determination of actual or threatened
     serious damage.  The Honduran representative objected to using
     information that had not been provided when the quota had been
     introduced as a basis for TMB's recommendation. 

  -- The United States had not taken into account the importance of
     outward processing\11 trade with Honduras in this category.  The
     representative claimed there could be no conclusion that serious
     damage had occurred to an industry that depended on this
     coproduction for up to 30 percent of its output. 

  -- The import level agreed to in U.S.  bilateral agreements with
     two other countries following the determination of serious
     damage in this category was substantially above the level of
     Honduran imports. 


--------------------
\10 The United States agreed to rescind its quota on Costa Rica
before TMB issued a report. 

\11 "Outward processing" refers to programs, similar to the U.S. 
Special Access Program for Caribbean Basin countries, whereby textile
and apparel products are cut to shape in the domestic market, then
assembled abroad and brought back to the domestic market. 


      TMB RECOMMENDATION
----------------------------------------------------- Appendix VII:5.4

In reviewing the U.S.  safeguard measure against category 351/651
imports from Honduras, TMB found that neither serious damage, nor
actual threat thereof, had been demonstrated.  TMB recommended that
the United States rescind the measure. 

The United States rescinded the quota against Honduras on September
29, 1995. 


SAFEGUARD PROCEDURES IN THE EU,
CANADA, AND JAPAN
======================================================== Appendix VIII

As of June 1996, no country other than the United States had imposed
safeguards under ATC.\1 Both the EU and Canada imposed quotas under
MFA and have well-established processes for determining whether to
make a call to a foreign country for consultations.  While Japan has
never invoked quotas under either MFA or ATC, the Japanese government
recently published a document noting the increase in textile and
apparel imports and outlining guidelines related to imposing quotas. 


--------------------
\1 In June 1996, Brazil notified TMB that it had requested
consultations to impose quotas under ATC. 


   THE EU'S TEXTILE AND APPAREL
   INDUSTRIES
------------------------------------------------------ Appendix VIII:1

The EU's textile and apparel industries together employ about 2.3
million workers (about 6 percent of the EU's total manufacturing work
force), down from over 3 million in 1988.  In 1994, the EU exported
about $25 billion in textile and apparel goods and imported
approximately $37 billion (about a $12-billion trade deficit).\2 The
textile and apparel industries account for about 6 percent of EU
exports. 

The EU textile industry alone employed about 1.3 million workers in
1994, down from 1.7 million in 1988.  In 1994, the EU imported about
$11.6 billion in textiles (approximately 7 percent of its domestic
market), up from almost $8 billion in 1988.\3 Switzerland and India
were the EU's main textile suppliers, each exporting approximately $1
billion to the EU, followed closely by the United States ($878
million), and China ($860 million).  The EU textile industry exported
approximately $14.2 billion in 1994.  Its primary export markets were
the United States, Poland, and Austria. 

The EU apparel industry employed around 971,000 workers in 1994,
a 19-percent decrease from 1988.  In 1994, the EU imported about $25
billion in apparel items, up from $16 billion in 1990.  Its primary
supplier, China, exported $3.6 billion to the EU, followed by Turkey
with $2.4 billion, and Hong Kong with $2.2 billion.  India was the
EU's fourth largest supplier, exporting $1.8 billion in apparel to
the EU. 

In 1994, the EU apparel industry exported approximately $11 billion
in apparel goods, up from about $8 billion in 1990.  Switzerland was
its primary customer, importing $1.5 billion.  Austria and the United
States each imported approximately $1.2 billion, with Japan importing
about $1.1 billion. 

The EU also has a program similar to the U.S.  Special Access
Program.  The outward processing trade program, or OPT, was
established in 1992 and maintains separate quotas for goods made with
European fabric.  Tariffs are based on the value added in assembling
the goods.  OPT goods comprise about 4 to 5 percent of total EU
imports. 


--------------------
\2 Data for 1994 are estimates. 

\3 "Domestic market" is defined here as EU consumption in value,
excluding value added tax. 


   THE EU'S SAFEGUARD CALL PROCESS
------------------------------------------------------ Appendix VIII:2

During 1990-94, the EU made 42 calls under MFA.  (Twelve of these
were made in 1992 to replace previous member state restrictions with
EU-wide restraints when the single EU market came into being.) All of
these calls were made under the EU's "basket exit" mechanism,\4 which
was introduced into all bilateral agreements in the early 1980s.  The
mechanism was used to "trigger" bilateral calls under MFA.  When ATC
was enacted, the basket exit mechanism was abolished for WTO
countries. 

The EU's Chief Textile Negotiator told us that the EU is unlikely to
invoke safeguards under ATC because more than 400 EU product
categories are already under quota.  He also noted that the EU has
free trade agreements with many of its neighbors. 

The EU's Chief Textile Negotiator also told us that the EU Commission
believes that the criteria for imposing quotas under ATC are more
rigorous than those under MFA.  If, however, the EU decides to make a
call under ATC, he stated that the call process itself would work the
same as it did under MFA, but without the basket exit mechanism. 

Because all 15 EU member countries are involved in deciding whether a
safeguard call should be made, the EU process for making quota
decisions is somewhat more cumbersome than that of the United States
or Canada.  The EU call process begins when the Textile Inter-Service
Group, housed within the EU Commission,\5 receives a complaint from a
member state or industry.  (The Textile Inter-Service Group comprises
all the executive level departments of the EU Commission that have
some interest in textiles, including those that focus on competition,
employment, consumer protection, legal services, customs, and
commerce.) An industry may submit the complaint to its own government
or directly to the EU Commission.  In practice, however, an industry
usually submits the complaint to the Commission. 

The entity submitting the complaint must include in its petition
detailed information on how a surge in imports has affected its
industry.  According to the EU's Chief Textile Negotiator, the EU
Commission primarily examines whether an import increase has
adversely affected domestic production and/or prices, and what, if
anything, has changed regarding domestic demand.  For example, the
Chief Textile Negotiator told us that even if a country's exports to
the EU had increased over 500 percent, the EU would not impose quotas
if the Commission determined that the import increase was due to a
growth in demand for a product not produced by EU manufacturers. 
Such a situation occurred several years ago when EU producers were
slow to react to changes in European apparel fashion trends.  The
Chief Textile Negotiator emphasized that the relationship between
imports, domestic production, demand, and prices is critical to
whether a call is made--not, for example, only an increase in imports
or decrease in production.  He also stated that while the EU does not
have any specific threshold levels, in practice, calls under MFA were
not made if imports of a good from a country had risen less than 25
percent and if domestic production had fallen less than 20 percent. 

Based on the information provided by the petitioner, the Textile
Inter-Service Committee decides whether the complaint has sufficient
merit to be passed on to member state representatives.  If the
Committee believes the petitioner has a reasonable case, the
complaint is sent forward to the Textile Management Committee.  This
committee, chaired by the EU Commission, includes representatives
from each of the 15 member states (one from each member's import
licensing department and one from each member's trade department). 
Committee members review the complaint and make comments regarding
its validity.  The EU Commission then decides whether to recommend
that quotas be imposed, taking into account the opinions of the
member state representatives.  The Textile Management Committee then
votes on whether to impose a quota.  A qualified majority\6 in favor
of the complaint is needed for the Committee to move forward on the
complaint. 

If a qualified majority is not reached, the EU Commission may
withdraw the complaint.  If the Commission believes the complaint
should be approved, regardless of the vote by member state officials,
the case is sent to a committee that deals with trade regulations and
is seated on the EU's Council of Ministers.\7

According to the Chief Textile Negotiator, cases are rarely sent to
this committee.  In almost all cases under MFA, the EU Commission's
recommendation was approved by consensus or a qualified majority vote
of member state representatives on the Textile Management Committee. 

The EU call process can be completed as quickly as 3 to 4 weeks after
the complaint is sent to the Commission.  However, if there is a
problem with the data, the process could last several months. 

While the EU has no formal advisory committees, the Chief Textile
Negotiator told us that importers and retailers have been "very
active" in the EU's call process.  Importers and retailers are free
to lobby the EU Commission, the Textile Management Committee, and
individual member states.  He said the importers and retailers are
able to make their point "loud and clear." However, he also commented
that the EU member states that have large textile and apparel
industries are not as concerned with the views of importers and
retailers.  They are more concerned about protecting their domestic
industries. 

The Director of Euratex\8 explained that while organizations such as
his are not official advisors to the EU, they do informally advise
the EU Commission and believe they are part of the system in an
informal way.  On the other hand, an official from an EU importer and
retailer association stated that he does not believe importers and
retailers are part of the system.  He noted that while word spreads
quickly in the EU that a call is pending, importers and retailers are
not notified officially. 

Finally, the EU's Chief Textile Negotiator commented that the EU
Commission is not concerned about possible import surges before a
call is made and quotas applied.  He said that because of the
cumbersome EU call procedures, "Everybody knows everything anyway."
He said that it is counterproductive to try and keep the call a
secret and that, generally, a surge has already occurred--which is
why the call was made in the first place. 


--------------------
\4 Under the basket exit mechanism, bilateral agreements contained
import penetration thresholds that could have triggered a
corresponding quota.  If an import penetration threshold were
reached, the EU had the right to request consultations with the
exporting country.  According to the EU's Chief Textile Negotiator,
very few basket exit cases where the threshold was reached actually
resulted in the imposition of quotas.  For example, in 1993-94, the
EU Commission received 593 requests for basket exits from member
states and producers, but implemented only 12. 

\5 The European Commission is the initiator of Community policies and
generally has the sole right to propose Community legislation.  It is
also the executive arm of the EU government, implementing or
overseeing the implementation of the policies decided upon. 

\6 A qualified majority voting system is where votes are weighted so
that the larger EU member states exert a greater influence. 

\7 The EU's Council of Ministers is comprised of government ministers
from each of the member states, and is the main decision-making body
of the CEU. 

\8 Euratex is an EU association representing European textile and
apparel industries. 


   CANADA'S TEXTILE AND APPAREL
   INDUSTRIES
------------------------------------------------------ Appendix VIII:3

Canada's textile and apparel industries account for 4.4 percent of
its GDP for all manufacturing industries and employ about 8 percent
of its manufacturing work force.  In addition, $11.8 billion of
Canada's $310 billion in manufacturing shipments (domestic shipments
plus exports) can be attributed to these two industries.  Canada's
textile and apparel industries ran a trade deficit of about $4.8
billion in 1994. 

Two major segments constitute the Canadian textile industry: 
producers of primary textiles, including MMF and filaments, yarns,
and broadwoven fabrics; and producers of textile products (excluding
clothing) such as carpets and canvas goods.  According to a 1992
Canadian government document, Canada's textile industry is highly
modernized and capital intensive.  In 1994, about 45,000 workers were
employed in the Canadian textile industry, down from about 63,000 in
1988.  In 1993, 85 percent of Canadian textile firms (945
establishments) had fewer than 100 employees. 

The United States is by far Canada's most important textile trading
partner.  In 1994, Canada imported $4.3 billion in textiles, up from
about
$3 billion in 1990.  Canada's 1994 imports constituted about 48
percent of its $9-billion domestic textile market, with about $2.7
billion coming from the United States.  China was the next largest
supplier, exporting $233 million in textiles to Canada.  In that same
year, Canada exported almost $1.9 billion in textiles (up from about
$1 billion in 1990), with the United States purchasing almost 80
percent of the exports. 

According to a Canadian government document, many Canadian producers
have adopted aggressive strategies to increase productivity by
incorporating leading technologies at all levels of textile
production.  While this document notes that the Canadian textile
industry is not a "major player on the world stage," it points out
that the investments the industry is making, such as in
state-of-the-art machinery and equipment, will help the industry
compete internationally. 

In 1994, about 84,000 workers were employed in the apparel industry,
down from 103,000 in 1990.  In 1993, about three-quarters of apparel
companies had fewer than 50 employees in a total of about 1,900
establishments. 

In 1994, Canada imported about $3.3 billion in apparel, up from $2.9
billion in 1990.  Canadian imports in 1994 constituted approximately
40 percent of its $8.4-billion domestic apparel market.  Its top
supplier that year was China, with $606 million, followed closely by
the United States ($573 million).  Hong Kong was Canada's third
largest supplier, exporting $471 million.  In 1994, Canada exported
about $1 billion in apparel, compared to $322 million in 1990.  In
1994, U.S.  purchasers imported most of Canada's apparel exports
(over $944 million). 

Canadian apparel products do not usually compete directly with
low-cost imports.  However, in the market segments where these
products do compete, Canadian apparel manufacturers have developed
marketing strategies to influence the customer's buying decisions,
such as using strategic pricing.  Nevertheless, according to a 1995
Canadian government document, imports are expected to increase their
share of the Canadian market due to the value they offer to retailers
and consumers. 

Canada does not have an import program similar to the U.S.  special
access program.  However, according to a Canadian government
official, about 40 percent of all Canadian apparel imports under
quota are imported by Canadian manufacturing firms.  While, in
general, Canadian apparel firms are not establishing offshore
affiliates, they are entering into contracts with foreign suppliers
to produce goods specifically for their firms. 

As of May 1996, 43 countries exported products to Canada that were
under quota from MFA.  Thirty-one of these are WTO countries.  Of the
12 remaining countries, 11 had entered into bilateral agreements with
Canada, and Canada had taken unilateral action against the remaining
one.  All textile and apparel categories have at least one product
under quota. 


   CANADA'S SAFEGUARD CALL PROCESS
------------------------------------------------------ Appendix VIII:4

From 1990 to 1994, Canada made 29 calls under MFA.  As of May 1996,
Canada had made no calls under ATC.  According to the Deputy Director
of the Textile and Clothing Section of Canada's Department of Foreign
Affairs and International Trade (DFAIT), there has been little or no
interest on the part of the textile and apparel industry in
initiating new safeguard calls since ATC's inception.  He stated that
the apparel industry has adjusted considerably to global competition
over the last few years and has not pushed recently for new quotas. 
He also noted that the textile industry has begun producing more
sophisticated goods, which have found a niche in Canadian and foreign
markets.  The possibility exists for calls in the future, and this
official indicated that Canada maintains its right under ATC to
initiate calls if necessary. 

Canada's call process works as follows:  Canada's DFAIT monitors
trade flows and watches for sharp increases in imports of a specific
product from a particular country.  All textile and apparel products
are on an import control list (which includes products that are under
quota and those that are not), and all importers are required to have
an import permit.  The permit is presented at the border, and the
import data are inputted into a computer log. 

The key factors in determining whether a call is made include import
surges, domestic production, and market share.  (These were the key
factors Canada considered under MFA and will remain the salient
factors in determining the extent of market disruption under ATC.)
The Deputy Director we interviewed noted the difficulty in assessing
how domestic employment is affected by trade flows because of the
complexity in ascribing a decline in employment to imports from any
one country. 

Import surges are usually analyzed first.  While the Canadian
government does not have any formal thresholds that trigger a call,
it has several general "rules of thumb" that guide its
decision-making.  For example, a steady upward trend in imports of a
certain category at a relatively sharp rate will alert DFAIT to a
possible problem.  The Canadian government is also particularly
sensitive to unrestrained shipments coming in at levels higher than
those from countries with restraints. 

DFAIT consults with Canada's Department of Industry regarding the
possibility of a call.\9 If the government decides to make a call,
DFAIT notifies manufacturers and brokers by electronic mail that a
call is pending.  (Brokers then, in turn, notify the importers and
retailers they work with.) Interested parties are given 2 to 3 weeks
to respond.  According to the Deputy Director we interviewed, this 2
to 3 week window gives importers time to take care of their immediate
commitments before the call is made and is short enough in duration
to prevent traders from circumventing, at the last minute, an
impending quota.  He noted that orders are usually made months in
advance and that Canadian manufacturers are not particularly
concerned about surges during this time period. 

Importers and retailers concerned about an impending call will
usually contact DFAIT to make their position known.  The official
noted that in almost all cases, the importers and retailers oppose
the call.  He stated that his department has traditionally been more
concerned with protecting Canadian textile and apparel producers than
retailers and importers.  However, because so many goods are now
imported by Canadian manufacturers, producers themselves are usually
cautious about advocating calls. 

The Minister for International Trade, one of DFAIT's ministers,
decides whether a call will be made, based in part on the views of
manufacturers, importers, and retailers.  (In some cases, the
Canadian government decides not to proceed with a call because of a
lack of concern on the part of Canadian manufacturers.) DFAIT sends
written notices to interested parties announcing that a call has been
made and publishes the outcome of these negotiations in a bulletin. 


--------------------
\9 With respect to textile and apparel quotas, DFAIT is primarily
responsible for monitoring trade flows, implementing ATC, and
negotiating bilateral restraint arrangements.  DFAIT also administers
quotas through the issuance of import permits.  Canada's Department
of Industry is primarily responsible for advising DFAIT on whether
new quotas are warranted by assessing the sensitivity of domestic
production to low-cost imports. 


   JAPAN'S TEXTILE AND APPAREL
   INDUSTRIES
------------------------------------------------------ Appendix VIII:5

In 1993, the Japanese textile industry employed about 543,000
workers; its apparel industry employed approximately 580,000.  (These
two industries together employed about 10 percent of all workers in
Japan's manufacturing sector in that same year.) In 1994, Japan
exported
$5.4 billion in textile products and $575 million in apparel
products.  In that same year, Japan imported about $3 billion in
textiles (for a trade surplus of more than $2 billion) and $17.3
billion in apparel (resulting in a trade deficit of about $16.8
billion). 

In 1995, Japan imported about $25 billion in textile and apparel
products, up from $16 billion in 1991 (an increase of 57 percent). 
In that same year, Japanese imports of these products comprised about
58 percent of its domestic textile and apparel market.  China was
Japan's top supplier of these goods in 1995, accounting for about 51
percent of textile and apparel imports. 


   JAPANESE SAFEGUARD ISSUES
------------------------------------------------------ Appendix VIII:6

Although Japan has not invoked safeguards under either MFA or ATC, a
1994 Japanese government document\10 notes the increase in Japanese
imports of textiles and apparel since 1987.  It lays out a framework
for determining when to implement textile quotas, based in part on
increases in imports and their effect on domestic industry (such as
on domestic production and employment). 

The Ministry of International Trade and Industry (MITI) officials we
interviewed briefly summarized how their safeguard process would
proceed if an industry requests an investigation.  They explained
that the Minister of International Trade and Industry may initiate an
investigation within 2 months from the time industry makes a request
and that the investigation should be concluded within 12 months. 
Interested parties are given a specific time period in which they can
submit their arguments, and MITI may also gather data from these
parties by sending them a questionnaire. 

These officials also noted the efforts of the Japanese textile and
apparel industries to restructure within a 5- to 10-year period in
order to become more "consumer-oriented." Japanese government
officials explained that the industries are trying to become more
responsive to changes in consumer tastes. 


--------------------
\10 Measures for Safeguarding Textiles (Consumer Goods Industries
Bureau, Tokyo, Japan:  Sept.  1994). 


ITC'S SAFEGUARD PROCESS
========================================================== Appendix IX

Under GATT article XIX (the so-called GATT "escape clause"), member
countries are permitted to escape from international obligations and
take temporary safeguard action to protect a domestic industry from
actual or threatened serious injury caused by imports.  The Uruguay
Round Agreement on Safeguards spells out the conditions under which
WTO countries may impose the temporary safeguards. 

In the United States, ITC determines whether an industry is eligible
for relief and, if so, recommends an appropriate action to the
President.  The President makes the final decision on whether to
impose quotas authorized by article XIX.  Under sections 201-04 of
the Trade Act of 1974, as amended (19 U.S.C.  ï¿½ï¿½ 2251-54), ITC
conducts investigations concerning whether an article is being
imported into the United States in such increased quantities as to be
a substantial cause of actual or threatened serious injury to the
domestic industry producing a like or directly competitive product
(see fig.  IX.I for an illustration of the ITC's safeguard process). 

   Figure IX.1:  ITC Process for
   Imposing Safeguards

   (See figure in printed
   edition.)

In practice, ITC investigations under section 201 are usually
initiated as a result of a petition by industry.\1 ITC investigations
are generally conducted in two phases--(1) an injury phase, during
which ITC considers issues related to injury and, if the injury
determination is affirmative and (2) a remedy phase.  During the
injury determination phase, ITC sends out questionnaires to domestic
producers that ask for data relating to sales, production,
employment, and financial performance for the preceding 5-year
period.  The questionnaires also address such issues as whether the
imported and domestically produced goods are directly competitive,
what factors have precipitated changes in demand for the imported
goods, and what injury has occurred to domestic producers.  In
addition, producers are asked about their efforts to compete with
imports and the competitive adjustment measures they are likely to
undertake if relief is granted.\2

ITC holds a public hearing during the injury phase of a section 201
case.  Pre- and post-hearing briefs are submitted.  Any interested
party can participate in the hearing and may submit a brief and other
written statements.\3 Each side is given about 1 hour to present its
case, and the Commissioners usually spend 1 or 2 additional hours
questioning each of the two opposing sides. 

During the injury phase, ITC is also required to seek information on
actions being taken, and/or planned to be taken, by firms and workers
in the industry to adjust to import competition.  Petitioners are
encouraged to submit, at any time before the ITC injury
determination, a plan to promote positive adjustment to import
competition.\4

After the injury hearing is held, questionnaire results compiled, and
field work completed, ITC staff send the Commissioners a report that
contains the information developed.  The Commissioners are
responsible for determining whether the industry is seriously injured
or threatened with serious injury.  They are also required to take
into account all the economic factors specified in the statute. 

Generally, the Commissioners must make their injury determination no
later than 120 days after ITC receives the petition or request.\5

The Commissioners vote on injury in a public meeting.  If ITC makes a
negative determination, it does not recommend a remedy.  If the
Commissioners decide that injury has occurred, they must recommend an
action to the President that would address the injury and be
effective in facilitating efforts by domestic industry to make a
positive adjustment.  (If the Commissioners are equally divided on
injury, the President has the option of accepting the determination
of either group of Commissioners.  In practice, the President has
always accepted the negative determination.)

Before the Commissioners make their remedy recommendation, ITC holds
a second hearing on the remedy measures.  Parties are provided an
opportunity to testify and submit briefs.  ITC staff then generally
furnish the Commissioners with an analysis of the various remedy
options.  The Commissioners have 60 days to decide on appropriate
remedies and usually indicate the nature of the remedy recommendation
at a public meeting.  The Commissioners then send a report to the
President that includes their injury determinations, any remedy
recommendations, their written "views" in support of their
determinations and recommendations, and a summary of the information
obtained from the investigation.  This report is referred to an
interagency committee, chaired by USTR, which also makes a
recommendation to the President.  (Shortly after the report is sent
to the President, ITC releases a public version of this report that
contains no confidential business information.) The President has 60
days to decide whether to provide relief and, if so, in what form and
amount. 

The President can choose among various remedy options, including an
increase or imposition of a duty, imposition of a tariff-rate quota
system\6 or quantitative restriction, implementation of one or more
adjustment measures (including trade adjustment assistance), the
negotiation of agreements with foreign countries, or any other action
within the President's power.  In determining what action is
appropriate, the President must consider a number of factors,
including the adjustment plans of the firms and/or industry, the
probable effect of the remedy measures on adjustment, and other
factors related to U.S.  national economic and security interests. 
Relief measures are subject to a number of limitations.  For example,
the President may impose relief for an initial period of no more than
4 years and may extend the measure one or more times.  However, the
overall period of relief may not exceed 8 years.  (Safeguard action
under ATC may be imposed for a maximum of 3 years.)

If the President imposes safeguards, ITC is required to monitor
developments in the industry, including efforts by the domestic
industry to adjust during the time that the remedies are in effect. 
The President may reduce, modify, or terminate the safeguard if
either (1) the domestic industry requests it on the basis that it has
made a positive adjustment or (2) the President determines that
changed circumstances warrant a change in the measure.  Before
extending a safeguard, and upon request of the President or a
petition on behalf of the industry concerned, ITC is required to
conduct an investigation to determine whether (1) relief measures
continue to be necessary to prevent or remedy serious injury and (2)
there is evidence that the industry is making a positive adjustment
to import competition.  ITC must hold a public hearing in the course
of its investigation and send a report to the President 60 days
before the measure is due to expire.  After the measure ends, ITC is
required to evaluate how well it has facilitated adjustment by the
domestic industry and submit a report to the President and Congress
within 180 days. 

When ITC submits a report containing an affirmative injury
determination and remedy recommendation, the President often
determines either to take no action or to impose a different or less
restrictive measure than that recommended by the ITC Commissioners. 
From 1975 to 1995, ITC conducted 64 section 201 investigations.  In
34 of these cases (including
5 tie votes), ITC Commissioners decided injury had occurred.  In only
13 of the 34 cases did the President decide to provide relief, and in
many of these cases relief measures imposed were less onerous than
those recommended by ITC.\7 In six additional cases, the President
directed that the Secretaries of Commerce and Labor give expeditious
consideration to petitions filed for trade adjustment assistance. 
According to ITC officials, this reflects the latitude the President
has in considering all economic and political concerns when making a
decision on possible remedies. 


--------------------
\1 Since 1990, only five section 201 cases have been initiated.  In
recent years, industry has preferred to use other statutory
authorities to address import problems, such as antidumping and
countervailing duty laws.  Under the antidumping and countervailing
duty laws, duties may be imposed to offset dumping and foreign
subsidies. 

\2 Recipients are given about 30 days to complete the ITC
questionnaire.  Completing the questionnaires is mandatory, and ITC
may issue subpoenas to ensure that recipients complete and return
them. 

\3 To help parties argue their respective positions, ITC is
authorized to release confidential business information under an
administrative protective order to authorized representatives of
interested parties, such as their outside counsel.  Such information
may not be shared with company officials. 

\4 Section 201 provides that positive adjustment occurs when (1) the
domestic industry is able to compete successfully with imports after
actions taken terminate, or the domestic industry experiences an
orderly transfer of resources to other productive pursuits; and (2)
dislocated workers in the industry experience an orderly transition
to productive pursuits. 

\5 Exceptions occur in a number of instances.  For example, if the
petition alleges that critical circumstances exist, ITC must first
determine, within 60 days of the petition's receipt, whether these
circumstances exist, and if so, recommend an appropriate remedy to
the President.  The President then has 30 days to decide what remedy,
if any, to impose.  Critical circumstances exist when ITC determines
that there is "clear evidence" that increased imports of a product
are a substantial cause of actual or threatened serious injury to the
domestic industry and that "delay in taking action would cause damage
to that industry that would be difficult to repair."

\6 A tariff-rate quota system applies one tariff to imports up to a
particular amount and a different, higher tariff rate to imports in
excess of that amount. 

\7 If the President takes action that is different from that
recommended by ITC or declines to take any action, Congress may, by a
joint resolution adopted within 90 legislative days, direct the
President to impose the relief recommended by ITC.  According to ITC
officials, Congress has never adopted such a resolution. 


SCOPE AND METHODOLOGY
=========================================================== Appendix X

To identify and describe CITA's authority, functions, resources, and
costs under MFA and ATC, we reviewed pertinent CITA agency and other
government documents, including (1) the executive order establishing
CITA's authority in textile trade matters; (2) U.S.  legislation to
implement ATC; and (3) budget data provided to us by officials of
USTR and the Departments of Commerce, Labor, State, and the Treasury. 
We also interviewed officials of all the CITA agencies, including all
CITA principals.  In addition, we interviewed and obtained
documentation from officials of the U.S.  Customs Service concerning
CITA's coordination of certain functions with Customs. 

We also reviewed and compared the MFA and ATC agreements.  We sent a
letter to CITA requesting information about CITA's implementation of
ATC, and we reviewed documentation CITA provided in response.  In
addition, we reviewed CITA's plans to implement ATC quota
liberalization mechanisms.  Finally, we obtained and reviewed (1)
testimonial statements concerning CITA's integration plans; (2)
public comments to Federal Register notices; and (3) reports on ATC
implementation and other documentation from representative
associations of domestic textile and apparel producers, importers,
and retailers. 

To understand CITA's decision-making process for imposing quotas and
the framework for the transitional safeguard mechanism, we relied
primarily on interviews with Commerce officials and reviewed ATC
provisions.  However, we also sought the perspectives of officials
from the other four CITA agencies and representatives of the U.S. 
private sector, including various textile and apparel trade
associations.  Specifically, we interviewed six representatives of
the domestic textile and apparel producers' community and eight
representatives of importer and retailer groups, whose
representatives also discussed issues related to the transparency of
CITA's decision-making process.  In addition, we reviewed
congressional testimony from 1994 to 1996 related to textile and
apparel issues. 

We studied how CITA uses textile and apparel import data, production
data, price data, and employment data by reviewing expert studies of
these data and previous reports on these data.  In addition, we
interviewed officials of Customs, Census, and OTEXA. 

To study how CITA uses these data to support its decisions to issue
calls, we studied market statements CITA issued, which contain CITA's
reasons for issuing the call and the data used to justify the call. 
We requested market statements from CITA going back to 1980, and CITA
supplied us with statements issued between January 1, 1990, and
December 31, 1995.  We computerized all the data contained in those
statements and studied trends and patterns for the period in
question. 

To better illustrate the complex process of invoking safeguards, we
conducted a case study of one call on one CITA category using market
statements and TMB's publicly available reports. 

We interviewed CITA officials, including CITA principals, to
understand the extent to which CITA invoked the transitional
safeguard mechanism in 1995 and to learn about the outcome of these
calls.  We also met with several countries' representatives to TMB to
obtain their perspective on the U.S.  calls and TMB's review of these
calls.  Specifically, we met with the Chair of TMB and seven TMB
representatives.  We also reviewed official TMB reports on 1995 TMB
proceedings. 

To determine the EU, Canadian, and Japanese use of quotas under MFA
and ATC and describe their safeguard procedures, we interviewed
officials from these three governments in Geneva, Brussels, and Tokyo
and reviewed available government documents.  We also conducted phone
interviews with Canadian government officials in Ottawa and
representatives of the Canadian textile, apparel, and
importer/retailers trade associations in Ottawa and Toronto.  In
addition, we met with representatives from the EU's textile and
apparel trade association and an importer/retailer trade group in
Brussels. 

To understand ITC's process for imposing safeguard measures, we
interviewed ITC officials, reviewed ITC documents regarding the
disposition of section 201 cases since 1975, and reviewed the U.S. 
trade statute regarding safeguard procedures. 

We did our work from May 1995 through May 1996 in Washington D.C.;
Brussels, Belgium; Geneva, Switzerland; and Tokyo, Japan, in
accordance with generally accepted government auditing standards. 




(See figure in printed edition.)Appendix XI
COMMENTS FROM THE DEPARTMENT OF
COMMERCE
=========================================================== Appendix X



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Commerce's
letter dated July 29, 1996. 

GAO COMMENTS

1.  We note in our report the many procedural and statutory
differences between section 201 safeguard actions administered by ITC
and CITA's administration of the U.S.  textile program under ATC (see
p.  5 and app.  IX).  With regard to MFN (most-favored-nation
treatment), we note that the 201 process "applies to merchandise from
all countries," that is, on a most-favored-nation basis.  Throughout
our report we repeatedly highlight the flexibility granted to CITA in
safeguarding U.S.  textile and apparel products. 

2.  We disagree with CITA's comment that we did not analyze the most
recent import data, given that we refer to these data several times
in our report.  On page 4, we note that the most recent median import
increase was 17.6 percent, a point we develop in footnote 9 and
repeat on page 10.  On page 55, we also explain that import data is
more current than production data, and subsequently present the most
recent import data, year by year, in table VI.2. 

The median represents the best descriptive statistic for the data
elements we considered (see fn.  7, p.  55, for a more technical
explanation of this point), and we used medians to summarize the
output of CITA's deliberations, variable by variable, for each of the
6 years we considered.  In order to provide more information
regarding these statistics, we also present the ranges around some
medians (for example, on pp.  4 and 54) and breakdowns on the number
of import and production calls that fell below particular thresholds
(on pp.  10 and 56-57).  Finally, we note that the data we used to
establish our medians were contained in CITA's market statements, to
which we believe the CITA principals had access at the time of their
deliberations. 

While CITA states that it never recommended a safeguard action when
imports were down or U.S.  production was up, our review of CITA's
166 market statements for calls CITA made during 1990-95 found 56
cases where imports were down or production was up in the most recent
calendar year listed in the statement.  (See p.  57.)

3.  We draw no conclusions about the cumulative effects of small
suppliers.  We note that when suppliers are aggregated by product
category and by year, median imports represent 4.8 percent of all
that category's imports into the United States.  (See p.  58.)

We found no evidence to support CITA's conclusion that this median of
4.8 percent demonstrates that their actions forestall "country
hopping." Even when suppliers are aggregated by category by year, the
total imports from the countries called are still small.  For
example, about 25 percent of the categories called affected suppliers
whose combined imports were less than 2 percent of U.S.  imports of
that category. 

4.  We state on page 33 that ATC allows the "freedom to choose which
products to integrate at each stage." We do not imply in our report
that the U.S.  integration schedule was inconsistent with ATC. 
Finally, while we agree that the EU and Canada generally only
included those products not under quota in the first stage of
integration, Canada did include one item that had been under quota. 

5.  We believe our discussion of TMB member views on pages.  63-64
and 66-67 is appropriately qualified. 

6.  Regarding the comment pertaining to page 7, we recognize that
ultimately the United States, through USTR, consults with foreign
governments.  However, it is CITA's responsibility to decide whether
consultations should be requested. 

7.  See our discussion of the liberalizing effects of ATC, on page
34. 

8.  We state on page 2 that CITA is a committee with representation
from five different agencies and on page 6 that CITA has no budget of
its own.  We reported fiscal year 1995 data because we wanted to
examine fiscal year data for a full year for all CITA agencies, and
the costs of several agencies are not known until the end of the
fiscal year.  Our discussion in appendix II describes CITA's
responsibilities for implementing textile agreements and OTEXA's role
as CITA's principal support staff.  This discussion also includes
information on OTEXA's non-CITA related responsibilities (see pp. 
30-32). 

9.  We believe our description of CITA functions on pages 4, 7, and 8
are accurate.  The distinct role that USTR and other CITA member
agencies have in facilitating CITA's decision-making process for
imposing quotas is explained in appendix IV. 

10.  There is no formal review mechanism with authority to overturn
CITA decisions.  In addition, our interviews with CITA officials
indicate that consultation with higher-level officials occurs
infrequently. 

11.  See our description of the call process in appendix IV. 

12.  ATC does not contain procedural requirements detailing how
individual countries make these determinations.  We believe we have
adequately described the substantive requirements of ATC in appendix
III. 

13.  Our 1983 report found that CITA made decisions on the basis of
consensus; this point was not refuted by CITA officials at the time. 
More recently, a former CITA Chairman told us that prior to 1983,
CITA operated on a consensus basis. 

14.  We believe that our analysis is an accurate characterization of
CITA's use of data to make safeguard decisions.  (See comment 2.) Our
review of all 166 market statements found that CITA bases its
recommendations for safeguards almost exclusively on changes in
imports and production.  While other factors were sometimes
mentioned, the basis for the calls always rested with changes in
imports and production (see pp.  6 and 53).  Even in 1995, after more
data were included in the market statements, this remained the case. 
We note the importance of import and production data on pages 6 and
53 of our report. 

We focused on comparable import and production data precisely because
of the need to demonstrate that import surges harm U.S.  industry. 
While CITA states it "should be apparent" that increased imports
displace domestic production, its own data show this is not always
the case.  For example, import and production data for all CITA
categories show many instances where imports and production both rose
or fell for the same category during the same time periods. 

Our main point regarding calls with fairly small changes in
production and imports is that although some calls were supported by
either a small recent production decline or a small import increase,
very few were supported by both a small production decline and a
small import increase (see p.  56).  This point remains true no
matter what time periods we considered, including the most recent
import data that CITA states is "key" in its decision-making process. 

In our analysis of CITA's data use, we considered all data elements
that CITA cites.  For example, we present data on domestic market
share for 1990-95 (see p.  56).  Although we considered partial year
data, we concentrated on the year-ending data to avoid distortions
that might result from products imported on a seasonal basis.  We
could not consider data on productivity, capacity utilization,
inventories, profits, and investment because CITA provided these data
in its market statements only on an ad hoc basis.  Moreover, the data
was based on anecdotal information.  Finally, we did not analyze
CITA's data on domestic prices, employment, and wages because of the
data's serious limitations at the category level.  We explain these
limitations in appendix V. 

15.  We cannot respond to this comment without more specific
information.  (Also see comment 2.)

16.  We point out on page 10 that CITA assumes that imports and
domestically produced goods within a given CITA category are
substitutes.  As noted in footnote 3 of appendix VI, OTEXA officials
told us that they had not empirically examined the relationship
between imports and domestic production.  It is standard practice in
economic analysis to examine the degree to which the products under
study are substitutable for one another. 

17.  We did not recommend increasing the number of CITA categories. 
We point out that in some cases, a consequence of reducing over 4,000
HTS codes into 148 CITA categories is that some categories may
contain products that do not appear to be like products.  This has a
direct bearing on the issue of whether or not changes in imports
cause changes in domestic production.  If the imports in question
have different characteristics than domestically produced goods, the
goods would be unlikely to compete with each other in the same
market, weakening the assumption that changes in all imports in a
CITA category cause changes in domestic production. 

18.  We believe our characterization of TMB rulings is accurate. 

19.  Footnote deleted. 

20.  As indicated on page 30, our discussion is not intended to
include an exhaustive list of CITA's functions related to non-ATC
work. 

21.  Our graphic is not intended to imply that these are steps, but
as noted, are elements required for imposing safeguards under ATC. 

22.  We believe our footnote adequately describes OTEXA's analysis
under MFA and ATC.  As we note in comment 2, we based our analysis on
the information provided in the market statements.  CITA did not
provide us with any additional data or analysis to supplement the
market statements. 

23.  Our determination that 28 calls were made when production had
risen in the most recent year (indicated in table VI.4) is based on
data in market statements produced and available to CITA at the time
CITA issued the calls.  (See also comment 2.)

24.  On page 59, we present one example from CITA's commentary (out
of three examples provided by CITA) on the differences in prices
within categories.  All three examples presented similar scenarios. 
We determined that the example we chose provided the best
illustration of the issue in question. 

25.  Table VII.1 presents data that CITA examines in order to support
the two necessary conditions under ATC for a call:  (1) total
category imports are rising at a sharp and substantial rate and (2)
domestic industry is being injured as a result.  In addition to
determining that a call is warranted under ATC, the importing country
determines that individual countries are responsible for the increase
in total category imports.  To make such a determination, we believe
the more relevant variable is country imports as a percentage of
total category imports because it serves as a base-line.  For
example, a 20-percent increase in in country imports from a base-line
of 2 percent is less significant than a 20-percent increase in
country imports from a base-line of 10 percent. 

26.  See table note, page 70. 

27.  We were not given access to documents explaining why calls were
not made.  We note that imports from Egypt had risen and that Egypt
was a larger supplier than some countries that were subject to
quotas, yet Egypt was not called. 

28.  See page 73 for a discussion of CITA's use of revised data. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix XII

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Elizabeth J.  Sirois, Assistant Director
Nina Pfeiffer, Evaluator-in-Charge
Elizabeth Morrison, Senior Evaluator
Carolyn M.  Black-Bagdoyan, Evaluator
Mary M.  Park, Evaluator
Rona Mendelsohn, Senior Evaluator (Communications Analyst)

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Scott Einhorn, Senior Evaluator
Martin de Alteriis, Social Science Analyst

OFFICE OF THE CHIEF ECONOMIST,
WASHINGTON, D.C. 

Daniel E.  Coates, Senior Economist

OFFICE OF GENERAL COUNSEL,
WASHINGTON, D.C. 

Richard P.  Burkard, Senior Attorney


*** End of document. ***