Chennai:  India's hope to knit a new design for its textile sector during the post-quota regime beginning January 2005 may be dashed if the US and other developed countries have their way at the World Trade Organisation's (WTO) Dispute Settlement Body (DSB).

The US has raked up the issue of 'Rules of Origin' (RO) at WTO's DSB, which ran counter to India's interpretation of RO. In the commercial policy lexicon, RO stands for the criteria for determining the national source of origin of products.

According to a study by Dr KN Harilal and Dr PL Beena of Centre for Development Studies (CDS), Thiruvananthapuram, on 'WTO Agreement On Rules of Origin, Implications For South Asia' undertaken for the Centre for International Trade, Economics and Environment and Consumer Unity and Trust Society (CUTS), Jaipur, the developed countries are using the RO as a new non-tariff barrier (NTB) to discourage exports of textiles and other products from countries like India.

''The 10-year period over which the MFA (Multi Fibre Agreement) quotas are supposed to be phased out is ending on December 31, 2004. The South Asian countries are also expected to make significant gains from the MFA phase out. But, the initial euphoria is fading as we move over to January 1, 2005.

It is now clear that in the post-integration phase the developed countries would be resorting the tariffs in a big way to protect their textile and clothing producers,'' it says adding ''what is more significant in our context is the likelihood of rules of origin emerging as a highly potent protection weapon.''

An important feature the US proposals on RO in textiles and clothing is their anti-specialisation bias, which ran counter to the spirit of free trade concept. For instance, while India argues that permanent dyeing or printing of yarn or fabric alone can be considered as 'substantial transformation', or origin conferring, the US stand is that yarn of one country that is dyed or printed in another country should not be considered as originating in the latter country.

This means that India imports cheaper fabric from Bangladesh and after dyeing or printing exports it to the US, it may not get any preferential treatment as it will be treated as not originating from India.

''Over many centuries, textiles and clothing industries had evolved quite an intricate pattern of international specialisation. There are countries and regions, which specialise in one or many combinations of activities such as spinning, weaving, bleaching, texturing, dyeing, printing, coating, impregnating, embroidery, making of made up articles, assembly of garments, etc.''

''There are countries, which do not produce any yarn or fabric but maintain a strong presence in the industry and trade by virtue of their comparative advantage and specialisation in other activities. But, if developed country proposals are accepted, many such activities of specialisation will not by themselves meet the criteria of substantial transformation /origin status.

The situation would be so bad that the origin of yarn and fabrics, regardless of dyeing, printing and so many other processing operation done elsewhere would be traced back to the country of spinning or weaving,'' it says.

India and other developing countries in general recognise each such activity of specialisation as substantial transformation requiring shift of origin. Whereas, the developed countries, led by the US refuse to recognise many key processes of specialisation as substantial to cause shift in origin.

For them, origin of textiles and clothing products should be traced back, as far as possible, to the country of origin of yarn or fabric. If US proposals of non-preferential rules were accepted it would give a discriminatory advantage to the domestic producers vis-a-vis foreign sources of yarn and fabrics, the study points out.

Take for instance the case of US manufacturers of printed fabrics. If they import fabrics for printing from India they could be denied the domestic status. Their products could be treated as of foreign origin and made liable to pay the customs duty.

As such, regardless of the price advantage of the Indian source, the US firms might source their inputs from within the country giving a discriminatory advantage to the domestic producers vis-a-vis foreign sources of yarn and fabrics, the study argues.