The World Trade Organisation has turned down India's challenge to the United States rules on determining country of origin for textiles.
However, India has a right to appeal against the ruling of a dispute-settlement panel of WTO, which rejected each of the country's arguments, the Office of the US Trade Representative has said.
"We are pleased that the panel rejected India's complaints. Detailed US rules of origin for textiles help make sure that everyone plays by the rules," US Trade Representative Robert Zoellick said.
India had argued that the US rules improperly differentiate between textiles and other products. It had also argued that the rules were administered in a discriminatory way and distorted trade.
The rules were used to protect the US industry from competition, India had said.
The United States uses the rules of origin to administer its textile and apparel quotas, which all expire at the end of 2004 under the WTO agreement.
The rules could still be used after 2004 to enforce tariff preferences under free trade agreements or to administer any temporary tariffs or quotas imposed to protect the US industry from a surge of imports, according to US trade officials, who briefed reporters in a teleconference.
One official said the panel decision was significant both because the United States won a textile case at the WTO for the first time -- it lost three previous cases-- and because a panel ruled for the first time on the rules of origin agreement.
The 1996 US rules assign country of origin for most textiles, such as cotton sheets, to the country where the fabric is woven and not where it is further processed or finished.
A 2000 amendment to the rules, passed by the Congress to settle a dispute with the European Union, assigned country of origin for finely finished silk goods to the country where dyeing and finishing is performed.
According to the trade official, India argued that the 2000 amendment should apply to cotton sheets from India as well, but the WTO panel rejected that argument.
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