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India has the right to appeal the WTO decision, which upholds US rules to determine the country of origin for textile imports.

GENEVA - A World Trade Organization (WTO) dispute-settlement panel has rejected India's challenge to US rules on determining country of origin for textiles.

India has a right to appeal the panel ruling, which rejected each of India's arguments.

"Detailed US rules of origin for textiles help make sure that everyone plays by the rules," said US Trade Representative Robert Zoellick. "We are very pleased that the panel rejected India's complaints."

India had argued that the US rules improperly differentiate between textiles and other products. It had also argued that the rules were used to protect the US industry from competition, were administered in a discriminatory way and distorted trade.

The US uses the rules of origin to administer its textile and apparel quotas, which all expire at the end of 2004 under WTO agreement.

The rules could still be used after 2004, however, to enforce tariff preferences under free trade agreements or to administer any temporary tariffs or quotas imposed to protect U.S. 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 US 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, not where it is further processed or finished.

A 2000 amendment to the rules, passed by Congress to settle a dispute with the European Union (EU), 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.

"We argued that nothing in the agreement on rules of origin requires the same rules for fine silk and cotton sheets," he said. The panel concluded that settlement reached with the EU was not discriminatory because it applied to all WTO members, Zoellick said.

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