(Continued)
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oral statement of india at the first substantive
meeting of the panel
1. Procedural arguments
(a) Joint representation of India and Paraguay by the
same staff of the Advisory Centre on WTO Law
4.105 On the issue raised by the European Communities on 14
May 2003 during the first substantive meeting of the Panel, whether India and
Paraguay can be represented by the same staff of the Advisory Centre on WTO Law
("ACWL"), India and Paraguay submitted a joint statement on this issue to the
Panel on the same day. India claims that it had full notice of the
representation granted to Paraguay as a third party by the ACWL in this dispute.
Likewise, Paraguay had full notice of the representation granted to India as a
complaining party. India and Paraguay consider that by representing both
parties, the ACWL does not compromise their individual interests in effective
legal representation. India and Paraguay had both consented to simultaneous
representation by the ACWL in this dispute.
4.106 India and Paraguay contend that the issue of exchange
of information between parties and third parties to which the European
Communities referred in its statement does not arise in the present case because
the third parties were accorded enhanced rights.
4.107 India and Paraguay maintain that the dispute settlement
procedures of the WTO establish rules of ethics for the members of panels and
the Appellate Body but not for lawyers representing the Members of the WTO.
Under the current law of the WTO, the request of the European Communities that
the Panel rule on a matter of legal ethics therefore lacks any legal basis and
should be rejected by the Panel.
4.108 India argues that according to Articles 2.2 and 6.1 of
the Agreement Establishing the Advisory Centre on WTO Law, both India and
Paraguay are entitled to the support of the ACWL in WTO dispute settlement
proceedings, whether as parties or third parties. Citing the Appellate Body
ruling in EC - Bananas III that it "can find nothing in the � WTO
Agreement, the DSU or the Working Procedures, nor in customary international law
or the prevailing practice of international tribunals, which prevents a WTO
Member from determining the composition of its delegation in Appellate Body",
India contends that this observation applies equally to the composition of the
delegation in panel proceedings.
2. Substantive arguments
4.109 According to India, it was with extreme reluctance that
it decided to invoke dispute settlement proceedings in this case. India made
repeated attempts to settle the issue bilaterally with the European Communities,
but its inability to reach a settlement and the considerable losses faced
by its industry left India with no choice but to invoke these proceedings. India
resorted to these procedures only after having exhausted all possibilities to
reach a mutually agreed solution.
4.110 India recognizes the need for special financial
assistance to developing countries to meet their individual development needs.
However, it does not believe that tariff preferences discriminating between
developing countries are the appropriate policy instrument to address the
specific development needs of individual countries. Such preferences tend to
help some poor countries at the expense of others, equally poor. The GSP was not
created to shift market access opportunities between poor countries with
different development needs, but to respond to the development needs of all of
them.
4.111 India's textiles and clothing exporters started feeling
the adverse effects of the Drug Arrangements in the year 2002, when Pakistan was
included in these arrangements. These problems are not yet fully reflected in
the trade statistics because only 16 months have lapsed since the inclusion of
Pakistan. However, in India's view, the WTO legal system focuses on the
conditions of competition for WTO Members, not trade results.
4.112 The European Communities, India and the beneficiary
countries are in agreement that the GSP preferences that may be accorded under
paragraph 2(a) of the Enabling Clause must be "non-discriminatory
preferences beneficial to the developing countries". India submits that the Drug
Arrangements do not meet this requirement because the preferences accorded under
them are available only to products originating in specified countries. On the
contrary, the European Communities contends that the term "non-discriminatory"
does not prevent it from treating beneficiaries differently because, according
to objective criteria, they have different development needs as a consequence of
drug problems.
4.113 The European Communities' argument is based on two
premises: first, that the term "non-discriminatory" in the Enabling Clause
allows developed countries to distinguish between developing countries on the
basis of objective criteria relating to specific development needs of individual
countries; and second, that the European Communities in fact distributes the
benefits accruing under the Drug Arrangements in accordance with objective
criteria.
4.114 The meaning of the term "non-discriminatory" as used in
paragraph 2(a) of the Enabling Clause must be determined in accordance with the
ordinary terms of GATT 1994, in their context and in the light of its object and
purpose. On the basis of these principles, the Appellate Body has found that:
"The essence of the non-discrimination obligations is that like products should
be treated equally, irrespective of their origin [�]. Non-discrimination
obligations apply to all imports of like products, except when these obligations
are specifically waived or are otherwise not applicable as a result of the
operation of specific provisions of the GATT 1994."41
4.115 The Enabling Clause is an integral part of the GATT
1994, and it therefore follows from this finding of the Appellate Body that, in
the context of the Enabling Clause, non-discrimination means equal treatment of
like products, except if a specific provision of the Enabling Clause states
otherwise. The basic legal issue before the Panel therefore is: does the
Enabling Clause provide for a definition of the term "non-discrimination" that
is different from the definition generally applicable in the GATT 1994?
4.116 The European Communities argues that an interpretation
of paragraph 2(a) of the Enabling Clause permitting developed countries to treat
countries differently that have different development needs is supported by
paragraph 3(c) of the Enabling Clause, which obliges developed countries to
"respond positively to the development, financial and trade needs of developing
countries". The European Communities claims that the needs of developing
countries needs referred to in this paragraph are "the individual needs
of those countries". On this basis, it claims that the requirement to respond
positively to the individual needs of each developing country would be rendered
a nullity if "non-discriminatory" were interpreted as prohibiting any difference
in treatment between developing countries.
4.117 There is nothing to support the contention that
paragraph 3(c) refers to the individual needs of each of the developing
countries, and the text of paragraph 3(c) does not express this idea. In the
context of the requirements governing GSP preferences, the drafters of the
Enabling Clause referred to the needs of developing countries in general. In the
context of the reciprocity principle governing trade negotiations, they referred
to the "individual" or "particular" needs of developing countries. This
comparison leaves no doubt that the drafters intended to stipulate that GSP
schemes respond to the needs of developing countries in general and that each
developing country's individual needs would be taken into account in determining
the degree of reciprocity in trade negotiations.
4.118 There is also nothing to support the European
Communities contention that paragraph 3(c) would be rendered a nullity if
differences in treatment between developing countries were prohibited. A GSP
scheme can be non-discriminatory and nevertheless not respond positively to the
needs of developing countries in general. It made perfect sense for the drafters
to require that benefits to be accorded on a non-discriminatory basis to the
developing countries respond positively to the needs of these countries.
4.119 The European Communities assertion that a scheme
designed exclusively to address drug problems responds to the needs of
developing countries as defined in paragraph 3(c) cannot also be reconciled with
the fact that, throughout the Enabling Clause, the needs of developing countries
are defined as the "development, financial and trade needs". The
conjunctive term "and" makes clear that, when evaluating the consistency of a
GSP scheme with paragraph 3(c) or the degree of non-reciprocity to be accorded
to a developing country under paragraphs 5 and 6, the development, financial and
the trade needs have to be assessed collectively. The drafters did not create
the option of responding either to development or to financial
or to trade needs because they did not use the term "or". This logically
implies that they also did not create the option of responding to one specific
development need, such as the need to fight drug production and trafficking.
4.120 Finally, it must be recalled that paragraph 3(c), by
its own terms, does not create a right but establishes an obligation. If the
European Communities' interpretation were correct, this provision would
oblige developed Members to design their GSP schemes to respond to the
individual needs of each of the beneficiary countries. They would thus be
under a legal obligation to modulate all benefits accruing under their GSP
schemes to the individual needs of each of the beneficiaries. However, most of
the benefits accruing under the general GSP arrangements of the European
Communities are equally available to all developing countries and consequently
would not meet such an obligation. In its attempt to justify one of its special
GSP arrangements, the European Communities therefore asks the Panel to adopt an
interpretation of paragraph 3(c) that would render its general GSP arrangement
inconsistent with the Enabling Clause.
4.121 The European Communities further asserts that various
provisions of the GATT 1994 and the GATS that implement the principle of
non-discrimination support its claim that the Drug Arrangements are
"non-discriminatory" within the meaning of paragraph 2(a) of the Enabling
Clause. This assertion also does not withstand scrutiny.
4.122 There are three basic provisions of the GATT that
implement the principle of non-discrimination between products originating in
different countries. Each of these provisions establishes a specific standard of
non-discrimination for a specific policy instrument:
(a) Article I of the GATT subjects the use of tariffs
to the most-favoured-nation standard. A WTO Member can meet this
standard only if it applies the same tariff to like products of all
other Members of the WTO. The standard of non-discrimination established
by the GATT for tariffs is therefore formally equal treatment.
(b) Article XIII regulates the use of quotas,
including the use of country-specific quotas. It requires Members that
administer quotas to aim at a distribution of trade approaching as
closely as possible the shares which the other Members might be expected
to obtain in the absence of the quotas, for instance by basing the quota
distribution on a previous representative period. The standard of
non-discrimination is thus not formally equal treatment but treatment
that ensures that the quotas do not modify each Member's trade share.
(c) Article XVII regulates imports and exports of
state trading enterprises. It requires Members to ensure that such
enterprises act in a manner consistent with the principles of
non-discriminatory treatment. This is understood to require that these
enterprises make their purchases and sales solely in accordance with
commercial considerations.
4.123 While each of these three provisions sets a different
standard, they all have one common objective, namely, to ensure that like
products originating in different countries are accorded equal competitive
opportunities. In the case of tariffs, this objective is achieved by requiring
formally equal treatment; in the case of quotas, by stipulating a distribution
of trade equal to the distribution that would prevail without the quotas; and in
the case of state trading enterprises, by requiring that purchases and sales be
based on considerations equal to those that private enterprises would apply.
4.124 Further, the non-discrimination rules also set out in
the national treatment provisions of the GATT 1994 and GATS have equality of
competitive opportunities as their fundamental objective. It is clear from the
jurisprudence under the GATT 1994 and the text of the GATS that the national
treatment requirement can be achieved through formally identical or formally
different treatment. However, it is equally clear that either method must result
in an effective equality of competitive opportunities.
4.125 The non-discrimination provisions of the GATT governing
tariffs thus provide no contextual support for an interpretation of the
term non-discrimination in paragraph 2(a) in the Enabling Clause that would
justify the Drug Arrangements. This paragraph deals with the tariff treatment
of products originating in developing countries. In respect of tariffs,
non-discrimination means formally equal treatment of like products. The standard
of non-discrimination that the European Communities invites the Panel to adopt
in respect of tariff treatment of products originating in developing countries
applies nowhere in WTO law to tariff treatment.
4.126 The European Communities' statement that the
non-discrimination provisions of the GATT governing non-tariff measures,
such as import quotas or internal regulations, permit or even require formally
different treatment of like products is correct. However, the result of any
difference in treatment must in all cases be an effective equality of conditions
of competition between like products, irrespective of their origin. The
preferential tariff treatment accorded under the Drug Arrangements establishes
conditions of competition favouring products from the beneficiary countries over
products from other countries, and is therefore also discriminatory within the
meaning of the non-discrimination provisions governing non-tariff measures. In
addition, these provisions cannot lead the Panel to the interpretation of
paragraph 2(a) advanced by the European Communities.
4.127 Paragraph 2(a) defines the GSP schemes authorized by
the Enabling Clause by referring to the 1971 Waiver, and the 1971 Waiver in turn
refers to the Agreed Conclusions of the Special Committee on Preferences adopted
at the Fourth Special Session of the Trade and Development Board of the UNCTAD.
As India will further demonstrate in its rebuttal submission, the Agreed
Conclusions clearly envisage that the benefits of the GSP schemes should be made
available to all beneficiary countries. This understanding of the Agreed
Conclusions is confirmed by the fact that, prior to the adoption of the Agreed
Conclusions, the developed countries had agreed among themselves in the OECD
that their preferences would not discriminate between developing countries,
except to favour the least-developed countries.
4.128 As India noted at the beginning of its statement,
according to the Appellate Body, non-discrimination means equal treatment of
like products except if a specific provision states otherwise. The simple fact
is that, except for the provisions governing preferences for least-developed
countries, there is no provision in the Enabling Clause that lends any support
to the conclusion that the terms "non-discriminatory preferences beneficial to
the developing countries" in paragraph 2(a) of the Enabling Clause do not
require equal treatment of like products from all developing countries.
4.129 Turning to the factual premises under the European
Communities' argumentation. India strongly rejects the European Communities'
claim that the Enabling Clause permits the developed countries to differentiate
between developing countries, on the basis of objective criteria of their own
choice which are allegedly vital to the development needs of developing
countries. Nevertheless, assuming arguendo that differentiation between
developing countries is permissible, the European Communities' argumentation
could only succeed if its factual claim were correct - that the Drug
Arrangements differentiate between developing countries on the basis of
objective criteria reflecting their development needs.
4.130 The EC Regulation establishing the current European
Communities' GSP scheme provides for two special arrangements to which the
European Communities' factual claim might possibly apply: the labour
arrangements and the environmental arrangements.42 In respect of the Drug
Arrangements, no criteria or procedures for inclusion as a beneficiary are set
out in the Regulation. Instead, Article 10 of the Regulation merely provides
that the preferences are granted to countries that are designated by the
European Communities as beneficiaries in column I of Annex I. The beneficiaries
therefore do not know what criteria they have to meet in order to continue to be
beneficiaries. There are also no provisions establishing criteria to be met and
procedures to be followed in order to be designated as a beneficiary. Countries
excluded from the scheme consequently do not know why they are excluded and
under what circumstances they would be included. The European Communities' claim
that the measures at issue in these proceedings distinguish between developing
countries according to objective criteria reflecting their individual
development needs is therefore factually baseless.
4.131 The measures at issue in this proceeding are the Drug
Arrangements as they presently operate. The issue is therefore whether
the Drug Arrangements as set out in the current Regulation establish
"non-discriminatory preferences beneficial to the developing countries" within
the meaning of paragraph 2(a) of the Enabling Clause. The motives of the
European Communities in selecting the beneficiaries and the criteria that the
European Communities might adopt in the future when adding further beneficiaries
are consequently not relevant to the legal examination of the measures before
the Panel.
4.132 India would nevertheless like to point out that the
European Communities has provided no evidence that the selection of the current
beneficiaries was based on objective criteria. Moreover, the European
Communities submits no evidence whatsoever demonstrating that the countries
excluded from the scheme do not have similar drug problems. In its submission,
it describes the drug problems of the beneficiaries in general terms, partly by
using statistics that became available after the beneficiaries had been
selected. On the basis of the European Communities' explanations, it is
impossible to determine why for instance Pakistan was included while India and
Paraguay were excluded. Nor has the European Communities submitted any
documentary evidence that it had in fact conducted an objective assessment of
all countries' drug problems before establishing the list of beneficiaries. All
it has submitted to the Panel is a lengthy ex post justification prepared
with the help of UN documents that does not reveal a single objective criterion
equally applied to all beneficiaries and non-beneficiaries.
4.133 India also notes that there are some fundamental
contradictions between the alternative defences advanced by the European
Communities in its written submission. The European Communities argues that the
Drug Arrangements are entirely consistent with all of the requirements of the
Enabling Clause, including presumably the requirement that any such arrangement
must be non-reciprocal in nature. At the same time, however, the European
Communities also argues that, in the event that the Panel finds the Drug
Arrangements to be inconsistent with the Enabling Clause, it would like to
defend it as being necessary to protect human life and health in the European
Communities under Article XX(b) of GATT 1994. Thus, the European Communities in
effect admits in its written submission that the Drug Arrangements are really
intended to achieve a fundamental and important policy objective of its own,
without reference to the development needs of the beneficiaries of the Drug
Arrangements. Therefore, the design, architecture and structure of the Drug
Arrangements contain an important element of reciprocity, which is clearly
impermissible under the Enabling Clause. This is just one more instance of the
contradictions inherent in the European Communities' arguments before the Panel.
4.134 The claims and arguments presented by the European
Communities and the beneficiaries are legally and factually unfounded. The
European Communities knew and acknowledged that the Drug Arrangements required a
waiver. The European Communities failed to obtain the waiver and the Panel is
now facing the most spurious arguments in support of a ruling that could only be
described as preposterous, namely that the denial of tariff preferences to India
does not constitute discrimination against India.
4.135 Both the European Communities and the beneficiary
countries have permitted their lawyers to advance arguments on important
systemic issues that run counter to the views that they have expressed on other
occasions. It is difficult to believe that the arguments that the European
Communities presented on the unconditional nature of the most-favoured-nation
principle and on Article XX(b) represent the considered opinion of the European
Communities as a whole. It is equally difficult to believe that the beneficiary
countries took their long-term systemic interests into account when they invited
the Panel to rule that developed countries may discriminate between developing
countries in accordance with criteria selected by the developed countries.
4.136 India is profoundly disturbed by the European
Communities' abuse of the WTO dispute settlement procedures in this case and the
surprising support given by the beneficiary countries to the European
Communities' interpretation of the Enabling Clause. India urges the Panel to
preserve the integrity of the dispute settlement process and to make quickly the
required clear ruling so that the issues to which the Drug Arrangements give
rise can be resolved within the framework of the proper WTO procedures.
4.137 In conclusion, India reiterates that it does not
dispute the European Communities' right to give financial assistance to
individual developing countries facing special development needs. India disputes
the European Communities' right to do so at the expense of other developing
countries facing different but equally pressing needs. The European Communities'
claim that the Enabling Clause provides authority to shift market access
opportunities from some poor countries to other poor countries in accordance
with criteria selected by the developed countries is legally untenable. The GSP
was intended to promote the development of all developing countries. It was not
intended to permit developed countries to discriminate between developing
countries, to destroy or adversely affect industry in one developing country to
benefit another and to create poverty in one developing country in order to
alleviate poverty in another. A confirmation of this obvious fact by the Panel
will have a salutary effect on the entire multilateral trading system.
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oral statement of the european communities at the
first substantive meeting of the panel
1. Procedural arguments
(a) Joint representation of India and Paraguay by the
same staff of the Advisory Centre on WTO Law
4.138 During the first substantive meeting of the Panel, the
European Communities raised the issue of joint representation of India, the
complaining party and Paraguay, one of the third parties by the same staff of
the ACWL. The European Communities requests the Panel to clarify the issue of
whether, as a matter of principle, the same counsel can represent simultaneously
a complaining party and a third party, and if so, under what conditions and
whether these conditions are satisfied in this case.
4.139 While acknowledging that the Appellate Body ruled only
on the issue of who should represent a Member at its oral hearing in EC -
Bananas III, not on the issue of whether the same legal counsel may
represent two Members with different positions, the European Communities
considers that the joint representation of a party and a third party by the same
legal counsel is unprecedented. This situation draws a number of concerns that
deserve the attention of the Panel.
4.140 The European Communities contends that there is an
obvious conflict of interest. The bar rules of many WTO Members prohibit lawyers
from representing in litigation two clients with different interests. The absent
of any agreed rules in the WTO concerning the representation of Members by
external counsel does not mean that such counsel is not subject to any
deontological rules. Under the existing WTO law, there is no requirement that
the counsel appearing before a panel must be admitted to the bar of a WTO
Member. In view of that, the European Communities considers that panels must
take upon themselves the task of enforcing basic deontological standards,
including the conflict of interest issue, as part of their inherent powers to
organize and direct the proceedings.
4.141 The European Communities states that it is not
suggesting that there is necessarily a conflict of interest in this case.
Rather, the European Communities' view is that the situation where the same
counsel represents the complaining party and a third party may give rise to such
conflicts and that panels should satisfy themselves that the counsel and the
Members concerned have done all that is necessary to avoid them.
4.142 The European Communities maintains that the situation
where the same counsel represents two Members with different procedural
positions may be incompatible with the DSU rules on confidentiality. The counsel
for a complaining party will receive confidential submissions and panel
documents which it would not be entitled to receive as the counsel for a third
party. In this case, the problem is mitigated by the fact that third parties
have been granted enhanced rights. But the European Communities is worried about
creating a precedent for other cases where, in accordance with the general rule,
the information rights of third parties are limited. In response to the argument
that India and Paraguay submitted to the Panel that the issue of confidentiality
does not arise in this dispute as the third parties have been accorded enhanced
rights, the European Communities points out that India and Paraguay had already
agreed to use the service of the same legal counsel long before third parties
requested the enhanced third-party rights.
4.143 It is the view of the European Communities that
generally speaking, allowing the same counsel to represent the complaining party
and a third party would be a source of confusion and could effectively blur the
distinction between the main parties and the third parties, which, as recently
recalled by a panel, is still a basic feature of the DSU rules.
2. Substantive arguments
(a) The implications of this dispute
4.144 The European Communities points to the importance of
this dispute. It is the first dispute involving the Enabling Clause, one of the
most significant forms of "special and differential" treatment for developing
countries under the WTO Agreement. At stake in this dispute is more than the
Drug Arrangements, vital as they are for the beneficiary countries. From the
Panel's answers to some of the issues raised in this dispute it could decide
also the viability of the Generalized Systems of Preferences ("GSP") applied by
many donor countries.
4.145 When considering those issues, the Panel should bear in
mind the nature of the preferences granted under the GSP schemes. Those
preferences are strictly voluntary. According to the European Communities,
India's reading of the Enabling Clause would be detrimental to all Members. The
likely result of India's interpretation would be less, rather than
more preferences for the developing countries, contrary to India's misguided
expectations in bringing this case. In fact, turning the Enabling Clause into
the kind of strait-jacket devised by India could dissuade some donor countries
from providing any preferences at all.
4.146 Beyond its systemic implications, the present dispute
is important also because of its potential repercussions for the beneficiaries
of the Drug Arrangements. The Drug Arrangements have allowed those countries to
increase and diversify their exports to the European Communities. The ensuing
beneficial effects are considerable. For example, it has been estimated that in
the Andean Community alone, the Drug Arrangements sustain almost 160,000 jobs.
4.147 Removing the Drug Arrangements from the European
Communities' GSP would have devastating economic and social consequences for the
beneficiary countries. In contrast, India would derive very few benefits, if at
all. As we have shown, India's allegations of trade diversion are
unsubstantiated and groundless. Between 1990 and 2001, imports from India under
the European Communities' GSP increased from two to more than five billion
Euros. Further, during that period, India's share of all imports under the
European Communities' GSP increased from 9 per cent to 12 per cent. This makes
India the second largest beneficiary of the European Communities' GSP.
4.148 India can invoke no genuine trade concern as a
justification for bringing this dispute. The European Communities, therefore,
finds it very difficult to understand why India has resorted to an action that
could undermine the efforts of other developing countries in their fight against
drugs and endanger their social and political stability. India's gratuitous
complaint is hardly what would be expected from a Member which aspires, with
good reason, to be one of the leaders of the developing country Members of this
Organization.
(b) The Enabling Clause
4.149 India's complaint is built on a mistaken premise. India
has misconceived the relationship between the Enabling Clause and Article I:1 of
GATT 1994. The Enabling Clause is not an "affirmative defence". It is a
self-standing regime. It confers an autonomous and permanent right to grant
certain types of "special and more favourable treatment" to developing
countries, subject to certain conditions. If a preference falls under the
Enabling Clause, Article I:1 of GATT 1994 does not apply at all.
4.150 India is one of the main proponents of strengthening
the provisions granting "special and differential treatment" to developing
countries. It is therefore astonishing to see that in this dispute India takes a
position that would erode considerably the value of such treatment. The European
Communities invites India to reflect further on this issue in the light of its
broader WTO interests.
4.151 The fact that the Enabling Clause is not an affirmative
defence has two important implications:
(a) in order to establish a violation of Article I:1
of GATT 1994, India must establish first that the Drug Arrangements do
not fall within the scope of paragraph 2(a) of the Enabling Clause; and
(b) as the complaining party, India bears the burden
of proving that the Drug Arrangements are not covered by paragraph 2(a)
and, if covered, that they are inconsistent with paragraph 3(c).
4.152 The Enabling Clause has its own requirements, which are
different from those of Article I:1 of GATT 1994. Unlike Article I:1, the
Enabling Clause does not require granting identical tariff preferences to all
the developing countries, on a MFN basis. Instead, paragraph 2(a) provides that
the tariff preferences granted to developing countries as part of a GSP must be
"non-discriminatory".
4.153 The "non-discrimination" standard included in paragraph
2(a) is different from the MFN standard of Article I:1. The term
"non-discriminatory" must be interpreted in accordance with its own ordinary
meaning, in its own context and in the light of the specific objective of the
Enabling Clause, which is also one of the overall objectives of the WTO
Agreement: to promote the trade of all developing countries
commensurately with their respective development needs.
4.154 India's interpretation of the term "non-discriminatory"
is based on little else than an incomplete dictionary definition. It is
simplistic and incorrect. Treating differently developing countries which,
according to objective criteria, have different development needs is not
discriminatory. Quite to the contrary, it may be necessary to comply with
paragraph 3(c) of the Enabling Clause, which provides that preferences must
respond positively to the development needs of developing countries.
4.155 India's allegations that the Drug Arrangements have
been designed in order to advance the European Communities' political agenda or
to promote the European Communities' own trade interests are groundless. The
purpose of the Drug Arrangements is to afford equal development opportunities to
the developing countries which are handicapped as a result of being severely
affected by the production or trafficking of drugs. That goal is both legitimate
and consistent with the objectives of the Enabling Clause and of the WTO
Agreement. Further, the European Communities has demonstrated that there is a
reasonable and sufficient connection between that objective, the unique
development needs of the countries concerned, and the tariff preferences granted
to those countries under the Drug Arrangements.
4.156 The links between economic development and the drug
problem are well-established and have been recognized many times by the United
Nations. Only last month the ministers participating in the 46th session of the
UN Commission on Narcotic Drugs recalled once again that the drug problem
"undermines socio-economic and political stability and sustainable development,
including efforts to reduce poverty".
4.157 Likewise, the United Nations has said many times that
the fight against drug production and trafficking is a shared responsibility of
all members of the international community. Accordingly, the developed countries
must provide assistance to the developing countries which are affected by that
problem. The provision of financial and technical assistance is, of course,
crucial. But it is not enough. According to the United Nations, the fight
against drugs demands a balanced and comprehensive approach. Drug production and
trafficking are fed by poverty and unemployment. Thus, in order to combat them
successfully, it is necessary to replace them with licit alternative economic
activities. Further, those activities must be sustainable. In turn, this
requires providing markets for the products of those activities.
4.158 The concrete application of the Drug Arrangements made
by the European Communities' authorities is also non-discriminatory. The
designation of the beneficiaries of the Drug Arrangements is based on an overall
assessment of the severity of the drug problem in each developing country, made
in accordance with objective, non-discriminatory criteria. India does not
qualify under those criteria. Indeed, India does not dispute this. Nor does
India claim that any of the beneficiary countries fails to meet the relevant
criteria.
(c) Article XX of GATT 1994
4.159 The primary goal of the Drug Arrangements is to promote
the development of the countries affected by the production or trafficking of
drugs. But in so doing, the Drug Arrangements also contribute to the objective
of reducing the consumption of drugs within the European Communities.
4.160 It is beyond question that drugs pose a serious threat
to human life and health. The Drug Arrangements are a necessary component of the
European Communities' strategy against drug abuse. As just explained, the fight
against drugs requires a balanced approach, which includes the promotion of
sustainable alternative economic activities in order to reduce the illicit
supply of drugs. In accordance with the principle of shared responsibility, the
European Communities and its member States already provide substantial technical
and financial assistance to the countries concerned. The Drug Arrangements are a
necessary complement to such assistance.
4.161 Thus, even if the Panel were to find that the Drug
Arrangements are not consistent with the Enabling Clause, they would be
justified under Article XX(b) of the GATT as being necessary for the protection
of the health and life of the European Communities' population.
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second written submission of india
1. The Drug Arrangements are inconsistent with Article
I:1 and the European Communities bears the burden of proof under the
Enabling Clause
4.162 The tariff preferences granted under the Drug
Arrangements to certain products originating in the preferred Members are
advantages which are not granted immediately and unconditionally to like
products originating in all other Members. Hence, the tariff preferences are
inconsistent with Article I:1.
4.163 Article I:1 of GATT 1994 requires that the extension of
an advantage cannot be made subject to conditions with respect to the
situation or conduct of a Member. The European Communities argues that
Article I:1 only requires that the extension of an advantage cannot be made
subject to conditions which require a Member to provide some form of
compensation. In the European Communities' view, the Article I:1
"unconditionally" requirement allows a Member to impose conditions falling
outside of what could be deemed as "compensation". The European Communities
bases this interpretation on the understanding of the term "conditional" in the
context of conditional MFN clauses. Even if the European Communities is correct
- that in the context of conditional MFN clauses, the term "condition"
alludes to a requirement to provide some compensation for the benefits received
from another party - the European Communities is not correct when it concludes
that "the 'Drug Arrangements' are clearly 'unconditional' within the meaning
of that term in the context of MFN clauses." (italics supplied). The meaning
of "condition" in the context of a conditional MFN clause is not determinative
of the meaning of "unconditionally" in an unconditional MFN clause.
"Unconditional" simply means the absence of conditions, regardless of the
technical meaning of "condition" in the context of conditional MFN clauses. If
black is the opposite of white and "conditional" is the opposite of
"unconditional", what is not black is not necessarily white, and what is not
"conditional" is not necessarily "unconditional".
4.164 The European Communities' limited interpretation of the
term "unconditionally" should be rejected for the following additional reasons:
(a) The European Communities' interpretation is
unsupported by the ordinary meaning of the term "unconditionally". From
the ordinary meaning, there emerges no basis to restrict the scope of
this term to a specified category of "conditions which require a Member
to provide some form of compensation". The European Communities does not
provide any justification for this restriction.
(b) Even on the selective "historical method" of
interpretation followed by the European Communities, the material
highlighted by the European Communities is irrelevant. The relevant
comparison is not the historical usage of the term "condition" in the
context of conditional MFN clauses, but, rather, the usage of
"unconditional" in the context of unconditional MFN clauses
(c) The European Communities' interpretation is
contrary to WTO jurisprudence. The European Communities states that
there is conflicting jurisprudence on the matter. Even assuming that
there is such conflicting jurisprudence, the European Communities'
interpretation is not supported by any jurisprudence.
4.165 The European Communities bears the burden of
establishing that the Drug Arrangements are justified under paragraph 2(a) of
the Enabling Clause. The European Communities seeks to impose on India the
burden of establishing the negative of the European Communities' defence
- that the Drug Arrangements are justified under paragraph 2(a) of the Enabling
Clause - by the mere expedient of characterizing paragraph 2(a) as conferring an
"autonomous right". India considers that the Enabling Clause is not an
"autonomous right" as the European Communities alleges. The European Communities
does not define "autonomous right". Instead, it merely asserts a conclusion of
law, i.e., that the Enabling Clause is not a derogation or deviation from the
obligation stated in Article I:1 of GATT 1994. India maintains that, on the
contrary, the Enabling Clause is a derogation or deviation from the obligation
stated in Article I:1 of GATT 1994. Paragraph 2(a) of the Enabling Clause
permits or "enables" developed country Members to take certain measures which
Article I:1 otherwise prohibits, subject to certain conditions. It does not
operate as a substituting regime to regulate all aspects of trade relations
between developed and developing countries. Moreover, paragraph 2(a) of the
Enabling Clause does not impose any positive obligation on developed country
Members to establish GSP schemes.
4.166 The purpose of paragraph 2(a) of the Enabling Clause,
in permitting developed country Members to grant preferential tariff treatment
to developing countries under the GSP, is not to confer a privilege to
developed country Members; rather, paragraph 2(a) was adopted for the benefit of
developing countries. The European Communities claims that the absence of the
phrase "to the extent necessary" allows developed country Members to be absolved
from all of their obligations under Article I:1 of GATT 1994, even beyond the
extent of what is necessary to provide differential and more favourable
treatment to developing countries.
4.167 India notes that the phrase "to the extent necessary"
was used in the 1971 Decision but it was not used in the Enabling Clause,
however the explanation for this omission is simple. The 1971 Decision was a
waiver. Thus the formulation was "� the provisions of Article I shall be waived
� to the extent necessary�" In the context of a waiver, the phrase "to the
extent necessary" is not redundant, as it circumscribes the extent to which
obligations are waived. However, the Enabling Clause was adopted as a decision,
not as a waiver. Therefore the corresponding formulation is "notwithstanding the
provisions of Article I of the General Agreement, [Members] may accord
differential and more favourable treatment to developing countries without
according such treatment to other Members". The Enabling Clause thus permits
certain acts which Article I:1 of GATT 1994 otherwise prohibits. In this type of
formulation, it would have been redundant to state that "Members may accord
differential and more favourable treatment to developing countries without
according such treatment to other Members �to the extent necessary to
accord differential and more favourable treatment to developing countries."
4.168 Furthermore, it would seem that the European
Communities argues that the phrase "notwithstanding Article I:1 of GATT 1994
totally excludes the application of that Article. The use of the term
"notwithstanding" (or synonymous terms) in a provision does not necessarily mean
that the provision confers a "self-standing autonomous right". For instance,
Article XX uses the formulation "nothing in this agreement shall be construed to
prevent", and yet it is beyond doubt that Article XX is an exception and an
affirmative defence.
4.169 Burden of proof must be assessed in relation to the
material elements of the plaintiff's claim and the material elements of the
defendant's defence. India's claim in these proceedings, as expressed in its
first written submission, is based on Article I:1 of GATT 1994 and not on
paragraph 2(a) of the Enabling Clause. Paragraph 2(a) of the Enabling Clause is
therefore not a material element of India's claim. To defeat India's claim, the
European Communities may assert, and it has chosen to so assert, that the
tariff preferences under the Drug Arrangements are justified under the Enabling
Clause. It is thus incumbent on the European Communities to prove the
affirmative of its defence - that the Drug Arrangements are in fact covered by
that Clause. The European Communities' mere assertion that the Drug Arrangements
are covered by the Enabling Clause does not in itself constitute proof of the
affirmative of the European Communities' defence. The mere assertion therefore
does not shift the burden of proof to India to establish the negative of the
European Communities' defence.
4.170 Paragraph 2(a) of the Enabling Clause is an affirmative
defence. It has legal functions and characteristics similar to other provisions
of the GATT that the Appellate Body has recognized as "affirmative defences".
There are no positive obligations under Articles XI:(2)(c)(i), XX and XXIV of
the GATT in the sense that no Member can be compelled to impose quantitative
restrictions, to adopt measures under Article XX or to establish customs unions
or free trade areas, respectively. Similarly, under paragraph 2(a) of the
Enabling Clause, no Member may compel a developed country Member to grant
preferential tariff treatment to the developing countries. In the same manner
that Articles XI:(2)(c)(i), XX and XXIV are exceptions and at the same time
"defences", the Enabling Clause is likewise an exception to certain aspects of
Article I:1 of GATT 1994 and could be invoked, in the proper case, as a defence
in a claim of violation of that Article.
4.171 Under each of these provisions, even assuming that it
is established that the measure at issue violates the provision to which the
exception applies, the Member adopting the measure may still invoke the
exceptions as (affirmative) defences. This falls squarely within the definition
of "affirmative defence". In a dispute involving a claim which is subject to a
potential affirmative defence, the claim is first examined in relation to the
provision to which it is inconsistent, as claimed by the complainant. If the
claim is found to be meritorious, then the next step is the examination of the
affirmative defence put forward by the respondent. This is precisely how the
Enabling Clause as an affirmative defence has been dealt with in prior GATT
jurisprudence.43
4.172 The European Communities cites Brazil - Aircraft,
to support its assertion that India bears the burden of proving that the
European Communities' Drug Arrangements are inconsistent with paragraph 2(a) of
the Enabling Clause. The Appellate Body upheld the Panel finding on the issue of
burden of proof as it considered that- in contrast to "affirmative defences"
contained in several GATT provisions - the provision concerned (Article 27.4 of
the SCM Agreement) set forth "positive obligations for developing country
Members, not affirmative defences." In contrast, paragraph 2(a) of the
Enabling Clause does not impose positive obligations or positive rules
establishing obligations in themselves. Rather, it is a limited exception to
Article I:1 of GATT 1994, which could be invoked as an affirmative defence. The
European Communities appears to contend that because Article 27 of the SCM
Agreement is listed in a WTO Secretariat document as a Special and Differential
Treatment (S&D) provision along with the Enabling Clause, the Enabling Clause
has automatically the same legal function and characteristics as Article 27.4
and as a consequence, the burden of proof when a defendant invokes the Enabling
Clause shifts to the complainant claiming a violation of the relevant
substantive provision. This argument of the European Communities is incorrect.
In Brazil-Aircraft, Articles 27.2 and 27.4 were indeed considered part of
S&D. But the panel and the Appellate Body decided that it was for the
complainant to bear the burden of proof of Article 27.4 in a substantive claim
on Article 3.1(a) of the SCM Agreement not because Article 27.4 is an S&D
provision, as the Enabling Clause may be, but rather because that provision
in itself establishes positive obligations that a defendant would have to comply
with. Finally, India notes that in Brazil-Aircraft, the S&D provision was
invoked by a developing country. In this dispute, it is invoked by a developed
country.
2. The Enabling Clause does not exclude the application
of Article I:1 but authorizes limited derogation
4.173 The Enabling Clause does not exclude the application of
Article I:1 of GATT 1994 in all circumstances. Any examination of the scope of
the exception under the Enabling Clause must be undertaken with particular care.
Panels should not lightly assume that a derogation from a developing
country's rights under Article I:1 is authorized under the Enabling Clause.
The Enabling Clause is after all meant to be for the benefit of developing
countries. As the Enabling Clause is an "exception", the phrase "notwithstanding
the provisions of Article I of the General Agreement" in the Enabling Clause
does not necessarily exclude the application of that article in all
circumstances.
4.174 In a case involving Article XXIV of GATT 1994, another
provision which may be characterized as an "exception", the Appellate Body had
the opportunity to examine the meaning of the phrase "the provisions of this
Agreement shall not prevent � the formation of a customs union" in Article
XXIV:5 of GATT 1994. The Appellate Body then proceeded to affirm that the phrase
"nothing shall prevent" means that nothing in the GATT shall make impossible the
formation of a customs union but only to the extent that the formation of the
customs union would be prevented if the introduction of the measure were
not allowed. But by virtue thereof, the application of Article I:1 is not
totally excluded, but, rather, only to the extent that the granting of tariff
preferences under the GSP would be prevented if the introduction of a measure
were not allowed.44
4.175 India maintains that respecting the MFN rights of
developing countries as between themselves does not make impossible the granting
of preferential tariff treatment to developing countries in the context of the
GSP; neither would the granting of preferential tariff treatment to developing
countries under the GSP be prevented if the granting of tariff preferences to
some developing countries but not to all developing countries were not allowed.
In the context of the GSP therefore, only the MFN rights of developed countries
need to be derogated from.
4.176 There is no wording in paragraph 2(a) reflecting the
agreement of developing country Members to forego their rights under Article I:1
of GATT 1994 in respect of benefits accorded to all other Members, including to
other developing countries in the context of the GSP. India contends that in
the context of preferential tariff treatment under paragraph 2(a),
the Enabling Clause does not exempt violations of MFN rights of developing
countries in respect of preferential tariff treatment accorded to other
developing countries. The European Communities and the United States have
misunderstood this limited contention to be a far broader contention - that
any derogation from the MFN rights of developing countries under Article I:1
cannot be authorized under the Enabling Clause. The European Communities, the
Andean Community and the United States advance a set of arguments which seek to
establish that this broader contention is erroneous. For instance, according to
them, if such a broad contention were to be accepted, it would prevent regional
arrangements between developing countries under paragraph 2(c), or prevent
special measures in favour of the least-developed countries under paragraph 2(d)
or run counter to the broad terms of paragraph 1 of the Enabling Clause.
However, these arguments are simply beside the point, as India has not advanced
any such broad contention. In India's view, a conjunctive reading of paragraphs
1 and 2(a) of the Enabling Clause would entail that the term "other contracting
parties" in the context of measures taken under paragraph 2(a), refers to
"other developed country Members". India notes that the content of the term
"other Members" in paragraph 1 of the Enabling Clause must be understood in
conjunction with the specific sub-clause of paragraph 2 involved. India does not
contend that the term "other Members" in paragraph 1 of the Enabling Clause
invariably refers to "other developed country Members".45 It has been emphasized
by Costa Rica and the Andean Community that the 1971 Waiver uses the term "other
contracting parties" as opposed to the term "other developed countries"
deliberately. The Minutes of the Council meeting which adopted the 1971 Waiver
uses the term "other contracting parties" as opposed to the term "other
developed countries" deliberately. The Minutes of the Council meeting that
adopted the 1971 Waiver46 indicate that the use of this terminology does not in
any way imply that differentiation between developing countries recognized as
beneficiaries is permitted; instead this terminology was endorsed for a variety
of reasons. For instance, India points out that "� since there was no precise
and acceptable list of developed countries it did not see any merit in the
proposal" and that "� several aspects as the schemes as agreed to within UNCTAD
were inter-connected and no effort should be made to re-open any aspect, for
example the question of beneficiaries".
4.177 India's limited contention derives from the starting
point that there must be unambiguous authority within the Enabling Clause to
exempt a violation of the MFN rights of a developing country. As the
opening phrase of paragraph 2 of the Enabling Clause makes clear, any measure
taken under the Enabling Clause must fall under one of the sub-clauses of
paragraph 2. Paragraph 2(d) and paragraph 2(c) do provide authority to adopt
measures otherwise in violation of the MFN rights of a developing country, but
this dispute does not deal with those types of measures. What is relevant in
this dispute is that paragraph 2(a), the only sub-clause which authorizes
preferential tariff treatment granted by a developed country to developing
countries in the context of the GSP. Thus, the European Communities must find
unambiguous authority for its violation of the Article I:1 rights of developing
countries in paragraph 2(a) of the Enabling Clause.
4.178 There is no language in paragraph 2(a) which expressly
authorizes developed countries to derogate from the unconditional MFN rights of
developing countries. The European Communities relies on the term
"non-discriminatory" in footnote 3 for justification to derogate from the
unconditional rights MFN rights of developing countries in respect of benefits
accorded to a limited group of developing countries. However, such reliance is
misplaced. As elaborated below, the term "non-discriminatory" does not authorize
differentiation in the treatment of developing countries; on the contrary, it is
used precisely to ensure that differentiation between developing countries is
prohibited.
3. "non-discriminatory"
(a) Introduction
4.179 The European Communities has failed to demonstrate that
under the Drug Arrangements it accords tariff treatment that is
"non-discriminatory" within the meaning of paragraph 2(a) of the Enabling
Clause. India and the European Communities differ in their respective
interpretations of the term "non-discriminatory". India has defined
"non-discriminatory" treatment in the context of paragraph 2(a) of the Enabling
Clause as referring to "treatment that does not make a distinction between
different categories of developing countries." ("neutral meaning of
'non-discriminatory'") The European Communities contends that "the term
'non-discriminatory' does not prevent Members from treating differently
developing countries which, according to objective criteria, have different
development needs" ("negative meaning of 'non-discriminatory'").
4.180 The appropriate meaning of "non-discriminatory" as used
in the Enabling Clause is its neutral meaning.
(b) GATT 1994 as context
4.181 First, within the context of the GATT, the term
"discrimination" is consistently used to describe the denial of equal
competitive opportunities to like products irrespective of the origin. The
Enabling Clause is an integral part of the GATT 1994. The definition of the term
"non-discrimination" in the GATT 1994 consistently refers to affording equal
competitive opportunities to like products originating in different countries.
It follows that, in the context of the Enabling Clause, non-discrimination means
equal treatment of like products, except if a specific provision of the Enabling
Clause provides otherwise.
(c) Paragraph 2(d) and 2(b) as context
4.182 Second, the express reference to special and
differential treatment for least-developed among the developing countries in
paragraph 2(d) of the Enabling Clause supports India's interpretation of the
term "non-discriminatory. The need to establish an explicit exception for the
least-developed countries confirms India's interpretation of the term
non-discriminatory. If developed countries could differentiate between
developing countries based on the European Communities' interpretation of
"non-discriminatory", then clearly developed countries could differentiate
between developing countries in favour of least-developed countries. Therefore,
the permission to favour least-developed countries among developing countries in
paragraph 2(d) would become redundant and meaningless. This cannot be reconciled
with the principle of effectiveness in treaty interpretation upheld in many
cases by the Appellate Body.
4.183 The European Communities contends that paragraph 2(d)
is not redundant because it covers "special treatment" for least-developed
countries, including measures not covered by paragraph 2(a) (non-tariff
measures). A similar argument is made by the countries of the Andean Community.
The European Communities' argument overlooks the language of paragraph 2(d)
which refers to "any general or specific measures" without distinguishing
between tariff and non-tariff measures. Paragraph 2(d) does not exclude tariff
measures from its scope, as the European Communities and the Andean Community
imply. On the contrary, had the intention of the drafters been to limit the
scope of paragraph 2(d) to non-tariff measures, it would not have been difficult
to import the language of paragraph 2(d) into 2(b), the only provision which
explicitly covers only that category of measures.
4.184 The European Communities arguments also overlook the
fact that unlike paragraph 2(a), there is no explicit non-discrimination
requirement in respect of non-tariff measures in paragraph 2(b). Under the
European Communities' reading of the Enabling Clause, nothing would prevent a
developed country from discriminating in favour of least-developed countries
based solely on paragraph 2(b). If this were the case, the question that arises
is why would it be necessary to explicitly provide for permission to
differentiate in favour of least-developed countries under paragraph 2(d)?
Therefore, the European Communities' reading of paragraph 2(d) renders this
provision ineffective.
(d) "the developing countries" in paragraph 2(a) as
context
4.185 Third, the use of the definite article "the" with
reference to "developing countries" indicates that the GSP must be beneficial to
all developing countries, and excludes the selective grant of tariff
preferences this also supports India's interpretation. The term "the" developing
countries appears in four instances in authentic versions of the Enabling
Clause. This indicates that the paragraph 2(a) of the Enabling Clause was meant
to ensure that benefits under the GSP are extended to all developing
countries, as opposed to some developing countries. Paragraph 2(a) of the
Enabling Clause does not envisage selectivity. Instead, it requires that
preferential tariff treatment is accorded to all developing countries. Further,
as indicated above, non-discriminatory treatment in the context of the GATT
involves conferring equality of competitive opportunities.
4.186 It would be meaningless to impose a requirement that
all developing countries must be included in preferential tariff
arrangements without a corresponding obligation of "non-discriminatory" tariff
treatment in order to ensure equal competitive opportunities for products
originating in all developing countries. Consequently, following the European
Communities' interpretation that "non-discriminatory" does not entail equal
competitive opportunities renders the requirement that "the" (all) developing
countries must benefit from preferential tariff treatment ineffective.
(e) UNCTAD instruments as context and drafting history
4.187 Fourth, the texts which established the generalized
system of preferences ("GSP") under the auspices of the UNCTAD support India's
interpretation of the term "non-discriminatory". The term "non-discriminatory"
in the Enabling Clause reflects the meaning of that term as understood in the
texts accepted at the UNCTAD. The meaning of the term "non-discriminatory" as
used in footnote 3 to the Enabling Clause is identical to its meaning in the
context of the Agreed Conclusions. Within the Agreed Conclusions, there is no
reference to the notion that the developed countries should be able to
distinguish between the countries that they have recognized to be developing
countries on the basis that they have different development needs. The term
"non-discriminatory" as understood in the context of the UNCTAD arrangements
does not envisage differentiation between developing countries on the basis that
they have differing development needs; instead, any differentiation between
developing countries was considered "discriminatory".
4.188 This meaning of "non-discriminatory" is also confirmed
by the drafting history of Resolution 21(II) of the Second UNCTAD and the Agreed
Conclusions. Indeed, the Agreed Conclusions do not even authorize developed
countries to provide tariff reductions limited to least-developed countries to
the exclusion of other developing countries. The Agreed Conclusions permit
developed countries to vary the tariff reductions granted on different products.
But in respect of the same product, developed countries could not vary the
tariff reduction granted, even to favour the least-developed countries.
4.189 Further, the Agreed Conclusions contemplated the
participation of all developing countries as beneficiaries of the GSP and
selective schemes were not envisaged. The Agreed Conclusions state that "there
is agreement with the objective that in principle all developing countries
should participate as beneficiaries from the outset." By permitting
differentiation between developing countries, the European Communities'
interpretation of "non-discriminatory", would render the requirement that "all
developing countries should participate as beneficiaries from the outset"
meaningless.
(f) Paragraph 3(c) as context
4.190 Moreover, the requirement to respond positively to the
needs of developing countries set out in paragraph 3(c) of the Enabling Clause
does not lend contextual support for the interpretation of the term
"non-discriminatory" advanced by the European Communities. The European
Communities argues that the term "non-discriminatory" in footnote 3 of the
Enabling Clause cannot mean treating all developing countries in the same way,
because developed countries would be effectively precluded from responding
positively to the individual needs of developing countries "thus rendering a
nullity the requirement set forth in paragraph 3(c)". The European Communities'
argument is based on a wrong premise, namely that the term "development,
financial and trade needs of [the] developing countries" refers to the
individual needs of those countries. In fact, however, the terms of
paragraph 3(c) do not refer to "individual" needs. The text of paragraph 3(c)
does not express this idea. Where the drafters of the Enabling Clause had the
needs of individual countries or groups of countries in mind, they referred to
those needs explicitly.
4.191 The European Communities is correct in that the
collective needs of developing countries can vary from time to time and
therefore paragraph 3(c) mandates that preferences should be modified if
necessary. However, it does not follow that they must be modified by
differentiating between developing countries. Instead, paragraph 3(c) refers to
modification of the product scope of GSP schemes and the depth of tariff cuts
provided under GSP schemes. India's interpretation of "non-discriminatory" does
not make paragraph 3(c) a nullity precisely because it operates to ensure that
the product scope and depth of tariff cuts in GSP schemes respond positively to
the collective needs of developing countries.
4.192 The European Communities' assertion that a scheme
designed to address exclusively drug problems responds to the development needs
of developing countries as defined in paragraph 3(c) can also not be reconciled
with the fact that, throughout the Enabling Clause, the needs of developing
countries are defined as the "development, financial and trade needs".
The conjunctive term "and" makes clear that, when evaluating the consistency of
a GSP scheme with paragraph 3(c) or the degree of non-reciprocity to be accorded
to a developing country under paragraphs 5 and 6, the development, financial and
the trade needs have to be assessed collectively.
4.193 Accepting the European Communities' construction of
paragraph 3(c) as referring to the "individual" needs of developing countries
could have perverse consequences. For instance, a WTO Member that decides to
reduce its tariffs on products from all developing countries to zero would find
its GSP scheme inconsistent with paragraph 3(c) of the Enabling Clause.
Paragraph 3(c) would mandate that the obligation of that Member to "modify if
necessary" its GSP scheme to respond to individual countries' needs
constitutes in this circumstance an obligation to reintroduce tariffs on
products from developing countries that have lesser needs. Thus, the European
Communities' interpretation of paragraph 3(c) implies that it would be illegal
for a developed country to adopt the most constructive response to the
developing countries' needs that can be conceived - the elimination of all
duties on products from all developing countries.
4.194 In according tariff preferences to the developing
countries, the European Communities' general GSP arrangement does not make
distinctions between developing countries as to their individual development,
financial and trade needs. Therefore, if the European Communities' reading of
paragraph 3(c) were deemed to be appropriate, its general GSP scheme which
applies equally to all developing country beneficiaries would not be responsive
to the individual needs of each and every beneficiary developing country. This
would lead to the conclusion that the main scheme of the European Communities
providing tariff preferences to the developing countries would be inconsistent
with paragraph 3(c) of the Enabling Clause.
(g) "Generalized" as context
4.195 The term "generalized" in footnote 3 also does not lend
contextual support for the interpretation of the term "non-discriminatory"
advanced by the European Communities. The European Communities argues, in its
replies to questions from the Panel, that the term "generalized" would be
redundant if India's interpretation of "non-discriminatory" were accepted. The
European Communities' argument fails to recognize that the term "generalized"
refers to the range of countries that would accord and receive preferences while
the term "non-discriminatory" refers to the degree of differentiation between
the countries selected as beneficiaries. Thus a GSP scheme could be
"generalized" in the sense that all developing countries are beneficiaries,
while at the same time violate the requirement that GSP schemes be
"non-discriminatory" because the beneficiary countries are treated differently.
It is apparent that India's interpretation does not render the term
"generalized" redundant.
4.196 Furthermore, the European Communities interprets
"generalized" as a requirement that "preferences should be "generalized" to all
the developing countries with similar development needs". The requirement to
treat countries with similar development needs alike and countries with
different development needs differently is the core of the European Communities'
negative definition of "non-discriminatory". Thus it is the European
Communities' interpretation of "non-discriminatory" which would make the term
"generalized" (as that term is understood by the European Communities)
redundant.
(h) Implications for the WTO multilateral system
4.197 India also contends that the European Communities'
interpretation of the term "non-discriminatory" should be rejected on two
further systemic grounds. First, the GATT could not fulfil the function
of providing the legal framework of market access negotiations between developed
and developing countries if the European Communities' interpretation of the term
"non-discriminatory" were accepted. One of the main functions of the GATT is to
provide a legal framework for the exchange of market access concessions which
may ensure the value of substantial reduction of tariffs and the elimination of
discriminatory treatment that undermines those reductions. Article I of the GATT
is the cornerstone of this framework because it ensures that Members can
exchange tariff concessions without having to fear that preferential treatment
subsequently accorded to third countries effectively eliminates the negotiated
competitive opportunities. Thus, in market access negotiations, there are two
important elements: (i) the level of bound tariffs; and (ii) the assurance that
tariffs applied within the bound levels are applied on an MFN basis.
4.198 The developing countries compete mainly with other
developing countries in the markets of the GSP donor countries. If the European
Communities' interpretation of the Enabling Clause were endorsed, the developing
countries would therefore never have any assurance that the tariffs they have
negotiated with developed countries will be applied on an MFN basis as between
developing countries. This would have radical implications on the ability of
developing countries to participate in multilateral tariff negotiations.
4.199 The second implication of European Communities'
interpretation of the term "non-discriminatory" is that the panels would be
drawn into distribution conflicts between developing countries without any
normative guidance from the WTO Membership if the European Communities'
interpretation of the term "non-discriminatory" were accepted. The European
Communities' notion of "non-discriminatory" as referring to prejudicial
or unjust discrimination is too vague to provide a basis for policing
differentiation in the context of GSP schemes. There is no further
multilaterally-accepted standard within the Enabling Clause for determining what
makes differentiation "unjust". Thus, adopting the European Communities'
definition will result in leaving the developed countries free to differentiate
as they see fit or involve panels in adjudicating distribution conflicts without
any guidance from the WTO membership, such as whether difficulties faced on
account of serious public health problems are more pressing than difficulties
faced on account of drug production and trafficking. This uncertainty will have
radical implications on the institutional balance between political and judicial
bodies of the WTO, and would engage the adjudicating bodies in a law-making
process which is the exclusive prerogative of the membership.
4. The application of the Drug Arrangements is not
"non-discriminatory"
4.200 As a subsidiary argument, India maintains that the
preferences accorded under the Drug Arrangements would be "discriminatory" even
if the European Communities' interpretation of the term "non-discriminatory"
were accepted. The European Communities accords preferential tariff treatment
based on drug-related problems and fails to accord preferential tariff treatment
based on more severe problems of developing countries. Even assuming that
"non-discrimination" has the negative meaning attributed to it by the European
Communities, the Drug Arrangements would not be "non-discriminatory".
4.201 The Drug Arrangements are not concerned with the
relative development needs as between developing countries. They are
exclusively concerned with a single category of development need - the need
arising from the production and trafficking of drugs. There is no basis for the
European Communities to conclude that the development needs faced by beneficiary
countries under the Drug Arrangements are "special" relative to the development
needs of other developing countries. The European Communities does not even make
such a contention in its submission; it merely contends that drug problems are
linked with development. At best, this can establish that countries particularly
affected by drug production or trafficking have one type of development need,
but crucially, it does not establish that they have a "special"
development need which entitles them to a greater "commensurate" share of
international trade than that granted to other developing countries.
4.202 Moreover, the Drug Arrangements do not contemplate any
objective criteria for determining beneficiary status. The European Communities
asserts that in order to determine the beneficiaries of the Drug Arrangements,
it applies objective criteria that potential developing country beneficiaries
must meet. As set out in the Regulation, the Drug Arrangements contain no
criteria or procedures for inclusion as a beneficiary. The European Communities'
claim that the measures at issue in these proceedings distinguish between
developing countries according to objective criteria reflecting their individual
development needs is therefore factually baseless. The European Communities has
also failed to demonstrate that selection of the beneficiaries was based on an
objective assessment of the drug-related needs of all developing countries.
4.203 The European Communities has provided no evidence that
the selection of the current beneficiaries was based on objective criteria.
Moreover, the European Communities has submitted no evidence whatsoever
demonstrating that the countries excluded from the scheme do not have similar
drug problems. In its submission, it describes the drug problems of the
beneficiaries in general terms, partly by using statistics that became available
after the beneficiaries had been selected. On the basis of the European
Communities' explanations, it is impossible to determine why for instance,
Pakistan was included while India and Paraguay were excluded. Neither has the
European Communities submitted any evidence that it had in fact conducted an
objective assessment of all countries' drug problems before establishing the
list of beneficiaries, despite requests from the Panel and India. All it has
submitted to the Panel is a lengthy ex post justification prepared on the
basis of UN documents and quantitative data that do not reveal a single
objective criterion or any benchmark for inclusion or exclusion equally applied
to all potential beneficiaries.
5. The Drug Arrangements are not justified under Article
XX
4.204 The Drug Arrangements are not justified by Article
XX(b) of GATT 1994 as the European Communities has not demonstrated that the
Drug Arrangements are necessary to protect human life or health
within the meaning of Article XX(b).
(a) The Drug Arrangements do not constitute a measure
under Article XX(b)
4.205 First, the Drug Arrangements "are not designed to
achieve" the protection of human life and health in the European Communities.
The European Communities only states that the measure at issue is designed to
protect the life and health in the European Communities, but it fails to
substantiate its assertion. Mere assertion does not amount to proof. In the case
at hand, it is difficult to see how: (i) the Drug Arrangements could be regarded
as having been designed to protect human life or health from the risks posed by
the consumption of illicit drugs in the European Communities; and (ii) how the
granting of tariff preferences equally to all developing countries would
exacerbate those risks. An examination of the design, structure and architecture
of the Drug Arrangements shows that there is no express relationship between the
objectives stated by the European Communities and the Drug Arrangements. There
is no stated objective in Council Regulation 2501/2001 relating to the
protection of the life or health of the European Communities' population nor in
the explanatory memorandum leading to this regulation.
(b) Drug Arrangements are not "necessary" within the
meaning of Article XX(b)
4.206 Second, the Drug Arrangements are not "necessary" to
protect human life or health of the European Communities' population. The
European Communities argues that it is necessary for the health of the European
Communities' population to impose the Drug Arrangements. In other words, if the
tariff preferences were removed, the health of European Communities' citizens
would worsen because a greater amount of illicit drugs would be produced and
trafficked into the European Communities and then consumed by European
Communities' citizens. The relationship between tariff preferences and the
health of the European Communities' population is remote, if at all there is
such a relationship. The necessary link that the European Communities draws
between preferential tariff treatment and the health of the European
Communities' population is based on several assumptions, the principal
assumption being that drug producers would ultimately switch to the production
of products covered by the preferential tariffs, and that drug traffickers would
ultimately switch to trading products covered by preferential tariffs. The
measure considered by the European Communities to be "necessary" ends up
becoming a measure rather "contingent" upon several external factors that do not
depend on the European Communities. These external factors, include,
profitability of alternative economic activities, determination and effective
action on the part of the beneficiary's government to implement crops
substitution policies, improvement of law enforcement actions in the territory
of the beneficiary, and render the policy sought (i.e. the protection of
life and health of the European Communities' population) uncertain. Conversely,
in making the link between preferential tariff treatment and the health of the
European Communities' population, it assumes, just as implausibly, that if the
tariff preferences under the Drug Arrangements were to be accorded to all
developing countries, producers and traders of legitimate products covered by
the Drug Arrangements would switch to production and trafficking of illicit
drugs. This assumption disregards the reality that drug production and
trafficking are organized crimes, controlled by criminal syndicates motivated by
profit alone, and that the preferential market access provided by the European
Communities is not the reason why law-abiding citizens keep out of the drug
trade.
4.207 In this regard, India notes that the Drug Arrangements
are not limited to crops which could act as substitutes for the cultivation of
narcotics; neither has the European Communities put forward evidence
establishing that the Drug Arrangements cover agricultural crops which could
substitute for narcotic crops. Furthermore, the Drug Arrangements are linked to
the drug situation in a given country, not to the drug-related policies followed
by a particular country. This may have the paradoxical effect of reducing market
access opportunities to the European Communities if the drug problem in a given
beneficiary country improves.
4.208 The European Communities also contends that the Drug
Arrangements are necessary to protect the health of the its population by
increasing the overall level of development which, in turn increases the
capacity of drug affected countries to enforce an effective system of drug
control. This link between preferential tariff treatment and improved capacity
to enforce is again remote. There is no proximate and clear relationship between
preferential tariff treatment and the capacity to enforce. Along the extended
chain of causality posited by the European Communities, there are many
alternative less trade restrictive measures that could be taken by the European
Communities to achieve its objective. For instance, direct technical and
financial assistance for the drug control efforts of affected countries or
development aid and initiatives that do not involve the restriction of trade
from other WTO Members.
4.209 The European Communities has failed to establish that
the Drug Arrangements are the "least trade restrictive measure" available to
pursue its health objective. Preferential tariff treatment necessarily reduces
the competitive opportunities for products from excluded countries. As a matter
of economic theory this is undeniable. The Drug Arrangements restrict both the
present and future trade of excluded Members. If this were not the case, then
the European Communities could have included India and other developing
countries in the Drug Arrangements without any converse impact on the trade of
the beneficiary countries. India has also provided evidence of trade losses
suffered by Indian enterprises on account of the Drug Arrangements. To
illustrate, the inclusion of Pakistan in the Drug Arrangements has already
resulted in adverse effects on Indian imports into the European Community in
respect of various categories of textiles and clothing products including
category 4 (shirts, T-shirts etc.), category 8 (men's or boy's shirts) and
category 20 (bed linen). Imports into the European Communities of products from
India under these categories declined during 2002 as compared to 2001 while
those from Pakistan showed a significant increase during the corresponding
period. Letters from importers in the European Communities cancelling orders
from India on account of these tariff preferences are a concrete manifestation
of the trade restrictive nature of the Drug Arrangements.47
4.210 India also argues that the GATT could not fulfil its
function of providing the legal framework for multilateral trade negotiations if
Article XX(b) could justify preferential trading arrangements. According to the
European Communities' interpretation of Article XX(b) of GATT 1994, WTO Members
may accord preferential tariff treatment to selected WTO Members if this makes a
"necessary contribution" to the resolution of a health problem. The European
Communities argues that the margins of preference enjoyed by the beneficiary
countries under the Drug Arrangements are "necessary" within the meaning of
Article XX(b) because they make such a contribution. The logical implication of
the European Communities' argument therefore is that the European Communities
would not be under an obligation to implement the market access concessions
negotiated in the Doha Work Programme if the beneficiary countries' drug
problems were to continue beyond the conclusion of that Round.
(c) Drug Arrangements do not meet the requirements of the
chapeau of Article XX
4.211 Moreover, the European Communities has not demonstrated
that the Drug Arrangements are not applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination within the meaning of the
chapeau of Article XX(b). The invocation of Article XX(b) by the European
Communities is essentially to justify the violation of Article I:1 of GATT 1994
and not of the Enabling Clause. Thus the distinction between developing
countries which are especially affected by the production or trafficking of
drugs and other Members, including developing countries; which are less affected
by that problem does arise from the "application" of the measure in
dispute. Article I:1 applies equally to all Members. It is incumbent on the
European Communities to show that the preferential tariff preferences granted
under the Drug Arrangements only to 12 developing countries do not constitute a
means of arbitrary or unjustifiable discrimination or a disguised restriction on
international trade within the meaning of the chapeau of Article XX(b). So far,
the European Communities has not demonstrated it.
-
second written submission of the european communities
1. Relationship between GATT Article I:1 and the Enabling
Clause
(a) Special and differential treatment
4.212 India does not contest that the Enabling Clause is one
of the main forms of "special and differential treatment" for developing
countries, which in turn is the main instrument to achieve one of the
fundamental objectives of the WTO Agreement. Yet, India has nowhere addressed
the European Communities' argument that, in view of that, "special and
differential treatment" provisions cannot be considered as "affirmative
defences", as illustrated by the ruling of the Appellate Body in Brazil -
Aircraft.
(b) Drafting history of the 1971 Decision
4.213 India's account of the drafting history of the 1971
Decision does not support its contention that the Enabling Clause is merely the
"renewal" of the 1971 Decision. The note of the GATT Secretariat cited by India
presented the adoption of a waiver under Article XXV:5 and of a declaration "in
order to promote the objectives set out in Article XXXVI." as distinct options
with different consequences. A passage of that note explained that "The adoption
of a declaration outside the session of the CONTRACTING PARTIES would be a
positive and constructive step for the benefit of developing countries, whereas
a full waiver would have a rather negative effect".
4.214 Despite this advice, the waiver option was preferred
over the declaration option. In 1979, however, the developed countries accepted
a formula similar to the declaration option rejected in 1971 as part of the new
balance of rights and obligations agreed in the Tokyo Round.
(c) "Positive rights"/"exceptions"
4.215 India argues that the Enabling Clause is not a
"positive right", but instead an "exception", by referring to a definition of
"positive right" included in the Black's Law Dictionary. However, this
definition does not oppose the term "positive right" to the term "exception".
Rather, the Black's Law Dictionary draws a distinction between "positive rights"
and "negative rights", which it defines as "A right entitling a person to have
another refrain from doing an act that might harm the person entitled".
4.216 A "negative right" is still a right and not an
"exception". Thus, for example, according to Black's Law Dictionary, property
rights would have to be classified as "negative" rather than "positive". Yet, it
would be absurd to characterize those rights as "exceptions".
4.217 The Enabling Clause recognizes a "negative right" to
grant preferences to developing countries and, at the same time, confers a
"positive right" to the developing countries to compel the donor countries to
grant such preferences in accordance with certain requirements, including the
requirement that the preferences must be "non-discriminatory".
4.218 It is true that the developing countries do not have a
"positive right" to compel the developed countries to apply a GSP. But from this
it does not follow that the Enabling Clause is an "exception". By the same
token, Article I:1 of GATT 1994 does not confer a positive right to compel other
Members to lower their tariffs. The only obligation under Article I:1 is that
whatever level of duties is chosen by the Member concerned, it should be applied
to all other Members on an MFN basis. Similarly, while developed countries are
free to decide whether or not to apply a GSP, if they chose to do so they must
apply it on a "non-discriminatory" basis.
(d) "Autonomous right"/"affirmative defence"
4.219 India contends that whether or not a treaty provision
is an "affirmative defence" depends on whether it is asserted in each particular
case by the complaining party or by the defendant and that a provision
conferring an "autonomous right" can be also an "affirmative defence" if it is
invoked by the defending party. This position is manifestly wrong. A WTO
provision is or is not an "affirmative defence". It cannot be both
at the same time, depending on which party invokes it. Certain provisions are in
the nature of "affirmative defences" and can be raised only by the defending
party in response to a claim of violation of another provision. For example, a
complaining party may not bring a claim based on Article XX of GATT 1994. That
provision is always an "affirmative defence" with respect to the alleged
violation of another provision.
4.220 If India's thesis were correct, the Appellate Body
should have decided in Brazil - Aircraft that Article 27.4 of the SCM
Agreement was an "affirmative defence", since it had been invoked by Brazil and
not by Canada. Likewise, in EC - Hormones, the Appellate Body should have
decided that Article 3.3 of the Agreement on Sanitary and Phytosanitary Measures
("SPS Agreement") was an "affirmative defence", since it was the European
Communities that relied on that provision.
2. The Enabling Clause
(a) Paragraph 1
(i) "Other Members"
4.221 The European Communities has thoroughly refuted India's
reading of the term "other Members" as meaning "developed Member". India's
response is that the term "other Members" has different meanings depending on
whether paragraph 1 is read together with paragraphs 2(a), 2(b) or 2(c). The
European Communities would agree that the same words may have different meaning
in the context of different treaty provisions. However, India's position that
one and the same provision (Paragraph 1) has simultaneously three different and
conflicting meanings is contrary to basic principles of legal interpretation and
indeed of elementary logic.
4.222 India also argues that, since the Enabling Clause was
adopted "for the benefit of developing countries", it cannot be interpreted as
restricting the MFN rights of some developing countries vis-�-vis other
developing countries. Yet it is beyond dispute that both paragraphs 2(c) and
2(d) do precisely that. They limit the MFN rights of some developing countries
in order to provide additional benefits to other developing countries. India's
contention that paragraphs 2(c) and 2(d) are "exceptions" has no textual basis.
Paragraph 1 "applies" equally to all the subparagraphs included in paragraph 2.
There is no reason to assume that, when read together with paragraph 2(a),
paragraph 1 does not allow differentiation between developing countries.
Furthermore, as explained by the European Communities, such differentiation is
consistent with the object and purpose of the Enabling Clause.
4.223 In response to a question from the Panel, India has
been forced to admit that its reading of the term "other Members" in paragraph 1
would render redundant the requirement in footnote 3 that the preferences must
be "non-discriminatory". India argues that this requirement is mentioned as part
of a "compound phrase". However, India's interpretation of the term "other
Members" would also render redundant the term "generalized". Furthermore,
India's position that paragraph 1 does not exempt the donor countries from the
obligation under Article I:1 of GATT 1994 to grant the preferences
"unconditionally", would render superfluous also the requirement that the
preferences must be "non-reciprocal". Thus, ultimately, India's interpretation
of paragraph 1 would render completely redundant the whole of footnote 3.
(ii) "Unconditionally"
4.224 In its first written submission, India seemed to argue
that paragraph 1 does not "exempt" developed countries from the
"unconditionally" requirement in Article I:1 of GATT 1994, with the consequence
that any preferences granted under a GSP remain subject to that requirement. The
European Communities, and some third parties, have refuted that thesis. India
has submitted no further arguments.
4.225 In its first written submission, the European
Communities also argued that, in any event, the Drug Arrangements were not
"conditional", because the beneficiaries are not required to provide any
compensation to the European Communities. In response to a Panel's question on
the meaning of "unconditionally", India refers once again to the panel report in
Canada - Autos, without addressing any of the arguments submitted by the
European Communities, including with respect to that report.
(b) "Non-discriminatory" in paragraph 2(a)
(i) The ordinary meaning
4.226 India does not contest the analysis of the ordinary
meaning of the term "discrimination" made by the European Communities in its
first written submission. Nevertheless, India argues that such meaning is not
relevant for the interpretation of the term "non-discriminatory" in paragraph
2(a) in view of the specific context of the Enabling Clause, the "basic purpose
of the WTO legal system", certain UNCTAD texts, and a passage of the Appellate
Body report in EC -- Bananas III.
(ii) The context
4.227 In response to the questions from the Panel, India has
identified several contextual elements as relevant for the interpretation of the
term "non-discriminatory". However, first, India's arguments with respect to
paragraph 1 have already been addressed in the preceding section of this
submission. Second, from the fact that paragraph 2(a) refers to "products"
rather than to "services", or "persons" as the object of preferential treatment,
it does not follow logically that the same treatment must be granted to all
"like products" originating in all developing countries. In any event, India's
assumption that other GATT provisions where the term "like product" is used
impose an obligation not to "discriminate" between like products, rather than
between countries, is incorrect. Third, the European Communities has addressed
India's reading of the phrase "beneficial to the developing countries" in
its first written submission. Here, the European Communities will limit itself
to observe that India's argument has the a contrario implication that the
absence of the article the before "developing countries" in paragraph 1
and paragraph 2(a) means that, as argued by the European Communities, those
provisions do not require granting preferences to all developing
countries. Thus, this argument undermines rather than supports India's position.
The same is true of India's argument based on the presence of the articles
los and des in the Spanish and French versions, respectively, of the
title of the Enabling Clause. Fourth, the European Communities has responded to
India's argument based on Article 2(d) in its first written submission. The
European Communities' rebuttal remains unanswered. Finally, the Enabling Clause
excludes expressly the application of the requirements of Article I:1 of GATT
1994 ("notwithstanding Article I:1"). Accordingly, it would be entirely
inappropriate to introduce those requirements into the Enabling Clause by way of
a purportedly "contextual" interpretation.
4.228 India also refers to certain passages included in some
UNCTAD texts. However, as discussed below, those texts are neither part of the
Enabling Clause nor context for the interpretation of the Enabling Clause. They
may become relevant only as supplementary means of interpretation.
(iii) The object and purpose
4.229 India argues that the term "non-discriminatory" should
be interpreted in the light of the "basic purpose" of the WTO legal system,
which according to India is "to protect conditions of competition". The European
Communities disagrees. The "protection of conditions of competition" is indeed
one of the basic objectives of the WTO Agreement, but it is not the only one.
The Enabling Clause, like all the other provisions granting "special and
differential treatment" does not seek to provide equal competitive opportunities
for like products. To the contrary, "special and differential treatment"
provisions seek to create unequal conditions of competition in order to respond
to the special needs of developing countries.
4.230 "Special and differential treatment" is the main
instrument to achieve one of the fundamental objectives of the WTO Agreement,
which is expressed in:
(a) the second recital of the Preamble to the WTO Agreement;
(b) Article XXXVI of the GATT, including in particular
paragraph 3;
(c) the first recital of the 1971 Waiver, to which
footnote 3 of the Enabling Clause refers.
4.231 When the term "non-discriminatory" is interpreted in
the light of the above object and purpose of the WTO Agreement, differentiating
between developing countries according to their development needs is no more
"discriminatory" than differentiating between developed and developing
countries.
4.232 India has nowhere addressed the European Communities'
arguments regarding the object and purpose of the Enabling Clause. Instead, it
persists in the error of interpreting the term "non-discriminatory" as if the
"protection of competitive opportunities" were the sole objective of the WTO
Agreement.
(iv) Drafting history
4.233 India appears to imply that, through the reference made
in footnote 3 of the Enabling Clause to the 1971 Decision, the UNCTAD texts
which it cites have become part of the Enabling Clause. The European Communities
takes issue with that interpretation. By its own terms, the reference made in
footnote 3 covers only the "description" of the Generalized System of
Preferences which is contained in the 1971 Decision itself (more precisely, in
the third and fourth recitals). It does not extend to the UNCTAD arrangements
alluded to in those recitals.
4.234 The two UNCTAD resolutions cited by India (General
Principle Eight of Recommendation A:I:1 adopted by UNCTAD at its first session
and Conference Resolution 21(II) adopted by UNCTAD at its second session) are
not legally binding instruments. They are drafted in purely hortatory language
and, in accordance with their own terms, make only "recommendations". It would
be illogical and unacceptable to read footnote 3 as conferring upon them legally
binding effects within the WTO which they do not have within UNCTAD.
4.235 The Agreed Conclusions do not even reach the status of
a formal UNCTAD resolution or decision. Contrary to India's assertion, they were
not "adopted" by the Trade and Development Board of UNCTAD. Rather, that body
"took note" of the conclusions reached within the Special Committee on
Preferences, an ad hoc body established by UNCTAD in order to allow
consultations among all the countries concerned. Like the UNCTAD resolutions,
the Agreed Conclusions use hortatory language and do not purport to be legally
binding. They take note of the statements made by the prospective donor
countries and record the agreement (and sometimes the lack of agreement) of all
the participants in the consultations with respect to certain objectives.
4.236 For the above reasons, the European Communities submits
that General Principle Eight, Conference Resolution 21(II) and the Agreed
Conclusions are not part of the Enabling Clause. Instead, they may be considered
as part of the "preparatory work" of the 1971 Decision and as such a
"supplementary means of interpretation", to which the Panel may resort in the
circumstances specified in Article 32 of the Vienna Convention.
4.237 In any event, there is nothing in General Principle
Eight, Conference Resolution 21(II) and the Agreed Conclusions which supports
India's interpretation of the term "non-discriminatory". In the European
Communities' view:
(a) The phrase "new preferential concessions � should
be made to developing countries as a whole" included in General
Principle Eight means that no developing country should be excluded a
priori from the GSP and not that the same preferences should be
granted to all Members.
(b) The phrase "in favour of the developing
countries" included in paragraph 1 of Resolution 21(II) is equivalent to
the phrase "beneficial to the developing countries" included in the
fourth recital of that Resolution and reproduced in the 1971 Decision.
The European Communities has already commented upon the meaning of that
phrase;
(c) The passage of the Agreed Conclusions reproduced
by India does not address the meaning of the term "non-discriminatory",
but rather the different issue of whether the donor countries can deny
a priori the condition of beneficiary to a country on the grounds
that it is not a "developing country". As noted by India, the conclusion
of the Special Committee was that "there is agreement with the
objective that in principle all developing countries
should participate as beneficiaries from the outset".
(d) Likewise, the passage of document TD/56 cited by
India is concerned with the issue of what countries qualify as a
"developing country", rather than with the interpretation of the term
"non-discriminatory". In any event, TD/56 is not part of the Agreed
Conclusions.
4.238 India also cites a document of the UNCTAD Secretariat
of 1979 entitled "Review and evaluation of the generalized system of
preferences". This document, which does not reflect the views of the donor
countries, is a technical document with no legal status. Clearly, it is not
"context" within the meaning of Article 31 of the Vienna Convention. Nor is it
part of the "preparatory work" of the 1971 Decision within the meaning of
Article 32 of the Vienna Convention. Thus, it is of little, if any, relevance
for the interpretation of the Enabling Clause.
(v) The Appellate Body report in EC - Bananas III
4.239 In support of its contention that "non-discrimination"
means always equality of competitive opportunities for like products, India
cites a passage of the Appellate Body report in EC - Bananas III. That
passage, however, addresses an entirely different legal issue and does not
constitute a relevant precedent for this dispute.
4.240 The question before the Appellate Body in EC -
Bananas III was not the meaning of the "non-discrimination" obligations at
issue, which was not in dispute between the parties, but rather whether such
"non-discrimination" obligations applied only within each of the tariff regimes
established by the European Communities. As noted by the Appellate Body, the
essence of the specific "non-discrimination obligations" at issue in EC -
Bananas III is that like products should be treated equally, irrespective of
their origin. Whether or not other non-discrimination obligations have the same
meaning was not a relevant issue in order to decide the matter before the
Appellate Body. Therefore, it cannot be assumed that the Appellate Body also
considered those other obligations. In particular, there is no indication that
the Appellate Body had in mind the "non-discrimination" requirement in footnote
3 of the Enabling Clause, which was never at issue in EC - Bananas III.
(c) "Non-reciprocal" in paragraph 2(a)
4.241 India has confirmed that it does not claim that the
Drug Arrangements are non-reciprocal. The European Communities disagrees with
India's interpretation of the term "non-reciprocal" but does not consider it
necessary to pursue this issue.
(d) "Beneficial" in paragraph 2(a)
4.242 India has submitted no new arguments in connection with
this claim.
(e) Paragraph 3(c)
4.243 In its oral statement, India argued that the "needs"
referred in paragraph 3(c) are those of all the developing countries "in
general". The European Communities has provided a comprehensive rebuttal to
India's arguments as part of its response to the Panel's questions. In its own
response to the Panel's questions, India introduces the new argument that in the
French and Spanish versions, the equivalent of the words "developing countries"
is preceded by the article des and los, respectively. India
contends that the presence of that article means that, in the French and Spanish
versions, the relevant needs are "the needs of all developing countries". Quite
remarkably, India reaches this conclusion by consulting a dictionary definition
of the English term the, thus assuming that the uses of that article in
English are identical to those of the French article des and the Spanish
article los.
4.244 In any event, if India is correct about the
implications of the presence of the articles des and los in the
French and Spanish versions, respectively, it would follow a contrario
that the absence of the article the in the equally authentic English
version means that, as argued by the European Communities, developed countries
must respond to the individual needs of developing countries. It is difficult,
therefore, to see how this argument advances India's position.
4.245 The European Communities had pointed out that India's
interpretation of paragraph 3(c) would have the absurd result that developed
countries could grant preferences only with respect to products which are of
common interest to all developing countries. India admits now that the developed
countries may also respond to the individual needs of one or more developing
countries by granting concessions with respect to products which are of
particular export interest to those countries. However, according to India, this
response is only permissible provided that those preferences apply equally to
all like products originating in all developing countries. This qualification,
however, has no basis in the text of paragraph 3(c). Rather, it is premised on
India's mistaken interpretation of footnote 3.
4.246 Moreover, as emphasized elsewhere by India, paragraph
3(c) is not a permissive provision. It does not say that developed countries
may respond to the needs of developing countries, but rather that they
shall respond to such needs. If paragraph 3(c) covers the individual
"development, financial and trade needs" of developing countries, and not only
their "common" needs, as India appears to concede now, then all such individual
needs must be taken into account and not only those which consist of a trade
interest in exporting a certain item which is not of interest to other
developing countries.
3. Article XX of GATT 1994
(a) Drugs pose a risk to human life or health
4.247 India does not contest that narcotic drugs pose a
serious risk to human life and health in the European Communities.
(b) The Drug Arrangements are necessary to fight drug
production and trafficking
(i) The values pursued by the Drug Arrangements
4.248 India does not contest that, since the preservation of
human life and health is "both vital and important in the highest degree", the
term "necessary" must be interpreted by the Panel according to its broadest
possible meaning.
(ii) Contribution of the Drug Arrangements to the
protection of human life and health
Tariff preferences are an appropriate response to the
drug problem
4.249 India argues that drug production and trafficking are
criminal activities and that, for that reason, it cannot be assumed that tariff
preferences will contribute to the objective of replacing those activities with
licit alternative economic activities. India thus appears to suggest that the
only appropriate and necessary response to the drug problem is the enforcement
of criminal laws.
4.250 This contention, which is not supported by any evidence
or authority, disregards the most basic principles of the anti-drug policy
agreed within the United Nations over the last 30 years. As explained at length
in the European Communities' first written submission, the United Nations have
resolved on many occasions that the fight against drugs requires a
"comprehensive and balanced approach" which includes initiatives to reduce both
illicit demand and illicit supply. The United Nations also have resolved that,
in order to reduce the illicit supply of drugs, the countries concerned must
adopt comprehensive measures, including not only crop eradication and law
enforcement, but also the development of alternative economic activities. The
United Nations have further recommended that, in order to support those
alternative activities, other countries should provide not only financial
assistance, but also greater market access. Only a few weeks ago, the ministers
participating in the 46th session of the Commission on Narcotic Drugs held in
Vienna renewed this recommendation.
4.251 As explained in the European Communities' first written
submission, the WTO Agreement recognizes in the preamble to the Agreement on
Agriculture that the countries affected by the drug problem have particular
needs and that providing greater market access is an appropriate response to
such needs. The same recognition was cited as a justification for the waiver
adopted with respect to the APTA preferences.
The Drug Arrangements apply to all developing countries
affected by the drug problem which do not benefit from more favourable
tariff treatment under other arrangements
4.252 India alleges that the Drug Arrangements are not
"necessary" because they do not include all developing countries affected by the
drug problem. Specifically, India argues that Myanmar and Thailand "are excluded
even though they have serious drug problems".
4.253 For reasons already explained, the European Communities
considers that Thailand does not qualify as a country seriously affected by drug
production or trafficking.
4.254 Myanmar is a least-developed country and, as such, is
covered by the special GSP arrangements for LDCs, which provide greater
preferences than the Drug Arrangements. In view of that, the inclusion of the
LDCs affected by the drug problem in the Drug Arrangements is unnecessary in
order to protect the life and health of the European Communities' population.
4.255 In any event, the European Communities considers that
the exclusion of other developing countries allegedly affected by the drug
problem from the Drug Arrangements is not part of the "design and structure" of
the Drug Arrangements, but rather of its "application" and, therefore, should be
examined under the chapeau of Article XX. The European Communities would
note that India appeared to share that view in its first written submission.
The inclusion of developed countries in the Drug
Arrangements would be unnecessary
4.256 The Drug Arrangements reflect the recognition that, as
noted by the United Nations, "the problem of the illicit production of and
trafficking in narcotic drugs � is often related to development problems".
4.257 In the developed countries, drug production and
trafficking have different causes and require different responses. Moreover,
developed countries have the necessary resources to fight drug production and
trafficking on their own and do not require assistance from other developed
countries in the form of trade preferences. For those reasons, granting trade
preferences to the developed countries is not "necessary" to protect the life
and health of the European Communities' population.
4.258 Moreover, the European Communities is not aware of any
developed country which is as affected by the drug problem as the developing
countries included in the Drug Arrangements. India has identified no such
developed country.
The countries not included in the Drug Arrangements do
not pose a threat to the sanitary situation within the European Communities
4.259 As explained, the criteria used in order to select the
beneficiaries of the Drug Arrangements ensure that the excluded developing
countries are not a significant source of supply of drugs to the European
Communities and, therefore, do not pose a serious threat to the life or health
of the European Communities' population.
4.260 India argues that that there may be transit countries
covered by the Drug Arrangements where "the trafficked drugs do not flow to the
EC". This argument is purely theoretical and does not take into account the
actual geographical patterns of drug production and trafficking. The European
Communities, together with the United States, are, by far, the largest markets
for drugs. The production of opium and coca products is concentrated in a few
countries, all of which supply the European Communities' market. The main
transit countries surround those producing countries and are located on the
trafficking routes to the European Communities.
It is unnecessary to require that the beneficiaries
implement certain anti-drug policies
4.261 In order to ensure that the Drug Arrangements are
effective in achieving the objective of protecting the life and health of the
European Communities' population it is not necessary to require that
beneficiaries apply certain anti-drug policies. The beneficiaries are already
subject to a legally binding obligation to take all appropriate measures to
fight against drug production and trafficking under the relevant UN conventions.
Furthermore, it is in the beneficiaries' own interest to combat drug production
and trafficking of drugs.
(iii) There are no less restrictive alternatives
4.262 India alleges that, instead of granting trade
preferences, the European Communities should provide financial assistance or
conclude arrangements for administrative cooperation. Again, India cites no
evidence or authority in support of this contention.
4.263 The European Communities considers that, in accordance
with the "balanced and comprehensive" approach recommended by the United
Nations, the measures suggested by India are complementary rather than
alternative to the Drug Arrangements.
4.264 More specifically, the European Communities considers
that financial assistance cannot ensure the sustainability of alternative
development activities For that, it is indispensable to provide greater market
access to the products of such activities. The UN recommendations cited above,
as well as the Preamble to the Agreement on Agriculture and the
justification for the APTA waiver support that approach.
4.265 The European Communities considers that, for the above
reasons, there is no alternative to providing greater access to the European
Communities' market. The only issue before the Panel is whether such access can
be provided in a less trade restrictive manner.
4.266 The European Communities is not aware of any
alternatives which would be equally effective and less trade restrictive in
order to provide effective market access to the products from the beneficiaries.
In its first submission, India suggested that the European Communities should
grant the same tariff preferences to all developing countries. However, this
would be much less effective because those countries which are not handicapped
by the drug problem would capture most of the additional market opportunities
created by the tariff preferences.
(c) The Drug Arrangements are applied consistently with
the chapeau
4.267 India argued in its first written submission that the
Drug Arrangements are not applied consistently with the chapeau. The European
Communities has addressed those arguments in its first written submission. India
has not presented any new arguments in its Oral Statement or in its replies to
the Panel's questions.
41 Appellate Body Report, EC - Bananas III, paras.
190-191.
42 India fully reserves its position on the legal status and
factual characterization of these special arrangements.
43 Panel Report, US - Customs User Fee, at 289-290; Panel
Report, US - MFN Footwear, at 153.
44 Appellate Body Report, Turkey - Textiles, DSR 1999:VI,
2345 at p. 2354.
45 Second written submission of India, para. 70 and footnote 42.
46 C/M/69.
47 Reply of India to question No. 13 from the Panel to India.