(Continued)
VI.
INTERIM REVIEW
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INTRODUCTION
6.1 The Panel issued the Draft Descriptive Part of its Report
to the parties on 8 August 2003, in accordance with Article 15.1 of the DSU.
Both parties offered written comments on the Draft Descriptive Part on 15 August
2003. The Panel noted all these comments and amended the draft descriptive
sections where appropriate. The Panel issued its Interim Report to the parties
on 5 September 2003, in accordance with Article 15.2 of the DSU. On 23 September
2003, both India and the European Communities requested that the Panel review
certain precise aspects of the Interim Report. While the European Communities'
request concerns certain paragraphs of the Findings section of the Report,
India's request relates solely to certain paragraphs in the dissenting opinion
section of the Report. Neither of the parties requested an interim review
meeting. On 30 September, India and the European Communities provided written
comments on each others' requests, as permitted by the Panel's working
procedures. The Panel has carefully reviewed the arguments made by both parties
and addresses them in this section in accordance with Article 15.3 of the DSU.219
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Comments by the European Communities
1. Joint Representation of India and Paraguay
6.2 The European Communities requested the Panel to change
its wording in paragraphs 7.14 and 7.17 of the Interim Report so that instead of
stating the European Communities "acknowledged" that the issue of
confidentiality does not arise in this dispute due to the enhanced third party
rights granted to all third parties, the Panel would describe the European
Communities' position as being that the problem was "mitigated", but not
entirely eliminated. The European Communities cited its letter of 4 June 2003 to
the Panel on this issue in support of its request:
"As noted in the EC's statement at the first meeting, the
fact that third parties have been granted enhanced rights mitigates the
problem, but does not dispose of it entirely. The enhanced rights accorded
to third parties do not include the access to all procedural documents made
available to the main parties. In particular, third parties have not been
granted access to the Interim Report. Yet Paraguay's counsel will have
access to the Interim Report, while the other third parties will not. Thus,
by sharing its legal counsel with India, Paraguay will gain an advantage
over all the other third parties. Given the considerable economic impact of
this dispute for the third parties (one of the reasons invoked by the Panel
to accord enhanced rights), this advantage seems particularly unfair."
The European Communities also requested the Panel to complete
its findings by addressing the issue of whether the situation is compatible with
the parties' obligation to maintain the confidentiality of the Interim Report
and whether it is compatible with the principle that third parties should be
treated equally.
6.3 India commented on this request that the fact that
Paraguay and India share the same legal counsel does not mean that Paraguay is
automatically given access to all the documents sent by the Panel to India.
India argued that, in fact, the ACWL had not given the Interim Report to
Paraguay and it would not do so. In India's view, it was completely unwarranted
to accuse India of a violation of the confidentiality rules of the DSU merely
because it used the same legal counsel as a third party. According to India, the
ACWL had adopted rigorous regulations that obliged its staff to respect "the
privileged and confidential nature with a Member in a specific case" and to
"exercise the utmost discretion in regard to all matters of official business".
India therefore indicated that it had the assurance that its confidentiality
obligations under the DSU would be respected by the staff of the ACWL. India
maintained that the Panel should reject the EC's claim that India violated its
confidentiality obligations merely by engaging the same legal counsel as
Paraguay.
6.4 India also maintained that the Panel should reject the
EC's claim that Paraguay had an "unfair" litigation advantage over the other
third parties simply because its legal counsel had access to the Interim Report
while the legal advisor of the other third parties did not. India argued that
there is no provision in WTO law on which the Panel could base a ruling that
considerations of "fairness" of the kind invoked by the European Communities
restricted India's right to choose its legal advisers. Also, India contended
that it failed to see what litigation advantage Paraguay could possibly derive
from the fact that its legal counsel had access to the Interim Report since
neither Paraguay nor any other third parties were entitled to present comments
on the Interim Report.
6.5 The Panel has considered both parties arguments on this
issue and clarified its understanding of the European Communities' position on
this issue as requested. Accordingly, it makes necessary adjustments to its
analysis in paragraphs 7.14-7.17 as well as inserting a footnote to the same
point in paragraph 7.18.
6.6 The European Communities also requested the Panel to
change its wording in paragraph 7.12 which might lead to the understanding that
the European Communities had not acted in good faith. The Panel accepted the
proposal and adjusted the language in that paragraph accordingly.
2. Paragraph 3(c)
6.7 The European Communities requested the Panel to replace
paragraphs 7.71-7.73 of the Interim Report with the following text, as a summary
of the EC's arguments on this issue:
"The European Communities argues that Paragraph 3(c)
supports contextually its interpretation of the term 'non-discriminatory' in
footnote 3. If donor countries could not differentiate among developing
countries, they could not achieve the objective set out in that provision.
India's view that Paragraph 3(c) only permits to take into account the needs
of all the developing countries 'in general', and not their 'individual'
interests, is not supported by the text220 and would render Paragraph 3(c)
irrelevant.221 The omission of the terms 'individual' or 'particular' is not
dispositive.222 The Enabling Clause is not consistent when using those terms.223
India overlooks that Paragraph 3(c) applies also with respect to the
preferences for LDCs envisaged under Paragraph 2(d).224 It is obvious that such
preferences must respond to the specific needs of the LDCs, and not to those
of all developing countries. Moreover, India's interpretation would have the
result that any GSP would have to be administered on a 'lowest common
denominator basis'.225
The European Communities notes that Paragraph 3(c) is so
broadly drafted that it might be arguable that it is a purposive provision.226
To the extent that it imposes a binding obligation, it should be interpreted
in a manner which is both workable and consistent with the requirements that
the preferences be 'generalised' and 'non-discriminatory'.227 Developed
countries cannot take into account each and every difference between
developing countries, but this does not mean that they should be prevented
from approaching the objective of Paragraph 3(c) by applying horizontal
'graduation' criteria, and/or by defining subcategories of developing
countries which capture the most significant differences between them on the
basis of a comprehensive set of objective, non-discriminatory criteria.228 The
mere fact that two countries score differently with respect to a given
indicator does not mean that they have different 'development needs' for the
purposes of Paragraph 3(c).229 Moreover, trade preferences are not always the
most adequate response to differences in development needs.230
The European Communities argues that developed countries
are free to decide whether or not to apply a GSP. By the same token, they
are also free to decide whether or not to grant preferences with respect to
certain products, as well as to choose the depth of the tariff cuts.
Paragraph 3(c) cannot change this basic premise. India's 'all or nothing'
approach has no basis in the Enabling Clause, would greatly discourage donor
countries and is clearly against the interest of the developing countries.231
On the status of the Agreed Conclusions, the European
Communities argues that footnote 3 refers only to the GSP system as
described in the 1971 Decision and not to the Agreed Conclusions or other
UNCTAD texts. The Agreed Conclusions are not context of the 1971 Decision
because they are not binding, not all GATT members were parties to them, and
they were not made in connection with the 1971 Decision. A fortiori,
the Agreed Conclusions are not context of the Enabling Clause. The European
Communities submits that the Agreed Conclusions and other UNCTAD texts are
preparatory work for the 1971 Decision and, as such, just a supplementary
mean of interpretation.232 In any event, the European Communities is of the
view that the Agreed Conclusions and the other UNCTAD texts cited by India
do not support India's position.233"
6.8 India commented that since the European Communities had
not explained why it considered the Panel's summary to be incomplete or
incorrectly summarized, it could not reasonably expect the Panel to correct
inaccuracies that it had not identify. India considered that the purpose of such
summaries was to define the issue analyzed by the Panel, not to provide the
reader with an abbreviated rendering of all of the arguments presented by the
disputing parties. As a result, the mere fact that the summaries prepared by the
Panel did not reproduce all the arguments made by the parties did not render
them incomplete. For these reasons, India requested that the Panel reject the
EC's request.
6.9 The Panel considers that the purpose of summarizing
parties' arguments under the heading "Paragraph 3(c)" is to set out each party's
interpretation or understanding of paragraph 3(c) and their views on the
interpretative role of the Agreed Conclusions in relation to the Enabling
Clause, including paragraph 3(c). The Panel needs to describe the basic
positions of both parties submitted during the whole of the proceedings
regarding the meaning of paragraph 3(c). The new paragraphs that the European
Communities requested the Panel to use in place of paragraphs 7.71-7.73 focus
mostly on the rebuttal of India's interpretation of paragraph 3(c), rather than
on the European Communities' own interpretation of paragraph 3(c). Another
problem with the proposed text is that certain parts of it do not address the
issue of the meaning of paragraph 3(c), but rather, they address other
paragraphs of the Enabling Clause.234 Such replacement, in the Panel's view, would
not be a balanced assessment of the arguments made by the parties during the
proceedings. On the other hand, the Panel considers it appropriate to make
adjustments to paragraphs 7.71-7.73 so as to take note of other relevant
arguments made by the European Communities during the proceedings, which the
European Communities would like the Panel to set out in its Report. Noting that
some of the arguments raised in the proposed texts are actually already covered
by the text of paragraphs 7.71-7.73 of the Interim Report, the Panel has made a
few adjustments by adding certain elements of the proposed text into those
paragraphs. The adjustments are now reflected in paragraphs 7.72-7.76 of this
Report. At the same time, the Panel has also made adjustments to paragraph 7.68
so as to set out the corresponding counter arguments that India presented in the
proceedings.
3. "Non-discriminatory" in footnote 3
6.10 The European Communities requested the Panel to replace
paragraphs 7.118-7.120 of the Interim Report with the following proposed text:
"The European Communities argues that, in addition to the
neutral meaning invoked by India, the word 'discriminate' has also a
negative meaning. The full text of the dictionary definition quoted by India
is 'to make a distinction in the treatment of different categories of
people, or thing, esp. unjustly or prejudicially against the people on
grounds of race, colour, sex, social status, etc'.235 Referring to numerous
definitions of authors and judicial decisions of international tribunals,
the European Communities maintains that, in a legal context,
'non-discriminatory' is not synonymous with formally equal treatment.
Rather, there is discrimination if equal situations are treated unequally or
if unequal situations are treated equally.236
For the European Communities, the term discrimination
does not have a uniform meaning throughout the WTO Agreement. It notes the
statement by the panel in Canada - Pharmaceutical Patents that the
term 'discrimination' may have different meanings in different WTO
contexts.. For example, the meaning of discrimination under Article III of
GATT 1994 is different from the meaning of discrimination under the chapeau
to Article XX of GATT 1994.237
The European Communities maintains that the term
'non-discriminatory' must be interpreted in the specific context of the
Enabling Clause (and in particular of paragraphs 2(a) and 3(c) and the term
'generalised' in footnote 3)238 and in the light of its object and purpose.
Article I:1 of the GATT is concerned with providing equal conditions of
competition for imports of like products originating in all Members. In
contrast, the Enabling Clause, like all Special and Differential Treatment
provisions, seeks to create unequal competitive conditions in order to
respond to the special needs of developing countries. Having regard to that
objective, differentiating between developing countries according to their
development needs is no more discriminatory than differentiating between
developed and developing countries."239
Accordingly, the EC considers that, in order to establish
whether the Drug Arrangements are 'non-discriminatory' within the meaning of
footnote 3, the Panel should address the following two issues: first, the
Panel should establish whether the Drug Arrangements pursue an objective
which is consistent with the object and purpose of the Enabling Clause, and
more specifically with the objective stated in Paragraph 3(c); second, if
so, the Panel should establish whether the Drug Preferences
constitute a reasonable means to achieve that objective240, i.e. whether they
are both apt to achieve that objective and proportionate.241
The European Communities argues that the UNCTAD texts
relied upon by India are not context and in any event do not support India's
position. They address the threshold question of whether all developing
countries should be recognised as beneficiaries of the GSP, rather than the
subsequent question of whether all recognised beneficiaries should be
granted identical preferences. The first of these questions is addressed by
the term 'generalised', while the second is addressed by the term
'non-discriminatory'. India confuses the two issues and renders the term
'non-discriminatory' redundant.242"
6.11 India requested the Panel to reject the European
Communities' request for the same reason as described in paragraph 6.8, namely,
that (i) the European Communities had not provided any reason why it considered
these paragraphs to be incomplete or inaccurate, and (ii) the purpose of such
summaries, in India's view, was not to set out all of the arguments presented by
the parties, but to define the issues to be analyzed by the Panel. India
contended that the mere fact that the summaries prepared by the Panel did not
reproduce all the arguments made by the parties did not render them incomplete.
6.12 The Panel considers that a number of the arguments in
the EC's proposed texts are already covered by paragraphs 7.118-7.120 of the
Interim Report. In the Panel's view, there is no requirement that a Panel use
the language that a party prefers to summarize its arguments unless the Panel's
summary is inaccurate or incomplete as to the meaning of these arguments as
originally made in the proceedings. The European Communities has not indicated
whether the cited paragraphs contain inaccuracies or are incomplete, and where
in these paragraphs such inaccuracies or incompleteness is to be found. Although
the evaluation of the "completeness" of such summaries of parties' arguments
depends upon the relevance of various arguments to the Panel's analysis of a
relevant issue, the Panel could, in exercising its discretion, set out more
arguments that a party would like the Panel to include, provided the Report
would also set out the corresponding counter arguments made by the other party
during the proceedings, so as to allow for an objective assessment. With this in
mind, the Panel has made adjustments to paragraphs 7.118-7.120 of its Interim
Report by adding certain elements of the proposed text into those paragraphs, as
reflected in paragraphs 7.122-7.125 of the Report. Accordingly, the Panel also
made adjustments to paragraph 7.117 of the Interim Report so as to reflect the
corresponding counter arguments that India made during the proceedings, as
reflected in paragraphs 7.120-7.121 of the Report.
4. Paragraph 2(a)
6.13 The European Communities requested that the Panel
replace paragraphs 7.160-7.161 with the following text:
"The European Communities, in contrast, argues that
India's interpretation of 'developing countries' under paragraph 2(a) as
meaning 'all developing countries' would render redundant the terms
'generalised' and 'non-discriminatory' in footnote 3. Also, according to the
European Communities, India's interpretation would mean that the objective
of paragraph 3(c) of responding positively to the development, financial and
trade needs of developing countries could not be achieved.243"
6.14 For the same reason as set out earlier, instead of
replacing the whole paragraph with the EC's proposed text, the Panel has made an
adjustment to paragraph 7.160 of its Interim Report which is reflected in
paragraph 7.165 of its Report.
5. Dissenting Opinion
6.15 India requested the dissenting member of the Panel to
delete those parts of the dissenting opinion based on the assumption that India
abandoned its claims with respect to paragraph 2(a) of the Enabling Clause,
which in India's view, is an incorrect assumption. Citing paragraph 9.20 of the
Interim Report, which states "[i]n arguing that the Enabling Clause is an
affirmative defence, India must admit that it is not a claim and its reference
to the Enabling Clause is an argument in response to an anticipated defence",
India argued that this assertion failed to distinguish between the substantive
legal claims and the procedural arguments that it presented in relation to the
allocation of burden of proof. In India's view, a complainant presenting the
procedural argument that the duty to invoke a provision and the burden of proof
falls on the defendant did not thereby amount to a withdrawal of its substantive
claim with respect to that provision. To put it in another way, India's argument
that paragraph 2(a) of the Enabling Clause provided the European Communities
with an affirmative defence did not imply that it was requesting the Panel not
to rule on that provision in case such argument was not accepted.
6.16 India argued that, in fact, India clearly made the claim
that the Drug Arrangements did not meet the requirements set out in paragraph
2(a) of the Enabling Clause, in its request for the establishment of the Panel,
and it continued to make the claim during the proceedings and submitted the
necessary evidence to support that claim. India also argued that paragraph 48 of
its second written submission states: "India's claim in these proceedings, as
expressed in its first written submission, is based on Article I:1 of the GATT
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".244 This statement
when read in its context did not communicate that India no longer sought a
ruling in respect of this provision. The purpose of this statement was to
present the argument that, given that paragraph 2(a) of the Enabling Clause was
an affirmative defence, it was not up to India but up to the European
Communities to assert and prove that the Drug Arrangements were consistent with
that provision.
6.17 India also argued that in all previous cases where
panels rejected the complainants' argument that a particular provision
constituted a defence, the panels nevertheless examined the complaint in light
of that particular provision. Refusal to conduct the examination would result in
the situation where the complainant would have to re-submit its case to a new
panel, which would run counter to the objective of the DSU of prompt settlement
of disputes, as provided in Article 3.3 thereof. It was also India's view that
without seeking the parties' clarification on the scope of India's claim during
the proceedings, the legal approach used was not compatible with the basic
principle of due process.
6.18 The European Communities commented that although India's
panel request mentioned some provisions of the Enabling Clause in rather
ambiguous terms, India chose not to assert any claim under that Enabling Clause
in its first written submission. Instead, India limited itself to respond to the
"affirmative defence" which it anticipated would be raised be the European
Communities under the Enabling Clause. Subsequently, India clarified several
times in unequivocal terms that it was not making any claim under the Enabling
Clause. The European Communities cited India's reply to question number 5 from
the Panel to both parties, paragraph 48 of India's second written submission and
India's second oral statement to demonstrate such fact. The European Communities
argued that India could not use the interim review as an opportunity to correct
the consequences of its own previous act. In the European Communities' view,
there was no reason for the dissenting panelist to modify the dissenting
opinion.
6.19 The dissenting member of the Panel considers that
India's theory and claim are accurately described in paragraph 4.169 of this
Report as follows: "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." This theory was repeated by India, e.g., in its executive
summary of its first written submission245 and in its second written submission.246
The theory coincided with India's argument that the European Communities bore
the burden of proof.247 India's written and oral statements to the Panel and to the
participants in the proceedings voluntarily clarified the meaning of the
language of the terms of reference and narrowed the claim to be considered by
the Panel248, and defended against by the European Communities.
6.20 In the dissenting panelist's view, the burden of proof
is a distinct legal issue. India argued consistently that the European
Communities could not mount a successful defence under the Enabling Clause and
that the European Communities bore the burden of proof. While the defence and
the burden of proof are related to the claim procedurally, neither can determine
the claim.
6.21 On India's remarks in paragraph 9 of its Comments that a
procedural argument by a complainant about the respondent's duty to invoke a
provision (e.g., the Enabling Clause) and about the burden of proof does
not withdraw a substantive claim about that provision, the dissenting panelist
is of the view that India seems to argue that the Enabling Clause is both its
claim and the European Communities' defence. However, as the dissenting panelist
understands, that was not its argument before this Panel as explained above and
was not the situation in US -Wool Shirts and Blouses, where India had
made a claim under Article 6 of the Agreement on Textiles and Clothing.
6.22 Based on these reasons, the dissenting member of the
Panel sees no reason to make any change to the Dissenting Opinion. The Panel,
however, has inserted a footnote to paragraph 7.54 on a related point.
VII.
FINDINGS
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procedural issues
7.1 In this case, two procedural issues have been raised. The
first relates to a request by certain third parties for enhanced rights of
participation in the panel proceedings. The Panel issued its ruling on this
matter on 17 April 2003, granting enhanced third-party rights to all third
parties in this dispute. The decision is reproduced as Annex A to this report.
7.2 The second procedural issue relates to a matter raised by
the European Communities concerning the joint representation of India and
Paraguay by the ACWL. The Panel will now examine this issue.
1. Joint representation of India and Paraguay
(a) Introduction
7.3 The Panel recalls that on 14 May 2003, at the first
substantive meeting with the parties, the European Communities raised certain
procedural issues concerning the joint representation of India and Paraguay by
the ACWL. Specifically, the European Communities raised issues of: (i) potential
conflict of interest; (ii) incompatibility with the DSU rules on
confidentiality; and (iii) blurring the distinction between the main parties and
third parties. The European Communities requested that the Panel clarify
whether, as a matter of principle, the same legal counsel could represent
simultaneously a complaining party and a third party and, if so, under what
conditions. The European Communities also requested that, if the Panel
considered that in principle the same counsel could represent simultaneously a
party and a third party under certain conditions, the Panel should then examine
whether the conditions for such simultaneous representation were satisfied in
this case.
7.4 The Panel further recalls that on the same date, in
response to the European Communities' request to the Panel, India and Paraguay
submitted a Joint Statement, indicating that: (i) India and Paraguay each had
full notice of the representation of the other by the ACWL; (ii) both India and
Paraguay considered that, by representing both India and Paraguay, the ACWL did
not compromise their individual interests in effective legal representation;
(iii) India and Paraguay consented to simultaneous representation by the ACWL in
this dispute; (iv) the issue of exchange of information between parties and
third parties did not arise in the present case because third parties were
accorded enhanced rights; and (v) the European Communities' request that the
Panel rule on a matter of legal ethics lacked any legal basis. The
above-referenced Joint Statement was followed by letters to the Panel from India
and Paraguay, both dated 28 May 2003, restating India's and Paraguay's positions
on this matter.
7.5 In addressing this set of procedural issues, the Panel
first notes that the WTO has not itself elaborated any rules governing the
ethical conduct of legal counsel representing WTO Members in particular
disputes. Accordingly, the Panel considers there are no directly applicable
legal provisions or guidelines to which it can have reference in order to
resolve any issues raised in respect of the joint representation of a party and
a third party.
7.6 Second, the Panel is not aware of any previous GATT or
WTO case in which a panel or the Appellate Body has addressed the type of
conflict of interest issue raised by the European Communities in the present
dispute.
7.7 Third, whereas in two earlier proceedings before the
Appellate Body249, the issues of confidentiality and of measures necessary to
maintain such confidentiality were addressed, the Panel considers that the
factual settings and the rulings in those earlier cases are not apposite to the
issues raised by the European Communities in this proceeding.
7.8 The Panel nonetheless considers that, flowing from its
terms of reference and from the requirement, in Article 11 of the DSU, to "make
an objective assessment of the matter before it � ", as well as the requirement,
pursuant to Article 12 of the DSU, to determine and administer its Working
Procedures, the Panel has the inherent authority - and, indeed, the duty - to
manage the proceeding in a manner guaranteeing due process to all parties
involved in the proceeding and to maintain the integrity of the dispute
settlement system. With specific reference to issues raised in the instant case,
it is incumbent on the Panel to clarify whether the ACWL's joint representation
of India and Paraguay poses any ethical concerns of the kind raised by the
European Communities. At the same time, and although the European Communities
asks the Panel for a ruling whether, as a matter of principle, the same legal
counsel can represent simultaneously a party and a third party and, if so, under
what conditions, the Panel considers that it cannot rule on such issues in the
abstract, but only as they relate to the specific case before it.
(b) Conflict of interest
7.9 As a general matter, the Panel considers that it is the
responsibility of legal counsel to ensure that it is not placing itself in a
position of actual or potential conflict of interest when agreeing to represent,
and thereafter representing, one or more WTO Members in a dispute under the DSU.
In this regard, the Panel notes that bar associations in many jurisdictions have
elaborated rules of conduct dealing explicitly with conflicts of interest
through joint representation.250
7.10 Common to all such ethical rules of conduct is the
principle that counsel shall not accept or continue representation of more than
one client in a matter in which the interests of the clients actually or
potentially conflict. Underlying this principle is the fundamental notion that a
client must have full confidence in the objectivity and independence of the
professional advice provided to it by counsel. A second common element to all
such ethical rules, however, is the possibility for clients, when faced with
counsel being subject to actual or potential conflict of interest as the result
of joint representation, to consent to such joint representation, but only
following full disclosure by counsel. In other words, following disclosure of
the actual or potential conflict of interest, clients may waive such conflict.
Yet a third common element is that counsel shall nevertheless discontinue such
joint representation at such time as counsel becomes aware that the interests of
the two (or more) clients are directly adverse.
7.11 The Panel considers that the above-described common
elements to ethical rules of conduct in many jurisdictions are equally
appropriate to dealing with issues of representational conflict of interest in
the WTO dispute settlement context.
7.12 The Panel agrees with India and Paraguay that the
parties most likely to be concerned by any potential or actual conflict of
interest are those agreeing to joint representation, here India and Paraguay. It
would seem that the basis for raising concerns over such joint representation
would be considerably less for other parties in the case, who would be unlikely
to be prejudiced by any joint representation of India and Paraguay. While the
Panel does not exclude that, in a different case, there could be concerns of a
more systemic nature, that could be raised by parties other than those agreeing
to joint representation, the Panel is of the view that the European Communities
has not demonstrated the existence of a particular situation which gives rise to
such concerns in the instant case. The Panel accordingly does not consider that
it is faced with an issue of principle or one having systemic implications for
the WTO dispute settlement system.
7.13 As stated in the Introduction, India and Paraguay claim
to have been fully informed about their joint representation by the ACWL and
have given their written consent to such joint representation. In these
circumstances, the Panel considers that India and Paraguay, as well as counsel
for this party and third party, have done everything necessary to allow for the
continued joint representation of India and Paraguay by the ACWL.
(c) Confidentiality
7.14 On the issue of confidentiality between a party and its
counsel, while noting that the European Communities states that the problem is
mitigated in the instant case because of the enhanced rights granted to third
parties, the European Communities nonetheless maintains that the problem has not
been disposed of entirely and requests the Panel to consider whether the ACWL's
joint representation of India and Paraguay may be inconsistent with DSU rules on
confidentiality.
7.15 Although the European Communities does not specify which
provision(s) of the DSU may be of concern, the Panel considers that the most
relevant DSU rule that could be implicated is Article 18.2, whose first sentence
states that "[w]ritten submissions to the panel or the Appellate Body shall be
treated as confidential, but shall be made available to the parties to the
dispute". A related rule is Article 14.1 of the DSU which provides that "[p]anel
deliberations shall be confidential". Article 10 of the DSU and paragraph 12 of
the Working Procedures, Appendix 3 to the DSU, which set out steps of the
panel's work, could also be implicated, as third parties are permitted limited
participation at various stages of panel proceedings, as compared to the
parties. In particular, third parties are not provided the right to participate
in the interim review process under either Article 10 or the Working Procedures.
In the view of the Panel, Article 18.2 of the DSU would be the more typical and
relevant rule, where third parties only receive the first submissions of the
parties to the Panel and only participate in a single, special third-party
session.
7.16 As a general matter, the Panel considers that Members
involved in the dispute settlement process have the obligation of ensuring
confidentiality, as required by Article 18.2, Article 14.1251 and the Working
Procedures, regardless of who serves as their legal counsel. Needless to say,
this obligation of Members involved in the dispute settlement process must be
respected by all of their representatives, including legal counsel. In addition,
as a general professional discipline, it is the responsibility of counsel to
maintain the confidentiality of all communications between it and the party (or
third party) it represents. In this regard, the Panel again notes that bar
associations in many jurisdictions have elaborated rules of conduct dealing
explicitly with confidentiality between clients and their legal counsel.252
7.17 In this dispute, India argues that the issue of
confidentiality does not arise for India and Paraguay because of the enhanced
rights granted to all third parties. On the other hand, the European Communities
responds that the problem is mitigated but not totally disposed of, as there is
still the possibility of access to Panel documents, including the Interim Report
by third party Paraguay, due to the use of the same legal counsel.253 However, the
Panel considers that due to the enhanced third-party rights pursuant to which
all third parties receive all submissions of the parties to the Panel and
participate in all meetings of the Panel with the parties, Paraguay was actually
accorded the right to share all submissions and Panel documents which were
distributed before the end of the Second Substantive Meeting of the Panel. After
the Panel's Second Substantive Meeting, no third party was given further
enhanced right to participate in the process and, particularly, to influence the
Panel's Findings. Paraguay has not gained any litigation advantage over other
third parties in this dispute through its use of the same legal counsel as
India. The Panel also notes that the European Communities has not provided any
argument or evidence to indicate that in fact there is a disclosure of
confidential information, including the Interim Report of the Panel, to Paraguay
due to the joint representation of India and Paraguay by the same legal counsel.
Under such circumstances, the Panel finds that the confidentiality issue has not
arisen in this dispute.
(d) Blurring the distinction between parties and third
parties
7.18 Whereas, in a procedurally more typical case, the joint
representation of a party and a third party could potentially raise issues
related to the blurring of the distinction between parties and third parties,
the Panel considers that, as acknowledged by the European Communities254, this
issue does not arise in the present case in view of the enhanced third-party
rights accorded to all third parties. In these circumstances, the Panel does not
consider it either necessary or appropriate to pronounce upon the more general
issue of blurring that could arise in a different case.
-
claims of the parties
7.19 In this case, India claims that the Drug Arrangements of
the European Communities are inconsistent with Article I:1 of GATT 1994 and are
not justified by the Enabling Clause. India states that should the European
Communities invoke the Enabling Clause, the European Communities bears the
burden of establishing that the Drug Arrangements are justified under the
Enabling Clause. India also claims that the European Communities fails to
demonstrate that the Drug Arrangements are "non-discriminatory" within the
meaning of paragraph 2(a) of the Enabling Clause. India further claims that the
European Communities has not demonstrated that the Drug Arrangements are
justifiable under Article XX(b) of GATT 1994.
7.20 The European Communities claims that the Drug
Arrangements fall within the scope of paragraph 2(a) of the Enabling Clause and
that the Enabling Clause excludes the application of Article I:1 of GATT 1994.
The European Communities states that it is for India to demonstrate that the
Drug Arrangements are not consistent with paragraph 2(a) of the Enabling Clause.
Since India has not claimed a violation of the Enabling Clause, the European
Communities requests the Panel to refrain from examining whether the measure is
consistent with the Enabling Clause. Should the Panel find that Article I:1
applies, and that the Drug Arrangements are inconsistent with that provision,
the European Communities requests the Panel to find that the Drug Arrangements
are justified under Article XX(b).
C. THE NATURE OF THE ENABLING CLAUSE AND ITS RELATIONSHIP
TO ARTICLE I: 1 OF GATT 1994
1. Introduction
7.21 India emphasizes that its material claim is that the
Drug Arrangements constitute a violation of Article I:1 of GATT 1994, not a
violation of the Enabling Clause. India notes that the European Communities
requested a waiver for its Drug Arrangements and failed to obtain it. In these
circumstances, India states that it had no knowledge, prior to the Panel
request, what provision or provisions would be invoked to justify the Drug
Arrangements.255 India maintains that the Enabling Clause allows WTO Members to
derogate from the obligations under Article I:1. The European Communities may
invoke the Enabling Clause to justify the inconsistency of its measure with
Article I:1 of GATT 1994. As such, the Enabling Clause constitutes an
affirmative defence.256 According to India, the European Communities bears the
burden of proving that its measure is justified under the Enabling Clause. It is
sufficient for India to make a prima facie case of violation of Article I:1 of
GATT 1994.
7.22 The European Communities claims, however, that Article
I:1 of GATT 1994 does not apply to a measure covered by the Enabling Clause
because the Enabling Clause excludes the operation of Article I:1.257 The European
Communities considers that India bears the burden of establishing a prima facie
case of violation of the Enabling Clause. Since India limits its claim to
violation of Article I:1 of GATT 1994, the European Communities considers that
India fails to meet that burden. The European Communities therefore requests the
Panel to dismiss India's Article I:1 claim and to refrain from examining the
consistency of the Drug Arrangements with the Enabling Clause.258
7.23 In order to determine whether the Panel should proceed
with the examination of the consistency of the Drug Arrangements with Article
I:1 of GATT 1994 or with the Enabling Clause, it is necessary for the Panel to
determine: (i) whether Article I:1 of GATT 1994 applies to a measure falling
under the Enabling Clause; (ii) whether it is sufficient for India to establish
a claim of violation of Article I:1 of GATT 1994; and (iii) which party bears
the burden of establishing inconsistency or consistency of the European
Communities' measure with the Enabling Clause. The Panel considers that the
resolution of all these issues depends on the relationship between Article I:1
of GATT 1994 and the Enabling Clause, which in turn depends on the correct
characterization of the nature of the Enabling Clause, namely, whether it is in
the nature of a positive rule establishing obligations or of an exception to
Article I:1 of GATT 1994. Accordingly, the Panel will proceed with its analysis
of the nature of the Enabling Clause and its relationship to Article I:1.
2. Arguments of the parties
7.24 The Panel recalls India's request for the establishment
of this Panel in which India requests the Panel to examine, inter alia,
whether the Drug Arrangements and their application "are consistent with Article
I:1 of GATT 1994 and the requirements set out in paragraphs 2(a), 3(a) and 3(c)
of the Enabling Clause".259 In its first written submission, India requests the
Panel to find that the Drug Arrangements are inconsistent with Article I:1 of
GATT 1994 and not justified by the Enabling Clause.260 India also argues that, even
though it is unclear to India what the legal basis for the Drug Arrangements is,
it may reasonably be assumed that the European Communities will invoke the
Enabling Clause as a defence. For the sake of procedural efficiency, India
presents its views on the Enabling Clause in its first written submission.261
7.25 In its second written submission, India indicates that
its material claim is that the Drug Arrangements violate Article I:1 and that
paragraph 2(a) of the Enabling Clause is not a material element of its claim.
India argues that, to defeat India's claim, the European Communities may assert,
and it has chosen to assert, that the Drug Arrangements are justified under the
Enabling Clause.262 As such, India maintains, the Enabling Clause constitutes an
affirmative defence.263 India also argues that paragraph 2(a) of the Enabling
Clause is an affirmative defence because it has legal functions and
characteristics similar to other provisions of the GATT that the Appellate Body
has recognized as affirmative defences.264 While the Enabling Clause is not an
essential element of India's claim, it is an essential element of the European
Communities' defence.265 In India's view, the European Communities bears the burden
of proving that its measure is consistent with the Enabling Clause. It is
sufficient for India to make a prima facie case of violation of Article I:1 of
GATT 1994.
7.26 India argues that the legal functions of the 1971 Waiver
Decision and the Enabling Clause are the same. Specifically, according to India,
both permit a developed country to provide preferential tariff treatment to
developing countries without according such treatment to other developed
countries and the Enabling Clause is a renewal (and permanent embodiment) of the
1971 Decision, as contemplated in paragraph (b) of that Decision.266
7.27 India maintains that the Enabling Clause is an exception
to Article I:1. India refers to the Black's Law Dictionary definition of that
term: "exception is something that is excluded from a rule's operation" and that
"statutory exception is a provision in a statute exempting certain persons or
conduct from the statute's operation".267 Citing the Appellate Body ruling in US
- Wool Shirts and Blouses that "Articles XX and XI:2(c)(i) are limited
exceptions from obligations under certain other provisions of GATT 1994, not
positive rules establishing obligations in themselves" and the Appellate Body's
comments on Article XXIV in Turkey - Textiles, it concludes that in the
same way that Articles XI:2(c)(i), XX and XXIV are exceptions, the Enabling
Clause is likewise an exception to certain aspects of Article I:1 and could be
invoked as a defence in a claim of violation of that Article.268
7.28 India also argues that, although the European
Communities asserts that the Enabling Clause confers an autonomous right, it has
not provided a definition of "autonomous right"; it merely asserts the
conclusion that the Enabling Clause is an autonomous right and not a derogation
from Article I:1 of GATT 1994.269
7.29 The European Communities argues that the Enabling Clause
is not a waiver but a sui generis decision and that it is the main
instrument for achieving one of the basic objectives and purposes of the WTO
Agreement - special and differential treatment. Citing the Appellate Body in
Brazil - Aircraft to the effect that Article 27 of the SCM Agreement is not
an affirmative defence, the European Communities concludes that "special and
differential treatment" cannot be characterized as a mere "affirmative defence".
The European Communities insists that the Enabling Clause exists, side-by-side,
with GATT Article I:1 and that the word "notwithstanding" in paragraph 1 of the
Enabling Clause excludes completely the application of Article I:1.270
7.30 The European Communities maintains that the fact that
the Enabling Clause is not an "affirmative defence" but an autonomous right has
two important implications, namely, first, in order to establish a violation of
Article I:1 of GATT 1994, India must first establish that the Drug Arrangements
are not covered by paragraph 2(a) of the Enabling Clause; and second, if the
Drug Arrangements are covered by the Enabling Clause, as the complaining party,
India bears the burden of proving that the Drug Arrangements are inconsistent
with paragraph 3(c).271
3. Panel's analysis
(a) Nature of the Enabling Clause
7.31 The Panel recognizes that the Enabling Clause is one of
the most important instruments in the GATT and the WTO providing special and
more favourable treatment for the developing countries. The Panel has no doubt
that WTO developing country Members often draw significant benefits from the
operation of GSP schemes of developed country Members. The Panel is well aware
that the setting up of the GSP was greeted very positively by the GATT
contracting parties as a whole. With the above in mind, the Panel considers that
it is important to be particularly cautious in the interpretation of its
provisions.
7.32 The parties disagree on whether the nature of the
Enabling Clause is that of a positive rule setting out obligations or that of an
exception. In examining this issue, the Panel considers that it is a common
understanding that "exception" is a relative concept, in relation to the main
rules of treaties, that is, those positive rules that set out obligations. In
this regard, the Panel notes that the parties and third parties all agree that
the Enabling Clause is a part of GATT 1994 as one of the "other decisions of the
CONTRACTING PARTIES to GATT 1947" under paragraph 1(b)(iv) of GATT 1994.272 As to
the means to be used in identifying the nature of the Enabling Clause, both
India and the European Communities also agree that it is necessary to examine
its legal function in the context of the treaty as a whole273, although they draw
different conclusions after conducting their own analysis.
7.33 The Panel considers that the Enabling Clause forms a
part of GATT 1994 and that in order to identify whether it is a positive rule
establishing obligations or of an exception, it is necessary to examine its
legal function in the context of the GATT 1994 as a whole.
7.34 The Panel also considers that a comparison of the legal
function of the Enabling Clause with that of established exceptions provisions
in GATT 1994 is necessary because the result of the legal characterization, in
the Panel's view, should not be one that would undermine or otherwise adversely
affect the proper functioning of GATT 1994 as a whole.
7.35 The Panel recalls the Appellate Body ruling in US -
Wool Shirts and Blouses, where the Appellate Body stated that "Articles XX
and XI:2(c)(i) are limited exceptions from obligations under certain other
provisions of the GATT 1994, not positive rules establishing obligations in
themselves". To this Panel, it follows that the legal function of authorizing
limited derogations from positive rules establishing obligations is what is
decisive in making Articles XX and XI:2(c)(i) exceptions. In US - Wool Shirts
and Blouses, the Appellate Body effectively established two criteria for
determining whether a rule constitutes an "exception": first, it must not be a
rule establishing legal obligations in itself; and second, it must have the
function of authorizing a limited derogation from one or more positive rules
laying down obligations.
7.36 The wording of the Enabling Clause is similar to that of
Articles XX, XXI and XXIV. Articles XX and XXI state "nothing in this Agreement
shall be construed to prevent � ". Article XXIV:5 states "the provisions of this
Agreement shall not prevent � ". The Enabling Clause provides "[n]otwithstanding
the provisions of Article I of the General Agreement, contracting parties may
... ". The ordinary meaning of "notwithstanding" is "in spite of, without regard
to or prevention by".274 The meaning of each of these phrases is essentially the
same, that of providing authorization for deviation from certain rules
establishing obligations. Such deviations are not "prevented by" the existence
and the application of positive rules establishing obligations. The use of a
slightly different expression in the Enabling Clause, standing alone, does not
make the nature or legal function of the Enabling Clause different from that of
Articles XX, XXI and XXIV because the language used in the Enabling Clause is
not substantively different from that used in these other provisions.
7.37 The Panel considers that Article I:1 of GATT 1994 is
clearly a "positive rule establishing obligations". The obligations are for
Members to accord to the like products of all Members, immediately and
unconditionally, any advantage relating to, inter alia, custom duties
accorded to products originating in any country. Articles II, III and XI:1 of
GATT 1994 are, similarly, positive rules establishing obligations. In contrast,
it is well established that Article XX is not such a rule establishing positive
obligations, nor is Article XI:(2)(c)(i). The Panel is of the view that Articles
XXI and XXIV are of the same nature as Article XX. There is no legal obligation
under GATT 1994 requiring a Member, e.g., to take an Article XX measure, or to
take a national security measure, or to form a free-trade area or customs union
with other Members. Members are free to choose either to take these measures or
to do nothing. If they decide to take such measures, they are authorized to do
so by these provisions, subject to certain conditions. The fact that when
Members choose to take such measures, they are also required to comply with
certain conditions prescribed in these exceptions provisions, such as those in
the chapeau of Article XX and in paragraphs 5 and 8 of Article XXIV, does not
change the basic "non-obligatory" nature of these provisions. These conditions
are only subsidiary obligations, dependent on the decision of the Member to take
such measures. The existence of certain conditions relating to the application
of an exception provision only signifies that the exception is "limited", not
absolute, and that the authorization of derogation is tied to the fulfilment of
certain conditions.
7.38 The Panel considers that the legal function of the
Enabling Clause is to authorize derogation from Article I:1, a positive rule
establishing obligations, so as to enable the developed countries, inter alia,
to provide GSP to developing countries. There is no legal obligation in the
Enabling Clause itself requiring the developed country Members to provide GSP to
developing countries. The word "may" in paragraph 1 of the Enabling Clause makes
the granting of GSP clearly an option rather than an obligation. The
Panel considers that this is also a limited authorization of derogation
in that the GSP has to be "generalized, non-discriminatory and non-reciprocal".
7.39 From the above analysis, the Panel considers that the
Enabling Clause meets the two criteria that the Appellate Body established in
US - Wool Shirts and Blouses for determining whether a particular provision
is in the nature of an exception. It functions similarly to other GATT 1994
provisions that the Appellate Body has characterized as exceptions. Accordingly,
the Panel finds that the Enabling Clause is in the nature of an exception to
Article I:1 of GATT 1994.
(b) Burden of proof under the Enabling Clause
7.40 The Panel notes that there are a number of exceptions
provisions in the GATT that a party may invoke in order to justify an
inconsistency with Article I:1. A measure could well be for achieving legitimate
objectives such as those under Article XX or Articles XXI or XXIV, or the
Enabling Clause. Given that the specific purpose for a measure may not be always
expressly set out in the measure itself, it may be difficult for the complaining
party to know precisely which legitimate objective a measure is aimed to
achieve. In this dispute, the European Communities actually invokes more than
one objective and more than one legal basis for its measure, i.e., the Enabling
Clause and Article XX(b). The Panel therefore considers that it is sufficient
for India to demonstrate an inconsistency with Article I:1. It is not the task
of India to establish further violations of possible exceptions provisions that
could justify the inconsistency of the European Communities' measure with
Article I:1.
7.41 To conclude otherwise could result in the situation
where a complaining party could raise claims unrelated to the defending party's
justification for a particular measure. Exceptions provisions should,
accordingly, be invoked and justified by the defending party. For these reasons,
the Panel finds that it is for the European Communities to invoke one or more
particular provisions, including the Enabling Clause, as justification for the
claimed inconsistency of its measure with Article I:1.
7.42 As the Appellate Body established in US - Wool Shirts
and Blouses and in Turkey - Textiles, exceptions provisions can be
invoked as affirmative defences to justify an inconsistency of a measure with
positive rules setting out obligations. As previously noted, the Appellate Body
stated in US - Wool Shirts and Blouses that "Article XX and XI:(2)(c)(i)
are limited exceptions from obligations under certain other provisions of the
GATT 1994, not positive rules establishing obligations in themselves." It went
on to state that "[t]hey are in the nature of affirmative defences. It is only
reasonable that the burden of establishing such a defence should rest on the
Party asserting it".275 In Turkey - Textiles, the Appellate Body noted in a
footnote that "legal scholars have long considered Article XXIV to be an
'exception' or a possible 'defence' to claims of violation of GATT provisions".
At the same time, the Appellate Body stated: "Thus, the chapeau [of paragraph 5
of Article XXIV] makes it clear that Article XXIV may, under certain conditions,
justify the adoption of a measure which is inconsistent with certain other GATT
provisions, and may be invoked as a possible 'defence' to a finding of
inconsistency".276 The Panel considers that these rulings confirm that if the
European Communities has recourse to the Enabling Clause as a defence, it is for
the European Communities: (i) to raise the Enabling Clause as an affirmative
defence to India's claim of violation of Article I:1; and (ii) to demonstrate
the measure's consistency with that provision.
(c) Applicability of Article I:1
7.43 As to whether or not Article I:1 applies to a measure
covered by the Enabling Clause, the Panel notes the European Communities'
position that the Enabling Clause excludes the application of Article I, as well
as India's position that the Enabling Clause authorizes a derogation from
obligations under Article I:1 only to the extent necessary to implement GSP
schemes, but does not exclude the operation of Article I:1 altogether. The Panel
will examine this issue, taking into account the ordinary meaning of the term
"notwithstanding" in paragraph 1 of the Enabling Clause, as well as relevant
jurisprudence.
7.44 The ordinary meaning of "notwithstanding" in paragraph 1
of the Enabling Clause is "in spite of, without regard to or prevention by".277 The
Panel understands this to mean that the operation of the Enabling Clause is not
prevented by Article I:1. That is, the Enabling Clause takes precedence to the
extent of conflict between the two provisions. In any case, the dictionary
definition itself is not dispositive as to whether the Enabling Clause excludes
the application of Article I:1. Absent textual support suggesting that the
Enabling Clause excludes Article I:1 of GATT 1994, the Panel cannot assume that
this was the intent of contracting parties.278 In the view of the Panel, the
relationship between exceptions provisions and provisions setting out basic GATT
obligations is not one that where the application of one provision excludes the
application of the other.
7.45 Indeed, taking the example of the relationship between
Article XX and Articles I, III or XI:1, the jurisprudence demonstrates that the
two apply concurrently to a given measure. In US - Gasoline, US -
Shrimp, Korea - Various Measures on Beef and EC - Asbestos,
panels and the Appellate Body have consistently begun the examination of the
consistency of the challenged measure with Articles I, III or XI:1. After
finding violations under one of these provisions, the panels and the Appellate
Body then went on to examine whether the measure could be justified under
Article XX.279 The same relationship also applies between Article XXIV and Article
XI of GATT 1994. In Turkey - Textiles, the panel also first examined the
consistency of Turkey's quantitative restrictions with Articles XI and XIII of
GATT 1994 and, after finding inconsistency with these, it proceeded to examine
whether the measure was justified by Article XXIV of GATT 1994. This order of
examination is confirmed by the Appellate Body where it "upholds the Panel's
conclusion that Article XXIV does not allow Turkey to adopt, upon the formation
of the customs union with the European Communities, quantitative restrictions on
imports of 19 categories of textile and clothing products which were found to be
inconsistent with Articles XI and XIII of the GATT 1994 and Article 2.4 of the
ATC".280 Accordingly, the relationship between Article XX or Article XXIV,
on the one hand, and Article I, Article III or Article XI:1, on the other, is
one where both categories of provisions apply concurrently to the same measure,
but where, in the case of conflict between these two categories of provisions,
Article XX or Article XXIV prevails. The jurisprudence shows that there is no
deviation from such a relationship. Had Article XX or Article XXIV excluded the
application of Article I, Article III or Article XI, panels and the Appellate
Body would never have been able to examine various measures under Article I,
Article III or Article XI in all previous cases. Similarly, it is clear to the
Panel that, as an exception provision, the Enabling Clause applies concurrently
with Article I:1 and takes precedence to the extent of the conflict between the
two provisions.
7.46 This prevailing status of the Enabling Clause over
Article I:1 does not render Article I:1 inapplicable to a measure covered by the
Enabling Clause. In the Panel's view, to decide otherwise would lead to an
absurdity. For example, Article I:1 requires non-discrimination in domestic
taxation of imported products. To say that Article I:1 does not apply to
measures under the Enabling Clause would mean that GSP imports from different
developing countries could be subject to different taxation levels in the
importing country's domestic market. Such a result was clearly not intended by
the drafters of the Enabling Clause.
(d) Relevant jurisprudence
7.47 The European Communities cites the Appellate Body ruling
in Brazil - Aircraft on Article 27 of the SCM Agreement, to the effect
that Article 27, relating to special and differential treatment for developing
countries, is not an affirmative defence and that the burden is on the
complaining party to demonstrate that the obligation under Article 27.4 is not
met by a developing country invoking that provision. By analogy, the European
Communities argues that the Enabling Clause, as the core instrument of special
and more favourable treatment, should not be treated as an affirmative defence
but rather as an autonomous right, and that the burden of proof should be on the
party claiming a violation of this provision.
7.48 The Panel considers that the relationship between
Article 3.1(a) and Article 27 of the SCM Agreement is different from that
between Article I:1 of GATT 1994 and the Enabling Clause or that between Article
III and Article XX of GATT 1994. Article 27.2(b) clearly excludes the
application to developing countries of the prohibition on export subsidies in
Article 3.1(a). It provides: "The prohibition of paragraph 1(a) of Article 3
shall not apply to... (b) other developing country Members for a period of eight
years from the date of entry into force of the WTO Agreement, subject to the
compliance with the provisions in paragraph 4". Consequently, it would not be
sufficient for a complaining party to only claim and demonstrate a violation of
Article 3.1(a) by a developing country. The complaining party would have to
claim and demonstrate a violation of an applicable provision governing export
subsidies matters which, in the case of developing countries, is Article 27.
7.49 In contrast, the relationship between the Enabling
Clause and Article I:1 is different. As the Panel found in paragraph 7.39, the
Enabling Clause is an exception to Article I:1 and it does not exclude the
application of Article I:1 but prevails over Article I:1 to the extent of a
conflict between the two provisions. In such circumstances, the complaining
party can claim and demonstrate a violation of Article I:1 and it is up to the
defending party to decide what provisions to invoke in order to justify the
inconsistency of its measure with Article I:1. And, by doing so, the defending
party is invoking these provisions as affirmative defences and therefore bears
the burden of proof for justification under the invoked provisions.
7.50 The European Communities also refers to the Appellate
Body Report in EC - Hormones, where the Appellate Body characterizes
Article 3.3 of the SPS Agreement as an autonomous right, rather than as an
exception to Article 3.1, and concludes that the complaining parties bear the
burden of proof under Article 3.3. The Panel notes that the underlying basis for
this Appellate Body finding is that Article 3.3 excludes the application of
Article 3.1 of the SPS Agreement. Where a Member has projected for itself a
higher level of sanitary protection than would be achieved by a measure based on
international standards, Article 3.3 applies and Article 3.1 does not apply at
all. SPS measures based on international standards and those based on higher
appropriate levels of protection may exist side-by-side. The complaining party
is required to claim and make a prima facie case, showing violation of a
relevant provision, either Article 3.3 or Article 3.1, not both. Again, the
Panel is of the view that the relationship between Articles 3.1 and 3.3 of the
SPS Agreement is different from that between Article I:1 of GATT 1994 and the
Enabling Clause, because the Enabling Clause does not exclude the application of
Article I:1, just as Articles XX and XXIV do not exclude the application of
Articles I:1, III or XI:1 of GATT 1994.
7.51 The Panel is fully cognizant of the statement of the
Appellate Body in EC - Hormones that merely describing a particular
provision as an exception is not determinative of which party bears the burden
of proof.281 The conclusion that a particular provision is in the nature of an
exception has to be a well-reasoned determination supported by an examination of
the provision's legal function in relation to positive rules establishing treaty
obligations. In the case before it, the Panel has provided a detailed reasoning
for its determination that the legal function of the Enabling Clause is that of
an exception to Article I:1of GATT 1994, without prejudice to its unquestioned
importance as a means of promoting the trade of developing country Members.
(e) Relevance of the importance of the policy objective
pursued
7.52 The WTO Agreement contains multiple policy objectives
and all of these objectives are important. As to the importance that a policy
objective pursued may have for the characterization of a provision as an
exception/affirmative defence or a positive rule establishing obligations, the
Panel considers that the relative importance of policy objectives pursued is not
decisive in determining whether a provision is an exception or a positive rule.
For instance, a policy objective of conserving exhaustible natural resources
pursued under Article XX(g), can well be linked directly with one of the
purposes and objectives of the WTO Agreement, that of "seeking both to protect
and preserve the environment", as set out in the Preamble to the WTO Agreement
itself. This does not change the nature of Article XX as an exception provision
in the GATT legal structure. Similarly, even though the policy objective of the
Enabling Clause does reflect one of the basic purposes and objectives of the WTO
Agreement, this fact does not change its legal function as an exception to
Article I of GATT 1994. Likewise, the characterization of a particular provision
as an exception does not diminish the importance of the policy objectives
pursued by that provision. Indeed, the Panel well acknowledges the critical
importance of the policy objectives pursued by the Enabling Clause. The Enabling
Clause reflects a great effort on the part of both developing and developed
countries to rebalance and improve trade benefits for developing countries
through a carefully negotiated agreement that permits certain types of special
and more favourable treatment. The Panel also notes that the importance of the
protection of human life and health pursued under Article XX(b) is in no way
reduced by the characterization of Article XX as an exception.
4. Summary of findings on the nature of the Enabling
Clause and its relationship to Article I:1
7.53 In light of the above, the Panel finds that: (i) the
Enabling Clause is an exception to Article I:1 of GATT 1994; (ii) the Enabling
Clause does not exclude the applicability of Article I:1 but, rather, Article
I:1 and the Enabling Clause apply concurrently, with the Enabling Clause
prevailing to the extent of inconsistency between the two provisions; (iii)
India bears the burden of claiming and demonstrating the inconsistency of the
Drug Arrangements with Article I:1 of GATT 1994; and (iv) the European
Communities bears the burden of invoking the Enabling Clause and justifying its
Drug Arrangements under that provision. Therefore, it is sufficient for India to
claim and make a prima facie showing of violation of Article I:1.
7.54 Having found that Article I:1 applies to the Drug
Arrangements concurrently with the Enabling Clause and considering that India
has made a claim and arguments under Article I:1, the Panel considers it
appropriate to examine India's Article I:1 claim. Having found that the European
Communities bears the burden of demonstrating that the Drug Arrangements are
justified by the Enabling Clause, the Panel considers that the fact India has
not made a material claim under the Enabling Clause282 does not prevent the Panel
from further examining whether the measure is justified under the Enabling
Clause so long as the Enabling Clause is actually invoked by the defending
party, which is the case in this dispute.283 Accordingly, the Panel will proceed to
examine India's claim that the Drug Arrangements are inconsistent with Article
I:1.
-
whether the drug arrangements are inconsistent with
article i: 1
7.55 The Panel recalls India's claim that the tariff
preferences granted under the Drug Arrangements are inconsistent with Article
I:1 of GATT 1994. India argues that the MFN principle embodied in Article I:1
requires that advantages related to customs duties be extended to all other
Members and that the extension be immediate and unconditional. In India's view,
the term "unconditionally" in Article I:1 means that any such advantage must be
accorded to like products of all other Members regardless of their situation or
conduct.284
7.56 The Panel further recalls the European Communities'
position that the Enabling Clause excludes the application of Article I:1. In
any case, the European Communities posits a different understanding of
"unconditionally" in Article I:1. The European Communities' position is that
"unconditionally" in Article I:1 means that any advantage granted may not be
subject to conditions requiring compensation.285 The Drug Arrangements are not
conditional, according to the European Communities, because the beneficiaries
are not required to provide any compensation to the European Communities.286
7.57 As the Panel understands it, the following facts are not
in dispute: (i) the Drug Arrangements, as prescribed in the current Council
Regulation (EC) No. 2501/2001287, provide lower tariff rates than the MFN bound
rates on certain products; and (ii) the treatment of lower tariff rates is only
accorded to products originating in 12 beneficiary Members, not to like products
originating in other Members.
7.58 Article I:1 requires that with respect to custom duties,
any advantages granted to any product originating in any one Member shall be
accorded immediately and unconditionally to the like products originating in all
other Members. The fact is clear that the tariff preferences granted by the
European Communities to the products originating in the 12 beneficiary countries
are not accorded to the like products originating in all other Members,
including those originating in India.
7.59 In the Panel's view, moreover, the term
"unconditionally" in Article I:1 has a broader meaning than simply that of not
requiring compensation. While the Panel acknowledges the European Communities'
argument that conditionality in the context of traditional MFN clauses in
bilateral treaties may relate to conditions of trade compensation for receiving
MFN treatment, the Panel does not consider this to be the full meaning of
"unconditionally" under Article I:1. Rather, the Panel sees no reason not to
give that term its ordinary meaning under Article I:1, that is, "not limited by
or subject to any conditions".288
7.60 Because the tariff preferences under the Drug
Arrangements are accorded only on the condition that the receiving countries are
experiencing a certain gravity of drug problems, these tariff preferences are
not accorded "unconditionally" to the like products originating in all other WTO
Members, as required by Article I:1. The Panel therefore finds that the tariff
advantages under the Drug Arrangements are not consistent with Article I:1 of
GATT 1994.
-
whether the drug arrangements are justified under the
enabling clause
1. Introduction
7.61 Even though the parties disagree as to which of them
should invoke the Enabling Clause and which should bear the burden of
demonstrating consistency/inconsistency of the measure with the Enabling Clause,
the Panel notes that both parties have made claims and arguments in relation to
the justification of the measure under the Enabling Clause. The European
Communities has effectively invoked the Enabling Clause by arguing that the Drug
Arrangements are consistent with the Enabling Clause.289 Bearing in mind its
finding that it is for the European Communities to invoke the Enabling Clause
and to demonstrate consistency of its measure with that provision, and having
found that the Drug Arrangements are inconsistent with Article I:1 of GATT 1994,
the Panel will proceed to examine whether the measure is justified under the
Enabling Clause.
7.62 Prior to entering into this detailed analysis, the Panel
considers it useful to set out the text of the relevant portions of the Enabling
Clause, as well as provide a brief description of the origins of this
instrument.
7.63 The relevant text of the Enabling Clause provides:
"1. Notwithstanding the provisions of Article I of the
General Agreement, contracting parties may accord differential and more
favourable treatment to developing countries1, without according such
treatment to other contracting parties.
2. The provisions of paragraph 1 apply to the following:2
(a) Preferential tariff treatment accorded by
developed contracting parties to products originating in developing
countries in accordance with the Generalized System of Preferences,3
(b) Differential and more favourable treatment
with respect to the provisions of the General Agreement concerning
non-tariff measures governed by the provisions of instruments multilaterally
negotiated under the auspices of the GATT;
(c) Regional or global arrangements entered into
amongst less-developed contracting parties for the mutual reduction or
elimination of tariffs and, in accordance with criteria or conditions which
may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or
elimination of non-tariff measures, on products imported from one another
(d) Special treatment of the least developed among
the developing countries in the context of any general or specific measures
in favour of developing countries.
3. Any differential and more favourable treatment
provided under this clause:
(a) shall be designed to facilitate and promote
the trade of developing countries and not to raise barriers to or create
undue difficulties for the trade of any other contracting parties;
(b) shall not constitute an impediment to the
reduction or elimination of tariffs and other restrictions to trade on a
most-favoured-nation basis;
(c) shall in the case of such treatment accorded
by developed contracting parties to developing countries be designed and, if
necessary, modified, to respond positively to the development, financial and
trade needs of developing countries".290
1 (footnote original) The words
"developing countries" as used in this text are to be understood to refer
also to developing territories.
2 (footnote original) It would
remain open for the CONTRACTING PARTIES to consider on an ad hoc
basis under the GATT provisions for joint action any proposals for
differential and more favourable treatment not falling within the scope of
this paragraph.
3 (footnote original) As described
in the Decision of the CONTRACTING PARTIES of 25 June 1971, relating to the
establishment of "generalized, non-reciprocal and non discriminatory
preferences beneficial to the developing countries" (BISD 18S/24)
7.64 The Generalized System of Preferences ("GSP") has its
origins in discussions that took place in the First Session of UNCTAD during the
mid-1960s, as reflected in General Principle Eight and Recommendation A.II.1 in
the Final Act of the First Session of UNCTAD. During the Second Session of
UNCTAD, on 26 March 1968, a Resolution was adopted on "Expansion and
Diversification of Exports of Manufactures and Semi-manufactures of Developing
Countries" (Resolution 21(II)). In this Resolution, UNCTAD agreed to "the early
establishment of a mutually acceptable system of generalized, non-reciprocal and
non-discriminatory preferences which would be beneficial to the developing
countries" and established a Special Committee on Preferences as a subsidiary
organ of the Trade and Development Board, with a mandate to settle the details
of the GSP arrangements. In 1970, UNCTAD's Special Committee on Preferences
adopted Agreed Conclusions which set up the agreed details of the GSP
arrangement. UNCTAD's Trade and Development Board took note of these Agreed
Conclusions on 13 October 1970. In accordance with the Agreed Conclusions,
certain developed GATT contracting parties sought a waiver for the GSP from the
GATT Council. The GATT granted a 10-year waiver on 25 June 1971. Before the
expiry of this waiver, the CONTRACTING PARTIES adopted a decision on
"Differential and More Favourable Treatment, Reciprocity and Fuller
Participation of Developing Countries" (the "Enabling Clause") on 28 November
1979.
7.65 The main issue disputed by the parties is whether the
Drug Arrangements are consistent with paragraph 2(a) of the Enabling Clause,
particularly the requirement of "non-discriminatory" in footnote 3 to this
subparagraph. The interpretation of paragraph 2(a) and footnote 3 in turn
depends upon the proper understanding of paragraph 3(c) in that the latter is an
important context for paragraph 2(a). It is only possible to give a full meaning
to paragraph 2(a) and footnote 3 after determining whether paragraph 3(c) allows
differentiation among developing countries in "respond[ing] positively to the
development, financial and trade needs of developing countries".291 Accordingly, in
order to determine whether the term "non-discriminatory" in footnote 3 is
affected by the meaning of paragraph 3(c), the Panel will proceed, first, with
the interpretation of paragraph 3(c).
219 Section VI of this Report, entitled "Interim Review", forms
part of the Findings of the Final Report of the Panel, in accordance with
Article 15.3 of the DSU.
220 (footnote original) EC's reply to the Panel's question to
India No. 8, para. 102.
221 (footnote original) EC's reply to the Panel's question to
India No. 8, para. 108.
222 (footnote original) Ibid., paras. 103-106.
223 (footnote original) Ibid., para. 105.
224 (footnote original) Ibid., para. 107.
225 (footnote original) Ibid., para. 111.
226 (footnote original) EC's reply to the Panel's question to
both parties No. 17, para. 57.
227 (footnote original) Ibid., para. 62.
228 (footnote original) Ibid., para. 63.
229 (footnote original) EC's reply to the Panel's question to
both parties No. 12, para 46.
230 (footnote original) EC's reply to the Panel's question to
both parties No. 12, para. 48. EC's reply to the Panel's question to the EC No.
18, paras. 165-168.
231 (footnote original) EC's reply to the Panel's question to
India No. 8, para. 111.
232 (footnote original) Second written submission of the European
Communities, paras. 34-37. EC's reply to the Panel's question No. 44 from the
Panel to both Parties.
233 (footnote original) EC's second written submission, para. 38;
EC's reply to the Panel's question to both parties No. 52, para. 57; EC's
comment on India's reply to the Questions to India No. 16.
234 For example, the very last sentence of the proposed text
stated that "[i]n any event, the European Communities is of the view that the
Agreed Conclusions and the other UNCTAD texts cited by India do not support
India's position". The original arguments made in the EC's second written
submission and in its reply to questions from the Panel are related to the term
"non-discriminatory" and to paragraph 2(a), rather than to paragraph 3(c). The
first sentence of the proposed text stated "[t]he European Communities argues
that paragraph 3(c) supports contextually its interpretation of the term
"non-discriminatory" in footnote 3". Again, this argument does not address the
issue of the meaning of paragraph 3(c) but rather, it addresses the issue of the
meaning of "non-discriminatory".
235 (footnote original) First written submission of the European
Communities, para. 66.
236 (footnote original) Reply of the European Communities to
question No. 9 from the Panel to both parties, paras. 31-32.
237 (footnote original) Reply of the European Communities to
question No. 10 from the Panel to both parties, paras. 38-40.
238 (footnote original) EC's reply to the Panel's question to
both parties No. 9, para. 27.
239 (footnote original) EC's replies to the Panel's question to
both parties No. 10 and EC's reply to the Panel's question to the EC No. 15.
240 (footnote original) EC's reply to the Panel's question to
both parties No. 9., para. 32.
241 (footnote original) EC's reply to the Panel's question to
both parties No. 32, para. 5.
242 (footnote original) EC's second written submission, para. 38.
EC's reply to the Panel's question to both parties No. 52, para. 57. EC's
comment on India's reply to the Questions to India No. 16.
243 (footnote original) Reply of the European Communities to
question No. 9 from the Panel to both parties; Second written submission of the
European Communities, para. 16.
244 India cited paragraphs. 24-26 of its Oral Statement at the
Second meeting of the Panel to show that it has made a claim and provided
evidence under the Enabling Clause during the proceedings: "The issue of the
allocation of burden of proof has been rendered unnecessarily complex in the
present case. ... As stated in India's second written submission, the following
factual elements are not disputed � In India's view, these are the only material
facts that need to be established to sustain a finding that the Drug
Arrangements are inconsistent with Article I:1 of the GATT 1994 and are not
justified under the Enabling Clause. Therefore, the Panel need not even delve
into the issue of allocation of burden of proof".
245 Paragraph 20 categorically states that the Enabling Clause
"constitutes an affirmative defence that the EC might invoke to justify an
inconsistency with Article I:1 of the GATT." In paragraph 21, India explained
that for the "sake of procedural efficiency" it presented its views on this
issue.
246 Paragraph 7 refers to "India�s claim under Article I of the
GATT� [and] � the EC�s defence under paragraph 2(a) [of] the Enabling Clause".
247 See, e.g., paragraph 25 of the second oral statement
of India (8 July 2003) for a statement of India's theory regarding claim and
burden of proof.
248 In a different context, the Appellate Body cautioned panels
against introducing concepts into a WTO agreement that are simply not there.
Appellate Body Report, India - Patents (US). Here, the argument made by
India in its comments was not there during the Panel proceedings.
249 Appellate Body Report, Canada - Aircraft, para. 145;
Appellate Body Report, Thailand - H-Beams, paras. 74-78.
250 See, e.g., American Bar Association, Model Rules of
Professional Conduct, Rule 1.7; State Bar of California, Rules of Conduct, Rule
3-310; New York State Bar Association, Lawyer's Code of Professional
Responsibility, DR 5-105; Canadian Bar Association, Code of Professional
Conduct, Chapter V; Law Society of Upper Canada, Rules of Professional Conduct,
Rule 2.04; Council of the Bars and Law Societies of the European Union, Code of
Conduct for Lawyers in the European Union, Rules 3.2; Barreau de Paris, R�gles
professionnelles, Article 155; Bar of England and Wales, Code of Conduct, Rules
603 and 608.
251 It could be argued that the Interim Report of a panel
constitutes part of its "deliberations" before it is finalized and issued to the
parties.
252 See, e.g., American Bar Association, Model Rules of
Professional Conduct, Rule 1.6; New York State Bar Association, Lawyer's Code of
Professional Responsibility, DR 4-101; Canadian Bar Association, Code of
Professional Conduct, Chapter IV; Law Society of Upper Canada, Rules of
Professional Conduct, Rule 2.03; Council of the Bars and Law Societies of the
European Union, Code of Conduct for Lawyers in the European Union, Rules 2.3;
Bar of England and Wales, Code of Conduct, Rules 603, 608 and 702.
253 Communication of the European Communities to the Panel on 4
June 2003.
254 The European Communities states that the problem of
confidentiality of submissions and of panel documents is mitigated by the fact
that third parties have been granted enhanced rights. See Communication
of the European Communities to the Panel on 16 May 2003.
255 First written submission of India, para. 44.
256 First written submission of India, para. 43.
257 First written submission of the European Communities, para.
20.
258 Second oral statement of the European Communities, paras. 25
and 81.
259 WT/DS246/4.
260 First written submission of India, para. 67.
261 First written submission of India, para. 44.
262 Second written submission of India, para. 48.
263 First written submission of India, para. 43.
264 First written submission of India, para. 52; second written
submission of India, para. 52.
265 Second oral statement of India, para. 25.
266 Reply of India to question No. 2 from the Panel to both
parties
267 Second written submission of India, para. 62.
268 Second written submission of India, paras. 54-55.
269 Second written submission of India, para. 38.
270 Replies of the European Communities to questions Nos.2 and 3
from the Panel to both parties. First written submission of the European
Communities, paras. 17-18.
271 First written submission of the European Communities, para.
19.
272 Reply of India to question No. 4 from the Panel to both
parties; reply of the European Communities to question No. 4 from the Panel to
both parties.
273 Reply of India to question No. 3 from the Panel to both
parties; reply of the European Communities to question No. 3 from the Panel to
both parties.
274 The New Shorter Oxford English Dictionary, 4th
Edition, p. 1947.
275 Appellate Body Report, US - Wool Shirts and Blouses,
DSR 1997:1, 323, at 337.
276 Appellate Body Report, Turkey - Textiles, para. 45.
277 The New Shorter Oxford English Dictionary, 4th
Edition, p. 1947.
278 In many cases, the Appellate Body does not rely solely on the
dictionary definitions of a term to interpret the precise legal meaning of that
term. In Japan - Alcoholic Beverages II, when determining the meaning of
the term "like" in Article III:2 of GATT 1994, the Appellate Body stated that
"there can be no one precise and absolute definition of what is 'like'". The
scope of likeness "must be determined by the particular provision in which the
term 'like' is encountered". Appellate Body Report, Japan - Alcoholic
Beverages II, p.114. Similarly, In EC - Asbestos, when addressing the
meaning of the term "like" in Article III:4 of GATT 1994, the Appellate Body
stated: "dictionary meanings leave many interpretive questions open".
Accordingly, the Appellate Body interpreted the term "like" by examining it in
the relevant context of Article III:4 of GATT 1994. Appellate Body Report, EC
- Asbestos, paras. 92-93. In Canada - Aircraft, when analyzing the
meaning of "benefit" under Article 1.1 (b) of the SCM Agreement, the Appellate
Body also stated that there are a number of ordinary meanings for that term and
that "[t]hese definitions also confirm that the Panel correctly stated that 'the
ordinary meaning of 'benefit' clearly encompasses some form of advantage.'
Clearly, however, dictionary meanings leave many interpretive questions open".
Appellate Body Report, Canada - Aircraft, para. 153. In US - Offset
Act (Byrd Amendment), the Appellate Body stated that "[i]t should be
remembered that dictionaries are important guides to, not dispositive statements
of, definitions of words appearing in agreements and legal documents". Appellate
Body Report, US - Offset Act (Byrd Amendment), para. 248.
279 For instance, In US - Gasoline, that panel "proceeded
to examine whether the aspect of the baseline establishment methods found
inconsistent with Article III:4 could � be justified under paragraph (b) of
Article XX", para. 6.20.
280 Appellate Body Report, Turkey - Textiles, paras. 41
and 64.
281 Appellate Body Report, EC - Hormones, para. 104.
282 The Panel recalls India's argument that the Enabling Clause
is not an essential element of India's claim under Article I:1, but it is an
essential element of the European Communities' defence. Second oral statement of
India, para. 25.
283 In paragraph 4 of its first written submission, the European
Communities states: "The Drug Arrangements are granted in conformity with the
1979 Decision on Differential and More Favorable Treatment, Reciprocity and
Fuller Participation of Developing Countries".
284 Executive summary of India's first written submission, paras.
9-13, 27 and 34.
285 Executive summary of the European Communities' first written
submission, paras. 14-21.
286 Executive summary of the European Communities' second written
submission, para. 14.
287 Exhibit India-6.
288 The New Shorter Oxford English Dictionary, 4th
Edition, p. 3465.
289 First written submission of the European Communities, para.
4: "The Drug Arrangements are granted in conformity with � the Enabling Clause".
290 L/4903, BISD 26S/203-205.
291 The European Communities argues that "if the term
'non-discriminatory' was interpreted as prohibiting any difference in treatment
between developing countries, developed countries would be effectively precluded
from responding positively to those needs, thus rendering a nullity the
requirement set forth in paragraph 3(c)". First written submission of the
European Communities, para. 71.