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WORLD TRADE
ORGANIZATION

WT/DS246/R
1 December 2003

(03-6284)

  Original: English

EUROPEAN COMMUNITIES - CONDITIONS FOR
 THE GRANTING OF TARIFF PREFERENCES
 TO DEVELOPING COUNTRIES


Report of the Panel

(Continued)


  1. 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.

  1. 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.

  1. 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.

  1.  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-à-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.