VI. INTERIM REVIEW

1. INTRODUCTION

6.1 The Panel issued the Draft Descriptive Part of its Report to the parties on 8 August 2003, in accordance with Article 15.1 of the DSU. Both parties offered written comments on the Draft Descriptive Part on 15 August 2003. The Panel noted all these comments and amended the draft descriptive sections where appropriate. The Panel issued its Interim Report to the parties on 5 September 2003, in accordance with Article 15.2 of the DSU. On 23 September 2003, both India and the European Communities requested that the Panel review certain precise aspects of the Interim Report. While the European Communities' request concerns certain paragraphs of the Findings section of the Report, India's request relates solely to certain paragraphs in the dissenting opinion section of the Report. Neither of the parties requested an interim review meeting. On 30 September, India and the European Communities provided written comments on each others' requests, as permitted by the Panel's working procedures. The Panel has carefully reviewed the arguments made by both parties and addresses them in this section in accordance with Article 15.3 of the DSU.²¹⁹

2. Comments by the European Communities

6.2 The European Communities requested the Panel to change its wording in paragraphs 7.14 and 7.17 of the Interim Report so that instead of stating the European Communities "acknowledged" that the issue of confidentiality does not arise in this dispute due to the enhanced third party rights granted to all third parties, the Panel would describe the European Communities' position as being that the problem was "mitigated", but not entirely eliminated. The European Communities cited its letter of 4 June 2003 to the Panel on this issue in support of its request:

"As noted in the EC's statement at the first meeting, the fact that third parties have been granted enhanced rights mitigates the problem, but does not dispose of it entirely. The enhanced rights accorded to third parties do not include the access to all procedural documents made available to the main parties. In particular, third parties have not been granted access to the Interim Report. Yet Paraguay's counsel will have access to the Interim Report, while the other third parties will not. Thus, by sharing its legal counsel with India, Paraguay will gain an advantage over all the other third parties. Given the considerable economic impact of this dispute for the third parties (one of the reasons invoked by the Panel to accord enhanced rights), this advantage seems particularly unfair."

The European Communities also requested the Panel to complete its findings by addressing the issue of whether the situation is compatible with the parties' obligation to maintain the confidentiality of the Interim Report and whether it is compatible with the principle that third parties should be treated equally.

6.3 India commented on this request that the fact that Paraguay and India share the same legal counsel does not mean that Paraguay is automatically given access to all the documents sent by the Panel to India. India argued that, in fact, the ACWL had not given the Interim Report to Paraguay and it would not do so. In India's view, it was completely unwarranted to accuse India of a violation of the confidentiality rules of the DSU merely because it used the same legal counsel as a third party. According to India, the ACWL had adopted rigorous regulations that obliged its staff to respect "the privileged and confidential nature with a Member in a specific case" and to "exercise the utmost discretion in regard to all matters of official business". India therefore indicated that it had the assurance that its confidentiality obligations under the DSU would be respected by the staff of the ACWL. India maintained that the Panel should reject the EC's claim that India violated its confidentiality obligations merely by engaging the same legal counsel as Paraguay.

6.4 India also maintained that the Panel should reject the EC's claim that Paraguay had an "unfair" litigation advantage over the other third parties simply because its legal counsel had access to the Interim Report while the legal advisor of the other third parties did not. India argued that there is no provision in WTO law on which the Panel could base a ruling that considerations of "fairness" of the kind invoked by the European Communities restricted India's right to choose its legal advisers. Also, India contended that it failed to see what litigation advantage Paraguay could possibly derive from the fact that its legal counsel had access to the Interim Report since neither Paraguay nor any other third parties were entitled to present comments on the Interim Report.

6.5 The Panel has considered both parties arguments on this issue and clarified its understanding of the European Communities' position on this issue as requested. Accordingly, it makes necessary adjustments to its analysis in paragraphs 7.14-7.17 as well as inserting a footnote to the same point in paragraph 7.18.

6.6 The European Communities also requested the Panel to change its wording in paragraph 7.12 which might lead to the understanding that the European Communities had not acted in good faith. The Panel accepted the proposal and adjusted the language in that paragraph accordingly.

2. Paragraph 3(c)

6.7 The European Communities requested the Panel to replace paragraphs 7.71-7.73 of the Interim Report with the following text, as a summary of the EC's arguments on this issue:

"The European Communities argues that Paragraph 3(c) supports contextually its interpretation of the term 'non-discriminatory' in footnote 3. If donor countries could not differentiate among developing countries, they could not achieve the objective set out in that provision. India's view that Paragraph 3(c) only permits to take into account the needs of all the developing countries 'in general', and not their 'individual' interests, is not supported by the text²²⁰ and would render Paragraph 3(c) irrelevant.²²¹ The omission of the terms 'individual' or 'particular' is not dispositive.²²² The Enabling Clause is not consistent when using those terms.²²³ India overlooks that Paragraph 3(c) applies also with respect to the preferences for LDCs envisaged under Paragraph 2(d).²²⁴ It is obvious that such preferences must respond to the specific needs of the LDCs, and not to those of all developing countries. Moreover, India's interpretation would have the result that any GSP would have to be administered on a 'lowest common denominator basis'.²²⁵

The European Communities notes that Paragraph 3(c) is so broadly drafted that it might be arguable that it is a purposive provision.²²⁶ To the extent that it imposes a binding obligation, it should be interpreted in a manner which is both workable and consistent with the requirements that the preferences be 'generalised' and 'non-discriminatory'.²²⁷ Developed countries cannot take into account each and every difference between developing countries, but this does not mean that they should be prevented from approaching the objective of Paragraph 3(c) by applying horizontal 'graduation' criteria, and/or by defining subcategories of developing countries which capture the most significant differences between them on the basis of a comprehensive set of objective, non-discriminatory criteria.²²⁸ The mere fact that two countries score differently with respect to a given indicator does not mean that they have different 'development needs' for the purposes of Paragraph 3(c).²²⁹ Moreover, trade preferences are not always the most adequate response to differences in development needs.²³⁰

The European Communities argues that developed countries are free to decide whether or not to apply a GSP. By the same token, they are also free to decide whether or not to grant preferences with respect to certain products, as well as to choose the depth of the tariff cuts. Paragraph 3(c) cannot change this basic premise. India's 'all or nothing' approach has no basis in the Enabling Clause, would greatly discourage donor countries and is clearly against the interest of the developing countries.²³¹

On the status of the Agreed Conclusions, the European Communities argues that footnote 3 refers only to the GSP system as described in the 1971 Decision and not to the Agreed Conclusions or other UNCTAD texts. The Agreed Conclusions are not context of the 1971 Decision because they are not binding, not all GATT members were parties to them, and they were not made in connection with the 1971 Decision. A fortiori, the Agreed Conclusions are not context of the Enabling Clause. The European Communities submits that the Agreed Conclusions and other UNCTAD texts are preparatory work for the 1971 Decision and, as such, just a supplementary mean of interpretation.²³² In any event, the European Communities is of the view that the Agreed Conclusions and the other UNCTAD texts cited by India do not support India's position.²³³"

6.8 India commented that since the European Communities had not explained why it considered the Panel's summary to be incomplete or incorrectly summarized, it could not reasonably expect the Panel to correct inaccuracies that it had not identify. India considered that the purpose of such summaries was to define the issue analyzed by the Panel, not to provide the reader with an abbreviated rendering of all of the arguments presented by the disputing parties. As a result, the mere fact that the summaries prepared by the Panel did not reproduce all the arguments made by the parties did not render them incomplete. For these reasons, India requested that the Panel reject the EC's request.

6.9 The Panel considers that the purpose of summarizing parties' arguments under the heading "Paragraph 3(c)" is to set out each party's interpretation or understanding of paragraph 3(c) and their views on the interpretative role of the Agreed Conclusions in relation to the Enabling Clause, including paragraph 3(c). The Panel needs to describe the basic positions of both parties submitted during the whole of the proceedings regarding the meaning of paragraph 3(c). The new paragraphs that the European Communities requested the Panel to use in place of paragraphs 7.71-7.73 focus mostly on the rebuttal of India's interpretation of paragraph 3(c), rather than on the European Communities' own interpretation of paragraph 3(c). Another problem with the proposed text is that certain parts of it do not address the issue of the meaning of paragraph 3(c), but rather, they address other paragraphs of the Enabling Clause.²³⁴ Such replacement, in the Panel's view, would not be a balanced assessment of the arguments made by the parties during the proceedings. On the other hand, the Panel considers it appropriate to make adjustments to paragraphs 7.71-7.73 so as to take note of other relevant arguments made by the European Communities during the proceedings, which the European Communities would like the Panel to set out in its Report. Noting that some of the arguments raised in the proposed texts are actually already covered by the text of paragraphs 7.71-7.73 of the Interim Report, the Panel has made a few adjustments by adding certain elements of the proposed text into those paragraphs. The adjustments are now reflected in paragraphs 7.72-7.76 of this Report. At the same time, the Panel has also made adjustments to paragraph 7.68 so as to set out the corresponding counter arguments that India presented in the proceedings.

3. "Non-discriminatory" in footnote 3

6.10 The European Communities requested the Panel to replace paragraphs 7.118-7.120 of the Interim Report with the following proposed text:

"The European Communities argues that, in addition to the neutral meaning invoked by India, the word 'discriminate' has also a negative meaning. The full text of the dictionary definition quoted by India is 'to make a distinction in the treatment of different categories of people, or thing, esp. unjustly or prejudicially against the people on grounds of race, colour, sex, social status, etc'.²³⁵ Referring to numerous definitions of authors and judicial decisions of international tribunals, the European Communities maintains that, in a legal context, 'non-discriminatory' is not synonymous with formally equal treatment. Rather, there is discrimination if equal situations are treated unequally or if unequal situations are treated equally.²³⁶

For the European Communities, the term discrimination does not have a uniform meaning throughout the WTO Agreement. It notes the statement by the panel in Canada - Pharmaceutical Patents that the term 'discrimination' may have different meanings in different WTO contexts.. For example, the meaning of discrimination under Article III of GATT 1994 is different from the meaning of discrimination under the chapeau to Article XX of GATT 1994.²³⁷

The European Communities maintains that the term 'non-discriminatory' must be interpreted in the specific context of the Enabling Clause (and in particular of paragraphs 2(a) and 3(c) and the term 'generalised' in footnote 3)²³⁸ and in the light of its object and purpose. Article I:1 of the GATT is concerned with providing equal conditions of competition for imports of like products originating in all Members. In contrast, the Enabling Clause, like all Special and Differential Treatment provisions, seeks to create unequal competitive conditions in order to respond to the special needs of developing countries. Having regard to that objective, differentiating between developing countries according to their development needs is no more discriminatory than differentiating between developed and developing countries."²³⁹

Accordingly, the EC considers that, in order to establish whether the Drug Arrangements are 'non-discriminatory' within the meaning of footnote 3, the Panel should address the following two issues: first, the Panel should establish whether the Drug Arrangements pursue an objective which is consistent with the object and purpose of the Enabling Clause, and more specifically with the objective stated in Paragraph 3(c); second, if so, the Panel should establish whether the Drug Preferences constitute a reasonable means to achieve that objective²⁴⁰, i.e. whether they are both apt to achieve that objective and proportionate.²⁴¹

The European Communities argues that the UNCTAD texts relied upon by India are not context and in any event do not support India's position. They address the threshold question of whether all developing countries should be recognised as beneficiaries of the GSP, rather than the subsequent question of whether all recognised beneficiaries should be granted identical preferences. The first of these questions is addressed by the term 'generalised', while the second is addressed by the term 'non-discriminatory'. India confuses the two issues and renders the term 'non-discriminatory' redundant.²⁴²"

6.11 India requested the Panel to reject the European Communities' request for the same reason as described in paragraph 6.8, namely, that (i) the European Communities had not provided any reason why it considered these paragraphs to be incomplete or inaccurate, and (ii) the purpose of such summaries, in India's view, was not to set out all of the arguments presented by the parties, but to define the issues to be analyzed by the Panel. India contended that the mere fact that the summaries prepared by the Panel did not reproduce all the arguments made by the parties did not render them incomplete.

6.12 The Panel considers that a number of the arguments in the EC's proposed texts are already covered by paragraphs 7.118-7.120 of the Interim Report. In the Panel's view, there is no requirement that a Panel use the language that a party prefers to summarize its arguments unless the Panel's summary is inaccurate or incomplete as to the meaning of these arguments as originally made in the proceedings. The European Communities has not indicated whether the cited paragraphs contain inaccuracies or are incomplete, and where in these paragraphs such inaccuracies or incompleteness is to be found. Although the evaluation of the "completeness" of such summaries of parties' arguments depends upon the relevance of various arguments to the Panel's analysis of a relevant issue, the Panel could, in exercising its discretion, set out more arguments that a party would like the Panel to include, provided the Report would also set out the corresponding counter arguments made by the other party during the proceedings, so as to allow for an objective assessment. With this in mind, the Panel has made adjustments to paragraphs 7.118-7.120 of its Interim Report by adding certain elements of the proposed text into those paragraphs, as reflected in paragraphs 7.122-7.125 of the Report. Accordingly, the Panel also made adjustments to paragraph 7.117 of the Interim Report so as to reflect the corresponding counter arguments that India made during the proceedings, as reflected in paragraphs 7.120-7.121 of the Report.

4. Paragraph 2(a)

6.13 The European Communities requested that the Panel replace paragraphs 7.160-7.161 with the following text:

"The European Communities, in contrast, argues that India's interpretation of 'developing countries' under paragraph 2(a) as meaning 'all developing countries' would render redundant the terms 'generalised' and 'non-discriminatory' in footnote 3. Also, according to the European Communities, India's interpretation would mean that the objective of paragraph 3(c) of responding positively to the development, financial and trade needs of developing countries could not be achieved.²⁴³"

6.14 For the same reason as set out earlier, instead of replacing the whole paragraph with the EC's proposed text, the Panel has made an adjustment to paragraph 7.160 of its Interim Report which is reflected in paragraph 7.165 of its Report.

5. Dissenting Opinion

6.15 India requested the dissenting member of the Panel to delete those parts of the dissenting opinion based on the assumption that India abandoned its claims with respect to paragraph 2(a) of the Enabling Clause, which in India's view, is an incorrect assumption. Citing paragraph 9.20 of the Interim Report, which states "[i]n arguing that the Enabling Clause is an affirmative defence, India must admit that it is not a claim and its reference to the Enabling Clause is an argument in response to an anticipated defence", India argued that this assertion failed to distinguish between the substantive legal claims and the procedural arguments that it presented in relation to the allocation of burden of proof. In India's view, a complainant presenting the procedural argument that the duty to invoke a provision and the burden of proof falls on the defendant did not thereby amount to a withdrawal of its substantive claim with respect to that provision. To put it in another way, India's argument that paragraph 2(a) of the Enabling Clause provided the European Communities with an affirmative defence did not imply that it was requesting the Panel not to rule on that provision in case such argument was not accepted.

6.16 India argued that, in fact, India clearly made the claim that the Drug Arrangements did not meet the requirements set out in paragraph 2(a) of the Enabling Clause, in its request for the establishment of the Panel, and it continued to make the claim during the proceedings and submitted the necessary evidence to support that claim. India also argued that paragraph 48 of its second written submission states: "India's claim in these proceedings, as expressed in its first written submission, is based on Article I:1 of the GATT and not on paragraph 2(a) of the Enabling Clause. Paragraph 2(a) of the Enabling Clause is therefore not a material element of India's claim".²⁴⁴ This statement when read in its context did not communicate that India no longer sought a ruling in respect of this provision. The purpose of this statement was to present the argument that, given that paragraph 2(a) of the Enabling Clause was an affirmative defence, it was not up to India but up to the European Communities to assert and prove that the Drug Arrangements were consistent with that provision.

6.17 India also argued that in all previous cases where panels rejected the complainants' argument that a particular provision constituted a defence, the panels nevertheless examined the complaint in light of that particular provision. Refusal to conduct the examination would result in the situation where the complainant would have to re-submit its case to a new panel, which would run counter to the objective of the DSU of prompt settlement of disputes, as provided in Article 3.3 thereof. It was also India's view that without seeking the parties' clarification on the scope of India's claim during the proceedings, the legal approach used was not compatible with the basic principle of due process.

6.18 The European Communities commented that although India's panel request mentioned some provisions of the Enabling Clause in rather ambiguous terms, India chose not to assert any claim under that Enabling Clause in its first written submission. Instead, India limited itself to respond to the "affirmative defence" which it anticipated would be raised be the European Communities under the Enabling Clause. Subsequently, India clarified several times in unequivocal terms that it was not making any claim under the Enabling Clause. The European Communities cited India's reply to question number 5 from the Panel to both parties, paragraph 48 of India's second written submission and India's second oral statement to demonstrate such fact. The European Communities argued that India could not use the interim review as an opportunity to correct the consequences of its own previous act. In the European Communities' view, there was no reason for the dissenting panelist to modify the dissenting opinion.

6.19 The dissenting member of the Panel considers that India's theory and claim are accurately described in paragraph 4.169 of this Report as follows: "India's claim in these proceedings, as expressed in its first written submission, is based on Article I:1 of GATT 1994 and not on paragraph 2(a) of the Enabling Clause. Paragraph 2(a) of the Enabling Clause is therefore not a material element of India's claim. To defeat India's claim, the European Communities may assert, and it has chosen to so assert, that the tariff preferences under the Drug Arrangements are justified under the Enabling Clause. It is thus incumbent on the European Communities to prove the affirmative of its defence - that the Drug Arrangements are in fact covered by that Clause." This theory was repeated by India, e.g., in its executive summary of its first written submission²⁴⁵ and in its second written submission.²⁴⁶ The theory coincided with India's argument that the European Communities bore the burden of proof.²⁴⁷ India's written and oral statements to the Panel and to the participants in the proceedings voluntarily clarified the meaning of the language of the terms of reference and narrowed the claim to be considered by the Panel²⁴⁸, and defended against by the European Communities.

6.20 In the dissenting panelist's view, the burden of proof is a distinct legal issue. India argued consistently that the European Communities could not mount a successful defence under the Enabling Clause and that the European Communities bore the burden of proof. While the defence and the burden of proof are related to the claim procedurally, neither can determine the claim.

6.21 On India's remarks in paragraph 9 of its Comments that a procedural argument by a complainant about the respondent's duty to invoke a provision (e.g., the Enabling Clause) and about the burden of proof does not withdraw a substantive claim about that provision, the dissenting panelist is of the view that India seems to argue that the Enabling Clause is both its claim and the European Communities' defence. However, as the dissenting panelist understands, that was not its argument before this Panel as explained above and was not the situation in US -Wool Shirts and Blouses, where India had made a claim under Article 6 of the Agreement on Textiles and Clothing.

6.22 Based on these reasons, the dissenting member of the Panel sees no reason to make any change to the Dissenting Opinion. The Panel, however, has inserted a footnote to paragraph 7.54 on a related point.

VII. FINDINGS

1. procedural issues

7.1 In this case, two procedural issues have been raised. The first relates to a request by certain third parties for enhanced rights of participation in the panel proceedings. The Panel issued its ruling on this matter on 17 April 2003, granting enhanced third-party rights to all third parties in this dispute. The decision is reproduced as Annex A to this report.

7.2 The second procedural issue relates to a matter raised by the European Communities concerning the joint representation of India and Paraguay by the ACWL. The Panel will now examine this issue.

1. Joint representation of India and Paraguay

(a) Introduction

7.3 The Panel recalls that on 14 May 2003, at the first substantive meeting with the parties, the European Communities raised certain procedural issues concerning the joint representation of India and Paraguay by the ACWL. Specifically, the European Communities raised issues of: (i) potential conflict of interest; (ii) incompatibility with the DSU rules on confidentiality; and (iii) blurring the distinction between the main parties and third parties. The European Communities requested that the Panel clarify whether, as a matter of principle, the same legal counsel could represent simultaneously a complaining party and a third party and, if so, under what conditions. The European Communities also requested that, if the Panel considered that in principle the same counsel could represent simultaneously a party and a third party under certain conditions, the Panel should then examine whether the conditions for such simultaneous representation were satisfied in this case.

7.4 The Panel further recalls that on the same date, in response to the European Communities' request to the Panel, India and Paraguay submitted a Joint Statement, indicating that: (i) India and Paraguay each had full notice of the representation of the other by the ACWL; (ii) both India and Paraguay considered that, by representing both India and Paraguay, the ACWL did not compromise their individual interests in effective legal representation; (iii) India and Paraguay consented to simultaneous representation by the ACWL in this dispute; (iv) the issue of exchange of information between parties and third parties did not arise in the present case because third parties were accorded enhanced rights; and (v) the European Communities' request that the Panel rule on a matter of legal ethics lacked any legal basis. The above-referenced Joint Statement was followed by letters to the Panel from India and Paraguay, both dated 28 May 2003, restating India's and Paraguay's positions on this matter.

7.5 In addressing this set of procedural issues, the Panel first notes that the WTO has not itself elaborated any rules governing the ethical conduct of legal counsel representing WTO Members in particular disputes. Accordingly, the Panel considers there are no directly applicable legal provisions or guidelines to which it can have reference in order to resolve any issues raised in respect of the joint representation of a party and a third party.

7.6 Second, the Panel is not aware of any previous GATT or WTO case in which a panel or the Appellate Body has addressed the type of conflict of interest issue raised by the European Communities in the present dispute.

7.7 Third, whereas in two earlier proceedings before the Appellate Body²⁴⁹, the issues of confidentiality and of measures necessary to maintain such confidentiality were addressed, the Panel considers that the factual settings and the rulings in those earlier cases are not apposite to the issues raised by the European Communities in this proceeding.

7.8 The Panel nonetheless considers that, flowing from its terms of reference and from the requirement, in Article 11 of the DSU, to "make an objective assessment of the matter before it � ", as well as the requirement, pursuant to Article 12 of the DSU, to determine and administer its Working Procedures, the Panel has the inherent authority - and, indeed, the duty - to manage the proceeding in a manner guaranteeing due process to all parties involved in the proceeding and to maintain the integrity of the dispute settlement system. With specific reference to issues raised in the instant case, it is incumbent on the Panel to clarify whether the ACWL's joint representation of India and Paraguay poses any ethical concerns of the kind raised by the European Communities. At the same time, and although the European Communities asks the Panel for a ruling whether, as a matter of principle, the same legal counsel can represent simultaneously a party and a third party and, if so, under what conditions, the Panel considers that it cannot rule on such issues in the abstract, but only as they relate to the specific case before it.

(b) Conflict of interest

7.9 As a general matter, the Panel considers that it is the responsibility of legal counsel to ensure that it is not placing itself in a position of actual or potential conflict of interest when agreeing to represent, and thereafter representing, one or more WTO Members in a dispute under the DSU. In this regard, the Panel notes that bar associations in many jurisdictions have elaborated rules of conduct dealing explicitly with conflicts of interest through joint representation.²⁵⁰

7.10 Common to all such ethical rules of conduct is the principle that counsel shall not accept or continue representation of more than one client in a matter in which the interests of the clients actually or potentially conflict. Underlying this principle is the fundamental notion that a client must have full confidence in the objectivity and independence of the professional advice provided to it by counsel. A second common element to all such ethical rules, however, is the possibility for clients, when faced with counsel being subject to actual or potential conflict of interest as the result of joint representation, to consent to such joint representation, but only following full disclosure by counsel. In other words, following disclosure of the actual or potential conflict of interest, clients may waive such conflict. Yet a third common element is that counsel shall nevertheless discontinue such joint representation at such time as counsel becomes aware that the interests of the two (or more) clients are directly adverse.

7.11 The Panel considers that the above-described common elements to ethical rules of conduct in many jurisdictions are equally appropriate to dealing with issues of representational conflict of interest in the WTO dispute settlement context.

7.12 The Panel agrees with India and Paraguay that the parties most likely to be concerned by any potential or actual conflict of interest are those agreeing to joint representation, here India and Paraguay. It would seem that the basis for raising concerns over such joint representation would be considerably less for other parties in the case, who would be unlikely to be prejudiced by any joint representation of India and Paraguay. While the Panel does not exclude that, in a different case, there could be concerns of a more systemic nature, that could be raised by parties other than those agreeing to joint representation, the Panel is of the view that the European Communities has not demonstrated the existence of a particular situation which gives rise to such concerns in the instant case. The Panel accordingly does not consider that it is faced with an issue of principle or one having systemic implications for the WTO dispute settlement system.

7.13 As stated in the Introduction, India and Paraguay claim to have been fully informed about their joint representation by the ACWL and have given their written consent to such joint representation. In these circumstances, the Panel considers that India and Paraguay, as well as counsel for this party and third party, have done everything necessary to allow for the continued joint representation of India and Paraguay by the ACWL.

(c) Confidentiality

7.14 On the issue of confidentiality between a party and its counsel, while noting that the European Communities states that the problem is mitigated in the instant case because of the enhanced rights granted to third parties, the European Communities nonetheless maintains that the problem has not been disposed of entirely and requests the Panel to consider whether the ACWL's joint representation of India and Paraguay may be inconsistent with DSU rules on confidentiality.

7.15 Although the European Communities does not specify which provision(s) of the DSU may be of concern, the Panel considers that the most relevant DSU rule that could be implicated is Article 18.2, whose first sentence states that "[w]ritten submissions to the panel or the Appellate Body shall be treated as confidential, but shall be made available to the parties to the dispute". A related rule is Article 14.1 of the DSU which provides that "[p]anel deliberations shall be confidential". Article 10 of the DSU and paragraph 12 of the Working Procedures, Appendix 3 to the DSU, which set out steps of the panel's work, could also be implicated, as third parties are permitted limited participation at various stages of panel proceedings, as compared to the parties. In particular, third parties are not provided the right to participate in the interim review process under either Article 10 or the Working Procedures. In the view of the Panel, Article 18.2 of the DSU would be the more typical and relevant rule, where third parties only receive the first submissions of the parties to the Panel and only participate in a single, special third-party session.

7.16 As a general matter, the Panel considers that Members involved in the dispute settlement process have the obligation of ensuring confidentiality, as required by Article 18.2, Article 14.1²⁵¹ and the Working Procedures, regardless of who serves as their legal counsel. Needless to say, this obligation of Members involved in the dispute settlement process must be respected by all of their representatives, including legal counsel. In addition, as a general professional discipline, it is the responsibility of counsel to maintain the confidentiality of all communications between it and the party (or third party) it represents. In this regard, the Panel again notes that bar associations in many jurisdictions have elaborated rules of conduct dealing explicitly with confidentiality between clients and their legal counsel.²⁵²

7.17 In this dispute, India argues that the issue of confidentiality does not arise for India and Paraguay because of the enhanced rights granted to all third parties. On the other hand, the European Communities responds that the problem is mitigated but not totally disposed of, as there is still the possibility of access to Panel documents, including the Interim Report by third party Paraguay, due to the use of the same legal counsel.²⁵³ However, the Panel considers that due to the enhanced third-party rights pursuant to which all third parties receive all submissions of the parties to the Panel and participate in all meetings of the Panel with the parties, Paraguay was actually accorded the right to share all submissions and Panel documents which were distributed before the end of the Second Substantive Meeting of the Panel. After the Panel's Second Substantive Meeting, no third party was given further enhanced right to participate in the process and, particularly, to influence the Panel's Findings. Paraguay has not gained any litigation advantage over other third parties in this dispute through its use of the same legal counsel as India. The Panel also notes that the European Communities has not provided any argument or evidence to indicate that in fact there is a disclosure of confidential information, including the Interim Report of the Panel, to Paraguay due to the joint representation of India and Paraguay by the same legal counsel. Under such circumstances, the Panel finds that the confidentiality issue has not arisen in this dispute.

(d) Blurring the distinction between parties and third parties

7.18 Whereas, in a procedurally more typical case, the joint representation of a party and a third party could potentially raise issues related to the blurring of the distinction between parties and third parties, the Panel considers that, as acknowledged by the European Communities²⁵⁴, this issue does not arise in the present case in view of the enhanced third-party rights accorded to all third parties. In these circumstances, the Panel does not consider it either necessary or appropriate to pronounce upon the more general issue of blurring that could arise in a different case.

2. claims of the parties

7.19 In this case, India claims that the Drug Arrangements of the European Communities are inconsistent with Article I:1 of GATT 1994 and are not justified by the Enabling Clause. India states that should the European Communities invoke the Enabling Clause, the European Communities bears the burden of establishing that the Drug Arrangements are justified under the Enabling Clause. India also claims that the European Communities fails to demonstrate that the Drug Arrangements are "non-discriminatory" within the meaning of paragraph 2(a) of the Enabling Clause. India further claims that the European Communities has not demonstrated that the Drug Arrangements are justifiable under Article XX(b) of GATT 1994.

7.20 The European Communities claims that the Drug Arrangements fall within the scope of paragraph 2(a) of the Enabling Clause and that the Enabling Clause excludes the application of Article I:1 of GATT 1994. The European Communities states that it is for India to demonstrate that the Drug Arrangements are not consistent with paragraph 2(a) of the Enabling Clause. Since India has not claimed a violation of the Enabling Clause, the European Communities requests the Panel to refrain from examining whether the measure is consistent with the Enabling Clause. Should the Panel find that Article I:1 applies, and that the Drug Arrangements are inconsistent with that provision, the European Communities requests the Panel to find that the Drug Arrangements are justified under Article XX(b).

C. THE NATURE OF THE ENABLING CLAUSE AND ITS RELATIONSHIP TO ARTICLE I: 1 OF GATT 1994

1. Introduction

7.21 India emphasizes that its material claim is that the Drug Arrangements constitute a violation of Article I:1 of GATT 1994, not a violation of the Enabling Clause. India notes that the European Communities requested a waiver for its Drug Arrangements and failed to obtain it. In these circumstances, India states that it had no knowledge, prior to the Panel request, what provision or provisions would be invoked to justify the Drug Arrangements.²⁵⁵ India maintains that the Enabling Clause allows WTO Members to derogate from the obligations under Article I:1. The European Communities may invoke the Enabling Clause to justify the inconsistency of its measure with Article I:1 of GATT 1994. As such, the Enabling Clause constitutes an affirmative defence.²⁵⁶ According to India, the European Communities bears the burden of proving that its measure is justified under the Enabling Clause. It is sufficient for India to make a prima facie case of violation of Article I:1 of GATT 1994.

7.22 The European Communities claims, however, that Article I:1 of GATT 1994 does not apply to a measure covered by the Enabling Clause because the Enabling Clause excludes the operation of Article I:1.²⁵⁷ The European Communities considers that India bears the burden of establishing a prima facie case of violation of the Enabling Clause. Since India limits its claim to violation of Article I:1 of GATT 1994, the European Communities considers that India fails to meet that burden. The European Communities therefore requests the Panel to dismiss India's Article I:1 claim and to refrain from examining the consistency of the Drug Arrangements with the Enabling Clause.²⁵⁸

7.23 In order to determine whether the Panel should proceed with the examination of the consistency of the Drug Arrangements with Article I:1 of GATT 1994 or with the Enabling Clause, it is necessary for the Panel to determine: (i) whether Article I:1 of GATT 1994 applies to a measure falling under the Enabling Clause; (ii) whether it is sufficient for India to establish a claim of violation of Article I:1 of GATT 1994; and (iii) which party bears the burden of establishing inconsistency or consistency of the European Communities' measure with the Enabling Clause. The Panel considers that the resolution of all these issues depends on the relationship between Article I:1 of GATT 1994 and the Enabling Clause, which in turn depends on the correct characterization of the nature of the Enabling Clause, namely, whether it is in the nature of a positive rule establishing obligations or of an exception to Article I:1 of GATT 1994. Accordingly, the Panel will proceed with its analysis of the nature of the Enabling Clause and its relationship to Article I:1.

2. Arguments of the parties

7.24 The Panel recalls India's request for the establishment of this Panel in which India requests the Panel to examine, inter alia, whether the Drug Arrangements and their application "are consistent with Article I:1 of GATT 1994 and the requirements set out in paragraphs 2(a), 3(a) and 3(c) of the Enabling Clause".²⁵⁹ In its first written submission, India requests the Panel to find that the Drug Arrangements are inconsistent with Article I:1 of GATT 1994 and not justified by the Enabling Clause.²⁶⁰ India also argues that, even though it is unclear to India what the legal basis for the Drug Arrangements is, it may reasonably be assumed that the European Communities will invoke the Enabling Clause as a defence. For the sake of procedural efficiency, India presents its views on the Enabling Clause in its first written submission.²⁶¹

7.25 In its second written submission, India indicates that its material claim is that the Drug Arrangements violate Article I:1 and that paragraph 2(a) of the Enabling Clause is not a material element of its claim. India argues that, to defeat India's claim, the European Communities may assert, and it has chosen to assert, that the Drug Arrangements are justified under the Enabling Clause.²⁶² As such, India maintains, the Enabling Clause constitutes an affirmative defence.²⁶³ India also argues that paragraph 2(a) of the Enabling Clause is an affirmative defence because it has legal functions and characteristics similar to other provisions of the GATT that the Appellate Body has recognized as affirmative defences.²⁶⁴ While the Enabling Clause is not an essential element of India's claim, it is an essential element of the European Communities' defence.²⁶⁵ In India's view, the European Communities bears the burden of proving that its measure is consistent with the Enabling Clause. It is sufficient for India to make a prima facie case of violation of Article I:1 of GATT 1994.

7.26 India argues that the legal functions of the 1971 Waiver Decision and the Enabling Clause are the same. Specifically, according to India, both permit a developed country to provide preferential tariff treatment to developing countries without according such treatment to other developed countries and the Enabling Clause is a renewal (and permanent embodiment) of the 1971 Decision, as contemplated in paragraph (b) of that Decision.²⁶⁶

7.27 India maintains that the Enabling Clause is an exception to Article I:1. India refers to the Black's Law Dictionary definition of that term: "exception is something that is excluded from a rule's operation" and that "statutory exception is a provision in a statute exempting certain persons or conduct from the statute's operation".²⁶⁷ Citing the Appellate Body ruling in US - Wool Shirts and Blouses that "Articles XX and XI:2(c)(i) are limited exceptions from obligations under certain other provisions of GATT 1994, not positive rules establishing obligations in themselves" and the Appellate Body's comments on Article XXIV in Turkey - Textiles, it concludes that in the same way that Articles XI:2(c)(i), XX and XXIV are exceptions, the Enabling Clause is likewise an exception to certain aspects of Article I:1 and could be invoked as a defence in a claim of violation of that Article.²⁶⁸

7.28 India also argues that, although the European Communities asserts that the Enabling Clause confers an autonomous right, it has not provided a definition of "autonomous right"; it merely asserts the conclusion that the Enabling Clause is an autonomous right and not a derogation from Article I:1 of GATT 1994.²⁶⁹

7.29 The European Communities argues that the Enabling Clause is not a waiver but a sui generis decision and that it is the main instrument for achieving one of the basic objectives and purposes of the WTO Agreement - special and differential treatment. Citing the Appellate Body in Brazil - Aircraft to the effect that Article 27 of the SCM Agreement is not an affirmative defence, the European Communities concludes that "special and differential treatment" cannot be characterized as a mere "affirmative defence". The European Communities insists that the Enabling Clause exists, side-by-side, with GATT Article I:1 and that the word "notwithstanding" in paragraph 1 of the Enabling Clause excludes completely the application of Article I:1.²⁷⁰

7.30 The European Communities maintains that the fact that the Enabling Clause is not an "affirmative defence" but an autonomous right has two important implications, namely, first, in order to establish a violation of Article I:1 of GATT 1994, India must first establish that the Drug Arrangements are not covered by paragraph 2(a) of the Enabling Clause; and second, if the Drug Arrangements are covered by the Enabling Clause, as the complaining party, India bears the burden of proving that the Drug Arrangements are inconsistent with paragraph 3(c).²⁷¹

3. Panel's analysis

(a) Nature of the Enabling Clause

7.31 The Panel recognizes that the Enabling Clause is one of the most important instruments in the GATT and the WTO providing special and more favourable treatment for the developing countries. The Panel has no doubt that WTO developing country Members often draw significant benefits from the operation of GSP schemes of developed country Members. The Panel is well aware that the setting up of the GSP was greeted very positively by the GATT contracting parties as a whole. With the above in mind, the Panel considers that it is important to be particularly cautious in the interpretation of its provisions.

7.32 The parties disagree on whether the nature of the Enabling Clause is that of a positive rule setting out obligations or that of an exception. In examining this issue, the Panel considers that it is a common understanding that "exception" is a relative concept, in relation to the main rules of treaties, that is, those positive rules that set out obligations. In this regard, the Panel notes that the parties and third parties all agree that the Enabling Clause is a part of GATT 1994 as one of the "other decisions of the CONTRACTING PARTIES to GATT 1947" under paragraph 1(b)(iv) of GATT 1994.²⁷² As to the means to be used in identifying the nature of the Enabling Clause, both India and the European Communities also agree that it is necessary to examine its legal function in the context of the treaty as a whole²⁷³, although they draw different conclusions after conducting their own analysis.

7.33 The Panel considers that the Enabling Clause forms a part of GATT 1994 and that in order to identify whether it is a positive rule establishing obligations or of an exception, it is necessary to examine its legal function in the context of the GATT 1994 as a whole.

7.34 The Panel also considers that a comparison of the legal function of the Enabling Clause with that of established exceptions provisions in GATT 1994 is necessary because the result of the legal characterization, in the Panel's view, should not be one that would undermine or otherwise adversely affect the proper functioning of GATT 1994 as a whole.

7.35 The Panel recalls the Appellate Body ruling in US - Wool Shirts and Blouses, where the Appellate Body stated that "Articles XX and XI:2(c)(i) are limited exceptions from obligations under certain other provisions of the GATT 1994, not positive rules establishing obligations in themselves". To this Panel, it follows that the legal function of authorizing limited derogations from positive rules establishing obligations is what is decisive in making Articles XX and XI:2(c)(i) exceptions. In US - Wool Shirts and Blouses, the Appellate Body effectively established two criteria for determining whether a rule constitutes an "exception": first, it must not be a rule establishing legal obligations in itself; and second, it must have the function of authorizing a limited derogation from one or more positive rules laying down obligations.

7.36 The wording of the Enabling Clause is similar to that of Articles XX, XXI and XXIV. Articles XX and XXI state "nothing in this Agreement shall be construed to prevent � ". Article XXIV:5 states "the provisions of this Agreement shall not prevent � ". The Enabling Clause provides "[n]otwithstanding the provisions of Article I of the General Agreement, contracting parties may ... ". The ordinary meaning of "notwithstanding" is "in spite of, without regard to or prevention by".²⁷⁴ The meaning of each of these phrases is essentially the same, that of providing authorization for deviation from certain rules establishing obligations. Such deviations are not "prevented by" the existence and the application of positive rules establishing obligations. The use of a slightly different expression in the Enabling Clause, standing alone, does not make the nature or legal function of the Enabling Clause different from that of Articles XX, XXI and XXIV because the language used in the Enabling Clause is not substantively different from that used in these other provisions.

7.37 The Panel considers that Article I:1 of GATT 1994 is clearly a "positive rule establishing obligations". The obligations are for Members to accord to the like products of all Members, immediately and unconditionally, any advantage relating to, inter alia, custom duties accorded to products originating in any country. Articles II, III and XI:1 of GATT 1994 are, similarly, positive rules establishing obligations. In contrast, it is well established that Article XX is not such a rule establishing positive obligations, nor is Article XI:(2)(c)(i). The Panel is of the view that Articles XXI and XXIV are of the same nature as Article XX. There is no legal obligation under GATT 1994 requiring a Member, e.g., to take an Article XX measure, or to take a national security measure, or to form a free-trade area or customs union with other Members. Members are free to choose either to take these measures or to do nothing. If they decide to take such measures, they are authorized to do so by these provisions, subject to certain conditions. The fact that when Members choose to take such measures, they are also required to comply with certain conditions prescribed in these exceptions provisions, such as those in the chapeau of Article XX and in paragraphs 5 and 8 of Article XXIV, does not change the basic "non-obligatory" nature of these provisions. These conditions are only subsidiary obligations, dependent on the decision of the Member to take such measures. The existence of certain conditions relating to the application of an exception provision only signifies that the exception is "limited", not absolute, and that the authorization of derogation is tied to the fulfilment of certain conditions.

7.38 The Panel considers that the legal function of the Enabling Clause is to authorize derogation from Article I:1, a positive rule establishing obligations, so as to enable the developed countries, inter alia, to provide GSP to developing countries. There is no legal obligation in the Enabling Clause itself requiring the developed country Members to provide GSP to developing countries. The word "may" in paragraph 1 of the Enabling Clause makes the granting of GSP clearly an option rather than an obligation. The Panel considers that this is also a limited authorization of derogation in that the GSP has to be "generalized, non-discriminatory and non-reciprocal".

7.39 From the above analysis, the Panel considers that the Enabling Clause meets the two criteria that the Appellate Body established in US - Wool Shirts and Blouses for determining whether a particular provision is in the nature of an exception. It functions similarly to other GATT 1994 provisions that the Appellate Body has characterized as exceptions. Accordingly, the Panel finds that the Enabling Clause is in the nature of an exception to Article I:1 of GATT 1994.

(b) Burden of proof under the Enabling Clause

7.40 The Panel notes that there are a number of exceptions provisions in the GATT that a party may invoke in order to justify an inconsistency with Article I:1. A measure could well be for achieving legitimate objectives such as those under Article XX or Articles XXI or XXIV, or the Enabling Clause. Given that the specific purpose for a measure may not be always expressly set out in the measure itself, it may be difficult for the complaining party to know precisely which legitimate objective a measure is aimed to achieve. In this dispute, the European Communities actually invokes more than one objective and more than one legal basis for its measure, i.e., the Enabling Clause and Article XX(b). The Panel therefore considers that it is sufficient for India to demonstrate an inconsistency with Article I:1. It is not the task of India to establish further violations of possible exceptions provisions that could justify the inconsistency of the European Communities' measure with Article I:1.

7.41 To conclude otherwise could result in the situation where a complaining party could raise claims unrelated to the defending party's justification for a particular measure. Exceptions provisions should, accordingly, be invoked and justified by the defending party. For these reasons, the Panel finds that it is for the European Communities to invoke one or more particular provisions, including the Enabling Clause, as justification for the claimed inconsistency of its measure with Article I:1.

7.42 As the Appellate Body established in US - Wool Shirts and Blouses and in Turkey - Textiles, exceptions provisions can be invoked as affirmative defences to justify an inconsistency of a measure with positive rules setting out obligations. As previously noted, the Appellate Body stated in US - Wool Shirts and Blouses that "Article XX and XI:(2)(c)(i) are limited exceptions from obligations under certain other provisions of the GATT 1994, not positive rules establishing obligations in themselves." It went on to state that "[t]hey are in the nature of affirmative defences. It is only reasonable that the burden of establishing such a defence should rest on the Party asserting it".²⁷⁵ In Turkey - Textiles, the Appellate Body noted in a footnote that "legal scholars have long considered Article XXIV to be an 'exception' or a possible 'defence' to claims of violation of GATT provisions". At the same time, the Appellate Body stated: "Thus, the chapeau [of paragraph 5 of Article XXIV] makes it clear that Article XXIV may, under certain conditions, justify the adoption of a measure which is inconsistent with certain other GATT provisions, and may be invoked as a possible 'defence' to a finding of inconsistency".²⁷⁶ The Panel considers that these rulings confirm that if the European Communities has recourse to the Enabling Clause as a defence, it is for the European Communities: (i) to raise the Enabling Clause as an affirmative defence to India's claim of violation of Article I:1; and (ii) to demonstrate the measure's consistency with that provision.

(c) Applicability of Article I:1

7.43 As to whether or not Article I:1 applies to a measure covered by the Enabling Clause, the Panel notes the European Communities' position that the Enabling Clause excludes the application of Article I, as well as India's position that the Enabling Clause authorizes a derogation from obligations under Article I:1 only to the extent necessary to implement GSP schemes, but does not exclude the operation of Article I:1 altogether. The Panel will examine this issue, taking into account the ordinary meaning of the term "notwithstanding" in paragraph 1 of the Enabling Clause, as well as relevant jurisprudence.

7.44 The ordinary meaning of "notwithstanding" in paragraph 1 of the Enabling Clause is "in spite of, without regard to or prevention by".²⁷⁷ The Panel understands this to mean that the operation of the Enabling Clause is not prevented by Article I:1. That is, the Enabling Clause takes precedence to the extent of conflict between the two provisions. In any case, the dictionary definition itself is not dispositive as to whether the Enabling Clause excludes the application of Article I:1. Absent textual support suggesting that the Enabling Clause excludes Article I:1 of GATT 1994, the Panel cannot assume that this was the intent of contracting parties.²⁷⁸ In the view of the Panel, the relationship between exceptions provisions and provisions setting out basic GATT obligations is not one that where the application of one provision excludes the application of the other.

7.45 Indeed, taking the example of the relationship between Article XX and Articles I, III or XI:1, the jurisprudence demonstrates that the two apply concurrently to a given measure. In US - Gasoline, US - Shrimp, Korea - Various Measures on Beef and EC - Asbestos, panels and the Appellate Body have consistently begun the examination of the consistency of the challenged measure with Articles I, III or XI:1. After finding violations under one of these provisions, the panels and the Appellate Body then went on to examine whether the measure could be justified under Article XX.²⁷⁹ The same relationship also applies between Article XXIV and Article XI of GATT 1994. In Turkey - Textiles, the panel also first examined the consistency of Turkey's quantitative restrictions with Articles XI and XIII of GATT 1994 and, after finding inconsistency with these, it proceeded to examine whether the measure was justified by Article XXIV of GATT 1994. This order of examination is confirmed by the Appellate Body where it "upholds the Panel's conclusion that Article XXIV does not allow Turkey to adopt, upon the formation of the customs union with the European Communities, quantitative restrictions on imports of 19 categories of textile and clothing products which were found to be inconsistent with Articles XI and XIII of the GATT 1994 and Article 2.4 of the ATC".²⁸⁰ Accordingly, the relationship between Article XX or Article XXIV, on the one hand, and Article I, Article III or Article XI:1, on the other, is one where both categories of provisions apply concurrently to the same measure, but where, in the case of conflict between these two categories of provisions, Article XX or Article XXIV prevails. The jurisprudence shows that there is no deviation from such a relationship. Had Article XX or Article XXIV excluded the application of Article I, Article III or Article XI, panels and the Appellate Body would never have been able to examine various measures under Article I, Article III or Article XI in all previous cases. Similarly, it is clear to the Panel that, as an exception provision, the Enabling Clause applies concurrently with Article I:1 and takes precedence to the extent of the conflict between the two provisions.

7.46 This prevailing status of the Enabling Clause over Article I:1 does not render Article I:1 inapplicable to a measure covered by the Enabling Clause. In the Panel's view, to decide otherwise would lead to an absurdity. For example, Article I:1 requires non-discrimination in domestic taxation of imported products. To say that Article I:1 does not apply to measures under the Enabling Clause would mean that GSP imports from different developing countries could be subject to different taxation levels in the importing country's domestic market. Such a result was clearly not intended by the drafters of the Enabling Clause.

(d) Relevant jurisprudence

7.47 The European Communities cites the Appellate Body ruling in Brazil - Aircraft on Article 27 of the SCM Agreement, to the effect that Article 27, relating to special and differential treatment for developing countries, is not an affirmative defence and that the burden is on the complaining party to demonstrate that the obligation under Article 27.4 is not met by a developing country invoking that provision. By analogy, the European Communities argues that the Enabling Clause, as the core instrument of special and more favourable treatment, should not be treated as an affirmative defence but rather as an autonomous right, and that the burden of proof should be on the party claiming a violation of this provision.

7.48 The Panel considers that the relationship between Article 3.1(a) and Article 27 of the SCM Agreement is different from that between Article I:1 of GATT 1994 and the Enabling Clause or that between Article III and Article XX of GATT 1994. Article 27.2(b) clearly excludes the application to developing countries of the prohibition on export subsidies in Article 3.1(a). It provides: "The prohibition of paragraph 1(a) of Article 3 shall not apply to... (b) other developing country Members for a period of eight years from the date of entry into force of the WTO Agreement, subject to the compliance with the provisions in paragraph 4". Consequently, it would not be sufficient for a complaining party to only claim and demonstrate a violation of Article 3.1(a) by a developing country. The complaining party would have to claim and demonstrate a violation of an applicable provision governing export subsidies matters which, in the case of developing countries, is Article 27.

7.49 In contrast, the relationship between the Enabling Clause and Article I:1 is different. As the Panel found in paragraph 7.39, the Enabling Clause is an exception to Article I:1 and it does not exclude the application of Article I:1 but prevails over Article I:1 to the extent of a conflict between the two provisions. In such circumstances, the complaining party can claim and demonstrate a violation of Article I:1 and it is up to the defending party to decide what provisions to invoke in order to justify the inconsistency of its measure with Article I:1. And, by doing so, the defending party is invoking these provisions as affirmative defences and therefore bears the burden of proof for justification under the invoked provisions.

7.50 The European Communities also refers to the Appellate Body Report in EC - Hormones, where the Appellate Body characterizes Article 3.3 of the SPS Agreement as an autonomous right, rather than as an exception to Article 3.1, and concludes that the complaining parties bear the burden of proof under Article 3.3. The Panel notes that the underlying basis for this Appellate Body finding is that Article 3.3 excludes the application of Article 3.1 of the SPS Agreement. Where a Member has projected for itself a higher level of sanitary protection than would be achieved by a measure based on international standards, Article 3.3 applies and Article 3.1 does not apply at all. SPS measures based on international standards and those based on higher appropriate levels of protection may exist side-by-side. The complaining party is required to claim and make a prima facie case, showing violation of a relevant provision, either Article 3.3 or Article 3.1, not both. Again, the Panel is of the view that the relationship between Articles 3.1 and 3.3 of the SPS Agreement is different from that between Article I:1 of GATT 1994 and the Enabling Clause, because the Enabling Clause does not exclude the application of Article I:1, just as Articles XX and XXIV do not exclude the application of Articles I:1, III or XI:1 of GATT 1994.

7.51 The Panel is fully cognizant of the statement of the Appellate Body in EC - Hormones that merely describing a particular provision as an exception is not determinative of which party bears the burden of proof.²⁸¹ The conclusion that a particular provision is in the nature of an exception has to be a well-reasoned determination supported by an examination of the provision's legal function in relation to positive rules establishing treaty obligations. In the case before it, the Panel has provided a detailed reasoning for its determination that the legal function of the Enabling Clause is that of an exception to Article I:1of GATT 1994, without prejudice to its unquestioned importance as a means of promoting the trade of developing country Members.

(e) Relevance of the importance of the policy objective pursued

7.52 The WTO Agreement contains multiple policy objectives and all of these objectives are important. As to the importance that a policy objective pursued may have for the characterization of a provision as an exception/affirmative defence or a positive rule establishing obligations, the Panel considers that the relative importance of policy objectives pursued is not decisive in determining whether a provision is an exception or a positive rule. For instance, a policy objective of conserving exhaustible natural resources pursued under Article XX(g), can well be linked directly with one of the purposes and objectives of the WTO Agreement, that of "seeking both to protect and preserve the environment", as set out in the Preamble to the WTO Agreement itself. This does not change the nature of Article XX as an exception provision in the GATT legal structure. Similarly, even though the policy objective of the Enabling Clause does reflect one of the basic purposes and objectives of the WTO Agreement, this fact does not change its legal function as an exception to Article I of GATT 1994. Likewise, the characterization of a particular provision as an exception does not diminish the importance of the policy objectives pursued by that provision. Indeed, the Panel well acknowledges the critical importance of the policy objectives pursued by the Enabling Clause. The Enabling Clause reflects a great effort on the part of both developing and developed countries to rebalance and improve trade benefits for developing countries through a carefully negotiated agreement that permits certain types of special and more favourable treatment. The Panel also notes that the importance of the protection of human life and health pursued under Article XX(b) is in no way reduced by the characterization of Article XX as an exception.

4. Summary of findings on the nature of the Enabling Clause and its relationship to Article I:1

7.53 In light of the above, the Panel finds that: (i) the Enabling Clause is an exception to Article I:1 of GATT 1994; (ii) the Enabling Clause does not exclude the applicability of Article I:1 but, rather, Article I:1 and the Enabling Clause apply concurrently, with the Enabling Clause prevailing to the extent of inconsistency between the two provisions; (iii) India bears the burden of claiming and demonstrating the inconsistency of the Drug Arrangements with Article I:1 of GATT 1994; and (iv) the European Communities bears the burden of invoking the Enabling Clause and justifying its Drug Arrangements under that provision. Therefore, it is sufficient for India to claim and make a prima facie showing of violation of Article I:1.

7.54 Having found that Article I:1 applies to the Drug Arrangements concurrently with the Enabling Clause and considering that India has made a claim and arguments under Article I:1, the Panel considers it appropriate to examine India's Article I:1 claim. Having found that the European Communities bears the burden of demonstrating that the Drug Arrangements are justified by the Enabling Clause, the Panel considers that the fact India has not made a material claim under the Enabling Clause²⁸² does not prevent the Panel from further examining whether the measure is justified under the Enabling Clause so long as the Enabling Clause is actually invoked by the defending party, which is the case in this dispute.²⁸³ Accordingly, the Panel will proceed to examine India's claim that the Drug Arrangements are inconsistent with Article I:1.

4. whether the drug arrangements are inconsistent with article i: 1

7.55 The Panel recalls India's claim that the tariff preferences granted under the Drug Arrangements are inconsistent with Article I:1 of GATT 1994. India argues that the MFN principle embodied in Article I:1 requires that advantages related to customs duties be extended to all other Members and that the extension be immediate and unconditional. In India's view, the term "unconditionally" in Article I:1 means that any such advantage must be accorded to like products of all other Members regardless of their situation or conduct.²⁸⁴

7.56 The Panel further recalls the European Communities' position that the Enabling Clause excludes the application of Article I:1. In any case, the European Communities posits a different understanding of "unconditionally" in Article I:1. The European Communities' position is that "unconditionally" in Article I:1 means that any advantage granted may not be subject to conditions requiring compensation.²⁸⁵ The Drug Arrangements are not conditional, according to the European Communities, because the beneficiaries are not required to provide any compensation to the European Communities.²⁸⁶

7.57 As the Panel understands it, the following facts are not in dispute: (i) the Drug Arrangements, as prescribed in the current Council Regulation (EC) No. 2501/2001²⁸⁷, provide lower tariff rates than the MFN bound rates on certain products; and (ii) the treatment of lower tariff rates is only accorded to products originating in 12 beneficiary Members, not to like products originating in other Members.

7.58 Article I:1 requires that with respect to custom duties, any advantages granted to any product originating in any one Member shall be accorded immediately and unconditionally to the like products originating in all other Members. The fact is clear that the tariff preferences granted by the European Communities to the products originating in the 12 beneficiary countries are not accorded to the like products originating in all other Members, including those originating in India.

7.59 In the Panel's view, moreover, the term "unconditionally" in Article I:1 has a broader meaning than simply that of not requiring compensation. While the Panel acknowledges the European Communities' argument that conditionality in the context of traditional MFN clauses in bilateral treaties may relate to conditions of trade compensation for receiving MFN treatment, the Panel does not consider this to be the full meaning of "unconditionally" under Article I:1. Rather, the Panel sees no reason not to give that term its ordinary meaning under Article I:1, that is, "not limited by or subject to any conditions".²⁸⁸

7.60 Because the tariff preferences under the Drug Arrangements are accorded only on the condition that the receiving countries are experiencing a certain gravity of drug problems, these tariff preferences are not accorded "unconditionally" to the like products originating in all other WTO Members, as required by Article I:1. The Panel therefore finds that the tariff advantages under the Drug Arrangements are not consistent with Article I:1 of GATT 1994.

5. whether the drug arrangements are justified under the enabling clause

7.61 Even though the parties disagree as to which of them should invoke the Enabling Clause and which should bear the burden of demonstrating consistency/inconsistency of the measure with the Enabling Clause, the Panel notes that both parties have made claims and arguments in relation to the justification of the measure under the Enabling Clause. The European Communities has effectively invoked the Enabling Clause by arguing that the Drug Arrangements are consistent with the Enabling Clause.²⁸⁹ Bearing in mind its finding that it is for the European Communities to invoke the Enabling Clause and to demonstrate consistency of its measure with that provision, and having found that the Drug Arrangements are inconsistent with Article I:1 of GATT 1994, the Panel will proceed to examine whether the measure is justified under the Enabling Clause.

7.62 Prior to entering into this detailed analysis, the Panel considers it useful to set out the text of the relevant portions of the Enabling Clause, as well as provide a brief description of the origins of this instrument.

7.63 The relevant text of the Enabling Clause provides:

"1. Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatment to developing countries¹, without according such treatment to other contracting parties.

2. The provisions of paragraph 1 apply to the following:²

(a) Preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences,³

(b) Differential and more favourable treatment with respect to the provisions of the General Agreement concerning non-tariff measures governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT;

(c) Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on products imported from one another

(d) Special treatment of the least developed among the developing countries in the context of any general or specific measures in favour of developing countries.

3. Any differential and more favourable treatment provided under this clause:

(a) shall be designed to facilitate and promote the trade of developing countries and not to raise barriers to or create undue difficulties for the trade of any other contracting parties;

(b) shall not constitute an impediment to the reduction or elimination of tariffs and other restrictions to trade on a most-favoured-nation basis;

(c) shall in the case of such treatment accorded by developed contracting parties to developing countries be designed and, if necessary, modified, to respond positively to the development, financial and trade needs of developing countries".²⁹⁰

¹ (footnote original) The words "developing countries" as used in this text are to be understood to refer also to developing territories.

² (footnote original) It would remain open for the CONTRACTING PARTIES to consider on an ad hoc basis under the GATT provisions for joint action any proposals for differential and more favourable treatment not falling within the scope of this paragraph.

³ (footnote original) As described in the Decision of the CONTRACTING PARTIES of 25 June 1971, relating to the establishment of "generalized, non-reciprocal and non discriminatory preferences beneficial to the developing countries" (BISD 18S/24)

7.64 The Generalized System of Preferences ("GSP") has its origins in discussions that took place in the First Session of UNCTAD during the mid-1960s, as reflected in General Principle Eight and Recommendation A.II.1 in the Final Act of the First Session of UNCTAD. During the Second Session of UNCTAD, on 26 March 1968, a Resolution was adopted on "Expansion and Diversification of Exports of Manufactures and Semi-manufactures of Developing Countries" (Resolution 21(II)). In this Resolution, UNCTAD agreed to "the early establishment of a mutually acceptable system of generalized, non-reciprocal and non-discriminatory preferences which would be beneficial to the developing countries" and established a Special Committee on Preferences as a subsidiary organ of the Trade and Development Board, with a mandate to settle the details of the GSP arrangements. In 1970, UNCTAD's Special Committee on Preferences adopted Agreed Conclusions which set up the agreed details of the GSP arrangement. UNCTAD's Trade and Development Board took note of these Agreed Conclusions on 13 October 1970. In accordance with the Agreed Conclusions, certain developed GATT contracting parties sought a waiver for the GSP from the GATT Council. The GATT granted a 10-year waiver on 25 June 1971. Before the expiry of this waiver, the CONTRACTING PARTIES adopted a decision on "Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries" (the "Enabling Clause") on 28 November 1979.

7.65 The main issue disputed by the parties is whether the Drug Arrangements are consistent with paragraph 2(a) of the Enabling Clause, particularly the requirement of "non-discriminatory" in footnote 3 to this subparagraph. The interpretation of paragraph 2(a) and footnote 3 in turn depends upon the proper understanding of paragraph 3(c) in that the latter is an important context for paragraph 2(a). It is only possible to give a full meaning to paragraph 2(a) and footnote 3 after determining whether paragraph 3(c) allows differentiation among developing countries in "respond[ing] positively to the development, financial and trade needs of developing countries".²⁹¹ Accordingly, in order to determine whether the term "non-discriminatory" in footnote 3 is affected by the meaning of paragraph 3(c), the Panel will proceed, first, with the interpretation of paragraph 3(c).