Abstract
This chapter analyses one of the most important WTO disputes till date—the EC—Tariff Preferences or the EC—GSP dispute, as it is more popularly known. The dispute originated because of competitive disadvantage to India’s textile sector vis-à-vis Pakistan, on account of an EC regulation on GSP scheme. The chapter delves into the factual background leading to the filing of the dispute before the WTO, including the failure of diplomatic efforts that were made in an attempt to resolve the issue without litigation. India faced a major dilemma while initiating this dispute because it was challenging a measure that was, in fact, beneficial to other developing countries who were India’s partners at the Doha negotiations, and India itself had been a forerunner in ensuring special treatment for developing countries in the WTO system. However, India filed this dispute to protest against the discriminatory manner in which GSP benefits were given for drug arrangements, in view of the fact that the EC failed to mention the criteria on the basis of which the benefits were given to a select few developing countries. Subsequently, the chapter focuses on the analysis given by the Panel and Appellate Body on three issues: (i) the relationship between the Enabling Clause and the MFN Clause, (ii) the party having the burden to prove that the Enabling Clause applies for a particular measure, and (iii) the legality of the EC drug arrangements with respect to GSP and the Enabling Clause. The most important jurisprudential contribution of this case is the Appellate Body’s interpretation of the Enabling Clause. The chapter further highlights the consequences of this decision on the EC’s revisions of its GSP scheme as well as the competition between India and Pakistan in the textile and clothing sector. Finally, the chapter takes a critical look at GSP schemes, as they exist today and their outlook for the future, from the perspective of trade relations between the developed and developing Members of the WTO.
Views expressed are personal. The author acknowledges with gratitude the comments and suggestions by J. J. Nedumpara and an anonymous reviewer.
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Notes
- 1.
Council Regulation (EC) No. 2501/2001 of 10 December 2001 applying a scheme of generalized tariff preferences for the period from 1 January 2002 to 31 December 2004, L 346/1.
- 2.
Council Regulation, Ibid, Article 10, Title II and Title IV.
- 3.
India wins GSP case against EC at the WTO, Ministry of Commerce and Industry, Government of India, December 2, 2003. http://commerce.nic.in/pressrelease/pressrelease_detail.asp?id=181. Accessed on 1 Dec 2015.
- 4.
WTO (2001) Council for Trade in Goods, Request for a WTO Waiver: New EC Special Tariff Arrangements to Combat Drug Production and Trafficking, G/C/W/328.
- 5.
WTO (2011) Council for Trade in Goods, Minutes of the Meeting, G/C/M/55.
- 6.
India Scores a Significant Gain at the WTO in the Dispute against EC on GSP Preferences, Ministry of Commerce and Industry, Government of India, April 7, 2004. http://commerce.nic.in/pressrelease/pressrelease_detail.asp?id=1085. Accessed on 1 Dec 2015.
- 7.
Generalized System of Preferences, Decision of 25 June 1971, L/3545, BISD 18S/24-26.
- 8.
Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, Decision of 28 November 1797, L/4903, BISD 26S/203-205 (Hereinafter Enabling Clause).
- 9.
The “mutually acceptable arrangements” referred to in paragraph (a) in relation to the Preamble of the 1971 Decision are contained in the Agreed Conclusions of the Special Committee on Preferences, Proceedings of the United Nations Conference on Trade and Development, Second Session, Vol. I, Report and Annexes (United Nations publication, Sales No.: E.68.II.D.14), 5–31 May 1976, pp. 431–441 (Hereinafter Proceedings of the UNCTAD).
- 10.
Panel Report on European Communities—Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS246/R, (Hereinafter Panel Report on EC—Tariff Preferences).
- 11.
WTO, European Communities—Conditions for the Granting of Tariff Preferences to Developing Countries: Request for Consultations by India, WT/DS246/1 and G/L/521 (12 March 2002).
- 12.
Proceedings of the UNCTAD, supra note 9.
- 13.
WTO, European Communities—Conditions for the Granting of Tariff Preferences to Developing Countries-Request for the Establishment of a Panel by India, WT/DS246/4 (9 December 2002).
- 14.
Panel Report on EC—Tariff Preferences, at p. 1.
- 15.
Enabling Clause, supra note 8, at Fn. to paragraph 2(a) and paragraph 3(c).
- 16.
See, for example, Appellate Body Report on Korea—Definitive Safeguard on Import of Certain Dairy Products (Hereinafter Korea—Dairy), WT/DS98/AB/R, at paragraph 80; Appellate Body Report on United States—Standards for Reformulated and Conventional Gasoline (Hereinafter US—Gasoline); WT/DS2/AB/R at pages 16, 23; Appellate Body Report on Japan—Taxes on Alcoholic Beverages (Hereinafter Japan—Alcoholic Beverages II), WT/DS8/AB/R, pages 10–15; Appellate Body Report on European Communities—Regime for the Importation, Sale and Distribution of Bananas (Hereinafter EC—Bananas III), WT/DS27/AB/R, paragraphs 235–236.
- 17.
EC—Tariff Preferences, supra note 13, at p. 14. The EC had also argued that Article 3.3 of the SPS Agreement of the WTO (allowing WTO Members to have higher than international standards for sanitary and phytosanitary measures than those established by international standard setting organisations) was an autonomous right, violation of which had to be asserted and proven by the complainant. The Panel, however, differentiated it from the situation of the Enabling Clause as Article 3.3 was applicable side-by-side with Article 3.1 (relating to standards set by international organisations) and WTO Members had a choice to adopt one or the other. See also at paragraph 7.50.
- 18.
On 24 October 2001, the EC requested the WTO Members to grant a waiver from Article 1 of GATT for its new special tariff arrangements to combat drug production and trafficking; See Council for Trade in Goods, Request for a WTO Waiver: New EC Special Tariff Arrangement to Combat Drug Production and Trafficking, G/C/W/328 (24 October 2001).
- 19.
Appellate Body Report on European Communities—Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS246/AB/R, paragraphs 110 and 118.
- 20.
The dissenting opinion of one of the three panellists (Panel Report on EC—Tariff Preferences, pp. 152–156) termed the Enabling Clause as the ‘applicable WTO Rule’ regarding tariff preferences to developing countries, arguing that although the Appellate Body has at times followed the traditional rule-exception analysis, it deviated from it in complex cases such as EC—Hormones and Brazil-Aircraft, and the Panel should do so in this case as well. However, Article XXIV of GATT also permits tariff preferences, but the Appellate Body has applied the traditional rule-exception analysis to it, as is evidenced in Turkey—Textiles. Hence, the dissenting panellist erred here. Also, the dissenting panellist characterised India’s position on what its claim was as ‘couched in somewhat ambiguous and artful language’—India had stated that its material claim was under the MFN Clause and not under the Enabling Clause, which was an affirmative defence. The Panellist concluded that India’s case should be dismissed as it had chosen the wrong theory to characterise the matter, and that the Panel would have to go beyond its terms of reference based on Articles 3.2 and 11 of the DSU, which require the Panel to preserve the rights and obligations of Members under the covered agreements and assess the applicability of the covered agreements. However, Article 3.4 of the DSU requires that recommendations or rulings of the dispute settlement body shall be aimed at achieving a satisfactory settlement of the matter in accordance with the rights and obligations under the DSU and the covered agreements. Which is why, perhaps, even if the other two Panellists or the Appellate Body may have supported this Panellist’s argument on the rule-exception issue, they did not subscribe to the view on the Panel’s responsibility and decided the matter after considering EC’s defence and India’s counter arguments on the Enabling Clause, in order to bring a satisfactory settlement.
- 21.
Appellate Body Report on United States—Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R.
- 22.
Panel Report on EC—Tariff Preferences, at Panel Report on C-40.
- 23.
Appellate Body Report on EC—Tariff Preferences, at paragraphs 106–110.
- 24.
Understanding on rules and procedures governing the settlement of disputes, Annex 2 of the WTO Agreement, Article 6.2.
- 25.
See Appellate Body Report on Guatemala—Definitive Anti-dumping Measure on Grey Portland Cement from Mexico (Hereinafter Guatemala—Cement II), WT/DS60/AB/R and Appellate Body Report, United States—Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany (Hereinafter US—Carbon Steel), WT/DS213/AB/R.
- 26.
Appellate Body Report, EC—Tariff Preferences, at paragraphs 111–118.
- 27.
Council Regulation (EC) No. 980 of 2005 of 27 June 2005, introductory paragraph (2) of which stated “The Community’s common commercial policy is to be consistent with and consolidate the objectives of development policy, in particular the eradication of poverty and the promotion of sustainable development and good governance in the developing countries”.
- 28.
The Panel could not agree to such arguments and determined that the preferences are to be given to all developing countries except for a priori limitations.
- 29.
Panel Report, EC—Tariff Preferences, at paragraph 7.102.
- 30.
Ibid at C-41.
- 31.
Ibid at paragraph 7.149.
- 32.
Appellate Body Report, EC—Tariff Preferences, at paragraph 152.
- 33.
Ibid, at paragraphs 153–173.
- 34.
Appellate Body Report, EC—Tariff, Preferences at paragraphs 142–174.
- 35.
See Council Regulation (EC) No 980/2005 of 27 June 2005 applying a scheme of generalized tariff preferences, L 169/1.
- 36.
Ibid, at Article 30.
- 37.
Ibid, See Fn 36.
- 38.
Moldova was also declared eligible for the scheme for 2006-08 but was not approved. See Generalised System of Preferences: Handbook on the Scheme of the European Community, UNCTAD 2008, page 13, fn 36 (Hereinafter UNCTAD Handbook).
- 39.
Council Regulation (EC) No 732/2008 of 22 July 2008 applying a scheme of generalized tariff preferences for the period from 1 January 2009 to 31 December 2011 and amending Regulations (EC) No 1933/2006 and Commission Regulations (EC) No 1100/2006 and (EC) No 964/2007.
- 40.
UNCTAD Handbook, supra note 38, at 13.
- 41.
Paraguay had participated as third party in the WTO dispute, and had taken a stand quite similar to India; in fact Paraguay was represented by the same agent (ACWL) as was India.
- 42.
Regulation (EU) No 512/2011 of the European Parliament and of the Council of 11 May 2011 amending Council Regulation (EC) No 732/2008 applying a scheme of generalised tariff preferences for the period from 1 January 2009 to 31 December 2011.
- 43.
Regulation (EU) No. 978/2012 of the European Parliament and of the Council of 25 October 2012 applying a scheme of generalised tariff preferences and repealing Council Regulation (EC) No 732/2008, L 303/1.
- 44.
Ibid.
- 45.
Europa, European Commission, Generalized Scheme of Preferences. http://ec.europa.eu/trade/policy/countries-and-regions/development/generalised-scheme-of-preferences. Accessed on 1 Dec 2015.
- 46.
Europa, The EU’s New Generalized Scheme of Preferences, December 2012. http://trade.ec.europa.eu/doclib/docs/2012/december/tradoc_150164.pdf. Accessed on 1 Dec 2015.
- 47.
Ibid, at paragraph 20.
- 48.
Pakistani Textile and Clothing Exports to Europe Surge, Laufer Group International, July 14 2015. http://www2.laufer.com/pakistani-textile-and-clothing-exports-to-europe-surge.html. Accessed on 1 Dec 2015.
- 49.
TRTA Pakistan, Enhancing Pakistan’s Trading Benefits from the Proposed EU GSP Plus Scheme, Policy Recommendations Paper 2012. http://trtapakistan.org/wp-content/uploads/2012/04/Policy-Recommendation-GSP.pdf. Accessed on 1 Dec 2015.
- 50.
Indian Textile Facing Competition from Foreign Textile Industry, Press Information Bureau, 8 August 2014. http://pib.nic.in/newsite/PrintRelease.aspx?relid=108330. Accessed on 1 Dec 2015.
- 51.
Panels and Appellate Body have shown restraint in cases like US—Gasoline, EC—Sugar, US—Shrimp and Brazil—Tyres.
- 52.
The new GSP+ criteria include adherence to international intergovernmental agreement on labour and environmental standards, and on combating drug proliferation and corruption, which could pass muster as objective criteria. However, another eligibility included is that the beneficiary should be vulnerable. Vulnerability is not as succinctly defined, but the language used in the EC Regulation as well as the public document explaining the scheme use the language used by the Appellate Body in explaining the conditions for eligibility. See EC Regulation 978/2012, supra note 43, at page 14.
- 53.
Communication from the Commission to the Council, the European Parliament and the European Economic and Social Community, The rules of origin in preferential trade arrangements: Orientations for the future, COM (2005) 100 final, 16 March 2005.
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© 2016 Centre for WTO Studies (CWS), Indian Institute of Foreign Trade (IIFT), New Delhi
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Atul Kaushik (2016). WTO Dispute on EC—Tariff Preferences: Systemic Implications. In: Das, A., Nedumpara, J. (eds) WTO Dispute Settlement at Twenty. Springer, Singapore. https://doi.org/10.1007/978-981-10-0599-2_9
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