The Hindu : India wins dispute on GSP against EU

Online edition of India's National Newspaper
Wednesday, Sep 10, 2003

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India wins dispute on GSP against EU

By Chakravarthi Raghavan

GENEVA SEPT. 9. A World Trade Organisation dispute panel appears to have handed down a ruling, upholding India's complaint against the EU over its conditional preferences to countries selected by the EU, to reward them for combating drug production and trafficking or protection of labour rights and environment.

The panel in a ruling, sent to the two parties (India and the EC) on September 5, is reported as finding in India's favour that such conditional EC preferences are contrary to Art. 1 (b) of GATT (Most-Favoured-Nation and non-discriminatory treatment of members), and not saved either by paragraph 2 (b) of the 1979 Enabling Clause decision of the GATT Contracting Parties (allowing derogations from MFN for GSP schemes, which are non-reciprocal, unconditional and non-discriminatory) or the exceptions under Art. XX (b) of GATT, general exceptions `to protect human, animal or plant life or health'.

The panel has also reportedly held that the EU has not proved that its actions are covered by either the Enabling Clause exception or the GATT Art.XX (b) exception.

The three-member panel (a Japanese professor, a U.S. professor and a retired Appellate Body member, Julius Lacarte) ruling itself is said to be by a majority (2-1), with the American dissenting on legal/technical grounds.

The ruling when published, can be appealed by the EC (and it is bound to do so). Only when the full panel report is published will it be possible to understanding the reasonings and rulings and its implications for the WTO system, and the entire conditional `preference' schemes at the WTO.

The dispute raised by India, referred to a panel in January, related to two features of the EC preferences whose effect was to put Indian exports at a competitive disadvantage.

Under one feature of the challenged EC scheme, the EC grants tariff preferences under special arrangements for combating drug production and trafficking, and these are available only to specified countries selected by the EC.

Under another feature, the EC grants tariff preferences under special incentive arrangements for the protection of labour rights and the environment, again granted only to countries that are determined by the EC to comply with certain labour and environmental policy standards.

In raising the dispute, India has contended that these preferences, under the conditions under which they are granted, are inconsistent with the GATT 1994 and do not meet the requirements set out in the 1979 Enabling Clause.

This last, a decision of the GATT 1947 Contracting Parties (and carried over automatically into the WTO and GATT 1994), enables grant of individual country schemes of GSP preferences — generalised (non-discriminatory), non-reciprocal and unconditional preferences — to developing countries by the developed countries.

The grant of conditional preferences and in reciprocity for something has long been a subject of challenge and criticism at the UN Conference on Trade and Development, which under Raul Prebisch was responsible for the initiation of the original schemes, and their continuance later.

Being viewed as unilateral, and in the light of the 1979 Enabling Clause, and the non-binding nature of the dispute settlement system of the old GATT, they were never brought up as a dispute.

The GSP schemes have become a costless way for the industrialised countries to reward some developing countries by providing preferential trade benefits to some of them. And over a period, these are turning out to be at the cost of other developing countries, and with no sacrifice on the part of industry or consumers of the preference-giving country.

In the case of combating drug production and trafficking, and the trade

Preferences for this, it has also become a way of both shifting the burden of combating narcotic drug consumption and distribution in the main consuming centres to the producing countries, and doing so at the cost of other developing countries rather than the budgets of the advanced countries.

The issue came to a head as a result of the EC granting preferences to countries that are competitors of India on the European market, and thus at the expense of India. Towards the end of 2001, the EC gave preferences to Pakistan (for textiles and clothing), and wanted to get a waiver for this from the WTO. But because of the possibility of objections, it did not do so.

The effort to give preferences to Pakistan on the ground of combating drugs was only the latest. There have been other preferences on the same lines to others. India raised the dispute in March 2002, and sought consultations. Several meetings failed to produce a solution, and the DSB set up a panel in January 2003, when the request came up before the DSB for the second time.

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