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Conditions for the Granting of Tariff Preferences to Developing Countries

Key Facts
Short Title: EC — Tariff Preferences
Respondent: European Communities
Third Parties: Mauritius; Bolivia; Brazil; Colombia; Costa Rica; Cuba; Ecuador; El Salvador; Guatemala; Honduras; Nicaragua; Panama; Paraguay; Peru; United States; Venezuela; Pakistan; Sri Lanka;
Complaintant(s): India;
Dispute Number: DS246
Link to Dispute Site: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds246_e.htm
Dispute Subject(s): General System of Preferences;
Dispute Status: Concluded
Complaint by India.

On 5 March 2002, India requested consultations with the EC concerning the conditions under which the EC accords tariff preferences to developing countries under its current scheme of generalized tariff preferences ("GSP scheme").

India presented this request pursuant to Article 4 of the DSU, Article XXIII:1 of the GATT 1994 and paragraph 4(b) of the so-called Enabling Clause.

India considered that the tariff preferences accorded by the EC under the special arrangements, (i) for combatting drug production and trafficking and (ii) for the protection of labour rights and the environment, create undue difficulties for India's exports to the EC, including for those under the general arrangements of the EC's GSP scheme, and nullify or impair the benefits accruing to India under the most favoured nation provisions of Article I:1 of the GATT 1994 and paragraphs 2(a), 3(a) and 3(c) of the Enabling Clause.

In India's view, the conditions under which the EC accorded tariff preferences under the special arrangements could not be reconciled with the requirements provided in paragraphs 2(a), 3(a) and 3(c) of the Enabling Clause.

On 20 March 2002, Venezuela requested to be joined in the consultations. On 21 March 2002, Colombia requested to be joined in the consultations.

On 6 December 2002, India requested the establishment of a panel. At its meeting of 19 December 2002, the DSB deferred the establishment of a panel. At its meeting on 27 January 2003, the DSB established a Panel. During the meeting, Brazil, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Paraguay, Peru, Sri Lanka, Venezuela and the US reserved their third-party rights. On 28 January 2003, Nicaragua reserved its third-party rights. On 29 January 2003, Panama reserved its third-party rights. On 3 February, Mauritius and Pakistan reserved their third-party rights. On 6 February, Bolivia reserved its third party rights. On 24 February 2003, India requested the Director-General to compose the Panel. On 6 March 2003, the Director-General composed the Panel.

On 22 September 2003, the Chairman of the Panel informed the DSB that it would not be possible to complete its work in six months due to the complexity of the matter involved and that the Panel expected to complete its work at the end of October 2003.

On 1 December 2003, the Panel report was circulated to the Members. The Panel found that: (i) India has demonstrated that the tariff preferences under the Special Arrangements to Combat Drug Production and Trafficking (the "Drug Arrangements") provided in the EC's GSP scheme are inconsistent with Article I:1 of GATT 1994; (ii) the EC has failed to demonstrate that the Drug Arrangements are justified under paragraph 2(a) of the Enabling Clause, which requires that the GSP benefits be provided on a "non-discriminatory" basis; and (iii) the EC has failed to demonstrate that the Drug Arrangements are justified under Article XX(b) of GATT 1994 since the measure is not "necessary" for the protection of human life or health in the EC, nor is it in conformity with the Chapeau of Article XX. (One panelist presented a dissenting opinion that the Enabling Clause is not an exception to Article I:1 and that India has not made a claim under the Enabling Clause.)

On 8 January 2004, the European Communities notified its decision to appeal to the Appellate Body certain issues of law covered in the Panel Report. On 5 March 2004, the Chairman of the Appellate Body informed the DSB that it would not be possible for the Appellate Body to complete its work within the 60-day period due to the time required for completion and translation of its Report. The Appellate Body estimated that the Report would be circulated to Members no later than 7 April 2004.

On 7 April 2004, the Appellate Body Report was circulated to Members. In the Report:

* The Appellate Body upheld two of the Panel's findings ((i) the Enabling Clause operates as an exception to Article I:1 of the GATT 1994; and (ii) the Enabling Clause does not exclude the applicability of Article I:1 of the GATT 1994). The Appellate Body modified, however, one of the Panel's findings with respect to the relationship between Article I:1 of the GATT 1994 and the Enabling Clause. The Appellate Body found that the complaining party is obliged not only to claim inconsistency with Article I:1 of the GATT 1994, but also to raise the relevant provisions of the Enabling Clause that the complaining party argues are not satisfied by the challenged measure. Based on these findings, and because the EC did not appeal any other aspect of the Panel's reasoning with respect to Article I:1, the Appellate Body found that it need not rule on the Panel's conclusion as to the consistency of the challenged measure with Article I:1 of the GATT 1994.

* The Appellate Body reversed the Panel's legal interpretation of paragraph 2(a) of the Enabling Clause and footnote 3 thereto, by concluding that, in granting differential tariff treatment, preference-granting countries are required, by virtue of the term "non-discriminatory", to ensure that identical treatment is available to all similarly-situated GSP beneficiaries, that is, to all GSP beneficiaries that have the same "development, financial and trade needs" to which the treatment in question is intended to respond. With respect to the consistency of the challenged measure with the Enabling Clause, the Appellate Body upheld, albeit for different reasons, the Panel's conclusion that the European Communities failed to demonstrate that the challenged measure was justified under paragraph 2(a) of the Enabling Clause.

At its meeting on 20 April 2004, the DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report.

Implementation Status of Adopted Reports

At the DSB meeting on 19 May 2004, the European Communities reaffirmed its intention to fully comply with the recommendations and rulings of the DSB in a manner that respected its WTO obligations, and that it would need a reasonable period of time to implement the recommendations and rulings of the DSB and was willing to discuss this matter with India in accordance with Article 21.3(b) of the DSU. On 16 July 2004, India requested that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the DSU due to the failure of agreement with the European Communities on this matter. On 4 August 2004, pursuant to the request by India of 26 July 2004, the Director-General appointed an arbitrator for the foregoing arbitration under Article 21.3(c) of the DSU. On 20 September 2004, the Arbitrator decided that the reasonable period of time for implementation would expire on 1 July 2005.

At the DSB meeting on 20 July 2005, the European Communities announced that the special arrangements to combat drug production and trafficking of Title IV of EC Regulation (2501/2001) had been repealed as of 1 July 2005 and a new regulation (980/2005) had been promulgated bringing the European Communities into compliance with the DSB's recommendations and rulings. India expressed some doubts as to whether the new EC Regulation faithfully implemented the DSB's recommendations and rulings, and it reserved its right to return to this matter in the future, as necessary.

Panel Proceedings
Brief DateBrief Description
07/09/2003U.S. Oral Statement at the Second Meeting of the Panel (pdf)
06/04/2003U.S. Answers to Questions from the Panel and India (pdf)
05/15/2003Third Party Oral Statement of the United States (pdf)
04/30/2003Third-Party Submission of the United States (pdf)

Appeal Proceedings
Brief DateBrief Description
02/19/2004Third Participant Oral Statement of the United States (pdf)
02/02/2004Exective Summary of the Third Participant Submission of the United States (pdf)
02/02/2004Third Participant Submission of the United States (pdf)