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WTO ANALYTICAL INDEX: GATT 1994 General Agreement on Tariffs and Trade 1994 |
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> General Agreement On Tariffs And Trade 1994
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A. Text of the General Agreement on Tariffs and Trade 1994 1. The General Agreement on Tariffs and Trade 1994 (“GATT 1994”) shall consist of:
(a) the provisions in the General Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act Adopted at the Conclusion of the Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment (excluding the Protocol of Provisional Application), as rectified, amended or modified by the terms of legal instruments which have entered into force before the date of entry into force of the WTO Agreement;
(b) the provisions of the legal instruments set forth below that have entered into force under the GATT 1947 before the date of entry into force of the WTO Agreement:
(i) protocols and certifications relating to tariff concessions;
(ii) protocols of accession (excluding the provisions (a) concerning provisional application and withdrawal of provisional application and (b) providing that Part II of GATT 1947 shall be applied provisionally to the fullest extent not inconsistent with legislation existing on the date of the Protocol);
(iii) decisions on waivers granted under Article XXV of GATT 1947 and still in force on the date of entry into force of the WTO Agreement(1);
(footnote original) 1 The waivers covered by this provision are listed in footnote 7 on pages 11 and 12 in Part II of document MTN/FA of 15 December 1993 and in MTN/FA/Corr.6 of 21 March 1994.(1) The Ministerial Conference shall establish at its first session a revised list of waivers covered by this provision that adds any waivers granted under GATT 1947 after 15 December 1993 and before the date of entry into force of the WTO Agreement, and deletes the waivers which will have expired by that time.
(iv) other decisions of the CONTRACTING PARTIES to GATT 1947;
(c) the Understandings set forth below:
(i) Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994;
(ii) Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and Trade 1994;
(iii) Understanding on Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994;
(iv) Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994;
(v) Understanding in Respect of Waivers of Obligations under the General Agreement on Tariffs and Trade 1994;
(vi) Understanding on the Interpretation of Article XXVIII of the General Agreement on Tariffs and Trade 1994; and
(d) the Marrakesh Protocol to GATT 1994.
2. Explanatory Notes
(a) The references to “contracting party” in the provisions of GATT 1994 shall be deemed to read “Member”. The references to “less-developed contracting party” and “developed contracting party” shall be deemed to read “developing country Member” and “developed country Member”. The references to “Executive Secretary” shall be deemed to read “Director-General of the WTO”.
(b) The references to the CONTRACTING PARTIES acting jointly in Articles XV:1, XV:2, XV:8, XXXVIII and the Notes Ad Article XII and XVIII; and in the provisions on special exchange agreements in Articles XV:2, XV:3, XV:6, XV:7 and XV:9 of GATT 1994 shall be deemed to be references to the WTO. The other functions that the provisions of GATT 1994 assign to the CONTRACTING PARTIES acting jointly shall be allocated by the Ministerial Conference.
(c) (i) The text of GATT 1994 shall be authentic in English, French and Spanish.
(ii) The text of GATT 1994 in the French language shall be subject to the rectifications of terms indicated in Annex A to document MTN.TNC/41.
(iii) The authentic text of GATT 1994 in the Spanish language shall be the text in Volume IV of the Basic Instruments and Selected Documents series, subject to the rectifications of terms indicated in Annex B to document MTN.TNC/41.
3. (a) The provisions of Part II of GATT 1994 shall not apply to measures taken by a Member under specific mandatory legislation, enacted by that Member before it became a contracting party to GATT 1947, that prohibits the use, sale or lease of foreign-built or foreign-reconstructed vessels in commercial applications between points in national waters or the waters of an exclusive economic zone. This exemption applies to: (a) the continuation or prompt renewal of a non-conforming provision of such legislation; and (b) the amendment to a non-conforming provision of such legislation to the extent that the amendment does not decrease the conformity of the provision with Part II of GATT 1994. This exemption is limited to measures taken under legislation described above that is notified and specified prior to the date of entry into force of the WTO Agreement. If such legislation is subsequently modified to decrease its conformity with Part II of GATT 1994, it will no longer qualify for coverage under this paragraph.
(b) The Ministerial Conference shall review this exemption not later than five years after the date of entry into force of the WTO Agreement and thereafter every two years for as long as the exemption is in force for the purpose of examining whether the conditions which created the need for the exemption still prevail.
(c) A Member whose measures are covered by this exemption shall annually submit a detailed statistical notification consisting of a five-year moving average of actual and expected deliveries of relevant vessels as well as additional information on the use, sale, lease or repair of relevant vessels covered by this exemption.
(d) A Member that considers that this exemption operates in such a manner as to justify a reciprocal and proportionate limitation on the use, sale, lease or repair of vessels constructed in the territory of the Member invoking the exemption shall be free to introduce such a limitation subject to prior notification to the Ministerial Conference.
(e) This exemption is without prejudice to solutions concerning specific aspects of the legislation covered by this exemption negotiated in sectoral agreements or in other fora.
i) Item (iv) — “other decisions of the CONTRACTING PARTIES to GATT 1947” 1. In Japan — Alcoholic Beverages II, the Appellate Body referred to paragraph 1(b)(iv) in examining the legal effect of the panel reports adopted by the CONTRACTING PARTIES to GATT 1947. The Appellate Body stated: “Article XVI:1 of the WTO Agreement and paragraph 1(b)(iv) of the language of Annex 1A incorporating the GATT 1994 into the WTO Agreement bring the legal history and experience under the GATT 1947 into the new realm of the WTO in a way that ensures continuity and consistency in a smooth transition from the GATT 1947 system. This affirms the importance to the Members of the WTO of the experience acquired by the CONTRACTING PARTIES to the GATT 1947 — and acknowledges the continuing relevance of that experience to the new trading system served by the WTO. Adopted panel reports are an important part of the GATT acquis. They are often considered by subsequent panels. They create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute. However, they are not binding, except with respect to resolving the particular dispute between the parties to that dispute.(2) In short, their character and their legal status have not been changed by the coming into force of the WTO Agreement.
[W]e do not agree with the Panel’s conclusion in the same paragraph of the Panel Report that adopted panel reports in themselves constitute ‘other decisions of the CONTRACTING PARTIES to GATT 1947’ for the purposes of paragraph 1(b)(iv) of the language of Annex 1A incorporating the GATT 1994 into the WTO Agreement.”(3) 2. In EC — Poultry, the Appellate Body found that the Oilseeds Agreement, concluded between Brazil and the European Communities was not one of the legal instruments enumerated in paragraph 1(b). In the words of the Appellate Body: “The Oilseeds Agreement […] is a bilateral agreement negotiated by the European Communities and Brazil under Article XXVIII of the GATT 1947, as part of the resolution of the dispute in EEC — Oilseeds.(4) As such, the Oilseeds Agreement is not a ‘covered agreement’ within the meaning of Articles 1 and 2 of the DSU. Nor is the Oilseeds Agreement part of the multilateral obligations accepted by Brazil and the European Communities pursuant to the WTO Agreement, which came into effect on 1 January 1995. The Oilseeds Agreement is not cited in any Annex to the WTO Agreement. Although the provisions of certain legal instruments that entered into force under the GATT 1947 were made part of the GATT 1994 pursuant to the language in Annex 1A incorporating the GATT 1994 into the WTO Agreement(5), the Oilseeds Agreement is not one of those legal instruments.”(6) 3. In Argentina — Footwear (EC), the Appellate Body explained with precision that the GATT 1947 is an integral part of GATT 1994. The Appellate Body held: “We note that the GATT 1994 is the first agreement that appears in Annex 1A to the WTO Agreement, and that it consists of: the provisions of the GATT 1947, as rectified, amended or modified by the terms of legal instruments that entered into force before the entry into force of the WTO Agreement; the provisions of certain legal instruments, such as protocols and certifications, decisions on waivers and other decisions of the CONTRACTING PARTIES to the GATT 1947, that entered into force under the GATT 1947 before the entry into force of the WTO Agreement; certain Uruguay Round Understandings relating to specific GATT articles; and the Marrakesh Protocol to the GATT 1994 containing Members’ Schedules of Concessions.”(7) 4. In Korea — Dairy, the same conclusion was reiterated with regard to the incorporation of GATT 1947 in the GATT 1994. The Appellate Body stated: “The GATT 1994 consists of: (a) the provisions of the GATT 1947, as rectified, amended or modified before the entry into force of the WTO Agreement; (b) provisions of certain other legal instruments which entered into force under the GATT 1947 and before the date of entry into force of the WTO Agreement; (c) a number of Uruguay Round Understandings on the interpretation of certain GATT articles; and (d) the Marrakesh Protocol to GATT 1994.”(8) 5. In US — FSC, the Appellate Body, in examining whether a certain decision of the GATT 1947 Council to adopt panel reports constituted “other decision” within the meaning of paragraph 1(b)(iv), agreed on the Panel’s decision to examine not only the text of the decision but also “the circumstances surrounding the [decision].”(9) 6. In EC — Tariff Preferences, the Appellate Body held that the Enabling Clause is one of the “other decisions of the CONTRACTING PARTIES” within the meaning of paragraph 1(b)(iv). On that basis the Appellate Body found that the Enabling Clause is “an integral part of the GATT 1994.”(10)
(b) Relationship with Article XVI:1 of the WTO Agreement 7. With respect to the relationship between Article XVI:1 of the WTO Agreement and paragraph 1(b), see Chapter on the WTO Agreement, Section XVII. B.1(g)(i).
II. Article I back to top Article I: General Most-Favoured-Nation Treatment 1. With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.
2. The provisions of paragraph 1 of this Article shall not require the elimination of any preferences in respect of import duties or charges which do not exceed the levels provided for in paragraph 4 of this Article and which fall within the following descriptions:
(a) Preferences in force exclusively between two or more of the territories listed in Annex A, subject to the conditions set forth therein;
(b) Preferences in force exclusively between two or more territories which on July 1, 1939, were connected by common sovereignty or relations of protection or suzerainty and which are listed in Annexes B, C and D, subject to the conditions set forth therein;
(c) Preferences in force exclusively between the United States of America and the Republic of Cuba;
(d) Preferences in force exclusively between neighbouring countries listed in Annexes E and F.
3. The provisions of paragraph 1 shall not apply to preferences between the countries formerly a part of the Ottoman Empire and detached from it on July 24, 1923, provided such preferences are approved under paragraph 5(1), of Article XXV which shall be applied in this respect in the light of paragraph 1 of Article XXIX.
(footnote original) 1 The authentic text erroneously reads “subparagraph 5(a)”.
4. The margin of preference on any product in respect of which a preference is permitted under paragraph 2 of this Article but is not specifically set forth as a maximum margin of preference in the appropriate Schedule annexed to this Agreement shall not exceed:
(a) in respect of duties or charges on any product described in such Schedule, the difference between the most-favoured-nation and preferential rates provided for therein; if no preferential rate is provided for, the preferential rate shall for the purposes of this paragraph be taken to be that in force on April 10, 1947, and, if no most-favoured-nation rate is provided for, the margin shall not exceed the difference between the most-favoured-nation and preferential rates existing on April 10, 1947;
(b) in respect of duties or charges on any product not described in the appropriate Schedule, the difference between the most-favoured-nation and preferential rates existing on April 10, 1947.
In the case of the contracting parties named in Annex G, the date of April 10, 1947, referred to in subparagraph (a) and (b) of this paragraph shall be replaced by the respective dates set forth in that Annex. The obligations incorporated in paragraph 1 of Article I by reference to paragraphs 2 and 4 of Article III and those incorporated in paragraph 2 (b) of Article II by reference to Article VI shall be considered as falling within Part II for the purposes of the Protocol of Provisional Application.
The cross-references, in the paragraph immediately above and in paragraph 1 of Article I, to paragraphs 2 and 4 of Article III shall only apply after Article III has been modified by the entry into force of the amendment provided for in the Protocol Modifying Part II and Article XXVI of the General Agreement on Tariffs and Trade, dated September 14, 1948.(1)
(footnote original) 1 This Protocol entered into force on 14 December 1948. The term “margin of preference” means the absolute difference between the most-favoured-nation rate of duty and the preferential rate of duty for the like product, and not the proportionate relation between those rates. As examples:
(1) If the most-favoured-nation rate were 36 per cent ad valorem and the preferential rate were 24 per cent ad valorem, the margin of preference would be 12 per cent ad valorem, and not one-third of the most-favoured-nation rate;
(2) If the most-favoured-nation rate were 36 per cent ad valorem and the preferential rate were expressed as two-thirds of the most-favoured-nation rate, the margin of preference would be 12 per cent ad valorem;
(3) If the most-favoured-nation rate were 2 francs per kilogramme and the preferential rate were 1.50 francs per kilogramme, the margin of preference would be 0.50 franc per kilogramme.
The following kinds of customs action, taken in accordance with established uniform procedures, would not be contrary to a general binding of margins of preference:
(i) The re-application to an imported product of a tariff classification or rate of duty, properly applicable to such product, in cases in which the application of such classification or rate to such product was temporarily suspended or inoperative on April 10, 1947; and
(ii) The classification of a particular product under a tariff item other than that under which importations of that product were classified on April 10, 1947, in cases in which the tariff law clearly contemplates that such product may be classified under more than one tariff item.
8. In Canada — Autos, in support of its interpretation of Article I:1, the Appellate Body explained the object and purpose of Article I:1 as follows: “Th[e] object and purpose [of Article I] is to prohibit discrimination among like products originating in or destined for different countries. The prohibition of discrimination in Article I:1 also serves as an incentive for concessions, negotiated reciprocally, to be extended to all other Members on an MFN basis.”(11) 9. In EC — Bananas III, in support of the proposition that Article II of GATS prohibits de facto discrimination as well as de jure discrimination, the Appellate Body noted that in past practice, GATT Article I applied to de facto discrimination. See Chapter on the GATS, Section III.B.3(a). 10. In Canada — Autos, the Appellate Body reviewed the Panel’s finding that the Canadian import duty exemptions granted to motor vehicles originating in certain countries were inconsistent with Article I:1. The Appellate Body found the prohibition of discrimination under Article I:1 to include both de jure and de facto discrimination: “In approaching this question, we observe first that the words of Article I:1 do not restrict its scope only to cases in which the failure to accord an ‘advantage’ to like products of all other Members appears on the face of the measure, or can be demonstrated on the basis of the words of the measure. Neither the words ‘de jure’ nor ‘de facto’ appear in Article I:1. Nevertheless, we observe that Article I:1 does not cover only ‘in law’, or de jure, discrimination. As several GATT panel reports confirmed, Article I:1 covers also ‘in fact’, or de facto, discrimination.(12) Like the Panel, we cannot accept Canada’s argument that Article I:1 does not apply to measures which, on their face, are ‘originneutral’.”(13) 11. In Indonesia — Autos, the Panel explained how to carry out the examination of a measure under Article I:1: “The Appellate Body, in Bananas III, confirmed that to establish a violation of Article I, there must be an advantage, of the type covered by Article I and which is not accorded unconditionally to all ‘like products’ of all WTO Members. Following this analysis, we shall first examine whether the tax and customs duty benefits are advantages of the types covered by Article I. Second, we shall decide whether the advantages are offered (i) to all like products and (ii) unconditionally.”(14) (b) “any advantage, favour, privilege or immunity granted by any Member” 12. In Canada — Autos, the Appellate Body came to the conclusion that Canada’s import duty exemption accorded to motor vehicles originating in some countries in which affiliates of certain designated manufacturers were present, was inconsistent with Article I:1. The Appellate Body touched on the term “any advantage … granted by any Member to any product”: “We note next that Article I:1 requires that ‘any advantage, favour, privilege or immunity granted by any Member to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other Members.’ (emphasis added) The words of Article I:1 refer not to some advantages granted ‘with respect to’ the subjects that fall within the defined scope of the Article, but to ‘any advantage’; not to some products, but to ‘any product‘; and not to like products from some other Members, but to like products originating in or destined for ‘all other’ Members.”(15) (ii) Allocation of tariff quotas 13. In EC — Bananas III, the European Communities appealed the Panel’s finding on the ground that the Panel erred in concluding that the European Communities violated Article I:1 by maintaining the so called activity function rules. Under these rules, importers of bananas from certain countries qualified for allocation of the tariff quota only if they fulfilled requirements which differed from those imposed on importers of bananas from other countries. The Appellate Body stated: “On the first issue, the Panel found that the procedural and administrative requirements of the activity function rules for importing third-country and non-traditional ACP bananas differ from, and go significantly beyond, those required for importing traditional ACP bananas. This is a factual finding. Also, a broad definition has been given to the term ‘advantage’ in Article I:1 of the GATT 1994 by the panel in United States — Non-Rubber Footwear. It may well be that there are considerations of EC competition policy at the basis of the activity function rules. This, however, does not legitimize the activity function rules to the extent that these rules discriminate among like products originating from different Members. For these reasons, we agree with the Panel that the activity function rules are an ‘advantage’granted to bananas imported from traditional ACP States, and not to bananas imported from other Members, within the meaning of Article I:1. Therefore, we uphold the Panel’s finding that the activity function rules are inconsistent with Article I:1 of the GATT 1994.”(16) (iii) Reference to GATT practice 14. With respect to the practice under GATT 1947 concerning the term “any advantage, favour, privilege or immunity granted by any contracting party”, see GATT Analytical Index, page 31. 15. In Indonesia — Autos, examining the consistency of the Indonesian National Car Programme with Article I:1, the Panel compared the concepts of “like products” under Articles I and III: “We have found in our discussion of like products under Article III:2 that certain imported motor vehicles are like the National Car. The same considerations justify a finding that such imported vehicles can be considered like National Cars imported from Korea for the purpose of Article I.”(17) 16. For the treatment of this subject-matter under GATT 1947, see GATT Analytical Index, pages 35-40. (d) “any product originating in or destined for an other country” 17. In EC — Bananas III, the Appellate Body reviewed the Panel’s finding that the EC import regime for bananas was inconsistent with Article XIII in that the European Communities allocated tariff quota shares to some Members without allocating such shares to other Members. Pointing out that “there [were] two separate EC import regimes for bananas, the preferential regime for traditional ACP bananas and the erga omnes regime for all other imports of bananas”, the European Communities appealed that “the nondiscrimination obligations of Article I:1, X:3(a) and XIII of GATT 1994 and Article 1.3 of the Licensing Agreement apply only within each of these separate regimes.”(18) The Appellate Body responded as follows: “The essence of the non-discrimination obligations is that like products should be treated equally, irrespective of their origin. As no participant disputes that all bananas are like products, the non-discrimination provisions apply to all imports of bananas, irrespective of whether and how a Member categorizes or subdivides these imports for administrative or other reasons. If, by choosing a different legal basis for imposing import restrictions, or by applying different tariff rates, a Member could avoid the application of the non-discrimination provisions to the imports of like products from different Members, the object and purpose of the non-discrimination provisions would be defeated. It would be very easy for a Member to circumvent the non-discrimination provisions of the GATT 1994 and the other Annex 1A agreements, if these provisions apply only within regulatory regimes established by that Member.”(19) (e) “shall be accorded immediately and unconditionally” 18. In Indonesia — Autos, the Panel found that the exemption of import duties and sales taxes to those automobiles which met certain origin-neutral requirements was inconsistent with Article I:1, because of the existence of a number of “conditions”: “Indeed, it appears that the design and structure of the June 1996 car programme is such as to allow situations where another Member’s like product to a National Car imported by PT PTN from Korea will be subject to much higher duties and sales taxes than those imposed on such National Cars. … The distinction as to whether one product is subject to 0% duty and the other one is subject to 200% duty or whether one product is subject to 0% sales tax and the other one is subject to a 35% sales tax, depends on whether or not PT TPN had made a ‘deal’ with that exporting company to produce that National Car, and is covered by the authorization of June 1996 with specifications that correspond to those of the Kia car produced only in Korea. In the GATT/WTO, the right of Members cannot be made dependent upon, conditional on or even affected by, any private contractual obligations in place.(20) The existence of these conditions is inconsistent with the provisions of Article I:1 which provides that tax and customs duty benefits accorded to products of one Member (here on Korean products) be accorded to imported like products from other Members ‘immediately and unconditionally’.(21)
We note also that under the February 1996 car programme the granting of customs duty benefits to parts and components is conditional to their being used in the assembly in Indonesia of a National Car. The granting of tax benefits is conditional and limited to the only Pioneer company producing National Cars. And there is also a third condition for these benefits: the meeting of certain local content targets. Indeed under all these car programmes, customs duty and tax benefits are conditional on achieving a certain local content value for the finished car. The existence of these conditions is inconsistent with the provisions of Article I:1 which provides that tax and customs duty advantages accorded to products of one Member (here on Korean products) be accorded to imported like products from other Members ‘immediately and unconditionally’.
For the reasons discussed above, we consider that the June 1996 car programme which introduced discrimination between imports in the allocation of tax and customs duty benefits based on various conditions and other criteria not related to the imports themselves and the February 1996 car programme which also introduce discrimination between imports in the allocation of customs duty benefits based on various conditions and other criteria not related to the imports themselves, are inconsistent with the provisions of Article I of GATT.”(22) 19. In Canada — Autos, the Canadian measure at issue was an exemption of import duties granted on certain motor vehicles. The exemption was granted only where an exporter of motor vehicles was affiliated with a manufacturer/importer in Canada that had been designated, contingent on compliance with other requirements which were also claimed to be inconsistent with WTO law, as eligible to import motor vehicles duty-free under the Motor Vehicle Tariff Order (MVTO) 1998 or under a so called Special Remission Order (SRO). In practice, exporters of motor vehicles affiliated with a manufacturer/importer in Canada were located in a small number of countries. The Panel had found the Canadian measure to be inconsistent with Article I:1. On appeal, the Appellate Body first discussed the concepts of de jure and de facto discrimination under Article I:1 (see paragraph 10 above) and then held that, by granting an advantage to some products from some Members and not to others, the measure in question was inconsistent with Article I:1: “[F]rom both the text of the measure and the Panel’s conclusions about the practical operation of the measure, it is apparent to us that ‘[w]ith respect to customs duties … imposed on or in connection with importation …,’ Canada has granted an ‘advantage’ to some products from some Members that Canada has not ‘accorded immediately and unconditionally’ to ‘like’ products ‘originating in or destined for the territories of all other Members.’ (emphasis added) And this, we conclude, is not consistent with Canada’s obligations under Article I:1 of the GATT 1994.(23) 20. The Appellate Body on Canada — Autos added that the context and the “pervasive character” of the MFN principle supported its finding: “The context of Article I:1 within the GATT 1994 supports this conclusion. Apart from Article I:1, several ‘MFN-type’ clauses dealing with varied matters are contained in the GATT 1994.(24) The very existence of these other clauses demonstrates the pervasive character of the MFN principle of non-discrimination.”(25). 21. In the Canada — Autos dispute, the Panel further clarified the meaning of the term “unconditionally”. With respect to this term, Japan argued that, by making the import duty exemption conditional upon criteria unrelated to the imported product itself, Canada failed to accord the import duty exemption immediately and unconditionally to like products originating in all WTO Members. By “criteria unrelated to the imported products themselves,” Japan was referring to the various conditions which confined the eligibility for the exemption to certain motor vehicle manufacturers in Canada. The Panel, in a finding subsequently not reviewed by the Appellate Body, held that the term “unconditionally” could not be “determined independently of an examination of whether it involves discrimination between like products of different countries”. The Panel emphasized the “important distinction to be made between, on the one hand, the issue of whether an advantage within the meaning of Article I:1 is subject to conditions, and, on the other, whether an advantage, once it has been granted to the product of any country, is accorded ‘unconditionally’ to the like product of all other Members”: “[W]e believe that this interpretation of Japan does not accord with the ordinary meaning of the term ‘unconditionally’ in Article I:1 in its context and in light of the object and purpose of Article I:1. In our view, whether an advantage within the meaning of Article I:1 is accorded ‘unconditionally’ cannot be determined independently of an examination of whether it involves discrimination between like products of different countries.
Article I:1 requires that, if a Member grants any advantage to any product originating in the territory of any other country, such advantage must be accorded ‘immediately and unconditionally’ to the like product originating in the territories of all other Members. We agree with Japan that the ordinary meaning of ‘unconditionally’ is ‘not subject to conditions’. However, in our view Japan misinterprets the meaning of the word ‘unconditionally’ in the context in which it appears in Article I:1. The word ‘unconditionally’ in Article I:1 does not pertain to the granting of an advantage per se, but to the obligation to accord to the like products of all Members an advantage which has been granted to any product originating in any country. The purpose of Article I:1 is to ensure unconditional MFN treatment. In this context, we consider that the obligation to accord ‘unconditionally’ to third countries which are WTO Members an advantage which has been granted to any other country means that the extension of that advantage may not be made subject to conditions with respect to the situation or conduct of those countries. This means that an advantage granted to the product of any country must be accorded to the like product of all WTO Members without discrimination as to origin.
In this respect, it appears to us that there is an important distinction to be made between, on the one hand, the issue of whether an advantage within the meaning of Article I:1 is subject to conditions, and, on the other, whether an advantage, once it has been granted to the product of any country, is accorded “unconditionally” to the like product of all other Members. An advantage can be granted subject to conditions without necessarily implying that it is not accorded “unconditionally” to the like product of other Members. More specifically, the fact that conditions attached to such an advantage are not related to the imported product itself does not necessarily imply that such conditions are discriminatory with respect to the origin of imported products. We therefore do not believe that, as argued by Japan, the word “unconditionally” in Article I:1 must be interpreted to mean that making an advantage conditional on criteria not related to the imported product itself is per se inconsistent with Article I:1, irrespective of whether and how such criteria relate to the origin of the imported products.
We thus find that Japan’s argument is unsupported by the text of Article I:1.”(26) 22. The Panel on Canada — Autos rejected Canada’s defence that the Canadian import duty exemption, as described in paragraph 19 above, was a permitted exception under Article XXIV because, on the one hand, Canada was not granting the import duty exemption to all NAFTA manufacturers and because, on the other hand, manufacturers from countries other than the United States and Mexico were being provided duty-free treatment.(27) As this finding of the Panel was not appealed, the Appellate Body concluded: “The drafters also wrote various exceptions to the MFN principle into the GATT 1947 which remain in the GATT 1994.(28) Canada invoked one such exception before the Panel, relating to customs unions and free trade areas under Article XXIV. This justification was rejected by the Panel, and the Panel’s findings on Article XXIV were not appealed by Canada. Canada has invoked no other provision of the GATT 1994, or of any other covered agreement, that would justify the inconsistency of the import duty exemption with Article I:1 of the GATT 1994.
The object and purpose of Article I:1 supports our interpretation. That object and purpose is to prohibit discrimination among like products originating in or destined for different countries. The prohibition of discrimination in Article I:1 also serves as an incentive for concessions, negotiated reciprocally, to be extended to all other Members on an MFN basis.”(29) 23. In US — Certain EC Products, the United States increased the bonding requirements on imports from the European Communities in order to secure the payment of additional import duties to be imposed in retaliation for certain EC measures. Examining the consistency of the increased bonding requirements with GATT Article I, the Panel stated, with reference to the finding of the Panel on Indonesia — Autos referenced in paragraph 18 above: “We find that the 3 March additional bonding requirements violated the most-favoured-nation clause of Article I of GATT, as it was applicable only to imports from the European Communities, although identical products from other WTO Members were not the subject of such an additional bonding requirements. The regulatory distinction (whether an additional bonding requirement is needed) was not based on any characteristic of the product but depended exclusively on the origin of the product and targeted exclusively some imports from the European Communities.(30)”(31) 24. In EC — Tariff Preferences, the Panel interpreted the term “unconditionally” as meaning “not limited by or subjected to any conditions”: “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’.(32)
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.”(33) (ii) Reference to GATT practice 25. With respect to the practice concerning the term “shall be accorded immediately and unconditionally” under GATT 1947, see GATT Analytical Index, pages 33-35.
1. Anti-dumping and countervailing duties (i) Reference to GATT practice 26. With respect to GATT practice concerning antidumping and countervailing duties, see GATT Analytical Index, page 47. 2. Frontier traffic and customs unions 27. In Canada — Autos, Canada invoked an Article XXIV exception with respect to a certain import duty exemption which had been found inconsistent with GATT Article I. The Panel rejected this defence, because, on the one hand, Canada was not granting the import duty exemption to all NAFTA manufacturers and because, on the other hand, manufacturers from countries other than the United States and Mexico were being provided duty-free treatment.(34) Since Canada did not appeal this finding of the Panel, the Appellate Body did not address the issue. (b) Reference to GATT practice 28. With respect to GATT practice concerning frontier traffic and customs unions, see GATT Analytical Index, page 47. (a) Text and adoption of the Enabling Clause 29. On 28 November 1979, the GATT Council adopted the Decision on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (the “Enabling Clause”).(35) The text of the Enabling Clause is set out below: “Following negotiations within the framework of the Multilateral Trade Negotiations, the CONTRACTING PARTIES decide as follows:
1. Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatment to developing countries(36), without according such treatment to other contracting parties.
2. The provisions of paragraph 1 apply to the following:(37)
(a) Preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences,(38)
(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 on 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.
4. Any contracting party taking action to introduce an arrangement pursuant to paragraphs 1, 2 and 3 above or subsequently taking action to introduce modification or withdrawal of the differential and more favourable treatment so provided shall:(39)
(a) notify the CONTRACTING PARTIES and furnish them with all the information they may deem appropriate relating to such action;
(b) afford adequate opportunity for prompt consultations at the request of any interested contracting party with respect to any difficulty or matter that may arise. The CONTRACTING PARTIES shall, if requested to do so by such contracting party, consult with all contracting parties concerned with respect to the matter with a view to reaching solutions satisfactory to all such contracting parties.
5. The developed countries do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of developing countries, i.e., the developed countries do not expect the developing countries, in the course of trade negotiations, to make contributions which are inconsistent with their individual development, financial and trade needs. Developed contracting parties shall therefore not seek, neither shall less-developed contracting parties be required to make, concessions that are inconsistent with the latter’s development, financial and trade needs.
6. Having regard to the special economic difficulties and the particular development, financial and trade needs of the least-developed countries, the developed countries shall exercise the utmost restraint in seeking any concessions or contributions for commitments made by them to reduce or remove tariffs and other barriers to the trade of such countries, and the least-developed countries shall not be expected to make concessions or contributions that are inconsistent with the recognition of their particular situation and problems.
7. The concessions and contributions made and the obligations assumed by developed and less-developed contracting parties under the provisions of the General Agreement should promote the basic objectives of the Agreement, including those embodied in the Preamble and in Article XXXVI. Less-developed contracting parties expect that their capacity to make contributions or negotiated concessions or take other mutually agreed action under the provisions and procedures of the General Agreement would improve with the progressive development of their economies and improvement in their trade situation and they would accordingly expect to participate more fully in the framework of rights and obligations under the General Agreement.
8. Particular account shall be taken of the serious difficulty of the least-developed countries in making concessions and contributions in view of their special economic situation and their development, financial and trade needs.
9. The contracting parties will collaborate in arrangements for review of the operation of these provisions, bearing in mind the need for individual and joint efforts by contracting parties to meet the development needs of developing countries and the objectives of the General Agreement.” (b) Generalized System of Preferences 30. Pursuant to the Enabling Clause, notifications on the Generalized System of Preferences (GSP) schemes of developed country Members in favour of least-developed countries are to be sent to the Committee on Trade and Development. In contrast, under the Waiver on Preferential Tariff Treatment for Least-Developed Countries, which is referred to in paragraph 59 below, notifications on steps taken by developing country Members in favour of least-developed countries are to be sent to the Council on Trade in Goods. In order to allow for a unified consideration of both types of measures in one forum, at its meeting of 16 February 2001, the Committee on Trade and Development agreed ad referendum that any market access measures taken specifically in favour of the least-developed countries under the Enabling Clause and notified to the Committee be transmitted to the Sub-Committee on Least-developed Countries, for substantive consideration, and that the Sub-Committee report back to the Committee on its discussions.(40) A similar procedure was agreed to in the Council for Trade in Goods with respect to the treatment of notifications under the Waiver on Preferential Tariff Treatment for LDCs, see paragraph 59 below. 31. From the establishment of the WTO until 31 December 2004 the following Members have filed notifications with the Committee on Trade and Development on their GSP schemes: (a) Canada(41);
(b) European Communities(42);
(c) Japan(43);
(d) New Zealand(44);
(e) Norway(45);
(f) Switzerland(46);
(g) United States(47);
(h) Iceland(48); and
(i) Australia.(49) 32. With respect to the GSP schemes notified to the GATT, see GATT Analytical Index, page 50. (c) Regional trade arrangements among developing country Members 33. To date, the Committee on Trade and Development has received notifications or communications of seven regional trade arrangements among developing country Members:(50) 34. The Committee on Trade and Development has also received notifications with respect to four other regional trade arrangements which were previously notified to the GATT Committee on Trade and Development: (a) Southern Common Market Agreement (MERCOSUR)(51), and the Memorandum of Understanding on Closer Relations between Bolivia and MERCOSUR;(52)
(b) Agreement on SAARC(53) Preferential Trading Arrangement (SAPTA)(54);
(c) Latin American Integration Association (LAIA) the Membership of Cuba(55); and
(d) Common Effective Preferential Tariffs (CEPT) scheme for the ASEAN(56) Free Trade Area (AFTA).(57) 35. On 30 April 2004, the Committee on Trade and Development received notification of China’s accession to the Bangkok Agreement.(58) 36. Under paragraph 4(a) of the Enabling Clause, Members are required to notify arrangements taken under the Enabling Clause, and the modification or withdrawal thereof, to the Committee on Trade and Development. In this regard, in fulfilment of its mandate under item 1(b) of its terms of reference(59), at its meeting on 20 February 1998, the Committee on Regional Trade Agreements (Committee on RTAs) adopted recommendations to the Committee on Trade and Development with respect to how the required reporting on the operation of regional trade agreements, including those under the Enabling Clause, should be carried out.(60) At its meeting of 2 November 1998, the Committee on Trade and Development adopted the recommended procedures, as general guidelines with respect to information on regional trade agreements submitted to it.(61) 37. When an agreement is notified under the Enabling Clause, it is inscribed on the agenda of the Committee on Trade and Development. Subsequent actions of the Committee may include “noting” the agreement, requesting additional information, trans ferring it to the Committee on RTAs for examination, and reviewing reports made by members on changes to their agreements. 38. At its meeting of 14 September 1995, the Committee on Trade and Development adopted the following terms of reference for the Working Party on MERCOSUR(62): “To examine the Southern Common Market Agreement (MERCOSUR) in the light of the relevant provisions of the Enabling Clause and of the GATT 1994, including Article XXIV, and to transmit a report and recommendations to the Committee on Trade and Development for submission to the General Council, with a copy of the report transmitted as well to the Council for Trade in Goods. The examination in the Working Party will be based on a complete notification and on written questions and answers.”(63) 39. The review of MERCOSUR was later taken over by the Committee on RTAs.(64) (d) Special treatment of the least-developed countries 40. As of 31 December 2004 the Committee on Trade and Development has received notifications under the Enabling Clause from the following Members of their special treatment in respect of the least-developed countries in the context of any general or specific measures in favour of developing countries: (a) Canada(65);
(b) European Communities(66);
(c) Japan(67);
(d) Republic of Korea(68);
(e) Norway(69);
(f) New Zealand(70);
(g) Switzerland(71);
(h) United States(72);
(i) Iceland(73); and
(j) Australia.(74) (i) The relationship between the Enabling Clause and Article I:1 of the GATT 1994 The Enabling Clause as an exception to Article I:1 of the GATT 1994 41. In EC — Tariff Preferences, the Appellate Body addressed the relationship between Article I:1 of the GATT 1994 and the Enabling Clause and upheld the Panel’s characterization of the Enabling Clause as an exception to Article I:1 based on the ordinary meaning of paragraph 1 of the Enabling Clause. It also stated that such a characterization does not affect the importance of the policy objectives of the Enabling Clause: “By using the word ‘notwithstanding’, paragraph 1 of the Enabling Clause permits Members to provide ‘differential and more favourable treatment’ to developing countries ‘in spite of’ the MFN obligation of Article I:1. Such treatment would otherwise be inconsistent with Article I:1 because that treatment is not extended to all Members of the WTO ‘immediately and unconditionally’.(75) Paragraph 1 thus excepts Members from complying with the obligation contained in Article I:1 for the purpose of providing differential and more favourable treatment to developing countries, provided that such treatment is in accordance with the conditions set out in the Enabling Clause. As such, the Enabling Clause operates as an ‘exception’ to Article I:1. … In sum, in our view, the characterization of the Enabling Clause as an exception in no way diminishes the right of Members to provide or to receive ‘differential and more favourable treatment’. The status and relative importance of a given provision does not depend on whether it is characterized, for the purpose of allocating the burden of proof, as a claim to be proven by the complaining party, or as a defence to be established by the responding party. Whatever its characterization, a provision of the covered agreements must be interpreted in accordance with the ‘customary rules of interpretation of public international law’, as required by Article 3.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the ‘DSU’).(76) Members’ rights under the Enabling Clause are not curtailed by requiring preference-granting countries to establish in dispute settlement the consistency of their preferential measures with the conditions of the Enabling Clause. Nor does characterizing the Enabling Clause as an exception detract from its critical role in encouraging the granting of special and differential treatment to developing-country Members of the WTO.”(77) 42. The Appellate Body stated in EC — Tariff Preferences that the Enabling Clause does not exclude the applicability of Article I:1. Rather, it is a more specific rule [on GSP matters] that prevails over Article I:1. According to the Appellate Body, a panel should first examine the consistency of a challenged measure with Article I:1 and then proceed to examine the justifiability of the measure under the Enabling Clause: “It is well settled that the MFN principle embodied in Article I:1 is a ‘cornerstone of the GATT’ and ‘one of the pillars of the WTO trading system’, which has consistently served as a key basis and impetus for concessions in trade negotiations. However, we recognize that Members are entitled to adopt measures providing ‘differential and more favourable treatment’ under the Enabling Clause. Therefore, challenges to such measures, brought under Article I:1, cannot succeed where such measures are in accordance with the terms of the Enabling Clause. In our view, this is so because the text of paragraph 1 of the Enabling Clause ensures that, to the extent that there is a conflict between measures under the Enabling Clause and the MFN obligation in Article I:1, the Enabling Clause, as the more specific rule, prevails over Article I:1. In order to determine whether such a conflict exists, however, a dispute settlement panel should, as a first step, examine the consistency of a challenged measure with Article I:1, as the general rule. If the measure is considered at this stage to be inconsistent with Article I:1, the panel should then examine, as a second step, whether the measure is nevertheless justified by the Enabling Clause. It is only at this latter stage that a final determination of consistency with the Enabling Clause or inconsistency with Article I:1 can be made.
In other words, the Enabling Clause ‘does not exclude the applicability’ of Article I:1 in the sense that, as a matter of procedure (or “order of examination”, as the Panel stated), the challenged measure is submitted successively to the test of compatibility with the two provisions. But, as a matter of final determination — or application rather than applicability — it is clear that only one provision applies at a time …”.(78) (ii) Footnote 3 to paragraph 2 43. The Appellate Body addressed the meaning of the term “generalized” as context for the interpretation of the term “non-discriminatory” in EC — Tariff Preferences and found that its ordinary meaning is to “apply more generally”. The Appellate Body also took note of the historical context leading to this requirement: “We continue our interpretive analysis by turning to the immediate context of the term ‘non-discriminatory’. We note first that footnote 3 to paragraph 2(a) stipulates that, in addition to being ‘non-discriminatory’, tariff preferences provided under GSP schemes must be ‘generalized’. According to the ordinary meaning of that term, tariff preferences provided under GSP schemes must be ‘generalized’ in the sense that they ‘apply more generally; [or] become extended in application’.(79) However, this ordinary meaning alone may not reflect the entire significance of the word “generalized” in the context of footnote 3 of the Enabling Clause, particularly because that word resulted from lengthy negotiations leading to the GSP. In this regard, we note the Panel’s finding that, by requiring tariff preferences under the GSP to be “generalized”, developed and developing countries together sought to eliminate existing “special” preferences that were granted only to certain designated developing countries.(80) Similarly, in response to our questioning at the oral hearing, the participants agreed that one of the objectives of the 1971 Waiver Decision and the Enabling Clause was to eliminate the fragmented system of special preferences that were, in general, based on historical and political ties between developed countries and their former colonies”.(81) 44. In EC — Tariff Preferences, the European Communities appealed the Panel’s findings based on the drafting history of the Generalized System of Preferences that the term “non-discriminatory” in footnote 3 to paragraph 2 of the Enabling Clause requires that identical tariff preferences be provided to all developing countries without differentiation, except as regards the implementation of a priori limitations.(82) While rejecting the Panel’s findings, the Appellate Body interpreted the ordinary meaning of the term “non-discriminatory” as requiring that preference-giving countries make identical tariff preferences available to all similarly-situated beneficiary developing countries: “[T]he ordinary meanings of ‘discriminate’ point in conflicting directions with respect to the propriety of according differential treatment. Under India’s reading, any differential treatment of GSP beneficiaries would be prohibited, because such treatment necessarily makes a distinction between beneficiaries. In contrast, under the European Communities’ reading, differential treatment of GSP beneficiaries would not be prohibited per se. Rather, distinctions would be impermissible only where the basis for such distinctions was improper. Given these divergent meanings, we do not regard the term ‘non-discriminatory’, on its own, as determinative of the permissibility of a preference-granting country according different tariff preferences to different beneficiaries of its GSP scheme.
Nevertheless, at this stage of our analysis, we are able to discern some of the content of the ‘non-discrimination’ obligation based on the ordinary meanings of that term. Whether the drawing of distinctions is per se discriminatory, or whether it is discriminatory only if done on an improper basis, the ordinary meanings of ‘discriminate’ converge in one important respect: they both suggest that distinguishing among similarly-situated beneficiaries is discriminatory. For example, India suggests that all beneficiaries of a particular Member’s GSP scheme are similarly-situated, implicitly arguing that any differential treatment of such beneficiaries constitutes discrimination. …
Paragraph 2(a), on its face, does not explicitly authorize or prohibit the granting of different tariff preferences to different GSP beneficiaries. It is clear from the ordinary meanings of ‘non-discriminatory’, however, that preference-granting countries must make available identical tariff preferences to all similarly-situated beneficiaries.”(83) 45. After taking into account the stated objectives of the Preamble to the WTO Agreement, Appellate Body stated in EC — Tariff Preferences that the interpretation of the term “non-discriminatory” in the Enabling Clause should allow the possibility of additional preferences to be given to developing countries with particular needs: “We are of the view that the objective of improving developing countries” share in the growth in international trade’, and their ‘trade and export earnings’, can be fulfilled by promoting preferential policies aimed at those interests that developing countries have in common, as well as at those interests shared by sub-categories of developing countries based on their particular needs. An interpretation of ‘non-discriminatory’ that does not require the granting of ‘identical tariff preferences’ allows not only for GSP schemes providing preferential market access to all beneficiaries, but also the possibility of additional preferences for developing countries with particular needs, provided that such additional preferences are not inconsistent with other provisions of the Enabling Clause, including the requirements that such preferences be ‘generalized’ and ‘non-reciprocal’. We therefore consider such an interpretation to be consistent with the object and purpose of the WTO Agreement and the Enabling Clause.”(84) 46. After considering its ordinary meaning, its context and the object and purpose of the WTO Agreement, the Appellate Body found in EC — Tariff Preferences that the term “non-discriminatory” in footnote 3 to paragraph 2 of the Enabling Clause requires that identical preference be made available to all similarly situated GSP beneficiaries that have the “development, financial and trade needs” to which the preference is intended to respond: “Having examined the text and context of footnote 3 to paragraph 2(a) of the Enabling Clause, and the object and purpose of the WTO Agreement and the Enabling Clause, we conclude that the term ‘non-discriminatory’ in footnote 3 does not prohibit developed-country Members from granting different tariffs to products originating in different GSP beneficiaries, provided that such differential tariff treatment meets the remaining conditions in the Enabling Clause. In granting such differential tariff treatment, however, 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 ‘development, financial and trade needs’ to which the treatment in question is intended to respond.”(85) 47. The Appellate Body further found in EC — Tariff Preferences that due to the closed nature of the beneficiary list and the lack of objective criteria or standards in its GSP Regulation, the European Communities failed to make its special preferences (i.e., the Drug Arrangements) available to all similarly situated beneficiaries: “We recall our conclusion that the term ‘non-discriminatory’ in footnote 3 of the Enabling Clause requires that identical tariff treatment be available to all similarly-situated GSP beneficiaries. We find that the measure at issue fails to meet this requirement for the following reasons. First, as the European Communities itself acknowledges, according benefits under the Drug Arrangements to countries other than the 12 identified beneficiaries would require an amendment to the Regulation. Such a ‘closed list’ of beneficiaries cannot ensure that the preferences under the Drug Arrangements are available to all GSP beneficiaries suffering from illicit drug production and trafficking.
Secondly, the Regulation contains no criteria or standards to provide a basis for distinguishing beneficiaries under the Drug Arrangements from other GSP beneficiaries. Nor did the European Communities point to any such criteria or standards anywhere else, despite the Panel’s request to do so. As such, the European Communities cannot justify the Regulation under paragraph 2(a), because it does not provide a basis for establishing whether or not a developing country qualifies for preferences under the Drug Arrangements. Thus, although the European Communities claims that the Drug Arrangements are available to all developing countries that are ‘similarly affected by the drug problem’, because the Regulation does not define the criteria or standards that a developing country must meet to qualify for preferences under the Drug Arrangements, there is no basis to determine whether those criteria or standards are discriminatory or not.”(86) 48. The Appellate Body also stated in EC — Tariff Preferences that in addition to the non-discriminatory requirement in paragraph 2(a), the Enabling Clause also sets out other conditions in paragraph 3(c) and 3(a) that must be complied with by any particular GSP preference scheme. However, the Appellate Body did not examine per se the consistency of the Drug Arrangements with the conditions set out in paragraph 3(c) and 3(a) due to the fact that the Panel had not made findings in this regard: “Although paragraph 3(c) informs the interpretation of the term ‘non-discriminatory’ in footnote 3 to paragraph 2(a), as detailed above, paragraph 3(c) imposes requirements that are separate and distinct from those of paragraph 2(a). We have already concluded that, where a developed-country Member provides additional tariff preferences under its GSP scheme to respond positively to widely-recognized ‘development, financial and trade needs’ of developing countries within the meaning of paragraph 3(c) of the Enabling Clause, this ‘positive response’ would not, as such, fail to comply with the ‘non-discriminatory’ requirement in footnote 3 of the Enabling Clause, even if such needs were not common or shared by all developing countries. We have also observed that paragraph 3(a) requires that any positive response of a preference-granting country to the varying needs of developing countries not impose unjustifiable burdens on other Members. With these considerations in mind, and recalling that the Panel made no finding in this case as to whether the Drug Arrangements are inconsistent with paragraphs 3(a) and 3(c) of the Enabling Clause, we limit our analysis here to paragraph 2(a) and do not examine per se whether the Drug Arrangements are consistent with the obligation contained in paragraph 3(c) to ‘respond positively to the development, financial and trade needs of developing countries’ or with the obligation contained in paragraph 3(a) not to ‘raise barriers’ or ‘create undue difficulties’ for the trade of other Members.”(87) (iii) Paragraph 2: “developing countries” 49. Based on its findings on the term “nondiscriminatory” in footnote 3 of paragraph 2 and on its discussion of paragraph 3(c), the Appellate Body found in EC — Tariff Preferences that the phrase “developing countries” in paragraph 2 of the Enabling Clause does not mean “all developing countries”: “We have concluded, contrary to the Panel, that footnote 3 and paragraph 3(c) do not preclude the granting of differential tariffs to different sub-categories of GSP beneficiaries, subject to compliance with the remaining conditions of the Enabling Clause. We find, therefore, that the term ‘developing countries’ in paragraph 2(a) should not be read to mean ‘all’ developing countries and, accordingly, that paragraph 2(a) does not prohibit preference-granting countries from according different tariff preferences to different sub-categories of GSP beneficiaries.”(88) (iv) Relationship between paragraph 2(a) and 2(d) 50. The Appellate Body stated in EC — Tariff Preferences that paragraph 2(d) is not an exception to paragraph 2(a) of the Enabling Clause. Rather, it found that by virtue of paragraph 2(d), preference-giving countries need not establish that the differentiation between developing and the least-developed countries is “non-discriminatory”: “We do not agree with the Panel that paragraph 2(d) is an ‘exception’ to paragraph 2(a), or that it is rendered redundant if paragraph 2(a) is interpreted as allowing developed countries to differentiate in their GSP schemes between developing countries. To begin with, we note that the terms of paragraph 2 do not expressly indicate that each of the four sub-paragraphs thereunder is mutually exclusive, or that any one is an exception to any other. Moreover, in our view, it is clear from several provisions of the Enabling Clause that the drafters wished to emphasize that least-developed countries form an identifiable subcategory of developing countries with ‘special economic difficulties and … particular development, financial and trade needs’.(89) When a developed-country Member grants tariff preferences in favour of developing countries under paragraph 2(a), as we have already found, footnote 3 imposes a requirement that such preferences be ‘non-discriminatory’. In the absence of paragraph 2(d), a Member granting preferential tariff treatment only to least-developed countries would therefore need to establish, under paragraph 2(a), that this preferential treatment did not ‘discriminate’ against other developing countries contrary to footnote 3. The inclusion of paragraph 2(d), however, makes clear that developed countries may accord preferential treatment to least-developed countries distinct from the preferences granted to other developing countries under paragraph 2(a). Thus, pursuant to paragraph 2(d), preference-granting countries need not establish that differentiating between developing and least-developed countries is ‘non-discriminatory’. This demonstrates that paragraph 2(d) does have an effect that is different and independent from that of paragraph 2(a), even if the term ‘non-discriminatory’ does not require the granting of ‘identical tariff preferences ‘to all GSP beneficiaries.”(90) 51. The Appellate Body found in EC — Tariff Preferences although there was a requirement of nondiscrimination, this did not mean that identical tariff preferences should be granted to “all” developing countries. The Appellate Body concluded that the Enabling Clause contains sufficient other conditions on the granting of preferences, including those under paragraph 3(a), to guard against such a conclusion: “It does not necessarily follow, However, that ‘non-discriminatory’ should be interpreted to require that preference-granting countries provide ‘identical’ tariff preferences under GSP schemes to ‘all’ developing countries. In concluding otherwise, the Panel assumed that allowing tariff preferences such as the Drug Arrangements would necessarily ‘result [in] the collapse of the whole GSP system and a return back to special preferences favouring selected developing countries’.(91) To us, this conclusion is unwarranted. We observe that the term ‘generalized’ requires that the GSP schemes of preference-granting countries remain generally applicable.(92) Moreover, unlike the Panel, we believe that the Enabling Clause sets out sufficient conditions on the granting of preferences to protect against such an outcome. As we discuss below(93), provisions such as paragraphs 3(a) and 3(c) of the Enabling Clause impose specific conditions on the granting of different tariff preferences among GSP beneficiaries.”(94) 52. The Appellate Body stated in EC — Tariff Preferences that paragraph 3(a) requires that any positive response of a preference-giving country to the varying needs of developing countries not impose unjustifiable burdens on other Members: “Finally, we note that, pursuant to paragraph 3(a) of the Enabling Clause, any ‘differential and more favourable treatment … 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.’ This requirement applies, a fortiori, to any preferential treatment granted to one GSP beneficiary that is not granted to another.(95) Thus, although paragraph 2(a) does not prohibit per se the granting of different tariff preferences to different GSP beneficiaries(96), and paragraph 3(c) even contemplates such differentiation under certain circumstances(97), paragraph 3(a) requires that any positive response of a preference-granting country to the varying needs of developing countries not impose unjustifiable burdens on other Members.”(98) (vi) Paragraph 3(c) “to respond positively to the development, financial and trade needs of developing countries” 53. The Appellate Body stated in EC — Tariff Preferences that in the light of one of the stated objectives of the Preamble to the WTO Agreement, the text of paragraph 3(c) authorizes preference-giving countries to treat different developing countries differently: “[T]he Preamble to the WTO Agreement, which informs all the covered agreements including the GATT 1994 (and, hence, the Enabling Clause), explicitly recognizes the ‘need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development’. The word ‘commensurate’ in this phrase appears to leave open the possibility that developing countries may have different needs according to their levels of development and particular circumstances. The Preamble to the WTO Agreement further recognizes that Members’ ‘respective needs and concerns at different levels of economic development’ may vary according to the different stages of development of different Members.
In sum, we read paragraph 3(c) as authorizing preference-granting countries to ‘respond positively’ to ‘needs’ that are not necessarily common or shared by all developing countries. Responding to the ‘needs of developing countries’ may thus entail treating different developing-country beneficiaries differently.”(99) 54. The Appellate Body on EC — Tariff Preferences also stated that paragraph 3(c) requires that a response to a particular “development, financial and trade needs” based on objective standard. These standards could be those particular needs as broadly recognized and explicitly set out in the WTO Agreement or in multilateral instruments adopted by international organizations. It also stated that in order to make the “response” “positive”, sufficient nexus should exist between the preferential treatment and the likelihood of alleviating the relevant need: “At the outset, we note that the use of the word ‘shall’ in paragraph 3(c) suggests that paragraph 3(c) sets out obligations for developed-country Members in providing preferential treatment under a GSP scheme to ‘respond positively’ to the ‘needs of developing countries’. … … However, paragraph 3(c) does not authorize any kind of response to any claimed need of developing countries. First, we observe that the types of needs to which a response is envisaged are limited to ‘development, financial and trade needs’. In our view, a ‘need’ cannot be characterized as one of the specified ‘needs of developing countries’ in the sense of paragraph 3(c) based merely on an assertion to that effect by, for instance, a preference-granting country or a beneficiary country. Rather, when a claim of inconsistency with paragraph 3(c) is made, the existence of a ‘development, financial [or] trade need’ must be assessed according to an objective standard. Broad-based recognition of a particular need, set out in the WTO Agreement or in multilateral instruments adopted by international organizations, could serve as such a standard.
Secondly, paragraph 3(c) mandates that the response provided to the needs of developing countries be ‘positive’. ‘Positive’ is defined as ‘consisting in or characterized by constructive action or attitudes’. This suggests that the response of a preference-granting country must be taken with a view to improving the development, financial or trade situation of a beneficiary country, based on the particular need at issue. As such, in our view, the expectation that developed countries will ‘respond positively’ to the ‘needs of developing countries’ suggests that a sufficient nexus should exist between, on the one hand, the preferential treatment provided under the respective measure authorized by paragraph 2, and, on the other hand, the likelihood of alleviating the relevant ‘development, financial [or] trade need’. In the context of a GSP scheme, the particular need at issue must, by its nature, be such that it can be effectively addressed through tariff preferences. Therefore, only if a preference-granting country acts in the ‘positive’ manner suggested, in ‘respon[se]’ to a widely-recognized ‘development, financial [or] trade need’, can such action satisfy the requirements of paragraph 3(c).”(100) (vii) Burden of proof under the Enabling Clause 55. The Appellate Body stated in EC — Tariff Preferences that as an exception provision, the ultimate burden of proof under the Enabling Clause falls on the respondent party: “As a general rule, the burden of proof for an ‘exception’ falls on the respondent, that is, as the Appellate Body stated in US — Wool Shirts and Blouses, on the party ‘assert[ing] the affirmative of a particular … defence’.(101) From this allocation of the burden of proof, it is normally for the respondent, first, to raise the defence and, second, to prove that the challenged measure meets the requirements of the defence provision.
We are therefore of the view that the European Communities must prove that the Drug Arrangements satisfy the conditions set out in the Enabling Clause. Consistent with the principle of jura novit curia, it is not the responsibility of the European Communities to provide us with the legal interpretation to be given to a particular provision in the Enabling Clause; instead, the burden of the European Communities is to adduce sufficient evidence to substantiate its assertion that the Drug Arrangements comply with the requirements of the Enabling Clause.”(102) 56. However, the Appellate Body also found in EC — Tariff Preferences that the complainant bears the burden of raising the Enabling Clause in its panel request, although the ultimate burden of justifying the challenged measure under the Enabling Clause is with the respondent: “In our view, the special status of the Enabling Clause in the WTO system has particular implications for WTO dispute settlement. As we have explained, paragraph 1 of the Enabling Clause enhances market access for developing countries as a means of improving their economic development by authorizing preferential treatment for those countries, ‘notwithstanding’ the obligations of Article I. It is evident that a Member cannot implement a measure authorized by the Enabling Clause without according an ‘advantage’ to a developing country’s products over those of a developed country. It follows, therefore, that every measure undertaken pursuant to the Enabling Clause would necessarily be inconsistent with Article I, if assessed on that basis alone, but it would be exempted from compliance with Article I because it meets the requirements of the Enabling Clause. Under these circumstances, we are of the view that a complaining party challenging a measure taken pursuant to the Enabling Clause must allege more than mere inconsistency with Article I:1 of the GATT 1994, for to do only that would not convey the ‘legal basis of the complaint sufficient to present the problem clearly’. In other words, it is insufficient in WTO dispute settlement for a complainant to allege inconsistency with Article I:1 of the GATT 1994 if the complainant seeks also to argue that the measure is not justified under the Enabling Clause. This is especially so if the challenged measure, like that at issue here, is plainly taken pursuant to the Enabling Clause, as we discuss infra. … The responsibility of the complaining party in such an instance, however, should not be overstated. It is merely to identify those provisions of the Enabling Clause with which the scheme is allegedly inconsistent, without bearing the burden of establishing the facts necessary to support such inconsistency. That burden, as we concluded above, remains on the responding party invoking the Enabling Clause as a defence.”(103) (f) Reference to GATT practice 57. With respect to GATT practice concerning the Enabling Clause, see GATT Analytical Index, Article I. 4. Waiver on Preferential Tariff Treatment for Least-Developed Countries 58. At its meeting of 15 June 1999, the General Council adopted a decision concerning the Preferential Tariff Treatment for Least-Developed Countries. This decision waives the provisions of GATT Article I:1(104) in order to provide a means for developing-country Members to offer preferential tariff treatment to products of least-developed countries. The decision sets forth: “1. Subject to the terms and conditions set out hereunder, the provisions of paragraph 1 of Article I of the GATT 1994 shall be waived until 30 June 2009, to the extent necessary to allow developing country Members to provide preferential tariff treatment to products of least-developed countries, designated as such by the United Nations, without being required to extend the same tariff rates to like products of any other Member.
2. Developing country Members wishing to take actions pursuant to the provisions of this Waiver shall notify to the Council on Trade in Goods the list of all products of least-developed countries for which preferential tariff treatment is to be provided on a generalized, non-reciprocal and non-discriminatory basis and the preference margins to be accorded. Subsequent modifications to the preferences shall similarly be notified.
3. Any preferential tariff treatment implemented pursuant to this Waiver shall be designed to facilitate and promote the trade of least-developed countries and not to raise barriers or create undue difficulties for the trade of any other Member. Such preferential tariff treatment shall not constitute an impediment to the reduction or elimination of tariffs on a most-favoured-nation basis.
4. In accordance with the provisions of paragraph 4 of Article IX of the WTO Agreement, the General Council shall review annually whether the exceptional circumstances justifying the Waiver still exist and whether the terms and conditions attached to the Waiver have been met.
5. The government of any Member providing preferential tariff treatment pursuant to this Waiver shall, upon request, promptly enter into consultations with any interested Member with respect to any difficulty or any matter that may arise as a result of the implementation of programmes authorized by this Waiver. Where a Member considers that any benefit accruing to it under GATT 1994 may be or is being impaired unduly as a result of such implementation, such consultation shall examine the possibility of action for a satisfactory adjustment of the matter. This Waiver does not affect Members’ rights as set forth in the Understanding in Respect of Waivers of Obligations under GATT 1994.
6. This waiver does not affect in any way and is without prejudice to rights of Members in their actions pursuant to the provisions of the 1979 Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries.”(105) 59. Under the Decision on Waiver on Preferential Tariff Treatment for LDCs, which is referred to in paragraph 58 above, notifications on steps taken by developing country Members are to be sent to the Council on Trade in Goods. In contrast, pursuant to the Enabling Clause, which is referred to in paragraph 30 above, notifications on the GSP schemes of developed country Members in favour of LDCs are to be sent to the Committee on Trade and Development. In order to allow for a unified consideration of both types of measures in one forum, at its meeting of 14 March 2001, the Council for Trade in Goods agreed ad referendum that any market access measures taken specifically in favour of the least-developed countries under the Waiver on Preferential Tariff Treatment for LDCs and notified to the Council be transmitted to the Sub-Committee on Least-developed Countries, for substantive consideration, and that the Sub-Committee report back to the Council on its discussions.(106) A similar procedure was agreed in the Committee on Trade and Development with respect to the treatment of notifications under the Enabling Clause, see paragraph 30 above. 60. To date, only Morocco has notified its preferential tariff treatment for the least-developed countries to the Council for Trade in Goods.(107) In this regard, the following developing country Members notified their own tariff reduction or duty-free treatment for the least-developed countries to the Committee on Trade and Development, prior to the adoption of the Waiver on Preferential Tariff Treatment for LDCs: (i) Turkey(108); (ii) Egypt(109); and (iii) Mauritius.(110)
61. In US — Gasoline, with respect to the relationship between Articles I and III, the Panel considered: “[The Panel’s] findings on treatment under the baseline establishment methods under Articles III:4 and XX (b), (d) and (g) would in any case have made unnecessary the examination of the 75 percent rule under Article I:1.”(111) (a) Reference to GATT practice 62. With respect to GATT practice regarding the relationship between Article I and Article III. 63. The Panel on Brazil — Desiccated Coconut found that because Article VI of the GATT 1994 did not constitute applicable law for the purposes of the dispute, the claims made under Articles I and II of the GATT 1994, which were derived from claims of inconsistency with Article VI of the GATT 1994, could not succeed.(112) The Appellate Body on Brazil — Desiccated Coconut confirmed this finding.(113) 64. In US — Shrimp, with respect to the relationship between Articles I and XI, the Panel stated: “Given our conclusion in paragraph 7.17 above that Section 609 violates Article XI:1, we consider that it is not necessary for us to review the other claims of the complainants with respect to Articles I:1 and XIII:1. This is consistent with GATT(114) and WTO(115) panel practice and has been confirmed by the Appellate Body in its report in the Wool Shirts case, where the Appellate Body mentioned that ‘A panel need only address those claims which must be addressed in order to resolve the matter in issue in the dispute’.(116)
Therefore we do not find it necessary to review the allegations of the complainants with respect to Articles I:1 and XIII:1. On the basis of our finding of violation of Article XI:1, we move to address the defence of the United States under Article XX.”(117) 65. In EC — Bananas III, the European Communities argued that a violation of Article XIII in respect of its tariff regime for bananas was covered by the Lomé waiver, whereby the provisions of Article I:1 of the GATT 1994 were waived in respect of the allocation of country-specific tariff quotas for bananas to certain countries. The Panel agreed with this argument, however on appeal, the Appellate Body reversed this conclusion, finding that the Lomé waiver waives only the provisions of Article I:1.(118) See Chapter on the WTO Agreement, Section X.3(a)(i). 66. In Canada — Autos, Canada invoked an Article XXIV exception with respect to a certain import duty exemption, found to be inconsistent with Article I of the GATT 1994. The Panel rejected this defence, because, on the one hand, Canada was not granting the import duty exemption to all NAFTA manufacturers and because, on the other hand, manufacturers from countries other than the United States and Mexico were being provided duty-free treatment.(119) Canada did not appeal this finding of the Panel. In this regard, the Appellate Body noted: “The drafters also wrote various exceptions to the MFN principle into the GATT 1947 which remain in the GATT 1994.(120) Canada invoked one such exception before the Panel, relating to customs unions and free trade areas under Article XXIV. This justification was rejected by the Panel, and the Panel’s findings on Article XXIV were not appealed by Canada. Canada has invoked no other provision of the GATT 1994, or of any other covered agreement, that would justify the inconsistency of the import duty exemption with Article I:1 of the GATT 1994.”(121) 67. In EC — Poultry, the Appellate Body addressed a complaint against the allocation of tariff quotas for certain poultry products by the European Communities, and rejected Brazil’s appeal that Articles I and XIII of the GATT 1994 were not applicable to the allocation of tariff quota resulting from negotiations under Article XXVIII of the GATT 1994. The Appellate Body first confirmed its finding in EC — Bananas III according to which Members may, in their concessions and commitments set out in their schedules annexed to the GATT 1994, yield rights but may not diminish their obligations.(122) The Appellate Body then held that: “[t]herefore, the concessions contained in Schedule LXXX pertaining to the tariff-rate quota for frozen poultry meat must be consistent with Article I and XIII of the GATT 1994.”(123)
68. In Indonesia — Autos, the Panel rejected Indonesia’s argument that the SCM Agreement was exclusively applicable to measures involving subsidies and referred to its finding on the relationship between the SCM Agreement and Article III of the GATT 1994.(124) With respect to the exemption of customs duties and domestic taxes, the Panel indicated: “The customs duty benefits of the various Indonesian car programmes are explicitly covered by the wording of Article I. As to the tax benefits of these programmes, we note that Article I:1 refers explicitly to ‘all matters referred to in paragraphs 2 and 4 of Article III’. We have already decided that the tax discrimination aspects of the National Car programme were matters covered by Article III:2 of GATT. Therefore, the customs duty and tax advantages of the February and June 1996 car programmes are of the type covered by Article I of GATT.”(125)
Footnotes:
1. By Procés-Verbal of rectification the
correct date of document MTN/FA/Corr.6 was noted as 18 March 1994. back to text |
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