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> Paragraph 1. See also Burden of Proof (B.3); Request for the Establishment of a Panel, Article 6.2 of the DSU — Claims and legal basis of the complaint (R.2.2)
> Paragraph 2(a)
> Paragraph 2(d)
> Paragraph 3(a)
> Paragraph 3(c)
E.1.1 Paragraph 1. See also Burden of Proof (B.3); Request for the Establishment of a Panel, Article 6.2 of the DSU — Claims and legal basis of the complaint (R.2.2) back to top
E.1.1.1 EC — Tariff Preferences, para. 90
… 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”. 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.
E.1.1.2 EC — Tariff Preferences, paras. 101–102
… 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. …
E.1.1.3 EC — Tariff Preferences, para. 109
We thus understand that, between the entry into force of the GATT and the adoption of the Enabling Clause, the Contracting Parties determined that the MFN obligation failed to secure adequate market access for developing countries so as to stimulate their economic development. Overcoming this required recognition by the multilateral trading system that certain obligations, applied to all Contracting Parties, could impede rather than facilitate the objective of ensuring that developing countries secure a share in the growth of world trade. This recognition came through an authorization for GSP schemes in the 1971 Waiver Decision and then in the broader authorization for preferential treatment for developing countries in the Enabling Clause.
E.1.1.4 EC — Tariff Preferences, para. 110
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.
E.1.2 Paragraph 2(a) back to top
E.1.2.1 EC — Tariff Preferences, para. 145
Paragraph 2(a) of the Enabling Clause provides … that, to be justified under that provision, preferential tariff treatment must be “in accordance” with the GSP “as described” in the Preamble to the 1971 Waiver Decision. “Accordance” being defined in the dictionary as “conformity”, only preferential tariff treatment that is in conformity with the description “generalized, non-reciprocal and non-discriminatory” treatment can be justified under paragraph 2(a).
E.1.2.2 EC — Tariff Preferences, paras. 152–153
… the 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. …
E.1.2.3 EC — Tariff Preferences, para. 154
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.
E.1.2.4 EC — Tariff Preferences, para. 155
… 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”. 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. 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.
E.1.2.5 EC — Tariff Preferences, para. 169
… 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.
E.1.2.6 EC — Tariff Preferences, para. 173
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.
E.1.2.7 EC — Tariff Preferences, paras. 187–188
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.
E.1.3 Paragraph 2(d) back to top
E.1.3.1 EC — Tariff Preferences, para. 172
… 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.
E.1.4 Paragraph 3(a) back to top
E.1.4.1 EC — Tariff Preferences, para. 167
… 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. …
E.1.5 Paragraph 3(c) back to top
E.1.5.1 EC — Tariff Preferences, para. 161
… the 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.
E.1.5.2 EC — Tariff Preferences, paras. 162–164
… 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.
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).
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