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New Delhi , Dec. 2

A WTO dispute settlement panel has upheld India's contention that the European Community (EC) has violated its WTO obligations in granting tariff preferences to 12 countries under the `Drug Arrangements' window of its Generalised System of Preferences (GSP) scheme without extending these preferences to other developing countries.

Under the GSP scheme, preferential or duty free arrangements are accorded to products of export interest of developing countries to developed markets.

The WTO panel, which was established at India's request in January last, has also ruled that the EC has failed to demonstrate that the `Drug Arrangements' are justified under the enabling clause, which otherwise allows the developed countries to grant tariff preferences to developing countries without allowing the same advantage to developed countries.

An official release said that India would seek the adoption of the panel report at the earliest in accordance with the provisions of the Dispute Settlement Understanding. Disputing parties in the WTO have a right to appeal a decision of the panel to the Appellate Body.

This WTO ruling is likely to provide some relief to the Indian exporters to the EC, particularly those in the apparel sector, who are otherwise disadvantaged by duty concessions to Pakistan under the Drug Arrangements.

The official release also said that the WTO panel has vindicated India's stand that the tariff preference under the Drug Arrangements are not given unconditionally to all developing countries. The panel was not convinced by EC's contention that the Drug Arrangements are justified under the enabling clause.

The panel found that the EC's Drug Arrangements, as a GSP scheme, do not provide identical tariff preferences to all developing countries and that the differentiation is neither for the purpose of special treatment to the least developed countries nor in the context of the implementation of a priori measures.

India's dispute with EC had arisen primarily because the latter included Pakistan as beneficiary country under its special tariff arrangements for combating drug production and trafficking under its GSP scheme for the years 2002-04. Such a scheme was in operation even in earlier with beneficiaries being restricted to ANDEAN and Central American countries.

While the scheme, in India's view was not compatible with WTO rules even then, it had not agitated the matter in WTO since it was not significantly affected.

However, with the inclusion of Pakistan as a beneficiary country with effect from January 1, 2002, Indian exports were directly affected.

There are a number of export sectors such as clothing where the two countries are close competitors in the EC market. The sudden and significant (a 9.6 per cent tariff preference for instance on certain apparel products) advantage granted to Pakistani products has disadvantaged a significant level of trade flowing from India to EC.

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