The Hindu Business Line : Tale of two interpretations in WTO panel ruling

EVEN as New Delhi is gloating over "a significant gain" it wrested from the European Union (EU) over the latter's discriminatory application of preferential arrangement to Pakistan, the EU has drawn a contrary conclusion from the rulings of the Appellate Body (AB) of the WTO delivered on April 7 in Geneva.

In a statement on its external trade relations Web site on April 8, the EU claimed "the WTO Appellate Body reversed the finding of a WTO panel in December 2003 and rejected Indian's claim that WTO rules do not allow to differentiate between developing countries", raising the larger issue as to who is right in construing the ruling or how the WTO dispute settlement system's findings and appeal on them give rise to diametrically opposite interpretations.

The Ministry of Commerce and Industry's press statement unequivocally stated that the "recently released report of the AB of the WTO has upheld the overall finding of the Dispute Settlement Panel (DSP) that the European Communities has violated its own drug arrangement window of GSP (Generalised System of Preferences)."

The altercation arose because of the EU's decision to include Pakistan as beneficiary country under its Special Tariff Arrangement for Combating Drug Production and Trafficking within the GSP Scheme for the years 2002-04. India was of the view that such a drug window benefit was in vogue even earlier for Andean and Central American countries. While that scheme was not compatible with WTO rules even then, India refrained from taking up the matter with the WTO, as it did not markedly affect its own exports to EU. But the inclusion of Islamabad since January 2002 altered the situation as Pakistan is a competitor to India's apparel goods to Europe.

Officials in the Commerce and Textiles Ministries took up the matter with EU at various levels but could not succeed and they filed a case in the WTO for redress, on the specious plea that this arrangement of the EU discriminated among developing countries and was thus contrary to the WTO "Enabling Clause", which allows preferential and more favourable treatment to developing countries.

The DSP on December 1, 2003 ruled that under the Enabling Clause and in particular the non-discrimination principle, identical tariff preferences have to be provided to all developing countries without any differentiation with the exception of least developed countries and the so-called "a priori limitations" (graduation mechanisms, under which beneficiary countries are graduated out of the benefits once they cross the threshold of higher export performance).

According to EU's press statement, the Appellate Body's response to EU's appeal filed on January 8, 2004 was "a reversal of the Panel's finding that the term `non-discriminatory' requires that identical preferences have to be given to all developing countries without differentiation". EU claims that AB's ruling "represents a victory for the EU and all GSP donor countries that aspire in responding positively to the special needs of sub-categories of developing countries that are in the same situation".

The EU's Trade Commissioner, Mr Pascal Lamy, went a step further in bringing clarity to the AB ruling by stating thus: "Today's decision makes it clear that we can continue to give trade preferences to developing countries, according to their particular situation and needs, provided this is done in an objective, non-discriminatory and transparent manner."

Mr Lamy stated this is "certainly good news for many developing countries whose preferential access to the EU was being put at risk by India's WTO challenge".

In its 88-page ruling, the AB clearly states that it "reverses the Panel's findings, in paragraph 7.161 and 7.166 of the Panel Report, that the term non-discriminatory in footnote 3 (to Para 2(a) of the Enabling Clause) requires that identical tariff preferences under GSP schemes be provided to all developing countries without differentiation, except for the implementation of a priori limitation". It is this reversal of the Panel ruling that has given glee to the EU to assert that "WTO confirms differentiation among developing countries is possible", even as the AB found that the EU failed to demonstrate that its "Drug Arrangements are based on objective and transparent criteria that would allow all developing countries similarly situated to qualify for the preferences under the Drug Arrangement.

During AB hearing, the US as third-party observer maintained that "the panel placing the burden on developed countries to defend action they take to benefit developing countries — would create a disincentive for developed countries" to take such action.

The moot point is by reading the ruling of the AB in their own angle, both the disputants have claimed victory to their cause, even as the EU said that it "will now examine the AB report in detail to consider its practical implication for EU legislation in this respect".