Source(s) of the information:

Lawyers, other representatives, expert(s), tribunal’s secretary

Report of the Panel

SES CITED IN THIS REPORT

Short TitleFull Case Title and Citation
Argentina – Textiles and Apparel Appellate Body Report, Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/AB/R and Corr.1 adopted 22 April 1998, DSR 1998:III, 1003
Belgium – Family Allowances Panel Report, Belgian Family Allowances (allocations familiales), adopted 7 November 1952, BIDS 1S/59
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by the Appellate Body Report, WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, 3043
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI, 2995
Canada – Pharmaceutical Patents Panel Report, Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R, adopted 7 April 2000, DSR 2000:V, 2295
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135
EC – Sardines Appellate Body Report, European Communities – Trade Description of Sardines, WT/DS231/AB/R, adopted 23 October 2002
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1, 2, 3, and 4, adopted 23 July 1998, DSR 1998:VI, 2201
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3
Korea – Various Measures on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001
Turkey – Textiles Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products, WT/DS34/AB/R, adopted 19 November 1999, DSR 1999:VI, 2345
US – Customs User Fee Panel Report, United States – Customs User Fee, adopted 2 February 1988, BISD 35S/245
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 1619
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29 January 2002
US – Offset Act (Byrd Amendment) Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000, WT/SD217/AB/R, WT/DS234/AB/R, adopted 27 January 2003
US – Section 337 Panel Report, United States Section 337 of the Tariff Act of 1930, adopted 7 November 1989, BISD 36S/345.
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 2755
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R and Corr.1, adopted 23 May 1997, DSR 1997:I, 323
US – MFN Footwear Panel Report, United States – Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil, adopted 19 June 1992, BISD 39S/128

I. INTRODUCTION

1.1.
On 5 March 2002, pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (hereafter the "DSU"), Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 (hereafter the "GATT 1994") and paragraph 4(b) of the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of the Developing Countries1, (hereafter the "Enabling Clause"), India requested consultations with the European Communities regarding the conditions under which the European Communities accords tariff preferences to developing countries under the scheme of generalized tariff preferences formulated under Council Regulation (EC) No.. 2501/2001. The request was circulated to Members on 12 March 2002.2
1.2.
Consultations were held on 25 March 2002, but did not lead to a mutually satisfactory resolution of this matter.
1.3.
On 6 December 2002, India requested the Dispute Settlement Body ("DSB") to establish a panel pursuant to Articles 4.7 and 6 of the DSU and Article XXIII:2 of GATT 1994.3 On 16 January 2003, India requested the establishment of a panel for the second time. On 27 January 2003, the DSB established the Panel with the following terms of reference:

"To examine, in the light of the relevant provisions of the covered agreements cited by India in document WT/DS246/4, the matter referred to the DSB by India in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."4

1.4.
On 24 February 2003, India requested the Director-General to determine the composition of the Panel pursuant to Article 8.7 of the DSU.
1.5.
In its request for the establishment of a panel, India made claims not only with respect to the European Communities' special arrangements to combat drug production and trafficking, but also with respect to the European Communities' special incentive arrangements for the protection of the environment and labour rights. On 28 February 2003, during the meeting with the Director-General regarding the composition of the Panel, India informed both the European Communities and the Director-General that it had decided to limit the present complaint to the tariff preferences granted by the European Communities under its Drug Arrangements. India noted that no preferences had so far been granted under the special incentive arrangements for the protection of the environment and that only one country, Moldova, had thus far been accorded preferences under the special incentive arrangements for the protection of labour rights. India made it clear that it reserved its right to bring separate new complaints on the environmental and labour arrangements if the European Communities were to apply them in a manner detrimental to India's trade interests or if the European Communities were to renew them after the lapse of its current General System of Preferences scheme on 31 December 2004. India confirmed the above in writing in a communication to the European Communities, dated 3 March 2003.
1.6.
On 6 March 2003, the Director-General determined the composition of the Panel as follows:

Chairman: Mr Julio Lacarte-Muró

Members: Professor Marsha A. Echols

Professor Akio Shimizu5

1.7.
Bolivia, Brazil, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Mauritius, Nicaragua, Pakistan, Panama, Paraguay, Peru, Sri Lanka, the United States and Venezuela reserved their respective right to participate in the panel proceedings as third parties.6
1.8.
On 31 March 2003, Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru and Venezuela requested the Panel's permission to attend all the Panel meetings, to present arguments at such meetings, to receive copies of all submissions to the Panel, to make submissions to the Panel at its second meeting and to review the draft summary of arguments in the descriptive part of the Panel Report.
1.9.
On 8 April 2003, the Panel asked for comments from the parties and third parties regarding the above request. On 17 April 2003, Pakistan also joined in the request for additional third‑party rights. Brazil, Cuba, Mauritius, Paraguay and the United States stated that all third parties should be given the same treatment in the event that the Panel decides to grant such additional rights to third parties.
1.10.
On 7 May 2003, the Panel decided to provide the following additional rights to all third parties:

· observe the first substantive meeting with the parties;

· receive the second submissions of the parties;

· observe the second substantive meetings with the parties;

· make a brief oral statement during the second substantive meetings with the parties;

· review the summary of their respective arguments in the draft descriptive part of the Panel Report.7

1.11.
The Panel met with the parties on 14 and 16 May 2003 as well as on 8 and 9 July 2003. The Panel met with the third parties on 15 May 2003. Further to the decision of 7 May 2003, third parties were given the opportunity to observe the meeting of the Panel with the parties on 14 and 16 May 2003 and on 8 and 9 July 2003 as well as make brief statements on 9 July 2003.
1.12.
The Andean Community consisting of Bolivia, Colombia, Ecuador, Peru and Venezuela, the Central America countries of El Salvador, Guatemala, Honduras and Nicaragua, forming respective groups for the purposes of this dispute, as well as Costa Rica, Mauritius, Panama, Paraguay and the United States presented third‑party submissions at the first substantive meeting of the Panel. These countries/groups, as well as Bolivia, Colombia, Ecuador, Peru and Venezuela individually, and Pakistan, made oral statements during the first substantive meeting of the Panel. Only the Andean Community, Colombia, Panama, Paraguay and the United States made oral statements during the second substantive meeting of the Panel.
1.13.
The Panel issued its interim report to the parties on 5 September 2003. The Panel issued its final report to the parties on 28 October 2003.

II. FACTUAL ASPECTS

2.1.
This dispute concerns the special arrangements to combat drug production and trafficking (the Drug Arrangements) as provided in Council Regulation (EC) No. 2501/2001 of 10 December 2001, applying a scheme of generalized tariff preferences for the period from 1 January 2002 to 31 December 2004, as well as the implementation of the Drug Arrangements.

A. THE SCHEME OF GENERALIZED TARIFF PREFERENCES ADOPTED BY THE EUROPEAN COMMUNITIES

2.2.
The European Communities applies a scheme of tariff preferences for certain goods from developing countries and economies in transition under Council Regulation (EC) No. 2501/20018 ("the Regulation"). The Regulation provides for five different tariff preference arrangements:

(i) the General Arrangements;

(ii) the Special Incentive Arrangements for the protection of labour rights;

(iii) the Special Incentive Arrangements for the protection of the environment;

(iv) the Special Arrangements for least‑developed countries; and

(v) the Special Arrangements to combat drug production and trafficking (the "Drug Arrangements").

2.3.
Tariff preferences under the General Arrangements are accorded to the countries listed in Annex I to the Regulation. The additional preferences under the Special Incentive Arrangements for the protection of labour rights and the protection of the environment are accorded exclusively to countries which are determined by the European Communities to comply with certain labour and environmental policy standards. The additional preferences under the Special Arrangements for least‑developed countries are limited to the least‑developed countries listed in Annex I to the Regulation. The Drug Arrangements currently apply to 12 countries. These various arrangements differ in the depth of the tariff cuts provided, the products covered and the requirements that must be met by eligible countries.

B. THE GENERAL ARRANGEMENTS

2.4.
Under the General Arrangements, all the countries and territories listed in Annex I to the Regulation are eligible to receive tariff preferences. The products covered are listed in Annex IV to the Regulation. These products are divided into two categories: non-sensitive and sensitive.
2.5.
Article 7 of the Regulation specifies that non-sensitive products will enjoy duty-free access while sensitive products are subject to reduced tariffs. For sensitive products, the tariff duty reduction is calculated by applying: (i) a flat rate reduction of 3.5 percentage points to the Common Customs Tariff duties in the case of ad valorem duties (except for products of Chapters 50 to 63 where the ad valorem duty is reduced by 20 per cent); or (ii) a 30 per cent reduction to the Common Customs Tariff duties in the case of specific duties (except for products of CN code 2207 where the specific duty is reduced by 15 per cent). Wherever the Common Customs Tariff duty is expressed as a combination of an ad valorem duty and a specific duty, the preferential reduction is limited to the ad valorem duty.

C. THE DRUG ARRANGEMENTS

2.6.
Article 10 of the Regulation states:

"1. Common Customs Tariff ad valorem duties on products, which according to Annex IV, are included in the special arrangements to combat drug production and trafficking referred to in Title IV and which originate in a country that according to Column I of Annex I benefits from those arrangements, shall be entirely suspended. For products of CN code 0306 13, the duty shall be reduced to a rate of 3.6 per cent.

2. Common Customs Tariff specific duties on products referred to in paragraph 1 shall be entirely suspended, except for products for which Common Customs Tariff duties also include ad valorem duties. For products of CN codes 1704 10 91 and 1704 10 99 the specific duty shall be limited to 16 per cent of the customs value."

2.7.
The benefits under the Drug Arrangements currently apply to 12 named countries: Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Pakistan, Panama, Peru and Venezuela. The products included under the Drug Arrangements are listed in column D of Annex IV to the Regulation (the "covered products"). This list comprises products that are included in the General Arrangements as well as several products which are not included under the General Arrangements. The covered products enjoy duty-free access to the European Communities' market, except for products of CN codes 0306 13, 1704 10 91 and 1704 10 99, for which Article 10 of the Regulation prescribes different tariff cuts.9
2.8.
The result of the Regulation is that the tariff reductions accorded under the Drug Arrangements to the 12 beneficiary countries are greater than the tariff reductions granted under the General Arrangements to other developing countries. In respect of products that are included in the Drug Arrangements but not in the General Arrangements, the 12 beneficiary countries are granted duty free access to the European Communities' market, while all other developing countries must pay the full duties applicable under the Common Customs Tariff. In respect of products that are included in both the Drug Arrangements and the General Arrangements and that are deemed "sensitive" under column G of Annex IV to the Regulation with the exception for products of CN codes 0306 13, 1704 10 91 and 1704 10 99, the 12 beneficiary countries are granted duty‑free access to the European Communities' market, while all other developing countries are entitled only to reductionsin the duties applicable under the Common Customs Tariff.

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

3.2.
India requests the Panel to find that the Drug Arrangements have nullified or impaired benefits accruing to India under the GATT 1994. India argues that under Article 3.8 of the DSU, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered to constitute a prima facie case of nullification or impairment of benefits under that agreement.11
3.3.
India states that according to Article 19.1 of the DSU, where a panel concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement. Accordingly, India requests the Panel to recommend that the DSB request the European Communities to bring the measure at issue into conformity with the GATT 1994.
3.4.
India also indicates that according to the second sentence of Article 19.1 of the DSU, the Panel may suggest ways in which the European Communities could implement the Panel's recommendation. For the reasons set out in the introduction in its first submission, India requests the Panel to suggest that the European Communities brings its measure into conformity with its obligations under the WTO Agreement by:

(a) extending the tariff preferences granted under the Drug Arrangements to all other developing country Members consistently with the Enabling Clause; or

(b) obtaining a waiver from its obligations under Article I:1 of GATT 1994 on terms and conditions satisfactory to Members.12

3.5.
The European Communities maintains that the Enabling Clause is an autonomous right not an affirmative defence and it excludes the application of Article I. Consequently, in order to establish a violation of Article I:1 of GATT 1994 or a violation of the Enabling Clause, India bears the burden to establish the following:

(a) the Drug Arrangements are not covered by paragraph 2(a) of the Enabling Clause but covered by Article I:1 of GATT 1994; or that,

(b) the Drug Arrangements are covered by paragraph 2(a) of the Enabling Clause but are inconsistent with paragraph 3(c).13

3.6.
In light of its position on the issue of allocation of burden of proof in this dispute, the European Communities requests the Panel to find:

(a) that the Drug Arrangements fall within the scope of paragraph 2(a) of the Enabling Clause, not within that of Article I:1, and therefore dismiss India's claim under that provision;14

(b) that since India asserts that it is not making any claim under the Enabling Clause, the Panel should refrain from further examining whether the Drug Arrangements are consistent with paragraph 3(c) of the Enabling Clause;15 and,

(c) that all the claims brought by India in this disputes should be dismissed based on reasons given by the European Communities in the proceedings.16

3.7.
If the Panel were to find that the Drug Arrangements fall within Article I:1of GATT 1994, and that they are prima facie inconsistent with that provision, the European Communities requests the Panel to find that they are justified under Article XX(b) of GATT 1994 and therefore dismiss all the claims brought by India in this disputes.17

IV. ARGUMENTS OF THE PARTIES

A. FIRST WRITTEN SUBMISSION OF INDIA

1. Factual background

4.1.
The European Communities applies a scheme of tariff preferences for certain goods from developing countries and economies in transition under Council Regulation (EC) No. 2501/2001 of 10 December 2001 applying a scheme of generalized tariff preferences for the period from 1 January 2002 to 31 December 2004.18 The Regulation provides for five different tariff preference arrangements:

(a) the General Arrangements;

(b) the Special Incentive Arrangements for the protection of labour rights;

(c) the Special Incentive Arrangements for the protection of the environment;

(d) the Special Arrangements for least‑developed countries; and

(e) the Special Arrangements to combat drug production and trafficking (the "Drug Arrangements").

4.2.
Tariff preferences under the General Arrangements are accorded to the countries listed in Annex I to the Regulation. The additional preferences under the Special Incentive Arrangements for the protection of the labour rights and the protection of the environment are accorded exclusively to countries that are determined by the European Communities to comply with certain labour and environmental policy standards. The additional preferences under the Special Arrangements for least‑developed countries are limited to the least‑developed countries listed in Annex I to the Regulation. The Drug Arrangements are limited to Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Pakistan, Panama, Peru and Venezuela (the "preferred Members"). These various arrangements differ in the depth of the tariff cuts provided, the products covered, the requirements that must be met by eligible countries and the grounds on which tariff preferences can be reduced or removed.
4.3.
Under the General Arrangements, all the countries and territories listed in Annex I to the Regulation are eligible to receive tariff preferences. The products covered are listed in Annex IV to the Regulation. These products are divided into two categories: non-sensitive and sensitive.
4.4.
Article 7 of the Regulation specifies that non-sensitive products will enjoy duty-free access while sensitive products are subject to reduced tariffs. For sensitive products, the tariff duty reduction is calculated by applying: (i) a flat rate reduction of 3.5 percentage points to the Common Customs Tariff duties in the case of ad valorem duties (except for products of Chapters 50 to 63 where the ad valorem duty is reduced by 20 per cent); or (ii) a 30 per cent reduction to the Common Customs Tariff duty if that tariff is expressed as a specific duty (except for products of CN code 2207 where the specific duty is reduced by 15 per cent). Wherever the Common Customs Tariff duty is expressed as a combination of an ad valorem duty and a specific duty, the preferential reduction is limited to the ad valorem duty.
4.5.
Article 10 of the Regulation states:

"1. Common Customs Tariff ad valorem duties on products, which according to Annex IV, are included in the special arrangements to combat drug production and trafficking referred to in Title IV and which originate in a country that according to Column I of Annex I benefits from those arrangements, shall be entirely suspended. For products of CN code 0306 13, the duty shall be reduced to a rate of 3.6 per cent.

2. Common Customs Tariff specific duties on products referred to in paragraph 1 shall be entirely suspended, except for products for which Common Customs Tariff duties also include ad valorem duties. For products of CN codes 1704 10 91 and 1704 10 99 the specific duty shall be limited to 16 per cent of the customs value."

4.6.
The benefits under the Drug Arrangements are limited to the preferred Members. The products included under the Drug Arrangements are listed in Column D of Annex IV to the Regulation (the "covered products"). This list comprises products that are included in the General Arrangements as well as several products which are not included under the General Arrangements. The covered products enjoy duty-free access to the European Communities' market, except where specifically provided in Article 10 of the Regulation.
4.7.
It follows from the above that the tariff reductions accorded under the Drug Arrangements to the preferred Members are greater than the tariff reductions granted under the General Arrangements. In respect of products that are included in the Drug Arrangements but not in the General Arrangements, the preferred Members are granted duty‑free access to the European Communities' market, while all other developing countries must pay the full duties applicable under the Common Customs Tariff. Furthermore, in respect of products that are included in both the Drug Arrangements and the General Arrangements and that are deemed "sensitive" under Column G of Annex IV to the Regulation, the preferred Members are granted duty‑free access to the European Communities' market, while all other developing countries are entitled only to reductionsin the duties applicable under the Common Customs Tariff.

2. Legal arguments

(a) The Drug Arrangements are inconsistent with Article I:1 of GATT 1994

4.8.
The tariff preferences granted under the Drug Arrangements are inconsistent with Article I:1 of the GATT, which requires the European Communities to accord unconditional MFN treatment to products originating in the territories of all Members. The MFN principle is a fundamental norm of the rules-based multilateral trading system of the WTO. As pointed out by the Appellate Body, this principle has "long been a cornerstone of the GATT and is one of the pillars of the WTO trading system". Embodying this principle, Article I:1 of GATT 1994 provides in relevant part:

"With respect to customs duties …, any advantage... granted by any [Member] to any product originating in … any other country shall be accorded... immediately and unconditionally to the like product originating in … the territories of all other [Members]." (emphasis added)

4.9.
The MFN principle embodied in the GATT thus comprises two equally important requirements: first, advantages related to customs duties must be extended to all other Members and, second, the extension must be immediate and unconditional.
4.10.
The corresponding adjective of the adverb "unconditionally" is "unconditional", which is defined as: "Not subject to or limited by conditions; absolute, complete."19 In applying Article I:1 of the GATT, in Canada – Autos, the Appellate Body referred to the undisputed finding of the panel that the "term 'unconditionally' refers to advantages conditioned on the 'situation or conduct' of exporting countries".20 The panel had found that:

"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 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."21 (emphasis added)

4.11.
It follows from the above that a Member granting any advantage to any product originating in any other country has the obligation to accord that advantage to like products of all other Members regardless of their situation or conduct.
4.12.
The tariff preferences granted to covered products originating in the preferred Members constitute an "advantage". Under the Drug Arrangements, the European Communities imposes customs duties on imports of covered products originating in the preferred Members at rates lower than those imposed on like products originating in all other Members.22 This accords an advantage23 to covered products originating in the preferred Members.
4.13.
The advantages under the Drug Arrangements are available only to the 12 preferred Members. The tariff preferences granted to the covered products originating in the preferred Members are consequently not accorded to like products originating in the territories of all other Members.
4.14.
The European Communities fails to accord the advantage of the tariff preferences to like products originating in the territories of other Members unconditionally. The EC Regulation establishing the current GSP scheme does not indicate on the basis of which criteria the preferred Members were selected. The 1998 Regulation extending the previous GSP scheme indicates that the Drug Arrangements were intended to benefit "countries undertaking effective programmes to combat drug production and trafficking".24 Whether or not the European Communities has in fact applied this criterion uniformly to all Members is legally irrelevant because Article I:1 of GATT 1994 does not permit the European Communities to make the extension of the advantages under the Drug Arrangements conditional upon the situation or conduct of the exporting countries.

(b) The European Communities requested a waiver and implemented the Drug Arrangements without obtaining a waiver

4.15.
Under Article IX:3 of the Marrakesh Agreement Establishing the World Trade Organization, a Member may apply for a waiver from its obligations under that Agreement or any of the multilateral trade agreements, including the obligations under Article I:1 of GATT 1994.
4.16.
The European Communities itself acknowledges that a waiver from its obligations under Article I:1 of GATT 1994 was required before it could apply the tariff preferences under the Drug Arrangements. On 24 October 2001, the European Communities submitted a request for a waiver with the following explanation:

"The revised special arrangements to combat drug production and trafficking that should apply from 1 January 2002 will be open to eligible products listed in Annex I originating in Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Pakistan, Panama, Peru and Venezuela.

Because the special arrangements are only available to imports originating in those Members, a waiver from the provisions of paragraph 1 of Article I of GATT 1994 appears necessary before they can effectively enter into force for reasons of legal certainty."25 (emphasis added)

4.17.
The need to obtain a waiver has also been acknowledged by the preferred Members that are member countries of the Andean Community, namely Bolivia, Colombia, Ecuador, Peru, and Venezuela. This acknowledgement is recorded in the Aide-Memoire of the Joint Andean Community-European Commission Technical Evaluation Meeting on the Profitable Use of the Andean GSP, as follows:

"In this context the CAN [Andean Community] pointed out the need for the EC to obtain a waiver in order to continue granting preferences to the drug-related regime in the face of pressure brought to bear by countries that consider themselves affected by that regime."26

4.18.
The European Communities has thus far failed to obtain the required waiver. Notwithstanding the absence of a waiver, the European Communities decided to implement the Drug Arrangements.
4.19.
As noted by the Appellate Body, "[T]he prohibition of discrimination in Article 1:1 also serves as an incentive for concessions, negotiated reciprocally, to be extended to all other Members on an MFN basis".27 Any derogation from the obligation under Article I:1 of GATT 1994 upsets the balance of rights and obligations resulting from market access negotiations. It is therefore essential that any derogation from the MFN obligation is based on conditions that maintain that balance. By implementing the Drug Arrangements without the benefit of a waiver, the European Communities unilaterally upset the balance of right and obligations under the GATT 1994 and deprived all other Members, particularly the developing countries excluded from these arrangements, of their right to compensation for the trade diversion to which they are subjected.

(c) The European Communities bears the burden of justifying its Drug Arrangements under the Enabling Clause

4.20.
The European Communities bears the burden of demonstrating that the Drug Arrangements are consistent with the Enabling Clause. The Enabling Clause allows Members to derogate from their obligations under Article I:1 of GATT 1994. The Enabling Clause therefore constitutes an affirmative defence that the European Communities might invoke to justify an inconsistency with Article I:1 of GATT 1994. The Member invoking an affirmative defence has the burden of proving that defence.28 Thus, should the European Communities invoke the Enabling Clause as a defence, it bears the burden of establishing that the Drug Arrangements are justified under the Enabling Clause.
4.21.
For the sake of procedural efficiency, India will present its views on this issue in this first submission.
4.22.
The Enabling Clause does not absolve developed country Members from their obligation to accord MFN treatment to products originating in developing countries. Paragraph 1 of the Enabling Clause allows Members, notwithstanding Article I of GATT 1994, to accord differential and more favourable treatment to developing countries without according such treatment to other Members under the situations enumerated in paragraph 2. In this dispute, the relevant situation is that described under paragraph 2(a), i.e., preferential tariff treatment accorded by developed country Members to products originating in developing countries in accordance with the GSP. Paragraphs 1 and 2(a) can be paraphrased as follows:

Notwithstanding the provisions of Article I of the GATT, developed country Members may accord preferential tariff treatment to products originating in developing countries in accordance with the GSP without according such treatment to other Members.

4.23.
Under Article I:1 of GATT 1994, any advantage, favour, privilege or immunity granted to a product originating in any country shall be granted immediately and unconditionally to the like product originating in all other Members. "Other Members" include both developed and developing country Members. Thus, under this rule there can be no discrimination between like products of both developed and developing countries.
4.24.
The Enabling Clause allows developed country Members to accord preferential tariff treatment to products originating in developing countries in accordance with the GSP without according such treatment to "other Members". The Enabling Clause distinguishes between "developing countries" and "other Members". The term "other Members" in this context thus refers to other developed country Members. The phrase "notwithstanding the provisions of Article I of the GATT" thus allows developed country Members to derogate from the obligation to grant MFN treatment to products originating in developed countries. However, nothing in the Enabling Clause modifies their obligation to extend to all developing countries any advantage accorded to one of them.
4.25.
This reading of paragraph 2(a) of the Enabling Clause is confirmed by the exception made in paragraph 2(d) which permits:

"Special treatment of the least developed among the developing countries in the context of any general or specific measures in favour of developing countries."

4.26.
There would be no need to permit in paragraph 2(d) special treatment of the least‑developed countries within the category of "developing countries receiving favourable treatment" if paragraph 2(a) of the Enabling Clause permitted developed country Members to accord advantages to a selected group of developing countries
4.27.
As pointed out above, the MFN principle embodied in Article I:1 of GATT 1994 comprises two equally important requirements: First, advantages related to customs duties must be extended to all other Members and, second, the extension must be unconditional, that is independent of the situation or conduct of the exporting country. The only function of paragraph 2(a) of the Enabling Clause is to provide a partial exemption from the first of these two requirements. There is nothing in the Enabling Clause that addresses the second requirement. There is consequently nothing in the terms of the Enabling Clause that provides a legal basis for preferences on conditions related to the situation or conduct of the beneficiary developing countries.
4.28.
The sole purpose of the Enabling Clause is to permit Members to "accord differential and more favourable treatment to developing countries without according such treatment to [other Members]." The Enabling Clause provides for an exception from a fundamental principle of WTO law and cannot therefore be interpreted to authorize measures that need not be taken to achieve that purpose. In order to accord treatment to developing countries that is more favourable than that accorded to developed countries, Members need not limit their GSP preferences to a few selected developing countries and need not accord GSP preferences conditional upon the situation or conduct of the developing countries.
4.29.
The Appellate Body has stated that panels should base their interpretations on the terms of the WTO agreements and has ruled that the process of interpretation cannot be used to introduce concepts into an agreement that are simply not there.29 The Enabling Clause establishes a carefully negotiated exception from a fundamental norm of the rules-based multilateral trading system. This requires the Panel to apply the principles of interpretation developed by the Appellate Body with particular care. If the Panel were to interpret the Enabling Clause to permit developed countries to discriminate between developing countries by making the extension of tariff preferences subject to conditions with respect to the situation or conduct of those countries, it would introduce a concept that the drafters of this Clause never contemplated. The Enabling Clause would then no longer be the legal basis for GSP schemes beneficial to all developing countries but for tariff preferences under which market access benefits are diverted from some to other developing countries to realize the foreign policy objectives of the developed countries. There is no clear and explicit wording on which the Panel could base an interpretation with such serious consequences. Furthermore, the Panel cannot adopt an interpretation that promotes discrimination. The Preamble to the Marrakesh Agreement Establishing the World Trade Organization, which forms part of the "context … object and purpose"30 of the WTO Agreement, provides, inter alia:

"Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed … to the elimination of discriminatory treatment in international trade relations," (emphasis added)

4.30.
Consequently, the Enabling Clause does not absolve the European Communities from its obligation to accord MFN treatment to products originating in developing countries.

(d) The Drug Arrangements cannot be justified under the Enabling Clause

4.31.
The Enabling Clause justifies only preferences that do not discriminate between developing countries. Paragraph 2(a) of the Enabling Clause authorizes preferential treatment "in accordance with the Generalized System of Preferences". Footnote 3 defines the term "Generalized System of Preferences" as the system described in the 1971 Waiver relating to the establishment of "generalized, non-reciprocal and non-discriminatory preferences beneficial to the developing countries." (emphasis added)
4.32.
While the Enabling Clause does not establish the obligation to grant preferences, it does not permit any preference under any scheme called GSP but only preferences accorded in the framework of GSP schemes as described in the 1971 Waiver. This means, inter alia, that the preferences must be non-discriminatory between developing countries. Developed country Members applying preferential schemes that do not meet this requirement have often obtained a waiver.31
4.33.
The preferences under the Drug Arrangements discriminate between developing countries because they are not extended to all developing countries. The benefits under the Drugs Arrangements are limited to the 12 preferred Members specifically designated by the European Communities. The ordinary meaning of the verb "discriminate" is "to make or constitute a difference in or between; distinguish; differentiate" and "to make a distinction in the treatment of different categories of people or things".32 Hence, "non-discriminatory" preferential treatment of developing countries means treatment that does not make a distinction between different categories of developing countries. Preferential tariff schemes limited to a named group of developing countries cannot be characterized as "non-discriminatory" on any reasonable construction of this term. By limiting the Drug Arrangements to the 12 preferred Members, the European Communities discriminates between developing countries.
4.34.
Even if the European Communities were to establish that the preferred Members are the only developing countries that are undertaking effective programmes to combat drug production and trafficking, the Drug Arrangements would still not be consistent with the requirement of non-discrimination set out in the Enabling Clause. As pointed out above, there is nothing in the Enabling Clause that exempts the European Communities from the obligation under Article I:1 of GATT 1994 to extend the tariff preferences accorded under the Drug Arrangements unconditionally to all developing countries. GSP preferences conditional upon the beneficiaries' drug-related situation and conduct are therefore not covered by the Enabling Clause. Furthermore, making a distinction in the treatment of developing countries on the basis of their drug-related situation is discriminatory.
4.35.
The Enabling Clause covers only preferences that are beneficial to all developing countries and are designed to respond positively to their needs. As pointed out above, paragraph 2(a) of the Enabling Clause covers only preferences that are "beneficial to the developing countries".33 The use of the definite article "the" with reference to "developing countries" makes clear that the GSP schemes must benefit all developing countries.
4.36.
Furthermore, paragraph 3(c) of the Enabling Clause provides:

"3. Any differential and more favourable treatment provided under this clause:

(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."

4.37.
The requirement that the differential and more favourable treatment of developing countries be designed to respond positively to their needs is phrased as an obligation ("shall") that developed countries must observe when applying the preference schemes authorized under paragraph 2(a), that is GSP schemes as described in the 1971 Waiver.
4.38.
The Drug Arrangements are not beneficial to all developing countries. As pointed out in the introductory section of this submission, the tariff preferences accorded by the European Communities to the 12 beneficiary countries do not involve a transfer of resources from the European Communities to those countries. The main effect of the preferences is to shift market access opportunities from the developing countries that are excluded from the regime to the countries selected by the European Communities. To that extent, the true "donor" under the Drug Arrangements is not the European Communities but each of the countries in the Americas, Africa and Asia that suffers from the trade diversion caused by the preferences. For example, in the case of the tariff preferences accorded to textiles and clothing products from Pakistan, the true "donor" countries are India and other developing countries that compete directly with Pakistan's exports to the European Communities. The tariff preferences under the Drug Arrangements are beneficial to some developing countries and detrimental to others and consequently do not comply with paragraph 2(a) of the Enabling Clause.
4.39.
The Drug Arrangements are not designed to respond positively to the development, financial and trade needs of developing countries. The Drug Arrangements cover countries that are a source of production and export of illegal drugs consumed in the European Communities. The European Communities depends on the cooperation of these countries to resolve its own drug problems. The preferences accorded under the Drug Arrangements have therefore been designed to respond positively to the needs of the European Communities rather than those of developing countries.
4.40.
In summary, there are three basic conditions that a developed country Member applying a GSP scheme must observe: first, the scheme must not discriminate between developing countries; second, it must be beneficial to all developing countries; and third, it must be designed to respond positively to the needs of developing countries. These conditions all have the same basic function, namely to ensure that GSP schemes operate as instruments to promote development and not as instruments to promote the foreign or commercial policy objectives of the developed countries. It is therefore important that the provisions of the Enabling Clause establishing these conditions are observed by developed country Members that have decided to accord preferences to developing countries.
4.41.
The Drug Arrangements do not meet any of these conditions. They discriminate between developing countries because they apply only to 12 developing countries. They are not beneficial to the developing countries because they create market access opportunities for some of them at the expense of others. And, finally, they are not designed to respond positively to the needs of developing countries but those of the European Communities. The Drug Arrangements have for these reasons no resemblance with the GSP schemes authorized under the Enabling Clause.

B. FIRST WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES

1. The Enabling Clause

(a) The Enabling Clause excludes the application of Article I:1 of the GATT

4.42.
The Enabling Clause is not an "affirmative defence" justifying a violation of Article I:1. It is a self-standing regime which excludes the application of Article I:1. Unlike its predecessor, the Decision of the CONTRACTING PARTIES of 25 June 1971 (the "1971 Waiver"), the Enabling Clause is a not a temporary waiver from Article I:1 of GATT 1994. The Enabling Clause confers an autonomous and permanent right to grant certain types of "differential and more favourable treatment" to developing countries "notwithstanding Article I:1 of the GATT". This right is one of the most important and tangible expressions of the principle of "special and differential treatment" for developing countries included in the WTO Agreement.
4.43.
Similarly, in Brazil – Aircraft the Appellate Body held that Article 27 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), a provision granting "special and differential treatment" to developing countries with respect to export subsidies, was not an "affirmative defence", but rather excluded the application of Article 3.1(a) of the same Agreement. Like Article 27 of the SCM Agreement, the Enabling Clause provides "special and differential treatment" to developing countries by conferring to all Members the right to accord certain types of "differential and more favourable treatment" to developing countries.
4.44.
The fact that the Enabling Clause is not an "affirmative defence" but an autonomous right has two important implications for this dispute, namely, first, in order to establish a violation of Article I:1 of GATT 1994, India must establish first that the Drug Arrangements are not covered by paragraph 2(a) of the Enabling Clause; and second, as the complaining party, India bears the burden of proving that the Drug Arrangements are not covered by paragraph 2(a) and, if covered, that they are inconsistent with paragraph 3(c).

(b) The Enabling Clause does not impose an obligation to accord unconditional MFN treatment to the developing countries

(i) The Enabling Clause does not impose an obliation to grant "differential and more favourable treatment" to all developing countries on an MFN basis

4.45.
In paragraph 1 the term "developing countries" is not preceded by any qualifying term suggesting that "differential and more favourable treatment" must be granted necessarily to all developing countries. If a Member grants "differential and more favourable" treatment to some developing countries, such treatment falls within the ordinary meaning of the phrase "differential and more favourable treatment to developing countries".
4.46.
India's reading whereby the term "other Members" in paragraph 1 refers to "developed countries" is not warranted by the ordinary meaning of that term. If a Member grants preferences to some developing countries, any Member that does not receive such preferences (whether developed or developing) falls within the ordinary meaning of the term "other Members". Contextually, this is confirmed in particular by footnote 3 to paragraph 2(a), as well as by paragraphs 2(c) and 2(d) of the Enabling Clause.
4.47.
Footnote 3 provides that the preferences granted under paragraph 2(a) must be "non‑discriminatory". This does not imply that all developing countries must be granted identical preferences and it does not prevent developed countries from treating differently developing countries which, according to objective criteria, have different development needs.
4.48.
Paragraph 2(d) allows developed Members to give "special treatment" to the "least developed among the developing countries". This is not an "exception" to paragraph 1 but one of the types of measures authorized by paragraph 1 as evidenced by the introductory clause of Paragraph 2. The "following" includes letter (d) of Paragraph 2. Therefore, Paragraph 1 "applies" also to that letter. If paragraph 1 prohibited differentiation between developing countries, it would be impossible to reconcile paragraph 2(d), which expressly envisages such differentiation, with paragraph 1.
4.49.
Paragraph 2(d) would not become redundant if paragraph 2(a) allowed differentiation among developing countries. While paragraph 2(a) is concerned exclusively with "preferential tariff treatment", paragraph 2(d) covers any kind of "special treatment", including therefore non-tariff preferences. Furthermore, paragraph 2(d) applies in the context of "any general or specific measures" in favour of developing countries, while the preferences envisaged in paragraph 2(a) must be part of a generalized system of preferences.
4.50.
Finally, paragraph 2(c) allows developing countries to enter into "regional or global arrangements" for the "mutual reduction or elimination of tariffs". By definition, these "regional" arrangements do not include all developing countries. Thus, if paragraph 1 did not allow the granting of "differential and more favourable treatment" to some developing countries, the regional arrangements mentioned in paragraph 2(c) would fall outside the scope of paragraph 1.

(ii) The Enabling Clause does not impose an obligation to grant differential and more favourable treatment "unconditionally"

4.51.
Nothing in paragraphs 1, 2 or 3 imposes an obligation to grant preferential treatment "unconditionally". Quite to the contrary, such requirement could not be reconciled with footnote 3 to paragraph 2(a) and paragraph 2(c) of the Enabling Clause.
4.52.
A tariff preference is "conditional" within the meaning of Article I:1 of GATT 1994 when it is provided in exchange for some form of compensation. On the other hand, the notion of "reciprocity" involves a mutual exchange of the same or similar benefits. Thus, in the specific context of a trade agreement such as the WTO Agreement, the term "reciprocal" refers to those conditions which require the granting of equivalent trade concessions by way of compensation for the trade benefits received from another Member.
4.53.
Footnote 3 to paragraph 2(a) of the Enabling Clause only prohibits conditions of reciprocity. It does not prohibit other conditions providing for non-reciprocal compensation. If the preferences granted under the Enabling Clause had to be "unconditional" in any event by virtue of Article I:1 GATT 1994, it would have been superfluous to specify in paragraph 2(a) that the preferences granted as part of a GSP scheme must be "non-reciprocal".
4.54.
Additionally, "regional or global arrangements" for the "mutual reduction or elimination of tariffs" under paragraph 2(c) are, by definition, "conditional" because they consist of a reciprocal exchange of tariff concessions. If any preferences granted to developing countries under the Enabling Clause had to be "unconditional", any "global" or "regional" arrangement entered into under paragraph 2(c) would be in breach of Article I:1 of GATT 1994.

(iii) In any event, the Drug Arrangements are "unconditional"

The case law on the interpretation of the term "unconditionally"

4.55.
The term "unconditionally" has not been interpreted yet by the Appellate Body. It has been addressed in two panel reports, Indonesia – Autos and Canada – Autos, which have reached different and conflicting interpretations. Both interpretations are incorrect. In Indonesia – Autos, the panel cited a 1952 panel report, Belgian Family Allowances, which is notoriously unclear. Belgian Family Allowances is not relevant for the interpretation of "unconditionally" but instead for the interpretation of the term "like". It stands for the proposition that differences in treatment of imports cannot be based on differences in characteristics of the exporting country which do not result in differences in the goods themselves, because such differences do not make the goods "unlike".
4.56.
The interpretation made in Indonesia – Autos was effectively rejected in Canada – Autos. However, the Panel also failed in this case to give meaning to the term "unconditionally" because Article I:1 does not say that conditions must be imposed on an MFN basis, but instead that MFN treatment must be accorded "unconditionally". This means that certain "conditions" are prohibited per se, irrespective of whether they are applied discriminatorily. However, contrary to the findings of the panel in Indonesia – Autos, the prohibited conditions are not those which are unrelated to the imported goods, but instead those which require providing some form of compensation for receiving the MFN treatment.

The ordinary meaning of "unconditionally"

4.57.
An obligation or a right is "conditional" when its existence is dependent upon the occurrence of a certain event as evidenced by various dictionary definitions. Legal classifications that distinguish among persons, things or countries based on inherent or relatively permanent characteristics are not, properly speaking, "conditions". Indeed, if such distinctions were considered as "conditions", all laws or regulations would have to be characterized as "conditional" because it is in the nature of laws or regulations to draw that kind of distinction.
4.58.
The selection of the beneficiary countries of the Drug Arrangements is made by the European Communities' authorities on the basis of an overall assessment of the gravity of the drug problem in each developing country. Whether or not a developing country is particularly affected by the drug problem at the time when the selection of the beneficiaries is made is not a "future" or "uncertain" event. It is an existing and relatively permanent situation which is both certain and known to the European Communities authorities and, therefore, cannot be considered as a "condition".
4.59.
India's view that treating differently, Members which are in a different "situation", amounts to a "condition", together with India's contention that paragraph 1 of the Enabling Clause does not "exempt" from the obligation to accord the preferences "unconditionally", leads to an absurd result when applied to paragraph 2(d) of the Enabling Clause. The distinction between least‑developed countries and other developing countries envisaged by paragraph 2(d), like the distinction between developing countries particularly affected by the drug problem and other developing countries, is also related to the "situation" of those countries. Thus, on India's construction, any preferences granted to the least‑developed countries would be "conditional" and, therefore, prohibited by Article I:1 of GATT 1994.
4.60.
India's interpretation of the term "unconditionally" is based upon a passage included in the panel report in Canada – Autos, which is a mere obiter dictum insofaras it alludes to the situation of countries. Moreover, the Appellate Body did not endorse the dictum but neither did it address at all the meaning of "unconditionally".

The meaning of "unconditionally" in the context of MFN clauses

4.61.
In the context of MFN clauses, the term "unconditionally" alludes to a specific type of "condition", namely to those conditions that require providing some concession by way of compensation for receiving MFN treatment. Article I:1 of GATT 1994was modelled on the standard MFN clause of the League of Nations, which in turn derived from similar clauses included in bilateral trade agreements. This was preceded by various "conditional" and "unconditional" treaties which were concluded by the United States and European countries. The difference between the "unconditional" and "conditional" form of the MFN clause was already explained by the U.S. Department of State and in the reports of the Economic Committee of the League of Nations. Additionally, the same notion of conditional MFN is reflected in the Draft Articles on the Most-Favoured-Nation Clause ofthe International Law Commission. They distinguish between, on the one hand, MFN clauses that are "not made subject to compensation" and, on the other hand, two types of conditional MFN clauses: those "subject to reciprocal treatment" and those "subject to a condition of compensation" other than a condition of reciprocity. The term "condition of compensation" is defined as a "condition providing for compensation of any kind", whereas "condition of reciprocal treatment" is defined as "condition of compensation providing for the same or, as the case may be, equivalent treatment".
4.62.
Contrary to this traditional understanding of "conditionality" the beneficiaries of the Drug Arrangements are not required to grant any trade concessions or to provide any other compensation of any kind to the European Communities.

(c) The Drug Arrangements are consistent with the Enabling Clause

(i) The Drug Arrangements are "non-discriminatory"

4.63.
The "non-discrimination" standard set out in paragraph 2(a) is different from the MFN standard in Article I:1 of GATT 1994. While Article I:1 of GATT 1994 is concerned with providing equal conditions of competition for imports from all Members, the purpose of the Enabling Clause is to promote the trade of all developing country Members commensurately with their respective development needs.
4.64.
Paragraph 2(a) does not prevent Members from treating differently developing countries which, according to objective criteria, have different development needs. Treating differently situations that are objectively different is not discriminatory. Different treatment may even be necessary in order to avoid indirect discrimination, as well as to comply with the requirement in paragraph 3(c) of the Enabling Clause that the preferences must respond positively to the development needs of developing countries.

The interpretation of the term "non-discriminatory" in paragraph 2(a)

4.65.
In the English language, the verb "discriminate" has a neutral and a "negative" meaning with the latter the most common when used in a legal context. This is evidenced by relevant literature and jurisprudence of international and municipal tribunals. "Discrimination" only occurs if equal situations are treated unequally (or if unequal situations are treated equally). This requires considering whether the distinction pursues a legitimate aim and whether there is a "sufficient" connection between that objective, the nature of the distinction and the differences between the situations concerned on which the distinction is based.
4.66.
Contextually, paragraph 3(c) of the Enabling Clause refers to "development, financial and trade needs of developing countries" which are the individual needs of those countries. Those needs may vary between different categories of developing countries, as well as over time. In fact, the provision that the preferences shall be "modified, if necessary", assumes that those needs will vary.
4.67.
Additional contextual guidance is provided by Article III:4 as interpreted by US – Section 337 and Korea – Various Measures on Beef. Equally, Article XVII of the General Agreement on Trade in Services("GATS") provides that the national treatment standard in that provision does not require formally equal treatment. These provisions illustrate that in some cases formally unequal treatment may be required in order to achieve a given standard of equality. The chapeau of Article XX of GATT 1994 also confirms that in assessing the existence of "discrimination" between countries it must be taken into account whether the same conditions prevail in the countries concerned. It is implicit in the chapeau that there is no "discrimination" if two countries are treated differently because different conditions prevail in each of them and, by the same token, that equal treatment of unequal conditions may amount to discrimination. This was recognized by the Appellate Body in US – Shrimp.
4.68.
Finally, Article XIII shows that in the context of the GATT formal inequality is not synonymous with "discrimination". The existence of discrimination must be established having regard to the specific objective of each provision where the non-discrimination requirement is found. The objective of the Enabling Clause is to promote the exports from the developing countries commensurately with their respective development needs. Having regard to that objective, it is not discriminatory to grant additional preferences to those developing countries that have special development needs.
4.69.
The object and purpose of paragraph 2(a) the Enabling Clause is expressed in the first recital of the 1971 Waiver, to which footnote 3 of the Enabling Clause refers as corroborated by Paragraph 3 of Article XXXVI of GATT 1994 and the Preamble to the WTO Agreement. The above provisions set forth the objective of promoting the trade of all developing countries, and not just of the most "competitive" amongst them. Furthermore, the growth in trade must be commensurate with their development needs. That objective is best achieved if tariff preferences are designed so as to take into account that some developing countries have special development needs.
4.70.
The European Communities' interpretation of the term "non-discriminatory" furthers the above objectives of the Enabling Clause and the WTO Agreement because it allows providing additional preferences to the developing countries with special development needs, so that they can secure a share of international trade which is commensurate with those special needs.

Treating differently the developing countries that are particularly affected by the drug problem is not "discriminatory"

4.71.
The General Assembly of the United Nations recognized that the drug problem is often related to development problems and that those links and the promotion of the economic development of countries affected by the illicit drug trade require, within the context of shared responsibility, strengthened international cooperation in support of alternative and sustainable development activities. The International Narcotics Control Board (INCB) also concludes that illicit drug production and trafficking prevents long-term growth in the developing countries affected by that problem. It destabilises the economy and the political system as well as the civil society. Finally, the United Nations International Drug Control Programme ("UNDCP") concluded that the short‑term gains of illicit drug production and trafficking "are far outweighed by the social and economic ills ushered in by illicit drugs", such as lower productivity, the spread of AIDS, environmental decay and the increased risk of armed conflicts.
4.72.
In order to fight effectively the drug problem it is necessary to apply a balanced approach, which combines initiatives to reduce the illicit demand for drugs with those to reduce their illicit supply. In turn, the latter requires complementing the actions to eradicate illicit production and suppress illicit trafficking with the promotion of alternative economic activities. Trade preferences support those alternative activities and, therefore, constitute an appropriate response to the special development needs of those developing countries which are particularly affected by the drug problem.
4.73.
This strategy is in line with the relevant UN Conventions, in particular with the 1988 Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which envisages expressly that the parties may cooperate to increase the effectiveness of efforts to control the supply of drugs by supporting alternative economic activities. It is also in line with the guidelines adopted by the International Conference on Drug Abuse and Illicit Trafficking held in Vienna in 1987 or the Political Declaration adopted by the General Assembly of the United Nations on 23 February 1990. Of particular importance is the Action Plan on International Co-operation on the Eradication of Illicit Drug Crops and on Alternative Development adopted by the General Assembly of the United Nations in 1998 (the "1998 Action Plan"). This plan provides that the States concerned should adopt national crop reduction and elimination strategies and that such strategies should include "comprehensive measures such as programmes in alternative development, law enforcement and eradication". According to the 1998 Action Plan, "the development and implementation of alternative development is primarily the responsibility of the State in which illicit cultivation takes place". Nevertheless, the 1998 Action Plan recognizes that the success of alternative development depends on the support of the international community. Accordingly, other States and the UN organizations are encouraged to provide adequate financial and technical assistance. As a complementary measure, other States are also encouraged to provide greater access to their markets.
4.74.
The call to provide greater market access was renewed by the General Assembly of the United Nations in its resolution of 19 December 2001 and the resolution of the UN Commission on Narcotic Drugs of 15 March 2002. The importance of providing greater access to international markets has also been acknowledged in the preamble of the Agreement on Agriculture. Finally, the European Communities recalls that another WTO Member, the United States, grants trade preferences to the Andean countries under the Andean Trade Preference Act ("ATPA") with the same objective as the European Communities under the Drug Arrangements. The ATPA was granted a waiver in 1992, that was renewed in 1996.

The application of the Drug Arrangements is "non-discriminatory"

4.75.
The designation of the beneficiary countries of the Drug Arrangements is based on an overall assessment of the gravity of the drug problem in each developing country made in accordance with objective, non-discriminatory criteria. That assessment takes into account the importance of the production and/or trafficking of drugs in each country, as measured on the basis of available statistics, as well as their effects. In this regard, it is recalled that the implications of the drug problem are multifaceted. The selection of beneficiary countries thus aims at taking into account all relevant circumstances, including in particular: the impact on the economic situation; the health and environmental impact; and the impact on the stability of the State and the civil society.
4.76.
Coca products (coca leaf, coca paste, cocaine, crack, free base) and opium products (opium, morphine, heroin) account for the bulk of the global illicit drug trade in monetary terms and are the illicit drugs that have the most socio-economic impact world-wide. Accordingly, the selection of the beneficiaries is based on data relating two those types of narcotic drugs.
4.77.
The geographical patterns of drug trafficking are less stable than those of drug production. Nevertheless, the amount of drug seizures in the various countries allows charting of certain trafficking routes. Thus, opiates come mainly from Afghanistan via Pakistan and Iran into the European Union, while cocaine is shipped from the Andean countries to North America and the European Union via Central America and the Caribbean. Seizures of cocaine are concentrated in the Americas, with the Central American and Andean countries playing a preponderant role.
4.78.
The selection of the 12 beneficiary countries of the Drug Arrangements is non-discriminatory. The relevant statistics on the production and seizures of drugs support European Communities' contention.34

(a) The main opium production figures are as follows:35

Fig. 1 Production of opium (in metric tonnes)

1999 2000 2001 2002 (estim.) Average
Afghanistan 4,565 3,276 185 3,422 2,862
Myanmar 865 1,087 1,097 829 970
Laos 124 167 134 124 137
Colombia 88 (102) 88 88 n.a. 88 (93)

(b) The main coca leaf producers and their production figures are:36

Fig. 2 Production of coca leaf (in metric tons)

1999 2000 2001 Average
Colombia 260,995 (195,000) 266,161 236,035 254,397 (232,340)
Peru 69,200 (72,500) 54,400 49,260 54,903 (56,003)
Bolivia 22,800 13,400 20,200 18,800

(c) The figures for the main opium seizures are:

Fig. 3 Seizures of opium (in kgs.)37

1994 1995 1996 1997 1998 1999 2000
Iran 117,095 126,554 149,577 162,414 154,454 204,485 179,053
Pakistan 14,663 109,420 7,423 7,300 5,022 16,320 8,867

(d) The figures of the main seizures of heroin are shown as below:

Fig.4 Seizures of heroin and morphine (in kgs.)38

1994 1995 1996 1997 1998 1999 2000
Iran 13,767 13,121 11,235 20,936 25,186 28,794 26,953
Pakistan 6,444 10,760 5,872 6,156 3,364 4,974 9,492

(e) The figures for the main cocaine seizures are:

Fig.5 Seizures of cocaine (in kgs.)39

1994 1995 1996 1997 1998 1999 2000
Colombia 69,592 59,030 45,779 42,044 107,480 63,945 110,428
Mexico 22,117 22,708 23,835 34,952 22,597 34,623 23,196
Panama 5,177 7,169 8,168 15,177 11,828 3,140 7,400
Bolivia 10,021 8,497 8,305 13,689 10,102 7,707 5,559
Peru40 10,634 22,661 19,695 8,796 9,937 11,307 11,848
Guatemala 1,900 956 3,951 5,098 9,217 9,965 1,518
Venezuela 6,035 6,650 5,906 16,741 8,159 12,149 14,771
Costa Rica 1,411 1,170 1,873 7,857 7,387 1,999 5,781
Brazil 12,028 5,815 4,071 4,309 6,560 7,646 5,517
Nicaragua 1,338 1,507 398 2,790 4,750 833 961
Ecuador 1,790 4,284 9,534 3,697 3,854 10,162 3,308
El Salvador No report 65 99 234 45 38 432
Honduras 930 408 3,275 2,187 4,750 833 1,215

(ii) The Drug Arrangements are "beneficial to the developing countries"

4.79.
India's argument that the use of the definite article the before the term"developing countries" in footnote 3 "makes clear that the GSP schemes must benefit all developing countries" is by no means required by the ordinary meaning of footnote 3. To say that the preferences must be "beneficial to the developing countries" is not the same as saying that they must be beneficial to all developing countries, let alone that they must be beneficial to each and every developing country. The phrase "beneficial to the developing countries" means simply that the preferences must be beneficial to the developing countries which receive them, rather than to the developed countries which grant them. The question of whether preferences may be granted to some developing countries is specifically addressed by the requirement that preferences must be "non-discriminatory". As shown above, that term does not require that the same preferences be granted to each and every developing country.
4.80.
In the alternative, the European Communities submits that it would be entirely consistent with the ordinary meaning of the phrase "beneficial to the developing countries" to consider that this requirement is met if, overall, a preference is beneficial to all the developing countries taken together.
4.81.
Furthermore, potentially, the Drug Arrangements are "beneficial" to each and every developing country because the list of beneficiaries may be extended to cover any developing country which, following a change of circumstances, qualifies as a country particularly affected by the production or trafficking of drugs.
4.82.
Contextually, first, the requirement that the preferences must be "non-discriminatory" does not imply that identical preferences must be granted to all developing countries. Yet, if the preferences had to be "beneficial" to each and every developing country, it would be necessary to accord identical preferences to all developing countries. Thus, India's interpretation would render redundant the requirement that the preferences must be "non-discriminatory".
4.83.
Second, footnote 3 is attached to paragraph 2(a) which refers to "preferential tariff treatment accorded … to products originating in developing countries", rather than "… in the developing countries". In turn, paragraph 2(a) applies within the framework of paragraph (1), which authorizes "differential and more favourable treatment to developing countries", and not to "the developing countries". By India's own logic, the omission of the word "the" before "developing countries" in paragraphs (1) and 2(a) would confirm that, as argued by the European Communities, developed countries are authorized to grant preferences to some developing countries. Thus, India's interpretation of the phrase "beneficial to the developing countries" would give rise to a conflict between footnote 3 and those two provisions.
4.84.
Third, India's interpretation would prevent developed countries from responding to the individual development needs of developing countries, contrary to the requirement set forth in paragraph 3(c) of the Enabling Clause.
4.85.
Finally, it is recalled that the Implementation Decision adopted by the WTO Ministerial Conference at Doha reaffirms that "preferences granted to developing countries pursuant to the Decision of the Contracting Parties of 28 November 1979 ('Enabling Clause') should be generalized, non-reciprocal and non-discriminatory." The fact that the Ministerial Conference did not deem it necessary to reaffirm that the preferences should be "beneficial to the developing countries" is evidence that this phrase cannot have the far‑reaching implications asserted by India. Furthermore, by referring to "preferences granted to developing countries", rather than to "the developing countries" the Implementation Decision provides further confirmation that preferences do not have to be granted to each and every developing country.
4.86.
India's interpretation of the phrase "beneficial to developing countries" would run contrary to the object and purpose of the Enabling Clause and the WTO Agreement to promote the exports of developing countries commensurately with their respective development needs.

(iii) The Drug Arrangements respond positively to the needs of developing countries

4.87.
India's argument that the Drug Arrangements are not designed to respond positively to the needs of developing countries is manifestly unfounded and illogical. It amounts to saying that because drug abuse is a concern of the European Communities, drug production and trafficking can have no bearing on the development needs of the countries affected by that problem. This is an obvious non-sequitur.
4.88.
There is a close link between drugs and development, with the consequence that the countries which are particularly affected by the drug problem have special development needs. As demonstrated above, the Drug Arrangements have been designed to respond to those needs by supporting alternative economic activities, a strategy which is in conformity with UN recommendations.
4.89.
Furthermore, the European Communities recalls that the Agreement on Agriculture has recognized that providing greater access to the markets of the developed countries is an appropriate response to the particular development needs of the countries most affected by the drug problem.
4.90.
It is recalled also that, when granting the ATPA waiver, the WTO recognized expressly that those preferences responded to the development needs of the beneficiary countries. There is no fundamental difference between the ATPA preferences and the European Communities' Drug Arrangements, other than the country coverage, and, therefore, no valid reason to consider that the Drug Arrangements, unlike the ATPA preferences, do not respond to the development needs of the beneficiaries.

2. Article XX(b) of GATT 1994

(a) Introduction

4.91.
In the event that the Panel were to find that the Drug Arrangements fall outside the scope of paragraph 2(a) of the Enabling Clause, or that they are inconsistent with paragraph 3(c), the European Communities submits that the Drug Arrangements would be justified under Article XX(b) of GATT 1994 as being necessary for the protection of human life or health in the European Communities.

(b) The Drug Arrangements are necessary for the protection of human life or health

(i) Drugs pose a risk to human life or health

4.92.
The European Communities considers to be beyond dispute that narcotic drugs pose a risk to human life or health in the European Communities. Indeed, as recognized by the General Assembly of United Nations, "drugs are a grave threat to the health and well-being of all mankind". The narcotic drugs which are produced in, or which transit through, the territories of the beneficiary countries, i.e. coca products (coca leaf, coca paste, cocaine, crack, free base) and opium products (opium, morphine, heroin) pose particularly serious risks to human life and health as described by the United Nations Office on Drugs and Crime ("UNODC").
4.93.
According to the European Monitoring Centre for Drugs and Drugs Addiction (the "EMCDDA"), between 7,000 and 8,000 direct or "acute" drug‑related deaths are reported every year in the whole of the European Communities. To this must be added a much larger number of indirect drug related deaths, which are the consequence of associated risks, such as infectious diseases acquired through a drug using habit/way of life, e.g. HIV/AIDS, complications arising from an infection acquired through long-term drug misuse, e.g. hepatitis causing liver failure, violent deaths related to the supply and/or use of illegal drugs and accidents (including road traffic accidents) arising from impaired judgement as a result of the consumption of drugs.
4.94.
The EMCDDA has estimated that, as a result of the direct and indirect risks posed by drugs, the overall mortality rate among problem drug users in the European Communities is up to 20 times higher than among the general population of the same age.
4.95.
The concern with the health and other social problems caused by narcotic drugs is universal and has led to the adoption of a comprehensive system of international control of those substances. At present, that system is based on the Single Convention on Narcotic Drugs, 1961, as amended by the 1972 Protocol (the "1961 Convention") and the Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 (the "1988 Convention"). As India is also a party to the 1961 and the 1988 Conventions, India would be estopped from arguing in this dispute that narcotic drugs do not pose a serious risk to human health or life for the purposes of Article XX(b).

(ii) The Drug Arrangements are "necessary" to fight drug production and trafficking

The "values" pursued by the Drug Arrangements

4.96.
The Appellate Body held in Korea – Various Measures on Beef that "the more vital or important the common interests or values pursued, the easier it would be to accept as necessary the measures designed to achieve those ends". As emphasized by the Appellate Body in EC – Asbestos, the preservation of human life and health is "both vital and important in the highest degree". Accordingly, in the present case the term "necessary" should be interpreted by the Panel according to its broadest possible meaning.

Contribution of the Drug Arrangements to the protection of human life and health

4.97.
The Drug Arrangements contribute to the objective of preserving the life and health of the European Communities' population against the risks from the consumption of narcotic drugs by supporting the measures taken by other countries against the illicit production and trafficking of those substances, thereby reducing their supply to the European Communities.
4.98.
There is a clear link between drug control and economic development as recognized by the General Assembly of United Nations and the INCB. The Drug Arrangements take account of that link. They seek to promote the development of alternative economic activities to replace illicit drug production and trafficking and, more generally, to raise the overall level of economic development of the countries concerned, so as that they can generate the resources and capacity required for enforcing an effective system of drug control.
4.99.
The Drug Arrangements are embedded in a strategy that encompasses four different but related types of actions: (i) reducing the demand of drugs, through prevention, treatment and rehabilitation; (ii) preventing drug supply through law enforcement action; (iii) reducing illicit cultivation by actions such as the promotion of alternative development; and (iv) promoting international cooperation. Technical and financial assistance to the developing countries affected by drug production or trafficking does not render the Drug Arrangements unnecessary but rather the Drug Arrangements are a necessary complement to such technical and financial assistance.

Trade impact of the Drug Arrangements

4.100.
As required by paragraph 3(a) of the Enabling Clause, the Drug Arrangements have been designed to promote trade from the beneficiary countries and not to raise barriers to the trade of other countries. There is no evidence that, in practice, the Drug Arrangements have displaced imports from other developing countries to any significant extent. The trade preferences granted under the Drug Arrangements are also subject to the general "graduation" mechanism provided for in the GSP Regulation.

(c) The Drug Arrangements are applied consistently with the chapeau

4.101.
The chapeau of Article XX establishes three standards regarding the application of measures for which justification under Article XX may be sought. First, there must be no arbitrary discrimination between countries where the same conditions prevail; second, there must be no unjustifiable discrimination between countries where the same conditions prevail; and third, there must be no disguised restriction on international trade. These three standards, while distinct, must "be read side-by-side" and "impart meaning to one another".
4.102.
The standards embodied in the chapeau are different from the standard used in determining whether a measure violates the substantive rules of the GATT (in casu the Enabling Clause) as observed by the Appellate Body in US – Shrimp. The standards embodied in the chapeau are also different from the standard used in determining whether the measure is provisionally justified under one of the particular exceptions listed in Article XX. As emphasized by the Appellate Body in US – Gasoline, the chapeau is not concerned with the measure for which justification is sought but instead with the application of such measure. According to the Appellate Body, the general structure and design of the measure and its declared policy objective must be examined under the exception listed in Article XX and not under the chapeau. In turn, when considering the chapeau, the treaty interpreter must determine whether the application of a measure provisionally justified under one of the exceptions listed in Article XX constitutes an abuse or misuse of such provisional justification.

(i) Arbitrary or unjustifiable discrimination

4.103.
In this case, India's allegations do not relate to the "application" of the measure but it is the essential substantive feature of the "structure and design" of the measure in dispute. Therefore, the alleged discrimination between the two categories of developing countries is irrelevant for the purposes of the chapeau. In any case, however, the designation of the beneficiary countries of the Drug Arrangements is made according to objective, non discriminatory criteria. An inclusion of least‑developed countries and other developing countries which are parties to the Cotonou Agreement or to bilateral free-trade agreements with the European Communities would have been pointless because they already benefit from duty‑free access under these regimes. Equally, developed countries are not included because the "prevailing conditions" in developed countries are not the same as those prevailing in developing countries. Procedural aspects of granting and withdrawal of the special preferences are also non-discriminatory.

(ii) Disguised restriction

4.104.
Any restriction on imports from developing countries not especially affected by the drug problem which are an inherent effect of the exclusion of that category of countries from the Drug Arrangements cannot be relied upon in order to establish that the application of the Drug Arrangements leads to a "disguised restriction" of trade. Instead, in order to establish that the Drug Arrangements fail to comply with that standard, it would have to be shown that imports from India are restricted because, as a matter of application of the Drug Arrangements, India has been unduly excluded from the list of beneficiaries of the Drug Arrangements even though it qualifies as a country that is especially affected by the drug problem. However, the selection of the beneficiaries of the Drug Arrangements has been made according to objective, non-discriminatory criteria.

C. ORAL STATEMENT OF INDIA AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

1. Procedural arguments

(a) Joint representation of India and Paraguay by the same staff of the Advisory Centre on WTO Law

4.105.
On the issue raised by the European Communities on 14 May 2003 during the first substantive meeting of the Panel, whether India and Paraguay can be represented by the same staff of the Advisory Centre on WTO Law ("ACWL"), India and Paraguay submitted a joint statement on this issue to the Panel on the same day. India claims that it had full notice of the representation granted to Paraguay as a third party by the ACWL in this dispute. Likewise, Paraguay had full notice of the representation granted to India as a complaining party. India and Paraguay consider that by representing both parties, the ACWL does not compromise their individual interests in effective legal representation. India and Paraguay had both consented to simultaneous representation by the ACWL in this dispute.
4.106.
India and Paraguay contend that the issue of exchange of information between parties and third parties to which the European Communities referred in its statement does not arise in the present case because the third parties were accorded enhanced rights.
4.107.
India and Paraguay maintain that the dispute settlement procedures of the WTO establish rules of ethics for the members of panels and the Appellate Body but not for lawyers representing the Members of the WTO. Under the current law of the WTO, the request of the European Communities that the Panel rule on a matter of legal ethics therefore lacks any legal basis and should be rejected by the Panel.
4.108.
India argues that according to Articles 2.2 and 6.1 of the Agreement Establishing the Advisory Centre on WTO Law, both India and Paraguay are entitled to the support of the ACWL in WTO dispute settlement proceedings, whether as parties or third parties. Citing the Appellate Body ruling in EC – Bananas III that it "can find nothing in the … WTO Agreement, the DSU or the Working Procedures, nor in customary international law or the prevailing practice of international tribunals, which prevents a WTO Member from determining the composition of its delegation in Appellate Body", India contends that this observation applies equally to the composition of the delegation in panel proceedings.

2. Substantive arguments

4.109.
According to India, it was with extreme reluctance that it decided to invoke dispute settlement proceedings in this case. India made repeated attempts to settle the issue bilaterally with the European Communities, but its inability to reach a settlement and the considerable lossesfaced by its industry left India with no choice but to invoke these proceedings. India resorted to these procedures only after having exhausted all possibilities to reach a mutually agreed solution.
4.110.
India recognizes the need for special financial assistance to developing countries to meet their individual development needs. However, it does not believe that tariff preferences discriminating between developing countries are the appropriate policy instrument to address the specific development needs of individual countries. Such preferences tend to help some poor countries at the expense of others, equally poor. The GSP was not created to shift market access opportunities between poor countries with different development needs, but to respond to the development needs of all of them.
4.111.
India's textiles and clothing exporters started feeling the adverse effects of the Drug Arrangements in the year 2002, when Pakistan was included in these arrangements. These problems are not yet fully reflected in the trade statistics because only 16 months have lapsed since the inclusion of Pakistan. However, in India's view, the WTO legal system focuses on the conditions of competition for WTO Members, not trade results.
4.112.
The European Communities, India and the beneficiary countries are in agreement that the GSP preferences that may be accorded under paragraph 2(a) of the Enabling Clause must be "non‑discriminatory preferences beneficial to the developing countries". India submits that the Drug Arrangements do not meet this requirement because the preferences accorded under them are available only to products originating in specified countries. On the contrary, the European Communities contends that the term "non-discriminatory" does not prevent it from treating beneficiaries differently because, according to objective criteria, they have different development needs as a consequence of drug problems.
4.113.
The European Communities' argument is based on two premises: first, that the term "non-discriminatory" in the Enabling Clause allows developed countries to distinguish between developing countries on the basis of objective criteria relating to specific development needs of individual countries; and second, that the European Communities in fact distributes the benefits accruing under the Drug Arrangements in accordance with objective criteria.
4.114.
The meaning of the term "non-discriminatory" as used in paragraph 2(a) of the Enabling Clause must be determined in accordance with the ordinary terms of GATT 1994, in their context and in the light of its object and purpose. On the basis of these principles, the Appellate Body has found that: "The essence of the non-discrimination obligations is that like products should be treated equally, irrespective of their origin […]. Non-discrimination obligations apply to all imports of like products, except when these obligations are specifically waived or are otherwise not applicable as a result of the operation of specific provisions of the GATT 1994."41
4.115.
The Enabling Clause is an integral part of the GATT 1994, and it therefore follows from this finding of the Appellate Body that, in the context of the Enabling Clause, non-discrimination means equal treatment of like products, except if a specific provision of the Enabling Clause states otherwise. The basic legal issue before the Panel therefore is: does the Enabling Clause provide for a definition of the term "non-discrimination" that is different from the definition generally applicable in the GATT 1994?
4.116.
The European Communities argues that an interpretation of paragraph 2(a) of the Enabling Clause permitting developed countries to treat countries differently that have different development needs is supported by paragraph 3(c) of the Enabling Clause, which obliges developed countries to "respond positively to the development, financial and trade needs of developing countries". The European Communities claims that the needs of developing countries needs referred to in this paragraph are "the individual needs of those countries". On this basis, it claims that the requirement to respond positively to the individual needs of each developing country would be rendered a nullity if "non-discriminatory" were interpreted as prohibiting any difference in treatment between developing countries.
4.117.
There is nothing to support the contention that paragraph 3(c) refers to the individual needs of each of the developing countries, and the text of paragraph 3(c) does not express this idea. In the context of the requirements governing GSP preferences, the drafters of the Enabling Clause referred to the needs of developing countries in general. In the context of the reciprocity principle governing trade negotiations, they referred to the "individual" or "particular" needs of developing countries. This comparison leaves no doubt that the drafters intended to stipulate that GSP schemes respond to the needs of developing countries in general and that each developing country's individual needs would be taken into account in determining the degree of reciprocity in trade negotiations.
4.118.
There is also nothing to support the European Communities contention that paragraph 3(c) would be rendered a nullity if differences in treatment between developing countries were prohibited. A GSP scheme can be non-discriminatory and nevertheless not respond positively to the needs of developing countries in general. It made perfect sense for the drafters to require that benefits to be accorded on a non-discriminatory basis to the developing countries respond positively to the needs of these countries.
4.119.
The European Communities assertion that a scheme designed exclusively to address drug problems responds to the needs of developing countries as defined in paragraph 3(c) cannot also be reconciled with the fact that, throughout the Enabling Clause, the needs of developing countries are defined as the "development, financial and trade needs". The conjunctive term "and" makes clear that, when evaluating the consistency of a GSP scheme with paragraph 3(c) or the degree of non-reciprocity to be accorded to a developing country under paragraphs 5 and 6, the development, financial and the trade needs have to be assessed collectively. The drafters did not create the option of responding either to development or to financial or to trade needs because they did not use the term "or". This logically implies that they also did not create the option of responding to one specific development need, such as the need to fight drug production and trafficking.
4.120.
Finally, it must be recalled that paragraph 3(c), by its own terms, does not create a right but establishes an obligation. If the European Communities' interpretation were correct, this provision would oblige developed Members to design their GSP schemes to respond to the individual needs of each of the beneficiary countries. They would thus be under a legal obligation to modulate all benefits accruing under their GSP schemes to the individual needs of each of the beneficiaries. However, most of the benefits accruing under the general GSP arrangements of the European Communities are equally available to all developing countries and consequently would not meet such an obligation. In its attempt to justify one of its special GSP arrangements, the European Communities therefore asks the Panel to adopt an interpretation of paragraph 3(c) that would render its general GSP arrangement inconsistent with the Enabling Clause.
4.121.
The European Communities further asserts that various provisions of the GATT 1994 and the GATS that implement the principle of non-discrimination support its claim that the Drug Arrangements are "non-discriminatory" within the meaning of paragraph 2(a) of the Enabling Clause. This assertion also does not withstand scrutiny.
4.122.
There are three basic provisions of the GATT that implement the principle of non‑discrimination between products originating in different countries. Each of these provisions establishes a specific standard of non-discrimination for a specific policy instrument:

(a) Article I of the GATT subjects the use of tariffs to the most-favoured-nation standard. A WTO Member can meet this standard only if it applies the same tariff to like products of all other Members of the WTO. The standard of non-discrimination established by the GATT for tariffs is therefore formally equal treatment.

(b) Article XIII regulates the use of quotas, including the use of country-specific quotas. It requires Members that administer quotas to aim at a distribution of trade approaching as closely as possible the shares which the other Members might be expected to obtain in the absence of the quotas, for instance by basing the quota distribution on a previous representative period. The standard of non-discrimination is thus not formally equal treatment but treatment that ensures that the quotas do not modify each Member's trade share.

(c) Article XVII regulates imports and exports of state trading enterprises. It requires Members to ensure that such enterprises act in a manner consistent with the principles of non-discriminatory treatment. This is understood to require that these enterprises make their purchases and sales solely in accordance with commercial considerations.

4.123.
While each of these three provisions sets a different standard, they all have one common objective, namely, to ensure that like products originating in different countries are accorded equal competitive opportunities. In the case of tariffs, this objective is achieved by requiring formally equal treatment; in the case of quotas, by stipulating a distribution of trade equal to the distribution that would prevail without the quotas; and in the case of state trading enterprises, by requiring that purchases and sales be based on considerations equal to those that private enterprises would apply.
4.124.
Further, the non-discrimination rules also set out in the national treatment provisions of the GATT 1994 and GATS have equality of competitive opportunities as their fundamental objective. It is clear from the jurisprudence under the GATT 1994 and the text of the GATS that the national treatment requirement can be achieved through formally identical or formally different treatment. However, it is equally clear that either method must result in an effective equality of competitive opportunities.
4.125.
The non-discrimination provisions of the GATT governing tariffs thus provide no contextual support for an interpretation of the term non-discrimination in paragraph 2(a) in the Enabling Clause that would justify the Drug Arrangements. This paragraph deals with the tariff treatment of products originating in developing countries. In respect of tariffs, non-discrimination means formally equal treatment of like products. The standard of non-discrimination that the European Communities invites the Panel to adopt in respect of tariff treatment of products originating in developing countries applies nowhere in WTO law to tariff treatment.
4.126.
The European Communities' statement that the non-discrimination provisions of the GATT governing non-tariff measures, such as import quotas or internal regulations, permit or even require formally different treatment of like products is correct. However, the result of any difference in treatment must in all cases be an effective equality of conditions of competition between like products, irrespective of their origin. The preferential tariff treatment accorded under the Drug Arrangements establishes conditions of competition favouring products from the beneficiary countries over products from other countries, and is therefore also discriminatory within the meaning of the non-discrimination provisions governing non-tariff measures. In addition, these provisions cannot lead the Panel to the interpretation of paragraph 2(a) advanced by the European Communities.
4.127.
Paragraph 2(a) defines the GSP schemes authorized by the Enabling Clause by referring to the 1971 Waiver, and the 1971 Waiver in turn refers to the Agreed Conclusions of the Special Committee on Preferences adopted at the Fourth Special Session of the Trade and Development Board of the UNCTAD. As India will further demonstrate in its rebuttal submission, the Agreed Conclusions clearly envisage that the benefits of the GSP schemes should be made available to all beneficiary countries. This understanding of the Agreed Conclusions is confirmed by the fact that, prior to the adoption of the Agreed Conclusions, the developed countries had agreed among themselves in the OECD that their preferences would not discriminate between developing countries, except to favour the least‑developed countries.
4.128.
As India noted at the beginning of its statement, according to the Appellate Body, non‑discrimination means equal treatment of like products except if a specific provision states otherwise. The simple fact is that, except for the provisions governing preferences for least‑developed countries, there is no provision in the Enabling Clause that lends any support to the conclusion that the terms "non-discriminatory preferences beneficial to the developing countries" in paragraph 2(a) of the Enabling Clause do not require equal treatment of like products from all developing countries.
4.129.
Turning to the factual premises under the European Communities' argumentation. India strongly rejects the European Communities' claim that the Enabling Clause permits the developed countries to differentiate between developing countries, on the basis of objective criteria of their own choice which are allegedly vital to the development needs of developing countries. Nevertheless, assuming arguendo that differentiation between developing countries is permissible, the European Communities' argumentation could only succeed if its factual claim were correct – that the Drug Arrangements differentiate between developing countries on the basis of objective criteria reflecting their development needs.
4.130.
The EC Regulation establishing the current European Communities' GSP scheme provides for two special arrangements to which the European Communities' factual claim might possibly apply: the labour arrangements and the environmental arrangements.42 In respect of the Drug Arrangements, no criteria or procedures for inclusion as a beneficiary are set out in the Regulation. Instead, Article 10 of the Regulation merely provides that the preferences are granted to countries that are designated by the European Communities as beneficiaries in column I of Annex I. The beneficiaries therefore do not know what criteria they have to meet in order to continue to be beneficiaries. There are also no provisions establishing criteria to be met and procedures to be followed in order to be designated as a beneficiary. Countries excluded from the scheme consequently do not know why they are excluded and under what circumstances they would be included. The European Communities' claim that the measures at issue in these proceedings distinguish between developing countries according to objective criteria reflecting their individual development needs is therefore factually baseless.
4.131.
The measures at issue in this proceeding are the Drug Arrangements as they presently operate. The issue is therefore whether the Drug Arrangements as set out in the current Regulation establish "non-discriminatory preferences beneficial to the developing countries" within the meaning of paragraph 2(a) of the Enabling Clause. The motives of the European Communities in selecting the beneficiaries and the criteria that the European Communities might adopt in the future when adding further beneficiaries are consequently not relevant to the legal examination of the measures before the Panel.
4.132.
India would nevertheless like to point out that the European Communities has provided no evidence that the selection of the current beneficiaries was based on objective criteria. Moreover, the European Communities submits no evidence whatsoever demonstrating that the countries excluded from the scheme do not have similar drug problems. In its submission, it describes the drug problems of the beneficiaries in general terms, partly by using statistics that became available after the beneficiaries had been selected. On the basis of the European Communities' explanations, it is impossible to determine why for instance Pakistan was included while India and Paraguay were excluded. Nor has the European Communities submitted any documentary evidence that it had in fact conducted an objective assessment of all countries' drug problems before establishing the list of beneficiaries. All it has submitted to the Panel is a lengthy ex post justification prepared with the help of UN documents that does not reveal a single objective criterion equally applied to all beneficiaries and non-beneficiaries.
4.133.
India also notes that there are some fundamental contradictions between the alternative defences advanced by the European Communities in its written submission. The European Communities argues that the Drug Arrangements are entirely consistent with all of the requirements of the Enabling Clause, including presumably the requirement that any such arrangement must be non-reciprocal in nature. At the same time, however, the European Communities also argues that, in the event that the Panel finds the Drug Arrangements to be inconsistent with the Enabling Clause, it would like to defend it as being necessary to protect human life and health in the European Communities under Article XX(b) of GATT 1994. Thus, the European Communities in effect admits in its written submission that the Drug Arrangements are really intended to achieve a fundamental and important policy objective of its own, without reference to the development needs of the beneficiaries of the Drug Arrangements. Therefore, the design, architecture and structure of the Drug Arrangements contain an important element of reciprocity, which is clearly impermissible under the Enabling Clause. This is just one more instance of the contradictions inherent in the European Communities' arguments before the Panel.
4.134.
The claims and arguments presented by the European Communities and the beneficiaries are legally and factually unfounded. The European Communities knew and acknowledged that the Drug Arrangements required a waiver. The European Communities failed to obtain the waiver and the Panel is now facing the most spurious arguments in support of a ruling that could only be described as preposterous, namely that the denial of tariff preferences to India does not constitute discrimination against India.
4.135.
Both the European Communities and the beneficiary countries have permitted their lawyers to advance arguments on important systemic issues that run counter to the views that they have expressed on other occasions. It is difficult to believe that the arguments that the European Communities presented on the unconditional nature of the most-favoured-nation principle and on Article XX(b) represent the considered opinion of the European Communities as a whole. It is equally difficult to believe that the beneficiary countries took their long-term systemic interests into account when they invited the Panel to rule that developed countries may discriminate between developing countries in accordance with criteria selected by the developed countries.
4.136.
India is profoundly disturbed by the European Communities' abuse of the WTO dispute settlement procedures in this case and the surprising support given by the beneficiary countries to the European Communities' interpretation of the Enabling Clause. India urges the Panel to preserve the integrity of the dispute settlement process and to make quickly the required clear ruling so that the issues to which the Drug Arrangements give rise can be resolved within the framework of the proper WTO procedures.
4.137.
In conclusion, India reiterates that it does not dispute the European Communities' right to give financial assistance to individual developing countries facing special development needs. India disputes the European Communities' right to do so at the expense of other developing countries facing different but equally pressing needs. The European Communities' claim that the Enabling Clause provides authority to shift market access opportunities from some poor countries to other poor countries in accordance with criteria selected by the developed countries is legally untenable. The GSP was intended to promote the development of all developing countries. It was not intended to permit developed countries to discriminate between developing countries, to destroy or adversely affect industry in one developing country to benefit another and to create poverty in one developing country in order to alleviate poverty in another. A confirmation of this obvious fact by the Panel will have a salutary effect on the entire multilateral trading system.

D. ORAL STATEMENT OF THE EUROPEAN COMMUNITIES AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

1. Procedural arguments

(a) Joint representation of India and Paraguay by the same staff of the Advisory Centre on WTO Law

4.138.
During the first substantive meeting of the Panel, the European Communities raised the issue of joint representation of India, the complaining party and Paraguay, one of the third parties by the same staff of the ACWL. The European Communities requests the Panel to clarify the issue of whether, as a matter of principle, the same counsel can represent simultaneously a complaining party and a third party, and if so, under what conditions and whether these conditions are satisfied in this case.
4.139.
While acknowledging that the Appellate Body ruled only on the issue of who should represent a Member at its oral hearing in EC – Bananas III, not on the issue of whether the same legal counsel may represent two Members with different positions, the European Communities considers that the joint representation of a party and a third party by the same legal counsel is unprecedented. This situation draws a number of concerns that deserve the attention of the Panel.
4.140.
The European Communities contends that there is an obvious conflict of interest. The bar rules of many WTO Members prohibit lawyers from representing in litigation two clients with different interests. The absent of any agreed rules in the WTO concerning the representation of Members by external counsel does not mean that such counsel is not subject to any deontological rules. Under the existing WTO law, there is no requirement that the counsel appearing before a panel must be admitted to the bar of a WTO Member. In view of that, the European Communities considers that panels must take upon themselves the task of enforcing basic deontological standards, including the conflict of interest issue, as part of their inherent powers to organize and direct the proceedings.
4.141.
The European Communities states that it is not suggesting that there is necessarily a conflict of interest in this case. Rather, the European Communities' view is that the situation where the same counsel represents the complaining party and a third party may give rise to such conflicts and that panels should satisfy themselves that the counsel and the Members concerned have done all that is necessary to avoid them.
4.142.
The European Communities maintains that the situation where the same counsel represents two Members with different procedural positions may be incompatible with the DSU rules on confidentiality. The counsel for a complaining party will receive confidential submissions and panel documents which it would not be entitled to receive as the counsel for a third party. In this case, the problem is mitigated by the fact that third parties have been granted enhanced rights. But the European Communities is worried about creating a precedent for other cases where, in accordance with the general rule, the information rights of third parties are limited. In response to the argument that India and Paraguay submitted to the Panel that the issue of confidentiality does not arise in this dispute as the third parties have been accorded enhanced rights, the European Communities points out that India and Paraguay had already agreed to use the service of the same legal counsel long before third parties requested the enhanced third‑party rights.
4.143.
It is the view of the European Communities that generally speaking, allowing the same counsel to represent the complaining party and a third party would be a source of confusion and could effectively blur the distinction between the main parties and the third parties, which, as recently recalled by a panel, is still a basic feature of the DSU rules.

2. Substantive arguments

(a) The implications of this dispute

4.144.
The European Communities points to the importance of this dispute. It is the first dispute involving the Enabling Clause, one of the most significant forms of "special and differential" treatment for developing countries under the WTO Agreement. At stake in this dispute is more than the Drug Arrangements, vital as they are for the beneficiary countries. From the Panel's answers to some of the issues raised in this dispute it could decide also the viability of the Generalized Systems of Preferences ("GSP") applied by many donor countries.
4.145.
When considering those issues, the Panel should bear in mind the nature of the preferences granted under the GSP schemes. Those preferences are strictly voluntary. According to the European Communities, India's reading of the Enabling Clause would be detrimental to all Members. The likely result of India's interpretation would be less, rather than more preferences for the developing countries, contrary to India's misguided expectations in bringing this case. In fact, turning the Enabling Clause into the kind of strait-jacket devised by India could dissuade some donor countries from providing any preferences at all.
4.146.
Beyond its systemic implications, the present dispute is important also because of its potential repercussions for the beneficiaries of the Drug Arrangements. The Drug Arrangements have allowed those countries to increase and diversify their exports to the European Communities. The ensuing beneficial effects are considerable. For example, it has been estimated that in the Andean Community alone, the Drug Arrangements sustain almost 160,000 jobs.
4.147.
Removing the Drug Arrangements from the European Communities' GSP would have devastating economic and social consequences for the beneficiary countries. In contrast, India would derive very few benefits, if at all. As we have shown, India's allegations of trade diversion are unsubstantiated and groundless. Between 1990 and 2001, imports from India under the European Communities' GSP increased from two to more than five billion Euros. Further, during that period, India's share of all imports under the European Communities' GSP increased from 9 per cent to 12 per cent. This makes India the second largest beneficiary of the European Communities' GSP.
4.148.
India can invoke no genuine trade concern as a justification for bringing this dispute. The European Communities, therefore, finds it very difficult to understand why India has resorted to an action that could undermine the efforts of other developing countries in their fight against drugs and endanger their social and political stability. India's gratuitous complaint is hardly what would be expected from a Member which aspires, with good reason, to be one of the leaders of the developing country Members of this Organization.

(b) The Enabling Clause

4.149.
India's complaint is built on a mistaken premise. India has misconceived the relationship between the Enabling Clause and Article I:1 of GATT 1994. The Enabling Clause is not an "affirmative defence". It is a self-standing regime. It confers an autonomous and permanent right to grant certain types of "special and more favourable treatment" to developing countries, subject to certain conditions. If a preference falls under the Enabling Clause, Article I:1 of GATT 1994 does not apply at all.
4.150.
India is one of the main proponents of strengthening the provisions granting "special and differential treatment" to developing countries. It is therefore astonishing to see that in this dispute India takes a position that would erode considerably the value of such treatment. The European Communities invites India to reflect further on this issue in the light of its broader WTO interests.
4.151.
The fact that the Enabling Clause is not an affirmative defence has two important implications:

(a) in order to establish a violation of Article I:1 of GATT 1994, India must establish first that the Drug Arrangements do not fall within the scope of paragraph 2(a) of the Enabling Clause; and

(b) as the complaining party, India bears the burden of proving that the Drug Arrangements are not covered by paragraph 2(a) and, if covered, that they are inconsistent with paragraph 3(c).

4.152.
The Enabling Clause has its own requirements, which are different from those of Article I:1 of GATT 1994. Unlike Article I:1, the Enabling Clause does not require granting identical tariff preferences to all the developing countries, on a MFN basis. Instead, paragraph 2(a) provides that the tariff preferences granted to developing countries as part of a GSP must be "non-discriminatory".
4.153.
The "non-discrimination" standard included in paragraph 2(a) is different from the MFN standard of Article I:1. The term "non-discriminatory" must be interpreted in accordance with its own ordinary meaning, in its own context and in the light of the specific objective of the Enabling Clause, which is also one of the overall objectives of the WTO Agreement: to promote the trade of all developing countries commensurately with their respective development needs.
4.154.
India's interpretation of the term "non-discriminatory" is based on little else than an incomplete dictionary definition. It is simplistic and incorrect. Treating differently developing countries which, according to objective criteria, have different development needs is not discriminatory. Quite to the contrary, it may be necessary to comply with paragraph 3(c) of the Enabling Clause, which provides that preferences must respond positively to the development needs of developing countries.
4.155.
India's allegations that the Drug Arrangements have been designed in order to advance the European Communities' political agenda or to promote the European Communities' own trade interests are groundless. The purpose of the Drug Arrangements is to afford equal development opportunities to the developing countries which are handicapped as a result of being severely affected by the production or trafficking of drugs. That goal is both legitimate and consistent with the objectives of the Enabling Clause and of the WTO Agreement. Further, the European Communities has demonstrated that there is a reasonable and sufficient connection between that objective, the unique development needs of the countries concerned, and the tariff preferences granted to those countries under the Drug Arrangements.
4.156.
The links between economic development and the drug problem are well-established and have been recognized many times by the United Nations. Only last month the ministers participating in the 46th session of the UN Commission on Narcotic Drugs recalled once again that the drug problem "undermines socio-economic and political stability and sustainable development, including efforts to reduce poverty".
4.157.
Likewise, the United Nations has said many times that the fight against drug production and trafficking is a shared responsibility of all members of the international community. Accordingly, the developed countries must provide assistance to the developing countries which are affected by that problem. The provision of financial and technical assistance is, of course, crucial. But it is not enough. According to the United Nations, the fight against drugs demands a balanced and comprehensive approach. Drug production and trafficking are fed by poverty and unemployment. Thus, in order to combat them successfully, it is necessary to replace them with licit alternative economic activities. Further, those activities must be sustainable. In turn, this requires providing markets for the products of those activities.
4.158.
The concrete application of the Drug Arrangements made by the European Communities' authorities is also non-discriminatory. The designation of the beneficiaries of the Drug Arrangements is based on an overall assessment of the severity of the drug problem in each developing country, made in accordance with objective, non-discriminatory criteria. India does not qualify under those criteria. Indeed, India does not dispute this. Nor does India claim that any of the beneficiary countries fails to meet the relevant criteria.

(c) Article XX of GATT 1994

4.159.
The primary goal of the Drug Arrangements is to promote the development of the countries affected by the production or trafficking of drugs. But in so doing, the Drug Arrangements also contribute to the objective of reducing the consumption of drugs within the European Communities.
4.160.
It is beyond question that drugs pose a serious threat to human life and health. The Drug Arrangements are a necessary component of the European Communities' strategy against drug abuse. As just explained, the fight against drugs requires a balanced approach, which includes the promotion of sustainable alternative economic activities in order to reduce the illicit supply of drugs. In accordance with the principle of shared responsibility, the European Communities and its member States already provide substantial technical and financial assistance to the countries concerned. The Drug Arrangements are a necessary complement to such assistance.
4.161.
Thus, even if the Panel were to find that the Drug Arrangements are not consistent with the Enabling Clause, they would be justified under Article XX(b) of the GATT as being necessary for the protection of the health and life of the European Communities' population.

E. SECOND WRITTEN SUBMISSION OF INDIA

1. The Drug Arrangements are inconsistent with Article I:1 and the European Communities bears the burden of proof under the Enabling Clause

4.162.
The tariff preferences granted under the Drug Arrangements to certain products originating in the preferred Members are advantages which are not granted immediately and unconditionally to like products originating in all other Members. Hence, the tariff preferences are inconsistent with Article I:1.
4.163.
Article I:1 of GATT 1994 requires that the extension of an advantage cannot be made subject to conditionswith respect to the situation or conduct of a Member. The European Communities argues that Article I:1 only requires that the extension of an advantage cannot be made subject to conditions which require a Member to provide some form of compensation. In the European Communities' view, the Article I:1 "unconditionally" requirement allows a Member to impose conditions falling outside of what could be deemed as "compensation". The European Communities bases this interpretation on the understanding of the term "conditional" in the context of conditional MFN clauses. Even if the European Communities is correct – that in the context of conditional MFN clauses, the term "condition" alludes to a requirement to provide some compensation for the benefits received from another party – the European Communities is not correct when it concludes that "the 'Drug Arrangements' are clearly 'unconditional' within the meaning of that term in the context of MFN clauses." (italics supplied). The meaning of "condition" in the context of a conditional MFN clause is not determinative of the meaning of "unconditionally" in an unconditional MFN clause. "Unconditional" simply means the absence of conditions, regardless of the technical meaning of "condition" in the context of conditional MFN clauses. If black is the opposite of white and "conditional" is the opposite of "unconditional", what is not black is not necessarily white, and what is not "conditional" is not necessarily "unconditional".
4.164.
The European Communities' limited interpretation of the term "unconditionally" should be rejected for the following additional reasons:

(a) The European Communities' interpretation is unsupported by the ordinary meaning of the term "unconditionally". From the ordinary meaning, there emerges no basis to restrict the scope of this term to a specified category of "conditions which require a Member to provide some form of compensation". The European Communities does not provide any justification for this restriction.

(b) Even on the selective "historical method" of interpretation followed by the European Communities, the material highlighted by the European Communities is irrelevant. The relevant comparison is not the historical usage of the term "condition" in the context of conditional MFN clauses, but, rather, the usage of "unconditional" in the context of unconditional MFN clauses

(c) The European Communities' interpretation is contrary to WTO jurisprudence. The European Communities states that there is conflicting jurisprudence on the matter. Even assuming that there is such conflicting jurisprudence, the European Communities' interpretation is not supported by any jurisprudence.

4.165.
The European Communities bears the burden of establishing that the Drug Arrangements are justified under paragraph 2(a) of the Enabling Clause. The European Communities seeks to impose on India the burden of establishing the negative of the European Communities' defence – that the Drug Arrangements are justified under paragraph 2(a) of the Enabling Clause – by the mere expedient of characterizing paragraph 2(a) as conferring an "autonomous right". India considers that the Enabling Clause is not an "autonomous right" as the European Communities alleges. The European Communities does not define "autonomous right". Instead, it merely asserts a conclusion of law, i.e., that the Enabling Clause is not a derogation or deviation from the obligation stated in Article I:1 of GATT 1994. India maintains that, on the contrary, the Enabling Clause is a derogation or deviation from the obligation stated in Article I:1 of GATT 1994. Paragraph 2(a) of the Enabling Clause permits or "enables" developed country Members to take certain measures which Article I:1 otherwise prohibits, subject to certain conditions. It does not operate as a substituting regime to regulate all aspects of trade relations between developed and developing countries. Moreover, paragraph 2(a) of the Enabling Clause does not impose any positive obligation on developed country Members to establish GSP schemes.
4.166.
The purpose of paragraph 2(a) of the Enabling Clause, in permitting developed country Members to grant preferential tariff treatment to developing countries under the GSP, is not to confer a privilege to developed country Members; rather, paragraph 2(a) was adopted for the benefit of developing countries. The European Communities claims that the absence of the phrase "to the extent necessary" allows developed country Members to be absolved from all of their obligations under Article I:1 of GATT 1994, even beyond the extent of what is necessary to provide differential and more favourable treatment to developing countries.
4.167.
India notes that the phrase "to the extent necessary" was used in the 1971 Decision but it was not used in the Enabling Clause, however the explanation for this omission is simple. The 1971 Decision was a waiver. Thus the formulation was "… the provisions of Article I shall be waived … to the extent necessary…" In the context of a waiver, the phrase "to the extent necessary" is not redundant, as it circumscribes the extent to which obligations are waived. However, the Enabling Clause was adopted as a decision, not as a waiver. Therefore the corresponding formulation is "notwithstanding the provisions of Article I of the General Agreement, [Members] may accord differential and more favourable treatment to developing countries without according such treatment to other Members". The Enabling Clause thus permits certain acts which Article I:1 of GATT 1994 otherwise prohibits. In this type of formulation, it would have been redundant to state that "Members may accord differential and more favourable treatment to developing countries without according such treatment to other Members …to the extent necessary to accord differential and more favourable treatment to developing countries."
4.168.
Furthermore, it would seem that the European Communities argues that the phrase "notwithstanding Article I:1 of GATT 1994 totally excludes the application of that Article. The use of the term "notwithstanding" (or synonymous terms) in a provision does not necessarily mean that the provision confers a "self-standing autonomous right". For instance, Article XX uses the formulation "nothing in this agreement shall be construed to prevent", and yet it is beyond doubt that Article XX is an exception and an affirmative defence.
4.169.
Burden of proof must be assessed in relation to the material elements of the plaintiff's claim and the material elements of the defendant's defence. India's claim in these proceedings, as expressed in its first written submission, is based on Article I:1 of GATT 1994 and not on paragraph 2(a) of the Enabling Clause. Paragraph 2(a) of the Enabling Clause is therefore not a material element of India's claim. To defeat India's claim, the European Communities may assert, and it has chosen to so assert, that the tariff preferences under the Drug Arrangements are justified under the Enabling Clause. It is thus incumbent on the European Communities to prove the affirmative of its defence – that the Drug Arrangements are in fact covered by that Clause. The European Communities' mere assertion that the Drug Arrangements are covered by the Enabling Clause does not in itself constitute proof of the affirmative of the European Communities' defence. The mere assertion therefore does not shift the burden of proof to India to establish the negative of the European Communities' defence.
4.170.
Paragraph 2(a) of the Enabling Clause is an affirmative defence. It has legal functions and characteristics similar to other provisions of the GATT that the Appellate Body has recognized as "affirmative defences". There are no positive obligations under Articles XI:(2)(c)(i), XX and XXIV of the GATT in the sense that no Member can be compelled to impose quantitative restrictions, to adopt measures under Article XX or to establish customs unions or free trade areas, respectively. Similarly, under paragraph 2(a) of the Enabling Clause, no Member may compel a developed country Member to grant preferential tariff treatment to the developing countries. In the same manner that Articles XI:(2)(c)(i), XX and XXIV are exceptions and at the same time "defences", the Enabling Clause is likewise an exception to certain aspects of Article I:1 of GATT 1994 and could be invoked, in the proper case, as a defence in a claim of violation of that Article.
4.171.
Under each of these provisions, even assuming that it is established that the measure at issue violates the provision to which the exception applies, the Member adopting the measure may still invoke the exceptions as (affirmative) defences. This falls squarely within the definition of "affirmative defence". In a dispute involving a claim which is subject to a potential affirmative defence, the claim is first examined in relation to the provision to which it is inconsistent, as claimed by the complainant. If the claim is found to be meritorious, then the next step is the examination of the affirmative defence put forward by the respondent. This is precisely how the Enabling Clause as an affirmative defence has been dealt with in prior GATT jurisprudence.43
4.172.
The European Communities cites Brazil – Aircraft, to support its assertion that India bears the burden of proving that the European Communities' Drug Arrangements are inconsistent with paragraph 2(a) of the Enabling Clause. The Appellate Body upheld the Panel finding on the issue of burden of proof as it considered that- in contrast to "affirmative defences" contained in several GATT provisions – the provision concerned (Article 27.4 of the SCM Agreement) set forth "positive obligations for developing country Members, not affirmative defences." In contrast, paragraph 2(a) of the Enabling Clause does not impose positive obligations or positive rules establishing obligations in themselves. Rather, it is a limited exception to Article I:1 of GATT 1994, which could be invoked as an affirmative defence. The European Communities appears to contend that because Article 27 of the SCM Agreement is listed in a WTO Secretariat document as a Special and Differential Treatment (S&D) provision along with the Enabling Clause, the Enabling Clause has automatically the same legal function and characteristics as Article 27.4 and as a consequence, the burden of proof when a defendant invokes the Enabling Clause shifts to the complainant claiming a violation of the relevant substantive provision. This argument of the European Communities is incorrect. In Brazil-Aircraft, Articles 27.2 and 27.4 were indeed considered part of S&D. But the panel and the Appellate Body decided that it was for the complainant to bear the burden of proof of Article 27.4 in a substantive claim on Article 3.1(a) of the SCM Agreement not because Article 27.4 is an S&D provision, as the Enabling Clause may be, but rather because that provision in itself establishes positive obligations that a defendant would have to comply with. Finally, India notes that in Brazil-Aircraft, the S&D provision was invoked by a developing country. In this dispute, it is invoked by a developed country.

2. The Enabling Clause does not exclude the application of Article I:1 but authorizes limited derogation

4.173.
The Enabling Clause does not exclude the application of Article I:1 of GATT 1994 in all circumstances. Any examination of the scope of the exception under the Enabling Clause must be undertaken with particular care. Panels should not lightly assume that a derogation from a developing country's rights under Article I:1 is authorized under the Enabling Clause. The Enabling Clause is after all meant to be for the benefit of developing countries. As the Enabling Clause is an "exception", the phrase "notwithstanding the provisions of Article I of the General Agreement" in the Enabling Clause does not necessarily exclude the application of that article in all circumstances.
4.174.
In a case involving Article XXIV of GATT 1994, another provision which may be characterized as an "exception", the Appellate Body had the opportunity to examine the meaning of the phrase "the provisions of this Agreement shall not prevent … the formation of a customs union" in Article XXIV:5 of GATT 1994. The Appellate Body then proceeded to affirm that the phrase "nothing shall prevent" means that nothing in the GATT shall make impossible the formation of a customs union but only to the extent that the formation of the customs union would be prevented if the introduction of the measure were not allowed. But by virtue thereof, the application of Article I:1 is not totally excluded, but, rather, only to the extent that the granting of tariffpreferences under the GSP would be prevented if the introduction of a measure were not allowed.44
4.175.
India maintains that respecting the MFN rights of developing countries as between themselves does not make impossible the granting of preferential tariff treatment to developing countries in the context of the GSP; neither would the granting of preferential tariff treatment to developing countries under the GSP be prevented if the granting of tariff preferences to some developing countries but not to all developing countries were not allowed. In the context of the GSP therefore, only the MFN rights of developed countries need to be derogated from.
4.176.
There is no wording in paragraph 2(a) reflecting the agreement of developing country Members to forego their rights under Article I:1 of GATT 1994 in respect of benefits accorded to all other Members, including to other developing countries in the context of the GSP. India contends that in the context of preferential tariff treatment under paragraph 2(a),the Enabling Clause does not exempt violations of MFN rights of developing countries in respect of preferential tariff treatment accorded to other developing countries. The European Communities and the United States have misunderstood this limited contention to be a far broader contention – that any derogation from the MFN rights of developing countries under Article I:1 cannot be authorized under the Enabling Clause. The European Communities, the Andean Community and the United States advance a set of arguments which seek to establish that this broader contention is erroneous. For instance, according to them, if such a broad contention were to be accepted, it would prevent regional arrangements between developing countries under paragraph 2(c), or prevent special measures in favour of the least‑developed countries under paragraph 2(d) or run counter to the broad terms of paragraph 1 of the Enabling Clause. However, these arguments are simply beside the point, as India has not advanced any such broad contention. In India's view, a conjunctive reading of paragraphs 1 and 2(a) of the Enabling Clause would entail that the term "other contracting parties" in the context of measures taken under paragraph 2(a), refers to "other developed country Members". India notes that the content of the term "other Members" in paragraph 1 of the Enabling Clause must be understood in conjunction with the specific sub-clause of paragraph 2 involved. India does not contend that the term "other Members" in paragraph 1 of the Enabling Clause invariably refers to "other developed country Members".45 It has been emphasized by Costa Rica and the Andean Community that the 1971 Waiver uses the term "other contracting parties" as opposed to the term "other developed countries" deliberately. The Minutes of the Council meeting which adopted the 1971 Waiver uses the term "other contracting parties" as opposed to the term "other developed countries" deliberately. The Minutes of the Council meeting that adopted the 1971 Waiver46 indicate that the use of this terminology does not in any way imply that differentiation between developing countries recognized as beneficiaries is permitted; instead this terminology was endorsed for a variety of reasons. For instance, India points out that "… since there was no precise and acceptable list of developed countries it did not see any merit in the proposal" and that "… several aspects as the schemes as agreed to within UNCTAD were inter-connected and no effort should be made to re-open any aspect, for example the question of beneficiaries".
4.177.
India's limited contention derives from the starting point that there must be unambiguous authority within the Enabling Clause to exempt a violation of the MFN rights of a developing country. As the opening phrase of paragraph 2 of the Enabling Clause makes clear, any measure taken under the Enabling Clause must fall under one of the sub-clauses of paragraph 2. Paragraph 2(d) and paragraph 2(c) do provide authority to adopt measures otherwise in violation of the MFN rights of a developing country, but this dispute does not deal with those types of measures. What is relevant in this dispute is that paragraph 2(a), the only sub-clause which authorizes preferential tariff treatment granted by a developed country to developing countries in the context of the GSP. Thus, the European Communities must find unambiguous authority for its violation of the Article I:1 rights of developing countries in paragraph 2(a) of the Enabling Clause.
4.178.
There is no language in paragraph 2(a) which expressly authorizes developed countries to derogate from the unconditional MFN rights of developing countries. The European Communities relies on the term "non-discriminatory" in footnote 3 for justification to derogate from the unconditional rights MFN rights of developing countries in respect of benefits accorded to a limited group of developing countries. However, such reliance is misplaced. As elaborated below, the term "non-discriminatory" does not authorize differentiation in the treatment of developing countries; on the contrary, it is used precisely to ensure that differentiation between developing countries is prohibited.

3. "non-discriminatory"

(a) Introduction

4.179.
The European Communities has failed to demonstrate that under the Drug Arrangements it accords tariff treatment that is "non-discriminatory" within the meaning of paragraph 2(a) of the Enabling Clause. India and the European Communities differ in their respective interpretations of the term "non-discriminatory". India has defined "non-discriminatory" treatment in the context of paragraph 2(a) of the Enabling Clause as referring to "treatment that does not make a distinction between different categories of developing countries." ("neutral meaning of 'non-discriminatory'") The European Communities contends that "the term 'non-discriminatory' does not prevent Members from treating differently developing countries which, according to objective criteria, have different development needs" ("negative meaning of 'non-discriminatory'").
4.180.
The appropriate meaning of "non-discriminatory" as used in the Enabling Clause is its neutral meaning.

(b) GATT 1994 as context

4.181.
First, within the context of the GATT, the term "discrimination" is consistently used to describe the denial of equal competitive opportunities to like products irrespective of the origin. The Enabling Clause is an integral part of the GATT 1994. The definition of the term "non-discrimination" in the GATT 1994 consistently refers to affording equal competitive opportunities to like products originating in different countries. It follows that, in the context of the Enabling Clause, non-discrimination means equal treatment of like products, except if a specific provision of the Enabling Clause provides otherwise.

(c) Paragraph 2(d) and 2(b) as context

4.182.
Second, the express reference to special and differential treatment for least-developed among the developing countries in paragraph 2(d) of the Enabling Clause supports India's interpretation of the term "non-discriminatory. The need to establish an explicit exception for the least-developed countries confirms India's interpretation of the term non-discriminatory. If developed countries could differentiate between developing countries based on the European Communities' interpretation of "non-discriminatory", then clearly developed countries could differentiate between developing countries in favour of least-developed countries. Therefore, the permission to favour least-developed countries among developing countries in paragraph 2(d) would become redundant and meaningless. This cannot be reconciled with the principle of effectiveness in treaty interpretation upheld in many cases by the Appellate Body.
4.183.
The European Communities contends that paragraph 2(d) is not redundant because it covers "special treatment" for least-developed countries, including measures not covered by paragraph 2(a) (non-tariff measures). A similar argument is made by the countries of the Andean Community. The European Communities' argument overlooks the language of paragraph 2(d) which refers to "any general or specific measures" without distinguishing between tariff and non-tariff measures. Paragraph 2(d) does not exclude tariff measures from its scope, as the European Communities and the Andean Community imply. On the contrary, had the intention of the drafters been to limit the scope of paragraph 2(d) to non-tariff measures, it would not have been difficult to import the language of paragraph 2(d) into 2(b), the only provision which explicitly covers only that category of measures.
4.184.
The European Communities arguments also overlook the fact that unlike paragraph 2(a), there is no explicit non-discrimination requirement in respect of non-tariff measures in paragraph 2(b). Under the European Communities' reading of the Enabling Clause, nothing would prevent a developed country from discriminating in favour of least-developed countries based solely on paragraph 2(b). If this were the case, the question that arises is why would it be necessary to explicitly provide for permission to differentiate in favour of least-developed countries under paragraph 2(d)? Therefore, the European Communities' reading of paragraph 2(d) renders this provision ineffective.

(d) "the developing countries" in paragraph 2(a) as context

4.185.
Third, the use of the definite article "the" with reference to "developing countries" indicates that the GSP must be beneficial to all developing countries, and excludes the selective grant of tariff preferences this also supports India's interpretation. The term "the" developing countries appears in four instances in authentic versions of the Enabling Clause. This indicates that the paragraph 2(a) of the Enabling Clause was meant to ensure that benefits under the GSP are extended to all developing countries, as opposed to some developing countries. Paragraph 2(a) of the Enabling Clause does not envisage selectivity. Instead, it requires that preferential tariff treatment is accorded to all developing countries. Further, as indicated above, non-discriminatory treatment in the context of the GATT involves conferring equality of competitive opportunities.
4.186.
It would be meaningless to impose a requirement that all developing countries must be included in preferential tariff arrangements without a corresponding obligation of "non‑discriminatory" tariff treatment in order to ensure equal competitive opportunities for products originating in all developing countries. Consequently, following the European Communities' interpretation that "non-discriminatory" does not entail equal competitive opportunities renders the requirement that "the" (all) developing countries must benefit from preferential tariff treatment ineffective.

(e) UNCTAD instruments as context and drafting history

4.187.
Fourth, the texts which established the generalized system of preferences ("GSP") under the auspices of the UNCTAD support India's interpretation of the term "non-discriminatory". The term "non-discriminatory" in the Enabling Clause reflects the meaning of that term as understood in the texts accepted at the UNCTAD. The meaning of the term "non-discriminatory" as used in footnote 3 to the Enabling Clause is identical to its meaning in the context of the Agreed Conclusions. Within the Agreed Conclusions, there is no reference to the notion that the developed countries should be able to distinguish between the countries that they have recognized to be developing countries on the basis that they have different development needs. The term "non-discriminatory" as understood in the context of the UNCTAD arrangements does not envisage differentiation between developing countries on the basis that they have differing development needs; instead, any differentiation between developing countries was considered "discriminatory".
4.188.
This meaning of "non-discriminatory" is also confirmed by the drafting history of Resolution 21(II) of the Second UNCTAD and the Agreed Conclusions. Indeed, the Agreed Conclusions do not even authorize developed countries to provide tariff reductions limited to least‑developed countries to the exclusion of other developing countries. The Agreed Conclusions permit developed countries to vary the tariff reductions granted on different products. But in respect of the same product, developed countries could not vary the tariff reduction granted, even to favour the least-developed countries.
4.189.
Further, the Agreed Conclusions contemplated the participation of all developing countries as beneficiaries of the GSP and selective schemes were not envisaged. The Agreed Conclusions state that "there is agreement with the objective that in principle all developing countries should participate as beneficiaries from the outset." By permitting differentiation between developing countries, the European Communities' interpretation of "non-discriminatory", would render the requirement that "all developing countries should participate as beneficiaries from the outset" meaningless.

(f) Paragraph 3(c) as context

4.190.
Moreover, the requirement to respond positively to the needs of developing countries set out in paragraph 3(c) of the Enabling Clause does not lend contextual support for the interpretation of the term "non-discriminatory" advanced by the European Communities. The European Communities argues that the term "non-discriminatory" in footnote 3 of the Enabling Clause cannot mean treating all developing countries in the same way, because developed countries would be effectively precluded from responding positively to the individual needs of developing countries "thus rendering a nullity the requirement set forth in paragraph 3(c)". The European Communities' argument is based on a wrong premise, namely that the term "development, financial and trade needs of [the] developing countries" refers to the individual needs of those countries. In fact, however, the terms of paragraph 3(c) do not refer to "individual" needs. The text of paragraph 3(c) does not express this idea. Where the drafters of the Enabling Clause had the needs of individual countries or groups of countries in mind, they referred to those needs explicitly.
4.191.
The European Communities is correct in that the collective needs of developing countries can vary from time to time and therefore paragraph 3(c) mandates that preferences should be modified if necessary. However, it does not follow that they must be modified by differentiating between developing countries. Instead, paragraph 3(c) refers to modification of the product scope of GSP schemes and the depth of tariff cuts provided under GSP schemes. India's interpretation of "non-discriminatory" does not make paragraph 3(c) a nullity precisely because it operates to ensure that the product scope and depth of tariff cuts in GSP schemes respond positively to the collective needs of developing countries.
4.192.
The European Communities' assertion that a scheme designed to address exclusively drug problems responds to the development needs of developing countries as defined in paragraph 3(c) can also not be reconciled with the fact that, throughout the Enabling Clause, the needs of developing countries are defined as the "development, financial and trade needs". The conjunctive term "and" makes clear that, when evaluating the consistency of a GSP scheme with paragraph 3(c) or the degree of non-reciprocity to be accorded to a developing country under paragraphs 5 and 6, the development, financial and the trade needs have to be assessed collectively.
4.193.
Accepting the European Communities' construction of paragraph 3(c) as referring to the "individual" needs of developing countries could have perverse consequences. For instance, a WTO Member that decides to reduce its tariffs on products from all developing countries to zero would find its GSP scheme inconsistent with paragraph 3(c) of the Enabling Clause. Paragraph 3(c) would mandate that the obligation of that Member to "modify if necessary" its GSP scheme to respond to individual countries' needs constitutes in this circumstance an obligation to reintroduce tariffs on products from developing countries that have lesser needs. Thus, the European Communities' interpretation of paragraph 3(c) implies that it would be illegal for a developed country to adopt the most constructive response to the developing countries' needs that can be conceived – the elimination of all duties on products from all developing countries.
4.194.
In according tariff preferences to the developing countries, the European Communities' general GSP arrangement does not make distinctions between developing countries as to their individual development, financial and trade needs. Therefore, if the European Communities' reading of paragraph 3(c) were deemed to be appropriate, its general GSP scheme which applies equally to all developing country beneficiaries would not be responsive to the individual needs of each and every beneficiary developing country. This would lead to the conclusion that the main scheme of the European Communities providing tariff preferences to the developing countries would be inconsistent with paragraph 3(c) of the Enabling Clause.

(g) "Generalized" as context

4.195.
The term "generalized" in footnote 3 also does not lend contextual support for the interpretation of the term "non-discriminatory" advanced by the European Communities. The European Communities argues, in its replies to questions from the Panel, that the term "generalized" would be redundant if India's interpretation of "non-discriminatory" were accepted. The European Communities' argument fails to recognize that the term "generalized" refers to the range of countries that would accord and receive preferences while the term "non-discriminatory" refers to the degree of differentiation between the countries selected as beneficiaries. Thus a GSP scheme could be "generalized" in the sense that all developing countries are beneficiaries, while at the same time violate the requirement that GSP schemes be "non-discriminatory" because the beneficiary countries are treated differently. It is apparent that India's interpretation does not render the term "generalized" redundant.
4.196.
Furthermore, the European Communities interprets "generalized" as a requirement that "preferences should be "generalized" to all the developing countries with similar development needs". The requirement to treat countries with similar development needs alike and countries with different development needs differently is the core of the European Communities' negative definition of "non-discriminatory". Thus it is the European Communities' interpretation of "non-discriminatory" which would make the term "generalized" (as that term is understood by the European Communities) redundant.

(h) Implications for the WTO multilateral system

4.197.
India also contends that the European Communities' interpretation of the term "non-discriminatory" should be rejected on two further systemic grounds. First, the GATT could not fulfil the function of providing the legal framework of market access negotiations between developed and developing countries if the European Communities' interpretation of the term "non-discriminatory" were accepted. One of the main functions of the GATT is to provide a legal framework for the exchange of market access concessions which may ensure the value of substantial reduction of tariffs and the elimination of discriminatory treatment that undermines those reductions. Article I of the GATT is the cornerstone of this framework because it ensures that Members can exchange tariff concessions without having to fear that preferential treatment subsequently accorded to third countries effectively eliminates the negotiated competitive opportunities. Thus, in market access negotiations, there are two important elements: (i) the level of bound tariffs; and (ii) the assurance that tariffs applied within the bound levels are applied on an MFN basis.
4.198.
The developing countries compete mainly with other developing countries in the markets of the GSP donor countries. If the European Communities' interpretation of the Enabling Clause were endorsed, the developing countries would therefore never have any assurance that the tariffs they have negotiated with developed countries will be applied on an MFN basis as between developing countries. This would have radical implications on the ability of developing countries to participate in multilateral tariff negotiations.
4.199.
The second implication of European Communities' interpretation of the term "non-discriminatory" is that the panels would be drawn into distribution conflicts between developing countries without any normative guidance from the WTO Membership if the European Communities' interpretation of the term "non-discriminatory" were accepted. The European Communities' notion of "non-discriminatory" as referring to prejudicial or unjust discrimination is too vague to provide a basis for policing differentiation in the context of GSP schemes. There is no further multilaterally-accepted standard within the Enabling Clause for determining what makes differentiation "unjust". Thus, adopting the European Communities' definition will result in leaving the developed countries free to differentiate as they see fit or involve panels in adjudicating distribution conflicts without any guidance from the WTO membership, such as whether difficulties faced on account of serious public health problems are more pressing than difficulties faced on account of drug production and trafficking. This uncertainty will have radical implications on the institutional balance between political and judicial bodies of the WTO, and would engage the adjudicating bodies in a law-making process which is the exclusive prerogative of the membership.

4. The application of the Drug Arrangements is not "non-discriminatory"

4.200.
As a subsidiary argument, India maintains that the preferences accorded under the Drug Arrangements would be "discriminatory" even if the European Communities' interpretation of the term "non-discriminatory" were accepted. The European Communities accords preferential tariff treatment based on drug-related problems and fails to accord preferential tariff treatment based on more severe problems of developing countries. Even assuming that "non-discrimination" has the negative meaning attributed to it by the European Communities, the Drug Arrangements would not be "non-discriminatory".
4.201.
The Drug Arrangements are not concerned with the relative development needs as between developing countries. They are exclusively concerned with a single category of development need – the need arising from the production and trafficking of drugs. There is no basis for the European Communities to conclude that the development needs faced by beneficiary countries under the Drug Arrangements are "special" relative to the development needs of other developing countries. The European Communities does not even make such a contention in its submission; it merely contends that drug problems are linked with development. At best, this can establish that countries particularly affected by drug production or trafficking have one type of development need, but crucially, it does not establish that they have a "special" development need which entitles them to a greater "commensurate" share of international trade than that granted to other developing countries.
4.202.
Moreover, the Drug Arrangements do not contemplate any objective criteria for determining beneficiary status. The European Communities asserts that in order to determine the beneficiaries of the Drug Arrangements, it applies objective criteria that potential developing country beneficiaries must meet. As set out in the Regulation, the Drug Arrangements contain no criteria or procedures for inclusion as a beneficiary. The European Communities' claim that the measures at issue in these proceedings distinguish between developing countries according to objective criteria reflecting their individual development needs is therefore factually baseless. The European Communities has also failed to demonstrate that selection of the beneficiaries was based on an objective assessment of the drug-related needs of all developing countries.
4.203.
The European Communities has provided no evidence that the selection of the current beneficiaries was based on objective criteria. Moreover, the European Communities has submitted no evidence whatsoever demonstrating that the countries excluded from the scheme do not have similar drug problems. In its submission, it describes the drug problems of the beneficiaries in general terms, partly by using statistics that became available after the beneficiaries had been selected. On the basis of the European Communities' explanations, it is impossible to determine why for instance, Pakistan was included while India and Paraguay were excluded. Neither has the European Communities submitted any evidence that it had in fact conducted an objective assessment of all countries' drug problems before establishing the list of beneficiaries, despite requests from the Panel and India. All it has submitted to the Panel is a lengthy ex post justification prepared on the basis of UN documents and quantitative data that do not reveal a single objective criterion or any benchmark for inclusion or exclusion equally applied to all potential beneficiaries.

5. The Drug Arrangements are not justified under Article XX

4.204.
The Drug Arrangements are not justified by Article XX(b) of GATT 1994 as the European Communities has not demonstrated that the Drug Arrangements are necessaryto protect human life or health within the meaning of Article XX(b).

(a) The Drug Arrangements do not constitute a measure under Article XX(b)

4.205.
First, the Drug Arrangements "are not designed to achieve" the protection of human life and health in the European Communities. The European Communities only states that the measure at issue is designed to protect the life and health in the European Communities, but it fails to substantiate its assertion. Mere assertion does not amount to proof. In the case at hand, it is difficult to see how: (i) the Drug Arrangements could be regarded as having been designed to protect human life or health from the risks posed by the consumption of illicit drugs in the European Communities; and (ii) how the granting of tariff preferences equally to all developing countries would exacerbate those risks. An examination of the design, structure and architecture of the Drug Arrangements shows that there is no express relationship between the objectives stated by the European Communities and the Drug Arrangements. There is no stated objective in Council Regulation 2501/2001 relating to the protection of the life or health of the European Communities' population nor in the explanatory memorandum leading to this regulation.

(b) Drug Arrangements are not "necessary" within the meaning of Article XX(b)

4.206.
Second, the Drug Arrangements are not "necessary" to protect human life or health of the European Communities' population. The European Communities argues that it is necessary for the health of the European Communities' population to impose the Drug Arrangements. In other words, if the tariff preferences were removed, the health of European Communities' citizens would worsen because a greater amount of illicit drugs would be produced and trafficked into the European Communities and then consumed by European Communities' citizens. The relationship between tariff preferences and the health of the European Communities' population is remote, if at all there is such a relationship. The necessary link that the European Communities draws between preferential tariff treatment and the health of the European Communities' population is based on several assumptions, the principal assumption being that drug producers would ultimately switch to the production of products covered by the preferential tariffs, and that drug traffickers would ultimately switch to trading products covered by preferential tariffs. The measure considered by the European Communities to be "necessary" ends up becoming a measure rather "contingent" upon several external factors that do not depend on the European Communities. These external factors, include, profitability of alternative economic activities, determination and effective action on the part of the beneficiary's government to implement crops substitution policies, improvement of law enforcement actions in the territory of the beneficiary, and render the policy sought (i.e. the protection of life and health of the European Communities' population) uncertain. Conversely, in making the link between preferential tariff treatment and the health of the European Communities' population, it assumes, just as implausibly, that if the tariff preferences under the Drug Arrangements were to be accorded to all developing countries, producers and traders of legitimate products covered by the Drug Arrangements would switch to production and trafficking of illicit drugs. This assumption disregards the reality that drug production and trafficking are organized crimes, controlled by criminal syndicates motivated by profit alone, and that the preferential market access provided by the European Communities is not the reason why law-abiding citizens keep out of the drug trade.
4.207.
In this regard, India notes that the Drug Arrangements are not limited to crops which could act as substitutes for the cultivation of narcotics; neither has the European Communities put forward evidence establishing that the Drug Arrangements cover agricultural crops which could substitute for narcotic crops. Furthermore, the Drug Arrangements are linked to the drug situation in a given country, not to the drug-related policies followed by a particular country. This may have the paradoxical effect of reducing market access opportunities to the European Communities if the drug problem in a given beneficiary country improves.
4.208.
The European Communities also contends that the Drug Arrangements are necessary to protect the health of the its population by increasing the overall level of development which, in turn increases the capacity of drug affected countries to enforce an effective system of drug control. This link between preferential tariff treatment and improved capacity to enforce is again remote. There is no proximate and clear relationship between preferential tariff treatment and the capacity to enforce. Along the extended chain of causality posited by the European Communities, there are many alternative less trade restrictive measures that could be taken by the European Communities to achieve its objective. For instance, direct technical and financial assistance for the drug control efforts of affected countries or development aid and initiatives that do not involve the restriction of trade from other WTO Members.
4.209.
The European Communities has failed to establish that the Drug Arrangements are the "least trade restrictive measure" available to pursue its health objective. Preferential tariff treatment necessarily reduces the competitive opportunities for products from excluded countries. As a matter of economic theory this is undeniable. The Drug Arrangements restrict both the present and future trade of excluded Members. If this were not the case, then the European Communities could have included India and other developing countries in the Drug Arrangements without any converse impact on the trade of the beneficiary countries. India has also provided evidence of trade losses suffered by Indian enterprises on account of the Drug Arrangements. To illustrate, the inclusion of Pakistan in the Drug Arrangements has already resulted in adverse effects on Indian imports into the European Community in respect of various categories of textiles and clothing products including category 4 (shirts, T-shirts etc.), category 8 (men's or boy's shirts) and category 20 (bed linen). Imports into the European Communities of products from India under these categories declined during 2002 as compared to 2001 while those from Pakistan showed a significant increase during the corresponding period. Letters from importers in the European Communities cancelling orders from India on account of these tariff preferences are a concrete manifestation of the trade restrictive nature of the Drug Arrangements.47
4.210.
India also argues that the GATT could not fulfil its function of providing the legal framework for multilateral trade negotiations if Article XX(b) could justify preferential trading arrangements. According to the European Communities' interpretation of Article XX(b) of GATT 1994, WTO Members may accord preferential tariff treatment to selected WTO Members if this makes a "necessary contribution" to the resolution of a health problem. The European Communities argues that the margins of preference enjoyed by the beneficiary countries under the Drug Arrangements are "necessary" within the meaning of Article XX(b) because they make such a contribution. The logical implication of the European Communities' argument therefore is that the European Communities would not be under an obligation to implement the market access concessions negotiated in the Doha Work Programme if the beneficiary countries' drug problems were to continue beyond the conclusion of that Round.

(c) Drug Arrangements do not meet the requirements of the chapeau of Article XX

4.211.
Moreover, the European Communities has not demonstrated that the Drug Arrangements are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination within the meaning of the chapeau of Article XX(b). The invocation of Article XX(b) by the European Communities is essentially to justify the violation of Article I:1 of GATT 1994 and not of the Enabling Clause. Thus the distinction between developing countries which are especially affected by the production or trafficking of drugs and other Members, including developing countries; which are less affected by that problem does arise from the "application" of the measure in dispute. Article I:1 applies equally to all Members. It is incumbent on the European Communities to show that the preferential tariff preferences granted under the Drug Arrangements only to 12 developing countries do not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade within the meaning of the chapeau of Article XX(b). So far, the European Communities has not demonstrated it.

F. SECOND WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES

1. Relationship between GATT Article I:1 and the Enabling Clause

(a) Special and differential treatment

4.212.
India does not contest that the Enabling Clause is one of the main forms of "special and differential treatment" for developing countries, which in turn is the main instrument to achieve one of the fundamental objectives of the WTO Agreement. Yet, India has nowhere addressed the European Communities' argument that, in view of that, "special and differential treatment" provisions cannot be considered as "affirmative defences", as illustrated by the ruling of the Appellate Body in Brazil – Aircraft.

(b) Drafting history of the 1971 Decision

4.213.
India's account of the drafting history of the 1971 Decision does not support its contention that the Enabling Clause is merely the "renewal" of the 1971 Decision. The note of the GATT Secretariat cited by India presented the adoption of a waiver under Article XXV:5 and of a declaration "in order to promote the objectives set out in Article XXXVI." as distinct options with different consequences. A passage of that note explained that "The adoption of a declaration outside the session of the CONTRACTING PARTIES would be a positive and constructive step for the benefit of developing countries, whereas a full waiver would have a rather negative effect".
4.214.
Despite this advice, the waiver option was preferred over the declaration option. In 1979, however, the developed countries accepted a formula similar to the declaration option rejected in 1971 as part of the new balance of rights and obligations agreed in the Tokyo Round.

(c) "Positive rights"/"exceptions"

4.215.
India argues that the Enabling Clause is not a "positive right", but instead an "exception", by referring to a definition of "positive right" included in the Black's Law Dictionary. However, this definition does not oppose the term "positive right" to the term "exception". Rather, the Black's Law Dictionary draws a distinction between "positive rights" and "negative rights", which it defines as "A right entitling a person to have another refrain from doing an act that might harm the person entitled".
4.216.
A "negative right" is still a right and not an "exception". Thus, for example, according to Black's Law Dictionary, property rights would have to be classified as "negative" rather than "positive". Yet, it would be absurd to characterize those rights as "exceptions".
4.217.
The Enabling Clause recognizes a "negative right" to grant preferences to developing countries and, at the same time, confers a "positive right" to the developing countries to compel the donor countries to grant such preferences in accordance with certain requirements, including the requirement that the preferences must be "non-discriminatory".
4.218.
It is true that the developing countries do not have a "positive right" to compel the developed countries to apply a GSP. But from this it does not follow that the Enabling Clause is an "exception". By the same token, Article I:1 of GATT 1994 does not confer a positive right to compel other Members to lower their tariffs. The only obligation under Article I:1 is that whatever level of duties is chosen by the Member concerned, it should be applied to all other Members on an MFN basis. Similarly, while developed countries are free to decide whether or not to apply a GSP, if they chose to do so they must apply it on a "non-discriminatory" basis.

(d) "Autonomous right"/"affirmative defence"

4.219.
India contends that whether or not a treaty provision is an "affirmative defence" depends on whether it is asserted in each particular case by the complaining party or by the defendant and that a provision conferring an "autonomous right" can be also an "affirmative defence" if it is invoked by the defending party. This position is manifestly wrong. A WTO provision is or is not an "affirmative defence". It cannot be both at the same time, depending on which party invokes it. Certain provisions are in the nature of "affirmative defences" and can be raised only by the defending party in response to a claim of violation of another provision. For example, a complaining party may not bring a claim based on Article XX of GATT 1994. That provision is always an "affirmative defence" with respect to the alleged violation of another provision.
4.220.
If India's thesis were correct, the Appellate Body should have decided in Brazil – Aircraft that Article 27.4 of the SCM Agreement was an "affirmative defence", since it had been invoked by Brazil and not by Canada. Likewise, in EC – Hormones, the Appellate Body should have decided that Article 3.3 of the Agreement on Sanitary and Phytosanitary Measures ("SPS Agreement") was an "affirmative defence", since it was the European Communities that relied on that provision.

2. The Enabling Clause

(a) Paragraph 1

(i) "Other Members"

4.221.
The European Communities has thoroughly refuted India's reading of the term "other Members" as meaning "developed Member". India's response is that the term "other Members" has different meanings depending on whether paragraph 1 is read together with paragraphs 2(a), 2(b) or 2(c). The European Communities would agree that the same words may have different meaning in the context of different treaty provisions. However, India's position that one and the same provision (Paragraph 1) has simultaneously three different and conflicting meanings is contrary to basic principles of legal interpretation and indeed of elementary logic.
4.222.
India also argues that, since the Enabling Clause was adopted "for the benefit of developing countries", it cannot be interpreted as restricting the MFN rights of some developing countries vis‑à‑vis other developing countries. Yet it is beyond dispute that both paragraphs 2(c) and 2(d) do precisely that. They limit the MFN rights of some developing countries in order to provide additional benefits to other developing countries. India's contention that paragraphs 2(c) and 2(d) are "exceptions" has no textual basis. Paragraph 1 "applies" equally to all the subparagraphs included in paragraph 2. There is no reason to assume that, when read together with paragraph 2(a), paragraph 1 does not allow differentiation between developing countries. Furthermore, as explained by the European Communities, such differentiation is consistent with the object and purpose of the Enabling Clause.
4.223.
In response to a question from the Panel, India has been forced to admit that its reading of the term "other Members" in paragraph 1 would render redundant the requirement in footnote 3 that the preferences must be "non-discriminatory". India argues that this requirement is mentioned as part of a "compound phrase". However, India's interpretation of the term "other Members" would also render redundant the term "generalized". Furthermore, India's position that paragraph 1 does not exempt the donor countries from the obligation under Article I:1 of GATT 1994 to grant the preferences "unconditionally", would render superfluous also the requirement that the preferences must be "non-reciprocal". Thus, ultimately, India's interpretation of paragraph 1 would render completely redundant the whole of footnote 3.

(ii) "Unconditionally"

4.224.
In its first written submission, India seemed to argue that paragraph 1 does not "exempt" developed countries from the "unconditionally" requirement in Article I:1 of GATT 1994, with the consequence that any preferences granted under a GSP remain subject to that requirement. The European Communities, and some third parties, have refuted that thesis. India has submitted no further arguments.
4.225.
In its first written submission, the European Communities also argued that, in any event, the Drug Arrangements were not "conditional", because the beneficiaries are not required to provide any compensation to the European Communities. In response to a Panel's question on the meaning of "unconditionally", India refers once again to the panel report in Canada – Autos, without addressing any of the arguments submitted by the European Communities, including with respect to that report.

(b) "Non-discriminatory" in paragraph 2(a)

(i) The ordinary meaning

4.226.
India does not contest the analysis of the ordinary meaning of the term "discrimination" made by the European Communities in its first written submission. Nevertheless, India argues that such meaning is not relevant for the interpretation of the term "non-discriminatory" in paragraph 2(a) in view of the specific context of the Enabling Clause, the "basic purpose of the WTO legal system", certain UNCTAD texts, and a passage of the Appellate Body report in EC –- Bananas III.

(ii) The context

4.227.
In response to the questions from the Panel, India has identified several contextual elements as relevant for the interpretation of the term "non-discriminatory". However, first, India's arguments with respect to paragraph 1 have already been addressed in the preceding section of this submission. Second, from the fact that paragraph 2(a) refers to "products" rather than to "services", or "persons" as the object of preferential treatment, it does not follow logically that the same treatment must be granted to all "like products" originating in all developing countries. In any event, India's assumption that other GATT provisions where the term "like product" is used impose an obligation not to "discriminate" between like products, rather than between countries, is incorrect. Third, the European Communities has addressed India's reading of the phrase "beneficial to the developing countries" in its first written submission. Here, the European Communities will limit itself to observe that India's argument has the a contrario implication that the absence of the article the before "developing countries" in paragraph 1 and paragraph 2(a) means that, as argued by the European Communities, those provisions do not require granting preferences to all developing countries. Thus, this argument undermines rather than supports India's position. The same is true of India's argument based on the presence of the articles los and des in the Spanish and French versions, respectively, of the title of the Enabling Clause. Fourth, the European Communities has responded to India's argument based on Article 2(d) in its first written submission. The European Communities' rebuttal remains unanswered. Finally, the Enabling Clause excludes expressly the application of the requirements of Article I:1 of GATT 1994 ("notwithstanding Article I:1"). Accordingly, it would be entirely inappropriate to introduce those requirements into the Enabling Clause by way of a purportedly "contextual" interpretation.
4.228.
India also refers to certain passages included in some UNCTAD texts. However, as discussed below, those texts are neither part of the Enabling Clause nor context for the interpretation of the Enabling Clause. They may become relevant only as supplementary means of interpretation.

(iii) The object and purpose

4.229.
India argues that the term "non-discriminatory" should be interpreted in the light of the "basic purpose" of the WTO legal system, which according to India is "to protect conditions of competition". The European Communities disagrees. The "protection of conditions of competition" is indeed one of the basic objectives of the WTO Agreement, but it is not the only one. The Enabling Clause, like all the other provisions granting "special and differential treatment" does not seek to provide equal competitive opportunities for like products. To the contrary, "special and differential treatment" provisions seek to create unequal conditions of competition in order to respond to the special needs of developing countries.
4.230.
"Special and differential treatment" is the main instrument to achieve one of the fundamental objectives of the WTO Agreement, which is expressed in:

(a) the second recital of the Preamble to the WTO Agreement;

(b) Article XXXVI of the GATT, including in particular paragraph 3;

(c) the first recital of the 1971 Waiver, to which footnote 3 of the Enabling Clause refers.

4.231.
When the term "non-discriminatory" is interpreted in the light of the above object and purpose of the WTO Agreement, differentiating between developing countries according to their development needs is no more "discriminatory" than differentiating between developed and developing countries.
4.232.
India has nowhere addressed the European Communities' arguments regarding the object and purpose of the Enabling Clause. Instead, it persists in the error of interpreting the term "non-discriminatory" as if the "protection of competitive opportunities" were the sole objective of the WTO Agreement.

(iv) Drafting history

4.233.
India appears to imply that, through the reference made in footnote 3 of the Enabling Clause to the 1971 Decision, the UNCTAD texts which it cites have become part of the Enabling Clause. The European Communities takes issue with that interpretation. By its own terms, the reference made in footnote 3 covers only the "description" of the Generalized System of Preferences which is contained in the 1971 Decision itself (more precisely, in the third and fourth recitals). It does not extend to the UNCTAD arrangements alluded to in those recitals.
4.234.
The two UNCTAD resolutions cited by India (General Principle Eight of Recommendation A:I:1 adopted by UNCTAD at its first session and Conference Resolution 21(II) adopted by UNCTAD at its second session) are not legally binding instruments. They are drafted in purely hortatory language and, in accordance with their own terms, make only "recommendations". It would be illogical and unacceptable to read footnote 3 as conferring upon them legally binding effects within the WTO which they do not have within UNCTAD.
4.235.
The Agreed Conclusions do not even reach the status of a formal UNCTAD resolution or decision. Contrary to India's assertion, they were not "adopted" by the Trade and Development Board of UNCTAD. Rather, that body "took note" of the conclusions reached within the Special Committee on Preferences, an ad hoc body established by UNCTAD in order to allow consultations among all the countries concerned. Like the UNCTAD resolutions, the Agreed Conclusions use hortatory language and do not purport to be legally binding. They take note of the statements made by the prospective donor countries and record the agreement (and sometimes the lack of agreement) of all the participants in the consultations with respect to certain objectives.
4.236.
For the above reasons, the European Communities submits that General Principle Eight, Conference Resolution 21(II) and the Agreed Conclusions are not part of the Enabling Clause. Instead, they may be considered as part of the "preparatory work" of the 1971 Decision and as such a "supplementary means of interpretation", to which the Panel may resort in the circumstances specified in Article 32 of the Vienna Convention.
4.237.
In any event, there is nothing in General Principle Eight, Conference Resolution 21(II) and the Agreed Conclusions which supports India's interpretation of the term "non-discriminatory". In the European Communities' view:

(a) The phrase "new preferential concessions … should be made to developing countries as a whole" included in General Principle Eight means that no developing country should be excluded a priori from the GSP and not that the same preferences should be granted to all Members.

(b) The phrase "in favour of the developing countries" included in paragraph 1 of Resolution 21(II) is equivalent to the phrase "beneficial to the developing countries" included in the fourth recital of that Resolution and reproduced in the 1971 Decision. The European Communities has already commented upon the meaning of that phrase;

(c) The passage of the Agreed Conclusions reproduced by India does not address the meaning of the term "non-discriminatory", but rather the different issue of whether the donor countries can deny a priori the condition of beneficiary to a country on the grounds that it is not a "developing country". As noted by India, the conclusion of the Special Committee was that "there is agreement with the objective that in principle all developing countries should participate as beneficiaries from the outset".

(d) Likewise, the passage of document TD/56 cited by India is concerned with the issue of what countries qualify as a "developing country", rather than with the interpretation of the term "non-discriminatory". In any event, TD/56 is not part of the Agreed Conclusions.

4.238.
India also cites a document of the UNCTAD Secretariat of 1979 entitled "Review and evaluation of the generalized system of preferences". This document, which does not reflect the views of the donor countries, is a technical document with no legal status. Clearly, it is not "context" within the meaning of Article 31 of the Vienna Convention. Nor is it part of the "preparatory work" of the 1971 Decision within the meaning of Article 32 of the Vienna Convention. Thus, it is of little, if any, relevance for the interpretation of the Enabling Clause.

(v) The Appellate Body report in EC – Bananas III

4.239.
In support of its contention that "non-discrimination" means always equality of competitive opportunities for like products, India cites a passage of the Appellate Body report in EC – Bananas III. That passage, however, addresses an entirely different legal issue and does not constitute a relevant precedent for this dispute.
4.240.
The question before the Appellate Body in EC – Bananas III was not the meaning of the "non‑discrimination" obligations at issue, which was not in dispute between the parties, but rather whether such "non-discrimination" obligations applied only within each of the tariff regimes established by the European Communities. As noted by the Appellate Body, the essence of the specific "non-discrimination obligations" at issue in EC – Bananas III is that like products should be treated equally, irrespective of their origin. Whether or not other non-discrimination obligations have the same meaning was not a relevant issue in order to decide the matter before the Appellate Body. Therefore, it cannot be assumed that the Appellate Body also considered those other obligations. In particular, there is no indication that the Appellate Body had in mind the "non-discrimination" requirement in footnote 3 of the Enabling Clause, which was never at issue in EC – Bananas III.

(c) "Non-reciprocal" in paragraph 2(a)

4.241.
India has confirmed that it does not claim that the Drug Arrangements are non-reciprocal. The European Communities disagrees with India's interpretation of the term "non-reciprocal" but does not consider it necessary to pursue this issue.

(d) "Beneficial" in paragraph 2(a)

4.242.
India has submitted no new arguments in connection with this claim.

(e) Paragraph 3(c)

4.243.
In its oral statement, India argued that the "needs" referred in paragraph 3(c) are those of all the developing countries "in general". The European Communities has provided a comprehensive rebuttal to India's arguments as part of its response to the Panel's questions. In its own response to the Panel's questions, India introduces the new argument that in the French and Spanish versions, the equivalent of the words "developing countries" is preceded by the article des and los, respectively. India contends that the presence of that article means that, in the French and Spanish versions, the relevant needs are "the needs of all developing countries". Quite remarkably, India reaches this conclusion by consulting a dictionary definition of the English term the, thus assuming that the uses of that article in English are identical to those of the French article des and the Spanish article los.
4.244.
In any event, if India is correct about the implications of the presence of the articles des and los in the French and Spanish versions, respectively, it would follow a contrario that the absence of the article the in the equally authentic English version means that, as argued by the European Communities, developed countries must respond to the individual needs of developing countries. It is difficult, therefore, to see how this argument advances India's position.
4.245.
The European Communities had pointed out that India's interpretation of paragraph 3(c) would have the absurd result that developed countries could grant preferences only with respect to products which are of common interest to all developing countries. India admits now that the developed countries may also respond to the individual needs of one or more developing countries by granting concessions with respect to products which are of particular export interest to those countries. However, according to India, this response is only permissible provided that those preferences apply equally to all like products originating in all developing countries. This qualification, however, has no basis in the text of paragraph 3(c). Rather, it is premised on India's mistaken interpretation of footnote 3.
4.246.
Moreover, as emphasized elsewhere by India, paragraph 3(c) is not a permissive provision. It does not say that developed countries may respond to the needs of developing countries, but rather that they shall respond to such needs. If paragraph 3(c) covers the individual "development, financial and trade needs" of developing countries, and not only their "common" needs, as India appears to concede now, then all such individual needs must be taken into account and not only those which consist of a trade interest in exporting a certain item which is not of interest to other developing countries.

3. Article XX of GATT 1994

(a) Drugs pose a risk to human life or health

4.247.
India does not contest that narcotic drugs pose a serious risk to human life and health in the European Communities.

(b) The Drug Arrangements are necessary to fight drug production and trafficking

(i) The values pursued by the Drug Arrangements

4.248.
India does not contest that, since the preservation of human life and health is "both vital and important in the highest degree", the term "necessary" must be interpreted by the Panel according to its broadest possible meaning.

(ii) Contribution of the Drug Arrangements to the protection of human life and health

Tariff preferences are an appropriate response to the drug problem

4.249.
India argues that drug production and trafficking are criminal activities and that, for that reason, it cannot be assumed that tariff preferences will contribute to the objective of replacing those activities with licit alternative economic activities. India thus appears to suggest that the only appropriate and necessary response to the drug problem is the enforcement of criminal laws.
4.250.
This contention, which is not supported by any evidence or authority, disregards the most basic principles of the anti-drug policy agreed within the United Nations over the last 30 years. As explained at length in the European Communities' first written submission, the United Nations have resolved on many occasions that the fight against drugs requires a "comprehensive and balanced approach" which includes initiatives to reduce both illicit demand and illicit supply. The United Nations also have resolved that, in order to reduce the illicit supply of drugs, the countries concerned must adopt comprehensive measures, including not only crop eradication and law enforcement, but also the development of alternative economic activities. The United Nations have further recommended that, in order to support those alternative activities, other countries should provide not only financial assistance, but also greater market access. Only a few weeks ago, the ministers participating in the 46th session of the Commission on Narcotic Drugs held in Vienna renewed this recommendation.
4.251.
As explained in the European Communities' first written submission, the WTO Agreement recognizes in the preamble to the Agreement on Agriculture that the countries affected by the drug problem have particular needs and that providing greater market access is an appropriate response to such needs. The same recognition was cited as a justification for the waiver adopted with respect to the APTA preferences.

The Drug Arrangements apply to all developing countries affected by the drug problem which do not benefit from more favourable tariff treatment under other arrangements

4.252.
India alleges that the Drug Arrangements are not "necessary" because they do not include all developing countries affected by the drug problem. Specifically, India argues that Myanmar and Thailand "are excluded even though they have serious drug problems".
4.253.
For reasons already explained, the European Communities considers that Thailand does not qualify as a country seriously affected by drug production or trafficking.
4.254.
Myanmar is a least‑developed country and, as such, is covered by the special GSP arrangements for LDCs, which provide greater preferences than the Drug Arrangements. In view of that, the inclusion of the LDCs affected by the drug problem in the Drug Arrangements is unnecessary in order to protect the life and health of the European Communities' population.
4.255.
In any event, the European Communities considers that the exclusion of other developing countries allegedly affected by the drug problem from the Drug Arrangements is not part of the "design and structure" of the Drug Arrangements, but rather of its "application" and, therefore, should be examined under the chapeauof Article XX. The European Communities would note that India appeared to share that view in its first written submission.

The inclusion of developed countries in the Drug Arrangements would be unnecessary

4.256.
The Drug Arrangements reflect the recognition that, as noted by the United Nations, "the problem of the illicit production of and trafficking in narcotic drugs … is often related to development problems".
4.257.
In the developed countries, drug production and trafficking have different causes and require different responses. Moreover, developed countries have the necessary resources to fight drug production and trafficking on their own and do not require assistance from other developed countries in the form of trade preferences. For those reasons, granting trade preferences to the developed countries is not "necessary" to protect the life and health of the European Communities' population.
4.258.
Moreover, the European Communities is not aware of any developed country which is as affected by the drug problem as the developing countries included in the Drug Arrangements. India has identified no such developed country.

The countries not included in the Drug Arrangements do not pose a threat to the sanitary situation within the European Communities

4.259.
As explained, the criteria used in order to select the beneficiaries of the Drug Arrangements ensure that the excluded developing countries are not a significant source of supply of drugs to the European Communities and, therefore, do not pose a serious threat to the life or health of the European Communities' population.
4.260.
India argues that that there may be transit countries covered by the Drug Arrangements where "the trafficked drugs do not flow to the EC". This argument is purely theoretical and does not take into account the actual geographical patterns of drug production and trafficking. The European Communities, together with the United States, are, by far, the largest markets for drugs. The production of opium and coca products is concentrated in a few countries, all of which supply the European Communities' market. The main transit countries surround those producing countries and are located on the trafficking routes to the European Communities.

It is unnecessary to require that the beneficiaries implement certain anti-drug policies

4.261.
In order to ensure that the Drug Arrangements are effective in achieving the objective of protecting the life and health of the European Communities' population it is not necessary to require that beneficiaries apply certain anti-drug policies. The beneficiaries are already subject to a legally binding obligation to take all appropriate measures to fight against drug production and trafficking under the relevant UN conventions. Furthermore, it is in the beneficiaries' own interest to combat drug production and trafficking of drugs.

(iii) There are no less restrictive alternatives

4.262.
India alleges that, instead of granting trade preferences, the European Communities should provide financial assistance or conclude arrangements for administrative cooperation. Again, India cites no evidence or authority in support of this contention.
4.263.
The European Communities considers that, in accordance with the "balanced and comprehensive" approach recommended by the United Nations, the measures suggested by India are complementary rather than alternative to the Drug Arrangements.
4.264.
More specifically, the European Communities considers that financial assistance cannot ensure the sustainability of alternative development activities For that, it is indispensable to provide greater market access to the products of such activities. The UN recommendations cited above, as well as the Preamble to the Agreement on Agriculture and the justification for the APTA waiver support that approach.
4.265.
The European Communities considers that, for the above reasons, there is no alternative to providing greater access to the European Communities' market. The only issue before the Panel is whether such access can be provided in a less trade restrictive manner.
4.266.
The European Communities is not aware of any alternatives which would be equally effective and less trade restrictive in order to provide effective market access to the products from the beneficiaries. In its first submission, India suggested that the European Communities should grant the same tariff preferences to all developing countries. However, this would be much less effective because those countries which are not handicapped by the drug problem would capture most of the additional market opportunities created by the tariff preferences.

(c) The Drug Arrangements are applied consistently with the chapeau

4.267.
India argued in its first written submission that the Drug Arrangements are not applied consistently with the chapeau. The European Communities has addressed those arguments in its first written submission. India has not presented any new arguments in its Oral Statement or in its replies to the Panel's questions.

G. ORAL STATEMENT OF INDIA AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL

1. Introduction

4.268.
The European Communities makes a number of arguments which if accepted would have considerable systemic consequences.
4.269.
According to the European Communities, a tariff advantage is accorded "conditionally" if it is accorded as compensation for benefits received from another party. India would like to emphasize that, if the grant of tariff preferences conditional upon the situation or policies of exporting countries were regarded as being consistent with the most-favoured-nation requirement of Article I:1 of GATT 1994, this fundamental provision of the world trade order would be rendered inoperative.
4.270.
The European Communities further invokes paragraph 2(a) of the Enabling Clause in its defence and argues that the term "non-discriminatory" in footnote 3 to the Enabling Clause allows developed country Members to differentiate between like products originating in developing countries under the Generalized System of Preferences ("GSP"). The European Communities' interpretation of the term "non-discriminatory" would have consequences as far-reaching as its interpretation of the term "unconditional". The WTO provides a forum and a legal framework for the negotiation of reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations. The application of tariffs on an MFN basis is a crucial factor in providing security and predictability to the multilateral trading system. If tariff reductions could be made conditional upon the situation or policies of the exporting country, the WTO legal system would no longer provide the required security and predictability and the WTO would lose its attraction as a forum for trade negotiations.
4.271.
The GSP was negotiated and adopted at the UNCTAD for the benefit of developing countries. It was incorporated into the law of the GATT and the WTO through the 1971 Waiver and the Enabling Clause. The developed country Members knew, and accepted in advance, that any developed country Member may grant, under the GSP, preferential tariff treatment to products originating in developing countries without according the same treatment to like products originating in other developed country Members. That is why developed country Members are referred to as "donors" in the context of the GSP. However, the Enabling Clause reflects no similar acceptance on the part of developing countries that any developed country Member may grant preferential tariff treatment to products originating in some developing countries without according the same treatment to like products originating in other developing countries. If the arguments of the European Communities were accepted, developing countries would have to sacrifice market access opportunities in developed countries for the benefit of other developing countries and would therefore also become "donors" in the context of the GSP. Moreover, they would have to make these sacrifices on conditions determined by developed countries. The 1971 Waiver and the corresponding part of the Enabling Clause were never meant to bring about such consequences and there is no accepted principle of interpretation that would justify attaching a meaning to the term "non-discriminatory" that would entail such consequences.
4.272.
If the European Communities' defence under paragraph 2(a) of the Enabling Clause were to be upheld, in the current tariff negotiations under the Doha Work Programme, developed country Members will continue to have the assurance that any advantage granted by any developing country Member to any product originating in any developed country will be accorded immediately and unconditionally to any like product of any other Member. However, developing country Members will not have the converse assurance. The creation of such a lop-sided legal framework would not merely be a disadvantage to developing country Members. The WTO's legal framework for tariff negotiations would be fundamentally altered as far as developing countries are concerned.
4.273.
Thus, if the European Communities' defence under paragraph 2(a) of the Enabling Clause were to be upheld, the damage caused to the rules-based multilateral trading system would be serious and far-reaching – and most likely, irreparable.

2. The allocation of the burden of proof

4.274.
The issue of the allocation of burden of proof has been rendered unnecessarily complex in the present case. The European Communities has at various times construed the Enabling Clause as conferring an "autonomous right", as conferring "a positive right", now as conferring "a negative right and a positive right". It alleges that the burden of proof should not be placed on the European Communities, a group of developed countries, because the Enabling Clause was adopted for the benefit of developing countries. The European Communities has occasionally drawn implications beyond the allocation of the burden of proof. For instance, by characterizing the Enabling Clause as an "autonomous right", it has attempted to characterize the Enabling Clause as part of the elements of a claim under Article I:1 of GATT 1994.
4.275.
Paragraph 2(a) of the Enabling Clause is an affirmative defence because it does not impose any independent obligations. The requirements under paragraph 2(a) arise only after a Member has chosen to implement a GSP scheme. India has cited prior GATT cases that have treated the Enabling Clause as an affirmative defence.48 As India has explained, the allocation of burden of proof depends on whether the affirmative of a proposition is an essential element of a claim or a defence.49 The Enabling Clause is not an essential element of India's claim under Article I:1 of GATT 1994. Rather, it is an essential element of the European Communities' defence. Alternatively, in India's view, the material facts for the resolution of this dispute are uncontested. Therefore, the Panel need not even delve into the issue of allocation of burden of proof.

3. The relationship between the Enabling Clause and Article I:1 of GATT 1994

4.276.
The European Communities argues that the phrase "notwithstanding the provisions of the General Agreement" in paragraph 1 of the Enabling Clause precludes the application of Article I:1 of GATT 1994 altogether. India has responded by explaining that the Enabling Clause provides only a limited exception to Article I:1 of GATT 1994, and that, in granting differential and more favourable treatment to the developing countries in the context of the GSP, it is not necessary that developed country Members be absolved from their obligation to accord MFN treatment to like products originating in developing countries. India notes that the European Communities has not responded to these arguments.

4. The legal interpretation of the term "non-discriminatory" and the UNCTAD arrangements

4.277.
The interpretation of the term "non-discriminatory" in footnote 3 to the Enabling Clause is crucial to the European Communities' defence. The European Communities argues that, in the context of the GSP, the term "non-discriminatory" permits differentiation between developing countries that have different development needs (according to objective criteria). India is of the view that the term "non-discriminatory" in the context of preferential tariff treatment under the GSP means that there cannot be any differentiation between like products originating in developing countries.
4.278.
The textual basis for India's interpretation of the term "non-discriminatory" is the following:

· Paragraph 2(a) of the Enabling Clause refers to "preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences".

· Footnote 3 refers to the GSP as that which is "described in the Decision of the CONTRACTING PARTIES of 25 June 1971, relating to the establishment of 'generalized, non-reciprocal and non discriminatory preferences beneficial to the developing countries'".

· The GSP as described in the 1971 Waiver is therefore incorporated into the Enabling Clause by way of reference.

· Paragraph (a) of the 1971 Waiver refers to "the preferential tariff treatment referred to in the "Preamble to this Decision …". Thus, the preferential tariff treatment referred to in the Preamble to the 1971 Waiver was incorporated by reference into the Enabling Clause.

· The Preamble to the 1971 Waiver refers to the "mutually acceptable arrangements" … that "have been drawn up in the UNCTAD concerning the establishment of generalized, non-discriminatory and non-reciprocal preferential tariff treatment in the markets of developed countries for products originating in developing countries".

· The term "non-discriminatory" in footnote 3 to the Enabling Clause therefore has the same meaning as that attributed to it in the arrangements that had been drawn up in the UNCTAD.

· As evidence of those arrangements at the UNCTAD, India has presented the Agreed Conclusions, particularly that portion thereof which states that "there is agreement with the objective that in principle all developing countries should participate as beneficiaries from the outset".

· As context to this agreement, India has likewise cited the statements of the developing countries and of the preference-giving countries that are annexed or referred to in the Agreed Conclusions which support its interpretation.

4.279.
The European Communities dismisses the legal relevance of the UNCTAD arrangements, characterizing UNCTAD resolutions as "not legally binding". The European Communities likewise refers to the Agreed Conclusions as not reaching "the status of a formal UNCTAD resolution or decision". The Panel need not resolve the issue of the legal status of the UNCTAD resolutions and the Agreed Conclusions within the law of the UN. It is sufficient for the Panel to note that the Enabling Clause refers to the GSP referred to in the 1971 Waiver and that the 1971 Waiver in turn refers to the "mutually acceptable arrangements" that "have been drawn up in the UNCTAD". Regardless of the formal status of those mutually acceptable arrangements under the law of the UN, those arrangements define the legal scope of the Enabling Clause. The European Communities' dismissal of the legal relevance of the Agreed Conclusions renders footnote 3 incoherent or inoperative as it would be impossible to determine the nature of the "preferential tariff treatment" described in the preamble to the 1971 Decision without referring to the Agreed Conclusions. It is further noteworthy that the European Communities has not provided any evidence as to any mutually acceptable arrangements drawn up in the UNCTAD that support its position. In particular, the European Communities has not provided any evidence that the term "non-discriminatory" in the context of the GSP, as referred to in footnote 3 to the Enabling Clause and the 1971 Decision, was meant to permit developed country Members to differentiate between developing countries.

5. Paragraph 3(c) of the Enabling Clause

4.280.
The European Communities argues that, if developing countries could not be treated differently, paragraph 3(c) of the Enabling Clause could not be complied with. The European Communities' understanding of paragraph 3(c) and its relationship with paragraph 2(a) is erroneous. As India has demonstrated in detail in its second written submission, the legal function of paragraph 2(a) is to permit tariff preferences under the GSP, and that of paragraph 3(c) is to ensure that the depth of tariff cuts and product coverage under GSP schemes are responsive to the needs of developing countries. A developed country can therefore perfectly well comply with the obligation to accord the same tariff cuts to all developing countries and the obligation to respond to the needs of developing countries.
4.281.
The European Communities' argument depends on a reading of paragraph 3(c) as referring to the needs of "individual" developing countries. India has pointed out that neither the text nor the context of paragraph 3(c) supports such a reading. India pointed out in particular that other provisions of the Enabling Clause explicitly refer to "individual" needs of developing countries while paragraph 3(c) does not. The European Communities has not rebutted any of these arguments. India further pointed out that that the European Communities' reading of paragraph 3(c) would render most of its own GSP and that of all other developed countries inconsistent with this provision. In response, the European Communities argues that paragraph 3(c) "does not require that each preference must be responsive at the same time to the individual development needs of each and every developing country" and that "indeed that would be a logical impossibility".50 India submits that the European Communities is contradicting itself by claiming at the same time that paragraph 3(c) requires a positive response to the individual needs of developing countries and that this requirement would be a logical impossibility.
4.282.
The European Communities contends that India has conceded that paragraph 3(c) refers to individual needs.51 India has not done so. In response to a specific question from the Panel, India merely pointed out that even if paragraph 3(c) were interpreted to refer to individual needs, this could be reconciled with the India's interpretation of the term "non-discriminatory" by variations in the choice of products so as to benefit particularly needy counties.52
4.283.
The European Communities characterizes paragraph 3(c) in its second submission as "worded in rather imprecise terms", and it claims that "it may be argued that its is a purposive provision, which informs the interpretation of the other provisions of the Enabling Clause, but does not, of itself, impose any legally binding obligation".53 The European Communities thus relies on a provision which it characterizes as "worded in imprecise terms" that "does not impose any legally binding obligation" to justify an interpretation of "non-discriminatory" according to which the developing countries would loose their rights under Article I:1 of GATT 1994. The European Communities uses paragraph 3(c) as contextual support for an interpretation that expands the rights of developed countries but at the same time declares that this provision establishes no obligation for developed countries. The Panel should reject this attempt to have the cake and eat it.
4.284.
The inclusion of paragraph 3(c) in the Enabling Clause cannot have the far reaching consequences that the European Communities assumes. Ultimately, the arguments of the European Communities for its negative conception of "non-discrimination" have no firm basis in paragraph 3(c). Instead, the European Communities' conception is based on a policy argument that a unilateral power to differentiate between developing countries would be beneficial.
4.285.
The European Communities contends that there are considerable difficulties which result from accepting India's interpretation of "non-discriminatory" because it would "effectively deprive the developing countries with special needs from equal development opportunities".54
4.286.
This policy argument is without merit. The neediest of the developing countries are already accommodated by the special provision for least‑developed countries in paragraph 2(d). Moreover, in respect of other developing countries, where there is a good case for differentiation, the waiver mechanism is available. In fact, the WTO Members have granted waivers for measures similar to the Drug Arrangements and for trade measures benefiting the ACP countries. Thus, India's interpretation does not prevent accommodating differences between developing countries in accordance with the collective will of the Members. What India's interpretation merely prevents is that special needs of particular countries be unilaterally determined by developed countries. The question is thus not whether special needs can be accommodated through trade preferences, but (i) whether the developed countries should be able to do this unilaterally and in complete disregard of the legitimate interests of other countries with different but equally pressing needs or (ii) whether they should do so by resorting to the proper WTO procedures.

6. Alternative arguments on non-discrimination

4.287.
The European Communities has so far failed to demonstrate that the Drug Arrangements are consistent with the concept of non-discrimination that it attempts to introduce into WTO law. Under the European Communities' interpretation, objective criteria have to be established by the preference-giving country, and the preferential tariff treatment must be granted equally to all developing countries meeting those criteria. The European Communities contends that the designation of the beneficiary countries under the Drug Arrangements is made in accordance with "objective, non-discriminatory criteria".55 The European Communities claims that these criteria capture the possibility of trafficking to the European Communities, as well as the effects of the drug problem on individual countries. However, the European Communities states that the criteria are not contained in a public document56 and that it is not necessary to publish the relevant criteria.57 The European Communities has not furnished these criteria to the Panel.
4.288.
India would further like to note that:

· The European Communities has not made available to India or to the Panel any documentation reflecting an evaluation of all developing countries' drug profiles for inclusion into the Drug Arrangements. It contends that this documentation is not public.58 However, elsewhere, the European Communities states that this evaluation is based on publicly available information.59

· The European Communities has failed to furnish India with document 15083/01 concerning the inclusion of Pakistan as a beneficiary under the Drug Arrangements and has failed to furnish any document demonstrating why India was excluded from the Drug Arrangements.60

· The European Communities states that its authorities do not utilize any "quantitative or qualitative threshold."61 The absence of a quantitative or qualitative threshold conclusively indicates that no objective criteria were applied.

4.289.
The European Communities' concept of "non-discrimination" logically implies that there is a criterion equally applicable to all developing countries and justifying the more favourable treatment of some of them. In other words, its concept implies a right to rank the needs of developing countries in accordance with objective criteria. Yet, the European Communities has so far failed to indicate the criteria that it applied when deciding that the needs of the beneficiary countries rank higher than the needs of India and other developing countries. All that has been heard so far from the European Communities is that the needs of the beneficiary countries are different from those of India. However, the European Communities has not explained why the needs of the 12 beneficiaries deserve special preferences, while those of India and other developing countries do not.
4.290.
The European Communities' concept of non-discrimination further implies that the increased market access opportunities accorded under the Drug Arrangements are in effect targeted to resolve the drug-related problems of the 12 beneficiaries. The factual underpinning of the European Communities' claim, on which it justifies the exclusion of India and other developing countries, is that Drug Arrangements resolve problems that India and other developing countries do not have. In fact however, the increased market access opportunities help resolve a large variety of development needs of the beneficiaries, including the need to reduce unemployment, the need to attract investments and the need to improve their external financial position. The Drug Arrangements thus help resolve to a large extent problems of the beneficiaries that are identical to those of India and other developing countries. The factual unpinning of the European Communities' claim is therefore baseless.

H. ORAL STATEMENT OF THE EUROPEAN COMMUNITIES AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL

1. Relationship between Article I:1 of the GATT and the Enabling Clause

(a) The Enabling Clause is not an "affirmative defence"

(i) The Enabling Clause recognizes an "autonomous right"

4.291.
According to India, the Enabling Clause is not an "autonomous right" because the measures falling within its scope would otherwise be prohibited by Article I:1 of GATT 1994. However, the same is true of Article 27.2 of the SCM AgreementandArticle3.3 of theSPS Agreement. Yet, this did not prevent the Appellate Body from concluding that these two provisions are not affirmative defences. Rather, according to the Appellate Body, Article 27.2 of the SCM Agreement and Article 3.3 of the SPS Agreement exclude a priori the application of Articles 3.2 of the SCM Agreement and 3.1 of the SPS Agreement, respectively. Likewise, the Enabling Clause excludes the application of Article I:1 of GATT 1994 and, therefore, cannot be characterized as an affirmative defence justifying a violation of that provision.
4.292.
India's argumentation with regard to Article 2.1 of the SPS Agreement falls short because Members have the right to apply customs duties consistently with their WTO obligations. Moreover, the Appellate Body nowhere referred to Article 2.1 but to Article 3.3 whose wording is equivalent to that of paragraph 1 of the Enabling Clause.

(ii) The Enabling Clause imposes "positive obligations"

4.293.
According to India, the Enabling Clause does not impose "positive obligations" because developing countries cannot "compel" developed countries to establish a GSP scheme. However, the same could be said of many other WTO provisions, including Article I:1 of GATT 1994, which are not "affirmative defences" because Members are free to decide whether or not to levy customs duties on imports and, if so, at which level. Similarly, under the Enabling Clause, the right to grant differential and more favourable tariff treatment is subject to certain "positive obligations" set out in paragraphs 2 and 3 of the Enabling Clause, including the obligation that the preferences granted as part of a GSP scheme must be "non-discriminatory".
4.294.
On India's interpretation, other WTO provisions which have been recognized not to be "affirmative defences" would be found to impose no "positive obligations" such as Article 27.4 of the SCM Agreement, Article 3.3 SPS Agreement, Article 6 of the Agreement on Textiles and Clothing or Articles VI and XIX of GATT 1994. Yet, in all these cases although they are not compelling they have been recognized by the Appellate Body as "positive obligation".

(iii) Previous panels have not treated the Enabling Clause as an affirmative defence

4.295.
India's argument that previous disputes panels (US – Customs User Fee and US – MFN Footwear) have treated the Enabling Clause as an affirmative defence is not correct either because the Panel made no respective finding or because it was not invoked by the defendant.

(iv) The report of the Appellate Body in Brazil – Aircraft supports the European Communities position

4.296.
India's interpretation on Article 27.4 falls short because the Appellate Body relied on the fact that Article 27 is intended to provide Special and Differential Treatment and in any event, like Article 27.4 of the SCM Agreement, the Enabling Clause does impose positive obligations. Finally, contrary to India's assertion, whether or not the Enabling Clause is an affirmative defence, cannot depend on the identity of the complaining party in each particular case. India's suggestion that the violation of the Enabling Clause will always be invoked by a developing country vis-à-vis a developed country is incorrect. The Enabling Clause also accords to developing countries the right to grant certain forms of differential and more favourable treatment. Thus, a developed country, or another developing country, could invoke a violation of the Enabling Clause by a developing country.

(b) India has the burden to prove that Article I:1 of the GATT applies to the Drug Arrangements

4.297.
India further misinterprets that the burden of proof "must be assessed in relation to the material elements of the plaintiff's claim" and that since India's only claim in this dispute is that the Drug Arrangements are inconsistent with Article I:1 of GATT 1994, and not with paragraph 2(a), it is for the European Communities to prove that the Drug Arrangements fall within paragraph 2(a). A provision of the WTO Agreement either is or is not "in the nature of" an affirmative defence. The Enabling Clause is not "in the nature" of an affirmative defence, and it does not become one simply because it is invoked by the defendant in a particular dispute. This is evident from the cases Brazil – Aircraft and EC – Hormones.
4.298.
Regarding the burden of proof, India's reference to the Appellate Body report in US – Wool Shirts and Blouses does not address the issue of what is an "affirmative defence", as opposed to the negative of the claim asserted by the complaining party. Based on the jurisprudence in Brazil – Aircraft India bears the burden of proving that Article I:1 of GATT 1994, and not the Enabling Clause, apply to the measure in dispute. India's interpretation would have other unacceptable consequences. For example, a Member complaining against an anti-dumping or a countervailing measure could limit itself to assert a claim based on Articles I or II of GATT 1994, and then it would be for the defendant to prove that such measure is consistent with Article VI of GATT 1994 and the Anti-Dumping Agreement or the SCM Agreement, respectively.
4.299.
Finally, in view of India's assertion that it is not making any claims under the Enabling Clause, the European Communities would submit that, if the Panel were to agree that the Drug Arrangements fall within paragraph 2(a) of the Enabling Clause, rather than within Article I:1 of GATT 1994, it should refrain from examining whether the Drug Arrangements are consistent with paragraph 3(c) of the Enabling Clause.

(c) The Enabling Clause excludes the application of Article I:1 of the GATT

4.300.
India's contention that the Enabling Clause excludes the application of Article I:1 "only to the extent that the granting of tariff preferences under the GSP would be prevented if the introduction of a measure were not allowed" has no basis on the text of the Enabling Clause. Accordingly, the only issue before the Panel is whether the Drug Arrangements fall within paragraph 2(a). India's thesis is also contradicted by paragraphs 2(c) and 2(d) as these two subparagraphs allow differentiation between developing countries, even though such differentiation is no more "necessary" to provide differential and more favourable treatment to developing countries than it would be within the context of a GSP.
4.301.
The European Communities would underline that the Enabling Clause is not an "exception" but one of the main forms of Special and Differential Treatment, which in turn is one of the pillars of the WTO Agreement. The purpose of Special and Differential Treatment is to respond to the special needs of developing countries. Differentiating between developing countries with different development needs is fully consistent with such an objective. In any event, the Appellate Body has made it clear that there is no presumption that "exceptions" should be interpreted "strictly" or "narrowly".

(d) The meaning of "unconditionally" in Article I:1 of the GATT

4.302.
In its second written submission India limits itself to arguing that the Drug Arrangements are not covered by the Enabling Clause and, as a result, are inconsistent with Article I:1, inter alia because they are "not unconditional". Since the Drug Arrangements fall within the Enabling Clause, the Panel does not need not to reach the issue of whether they are "conditional" for the purposes of Article I:1.
4.303.
In this respect, India's argument on the ordinary meaning of "unconditional" is of little value because it leaves undefined the meaning of "condition". As to the context, it is clear that MFN clauses can be either "conditional" or "unconditional". And that this notion must have identical meaning in relation to both types of clauses. Thus, the Draft Articles on the MFN Clause of the International Law Commission give a single definition of condition which applies to both conditional and unconditional MFN clauses. Finally, Article I:1 of GATT 1994 contains two different obligations, which are: first, to grant MFN treatment; and, second, to do so "immediately and unconditionally". To say that a distinction based on the "situation" of a country is not a "condition" is not the same as saying that such distinction is consistent with Article I:1.

2. The Enabling Clause

(a) The meaning of "non-discriminatory" in paragraph 2(a)

(i) The GATT context

4.304.
Contrary to India's assertion, no definition of the term "non-discrimination" in the sense of equal competitive opportunities to like products originating in different countries exists under the GATT. India's quotation from the Appellate Body report in EC – BananasIII is not relevant here as emphasized in the same report by the Appellate Body. The term "discrimination" may have different meanings in different WTO contexts as noted by the panel in Canada – Pharmaceutical Patents. The Enabling Clause, like all the other provisions granting Special and Differential Treatment, does not seek to provide equal competitive opportunities for like products of different origins but it intends to create unequal competitive opportunities in order to respond to the special needs of developing countries.

(ii) Paragraph 2(d)

4.305.
Contrary to India's argument, paragraph 2(d) is not an "exception" but is one of the forms of differential and more favourable treatment to which paragraph 1 "applies" and, therefore, stands on the same level as paragraph 2(a) with respect to paragraph 1. This does not render paragraph 2(d) "redundant and meaningless" but while the two provisions overlap, the scope of paragraph 2(d) is broader in some significant respects than that of paragraph 2(a), for example, with regard to "preferences/special treatment" and the context in which measure is provided. As for paragraph 2(b), it has a more limited scope than paragraph 2(d) and is intended to cover the Special and Differential Treatment provisions contained in the Tokyo Round plurilateral agreements while paragraph 2(d) covers any "special treatment" with regard to any non-tariff measure.

(iii) The use of "the" before "developing countries"

4.306.
India's argument in this regard has the immediate a contrario implication that whenever the term "developing countries" is not preceded by the it means that the preferences may be granted to some developing countries. The use of the word "the" in the English, Spanish and French versions of the Enabling Clause is very disperse. Moreover, both in French and in Spanish, articles are more frequently used than in English and India's interpretation would render the Spanish and French versions internally inconsistent, in particular in view of paragraph 1, 2(c) and 2(d). In addition, India's interpretation of the term "other Members" in paragraph 1 as meaning "the developed Members" would lead to conflicting meanings when read in conjunction with each of the subparagraphs of paragraph 2.

(iv) The UNCTAD Arrangements

4.307.
The Agreed Conclusions do not prohibit expressly such differentiation. The only provision in the Agreed Conclusions which is relevant to the issue of differentiation between developing countries is that the preferences should be "non-discriminatory". Thus, on the issue before the Panel, the Agreed Conclusions add nothing to what is already said in the Enabling Clause. The Agreed Conclusions do no purport to establish an exhaustive regulation of the GSP's but they take note of the statements of intentions made by the prospective donors and record the agreement (and sometimes the lack of agreement) of all the participants in the consultations sponsored by UNCTAD with regard to certain basic objectives. For that reason, the silence of the Agreed Conclusions on a certain issue can never be considered as dispositive.
4.308.
As to the least‑developed countries, Part V of the Agreed Conclusions records a series of agreed objectives and statements of intention by the prospective donor countries with a view to responding to the special needs of the least‑developed countries. The donor countries are free to go beyond those objectives and statements of intentions, subject to the general requirement that preferences must be inter alia "non-discriminatory".
4.309.
India's reference to the Agreed Conclusions that "in principle all developing countries should participate as beneficiaries from the outset" does not address the different question of whether the developing countries already designated as beneficiaries of a GSP should be granted the same preferences. The objective cited by India was aimed at preventing donor countries from excluding a priori certain developing countries from their GSPs on grounds unrelated to their development needs (namely, the fact that they granted reverse preferences to certain developed countries). The European Communities' interpretation of "non-discriminatory" does not allow differentiation on such grounds because under the European Communities' GSP all developing countries are recognized as beneficiaries and all of them benefit from preferences.

(v) Paragraph 3(c) and policy arguments

4.310.
India has not provided new arguments on paragraph 3(c) and it has produced a series of unwarranted trad