Defining Non-discriminatory Practice in GSP
The issue of non-discriminatory has been reaffirmed in foot note 3 of the Enabling Clause, and it was at the heart of the dispute in the EC case. In this case India challenged its exclusion from the EC special preferences to twelve specific developing countries claiming that the Enabling Clause imposes legal obligation of non discrimination except justified under Enabling Clause. Two key questions were raised in interpreting the term non-discrimination: first whether does it impose legal obligation on preference giving countries; second, if it does then whether such obligation requires preference-giving countries to grant the same tariff preferences to all GSP beneficiaries. The panel in both the questions answered in affirmative, finding that the term non-discriminatory requires identical tariff preferences under GSP schemes to all developing countries without differentiation. On appeal the appellate body agreed with the panel on first question and which establishes the legal status of Enabling clause in WTO rules. The body disagreed in the second questions of identical treatment for all developing countries, finding out a new interpretation that the identical treatment in question need to be available to all similarly situated GSP beneficiaries that have the similar development, financial and trade needs. Finally the appellate body came to a conclusion that the drug arrangements of EC were inconsistent with non-discriminatory requirement because they had failed to set any objective criteria that would allow all developing countries that are similarly affected by the drug problem to become beneficiaries thereunder.
The text of Enabling Clause does not provide any qualifying language to for the term non-discriminatory, and thereby this obligation is completely open to interpretation. The appellate body interpreted the term in accordance with its ordinary meaning raising two questions: “Whether the drawing of distinctions is per se discriminatory, or whether it is discriminatory only if done on an improper basis, the ordinary meanings of ‘discriminate’ converge in one important respect: they both suggest that distinguishing among similarly-situated beneficiaries is discriminatory.” Both the panel and appellate body differed in interpreting the term ‘similarly situated’ beneficiary countries in accordance with paragraph 3(c) of the Enabling Clause, whether the “the development, financial and trade needs of developing countries” refers to the need of all or selected individual developing countries. In reaching the conclusions the panel examined the origin and drafting history of the Enabling Clause and found that the drafting history does not permit paragraph 3(c) to respond to the needs of selected developing countries, and the differentiation among GSP beneficiaries accordance to their individual needs would lead to the collapse of the whole GSP system. On the contrary the appellate body interpreted paragraph 3(c) to incorporate some not all developing countries arguing that the ‘needs of developing countries’ should be understood to mean varying needs of developing countries at the different stages of economic development. The appellate body has taken into account the purpose of Enabling Clause, the preamble of WTO Agreement, to justify the distinction based on objective standard criteria. The body in elaborating the objective criteria stated that broad based recognition of a particular need laid down in the WTO Agreements or in multinational instruments adopted by international organizations could serve as such a standard.