WORLD TRADE  
ORGANIZATION  WT/DS246/AB/R 
7 April 2004 
 (04-1556) 
 Original:   English 
   
 
     
 
    
 
   
 
EUROPEAN COMMUNITIES – CO NDITIONS FOR THE GRANTING 
OF TARIFF PREFERENCES TO  DEVELOPING COUNTRIES 
 
 
 
AB-2004-1 
   
 
    
 
   
Report of the Appellate Body  WT/DS246/AB/R 
 Page i 
 
 
I. Introduction................................................................................................................ .................1 
II. Arguments of the Participan ts and Third Participants ................................................................5 
A. Claims of Error by the European Communities – Appellant .........................................5 
1. The Relationship Between Article I:1 of the GATT 1994 and the 
Enabling Clause ................................................................................................5 
2. Whether the Drug Arrangements are Justified Under the Enabling 
Clause ...............................................................................................................9 
B. Arguments of India – Appellee .....................................................................................15 
1. The Relationship Between Article I:1 of the GATT 1994 and the 
Enabling Clause ..............................................................................................15 
2. Whether the Drug Arrangements are Justified Under the Enabling 
Clause .............................................................................................................18 
C. Arguments of the Third Participants ............................................................................22 
1. Andean Community........................................................................................22 2. Costa Rica.......................................................................................................24 
3. Panama............................................................................................................24 
4. Paraguay .........................................................................................................26 5. United States...................................................................................................27 
III. Issues Raised in This Appeal .............................................................................................. ......29 
IV. The Relationship Between Article I:1 of the GATT 1994 and the Enabling Clause................30 
A. The Panel's Analysis and the Arguments on Appeal ....................................................30 
B. Relevance of the Relationship Between Article I:1 of the GATT 1994 and the 
Enabling Clause for the Allocation of the Burden of Proof .........................................33 
C. Characterization of the Enabling Clause ....................................................................34 
1. Text of Article I:1 and the Enabling Clause ...................................................34 
2. Object and Purpose of the  WTO Agreement  and the Enabling Clause .........36 
D. Burden of Proof ...........................................................................................................41 
1. Responsibility for Raising the Enabling Clause .............................................42 
2. Whether India Raised the Enabling Clause Before the Panel.........................49 
V. Whether the Drug Arrangements are Ju stified Under the Enabling Clause..............................52 
A. Panel Findings .............................................................................................................54 
B. Interpretation of the Term "Non-Discriminatory" in Footnote 3 to 
Paragraph 2(a) of the Enabling Clause .......................................................................58 
C. The Words "Developing Countries" in Paragraph 2(a) of the Enabling Clause .........70 
D. Consistency of the Drug Arrangements with the Enabling Clause ..............................71 
VI. Findings and Conclusions................................................................................................... ......76 
Annex 1 Notification of an Appeal by the European Communities under paragraph 4 
of Article 16 of the Understanding of  Rules and Procedures Governing the 
Settlement of Disputes, WT/DS246/7..........................................................................79 
Annex 2 Decision on Differential and More Favourable Treatment, Reciprocity, and  
Fuller Participation of Developing Countries, GATT Document L/4903....................81 WT/DS246/AB/R 
Page ii  
 
TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Argentina – Footwear (EC)  Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear , 
WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515 
Brazil – Aircraft  Appellate Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161 
Brazil – Desiccated Coconut  Appellate Body Report, Brazil – Measures Affe cting Desiccated Coconut , 
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167 
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 – FIRA  GATT Panel Report, Canada – Administration of the Foreign Investment Review 
Act, L/5504, adopted 7 February 1984, BISD 30S/140 
Canada – Ice Cream and 
Yoghurt  GATT Panel Report, Canada – Import Restrictions on Ice Cream and Yoghurt , 
L/6568, adopted 5 December 1989, BISD 36S/68 
Chile – Price Band System  Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R, adopted 
23 October 2002 
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 
EC – Tariff Preferences Panel Report, European Communities – Conditions for the Granting of Tariff 
Preferences to Developing Countries , WT/DS246/R, circulated to Members  
1 December 2003 
EEC – Dessert Apples GATT Panel Report, European Economic Community – Restrictions on Imports 
of Dessert Apples – Complaint by Chile , L/6491, adopted 22 June 1989, 
BISD 36S/93 
Guatemala – Cement I  Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from Mexico , WT/DS60/AB/R, adopted 25 November 1998, 
DSR 1998:IX, 3767 
India – Quantitative Restrictions  Appellate Body Report, India – Quantitative Restrictions on Imports of 
Agricultural, Textile and Industrial Products , WT/DS90/AB/R, adopted 
22 September 1999, DSR 1999:IV, 1763 
Japan – Agricultural Products I GATT Panel Report, Japan – Restrictions on Imports of Certain Agricultural 
Products , L/6253, adopted 2 March 1988, BISD 35S/163 
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 
US – Carbon Steel  Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion-Resistant Carbon Steel Flat Products from Germany , WT/DS213/AB/R 
and Corr.1, adopted 19 December 2002  WT/DS246/AB/R 
 Page iii 
 
 
Short Title Full Case Title and Citation 
US – Certain EC Products  Appellate Body Report, United States – Import Measures on Certain Products from 
the European Communities , WT/DS165/AB/R, adopted 10 January 2001, 
DSR 2001:I, 373 
US – Customs User Fee  GATT Panel Report, United States – Customs User Fee , L/6264, adopted 
2 February 1988, BISD 35S/245 
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 – 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 – Gasoline  Panel Report, United States – Standards for Reformulated and Conventional 
Gasoline , WT/DS2/R, adopted 20 May 1996, as modified by the Appellate Body 
Report, WT/DS2/AB/R, DSR 1996:I, 29 
US – Malt Beverages  GATT Panel Report, United States – Measures Affecting Alcoholic and Malt 
Beverages , DS23/R, adopted 19 June 1992, BISD 39S/206 
US – MFN Footwear  GATT Panel Report, United States – Denial of Most-Favoured-Nation Treatment 
as to Non-Rubber Footwear from Brazil , DS18/R, adopted 19 June 1992, 
BISD 39S/128 
US – Section 337  GATT Panel Report, United States Section 337 of the Tariff Act of 1930 , L/6439, 
adopted 7 November 1989, BISD 36S/345 
US – Section 211 
Appropriations Act  Appellate Body Report, United States – Section 211 Omnibus Appropriations Act 
of 1998 , WT/DS176/AB/R, adopted 1 February 2002 
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 – Wool Shirts and Blouses  Panel Report, United States – Measure Affecting Imports of Woven Wool Shirts and 
Blouses from India , WT/DS33/R, adopted 23 May 1997, as upheld by the Appellate 
Body Report, WT/DS33/AB/R, DSR 1997:I, 343 
 WT/DS246/AB/R 
Page iv  
 
TABLE OF ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation Description 
1971 Waiver Decision Wa iver Decision on the Generalized Syst em of Preferences, GATT Document 
L/3545, 25 June 1971, BISD 18S/24 (attached as Annex D-2 to the Panel Report) 
1999 LDC Waiver Waiver Decision  on Preferential Tariff Treatment for Least-Developed Countries, 
WT/L/304, 15 June 1999 
Agreed Conclusions Agreed Conclusions of the UNCTAD Special Co mmittee on Preferences 
(attached as Annex D-4 to the Panel Report) 
Charter of Algiers Charter of Algiers, TD/38, adopted at the Ministerial Meeting of the Group of 77 
on 24 October 1967  
Drug Arrangements Special arrangements to combat drug production and trafficking, contained in the 
Regulation  
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes  
Enabling Clause Decision on Differential and Mo re Favourable Treatment, Reciprocity, and Fuller 
Participation of Developing Countries,  GATT Document L/4903, 28 November 
1979, BISD 26S/203 (attached as Annex 2 to this Report) 
GATT 1947 General Agreement on Tariffs and Trade 1947  
GATT 1994 General Agreement on Tariffs and Trade 1994  
General Arrangements General arrangements described in Article 7 of the Regulation 
General Principle Eight General Principle Eight contained in the Final Act and Report adopted at the First 
Session of UNCTAD on 15 June 1964, at p. 20 (Exhibit EC-20 submitted by the European Communities to the Panel) 
GSP Generalized System of Preferences 
MFN Most-favoured-nation 
OECD Special Report Report of the Special Group of the Organization for Economic Co-operation and 
Development (OECD) on Trade with Developing Countries, TD/56, 29 January 
1968 
Regulation Council Regulation (E C) No. 2501/200 1 of 10 December 2001 applying a scheme 
of generalised tariff preferences for the period from 1 January 2002 to 31 
December 2004, Official Journal of the European Communities , L Series, No. 
346 (31 December 2001), p. 1 (Exhibit India-6 submitted by India to the Panel) 
Resolution 21(II) Resolution 21(II) of the Seco nd Session of UNCTAD, entitled "Expansion and 
Diversification of Exports of Manu factures and Semi-Manufactures of 
Developing Countries" (attached as Annex D-3 to the Panel Report) 
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
SPS Agreement  Agreement on the Application of Sanitary and Phytosanitary Measures  
UNCTAD United Nations Conference on Trade and Development 
Vienna Convention  Vienna Convention on the Law of Treaties , done at Vienna, 23 May 1969, 1155 
U.N.T.S. 331;  8 International Legal Materials 679 
Working Procedures Working Procedures for Appellate Review, WT/AB/WP/7, 1 May 2003 
WTO World Trade Organization 
WTO Agreement  Marrakesh Agreement Establishing  the World Trade Organization  
  WT/DS246/AB/R 
 Page 1 
 
 
WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
European Communities – Conditions  
for the Granting of Tariff Preferences  to Developing Countries 
 
European Communities, Appellant  
India, Appellee  
 
Bolivia, Third Participant  
Brazil, Third Participant  
Colombia, Third Participant  
Costa Rica, Third Participant  
Cuba, Third Participant  
Ecuador, Third Participant  
El Salvador, Third Participant  
Guatemala, Third Participant  
Honduras, Third Participant  
Mauritius, Third Participant  
Nicaragua, Third Participant  
Pakistan, Third Participant  
Panama, Third Participant  
Paraguay, Third Participant  
Peru, Third Participant  
United States, Third Participant  
Venezuela, Third Participant  
  AB-2004-1 
  Present:  
 Abi-Saab, Presiding Member 
 Baptista, Member  Sacerdoti, Member  
  
I. Introduction 
1. The European Communities appeals certain issues  of law and legal inte rpretations developed 
in the Panel Report,  European Communities – Conditions for the Granting of Tariff Preferences to 
Developing Countries  (the "Panel Report").
1  The Panel was established to consider a complaint by 
India against the European Communities regardi ng the conditions under which the European 
Communities accords tariff preferences to devel oping countries pursuant to Council Regulation (EC) 
No. 2501/2001 of 10 December 2001 "applying a schem e of generalised tariff preferences for the 
period from 1 January 2002 to 31 D ecember 2004" (the "Regulation").2 
                                                      
1WT/DS246/R, 1 December 2003. 
2Official Journal of the European Communities , L Series, No. 346 (31 December 2001), p. 1 (Exhibit 
India-6 submitted by India to the Panel). WT/DS246/AB/R 
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2. The Regulation provides for five preferential tariff "arrangements"
 3, namely:   
(a) general arrangements described in Artic le 7 of the Regulation (the "General 
Arrangements"); 
(b) special incentive arrangements for the protection of labour rights; (c) special incentive arrangements for the protection of the environment;  (d) special arrangements for least-developed countries;  and 
(e) special arrangements to combat drug production and trafficking (the "Drug 
Arrangements").
4 
3. All the countries listed in Annex I to the Regula tion are eligible to receive tariff preferences 
under the General Arrangements 5, which provide, broadly, for suspension of Common Customs 
Tariff duties on products listed as "non-sensitive" and for reduction of Common Customs Tariff  
ad valorem   duties on products listed as "sensitive".6  The General Arrangements are described in 
further detail in paragraphs 2.4 and 2.5 of the Panel Report.  Th e four other arrangements in the 
Regulation provide tariff preferences  in addition   to those granted under the General Arrangements.7  
However, only some of the country beneficiaries of  the General Arrangements are also beneficiaries 
of the other arrangements.  Specifically, preferen ces under the special incentive arrangements for the 
protection of labour rights and the special in centive arrangements for the protection of the 
environment are restricted to those countries that "are determined by the European Communities to 
comply with certain labour [or]  environmental policy standards" 8, respectively.  Preferences under the 
special arrangements for least-developed countri es are restricted to cer tain specified countries.9  
Finally, preferences under the Drug Arrangements are provided only to 12 predetermined countries, namely Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, 
Pakistan, Panama, Peru, and Venezuela.
10   
                                                      
3Regulation, Art. 1.2. 
4Ibid. 
5Panel Report, para. 2.4. 
6Regulation, Arts. 7.1-7.2. 
7Ibid., Arts. 8-10.  For example, these tariff prefer ences include further reductions in the duties 
imposed on certain "sensitive" products. 
8Panel Report, para. 2.3.  See Regulation, Arts. 14 and 21, and Annex I (Columns E and G). 
9Regulation, Annex I (Column H). 
10Ibid. (Column I);  Panel Report, paras. 2.3 and 2.7.  WT/DS246/AB/R 
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4. India is a beneficiary of the General Arrangements but not of the Drug Arrangements, or of 
any of the other arrangements established by the Regula tion.  In its request for the establishment of a 
panel, India challenged the Drug Arrangements as  well as the special incentive arrangements for the 
protection of labour rights and the environment.11  However, in a subsequent meeting with the 
Director-General regarding the composition of th e Panel—and later in writing to the European 
Communities—India indicated its decision to limit its complaint to the Drug Arrangements, while 
reserving its right to bring additional complaints regarding the two "special incentive arrangements".12  
Accordingly, this dispute concerns only the Drug Arrangements. 
5. The Panel summarized the effect of the Drug Arrangements as follows: 
The result of the Regulation is th at 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 Comm unities' market, while all 
other developing countries are entitled only to reductions  in the 
duties applicable under the Common Customs Tariff . 
 13 (original 
italics) 
6. India requested the Panel to find that "the Drug Arrangements set out in Article 10" 14 of the 
Regulation are inconsistent with Article I:1 of the  General Agreement on Tariffs and Trade 1994  
(the "GATT 1994") and are not justified by th e Decision on Differential and More Favourable 
Treatment, Reciprocity, and Fuller Participation of Developing Countries (the "Enabling Clause").15  
In the Panel Report, circulated to Members of  the World Trade Organization (the "WTO") on 1 
December 2003, the Panel concluded that: 
                                                      
11Request for the establishment of a panel by India, WT/DS246/4, 9 December 2002, p. 2. 
12Panel Report, para. 1.5. 
13Ibid., para. 2.8.  See also, ibid., para. 2.7. 
14Ibid., para. 3.1 (referring to In dia's first written submission to the Panel, para. 67).   
15GATT Document L/4903, 28 November 1979, BISD 26S/203 (attached as Annex 2 to this Report). WT/DS246/AB/R 
Page 4  
 
(a) India has the burden of demonstrating that the European 
Communities' Drug Arrangement s are inconsistent with 
Article I:1 of GATT 1994; 
(b) India has demonstrated that  the European Communities'  
Drug Arrangements are inconsis tent with Article I:1 of 
GATT 1994; 
(c) the European Communities h as the burden of demonstrating 
that the Drug Arrangements are justified under paragraph 2(a) of the Enabling Clause;  [and] 
(d) the European Communities has failed to demonstrate that the 
Drug Arrangements are justified under paragraph 2(a) of the 
Enabling Clause[.]
16 
The Panel also concluded that the European Comm unities had "failed to demonstrate that the Drug 
Arrangements are justified under Article XX(b) of GATT 1994".17  Finally, the Panel concluded, 
pursuant to Article 3.8 of the Understanding on Rules and Procedures Governing the Settlement of 
Disputes  (the "DSU"), that "because the Drug Arrangeme nts are inconsistent with Article I:1 of 
GATT 1994 and not justified by Article 2(a) of the Enabling Clause or Article XX(b) of GATT 1994,  
the European Communities has nullified or impair ed benefits accruing to India under GATT 1994."18 
7. On 8 January 2004, the European Communities notified the Dispute Settlement Body of its 
intention to appeal certain issues of law covered in  the Panel Report and certain legal interpretations 
developed by the Panel, pursuant to paragraph 4 of Article 16 of the  DSU, and filed a Notice of 
Appeal 19 pursuant to Rule 20 of the  Working Procedures for Appellate Review  (the " Working 
Procedures ").20 On 19 January 2004, the European Comm unities filed its appellant's submission.21  
On 30 January 2004, Pakistan notified its inten tion to appear at the oral hearing as a third 
participant.22  On 2 February 2004, India filed its appellee's submission.23  On the same day, Costa 
Rica, Panama, Paraguay, and the United States each f iled a third participant's submission, and Bolivia, 
Colombia, Ecuador, Peru, and Venezuela filed a jo int third participant's submission as the Andean 
Community.24  Also on 2 February 2004, Brazil notified its intention to make a statement at the oral 
                                                      
16Panel Report, para. 8.1(a)-(d). 
17Ibid., para. 8.1(e). 
18Ibid., para. 8.1(f). 
19Notification of an appeal by the European Comm unities, WT/DS246/7, 8 January 2004 (attached as 
Annex 1 to this Report). 
20WT/AB/WP/7, 1 May 2003. 
21Pursuant to Rule 21 of the  Working Procedures . 
22Pursuant to Rule 24(2) of the  Working Procedures . 
23Pursuant to Rule 22 of the  Working Procedures . 
24Pursuant to Rule 24(1) of the  Working Procedures .  WT/DS246/AB/R 
 Page 5 
 
 
hearing as a third participant, and Mauritius notified its intention to appear at the oral hearing as a 
third participant.25  Finally, on 2 February 2004, El Salv ador, Guatemala, Honduras, and Nicaragua 
jointly notified their intention to make a statem ent at the oral hearing as third participants.26  On 4 
February 2004, Cuba notified its intention to ap pear at the oral hearing as a third participant.27  By 
letter dated 16 February 2 004, Pakistan submitted a request to make a statement at the oral hearing.28  
No participant objected to Pakistan's request, which was authorized by the Di vision hearing the appeal 
on 18 February 2004.29 
8. The oral hearing in this appeal was held on 19 February 2004.  The participants and third 
participants presented oral arguments (with the ex ception of Cuba and Mauritius) and responded to 
questions posed by the Members of the Division hearing the appeal. 
II. Arguments of the Participants and Third Participants 
A. Claims of Error by the European Communities – Appellant 
1. The Relationship Between Article I:1 of the GATT 1994 and the Enabling 
Clause  
9. The European Communities argues that the Panel erred in finding that the Enabling Clause is 
an "exception" to Article I:1 of the GATT 1994 an d in assigning to the European Communities the 
burden of justifying the Drug Arrangements under the Enabling Clause.  Furthermore, the European 
Communities submits, the Panel erred in finding that Article I:1 applies to measures covered by the 
Enabling Clause.  The European Communities requ ests the Appellate Body to reverse the Panel's 
consequent finding that the Drug Arrangements are inconsistent with Article I:1 of the GATT 1994 
and, because India made no claim with respect to  the Enabling Clause, to refrain from assessing the 
Drug Arrangements under the Enabling Clause.  
10. According to the European Communities, the Panel's main reason for deciding that the 
Enabling Clause is an exception to Article I:1 was that the Enabling Clause does not provide "positive 
                                                      
25Pursuant to Rule 24(2) of the  Working Procedures . 
26Ibid. 
27Pursuant to Rule 24(4) of the  Working Procedures . 
28Ibid. 
29Pursuant to Rule 27(3)(c) of the  Working Procedures .  The Director of the Appellate Body 
Secretariat advised Pakistan and the other participants in the appeal of the Division's  decision by letter dated  
18 February 2004. WT/DS246/AB/R 
Page 6  
 
rules establishing obligations in themselves".
30  In the European Communities' view, however, the fact 
that developed countries are not legally obliged to  implement schemes pursu ant to the Generalized 
System of Preferences ("GSP") does not mean that the Enabling Clause does not impose positive 
obligations, or that it is an exception to Article  I:1.  The European Co mmunities argues that the 
Panel's reasoning suggests that, if a WTO provisi on applies only when a WTO Member takes a 
particular step that it is not obliged to take, that provision cannot create a positive obligation and must 
be an exception.  According to th e European Communities, this test is not consistent with Appellate 
Body decisions and "would lead to manifestly absurd results".31  For example, the European 
Communities contends, this test would mean that  the following provisions do not impose positive 
rules establishing obligations in themselves, despite  contrary reasoning in previous Appellate Body 
decisions:  Article 27.4 of the  Agreement on Subsidies and Countervailing Measures  (the 
"SCM Agreement ");  Article 3.3 of the  Agreement on the Application of Sanitary and Phytosanitary 
Measures  (the " SPS Agreement ");  Article 2.4 of the  Agreement on Technical Barriers to Trade ;  and 
Article 6 of the  Agreement on Textiles and Clothing .32  According to the European Communities, 
Articles VI and XIX of the GATT 1994 would al so be rendered exceptions under the Panel's 
reasoning, contrary to well-established GATT and WTO panel practice.   
11. The European Communities suggests that the Panel should have begun its analysis by 
examining the ordinary meaning of the word "notwithstanding" in the Enabling Clause.  This ordinary meaning, in the view of the European Communitie s, does not compel the Panel's finding that the 
Enabling Clause is an "exception" to Article I:1.  This is apparent from the dissenting opinion in the 
Panel Report and the Panel's own recognition that the definition of "notwithstanding" is not 
dispositive of this question.  Therefore, the Eu ropean Communities argues,  in accordance with the 
basic rules of treaty interpretation in Article 31 of the  Vienna Convention on the Law of Treaties  (the 
"Vienna Convention ")
 33, the Panel should have proceeded to examine the relevant "content" 34, 
context, and object and purpose of the Enabling Cl ause in order to identify the relationship between 
                                                      
30European Communities' appellant's submission, pa ra. 32 (quoting Panel Report, para. 7.35, itself 
quoting Appellate Body Report, US – Wool Shirts and Blouses , p. 16, DSR 1997:I, at 337). 
31Ibid., para. 34. 
32Ibid., para. 35 (referring to Appellate Body Report, Brazil – Aircraft ,  paras. 134-141;  Appellate 
Body Report, EC – Hormones , paras. 97-104;  Appellate Body Report, EC – Sardines , para. 275;  and Appellate 
Body Report, US – Wool Shirts and Blouses , pp. 12-17, DSR 1997:I, at 333-338). 
33Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331;  8 International Legal Materials 679. 
34European Communities' appellant's submission, paras. 18 and 39, and heading 2.5.1.  WT/DS246/AB/R 
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the Enabling Clause and Article I:1.  Instead, the European Communities observes, the Panel simply 
"assumed" 35 that the Enabling Clause is an exception to Article I:1.  
12. Turning to the content and context of th e Enabling Clause, the European Communities 
submits that the Enabling Clause provides a compre hensive set of rules that positively regulate the 
substantive content of GSP schemes, to the exclusi on of the rules in Article I:1 of the GATT 1994.  
Specifically, the European Communities emphasizes th at the words "generaliz ed, non-reciprocal and 
non discriminatory" in footnote 3 of the Enabling Cl ause are distinct from and are intended to replace 
the most-favoured-nation ("MFN") obligation in Arti cle I:1.  The European  Communities also argues 
that, according to the Panel's own reasoning, footnot e 3 should be interpreted in the context of  
the Agreed Conclusions of the Special Committee on Preferences of  the United Nations Conference 
on Trade and Development (the "Agreed Conclusions")36 and the submissions by developed countries 
to that committee.  As such, the detailed obligati ons created by paragraph 2(a), footnote 3, and  
paragraph 3(c) of the Enabling Clause go far beyond "mere 'anti-abuse' safeguards".37  The European 
Communities contends that the Enabling Clause is  unlike the chapeau of Article XX of the  
GATT 1994, which neither regulates the substantive content of measures adopted by Members, nor 
replaces the substantive rules from which Article XX derogates. 
13. The European Communities reli es in support of its argument on the position of the Enabling 
Clause within the GATT 1994 and the  Marrakesh Agreement Establishing the World Trade 
Organization (the " WTO Agreement ").  Thus, the European Communities contends that if  
paragraph 2(a) of the Enabling Clause were an exception to Article I:1, it would typically be found in 
Article I, or immediately after that Article.  This  is not the case, however.  The Enabling Clause is a 
separate decision complementing Part IV of the GATT 1994, which is entitled "Trade and 
Development".  In the view of the European Communities, Part IV of the GATT 1994 and the 
Enabling Clause cannot be "mere 'exception[s]' " to the GATT 1994.38  Rather, the European 
Communities argues, they constitute a "special  regime" for developing countries to address 
inequalities among the WTO Membership.39   
14. The European Communities submits that its understanding of the relationship between 
Article I:1 and the Enabling Clause is supported by the object and purpose of the Enabling Clause, in 
                                                      
35European Communities' appellant's submission, para. 31. 
36Attached as Annex D-4 to the Panel Report. 
37European Communities' appellant's submission, para. 48. 
38Ibid., para. 51. 
39Ibid. WT/DS246/AB/R 
Page 8  
 
accordance with the rules of treat y interpretation.  The European  Communities emphasizes that the 
Enabling Clause is "the most concrete, comprehensive and im portant application"
 40 of the principle of 
special and differential treatment.  In the view of  the European Communities, special and differential 
treatment is "the most basic principle of the international law of development" 41, and it constitutes  
lex specialis  that applies to the exclusion of more general WTO rules on the same subject matter.  In 
concluding that the Enabling Clause is an "exception"  to Article I:1, the Panel chose to "disregard" 42 
this principle.  Moreover, the European Commun ities argues, characterizing special and differential 
treatment as an "exception" suggests that this principle "is  discriminatory  against the developed 
country Members".43  In fact, special and differential treat ment is designed to achieve effective 
equality among Members.  Therefore, the European  Communities contends that the Panel's reasoning 
undermines the principle of special and differe ntial treatment and challenges its "legitimacy".44  The 
European Communities also asserts that the Panel was "oblivious" 45 to certain elements of the 
drafting history of the Enabling Clause, which indicate that the Contracting Parties intended to strengthen the legal status of GSP schemes in the GATT by replacing the Waiver Decision on the 
Generalized System of Preferences (the "1971 Waiver Decision")
46 with the Enabling Clause. 
15. The European Communities further contends that special and differential treatment is critical 
to achieving one of the fundamental objectives of the  WTO Agreement ,  as identified in its Preamble:  
ensuring that developing countries "secure a share in  the growth in international trade commensurate 
with the needs of their economic development".47  Therefore, according to the European 
Communities, the object and purpose of the Enabli ng Clause clearly distinguish it from exceptions 
such as those found in Article XX(a) and (b) of  the GATT 1994, which generally allow Members to 
adopt "legitimate policy objectives" 48 that are  separate and distinct  from the objectives of the  WTO 
Agreement .  In the European Communities' view, the Appellate Body decision in  Brazil – Aircraft  
confirms that the fact that a provision confers speci al and differential treatment  is highly relevant in 
determining whether that provision constitutes an exception.   
                                                      
40European Communities' appellant's submission, para. 20. 
41Ibid., para. 21. 
42Ibid., para. 23. 
43Ibid., para. 26. (original italics) 
44Ibid. 
45Ibid., para. 25. 
46GATT Document L/3545, 25 June 1971, BISD 18S/24 (attached as Annex D-2 to the Panel Report). 
47European Communities' appellant's submission, para. 20 (quoting WTO Agreement , Preamble, second 
recital). 
48Ibid., para. 52.  WT/DS246/AB/R 
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16. The European Communities notes the Panel's sugg estion that absurd results would flow from 
characterizing the Enabling Clause as excluding the a pplication of Article I:1 because it "would mean 
that GSP imports from different developing countries could be subject to different taxation levels in 
the importing country's domestic market."49  According to the European Communities, the Panel 
confuses tariff measures  covered by paragraph 2(a) with the imported products  to which such 
measures apply.   Finding that the Enabling Clause ex cludes the application of Article I:1 would mean 
only that Article I:1 does not apply to a  tariff  measure  falling within paragraph 2(a) of the Enabling 
Clause.  It would not mean, as the Panel suggested, that Article I:1 does not apply with respect to 
imported   products   covered by such a  tariff measure.    
17. The European Communities submits that, as a resu lt of the Panel's erroneous findings that the 
Enabling Clause is an "exception" to Article I:1 and that the Enabling Clause does not prevent the 
continued application of Article I:1, the Panel f ound that the European Co mmunities bears the burden 
of justifying the Drug Arrangements under the En abling Clause.  According to the European 
Communities, the Enabling Clause imposes "positive obligations" 50 and is not an exception.  As such, 
it is India that must, in the first instance, claim that the Drug Arrangements are inconsistent with the 
Enabling Clause and thereby bear the burden of dem onstrating that inconsiste ncy.  According to the 
European Communities, India made no claim un der the Enabling Clause.  Consequently, the 
European Communities requests the Appellate Body to reverse the Panel's finding that the Drug 
Arrangements are inconsistent with Article I:1 of the GATT 1994 and to refrain from examining the 
consistency of the Drug Arrangements with the Enabling Clause.   
2. Whether the Drug Arrangements are Justified Under the Enabling Clause  
18. The European Communities makes a "subsidia ry" appeal, which would arise only if  
the Appellate Body were to find that the Enabli ng Clause is an exception to Article I:1 of the  
GATT 1994, or that India made a valid claim under th e Enabling Clause.  Specifically, the European 
Communities claims "subsidiarily" 51 that the Panel erred in finding that the Drug Arrangements are 
not "justified" 52 under paragraph 2(a) of the Enabling Clau se and, therefore, requests the Appellate 
Body to reverse this finding. 
19. According to the European Communities, th is finding of the Panel was based on two 
erroneous legal interpretations.  The first alleged error relates to the Panel's interpretation of the term 
                                                      
49European Communities' appellant's submission, para. 56 (quoting Panel Report, para. 7.46). 
50Ibid., para. 39. 
51Ibid., para. 67. 
52Ibid. (quoting Panel Report, para. 7.177). WT/DS246/AB/R 
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"non-discriminatory" in footnote 3 of the Enabling Clause as requiring GSP schemes to provide 
"identical" preferences to "all" developing countri es without differentiation, except with regard to 
a  priori  import  limitations as permissible safeguard measures.  The second error alleged by the 
European Communities concerns the Panel's interpre tation of the term "developing countries" in 
paragraph 2(a) of the Enabling Clause as meaning  all  developing countries, except with regard to 
a  priori  limitations.  
20. The European Communities asserts that the Panel's interpretation of the word "non-
discriminatory" in footnote 3 of the Enabling Cl ause is erroneous because the phrase "generalized, 
non-reciprocal and non discriminatory" in footnote 3 me rely refers to the description of the GSP in the 
1971 Waiver Decision and, of itself, does not impose any legal obligation on preference-granting countries.
53  Even assuming such obligations existed, th e European Communities maintains, the Panel 
failed to take into account the context of foot note 3 and the object and purpose of the Enabling 
Clause.  Properly interpreted, the European Communities argues, the word "non-discriminatory" 
allows a preference-granting country to accord diffe rential tariff treatment in its GSP scheme to 
developing countries that have di fferent development needs according to "objective criteria", provided 
that tariff differentiation is an "a dequate" response to these differences .54  
21. The European Communities emphasizes that the immediate context for interpreting the term 
"non-discriminatory" in footnote 3 includes the terms "generalized" and "non-reciprocal" in that same footnote.  These three terms express "distinct requirement[s]"
 55, according to the European 
Communities, and they must be interpreted so that  each is compatible with the other two, without 
being rendered redundant.   
22. According to the European Communities, the ordi nary meaning of the word "generalized" and 
the negotiating history indicate that GSP schemes are not required to cover  all  developing countries.  
The word "generalized" in footnote 3 was intende d to distinguish these preferences from "special" 
preferences, which were granted to selected de veloping countries for political, historical, or 
geographical reasons.  The European Communities main tains that consultations in the United Nations 
Conference on Trade and Development ("UNCTAD") le d to a compromise in the Agreed Conclusions 
such that developed countries would, "in general" 56, recognize as beneficiaries those countries that 
                                                      
53European Communities' response to questioning at the oral hearing. 
54European Communities' appellant's submission, para. 4. 
55Ibid., para. 80. 
56Ibid., para. 87.  WT/DS246/AB/R 
 Page 11 
 
 
considered themselves as developing countries, altho ugh a developed country might decide to exclude 
a country  ab initio  on grounds it considered "compelling".57     
23. In contrast to the term "generalized", th e European Communities ar gues, the word "non-
discriminatory" relates to whethe r developed countries may grant different preferences to individual 
developing countries that have already been reco gnized as beneficiaries of a GSP scheme.  The 
European Communities submits that the Panel's in terpretation of "non-discriminatory", as requiring 
that identical preferences be granted to  all  developing countries, w ould render redundant the term 
"generalized".  
24. Referring to the term "non-reciprocal" in foot note 3, the European Communities argues that 
reciprocity, in connection with inter-state relations, generally refers to an exchange of identical or 
similar benefits.  In contrast to the word "unc onditionally" found in Article  I:1 of the GATT 1994, the 
European Communities argues, the word "non-reciprocal" was not intended to prevent developed 
countries from attaching all types of conditions to pr eferences granted under GSP schemes.  Rather, in 
the European Communities' view, the word "non-reciprocal" only prohibits developed countries from 
imposing conditions of  reciprocity .  The European Communities contends that the Panel's 
interpretation of "non-discriminatory" precludes the imposition of  any  conditions on the granting of 
preferences, thereby rendering redundant the word "non -reciprocal" in footnote 3.  In addition, the 
European Communities claims, the Panel's interpretation equates  conditional  preferences with 
discriminatory  preferences.  In fact, according to th e European Communities, a preference is not 
rendered discriminatory by virtue of  a condition being attached to it if  the condition applies equally to, 
and is capable of being fulfilled by, all GSP be neficiaries "that are in the same situation".58 
25. The European Communities maintains that its interpretation of "non-discriminatory" in 
footnote 3 does not render redundant paragraph 2(d) of  the Enabling Clause, as the Panel suggested.  
In the view of the European Communities, the scope of paragraph 2(a) differs from that of 
paragraph 2(d) in three respects.  First, paragraph 2(a) applies to preferences granted by  developed   
countries, whereas paragraph 2(d) includes preferences granted by  any  WTO Member.  Secondly, 
paragraph 2(a) relates only to preferences under GS P schemes, whereas paragraph 2(d) relates to any 
measures imposed in favour of developing countries.  Thirdly, paragraph 2(a) applies only to tariff 
measures, whereas paragraph 2(d) applies to any kind of "special treatment".59  In addressing only the 
                                                      
57European Communities' appellant's submission, paras. 85 and 87.  
58Ibid., para. 120. 
59Ibid., para. 122 (quoting Enabling Clause, para. 2(d) (attached as Annex 2 to this Report)). WT/DS246/AB/R 
Page 12  
 
last of these differences, the European Commun ities argues, the Panel's reasoning was "manifestly 
flawed".
60   
26. The European Communities points out that the Panel found that paragraph 3(c) of the 
Enabling Clause allows developed countries to diffe rentiate in their GSP schemes in only two ways, 
namely, in connection with least-developed countries and in the implementation of  a priori  
limitations.  According to the European Communities,  the Panel arrived at this interpretation despite 
the absence of any such restriction in the text of paragraph 3(c) and despite the Panel's acceptance of 
the European Communities' argument that the "n eeds" described in paragraph 3(c) extend to 
individual or common needs of particular categories of developing countries.  In fact, the European 
Communities argues, paragraph 3(c) lends cont extual support to the European Communities' 
interpretation of the word "non-discriminatory" in footnote 3.  The European  Communities claims that 
the objective described in paragraph 3(c) is best achieved by allowing developed countries to design 
their GSP schemes so as to take into account the development needs of certain categories of 
developing countries. 
27. The European Communities argues that the Panel' s contrary interpretation of paragraph 3(c) 
stems from the Panel's concern that developed countr ies might abuse their discretion by distinguishing 
arbitrarily between developing countries.  In the view of the European Communities, such policy 
concerns cannot replace the text of paragraph 3(c) .  Furthermore, the European Communities submits 
that this concern is unwarranted because the European Communities' interpretation of "non-
discriminatory" would not allow a preference-gran ting country to distinguish between developing 
countries on the basis of political, historical, or geographical ties.  Rather, a distinction would be allowed only if it:  (i) pursued an "objective which is legitimate in the light of the objectives of the 
Enabling Clause" and the principle of special an d differential treatment;  and (ii) represented a 
"reasonable" and "proportionate" means of achieving that objective.
61  In order to assess whether these 
criteria are met, panels need to analyze the relevant facts.     
28. The European Communities contends that, because of the Panel's erroneous legal 
interpretations, the Panel made insufficient fact ual findings in order for the Appellate Body to 
complete the legal analysis regarding the consis tency of the Drug Arrangements with footnote 3.  
Nevertheless, should the A ppellate Body decide to complete this  analysis, the European Communities 
requests the Appellate Body to find that the Drug Arrangements are consistent with the term "non-
discriminatory" in footnote 3 and, therefore, with paragraph 2(a) of the Enabling Clause.   
                                                      
60European Communities' appellant's submission, para. 125. 
61Ibid., para. 135.  WT/DS246/AB/R 
 Page 13 
 
 
29. The European Communities contends that, although tariff preferences may not be an 
"adequate" or "appropriate" respon se to other development problems, drug production and trafficking 
form major economic activities in the relevant countries, which activities cannot be eliminated 
without the provision of "alternative licit activities".62  Therefore, the European Communities claims 
that tariff preferences are an appropriate respon se to the drug problem, as recognized by the Members 
of the WTO—through the Preamble to the  Agreement on Agriculture   and the waiver for the United 
States' Andean Trade Preference Act 63—and the United Nations—through other instruments.  
Furthermore, the European Communities argues th at the Drug Arrangements are non-discriminatory 
because the drug problem affects individual developing countries in different ways, and because beneficiaries under the Drug Arrangements are desi gnated according to the impact of the drug 
problem in those countries.   
30. The European Communities distinguishes the " object and purpose" of the Enabling Clause 
from that of Article I:1 of the GATT 1994.  Artic le I:1 focuses on providing equal conditions of 
competition for imports of like products from WTO Members, whereas the Enabling Clause embodies 
special and differential treatment for developing countries and, ther efore, aims to provide unequal 
competitive opportunities to respond to the needs of  such countries.  The European Communities 
claims that, in the light of the objectives associated  with special and differential treatment, providing 
additional preferences to countries with particular  development needs is not discriminatory in the 
context of the Enabling Clause.  However, the Pane l failed to take into account these objectives.  The 
European Communities contends that the Panel shoul d have interpreted the objectives described in the 
Preamble to the  WTO Agreement   in a harmonious manner, instead of assuming that the objective of 
eliminating discrimination prevails over the objectiv e of ensuring that developing countries secure a 
share of international trade commensurat e with their development needs.   
31. The European Communities contends that the Panel relied selectively and incorrectly on 
certain UNCTAD texts to support its findings.  Acco rding to the European Communities, some of 
these documents do not assist in interp reting footnote 3 of the Enabling Clause.
64  In several cases, 
this is because they relate not to the issue of non-discrimination, but to the exclusion of certain 
                                                      
62European Communities' appellant's submission, paras. 144-145. 
63Ibid., para. 148 (referring to Waiver Decision on the United States – Andean  Trade Preference Act, 
GATT Document L/6991, 19 March 1992, BISD 39S/385;  renewed 14 October 1996, WT/L/184). 
64Ibid., paras. 159-160 (referring to Resolution 21 (II) of the Second Session of UNCTAD, entitled 
"Expansion and Diversification of Exports of Manufactures and Semi-Manufactures of Developing Countries" 
(attached as Annex D-3 to the Panel Report) ("Resolution 21(II)")) and paras. 182-183 (referring to the Recommendation contained in Annex A.II.1 to the Final Act and Report adopted at the First Session of 
UNCTAD on 15 June 1964, at p. 26). WT/DS246/AB/R 
Page 14  
 
developing countries  ab  initio  from GSP schemes.
65  The European Communities contends that 
several other documents that the Panel relied on contain merely "expectations" 66 or "aim[s]" 67 of 
particular parties, rather than agreed st atements of "legally binding" obligations.68  Finally, the 
European Communities argues, the Ag reed Conclusions do not purport to be an exhaustive regulation 
of GSP schemes.  Therefore, in the European Communities' view, the allowance under the Agreed 
Conclusions for differentiation in favour of least-d eveloped countries does not mean that the Agreed 
Conclusions prohibit all other forms of differe ntiation between developing countries.   
32. The European Communities submits that the practice by developed countries of seeking 
waivers in order to provide more favourable treat ment to a limited number of developing countries—
as highlighted by the Panel—does not mean that such treatment may not otherwise be provided.  According to the European Communities, the waiv ers mentioned by the Panel all relate to the 
restriction of preferences  ab initio  to particular countries in a particular region.  The European 
Communities further points out that, in seeking these  waivers, the preference-granting countries did 
not claim that the preferences were restricted to developing countries with development needs of a specific kind. 
33. The European Communities contends that the Pa nel's interpretation of the term "developing 
countries" in paragraph 2(a) of the Enabling Clau se is erroneous because it is entirely dependent on 
the Panel's erroneous interpretation of the word "n on-discriminatory".  In the European Communities' 
view, as the word "non-discriminatory" in footnote 3 of the Enabling Clause allows Members to 
differentiate between developing countries with diffe rent development needs, it follows for the same 
reasons that paragraph 2(a) does not require Members to grant the same preferences to  all  
developing countries.   
34. For these reasons, the European Communities re quests the Appellate Body to reverse the 
Panel's finding that the Drug Arrangements are inc onsistent with paragraph 2(a) of the Enabling 
Clause and, in particular, with footnote 3 thereof. 
                                                     
 
65European Communities' appellant's submission, paras.  162-163 (referring to the Charter of Algiers, 
TD/38, adopted at the Ministerial Meeting of the Group of 77 on 24 October 1967 ("Charter of Algiers")) and paras. 179-181 (referring to General Principle Eight contained in the Final Act and Report adopted at the First 
Session of UNCTAD on 15 June 1964, at p. 20 (Exhibit EC-20 submitted by the European Communities to the 
Panel) ("General Principle Eight")). 
66Ibid., para. 162 (referring to Charter of Algiers). 
67Ibid., para. 165 (referring to the Report of the Special Group of the Organization for Economic Co-
operation and Development (OECD) on Trade with Developing Countries, TD/56, 29 January 1968 ("OECD Special Report")). 
68Ibid., para. 180 (referring to General Principle Eight).  WT/DS246/AB/R 
 Page 15 
 
 
B. Arguments of India – Appellee 
1. The Relationship Between Article I:1 of the GATT 1994 and the Enabling 
Clause  
35. India argues that the Panel correctly found that  the Enabling Clause is an "exception" to 
Article I:1 of the GATT 1994 and requests the Appella te Body to uphold this finding.  In addition, 
India submits that it made a claim against the Drug Arrangements under the Enabling Clause and that, 
therefore, the Appellate Body should examine th e consistency of the Drug Arrangements under the 
Enabling Clause, even if it finds that the Enab ling Clause is not an exception to Article I:1. 
36. India contends that the Panel's test as to what is an "exception" is consistent with previous 
Appellate Body decisions.  According to India, the Appellate Body drew an important distinction in  
US – Wool Shirts and Blouses  between "positive rules establishing obligations in themselves"  and 
"exceptions" to those obligations. 69  India states that an exception is an "affirmative defence" 70 and, 
accordingly, panels examine the consistency of a challenged measure with an exception only if the 
Member complained against invokes the exception to justify its measure.  This leaves the Member 
with the choice of which exceptions to invoke and pr events exceptions being tu rned into rules.  In 
other words, in India's view, a Member needs to comply with a provision that is an exception only 
when the Member invokes that exception to justif y an inconsistency with another provision.   
37. Applying this reasoning to the present dispute,  India characterizes paragraph 2(a) of the 
Enabling Clause as an "exception" to Article I:1,  because it grants developed-country Members a 
"conditional right" 71 to provide tariff preferences to developing-country Members under the 
conditions contained in pa ragraphs 2(a) and 3 of the Enabling Clause.  India submits that these 
paragraphs impose conditions only on Members w ho invoke the Enabling Clause as a defence, 
whereas Article I:1 imposes obligations  regardless of the defence invoked. 
38. India argues, with reference to the  Vienna Convention ,  that "subsequent practice" 72 supports 
its interpretation.  First, India maintains that a ll waivers for preferential ta riff treatment for products 
from developing countries have perm itted derogations from Article I without mentioning the Enabling 
                                                      
69India's appellee's submission, para. 36 (quoting Appellate Body Report, US – Wool Shirts and 
Blouses , p. 16, DSR 1997:I, at 337). 
70Ibid., para. 36. 
71Ibid., para. 39. 
72Ibid., para. 42 (referring to  Vienna Convention , Art. 31.3(b)). WT/DS246/AB/R 
Page 16  
 
Clause.  Indeed, according to India, the fact that the European Communities requested a waiver
 73 
from its obligations  under Article I:1  in respect of the Drug Arrangeme nts cannot be reconciled with 
the European Communities' position that the Enabling Clause excludes the application of Article I:1.  
Secondly, India refers to two GATT panels that examined, first, the consistency of a challenged 
measure under Article I:1, before proceeding to c onsider whether the measure was authorized under 
the Enabling Clause.  India regards this as evidence of the "common understanding" of the 
Contracting Parties to the General Agreement on Tariffs and Trade 1947  (the "GATT 1947") 
regarding the relationship between Article I:1 and the Enabling Clause.74 
39. India disputes the European Communities' c ontention that the Enabling Clause is not an 
exception to Article I:1 because the Enabling Clause constitutes lex specialis .  India argues, with 
reference to a study by the International La w Commission and certain Appellate Body decisions 75, 
that the "maxim  lex specialis derogat legi generali " 76 means not that a special rule necessarily 
excludes the application of a related general rule, but that the two rules apply cumulatively, and the 
special rule prevails over the general rule only to the extent of any conflict between the two rules.  
Thus, India maintains, developing-country Members have not waived their rights under Article I:1, 
which applies "cumulatively" with the Enabling Clau se, except to the extent that these provisions are 
in conflict with each other. 77 
40. India also contests the European Communities' reliance on the Appellate Body decisions in  
Brazil – Aircraft  and  EC – Hormones .  India states that these appeals related to Article 27.2(a) of the  
SCM Agreement  and Article 3.1 of the  SPS Agreement ,  both of which provisions explicitly exclude 
other provisions.  India argues that, in contrast , the Enabling Clause does not clearly exclude the 
application of Article I:1 of the GATT 1994.  In India's view, this supports India's contention that 
Article I:1 and the Enabling Clause apply "concurrently".78 
                                                      
73Council for Trade in Goods, Request for a WTO Waiver, "New EC Special Tariff Arrangements to 
Combat Drug Production and Trafficking", G/C/W/328, 24 October 2001 (Exhibit India-2(b) submitted by India 
to the Panel). 
74India's appellee's submission, para. 43 (referring to GATT Panel Report,  US – Customs User Fee , 
1988, BISD 35S/245, at 289-290;  and GATT Panel Report, US – MFN Footwear , 1992, BISD 39S/128, 
at 153). 
75Ibid., paras. 76-80 (referring to International Law Commission, Study Group on Fragmentation: 
Koskenniemi , p. 5, <http://www.un.org/law/ilc/sessions/55/fragmentation_outline.pdf> ;  Appellate Body Report, 
Argentina – Footwear (EC) , para. 89;  and Appellate Body Report, Guatemala – Cement I ,  para. 65). 
76Ibid., para. 76. 
77Ibid., heading II.C.1. 
78Ibid., para. 51.  WT/DS246/AB/R 
 Page 17 
 
 
41. India claims that, even if the Appellate Body were to find that the Enabling Clause is not an 
exception to Article I:1, the Appellate Body s hould assess the consistency of the Drug Arrangements 
with the Enabling Clause because India did make a claim under the Enabling Clause.  The European 
Communities' argument to the contrary, acco rding to India, is "factually baseless".79  India highlights 
that it originally requested the establishment of a panel "to examine whether [the Drug Arrangements] 
are consistent with Article I:1 … and ... the Enabling Clause ".80  In addition, India maintains that, in 
its first and second written submissions to the Pane l, it requested the Panel to find that the Drug 
Arrangements " are not justified [by] the Enabling Clause ".81  Moreover, India states that the 
European Communities acknowledged in its first wr itten submission to the Panel that the Enabling 
Clause forms part of India's claim 82, and that the Panel confirmed India's inclusion of this claim in 
paragraph 7.61 of the Panel Report. 
42. India submits that it does not follow from India's characterization of the Enabling Clause as 
an "exception"—which was a "procedural argumen t" regarding the allocation of the burden of 
proof—that India made no "substantive" claims under the Enabling Clause.83  India maintains that, in 
response to questioning by the Panel, it "merel y stated that the Enabling Clause is not a  material 
element  of India’s  claim  under Article I:1 of the GATT ." 84  Furthermore, India reiterated its request 
for the Panel to examine the consistency of the Drug Arrangements with the Enabling Clause at the 
second substantive meeting of the Panel and at the inte rim review stage.  In addition, India maintains 
that the Panel would have had "competence" 85 to assess the Drug Arrangements under the Enabling 
Clause even if the Panel had found that the Enab ling Clause is not an exception to Article I:1.86  In 
India's view, requiring India to resubmit its claims  under the Enabling Clause to a new panel would be 
contrary to the "fundamental principle of good faith" 87 and the objectives of the dispute settlement 
                                                      
79India's appellee's submission, para. 52. 
80Ibid., para. 54 (quoting request for the establishmen t of a panel by India,  WT/DS246/4, 9 December 
2002, p. 2). (italics added by India in its appellee's submission) 
81Ibid., para. 56 (quoting Indi a's first written submission to the Pa nel, para. 67; and India's second 
written submission to the Panel, para. 164). (ita lics added by India in its appellee's submission) 
82Ibid., para. 58 (referring to European Communities' fi rst written submission to the Panel, paras. 57, 
141, and 206). 
83Ibid., para. 70. 
84Ibid., para. 64. (original italics) 
85Ibid., heading II.B.3. 
86Ibid., paras. 70-71 (referring to Panel Report, US – Wool Shirts and Blouses ;  Appellate Body Report,  
EC – Hormones , footnote 71 to para. 109 and footnote 180 to para. 197;  and DSU, Arts. 7.2 and 11). 
87Ibid., para. 72 (referring to Appellate Body Report,  US – FSC ,  para. 166). WT/DS246/AB/R 
Page 18  
 
system.
88  India asserts that the question of which party bears the burden of proof "does not affect the 
outcome of this dispute".89 
43. Finally, India emphasizes that the European Communities has not yet obtained a waiver from 
its obligations under Article I:1 with respect to the Drug Arrangements and that only the WTO 
Members can provide such a waiver.   
44. For these reasons, India requests the Appellate Body to uphold the Panel's finding that the 
Enabling Clause is an exception to Article I:1 of the GATT 1994. 
2. Whether the Drug Arrangements are Justified Under the Enabling Clause  
45. India requests the Appellate Body to uphold the Panel's finding that the Drug Arrangements 
are not justified under the Enabling Clause.  In partic ular, India maintains that paragraph 2(a) of the 
Enabling Clause does not authorize the European Communities to differentiate between developing-
country Members that are beneficiaries unde r the European Communities' GSP scheme. 
46. At the outset, India submits that the pr esent dispute focuses not on the European 
Communities' initial selection of particular deve loping countries as beneficiaries under its GSP 
scheme, but on the European Communities' treatment  of developing countries already identified as 
beneficiaries under that scheme.  Therefore, according to India, the Appellate Body is not required to 
examine legal issues arising from the initial selecti on of beneficiaries under the Enabling Clause.  
Rather, India urges the Appellate Body to find that the term "developing countries" in footnote 3 of 
the Enabling Clause includes at least those countries that are beneficiaries under a given GSP scheme, 
and that the words "products originating in devel oping countries" in paragra ph 2(a) refer to products 
originating in any of those beneficiary countries. 
47. India argues that its interpretation is reinforced  by the nature of the MFN principle embodied 
in Article I:1 as "a fundamental norm of the rules-based multilateral trading system of the WTO".90  
India points to Appellate Body decisions as support for its view that "derogations" from Article I:1 
exist only where provided for explicitly.91  India emphasizes that paragraph 2(a) of the Enabling 
Clause does  not  specifically state that developing countries waive their rights to MFN treatment.  
Moreover, the object and purpose of the Enabling Clause, as well as its drafting history, indicate that 
                                                      
88India's appellee's submission, para. 74 (referring to DSU, Arts. 3.3-3.4 and 3.7). 
89Ibid., para. 73. 
90Ibid., para. 1. 
91Ibid., paras. 93-94 (referring to Appellate Body Report,  Canada – Autos , para. 84;  and Appellate 
Body Report,  EC – Bananas III ,  paras. 190-191).  WT/DS246/AB/R 
 Page 19 
 
 
the developing countries did not agree to reli nquish their MFN rights as between themselves in 
agreeing to paragraph 2(a) of the Enabling Clause. 
48. India contends that the Drug Arrangements ar e not "non discriminatory preferences beneficial 
to the developing countries" within the meaning of footnote 3 of the Enabling Clause.  First, India 
relies on dictionary definitions to ascertain that  the ordinary meaning of "non-discriminatory 
preferences" in footnote 3 is "preferentia l tariff treatment that is applied equally".92  Secondly, India 
finds "contextual guidance" 93 on the meaning of "non-discriminatory" in Articles I, XIII, and XVII of 
the GATT 1994.  According to India, these provisions confirm that "non-discrimination" refers to the 
provision of "equal competitive opportunities" in relation to non-tariff measures and of "formally 
equal[] treatment" in relation to tariff measures.94  In addition, in India's submission, the inclusion of 
the word "unjustifiable" before the word "discrim ination" in the chapeau of Article XX of the  
GATT 1994 demonstrates that a Member's reasons fo r distinguishing between products of different 
origin are not relevant to whether such  distinction constitutes discrimination. 
49. Turning to the words "generalized" and "non-reci procal" in footnote 3, India argues that the 
word "generalized" refers to the countries that should be included  ab initio   as beneficiaries under a 
GSP scheme, whereas the word "non-discriminatory" re fers to the treatment of products originating in 
beneficiary countries.  Even if "generalized" meant that all developing countries must be included  ab initio   as beneficiaries, in India's view, the "additional requirement"
 95 imposed by the word "non-
discriminatory" would still be relevant in a ddressing the separate question of how products from 
beneficiary countries should be treated.  India cont ests the European Communities' argument that the 
Panel's interpretation of "non-discriminatory" re nders redundant the word "non-reciprocal" in  
footnote 3.  India suggests that reciprocity is a "principle of trade negotiations" 96, whereas "non-
discriminatory" addresses the implementation of the results of such negotiations.  India argues that Part IV of the GATT 1994 (entitled "Trade and De velopment") was added to the original GATT 
provisions because it is possible to comply with the principle of non-discrimination while insisting on 
non-reciprocity in negotiations.  
                                                     
 
92India's appellee's submission, para. 106. 
93Ibid., para. 115. 
94Ibid., paras. 118 and 120 (referring to Appellate Body Report, EC – Bananas III ,  paras. 190-191). 
(See also, ibid., paras. 170 and 180) 
95Ibid., para. 148. 
96Ibid., para. 153. WT/DS246/AB/R 
Page 20  
 
50. India contends that paragraph 2(a) of the Enabling Clause and Article I:1 of the GATT 1994 
must be interpreted in a harmonious manner so as to give effect to both provisions.
97  With this in 
mind, India submits that the Enabling Clause should be  interpreted to authorize only those deviations 
from the MFN principle that are necessary in orde r for GSP schemes to operate.  Thus, the Enabling 
Clause authorizes developed-country Members to ex clude other developed countries from their GSP 
schemes, because Members could not grant any tariff preferences under these schemes if such 
exclusion was not authorized.  However, in India' s view, the Enabling Clause does not authorize tariff 
preferences that differentiate between developi ng countries, as tariff preferences under GSP schemes 
can be and are granted to developing countries wit hout differentiation of this kind.  According to 
India, a contrary interpretation would be inconsiste nt with the need to interpret paragraph 2(a) and 
Article I:1 so as to avoid conf lict between the two provisions. 
51. India derives support for its interpretation from several provisions of the Enabling Clause.  In 
particular, India reads paragraphs 2(a) and 2(d) t ogether as identifying three categories of countries:  
the developed countries, the developing countries, a nd the least-developed countr ies.  In India's view, 
under the Enabling Clause, the developed countries "relinquished" their MFN rights in respect of 
preferential tariff treatment in favour of deve loping and least-developed countries, whereas the 
developing countries "relinquished" their MFN rights only in respect of preferential treatment in favour of least-developed countries.
98  However, India sees nothing in the text of the Enabling Clause 
to indicate that developing countries have simila rly relinquished their MFN rights in relation to 
preferential treatment acco rded by developed countries to othe r developing countries.  India suggests 
that the European Communities itself recogni zed this fact prior to this dispute.99  India maintains that 
paragraph 2(d) was specifically inserted to allow differentiation of a kind that was not previously 
allowed under the 1971 Waiver Decision.  India argues that the European  Communities' current 
interpretation of "non-discriminatory" in footnote 3 would render paragraph 2(d) redundant, contrary 
to the "principle of effectiv eness in treaty interpretation".100   
52. The opening words of paragraph 3(c) demonstrat e, according to India, that paragraph 3(c)  
of the Enabling Clause does not provide for derogations from obligations imposed under 
paragraph 2(a), (b), or (d).  Further, unlike para graphs 5 and 6, paragra ph 3(c) does not refer to 
                                                      
97India's appellee's submission, para. 83 (referring to Appellate Body Report, Korea – Dairy , para. 81;  
Appellate Body Report, Argentina – Footwear (EC) , para. 81;  and International Court of Justice, Preliminary 
Objections, Right of Passage over Indian Territory (Portugal v. India) , 1957, ICJ Reports, p. 142). 
98Ibid., paras. 3 and 5. 
99Ibid., para. 6 (referring to "User's Guide to the European Union's Scheme of Generalised Tariff 
Preferences" (February 2003) (Exhibit India- 1 submitted by India to the Panel)). 
100Ibid., para. 132 (referring to Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, at 21).  WT/DS246/AB/R 
 Page 21 
 
 
"individual" or "particular" needs of developing co untries.  India argues that this shows that the 
"needs" intended by the drafters under paragraph 3(c) are the needs of "developing countries as a 
whole".101 
53. India draws support for its reading of para graph 2(a) from the object and purpose of  
the Enabling Clause.  According to India, the purpose includes:  facilitating "mutually acceptable 
arrangements" 102 that were "unanimous[ly] agree[d]" 103 in UNCTAD;  replacing "special 
preferences" 104 granted only to some developing countri es with generalized preferences that do not 
differentiate between developing countries;  and, pr omoting the trade of developing countries without 
raising barriers to or creating undue difficulties fo r the trade of other Members, as confirmed in 
paragraph 3(a).  India points to several  UNCTAD texts to confirm these purposes 105, arguing that the 
European Communities offers no such support for its contrary views.  India regards differentiation 
between developing countries under a GSP scheme as inconsistent w ith paragraph 3(a) because it 
creates difficulties for the trade of other developing countries by "divert[ing] competitive opportunities"
 106 from one country to another.  In addition,  India contends that linking GSP benefits 
to "the situation or policies" 107 of beneficiaries reduces the certainty and value of such benefits.   
54. India contends that the Europ ean Communities' interpretation of paragraph 3(c) would mean 
that developed countries "would have the  obligation " 108 to differentiate between developing 
countries according to their individual needs.  This would have the "absurd consequence" 109 that a 
measure eliminating tariffs on products from  all  least-developed countries, without differentiating 
between those countries would be open to challe nge under paragraph 3(c).  Moreover, India argues 
that it would result not only in the European Co mmunities' scheme, but in all GSP schemes being 
inconsistent with the Enabling Cl ause because they do not differentia te between developing countries 
based on their  individual  development needs.  India also main tains that the European Communities' 
suggestion that its interpretation would best fulfil th e objectives of paragraph 3(c)  is inconsistent with 
                                                      
101India's appellee's submission, para. 124. 
102Ibid., paras. 95 and 190. 
103Ibid., para. 165. 
104Ibid., paras. 147 and 190. 
105Ibid., paras. 158-184 (referring to Agreed Conclusions;  Resolution 21(II);  Resolution 24(II) of the 
Second Session of UNCTAD;  Charter of Algiers, para s. (a) and (d);  and OECD Special Report, part II). 
106Ibid., para. 192. 
107Ibid., para. 21. 
108Ibid., para. 14. (original italics) 
109Ibid., para. 15. WT/DS246/AB/R 
Page 22  
 
the rule that treaty interpretation should be based on the text and not on policy considerations that are 
not reflected in the text.   
55. For these reasons, India requests the Appellate Body to uphold the Panel's finding that the 
Drug Arrangements are not justified under the Enabling Clause. 
C. Arguments of the Third Participants 
1. Andean Community
 
56. The governments of Bolivia, Colombia, Ecuador, Peru, and Venezuela (jointly, the "Andean 
Community") submit that the Panel erred in finding that the Enabling Clause is an "exception" to 
Article I:1 of the GATT 1994 and in finding that Artic le I:1 applies concurrently with the Enabling 
Clause.  The Andean Community also contends th at, contrary to the Panel's finding, the Drug 
Arrangements are consistent with the Enabling Clause.  Accordingly, the Andean Community 
supports the European Communities' contention that the Drug Arrangements are "fully WTO-
compatible".110 
57. The Andean Community argues that the En abling Clause establishes "a self-standing 
regime" 111, meaning that Article I:1 of the GATT 1994 does not apply to GSP schemes.112  According 
to the Andean Community, the ordinary meaning of the word "notwithstanding" in paragraph 1 of the 
Enabling Clause confirms this interpretation, as do the context, and object and purpose of the 
Enabling Clause.  In addition, the "history, ... practice and ...  current role" 113 of the Enabling Clause 
indicate that GSP schemes provide the "most concrete and relevant form" 114 of special and differential 
treatment.  This supports the concept of the Enab ling Clause as a self-standing regime.  According to 
the Andean Community, because measures falling within  the Enabling Clause are to be judged solely 
under the Enabling Clause, India was required to ma ke a claim under the Enabling Clause.  As India 
did not do so, the Andean Community mainta ins, India's claim should be dismissed.  
58. The Andean Community submits further that, even  if the Enabling Clau se is an exception to 
Article I:1, this characterization is not determinativ e of which party bears the burden of proof.  The 
Andean Community asserts that the Panel erred in assigning the burden.  According to the Andean 
                                                      
110Andean Community's third participant's submission, para. 97. 
111See, for example, ibid., paras. 8, 12, and 27. 
112Ibid., para. 9 (referring to Appellate Body Report, Brazil – Aircraft ,  para. 139). 
113Ibid., para. 13. 
114Ibid., para. 21 .  WT/DS246/AB/R 
 Page 23 
 
 
Community, under the Panel's allocation of the burde n of proof, every GSP scheme would be open to 
challenge, with the burden falling on each preference- granting country to establish the consistency of 
its GSP scheme with the Enabling Clause.  The A ndean Community claims that the assigning of the 
burden of proof is "a fundamental initial decision upon which every further c onsideration is based", 
such that the Appellate Body "should reverse on this element alone".115 
59. Regarding the consistency of the Drug Arrange ments with the Enabling Clause, the Andean 
Community submits, first, that the Panel did not pr operly interpret the historical texts serving as 
context and preparatory work for the Enabling Clause.  The Andean Community emphasizes the 
"aspirational tone" 116 of these texts and argues that the Panel "mischaracterize [d]" 117 certain texts as 
binding or reflecting "unanimous agreement".118  Secondly, turning to the interpretation of the term 
"non-discriminatory" in the Enabling Clause, the Andean Community contends that the Panel wrongly 
equated this concept with MFN treatment.  The An dean Community further alleges that the Panel's 
allowance for  a  priori  limitations under the Enabling Clause is contrary to the Panel's own 
interpretation of "non-discriminatory". 
60. In the view of the Andean Community, "a prohibition of discrimination is a command not to 
treat equal situations differently, or different situations equally" 119 and, accordingly, the word "non-
discriminatory" in the Enabling Clause does not requi re that identical treatment be granted to all 
developing countries.  The Andean Community suggests that differentiating between developing 
countries—taking into account their objectively different situations—does not constitute 
discrimination.  The Andean Community argues that the "production and trafficking of illicit drugs 
have far-reaching, unparalleled a nd unquantifiable implications for the economic and social 
development" 120 of affected developing countries.  By providing preferential access for "alternative 
products" 121 and, thereby, seeking to reduce the impor tance of drugs as an economic activity, the 
European Communities responds to these countries' specific needs.  The Andean Community asserts 
that this response is consistent with the requirements of the Enabling Clause. 
                                                      
115Andean Community's third participant's submission, para. 41. 
116Ibid., para. 50. 
117Ibid., para. 56. (original underlining) 
118Ibid., para. 55. 
119Ibid., para. 64. 
120Ibid., para. 78. 
121Ibid., para. 87. WT/DS246/AB/R 
Page 24  
 
2. Costa Rica
 
61. Costa Rica submits that the Panel erred in finding that the Drug Arrangements are not 
justified under the Enabling Clause.  Costa Rica asser ts that the Panel based this finding on erroneous 
interpretations of the terms "non-discriminatory" and "developing countries" contained in footnote 3 
and paragraph 2(a), respectively, of the Enabli ng Clause.  Accordingly, Costa Rica supports the 
European Communities' request that the A ppellate Body reverse this finding.   
62. Costa Rica contends that, instead of relying on the ordinary meaning of these terms of the 
Enabling Clause in context, the Panel relied on other instruments that "cannot be properly considered 
context for the interpretation of the Enabling Clause".122  Costa Rica maintains that this led to the 
Panel's incorrect finding that "non-discriminatory" treatment under footnote 3 of the Enabling Clause 
is synonymous with identical or unconditional tr eatment.  Costa Rica asserts that had the Panel 
interpreted the Enabling Clause in ac cordance with Article 31 of the  Vienna Convention —in the light 
of the object and purpose of the Enabling Clause and the 1971 Waiver Decision—it would have found 
that "the 'non-discriminatory' standard prohibits  developed countries from according tariff preferences 
that make an unjust or prejudicial distinction be tween different categories of developing countries." 123 
63. In addition, according to Costa Rica, the Panel erred in concluding that the term "developing 
countries" in paragraph 2(a) of the Enabling Class means all developing countries.  In Costa Rica's 
view, in interpreting this term, the Panel relied on its incorrect interpretation of the term "non-
discriminatory " and failed to examine paragraph 1 of the Enabling Clause as relevant context. 
Moreover, Costa Rica is of the opinion that it is not appropriate to consider the  travaux 
préparatoires   as a supplementary means of inte rpretation under Article 32 of the  Vienna Convention   
in interpreting paragraph 2(a).  However, even if this were appropriate, the drafting history of the 
1971 Waiver Decision confirms that the term "devel oping countries" means less than all developing 
countries.   
3. Panama  
64. Panama submits that the Panel erred in finding that the Enabling Clause is an "exception" to 
Article I:1 of the GATT 1994.  Panama maintains that the Enabling Clause is " per se  an autonomous 
rule" 124 that permits the granting of  more favourable treatment to deve loping countries.  Panama also 
contests the Panel's finding that the Drug Arrangeme nts are incompatible with the Enabling Clause.  
                                                      
122Costa Rica's third participant's submission, para. 6. 
123Ibid., para. 15. 
124Panama's third participant's submission, para. 4.  WT/DS246/AB/R 
 Page 25 
 
 
In particular, Panama argues that the Panel erred in interpreting the term "non-discriminatory" in 
footnote 3 of the Enabling Clause as requiring pr eference-granting countr ies to accord identical 
treatment to all developing countries.   Panama therefore states that it is "completely in agreement with 
the arguments by the Eu ropean Communities".125 
65. Panama is of the view that, if the Enabling Clause were an exception to Article I of the  
GATT 1994, it would be included as a waiver decision in the GATT 1994.126  Because the Enabling 
Clause is not so included, Panama contends, it is  an "independent" and "special" rule governing the 
differential and more favourable treatment accorded  to developing countries under the schemes set out 
in paragraph 2 of the Enabling Clause.127  Panama submits that "the Enabling Clause creates a 
standalone mechanism that is linked to the ge neral principle contained in GATT Article I:1" 128 and, as 
such, constitutes an "autonomous right" 129 of WTO Members.   
66. Panama argues that the Enabling Clause is not an affirmative defence but, rather, "excludes 
the application of ... Article I:1".130  As such, Panama claims, it was up to India to claim that the Drug 
Arrangements do not fall within the scope of pa ragraph 2(a) of the Enabling Clause and are 
inconsistent with paragraph 3(c) thereof.  Becau se India did not do so, Panama argues, the Appellate 
Body should refrain from assessing the consistenc y of the Drug Arrangements with the Enabling 
Clause. 
67. According to Panama, "non-discrimination" does not mean equal treatment.  Panama submits 
that the fact that the Drug Arrangements are not extended to all developing countries does not mean 
that they discriminate between developing countr ies.  In addition, Panama maintains that the 
obligation imposed in paragraph 3(c) of the Enabli ng Clause must be interpreted in order to allow 
some flexibility for preference-granting countries to provide preferential treatment that "effectively 
help[s] 'genera lized' needs".131  In this respect, Panama claims, the Drug Arrangements satisfy the 
"requirement" in paragraph 3(c) because th ey respond to "specific growth needs".132   
                                                      
125Panama's third participant's submission, para. 1. 
126Paragraph 1(b)(iii) of the language of Anne x 1A incorporating the GATT 1994 into the  WTO 
Agreement .   
127Panama's third participant's submission, paras. 5-6. 
128Ibid., para. 10. 
129Ibid., para. 8. 
130Ibid., para. 17. 
131Ibid., para. 23. 
132Ibid., para. 13. WT/DS246/AB/R 
Page 26  
 
4. Paraguay
 
68. Paraguay contends that the Panel was correct  in finding that the Enabling Clause is an 
"exception" to Article I:1 of the GATT 1994.  In addition, Paraguay agrees with the Panel's 
interpretation of paragraph 2(a) of the Enabling Clause and the Panel's consequent finding that the 
Drug Arrangements are not justified by the Enabling Clause.  Accordingly, Paraguay supports India's request that the Appellate Body uphold these findings. 
69. According to Paraguay, where a Member's measu re differentiates between other Members in 
a manner inconsistent with Article I:1 and does not  fall within any specific exceptions such as the 
Enabling Clause or Article XX of the GATT 1994, th e only way for that Member to impose its 
measure in accordance with its WTO obligations is  to seek a waiver under Article IX of the  
WTO Agreement .  Paraguay maintains that the Drug Arrange ments are inconsistent with Article I:1 
and that the European Communities has recei ved no such waiver in respect of them. 
70. Paraguay contests the European  Communities' characterizati on of the Enabling Clause as a 
"different, parallel legal regime".
133  Paraguay maintains that Article I:1 forms the "primary basis" for 
WTO trade and that exceptions to Article I:1 must be founded on "properly established legal rules".134  
In Paraguay's view, the Enabling Clause is an excepti on to Article I:1 and is a part of the GATT 1994, 
and the GSP recognized in the Enabling Clause is  "a permanent mechanism of the rules-based 
multilateral trading system".135  
71. Paraguay emphasizes that developing countries did not renounce their right to MFN treatment 
under Article I:1 of the GATT 1994 in agreeing to the Enabling Clause.  According to Paraguay, the Enabling Clause was adopted to re place the "special preferences"
 136 provided by developed countries 
to certain developing countries, with a genera lized system under which all developing countries 
would benefit.  Paraguay argues that the only distin ction that the WTO draws within the category of 
developing countries is in recognizing the category of least-developed countries, as explicitly stated in paragraph 2(d) of the Enabling Clause.  As such, in Paraguay's view, the "condition"
 137 of non-
discrimination in footnote 3 means that benefits gran ted to some developing countries must be granted 
                                                      
133Paraguay's third participant's submission, para. 13. 
134Ibid., para. 12. 
135Ibid., para. 11. 
136Ibid., para. 14. 
137Ibid., para. 27.  WT/DS246/AB/R 
 Page 27 
 
 
to all such countries.  Therefore, Paraguay submits  that tariff preferences pursuant to the Enabling 
Clause must apply to all developing countries. 
5. United States  
72. The United States contends that the Panel misconceived the relationship between the 
Enabling Clause and Article I:1 of the GATT 1994.  The United States also submits that the Panel 
erred in concluding that the term "non-discriminat ory" in footnote 3 of the Enabling Clause requires 
preference-granting countries to accord "identic al" treatment to all beneficiaries and that, 
consequently, paragraph 2( a) covers only identical preferences extended to  all  developing countries.  
Accordingly, the United States supports the European  Communities' request that the Appellate Body 
reverse the Panel's legal interpretation of th e terms "non-discriminatory" in footnote 3 and 
"developing countries" in paragraph 2(a) and, co nsequently, reverse the Panel's finding that the 
Enabling Clause is an "exception" to Article I:1. 
73. Beginning with the relationship between Artic le I:1 and the Enabling Clause, the United 
States claims that the Panel failed to consider th e entire text of the Enabling Clause and the context 
and object and purpose of the Enabling Clause and of the GATT 1994.  The United States argues that 
the Panel "misconstru[ed]" the statement of the Appellate Body in  US – Wool Shirts and Blouses  and 
applied this statement "as a mechanical 'test' " without due regard to the te rm "notwithstanding" in the 
Enabling Clause.138  The United States observes that the Pa nel examined the ordinary meaning of 
"notwithstanding" in paragraph 1 of the Enabling Clause only after the Panel had concluded that the 
Enabling Clause is an "exception".  In addition, in the view of the United States, the reasoning 
underlying the Panel's conclusion that the Enabling Clause is an exception "would result in ... 
inconsistencies and absurd results" 139 because several WTO obligations apply only if a Member 
chooses to take the action addressed in the relevant provision. 
74. The United States submits that the Enabling Clause is part of the overall balance of rights and 
obligations in the covered agreements and, as such, is a "separate provision authorizing the types of 
treatment provided therein", "in spite of" the MFN obligation in Article I:1.140  In other words, the 
United States maintains that, contrary to th e finding of the Panel, the Enabling Clause  is  a "positive 
rule establishing obligations in itself".141  The United States emphasizes that several aspects of the 
Enabling Clause are unrelated to Article I:1 and th at the Enabling Clause is incorporated into the 
                                                      
138United States' third participant's submission, paras. 2-3. 
139Ibid., para. 5. 
140Ibid., paras. 3 and 10. 
141Ibid., para. 4. WT/DS246/AB/R 
Page 28  
 
GATT 1994.  The United States also argues that, unl ike Article XX of the GATT 1994, the Enabling 
Clause " encourages "
 142 developed-country Members to grant preferences to developing-country 
Members.  In the view of the United States, "[ p]lacing the burden on developed countries to defend 
actions they take to benefit devel oping countries ... would create a  disincentive  for developed 
countries" to take such action.143 
75. Turning to footnote 3 of the Enabling Clau se, the United States contests the Panel's 
"assum[ption]" 144 that the term "non-discriminatory" in footnote 3 imposes obligations on preference-
granting countries.  In the view of the United Stat es, "[t]his footnote is simply a cross-reference to 
where the Generalized System of Preferences is described." 145  Because the Panel began its analysis 
"from a false premise", the United States suggests that the Panel's finding as to footnote 3 "should be rejected on that basis alone".
146  In any case, the United States contends, the Panel erroneously arrived 
at a "one size fits all" 147 obligation to grant "identical" tariff pr eferences to "all" developing countries.  
Furthermore, according to the United States, the f act that the Panel understood the Enabling Clause to 
allow  a priori  limitations demonstrates that the term  “non-discriminatory” does not preclude  all  
conditions.  The United States asserts that the Panel focused not on the text, but on a policy concern—
the prevention of "abuse" 148 by preference-granting countries.  In the United States' view, the Panel's 
focus on this policy concern is inconsistent with Article 3.2 of the DSU and led to an incorrect 
interpretation of "non-discriminatory". 
76. With respect to paragraph 3(c) of the Enabli ng Clause, the United States argues that the Panel 
wrongly interpreted this provision as imposing an  obligation not to provide differentiated GSP 
benefits.  In doing so, the United States submits , the Panel failed to recognize that the term 
"generalized" in footnote 3 ensures that the responses  of preference-granting countries to the needs of 
developing countries do not result in tariff advantages accorded primarily to select countries.   
77. Finally, the United States contends that the Pa nel's interpretation of "developing countries" in 
paragraph 2(a) as referring to  all  developing countries is  "completely dependent" 149 on its erroneous 
interpretation of "non-discriminatory".  Moreover, the United States argues, the Enabling Clause 
                                                      
142United States' third participant's submission, para. 8. (original italics) 
143Ibid., para. 9. (original italics) 
144Ibid., para. 11. 
145Ibid. 
146Ibid. 
147Ibid., para. 22. 
148Ibid., para. 20 (quoting Panel Report, para. 7.158). 
149Ibid., para. 23.  WT/DS246/AB/R 
 Page 29 
 
 
refers only to "developing countries" or "the developing countries", and not to " all  developing 
countries".150   
III. Issues Raised in This Appeal 
78. The following issues are rai sed in this appeal:   
(a) Whether the Panel erred in concluding th at the "special arrangements to combat  
drug production and trafficking" (the "Dr ug Arrangements"), which are part of 
Council Regulation (EC) No. 2501/2001 (the "Regulation")151, are inconsistent with 
Article I:1 of the General Agreement on Tariffs and Trade 1994  (the 
"GATT 1994")152, based on the Panel's findings that: 
(i) the Decision on Differential and More Fa vourable Treatment, Reciprocity, and 
Fuller Participation of Developing Countries (the "Enabling Clause")153 is an 
"exception" 154 to Article I:1 of the GATT 1994; 
(ii) the Enabling Clause "does not exclude the applicability" 155 of Article I:1 of 
the GATT 1994;  and 
(iii) the European Communities bears the bur den of invoking the Enabling Clause 
and proving that the Drug Arrangements are consistent with that Clause 156;  
and 
(b) Whether the Panel erred in concluding th at the European Communities failed to prove 
that the Drug Arrangements are justified under paragraph 2(a) of the Enabling Clause
 157, based on the Panel's findings that: 
                                                      
150United States' third participant's submission, para. 24. (original italics) 
151Council Regulation (EC) No. 2501/2001 of 10 D ecember 2001 applying a scheme of generalised 
tariff preferences for the period from 1 January 2002 to 31 December 2004, Official Journal of the European 
Communities , L Series, No. 346 (31 December 2001), p. 1 (Exhibit India-6 subm itted by India to the Panel). 
152Panel Report, paras. 7.60 and 8.1(b). 
153GATT Document L/4903, 28 November 1979, BISD 26S/203 (attached as Annex 2 to this Report). 
154Panel Report, para. 7.53. 
155Ibid. 
156Ibid. 
157Ibid., para. 8.1(d). WT/DS246/AB/R 
Page 30  
 
(i) the term "non-discriminatory" in footnote 3 to paragraph 2(a) of the  
Enabling Clause requires that, pursuant to schemes under the Generalized 
System of Preferences ("GSP"), "identical tariff preferences"
 158 be provided to 
all developing countries without differentiation, except as regards the implementation of  a priori  limitations;  and 
(ii) the term "developing countries" in paragraph 2(a) of the Enabling Clause 
means "all"
 159 developing countries, except as regards the implementation of 
a priori  limitations. 
IV. The Relationship Between Article I:1 of the GATT 1994 and the Enabling Clause 
79. We begin our analysis of the European Communities' appeal by examining its claim that the 
Panel improperly characterized the relationshi p between Article I:1 of the GATT 1994 and the 
Enabling Clause, and thus improperly allocated  the burden of proof in this dispute. 
A. The Panel's Analysis and the Arguments on Appeal 
80. The Panel observed that the participants di sagree on whether the Enabling Clause constitutes 
a "positive rule setting out obligations", or an "e xception" authorizing derogation from one or more 
such positive rules.160  Based on its understanding of the Appellate Body's decision in  US – Wool 
Shirts and Blouses ,  the Panel determined that the Enabling Clause, in and of itself, does not establish 
legal obligations but, instead, contains requirements that are "only subsidiary obligations, dependent 
on the decision of the Member to  take [particular] measures".161  The Panel further concluded that the 
legal function of the Enabling Clause is to permit Members to derogate from Article I:1 "so as to 
enable developed countries,  inter  alia ,  to provide GSP to developing countries".162  As a result, the 
Panel found that the Enabling Clause is "in the nature of an exception" to Article I:1.163 
81. The Panel noted that the GATT 1994 includes sever al provisions in the nature of exceptions 
that serve to justify a measure's inconsistency with Article I:1, including Articles XX, XXI,  
and XXIV, and the Enabling Clause.  According to  the Panel, these exceptions reflect "legitimate 
                                                      
158Panel Report, para. 7.161. 
159Ibid., para. 7.176. 
160Ibid., para. 7.32. 
161Ibid., para. 7.37. 
162Ibid., para. 7.38. 
163Ibid., para. 7.39.  WT/DS246/AB/R 
 Page 31 
 
 
objectives" that may be pursued by Members.164  The Panel reasoned that, because a complaining 
party may not be able to discern the objectives of a given measure, particularly as they may not be 
apparent from the text of the measure itself, it is "sufficient" for a complaining party to demonstrate 
an inconsistency with Article I:1, without also  establishing "violations" of any of the possible 
exception provisions.165   
82. With respect to the present dispute, the Panel found that India could make its case against the 
European Communities solely by establishing the inconsistency of the Drug Arrangements with 
Article I:1.166  Having done so, according to the Panel, it would then be incumbent upon the European 
Communities to invoke the Enabling Clause as a defe nce and to demonstrate the consistency of the 
Drug Arrangements with the requirements contained in that Clause.167 
83. The Panel also examined whether Article I:1 applies to a measure covered by the Enabling 
Clause.  It looked first to the ordinary meaning of  the term "notwithstanding", as used in paragraph 1 
of the Enabling Clause, and concluded on that b asis that the Enabling Clause takes precedence over 
Article I "to the extent of conflict between the two provisions".168  Nevertheless, the Panel declined to 
assume the exclusion of the applicability of a "b asic GATT obligation" such as Article I:1 in the 
absence of a textual indication of Members' intent to that effect.169  Thus, it also referred to World 
Trade Organization ("WTO") jurisprudence relating to  other exception provisions, and concluded that 
the relationship between these exceptions and the ob ligations from which derogation is permitted is 
"one where both categories of provisions apply concu rrently to the same measure, but where, in the 
case of conflict between these two categories of provisions, [the exception] prevails".170  Accordingly, 
the Panel concluded, on the basis of both the ordinary meaning of the text of the provision and WTO case law, that Article I:1 applies to measures cove red by the Enabling Clau se and that the Enabling 
Clause prevails over Article I:1 "to the extent of the conflict between [them]".
171 
                                                      
164Panel Report, para. 7.40. 
165Ibid. 
166Ibid. 
167Ibid., para. 7.42. 
168Ibid., para. 7.44.  Paragraph 1 of the Enabling Clause provides: 
Notwithstanding the provisions of Ar ticle I of the General Agreement, 
contracting parties may accord differentia l and more favourable treatment to 
developing countries, without according such treatment to other contracting 
parties. (footnote omitted) 
169Panel Report, para. 7.44.  
170Ibid., para. 7.45. 
171Ibid. WT/DS246/AB/R 
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84. Finally, the Panel referred to the European  Communities' reliance on the Appellate Body's 
decisions in  Brazil – Aircraft  and  EC – Hormones   and distinguished those cases from the present 
dispute.  The Panel stated that the relationship between the provisions at issue in those cases was 
"different" from the relationship it had found between Article I:1 and the Enabling Clause.
172  I n  
particular, the Panel determined that, in the two ea rlier disputes, one provision "clearly exclude[d]" 
the application of the other.173  In contrast, the Panel had already found that the Enabling Clause does 
not exclude the applicability of Article I:1.  In  these circumstances, the Panel suggested that the 
Enabling Clause constitutes an "affirmative defence", in relation to which the responding party bears 
the burden of proof if that party invokes the Enabling Clause to justify its challenged measure.174 
85. On appeal, the European Comm unities challenges the Panel's fi nding that the Enabling Clause 
is an "exception" 175 to Article I:1 of the GATT 1994 and that , therefore, the European Communities 
must invoke the Enabling Clau se as an "affirmative defence" 176 to India's claim that the Drug 
Arrangements are inconsistent with Article I:1.   The European Communities submits that the 
Enabling Clause is part of a "special regime for developing countries" 177, which "encourages" 178, 
inter alia ,  the granting of tariff preferences by devel oped-country Members to developing countries.  
As a result, the Enabling Clause ex ists "side-by-side and on an equa l level" with Article I:1, and 
applies to the  exclusion  thereof, rather than as an exception thereto.179  The European Communities 
argues, therefore, that India is required to bring a claim under the Enabling Cl ause if it considers that 
the European Communities' GSP scheme ha s nullified or impaired India's rights.180  The European 
Communities requests us to refrain from examining the consistency of the Drug Arrangements with 
the requirements of the Enabling Clause because, according to the Europ ean Communities and as 
                                                      
172Panel Report, paras. 7.48-7.50. 
173Ibid., para. 7.48. (See also, ibid., paras. 7.47-7.50)  The Panel was referring to Articles 3.1(a) and 
27.2(b) of the  Agreement on Subsidies and Countervailing Measures  (the " SCM Agreement "), as interpreted in 
Appellate Body Report, Brazil – Aircraft ,  and Articles 3.1 and 3.3 of the  Agreement on the Application of 
Sanitary and Phytosanitary Measures  (the " SPS Agreement "), as interpreted in Appellate Body Report, 
EC – Hormones . 
174Panel Report, para. 7.49. 
175Ibid., para. 7.39. 
176Ibid., para. 7.42. 
177European Communities' appellant's submission, para. 51. 
178Ibid., para. 53. 
179Ibid., para. 22. 
180Ibid., para. 15(2).  WT/DS246/AB/R 
 Page 33 
 
 
allegedly acknowledged by India before the Panel,  India did not bring a claim under the Enabling 
Clause.181 
86. India, by contrast, supports the Panel's understa nding of the relationship between Article I:1 
and the Enabling Clause.  India argues that para graph 2(a) of the Enabling Clause qualifies as an 
"exception" because the conditions therein must  be complied with only by Members adopting a 
measure pursuant to the authorization granted by th at provision.  This differs from the most-favoured 
nation ("MFN") obligation in Article I:1.182  Moreover, according to India, we are not precluded from 
addressing the consistency of the Drug Arrangements with the Enabling Clause because, contrary to 
the assertion of the European Communities, India did make a claim under that Clause before the 
Panel.183  India submits that denying the Panel the "competence" 184 to evaluate this claim, even if the 
Enabling Clause is not regarded as an exception, would be inconsistent with the objectives of WTO 
dispute settlement, "namely to secure a 'prompt' a nd 'positive solution to a dispute', and 'achieve a 
satisfactory settlement of the matter' in accordan ce with rights and oblig ations under the covered 
agreements." 185  According to India, this is particul arly so because the European Communities had 
been on notice throughout the Panel proceedings of India's position that the Drug Arrangements are 
not justified by the Enabling Clause.186 
B. Relevance of the Relationship Between  Article I:1 of the GATT 1994 and the 
Enabling Clause for the Allocation of the Burden of Proof  
87. We begin our analysis of the relationship between Article I:1 of the GATT 1994 and the 
Enabling Clause, and the attendant implications for the allocation of the burden of proof in this 
dispute, by recalling the observation of the Appellate Body in  US – Wool Shirts and Blouses : 
[I]t is a generally-accepted canon of evidence in civil law, common 
law and, in fact, most jurisdictions, that the burden of proof rests upon the party, whether complaining or defending, who asserts the 
affirmative of a particular claim or defence.187  
                                                      
181European Communities' appellant's submission, paras. 3, 13(2), and 66.   
182India's appellee's submission, paras. 36 and 39. 
183Ibid., paras. 54-57. 
184Ibid., para. 71 and heading II.B.3. 
185Ibid., para. 74 (quoting DSU, Arts. 3.3, 3.4, and 3. 7). (footnotes omitted) 
186Ibid., para. 73. 
187Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:I, at 335. WT/DS246/AB/R 
Page 34  
 
It is thus for the  complaining  party to raise a claim with respect to a particular obligation and to  
prove   that the responding party is acting inconsistently with that obligation.  It is for the  responding   
party, if it so chooses, to raise a defence in r esponse to an allegation of  inconsistency and to  prove   
that its challenged measure satisfies the conditions of that defence.  Therefore, the question before us 
is whether India must raise a "claim" and prove th at the Drug Arrangements are inconsistent with the 
Enabling Clause, or whether the Eu ropean Communities must raise and prove, in "defence", that the 
Drug Arrangements are consistent with the Enab ling Clause, in order to justify the alleged 
inconsistency of the Drug A rrangements with Article I:1.
188   
88. We recall that the Appellate Body has addressed the allocation of the burden of proof in 
similar situations.  In cases where one provision permits, in certain circumstances, behaviour that would otherwise be inconsistent with an oblig ation in another provision, and one of the two 
provisions refers to the other provision, the Appe llate Body has found that the complaining party 
bears the burden of establishing that a challenge d measure is inconsistent with the provision 
permitting particular behaviour  only  where one of the provisions suggests that the obligation is not 
applicable to the said measure.
189  Otherwise, the permissive provision has been characterized as an 
exception, or defence, and the onus of invoking it an d proving the consistency of the measure with its 
requirements has been placed on the responding party.190  However, this distinction may not always 
be evident or readily applicable.  
C. Characterization of the Enabling Clause 
1. Text of Article I:1 and the Enabling Clause  
89. In considering whether the Enabling Clause is an exception to Article I:1 of the GATT 1994, 
we look, first, to the text of the provisions at i ssue.  Article I:1, which embodies the MFN principle, 
provides: 
                                                      
188We are not concerned here with the situation where a complaining party brings a challenge solely 
under the provisions of the Enabling Clause, that is, withou t also claiming an inconsistency with Article I of the 
GATT 1994. 
189See Appellate Body Report, EC – Hormones , para. 104;  Appellate Body Report, Brazil – Aircraft , 
paras. 139-141;  and Appellate Body Report, EC – Sardines , para. 275. 
190See Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 131-133;  and Appellate Body 
Report, US – Wool Shirts and Blouses , p.16, DSR 1997:I, at 337.  WT/DS246/AB/R 
 Page 35 
 
 
Article I 
General Most-Favoured-Nation Treatment 
1. With respect to customs du ties and charges of any kind 
imposed on or in connection with  importation or exportation or 
imposed on the international transfer of payments for imports or 
exports, and with respect to the method of levying such duties and 
charges, and with respect to all rules and formalities in connection 
with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, 
favour, privilege or immunity grante d by any contracting party to any 
product originating in or destined for any other country shall be 
accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. 
Article I:1 plainly imposes upon WTO Members the obligation to treat "like pr oducts ... equally, 
irrespective of their origin".
191 
90. We turn now to the Enabling Clause, which h as become an integral part of the GATT 1994.192  
Paragraph 1 of the Enabling Clause, which appli es to all measures authorized by that Clause, 
provides: 
Notwithstanding the provisions of  Article I of the General 
Agreement, contracting parties ma y accord differential and more 
favourable treatment to developing countries, without according such 
treatment to other contracting parties. (footnote omitted) 
The ordinary meaning of the term " notwithstanding" is, as the Panel noted 193, "[i]n spite of, without 
regard to or prevention by".194  By using the word "notwithstanding", paragraph 1 of the Enabling 
                                                      
191Appellate Body Report, EC – Bananas III ,  para. 190. 
192In response to questioning at the oral hearing, the participants and third participants agreed that the 
Enabling Clause is one of the "other decisions of  the CONTRACTING PARTIES"  within the meaning of 
paragraph 1(b)(iv) of the language of Annex 1A incorporating the GATT 1994 into the  WTO Agreement .  That 
provision stipulates that: 
1. The General Agreement on Tari ffs and Trade 1994 ("GATT 1994") 
shall consist of: 
... 
(b) the provisions of the legal instruments set forth below that 
have entered into force under the GATT 1947 before the date 
of entry into force of  the WTO Agreement: 
... 
 (iv) other decisions of the CONTRACTING PARTIES to 
GATT 1947[.] 
193See Panel Report, para. 7.44. 
194Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002), Vol. 2, p. 1948.  WT/DS246/AB/R 
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Clause permits Members to provide "differential and more favourable treatment" to developing 
countries "in spite of" the MFN obligation of Article I:1.  Such treatment would otherwise be 
inconsistent with Article I:1 because that treatme nt is not extended to all Members of the WTO 
"immediately and unconditionally".
195  Paragraph 1 thus excepts Members from complying with the 
obligation contained in Article I:1 for the purpo se of providing differential and more favourable 
treatment to developing countries, provided that su ch treatment is in acco rdance with the conditions 
set out in the Enabling Clause.  As such, the Enablin g Clause operates as an "exception" to Article I:1. 
2. Object and Purpose of the  WTO Agreement  and the Enabling Clause  
91. The European Communities' contention that the Enabling Clause is  not  in the nature of  
an exception appears to be founded on the Euro pean Communities' understanding of the object  
and purpose of the  Marrakesh Agreement Establishing  the World Trade Organization  (the  
"WTO Agreement ") and the Enabling Clause.  We, too, look to the object and purpose of the  WTO 
Agreement  and the Enabling Clause to clarify whether the Enabling Clause was intended to operate 
as an exception to Article I:1. 
92. The Preamble to the  WTO Agreement   provides that Members recognize: 
... that there is need for  positive efforts  designed to ensure that 
developing countries, and especially  the least developed among them, 
secure a share in the growth in in ternational trade commensurate with 
the needs of their economic development[.]196 (emphasis added) 
The Waiver Decision on the Generalized System of Preferences (the "1971 Waiver Decision")197, 
which provided the initial authorization under the GA TT for developed countries'  GSP schemes and is 
explicitly referred to in footnote 3 of the Enabling Clause 198, offers relevant guidance in discerning 
the object and purpose of the Enabling Clause.  In the Preamble to the 1971 Waiver Decision, the 
Contracting Parties recognized: 
                                                      
195GATT 1994, Art. I:1. 
196Second recital.  We note that Article XXX VI:3 of the GATT 1994 similarly provides: 
There is need for positive efforts designed to ensure that less-developed 
contracting parties secure a share in  the growth in international trade 
commensurate with the needs of their economic development. 
197GATT Document L/3545, 25 June 1971, BISD 18S/24 (attached as Annex D-2 to the Panel Report). 
198Footnote 3 of the Enabling Clause states: 
As 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" (BISD 
18S/24).  WT/DS246/AB/R 
 Page 37 
 
 
... that a principal aim of the CONTRACTING PARTIES is 
promotion of the trade and export earnings of developing countries for the furtherance of their economic development;  
[and recognized] further that individual and joint action is essential  
to further the development of the economies of developing 
countries[.]
199 
We understand, therefore, that the Enabling Clause is among the "positive efforts" called for in the 
Preamble to the  WTO Agreement   to be taken by developed-country Members to enhance the 
"economic development" of developing-country Members.200   
93. According to the European Communities, th e Enabling Clause, as the "most concrete, 
comprehensive and important appli cation of the principle of Special and Differential Treatment", 
serves "to achieve one of the fundamental objectives of the WTO Agreement".201  In the view of the 
European Communities, provisions that are excepti ons permit Members to adopt measures to pursue 
objectives that are "not ... among the WTO Agreement's own objectives" 202;  the Enabling Clause thus 
does not fall under the category of exceptions.  Pointing to this alleged difference between the role of 
measures falling under the Enabling Clause and th at of measures falling under exception provisions 
such as Article XX, the European Communities contends that the  WTO Agreement  does not "merely 
tolerate" measures under the Enabling Clause, but ra ther "encourages" devel oped-country Members to 
adopt such measures.203  According to the European Commun ities, to require preference-granting 
countries to invoke the Enabling Clause in order to  justify or defend their GSP schemes cannot be 
reconciled with the intention of WT O Members to encourage these schemes. 
94. We note, however, as did the Panel 204, that WTO objectives may well be pursued through 
measures taken under provisions characterized  as exceptions.  The Preamble to the  WTO Agreement   
identifies certain objectives that may be pursued by Members through measures that would have to be 
                                                      
199First and second recitals.  Similarly, Artic le XXXVI:1(d) of the GATT 1994 provides: 
[I]ndividual and joint action is essential to further the development of the 
economies of less-developed contracting parties and to bring about a rapid 
advance in the standards of living in these countries[.] 
200We discuss further the role of the Enabling Clause in the context of the covered agreements, infra , 
paras. 106-109. 
201European Communities' appellant's submission, para. 20. 
202Ibid., para. 52. 
203Ibid., para. 53. 
204See Panel Report, para. 7.52. WT/DS246/AB/R 
Page 38  
 
justified under the "General Exceptions" of Article XX.  For instance, one such objective is reflected 
in the recognition by Members that the expansion of trade must be accompanied by: 
... the optimal use of the world's resources in accordance with the 
objective of sustainable development, [with Members] seeking both 
to protect and preserve the environment and to enhance the means for 
doing so in a manner consistent with their respective needs and concerns at different levels  of economic development[.]
205 
95. As the Appellate Body observed in  US – Shrimp ,  WTO Members retained Article XX(g) 
from the  General Agreement on Tariffs and Trade 1947 (the "GATT 1947") without alteration after 
the conclusion of the Uruguay Round, being "fully  aware of the importance and legitimacy of 
environmental protection as a goal of national and international policy".206  Article XX(g) of the 
GATT 1994 permits Members, subject to certain c onditions, to take measures "relating to the 
conservation of exhaustible natural resources if such  measures are made effec tive in conjunction with 
restrictions on domestic production or consumption".  It is well-establis hed that Article XX(g) is an  
exception   in relation to which the respondi ng party bears the burden of proof.207  Thus, by authorizing 
in Article XX(g) measures for environmental conser vation, an important objective referred to in the 
Preamble to the  WTO Agreement ,  Members implicitly recognized that the implementation of such 
measures would not be discouraged simply because Article XX(g) constitutes a defence to otherwise 
WTO-inconsistent measures.  Likewise, character izing the Enabling Clause as an exception, in our 
view, does not undermine the importance of the Enab ling Clause within the overall framework of the 
covered agreements and as a "positive effort" to  enhance economic deve lopment of developing-
country Members.  Nor does it "discourag[e]" 208 developed countries from adopting measures in 
favour of developing countries under the Enabling Clause. 
96. The European Communities acknowledges that requiring Members to pursue environmental 
measures through Article XX(g), an exception provision, may be logical because "the WTO 
Agreement is not an environmental agreement a nd ... it contains no positive regulation of 
environmental matters." 209  Because the  WTO Agreement   "regulate[s] positively the use of trade 
                                                      
205WTO Agreement , Preamble, first recital. 
206Appellate Body Report, US – Shrimp , para. 129. 
207Ibid., para. 157;  Appellate Body Report, US – Wool Shirts and Blouses , pp. 15-16, DSR 1997:I, 
at 337 (referring to GATT Panel Report, Canada – FIRA , para. 5.20;  GATT Panel Report, US – Section 337 , 
para. 5.27;  GATT Panel Report, US – Malt Beverages , paras. 5.43 and 5.52;  and Panel Report, US – Gasoline , 
para. 6.20). 
208United States' third participant's submission, para. 9. 
209European Communities' appellant's submission, para. 54.  WT/DS246/AB/R 
 Page 39 
 
 
measures" 210, however, and the Enabling Cl ause "promotes" the use of tr ade measures to further the 
development of developing count ries, the European Communities argues that Members should not be 
required to prove the consistency of thei r measures with the Enabling Clause.   
97. We do not consider it relevant, for the purposes of  determining whether a provision is or is 
not in the nature of an exception, that the provisi on governs "trade measures" rather than measures of 
a primarily "non-trade" nature.  Indeed, in a prev ious appeal, the Appellate Body found that the 
proviso to Article XVIII:11 of the GATT 1994—a provision authorizing quantitative restrictions 
when taken in response to balance-of-payments difficulties—is a defence to be invoked by the 
responding party.211  The fact that a provision regulates the use of "trade measures", therefore, does 
not compel a finding that it is for the complaining pa rty to establish inconsistency with that provision, 
rather than for the defending pa rty to rely on it as a defence. 
98. In sum, in our view, the characterization of  the Enabling Clause as an exception in no way 
diminishes the right of Members to provide or to receive "differential and more favourable treatment".  The status and relative importance of a given provision does not depend on whether it is characterized, for the purpose of allocating the bur den of proof, as a claim to be proven by the 
complaining party, or as a defence to be established by the responding party.  Whatever its 
characterization, a provision of the covered agreemen ts must be interpreted in accordance with the 
"customary rules of interpretation of public inte rnational law", as required by Article 3.2 of the 
Understanding on Rules and Procedures Go verning the Settlement of Disputes  (the "DSU").
212  
Members' rights under the Enabling Clause are not  curtailed by requiring preference-granting 
countries to establish in dispute settlement the cons istency of their preferential measures with the 
conditions of the Enabling Clause.  Nor does ch aracterizing the Enabling Clause as an exception 
                                                      
210European Communities' appellant's submission, para. 54. 
211Appellate Body Report, India – Quantitative Restrictions , paras. 134-136.  We also note that GATT 
panels determined Article XI:2(c) of the GATT 1947 to constitute an "exception", even though that provision addresses "trade measures", namely quantitative restrictions. (See GATT Panel Report, Japan – Agricultural 
Products I , para. 5.1.3.7;  GATT Panel Report, EEC – Dessert Apples , para. 12.3;  and GATT Panel Report, 
Canada – Ice Cream and Yoghurt , para. 59) 
212In this regard, we recall the Appellate Body's statement in  EC – Hormones  that: 
... merely characterizing a treaty provis ion as an "exception" does not by 
itself justify a "stricter" or "narrower"  interpretation of that provision than 
would be warranted by examination of the ordinary meaning of the actual 
treaty words, viewed in context and in the light of the treaty's object and 
purpose, or, in other words, by applying the normal rules of treaty interpretation.   
(Appellate Body Report, para. 104) WT/DS246/AB/R 
Page 40  
 
detract from its critical role in encouraging the granting of special and differential treatment to 
developing-country Members of the WTO.   
99. In the light of the above, we  uphold  the Panel's finding, in paragraph 7.53 of the Panel 
Report, that the Enabling Clause is an "exception" to Article I:1 of the GATT 1994. 
100. We examine now the European Communities' appeal regarding the Panel's finding that the 
Enabling Clause "does not exclude the applicability" of Article I:1 of the GATT 1994.
213  The 
European Communities argues that th e Enabling Clause exists "side-by -side and on an equal level" 
with Article I:1, and thus applies to the exclusion of that provision.214  In our view, the European 
Communities misconstrues the relati onship between the two provisions. 
101. It is well settled that the MFN principle embodied in Article I:1 is a "cornerstone of the 
GATT" and "one of the pillars of the WTO trading system" 215, which has consistently served as a key 
basis and impetus for concessions in trade negotiati ons.  However, we recognize that Members are 
entitled to adopt measures providing "differential and more favourable treatment" under the Enabling 
Clause.  Therefore, challenges to  such measures, brought under Article I:1, cannot succeed where 
such measures are in accordance with the terms of the Enabling Clause.  In our view, this is so 
because the text of paragraph 1 of the Enabling Clau se ensures that, to the extent that there is a 
conflict between measures under the Enabling Clause and the MFN obligation in Article I:1, the Enabling Clause, as the more specific rule, prevails over Article I:1.  In order to determine whether 
such a conflict exists, however, a dispute settleme nt panel should, as a first step, examine the 
consistency of a challenged measure with Article I:1,  as the general rule.  If the measure is considered 
at this stage to be inconsistent with Article I: 1, the panel should then examine, as a second step, 
whether the measure is nevertheless justified by the En abling Clause.  It is only at this latter stage that 
a final determination of c onsistency with the Enabling Clause or in consistency with Article I:1 can be 
made.    
                                                     
 
213Panel Report, para. 7.53. 
214European Communities' appellant's submission, para. 22. 
215Appellate Body Report, Canada – Autos , para. 69.  See also, Appellate Body Report, US – Section 
211 Appropriations Act ,  para. 297, which reads: 
Like the national treatment obligation, the obligation to provide most-
favoured-nation treatment has long been one of the cornerstones of the 
world trading system.  For more than fifty years, the obligation to provide 
most-favoured-nation treatment in Article I of the GATT 1994 has been both central and essential to assuring the success of a global rules-based 
system for trade in goods.  WT/DS246/AB/R 
 Page 41 
 
 
102. In other words, the Enabling Clause "does not exclude the applicability" 216 of Article I:1 in 
the sense that, as a matter of procedure (or "order of examination", as the Panel stated 217), the 
challenged measure is submitted successively to the test of compatibility with the two provisions.  
But, as a matter of final determination—or  application  rather than  applicability —it is clear that only 
one provision applies at a time.  This is what th e Panel itself found when, after stating that "as an 
exception provision, the Enabling Clause applies concurrently with Article I:1", it added "and  takes 
precedence  to the extent of the conflict between the two provisions." 218 
103. It is with this understanding, therefore, that we  uphold  the Panel's finding, in paragraph 7.53 
of the Panel Report, that the Enabling Clause "does not exclude the applicability" of Article I:1 of the 
GATT 1994. 
D. Burden of Proof 
104. We now examine the implications of the rela tionship between Article I:1 of the GATT 1994 
and the Enabling Clause for the allocation of the burden  of proof in this dispute.  As a general rule, 
the burden of proof for an "exception" falls on the r espondent, that is, as the Appellate Body stated in  
US – Wool Shirts and Blouses ,  on the party "assert[ing] the affirmative of a particular ... defence".219  
From this allocation of the burden of proof, it is normally for the respondent, first, to  raise  the 
defence and, second, to  prove  that the challenged measure meet s the requirements of the defence 
provision.   
105. We are therefore of the view that  the European Communities must  prove  that the Drug 
Arrangements satisfy the conditions set out in the Enab ling Clause.  Consistent with the principle of  
jura novit curia 220, it is not the responsibility of the European Communities to provide us with the 
                                                      
216Panel Report, para. 7.53. 
217Ibid., para. 7.45. 
218Ibid. (emphasis added) 
219Appellate Body Report, p. 14, DSR 1997:I, at 335. (See also, Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 133;  and Appellate Body Report, India – Quantitative Restrictions , para. 136) 
220The principle of  jura novit curia  has been articulated by the International Court of Justice as 
follows: 
It being the duty of the Court itself to ascertain and apply the relevant law in 
the given circumstances of the case, the burden of establishing or proving 
rules of international law cannot be imposed upon any of the parties, for the law lies within the judicial knowledge of the Court. 
(International Court of Justice, Merits, Case Concerning Military and Paramilitary Activities in and against 
Nicaragua (Nicaragua v. United States of America) , 1986 ICJ Reports, p. 14, para. 29 (quoting International 
Court of Justice, Merits, Fisheries Jurisdiction Case (United Kingdom of Great Britain and Northern Ireland v. 
Iceland) , 1974 ICJ Reports, p. 9, para. 17)) WT/DS246/AB/R 
Page 42  
 
legal interpretation to be given to a pa rticular provision in the Enabling Clause
 221;  instead, the burden 
of the European Communities is to adduce sufficien t evidence to substantiate its assertion that the 
Drug Arrangements comply with the requirements of the Enabling Clause. 
1. Responsibility for Raising the Enabling Clause  
106. With respect to the legal responsibility for  raising  a defence as an issue in a dispute 
settlement proceeding, however, we regard the par ticular circumstances of this case as dictating a 
special approach, given the fundamental role of th e Enabling Clause in the WT O system as well as its 
contents.  The Enabling Clause authorizes develope d-country Members to grant enhanced market 
access to products from developing countries beyond that granted to products from developed 
countries.  Enhanced market access is intended to provide developing countries with increasing 
returns from their growing exports, which retu rns are critical for those countries' economic 
development.  The Enabling Clause thus plays a vital role in promoting trade as a means of 
stimulating economic growth and de velopment.  In this respect, the Enabling Clause is not a typical 
"exception", or "defence", in the style of Article XX of the GATT 1994, or of other exception provisions identified by the Appellate Body in previous cases.   
107. A brief review of the history of the Enabling Clause confirms its special status in the covered 
agreements.  When the GATT 1947 entered into force, the Contracting Parties stated that one of its 
objectives was to "rais[e] standards of living".
222  However, this objective was to be achieved in 
countries at all stages of economic development through the  universally-applied  commitments 
embodied in the GATT provisions.  In 1965, the Contracting Parties added Articles XXXVI, XXXVII, and XXXVIII to form Part IV of the GATT 1947, entitled "Trade  and Development".
223 
Article XXXVI expressly recognized the "need for pos itive efforts" and "individual and joint action" 
so that developing countries would be able to shar e in the growth in international trade and further 
their economic development.224  Some of these "positive efforts" resulted in the Agreed Conclusions 
                                                      
221Compare Appellate Body Report, EC – Hormones , para. 156, which states: 
[N]othing in the DSU limits the faculty of a panel freely to use arguments 
submitted by any of the parties -- or to develop its own legal reasoning -- to 
support its own findings and conclusions on the matter under its consideration.  A panel might well be unable to carry out an objective 
assessment of the matter, as mandated by Article 11 of the DSU, if in its 
reasoning it had to restrict itself solely to arguments presented by the parties to the dispute.   
222GATT 1947, Preamble, first recital. 
223Protocol Amending the General Agreement on Tariffs and Trade to Introduce a Part IV on Trade 
and Development , BISD 13S/2 (1965). 
224GATT 1947, Arts. XXXVI:3 and XXXVI:1(d).    WT/DS246/AB/R 
 Page 43 
 
 
of the United Nations Conference on Trade and Development ("UNCTAD") Special Committee on 
Preferences (the "Agreed Conclusions")225, which recognized that pref erential tariff treatment 
accorded under a generalized scheme of pref erences was key for developing countries " (a) to increase 
their export earnings;  (b) to promote their industrialization;  and (c) to accelerate their rates of 
economic growth." 226  The Agreed Conclusions also made clear that the achievement of these 
objectives through the adoption of preferences by developed countries required a GATT waiver, in 
particular, with respect to the MFN obligation in Article I:1.227  Accordingly, the Contracting Parties 
adopted the 1971 Waiver Decision in order to waiv e the obligations of Article I of the GATT 1947 
and thereby authorize the granting of tariff preferences to developing countries for a period of ten years.
228   
108. In 1979, the Enabling Clause expanded the authorization provided by the 1971 Waiver 
Decision to cover additional preferential measures a nd made the authorization a permanent feature of 
the GATT.  In his report at the conclusion of the Tokyo Round of negotiations, the then-Director General observed: 
The Enabling Clause meets a fundamental concern of developing 
countries by introducing differentia l and more favourable treatment 
as an integral part of the GATT system, no longer requiring waivers from the GATT. It also provides th e perspective against which the 
participation of developing countries in the trading system may be 
seen.
229  
Members reaffirmed the significance of the Enabli ng Clause in 1994 with the incorporation of the 
Enabling Clause into the GATT 1994.230  The relationship between trade and development, and in 
particular the role of the Enabling Clause, remain  prominent on the agenda of the WTO, as recognized 
by the Doha Ministerial Conference in 2001.231   
109. We thus understand that, between the entry in to force of the GATT and the adoption of the 
Enabling Clause, the Contracting Parties determ ined that the MFN obligation failed to secure 
                                                      
225Attached as Annex D-4 to the Panel Report. 
226Agreed Conclusions, para. I.2 (Panel Report,  p. D-8). 
227Ibid., paras. IX.1 and  IX.2( c) (Panel Report, pp. D-13–D-14).   
2281971 Waiver Decision, para. ( a) (Panel Report, p. D-4). 
229European Communities' appellant's submission, para . 25 (quoting Report by the Director-General of 
GATT, in GATT,  The Tokyo Round of Multilateral Trade Negotiations  (1979), Vol. I, p. 99). 
230Para. 1(b)(iv) of the language of Annex 1A to the  WTO Agreement  incorporating the GATT 1994 
into the  WTO Agreement . 
231Ministerial Decision of 14 November 2001, Implementation-related Issues and Concerns , 
WT/MIN(01)/17, paras. 12.1-12.2. WT/DS246/AB/R 
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adequate market access for developing countries so as to stimulate their economic development.  
Overcoming this required recognition by the multilate ral trading system that certain obligations, 
applied to all Contracting Parties,  could impede rather than facilitate the objective of ensuring that 
developing countries secure a share in the growth of  world trade.  This recognition came through an 
authorization for GSP schemes in the 1971 Waiver D ecision and then in the broader authorization for 
preferential treatment for developing countries in the Enabling Clause.
232   
110. In our view, the special status of the Enab ling Clause in the WTO system has particular 
implications for WTO dispute settlement.  As we ha ve explained, paragraph 1 of the Enabling Clause 
enhances market access for developing count ries as a means of improving their economic 
development by authorizing preferential treatme nt for those countries, "notwithstanding" the 
obligations of Article I.  It is evident that a Member cannot implement a measure authorized by the 
Enabling Clause without according an "advantage" to a developing country's products over those of a 
developed country.  It follows, therefore, that every measure undertaken pursuant to the Enabling 
Clause would necessarily be inconsistent with Article  I, if assessed on that basis alone, but it would be 
exempted from compliance with Article I because it meets the requirements of the Enabling Clause.  
Under these circumstances, we are of the view that  a complaining party challenging a measure taken 
pursuant to the Enabling Clause must allege more th an mere inconsistency with Article I:1 of the 
GATT 1994, for to do only that would not convey th e "legal basis of the complaint sufficient to 
present the problem clearly".233  In other words, it is insuffici ent in WTO dispute settlement for a 
complainant to allege inconsistency with Article I:1 of the GATT 1994 if the complainant seeks also 
to argue that the measure is not justified under the Enabling Clause.  This is especially so if the 
challenged measure, like that at issue here, is plai nly taken pursuant to the Enabling Clause, as we 
discuss  infra .234   
111. Furthermore, the history and objective of the Enabling Clause lead us to agree with the 
European Communities 235 that Members are  encouraged  to deviate from Article I in the pursuit of 
"differential and more favourable treatment" for de veloping countries.  This deviation, however, is 
encouraged only to the extent that it complies with  the series of requirements set out in the Enabling 
                                                      
232We recognize that an exemptio n for developing countries from certain GATT obligations also 
resulted from the 1954-1955 Review Session, where the Contracting Parties amended the GATT by adding 
Article XVIII for the benefit of developing countrie s facing balance-of-payments difficulties or seeking to 
nurture an infant industry. (See Reports Relating to the Review of the Agreement: Quantitative Restrictions, 
GATT Document L/332/Rev.1 and Addenda, adopted 2, 4 and 5 March 1955, BISD, 3S/170, paras. 3, 35-36, 
44, and 52) 
233DSU, Art. 6.2.  See also, Appellate Body Report, Korea – Dairy , paras. 120, 124, and 127. 
234Infra , paras. 116-117. 
235European Communities' appellant's submission, para. 53.  WT/DS246/AB/R 
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Clause, requirements that we find to be more ex tensive than more typical defences such as those 
found in Article XX.   
112. Paragraph 2 of the Enabling Clause identifies the four types of measures to which the 
authorization of paragraph 1 applies: 
(a) Preferential tariff treatment accorded by developed 
contracting parties to products  originating in developing 
countries in accordance with the Generalized System of 
Preferences,3 
(b) Differential and more favourable treatment with respect to the 
provisions of the General Ag reement concerning non-tariff 
measures governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT; 
(c) Regional or global arrangemen ts entered into amongst less-
developed contracting parties for the mutual reduction or 
elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on products imported from one another 
(d) Special treatment of the least developed among the 
developing countries in the context of any general or specific 
measures in favour of developing countries. 
 3 As 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" (BISD 18S/24). 
Measures that a Member claims are exempt from a findi ng of inconsistency with Article I by virtue of 
the Enabling Clause must fit within these sub-paragraphs , of which the most relevant for this case is 
paragraph 2(a), which provides for GSP schemes.  As we discuss in greater detail  infra 236, this 
provision requires the preferential treatment to be  "in accordance with" the GSP and further defines 
this obligation through each of the terms "gener alized, non-reciprocal and non discriminatory".  
Paragraphs 2(b)-(d) impose different obligations to be satisfied by a Member taking a measure 
pursuant to those provisions.  Paragraph 3 identifies three conditions that must also be satisfied by  
any  measure under the Enabling Clause.  Paragraph  4 sets forth procedural conditions for the 
introduction, modification, or withdrawal of a preferential measure for developing countries.  
                                                      
236Infra , paras. 142-174. WT/DS246/AB/R 
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Paragraphs 5 through 9 include obligations that  are not necessarily related to measures providing 
"differential and more favourable treatment".
237 
113. In the light of the extensive requirements set fo rth in the Enabling Clause, we are of the view 
that, when a complaining party considers that a preference scheme of another Member does not meet one or more of those requirements, the specific provisions of the Enabling Clause with which the scheme allegedly falls afoul, form critical com ponents of the "legal basis of the complaint"
 238 and, 
therefore, of the "matter" in dispute.239  Accordingly, a complaining party cannot, in good faith, ignore 
those provisions and must, in its request for the establishment of a panel, identify them and thereby 
"notif[y] the parties and third parties of the nature of [its] case".240  For the failure of such a 
complaining party to raise the relevant provisions  of the Enabling Clause would place an unwarranted 
burden on the responding party.  This due process cons ideration applies equally to the elaboration of a 
complaining party's case in its written submissions, which must "explicitly" articulate a claim so that 
the panel and all parties to a dispute "understand th at a specific claim has b een made, [are] aware of 
its dimensions, and have an  adequate opportunity to  address and respond to it".241  
114. Exposing preference schemes to open-ended challe nges would be inconsistent, in our view, 
with the intention of Members, as reflect ed in the Enabling Clause, to "encourage" 242 the adoption of 
preferential treatment for developing countries and to provide a practical means of doing so within the 
legal framework of the covered agreements.  Acco rdingly, although a responding party must defend 
the consistency of its preference scheme with the conditions of the Enabling Clause and must prove 
such consistency, a  complaining   party has to define the parameters within which the  responding  
party must make that defence.   
                                                      
237See Enabling Clause (attached as  Annex 2 to this Report). 
238DSU, Art. 6.2, which provides: 
The request for the establishment of a panel shall be made in writing.  It 
shall indicate whether consultations were held, identify the specific 
measures at issue and provide a brief summary of the legal basis of the 
complaint sufficient to present the problem clearly.  In case the applicant 
requests the establishment of a panel with other than standard terms of reference, the written request shall includ e the proposed text of special terms 
of reference. 
239Appellate Body Report, US – Carbon Steel , para. 125 (referring to Appellate Body Report, 
Guatemala – Cement I , paras. 69-76). 
240Ibid., para. 126 (referring to Appellate Body Report, Brazil – Desiccated Coconut , p. 22, DSR 1997:I, 
at 186;  and Appellate Body Report, EC – Bananas III ,  para. 142). 
241Appellate Body Report, Chile – Price Band System , para. 164. 
242European Communities' appellant's submission, para. 53.  WT/DS246/AB/R 
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115. The responsibility of the complaining party in  such an instance, however, should not be 
overstated.  It is merely to  identify  those provisions of the Enabling Clause with which the scheme is 
allegedly inconsistent, wit hout bearing the burden of  establishing   the facts necessary to support such 
inconsistency.  That burden, as we concluded above 243, remains on the responding party invoking the 
Enabling Clause as a defence. 
116. We observe, moreover, that the measure challe nged in this dispute is unmistakably a 
preferential tariff scheme, granted by a developed-co untry Member in favour of developing countries, 
and proclaiming to be in accordance with the GS P.  The Drug Arrangements are found in Council 
Regulation (EC) No. 2501/2001, the title of which indicates the Regulation to be "applying a scheme 
of generalised tariff preferences for the period fro m 1 January 2002 to 31 December 2004".  The first 
recital in the Preamble to the Regulation provides: 
Since 1971, the Community has gr anted trade preferences to 
developing countries, in the framework of its scheme of generalised 
tariff preferences. 
In its original proposal for the Regulati on, the European Commission explained: 
In 1994, the Commission adopted some guidelines on the  role of the 
GSP for the ten-year period 1995 to 2004.  A new regulation is 
required in order to implement  those guidelines  for the remainder of 
the period, i.e. the years 2002 to 2004.  This memorandum is meant to explain the proposal for that new regulation.
244 (footnote omitted;  
emphasis added) 
In its amended proposal, adding Pakistan to the list of beneficiaries under the Drug Arrangements, the 
European Commission further stated: 
Since the GSP drug regime  was extended to the countries of the 
Andean Community and to those of the Central American Common 
Market, it provided an important incentive to allow for the 
substitution of illicit crops, enhance exports in order to create jobs not linked to drug production and trafficking and foster diversification. 
                                                     
 
243Supra , para. 105. 
244Explanatory Memorandum to the Proposal for a Council Regulation applying a scheme of 
generalised tariff preferences for the period 1 January 2002 to 31 December 2004, pa ra. 1 (attached to Amended 
Proposal for a Council Regulation applying a scheme of generalised tariff preferences for the period 1 January 
2002 to 31 December 2004, 2001/0131 (ACC), at p. 3) (Exhibit India-7 submitted by India to the Panel). WT/DS246/AB/R 
Page 48  
 
The problems which Pakistan is facing today, are similar.  The GSP 
drug regime  is therefore likely to stabilise its economic and social 
structures and thus consolidate the institutions that uphold the rule of law.
245 (emphasis added) 
117. It is therefore clear, on the face of the Regulation and from official, publicly-available 
explanatory documentation, that the Drug Arrangement s challenged by India in this dispute are part of 
a preferential tariff scheme implemented by the Eu ropean Communities pursuan t to the authorization 
in paragraph 2(a) of the Enabling Clause.  As su ch, India would have been well aware that the Drug 
Arrangements must comply with the requirements of the Enabling Clause, and that the European 
Communities was likely to invoke the Enabling Clause in response to a challenge of inconsistency 
with Article I:1.  Indeed, India admitted as much before the Panel.246  India also must have believed 
that at least certain of those requirements were not being met and that, as a consequence, the inconsistency of the Drug Arrangeme nts with Article I could not be justified.  Accordingly, India, as 
the complaining party, should reasonably have articu lated its claims of inconsistency with specific 
provisions of the Enabling Clause at the outset of this dispute as part of its responsibility to "engage in [dispute settlement] procedures in good faith in an effort to resolve the dispute".
247   
118. In sum, although the burden of  justifying  the Drug Arrangements under the Enabling Clause 
falls on the European Communities, India was required to do more than simply allege inconsistency 
with Article I.  India's claim of inconsistency w ith Article I with respect to the measure challenged 
here is inextricably linked with its argument th at the Drug Arrangements do not satisfy the conditions 
in the Enabling Clause and that, therefore, they cannot  be justified as a derogation from Article I.  In 
the light of the above considerations, we are of the view that India was required to (i) identify, in its 
                                                      
245Explanatory Memorandum to the Amended Proposal for a Council Regulation applying a scheme of 
generalised tariff preferences for the period 1 January 2002 to 31 December 2004, 2001/0131 (ACC), p. 2, 
fourth and fifth recitals (Exhibit Indi a-7 submitted by India to the Panel). 
246See, for example, India's first written submission to the Panel, para. 44, which states:  "[S]ince the 
Drug Arrangements are part of the EC's GSP scheme, it ma y reasonably be assumed that the EC will invoke the 
Enabling Clause as a defence." 
247DSU, Art. 3.10.  See also , Appellate Body Report, US – FSC , para. 166, which reads: 
Article 3.10 of the DSU commits Member s of the WTO, if a dispute arises, 
to engage in dispute settlement procedures "in good faith in an effort to 
resolve the dispute". This is another specific manifestation of the principle of good faith which, we have pointed out, is at once a general principle of 
law and a principle of general international law. This pervasive principle 
requires both complaining and responding Members to comply with the requirements of the DSU (and related requirements in other covered 
agreements) in good faith. By good fa ith compliance, complaining Members 
accord to the responding Members the full measure of protection and 
opportunity to defend, contemplated by the letter and spirit of the procedural 
rules. (footnote omitted)  WT/DS246/AB/R 
 Page 49 
 
 
request for the establishment of a panel, whic h obligations in the Enabling Clause the Drug 
Arrangements are alleged to have c ontravened, and (ii) make writte n submissions in support of this 
allegation.  The requirement to make such an argument, however, does not mean that India must 
prove inconsistency with a provision of the Enabling Clause, because the ultimate burden of establishing the consistency of the Drug Arrange ments with the Enabling Clause lies with the 
European Communities.
248   
2. Whether India Raised the Enabling Clause Before the Panel  
119. We turn now to examine whether, in fact, India fulfilled these requirements and thereby 
sufficiently identified the scope of its claim before the Panel.  In its request for consultations, India 
claimed that the Drug Arrangements and the speci al incentive arrangements for the protection of 
labour rights and the environment "nullify or impa ir the benefits accruing to India under the most-
favoured-nation provisions of Article I:1 of the GATT 1994 and paragraphs 2(a), 3(a) and 3(c) of the 
Enabling Clause." 249  In its request for the establishment of a panel, India asked that a panel examine 
whether the aforementioned arrangements of the Eur opean Communities' GSP scheme "are consistent 
with Article I:1 of the GATT 1994 and the requirement s set out in paragraphs 2(a), 3(a) and 3(c) of 
the Enabling Clause".250  The Panel's terms of reference, therefore, included India's allegations that 
certain aspects of the European Communities' G SP scheme were not "consistent" with, or did not 
"meet the requirements set out in", paragraphs  2(a), 3(a), and 3(c) of the Enabling Clause.251 
                                                      
248Compare Appellate Body Report, US – Certain EC Products , para. 114, which states: 
On the basis of our review of the European Communities' submissions and 
statements to the Panel, we conclude that the European Communities  did 
not specifically claim   before the Panel that, by adopting the 3 March 
Measure, the United States acted incons istently with Article 23.2(a) of the 
DSU.  As the European Communities did not make a specific claim of 
inconsistency with Article 23.2(a), it  did not adduce any evidence or 
arguments  to demonstrate that the United States made a "determination as 
to the effect that a violation has occurr ed" in breach of Article 23.2(a) of the 
DSU.  And, as the European Communities did not adduce any evidence or 
arguments in support of a claim of violation of Article 23.2(a) of the DSU, the European Communities could not have established, and  did not 
establish, a  prima facie case  of violation of Article 23.2(a) of the DSU. 
(footnotes omitted;  emphasis added) 
249Request for consultations by India, WT/DS246/1, 12 March 2002, p. 1. 
250Request for the establishment of a panel by India, WT/DS246/4, 9 December 2002, p. 2.  In addition 
to the Drug Arrangements and the speci al incentives for the protection of labour rights and the environment, 
India also challenged the WTO-consistency of "any im plementing rules and regulations, ... any amendments to 
any of the foregoing, and ... their application". ( Ibid.) 
251Request for the establishment of a panel by India, WT/DS246/4, 9 December 2002, pp. 1-2.  The 
Panel's terms of reference incorporated these allega tions by reference to document WT/DS246/4. (Constitution 
of the panel established at the request of India, WT/DS246/5, 6 March 2003, para. 2) WT/DS246/AB/R 
Page 50  
 
120. In its written submissions before the Panel, India clearly invoked paragraph 2(a) of the 
Enabling Clause as the basis for its allegation that the Drug Arrangements are not "justified" by the 
Enabling Clause.
252  For example, in its first written submission before the Panel, India stated: 
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.253 
121. India's second written submission before the Pane l included a sub-heading entitled, "The EC 
has failed to demonstrate that under the Drug Arra ngements it accords tariff treatment that is 'non-
discriminatory' within the meaning of paragraph 2(a) of the Enabling Clause".254  Under this sub-
heading, India argued: 
[P]aragraph 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.
255 (original italics) 
India further argued that, even if the European Co mmunities' interpretation of  paragraph 2(a) were 
correct, the Drug Arrangements would not be "non -discriminatory", as required by footnote 3 to 
paragraph 2(a).256   
122. We find that India acted in good faith, in its wr itten submissions before the Panel, explaining 
why, in its view, the Drug Arrangements fail to meet certain requirements of the Enabling Clause, 
namely, those present in paragraph 2(a).  Such an e xplanation, in our view, was sufficient to place the 
European Communities on notice as to the reasons underlying India's allegation that the Drug 
Arrangements are not justified by the relevant provi sion of the Enabling Clause.  With such notice, 
                                                      
252India's first written submission to the Panel, head ing IV.C. and para. 67;  India's second written 
submission to the Panel, heading III.B. and para. 164.  By  the time of its first written submission to the Panel, 
India had indicated to the European Communities and to the Panel that this dispute was limited to the WTO-consistency of the Drug Arrangements, bu t that India reserved its right to ch allenge the special incentives for the 
protection of labour rights and the environment in a future dispute settlement proceeding. (See  supra , para. 4;  
and Panel Report, para. 1.5)  Both participants confirmed, in response to questioning at the oral hearing, that the 
measure at issue in this dispute was limited to the Drug Arrangements. 
253India's first written submission to the Panel, para. 62. 
254India's second written submission to the Panel, heading III.B.3. 
255Ibid., para. 95. 
256Ibid., paras. 119-128.  WT/DS246/AB/R 
 Page 51 
 
 
the European Communities could be expected to  defend its challenged measure under the Enabling 
Clause, in relation to which the European Communiti es ultimately bears the burden of justification. 
123. In allocating the burden of proof, therefore, we conclude that India was required to raise the 
Enabling Clause in making its claim of inconsistency with Article I:1.  Once India had identified, in 
its panel request and through argumentation in its wr itten submissions, the releva nt obligations of the 
Enabling Clause that it claims were not satis fied by the Drug Arrangements, the European 
Communities was then required to prove that the Drug Arrangements met those obligations, having 
chosen to rely on the Enabling Clause as a defence.    
124. Finally, we observe that the European Communitie s' appeal of the Panel's conclusion that the 
Drug Arrangements are inconsistent with Article I:1 of the GATT 1994 is "based on" the European 
Communities' claim that the Panel erroneously found th at (i) the Enabling Clause is an "exception" to 
Article I:1;  (ii) the Enabling Clause "does not exclud e the applicability" of Article I:1;  and (iii) the 
European Communities had the burden of proving the consistency of the Drug Arrangements with 
that Clause.257  As we have not reversed an y of these findings of the Panel 258, we do not need to 
review further and we  do not rule   on the Panel's conclusion that the Drug Arrangements are 
inconsistent with Artic le I:1 of the GATT 1994.259  
125. For these reasons, we  modify  the Panel's finding, in paragra ph 7.53 of the Panel Report, that 
"the European Communities bears the burden of invoking the Enabling Clause and justifying its Drug Arrangements under that provision."  We  find  that it was incumbent upon India to  raise  the 
Enabling Clause in making its claim of inconsistency with Article I:1 of the GATT 1994, but that the 
                                                     
 
257In its Notice of Appeal, the European Communities' reference to Article I:1 was limited to its 
decision to: 
... seek[] review of the Panel's legal conclusion that [the Drug 
Arrangements] are inconsistent with Article I:1 ...  This conclusion is based 
on the following erroneous legal findings: 
- that the Enabling Clause is an "exception" to Article I:1 of the GATT;  - that the Enabling Clause does not exclude the applicability of 
Article I:1 of the GATT;  
- that the EC had the burden of proving that the Drug Arrangements 
were consistent with the Enabling Clause. 
(Notification of an appeal by the European Commun ities, WT/DS246/7, 8 January 2004, p.1 (attached as 
Annex 1 to this Report)) 
258Supra , paras. 99, 103, and 123. 
259Panel Report, paras. 7.60 and 8.1(b).  The Eur opean Communities confirmed, in response to 
questioning at the oral hearing, that it is not appealing the Panel's conclusion, in paragraph 7.60 of the Panel Report, that the tariff advantages under the Drug Arrangem ents are inconsistent with Article I:1 because they are 
not accorded "unconditionally" to the like produ cts originating in all other WTO Members. WT/DS246/AB/R 
Page 52  
 
European Communities bore the burden of  proving  that the Drug Arrangements satisfy the 
conditions of the Enabling Clause, in order to jus tify those Arrangements under that Clause.  We  
find,  further, that India sufficiently raised paragr aph 2(a) of the Enabling Clause in making its claim 
of inconsistency with Article I:1 before the Panel.   We turn now to examine whether the European 
Communities met its burden of justifying the Drug Arrangements under that provision. 
V. Whether the Drug Arrangements are Justified Under the Enabling Clause 
126. The European Communities "appeals subsidiarily" the Panel's finding that the Drug 
Arrangements are not justified under paragraph 2(a), should we "concl ude that the Enabling Clause is 
an exception to GATT Article I:1, or that Indi a made a valid claim under the Enabling Clause".
260  
Having found that the Enabling Clause is in the nature of an exception to Article I:1 of the 
GATT 1994, we proceed to examine the European Comm unities' appeal as it relates to paragraph 2(a) 
of the Enabling Clause.   
127. The European Communities challenges three of the Panel's findings, namely that: 
(a) "the term 'non-discriminatory' in foot note 3 [to paragraph 2(a) of the Enabling 
Clause] requires that identical tariff pref erences under GSP schemes be provided to 
all developing countries without differentia tion, except for the implementation of 
a priori limitations" 261; 
(b) "the term 'developing countries' in para graph 2(a) [of the Enabling Clause] should be 
interpreted to mean  all  developing countries, with the exception that where 
developed countries are implementing a prio ri limitations, 'developing countries' may 
mean  less than all   developing countries" 262;  and, ultimately, that   
(c) the European Communities failed "to demonstrate that the Drug Arrangements are 
justified under paragraph 2(a) of the Enabling Clause".263 
                                                      
260European Communities' appellant's submission, para. 67. 
261Panel Report, paras. 7.161 and 7.176.  
262Ibid., para. 7.174. (original italics;  footnote omitted) 
263Ibid., para. 8.1(d).  WT/DS246/AB/R 
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128. Before addressing these specific issues, we will id entify the precise scope of the appeal before 
us.  In doing so, we note that both the Europ ean Communities and India agree that, in addressing 
paragraph 2(a) of the Enabling Clause, the Panel implicitly made findings on issues that were not 
before it.  Thus, India submits that "[t]he issue be fore the Panel was not whether the EC could exclude 
from its GSP scheme countries claiming developing country status." 264  In India's view, that issue did 
not arise "because India and all the countries enjo ying tariff preferences under the Drug Arrangements 
are beneficiaries under the EC's GSP scheme." 265  Also not before the Panel, according to India, was 
"whether the EC's mechanisms for the graduation of developing countries meet the requirements of 
the Enabling Clause." 266  India emphasizes that it "did not submit any claims on these issues to the 
Panel because they are not relevant to the resolution of this dispute." 267  In other words, according to 
India, the legal issues raised in this dispute "relate exclusively" 268 to the treatment of those countries 
that a preference-granting country has included in its GSP scheme as beneficiaries.  The European 
Communities echoes India's concern that the Panel read obligations into the Enabling Clause "in 
respect of issues which had not been raised by any of  the parties and which [the  Panel] did not have to 
address in order to resolve the dispute".269    
129. Against this background, we understand India's clai m before the Panel to have been limited to 
the consistency of the Drug Arrangements with th e term "non-discriminatory" in footnote 3 to 
paragraph 2(a) of the Enabling Clause.270  In particular, India's challenge to the Drug Arrangements is 
based on its submission that the term "non-discriminatory" prevents preference-granting countries 
from according preferential tariff treatment to any beneficiary of their GSP schemes without granting 
identical preferential tariff treatment to all other beneficiaries.  Therefore, in this Report, we do not rule on whether the Enabling Clause permits  ab initio   exclusions from GSP schemes of countries 
claiming developing country status, or the partial or  total withdrawal of GSP benefits from certain 
developing countries unde r certain conditions.   
                                                     
 
264India's appellee's submission, para. 101. 
265Ibid. 
266India's opening statement at the oral  hearing.  By "graduation", we understand India to refer to the 
withdrawal of preferen tial tariff treatment with respect to specific products or designated developing countries 
on grounds of the degree of their development. 
267India's opening statement at  the oral hearing.   
268India's appellee's submission, para. 103. 
269European Communities' appellant's submission, para. 7. 
270See  supra , paras. 120-122. WT/DS246/AB/R 
Page 54  
 
130. We note, moreover, that the European Communities has  not  appealed the Panel's 
interpretation of paragraph 3(c) of the Enabling Clause.
271  Instead, the Eur opean Communities has 
invoked that provision solely as "contextual support" for its interpretation of "non-discriminatory" in 
footnote 3.272  We also note that the Panel made no findings in this case as to whether the Drug 
Arrangements are inconsistent with  paragraph 3(a) or 3(c) of the Enabling Clause.  Our mandate, 
pursuant to Article 17.6 of the DSU, is limited to "issues of law covered in the panel report and legal 
interpretations developed by the pane l".  Therefore, in this appeal, we are not required to, and we shall 
not address, the issue of whether the Drug Arrangement s are consistent with paragraphs 3(a) and 3(c) 
of the Enabling Clause.  This does not prevent us, of course, from examini ng those paragraphs as 
context for our interpretation of "non-discriminatory" in footnote 3. 
131. With these considerations in mind, we turn  to address the meaning of the term "non-
discriminatory" in footnote 3.  In doing so, we cons ider it useful to begin our analysis by setting out 
briefly the relevant findings of the Panel. 
A. Panel Findings 
132. The Panel stated at the outset that "[t]he main  issue disputed by the parties is whether the 
Drug Arrangements are consistent with paragraph 2(a) of the Enabling Clause, particularly the 
requirement of 'non-discriminatory' in  footnote 3 to this subparagraph." 273  Paragraph 2(a) reads:   
2. The provisions of paragraph 1 apply to the following: 
 (a) Preferential tariff treatment accorded by developed 
contracting parties to products orig inating in developing countries in 
accordance with the Generalized System of Preferences,3  
 3 As 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" (BISD 18S/24). (footnote 2 omitted) 
                                                      
271The European Communities refers to the Panel's finding, in paragraph 7.99 of the Panel Report, that 
paragraph 3(c) requires preference-granting countries to "provide product coverage and tariff cuts at levels in 
general no less than those offered and accepted in the Agreed Conclusions."   The European Communities explains that "[s]ince this issue was not raised by India and is not directly relevant to the issues in dispute, ... the 
EC has not deemed [it necessary] to appeal it." (European Co mmunities' appellant's su bmission, footnote 40 to 
para. 47) 
272European Communities' appellant's submission, para. 126.       
273Panel Report, para. 7.65.   WT/DS246/AB/R 
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133. The Panel went on to examine, not the language  of those provisions, but the meaning of 
paragraph 3(c) of the Enabling Clause, which reads: 
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. 
The Panel explained that "[i]t is only possible to gi ve a full meaning to paragraph 2(a) and footnote 3 
after determining whether paragr aph 3(c) allows differentiation among developing countries in 
'respond[ing] positively to the development, financ ial and trade needs of developing countries'."
 274   
134. Having found that the text of paragraph 3( c) "does not reveal whether the 'needs of 
developing countries' refers to the needs of  all  developing countries or to the needs of  individual   
developing countries" 275, the Panel proceeded to examine "the drafting history in UNCTAD ... to 
identify the intention of the drafters on issues relating to the GSP arrangements." 276  The Panel 
concluded that paragraph 3(c) allows for diffe rentiation among beneficiaries for the purposes of 
granting preferential treatment to least-developed countries and setting  a priori  import limitations for 
products originating in particularly competitive deve loping countries.  The Panel asserted that "[n]o 
other differentiation among developing c ountries is permitted by paragraph 3(c)." 277   
135. Having made these findings based on its review of what it considered the "context" and 
"preparatory work" 278 of paragraph 3(c) of the Enabling Clause, the Panel turned to examine 
paragraph 2(a) and footnote 3 thereto.  The Panel observed that the word "discriminate ... can have 
either a  neutral  meaning of making a distinction or a  negative  meaning carrying the connotation of 
a distinction that is unjust or prejudicial." 279  In order to determine th e appropriate meaning of the 
                                                      
274Panel Report, para. 7.65 (quoting Enabling Clause, para. 3(c) (attached as Annex 2 to this Report)).  
In a footnote, the Panel explained fu rther that "[t]he European Communities argue[d] that 'if the term "non-
discriminatory" was interpreted as prohibiting any difference in treatment between developing countries, developed countries would be effectively precluded from  responding positively to those needs, thus rendering 
[to] a nullity the requirement set forth in paragraph 3(c)'." ( Ibid., footnote 291 to para. 7.65 (quoting European 
Communities' first written submission to the Panel, para. 71)) 
275Ibid., para. 7.78. (original italics) 
276Ibid., para. 7.80.  
277Ibid., para. 7.116. 
278Ibid., para. 7.88. 
279Ibid., para. 7.126. (original italics) WT/DS246/AB/R 
Page 56  
 
term "non-discriminatory" as used in footnote 3, th e Panel turned to the context of that term.  
According to the Panel, this context includes paragr aphs 2(a), 2(d), and 3(c) of the Enabling Clause, 
with the "most relevant elements of context"  being Resolution 21(II) of the Second Session of 
UNCTAD ("Resolution 21(II)")
280 and the Agreed Conclusions.281  Based on its review of these 
documents, the Panel found that: 
… the clear intention of the negotia tors was to provide GSP equally 
to all developing countries and to  eliminate all differentiation in 
preferential treatment to developing countries, with the exception of the implementation of a priori limitations in GSP schemes.
282 
136. The Panel concluded: 
… that the requirement of non-discrimination, as a general principle 
formally set out in Resolution 21 (II) and later carried over into the 
1971 Waiver Decision and then into the Enabling Clause, obliges 
preference-giving countries to provide the GSP benefits to all 
developing countries without differentiation, except for the implementation of a priori limitations in GSP schemes.
283 (original 
italics) 
137. The Panel found further support for its conclusion in its previous analysis of paragraph 3(c) 284 
and in paragraph 2(d) of the Enabling Clause, which provides:   
2. The provisions of paragraph 1 apply to the following: 
... 
 ( d) Special treatment of the least developed among the 
developing countries in the context of any general or specific 
measures in favour of developi ng countries. (footnote omitted) 
The Panel stated that the term "non-discriminator y" cannot be interpreted "to permit preferential 
treatment to less than all developing count ries without an explicit authorization".285  According to the 
Panel, "[s]uch explicit authorizati on is only provided for the benefit of the least-developed countries 
                                                      
280Resolution 21(II) of the Second Session of UN CTAD, entitled "Expansion and Diversification of 
Exports of Manufactures and Semi-Manufactures of Developing Countries" (attached as Annex D-3 to the Panel 
Report). 
281Panel Report, para. 7.128. 
282Ibid., para. 7.144. 
283Ibid.  
284Ibid., paras. 7.148-7.149. 
285Ibid., para. 7.151.   WT/DS246/AB/R 
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in paragraph 2(d) of the Enabling Clause and for th e implementation of a priori limitations, as set out 
in the Agreed Conclusions." 286 
138. Turning to the "object and purpose" of the Enab ling Clause, the Panel considered that "the 
objective of promoting the trade of developing coun tries and that of promoting trade liberalization 
generally" 287 are relevant for the interpretation of the term "non-discriminatory".  The Panel 
determined, however, that the latter "contribut es more to guiding the interpretation of 'non-
discriminatory', given its function of preventing abuse in providing GSP." 288 
139. The Panel found further support for its interpre tation in an examination of the "overall 
practice" of preference-granting countries 289, which, according to the Panel, "suggests that there was a 
common understanding of 'equal' trea tment to all developing countries except for a priori measures, 
and that it was on this basis that the 1971 Waiver Decision was adopted." 290 
140. Based on its analysis described  above, the Panel found that: 
... the term "non-discriminatory" in footnote 3 requires that  identical  
tariff preferences under GSP schemes be provided to all developing 
countries without differentiation, except for the implementation of a 
priori limitations.291 (emphasis added) 
141. Regarding the measure at issue in this dispute, the Panel found that: 
... the European Communities' Drug Arrangements, as a GSP 
scheme, do not provide identi cal tariff preferences to  all  developing 
countries and that the differentiation is neither for the purpose of special treatment to the least-devel oped countries, nor in the context 
of the implementation of a priori measures.  Such differentiation is inconsistent with paragraph 2( a), particularly the term "non-
discriminatory" in footnote 3[.]
292 (original italics) 
Consequently, the Panel also found that "the Europ ean Communities has failed to demonstrate that the 
Drug Arrangements are justified under para graph 2(a) of the Enabling Clause".293 
                                                      
286Panel Report, para. 7.151 . 
287Ibid., para. 7.158.  
288Ibid.  
289Ibid., para. 7.159.  
290Ibid. 
291Ibid., para. 7.161.  
292Ibid., para. 7.177. 
293Ibid., para. 8.1(d). WT/DS246/AB/R 
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B. Interpretation of the Term "Non-Discriminatory" in Footnote 3 to Paragraph 2(a) of 
the Enabling Clause 
142. We proceed to interpret the term "non-discriminatory" as it appears in footnote 3 to 
paragraph 2(a) of the Enabling Clause.   
143. We recall first that the Enabling Clause has become a part of the GATT 1994.
294  Paragraph 1 
of the Enabling Clause authorizes WTO Members to  provide "differential and more favourable 
treatment to developing countries, without according such treatment to other WTO Members".  As explained above, such differential treatment is perm itted "notwithstanding" the provisions of Article I 
of the GATT 1994.  Paragraph 2(a) and footnote 3 thereto clarify that paragraph 1 applies to 
"[p]referential tariff treatment accorded by develope d contracting parties to products originating in 
developing countries in accordance with th e Generalized System of Preferences"
 295, "[a]s described in 
the [1971 Waiver Decision], relating to the establi shment of 'generalized, non-reciprocal and non 
discriminatory preferences beneficial to the developing countries' ".296  
144. The Preamble to the 1971 Waiver Decision in turn  refers to "preferential tariff treatment" in 
the following terms: 
Recalling that at the Second UNCTAD, unanimous agreement was 
reached in favour of the early est ablishment of a mutually acceptable 
system of generalized, non-reciprocal and non-discriminatory  
preferences beneficial to the developing countries in order to increase the export earnings, to promote the industrialization, and to accelerate the rates of economic growth of these countries; 
Considering   that mutually acceptable arrangements have been drawn 
up in the UNCTAD concerning the establishment of generalized, 
non-discriminatory, non-reciprocal  preferential tariff treatment  in the 
markets of developed countries for products originating in 
developing countries[.]297 (original italics;  underlining added) 
145. Paragraph 2(a) of the Enabling Clause provides, therefore, that, to be justified under that 
provision, preferential tariff treatment must be "i n accordance" with the GSP "as described" in  
the Preamble  to the 1971 Waiver Decision.  "Accordan ce" being defined in the dictionary as 
                                                      
294See supra , footnote 192. 
295Enabling Clause, para. 2(a) (attached  as Annex 2 to this Report). 
296Ibid., footnote 3 to para. 2(a). 
2971971 Waiver Decision, third and fourth recitals.  WT/DS246/AB/R 
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"conformity" 298, only preferential tariff treatment that is in conformity with the description 
"generalized, non-reciprocal and non-discriminatory" treatment can be justified under paragraph 2(a). 
146. In the light of the above, we do not ag ree with European Communities' assertion 299 that the 
Panel's interpretation of the word "non-discriminatory" in footnote 3 of the Enabling Clause is erroneous because the phrase "generalized, non-reciprocal and non discriminatory" in footnote 3 merely refers to the description of the GSP in the 1971 Waiver Decision and, of itself, does not 
impose any legal obligation on preference-granting count ries.  Nor do we agree with the United States 
that the Panel erred in "assum[ing]" that the te rm "non-discriminatory" in footnote 3 imposes 
obligations on preference-granting countries, and that , instead, footnote 3 "is simply a cross-reference 
to where the Generalized System of Preferences is described."
 300 
147. We find support for our interpretation in the Fren ch version of paragraph 2(a) of the Enabling 
Clause, requiring that the tariff preferences be accorded " conformément au Système généralisé de 
préférences ".  The term "in accordance" is thus " conformément " in the French version.  In addition, 
the phrase "[a]s described in [the 1971 Waiver Decision]" in footnote 3 is stated as " [t]el qu'il est 
défini dans la décision des PARTIES CONTRACTANTES en date du 25 juin 1971 ".  Similarly, the 
Spanish version uses the terms " conformidad " and " [t]al como lo define la Decisión de las PARTES 
CONTRATANTES de 25 de junio de 1971 ".  In our view, the stronger, more obligatory language in 
both the French and Spanish texts—that is, using " as defined in" rather than "as described in"—lends 
support to our view that only preferential tariff tr eatment that is "generalized, non-reciprocal and non-
discriminatory" is covered under para graph 2(a) of the Enabling Clause.301  
148. Having found that the qualification of the GSP as "generalized, non-reciprocal and non 
discriminatory" imposes obligations that must be fulfilled for preferential tariff treatment to be 
justified under paragraph 2(a), we turn  to address the Panel's finding that: 
                                                      
298Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002), Vol. 1, p. 15. 
299European Communities' response to questioning at the oral hearing.  
300United States' third participant's submission, para. 11. 
301We further note the existence of a 1999 WTO waiver allowing  developing   countries to grant special 
preferences to  least-developed   countries. (Waiver Decision on Pr eferential Tariff Treatment for Least-
Developed Countries, WT/L/304, 15 June 1999 (the "1999 LDC Waiver"))  That waiver applies only to 
"preferential tariff treatment ... provid ed on a generalized, non-reciprocal  and non-discriminatory basis". ( Ibid., 
para. 2)  As such, for tariff preferences to be justified thereunder, there is a  requirement   that the treatment be 
accorded on a "generali zed, non-reciprocal and non-discriminatory  basis ." (emphasis added)  We see no reason 
why  developed   countries would be permitted to provide preferential tariff treatment to developing countries 
under the Enabling Clause other than on a "non-discrimin atory basis", when there is  clearly a requirement for 
 developing  countries to provide such treatment to least-de veloped countries on a "non-discriminatory basis" 
under the 1999 LDC Waiver. WT/DS246/AB/R 
Page 60  
 
... the term "non-discriminatory" in footnote 3 requires that  identical  
tariff preferences under GSP schemes be provided to  all  developing 
countries without differentiation, except for the implementation of a priori limitations.
302 (emphasis added) 
149. The European Communities maintains that "'non-discrimination' is not synonymous with 
formally equal treatment" 303 and that "[t]reating differently situ ations which are objectively different 
is not discriminatory." 304  The European Communities asserts th at "[t]he objective of the Enabling 
Clause is different from that of Article I:1 of the GATT." 305  In its view, the la tter is concerned with 
"providing equal conditions of competition for impor ts of like products originating in all Members", 
whereas "the Enabling Clause is a form of Spec ial and Differential Treatment for developing 
countries, which seeks the opposite result: to creat e unequal competitive opportunities in order to 
respond to the special needs of developing countries." 306  The European Communities derives 
contextual support from paragraph 3(c), which stat es that the treatment provided under the Enabling 
Clause "shall ... be designed and, if necessary, m odified, to respond positively to the development, 
financial and trade needs of developing countries. "  The European Communities concludes that the 
term "non-discriminatory" in footnote 3 "does not prevent the preference-giving countries from differentiating between developing countries which have different development needs, where tariff 
differentiation constitutes an adequa te response to such differences."
 307 
150. India, in contrast, asserts that "non-discrimin ation in respect of tariff measures refers to 
formally equal[] treatment" 308 and that paragraph 2(a) of the Enabling Clause requires that 
"preferential tariff treatment [be] app lied equally" among developing countries.309  In support of its 
argument, India submits that an in terpretation of paragraph 2(a) of the Enabling Clause that authorizes 
developed countries to provide "discriminatory tariff treatment  in favour of the developing countries  
but not  between the developing countries  gives full effect to both Article I of the GATT and 
paragraph 2(a) of the Enabling Clause and minimises the conflict between them." 310  India 
emphasizes that, by consenting to the adoption of the Enabling Clause, developing countries did not 
                                                      
302Panel Report, para. 7.161.  
303European Communities' appellant's submission, para. 71.   
304Ibid. 
305Ibid., para. 152. 
306Ibid. 
307Ibid., para. 188. 
308India's appellee's submission, para. 120.  
309Ibid., para. 106. 
310Ibid., para. 92. (original italics)  WT/DS246/AB/R 
 Page 61 
 
 
"relinquish[] their MFN rights [under Article I of the GATT 1994] as between themselves, thus 
permitting developed countries to  discriminate between them." 311  
151. We examine now the ordinary meaning of the term "non-discriminatory" in footnote 3 to 
paragraph 2(a) of the Enabling Clause.  As we observed, footnote 3 requires that GSP schemes under 
the Enabling Clause be "generalized , non-reciprocal and non discriminatory".  Before the Panel, the 
participants offered competing defin itions of the word "discriminate".  India suggested that this word 
means "'to make or constitute a difference in or betw een;  distinguish' and 'to make a distinction in the 
treatment of different categories of peoples or things'." 312  The European Communities, however, 
understood this word to mean "'to make a distincti on in the treatment of different categories of people 
or things, esp.  unjustly   or  prejudicially   against people on grounds of race, colour, sex, social status, 
age, etc.' " 313   
152. Both definitions can be considered as re flecting ordinary meanings of the term 
"discriminate" 314 and essentially exhaust the relevant ordina ry meanings.  The principal distinction 
between these definitions, as the Panel noted, is that India's conveys a " neutral  meaning of making a 
distinction", whereas the European Communities' conveys a " negative  meaning carrying the 
connotation of a distinction that is unjust or prejudicial." 315  Accordingly, the ordinary meanings of 
"discriminate" point in conflicting directions with  respect to the propriety of according differential 
treatment.  Under India's reading, any differential tr eatment of GSP beneficiar ies would be prohibited, 
because such treatment necessarily makes a distinction between beneficiaries.  In contrast, under the 
European Communities' reading, differential treatment  of GSP beneficiaries would not be prohibited  
per se .  Rather, distinctions would be  impermissible only where the b asis for such distinctions was 
improper.  Given these divergent meanings, we do not  regard the term "non-discriminatory", on its 
own, as determinative of the permissibility of a preference-granting country according different tariff 
preferences to different beneficiaries of its GSP scheme.   
153. Nevertheless, at this stage of our analysis, we are able to discern some of the content of the 
"non-discrimination" obligation based on the ordinary meanings of that term.  Whether the drawing of 
                                                      
311India's appellee's submission, para. 104. 
312Panel Report, para. 7.126 (quoting  The New Shorter Oxford English Dictionary , L. Brown (ed.) 
(Clarendon Press, 1993), Vol. 1, p. 689).  
313Ibid. (quoting  The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press, 1993), 
Vol. 1, p. 689). (italics added by the Panel) 
314See  Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford 
University Press, 2002), Vol. 1, p. 697. 
315Panel Report, para. 7.126. (original italics) WT/DS246/AB/R 
Page 62  
 
distinctions is  per se  discriminatory, or whether it is di scriminatory only if done on an improper 
basis, the ordinary meanings of "discriminate" c onverge in one important respect:  they both suggest 
that distinguishing among similarly-situated benefi ciaries is discriminatory.  For example, India 
suggests that all beneficiaries of a particular Memb er's GSP scheme are similarly-situated, implicitly 
arguing that any differential treatment of such bene ficiaries constitutes discrimination.  The European 
Communities, however, appears to regard GSP benefi ciaries as similarly-situated when they have 
"similar development needs".
316  Although the European Communities acknowledges that 
differentiating between similarly-situated GSP benefi ciaries would be inconsis tent with footnote 3 of 
the Enabling Clause, it submits that there is no  inconsistency in diffe rentiating between GSP 
beneficiaries with "different development needs".317  Thus, based on the ordinary meanings of 
"discriminate", India and the European Communities e ffectively appear to agree that, pursuant to the 
term "non-discriminatory" in footnote 3, similarly- situated GSP beneficiaries should not be treated 
differently.318  The participants disagree only as to the b asis for determining whether beneficiaries are 
similarly-situated. 
154. Paragraph 2(a), on its face, does not explicitly authorize or proh ibit the granting of different 
tariff preferences to different GSP beneficiaries.  It is clear from the ordinary meanings of "non-
discriminatory", however, that preference-granting countries must make available identical tariff 
preferences to all similarly-situated beneficiaries.   
155. We continue our interpretive analysis by turn ing to the immediate context of the term "non-
discriminatory".  We note first that footnote 3 to paragraph 2(a) stipulates that, in addition to being 
"non-discriminatory", tariff preferences provide d under GSP schemes must be "generalized".  
                                                      
316European Communities' appellant's submission, para. 175. (See also, ibid., para. 186) 
317Ibid., para. 188. 
318We note that the contrasting definitions proffered by  the participants, as we ll as the convergence of 
those definitions on the fact that similarly-situated entitie s should not be treated diffe rently, find reflection in the 
use of the term "discrimination" in general international law.  In this respect, we note, as an example, the 
definitions of "discrimination" provided by the European  Communities, in footnotes 56 and 57 of its appellant's 
submission: 
56 ... Mere differences of treatm ent do not necessarily constitute 
discrimination … discrimination may in general be said to arise where those who are in all material respects the sa me are treated differently, or where 
those who are in material respects diff erent are treated in the same way.  
(quoting  R. Jennings and A. Watts (eds.),  Oppenheim’s International Law , 9th ed. (Longman, 1992), Vol. I, 
p. 378) 
57 ... Discrimination occurs when in a legal system an inequality is 
introduced in the enjoyment of a certain right, or in a duty, while there is no sufficient connection between the inequality upon which the legal inequality 
is based, and the right or the duty in which this inequality is made.  
(quoting  E.W. Vierdag, The Concept of Discrimination in International Law , (Martinus Nijhoff, 1973), p. 61)  WT/DS246/AB/R 
 Page 63 
 
 
According to the ordinary meaning of that term, tariff preferences provided under GSP schemes must 
be "generalized" in the sense that they "apply more  generally; [or] become extended in application".319  
However, this ordinary meaning alone may not reflect the entire significance of the word 
"generalized" in the context of footnote 3 of th e Enabling Clause, particul arly because that word 
resulted from lengthy negotiations leading to the GSP.  In this regard, we note the Panel's finding that, 
by requiring tariff preferences under the GSP to be "generalized", developed and developing countries 
together sought to eliminate existing "special" preferences that were granted only to certain 
designated developing countries.320  Similarly, in response to our questioning at the oral hearing, the 
participants agreed that one of the objectives of  the 1971 Waiver Decision and the Enabling Clause 
was to eliminate the fragmented system of special preferences 321 that were, in general, based on 
historical and political ties between developed countries and their former colonies. 
156. It does not necessarily follow, however, that " non-discriminatory" should be interpreted to 
require that preference-granting countries provide "identical" tariff preferences under GSP schemes to 
"all" developing countries.  In concluding othe rwise, the Panel assumed that allowing tariff 
preferences such as the Drug Arrangements would n ecessarily "result [in] the collapse of the whole 
GSP system and a return back to special pref erences favouring selected developing countries".322  To 
us, this conclusion is unwarranted.  We observe th at the term "generalized" requires that the GSP 
schemes of preference-granting countr ies remain generally applicable.323  Moreover, unlike the Panel, 
we believe that the Enabling Clause sets out suffi cient conditions on the granting of preferences to 
protect against such an outcome.  As we discuss below 324, provisions such as paragraphs 3(a) and 3(c) 
                                                      
319Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002), Vol. 1, p. 1082. 
320Panel Report, paras. 7.135-7.137.  The Panel also observed that statements by developed and 
developing countries indicated the aim of providing GSP schemes with a broad scope, encompassing the 
granting of preferences by  all  developed countries to  all  developing countries. ( Ibid., paras. 7.131-7.132) 
321See also European Communities' appellant's submission, para. 175. 
322Panel Report, para. 7.102. 
323The European Communities argues in this respect  that the GATT Contracting Parties and the WTO 
Members have granted a number of waivers, as mentioned in the Panel Report, for tariff preferences that are "confined  ab initio   and permanently to a limited number of developing countries located in a certain 
geographical region". (European Communities' appellant's  submission, paras. 184-185 (referring to Panel 
Report, para. 7.160))  See also, Panel Report, footnote 31 to para. 4.32 (referring to Waiver Decision on the Caribbean Basin Economic Recovery Act, GATT Document L/5779, 15 February 1985, BISD 31S/20, renewed 
15 November 1995, WT/L/104;  Waiver Decision on CARIBCAN, GATT Document L/6102, 28 November 
1986, BISD 33S/97, renewed 14 October 1996, WT/L/185;  Waiver Decision on the United States – Andean Trade Preference Act, GATT Document L/6991, 19 March 1992, BISD 39S/385, renewed 14 October 1996, 
WT/L/184;  Waiver Decision on The Fourth ACP-EEC Convention of Lomé, GATT Document L/7604, 9 
December 1994, BISD 41S/26, rene wed 14 October 1996, WT/L/186;  and Waiver Decision on European 
Communities – The ACP-EC Partnership Agreemen t, WT/MIN (01)/15), 14 November 2001. 
324Infra , paras. 157-168. WT/DS246/AB/R 
Page 64  
 
of the Enabling Clause impose specific conditions on the granting of different tariff preferences 
among GSP beneficiaries.   
157. As further context for the term "non-discriminatory" in footnote 3, we turn next to 
paragraph 3(c) of the Enabling Clause, which sp ecifies that "differential and more favourable 
treatment" provided under the Enabling Clause: 
... 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. 
158. At the outset, we note that the use of the wo rd "shall" in paragraph 3(c) suggests that 
paragraph 3(c) sets out an obligation for deve loped-country Members in providing preferential 
treatment under a GSP scheme to "respond positiv ely" to the "needs of developing countries".
325   
Having said this, we turn to consider whether the "development, financial and trade needs of 
developing countries" to which preference-granti ng countries are required to respond when granting 
preferences must be understood to cover the "needs" of developing countries  collectively . 
159. The Panel found that "the only a ppropriate way [under paragraph 3(c) of the Enabling Clause] 
of responding to the differing development needs of developing countries is for preference-giving 
countries to ensure that their [GSP ] schemes have sufficient breadth of  product coverage and depth of 
tariff cuts to respond positively to those differing needs." 326  In reaching this conclusion, the Panel 
appears to have placed a great deal of significance on  the fact that paragraph 3(c) does not refer to 
needs of " individual " developing countries.327  The Panel thus understood that paragraph 3(c) does not 
permit the granting of preferential tariff treatment  exclusively to a sub-category of developing 
countries on the basis of needs that are common to or  shared by only those developing countries.  We 
see no basis for such a conclusion in the text of para graph 3(c).  Paragraph 3( c) refers generally to 
"the development, financial and trade needs of developing countries".  The absence of an explicit 
requirement in the text of paragraph 3(c) 328 to respond to the needs of "all" developing countries, or to 
                                                      
325We note that the European Communities agreed before the Panel that paragraph 3(c) of the Enabling 
Clause sets forth a "requirement". (European Communitie s' first written submission to the Panel, paras. 71  
and 149) 
326Panel Report, para. 7.149. (See also, ibid., paras. 7.95-7.97 and 7.105) 
327Ibid., para. 7.78. 
328The United States refers to Article 3.2 of the DSU to support its argument that "panels are barred 
from reading legal obligations into the Enabling Clause that are not found in the text." (United States' third 
participant's submission, para. 13)  WT/DS246/AB/R 
 Page 65 
 
 
the needs of "each and every" 329 developing country, suggests to us that, in fact, that provision 
imposes no such obligation.330   
160. Furthermore, as we understand it, the participants  in this case agree that developing countries 
may have "development, financial and trade needs"  that are subject to change and that certain 
development needs may be common to only a certain number of developing countries.331  We see no 
reason to disagree.  Indeed, paragraph 3(c) cont emplates that "differential and more favourable  
treatment" 332 accorded by developed to developing countries may need to be "modified" in order to 
"respond positively" to the needs of developing countries.  Paragraph 7 of the Enabling Clause 
supports this view by recording the expectation of  "less-developed contracting parties" that their 
capacity to make contributions or concessions under the GATT will "improve with the progressive 
development of their economies and improvement in  their trade situation".  Moreover, the very 
purpose of the special and differential treatment permitted under the Enabling Clause is to foster 
economic development of developing countries.  It  is simply unrealistic to assume that such 
development will be in lockstep for all devel oping countries at once, now and for the future. 
161. In addition, the Preamble to the  WTO  Agreement ,  which informs all the covered agreements 
including the GATT 1994 (and, hence, the Enab ling Clause), explicitly recognizes the "need for 
positive efforts designed to ensure that developi ng countries, and especially the least developed 
among them, secure a share in the growth in internat ional trade commensurate with the needs of their 
economic development".333  The word "commensurate" in this  phrase appears to leave open the 
possibility that developing countries may have di fferent needs according to their levels of 
development and particular circumstances.  The Preamble to the  WTO Agreement  further recognizes 
                                                      
329Panel Report, para. 7.105. (italics omitted) 
330In this respect, we agree with the European Communities that paragraph 3(c) should "be interpreted 
in a manner which, while preserving its relevance, is both workable for developed countries and consistent with 
the requirements that the preferences be  non-discriminatory ." (European Communities' appellant's submission, 
para. 138 (original italics)) 
331The European Communities emphasized before the Panel that the "development, financial and trade 
needs of developing countries" referred to in paragraph 3(c) of the Enabling Clause "[o]bviously ... may vary between different categories of developing countries, as well as over time." (European Communities' first 
written submission to the Panel, para. 71)  That "needs of developing countries" may change over time was also 
acknowledged by India in response to our questioning at th e oral hearing.  In addition, we understand India not 
to disagree that developing countries may have different individual needs, given that it argues that 
paragraph 3(c) should be interpreted as requiring "GSP schemes [to] respond to the needs of developing 
countries as a whole and not their individual needs." (India's appellee's submission, para. 124) 
332Enabling Clause, para. 1 (attached as Annex 2 to this Report). 
333WTO Agreement , Preamble, second recital. WT/DS246/AB/R 
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that Members' "respective needs and concerns at different levels of  economic development"
 334 may 
vary according to the different stages of development of different Members.  
162. In sum, we read paragraph 3(c) as authoriz ing preference-granting countries to "respond 
positively" to "needs" that are  not  necessarily common or shared by all developing countries.  
Responding to the "needs of developing countries" may thus entail treating different developing-
country beneficiaries differently.   
163. However, paragraph 3(c) does not authorize  any  kind of response to  any  claimed need of 
developing countries.  First, we observe that the ty pes of needs to which a response is envisaged are 
limited to "development, financial and trade needs".  In our view, a "need" cannot be characterized as 
one of the specified "needs of developing countries" in  the sense of paragraph 3(c) based merely on an 
assertion to that effect by, for instance, a preference-granting country or a beneficiary country.  
Rather, when a claim of inconsistency with paragra ph 3(c) is made, the existence of a "development, 
financial [or] trade need" must be assessed according to an  objective  standard.  Broad-based 
recognition of a particular need, set out in the  WTO  Agreement   or in multilateral instruments adopted 
by international organizations, could serve as such a standard.335 
164. Secondly, paragraph 3(c) mandates that the response provided to the needs of developing 
countries be "positive".  "Positive" is defined as "cons isting in or characterized by constructive action 
or attitudes".336  This suggests that the res ponse of a preference-granting country must be taken with a 
view to  improving  the development, financial or trade s ituation of a beneficiary country, based on 
the particular need at issue.  As such, in our view, the expectation that developed countries will 
"respond positively" to the "needs of developing countries" suggests that a sufficient nexus should 
exist between, on the one hand, the preferential treatment provided under the respective measure 
authorized by paragraph 2, and, on the other hand, the likelihood of alleviating the relevant 
"development, financial [or] trade need".  In the c ontext of a GSP scheme, the particular need at issue 
must, by its nature, be such that it can be effectiv ely addressed through tariff preferences.  Therefore, 
only if a preference-granting country acts in the "positive" manner suggested, in "respon[se]" to a 
                                                      
334WTO Agreement , Preamble, first recital. 
335The European Communities argues that tariff prefer ences are an appropriate response to the drug 
problem.  In support of its argument, the European Communities refers to the Preamble to the  Agreement on 
Agriculture  and the waiver for the United States' Andean Trad e Preference Act.  In addition, the European 
Communities finds support in several international conventions and resolutions that have recognized drug 
production and drug trafficking as entailing particular problems for developing countries.  (See Panel Report, 
paras. 4.71-4.74;  and European Communities' appellant's submission, paras. 144-149) 
336Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002), Vol. 2, p. 2293.  WT/DS246/AB/R 
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widely-recognized "development, financial [or] trad e need", can such action satisfy the requirements 
of paragraph 3(c). 
165. Accordingly, we are of the view that, by  requiring developed countries to "respond 
positively" to the "needs of developing countri es", which are varied and not homogeneous, 
paragraph 3(c) indicates that a GSP scheme may be "non-discriminatory" even if "identical" tariff 
treatment is not accorded to "all" GSP beneficiarie s.  Moreover, paragraph 3(c) suggests that tariff 
preferences under GSP schemes may be "non-discriminatory" when the relevant tariff preferences are 
addressed to a particular "development, financial [or] trade need" and are made available to all 
beneficiaries that share that need. 
166. India submits that developing countries should not be presumed to have waived their MFN 
rights under Article I:1 of the GATT 1994  vis-à-vis  other developing countries 337, and we make no 
such presumption.  In fact, we note that the Enabling Clause  specifically  allows developed countries 
to provide differential and more favourable treatme nt to developing countries "notwithstanding" the 
provisions of Article I.338  With this in mind, and given that paragraph 3(c) of the Enabling Clause 
contemplates, in certain circum stances, differentiation among GSP beneficiaries, we cannot agree 
with India that the right to MFN treatment can be invoked by a GSP beneficiary  vis-à-vis   other GSP 
beneficiaries in the context of GSP schemes that m eet the conditions set out in the Enabling Clause.  
167. Finally, we note that, pursuant to paragraph 3( a) of the Enabling Clause, any "differential and 
more favourable treatment ... shall be designed to  facilitate and promote the trade of developing 
countries and not to raise barriers to or create undue difficulties for the trade of any other contracting 
parties."  This requirement applies,  a fortiori ,  to any preferential treatment granted to one GSP 
beneficiary that is not granted to another.339  Thus, although paragraph 2(a) does not prohibit  per se  
the granting of different tariff preferences to different GSP beneficiaries 340, and paragraph 3(c) even 
contemplates such differentiation under certain circumstances 341, paragraph 3(a) requires that any 
positive response of a preference-granting country to the varying needs of developing countries not 
impose unjustifiable burdens on other Members. 
                                                      
337India's appellee's submission, para. 94.  
338Compare para. 1 of the Enabling Clause ("Notwithstanding the provisions of Article I") with 
para. (a) of the 1971 Waiver Decision ("the provisions of  Article I shall be waived ... to the extent necessary"). 
339We note in this respect that the language contained in paragraph 3(a) of the Enabling Clause is 
reflected in waivers referred to in  supra , footnote 323. 
340Supra , paras. 153-154. 
341Supra , paras. 162-165. WT/DS246/AB/R 
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168. Having examined the context of paragraph 2(a) , we turn next to examine the object and 
purpose of the  WTO Agreement .  We note first that paragraph 7 of the Enabling Clause provides that 
"[t]he concessions and contri butions made and the obligatio ns assumed by developed and less-
developed contracting parties under the provisions  of the [GATT 1994] should promote the basic 
objectives of the [GATT 1994], including those embodied in the Preamble".  As we have observed, the Preamble to the  WTO Agreement   provides that there is "need for positive efforts designed to 
ensure that developing countries, and especially th e least developed among them, secure a share in the 
growth in international trade commensurate w ith the needs of their economic development".
342  
Similarly, the Preamble to the 1971 Waiver De cision provides that "a principal aim of the 
CONTRACTING PARTIES is promotion of the trade and export earnings of developing countries for 
the furtherance of their economic development".343  These objectives are also reflected in 
paragraph 3(c) of the Enabling Clause, which stat es that the treatment provided under the Enabling 
Clause "shall ... be designed and, if necessary, m odified, to respond positively to the development, 
financial and trade needs of developing countries".  
169. Although enhanced market access will contribute  to responding to the needs of developing 
countries  collectively ,  we have also recognized that the needs of developing countries may vary over 
time.  We are of the view that the objective of impr oving developing countries' "s hare in the growth in 
international trade", and their "trade and export ear nings", can be fulfilled by promoting preferential 
policies aimed at those interests that developing countries have in common,  as well as  at those 
interests shared by sub-categories of developing countries based on their particular needs.  An 
interpretation of "non-discriminatory" that does not require the granting of "identical tariff 
preferences" 344 allows not only for GSP schemes providi ng preferential market access to all 
beneficiaries, but also the possibility of additional preferences for developing countries with particular 
needs, provided that such additional preferences ar e not inconsistent with other provisions of the 
Enabling Clause, including the requirements that  such preferences be "generalized" and "non-
reciprocal".  We therefore consider such an interp retation to be consistent with the object and purpose 
of the  WTO Agreement   and the Enabling Clause.  
170. The Panel took the view, however, that the objective of "elimination of discriminatory 
treatment in international commerce" 345, found in the Preamble to the GATT 1994, "contributes more 
                                                      
342WTO Agreement , Preamble, second recital. 
3431971 Waiver Decision, Preamble, first recital. 
344Panel Report, para. 7.161. 
345Ibid., para. 7.157 (quoting GATT 1994, Preamble, second recital).  WT/DS246/AB/R 
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to guiding the interpretation of 'non-discriminatory' " 346 than does the objective of ensuring that 
developing countries "secure ... a share in the growth  in international trade commensurate with their 
development needs." 347  We fail to see on what basis the Panel drew this conclusion. 
171. We next examine the relevance of paragraph 2(d) of the Enabling Clause 348 for the 
interpretation of "non-discriminatory" in footnote 3.   The Panel characterized paragraph 2(d) as an 
"exception" to paragraph 2(a) 349 and relied on paragraph 2(d) to su pport its view that paragraph 2(a) 
requires "formally identical treatment".350  In the Panel's view, if developed-country Members were 
entitled under paragraph 2(a) to differentiate betwee n developing-country Members, then they would 
have been entitled under that paragraph alone to differentiate between developing and least-developed 
countries.  Accordingly, "there would have been no need to include paragraph 2(d) in the Enabling 
Clause." 351  
172. We do not agree with the Panel that paragraph  2(d) is an "exception" to paragraph 2(a), or 
that it is rendered redundant if paragraph 2(a) is  interpreted as allowing developed countries to 
differentiate in their GSP schemes between developing countries.  To begin with, we note that the 
terms of paragraph 2 do not expressly indicate that each of the four sub-pa ragraphs thereunder is 
mutually exclusive, or that any one is an exception to any other.  Moreover, in our view, it is clear 
from several provisions of the Enabling Clause that the drafters wished to emphasize that least-
developed countries form an identifiable sub-categor y of developing countries with "special economic 
difficulties and ... particular devel opment, financial and trade needs".352  When a developed-country 
Member grants tariff preferences in favour of deve loping countries under para graph 2(a), as we have 
already found 353, footnote 3 imposes a requirement that such preferences be "non-discriminatory".  In 
the absence of paragraph 2(d), a Member granting pr eferential tariff treatment only to least-developed 
countries would therefore need to establish, under pa ragraph 2(a), that this preferential treatment did 
not "discriminate" against other developing countri es contrary to footnote 3.  The inclusion of 
paragraph 2(d), however, makes clear that devel oped countries may accord preferential treatment to 
                                                      
346Panel Report, paras. 7.157-7.158.  
347Ibid., para. 7.155 (referring to  WTO Agreement , Preamble, second recital). 
348Paragraph 2(d) deals with special treatment of least-developed countries "in the context of any 
general or specific measures in favour of developing countries". 
349Panel Report, para. 7.147.  
350Ibid., para. 7.145. 
351Ibid., para. 7.145 . 
352Enabling Clause, para. 6 (attached as Annex 2 to this Report).  Similarly, paragraph  8 of the 
Enabling Clause refers to the "special  economic situation and [the] development, financial and trade needs" of 
least-developed countries.  
353Supra , paras. 145-148.  WT/DS246/AB/R 
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least-developed countries distinct from the preferences granted to other developing countries under 
paragraph 2(a).  Thus, pursuant to  paragraph 2(d), preference-granting countries need not establish 
that differentiating between developing and least-d eveloped countries is "non-discriminatory".  This 
demonstrates that paragraph 2(d) does have an effe ct that is different and independent from that of 
paragraph 2(a), even if the term "non-discriminatory"  does not require the granting of "identical tariff 
preferences"
 354 to all GSP beneficiaries.  
173. Having examined the text and context of footnot e 3 to paragraph 2(a) of the Enabling Clause, 
and the object and purpose of the  WTO Agreement  and the Enabling Clause, we conclude that the 
term "non-discriminatory" in footnote 3 does not prohibit developed-country Members from granting 
different tariffs to products originating in different  GSP beneficiaries, provided that such differential 
tariff treatment meets the remaining conditions in th e Enabling Clause.  In granting such differential 
tariff treatment, however, preference-granting countri es are required, by virtue of the term "non-
discriminatory", to ensure that identical treatme nt is available to all similarly-situated GSP 
beneficiaries, that is, to all GSP beneficiaries that  have the "development, financial and trade needs" 
to which the treatment in question is intended to respond. 
174. For all of these reasons, we  reverse  the Panel's finding, in paragraphs 7.161 and 7.176 of the 
Panel Report, that "the term 'non-discriminatory' in footnote 3 [to paragraph 2(a) of the Enabling 
Clause] requires that identical tariff preference s under GSP schemes be provi ded to all developing 
countries without differentiation, except for the implementation of a priori limitations." 355 
C. The Words "Developing Countries" in Paragraph 2(a) of the Enabling Clause 
175. In addition to the Panel's interpretation of the term "non-discriminatory" in footnote 3 of the 
Enabling Clause, the European Communities appeals the Panel's finding that "the term 'developing 
countries' in paragraph 2(a) s hould be interpreted to mean  all  developing countries, [except as 
regards]  a priori  limitations".356 The Panel's interpretation of pa ragraph 2(a) is premised on its 
findings that (i) footnote 3 permits the granting of different tariff preferences to different GSP beneficiaries  only  for the purpose of  a priori  limitations
 357, and (ii) paragraph 3(c) permits the 
granting of different tariff preferences to different GSP beneficiaries  only  for the purposes of 
                                                      
354Panel Report, para. 7.161. 
355Given our interpretation, which permits differentiation among GSP beneficiaries, it is not necessary 
for us to rule on whether  a priori   limitations are permitted under the Enabling Clause. (See also, supra , paras. 
128-129) 
356Panel Report, para. 7.174. (original italics)  See also, European Communities' appellant's submission, 
para. 67. 
357Panel Report, para. 7.170.  WT/DS246/AB/R 
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a priori  limitations and preferential treatment in favour of least-developed countries.358  We have 
concluded, contrary to the Panel, th at footnote 3 and paragraph 3(c) do  not  preclude the granting of 
differential tariffs to different sub-categories of GSP beneficiaries, subject to compliance with the 
remaining conditions of the Enabling Clause.  We fi nd, therefore, that the term "developing countries" 
in paragraph 2(a) should not be read to mean "all" developing countries and, accordingly, that 
paragraph 2(a) does not prohibit preference-gran ting countries from according different tariff 
preferences to different sub-categories of GSP beneficiaries. 
176. Accordingly, we also  reverse   the Panel's finding, in paragr aph 7.174 of the Panel Report, 
that "the term 'developing countries' in paragraph 2(a) [of the Enabling Clause] should be interpreted 
to mean  all  developing countries, with the excep tion that where developed countries are 
implementing a priori limitations, 'developing countries' may mean  less than all   developing 
countries." 
D. Consistency of the Drug Arrangements with the Enabling Clause 
177. We turn next to examine the consistency of the Drug Arrangements with the Enabling Clause. 
178. We recall that, with respect to the Enabling Cl ause, the only challenge by India before the 
Panel related to paragra ph 2(a) and, in particular, footnote 3 thereto.359  In response, the European 
Communities argued that it found contextual support fo r its interpretation of paragraph 2(a) in the 
requirement, contained in paragraph 3(c), to  respond positively to the needs of developing 
countries.360  In rejecting the European Communities' in terpretation of paragraph 2(a), the Panel did 
not determine whether the Drug Arrangements satisfy  the conditions set out in paragraph 3(c), but, 
rather, limited its discussion of paragraph 3(c) to the relevance of that provision as context for its 
interpretation of paragraph 2(a).  Thus, the Panel ma de a finding of inconsistency only with respect to 
paragraph 2(a) of the Enabling Clause.361  The European Communities appeals this finding of 
inconsistency with  paragraph 2(a). 
179. Although paragraph 3(c) informs the interpreta tion of the term "non-discriminatory" in 
footnote 3 to paragraph 2(a), as detailed above 362, paragraph 3(c) imposes requirements that are 
                                                      
358Panel Report, para. 7.171. 
359Supra , paras. 120-122.  
360See Panel Report, para. 7.123;  European Comm unities' first written submission to the Panel, 
paras. 70-71 and 149;  and European Communities' seco nd written submission to the Panel, paras. 48-52. 
361Panel Report, para. 8.1(d). 
362Supra , paras. 157-162. WT/DS246/AB/R 
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separate and distinct from those of paragraph 2( a).  We have already concluded that, where a 
developed-country Member provides additional ta riff preferences under its GSP scheme to respond 
positively to widely-recognized "development, fina ncial and trade needs" of developing countries 
within the meaning of paragraph 3(c) of the Enab ling Clause, this "positive response" would not, as 
such, fail to comply with the "n on-discriminatory" requirement in footnote 3 of the Enabling 
Clause
 363, even if such needs were not common or shared  by all developing countries.  We have also 
observed that paragraph 3(a) requires that any pos itive response of a preferen ce-granting country to 
the varying needs of developing countries not  impose unjustifiable burdens on other Members.364  
With these considerations in mind, and recalling th at the Panel made no finding in this case as to 
whether the Drug Arrangements are inconsistent w ith paragraphs 3(a) and 3(c) of the Enabling 
Clause 365, we limit our analysis here to pa ragraph 2(a) and do not examine  per se   whether the Drug 
Arrangements are consistent with the obligation contained in paragr aph 3(c) to "respond positively to 
the development, financial and trade needs of deve loping countries" or with the obligation contained 
in paragraph 3(a) not to "raise barriers" or "create undue difficulties" for the trade of other Members.   
180. We found above that the term "non-discriminator y" in footnote 3 to paragraph 2(a) of the 
Enabling Clause does not prohibit the granting of differ ent tariffs to products originating in different 
sub-categories of GSP beneficiaries, but that identical tariff treatment must be available to all GSP beneficiaries with the "development, financial [or] trade need" to which the differential treatment is 
intended to respond.
366  The need alleged to be addressed by  the European Communities' differential 
tariff treatment is the problem of illicit drug production and trafficking in certain GSP beneficiaries.  
In the context of this case, therefore, the Drug Arrangements may be found c onsistent with the "non-
discriminatory" requirement in footnote 3 only if the European Communities proves, at a minimum, that the preferences granted under the Drug Arrangement s are available to all GSP beneficiaries that 
are similarly affected by the drug problem.
367  We do not believe this to be the case.  
                                                      
363Supra , para. 165. 
364Supra , para. 167. 
365See  supra , para. 134. 
366Supra , para. 165. 
367According to the European Communities, "the Drug Arrangements are  non-discriminatory  because 
the designation of the beneficiary countries is based only and exclusively on their development needs.  All the developing countries that are similarly affected by the drug problem have been included in the Drug 
Arrangements". (European Communities' appellant's  submission, para. 186 (original italics))    WT/DS246/AB/R 
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181. By their very terms, the Drug Arrangements  are limited to the 12 developing countries 
designated as beneficiaries in Annex I to the Regulation.368  Specifically, Article 10.1 of the 
Regulation states: 
Common Customs Tariff  ad valorem  duties on [covered products] 
which originate in a country that according to Column I of Annex I benefits from [the Drug Arrangement s] shall be entirely suspended. 
182. Articles 10 and 25 of the Regulation, which re late specifically to the Drug Arrangements, 
provide no mechanism under which additional beneficiar ies may be added to the list of beneficiaries 
under the Drug Arrangements as designated in Annex I.   Nor does any of the other Articles of the 
Regulation point to the existence of such a mech anism with respect to the Drug Arrangements.  
Moreover, the European Communities acknowledged th e absence of such a mech anism in response to 
our questioning at the oral hearing.  This contr asts with the position under the "special incentive 
arrangements for the protection of labour rights" and the "special incentive arrangements for the 
protection of the environment", wh ich are described in Article 8 of  the Regulation.  The Regulation 
includes detailed provisions setting out the procedure and substantive criteria that apply to a request 
by a beneficiary under the general arrangements descri bed in Article 7 of the Regulation (the "General 
Arrangements") to become a beneficiary under e ither of those special incentive arrangements.
369   
183. What is more, the Drug Arrangements themselves do  not  set out any clear prerequisites —or 
"objective criteria" 370—that, if met, would allow for other developing countries "that are similarly 
affected by the drug problem" 371 to be  included   as beneficiaries under the Drug Arrangements.372  
Indeed, the European Commission's own Explanatory Memorandum notes that "the benefits of the 
drug regime ... are given without  any  prerequisite." 373  Similarly, the Regulation offers no criteria 
                                                      
368The 12 designated beneficiary countries are:  Boliv ia, Colombia, Costa Rica, Ecuador, El Salvador, 
Guatemala, Honduras, Nicaragua, Pakistan, Panama, Pe ru, and Venezuela. (Regulation, Annex I (Column I)) 
369Regulation, Title III. 
370European Communities' appellant's submission, paras. 4 and 139. 
371Ibid., para. 186. 
372In response to Question 4 posed by India at the First Panel Meeting, the European Communities 
confirmed that the Regulation does not set out objective criteria for designating beneficiary countries under the 
Drug Arrangements.  The European Communities stated: 
The criteria are not set out in the GSP Regulation.  They are not contained in 
a public document. 
 (Panel Report, p. B-69, para. 5) 
373Explanatory Memorandum to the Proposal for a Council Regulation applying a scheme of 
generalised tariff preferences for the period 1 January 2002 to 31 December 2004, para. 35 (emphasis added) 
(attached to Amended Proposal for a Council Regulation applying a scheme of generalised tariff preferences for 
the period 1 January 2002 to 31 December 2004, 2001/0131 (ACC), at p. 3) (Exhibit In dia-7 submitted by India 
to the Panel). WT/DS246/AB/R 
Page 74  
 
according to which a beneficiary could be  removed  specifically from the Drug Arrangements on the 
basis that it is no longer "similarly affected by the drug problem".  Indeed, Article 25.3 expressly 
states that the evaluation of the effects of th e Drug Arrangements described in Articles 25.1(b)  
and 25.2 "will be without prejudice to the conti nuation of the [Drug Arrangements] until 2004, and 
their possible extension thereafter."  This implie s that, even if the European Commission found that 
the Drug Arrangements were having no effect whatsoever on a beneficiary's "efforts in combating 
drug production and trafficking"
 374, or that a beneficiary was no longer suffering from the drug 
problem, beneficiary status would continue.375  Therefore, even if the Regulation allowed for the list 
of beneficiaries under the Drug Arrangements to be modified, the Regulation itself gives no indication 
as to how the beneficiaries under the Drug Arrangement s were chosen or what kind of considerations 
would or could be used to determine the effect of  the "drug problem" on a particular country.  In 
addition, we note that the Regulation does not, for instance, provide any indication as to how the 
European Communities would assess whether the Drug Arrangements provide  an "adequate and 
proportionate response" 376 to the needs of developing countries suffering from the drug problem.  
184. It is true that a country may be removed as a be neficiary under Annex I, either altogether or in 
respect of certain product sectors, for reasons that  are not specific to the Drug Arrangements.  Thus, 
Article 3 of the Regulation provides for the remova l of a country from Annex I (and hence, from the 
General Arrangements and any othe r arrangements under which it is a beneficiary) if particular 
circumstances are met indicating that the country has reached a certain level of development.  
Article 12 provides for the removal of a country as a beneficiary under the General Arrangements and 
the Drug Arrangements with respect to a product sector where the country's level of development and competition has reached a certain threshold with respect to that sector.  Neither Article 3 nor 
Article 12 appears to relate in any way to the de gree to which the country is suffering from the "drug 
problem".  Finally, Title V to the Regulation cont ains certain "Temporary Withdrawal and Safeguard 
Provisions" that are common to all the preferential arrangements under the Regulation.  Although one 
reason for which the arrangements may be tempor arily withdrawn is "shortcomings in customs 
controls on export or transit of dr ugs (illicit substances or precursors ), or failure to comply with 
international conventi ons on money laundering"
 377, this reason applies equally to the General 
Arrangements, the Drug Arrangements, and the othe r special incentive arrangements.  Moreover, as 
                                                      
374Regulation, Art. 25.1(b). 
375In response to questioning at the oral hearing, the European Communities confirmed that, although 
the sixth recital to the Preamble of the Regulation provides that the Drug Arrangements "should be closely 
monitored", the list of beneficiaries will be unaffected by the monitoring described in Articles 25.1 and 25.2 of 
the Regulation. 
376European Communities' appellant's submission, para. 133. 
377Regulation, Art. 26.1(d).  WT/DS246/AB/R 
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the Panel appeared to recognize, this condition is  not connected to the question of whether the 
beneficiary is a "seriously drug-affected country".378 
185. We note, moreover, that the Drug Arrangement s will be in effect until 31 December 2004.379  
Until that time, other developing countries that ar e "similarly affected by the drug problem" can be 
included as beneficiaries under the Drug Arrangements only through an amendment to the Regulation.  
The European Communities confirme d this understanding in response to questioning at the oral 
hearing. 
186. Against this background, we fail to see how  the Drug Arrangements can be distinguished 
from other schemes that the European  Communities describes as "confined  ab  initio  and 
permanently to a limited number of developing countries".380  As we understand it, the European 
Communities' position is that such schemes would be discriminatory, whereas the Drug Arrangements 
are not because "all developing countries are potentially beneficiaries" thereof.381  In seeking a waiver  
from its obligations under Article I:1 of the GA TT 1994 to implement the Drug Arrangements, the 
European Communities explicitly acknowledged, howe ver, that "[b]ecause the special arrangements  
are only available  to imports originating in [the 12 beneficiaries of the Drug Arrangements], a waiver 
... appears necessary".382  This statement appears to undermine  the European Communities' argument 
that "all developing countries are potentially benefici aries of the Drug Arrangements" and, therefore, 
that the Drug Arrangements are "non-discriminatory".383 
187. We recall our conclusion that the term "non-di scriminatory" in footnote 3 of the Enabling 
Clause requires that identical tariff treatment be availa ble to all similarly-situated GSP beneficiaries.  
We find that the measure at issue fails to meet this  requirement for the following reasons.  First, as the 
European Communities itself acknowledges, accord ing benefits under the Drug Arrangements to 
countries other than the 12 identified beneficiaries would require an amendment to the Regulation.  
                                                      
378Panel Report, para. 7.216. 
379Regulation, Arts.  1.1 and 41.2.  We understand that the Regulation has been extended to 
31 December 2005. (Council Regulation (EC) No. 2211/2003 of 15 December  2003 amending Regulation (EC) 
No. 2501/2001 applying a scheme of generalised tariff preferences for the period from 1 January 2002 to 31 
December 2004 and ex tending it to 31 December 2005, Official Journal of the European Union , L Series, 
No. 332 (19 December 2003), p. 1) 
380European Communities' appellant's submission, para. 185. 
381Ibid., para. 186. 
382Council for Trade in Goods,  Request for a WTO Waiver, New EC Special Tariff Arrangements to 
Combat Drug Production and Trafficking , G/C/W/328, 24 October 2001, p. 2. (emphasis added) 
383European Communities' appellant's submission, para. 186. WT/DS246/AB/R 
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Such a "closed list" of beneficiaries cannot ensu re that the preferences under the Drug Arrangements 
are available to all GSP beneficiaries suffering from illicit drug production and trafficking.   
188. Secondly, the Regulation contains no criteria or standards to provide a basis for distinguishing 
beneficiaries under the Drug Arrangements from othe r GSP beneficiaries.  Nor did the European 
Communities point to any such criteria or standards anywhere else, despite the Panel's request to do 
so.
384  As such, the European Communities cannot justify the Regulation under paragraph 2(a), 
because it does not provide a basis for establishing wh ether or not a developi ng country qualifies for 
preferences under the Drug Arrangements.  Thus, although the European Communities claims that the 
Drug Arrangements are available to all developing countries that are "similarly affected by the drug 
problem" 385, because the Regulation does not define the criteria or standards that a developing 
country must meet to qualify for preferences under the Drug Arrangements, there is no basis to 
determine whether those criteria or standards are discriminatory or not. 
189. For all these reasons, we find that the Europ ean Communities has failed to prove that the 
Drug Arrangements meet the requirement in footnote  3 that they be "non-discriminatory".  Accordingly, we  uphold , for different reasons, the Panel's conc lusion, in paragraph 8.1(d) of the 
Panel Report, that the European Communities "faile d to demonstrate that the Drug Arrangements are 
justified under paragraph 2(a) of the Enabling Clause". 
VI. Findings and Conclusions 
190. For the reasons set out in this Report, the Appellate Body: 
(a) upholds
 the Panel's finding, in paragraph 7.53 of the Panel Report, that the Enabling 
Clause is an "exception" to Article I:1 of the GATT 1994; 
(b) upholds  the Panel's finding, in paragraph 7.53 of the Panel Report, that the Enabling 
Clause "does not exclude the applicability" of Article I:1 of the GATT 1994; 
(c) modifies  the Panel's finding, in paragraph 7.53 of the Panel Report, that the European 
Communities "bears the burden of invoking the Enabling Clause and justifying its Drug Arrangements" under that Clause, by finding
 that it was incumbent upon India 
to  raise  the Enabling Clause in making its claim of inconsistency with Article I:1 of 
the GATT 1994, but that the European Communities bore the burden of  proving   that 
                                                      
384See  supra , footnote 372. 
385European Communities' appellant's submission, para. 186.  WT/DS246/AB/R 
 Page 77 
 
 
the Drug Arrangements satisfy the conditions of the Enabling Clause, in order to 
justify those Arrangements under that Clause; and finds , further, that India 
sufficiently raised paragraph 2(a) of th e Enabling Clause in making its claim of 
inconsistency with Article  I:1 before the Panel; 
(d) need not rule  on the Panel's conclusion, in para graphs 7.60 and 8.1(b) of the  
Panel Report, that the Drug Arrangements ar e inconsistent with Article I:1 of the 
GATT 1994; 
(e) reverses  the Panel's finding, in paragraphs 7.1 61 and 7.176 of the Panel Report, that 
"the term 'non-discriminatory' in footnot e 3 [to paragraph 2(a) of the Enabling 
Clause] requires that identi cal tariff preferences under GSP schemes be provided to 
all developing countries without differentia tion, except for the implementation of a 
priori limitations"; 
(f) reverses  the Panel's finding, in paragraph  7.17 4 of the Panel Report, that "the term 
'developing countries' in paragraph 2(a)  [of the Enabling Clause] should be 
interpreted to mean  all  developing countries, with the exception that where 
developed countries are implementing a priori limitations, 'developing countries' may 
mean  less than all   developing countries";  and 
(g) upholds , for different reasons, the Panel's conclu sion, in paragraph 8.1(d) of the Panel 
Report, that the European Communities "failed to demonstrate that the Drug 
Arrangements are justified under paragraph 2(a) of the Enabling Clause". 
191. The Appellate Body therefore recommends  that the Dispute Settlement Body request the 
European Communities to bring Council Regulation (E C) No. 2501/2001, found in this Report, and in 
the Panel Report as modified by this Report, to be inconsistent with Article I:1 of the GATT 1994 and 
not justified under paragraph 2(a) of the Enabling Cl ause, into conformity with its obligations under 
the GATT 1994. WT/DS246/AB/R 
Page 78  
 
 
Signed in the original at Geneva this 18th day of March 2004 by: 
 
    
_________________________ 
Georges Abi-Saab 
Presiding Member 
  
 
  _________________________ _________________________  Luiz Olavo Baptista Giorgio Sacerdoti 
 Member Member 
  WT/DS246/AB/R 
 Page 79 
 
 
ANNEX 1 
 
 WORLD TRADE  
ORGANIZATION  WT/DS246/7 
8 January 2004  
 (04-0070) 
 Original:   English 
 
 
 
EUROPEAN COMMUNITIES – CONDITIONS FOR THE GRANTING OF  
TARIFF PREFERENCES TO DEVELOPING COUNTRIES 
 
Notification of an Appeal by the European Communities  
under paragraph 4 of Article 16 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes ("DSU")  
   The following notification, dated 8 January  2004, from the Permanent Delegation of the 
European Commission, is being circulated to Members.    
_______________ 
 
 Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes  ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the 
European Communities hereby notifies its decision to appeal to the Appellate Body certain issues of 
law covered in the report of the pa nel established in response to the request from India in the dispute 
European Communities – Conditions for the Granti ng of Tariff Preferences to Developing Countries   
(WT/DS246R). 
  The European Communities seeks review of th e Panel's legal conclusion that the Special 
Arrangements to Combat Drug Production and Tra fficking provided in Council Regulation (EC)  
No. 2501/2001 (the "Drug Arrangements") are in consistent with Article I:1 of the  General Agreement 
on Tariff and Trade 1994  (the "GATT"). This conclusion is based on the following erroneous legal 
findings:   
- that the Enabling Clause is an "excep tion" to Article I:1 of the GATT;  
 
- that the Enabling Clause does not exclude the applicability of Article I:1 of the GATT;  
 - that the EC had the burden of proving that the Drug Arrangements were consistent with the 
Enabling Clause. 
 
 The above legal conclusion, and the related legal findings and interpretations are set out in 
paragraphs 7.31 to 7.60 and 8.1 (b) and (c) of the Panel report. 
  India did not make any claims under the Enab ling Clause and, therefore, the Appellate Body 
should refrain from examining the consistency of the Drug Arrangeme nts with the Enabling Clause. 
However, if the Appellate Body were to uphold the Panel's conclusion that the Drug Arrangements 
are inconsistent with Article I:1 of the GATT, or if the Appellate Body were to decide that India made 
a valid claim under the Enabling Clause, the Europ ean Communities appeals subsidiarily the Panel's WT/DS246/AB/R 
Page 80  
 
legal conclusion that the European Communities "f ailed to demonstrate that the Drug Arrangements 
are justified under paragraph 2(a) of the Enabling Clause". That conclusion is based on the following 
erroneous legal findings:  
- that "the term "non-discriminatory" in footnot e 3 to Paragraph 2(a) requires that identical 
tariff preferences under GSP schemes be provi ded to all developing countries without 
differentiation, except for the implemen tation of a priori limitations"; and 
 - that the term "developing countries" in Paragraph 2(a) means all developing countries.  
 This legal conclusion and th e related legal findings and interpretations are set out in 
paragraphs 7.61-7.177 and 8. 1(d) of the Panel report. 
  Finally the EC seeks review of the Panel's legal conclusion that the European Communities 
has nullified or impaired benefits accrued to  India under GATT 1994, which is set out in 
paragraph 8.1(f) of the Panel report  
 
_______________ 
 
  WT/DS246/AB/R 
 Page 81 
 
 
ANNEX 2 
 
DIFFERENTIAL AND MORE FAVOURABLE TREATMENT 
RECIPROCITY AND FULLER PARTICIPATION 
OF DEVELOPING COUNTRIES 
 
Decision of 28 November 1979 
(L/4903) 
 
 Following negotiations within the framework  of the Multilateral Trade Negotiations, the 
CONTRACTING PARTIES  decide as follows: 
 1. Notwithstanding the provisions of Article I of  the General Agreement, contracting parties 
may accord differential and more favourab le treatment to developing countries
1, without according 
such treatment to other contracting parties. 
 
2. The provisions of paragraph 1 apply to the following:2 
 
 (a) Preferential tariff treatment accorded by developed contracting parties to products 
originating in developing countries in acco rdance with the Generalized System of 
Preferences,3 
 
 (b) Differential and more favourable treatment  with respect to the provisions of the 
General Agreement concerning non-tariff me asures governed by the provisions of 
instruments multilaterally negotiated under the auspices of the GATT; 
 
 ( c) Regional or global arrangements entere d into amongst less-developed contracting 
parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of  non-tariff measures, on products imported 
from one another 
  ( d) Special treatment of the least develo ped among the developing countries in the 
context of any general or specific measures in favour of developing countries. 
 
3. Any differential and more favourable  treatment provided under this clause: 
   ( a) shall be designed to facilitate and promot e the trade of developing countries and not 
to raise barriers to or create undue difficu lties for the trade of any other contracting 
parties; 
 
 ( b) shall not constitute an impediment to the reduction or elimination of tariffs and other 
restrictions to trade on a most-favoured-nation basis; 
 
 
1 The words "developing countries" as used in this text are to be understood to refer also to developing 
territories. 
2 It would remain open for the CONTRACTING PARTIES to consider on an  ad hoc  basis under the 
GATT provisions for joint action any proposals for differ ential and more favourable treatment not falling within 
the scope of this paragraph. 
3 As described in the Decision of the CONTRACTING PARTIES of 25 June 1971, relating to the 
establishment of "generalized, non-reci procal and non discriminatory preferences beneficial to the developing 
countries" (BISD 18S/24). WT/DS246/AB/R 
Page 82  
 
 ( c) shall in the case of such treatment accorded by developed contracting parties to 
developing countries be designed and, if n ecessary, modified, to respond positively to 
the development, financial and trad e needs of developing countries. 
 4. Any contracting party taking action to introdu ce an arrangement pursuant to paragraphs 1, 2 
and 3 above or subsequently taki ng action to introduce modification or withdrawal of the differential 
and more favourable treatment so provided shall:
4 
 
 (a) notify the CONTRACTING PARTIES and furnish them with all the information they 
may deem appropriate relating to such action; 
  ( b) afford adequate opportunity for prompt cons ultations at the request of any interested 
contracting party with respect to any di fficulty or matter that may arise. The 
CONTRACTING PARTIES shall, if requested to do so by such contracting party, 
consult with all contracting parties concerne d with respect to the matter with a view 
to reaching solutions satisfactory to  all such contracting parties. 
 
5. The developed countries do not expect recipr ocity for commitments made by them in trade 
negotiations to reduce or remove tariffs and other ba rriers to the trade of developing countries, i.e., the 
developed countries do not expect the developing c ountries, in the course of trade negotiations, to 
make contributions which are inconsistent with th eir individual development, financial and trade 
needs. Developed contracting parties shall therefor e not seek, neither shall l ess-developed contracting 
parties be required to make, concessions that are inc onsistent with the latters ' development, financial 
and trade needs. 
 6. Having regard to the special economic difficu lties and the particular development, financial 
and trade needs of the least-developed countries, the developed countries shall exercise the utmost 
restraint in seeking any concessions or contributions  for commitments made by them to reduce or 
remove tariffs and other barriers to the trade of su ch countries, and the least-developed countries shall 
not be expected to make concessions or contributi ons that are inconsistent with the recognition of 
their particular situation and problems.  7. The concessions and contribu tions made and the obligations  assumed by developed and less-
developed contracting parties under the provisions  of the General Agreement should promote the 
basic objectives of the Agreement, including those embodied in the Preamble and in Article XXXVI. 
Less-developed contracting parties expect that th eir capacity to make contributions or negotiated 
concessions or take other mutually  agreed action under the provisi ons and procedures of the General 
Agreement would improve with the progressive deve lopment of their economies and improvement in 
their trade situation and they would accordingly expect  to participate more fully in the framework of 
rights and obligations under the General Agreement. 
 8. Particular account shall be taken of the seri ous difficulty of the least-developed countries in 
making concessions and contributions in view of  their special economic situation and their 
development, financial and trade needs. 
 
9. The contracting parties will collaborate in a rrangements for review of the operation of these 
provisions, bearing in mind the need for individual and joint efforts by contracting parties to meet the development needs of developing countries a nd the objectives of the General Agreement. 
 
 
4 Nothing in these provisions shall affect the rights of contracting parties under the General 
Agreement. 
__________