The Legality of Conditional Preferences to Developing Countries under the GATT Enabling Clause

An issue that has plagued the GATT/WTO system since its inception has been the question of how to handle the needs of both developed and developing countries in one coherent system. As developing countries make up approximately 75 percent of WTO membership,1 this is a very real concern for the future of the WTO. Accepting that developed countries have an obligation to support developing countries as they seek to develop, WTO members, in 1979, enacted the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (the "Enabling Clause").2 The Enabling Clause suspends the GATT's general most favored nation ("MFN") rule and allows developed country members to give differential and more favorable treatment to developing countries. The mechanism for this treatment is the Generalized System of Preferences ("GSP"), under which developed countries offer non-reciprocal preferential treatment to products originating in developing countries. The GSP program is voluntary for developed countries, who also determine which countries receive preferences and to what extent those preferences are granted. An ongoing question under the Enabling Clause has been the extent to which developed countries may condition the granting of a preference on the developing country's attainment of certain non-trade-related goals. For example, developed countries have used this method of conditional preferences to tackle labor, environmental, and now, drug-related issues. In January 2003, after preliminary negotiations had broken down, the WTO Dispute Settlement Body granted a request from India for the Establishment of a Panel to address the European Communities' ("EC") Conditions for the Granting of Tariff Preferences to Developing Countries.3 India argued that two aspects of the EC scheme-conditions relating to drug production and trafficking and those relating to labor rights and the environment-are inconsistent with GATT and do not meet the requirements of the Enabling Clause. The Panel Decision in this case will be vitally important in shaping the future of the WTO. If the measure is allowed, the EC will be given a powerful tool for shaping the internal domestic policies of nations at crucial stages in their development; if it is prohibited, developing nations will be given a powerful freedom to achieve development on their own terms. This Development will trace a short history of the Enabling Clause and the successes and failures associated with attempts to use the Clause to further other goals. It will then analyze the arguments put forth by India and the EC regarding the conditional preferences and will recommend that the Dispute Settlement Panel find in favor of India and reject the conditioning of GSP provisions on non-trade-related standards. Finally, this Development will address the possible future of the Enabling Clause as a mechanism for establishing developing country treatment of such goals as higher labor standards, environmental protection, and prevention of drug trafficking. I. THE ENABLING CLAUSE The Enabling Clause was instituted by the WTO in 1979 to address the role of developed countries in the economic progress of developing countries. The Decision provides that "contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties."4 The Clause allows developed member nations to apply "[p]referential tariff treatment . . . to products originating in developing countries in accordance with the Generalized System of Preferences."5 This approach was designed to promote flexible commitments for developing countries and to encourage developed countries to broaden market access to those countries. The Uruguay Round Agreements and subsequent WTO Declarations include nearly 150 provisions concerning special and differential treatment.6 In practice, the Enabling Clause has proved to be a continuing source of confusion among WTO Members. …