India's WTO Challenge to Drug Enforcement Conditions in the European Community Generalized System of Preferences: A Little Known Case with Major Repercussions for "Political" Conditionality in US Trade Policy

I. INTRODUCTION1 The use of trade sanctions for broad foreign policy purposes has been a matter of longstanding controversy in the United States. Apart from questioning the effectiveness of such sanctions, and pointing out that they may have innocent victims (such as workers in oppressive regimes whose jobs are dependent on export opportunities), free traders often claim that sanctions violate the rules of the World Trade Organization ("WTO"). In fact, the General Agreement on Tariffs and Trade ("GATT"), the centerpiece of the WTO as far as trade in goods is concerned, does not put free trade above other political values and contains exceptions for trade measures "necessary" for the protection of public morals and for national security purposes. It is thus a matter of debate how much, or how little, leeway the WTO affords to politically-motivated trade sanctions. While political sanctions that withdraw trade concessions to which the US is legally bound under WTO rules have been divisive, the conditioning of Generalized System of Preferences ("GSP") on criteria that are argued to be political has been much less controversial. These preferences are voluntarily granted to developing countries to assist their economic development and not bound as legal commitments in the WTO. As Lance Compa and Jeffrey Vogt explain, "[t]he GSP is a centerpiece of U.S. trade policy, providing preferential duty-free entry for more than 4,650 products from approximately 140 designated beneficiary countries and territories."2 From the outset, countries with a Communist system of government have been denied access to GSP treatment. In addition, US GSP status may not be granted or may be withdrawn if a country fails to take steps to afford certain core labor rights or if it harbors terrorists.3 In the wake of the attacks on September 11, 2001, the 2002 Trade Bill extended the anti-terrorism criteria so as to deny GSP preferences to any country that "has not taken steps to support the efforts of the United States to combat terrorism."4 But around the same time that Congress was strengthening the anti-terrorism conditions in the GSP, India brought a case to the WTO dispute settlement mechanism that will challenge the very possibility that any such conditions on GSP are legal within the WTO system.5 The case, which is against the European Community ("EC"), originally attacked conditions relating to the environment, labor rights, and drug enforcement. The case is now limited to the issue of drug enforcement conditions, which, if met, would lead the EC to grant preferences at a higher rate than the EC normally grants to developing countries. But India's argument is sweeping, and if it wins this case, the consequences for the United States will be clearly serious: Congress and the President will no longer be able to grant or withdraw GSP treatment on the basis of American policy objectives and American political values, unless those actions can be justified under exception provisions in the WTO Agreements (such as the exception for public morals and for national security in GATT). GSP conditions will be subject to similar concerns about WTO legality-or illegality-as trade sanctions that entail rolling back negotiated, legally binding WTO concessions. Since GSP conditionality has often, in US trade policy, allowed for a compromise between free traders, who are fastidious about not backing away from WTO commitments, and those who believe America's trade should reflect America's political values and interests, a win for India in this case would have a significant impact on the politics of trade policy in Washington, probably provoking a starker and more polarized debate about sanctions, and perhaps more willingness on the part of lawmakers to test the limits of WTO rules in this regard. II. THE ENABLING CLAUSE AND ITS RELATIONSHIP TO ARTICLE I:1 OF GATT (MFN) While the Generalized System of Preferences is provided on a voluntary basis and is not binding on the United States, such preferences nevertheless require an authorization or a legal basis in GATT; otherwise, by providing to developing countries better tariff treatment under the GSP than the bound rates of tariff provided to all other WTO Members, the United States would be in violation of the Most Favored Nation ("MFN") clause in GATT Article I:1. …