Document: WT/DS246/R Page C-1 ANNEX C Third Parties Comments Page Annex C-1 Replies of the Andean Community Collectively to Questions from the Panel and from India after the First Panel Meeting C-2 Annex C-2 Replies of Members of the Andean Community Separately to Questions from the Panel and from India after the First Panel Meeting C-9 Annex C-3 Reply of Brazil to the Question from India after the First Panel Meeting C-14
Document codes: WT/DS246/R
Complainant: India
Respondent: EU
Third parties: Bolivia, Plurinational State of, Brazil, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Mauritius, Nicaragua, Pakistan, Panama, Paraguay, Peru, Sri Lanka, Venezuela, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. I:1  GATT 1994

ANNEX C

Third Parties

Comments Page
Annex C-1 Replies of the Andean Community Collectively to Questions from the
Panel and from India after the First Panel Meeting C-2
Annex C-2 Replies of Members of the Andean Community Separately to
Questions from the Panel and from India after the First Panel Meeting C-9
Annex C-3 Reply of Brazil to the Question from India after the First Panel
Meeting C-14
Annex C-4 Replies of Costa Rica to Questions from the Panel and from India after
the First Panel Meeting C-15
Annex C-5 Replies of El Salvador, Guatemala, Honduras and Nicaragua to
Questions from the Panel after the First Panel Meeting C-20
Annex C-6 Replies of Panama to Questions from the Panel and from India after
the First Panel Meeting C-21
Annex C-7 Replies of Paraguay to Questions from the Panel and from India after
the First Panel Meeting C-27
Annex C-8 Replies of the United States to Questions from the Panel and from
India after the First Panel Meeting C-40

ANNEX C-1

Replies of the Andean Community Collectively to Questions from the Panel

and from India after the First Panel Meeting

PANEL'S QUESTIONS TO THE THIRD PARTIES

To All Third Parties

 Legal Function

1. Assuming that the Enabling Clause is not a wa iver, is it an exception or an 'autonomous'
right? In either case, what are the differences in legal consequences of characterizing the
Enabling Clause as an exception or an autonomous right? Are there legal consequences beyond
allocation of the burden of proof?

 We view the Enabling Clause as an autonomous right. As we have said in our submissions,
the Enabling Clause establishes a 'self-standing' regime.
1 The Enabling Clause affirmatively
establishes how developed countries are to assist de veloping countries, rather than simply providing
for a limited exception to Article I:1 GATT.

 There are legal consequences to characteri zing the Enabling Clause as an exception or an
autonomous right. Obviously, an immediate and im portant consequence in this dispute settlement
context has to do with the burden of proof. Since the Enabling Clause is an autonomous right of the
EC, it is India who bears the burden of proving th at the Drug Arrangements constitute a violation of
it. India has to clear this hurdle before the EC bear s any burden of justifying the exercise of its right.
India has not met its burden. And if at the end of the day the Panel is not convinced, doubt goes to the
benefit of the EC, rather than India. On that basis alone, the EC should prevail.

 Burden of proof is not the only consequen ce of characterizing the Enabling Clause as an
exception or as an autonomous right. Exceptions are normally subject to a strict or narrow
interpretation, as they are a derogation from an oblig ation. The Enabling Clause is not an exception,
and therefore, like the Appellate Body said in the Hormones case
2, it would be inappropriate to apply
to the interpretation of the Enabling Clause a readi ng more narrow or strict than would be warranted
by examination of the ordinary meaning of its terms, viewed in the context and in the light of their
object and purpose.

 The terms of the Enabling Clause, viewed in their context and in light of their object and
purpose, do not merit a restrictive interpretation. The Enabling Clause has a fundamentally different
purpose than that of an exception like Article XX GA TT. There, the EC would be derogating from
the GATT in its own interest. With the Enabling Cl ause, the interest is altruistic – the Enabling
Clause enables
 developed countries to help other countries. When a country acts thus, as the EC has
done with the Drug Arrangements, there is no need to look at the measures with special scrutiny.

2. How does one identify whether a legal provision confers an 'autonomous right' or
provides for an 'affirmative defence'?

 First and foremost, one should look at the text of the provision in question to determine
whether it confers an 'autonomous right' or provid es for an 'affirmative defence'. As we have

1 See paras. 33-45 of the Third Party Submissions of the Andean Community of 30 April 2003.
2 WT/DS26/AB/R, WT/DS48/AB/R para. 104.

explained in our submissions, the text of the Enabling Clause supports the conclusion that it creates an
'autonomous right'.
3

 Furthermore, as we said in our submissions, the pivotal role of the Enabling Clause as part of
the broader and evolving GATT/WTO regime for th e benefit of developing countries also supports
the conclusion that it confers an 'autonomous right'.
4

 Non-discriminatory

3. Assume that the Enabling Clause is a self-standing, autonomous right and that the Panel
should look at the Enabling Clause itself to interpret its provisions. Could you indicate where in
the Enabling Clause the Panel should find the cont ext for the interpretation of the term 'non-
discriminatory'? Does this context provide suffi cient contextual guidance for the interpretation
of this term? Should the Panel also look outside the Enabling Clause for contextual guidance?
If so, to which particular Agreements and provisions therein, and why these particular
provisions, and not others?

 Since the 'Enabling Clause' is a self standing regime, the Panel should indeed look to it first
and foremost, viewed in its context and in light of its object and purpose, in order to interpret its
terms. Part of the Enabling Clause's context, object and purpose is its pivotal role of as part of the
broader and evolving GATT/WTO regime for the benef it of developing countries. In interpreting the
term 'non-discriminatory', the Panel must ensure th at its interpretation allo ws the Enabling Clause to
'enable' what it is meant to 'enable'.

 For that, the Panel must consider the Enabli ng Clause as a whole, with due regard for its
pivotal role as part of the broader and evolving GATT/WTO regime for developing countries. Within
the Enabling Clause, we would point to its paragra phs 1, 2(a), 3(a) and (c) and 5 as particularly
relevant.

 We think that the Panel, knowing the pivotal ro le that the Enabling Clause is meant to play,
has sufficient context to interpret the term 'non- discriminatory'. We therefore do not think it
necessary for the Panel to look outside the Enabling Clause for guidance.

 Further, we are sceptical about the appropriateness of doing so. The term 'non-discrimination'
appears elsewhere in the WTO, but in provisions that have different contexts and objects and purposes
– and therefore where 'non-discrimination' has a differ ent interpretation. In particular, it would not be
appropriate for the Panel to be guided by the interpretation of Article I, since non-discrimination is not
the same concept as Most Favored Nation treatment.
5 Likewise, it would not be appropriate for the
Panel to use the interpretation in an exception like Article XX.

4. Does the context of the term 'non-discrimi natory' in footnote 3 of the Enabling Clause
include Articles I:1, III:4, X, XIII, XVII a nd XX of GATT 1994, and Article XVII of GATS?
Why or why not?

 As explained above, we do not think so. The context of the term 'non-discriminatory' in
footnote 3 of the Enabling Clause is the Enabling Clause.

 The context of Articles I:1, III:4, X, XIII, XVII and XX of GATT 1994, and Article XVII of
GATS is different. The object and purpose of those provisions is also different.

3 See paras. 33-45 of the Third Party Submissions of the Andean Community of 30 April 2003.
4 See paras. 20-32 of the Third Party Submissions of the Andean Community of 30 April 2003.
5 See para. 40 of the Third Party Submissions of the Andean Community of 30 April 2003, Oral

 Paragraph 3(c)

5. Please give your views on the following questions relating to the meaning of the
Enabling Clause, based upon paragraph 9 of Paraguay's Oral Statement. Is it correct to say
that under the Enabling Clause developed countries a re not obliged to give tariff preferences?
Is it also correct that any preferences granted a re only in respect of products of the developed
country's own choice and only to developing co untries of its choice? Are developed countries
free to graduate beneficiary developing countries from their GSP schemes?

 It is correct to say that under the Enabling Cl ause developed countries are not obliged to give
tariff preferences. They also may decide unilatera lly which products and countries are covered by the
same.
 If they give preferences, they must resp ect the provisions of the Enabling Clause;, the
preferences must be 'generalized' and 'non-discriminat ory'. As we have explained in our submissions,
the Drug Arrangements respect the requirements of the Enabling Clause.

6. Developing countries often have different development needs. Take, for example,
Indonesia, the Philippines, Morocco, Brazil and Paraguay, each having different development
needs. If we agree with the argument of the Andean Community that it is possible to select
some beneficiary countries according to certain criteria (paragraph 6 of the Joint Statement of
the Andean Community), would it not be a logical consequence of this argument that any
developed country could establish a special GSP tariff preference scheme for each individual
developing country in responding to that develo ping country's own development needs? Is this
a proper reading of paragraph 3(c) of the Enabling Clause? Why or why not? If not, where do
you draw the line in term of a proper interpretation of paragraph 3(c)?

 As we have said above, while developed countries can decide unilaterally which products and
countries are covered by the their GSP schemes, when doing so they must respect the provisions of
the Enabling Clause; they must be 'generalized' and 'non-discriminatory'. [note, you have to put a
semi-colon here instead of a comma] A regime desi gned for one particular country might very well
fall foul of provisions of the Enabling Clause, viewed in the context of its object and purpose.

 In the Enabling Clause the term "non – discrimin atory" must be interpreted having regard to
the objective of "special and differential treatment". The requirement that preferences must be
"generalized" means that, unlike the "special" preferences traditionally granted to certain countries or
groups of countries merely for historical or ge ographical reasons, the preferences should be
"generalized" to all developing countries with similar development needs.

 However, it is not feasible, necessary or indeed appropriate for this Panel to consider every
possible 'hypothetical' in coming to its decision. Rather, this Panel is called upon to determine
whether the Drug Arrangements violate the Enabling Clause.

 This concrete application of the Enabling Cl ause is not a violation of it. As we have
explained in our submissions, the Drug Arrangements respect the Enabling Clause as a whole, and in
particular its para. 3, because they properly ack nowledge a development problem – drugs – that is
internationally recognized
6, and the kind of increased market access that they provide is an effective
tool to alleviate the special development n eeds of countries affected by drug production and
trafficking.7 Furthermore, the countries that benefi t from the Drug Arrangements were properly
selected. This is not challenged by India, nor does it argue that it has similar drug problems such that
it was discriminatorily excluded.

6 See paras. 62 and 63 of the Third Party Submissions of the Andean Community of 30 April 2003.
7 See paras. 64 through 66 of the Third Party Submissions of the Andean Community of 30 April 2003.

7. Are the developed countries free to 'gradua te' beneficiary developing countries from a
GSP scheme? If so, under which paragraph of the Enabling Clause? Please elaborate.

 We understand that the issue of gr aduation is not before the Panel.

8. Does the word 'and' in paragraph 3(c) of the Enabling Clause mean 'or'? In other
words, does the word 'and' mean that 'devel opment, financial and trade needs' must be
considered in a comprehensive manner or may they be considered separately?

 We would not advocate reading the word 'or' fo r 'and' in para. 3(c) of the Enabling Clause.
Development, financial and trade needs should be considered together, but due to the context and
objective of the Enabling Clause, whic h is specifically meant to aid in development, that word has a
special emphasis.

9. Paragraph 3(c) of the Enabling Clause ref ers to 'developed contracting parties' and
'developing countries' in the plural form. Given the common understanding that developed
countries may decide individually whether or not they wish to provide GSP, is it also possible to
interpret 'developing countries' under paragraph 3(c) as meaning individual developing
countries?

 As we have said above, developed countries can decide unilaterally which products and
countries are covered by the their GSP schemes, but wh en they do so they must respect the provisions
of the Enabling Clause; they must be generalized and non-discriminatory. Textually this is an
interesting parallel. If you can read one as singular , perhaps you can also read the other that way.
However, a regime designed for one individual developing country might very well fall foul of
provisions of the Enabling Clause, viewed in the context of its object and purpose. However, it would
have to be examined concretely rather than in the hypothetical

10. To the extent that the Drug Arrangements only respond to development needs caused by
drug production and trafficking, while not resp onding to development needs resulting from
other problems, such as poverty, low per capita GNP, malnutrition, illiteracy and natural
disasters, how does this EC programme satisf y the 'non-discriminatory' requirement in
footnote 3 of the Enabling Clause? Please elaborate.

 Nothing in the Enabling Clause requires developed countries to respond to all or any
particular development needs in establishing their GSP programs.

 Indeed, somebody could argue that identifying a nd responding to a concrete need is 'better'
for development than to trying to tackle the whole range of development issues.

 Paragraph 3c does not require that each single preference be responsive at the same time to
the individual needs of each and every developing country.

 General

11. Please indicate whether or not you consider that the Drug Arrangements
need to be covered by a waiver. Please elaborate.

 No. Please see our answer to question 9 below.

To the Andean Community

1. In paragraph 2 of the Andean Community's Oral Statement, it is stated:

'My starting-point, and you have read and heard this before, is that the Enabling
Clause represents a self-standing regime. It is not merely an exception to the
GATT's MFN principle'.
Please give your reasoning as to why the Enabling Clause is not an exception, but a self-standing
regime. What are the implications of this provision being an exception or a self-standing
regime?

 Please see our responses to questions 1 and 2 above.

2. Assuming that the Enabling Clause is not a wa iver, is it an exception or an 'autonomous'
right? In either case, what are the differences in legal consequences of characterizing the
Enabling Clause as an exception or an autonomous right? Are there legal consequences beyond
allocation of the burden of proof?

 Please see our responses to questions 1 and 2 above.

3. How does one identify whether a legal provision confers an 'autonomous right' or
provides for an 'affirmative defence'?

 Please see our response to question 2 above.

4. To determine the legal function of the Enabling Clause, is it useful to have reference to
the exceptions clauses set out in Articles XX, XXI and XXIV of GATT 1994? Please elaborate.

 As explained above, the Enabling Clause is neither an exception nor a waiver, but an
autonomous right. Therefore, we are sceptical about the relevance and appropr iateness of references
to Articles XX, XXI and XXIV of GATT 1994, which are exceptions. Their terms must be
interpreted in the light of their particular context, object and purpose, which is fundamentally different
from that of the Enabling Clause.

5. Article XX and XXI of GATT 1994 provide 'nothing in this Agreement shall be
construed to prevent … ' and Article XXIV:3 of GATT 1994 provides '[t]he provisions of this
Agreement shall not be construed to prevent … ', and paragraph 1 of the Enabling Clause
provides '[n]otwithstanding the provisions of Ar ticle I of the General Agreement, contracting
parties may … '. Do you consider that Articles XX, XXI and XXIV of GATT 1994 provide
exceptions/'affirmative defences' or not? In light of the similarity/dissimilarity of the above-
cited language, do you think the Enabling Clause provides for an exception/'affirmative
defence' or an 'autonomous right'? Why or why not? Please elaborate.

 Please see our responses to questions 1 and 2 above as to why we consider that the Enabling
Clause confers an autonomous right.

 Articles XX, XXI and XXIV:3 of GATT are affirmative defenses. As we have noted, we are
sceptical about the relevance of other provisions b ecause they each have different wording, different
contexts, different objects and purposes. That is ev en more so with regard to provisions like these,
which are justifications for departing fro m general WTO rules for the country's own
 benefit, versus
the Enabling Clause, whose goal is to enable states to take measures for the benefit of other ,
developing states.

6. Assume that the Enabling Clause is a self-standing, autonomous right and that the Panel
should look at the Enabling Clause itself to interpret its provisions. Could you indicate where in
the Enabling Clause the Panel should find the cont ext for the interpretation of the term 'non-
discriminatory' in footnote 3? Does this context provide sufficient contextual guidance for the
interpretation of this term? Should the Panel also look outside the Enabling Clause for
contextual guidance? If so, to which partic ular Agreements and provisions therein, and why
these particular provisions, and not others?

 Please see our response to questions 3 and 4 above.

7. With reference to the Preamble to the Agre ement on Agriculture, which mentions that
developed country Members agreed to take fu lly into account the particular needs and
conditions of developing country Members, includ ing through 'the diversification of production
from the growing of illicit narcotic crops', do es the Andean Community believe that this
commitment on market access is applicable only to the Agreement on Agriculture or also to the
Enabling Clause?

 We think that the Enabling Clause is a self-sta nding regime that must be considered on its
own merits. We would also like to point out that the "diversification of production from the growing
of illicit narcotic crops" has been specifically li nked to the special and differential treatment
provisions in the Agreement on Agriculture. At th e same time the fact that the problem of the
growing of illicit narcotic crops has been men tioned in other places in the WTO underscores the
importance of the problem and the legitimacy of the EC efforts to address it.

8. Was the Enabling Clause a part of the result s of the overall balance of commitments and
concessions made during the Tokyo Round negotiations? If so, does this fact have any bearing
on the interpretation of the Enabling Clause?

 The Enabling Clause was certainly part of the balance of commitments and concessions
made by the developing countries during the Tokyo Round, and more significantly it was part of the
Uruguay Round WTO package, as it remains integral in the Doha Development Round.
8

9. The 'Aide-mémoire of the Joint Andean Community – European Commission Technical
Evaluation Meeting on the Profitable Use of th e Andean GSP' mentions that 'the CAN pointed
out the need for the EC to obta in a waiver in order to continue granting preferences to the
drug-related régime in the face of pressure brou ght to bear by other countries that consider
themselves affected by that régime' (Exhibit India-3). Is this the official position of the Andean
Community? If so, why is it necessary fo r the EC to obtain a waiver for its Drug
Arrangements?

 The 'Aide-mémoire of the Joint Andean Community – European Commission Technical
Evaluation Meeting on the Profitable Use of the Andean GSP' is not an official document – it is
merely a summary from the technical group of expert s in the context of the political dialogue of
possible future frameworks for the Andean Community – EC relations. Hence due to its nature is has
no legally binding effect, nor can it be considered as an statement of the position of the Andean
countries.

8 See the re-affirmation of the Enabling Clause in the Doha Implementation decision, § 12.2.

INDIA'S QUESTIONS TO THE THIRD PARTIES

To all third parties

1. Do the third parties support the EC's co ntention that the Drug Arrangements are
justified under Article XX(b) of the GATT?

 (This question is addressed to Bolivia, Braz il, Colombia, Costa Rica, Cuba, Ecuador, El
Salvador, Guatemala, Honduras, Mauritius, Nicar agua, Pakistan, Panama, Paraguay, Peru, Sri
Lanka, the United States and Venezuela)

 As Third Parties the Andean countries consider that we need not elaborate on an EC argument
which has not been part of our written submission or oral statement.

ANNEX C-2

Replies of Members of the Andean Community Separately

to Questions from the Panel and from India after the First Panel Meeting

PANEL'S QUESTIONS TO ECUADOR

1. In what form and to what extent do the "binding political and moral commitments that
arise out of international co-responsibility that is incumbent upon all states", as referred to in
paragraph 12 of Ecuador's Oral Statement, have a bearing on the legal regime in the WTO?

 Article 3.2 of the WTO Dispute Settlement Understanding states that "[t]he Members
recognize that [the dispute settlement system of the WTO] serves to preserve the rights and
obligations of Members under the c overed agreements, and to clarify the existing provisions of those
agreements in accordance with customary rules of interpretation of public international law".

 Article 31 (general rule of interpretation), pa ragraph 3, of the Vienna Convention on the Law
of Treaties of 1969 thus stipulates that "[t]here sha ll be taken into account, together with the context
… (c) any relevant rules of international law a pplicable in the relations between the parties".

 The decisions and resolutions of the Genera l Assembly of the United Nations, as part of
international law, contain real obligations th at are incumbent on States and other subjects of
international law and make it easier to determine matters of substance, i.e. what the subjects of
international law may or may not do in the sphe re of international relations. Moreover, these
decisions and resolutions serve as a basis for the framing and development of public international law.

Since narcotics production and trafficking is a worldwide problem, the United Nations has
reaffirmed the need to promote international c ooperation in fighting this global scourge. The
principle of co-responsibility addressed in the United Nations resolutions and international
conventions on the subject merely underscore th e fact that the States are committed to working
together to combat this situation. These UN r esolutions were later embodied in the United Nations
Convention Against Illicit Traffic in Narcotic Dr ugs and Psychotropic Subs tances of 1988, to which
Ecuador, India and the European Union Memb er States are party, thereby undertaking a legal
obligation in this respect. The principle of international cooperation in this area is hence clearly
enshrined in an internationally recognized conve ntion and in UN resolutions and is confirmed by
State practice consistent with the relevant legislation.

The GPS-Drug Arrangements thus constitute in ternational cooperation in this sense through
the mechanisms they provide. Under the WTO le gal regime, it is the Enabling Clause that provides
the framework for such international cooperation, wh ich in this connection is also the expression of
special and differential treatment.

It can therefore be concluded that we have bindi ng rules in this area. It would be wrong,
moreover, to consider that the World Trade Orga nization can remain uninvolved in regard to the
numerous standards laid down by the international community in this sphere.

Ecuador believes that the fulfilment of trade obligations cannot in any circumstances detract
from the political or other obligations freely undertaken by the States.

QUESTIONS POSED BY INDIA TO THE THIRD PARTIES

Colombia

2. On 28 December 1987, the United States formally notified Chile of its removal from the
United States GSP scheme for not taking me asures to grant its workers internationally-
recognized rights. Chile raised the issue in the GATT Council and argued that this action
violated the 1971 Waiver and the Enabling Clause because it was contrary to the requirement of
"non-discrimination" because "… once a develope d contracting party had unilaterally chosen
to establish a GSP scheme, it could not apply it to some developing countries and not to others".
In response, the United States argued that its action was non-discriminatory because the "same
criterion applied to all countries and was implemented on a non-discriminatory basis".

 The Minutes of the meeting of the GATT Council held on 2 February 1988 state:

 "The representative of Colombia
 said that his delegation was deeply concerned by the
US action and in particular by the reasons invoked by the United States."

 This implies an agreement with Chile's understanding of "non-discrimination". Is this
still the considered view of Colombia?

It is important to specify that the statemen t by the representative of Colombia does not once
refer to Chile's interpretation of the scope of non-di scrimination. The statement refers exclusively to
the US action.

Furthermore, we understand that the consiste ncy with the multilateral commitments of the
linkage to compliance with envir onmental and labour standards, as a legal argument in this dispute,
has been abandoned by India, according to paragraph 21 of its written submission.

Therefore, and given that Colombia's statement was delivered in connection with a
withdrawal of preferences for reasons relating to labour standards, we do not consider it appropriate to
state our views in this regard.

In any event, we note that according to Mr. Frieder Roessler, writing in 1996 about the
situation between the United States and Chile in "Diverging Domestic Policies and Multilateral Trade
Integration", a chapter of the book F
AIR TRADE AND HARMONIZATION, PREREQUISITES FOR FREE
TRADE?:1

WTO Members have the right to give tar iff preferences to the developing countries in
accordance with the Generalized System of Preferences (GSP). The GSP preferences are
accorded on an autonomous basis and may therefore be withdrawn in whole or in part at
any time. This has led some contracting parti es to grant preferences conditional upon the
pursuit of policies by the exporting country unrelated to trade….

Chile, having been denied GSP benefits by the United States because of its labor policies,
requested consultations under the GATT with the United States on that denial, claiming that
the US action was inconsistent with the principl e that GSP benefits must be accorded to all
developing countries on a nondiscriminatory basis. Chile did not pursue the matter under the
GATT dispute settlement procedures and there is therefore no GATT panel ruling on Chile's
claim. While it is debatable whether GSP benefits may be granted on domestic policy

1 Chapter of the book F AIR TRADE AND HARMONIZATION, PREREQUISITES FOR FREE TRADE?, Vol. 2,
Legal Analysis, edited by Jagdish N. Bhagwati and Robert E. Hudec, MIT Press (1996), Cambridge,
Massachusetts, at pp. 39-40.

conditions, it is undeniable that there is no obligation to grant GSP benefits at all. Any
inconsistency resulting from the conditional denial of GSP benefits can therefore always be
corrected by denying GSP benefits altogether. As a practical matter, there is therefore little
a GSP recipient can do to prevent a donor country from linking the grant of GSP benefits
to the pursuit of specified domestic policies. [emphasis added]

(at pp. 39-40)

Colombia would be unable to endorse all of Mr. Roessler's assertions because, unlike his
interpretation, our understanding is that the En abling Clause establishes some restrictions on the
developed countries in defining their preferential schemes.
Peru

1. On 28 December 1987, the United States formally notified Chile of its removal from the
United States GSP scheme for not taking me asures to grant its workers internationally-
recognized rights. Chile raised the issue in the GATT Council and argued that this action
violated the 1971 Waiver and the Enabling Clause because it was contrary to the requirement of
"non-discrimination" because "… once a develope d contracting party had unilaterally chosen
to establish a GSP scheme, it could not apply it to some developing countries and not to others".
In response, the United States argued that its action was non-discriminatory because the "same
criterion applied to all countries and was implemented on a non-discriminatory basis".

 The Minutes of the meeting of the GATT Council held on 2 February 1988 state:

 The representative of Peru
 said that his delegation was likewise deeply concerned. The
GSP could not be used for political reasons , but should be based on GATT Decisions
and should be non-discriminatory. His dele gation noted with satisfaction that
consultations would be held by the interested parties."

 This implies an agreement with Chile's understanding of "non-discrimination". Is this
still the considered view of Peru?

 The case at issue concerns a scheme especially designed to address the needs of developing
countries facing serious problems in terms of narco tics production and trafficking. The problem at
hand relates to a particular situation which, b ecause of its effects and characteristics, cannot be
compared to other situations and/or circumstanc es in which tariff preferences may be granted or
denied.

 As regards the principle of non-discrimination, Pe ru reaffirms its statements at paragraphs 36,
42 and 44 of the joint submission made on behalf of the Andean countries.

Venezuela

1. Paragraph 40 of the Minutes of the Trade Policy Review Body Meeting held on
25-26 November 1997 (WT/TPR/M/30) states:

 The representative of Venezuela questioned th e linkage of EU's GSP Scheme to the fight
against drugs and other environmental or labour standards-related criteria.

 Could Venezuela please elaborate on its concerns in this regard?

 Venezuela's response to India's question rega rding the statement by the representative of
Venezuela cited in paragraph 40 of the Minutes of the 1997 Trade Policy Review of the European
Union (WT/TPR/M/30) is as follows:

 It is important, in our view, to recall that acco rding to the first paragraph of Annex 3 to the
Marrakesh Agreement Establishing the World Trade Organization the Trade Policy Review
Mechanism "is not … intended to serve as a basis … for dispute settlement procedures".
Nevertheless, Venezuela considers it relevant to e xplain that the political context of the statement
made in 1997 was an assessment of the GSP with a view to considering a prospective application the
labour and environmental incentives to the GSP-Drugs. It was therefore a context of transition in
regard to those incentives. We should also specify that, according to the European Union, the special
environmental and labour arrangements were entirely voluntary and therefore not of a punitive nature.

 Venezuela is also surprised that India should ask this question, because in stating in its first
submission to the Panel that it had "informed the EC and the Director-General that it had decided to
limit the present complaint to the tariff concessions applied by the EC under the Drug Arrangements",
India excluded from the Panel's terms of reference all legal arguments relating to the environmental
and labour arrangements.

Ecuador

1. The summary of discussions of the High Level meeting between the European Union
and the Andean Community on Drugs (held in Br ussels on 11 June 2002) contains the following
statement of the representative from Ecuador:

 [I]ncluir en este régimen [regimen especial "d roga"] a países de fuera de la región, aleja
(Adding to this arrangement [drug arrangemen t] countries out of the region, takes the EU
away from the conceptual framework in which these preferences were conceived).

 This statement seems to suggest that accord ing to Ecuador, the Drug Arrangements are
to be confined exclusively to the Latin Ameri can region. Could Ecuador please explain whether
this can be reconciled with the assertion that the Drug Arrangements apply to all developing
countries particularly affected by the drug problem?

In reply to this question, Ecuador wishes to explain that the above statement should be
understood in the context of a political and trade meeting and hence in no way prejudges the legal
basis of the system or the possibility for the EU to include, on the basis of objective criteria, further
beneficiary countries facing the problem of drug production and trafficking.

Bolivia, Colombia, Ecuador, Peru and Venezuela

6. The Aide-Memoire of the Joint Andean Community-European Commission Technical
Evaluation Meeting on the Profitable Use of the Andean GSP states:

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

 Could Bolivia, Colombia, Ecuador, Peru a nd Venezuela please explain why a waiver
from the EC's WTO obligations was required?

The response to this question was given in the re ply to question 9 of the Panel to the Andean
countries.

ANNEX C-3

Reply of Brazil to the Question from India

after the First Panel Meeting

Brazil

1. At the Sixty-third Session of the Committ ee on Trade and Development, 19 April 1988
the Representative of Brazil stated:

"… although preferential tariff concessions constituted a unilateral act of the
donor country the exclusion of countries from GSP was per se a discrimination
which was not based on the agreed prin ciples … developed contracting parties
acting individually had been authorized to grant such preferential treatment
provided that the corresponding schemes were of a generalized, non-
discriminatory and non-reciprocal nature. The fact that such schemes were of a
voluntary character and did not constitute a binding obligation for the
preference giving countries did not in his view give them the right to ignore the
legal framework under which they had b een authorized to implement such
schemes"(COM.TD/127, p.5).
Does this remain the considered view of Brazil?

Answer

 Yes, the statement made by Brazil at the Co mmittee on Trade and Development on 19 April
1988 continues to be the view of Brazil on the issue. Brazil, in that statement, focused on the essential
principles governing the granting of preferential tr eatment under the Enabling Clause, i.e., that any
preference granted must be of a generalized, non-discriminatory and non-reciprocal nature.

ANNEX C-4

Replies of Costa Rica to Questions from the Panel and from India

after the First Panel Meeting

 Legal Function

1. Assuming that the Enabling Clause is not a waiver, is it an exception or an "autonomous"
right? In either case, what are the differences in legal consequences of characterizing the
Enabling Clause as an exception or an autonomous right? Are there legal consequences beyond
allocation of the burden of proof?

 The Enabling Clause is an autonomous right. The legal consequence of such characterization
is that India, the party making the assertion of illegality, bears the burden of proving that GSP drug
program is not consistent with the Enabling Clause and a violation of Article I. If it were an
exception, which it is not, then the EC would bear the burden of proving that the drug program is
consistent with the Enabling Clau se and thus falls within the exception that excuses the violation of
Article I of GATT. Also, as an exception, it would have to be interpreted narrowly

2. How does one identify whether a legal pr ovision confers an "autonomous right" or
provides for an "affirmative defence"?

 By looking at its ordinary meaning in its context, and in light of the object and purpose of the
treaty, and by determining the legal function of th e provision at issue (in this case, paragraph 1 and
2(a) of the Enabling Clause). The context includes, for that purpose, the treaty as a whole. The
provisions of the WTO Agreements and the GATT decisions cannot be interpreted in clinical
isolation. As the AB noted in Brazil-Desiccat ed Coconut, the WTO Agreement is a single treaty
instrument which was accepted by the WTO Members as a "single undertaking". It is an integrated
system and in that sense "fundamentally different from the GATT system which preceded it." (p. 13,
AB report) Therefore, the legal function of a prov ision, in this case paragraph 1 and 2(a) of the
Enabling Clause, must be considered in the context of the treaty as a whole . The legal function in
such broad context is relevant for the interpreta tion of the provisions, including whether it is an
exception or a affirmative defence.

 The Enabling Clause is an autonomous right. The provisions of Article XX, XXI, and XXIV,
all recognized exceptions to GATT rules and author ize certain conduct by establishing the boundaries
of all other provisions of the GATT. The limita tion that these exceptions impose on all other
provisions of the GATT is evidenced by their specifi c wording, i.e., "nothing in this Agreement shall
be construed to prevent" or "the provisions of th is Agreement shall not be construed to prevent."
They establish a limitation on what all other provisions can do or preclude. By contrast, the Enabling
Clause does not seek to detract in an y way from Article I. In fact, it reinforces Article I. The phrase
"notwithstanding the provisions of Article I" clarif ies that the Enabling Clause and Article I co-exist
harmoniously, and that one will not detract from the other.

 It is also noteworthy that, contrary to the preceding Decision of 1971, the negotiators did not
intend the Enabling Clause to be a waiver, thus de monstrating that the contracting parties did not
deem such instrument as an exception or affirmative defence, but rather as an autonomous right.

 Non-discriminatory

3. Assume that the Enabling Clause is a self-sta nding, autonomous right and that the Panel
should look at the Enabling Clause itself to interp ret its provisions. Could you indicate where in
the Enabling Clause the Panel should find the co ntext for the interpretation of the term "non-
discriminatory"?

 The immediate context for the interpretation of the term "non-discriminatory" is, by direct
reference of footnote 3 of the Enabling Clause, the Decision of 1971 that authorized the GSP system.
The object and purpose of the Decision of 1971 is therefore relevant as well for purposes of
interpreting the term non-discriminatory.

Does this context provide sufficient contextual guidance for the interpretation of this term? Should
the Panel also look outside the Enabling Clause for contextual guidance?

 In this case, the immediate context of the ordinary meaning of the term "non-discriminatory",
i.e., the Decision of 1971, provides sufficient contextual guidance for the interpretation of that term.
The Panel should look beyond the Decision of 1971 only if that immediate context does not enable it
to adopt an interpretation that gives full meani ng to the terms of the Enabling Clause and the other
relevant provisions of the WTO Agreement, in acco rdance with the object and purpose of the treaty.
In this case, however, the complainants’ interpretation of the term "non-discriminatory," in the context
of the Enabling Clause and the Decision of 1971, gi ves full meaning to that term and furthers the
object and purpose of the Enabling Clause and the GATT.

If so, to which particular Agreements and provisio ns therein, and why these particular provisions,
and not others?

 NA

4. Does the context of the term "non-discrimina tory" in footnote 3 of the Enabling Clause
include Articles I:1, III:4, X, XIII, XVII and XX of GATT 1994, and Article XVII of GATS? Why
or why not?

 It would, but only in limited circumstances which are not present in this case. Costa Rica
insists that the Panel should rely on the broader cont ext in which the term "non-discriminatory" must
be interpreted only if it finds that the ordinary meaning of the term, considered in its immediate
context and in light of the Enabling Clause’s object and purpose, is equivocal or vague. As indicated
above, the immediate context is the Decision of 197 1. The provisions mentioned in the question are
indeed context because they are part of GATT; the Decision of 1971 in turn is part of GATT by virtue
of Art. 1(b)(iv) of GATT 1994. However, the lega l function of the Enabling Clause is very different
from the legal function of Articles I:1, III:4, X, XIII, XVII and XX of GATT 1994, and Article XVII
of GATS. Unlike these provisions, the Enabling Clau se is not concerned, first and foremost, with
ensuring the equality of competitive conditions betw een like products. The purpose and fundamental
objective of the Enabling Clause is to authorize de veloped countries to grant differential and more
favourable treatment to developing countries, notw ithstanding the Most-Favoured-Nation principle of
Article I of the General Agreement. Therefore, ev en if paragraph 2(a) and footnote 3 of the Enabling
Clause and Article I:1 of GATT, are part of the same context, broadly speaking, it is incorrect to
extrapolate the non-discrimination notion found in Article I to the Enabling Clause and the Decision
of 1971.

 Paragraph 3(c)

5. Please give your views on the following ques tions relating to the meaning of the Enabling
Clause, based upon paragraph 9 of Paraguay's Oral Statement. Is it correct to say that under the
Enabling Clause developed countries are not obliged to give tariff preferences?

 Yes, it is correct. The GSP is an aut onomous system. As evidenced by the "Agreed
Conclusions" of the Special Committee on Preferen ces of UNCTAD’s Trade Development Board, the
grant of the tariff preferences does not constitute a "binding commitment" and it does not in any way
prevent their subsequent withdrawal in whole or in part, or the subsequent reduction of tariffs on a
MFN basis. Likewise, per the terms of the Decisi on of 1971, the grant of tariff preferences does not
constitute a binding commitment and is only temporary in nature.

Is it also correct that any preferences granted are only in respect of products of the developed
country's own choice and only to developing countries of its choice?

 It is correct that the preferences granted are only in respect of the products of the developed
country’s own designation. However, the choice of developing countries beneficiaries cannot be
arbitrary nor is it entirely discretionary. The choice of beneficiaries has to be based on objective, non-
discriminatory, criteria.

Are developed countries free to graduate beneficiary developing countries from their GSP
schemes?

 The obligation to take into account the specifi c level of economic and trade development, for
the purpose of determining which developing countries meet the objective criteria that make them
eligible to receive preferences, exists also for the purpose of determining which countries no longer
meet such conditions. The arbitrary removal of ta riff preferences accorded to a beneficiary country
that continues to meet the conditions would be just as discriminatory and inconsistent with the
Decision of 1971 as according tariff preferences to a country that does not meet such conditions.
Therefore, the non-discrimination requirement of the Generalized System of Preferences requires that
the withdrawal of preferences by the donor country be based on objective, non-discriminatory criteria.

Developing countries often have different development needs. Take, for example, Indonesia, the
Philippines, Morocco, Brazil and Paraguay, each ha ving different development needs. If we agree
with the argument of the Andean Community that it is possible to select some beneficiary countries
according to certain criteria (paragraph 6 of th e Joint Statement of the Andean Community),
would it not be a logical consequence of this argument that any developed country could establish a
special GSP tariff preference scheme for each indi vidual developing country in responding to that
developing country's own development needs? Is this a proper reading of paragraph 3(c) of the
Enabling Clause? Why or why not? If not, where do you draw the line in term of a proper
interpretation of paragraph 3(c)?

 No. The Enabling Clause does not require, or even authorize, developed countries to grant
specific tariff preferences to developing countries on an individual basis. The requirement that the
GSP tariff preference scheme be generalized would preclude donor countries from establishing an
atomized GSP scheme made up of a multitude of indivi dual tariff preferences. Nevertheless, the term
"generalized" cannot be interpreted as rigidly requiring donor countries to grant the same preferences
to all developing countries without consideration to th eir specific development, financial, and trade
needs. Paragraph 5 is the only provision of the Enabling Clause that makes reference to the individual
development, financial and trade needs of developing countries.

6. Are the developed countries free to "graduat e" beneficiary developing countries from a
GSP scheme? If so, under which paragraph of the Enabling Clause? Please elaborate.

 Concerning the first question see answer to ques tion No. 5. There is no specific provision in
the Enabling Clause that addresses the removal of prefer ences. However, such authority is implicit in
(i) paragraph 3(c) of the Enabling Clause, (ii) in the autonomous, non-binding nature of the tariff
preferences granted by donor countries to developing countries, and (iii) the right to grant preferences
to some but not all developing countries, provide d that such differential and more favourable
treatment is non-discriminatory.

7. Does the word "and" in paragraph 3(c) of the Enabling Clause mean "or"? In other
words, does the word "and" mean that "developm ent, financial and trade needs" must be
considered in a comprehensive manner or may they be considered separately?

 The "development, financial and trade n eeds" can be considered separately under
paragraph 3(c). In any event, drug production a nd trafficking affects the development, financial and
trade needs of the developing countries that face that problem. Therefore, the EC’s special
arrangement to combat drug production and traffick ing, positively responds to the development,
financial and trade needs of the beneficiary developing countries.

8. Paragraph 3(c) of the Enabling Clause refers to "developed contracting parties" and
"developing countries" in the plural form. Given the common understanding that developed
countries may decide individually whether or not th ey wish to provide GSP, is it also possible to
interpret "developing countries" under paragraph 3(c) as meaning individual developing
countries?

 Yes, paragraph 3(c) can be interpreted as re quiring a donor country to consider the individual
development, financial and trade needs of deve loping countries when designing or modifying its
differential and more favourable treatment. Howe ver, as stated above, that does not mean that
developed countries are required or even authorized to grant specific tariff pr eferences to developing
countries on an individual basis. It is one thing to design a generalized system that responds to the
individual development, financial and trade needs of developing countries, pursuant to the Decision of
1971 and the Enabling Clause, and it is quite a different thing to have a specific system for each
individual developing country. The latter is not a direct or necessary consequence of the former.

 Developing countries cannot be grouped into on e single unified, undifferentiated category.
Although similar in various ways, developing countries have widely different development, financial
and trade needs. Nevertheless, there are common pr oblems or challenges that are shared by either a
wide or narrow group of developing countries. Paragraph 3(c) requires donor countries to respond
positively to the differing levels of development through programs that can be more efficiently
applied to a category of developing countries that share, overall, the same development, financial and
trade needs. It simply would not be efficient or even practicable to design individual preferential
systems for each developing country. It is far more feasible and efficient to respond to the common
development, financial and trade needs shared by some but not necessarily all developing countries
through special preferential schemes that considers and responds to those shared needs. In fact, it is
absurd, given the wide disparity between developing countries, to suggest that a donor country can
respond to the needs of developing countries thro ugh one single GSP scheme , and still give full
meaning to the requirement in paragraph 3(c). Th e donor country must consid er the individual needs
of the developing countries when determining which countries share the same developmental
problems or obstacles, in order to apply a generali zed, but not single, GSP system that adequately
responds to those needs. That is the meaning of paragraph 3(c) of the Enabling Clause and that is
exactly what the EC GSP drug program does. It responds to the developmen t, financial and trade
needs of a group of developing countries that share a common problem, viz., drug production or
trafficking.

9. To the extent that the Drug Arrangements only respond to development needs caused by
drug production and trafficking, while not res ponding to development needs resulting from other
problems, such as poverty, low per capita GNP, malnutrition, illiteracy and natural disasters, how
does this EC programme satisfy the "non-discri minatory" requirement in footnote 3 of the
Enabling Clause? Please elaborate.

 The non-discriminatory requirement of the Decision of 1971 does not prevent or preclude
donor countries from responding both to development needs caused by drug production and
trafficking, and to development needs resulting from other pr oblems, such as poverty, low per capita
GNP, malnutrition, illiteracy and natural disasters. Therefore, it is a mistake to force donor countries
to choose between which specific deve lopmental or trade problems to a ddress, to the exclusion of all
other problems. Yet, India appears to be sugges ting that the EC needs to choose between addressing
either drug production and trafficking or child malnutrition. India’s s uggested response is to either
treat all problems and challenges faced by developing countries through one single, rigid GSP system,
as if all problems were the same, or to not address the specific problems at all. This approach ignores
the possibility that, pursuant to the Enabling Clause, a donor country can establish a GSP scheme that
would provide additional preferences to developing countries that, accordin g to objective criteria,
faced, for instance, a grave child malnutrition problem.

 The EC responds to the non-discriminatory requi rement referred to in footnote 3 by according
differential and more favourable treatment to develo ping countries that, objectively, face a specific
development, financial and trade problem.

 General

10. Please indicate whether or not you consid er that the Drug Arrangements need to be
covered by a waiver. Please elaborate.

 A waiver would add legal certainty to the mu ltilateral trading system by strengthening the
legal basis of what all recognize as a vital trade program that is essential to the development of
developing countries.

QUESTIONS POSED BY INDIA TO THE THIRD PARTIES

1. Do the third parties support the EC's contentio n that the Drug Arrangements are justified
under Article XX(b) of the GATT?
1

 Costa Rica is of the opinion that, given that Article XX(b) of GATT constitutes a general
exception and is in the nature of an affirmative de fense, it is appropriate only for the EC to assert it
and to provide the reasons that, in its view, justify its invocation.

1 This question was addressed by India to Bolivia, Brazil, Colombia, Costa Rica, Cuba, Ecuador, El
Salvador, Guatemala, Honduras, Mauritius, Nicaragua, Pakistan, Panama, Paraguay, Peru, Sri Lanka, the United
States and Venezuela.

ANNEX C-5

Replies of El Salvador, Guatemala, Honduras and Nicaragua

to Questions from the Panel after the First Panel Meeting

PANEL'S QUESTIONS TO THE THIRD PARTIES

To Guatemala, El Salvador, Honduras and Nicaragua

1.1 What, in your view, is the principle of sh ared responsibility, and what is the relevance of
this principle in this case?

Definition of the principle of shared responsibility1

 Action against the world drug problem is a common and shared responsibility requiring an
integrated and balanced approach in full conformity with the purposes and principles of the Charter of
the United Nations and international law.

Relevance of the principle of shared responsibility in this case

 The multinational dimension of drug trafficking is such that it does not lie within the power of
any of the world's countries single-handedly to eliminate this threat.
2 In the fight against drugs, every
State should have a task to accomplish that is commensurate with its own circumstances and
capacities.

 The special arrangements to combat drug prod uction and trafficking (Drug Arrangements) are
one of the means used by the EC to address this global task of fighting drug production and
trafficking, by providing beneficiary countries inter alia with opportunities to conduct lawful
activities to replace those related to the narcotics trade.

1 Political Declaration, Special Session of the General Assembly of the United Nations, 1998.
2 Paragraph 1 of the first written submission by El Salvador, Guatemala, Honduras and Nicaragua:
"The drug problem is a multilateral issue that calls for constructive solutions on the part of countries affected by
drug production and trafficking, as well as destination co untries. Ultimately, the effort must be made by both
developed and developing countries."

ANNEX C-6

Replies of Panama to Questions from the Panel and from India

after the First Panel Meeting

PANEL'S QUESTIONS TO ALL THIRD PARTIES

To All Third Parties

 Legal Function

1. Assuming that the Enabling Clause is not a waiver, is it an exception or an
"autonomous" right? In either case, what are the differences in legal consequences of
characterizing the Enabling Clause as an excepti on or an autonomous right? Are there legal
consequences beyond allocation of the burden of proof?

 The Enabling Clause is an autonomous right and not an exception or a waiver. It is a
Decision taken by Members on 28 November 1979 unde r the title "Differential and More Favourable
Treatment, Reciprocity and Fuller Participation of Developing Countries". Its title so specifies, and as
a Decision taken by the GATT CONTRACTING PA RTIES in 1994, it is included in paragraph
1(b)(iv) of the GATT 1994. If it were a waiver, it w ould be included under paragraph 1(b)(iii) of the
GATT 1994, or it would appear on its own, like, for example, the exemption granted under
paragraph 3 of the GATT 1994.

 The fact that the Enabling Clause was created by a Decision as a separate and distinct statute
for the purpose of providing "special and more favourable treatment" distinguishes it from the
exception regimes which are conceived as derogations from the General Agreement itself that are
permitted for other purposes than granting "special and more favourable treatment" to developing
countries. It is this development dimension that gives the Enabling Clause its distinct and
autonomous status. Exceptions can be invoked by any Member State regardless of its level of
development, and they are normally used to protect or promote specific interests of the Member State
invoking them. The Enabling Clause, on the other hand, establishes a separate and distinct statute
whose purpose is to enable benefits to be granted to third parties, and those benefits can only be
accorded to developing or least-dev eloped countries. It is differ ent from an exception in that it
precludes the rights and obligations contained in th e Agreement only when preferential treatment is
given to third parties, taking account of the development dimension.

2. How does one identify whether a legal pr ovision confers an "autonomous right" or
provides for an "affirmative defence"?

 The context of the question leads us to consid er the question of why the Enabling Clause is an
autonomous right. In response to that question, we conclude that the following conditions indicate
that it is:

(a) It is and has been (since 1979) a right recognized by the CONTRACTING PARTIES
(Tokyo Round involved in multilateral trade negotiations;

(b) it is recognized in paragraph 1 thereof th at notwithstanding Article I of the GATT,
favourable treatment may be accorded to third parties with a particular development
status;

(c) among its basic provisions is the requirement that such treatment should be provided
for particular purposes (paragraph 3).
 A legal provision is identified as an autonomous right when it confers a permanent right on
one or several parties without any mention of contingency on other provisions. Thus, the autonomy
of a right exists where the exercise of a right de riving from a provision is regulated by the same
provision. In the case of the Enabling Clause, the r eason for its autonomy is to provide for "special
and more favourable treatment" in response to a deve lopment dimension. If it were an "affirmative
defence", it would be based on a whole set of rights and obligations which would be equal for all and
would not be associated with any specific purposes or level of development.

3. Assume that the Enabling Clause is a self-standing, autonomous right and that the Panel
should look at the Enabling Clause itself to interpret its provisions. Could you indicate where in
the Enabling Clause the Panel should find the context for the interpretation of the term "non-
discriminatory"? Does this context provide sufficient contextual guidance for the interpretation
of this term? Should the Panel also look outside the Enabling Clause for contextual guidance?
If so, to which particular Agreements and provisions therein, and why these particular
provisions, and not others?

 The meaning of "non discriminatory" can be found throughout the text of the Clause, but
above all in paragraphs 1, 2 and 3. The context of "non-discrimination" should be found in the very
reason for the Enabling Clause's existence. As a cooperation and development mechanism, it
unquestionably constitutes a means of stimulating gr owth in the beneficiary countries by promoting
their trade. This promotion does not need to ta ke account of the provisions of Article I.1 of the
GATT; in other words we are able, in our view, to exercise a right (the granting of certain benefits),
with elements of discretionality that are distinct from those contained in Article I.1 of the GATT
(MFN). The exercise of this discretion can only be judged on the basis of the object and raison d'être
of the Clause itself. And indeed, this discretionality is confirmed by the final part of paragraph 1 with
the words "without according such treatment to other contracting parties".

 The use and meaning of the terms as they app ear in the Enabling Clause must also be taken
into account in determining the limits imposed by the Clause itself. The wording of the Enabling
Clause does not reflect any doubt in establishing the appropriate distinctions and clarifications when it
wishes to distinguish between the developed and developing parties and countries. The Enabling
Clause uses the term "CONTRACTING PARTIES"
1 on several occasions to mean both the developed
members and the developing members. The authors di d not see any need to make the distinctions and
clarifications in this case that it had made in other cases 2, so that what was meant was all members
without distinction as to their level of development. It is possible, therefore, not to grant schemes
accorded under the Clause to other contracting parties (not to all) whatever of their level of
development.

 The Panel must look for any meaning within th e Clause itself – it is there that the meaning of
"non-discriminatory" can be found. The meaning of "non-discriminatory" in respect of a scheme
accorded under Article 2(a) of the Enabling Clause must be established by answering the following
questions:

(d) Is the preference scheme granted under paragr aph 2(a) of the Enabling Clause in fact
consistent with the objectives and purposes of the Clause?

1 Paragraphs 1, 2(c) , 4(a), 4(b) and 9 of the Enabling Clause
2 "Developed contracting party or developed party": Paragraphs 2(a), 3(c), 5 and 7 of the Enabling
Clause. On all of these occasions, the term is cont rasted with terms such as "developing countries"
(paragraphs 2(a) and 3(c) or "developing contracting parties" (paragraphs 5 and 7).

(e) Is the preference scheme granted under paragraph 2(a) of the Clause in fact consistent
with the guidelines on differential and more favourable treatment in paragraph 3(c) of
the Clause?
(f) Does the preference scheme in fact constitu te a means granted for the purposes it is
supposed to achieve?
 The Enabling Clause in itself provides sufficient guidance as to how the term should be
interpreted. With respect to the question as to whether the Panel should look outside the Enabling
Clause for other guidance, we believe that Members may use all of the resources available to them as
they deem necessary in the light of their experience and expertise. We think that the meaning can be
found in the Clause itself to the extent that it introduces a concept that is separate and distinct from the
General Agreement, as is the Most Favoured Nation Principle, and any help that could be derived
from the different Agreements (including the GATT) would be limited and illustrative, since they are
governed by Article 1 of the GATT and do not invalidate it as does the Enabling Clause. If we were
to proceed otherwise, we would be undermining the autonomy of a right that could literally be
jeopardized if we tried to relate it directly to the general context of the GATT provisions.

4. Does the context of the term "non-discrimi natory" in footnote 3 of the Enabling Clause
include Articles I:1, III:4, X, XIII, XVII a nd XX of GATT 1994, and Article XVII of GATS?
Why or why not?

 The context of the term "non discriminatory" in footnote 3 of the Enabling Clause does not
include Article I of the GATT. Its status as a separate and distinct statute with a specific purpose
precludes the use of the principles of Article I to in terpret the way in which "special and differential
treatment" must be granted. The Enabling Clause w ould lack coherence if it were subsumed, through
interpretative context, under the same provision from which it is expressly excluded.

 Footnote 3 makes it clear that differentiate d and more favourable treatment schemes under
paragraph 2 (a) of the Clause must be generalized (to several), but does not imply that it must be
universalized to all). If footnote 3 implied universa lity of the benefits granted by the inclusion in its
interpretative context of the concepts set forth in Article III.4, X, XIII, XVII and XX of the
GATT 1994, we would be depriving the Clause of its "legal autonomy" and in fact applying it as if it
were an exception to the General Agreement. Refe rence to the different meanings of the term "non-
discrimination" may be a good illustrative exercise, but cannot and should not turn into an
interpretation which results in depriving it of its stat us as a statute which is separate and distinct from
the Clause. To the extent that we apply th e general principles of the GATT within the non-
discrimination obligation (beyond simply trying to understand the differences with the Enabling
Clause), we will be losing the autonomous right that was there from the start.

 Our delegation has given much attention to Ar ticle XVII of the GATS. We do not consider
that provisions of the Services agreement such as Article XVII which concern conditions of
competitions between services suppliers should be tr ansposed or used to judge incentive schemes on
the basis of special and more favourable treatment for the developing countries. The equality of
opportunities to compete is an element alien to the motivation behind the granting of incentive
schemes on the basis of special and more favourab le treatment. Our understanding is that the
Communities mentioned this Article in order to "illust rate" the point that formerly different treatment
is not necessarily discriminatory
3 India seems to concur in this respect. 4. Their dispute currently
before the panel does not involve the supply of ser vices so that in our view, any interpretation of
Article XVII of the GATS should be confined to th e illustrative purposes for which the parties used

3 … written submission of the European Communities, paragraph 74 and 75.
4 Statement of India before the panel of 14 May 2003, paragraph 19.

and accepted them, and not to create precedence for fu ture interpretations of Article XVII of the
GATS.

5. Please give your views on the following questions relating to the meaning of the
Enabling Clause, based upon paragraph 9 of Paraguay's Oral Statement. Is it correct to say
that under the Enabling Clause developed countries a re not obliged to give tariff preferences?
Is it also correct that any preferences granted a re only in respect of products of the developed
country's own choice and only to developing co untries of its choice? Are developed countries
free to graduate beneficiary developing countries from their GSP schemes?

 The purpose of the Enabling Clause is to encourage the granting of preferences under a
system of differential and more favourable treatment for the developing countries. The text of the
Enabling Clause reflects the unilateral and non-manda tory nature of the "differential and more
favourable treatment" by using the clear terms " may accord
". These concessions are clearly made
outside (through a separate and distinct statute) th e obligations contained in the General Agreement,
where the concessions were granted under a different system necessarily involving negotiation, in
which reciprocal concessions and case by case exam ination would play a relevant role. This
interpretation is reaffirmed by footnote 2 of the Clause which states that any measures involving
differential and more favourable treatment other th an those stipulated in the Enabling Clause should
be considered on a different basis from those covered by the Clause.

 It is correct that a country that unilaterally grants certain preferen ces in exercise of its
discretionary rights under the Enabling Clause chooses the products for which they are granted. Who,
otherwise, would have the discretion to take the final decision on what product should be included or
excluded from a particular scheme? The modification of tariffs continued to be the sovereign right of
Members, so that only the Member granting the tariff benefit can decide whether or not to include in
its legislation and give it a force of law. The exerci se of this sovereign authority can be the subject of
consultation as to the consistency of the measures take n with that Member's international obligations.
Since the said member can be held responsible for its actions as demonstrated by the appearance of
the European Communities before th is panel, there is no doubt in our minds that it is the granting
Member that must make that choice.

 Paragraph 3(c) imposes on developed countries th e obligation to ensure that any differential
and more favourable treatment granted under the Cl ause is "designed and, if necessary, modified, to
respond positively to the development, financial a nd trade needs of the developing countries." This
obligation cannot be properly fulfilled if the count ry granting the benefits is not given a certain
amount of flexibility to draw up preference schemes that respond effectively to the "generalized"
needs (of some) instead of the unive rsal needs (of all). The generali zed (to some) nature provided for
in paragraph 2(a) requires that the countries gr anting such benefits should create a reference
framework or process on the basis of which the benefits will be accorded.

 Graduation is not an issue that Panama h as argued during these proceedings and it does not
fall within the terms of reference of the panel for this dispute. Consequently, we do not wish to
discuss this particular issue.

6. Developing countries often have different development needs. Take, for example,
Indonesia, the Philippines, Morocco, Brazil and Paraguay, each having different development
needs. If we agree with the argument of the Andean Community that it is possible to select
some beneficiary countries according to certain criteria (paragraph 6 of the Joint Statement of
the Andean Community), would it not be a logical consequence of this argument that any
developed country could establish a special GSP tariff preference scheme for each individual
developing country in responding to that develo ping country's own development needs? Is this
a proper reading of paragraph 3(c) of the Enabling Clause? Why or why not? If not, where do
you draw the line in term of a proper interpretation of paragraph 3(c)?

 Paragraph 3 (c) does not speak of granting a preference system to one developing country
only; the complete text of the Clause speaks of a group of developing countries – it does not say all,
nor does it suggest only one. Development ne eds can unquestionably be different among the
developing countries as the question states. Clearly , the system of preferences (drugs) in question
responds to the development needs of developing countries suffering from the adverse influence of a
common phenomenon, which is the vast production and/or trafficking of drugs, and/or money
laundering.

7. Are the developed countries free to "gradua te" beneficiary developing countries from a
GSP scheme? If so, under which paragraph of the Enabling Clause? Please elaborate.

 Graduation is not an issue that has been argued by Panama during these proceedings, and it
does not fall within the panel's terms of reference wi th respect to this dispute. Consequently, we do
not wish to discuss this particular issue.

8. Does the word "and" in paragraph 3(c) of the Enabling Clause mean "or"? In other
words, does the word "and" mean that "devel opment, financial and trade needs" must be
considered in a comprehensive manner or may they be considered separately?

 Drugs represent a phenomenon which negatively a ffects development potential in its totality.
It causes economic distortion that has nothing to do with market dynamics. It generates additional
public health needs, crime and the disintegration of families. The economic power generated by drugs
can go as far as infiltrating, corrupting and rendering useless our institutions and the political system.
The combat against this phenomenon calls for resources which could otherwise be used for
development. It seems to … the phrase "developmen t, financial and trade needs." should be viewed
comprehensively, since any effort to improve one of these elements would, one way or another, help
the others.

9. Paragraph 3(c) of the Enabling Clause refe rs to "developed contracting parties" and
"developing countries" in the plural form. Given the common understanding that developed
countries may decide individually whether or not they wish to provide GSP, is it also possible to
interpret "developing countries" under paragraph 3(c) as meaning individual developing
countries?

 At no time has this delegation considered th at one single developing country could benefit
from the treatment; rather, the treatment would be granted to a group of developing countries which,
in turn, does not mean that it is granted to all developing countries.

10. To the extent that the Drug Arrangements only respond to development needs caused by
drug production and trafficking, while not resp onding to development needs resulting from
other problems, such as poverty, low per capita GNP, malnutrition, illiteracy and natural
disasters, how does this EC programme satisf y the "non-discriminatory" requirement in
footnote 3 of the Enabling Clause? Please elaborate.

 The GSP-drugs scheme was introduce in res ponse to a phenomenon which has repercussions
on all aspects of development needs of the countries a ffected. We consider th at the ultimate aim of
this scheme is to achieve a certain level of de velopment, alleviate poverty and increase per capita
income. As we mentioned in our statement of 15 May to the panel, we think that the GSP drugs
scheme offers the economies and societ ies that are truly affected by th e impact of drugs benefits that
enable them to a certain extent to alleviate the di re situation in which they find themselves and, by
offering them the possibility of expanding their exports, provides them with a means of improving
their production capacity and achieving their development objectives. Although the needs of the
developing countries are similar, the causes for the se needs are different and can require different

approaches (without singling out any country). The GSP drugs scheme addresses the needs of
countries that are severely affected by the phenomen on. As with the scheme for the least developed
countries, beneficiaries must be elected on the basis of certain criteria or parameters. This does not
mean that the development needs of the other deve loping countries do not exist, but that the approach
and the beneficiaries may be different. The GSP drugs scheme of European Communities has enabled
new countries to join as beneficiaries at various diff erent stages. This clear ly means that the scheme
is not singular or closed. Thus, there is one c ontradiction with the term "non-discrimination" in
footnote 3 of the Clause.

11. Please indicate whether or not you consid er that the Drug Arrangements need to be
covered by a waiver. Please elaborate.

 We do not think that the GSP drugs scheme s hould be covered by a "waiver". Firstly, we
repeat what we said in the first paragraph of our answer to question 1 above. Moreover, the
difference with a "waiver" is clearly stated in footno te 2 of the Clause where it refers to "differential
and more favourable treatment" schemes different fr om those covered by the Clause. The schemes
that are different from those covered by the Clause may be considered consiste nt with the provisions
of the General Agreement on collective action. Si nce the GSP drug scheme is based on the exercise
of an autonomous right, its implementation and inte rpretation must come within the framework of the
Enabling Clause, and hence not Article XXV (5) of the GATT.

QUESTIONS POSED BY INDIA TO THIRD PARTIES

To all third parties

1. Do the third parties support the EC's co ntention that the Drug Arrangements are
justified under Article XX(b) of the GATT?

 (This question is addressed to Bolivia, Br azil, Colombia, Costa Rica, Cuba, Ecuador,
El Salvador, Guatemala, Honduras, Mauritius, Nicaragua, Pakistan, Panama, Paraguay, Peru,
Sri Lanka, the United States and Venezuela)

 Without wishing to take position on whether the GSP drugs arrangements are justified under
Article XX(b) of the GATT, Panama would like to no te that for the moment it has not challenged the
invocation of that article by the European Co mmunities in this specific case. Moreover, the
invocation of Article XX (b) of the GATT is a righ t of all Members which, in our view, should be
considered case by case as an affirmative defence and not as an autonomous right under the Enabling
Clause. Nothing precludes a scheme from being a measure designed to address the development
needs of certain countries severely affected by the drugs problem on the one hand, while at the same
time being a measure intended to safeguard public h ealth. As we stated earlier, each case should be
judged on its merits and on the basis of its legal status. Nor is there anything to prevent different lines
of a defence being followed in the same case concerning policies with different objectives.

ANNEX C-7

Replies of Paraguay to Questions from the Panel and from India

after the First Panel Meeting

To All Third Parties

 Legal Function

1. Assuming that the Enabling Clause is not a waiver, is it an exception or an "autonomous"
right? In either case, what are the differences in legal consequences of characterizing the Enabling
Clause as an exception or an autonomous right? Are there legal consequences beyond allocation of
the burden of proof?

Reply

 Paraguay is not aware of a commonly accepted definition of "autonomous right". A
"conditional right" is "a right that depends on an unc ertain event; a right that may or may not exist".
1
Thus an "autonomous right" could be understood to be a right that does not depend on an uncertain
event for its existence but solely on the will of th e right holder. An autonomous right, like all other
rights, may however be exercised only consistently with the law. In the present context, the
developed countries have the right to deviate from certain aspects of Article I of the GATT if they
decide to accord GSP preferences, but the exercise of that right is subject to disciplines.

 The question seems to imply that "autonom ous right" and "exception" are necessarily
mutually exclusive. Paraguay is of the view that they are not necessarily mutually exclusive, and
situations must be analyzed on a case-to-case basi s. For example, based on the above definition of
"autonomous right", even assuming that the right to take measures under Article XX of the GATT,
and to form customs unions or free trade areas under Article XXIV of the GATT are autonomous
rights, they are also exceptions to the basic rules of the GATT. Again, the exercise of the right is
subject to applicable disciplines.

 The burden of proof must be assessed in relation to the material elements of the plaintiff's
claim and the material elements of the defendant's defe nce. In this dispute, India's claim is that the
Drug Arrangements are inconsistent with Article I:1 of the GATT. To establish that claim, all that
India has to do is to assert, and by virtue of that assertion, prove, that: (i) the EC grants an advantage
by way of tariff preferences to products originating in one or some countries, and (ii) the EC does not
accord the same advantage immediately and unc onditionally to products originating in other
Members. India has so asserted and proven. W ith this, India has established that the Drug
Arrangements are inconsistent with Article I:1of the GATT. India's claim in this proceeding is based
on Article I:1 of the GATT and not on paragraph 1 or 2(a) of the Enabling Clause. The latter
provisions are therefore not a material element of the claims that India has submitted to this Panel.

 To defeat India's claim, the EC may assert, and it has chosen to so assert, that the tariff
preferences under the Drug Arrangements are justif ied under the Enabling Clause. It is thus
incumbent on the EC to prove that the Drug Arra ngements are in fact covered by that Clause
regardless of whether the Enabling Clause is an autonomous right or an exception or both.

 To summarize: The Enabling Clause is, by de finition, an exception to certain aspects of
Article I:1 of the GATT. Even assuming that it is also an autonomous right, the issue of burden of
proof does not necessarily flow from its characteri zation as an exception or an autonomous right.

1 Black's Law Dictionary, 7th ed., B.A. Garner (ed.) (West Group, 1999), p. 1323.

Rather, it flows from the fact that the Enabling Clau se is not a material element of India's claim of
violation of Article I:1 of the GATT, while it is a material element of the EC's defence.

2. How does one identify whether a legal prov ision confers an "autonomous right" or provides
for an "affirmative defence"?

Reply

 This reply is based on Paraguay's understandi ng of "autonomous right", as set forth in the
answers to question 1 addressed by the Panel to the third parties.

 "Affirmative defence" is "a defendant's asserti on raising new facts and arguments that, if true,
will defeat the plaintiff's or prosecution's claim, even if all allegations in the complaint are true."
2

 As noted above, Paraguay is of the view th at an "autonomous right" could also be an
"affirmative defence". For example, even assuming that the right to take measures under Article XX
of the GATT could be deemed as an "autonomous right", at the same time, the exercise of that right
could be an "affirmative defence" in a dispute concerning other provisions of the GATT. In the same
manner, even assuming that the right to form cu stoms unions or free trade areas under Article XXIV
of the GATT could be deemed an "a utonomous right", in the same manner, the exercise of that right
could be an "affirmative defence" in a dispute concerning other provisions of the GATT.

 Paraguay believes that a case-to-case assessment is necessary in order to determine whether a
particular provision is an "autonomous right", an "affirmative defence", or both.

 Non-discriminatory

3. Assume that the Enabling Clause is a self-standing, autonomous right and that the Panel
should look at the Enabling Clause itself to interpret its provisions. Could you indicate where in the
Enabling Clause the Panel should find the context for the interpretation of the term "non-
discriminatory"? Does this context provide sufficie nt contextual guidance for the interpretation of
this term? Should the Panel also look outside the Enabling Clause for contextual guidance? If so, to
which particular Agreements and provisions therein, and why these particular provisions, and not
others?

Reply

 Within the Enabling Clause itself, the fo llowing provide context to the term "non-
discriminatory":

• Paragraph 1 of the Enabling Clause refers to Article I of the GATT and indicates
what is permitted notwithstanding that artic le. Article I:1 of the GATT provides that
"… any … advantage, … granted by any [Member] to any product originating in …
any other country shall be accorded imme diately and unconditionally to the like
product originating in … the territories of other [Members]". Thus, notwithstanding
the MFN rights of all Members under Article I:1 of the GATT, the Enabling Clause
permits a developed country Member not to accord MFN treatment to like products
originating in other developed country Me mbers in respect of preferential tariff
treatment accorded to products origin ating in developing country Members in
accordance with the GSP. This is all that paragraph 1 permits. There is nothing in
paragraph 1 which could be construed as a waiver by developing country Members of

2 Ibid, p. 584.

their MFN rights in respect of any advant age granted by any other Member to any
product originating in any other country.
3

 Stated in a different manner, it is neces sary that each developed country Member be
permitted not to accord MFN treatment to like products originating in other
developed country Members to enable that developed country Member to accord
preferential tariff treatment to products originating in developing countries in
accordance with the GSP. For this purpose, it is not necessary to permit that
developed country Member not to accord MF N treatment to like products originating
in developing countries.

 Thus, the very first paragraph of the Enabling Clause reaffirms the MFN rights of
developing country Members under Article I:1 of the GATT. In this context, "non-
discriminatory" means immediate and unconditional MFN treatment between like
products of developing countries.

 The Enabling Clause was adopted for the benefit of developing countries. Aside
from the absence of clear language indicating that developing countries waived their
MFN rights under Article I:1, an interpretation to the effect that paragraph 2(a) of the
Enabling Clause curtails the benefits accruing to developing countries Article I:1 runs
counter to the very purpose of that paragra ph, which is to create additional benefits
for the developing countries in the legal framework of the GATT.

• Paragraph 2(a) refers to "prefere ntial tariff treatment accorded … to products
originating in developing countries …" The preferential treatment is in respect of
tariffs, and the object of the treatment is "products". "Like products" will always be
like products regardless of their origin. Unl ess the Enabling Clause expressly so
provides (which it does not) there can be no valid basis for differentiation in
treatment between like products for the purpose of the imposition of tariffs. In all
GATT provisions and in GATT and WTO juri sprudence the term "discriminatory"
has been used to describe the denial of equal competitive opportunities to like
products originating in different countries. "Non-discriminatory" thus refers to
treatment of like products, and not to treatment of Members, as such.

• "Discriminatory tariff" is defined as "a tariff containing duties that are applied
unequally to different countries or manufacturers."
4 A "non-discriminatory tariff" in
the context of the Enabling Clause therefor e is a tariff containing duties that are
applied equally to different developing countries.

• Footnote 3 refers to the "establishment of 'generalized, non-reciprocal and non-
discriminatory preferences beneficial to the developing countries". (emphasis
added). The use of the definite article "t he" with reference to "developing countries"
indicates that the GSP must be beneficial to all developing countries. The dictionary
meaning of "the" is …"used preceding a (sing.) noun used generically or as a type of
its class; (with a pl. noun) all those described as ______"
5. Thus, in this instance, the
phrase "the developing countries" means "all those described as developing
countries". Preferential tariff treatment to pr oducts originating in some developing

3 Subject to the exception in favour of least developed countries pursuant to paragraph 2 (d) of the
Enabling Clause.
4 Black's Law Dictionary, 7th ed., B.A. Garner (ed.) (West Group, 1999), p. 1468.
5 The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press, 1993), Vol. II,
p. 3270.

country beneficiaries to the exclusion of lik e products originating in other developing
country beneficiaries is not beneficial to all developing countries.
6

• The equally authentic Spanish and En glish texts likewise use the phrase "of the" in
their title, with reference to "differen tial and more favourable treatment …" –
"TRATO DIFERENCIADO Y MAS FAVORABLE, RECIPROCIDAD Y MAYOR
PARTICIPACION DE LOS PAISES EN DESARROLLO" and "TRAITEMENT
DIFFERENCIE ET PLUS FAVORABLE, RECIPROCITE ET PARTICIPATION
PLUS COMPLETE DES PAYS EN VOIE DE DEVELOPPEMENT".

• If "non-discriminatory" were to have the "negative meaning" attributed to it by the EC,
paragraph 2(d) would be re dundant as there is a clear distinction between least
developed countries and other developing countries.

 Footnote 3 to paragraph 2(a) refers to the GSP as described in the 1971 Decision.
Paragraph (a) of the 1971 Decision refers to "the preferential tariff treatment referred to in the
"Preamble to this Decision …" The rele vant provisions of the Preamble provide:

"Recalling that at the Second UNCTAD, unanimous agreement was reached in favour
of the early establishment 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…"
 The preferential tariff treatment referred to in paragraph (a) of the 1971 Decision and its
Preamble must therefore be construed in relation to the "mutually acceptable arrangements [that] have
been drawn up in the UNCTAD concerning the es tablishment of generalized, non-discriminatory,
non-reciprocal preferential tariff treatment in the markets of developed countries for products
originating in developing countries".

 The GSP had its beginnings at the First Conference of the UNCTAD in 1964, which resolved:

"International trade should be conducted to mutual advantage on the basis of
the most-favoured-nation-treatment and should be free from measures detrimental
to the trading interests of other countries. However, developed countries should grant
concessions to all developing countries a nd to extend to developing countries all
concessions they grant to one another a nd should not, in granting these or other
concessions, require any concessions in return from developing countries. New
preferential concessions, both tariff and non-tariff, should be made to
developing countries as a whole
 and such preferences should not be extended to
developed countries. Developing countries need not extend to developed countries
preferential treatment in operation amongst them. Special preferences at present
enjoyed by certain developing countries in certain developed countries should be
regarded as transitional and subject to progressive reduction . They should be
eliminated as and when effective international measures guaranteeing at least

6 The equally authentic Spanish and French texts likewise use the definite article "the" – "en beneficio

equivalent advantages to the countries concerned come into operation."
7 (emphasis
added)
 As early as UNCTAD I therefore, the following concepts were affirmed or endorsed:

• International trade should be conducted to mutual advantage on the basis of the MFN
principle.

• As an exception to the MFN principle, new preferential concessions, both tariff and
non-tariff, should be made [by developed countries] to developing countries as a
whole - and such preferences should not be extended to developed countries.

• Special preferences then enjoyed by certain developing countries in certain developed
countries should be regarded as transitional and subject to progressive reduction. It
was thus the intention that the GSP, the be nefits of which will be made available to
developing countries, would replace the speci al preferences then enjoyed by certain
developing countries in certain developed countries.

 At UNCTAD II held in New Delhi in 1968, the foregoing resolution adopted in UNCTAD I
was confirmed by the adoption of Resolution 21 (II) which provides, among others:

"Recognizing the unanimous agreement in favour of the early establishment of
mutually acceptable system of generali zed non-reciprocal and non-discriminatory
preferences which would be beneficial to developing countries …
1. Agrees that the objectives of the generalized non-reciprocal, non-discriminatory
system of preferences in favour of the
 developing countries , including special
measures in favour of the least advanced among the developing countries, should be:
(a) To increase their export earnings;
(b) To promote their industrialization;
(c) To accelerate their rates of economic growth; …"(emphasis added)
 To give effect to the resolution, a speci alized UNCTAD Trade and Development Board was
established. The "mutually acceptable arrangements" re ferred to in paragraph (a) in relation to the
Preamble of the 1971 Decision are contained in the Agreed Conclusions of the Special Committee on
Preferences adopted at the Fourth Special Session of the Trade and Development Board. The Agreed
Conclusions state that "there is agreement with th e objective that in principle all developing countries
should participate as beneficiaries from the outset."

 In the statement made by India on behalf of the Group of 77 incorporated as Annex I to the
Agreed Conclusions, the Group of 77 stressed th at no developing country member of the Group
"should be excluded from the generalized system of preferences at the outset or during the period of
the system". The Group of 77 on whose behalf the statement was made includes all the third parties
in this dispute that are beneficiaries under the Drug Arrangements.

7 Principle 8 of Recommendation A:I:1 in Final Act of the First United Nations Conference on Trade
and Development (Geneva:UNCTAD, Doc E/CONF.46/141, 1964), Vol 1, at 20, cited in Lorand Bartels, "The
WTO Enabling Clause and Positive Conditionality in the European Community's GSP program", Journal of
International and Economic Law, Vol. 6, No.2 (2003), p. 507.

 Part IV 1. of the Agreed Conc lusions on "Beneficiaries" provides:

"1. The Special Committee noted the individual submissions of the preference-giving
countries on this subject and the joint position of the countries members of the
Organisation for Economic Cooperation and Development as contained in paragraph
13 of the introduction to the substantive documentation containing the preliminary
submissions of the developed countries (TD/B/AC.5/24), namely: 'As for
beneficiaries, donor countries would in gene ral base themselves on the principle of
self-election. With regard to this principl e, reference should be made to the relevant
paragraphs in document TD/56 i.e., section A in Part I."

 Section A, Part I of document TD/56, whic h lays down the position of preference-giving
countries, including the then Member States of the EC, provides:

"A. Beneficiary countries
Special tariff treatment should be given to the exports of any country, territory
or area claiming developing status. This formula would get over the difficulty
which would otherwise arise of reaching international agreement on objective
criteria to determine relative stages of development." (emphasis added)
 In light of the foregoing, it is therefore clear that the "generalized, non-reciprocal and non-
discriminatory preferences beneficial to the developi ng countries" referred to in the Preamble to the
1971 Decision contemplated the participation of all developing countries as beneficiaries of the GSP.
Furthermore, and of particular relevance in this dispute, the GSP was intended to replace special
preferences then enjoyed by certain developing coun tries in certain developed countries, which were
then regarded as "transitional and subject to progressive reduction".

 The phrases

• "new preferential concessions, both tariff and non-tariff, should be made to
developing countries as a whole",

• "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",

• "with a view to extending to such countries and territories generally the preferential
tariff treatment referred to in the Preamble to this Decision, without according such
treatment to like products of other [Members]",

• "there is agreement with the objective that in principle all developing countries
should participate as beneficiaries from the outset",

• "no developing country … should be excluded from the generalized system of
preferences at the outset", and

• "special tariff treatment should be given to the exports of any country, territory or
area claiming developing status"

all indicate that, as agreed in the UNCTAD, the benefits under the GSP were intended to apply to all
developing countries, and not just to some developing countries. Furthermore, in light of the
resolution adopted in UNCTAD I, the GSP was inte nded precisely to replace "special preferences
[then] enjoyed by certain developing countries in certain developed countries". The 1971 Decision
refers to the GSP as adopted at the UNCTAD. The Enabling Clause defines the GSP as the GSP
described in the 1971 Decision, and hence to the GSP as it was adopted at the UNCTAD.

 Various subsequent UNCTAD documents conf irm this agreement. Among these is the
Report by the UNCTAD Secretariat on the "Review and evaluation of the generalized system of
preferences" dated 9 January 1979
8. The Report states, among others:

"10. Conference resolution 21 (II) called fo r the establishment of a generalized, non-
discriminatory and non-reciprocal system of preferences in favour of exports from
developing countries to developed countries . Generalized preferences imply that
preferences would be granted by all developed countries to all developing
countries …
11. Non-discrimination implies that the same preferences were to be granted to
all developing countries . This concept presented great difficulty from the start,
since there was no agreed objective criteri a for defining or classifying countries on
the basis of relative stages of economic de velopment. The principle of self-election
appeared to be the only remaining possibility – i.e., preferences would be granted to
any country or territory claiming developing status; however, individual preference-
giving countries might decline to accord such preferences on grounds which they
would hold compelling.
9 An additional proviso was that such ab initio exclusion of a
particular country would not be based on competitive considerations. As a result
each preference-giving country has its own lis t of beneficiaries and there are thus
certain differences among these lists." (emphasis and footnote added)
 In the GATT itself, the Technical Note of the Secretariat 10 issued in the process of the
adoption of the GSP by the GATT provides:

"As long ago as 1963 the CONTRACTING PARTIES provided for the study of (a)
'the granting of preferences on selected products by industrialized countries to less-
developed countries as a whole'". (emphasis added)
 Taking all of the foregoing in to consideration, the following were the consequences of the
adoption of the 1971 Decision:

• Each developed country Member was authori zed to grant preferential tariff treatment
to products originating in developing countries in accordance with the GSP without
according the same treatment to like products originating in othe r developed country
Members.

• Correspondingly, each developed country Member waived its MFN rights in respect
of the preferential tariff treatment grante d by other developed country Members to
products originating in developing countries in accordance with the GSP.

8 TD/232.
9 This is not an issue in this dispute as India is a beneficiary under the general arrangements of the EC
GSP scheme and is therefore not subject to an ab initio exclusion.
10 Preferential Tariff treatment for Developing Countr ies- Technical Note by th e Secretariat, Spec (70)
6 dated 5 February 1970.

• Each developing country Member retained its MFN rights in respect of any advantage
granted by any other Member to any produc t originating the territory of any other
country.
11

 On all matters relating to the GSP that are rele vant in this dispute, the Enabling Clause did not
change the 1971 Decision. On the contrary, the Enabling Clause expressly refers to the GSP "as
described" in the 1971 Decision.

 Thus, with the sole exceptions of (i) "speci al treatment of the least developed countries
among the developing countries in the context of any general or specific measures in favour of
developing countries" referred to in paragraph 2(d) of the Enabling Clause and (ii) the limited
duration of the 1971 Decision as compared to the indefinite duration of the Enabling Clause, the GSP
authorized under the Enabling Clau se and the GSP authorized under the 1971 Decision are the same
in all material respects.

 The only other difference between the 1971 Decision and the Enabling Clause is that the latter
deals with the situations referred to in paragraphs 2(b) and 2(c), which are not dealt with in the
former. Paragraphs 2(b) and 2 (c) are not an issue on this dispute. Paragraph 2(d) provides further
contextual guidance to paragraph 2(a).

4. Does the context of the term "non-discriminatory" in footnote 3 of the Enabling Clause
include Articles I:1, III:4, X, XIII, XVII and XX of GATT 1994, and Article XV II of GATS? Why or
why not?

Reply

 Paraguay is of the view that the context of the term "non-discriminatory" in footnote 3 of the
Enabling Clause includes Article I:1 only, and not Articles III:4, X, XIII, XVII and XX of the GATT
1994 and Article XVII of the GATS.

 Paragraph 1 of the Enabling Clause perm its developed country Members to accord
differential and more favourable treatment to developing countries under any of the situations
specified in paragraph 2, "notwithstanding Article I of the [GATT]". There are no references to other
articles of the GATT or the GATS.

 Footnote 3 is a footnote to paragraph 2(a) which refers to "preferential tariff treatment
accorded by developed [country Members] to produc ts originating in developing countries in
accordance with the [GSP]". More sp ecifically, footnote 3 is a footnot e to "[GSP]", referring to it as
that which is "described in [1971 Decision] … re lating to the establishment of 'generalized, non-
reciprocal and non-discriminatory preferences beneficial to the developing countries." Preferential
tariff treatment accorded by developed country Members to products originating in developing
countries without according the same treatment to pr oducts originating in other Members is otherwise
inconsistent with Article I:1 of the GATT, and not with any other article of the GATT or the GATS.

11 On the assumption that the ab initio exclusion of a particular country is authorized under the GSP, in
respect of any particular GSP regime, MFN rights are retained by all developing countries which have not been
excluded as beneficiaries.

 Paragraph 3(c)

5. Please give your views on the following questions relating to the meaning of the Enabling
Clause, based upon paragraph 9 of Paraguay's Oral St atement. Is it correct to say that under the
Enabling Clause developed countries are not obliged to give tariff preferences? Is it also correct that
any preferences granted are only in respect of pr oducts of the developed country's own choice and
only to developing countries of its choice? A re developed countries free to graduate beneficiary
developing countries from their GSP schemes?

Reply

 Paraguay reasserts what was stated in its Oral Statement, including paragraph 9 thereof.

 By "graduate", Paraguay understa nds the question to refer to the total exclusion of beneficiary
developing countries from a GSP scheme.

 In responding to the Panel's question, Paraguay no tes that "graduation" is not at issue in this
dispute as India is a beneficiary under the EC's general arrangements in the EC GSP regime.

 In Paraguay's view, there is nothing in th e Enabling Clause which allows any preference-
giving country to "graduate" any developing country as such. Again, the question might be related to
the definition of "developing country". As earlier stated, the principle of "self-election" was earlier
recognized – meaning that a "developing country" is one "claiming developing status".
12 Thus, for as
long as a developing country remains a benefici ary under a GSP scheme, it cannot be "graduated"
from that scheme. As to whether or not a preference-giving country may deny the claim of a country
that it has developing status, the position of preference countries is indicated in TD/56
13 which
provides, in relevant part, as follows:

"It is expected that no country will claim developing status unless there are bona fide
grounds for it to do so; and that such claim would be relinquished if those grounds
ceased to exist".
 It would thus seem that developed countries s ought to impose a moral obligation ("expected")
on each country not to claim developing status unless there are bona fide grounds for it to do so; that
once those grounds cease to exist, that country has th e moral obligation to relinquish that status.
However, in Paraguay's view, a preference-giv ing country does not have a legal right (as
distinguished from a moral right arising from the mo ral obligation of a country claiming developing
status) to exclude any country claiming developing st atus for as long as that country maintains that
claim.

6. Developing countries often have different developm ent needs. Take, for example, Indonesia,
the Philippines, Morocco, Brazil and Paraguay, each having different development needs. If we
agree with the argument of the Andean Community t hat it is possible to select some beneficiary
countries according to certain criteria (paragra ph 6 of the Joint Statement of the Andean
Community), would it not be a logical consequence of this argument that any developed country could
establish a special GSP tariff preference scheme for each individual developing country in responding
to that developing country's own development needs? Is this a proper reading of paragraph 3(c) of
the Enabling Clause? Why or why not? If not , where do you draw the line in term of a proper
interpretation of paragraph 3(c)?

12 See Report of the Special Group of the Organization for Economic Co-operation and Development
(OECD) on Trade with Developing Countries, UNCTAD document TD/56, p.5 (emphasis supplied).
13 Ibid.

Reply

 Paraguay is of the view that if the argument of the Andean Community - that it is possible to
select some beneficiary countries according to objec tive criteria - were to be validated, then the
logical consequence would be that any devel oped country could establish a special GSP tariff
preference scheme for each individual developing country in responding to that developing country's
specific development needs. It would not be difficu lt to identify criteria which apply exclusively or
predominantly to a group of pre-selected beneficiaries, even, as in this case, on a post facto basis.
This is not a proper reading of paragraph 3(c).

 Paragraph 3(c) does not authorize discrimina tion between beneficiaries. It mandates a
positive response to needs. A preference-giving country may respond to the specific needs of a
specific beneficiary or group of beneficiaries. Bu t once preferential tariff tr eatment is granted to
products originating in those beneficiaries, th at treatment must be granted immediately and
unconditionally to like products originating in other developing countries.

7. Are the developed countries free to "graduate" beneficiary developing countries from a GSP
scheme? If so, under which paragraph of the Enabling Clause? Please elaborate.

Reply

 By "graduate", Paraguay understa nds the question to refer to the total exclusion of beneficiary
developing countries from a GSP scheme.

 In responding to the Panel's question, Paraguay no tes that "graduation" is not at issue in this
dispute as India is a beneficiary under the EC's general arrangements in the EC GSP regime.

 In Paraguay's view, there is nothing in th e Enabling Clause which allows any preference-
giving country to "graduate" any developing country as such. Again, the question might be related to
the definition of "developing country". As earlier stated, the principle of "self-election" was earlier
recognized – meaning that a "developing country" is one "claiming developing status".
14 Thus, for as
long as a developing country remains a benefici ary under a GSP scheme, it cannot be "graduated"
from that scheme. As to whether or not a preference-giving country may deny the claim of a country
that it has developing status, the position of preference-giving countries is indicated in TD/56 15 which
provides, in relevant part, as follows:

"It is expected that no country will cl aim developing status unless there are bona fide
grounds for it to do so; and that such claim would be relinquished if those grounds
ceased to exist".
 It would thus seem that developed countries s ought to impose a moral obligation ("expected")
on each country not to claim developing status unless there are bona fide grounds for it to do so; that
once those grounds cease to exist, that country has th e moral obligation to relinquish that status.
However, in Paraguay's view, a preference-giv ing country does not have a legal right (as
distinguished from a moral right arising from the mo ral obligation of a country claiming developing
status) to exclude any country claiming developing st atus for as long as that country maintains that
claim.

14 See Report of the Special Group of the Organization for Economic Co-operation and Development
(OECD) on Trade with Developing Countries, UNCTAD document TD/56, p.5 (emphasis supplied)
15 Ibid.

8. Does the word "and" in paragraph 3(c) of th e Enabling Clause mean "or"? In other words,
does the word "and" mean that "d evelopment, financial and trade n eeds" must be considered in a
comprehensive manner or may they be considered separately?

Reply

 The ordinary meanings of the conjunctives "and" and "or" are different. The text of
paragraph 3(c) uses "and". Ther efore, in Paraguay's view, those needs must be considered in a
comprehensive manner.

9. Paragraph 3(c) of the Enabling Clause refers to "developed contracting parties" and
"developing countries" in the plural form. Given the common understanding that developed countries
may decide individually whether or not they wish to provide GSP, is it also possible to interpret
"developing countries" under paragraph 3(c) as meaning individual developing countries?

Reply

 Paraguay is of the view that paragraph 3(c) does not authorize developed contracting parties
to discriminate between like produc ts originating in developing count ries. It merely mandates that
"any differential and more favour able treatment" … shall respond positively to the … needs of [the]
developing countries".

 The word "the " preceding "developing countries" does not appear in the English text.
However, it appears in the equally authentic Spanish and French texts. Thus, "responda positivamente
a las necesidades de desarrollo, financieras y comerciales de los países en desarrollo" and "répondre
développement." (emphasis added). The word "the" pre ceding "developing countries" in the phrase
"shall respond positively to the … needs of the developing countries therefore refers to the needs of all
developing countries. The appropriate meaning of "the" is …"used preceding a (sing.) noun used
generically or as a type of its class; (with a pl. noun) all those described as ______"
16. Thus, in this
instance, as in the phrase "beneficial to the develo ping countries" in footnote 3 of the Enabling
Clause, "the … needs of the developing countries" means the needs of all developing countries.

 The introductory phrase of paragraph 3 of the Enabling Clause refers to " any differential and
more favourable treatment". In the context of the GSP, such treatment is granted only by developed
country Members. The obligation to respond positively to the needs of developing countries is thus
imposed equally on each developed contracting pa rty according differential and more favourable
treatment.

 The terms "developing countries" in paragraph 3(c) appear in the phrase "development,
financial and trade needs of developing countries" . The phrase "development, financial and trade
needs of developing countries" are qualified in pa ragraph 5 of the Enabling Clause as follows: "… the
developed countries do not expect developing countries … to make contributions which are
inconsistent with their individual development, financial and trade needs". (emphasis added). The
word "individual" in relation to "needs" does no t appear in paragraph 3(c). This permits the
conclusion that, when the drafters of the Enabling Clause wanted to refer to "individual … needs" of
developing countries, they did so expressly. The fact that they did not refer to "individual” needs in
paragraph 3(c) is thus a clear indication that th ey meant to refer to th e collective needs of the
developing countries as a whole.

16 The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press, 1993), Vol. II,
p. 3270.

 Finally, there is nothing in the Enabling Clause, including paragraph 3 (c), which might
reasonably be construed that developing countries waived their MFN rights under Article I. It has
always been the intention that the benefits of any GSP scheme shall be extended without
discrimination to like products originating in all developing countries.

10. To the extent that the Drug Arrangements onl y respond to development needs caused by drug
production and trafficking, while not responding to development needs resulting from other problems,
such as poverty, low per capita GNP, malnutritio n, illiteracy and natural disasters, how does this EC
programme satisfy the "non-discriminatory" requirem ent in footnote 3 of the Enabling Clause?
Please elaborate.

Reply

 Even assuming that the Drug Arrangements res pond to development needs caused by drug
production and trafficking, the Drug Arrangeme nts do not satisfy the "non-discriminatory"
requirement in footnote 3 of the Enabling Clause because the preferential tariffs granted therein are
not accorded to all developing countries. The failure to satisfy the "non-discriminatory" requirement
does not arise from its failure to respond to othe r development needs, including low per capita GNP,
malnutrition, illiteracy and natural disasters. Pa ragraph 3(c) does not authorize developed country
Members implementing GSP schemes to discriminate between like products originating in developing
countries.

 General

11. Please indicate whether or not you consider that the Drug Arrangements need to be covered
by a waiver. Please elaborate.

Reply

 The Drug Arrangements need to be covere d by a waiver. The Drug Arrangements are
inconsistent with Article I:1 of the GATT 1994 becau se the preferential tariffs granted therein are not
granted immediately and unconditionally to like produc ts originating in all other Members. The
Drug Arrangements are likewise not justified under the Enabling Clause beca use the preferential
tariffs granted to the twelve beneficiaries are not granted immediately and unconditionally to all other
developing country Members.

To Paraguay

1. Is it your understanding that the term "non- discriminatory" in footnote 3 of the Enabling
Clause has the same meaning as the non-discrimi nation principle under Article I:1 of GATT 1994?
Please justify your position.

Reply

 It is Paraguay's understanding that the term "non-discriminatory" in footnote 3 of the
Enabling Clause has the same mean ing as the non-discrimination principle under Article I:1 of the
GATT 1994.17 The GSP was never intended to grant developed countries the authority to treat like

17 Subject to the qualification that "non-discriminatory" under footnote 3 of the Enabling Clause applies
to like products originating in developing countries, and the non-discrimination principle under Article I:1 of the
GATT 1994 applies to like products originating in all (other ) Members; and the further qualification that
pursuant to paragraph 2 (d) developed country Members may provide special treatment to products originating
in least-developed countries, but as between like products originating in least-developed countries, there could
likewise be no discrimination.

products originating in developing countries differently in the context of the GSP. (Please see reply to
question 3 addressed by the Panel to all third parties for the meaning of the term "non-
discriminatory").

 Under the 1971 Decision, only developed count ry Members effectively waived their MFN
rights under Article I:1 of the GATT. Developing countries did not waive their MFN rights as
between themselves. Such a waiver was not necess ary in order to allow de veloped country Members
to accord differential and more favourable treatment to products originating in developing countries.
The GSP was established for the benefit of the, and therefore all, developing countries. In all respects
material in this dispute, the Enabling Clause did not change the 1971 Decision as far as the GSP is
concerned.

 Thus, developing countries, as between themse lves and in relation to developed country
Members have never waived, and still maintain, their immediate and unconditional right to MFN
treatment under Article I:1 of the GATT 1994.

Question addressed by India

1. Do the third parties support the EC's cont ention that the Drug Arrangements are justified
under Article XX(b) of the GATT?

 No, Paraguay does not support the EC's contention that the Drug Arrangements are justified
under Article XX(b) of the GATT.

ANNEX C-8

Replies of the United States to Questions from the Panel
and from India after the First Panel Meeting

PANEL'S QUESTIONS TO THE THIRD PARTIES

Legal Function

Q1. Assuming that the Enabling Clause is no t a waiver, is it an exception or an
"autonomous" right? In either case, what are the differences in legal consequences of
characterizing the Enabling Clause as an excepti on or an autonomous right? Are there legal
consequences beyond allocation of the burden of proof?

2. The phrasing used in this question ("exception or an 'autonomous' right") and the next one
("'autonomous right' or ... 'affirmative defence'") could be read to suggest a dichotomy between
"autonomous rights" on the one hand and affirmative defenses/exceptions on the other hand. As an
initial matter, this dichotomy would appear to be too limited. The choice is not simply between
whether the Enabling Clause is an "exception"/"affirmative defense" or an "autonomous right."
Rather, as the United States noted in its written submi ssion, the Enabling Clause is part of the overall
balance of rights and obligations agreed to in the GATT 1994 and the WTO Agreement. For
example, Members agreed to provide the treatment called for under Article I of the GATT 1994 at the
same time that they agreed to permit the treatme nt provided under the Enabling Clause as part of the
GATT 1994, notwithstanding Article I. Together the se provisions are part of the overall balance of
concessions under the WTO Agreement.
3. Furthermore, it is useful to distinguish between an "affirmative defense" and an "exception".
As the Appellate Body explained in the EC Hormones case, simply describing a provision as an
"exception" does not shift the burden of proof to the defending party;
1 a party to a dispute does not
have the burden of proof unless it asserts the affirmative of the claim or defense. 2 The Enabling
Clause is not merely an "affirmative defense" to the provisions of Article I:1 of the GATT 1947. 3
Rather, the Enabling Clause is a positive rule provi ding authorization to extend trade preferences to
developing country Members under certain circumst ances. Consequently, the analysis should be
directed at the question of whether India has estab lished that the measure in question does not meet
the requirements of the Enabling Clause. If India fails to do so, its claims should be rejected.
Q2. How does one identify whether a legal pr ovision confers an "autonomous right" or
provides for an "affirmative defence"?

4. As noted in the US written submission, pa ragraph 1 of the GATT 1994 provides that the
GATT 1994 shall consist not only of the provisions of the GATT 1947 (Paragraph 1(a)), but also the
provisions of "other decisions of the CO NTRACTING PARTIES to GATT 1947" (Paragraph
1(b)(iv)), of which the Enabling Clause is one.
4 The Enabling Clause thus is as much a part of the
GATT 1994 as is the text of the GATT 1947. As stated above, the Enabling Clause is part of the
overall balance of rights and obligations agreed to in the GATT 1994 and the WTO Agreement, and is
not an "affirmative defense" to the provisions of Article I:1 of the GATT 1947. The Enabling Clause
applies "[n]othwithstanding the provisions of Article I of the General Agreement."

1 Appellate Body Report, EC Measures Concerning Meat and Meat Products (" EC Hormones "),
WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, para. 105.
2 See Appellate Body Report, United States - Measures Affecting Imports of Woven Shirts and Blouses
from India ("US Wool Shirts"), WT/DS33/AB/R, adopted 23 May 1997, p. 14.
3 US Third Party Submission at paras. 4-9.
4 US Third Party Submission at para. 5-7.

"Notwithstanding," by its ordinary dic tionary definition, means "in spite of."
5 Thus, pursuant to the
Enabling Clause, Members may "accord differential and more favorable treatment to developing
countries, without according such treatment to other contracting parties," in spite of the obligation
contained in Article I to extend MF N treatment unconditionally. This means, for example, that there
is no need to determine if the measure in question is inconsistent with the general obligation contained
in Article I:1 before applying the Enabling Clause.
 Non-discriminatory

Q3. Assume that the Enabling Clause is a self-standing, autonomous right and that the Panel
should look at the Enabling Clause itself to interpret its provisions. Could you indicate where in
the Enabling Clause the Panel should find the context for the interpretation of the term "non-
discriminatory"? Does this context provide sufficient contextual guidance for the interpretation
of this term? Should the Panel also look outside the Enabling Clause for contextual guidance?
If so, to which particular Agreements and provisions therein, and why these particular
provisions, and not others?

5. The Panel should interpret the term "non-discriminatory" according to its ordinary meaning in
its context, and in light of the object and purpose of the 1971 Decision as referred to in the Enabling
Clause. With respect to the term's ordinary mean ing, we note first the EC's demonstration, through
references to various dictionary definitions, that the ordinary meaning of "non-discriminatory,"
especially when used in a legal context, allows differentiation among unequal situations.
6 To put that
ordinary meaning in its proper context, the Unite d States notes that the Enabling Clause does not use
the term "non-discriminatory" itself; rather, it merely quotes (in footnote 3) the preamble of the 1971
Decision, which uses the term "non-discriminatory." Thus, the 1971 Decision provides the
immediate context for interpretation of the term "non-discriminatory" in the Enabling Clause. The
Enabling Clause does not provide any new requirement for "non-discriminatory" treatment. Rather, it
permits treatment "described in" the 1971 Decision. In other words, the 1971 Decision provides a
description of the type of treatment permitted under paragraph 2(a) of the Enabling Clause, and that
description includes the concept that the treatment is to be provided "with a view to" extending
"mutually acceptable" "generalized" "non-reciprocal" and "non-discriminatory" preferences.
6. Interpreting the term "non-discriminatory" so as to maintain the flexibility of donor countries
to adapt GSP programs to differentiate among unequal situations is consistent with the object and
purpose expressed in the 1971 Decision that GSP programs are "to increase the export earnings, to
promote the industrialization, and to accelerate the rates of economic gr owth" of developing
countries. As explained in the US oral statement,
7 if differentiation among unequal situations were
not allowed, any GSP program would have to be administered on a "lowest common denominator"
basis. That is, a GSP program could be applie d only to the extent it ad dressed needs that were
identical among developing countries, and it could no t be adapted with respect to particular needs of
sub-sets of developing countries. Further, the 1971 Decision calls for a "mutually acceptable system"
of preferences, and a Member has the right, not the obligation, to extend preferences. While a "one
size fits all" obligation to grant any preference to all developing countries may be acceptable to India
for purposes of this dispute, it is doubtful that it wo uld be acceptable to other beneficiary countries or
to GSP donor countries, or even to India in a different dispute.
7. The 1971 Decision provides another source of context as well. As the United States has
already explained, use of the term "generalized" in the preamble of the 1971 Decision also supports an

5 Webster's New World Dictionary 513 (2nd Concise ed. 1982).
6 See EC First Submission at paras. 66-67.

interpretation of "non-discriminatory" that allows differentiation among unequal situations;
"generalized" must mean something different than "non-discriminatory."8
8. For these reasons, an interpretation of "non-discr iminatory" that allows differentiation among
unequal situations comports with the term's ordinary meaning in the context of the 1971 Decision and
in light of the Decision's object and purpose.
9. Should the Panel find it necessary to go beyond the context of the 1971 Decision, the next
source of context is the Enabling Clause itself. As the United States described in its oral statement,
paragraphs 3(c) and 7 of the Enabling Clause also support an interpretation of "non-discriminatory"
that allows differentiation among unequal situations.9
10. The United States notes that the 1971 Decisi on expired before the WTO Agreement was
negotiated, and thus is not itself part of the GA TT 1994. Consequently, other provisions of the WTO
Agreement may provide, at best, limited context for interpreting the term "non-discriminatory" in the
1971 Decision. The drafters of the 1971 Decision and, subsequently, the Enabling Clause, chose not
to define the term "non-discriminatory." Therefor e, if the Panel does consider these other provisions,
it should do so with caution, so as not to read in to the Enabling Clause legal obligations not found
there.10 For further discussion of particular provisions, please see the US answer to Question 4 below.
Q4. Does the context of the term "non-discrimi natory" in footnote 3 of the Enabling Clause
include Articles I:1, III:4, X, XIII, XVII a nd XX of GATT 1994, and Article XVII of GATS?
Why or why not?

11. The language of Articles I:1 and III:4 of the GATT 1994 differs from that in the Enabling
Clause, most fundamentally in the absence in either Article I:1 or Article III:4 of the term
"discrimination," and the absence in the Enabling Clause of the specific and detailed language in these
articles which gave rise to the "conditions of comp etition" and "like product" analyses applied in the
past by GATT and WTO panels. There is no basis to read the term "discrimination" into these
provisions, and consequently no basis to use these provisions as context for understanding the term
"non-discriminatory" in the 1971 Decision. For the same reason, as explained in the US oral
statement, it would be incorrect to interpret "non- discriminatory" to mean "unconditionally," as that
term is used in Article I:1 of GATT 1994.
11 The word "unconditionally" is not found in the text of the
1971 Decision or the Enabling Clause. Moreover, as described in the US answer to Question 1, the
Enabling Clause excludes the application of Artic le I:1 altogether, including Article I:1's
"unconditionally" requirement.
12. Likewise, it would be incorrect to treat the term "non-discriminatory" as involving a "like
product" or "like services and service suppliers" analys is similar to that under GATT Articles I or III,
or GATS Article XVII, since these provisions explicitly call for a comparison of treatment of "like"
products or services and service suppliers, while the Enabling Clause does not.
12 Unlike these
articles, the 1971 Decision simply uses the term "non-discriminatory," without linking that term to the
treatment of products as such. Indeed, the Appellate Body has recognized that "discrimination" is not
the same as Article III's "national treatment" test. 13 Whatever context these articles provide thus
reinforces the point that the application of the "non -discriminatory" requirement is not the same as
that under provisions which specifically direct an analysis based on comparisons of treatment of
imported and "like" products or services and service suppliers.

8 US Oral Statement at para. 12 (footnote omitted).
9 US Oral Statement at para. 12 (footnote omitted).
10 See US Oral Statement at para. 14.
12 See US Oral Statement at para. 11.
13 See Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline
("US – Gasoline"), WT/DS2/AB/R, adopted 20 May 1996, p. 23.

13. Similarly, Article X:3(a) of GATT 1994 does no t use the term "discrimination," and by its
terms directs a very specific analysis of whether laws, regulations, decisions and rulings have been
administered in a uniform, impartial and reasonable manner. It thus provides little, if any, useful
context for interpreting "non-discriminatory" as used in the 1971 Decision.
14. Article XIII of GATT 1994 refers to "non-discrim inatory administration" in its title, and thus,
to the extent the GATT 1994 provides context to th e 1971 Decision, Article XIII would appear more
relevant to an understanding of "non-discriminator y." The United States observes that Article XIII
permits differentiation among countri es in terms of the shares allocated to various countries and even
in terms of who may receive an allocation. Article XIII also allows use of "special factors affecting
trade" in making an allocation, so Article XIII clea rly contemplates taking into account the individual
situations of countries and differentiating on the basis of any "special factors." This is thus clearly not
a "one size fits all" approach to "non-discriminat ory," and serves to confirm that the meaning of
"non-discriminatory" allows differentiation among unequal situations.
14
15. Similarly, while the chapeau of Article XX of GATT 1994 does use the term
"discrimination," it provides, at best, attenuated c ontext for the term "non-discriminatory" as used in
the 1971 Decision, for the reason explained in the US answer to Question 3. Further, the term
"discrimination" is preceded by the qualifying terms "arbitrary and unjustifiable," whereas the 1971
Decision simply uses the term "non-discriminatory." Consequently, the chapeau of Article XX would
at best provide limited context. And in that li mited context, the refere nce to "arbitrary and
unjustifiable discrimination between countries where the same conditions prevail " reinforces the
notion that the ordinary meaning of "discr imination" allows di fferentiation among unequal
situations.
15
16. GATT 1994 Articles XVII and XX(i) both define "d iscrimination" in terms of other GATT
provisions without specifying exactly what those provisions are ("the general principles of non-
discriminatory treatment prescribed in this Agreement" and "the provisions of this Agreement relating
to non-discrimination," respectively). By contrast, the 1971 Decision, and the quote from it included
in footnote 3 of the Enabling Clause, simply use the term "non-discriminatory," and do not rely on
other WTO provisions to define "non-discriminatory" for purposes of GSP programs.
 Paragraph 3(c)

Q5. Please give your views on the following questions relating to the meaning of the
Enabling Clause, based upon paragraph 9 of Paraguay's Oral Statement. Is it correct to say
that under the Enabling Clause developed countries a re not obliged to give tariff preferences?
Is it also correct that any preferences granted a re only in respect of products of the developed
country's own choice and only to developing co untries of its choice? Are developed countries
free to graduate beneficiary developing countries from their GSP schemes?

17. Under paragraph 1 of the Enabling Clause, Members " may accord differential and more
favorable treatment to developing countries" in the ways described in paragraph 2. Thus, developed
countries are not obligated by the terms of the Enabling Clause to extend tariff preferences pursuant to
a GSP scheme. The United States does not agree, howe ver, that this means that a donor country has
complete discretion in granting such preferences to products and developing countries. Rather, the
Enabling Clause, through its reference to the 1971 Waiver, sets out certain parameters for any GSP
scheme; namely, that GSP schemes must at least be provided with a view to being mutually
acceptable, generalized, non-reciprocal, and non-discriminatory.
16

14 See also EC First Submission at paras. 78-79.
15 See also EC First Submission at para. 77.
16 See US Oral Statement at para. 9.

18. With respect to graduation, the United States notes that this is not an issue presented in this
dispute; under the terms of reference for this disp ute, there is therefore no reason for the Panel to
reach this issue. However, there is nothing to indicate that a GSP scheme applied with a view to
being "mutually acceptable," "generalized" and " non-discriminatory" would prevent "graduating"
some developing countries as their situation changes. In fact, the Enabling Clause contemplates that a
developed country may graduate beneficiary developing countries from its GSP scheme since, under
paragraph 7, it is explicitly stated that developing countries "expect to participate more fully in the
framework of rights and obligations under the Gene ral Agreement" as they develop. If graduation
were not allowed, it would reflect a presumption that "developing" countries could never become
"developed" countries, that their needs could never change, and that a developing country could never
become competitive with respect to certain products. Such a presumption would run directly counter
to the underlying principles of the Enabling Clause.
Q6. Developing countries often have different development needs. Take, for example,
Indonesia, the Philippines, Morocco, Brazil and Paraguay, each having different development
needs. If we agree with the argument of the Andean Community that it is possible to select
some beneficiary countries according to certain criteria (paragraph 6 of the Joint Statement of
the Andean Community), would it not be a logical consequence of this argument that any
developed country could establish a special GSP tariff preference scheme for each individual
developing country in responding to that develo ping country's own development needs? Is this
a proper reading of paragraph 3(c) of the Enabling Clause? Why or why not? If not, where do
you draw the line in term of a proper interpretation of paragraph 3(c)?

19. As mentioned in the US oral statement, paragraph 3(c) (as well as paragraph 7) of the
Enabling Clause appears to contemplate explicitly th at preferences extended pursuant to the Enabling
Clause, including GSP schemes, need not be extended on a "one size fits all" basis, and that
distinctions among developing countri es based on their different development needs are specifically
contemplated.
17 At the same time, GSP schemes must be "generalized." Thus, paragraph 3(c), read in
the context of other provisions of the Enabling Cl ause, would not seem to either require or permit
donor countries to design a tariff preference program for each individual country, but would allow
"generalized" GSP schemes to contain features that are designed to respond positively to the different
needs of different developing countries.
Q7. Are the developed countries free to "gradua te" beneficiary developing countries from a
GSP scheme? If so, under which paragraph of the Enabling Clause? Please elaborate.

20. Please see the second part of the US answer to Question 5.
Q8. Does the word "and" in paragraph 3(c) of the Enabling Clause mean "or"? In other
words, does the word "and" mean that "devel opment, financial and trade needs" must be
considered in a comprehensive manner or may they be considered separately?

21. Paragraph 3(c) identifies categories of need s to which developed countries must "respond
positively" through their GSP programs, but does not, contrary to India's suggestion, prevent
developed countries from responding to a particular need simply because of the use of the term
"and."
18 Indeed, such a requirement would seem incons istent with the obligation developed countries
have under paragraph 3(c) to "modify" their GSP programs to respond positively to the changing
needs of developing countries, since a developing count ry's needs may change in one but not all three
categories of need. It is not necessary to interpret "a nd" to mean "or" to arrive at this conclusion.
While all factors must be considered, not all factor s need to be dispositive of treatment in a specific
case.

Q9. Paragraph 3(c) of the Enabling Clause refe rs to "developed contracting parties" and
"developing countries" in the plural form. Given the common understanding that developed
countries may decide individually whether or not they wish to provide GSP, is it also possible to
interpret "developing countries" under paragraph 3(c) as meaning individual developing
countries?

22. Yes. Certainly a developed country Member c ould, for example, modify its GSP scheme to
respond to the changing needs of an individual devel oping country. The text of paragraph 3(c) is
flexible enough that "developing countries" may be interpreted to refer to one or more developing
countries, and thus allow developed countries to r espond to the development needs of one or more
developing countries without requiring all developing countries to have the exact same needs before
the developed country could modify its GSP scheme.
19 Please see also the US answer to Question 6.
Q10. To the extent that the Drug Arrangements only respond to development needs caused by
drug production and trafficking, while not resp onding to development needs resulting from
other problems, such as poverty, low per capita GNP, malnutrition, illiteracy and natural
disasters, how does this EC programme satisf y the "non-discriminatory" requirement in
footnote 3 of the Enabling Clause? Please elaborate.

23. The United States is not taking a position on the EC program. However, the United States
does not read the objective that preferences be "non-discriminatory" to refer to discrimination
between "needs" but rather to refer to discrimination between Members. "Non-discriminatory" does
not mean that it is "discriminatory" to respond to certain needs and not others. As explained in the US
answer to Question 8, paragraph 3(c) does not prevent developed countries from responding to a
particular need, even while recognizing that developi ng countries have many needs. Consequently, it
cannot be "discriminatory" to respond to a part icular need, otherwise paragraph 3(c) and the
"non-discriminatory" concept in footnote 3 of th e Enabling Clause would be at odds. Rather, the
question appears to go to the scope of the obligation in paragraph 3(c) rather than to the scope of
"non-discriminatory." And paragraph 3(c) cannot be r ead so rigidly as to require that a program be at
once both "generalized" and tailored to every singl e difference in every need in every individual
country.
 General

Q11. Please indicate whether or not you consid er that the Drug Arrangements need to be
covered by a waiver. Please elaborate.

24. As indicated in its written submission, the United States takes no position on whether the
Drug Arrangements are consistent with the EC's WTO obligations.
20 As such, the United States takes
no position on whether the Drug Arrangements need to be covered by a waiver.

19 See US Oral Statement at para. 2-6.
20 US Third Party Submission at para. 2.

QUESTIONS FROM THE PANEL TO THE UNITED STATES

Q12. Under its current GSP scheme, does the United States include all developing countries
who have designated themselves as such or does the United States use their own list of
developing countries? Does the United States pr ovide identical treatment under its GSP scheme
to all developing countries on its list?

25. The President of the United States designat es countries as beneficiary developing countries
under its GSP program after considering statutory el igibility criteria related to economic development
and competitiveness. 21 The United States publishes an update d list of beneficiary developing
countries each year in General Note 4 to the Harmonized Tariff Schedule of the United States.
26. Upon designation, a beneficiary developing countr y is automatically eligible to receive duty-
free treatment for all GSP-eligible products. Countries that the President designates as least-
developed beneficiary developing countries under the US GSP program are eligible to receive duty-
free treatment for additional products that are GSP- eligible only when imported from such countries.
A beneficiary developing country may become ineligible to receive duty-free treatment for a GSP-
eligible product if the value of imports of the pr oduct exceeds statutory limits called competitive need
limits, or if the President determines to withdr aw, suspend, or limit the application of duty-free
treatment after considering the statutory eligibility criteria.
Q13. Is it your understanding that paragraph 2(a) of the Enabling Clause requires identical
treatment to all developing countries in any GSP scheme? If so, why? If not, why not and how
narrowly can a GSP scheme be drawn? Please elaborate.

27. The United States, for the reasons explained in its oral statement and its response to Question
6, does not consider that the Enabling Clause may be read to require identical treatment of all
developing countries in an GSP scheme.
22 GSP schemes should be designed in line with the
provisions of the Enabling Clause, which serves as a guide for countries wishing to extend GSP
preferences.
Q14. If paragraph 2(a) of the Enabling Clau se does not require a preference-giving country to
provide GSP to all developing countries, what does the term "generalized" in footnote 3 mean?

28. As the United States explained in its oral statement, 23 "generalized" does not mean "all."
"Generalized" permits "less than all."24 If negotiators had meant to say "all," they could just have said
"uniform" or "preferences to all developing countries ." The United States not es, with respect to the
question of what number "less than all" may still be c onsidered "generalized," th at the parties to this
dispute have not raised the issue of whether the EC's Drug Arrangements are "generalized," so there is
no need for the Panel to address it.
Q15. Why do you consider a waiver is needed to provide a GSP scheme to certain drug-
affected countries (e.g., APTA), in light of the requirements of the Enabling Clause?

29. The United States requested a waiver for its ATPA program because it was not certain that
the program provides the "generalized" coverage specified in the Enablin g Clause. The ATPA
program is limited by law to four countries (i.e., Bolivia, Colombia, Ecuador, and Peru).

21 See 19 U.S.C. 2461 et seq.
24 See THE NEW SHORTER OXFORD DICTIONARY 1074 (defining "generalize" as "Bring into general use;
make common, familiar, or generally known; spread or extend; apply more generally; become extended in
application.").

QUESTION FROM INDIA TO ALL THIRD PARTIES

Q16. Do the third parties support the EC's contention that the Drug Arrangements are
justified under Article XX(b) of the GATT?

30. As explained in our written submission, the Un ited States does not consider it necessary for
the Panel to reach the arguments of the EC justifying the Drug Arrangements under Article XX(b) of
the GATT 1994.
25 Given India's burden of proof in th is proceeding, and the arguments it has
presented, India has not thus far demonstrated that the Drug Arrangements are not in accordance with
the Enabling Clause; as such , there is no need for the Panel to reach the EC's argument in the
alternative that the Drug Arrangement falls under an "exception" to the obligations of the covered
agreements pursuant to Article XX(b).

25 US Third Party Submission at para. 10 (footnote omitted).