WTO Dispute on EC—Tariff Preferences: Systemic Implications

This chapter analyses one of the most important WTO disputes till date—the EC—Tariff Preferences or the EC—GSP dispute, as it is more popularly known. The dispute originated because of competitive disadvantage to India’s textile sector vis-a-vis Pakistan, on account of an EC regulation on GSP scheme. The chapter delves into the factual background leading to the filing of the dispute before the WTO, including the failure of diplomatic efforts that were made in an attempt to resolve the issue without litigation. India faced a major dilemma while initiating this dispute because it was challenging a measure that was, in fact, beneficial to other developing countries who were India’s partners at the Doha negotiations, and India itself had been a forerunner in ensuring special treatment for developing countries in the WTO system. However, India filed this dispute to protest against the discriminatory manner in which GSP benefits were given for drug arrangements, in view of the fact that the EC failed to mention the criteria on the basis of which the benefits were given to a select few developing countries. Subsequently, the chapter focuses on the analysis given by the Panel and Appellate Body on three issues: (i) the relationship between the Enabling Clause and the MFN Clause, (ii) the party having the burden to prove that the Enabling Clause applies for a particular measure, and (iii) the legality of the EC drug arrangements with respect to GSP and the Enabling Clause. The most important jurisprudential contribution of this case is the Appellate Body’s interpretation of the Enabling Clause. The chapter further highlights the consequences of this decision on the EC’s revisions of its GSP scheme as well as the competition between India and Pakistan in the textile and clothing sector. Finally, the chapter takes a critical look at GSP schemes, as they exist today and their outlook for the future, from the perspective of trade relations between the developed and developing Members of the WTO.