The WTO legality of the EU's GSP+ arrangement Dr Lorand Bartels ...

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are also now joined by Sri Lanka, Moldova, Georgia and Mongolia, 18 making fifteen GSP+beneficiaries in total. Of these four countries, the first two were existing beneficiaries of theEU’s labour arrangements, while the last two were in the process of applying for thesepreferences. 19 This means that, with the exception of Pakistan and with the addition of twoapplicants, the beneficiaries of the EU’s new GSP+ arrangement are the same as thebeneficiaries of its former drugs and labour arrangements. 20II.WTO rulesThe WTO rules applicable to GSP programs are set out in the 1979 Enabling Clause 21 (nowpart of the GATT 1994). 22 The Enabling Clause states that the most-favoured-nationobligation in Article I GATT is not applicable to the grant of preferences by developed WTOMembers to developing countries in accordance with the Generalized System of Preferencesas described in the 1971 GSP Decision of the GATT Contracting Parties. 23 As a result,preferences under the Enabling Clause must be ‘generalized, non-reciprocal and nondiscriminatory’.24In EC – Tariff Preferences, India argued that the reference to ‘non-discriminatory’preferences in the Enabling Clause meant that no difference in treatment between developingcountries was permitted. 25 The Appellate Body rejected this argument, stating that ‘non-Regulation 3282/94 [1994] OJ L348/57. From 1 July 1999, all of these countries received duty freeaccess on most industrial and agricultural products: Council Regulation 2820/98 [1998] OJ L357/1. On14 November 2001, the European Commission proposed adding Pakistan to the list of ‘drugsarrangement’, and this was effected in the new GSP Program as of 1 January 2002: Council Regulation2501/2001, above at n 3. The EU’s rationale was that as a result of the events of 11 September 2001,including increased refugee flows, Pakistan’s campaign against illicit drugs needed to be supported,and that ‘[t]he GSP drug regime is therefore likely to stabilise its economic and social structures andthus consolidate the institutions that uphold the rule of law’. See the Explanatory Memorandum to theAmended Proposal for a Council Regulation applying a scheme of generalised tariff preferences for theperiod 1 January 2002 to 31 December 2004, COM (2001) 688, 14.11.2001. It was the addition ofPakistan to the list of ‘drugs arrangement’ beneficiaries that sparked India’s complaint in EC – TariffPreferences.18 Commission Decision 924/2005 of 21 December 2005 [2005] OJ L337/50. According to Art 11(3),this Decision was supposed to have been published by 15 December 2005.19Commission Regulation 1649/2000 (Moldova) [2000] OJ L189/13, Commission Regulation2342/2003 (Sri Lanka) [2003] OJ L346/34; Notice regarding request (Mongolia) [2004] OJ C243/2;Notice regarding request (Georgia) [2001] OJ 2001 C127/13.20 This is not however to say that these countries were automatically granted the benefits. In terms ofthe mandatory List A conventions, of the fifteen beneficiaries, only five (Costa Rica, Ecuador, Panama,Peru and Sri Lanka) had ratified all of the required human rights conventions before the arrangementwas announced. Eight beneficiaries (Bolivia, Colombia, Georgia, Guatemala, Honduras, Moldova,Nicaragua and Venezuela) needed to ratify one outstanding convention, and two (Mongolia and ElSalvador) needed to ratify two. I am extremely grateful to Gustavo Ribiero for sharing his data on this.21 Differential and More Favourable Treatment, Reciprocity and Fuller Participation of DevelopingCountries (‘Enabling Clause’), Decision of 28 November 1979, GATT Doc L/4903.22 WTO Appellate Body Report, EC – Tariff Preferences, para 90.23 Generalized System of Preferences, Decision of 25 June 1971, GATT Doc L/3545.24 WTO Appellate Body Report, EC – Tariff Preferences, paras 145-147.25 The case is discussed in Steve Charnovitz et al, ‘The Appellate Body’s GSP Decision (InternetRoundtable)’ 3 World Trade Review 239 (2004), Lorand Bartels, ‘The WTO Ruling on EC - TariffPreferences to Developing Countries and its Implications for Conditionality in GSP Programmes’,Gregory Shaffer and Yvonne Apea, ‘GSP Programmes and Their Historical-Political-InstitutionalContext’ and Jane Bradley, ‘The Enabling Clause and Applied Rules of Interpretation’, all published inThomas Cottier et al (eds), Human Rights and International Trade (Oxford: OUP, 2005), and GeneGrossman and Alan Sykes, ‘A Preference for Development: the Law and Economics of GSP’ 4 WorldTrade Review 41 (2005).4
discriminatory’ does not require identical treatment of all developing countries; rather,additional preferences may be made available to developing countries that share the same‘development, financial or trade need’. 26 Drawing on other provisions of the Enabling Clause,the Appellate Body also set out further conditions for any such differential treatment: first, theidentified ‘development, financial and trade need’ must meet an ‘objective standard’. TheAppellate Body added that ‘[b]road-based recognition [as] set out in the WTO Agreement orin multilateral instruments adopted by international organizations, could serve as such astandard’. 27 Second, the identified need ‘must by its nature, be such that it can be effectivelyaddressed through tariff preferences’. Third, on the facts of the case, ‘a sufficient nexusshould exist between, on the one hand, the preferential treatment provided … and, on theother, hand, the likelihood of alleviating the relevant “development, financial [or] tradeneed”.’ 28As it happened, it was unnecessary for the Appellate Body to determine whether the drugsarrangement at issue met these conditions, because this arrangement was operated through a‘closed list’. On this, the Appellate Body said as follows:We find that the measure at issue fails to meet this requirement for the followingreasons. First, as the European Communities itself acknowledges, according benefitsunder the Drug Arrangements to countries other than the 12 identified beneficiarieswould require an amendment to the Regulation … Secondly, the Regulation containsno criteria or standards to provide a basis for distinguishing beneficiaries under theDrug Arrangements from other GSP beneficiaries. 29Whether or not, aside from this administrative aspect, the drugs regime would have met theother conditions set by the Appellate Body is debatable. Even if the tariff preferences underthe drugs arrangement could, in principle, have been able to respond to the relevant‘development needs’ of the beneficiary countries by encouraging substitute crops, it seemsthat in fact they did not. As the EU’s European Economic and Social Committee observed,‘there is no evidence that the special incentive arrangements for combating the production andtrafficking of drugs … has had any impact whatsoever on the drug trade.’ 30III.Application of WTO rules to GSP+ arrangementThe argument in this article is that the GSP+ arrangement violates the conditions in theEnabling Clause, as interpreted by the Appellate Body. This is for the following reasons.26 WTO Appellate Body Report, EC – Tariff Preferences, para 165.27 Ibid, para 163.28 Ibid, para 164.29 Ibid, paras 187-8.30 Opinion of the European Economic and Social Committee on the ‘generalised system of preferences(GSP)’, adopted 25 February 2004 [2004] OJ C110/34, para 6.6.2. But overall benefits do apparentlyaccrue to GSP+ beneficiaries: see Maria Persson, ‘Everything but Drugs: Export Effects of theEuropean Union Trade Preferences for Drug Producing and Least Developed Countries’, WorkingPaper, Swedish Network for European Studies in Economics and Business, undated, available atwww.snee.org/filer/papers/251.pdf (visited 25 July 2007). By contrast, the benefits of general GSParrangements are far less certain: Persson, ibid, Grossman and Sykes, above at n 25; and Çaglar Özdenand Eric Reinhardt, ‘The Perversity of Preferences: GSP and Developing Country Trade Policies,1976–2000’ 78 Journal of Development Economics 1 (2005).5
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