EU Trade Commissioner Pascal Lamy said: "Today's decision makes it clear that we can continue, to give trade preferences to developing countries according to their particular situation and needs, provided this is done in an objective, non-discriminatory and transparent manner. This is certainly good news for many developing countries whose preferential access to the EU was being put at risk by India's WTO challenge."
In 2002 India challenged the EU's GSP "Drug Arrangements" claiming that they are inconsistent with Article I of the GATT 1994 (most-favoured nation principle) and are not justified under the Enabling Clause (WTO clause which allows preferential and more favourable treatment to developing countries).
The WTO Panel issued on 1 December 2003 ruled that under the Enabling Clause and in particular the non-discrimination principle, identical tariff preferences have to be provided to all developing countries without any differentiation with the exception of Least Developed Countries and the so-called "a priori limitations" (graduation mechanisms).
The EU filed an appeal on 8 January 2004. The AB report issued today reversed the Panel's finding that the term 'non-discriminatory' requires that identical preferences have to be given to all developing countries without differentiation. This represents a victory for the EU and all GSP donor countries that aspire in responding positively to the special needs of sub-categories of developing countries that are in the same situation.
However, the Appellate Body found that the EU failed to demonstrate that its 'Drug Arrangements' are based on objective and transparent criteria that would allow all developing countries similarly situated to qualify for the preferences under the Drug Arrangements.
Currently, the EU's GSP drug preferences are granted to twelve countries (Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Nicaragua, Honduras, Pakistan, Panama, Peru and Venezuela). The products included under the "Drug Arrangements" comprise all agricultural and industrial products that are included in the General Arrangements as well as certain agricultural products which are not covered by the General Arrangements. Furthermore, the "Drug Arrangements" provide for a better tariff treatment that the General Arrangements (duty-free access to the EC market for all covered products).
For more information on the EU's GSP regime: