On December 1, India won a crucial case it brought against the European Community before a World Trade Organisation panel in Geneva. This ruling comes as a big boost for India post-Cancún since it recognises a legal basis for developing nations to negotiate further en bloc.

For India's able Commerce Minister, Arun Jaitley, the ruling should be doubly sweet for it vindicates his efforts at Cancún in rallying developing countries together to extract greater concessions collectively than would otherwise be possible. Here is how.

WTO and India: News and Views

India had complained to the WTO that the European Community in granting tariff preferences to a select group of 12 developing countries was unfairly discriminating against other developing countries such as India.

The EC regulation challenged by India as being WTO non-compliant enabled the EC to accord special tariff concessions to developing countries threatened by and combating drug production and trafficking.

The EC's so-called Drug Arrangements were being applied to 11 countries on the American continent -- Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru and Venezuela -- and one on the Asian -- Pakistan. India complained.

It requested the Panel to find that the EC's Drug Arrangements are inconsistent with the EC's obligation to ensure unconditional and non-discriminatory application of tariff concessions to all developing countries.

The EC's actions were described as being violative of the Most Favoured Nation provisions of the General Agreement on Tariffs and Trade 1994. The EC claimed to be exempt under the provisions of an Enabling Clause of 1979.

This is actually another agreement described more fully as The Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of the Developing Countries. This Enabling Clause decision was reached by participating countries during the Tokyo Round of multilateral trade negotiations in 1979.

Now in 2003, the WTO Panel has to hold that this Enabling Clause does not really enable a developed economic grouping like the EC to administer such discriminatory regimes.

The MFN principle embodied in the GATT applies to multilaterally-negotiated trade concessions. India's case was that advantages related to customs duties must be extended not just to the 12 selected countries but to all other members and the extension must be immediate and "unconditional" in the sense of not being conditioned on the "situation or conduct" of exporting countries, citing an earlier precedent of the WTO Appellate Body in the Canada-Autos case.

The application of tariffs on an MFN basis is a crucial factor in providing security and predictability to the nascent laws of the multilateral trading system at the WTO.

If tariff reductions could be made conditional upon the situation or policies of the exporting country, the WTO legal system would no longer provide the required security and predictability and the WTO would lose its attraction as a forum for trade negotiations. Fortunately for international trade law, this case put forward by India and by Paraguay, a supporting third party, has won the day.

Had it been held otherwise, the Enabling Clause would have become an ever-available tool in the hands of the developed countries under which to divert market access benefits from some to other developing countries to realise their foreign policy objectives.

Indeed, the panel was constrained to note as much. It observed that were it to uphold the EC's interpretation, the way would be open for the setting up of an unlimited number of special preferences favouring different selected developing countries.

The end result would be the collapse of GSP (Generalised System of Preferences) and a return to special preferences favouring selected developing countries, precisely the situation that negotiators aimed to eliminate back in the late 1960s.

When the GSP was being negotiated and adopted at the UNCTAD in the 1960s and the 1970s, developed country members knew, and accepted in advance, that any developed country may grant, under the GSP, preferential tariff treatment to products originating in developing countries without according the same treatment to like products originating in other developed countries. That is why developed country members are referred to as "donors" in the context of the GSP.

The EC's case is that the Enabling Clause reflects a similar acceptance on the part of developing countries that any developed country member may grant preferential tariff treatment to products originating in some developing countries without according the same treatment to like products originating in other developing countries.

If this were to be upheld, developing countries would have to sacrifice market access opportunities in developed countries for the benefit of other developing countries and would, therefore, also become "donors" in the context of the GSP.

What are the implications of the EC's defence to the agenda for discussions post-Cancún? The EC did not accede to India's complaint in consultations. If it still holds out or appeals or simply presses its already applied-for waiver without prejudice, there will be more such attempts.

What will happen is that developed countries will continue to have the assurance that any advantage granted by any developing country to any product originating in any developed country will be accorded immediately and unconditionally to any like product of any other country.

However, developing countries will not have the converse assurance. This would fundamentally alter the WTO's legal framework for future tariff negotiations and risks a breakdown of the fundamental rules of international trade.

The unprecedented growth in wealth and its growing democratisation this world has seen in the later part of this century owes much to unshackling international trade. The showdowns at Cancún and now at Geneva send dangerous signals for the future.

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