Status of the GATT Enabling Clause

EC–Trade Preferences – case, is a case that is closely related to the GATT Enabling Clause this case’s dispute focal point is shown in the first article is that “the developed country provides the tariff preference to the developing country”. The cause of the case is that the nature and suitability of the enabling clause are ambiguous； And speaking of this provision’s operation, the developing country is at the passive position. By contrast, the developed country may decide the extent, the time limit and the scope of the preferential benefit plan independently, this definitely causes the trade distortion among those developing countries.

Martin Wolf described the enabling clause as that:

“(i) The Generalized System of Preferences (GSP); (ii) “differential and more favourable treatment” of developing countries in the context of codes on nontariff barriers negotiated within the GATT; (iii) permission for developing countries to create regional and global trading arrangements that do not conform to Article XXFV of the GATT; and (iv) particularly special treatment for least developed countries.” [3]

Martin Wolf noted that the narrowest definition of “differential and more favorable treatment” would look only at item (ii) above, namely, treatment of developing countries within the codes on nontariff barriers. [4]

II. The origins and of the GATT Enabling Clause

GATT is the abbreviation for General Agreement on Tariffs and Trade. The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was formed in 1947 and lasted until 1994, moreover, it was replaced by the World Trade Organization in 1995. The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994. [5]

GATT held eight rounds. One of which is called Tokyo Round, the GATT Enabling Clause is short for ‘Differential and more favourable treatment reciprocity and fuller participation of developing countries’, which was adopted in Tokyo round of the GATT in 1979. The substantive content concentrates in Paragraph 2 of the Enabling Clause is divided into four sections as follows:

“(a) Preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences, [6]

(b) Differential and more favourable treatment with respect to the provisions of the General Agreement concerning non-tariff measures governed by the provisions of instruments multilaterally negotiated under the auspices of the GATT;

(c) Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on products imported from one another

(d) Special treatment of the least developed among the developing countries in the context of any general or specific measures in favour of developing countries.” [7]

According to the enabling clause, the developing country Parties of GATT may enjoy “differential and more favourable treatment”, and as an important exception to the MFN [8] treatment to exist legally.

Lorand Bartels notes that the main contents of the GSP [9] Decision were re-enacted on a more permanent basis by a 1979 Decision of the Contracting Parties formally entitled ‘Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries’, it is also popularly known as the ‘Enabling Clause’. [10]

In retrospect, the formation of the enabling clause stems from “agreed conclusions” which was adopted by United Nations Conference on Trade and Development in 1970. It also confirmed that it is essential to provide “preferential tariff treatment” for developing countries under GSP. “Waiver decision” was adopted in 1971, it eliminated the developed member countries under the MFN obligation of GATT 1994; Now 1979 enabling clause expanded authorization of “Waiver decision”, and it also increased the nontariff preferential measure, and made itself to be a permanent feature of special significance under the GATT 1994.

III. The status of the GATT Enabling Clause

i. Importance of the enabling clause

Just like the importance and particularity of Enabling Clause the appeal body that pointed out in its report, the enabling clause is extremely important in the WTO frame. [11]

Firstly, this provision has established GSP in the GATT legitimate foundation, causing the developing country enjoying “the special and differential treatment” in world trade multilateral trading systems the status to be able to establish completely in the law, and does not need to appear again by this kind of edge rule way, which is exceptional exemption.

Secondly, regarding the content, as the most clear and full document that stipulate giving the developing country special and differential treatment under the GATT 1994 frames, the enabling clause is a sign, symbolized that GSP is mature.

ii. Special position and the influence of the enabling clause

Besides the importance, the appeal body also specially emphasized the special position and influence of the enabling clause in the WTO system.

Firstly, the enabling clause is exception stipulations of Article 1 of the GATT 1994. Regarding the problem, the panel and the appeal body define the relationship between the enabling clause and the most favoured nation clause, but appeal body’s analysis has not halted to this. The appeal body believed that enabling clause’s goal, is to encourage the developed country member to give more market accesses to the product which is exported from the developing country, it is helpful to the frontage stimulation economic growth, therefore promoting the trade development. [12] However, Article 20 of GATT 1994 and other exceptions from the side permission to MFN [13] duty’s reasonable deviation which is different in its regulations and rules, therefore, the enabling clause is one kind of special exceptional rule.

Secondly, the enabling clause does not exclude the applicability of Article 1 of GATT 1994. Although the Panel and Appellate Body affirmed that when the license terms conflict with the MFN clause, the former should prevail. [14] However, the two reports all stressed that the provision is suitable or not and the provision serviceability in the case is two concepts, and clarify the enabling clause as an exception rule, with its corresponding positive MFN obligations are the coexistent relations. In addition, regarding the legality of sued measures, the examination priority order should be developed from the voluntary rule to the exceptional rule. Finally, when both really have the conflict, then consider enabling clause primordial firstly, because WTO allows compliance with the provisions of the measure, and it is reasonable departure from the MFN obligations.

Finally, the dispute involves the enabling clause using special assignment rule of present evidence. As the appeal body says that the enabling clause status’s particularity has had the special influence to the conflict both sides’ onus probandi. Therefore, the appeal body proposed a special assignment rule of presents evidence, then pointed out that the onus probandi of appealed side in this case should involve “proposes” the enabling clause by dividing the rules of evidence into two that have been proposed in US – Wool Shirts and Blouses,. [15] This only then constitutes the appeal legal basis “controversial issues”; On the other hand, “prove” the respondent is in line with the responsibility of the provision is still attributed to the respondent. As for what is “proposes the enabling clause”, the appeal body defines it to point out the stipulation related with respondent measures in enabling clause in appeal process, and provides certain explanation to support this viewpoint. [16] Obviously， the appeal body takes perspective from balanced legal basis sufficiency and litigation burden on the parties, increased to discussion of the onus probandi assignment problem in WTO dispute settlement. It has provided one kind of new mentality for the solution of next question, although it was difficult to say that how ruling in future is influenced by the represent report of the appeal body (Because the WTO dispute settlement is not strictly followed the precedent).

IV. To what extent the Enabling Clause allows developed – country Members to treat certain developing – country Members more favourably than others

Paragraph 1 of the Enabling Clause states that:

“1. Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties.” [17]

Enabling Clause itself does not create obligations for members, the word “may” in Paragraph 1 is clearly shown that whether or not to give the preferential benefit plan rather than the duty is only a choice of the developed country. At the same time, it needs to be under the condition of “generalized, non-reciprocal and non-discriminatory” when it is applied to the enabling clause. Therefore, the panel thought that the enabling clause conforms to the above two characteristics completely, ensuring that it is the exception stipulation of MFN treatment in Article 1of the GATT 1994. [18] Then EC appeal to this conclusion, and advocated that the enabling clause encourages the developed country to provide the tariff preference separately to the developing country, Thus has created a special non-reciprocal benefit trade framework, it should be regarded as the independence in MFN clauses of Article 1 of the GATT 1994. However, according to treaty explanation general convention, appeal body pointed out that the Article 1 of MFN clause has clearly established such duties to the member nation: No matter where the place of origin is, the similar products should be treated equally. As for the Enabling Clause, it talked about the relationship between the MFN clause in the opening words, and used the word “notwithstanding”, in other words, despite the General Agreement set the MFN obligation, the members gave the developing countries different and more favourable treatment is legitimate because of the Enabling Clause. Therefore, the enabling clause’s implementation should be understood as exceptions to the MFN clause. [19]

The appeal body believed that enabling clause’s special position has decided it is also out of the ordinary in the dispute resolution: Each of the measures under the Enabling Clause is necessarily inconsistent with the GATT 1994 Article 1. The reason allows the member to avoid obligation of the GATT 1994, is because these measures meet in the requirement of the enabling clause requirement. In other words, from the purpose of the enabling clause and framework of the content can be seen that this departure must be consistent with a series of conditions, although the enabling clause “encourages” members of the departure from the MFN obligation in order to give more favorable treatment to developing country Members. [20]

i. The meaning of “non discriminatory” in footnote 3 of the Enabling clause paragraph 2 (a)

The Enabling clause paragraph 2 (a) states that:

(a)Preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences, [21]

Footnote 3 states that:

As described in the Decision of the CONTRACTING PARTIES of 25 June 1971, relating to the establishment of “generalized, non-reciprocal and non discriminatory preferences beneficial to the developing countries” (BISD 18S/24). [22]

The panel believed that “non discriminatory ” request provides “non-differential” to “all” developing country under GSP the tariff preference, the European Economic Community made appeal to this. The European Economic Community proposed that the request of “non discriminatory” and the equal treatment formally are not same. It also stressed that “the counter-narcotic arrangement” does not constitute the discrimination; The European Economic Community also cites enabling clause paragraph 3(c) as an example by pointing out that “non-discriminatory” does not exclude give differential treatment among developing countries based on different levels of development. India advocated that “non-discriminatory” of the tariff measure request “formally” the equality. [23] Actually, Melissa Healy pointed out that it has been contested whether or not the conditions contained in footnote 3 actually impose legal obligations on donor countries when they implement their GSP scheme. [24]

ii. Analyze of the enabling clause paragraph 3(c)

The Appellate Body specifically pointed out that footnote 3 simultaneously request “non-discriminatory” and “generalized.” The appeal body thought that this did not express “non-discriminatory” to provide all developing countries the “same” tariff preference. Then the appeal body started to analyze the enabling clause paragraph 3(c), it pointed out there was used a word “shall”, this was suggesting one duty, which implies an obligation, in other words, it requires developed countries to provide preferential treatment under the GSP to be “positive response” “development, financial and trade needs” of developing countries. The Appellate Body also emphasized the needs of developing countries is constantly changing, the specific development needs could only exist in specific countries, [25] and the paragraph 3(c) was precisely stemming from this consideration:

“(c) Shall in the case of such treatment accorded by developed contracting parties to developing countries be designed and, if necessary, modified, to respond positively to the development, financial and trade needs of developing countries.” [26]

In addition, the appellate body also said that the purpose of the enabling clause is to strengthen economic development of developing countries now or in the future. Therefore, it is impossible to suppose that all nations will develop at the same speed.

iii. Applicable conditions of the enabling clause paragraph 3(c)

But the appeal body also stressed that the enabling clause paragraph 3(c) does not request any needs to respond. First, demand is limited to “development, financial and trade needs,” the demand does not depend on the existence of preference giving countries, or the “position” of preference receiving countries, it judges through the objective standard. Secondly, the response must be “positive”, that means, according to the special needs the preference giving countries dedicated to improving the preference receiving countries in the “development, financial and trade needs” of the measures taken. Finally, the positive response and the demand must have the enough relation, the favourable treatment must belong to the measure which the enabling clause paragraph 2 provides such as tariff preference, at the meantime, such measure must be able to alleviate the needs of the developing country. [27]

Appeal body based on analysis of the enabling clause paragraph 3(c), pointed out that “non-discriminatory ” not only allowed to provide more preferential market access conditions for all beneficiary countries, but also allowed to take into account the special needs of some countries. This reflects one common purpose of the WTO agreements and the “1971 Waiver Decision” [28] , namely guaranteed the developing country enjoys with its needs “quite” growth share, thus, this objective is important to interpret the meaning of “non-discriminatory”. [29]

In addition, in the interpretation of the word “non-discriminatory “, both sides had different opinions on the scope of the word “developing countries” in the enabling clause paragraph 2(a). India believes that this word should be interpreted as “all” developing countries, but the European Economic Community thought such explanation created by Indian as “generalized” and “non-discriminatory” overlapping in footnote 3. The panel believed that in lack of the word “the”, whether “developing countries” refers to “all” the developing country must treat the enabling clause as a whole, from the provision drafter’s intention and the article explanation’s consistent principle, the enabling clause intended to provide a GSP system which is equally suitable for “all” developing countries. However, the appeal body has overthrown the conclusion of the panel, they thought that based on the analysis of

the enabling clause paragraph 2(a) footnote 3 and paragraph 3(c), so “developing countries” in the enabling clause paragraph 2(a) cannot understand for “all” developing countries. [30]

In summary, the appeal body believed that the enabling clause paragraph 3(c) suggested that even if the developed country has not provided the similar tariff treatment to all developing countries, also possibly to be in line with “non-discriminatory” as long as the disputed plan may solve a special need and implement similar treatment to the countries that have similar needs. The appeal body has overthrown the conclusion of the panel. The conclusion is that This word permitted developed country members give the different tariff treatment to the product which comes from the different GSP preference receiving countries, to make sure that it provides the same treatment for all the “similar situations” in GSP preference receiving countries. That is to say, it is legitimate to comply with the other conditions of the enabling clause.

V. Conclusion

There is no doubt that this is the first case developing countries challenged developed countries for granting of preferential tariff, it not only has led people to turn attention to the preferential rules of developing countries in global trading system, but also has clarified the nature, the meaning and suitability of the enabling clause. This case is clear about a kind of rule to enabling clause’s explanation: According to the enabling clause developed countries give trade preferences to a developing country may not necessarily give other developing countries at the same time, only make sure to provide the same treatment for all the “similar situations” countries. Commentators such as Robert Howse have asserted that the language in the Enabling Clause is inspirational rather than obligatory and so donor countries can differentiate between developing countries “ as they see fit”. [31] Therefore, this may bring those developed countries more autonomy and bargain chip.