Preferential Trade Agreements: Session 4

Session Four:
Enabling Clause

“Differential and More Favorable Treatment Reciprocity and Fuller Participation of Developing Countries,” Nov. 28, 1979, GATT B.I.S.D. (26th Supp.) at 203 [Enabling Clause] (1979)

European Communities—Conditions for the Grant of Tariff Preferences, WT/DS246/AB/R (7 April 2004)

Comments

[Paolo Francisco B. Camacho]

In this essay, I seek to indulge the tensions between a state-oriented global order and it’s asymptotic ideal of achieving free world trade. It is my contention that in so maintaining the artificial boundaries of “states” and in infusing this “reality” into a globalized world order, trade becomes a repository of power relations rather than an emancipatory regime as envisioned in contemporary capitalism.

There is much to be said about the discourse on statehood, and the seeming impossibility to dispense with it. But to outline this discourse, much more analyze it, is way too taxing for the purposes of this essay. It will suffice, however, to lift one important aspect in discourse analysis which is relevant in locating the position of states in the global order. This is that states embody a set of customs, ideals, and histories that necessarily distinguishes it from the rest. Hence, it serves to identify, and simultaneously and constitutively, embraces identity; the state is the category with which global organization rests; its conceptual value lies not on the analytical efficiencies that it provides, that is it accurately represents empirical realities, but rather rests on the fact that “states” reduces analysis into categories which is more or less discernable. Hence, its value is conceptual, even linguistic in nature.

But this conceptual purpose is “advantageous” because it reduces the realm of interspersed identities, whose certain commonality seems only to be that of sharing the same territory, to a blob of the homogenous: it is clear however, that the existence of the state informs identities, inasmuch as it embodies identities. In this mutually constitutive relationship between state and society, there exists a paradigm of language formation, where the ideals of a particular group of people, their collectivity, it distilled and represented, either willingly or in surrender, by the state. This point is of importance with respect to international trade for the simple reason that the state almost exclusively becomes the pivot on which the discourse on trade revolves.

Late capitalism, as a cultural phenomonen, inflicts in almost every imaginable aspect of society a behavior which gravitates towards the need to be more efficient. Indeed, the material dialectic of contemporary economics privileges the cheapest, yet the best product in the market. This “collective behavior,” finds reason and horsepower, as it were, in a culture where consumerism, wealth-accumulation, and constant innovation is structurally reaffirmed, may this be through state-sponsored institutions as in the free market, or the more latent behavioral structures, as in fashion or entertainment (Horkenheimer and Adorno, The Culture Industry, 1967)

Global world order should constantly strive to accommodate this tendency. As we see in the article by John Coyle, it is difficult to picture a state policy which is purely in the interests of economic welfare. Most often, trade agreements, may they be regional or bilateral, are underpinned by considerations that are non-economic, i.e. foreign policy. Trade, thus, is instrumentalized. Although they try to approximate the values of a particular society, which in our case is the seemingly shared interest in liberalizing trade worldwide, the method and the satisfaction of this value must permeate the language-barrier of the state. Simple concerns of small groups, societies and even loosely coalesced individuals, depend on whether their interests are filtered by the state.

Is there, then, an irreconcilable divide between the goal of liberalized world trade and the idea of the state? To this, a yes and a no. Yes, there is an irreconcilable divide, because the state, in so dominating the mode of analysis in any world trade (such that it is conceptually impossible to speak of world trade without at the same time conceding to the existence of the state), possesses such an indispensable role in shaping trade policies that any talk of, say, promoting economic welfare, must pass through this analytical barrier. Hence, every economic concern is confined to the finite limits of state-endorsement.

Then, we can say no, to the extent that a liberal world trade, as a discourse, is inherently intertwined with the state in such a manner that understanding economics will be framed to the state. In other words, how we are able to say “liberalized trade has indeed been realized” reroutes us back to the state for which such goal was to be achieved, to begin with.

But I am indulging in semantics here. More important (more practically important, for that matter) is the recommendation that in any analysis, especially involving the convoluted phenomenon of Rules of Origin proliferation, is to distance ourselves from the hegemonic role of the state in trade discourse. It is not so much a question of which state is a party to this or that FTA, but a more accommodating attitude towards society and behavior in general. The ideal of emancipation, after all, is not felt perceptually by the state. We cannot speak of the state as being hungry or full, as happy or sad. Although States play an important role in shaping the landscape of global trade, to continually bestow upon them the conceptual necessity that they are currently enjoying is to deny the realities of the poor, the marginalized and the peripheral institutions of society. It is to infuse the state with the role of being the repository of power relations, an imperfect institution which only holds currency because of its indispensability to discourse.

[Anthony Raphael V. Jacoba]

The Enabling Clause – Enabling Discrimination

The “Differential and More Favorable Treatment Reciprocity and Fuller Participation of Developing Countries” otherwise known as The Enabling Clause was the center of the controversy in the Report of the WTO Appellate Body in the case “European Communities—Conditions for the Grant of Tariff Preferences.” In the said case, the European Communities (EC) appealed the 2003 Panel Report which was decided in favor of India. However, while the Panel Report and the Report of the Appellate Body were both in favor of India, the Report of the Appellate Body modified the decision of the Panel Report in certain key issues. What then are the implications of these modifications to the interpretation and application of the Enabling Clause?

India’s complaint stems from the approval, by the EC of the 2001 Regulation which applied a scheme of general tariff preferences. India complained that the special incentive arrangements (Drug Arrangements) given to countries with drug problems, as provided in the Regulation, are inconsistent with the GATT and not justified under The Enabling Clause. While India benefitted from the 2001 Regulation with a reduction of its tariff as a developing country, it felt it got the shorter end of the stick when other countries were able to avail of further reduction in their tariffs as a result of the Drug Arrangements. As was mentioned above, the Panel essentially ruled in favor of India when it declared that the Drug Arrangements were inconsistent with the GATT and not justified by The Enabling Clause.

The Panel ruled that: 1) The Enabling Clause was an exception to the MFN of the GATT; 2) the Enabling Clause does not exclude the applicability of the Most Favored Nation Clause (MFN) in the GATT; 3) the EC bears the burden of invoking the Enabling Clause and proving that the Drug Arrangements were consistent with that clause; 4) the term “non-discriminatory” in footnote 3 paragraph 2 (a) of the Enabling Clause requires that, pursuant to the General System of Preferences, “identical tariff preferences” should be provided to all developing countries without differentiation, except as regards the implementation of a priori limitations; and 5) that the term “developing countries” in paragraph 2 (a) of the Enabling Clause means “all” developing countries, except as regards the implementation of a priori limitations.

The WTO Appellate Body, in the appeal of the EC, upheld numbers 1 and 2 of the Panel Report mentioned above. It reversed numbers 3 to 5 of the Panel Report, however. But, despite the reversals and for different reasons, the WTO Appellate Body still ruled in favor of India when it declared that the Drug Arrangements were not justified under the Enabling Clause. Number 3 of the Panel Report above, only concerns burden of proof and will not be discussed here. The reversal of numbers 4 and 5 of the Panel Report, however, is important and has far reaching implications in the interpretation and application of the Enabling Clause.

As mentioned earlier, the Panel ruled, in number 4 above, that the interpretation of the term “non-discriminatory” requires that, pursuant to the GSP, “identical tariff preferences” should be provided to ALL developing countries WITHOUT differentiation, with exceptions (emphasis mine). The Appellate Body on the other hand, modified this after examining the text and context of footnote 3 and the object and purpose of the WTO Agreement and the Enabling Clause. The Appellate Body ruled, and so holds that developed countries are not prohibited from granting different tariffs to products originating in different GSP beneficiaries, provided only that such differential tariff treatment meets the remaining conditions in the Enabling Clause. As a precaution, however, there is a requirement that in granting such differential tariff treatment, identical treatment must be available to all similarly-situated GSP beneficiaries. The main difference between the two is the scope of the tariff treatment as regards the beneficiaries. More developing countries will be covered by any tariff preference structure if the Panel Report was to be upheld. On the other hand, the WTO Appellate Body’s interpretation would limit it to a certain class of developing countries only.

On the fifth issue, the Panel interpreted the term “developing countries” in paragraph 2 (a) of the Enabling Clause to include ALL developing countries, with the same exceptions as the ruling on the fourth issue. The WTO Appellate Body, applying the same rationale in the fourth issue, reversed the Panel’s ruling, and held that that the term "developing countries" in paragraph 2(a) should not be read to mean "all" developing countries and, therefore, the same paragraph does not prohibit preference-granting countries from according different tariff preferences to different sub-categories of GSP beneficiaries.

Of course, one may say that all’s well that ends well. Ultimately, the Appellate Body still decided in favor of India when it examined the Regulation in question and found the same to be wanting. Unfortunately, however, international trade is not as simple as that. India may have won the battle, but the war is not yet over. The weakness of the Regulation in question, as was decided by the Appellate Body, revolves, inter alia, on the absence of a mechanism under which additional beneficiaries may be added. Furthermore, there are no objective criteria within which to determine if other developing countries, which are similarly situated, may be added to the list of beneficiaries. Any lay person, worth his two cents, can easily formulate a solution to this glaring problem in the Regulation – that is, amending the same. A simple amendment of the regulation, tailor-fitted for the 12 countries mentioned therein, and providing for a mechanism that enables (but not necessarily makes it easy) for other countries to apply for and be included as a beneficiary, is all that is needed to discriminate against India once more. Thus, in its Report, the Appellate Body enabled discrimination in its interpretation of paragraph 2(a) of the Enabling Clause. They should have simply followed the line of reasoning adopted by the Panel.

The only important thing, really, are the first and the second issues. That is, the Enabling Clause is an exception to the MFN, and that the Enabling Clause does not exclude the applicability of the MFN. In simpler terms, developed countries may grant “generalized, non-reciprocal and non-discriminatory” preferences to developing countries and the Enabling Clause is available as a defense when foreign countries complain about the preference (see ruling in first issue), while excluding the use of the Enabling Clause as a defense when developing countries cry foul (see ruling in second issue). There is no more need to make a distinction as regards developing countries and their specific needs or situations, no matter how “objective” they maybe. To do so would only allow an exploitation of the Enabling Clause and encourage discrimination.

[Patricia Miranda]

Rules of Origin and the Globalization of Value Added. The wealth of literature that touch upon the subject of “rules of origin” – whether from the earlier readings of Wang and Matsushita, as well as to the current and more in-depth discussions of Coyle and Gasiorek et al. – all point out that ROOs are an integral part of regional trade agreements as it allows products hailing from a regional trade agreement partner to be eligible for the preferential tariff concessions. However, while ROOs remain undoubtedly necessary, they are not without issue. Given certain changes in the global production system, the task of determining a product’s place of origin becomes increasingly complex and, oftentimes, less forthright than it should be. The trading system has become more susceptible to trade deflection and thus, Gasiorek posits, there is a greater need for reevaluating the guidelines in determining the “nationality” of traded goods.

According to Gasiorek, ROOs are needed in order to “establish whether a given good is genuinely eligible for the preferential reduction or exemption from customs duties conferred by the PTA/RTA arrangements.” Stated in another way, the certificate of origin then becomes a form of assurance that a good really does originate from a RTA partner and not some freeriding third party attempting to reroute to the cheapest port of entry. Of course, ROOs will prove less complicated if the manufacturing and processing of goods, from design conceptualization to the various stages of treatment, were all done, to borrow the euphemism, “in house.” Yet what happens when the production process involves different sources of foreign supply? Coyle points out that the 1974 International Convention on the Simplification and Harmonization of Customs Procedures provides that the "origin" of the good is that country where the last "substantial transformation" – that is, “going from inputs to finished goods” – took place. Gasiorek provides a simple but straightforward example: “it would not be enough to simply import a good from China, package it up, and then try and export it as an Ethiopian good.”

What happens in reality is, of course, another matter.

Due to current advancements in technology, knowledge sharing and logistic capacities, a new face of the global production system is emerging, and at a rapid pace at that. Since the advent of globalization, the production of a good is now increasingly spread across multiple factories all over the world, as the entire manufacturing process is dissected into different components to be completed in various continents. Thus, the amount by which the value of a product increases, proceeding from the various stages of its manufacture and distribution, is becoming decidedly global. At this point, pinpointing the exact occurrence of a “substantial transformation” becomes quite a messy affair given that value added may be occurring in several countries.

This phenomenon of dispersed manufacturing is tackled in Kelsey Timmerman’s Where Am I Wearing? A Global Tour to the Countries, Factories and People that Make Our Clothes (2008), which I skimmed over the Christmas break but have yet to finish due to certain academic deadlines. In this self-styled “unlikely consumer tale”, the young American author decides to trace the origin of his garments (from branded shirts to novelty boxer shorts), a journey that takes him all over the developing world. Although this may not be a surprising revelation to those from countries where most of these clothes are manufactured, Timmerman is subsequently horrified to learn about the miserable working conditions endured by the impoverished Third World workers. Similarly, as a person interested in the intricacies of the fashion industry (as seemingly trite as this may sound) I would like to point out that the story of value-added-becoming-global is embedded in the very parts that make up the sum of most of our favorite garments – a sizeable number of zippers are from Japan’s ubiquitous YKK company; Korea remains one of the cheapest sources for thread and yarn; the dying and weaving of fabrics are often done in Chinese factories; and the cut, make and trim – which is, technically, the final stage of adding value to the product– may be completed in different factories (sweatshops?) in Bangladesh, Thailand or the Philippines, under the watchful eye of a company subcontracted by the American supply chain that had the item made in the first place. So while the entire process may span across multiple economies, the goods’ so-called final end as a finished product is on a retailer’s pristine shelf in Hong Kong, seeming to belie the intricate process that brought it into existence

Thus, from the perspective of manufacturers, complex ROOs arising from overlapping RTAs can prove problematic and inefficient – every country of origin arising from various agreements become an added (and costly) consideration in structuring the supply chain of a particular good. This could bring about the suppression of trade, feared by big and small-scale firms alike. Furthermore, as pointed out by the Compendium of Issues Related to RTAs, with different rules negotiated under different agreements, compliance will be exceedingly difficult, if not entirely dispensed with. “Doing business” would then have to take into account the different dispute settlement mechanisms, as well as differing standards regimes and other harmonization arrangements. Thus, according to Gasiorek, ROOs essentially “imply constraints on firms as to from where they can source their intermediate inputs.” By affecting company choices regarding sourcing, two consequences may emerge: (1) they open up the possibility for ROOs to be used for protectionist purposes, potentially undermining the process of regional integration; and (2) given the complexity and specificity of ROOs, this can strengthen the “spaghetti-bowl” effect, that is, encouraging trade between partner countries at the expense of third parties.

This is why I agree with Gasiorek insofar as a means of simplifying or relaxing these overly stringent ROOs is in order. The author proposes that a better alternative to the current paradigm is to shift towards the more widespread use of the “value added rule” – or, where the origin of an exported good is conferred if that country has added a minimum level of value to imported inputs – together with the application of value-added tariffs and allowing for full cumulation. It is of note that the value added criteria is particularly germane to goods not wholly obtained in the originating country. Hopefully, this will lead to the reduction of the “spaghetti-bowl” effect, lessen the occurrence of RTAs becoming “stumbling blocks” to multilateral trade liberalization, and, ultimately, democratize the global economy.

“Virtually all economic activity in the contemporary world is carried out not by individuals but by organizations that require a high degree of social cooperation.” - Francis Fukuyama, in Trust.

[Romulo P. Ramirez]

The GATT of 1947 was focused on the complete multilateral liberalization of international trade. Given this focus, the nature and purpose of each country’s rules of origin was given scant attention considering that under Article I each member state was to give other members most favored nation treatment. The main emphasis is with regard the removal of prohibitive and very much divergent tariff rates and non-tariff rules which were considered both discriminatory and barrier to international trading system. Hence, the rule of origin formulation was not considered as an important factor in the total scheme of things. This is possibly the main reason why the GATT failed to set up a system of uniform rules of origin in the first place.

Under Article XXIV of GATT 1947, however, two or more states were permitted to form and operate a customs union, Free Trade Area, or a Regional Trade Area, even if the formation of these entities may be considered as discriminatory per se to non-member states. This is due to the fact that members of the entity were exempt from complying with the MFN requirement of Article I in so far as trade with each other is concerned. This principled discrimination was allowed so that trade liberalization goals could be achieved. Member-countries of any particular customs union, free trade area or regional trade area are able to agree among themselves the rules that would govern their particular trade relations without fear of violating Article I of GATT 1947. In due time and for reasons ranging from political, security, geographical, peculiar trade needs, cultural considerations, customs union and regional trade areas proliferated.

As there were no standard rules with regard country of origin, each custom union or regional trade area was free to use any rule of origin as may be agreed among them. This resulted in one state which is a member of several RTAs having several distinct rules of origin to comply with. In the absence of the standard or harmonized rule, the review mechanism for the establishment of customs unions and regional trade areas provided for in Article XXIV was ineffective in addressing the issue of rules of origin. As was noted in the various articles concerning country of origin, the absence of any rule have resulted in trade diversion which is anathema to the WTO. Hence the different rules of origin used by one state in its various preferential trade agreements might result in possible discrimination. Trade diversion would then occur because suppliers outside the entity regardless of the fact that they are the more efficient producers may be excluded from the benefits of the preferential trade arrangement.

Writers have considered the situation with regard rules of origin as problematic. Most are certain that the distinct rules adopted in different RTAs result in protectionist pressures. And it is only through harmonization of the rules that trade diversion/deflection can be prevented.

The World Trade Organization has now recognized this problem and is working towards adopting a harmonized rules of origin. In the absence of a harmonized rule, members of the WTO have, in the interim agreed to abide by the Agreement on Rules of Origin. And clearly the agreement calls on all members to ensure that the rules of origin in place or to be agreed on in any new RTA/PTA do not nullify or impair the rights of members under GATT 1947.

Regardless of the final shape of the harmonization being undertaken by the WTO, what is important is that said harmonization will result in all parties to any RTA/PTA adopting the same rules of origin. As shown in the various studies regarding the effect of distinct rules of origin and the Pan European Cumulation System (PECS) which was adopted by the European Union, the use of a single, simplified rules of origin is more in tune with the objectives of the WTO of freer global trade. In other words, once a harmonized system is put in place, even if there are various PTAs/RTAs, the adoption of a single rule lessens the threat posed by these PTAs/RTAs to a multilateral trading system.

[Anna Theresa L. Licaros]

We really only want fairness and equality to be strictly imposed when there is unfairness and inequality hurled towards our direction. The European Communities case seems to be an illustration of how in practice, some countries are more equal than others, as well as the different shades of fair. It essentially arose from the five preferential tariff arrangements that were accorded by the European Communities through a regulation. The first arrangement applied to all the countries involved in the case – fair and square. However, the four succeeding ones applied only to certain countries depending on their qualifications as determined by the EC – based on criterion also set by the European Communities.

As enunciated in Article 1:1 of the GATT 1994, the most favored nation clause is a basic principle adhered to by all contracting parties. It is a sad truth that equality and non-discrimination as principles or norms of conduct have to be codified and embodied in international agreements. Theoretically, these noble principles should be a staple in any kind of dealing between persons or states. However, there is recognition that at present, relationships across the world are far from being equal and that to treat all parties equally off the bat would be to spread further inequity and inequality. Thus, to help operationalize this principle of equality and non-discrimination, the WTO has provided for mechanisms to achieve “effective equality.” One of these is the GSP or the generalized system of preferences which was established in the 25 June 1971 Decision. In its arguments, the European Commission asserted that the parties to the WTO sought to strengthen the GSP by replacing the 1971 Waiver Decision with the Enabling Clause. An evaluation of the enabling clause shows us the framework adopted by the contracting parties in order to move towards leveling the playing field first.

The concept of “effective equality” as used by the EC in its arguments is quite sound. In codifying standards for equality, there has to be an acceptance that parties to the GATT and later on the WTO never stood in perfectly equal footing anyway. To use the concept of a sports handicap as an analogy, it is only when parties deal with each other using approximately the same skills a competence that there is “fair play.” There are fewer problems likely to arise from the end of the more skilled person who has a lesser (or probably even zero) handicap. In this case, it would be the European Communities which is granting the trade concession. The more likely source would be those to whom handicaps are assigned – especially when they get different ratings; as in this case where India protests the fact that it got a “smaller” handicap compared to the others, making it less close to equal.
Often overlooked but quite important is how the WTO operates with the concept of a “developing country.” By recognizing such a classification, and by creating spaces for it’s application via the Enabling Clause, a potential conflict of objectives is created. In its arguments, the European Communities proposed that there are 2 objectives: eliminating discrimination and ensuring that developing countries secure a commensurate share of international trade. I think that there is basis for confusion as to which one is the general rule and which one is the exception. Primarily it is because both “objectives” when evaluated, seem to be consistent with the ultimate objective of trade liberalization. However, equality being the positive aspect of non-discrimination (which is a negative covenant), is not a goal per se of the GATT nor the WTO but a tool or principle by which it seeks to achieve: economic development in a state of liberalized trade.

In resolving the conflict, the appellate body first had to account for the preferential treatment that could be accorded to developing countries. It used the word “notwithstanding” to carve out an exception from Article 1:1. However, as liberating that interpretation was, the panel was quick to install safeguards by qualifying that such treatment must be in accordance with the conditions set out in the Enabling Clause. In that manner, the Enabling Clause became powerful in that it not only created the exception; it also defined the limits of the exception. In addressing the “conflict of objectives” argument proposed by the European Communities, the panel determined that the Enabling Clause was actually one of the “positive efforts” towards the objective of economic development of developing country members - a line of reasoning somewhat consistent with the earlier submission that equality is not a goal per set but a means to achieve the ultimate objective of economic development.

The December 1, 2003 decision of the dispute panel had also made pronouncements as to the manner by which a case is to be proven. It designated the burden of proof among the parties and it designated which provision is the general rule and which is the exception. If anything, that decision was able to infuse perspective as to how the enabling clause is to be read with respect to the GATT provisions. The appellate body clarified the procedure to be employed. With the sequence of proofs that it required, it did not allow the enabling clause to exclude Article 1:1 from the picture. The two-tiered system of evaluation might seem like a redundant exercise but it is actually a necessary step to determine applicability before application. To skip it would be to indulge in a hasty assumption that there is really an existing conflict that might be resolved by a resort to the enabling clause. It would thus save us from barking at the wrong tree, or even worse – having the wrong tree bark back by having the enabling clause justify a measure not within the ambit of its powers to justify or regulate.

Finally, there is the question of what “non-discriminatory” means. When questions like these are asked it is no wonder that answers like “formally equal” as well as a concept of equality among the unequal come out. Hence, the panel comes up with a totally different question – it does not rely on the term “non-discriminatory” given its divergent meanings. And while it does not rely on what it means, it still takes a stab at interpreting it anyway by saying that at the very least it means that those similarly situated must be treated the same way. This type of incidental interpretation can be turned on its head. Optimistically speaking, it leaves scraps of interpretation conveniently scattered along the way for possible future reference and guidance.

The case is ultimately an exercise of construction and interpretation, as well as an allocation of burdens in terms of proving a case. It might actually be more effective as an manual for future cases of the same sort , rather than as a resolution of a conflict between India and the European Communities. At the end of the day the decision is a piece of paper (albeit backed by the threat of economic sanctions if not complied with) left to fend against the creativity of the well-compensated and highly-evolved economic adviser who will be tasked by the losing party to waddle it out of the mess.

[Lorybeth R. Baldrias-Serrano]

THE ENABLING CLAUSE:
ENABLING SUSTAINABILITY OF BENEFICIAL MULTILATERAL TRADE FOR ALL

The WTO Agreements, just like any other law whether municipal or international seems to have a penchant for general rules and exceptions. Case in point is the general rule that all nations, which are WTO members must be accorded treatment as if each nation/economy were the Most Favored Nation. An exception to such principle is the differential treatment to be accorded to developing countries.

Differential treatment for developing countries has now become a defining feature of the multilateral trading system. Although such differential treatment may, at face value, appear as discriminatory against developed countries in the myopic sense, if one were to view the enabling clause of the S&DT from a broader spectrum, the preferential treatment accorded to developing nations is in reality an attempt to eliminate discrimination the global trading arena.

Differential treatment for developing countries is contained in the “Differential and More Favorable Treatment Reciprocity and Fuller Participation of Developing Countries,” or “Enabling Clause” of 1979. In the Enabling Clause, WTO members may accord differential and more favorable treatment to developing countries, without according such treatment to other Contracting Parties. The Enabling Clause is an exception to the Most Favored Nation principle of the WTO, as upheld in the case of European Communities—Conditions for the Grant of Tariff Preferences (EC-Tariff).

In the EC – Tariff case, The Panel and the WTO Appellate Body attempted to apply the Enabling Clause to the dispute between the EC and India. India challenged the preferential tariff treatment granted by the European Communities to twelve least-developed countries that undertook certain measures to protect the environment and labor rights battled drug trade. India argued that such discriminatory practice in the granting of tariff preferences is not permissible under the provision on Generalized Systems of Preferences (GSP) of the Enabling Clause. A WTO panel ruled in India’s favor – a decision, which was later affirmed by the WTO Appellate Body although it modified the panel’s findings in a way that seemingly authorized some differential treatment of developing countries based on their “development, financial and trade needs.”

Although the Panel and consequently the Appellate Body tried to apply the provisions of the Enabling Clause to the case, I find the rationale of the WTO Panel & Appellate Body in ruling therein to be rather lacking or even quite unsound. While I agree with the notion that differential treatment for developed countries should be non-reciprocal and unconditional, I however maintain that India’s position of generalization, based on the GSP, is faulty.

The General Rule on Generalization

The Panel in their upholding India’s arguments for generalization applied the following the Enabling Clause, which states,

“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….

2. The provisions of paragraph 1 apply to the following:
(a) Preferential tariff treatment accorded by developed contracting parties to products originating in developing countries in accordance with the Generalized System of Preferences. . .”

India was of the view that the term “developing countries” in the Enabling clause should be read as all developing countries. It further claimed that preferences should respond to the “development, financial and trade needs” of those countries as a homogenous group and should not vary in accordance with any individual needs. According to India, paragraph 2(a) did not give the EC or any country for that matter, any authority for picking and choosing among developing countries. According to India, nondiscriminatory preferences should be read to require identical treatment for all developing countries, subject only to the exceptions specifically contemplated by the Enabling Clause.

Based on India’s arguments, Paragraph 2(a) provided the general rule subject to specific exceptions provided by the Enabling clause itself. However the Enabling Clause contemplates no specific exceptions…or does it? In my reading of the Enabling clause, it does. I submit that the succeeding paragraphs of the Enabling Clause may be construed to provide for the specific exceptions of India’s contemplated interpretation of Paragraph 2(a) on identical treatment for all developed countries, as a general rule. The succeeding subparagraphs of Paragraph 2 seem to provide for the exceptions that India required.

Are PTAs/RTAs contemplated exceptions in the Enabling clause?

Paragraph 2(c) of the Enabling clause provides that Paragraph 1, which allowed special and differential treatment for developing countries, applied to…

“(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;”

Is it possible that this paragraph contemplates regional and/or preferential trade agreements and may therefore be related to Article XXIV of the GATT and Art V of the GATS?

In my humble opinion, it is highly likely that this paragraph 2(c) pertains to PTAs among developing nations. The following, however, must concur:
- Such arrangements are among developing nations/economies that are contracting parties to the GATT. This may be that no other countries may be parties to such arrangements, thereby excluding non-WTO members and WTO members with developed economies.
- The arrangement call for the mutual reduction or elimination of tariffs;
- The mutual reduction or elimination of tariffs must be in accordance with criterion prescribed by the Contracting Parties

If so, then less developed nations within a PTA may be accorded preferential treatment. Paragraph 2(c) of the Enabling clause may be construed to allow the singling out of nations who are parties to a PTA (which complies with the above requisites) from the bigger population of “all developing nations” in Paragraph 2(a).

Another exception in the Enabling Clause

Further, in Paragraph 2(d) of the Enabling Clause, another exception to the general rule, as contemplated by India, may be found. It reads,

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

Based on 2d, further special treatment may be accorded to the “least developed among developing countries” or the less developed among the WTO members. This may be related to Resolution 21(ii) at UNCTAD II, which called for the establishment of a “generalized, nonreciprocal, non-discriminatory system of preferences in favour of the developing countries, including special measures in favour of the least advanced among the developing countries.” These preferences have three objectives: to increase the export earnings of developing countries, to promote their industrialization, and to accelerate their rates of economic growth. In that light, further special treatment to be accorded to least developing nations/economies does not seem like a bad idea. The crucial thing, however, would be to provide a mutually acceptable criterion to classify a nation/economy as developing or least developed.

For me, this justifies the preferential treatment given by the EC to the least developed nations, if only their measure was unconditionally non-reciprocal on their part. Clearly, the preferential treatment given by the EC, although justified by 2(d), was given in exchange for the beneficiaries’ cooperation with EC’s anti-drug trafficking measures.

Conclusion

Exceptions to the General rule of MFN, such as differential treatment for developing countries and even exceptions to this exception such as further special treatment for least developed nations and PTAs among developing nations are necessary. These rules ought to level the presently uneven playing field in the global trading arena, and would actually be beneficial even for developed countries in the long-term. After all, in spite of opportunity losses in revenues from trade in the short-run, with a more equitable trading environment, trade between and among nations/economies - whether developed, developing or least developed - would be more sustainable. This would mean multilateral trade, which is sustainably beneficial for ALL and not just for some.

[Czarina Serrano]

The increase in the number of trade players also meant more variety in terms if interests. Decolonization set in and many countries who were not industrialized sought admission into the GATT. The Most Favoured Nation Clause that seeks to level the playing field between the Contracting Parties cannot attain the objective that it seeks without admitting of exceptions. With the development of the poor countries in mind, the Enabling Clause firmly established the framework for differential treatment in favor of developed and developing countries. The goal was three-fold: Increase export earnings, promote industrialization and accelerate rates of economic growth. Noble ones, I should say.

To every law there is an exception and it is not arbitrary if the exception is based on a reasonable classification. The problem however is in determining what constitutes “reasonable”. It is difficult to effectively operationalise the Enabling Clause, primarily due to the vagueness in its phraseology. As a result, what has originally been meant to advance the plight of poor countries is being used as a tool to take advantage of them.

The clause provides that such differential and more favourable treatment, if accorded shall respond to the “development, financial and trade needs” of developing countries. There is a dispute as to whether the term “developing countries” includes all or some of them. More than this issue, I think it’s more important to define exactly which countries are to be considered developing and least developed. In addition, the presence of a subjective element – the “needs of developing countries” is both a bane to those who wish to enforce the clause fairly and a boon to those who wish to circumvent it. Ideally, discrimination must be based on financial and trade needs but in reality, some countries are seen as ideologically unacceptable recipients of preferences. Should this even be allowed? The word “needs” admits of various interpretations. Who are to identify them? From whose perspective are they to be determined? It is useful to look at the General System of Preferences of the US and Europe in attempting to address these questions.

The US GSP provides a list of ineligible countries for preferential treatment, the foremost being, those who adhere to communism. Further down the list are countries who ‘aid or abet’ terrorism or ‘fail to take steps in helping US combat it’. It is thru this mechanism that some of Argentina’s benefits were suspended due to an intellectual property dispute and that of Pakistan’s were revoked but later restored conditioned on its cooperation in anti-terror efforts. The European Community’s GSP on the other hand provides for a special incentive arrangement for countries who promote environmental preservation, labor rights and try to combat drug-trafficking. This leads one to the obvious conclusion that the considerations for the grant of preference are more ideological, if not political rather than objectively economic. Given the abovementioned conditions, doubt is raised as to whose needs are really being addressed.

The European Community argues that the difference in treatment should be allowed provided that it has a legitimate basis. Some would also argue that conditions such as those outlined above are useful in addressing problems that concern the entire world. However, allowing for conditions addressing those externalities might open the floodgates to many other conditions that are brought forth by motivations that may not necessarily be noble. To what extent must these externalities be allowed as considerations in imposing conditions or must conditions even be allowed in the first place? The Enabling Clause is silent as to this. Who will determine which conditions validly address the world’s problems, which “needs” need to be addressed? Even more problematic, who determines what constitute as problems? We may all have a specific country in mind but let’s not even go there. Entertaining the said argument would allow policy or ideology-based preference, which may veer away from the original objective of helping the less-developed nations get their share of the pie. It may not only impose barriers to trade for those countries who will not be favored but it will also provide a new way of exerting pressure on countries who need the favor badly.

The enabling clause recognizes that there is a need to favor the least developed to uplift their status, provide more flexibility to allow them to participate in trade. Instead, the enabling clause is being used as a device to forward desired policies and advocacies, which serve to create barriers to trade. Development index is not the only criterion. It is one of many and perhaps, not even the most important among them.

It cannot be denied that reciprocity is essential to the perpetuation of GSP schemes, otherwise what will be the compelling motivation for developed countries to participate in such? It is almost naive to expect that they would agree to grant certain privileges across the board without gaining concessions for themselves. The presence of certain conditions must be accepted as a part of pragmatic reality. However, to what extent are these conditions to be tolerated? It is in this wise that a more concrete criteria for classification must be laid down. Conditions must be with legitimate basis. A uniform and objective standard for imposing conditions must be agreed upon to prevent the developed countries from exercising unfettered discretion. It is useful to go back to the context of the formulation of the enabling clause. The foremost consideration was development, economic development to be more specific. The policy considerations which do not directly address that may in the meantime be abandoned, otherwise the political motivations may override the sincere and pressing need to help the less-developed countries and put the rationale for providing the exception for naught.

[Jason B. de Guzman]

In EC – Conditions for the Granting of Tariff Preferences to Developing Countries, the Appellate Body issued a ruling that had the ostensible effect of expanding the effectiveness and scope of Generalized System of Preferences (GSP) measures that developed countries can undertake and extend for the benefit of developing countries. By introducing its interpretation of “all developing countries” in substitution of that of the Panel’s, the Appellate Body established a meaning of the Enabling Clause that does not absolutely require developed countries to accord identical preferences to all developing countries without any other discrimination, but rather allowed for ‘additional preferences.’ This was in light of the recognition of the Appellate Body (and by their reckoning, of the Members at the drafting of the Enabling Clause and the GATT Agreement) of the varying development needs of the different developing countries. However, while seeming to expand the allowance of developed country-members in crafting preferential measures under the Enabling Clause, it ultimately invalidated the European Communities’ (EC) Drug Agreements with the twelve specified beneficiary states on the ground that they failed to provide for objective criteria which would make them available to all developing countries who would find themselves similarly situated over time. This, according to the Appellate Body, was the requirement that preferential measures under the Enabling Clause must meet in order for them to meet the “non-discriminatory” standard set in footnote 3 of its paragraph 2(a).

The Appellate Body, therefore reversed the Panel’s restrictive interpretation of the Enabling Clause, and in the same breath made an example of the EC’s Drug Arrangements by sustaining India’s challenge, enlarging the scope of the exemption to the MFN Principle granted under the Enabling Clause and all the while paying tribute to the pro-developing country spirit that underpins the Clause and the other provisions of the GATT Agreement. It seems difficult in principle to disagree with such a ruling, and so far I am not particularly inclined to do so.

The incongruous wisdom behind extending preferential tariff treatment to countries who have gained notoriety for being home to the illegal drug trade, leads me to ask, however, what legal and policy considerations drove the EC to extend such preferences to the twelve countries in the closed list of beneficiaries. Perhaps it was in the hope of encouraging domestic legitimate drug production or more effective anti-drug domestic law enforcement responses, but in either case, it appears to have been extended in exchange for certain policy concessions sought by the EC. This brings into stark relief an inimitable feature of measures and preferences extended under the GATT – that despite all the MFN-inspired safeguards and limitations built into the regime by the Members, Member-states will still find ways to circumvent the Agreement through creatively-crafted preferential agreements and regulations. When taken with the undeniable disparities in political and economic clout of the states constituting the international legal system, we find that even the provisions of the GATT Agreement that were included to help developing countries catch up with their more developed counterparts, stand in danger of being subverted or undermined. The lip-service paid by the Appellate Body to this commendable end of the GATT will be for naught unless a timely and effective challenge (such as that posed by India) is sustained by a vigilant Panel and Appellate Body.

Juxtaposing the exemption to the MFN created under the Enabling Clause and the allowance for Regional Trade Arrangements (RTAs) given under Article XXIV of the GATT, one wonders if these two features of the same GATT regime would in all instances complement each other and promote the welfare of developing states, or if there could conceivably be an instance when their respective exemptions can actually work to the prejudice of developing countries. By allowing states to enter into trading arrangements and establish a different set of rules for trade amongst themselves, the system could very well be allowing another avenue whereby the disparities in economic and political bargaining can operate to the prejudice of the prospects of developing states. The current proliferation and ‘bandwagon’ of RTAs could be an indication that developing states increasingly easily enticed into entering into RTAs.

The more developed states in a region could then have them opt for more attractive, but inevitably more onerous, discriminatory and reciprocal preferential arrangements under an RTA rather than a legitimate, non-discriminatory and non-reciprocal GSP measures. In this case, the disparate objectives of the Enabling Clause (special and differential treatment for developing countries) and Article XXIV (allowance for a more managed liberalization through RTAs) could then work to the detriment of developing states.

[Patricia Miranda]

In retrospect, the glue that binds the World Trade Organization member economies together is that underlying collective, very real, fear of uncertainty – a repeat of the so-called economic “nightmare” that was the 1930s. Of course, this is countered by making and participating in a growing system of rules, complete with sanctions for non-compliance and remedies for the aggrieved. After all, informed decisions can only be made if the parties are made aware of the implications of such rules and its possible effects. Of course this is the ideal situation and what may actually happen in reality is another matter altogether. What happens if the very procedure that governs the actions of the member economies is ambiguous? Likewise, how do these rules address the fact that there are indeed hierarchies – whether economic, cultural social or political – that prevent equal footing in the sphere of the international economic law? Thus, no discussion on the continued relevance of the WTO would be complete without discussing the role of the developing countries, given their increasing membership over the years, and their goal of progressing out of poverty through trade liberalization.

The GATT, and subsequently the WTO, was well aware of the fact that to simply apply these rules across-the-board to all its members – regardless of their asymmetries in resource capacities, wealth generation and priorities – may trigger increased economic suffering, not to mention public outrage. Thus, the activism of developing countries for special attention to be given to their particular financial situations helped give rise to the Enabling Clause, which permits preferential trade arrangements in the trade in goods between developing country Members, and two other exceptions to GATT Article I:1.

Matsushita at al. gave an interesting historical background on the Enabling Clause which I found most helpful in understanding in what environment the provision came to be. Although I need not delve into all the details here, what I found most significant was that the GATT regime apparently came into question in the 1970s when Uruguay complained that the under that particular trade system, developed countries were given room to treat them quite unfairly and, simply put, shabbily. Thus, the UN Conference on Trade and Development, conceived to be the primary forum for international negotiation on development issues, was created to fill in the gaps. What Matsushita et al. describes as a “rivalry” is what spurred several GATT initiatives that addressed a new and increased concern – although some may argue uncharitably: “too little, too late” – for its poorer members. These initiatives included two waivers for two types of preferences to address the special needs of developing countries: (1) a “generalized system of preferences” that is an exception to the MFN obligation; and (2) permission for developing countries to exchange tariff preferences among themselves. These waivers were made permanent through the Enabling Clause in 1979.

Enter the Enabling Clause – arguably one of the most significant decisions of the GATT contracting parties, it remains an integral part of the GATT-WTO framework. It is a way for developed country members to grant “differential and more favorable treatment” to developing countries without necessarily granting the same to all other members, with the purpose for promoting the economic development. The Enabling Clause, however, is not without controversy as best illustrated by the EC –Tariff Preferences Appellate Body Report (WT/DS246/AB/R), where one of the pivotal issues was the coverage of the term “developing country”.

In the case mentioned, the European Communities appealed certain issues of law and legal interpretations developed in the EC- Granting of Tariffs Panel Report (WT/DS246/R) which ruled in India’s favor when the latter instituted a complaint against the EC regarding the more favorable conditions accorded to twelve other developing countries over a Drug Arrangement. While the twelve beneficiary countries were granted duty free access to the EC's market, India argued that all other developing countries must “pay the full duties applicable under the Common Customs Tariff.” India was thus arguing that this was in contravention of GATT Article I:1 that imposes upon WTO Members the obligation to treat "like products ... equally, irrespective of their origin." Furthermore, the Panel recognized India’s interpretation of the wording of the Enabling Clause and its reference to “developing countries” included “all” developing countries.

This Panel decision was subsequently reversed by the Appellate Body which ruled that the term "developing countries" in paragraph 2(a) of the Enabling Clause should not be read to mean "all" the said countries and this does not prohibit preference-granting, especially to “least developed countries.” Nevertheless, the characterization of the Enabling Clause as an exception was held to be in no way a diminution of the right of Members to provide or to receive "differential and more favorable treatment".

There lies the rub.

How does one define a “developing country”, more so the hierarchies within that specific category? As pointed out by Matsushita et al., the term is neither defined in the WTO Agreement nor in the GATT regime, and what happens is that such determinations are made on an ad hoc basis. Nevertheless, reading the Report made me realize that I myself use this term quite loosely, a better-sounding euphemism to the historically biased “Third World” designation. I can thus empathize with India’s concerns –without a transparent delimitation of what constitutes a proper standard in differentiating developing countries, how then can GSPs effectively serve the needs of particular countries with their particular needs?

Furthermore, how does one objectively distinguish between entire economies that are essentially stagnating in poverty from those that are steadily growing but still have pockets of their people living in squalor? These are two completely different situations, and without an “objective standard”, at least for the purposes of addressing the special trade requests of the “least developed countries”, how can the WTO effectively prevent a situation where the granting of preference is merely a stealth cover for donor countries to enforce one-sided policy objectives?

To call this a misplaced “poverty consciousness” or a “poor person’s paranoia” would be negating the second half of the 20th century, when mass media has made it infinitely easier to become aware of the crises of a large number of countries in the developing world, most of them former colonies of the industrialized nations. If India has the British Empire experience, I myself live in the Philippines, a so-called “developing country”, and a former colony of the United States – to say, even now, that I do not feel the States’ “visible hand” directing my country’s laws, economic policies and political decisions would be a bald-faced lie.

I therefore submit that the GATT-WTO system should utilize a more “objective standard” when formulating a clearer definition of “developing countries” to seriously address the needs of the poorer member economies. This would bring about bigger market access opportunities that would help speed up the economic growth of developing nations so that they may make use of the Enabling Clause’s “graduation provision” (par. 7) and hopefully become part of the developed world.

“If we could only imagine that the holes in our trousers were palace windows, we could live like kings; as it is, we're miserably cold.”
Georg Büchner, German dramatist.

[Gerard Joseph M. Jumamil]

“However well you understand the interests of the other side, however ingeniously you invent ways of reconciling interests, however highly you value an ongoing relationship, you will almost always face the harsh reality of interests that conflict.” – Roger Fisher, William Ury, and Bruce Patton of the Harvard Negotiation Project

At this juncture in the economic and political history of the world, it is beyond cavil that there exists no single, universal solution to the diverse challenges that arise, evolve, and confront states. From a conceptual and theoretical standpoint, a unitary solution is an absurd proposition considering the different contexts in which states are situated. Moreover, from an experiential vantage, multilateral arrangements that find foundational support in the principles of global free trade have generally proven to be more beneficial to developed economies than developing ones – an unsettling attestation to the ineffectual proposition that free trade alone, and without any qualification, will raise global standards of living. It does not suffice to state that in a regime of global free trade, there are winners and losers. It seems more appropriate to assert that in this regime, there are a few winners and many losers.

In this light, it becomes imperative to recognize two principles that are of utmost significance if any economic proposition wishes to achieve meaningful change for both developing and developed countries. The first pertains to the recognition and understanding of contextualism (i.e. economic attributions are context-sensitive). The very existence and utilization in economic parlance of adjectives such as “developed” and “developing” is indicative of the various stages of progress in which states are situated. The second principle relates to the establishment and application of objective standards. Objective standards provide an unbiased assessment not only of proposed economic measures, but also of the intended and collateral consequences of implemented economic measures. As aptly stated by Roger Fisher, director of the Harvard Negotiation Project, “[t]he more you bring standards of fairness, efficiency, or scientific merit to bear on your particular problem, the more likely you are to produce a final package that is wise and fair.”

In spite of various criticisms and protestations that continually confront the GATT/WTO framework, it is inaccurate to state that the framework has completely failed to accord any measure of accommodation as regards the plight of developing countries. To a certain degree, the GATT/WTO framework has gradually proceeded to incorporate the principles of contextualism and objective standards even as it moves toward its intended direction of free trade on a multilateral and global scale.

In adopting the November 28, 1979 decision on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (Enabling Clause), particularly paragraph 1 thereof, the contracting parties to the GATT has carved out an exception to paragraph 1 of Article I of GATT 1947. This exception has been sustained by its continued application in GATT 1994 and the regime of the WTO. One can claim that the Enabling Clause finds foundational support in the principle of contextualism, as it allows contracting parties to the GATT/WTO to accord developing countries “differential and more favourable treatment” that “respond[s] positively to the development, financial and trade needs of developing countries.”

However, the decision of the Appellate Body in the case of European Communities – Conditions for the Grant of Tariff Preferences marks a more significant breakthrough in terms of incorporating the principles of contextualism and objective standards in the GATT/WTO framework.

In interpreting the term “non-discriminatory” in Footnote 3 to Paragraph 2(a) of the Enabling Clause, the Appellate Body has made a pronouncement to the effect that preference-granting countries must accord identical tariff preferences to similarly situated beneficiaries. In this phase of the analysis, the Appellate Body has implicitly recognized not only the various contexts of the member-states, but more importantly the need to shape the contours of the Most Favoured Nation (MFN) principle as it finds significance in differential treatment of developing countries. The very Preamble to the WTO Agreement, which informs the Enabling Clause, explicitly acknowledge the "need for positive efforts designed to ensure that developing countries… secure a share in the growth in international trade commensurate with the needs of their economic development". The Appellate Body concluded that a response to the needs of developing countries could entail treating differently-situated developing countries in a dissimilar way from other developing countries.

As regards the principle of objective standards, the Appellate Body states that the existence of a development, financial or trade need must be assessed according to an objective standard (e.g. broad-based recognition of a particular need, set out in the WTO Agreement or in multilateral instruments adopted by international organizations). In deciding whether or not the Drug Arrangements of the European Communities was consistent with the Enabling Clause, the Appellate Body, in effect, stated that in implementing an economic arrangement under the said Clause, there is a need for the inclusion of an objective standard that will serve as a basis for distinguishing beneficiaries and as a criteria for qualification to the arrangement.

Owing to the Enabling Clause and the aforesaid decision of the Appellate Body, the sphere of the GATT/WTO framework has been enlarged to embrace the different contexts of developing countries, and allow for a different treatment that will not be deemed discriminatory as long as such treatment is accorded to developing countries that share a common need. In this light, one can claim that the Enabling Clause and the decision of the Appellate Body is a small but meaningful step towards the realization of contextually-relevant development for developing countries in a regime of global free trade. As rightly declared by the Appellate Body, “[i]t is simply unrealistic to assume that such development will be in lockstep for all developing countries at once, now and for the future.”

[Romulo P. Ramirez]

The World Trade Organization recognizes the relationship between development and trade and the role that trade plays in raising the standards of living in its member-states. Early on, it was noted that the MFN obligation failed to secure adequate market access for developing countries which could have stimulated their economic development. It was thus recognized that positive efforts were needed to enable developing countries to share in the growth of international trade and accelerate their economic development. The member-states adopted the 1971 Waiver which essentially waived the obligations embodied in Article I of the GATT which focuses on providing equal conditions of competition for imports of like products from members and authorized the grant of tariff preferences to developing countries to provide unequal competitive opportunities to the needs of the developing or least developed countries. This Waiver was subsequently expanded to cover more preferential measures and was made a permanent feature of the GATT. This became known as the Enabling Clause.

The Enabling Clause was supposed to encourage developed countries to grant “differential and more favorable treatment” for developing or least developed countries. It was under this condition that the European Union granted to twelve countries the preferential tariff scheme under the so-called Drug Arrangements that was challenged by India. The twelve states were known drug producers and the preferential tariff was meant to wean them away from drug production with preference tariff rates so that their exports can be more competitive.

The Indian challenge to the Drug Arrangement was sustained due to the fact that the arrangement was limited to the twelve countries. As ruled by the Appellate Body, the arrangement violated the non-discriminatory requirement in the sense that limiting the preference to just the twelve countries was in fact discriminatory. The Enabling Clause in relation to Article 1:1 was interpreted by the Body to mean that once preference is granted under the said Clause, the preference should be granted to all similarly situated developing countries. In other words, the fact that the beneficiaries were limited, there was already discrimination which was not allowed.

The ruling thus made, to my mind, is fairness epitomized. The grant of the preference should in fact cover all other states where the conditions which were the rationale for the granting of the preference was given. Doing otherwise would result in these other countries not being helped at all. And this may result in their being left behind in terms of their own economic development. If the very core of WTO, as embodied in Article 1 is the removal discrimination per se in trade, then it make sense to lump up together all those under the same circumstance.

The problem I see however is the standard that should be used in determining whether one state is qualified for preference. In this case of the Philippines, does the fact that we have a huge shabu manufacturing base qualify us for the same preference given to producers of cocaine (coca cultivation) and opium (poppy cultivation). Even among like producers of cocaine, what are the quantitative or qualitative standards that will be used as qualification for the preference. More importantly, who will set up these standards? In the absence of such standards, the implementation of the preference will be at best chaotic. And depending on who sets the same, there may in fact be discrimination.

The use of the Enabling Clause in this case is very interesting. I would posit that the grant of the preferential tariff was dictated more by the EU’s self interest rather that altruism. The flow of drugs into their respective countries became such a problem that they were willing to try a new track into reducing drug production in the twelve named countries. This preference however would have an impact on other countries which are not “drug producers” but are also classified as developing countries. The fact that preference was given would mean that these countries’ exports to the EU, assuming the same products are exported by the non-preferred developing countries, would grab the market from the these non-preferred states. The result would be disastrous. The non-drug states are being penalized for precisely not producing drugs.