“Enabling Clause” under GATT

Does the “Enabling Clause” under GATT legitimise actions taken by the developed countries that are in their favour?

Introduction

The Most Favoured Nation clause which is contained under GATT Article I:1 denotes that countries cannot discriminate between other countries. It implies that any concessions that are given to one country must be afforded to all other WTO member countries as well. The enabling clause is seen as an exception to Article I:1 as it allows for certain favourable treatments to be granted to certain countries based on the Generalised System of Preferences. GSPs allow developing countries enhanced market access into a developed country which is done, as the name suggests, through a generalised, non-reciprocal and non-discriminatory system of preferences. It is intended to bring out faster development and economic growth in these beneficiaries (or developing/under-developed) countries.

In this article, I have discussed the nature of the enabling clause under GATT and how the developed, more powerful countries can take advantage of the same by sidestepping the policies laid under it or finding a loophole in the provisions to improve their rank and status in the world. Further, I have also laid down the issues in the process of granting favourable treatment under GSP and how it affects the beneficiary countries.

Interpretation and Application of the Enabling Clause

The EC-Tariff case classified the enabling clause as an exception to Article I:1, and not a defence because characteristically, an exception justifies an action as not a wrong if it falls within the exception. This is determined by the word ‘notwithstanding’ in the GATT provisions which means that the applicability of the clause is defined as per ArticleI:1[i]. In the case of defence even if the action is covered by the defence it does not make it any less wrong, it only grants protection from punishment for doing an act. Further, the burden of proof passes from the complainant to the defendant if the enabling clause is characterised as a defence which is wrong as they will only have to show prima facie that the scheme which has been enacted is generalised, non-reciprocal and non-discriminatory[ii]. The complainant must prove that the particular action in question does not fall within the exception so that it does not merit its protection. The above goes to show that it’s easier to prove an action falls within the enabling clause if it is considered a defence and can lead to developed countries taking advantage of the beneficiaries under the GSP. On the same note we can also observe that while the enabling clause functions as an exception, it is also a framework for positive action to be taken to assist in the economic growth of the developing countries[iii]. Though rights and obligations do not flow directly from the enabling clause, it has led to the establishment of GSPs which contain these rights and obligations. The clause is self-standing and does not rely on any provisions for its validity.

The EC-Tariffs case subsequently also examined the meaning of the word ‘development’ as used in paragraph 3(c) the enabling clause and the scope of the phrase ‘the developing countries’ as used in paragraph 2(a) of the clause. Concerning the developing countries, it held that since the needs of all developing countries vary it cannot be so that the word ‘developing countries’ as used in the clause implies that it includes all developing countries, certain discriminations and flexibility is permitted. As for the word ‘development’, the Appellate Body decided that while the general meaning of the word implies social and economic development, but due to its usage in the enabling clause, which has interpreted the beneficiaries of GSPs as per their economic status, it means that the definition of development should also be restricted to economic development.

The above-explained interpretations thus leave room for the developed countries to take advantages of the same and allow benefits to be conferred in manners that can circumvent the positions taken by the Appellate Body. They could adopt policies under which the economic development of these beneficiary countries is only a secondary objective and still be able to sidestep the Most Favoured Nation clause as prescribed under Article I:1. Due to the lack of an objective standard for differentiating amongst the developing countries, research has shown that developed countries constantly take conditions like labour rights, environment performances, etc. into account while formulating their GSPs and the beneficiaries under them.[iv] This shows that they do not acknowledge the economic status of a beneficiary country as the primary reason for formulating their policies instead focus on other objectives that will help them better their global position.

Another scheme that hinders the trade by developing countries is the Graduation Rule which specifies a ceiling on the market share in a certain commodity market. If a country has more than the decided market share in that country then they will not be covered as a part of the GSP and will not receive the trade concessions as promised concerning that commodity. An example of this is the ceiling of 12.5% imposed by the EU in the textile market.[v] For developing countries like India who are major exporters of this product once their exports exceed that percentage, they will stop receiving benefits of the schemes. Thus, this way developed countries can control which countries receive the benefits under the scheme without outrightly violating ArticleI:1. Similarly, developed countries use the product exclusion rule, which allows countries to list out the commodities which will receive benefits under GSP. They define these lists to include or exclude certain commodities from their GSPs to further their own nation's policy interests.

In addition to the above, as seen in the US-India case, it has been noted that as per the US Trade Act, 1974 the State can withdraw the GSP benefits construed to any country after 60 days of transmission of intention to do the same via a Presidential Proclamation[vi]. While the same can be disputed by the beneficiary country in the WTO, they do not have any say in the process of the donor country arriving at that decision. The donor country may adopt any reason which is not violative of the WTO principles to remove such benefits. If India decides to approach the WTO, they will have to adhere to the timeline prescribed by them and also have to face the issue of the impasse at the Appellate Body level which has arisen due to the US blocking the appointment of members to the same. The dispute will take years to be settled during which time Indian exports will suffer immensely. If India enters into bilateral talks to give the USA increased market access which it is demanding in place of continuing the GSP, India will probably have to give certain concessions without which the talks may continue for a long while which is precisely what India wants to avoid. Both the courses of action available to India will see its trade and commerce suffer unless some of the US’s demands are granted by the Government. We can conclude from the above that the developed countries have may more power and they can make various arbitrary decisions that further their own national interests and policies while also cause unnecessary delays in the resolution process to make the beneficiary countries succumb to their demands and improve their position or allow their international trade to suffer.

Conclusion

Since there is no active participation by the relevant stakeholders in the shaping of the policies there is a lack of transparency in the process of the same. Inclusion of the stakeholders would lead to better formulation of policies and would be better targeted at improving the trade and commerce between countries. The same would also help bring to light various issues that are faced by these business entities and will reveal which policies are contradicting the various Agreements signed by the member countries more easily. It will thus, lead to a more transparent process of policy formulation and also give more power to the beneficiary countries in deciding their fate.

One can observe how the developed countries can make decisions that are detrimental to the exports of the developing countries without these countries having any say in the matter. To counter this, an objective standard must be set by the WTO for the discrimination between the developing countries, or else the donor countries will continue to formulate policies that benefit them instead of helping developing nations that actually need the assistance. This will also make the purpose of the “Enabling Clause” moot as instead of it being used for their benefit it will be continually weaponised against them.

[i]Dhar B, and Majumdar A, 'The India-EC GSP Dispute: The Issues and The Process' [2006] International Commission for Trade and Sustainable Development [ii]Ibid i [iii]Ukpe A, 'Defining the Character of The Enabling Clause: Towards A More Beneficial GSP Scheme' [2008] SSRN Electronic Journal [iv]Ibid iii [v]Ibid i [vi]Mollah M, '"Irreparable" Damage or No Impact, India-US Need to Sort Withdrawal of GSP Benefits Bilaterally' Economic Times (2019) <https://economictimes.indiatimes.com/small-biz/policy-trends/irreparable-damage-or-no-impact-india-us-need-to-sort-withdrawal-of-gsp-benefits-bilaterally/articleshow/68609172.cms> accessed 4 April 2020