There were unconfirmed reports last week to the effect that the EU will allow Sri Lanka to have GSP+ but with certain strictures on human rights. If this is true, it will certainly be a great relief to Sri Lanka. But what shatters these hopes is US Secretary of State Hillary Clinton’s inclusion of Sri Lanka among the countries that had been using ‘rape as a weapon of war’. That could be an excerpt from the US State Department report on Sri Lanka which is being finalized these days for submission to the appropriations committee of the US Senate. One need not be surprised if the State Department report quotes the EU interim report on Sri Lanka. All human rights reports quote one another in an incestuous manner and when information passes from one report to another the actual facts are progressively distorted and sensationalized.

In a previous article, we showed how relatively innocuous comments made by Sinhala women in border villages went from an organization calling itself South Asians for Human Rights to the International Crisis Group, and from them to the UNHCR and from the UNHCR to the EU interim report and how during this process Sinhala women living in villages turned into Tamil women in IDP camps and ‘sexual demands’ became outright sexual assault and rape. Since the State Department report comes after the EU interim report, it only stands to reason that the offence would have been enhanced in magnitude and progressed from being mere sexual assault and rape to ‘rape as a weapon of war’.

A cat un-belled

Be that as it may, if the unconfirmed reports mentioned above are not accurate, then what we are looking at is Sri Lanka’s removal from the GSP+ scheme. As we pointed out last week, there has never been an ‘unfair dismissal’ suit brought by any country against the EU in the WTO. As a result of this, the WTO law with regard to exclusion from GSP schemes has not yet been clearly established. When the GSP scheme was first set up in the early 1970s, there was no talk of excluding countries. Everybody, however ugly was welcome because that was the cold war era and a country excluded by the west ended up siding with the Communists and nobody wanted that. The entire GSP scheme was conceived with one aim in mind – meeting the "development, financial and trade needs"of the developing countries; and once included, exclusion could take place only once those needs had been met.The poorest of the developing nations, the LDCs, would lose their duty free status only after becoming middle income countries. The middle-income developing countries in the standard GSP scheme paying the low tariff of 10%, would lose this concession once they became high income countries. Beyond this, there was never any provision for exclusion. The need to exclude countries became a western obsession only after the end of the cold war, when the socialist block had collapsed and the developing countries had nowhere to go if they were booted out by the west.

The west is fully aware of their power in this regard and they have not shown any reticence in advancing the ‘slave owner’s argument’ in defending this power. In terms of naked power-play, the world has definitely retrogressed since the days of the cold war when some courtesy could be expected by even the most powerless countries. When India went to the WTO in late 2002, the EU tried to blackmail the WTO panel appointed to look into the case saying that the panel ‘should bear in mind’ the nature of the preferences granted under the GSP schemes and that those preferences ‘are strictly voluntary’. They further averred that India’s reading of the enabling clause would be ‘detrimental’ to all members and that the likely result of India’s interpretation ‘would be less, rather than more preferences’ for the developing countries. They said that in fact turning the enabling clause into a kind of ‘strait-jacket’ could dissuade some donor countries from providing any preferences at all!

The kid gloves are off! The United States, which joined the Indian case as a third party on the side of the EU, echoed this reprehensible slave owner’s argument saying that not only is India’s legal position incorrect, but the consequences of its interpretation would be ‘unfortunate’ and that that placing the burden on developed countries to defend actions that benefit developing countries would create a ‘disincentive’ for developed countries to voluntarily grant preferential treatment under the enabling clause. Both the EU and the USA were arguing in this case in defence of the western policy of using their own criteria to discriminate between developing countries. It is to the credit of the WTO that they held against the slave owner’s argument, and decided in favour of India, laying down the rule that the developed nations granting preferences could not discriminate between developing countries that were ‘similarly situated’.

Be that as it may, the EU has since the cold war ended been trying to establish the precedent of both selecting and booting out GSP recipient countries on criteria decided by them. What India shot down in their 2002/2004 WTO case was the arbitrary selection part of it. Now the EU cannot choose beneficiary countries on non-transparent, subjective criteria. If Sri Lanka is compelled to go to the WTO, that will be to shoot down the arbitrary exclusion part of it. If Sri Lanka is booted out of GSP+, it certainly won’t be the first country to be thus excluded. However, none of the countries excluded earlier have for various reasons taken the matter to the WTO. If one takes the most recent exclusions from GSP+, that of Venezuela and El Salvador, they have no reason to go to the WTO. In Venezuela’s case they had by oversight, not signed one of the 27 stipulated conventions and they will get GSP+ back the moment they sign this document which they thought they had signed anyway. Of Venezuela’s exports to the EU, 80% is petroleum which does not come under GSP. The remainder of exports to the EU comes to around 653 million Euros. So Venezuela is not in desperate need of GSP+. Besides, since they have only to sign for it, they have no reason to invoke WTO proceedings.

The mice

The case is much the same when it comes to El Salvador which has been excluded because some ILO conventions were found to be inapplicable in local law. El Salvador also has only to sign to get GSP+ restored. But it’s unlikely that they will bother. El Salvador’s trade with the EU had been declining from the late eighties through the 1990s and is by now negligible. So to them GSP+ for access to the EU market is now meaningless. The first country to be booted out of the GSP scheme was Burma in 1997; and this was not out of GSP+ but out of the standard GSP scheme. As we pointed out, while the GSP+ scheme has all sorts of conditions attached to it, the standard GSP scheme is largely unconditional and even dictatorships can benefit from it. But in 1997, the EU booted Myanmar out of the standard GSP scheme on the grounds that they were using forced labour. In doing so, the EU was going according theirown regulations that had not got WTO covering sanction. This was an extremely dangerous precedent, but the WTO does not do police work and they can act only on a complaint. Myanmar chose not to challenge the exclusion. Oil and gas, which are key Burmese exports are not included in the GSP scheme. Moreover, even after Myanmar was booted out of the GSP scheme, investment from the EU continued to grow. Between 1995 and 2000, during and after the period when GSP was blocked, Myanmar attracted 1,531 million US$ in Fixed Direct Investment from the EU out of a total FDI of 2,765 million US$. The UK, US, Netherlands and France remain among the top investors in Myanmar. Trade with the EU however is insignificant. The Campaign for Human Rights and Democracy in Burma summed up the situation by saying that the effect of the withdrawal of GSP from Burma was ‘insignificant’; hence their decision not to challenge their exclusion in the WTO.

The next country to be booted out of the GSP scheme was Belarus in 2007 – once again over violation of ILO regulations. Belarus is an Eastern European nation and even though GSP was suspended, there were other arrangements which mitigated the impact of withdrawal. Over 44% of Belarus exports went to the EU, most of it petroleum and gas, which is not covered by GSP. Despite the suspension of GSP in 2007, EU imports from Belarus increased from nearly 4 billion US$ in 2004 to more than 9 billion US$ in 2008. After GSP was suspended, they got 6 billion US$ in investments from the EU. In January this year, the EU lifted some import quotas on textiles from Belarus. Thus Belarus too would not bother to go to the WTO against their exclusion as their needs were met by other means. So up to now all expulsions from the EU GSP system have gone unchallenged, mainly because the victims have not been desperate enough to mount a challenge in the WTO.

In Sri Lanka’s case however things are going to be different. We are too desperate to simply take things lying down. A reading of the General Agreement on Trade and Tariffs (GATT) of 1947, articles 36 to 38 of the amended GATT agreement, the GSP decision of 1971, the ‘Enabling clause’ of 1979, and the 2004 ruling against the EU by the appellate body of the WTO in the Indian case, among other documents in international trade law pertaining to the GSP system, will show that there is absolutely no provision in the WTO/GATT system to boot countries out of the system at the sole discretion of the preference granting party before the country in question has met its ‘development. financial and trade needs’. The WTO does require selection as well as de-selection criteria for GSP systems as they pointed out in the Indian case. But this de-selection criteria relates to de-selection after meeting the "development, financial and trade needs" of the recipient country. What the WTO appellate body said in the Indian case about the EU’s GSP scheme for drug producing countries was that while the special GSP was given to combat drug production, there was no provision or benchmarks to de-select countries after they have finished combating the drug menace. Therefore, the ‘drugs arrangement’ had the look of a concession granted all eternity, even after the drug problem was long gone.

The ‘systemic issue’

As far as GATT/WTO is concerned, in the standard GSP scheme de-selection can occur only after those countries have met their "development, financial and trade needs" and become high income countries. In the case of the EBA scheme for the poorest developing countries, de-selection occurs after these countries become middle income countries in which event they will fall into the standard GSP scheme and pay 10% duty. In the entire body of GATT/WTO trade law, there is no provision as yet to boot countries out without having met their "development, financial and trade needs". The expulsion of Burma and Belarus is thus not covered by WTO law, even though it may be covered by the EU’s own regulations. What Sri Lanka has to do is to get a ruling by the WTO against the exclusion of countries from GSP systems before the "development, financial and trade needs" of those countries have been met.

The EU wants to boot countries out for political reasons such as alleged human rights abuses etc. If the EU interim report on Sri Lanka is anything to go by, these decisions to exclude countries will be taken in Kangaroo court fashion - on complete falsehoods, anecdotal evidence, inaccurate data, and openly biased reporting. If this kind of arbitrary expulsion becomes the norm, we will be reverting to the colonial era with the developed west holding the power of life and death over the developing world. What they used to do earlier with military might, they will now be able to do simply by giving or taking away trade preferences. The rise of China, ASEAN and India was largely due to access to the western market. Now that these countries have become giants able to stand shoulder to shoulder to the west, the developed countries may like to cut them down to size by manipulating the trading system. Hence, if Sri Lanka or any other country goes to the WTO to challenge an expulsion from a GSP scheme, the larger countries among the developing nations such as China and India and the ASEAN countries must join the suit as third parties in favour of the victim.

When India went to the WTO against the EU ‘drugs arrangement’ in 2002, the beneficiaries of the drugs arrangement joined the case as third parties on the side of the EU. In its submissions, India chided those developing countries saying that they have not taken their own ‘long-term systemic interests’ into account when they invited the WTO panel to rule that developed countries may discriminate between developing countries in accordance with criteria selected by the developed countries. That indeed was true. In this case too, where arbitrary and selective exclusion is the problem, the same ‘systemic interest’ of the developing nations in getting the developed countries to stick to the original sprit and the letter of the GATT/WTO provisions for GSP systems, takes centre stage.

Illegal ‘dismissals’

If we look at the legal position of booting countries out of the GSP system, we can see that Article 1 of GATT 1947, ipso facto prohibits any country being thrown out of a GSP system for whatever reason. Article 1 stipulates quite clearly that "with respect to all rules and formalities in connection with importation and exportation, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties". All the countries kicked out of the GSP scheme except Belarus, which is still an observer, are members of the WTO and entitled to the protection afforded by Article 1 of GATT. When Article 1 is read with the legal provisions concerning the developing countries that evolved from the 1960s onwards, what this means is that countries cannot be excluded once they are included in a GSP system unless the country concerned has met its ‘development, financial and trade needs’. Meeting the ‘development, financial and trade needs’ of developing countries is posited as the sole rationale of the GSP schemes throughout the entire body of international trade law from the amendment to the GATT agreement which saw the inclusion of articles 36 to 38, in the 1960s, right up to the Indian case in the WTO which concluded in April 2004. Short of meeting the ‘development, financial and trade needs’ of recipient countries, the only other grounds on which a country can be excluded according to the GATT agreement are contained in article 20. This gives ten reasons which would provide grounds to exclude countries from GATT/WTO protection. The grounds on which preference granting countries can seek to exclude countries or individual products would apply to instances when exclusion is necessary to protect public morals, to protect human, animal and plant life or health, to protect exhaustible natural resources such as endangered species, and when the products concerned are manufactured with prison labour and so on.

The exclusion of a country from the GSP system on human rights and labour rights concerns relates to the ‘necessary to protect public morals argument’. If Sri Lanka goes to the WTO, it’s almost certain that the EU will invoke article 20 and the ‘public morals’ argument on the grounds of ‘moral outrage’ over the goings on in Sri Lanka. If they do this, the immediate problem they will be faced with is that article 20 has a strict requirement that measures under this clause should not be imposed in a manner which would constitute ‘arbitrary or unjustifiable discrimination’ between countries where the same conditions prevail.

As we pointed out in a previous article, according to the US state department reports, every single GSP+ recipient country has the same allegations as those against Sri Lanka, if not more. If the EU tries to invoke article 20 against Sri Lanka, they will be placed in the unenviable position of having to explain away the alleged violations of other GSP+ recipient countries – an impossible task. The WTO applies the principle of non-discrimination between ‘countries similarly situated’ with great rigour. In one WTO case (US-Shrimp/Turtle) some developing countries challenged a US ban on shrimp caught without turtle protection technology. The WTO agreed that the US argument under article 20 (protection of exhaustible natural resources) was justified. But they held that in applying the ban on certain countries only, the US had ‘arbitrarily and unjustifiably discriminated’ between countries where the same conditions prevail. The US lost the case. If Sri Lanka’s case goes before the WTO, the chances are that the EU will get knocked out on this point.

The great test

Even if the EU survives this test, there will be other hurdles to clear. Another WTO case (US-Gambling) involved a US ban on internet gambling. This established a test to see whether exclusion of countries under the article 20 ‘public morals argument’ is justified. According to this test, four factors have to betaken into account.

1. The relative importance of the interests or values furthered by the exclusion.

2. The contribution of the exclusion to the ends pursued by such exclusion.

3. The restrictive impact of such exclusion on international commerce.

4. The exclusion will have to be compared with possible alternatives and the interests at issue have to be taken into account for this.

It will be impossible for the EU to survive this test. Bringing ruin upon the Sri Lankan economy can’t be touted as a ‘value to be furthered’ by anybody. The end anticipated by the EU will be to improve the human rights record in Sri Lanka by booting it out of the GSP scheme. They are going to have a hard time showing the WTO that ruining an economy will somehow result in an improved human rights situation when the exact opposite may well be what is achieved. Besides, Sri Lanka would be victimized over alleged events in the recent past. The situation is not ongoing. If it’s not ongoing, then how can present action by the EU help stop what happened in the past? What is the end pursued by the exclusion? The EU will be forced to admit that the action against Sri Lanka is in fact REVENGE, and not aimed at stopping or changing any ongoing situation.

Thus they fail the second test as well. Then again, how are they to hold that there are no better alternatives to booting Sri Lanka out of GSP+? There are plenty of alternatives without going so far as ruining the Sri Lankan economy. The ‘restrictive impact’ of the EU measure on international commerce will also have to be taken into account, given the fact that the Sri Lankan garment industry is a showpiece industry which inspired British retailers to make a public announcement to the effect that Sri Lanka should get GSP+.

The body of GATT/WTO law mentioned above has a requirement that when developed countries provide preferential tariff schemes for developing schemes, they have to meet the criteria of being ‘generalized, non-reciprocal and non-discriminatory’. Theorists in the developed countries know that there is absolutely no provision in the existing law that would permit developing countries to select and de-select developing countries for GSP schemes at their whim and fancy. So there is an attempt in some quarters to interpret the GATT/WTO ‘non-reciprocal’ and ‘non-discriminatory’ conditions on GSP schemes not as strict legal requirements but as ‘aspirations’ that developed countries will keep in mind when selecting and de-selecting countries. Thus the developed nations will ‘aspire’ to be ‘non-discriminatory’ and to implement non-reciprocal GSP schemes even though that may not always be so!