In a major victory for India, the World Trade Organisation's appellate body on Wednesday questioned the European Communities' move to grant tariff preferences to 12 countries under the drug window.

The Appellate Body has recommended that the Dispute Settlement Body should tell EC to bring the preferential tariffs in conformity with its obligations under the General Agreement on Trade and Tariffs.

The Appellate Body made the recommendation, while upholding the dispute settlement panel's finding that EC had violated the provisions of GATT.

"India will seek the adoption of the panel and Appellate Body reports in this dispute as early as possible," a commerce department release said. "We find that EC has failed to prove that the drug arrangements meet the requirement that they be 'non-discriminatory'," the three-member panel said in its report, released on the WTO website.

The Appellate Body has held that the EC "failed to demonstrate that the drug arrangements were justified under Paragraph 2(a) of the Enabling Clause". The ruling of the Appellate Body was pursuant to an appeal filed by the EC in January 2004, against the findings of a dispute settlement body panel.

"It (the decision) is likely to provide some relief to Indian exporters to the EC, particularly those in the apparel sector, who are otherwise disadvantaged due to duty concessions to Pakistan under the Drug Arrangements. The findings of the panel and the Appellate Body in this dispute are also a timely reminder that trade policy instruments cannot be used to serve political objectives," the commerce department release said.

In March 2002, India had approached the WTO against the EC's decision to include Pakistan as a beneficiary under its Special Tariff Arrangement for Combating Drug Production and Trafficking under its GSP Scheme for 2002-04. India was of the opinion that the export of textiles from the country were affected because of the decision.

During the WTO proceedings, India had said it did not dispute EC's right to give financial assistance to individual developing countries fighting against drug menace, but this could not be done at the expense of other developing countries facing different but equally pressing needs.

"India attaches great value to the various global efforts to address drug trafficking. India also strongly supports the need to resolve special problems of developing countries. In India's view, the principal way of addressing such problems is by according primacy to the development dimension in the on-going Doha Work Programme, which otherwise appears to have been given a short shrift.