India on Wednesday said it had scored a significant gain at the World Trade Organisation in a dispute with European Community over tariff preferences extended by the latter.

The appellate body of WTO has upheld the overall finding of the dispute settlement panel which said EC had violated GATT/WTO obligations in granting tariff preferences to 12 countries under the Drug Arrangements window of its Generalised System of Preferences.

The body held that EC "had failed to demonstrate that the Drug Arrangements are justified under paragraph 2(a) of the enabling clause."

The ruling is likely to provide some relief to Indian exporters to the EC, particularly those in apparel sector who are otherwise disadvantaged due to duty concessions to Pakistan under drug arrangements, an official release said. 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, it added.

The dispute with EC arose primarily because it had included Pakistan as a beneficiary country under special tariff arrangement for combating drug production and trafficking under its GSP scheme for the period 2002-04.

The scheme had been in operation for several years but beneficiaries were restricted only to Andean and Central American countries.

While India felt the scheme was not compatible even then, it chose not to agitate the matter as it had not been significantly affected, the statement said.

However, the inclusion of Pakistan as a beneficiary meant Indian exports were directly affected as the two neighbours were direct competitors in EC market in a number of sectors.

The sudden and significant advantage granted to Pakistani products has disadvantaged a significant level of trade flowing from India to EC.