Roger Alford has an interesting post over at Opinio Juris (based on an article), in which he discusses the withdrawal of GSP benefits as a way to induce compliance with investment arbitration awards. To illustrate this situation, let's say a government has previously offered lower tariffs to a developing country as part of a GSP program, but then withdraws them as a penalty for the failure of the developing country to pay an arbitration award. He refers to this as a "trade remedy," and suggests an argument for why such action is consistent with WTO rules. In this post, I'm going to quickly work through how a WTO dispute on this issue might go. (This is going to be a little rough, not a detailed memo with footnotes!) I have doubts about whether such action is allowed under WTO obligations, but I admit there are some complicated issues in here.
First off, the obvious way to bring a complaint against withdrawal of GSP benefits is to allege a GATT Article I violation: The measure treats one country's goods worse than those of other countries, hence there is an MFN violation.
When GSP programs are at issue, the Enabling Clause operates as an exception to Article I, and is likely to be a main focus of the case. Here, the emphasis would be on two issues: whether the measure is discriminatory, and whether it responds positively to developing countries' development, financial or trade needs. (Another issue is whether the criteria for inclusion/exclusion from GSP are objective; I'm not to get into that one here).
In terms of non-discrimination, the withdrawal of benefits would likely also be found discriminatory under the Enabling Clause, although the analysis would be a little different than Article I (focusing on similarly-situated countries, rather than goods from different countries).
More interesting is the question of whether the measure responds positively to development, financial or trade needs. On this issue, I question whether a GSP penalty -- that is, withdrawing benefits for non-trade policy reasons -- can ever meet the standard. I can see how lowering tariffs might help with a specific problem (e.g. drug trafficking), by giving affected countries special benefits. But higher tariffs through withdrawing benefits as a penalty? I'm not so sure.
Furthermore, you have the issue of whether the measure addresses development, financial or trade needs at all. There may be an argument that enforcement of investment arbitration awards qualifies, but it's not hard to imagine some pretty strong counters.
Beyond the Enabling Clause, there is also Article XX(d) as a possible defense. Here, there are going to be several issues. Let's go in order of the text (not necessarily in order of importance -- just seemed simpler this way). First, we have the always controversial "necessary" test. How trade restrictive is the measure at issue? I would say that discriminatory, higher tariffs are pretty clearly very trade restrictive. Does it contribute to its objective? Maybe a little bit. How important are the interests here? That is not clear to me. Finally, is there a less trade restrictive alternative measure here? I think the answer is yes, as Roger mentioned two himself: "limiting access to World Bank and Inter-American Development Bank credit and loan facilities or refusing to support the restructuring of Argentina’s $7 billion Paris Club debt".
Next up, does the measure "secure compliance" with the federal law at issue, which says in part that "An award of an arbitral tribunal rendered pursuant to chapter IV of the convention shall create a right arising under a treaty of the United States". It's not clear to me that "securing compliance" with this domestic law is the best characterization of what the GSP withdrawal does; inducing compliance with an arbitration award seems more accurate.
Then we get into whether the federal law here is a law or regulation covered by Article XX(d). Note that Article XX(d) provides a non-exhaustive list of policies: "relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices." The law here does not seem all that similar to the examples given. Is that enough to exclude it from Article XX(d)? I'm not sure.
And finally, we get into the chapeau, which says that the measure must not be "applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade." There's a complex relationship between these three elements, which I can't fully get into here. For me, unjustifiable discrimination is the most obvious candidate here for the complainant to invoke. For all the reasons the measure violates Article I and does not satisfy the requirements of the Enabling Clause, it also constitutes unjustifiable discrimination, I would say.
All right, I glossed over a lot of points here. Feel free to raise them in the comments!