Brazil has raised serious concerns over potential new constraints to South-South trade created by the EU’s economic partnership agreements (EPAs) with African, Caribbean and Pacific countries.
In a statement presented to the WTO’s General Council on 5 February, Brazil singled out the negative effects of the so-called ‘most-favoured-nation’ (MFN) clause included in EPAs.
Such provisions are present – with slight variations – in all the EPA blueprints. So far, only the 15 Cariforum member countries have signed a fully fledged regional agreement with the EU. A number of other African, Caribbean and Pacific (ACP) countries have initialled interim deals on goods trade, but negotiations continue on other aspects of their new trading relationship with Europe. These include services, investment, competition policy, government procurement and intellectual property rights (Bridges Year 11 No.7 page 17).
MFN Clause in the Caribbean EPA
The Caribbean EPA – the only one to be concluded so far – requires Cariforum countries to accord to the EU any more favourable treatment that the region or any of its individual member states grants to ‘any major trading economy’ under a free trade agreement concluded after the signature of the EPA.
A ‘major trading economy’ in turn is defined as any developed country, or “any country or territory accounting for a share of world merchandise exports above 1 percent in the year before the entry into force of the free trade agreement.” In case of an FTA concluded with a group of countries, the obligation applies if the group’s collective share of world goods exceeds 1.5 percent. Parties to the EPA have the possibility of waiving the MFN obligation by mutual consent.
Disincentive for Expanding Trade among Developing Countries
Brazil told the General Council that an MFN obligation would leave the ACPs without any “incentive to negotiate agreements with other developing countries containing market access conditions that are more favourable than those the EU might enjoy. [...] In effect, the conditions the EU enjoys in the market of the ACP countries would be the ‘ceiling’ for access in those markets, as those countries would have to take into account the competitiveness of the EU’s industry when negotiating with other developing countries.”
MFN clauses would seriously impact South-South trade, Brazil argued. They would, for instance, “discourage or even prevent third countries from negotiating FTAs with EPA parties.” Brazil also noted that such provisions had the potential to undermine initiatives aimed at integrating developing countries into the world trading system, including ongoing negotiations on the Global System of Trade Preferences, and the efforts some developing countries are making to extend of duty- and quota-free market access to least-developed countries.
Brazil said it was raising the issue partly out of systemic and legal concerns that would affect all WTO Members (and developing countries in particular), but also due to ‘very concrete objections’ arising from the MFN clauses’ implications for its own trade with other developing countries, which now represents 55 percent of Brazilian total trade. About a dozen developing countries – including China, India and South Africa – expressed support for Brazil’s intervention.
Concerns related to bilateral trade arrangements are usually discussed at the WTO Committee on Regional Trade Agreements. A Brazilian source noted, however, that the ‘legal limbo’ surrounding the EPAs, none of which have been notified to the WTO, would make it difficult to conduct a timely examination of the MFN provisions.