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C. Chase - MFN in the CF-EC Economic Partnership Agreement (EPA) - Policy Blunder or Legal Inconsistency?

C. Chase - MFN in the CF-EC Economic Partnership Agreement (EPA) - Policy Blunder or Legal Inconsistency?






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    C. Chase - MFN in the CF-EC Economic Partnership Agreement (EPA) - Policy Blunder or Legal Inconsistency? C. Chase - MFN in the CF-EC Economic Partnership Agreement (EPA) - Policy Blunder or Legal Inconsistency? Document Transcript

    • Published by:Kluwer Law InternationalPO Box 3162400 AH Alphen aan den RijnThe NetherlandsWebsite: www.kluwerlaw.comSold and distributed in North, Central and South America by:Aspen Publishers, Inc.7201 McKinney CircleFrederick, MD 21704United States of AmericaEmail: customer.service@aspenpublishers.comSold and distributed in all other countries by:Turpin Distribution Services Ltd.Stratton Business ParkPegasus Drive, BiggleswadeBedfordshire SG18 8TQUnited KingdomEmail: kluwerlaw@turpin-distribution.comLegal Issues of Economic Integration is published quartely (February, May, August and November).Print subscription prices, including postage (2011): EUR 345/USD 460/GBP 253.Online subscription prices (2011): EUR 319/USD 426/GBP 235 (covers two concurrent users).Legal Issues of Economic Integration is indexed/abstracted in the European Access, European Legal JournalsIndex, Data Juridicia.Printed on acid-free paper.ISSN 1566-6573© 2011 Kluwer Law International BV, The NetherlandsAll rights reserved. No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise,without written permission from the publisher.Permission to use this content must be obtained from the copyright owner. Please apply to:Permissions Department, Wolters Kluwer Legal, 76 Ninth Avenue, 7th Floor, New York, NY 10011-5201, USA. Email: permissions@kluwerlaw.comPrinted in Great Britain.
    • Legal Issues of Economic Integration Law Journal of the Europa Instituut and the Amsterdam Center for International Law, Universiteit van Amsterdam Board of Editors Pieter Jan Kuijper, Chair Tom Eijsbouts René Smits James Mathis, Managing Editor Annette Schrauwen, Editor Kati Cseres, Editor Associate Editors Michael Frese Herman van HartenEditorial Advisory Board Arthur E. Appleton, Attorney, Geneva Daniel Bethlehem, University of Cambridge Marco Bronckers, University of Leiden Ronald Cass, Boston University School of Law Piet Eeckhout, Kings College, London Mary Footer, University of Nottingham Leigh Hancher, Catholic University, Tilburg, Erasmus University, Rotterdam Meinhard Hilf, University of Hamburg Robert Howse, University of Michigan Jan Jans, University of Groningen Yu Jinsong, Wuhan University Mitsuo Matsushita, Seikei University Phedon Nicolaides, European Institute of Public Administration, Maastricht Nico Schrijver, Leiden University Hanna Sevenster, University of Amsterdam Christoph Schreuer, University of Vienna Jacques Steenbergen, University of Leuven Edwin Vermulst, Attorney, Brussels Stephen Weatherill, Somerville College University of Oxford Friedl Weiss, University of Vienna Jan Wouters, University of Leuven
    • MFN in the CARIFORUM-EC Economic Partnership Agreement: Policy Blunder or Legal Inconsistency? Claude S.K. Chase* The Carribbean Forum-European Communities (CARIFORUM-EC) Economic Partnership Agree- ment (EPA) represents a new era of development cooperation and trade relations between the European Union (EU) on the one hand, and a subgrouping of the African, Caribbean, and Pacific (ACP) group of countries on the other hand. The inclusion of Most Favoured Nation (MFN) clauses in the EPA, which require CARIFORUM countries to extend to the EU any more favourable treatment granted to third parties in future Free Trade Agreements (FTAs) has generated some controversy. This note critically examines the arguments that have been levelled against the inclusion of these clauses from legal and policy perspectives. Notwithstanding the often nebulous distinction between law and policy, it will be argued here that questions of policy and issues of law must be bifurcated in order to meaningfully assess the value of MFN clauses in the EPA. A paradigm for assessing such clauses in other so-called North-South FTAs is also suggested.1. IntroductionThe conclusion of the CARIFORUM-EC1 Economic Partnership Agreement (EPA)heralded the dawn of a new era of trade relations between the European Union (EU)on the one hand, and countries composing the CARIFORUM trade negotiating groupon the other hand.2 The EPA is an integral element of the Cotonou framework3 andrepresents a concerted attempt to respond to the World Trade Organization (WTO)inconsistent preferences granted to the African, Caribbean, and Pacific (ACP) group ofcountries under the Lomé Convention.4 From a trade policy perspective, the broader * LLM (Cum Laude), Universiteit van Amsterdam. I am thankful to the editors for their comments on an earlier draft.All errors and omissions are my own. 1 At the time of the EPA’s conclusion, the Treaty of Lisbon was not in force, and therefore, the title of the EPA doesnot reflect the change from European Communities (EC) to European Union (EU) that the Treaty of Lisbon introduced. 2 The EPA was notified to the WTO on 24 Oct. 2008 under Art. XXIV of the General Agreement on Tariffs andTrade 1994 (GATT 1994) and Art.V of the General Agreement on Trade in Services (GATS). At the time of the EPA’s noti-fication, the following CARIFORUM Member States had signed the agreement: Antigua and Barbuda; Bahamas; Barbados;Belize; Dominica; the Dominican Republic; Grenada; Jamaica; Saint Christopher and Nevis; Saint Lucia; Saint Vincent andthe Grenadines; Suriname; and Trinidad and Tobago. Haiti signed the EPA on 11 Dec. 2009. 3 The Cotonou Agreement between ACP countries and the EU replaced the Lomé Convention that had been thebasis for ACP-EU development cooperation since 1975.The Cotonou Agreement was signed in June 2000 and entered intoforce in 2003. For an assessment of the agreement, see, generally, Abou Abass, ‘The Cotonou Trade Regime and WTO Law’,European Law Journal 10, no. 4 (2004): 439. See also Francis Matambalya & Susanna Wolf, ‘The Cotonou Agreement and theChallenges of Making the New EU-ACP Trade Regime WTO Compatible’, Journal of World Trade 35, no. 1 (2001): 123. 4 Article 36(1) of the Cotonou Agreement provides: ‘In view of the objectives and principles set out above, the par-ties agree to conclude new World Trade Organization (WTO) compatible trading arrangements, removing progressivelybarriers to trade between them and enhancing cooperating in all areas relevant to trade.’Chase, Claude S.K. ‘MFN in the CARIFORUM-EC Economic Partnership Agreement: Policy Blunder orLegal Inconsistency?’. Legal Issues of Economic Integration 38, no. 2 (2011): 189–197.© 2011 Kluwer Law International BV, The Netherlands
    • 190 LEGAL ISSUES OF ECONOMIC INTEGRATIONsignificance of the CARIFORUM-EC EPA is twofold: First, it may serve as a benchmarkfor ongoing negotiations on EPAs between the EU, and other subgroupings within theACP group. Second, we may be witnessing a new paradigm for so-called North-Southcooperation insofar as the EPA – a Free Trade Agreement (FTA) necessarily predicatedupon reciprocal, mutually advantageous preferences – purports to have a developmentaldimension that takes into account the development objectives, needs, and interests ofCARIFORUM Member States. The EPA, from the stage of negotiations, and thereafter, has met with scathing criti-cism from civil society, as well as academic circles within the CARIFORUM region.5Negative criticism of the EPA has been grounded primarily in a perception that therights and obligations contained in the EPA are asymmetrical in nature, to the detrimentof CARIFORUM Member States. Although the EPA is by no means the saving graceof developing CARIFORUM states as they grapple to position themselves favourablywithin the multilateral trading system, in some instances, the stinging philippics concern-ing the EPA have been unwarranted and misconceived, primarily reflecting an obstinateyet understandable resistance to change from some quarters. A topical legal issue with systemic implications concerning the EPA is the inclu-sion of a Most Favoured Nation (MFN) provision that requires CARIFORUM states toextend to the EU any more favourable treatment it gives to a ‘major trading economy’in future FTAs with third parties.6 Larger developing countries such as Brazil, whichwould meet the ‘major trading economy’ threshold, have swiftly denounced the inclu-sion of such provisions in North-South trade agreements like the EPA. Such provisionswould ‘discourage or even prevent third countries from negotiating FTAs with EPAparties’7 because deeper market access commitments secured by a third party developingcountry would ultimately have to be shared with Europe. The net effect of the MFNprovision is, therefore, the creation of ‘major constraints to South-South trade’.8 Brazil’scontention, in the main, is that the MFN provision runs counter to the WTO’s Decisionon ‘Differential and More Favourable Treatment, Reciprocity and Fuller Participation ofDeveloping Countries’ (the Enabling Clause), which is designed to facilitate and promotetrade between developing countries on a preferential basis.9 An analysis of the arguments advanced by Brazil and supported by other develop-ing countries is necessary, if only because these arguments purport to highlight, in thecontext of the multilateral trading system, the systemic implications of including MFN 5 See, for example, Havelock Brewster, Norman Girvan & Vaughan Lewis, ‘Renegotiate the CARIFORUM EPA’,Trade Negotiations Insights 7, no. 3 (2008): 8. 6 It should be noted that ‘MFN’ obligations are certainly not new to ACP-EU trade relations. In fact, the MFNclause in the EPA has its historical roots in the expired trade provisions of the Cotonou Agreement, which provided for anMFN extension in favour of the EU in the event that ACP countries granted more favourable treatment to other developedcountries. 7 Statement of Brazil to the General Council of the WTO, WT/GC/W/585 (5 Feb. 2008). 8 Ibid. 9 Decision on ‘Differential and More Favourable Treatment, Reciprocity and Fuller Participation of DevelopingCountries’ (the Enabling Clause) adopted on 28 Nov. 1979. Para. 1 of the Enabling Clause provides: ‘Notwithstanding theprovisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatmentto developing countries, without according such treatment to other contracting parties.’
    • MFN IN THE CARIFORUM-EC ECONOMIC PARTNERSHIP AGREEMENT 191provisions in North-South FTAs. In assessing these arguments, the analysis contained inthis article treats questions of policy as separate to, and distinct from, issues of law. Aftera brief overview of the MFN clauses in the EPA, the arguments levelled against theinclusion of the clause as advanced by Brazil will be examined from legal, and policyperspectives in turn. The assertion that the MFN clause violates the Enabling Clausein a legal sense will be debunked, and further, it will be shown that while it is easy toquestion the value of the MFN clause in the abstract, it is very difficult to do so if onetakes into account the benefits of the EPA as a whole.2. Overview of MFN Provisions in the CARIFORUM-EC EPAThe CARIFORUM-EC EPA contains three MFN provisions: Article 19 relates to tradein goods while Articles 70 and 79 relate to trade in services. Much of the discussion onthe MFN clauses contained in the EPA has centred on the provision relating to trade ingoods. Consequently, the substantive scope of this article is limited to an examination ofArticle 19 of the EPA. The scope of Article 19 is circumscribed in respect of the obligation it imposes onCARIFORUM Member States. Subsection (1) of Article 19 enjoins the EU to extend toCARIFORUM any more favourable treatment it gives to a third party in future FTAs.Therefore, irrespective of the level of development of a third party with which the EUenters into an FTA, any more favourable treatment granted would have to be automati-cally extended to CARIFORUM. On the other hand, the obligation imposed on CARI-FORUM states – pursuant to subsection (2) – to extend to the EU any more favourabletreatment granted in future FTAs with third parties is qualified, in the sense that, it operatesonly in respect of FTAs concluded with ‘major trading economies’. Subsection (4) of Article19 includes in its definition of ‘major trading economy’ any country or group of countriesthat accounts for more than 1% or 1.5%, respectively, of world merchandise exports.10 Basedon WTO data on merchandise trade, customs territories with 1% (or 1.5% for regionalblocs) of world exports, which would meet the ‘major trading economy’ threshold, include:China, Brazil, Hong Kong, Singapore, Mexico, Taiwan, Association of South East AsianNations (ASEAN), and Southern Common Market (MERCOSUE).11 It should be notedthat the MFN provision as articulated in Article 19(2) is not triggered automatically uponthe conclusion of a third party FTA. By virtue of Article 19(5), where a CARIFORUMparty enters into an FTA with a third party, the parties to the EPA are mandated to enterinto consultations, pursuant to which these parties may decide whether the CARIFORUMcountry concerned may deny the extension of more favourable treatment to the EU. 10 Article 19(4) of the EPA provides: ‘For the purposes of this Article, “major trading economy” means any developedcountry, or any country or territory accounting for a share of world merchandise exports above 1% in the year before theentry into force of the free trade agreement referred to in para. 2, or any group of countries acting individually, collectivelyor through and free trade agreement accounting collectively for a share of world merchandise exports above 1.5% in theyear before the entry into force of the free trade agreement referred to in para. 2 .’ 11 WTO statistics on world merchandise trade are available on the WTO’s website: <www.wto.org>.
    • 192 LEGAL ISSUES OF ECONOMIC INTEGRATION3. Article 19(2) of the EPA: An Illegal Disabling of the Enabling Clause?The opposition to the MFN provision as articulated by Brazil and other developingcountries, is based primarily on paragraph 2(c) of the Enabling Clause which recognizesthe right of developing countries to receive differential and more favourable treatmentin ‘regional or global arrangements entered into among less-developed contracting par-ties for the mutual reduction or elimination of tariffs’.12 There can be little doubt thatArticle 19(2) might prevent the formation of South-South preferential trade agreementsbetween CARIFORUM, and third parties meeting the threshold of ‘major trading econ-omies’. According to Brazil, the incentive to conclude South-South preferential tradingarrangements would be curtailed since third parties could expect, at best, to be treatedsimilarly to the EU, and not more favourably than the EU as contemplated by paragraph2(c) of the Enabling Clause. From a legal perspective, any contention that the MFN provision violates paragraph2(c) of the Enabling Clause is necessarily premised on the Enabling Clause having aparticular normative value or legal character. The proposition that the Enabling Clausecan be violated per se presupposes that the Enabling Clause constitutes a positive legalright to more favourable treatment for developing countries, in conjunction with a cor-responding legal obligation on other WTO members, to accord developing countriesthat legal right. The legal status or normative character of the Enabling Clause is thuscalled into question.4. Paragraph 2(c) of the Enabling Clause: A Stand-Alone Right or an Exception?Despite the importance of the Enabling Clause for the further and deeper integra-tion of developing countries into the multilateral trading system, its legal status withinthe framework of WTO rights and obligations is not entirely clear.13 The legal char-acter of the Enabling Clause was examined in some detail in the Panel and AppellateBody Reports in EC-Tariff Preferences14 in the course of defining its relationship withArticle I:1 of the GATT 1994 (the underlying issue there being the implications for bur-den of proof).15 The Panel in EC-Tariff Preferences stated that the Enabling Clause ‘does 12 Decision on ‘Differential and More Favourable Treatment, Reciprocity and Fuller Participation of DevelopingCountries’ (the Enabling Clause) adopted on 28 Nov. 1979. Para. 2(c) of the Enabling Clause, which should be readtogether with para. 1, n. 9, provides: ‘Regional or global arrangements entered into amongst less-developed contractingparties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be pre-scribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on productsimported from one another.’ 13 Lorand Bartels, ‘The WTO Enabling Clause and Positive Conditionality in the European Community’s GSPProgram’, Journal of International Economic Law 6, no. 2 (2003): 507, 514. 14 Panel Report, European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries,WT/DS246/R (1 Dec. 2003) as modified by Appellate Body Report, WT/DS246/AB/R (7 Apr. 2004). 15 For a good overview and analysis of the issues in this case, see James H. Mathis, ‘Benign Discrimination and theGeneral System of Preferences (GSP) WTO – Report of the Appellate Body, 7 April 2004, European Communities –Conditions for the Granting of Tariff Preferences to Developing Countries. WT/DS246/AB/R’, Legal Issues of EconomicIntegration 31, no. 4 (2004): 289.
    • MFN IN THE CARIFORUM-EC ECONOMIC PARTNERSHIP AGREEMENT 193not provide positive rules establishing obligations in themselves’.16 The EU challengedthis aspect of the Panel Report before the Appellate Body, submitting that the EnablingClause ‘is per se an autonomous rule that permits the granting of more favourable treat-ment to developing countries’.17 In the final analysis, the Appellate Body upheld thePanel’s characterization of the Enabling Clause as an exception to the MFN principleembodied in Article I:1 of the GATT 1994.18 Notably, however, the Appellate Body wascautiously tempered in its approach. In seeking to ensure that its characterization of theEnabling Clause as an exception did not emasculate the critical role that the EnablingClause should play for developing countries, the Appellate Body stated that ‘the char-acterization of the Enabling Clause as an exception in no way diminishes the right ofMembers to provide or to receive differential and more favourable treatment’.19 The characterization of the Enabling Clause as merely an exception to Article I:1 ofthe GATT 1994, should render futile any attempt to use paragraph 2(c) of the EnablingClause as the legal basis for challenging Article 19(2) of the EPA. If the Enabling Clauseis merely an exception to Article I:1 of the GATT 1994 then it follows that the EnablingClause cannot be violated per se. Rather, the Enabling Clause may, or may not, sanitize aviolation of Article I:1 of the GATT 1994 depending on whether the relevant measure(s)at issue can meet the conditions set by the Enabling Clause. Indeed, the view has beenexpressed that a WTO Panel would lack direct jurisdiction to hear a claim that theEnabling Clause has been violated, because the scope of a Panel’s substantive jurisdictionis limited – by Article 1.1 of the Dispute Settlement Understanding (DSU) – to claimsbrought under the dispute settlement provisions of one or more of the covered agree-ments.20 That a Panel would lack direct jurisdiction over a claim that the Enabling Clauseis violated does not mean that WTO adjudicating bodies are precluded from examiningor applying the Enabling Clause in a given dispute. Indeed, a WTO adjudicating body isauthorized to apply the Enabling Clause as applicable law, on the basis that the EnablingClause constitutes an instrument forming part of GATT 1994.21 However, a legal chal-lenge implicating the Enabling Clause would have to be framed in the form of a claimstating that a relevant measure has violated Article I:1 of the GATT 1994 and does notfall within any the exceptions of the Enabling Clause.22 On the other hand, the Appellate Body’s statement in EC-Tariff Preferences that‘the characterization of the Enabling Clause as an exception in no way diminishes the 16 Panel Report, n. 14, para. 7.35 quoting from Appellate Body Report, United States – Measure Affecting Imports ofWoven Wool Shirts and Blouses from India, WT/DS33/AB/R (25 Apr. 1997), 16. 17 Appellate Body Report, n. 14, para. 64. 18 Ibid., para. 99 (‘In the light of the above we uphold the Panel’s finding, in paragraph 7.53 of the Panel Report, thatthe Enabling Clause is an exception to Article I:1 of the GATT 1994’). 19 Ibid., para. 98. 20 Bartels, 2003, n. 13, 516. 21 The Enabling Clause would be an instrument forming part of GATT 1994 by virtue of Art. 1(b)(iv) of the GATT1994, which states that the GATT 1994 shall consist of, inter alia, ‘other decisions of the CONTRACTING PARTIESto GATT 1947’. On the issue of applicable law in WTO dispute settlement, see Lorand Bartels, ‘Applicable Law in WTODispute Settlement Proceedings’, Journal of World Trade 35, no. 3 (2001): 499. See also Joost Pauwelyn, ‘The Role of PublicInternational Law in the WTO: How Far Can We Go?’, The American Journal Of International Law 95, no. 3 (2001): 535. 22 Bartels, 2003, n. 13.
    • 194 LEGAL ISSUES OF ECONOMIC INTEGRATIONright of Members to provide or to receive differential and more favourable treatment’may provide some latitude for developing countries to stretch the outer limits of thatproposition, and to argue that the Enabling Clause is a sui generis exception that entailsa positive legal right to more favourable treatment for developing countries. Admittedly,this proposition might be strengthened by the Appellate Body’s allocation of the burdenof proof in respect of the Enabling Clause, and its statement that the ‘Enabling Clause isnot a typical “exception” or “defence” in the style of Article XX of the GATT’.23 As attractive as that argument might seem at face value, it is nevertheless vulnerableto invalidation upon serious legal analysis. Even if one were to characterize paragraph 2(c)of the Enabling Clause as a legal right to more favourable treatment for developing coun-tries, it is, at best, a conditional right. As special a type of exception as the Enabling Clausemight be, what it is not is a positive rule that establishes a legal right, in conjunction witha corresponding obligation that operates automatically.24 While a developing country suchas Brazil might be entitled to expect differential and more favourable treatment in a tradeagreement with a CARIFORUM country, this right does not impose a correspondingobligation on any CARIFORUM country to afford Brazil the preferences contemplatedby paragraph 2(c) of the Enabling Clause, without extending these preferences to otherWTO members. Rather, the right of Brazil – if characterized as such – is conditionedupon the exercise of a discretion retained by CARIFORUM countries to enter intopreferential trade agreements with developing countries under paragraph 2(c) of theEnabling Clause. Contextual support for this proposition is found in the Enabling Clauseitself, which, in paragraph 1, derogates from Article I:1 of the GATT 1994 by providing,in discretionary terms, that contracting parties may accord differential and more favourabletreatment to developing countries without according such treatment to other contractingparties.25 Paragraph 1 of the Enabling Clause is inexorably linked to any interpretation ofparagraph 2(c) because paragraph 2 merely sets out or describes the preferences to whichthe exemption in paragraph 1 applies. Paragraph 1 of the Enabling Clause, therefore,constitutes relevant and immediate context for the interpretation of paragraph 2(c), inaccordance with the established principles of interpretation that WTO adjudicating bod-ies are mandated to apply.26 It follows from this analysis that the Enabling Clause wouldnot prohibit a developing country from contracting away, in agreements with developed 23 Appellate Body Report, n. 12, para. 106. On the somewhat curious nature of the Appellate Body’s allocation ofthe burden of proof in EC-Tariff Preferences, see Mathis, n. 15. 24 Aniekan Iboro Ukpe, ‘Defining the Character of the Enabling Clause: Towards a More Beneficial GSP Scheme’,<http://ssrn.com/abstract=1265733>, 9 Sep. 2008, 5 (‘Though the Enabling Clause exists in response to the MFN obliga-tions in Article I:1 of the GATT 1994, though in itself it establishes no obligation from which rights automatically arise’). 25 See text of para. 1, n. 9. 26 Article 3.2 of the DSU requires WTO adjudicating bodies to clarify the provisions of the covered agreementsin accordance with the customary rules of interpretation of public international law. WTO jurisprudence has consistentlyinterpreted this to mean the rules of interpretation codified in Arts 31 and 32 of the Vienna Convention on the Law of Trea-ties. See, for example, Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (20 May 1996), 17; see also Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R,WT/DS10/AB/R, WT/DS11/AB/R (1 Nov. 1996), 10 ff. Pursuant to Art. 31 of the Vienna Convention, a treaty is to beinterpreted in accordance with the ordinary meaning to be given to its terms, in their context and in light of its object andpurpose. On the interpretation of WTO agreements, see, generally, Michael Lennard, ‘Navigating by the Stars: Interpretingthe WTO Agreements’, Journal of International Economic Law 5, no. 1 (2002): 17.
    • MFN IN THE CARIFORUM-EC ECONOMIC PARTNERSHIP AGREEMENT 195country partners, its future right to negotiate preferential trade agreements with otherdeveloping countries. In negotiating Article 19(2) of the EPA, CARIFORUM membershave, at least in a de facto sense, done just that.5. Contracting Away Future Rights: A Question of Policy and Not of LawThe MFN provisions in the EPA clearly constitute so-called ‘WTO plus’ commitments.The corollary of the EPA’s characterization as an FTA is that it is necessarily subject tothe legal disciplines of Article XXIV GATT and although the substantive legal disci-plines of Article XXIV GATT are notoriously unclear, we can be certain that an MFNprovision in the form of Article 19(2) is not a legal requirement for the formation of anFTA.27 At the same time, it is clear from the analysis above that the MFN clause doesnot, in any legal sense, violate the Enabling clause. As has been pointed out by the EUin response to the intervention of Brazil, ‘the Enabling Clause permits trade preferencesamong developing countries, but it contains nothing that prohibits the extension of suchpreferences to other WTO members’.28 It follows that any assessment of the propriety ofthe MFN clause raises questions of policy and not of law. The systemic concerns raised by Brazil concerning the MFN clause, and its impli-cations for further and deeper South-South trade, while valid, may be somewhat exag-gerated. To put it bluntly, it is far from obvious that the MFN clause has enough teethto produce the type of bite that is feared and anticipated by Brazil and other developingcountries. Fortunately, the parties to the EPA have negotiated significant constraintson the MFN trigger, which render the arguments espoused by Brazil less persuasive.First, the MFN clause is triggered only by the conclusion of FTAs with third partiesmeeting the ‘major trading economy’ threshold. Therefore, the capacity of CARIFO-RUM countries to enter into preferential trade agreements with the majority of devel-oping countries, which are not able to meet the ‘major trading economy’ threshold, isuninhibited by the MFN clause. The blanket proposition that the MFN clause inhibitsSouth-South trade is consequently unsustainable. Second, the MFN clause is not trig-gered by every type of preferential trading arrangement. Rather, it applies only to FTAs,that is, mutually preferential trade agreements notified under and subject to the disci-plines of Article XXIV GATT. CARIFORUM parties, therefore, retain the policy spaceto extend preferential concessions to a developing country ‘major trading economy’,insofar as these concessions fall short of the depth of trade liberalization demanded bythe disciplines of Article XXIV GATT. Therefore, sectoral or partial scope agreements 27 MFN clauses in FTAs while WTO plus are certainly not uncommon. See Cosmas Ochieng, Legal and System-atic Issues in the Interim Economic Partnership Agreements: Which Way Now? (Geneva, Switzerland: International Center forTrade and Sustainable Development, 2009), <http://ictsd.org/i/publications/61869/>, 12 (‘Of the 20 Regional TradeAgreements reviewed by the Organization for Economic Co-operation and Development (OECD) in 2008, only fivedid not have an MFN clause. Notable North-South FTAs with the MFN clause include the North American Free TradeAgreement, the Central-American Dominican Republic Free Trade Agreement, Japan-Mexico, Thailand-Australia andUS-Morocco’). 28 See Q&A: ‘We Are Generous but Not Naive, Interview with Louis Michel, EU Development Commissioner, IPS,Bruxelles’, <www.ipsnews.net/news.asp?idnews=40762>, 11 Feb. 2008.
    • 196 LEGAL ISSUES OF ECONOMIC INTEGRATIONbetween developing countries under the Enabling Clause should not trigger the MFNobligation. Third, by the terms of Article 19(5) of the EPA, the MFN clause is not trig-gered automatically. Rather, its application is subject to consultations between the EPAparties, pursuant to which these parties may decide whether the CARIFORUM stateconcerned may deny the extension of more favourable treatment to the EU. It is possibleto hypothesize a scenario in which the liberalization of a good – in which the EU haslittle or no competitive interest – has taken place in the context of an FTA with a thirdparty. Certainly, in such a situation a strong case can be made during consultations todeny the extension of more favourable treatment to the EU. To the extent that CARIFORUM may have, in effect, given up its future rightsby agreeing to the inclusion of Article 19(2) in the EPA, one may question, on policygrounds, the propriety of developing countries contracting away future rights in tradenegotiations with their developed country partners. If the question of whether develop-ing countries should contract away future rights is posed in the abstract, then the answershould be absolutely not. It is obviously myopic to contract away all that you may, in thefuture, grant others, without regard for what those others may grant to you.29 However,it is submitted that it is neither useful nor productive to form a value judgment of theMFN clause in the abstract. Rather, an assessment of the clause must take into account:the concessions received by CARIFORUM; the principle of asymmetric reciprocityupon which CARIFORUM liberalization in the EPA is based;30 the developmentaldimension of the EPA; and the extent to which third States such as Brazil can, or arewilling, to offer trade preferences to CARIFORUM that are better than, or similar to,those contained in the EPA. In short, the question is whether, on a balance, more waslost by the inclusion of the MFN clause than what could possibly have been gained byits exclusion. When the MFN clause is considered together with the factors outlined above, itbecomes difficult to sustain an offensive against the clause, even on policy grounds. WhatCARIFORUM gained from the EPA in terms of trade in goods is absolute, duty, andquota-free access to the EU market from the word ‘go’, whereas CARIFORUM enjoysa three-year moratorium on its market access commitments, and an extension of thatmoratorium to ten years for revenue-sensitive items. The fact that the EPA has atypicallyintroduced a developmental dimension into a North-South FTA, which seeks to takeinto account the development objectives of the CARIFORUM region, makes it evenmore difficult to build a case against the EU’s position of ensuring that more favourabletreatment is not accorded to its commercial rivals. Lastly, although developing countrieslike Brazil formally voiced their concerns before the EPA was signed, these countries did 29 Cheigh Tidiane Dieye & Victoria Hanson, ‘MFN Provisions in EPAs: A Threat to South-South Trade?’, TradeNegotiations Insights 7, no. 2 (2008): 1. 30 The CARIFORUM-EC EPA can be seen as an example of an FTA that has embraced the principle of variablegeometry according to which time-tabled liberalization commitments are undertaken at different speeds depending on theeconomic ability and interest of members.
    • MFN IN THE CARIFORUM-EC ECONOMIC PARTNERSHIP AGREEMENT 197not indicate even an intention to offer the CARIFORUM region a ‘deal’ that was betterthan or even close to what the EPA offers.316. ConclusionThe concerns articulated by developing countries regarding the inclusion of MFN pro-visions in the CARIFORUM-EC EPA become understandable, once placed in propercontext against the backdrop of unequal bilateral trade negotiations between the world’slargest bloc of industrial countries, and the ACP group of countries, which includes LeastDeveloped Countries (LDCs) and other vulnerable developing countries. The issue ofthe MFN clause can become emotive, especially since some may feel that the EU hasused its leverage in trade negotiations to extract from CARIFORUM its future rights inrespect of further trade liberalization between and among developing countries.32 At thesame time, the EU’s position is understandable insofar as the MFN clauses are designedto protect its own trade interests – which it is undoubtedly entitled to do. Indeed, theEU has made it quite clear that Europe’s generosity in terms of aid for development doesnot mean that it should allow its FTA partners to grant more favourable treatment to itscommercial rivals; the EU is ‘generous but not naive’.33 In assessing the MFN clause in the EPA, questions of policy and issues of law mustbe bifurcated. It is one thing to say that the MFN clause constitutes bad trade policyfrom a developing country perspective, but it is quite another thing to say that the MFNclause violates the Enabling Clause in a legal sense. As has been shown, any attack onthe MFN clause on the legal ground that it violates the Enabling Clause is unsustainable,primarily because the Enabling Clause lacks the type of normative character that is nec-essary to ground such a legal assertion. Moreover, when the MFN clause is consideredagainst the benefits of the EPA as a whole, it is far from obvious that attacks on the MFNclause are valid, even on policy grounds. The process of forming a value judgment of MFN clauses in North-South FTAsshould involve a cost-benefit analysis that seeks to reconcile or balance how much isgained from the FTA as a whole with how much is possibly lost by the inclusion of anMFN clause. In the final analysis, even if one adapts the view that more was lost thangained in the CARIFORUM-EC EPA, the inclusion of an MFN clause would, at best,constitute a policy blunder rather than a legal inconsistency. 31 Frederico Alberto Cuello Camilo, ‘MFN in the CARIFORUM EPA Is No Threat to South-South Trade’, TradeNegotiations Insights 7, no. 4 (2008): 10 (‘Are the complainants [Brazil] ready to provide a better treatment to the Caribbean(or indeed, to all ACP countries?) Can the Caribbean expect a similar or a better treatment from any other “major tradingeconomy”? Our region welcomes their negotiating requests as well as their liberalization offers, which shall be evaluatedaccording to their merits’). 32 See, for example, Dieye & Hanson, n. 29, 3 (‘Europe is within its rights to demand trading preferences from ACPcountries on the same basis as those it grants to them. But the EU goes too far when it asks that the ACP gives in returnall that it might “one day” grant others, regardless of what those other might give them. This is certainly a “preemptive”injustice for ACP countries and Brazil was justified to point it out’). 33 See n. 28.
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