Genesis of the EC's MFN Clause in the EPAs

There has been much discontent regarding the Most Favoured Nation (MFN) Clause found in the Africa-EU Economic Partnership Agreements (EPAs), and the effect the clause would have on south-south trade and the standing of the Enabling Clause.

The genesis of the MFN clause can be understood in the context of OECD's recent 2010 publication: Shifting Wealth, which finds that between 1990 and 2008, world trade expanded almost four-fold, but South-South trade multiplied more than ten times. Hence developing countries now account for around 37% of global trade, with South-South flows making up about half of that total. This trade could be one of the main engines of growth over the coming decade, especially if the right policies are pursued.

It would seem that the EU would like a slice of this rapidly expanding south south pie.  In fact as shown above, the contribution to world GDP and PPP growth by developing countries has risen sharply since the nineties and has outpaced the contribution of advanced economies, and has doubled it.  Hence, the MFN clause could be intended to accelerate the EC’s ability to benefit from south south market-opening especially with fast growing economic giants that the EU has not concluded an FTA with.  These include the BRIC countries (Brazil, Russia, India and China).  

As an example, Africa's south-south trade with non African countries, has increased from a low of 8% of Africa's total trade to almost 30% and this increase is largely trade with Asia. Trade between Africa and China was estimated at US$6.5billion in 1999 but in 2008 was valued at US$107 billion, making China, Africa's second largest single country trading partner following the United States (see previous posts on Asia China Trade). Meanwhile, in the last 30 years, Africa's trade with the EU has continued to decline, from a high of 55% in the mid eighties to about 35% share of total Africa trade in 2008.

In light of the above, it is necessary for African countries to take caution with regard to forward-looking concessions between Africa and fast growing economies and concessions between Africa and shrinking economies.  In addition, it should be noted that the EU is undertaking numerous FTA negotiations with developing and BRIC economies. Therefore, the future standing of the MFN clause in the EPAs should also be considered in light of the EU's rapidly expanding list of future FTAs. 

Other legal and systemic concerns regarding the EPAs can be found here.