Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
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Most Favoured Nation: In principle the Most Favourable Nation (MFN) clause within a free
trade agreement means that after the signing of an agreement, if any party to the agreement
negotiates another agreement with a third party, any concession made to that third party that
has been not made in the first agreement, must be extended to the original partner. For
example, if country A has excluded good X on their liberalisation schedule in an agreement
with country B; and if country A signs an agreement with country C where good X is included;
country A has to extend that benefit to country B. The implications of this clause are deep as it
tends to lock countries in and may prevent them from additional liberalisation efforts. In
consequence, sensitive lists may be affected not only by the strength or competitiveness of the
partner in specific products but also by the preferences already given to other trading
partners. Sensitive lists tend to be replicated across agreements and not to be specific to the
partner and the agreement under negotiation. This can lock in protection in certain sectors
thus reducing the potential gains from consumers from lower prices and mitigate against
positive pro-competitive effects from liberalisation and the gains from any attendant
specialisation.
In the context of the ACP-EU EPAs, where the EU bears the weight of the liberalisation effort,
the MFN clause (which is reciprocal) only affected the ACP countries as the EU, by offering full
liberalisation, cannot offer any other partner a better agreement. However, the ACP countries
had some flexibility as the MFN clause would apply only to developed and other "major
trading" countries (Kui and Bilal, 2009); allowing the possibility of granting better preferences
to other developing countries without extending them to the EU. Although this clause tends to
be present in almost every FTA, this has not prevented controversy. During the ACP-EU EPA
negotiations, Brazil raised concerns about the inclusion of the MFN clause as this was seen as
undermining the prospects of further South-south integration and undermining the Enabling
Clause.
It is important to note that the MFN clause can apply to more than tariffs, implying that
concessions made in services or in terms of deep integration provisions to subsequent FTA
members, may need to be also extended to the current negotiating party. However, in some
cases, some limitations have been put to the scope of the MFN clause with the objective of
precisely impeding the extension of the benefits. In this sense, in the EU EPA negotiations the
MFN clause does not normally apply on services in mode 4. This is explained by the reluctance
of the EU to negotiate on this point. If the MFN clause were applied in this case, an FTA signed
by the EU that included provisions for Mode 4, would make this concession automatically
available to any ACP country. This could be seen as problematic in the context of the EU
enlargement process.