For the past few months now we have been reading about the vital necessity for Mauritius, together with other eastern and southern African countries, to enter into an Economic Partnership Agreement (EPA) with the European Union failing which it would be doomsday for our industry. We have been told that it all has to do with the World Trade Organisation (WTO). In order to allow readers to have a better understanding of the whole issue, it is proposed in this article to put the EPA into context and see how it fits in the overall framework for the regulation of international trade put into place by the WTO. Lets start off with a key concept, the Most Favoured Nation (MFN) principle.

● <B>A key concept ? Most Favoured Nation (MFN) principle</B>

The objective of the WTO is to ensure free trade through ?arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of the discriminatory treatment in international trade relations? (Preamble to the Marrakesh Agreement establishing the WTO and Preamble to the General Agreement on Tariffs and Trade(GATT)). The WTO thus aims at limiting the ability of States to impose barriers to trade. The only one to be allowed is tariffs and member countries have to bind themselves as to the maximum that can be imposed. These arrangements are underpinned by the principle of non-discrimination, which is considered to be a cornerstone of the GATT. This principle is reflected in a key concept, the Most Favoured Nation (MFN) principle. According to the MFN principle, any advantage in relation to a product granted by a member of the WTO to any other country with respect to custom duties must be extended to all like products coming from to all other member countries (Art.I:1 of GATT). Thus if country A grants any tariff concession to country B, it must likewise grant the same concession to all other members of the WTO.

The MFN principle is, however, subject to some important exceptions, one of which relates to the formation of regional trading blocs, which will be examined later on in this article.

● <B> Preferential Treatment</B>

Recognising that the various member countries do not have the same level of development, the GATT, however, accords special treatment to countries ?which can only support low standards of living and are in the early stages of development?. These countries are usually referred to as the LDCs.

From the angle of what these countries may do, the GATT allows them to take protective and other measures affecting imports so that they are not necessarily bound by obligations imposed by the GATT (Art.XVIII of GATT)

But more important still, from the angle of what developed countries are expected to do in relation to these countries, the GATT provides that developed countries should not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed countries (Art. XXXVI of GATT) and they shall to the fullest extent possible accord high priority to the reduction and elimination of barriers to products, currently or potentially, of particular export interest to less developed countries (Art. XXXVII of GATT).

These provisions eventually became the basis for granting non-reciprocal trade preferences to developing countries. It was within that framework that the Generalised System of Preferences (GSP) was developed following recommendations from the United Nations Conference on Trade and Development (UNCTAD). Considering that these programmes would have been contrary to the MNF principle, a WTO waiver was granted in 1971 for a period of ten years. This clause was renewed for an indefinite period in 1979 and is referred to as the Enabling Clause,

Various developed countries would thus have their own GSP programme targeted at developing countries. The European Union currently has 5 such programmes provided for in the Council Regulation (EC) No. 980/2005 of 27 June 2005:

1. the general arrangements,

2. the special incentive arrangements for the protection of labour rights,

3. the special incentive arrangements for the protection of the environment,

4. the special arrangements to combat drug production and trafficking

5. the special arrangements for LDC?s,

The 1st benefits developing countries generally; the 2nd and 3rd, usually referred to as the GSP+ , is available upon request; the 4th has been granted essentially to Central American countries while the 5th, known as the Everything but Arms (EBA) initiative, benefits a group of 49 listed developing countries classified by the United Nations as being least developed. The 1st programme provides broadly for suspension of Common Customs Tariff duties on products listed as ?non-sensitive? and for reduction of Common Customs Tariff ad valorem duties on products listed as ?sensitive?. The other 4 programmes provide for additional preferences.

A number of ACP countries, former colonies of European countries, had special preferential arrangements of their own with the EU. It started off as the Yaoundé Convention (I & II), from 1963 to 1975, followed by the Lomé Convention (I to IV), from 1975 to 2000, ending with the Cotonou agreement entered into in 2000. The Lomé Conventions have also been the subject of a WTO waiver, known as the Lomé waiver.

● <B> Preferential Treatment under attack</B>

These preferential treatments have been questioned before the Dispute Settlement Body of the WTO. Two cases are of particular interest to us; the case of European Communities ? Conditions for the granting of tariff preferences to developing countries (2004) and the case of European Communities -Regime for the importation, sale and distribution of bananas (1997)

● <B> The GSPs </B>

In the case of European Communities ? Conditions for the granting of tariff preferences to developing countries, where Mauritius was one of the Third Parties, India, which benefited from the European Communities General arrangements but not from the other ones, challenged the legality of the latter. It eventually limited its case only to the Drug arrangements. The issue was thus whether the Drug arrangements were compatible with the Enabling clause, which as we have seen above allowed programmes that would otherwise have been contrary to the MFN principle.

The Appellate Body held that a GSP falling within the Enabling Clause must be "generalised, non-reciprocal and non discriminatory". The requirement that such programme be generalized was aimed at the elimination ?of the fragmented system of special preferences that were, in general, based on historical and political ties between developed countries and their former colonies?. It does not mean that all developing countries must be given the same treatment. The Enabling Clause indeed authorises preference-granting countries to ?respond positively? to ?needs? that are not necessarily common or shared by all developing countries. Such needs must, however, be ?development, financial and trade? ones.

The Appellate Body eventually made no pronouncement on whether the Drug arrangements were aimed at the development, financial and trade needs of the developing countries but examined them solely under the angle of whether they were non discriminatory, that is whether the preferences granted under them were available to all GSP beneficiaries that were similarly affected by the drug problem. On that score, the Drug arrangements failed to satisfy the Enabling clause essentially because the list of beneficiaries was a closed one, no criteria being provided for distinguishing these countries from the other GSP beneficiaries. It was thus not possible to determine whether the Drug arrangements were non-discriminatory as required by the Enabling clause.

Following that case it can safely be stated that a developed country can provide different levels of preferences to developing countries provided that these differential treatments are justified by the special development needs of the countries concerned and that such treatments are extended on a non-discriminatory basis to all countries that are in a similarly situated.

● <B> The Lomé Convention</B>

In the case of European Communities -Regime for the importation, sale and distribution of bananas, Ecuador, Guatemala, Honduras, Mexico and the United States challenged the very complex system put in place by the EC for the exportation of bananas into the EC and which favoured the ACP over the Latin American countries. The issue this time was whether this fell within the parameters of the Lomé waiver.

The EC (1) provided duty-free access for traditional ACP bananas (i.e. bananas within the quota allocated to each of the 12 ACP countries which had traditionally exported bananas to the EC), (2) provided duty-free access for 90,000 tonnes of non-traditional ACP bananas, (3) provided a margin of tariff preference in the amount of 100 ECU/tonne for all other non-traditional ACP bananas, (4) allocated tariff quota shares to the traditional ACP States in the amount of their pre-1991 best-ever export volumes, (5) allocated tariff quota shares to ACP States exporting non-traditional ACP bananas, and (6) maintained import licensing procedures that were applied to third-country and non-traditional ACP bananas.

The Appellate body considered which of the above mentioned measures were required by the Lomé convention. It came to the conclusion that while the first 4 measures were required by the Lomé convention, the last two were not. This approach was contested by the EC. It asserted that the Panel should not have conducted an examination of the requirements of the Lomé Convention, but instead should have deferred to the ?common? EC and ACP views on the appropriate interpretation of the Lomé Convention. This argument was rejected. Considering that the GATT contracting parties have incorporated a reference to the Lomé Convention into the Lomé waiver, the meaning of the Lomé Convention became a GATT/WTO issue. It was therefore appropriate for both the panel and the appellate body to examine the provisions of the Lomé Convention in so far as it was necessary to interpret the Lomé waiver. This approach considerably curtailed the freedom of the EC and the ACP in determining what actions should be undertaken under the Lomé Convention.

It then considered the ambit of the Lomé waiver. On that score the Appellate body concluded that ?by its precise terms, it waives only ?the provisions of paragraph 1 of Article I of the General Agreement ... to the extent necessary? to do what is ?required? by the relevant provisions of the Lomé Convention. The Lomé Waiver does not refer to, or mention in any way, any other provision of the GATT 1994 or of any other covered agreement?. The Lomé waiver was consequently limited to breaches of the MFN principle and did permit discrimination in the administration of quantitative restrictions.

That case was thus fatal to the EU?s system for the implemention of the Lomé Convention with regard to the importation of bananas from the ACPs.

● <B> New basis for preferential treatment ? The Cotonou agreement</B>

The Lomé Convention came to an end in 2000. The Cotonou agreement, which replaced it, dealt with the trading framework between the EU and the ACP in a different way. It was no longer a question of non-reciprocal commitments to be made by the EU but a question of concluding WTO compatible trading arrangements, removing progressively barriers to trade between them and enhancing cooperation in all areas relevant to trade. The new trading arrangements would, however, be introduced gradually with a preparatory period during which the non-reciprocal preferences under the Lomé IV Convention would be maintained. During that period formal negotiations on the economic partnership agreements were to be carried out with the new trading arrangements entering into force by 1st January 2008 at the latest (and which has now been extended by a further year).

● <B> The Economic Partnership Agreements</B>

As we have seen earlier on, regional trading blocs constitute one of the exceptions to the MFN principle. One of the forms that it can take is the formation of a free-trade area, defined as referring to a group of two or more countries in which the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent countries in products originating in such countries. The economic partnership agreements in relation to trade in goods would operate on the basis of a free ?trade area principle. Another form of regional trading bloc would be the formation of a custom union. In this case the constituent countries go much further and harmonise their external trade policies. In both cases, however, a precondition would be that it should not result in higher duties for non-constituent countries.

<B>Dr Daniel FOK KAN</B> University of Mauritius