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Renegotiating Lomé: The Future of the eu-acp caribbean Relationship Peter Clegg


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Renegotiating Lomé:
The Future of the EU-ACP Caribbean Relationship


Peter Clegg
University of Southampton

DSA European Development Policy Study Group Discussion Paper No. 7, October 1997


Contents


  • Introduction

  • The background to the existing EU-ACP Caribbean relationship

  • The Trade Provisions of the Lomé Convention

  • The aid provisions of the Lomé Convention

  • The commodity export compensation facility of the Lomé Convention

  • The political dimension

  • The importance of the private sector in a future Lomé agreement

  • The EU-ACP Caribbean relationship in a western hemispherical context: Lomé, NAFTA and beyond

  • Conclusion

  • Bibliography

Introduction


The European Union's special trade and aid relationship with the developing world under the long-running Lomé Convention is up for renewal in February 2000. Seventy one independent countries, the African, Caribbean and Pacific States (ACP) are involved, and talks with the European Union (EU) to renegotiate the Convention are due to begin in September 1998.

There is considerable pressure both political and economic for a radical restructuring of the Caribbean ACP-EU construct, primarily due to the ascendancy of neo-liberal conceptions of economic development, and the profound geopolitical transformations that have taken place since the end of the Cold War which have affected the EU's policy agenda. There are indications that suggest a different kind of Caribbean ACP-EU relationship may well be formulated beyond 2000.

The European Commission has recently published a Green Paper entitled, "Relations between the European Union and the ACP countries on the eve of the 21st Century", putting forward options for the future. There has been some discussion on the Green Paper in the Caribbean, primarily in the larger Caribbean countries, and within both the Caribbean Community (CARICOM) and the Caribbean Forum (CARIFORUM). However, there are concerns that the Caribbean ACP and the other ACP regions will be ill prepared for the negotiations to come, and their aim to safeguard in some form the trade and aid provisions may be undermined both individually and collectively due to the lack of a united front. This paper considers the potential shape of the EU's relationship with the Caribbean ACP beyond the present Lomé convention.

The background to the existing EU-ACP Caribbean relationship

There have been four Lomé Conventions, Lomé I was signed in 1975, while Lomé IV was signed in 1990 and is in force until the year 2000. The last agreement unlike the others was signed for ten years, with a mid-term review taking place in 1995. Not all Caribbean ACP countries have been signatories of the Lomé Convention since its inception see table one).

Table one. The year Lomé membership was acquired



Lomé I (1975)

Lomé II (1980)

Lomé III (1985)

Lomé IV (1990)

Bahamas

Dominica

Antigua & Barbuda

Dominican Republic

Barbados

St. Lucia

Belize

Haiti

Grenada

Suriname

St. Kitts and Nevis

 

Guyana

 

St. Vincent and the Grenadines

 

Jamaica

 

 

 

Trinidad and Tobago

 

 

 

In the negotiations for Lomé I, the Caribbean wanted a form of relationship with the then European Community (EC) that was sui generis (Gonzales, 1997, p. 72). It called for non-reciprocity, for protection of traditional arrangements, and for no difference in treatment between independent Caribbean countries and the self-governing territories of EC member states in the region.

The predecessor to the Lomé Convention, the Yaoundé agreement, had reverse preferences, offered no protection for important traditional commodities, and gave aid receiving countries little say in aid management. There were concerns amongst the states of the Caribbean that a successor agreement to Yaoundé could not only undermine the preferential status enjoyed under the Commonwealth Preference System, but could also threaten the integration attempts of the Caribbean (Gonzales, 1997, p. 72). The safeguarding of the traditional export products of bananas, rum and sugar were crucial to the Caribbean in any agreement with the EC.

Due to the Caribbean's higher per capita income in relation to the other ACP regions, the Caribbean ACP relationship with the EU has had as its main pillar the trade provisions, rather than aid flows. Although aid provision did gain in importance as the economic situation in the Caribbean deteriorated in the 1980's.

There are three central pillars of the Lomé Convention, the trade provisions (preferences and protocols), the aid provisions, and the political dimension, all of which are being challenged.

The Trade Provisions of the Lomé Convention

There is privileged commercial access, including free access, underpinned by trade preferences, for certain Caribbean ACP exports to the EU market, as well as guaranteed quotas for some major agricultural products.



The Trade Preferences

Trade preferences allow the ACP states to be exempted from tariff and other barriers created for the protection of EU markets from cheaper imports. The hoped for result is that ACP exports to the EU will increase and diversify, encouraging growth and development in the exporting countries.

At the present time, all industrial, processed and non-agricultural goods are covered by preferences. Agricultural products which are covered by the Common Agricultural Policy (CAP), have limited preferential access, partly due to the special protocols.

The performance of the trade preferences.

Despite the trade preferences that have been available to the ACP Caribbean for all industrial, processed and non-agricultural goods during the period of the Lomé Convention, the trade performance has been poor. After a rise in exports in the early years of the Lomé Convention, from ECU 0.8 billion in 1976 to ECU 1.6 billion in 1980, total exports fell to ECU 1.5 billion in 1992; (see table two). In terms of market share, in 1976 Caribbean ACP exports accounted for 0.5% of the total EU imports from outside the member states, but in 1992 that figure had fallen to 0.3% Eurostat data, in Davenport et al, 1995, p. 5).

Table two: Trends in trade between the EU and developing countries, 1976-1992


EU imports, Ecu bn

 

1976

1980

1985

1990

1992

% Change 1976-1992

ACP Caribbean*

0.8

1.6

1.6

1.4

1.5

87.5

Asia

6.7

16.0

26.0

509

66.4

891.0

Latin America

8.3

13.7

25.8

25.7

24.8

198.8

Mediterranean

9.6

16.4

32.3

29.8

30.3

215.6

All developing countries

70.7

114.3

128.9

143.8

145.6

105.9

Extra-EC

157.7

269.9

399.7

461.5

487.6

209.2

World

308.6

518.9

828.2

1127.6

1207.8

291.4

* These figures represent exports of the 15 states that were contracting parties to the Lomé Convention in 1992, although in earlier years some of them have not benefitted from the trade provisions.
Source: Eurostat database, in Davenport et al, 1995, p. 81, revised.

As a consequence of the perceived poor performance, it is argued that the Lomé trade preferences are now part of the problem rather than the solution. However, these arguments ignore variation between member states, and that the removal of the trade preferences would damage those countries that have profited from them, such as Jamaica, and countries such as St. Christopher and Nevis, which have fledgling and not yet competitive export sectors. In addition, trade preferences not only have an economic role, but also a political one, as an indication of continued EU commitment to the ACP countries.



The ideological and legal dimension to the trade issues

Parallel to the debate concerning the effectiveness of the Lomé trade preferences, recent developments in the international trade environment have highlighted attention on various issues relating to the political acceptability of preferences. As the Lomé trade preferences exist in their present form, there is doubt over whether they are compatible with the Uruguay Round arrangements, overseen by the World Trade Organisation.

At the present time a special waiver that was agreed in October 1996, exempts the Lomé convention from meeting the WTO requirements until February 2000.

Options for trade reform

Beyond February 2000 it is probable that the Lomé trade preferences will be adapted to make them more WTO compatible, by recognising other countries with similar levels of development outside of the ACP, and by possibly graduating trade policy for developing countries, tailored to the type of economy concerned (C. Stevens, in CIIR, 1997, p. 3).

However, the options would present problems to the ACP Caribbean. With the region perceived to have performed relatively well in economic terms when compared to the rest of the ACP, the Caribbean states could be most affected by any changes with regard to the trading arrangements, and would object to any resulting cuts in preferences. Alternatively, there could be a concerted effort by both the EU and the ACP, including the Caribbean ACP to try and change the rules of the WTO. This is a possibility due to the size of the EU/ACP grouping.

The Trade Protocols

The special protocols that exist for sugar, bananas, rum, (and rice) which are in addition to the Convention's general trade provisions, have proved to be important for several Caribbean ACP states (See table three). The commodity arrangements have overall had a positive effect, with bananas, sugar and rum receiving the hoped for prices for the Caribbean producers. However, the protocols are seen by some groups as unfairly discriminating against non-ACP producers. As a consequence, there is considerable pressure on the protocols to be reformed or scrapped.

Table three: Dependence of beneficiary countries on their exports of protocol products (as a percentage of total export earnings from the EU)


ÑExports as Share of all exports to the EU

Sugar

Bananas

Rum

More than 70%

St. Kitts and Nevis

St. Lucia

Dominica


 

40-70%

Guyana

Barbados


Belize

St. Vincent

Trinidad and Tobago

10-40%

Jamaica

Trinidad and Tobago



Belize

Grenada


Jamaica

Bahamas

1-10%

 

Suriname

Guyana

Barbados


Jamaica

Source: ECDPM Lomé Infokit Number 5, March 1997, revised.

The Banana Protocol

With regard to bananas, Belize, Jamaica, Suriname, and the Windward Islands (Dominica, Grenada, St. Lucia, St. Vincent and the Grenadines) are all considered to be "traditional" suppliers to the EU. As a consequence these countries can export a significant quota of bananas (as much as 127 000 tonnes per year for St. Lucia and 105 000 tonnes per year for Jamaica) to the EU duty free European Commission, 1995, p. 8).

In total, the Caribbean ACP states export 300 000 tonnes to the European market, making up just under 8% of the total EU banana consumption of 4 million tonnes (EC fact sheets 97/28 and 96/731). The protocol also has tariff and quota restrictions against Latin American suppliers, a further measure to help prevent traditional ACP banana suppliers from losing access to their traditional markets. Nevertheless, in recent years Caribbean ACP banana producers have been unable to meet their full quotas, with the exception of St Lucia. The situation is particularly bad in Grenada, where banana exports were suspended in early 1997 due to low quality.

However, Latin American producers of cheaper "dollar bananas", along with some members of the EU, such as Germany, who have no ties to the ACP and gain through having access to cheaper bananas, have protested that the EU unfairly protects its market from these cheaper bananas. In 1994, a GATT panel ruled that the EC banana regime was illegal and as a result the EU was forced to adapt its provisions and increase the quota for Latin America bananas. The World Bank has estimated that as a result of the new banana regime, banana prices could fall by as much as 30% causing serious losses to Caribbean ACP suppliers (Commonwealth Secretariat, May 1995, p. 78).

In May 1997 the WTO ruled that the EU's licensing system, which guarantees market access for traditional producers of ACP bananas breaches the normal conventions of free trade, as the regime discriminates against Latin American producers and banana marketing companies. The ruling also criticised the EU for setting import quotas for Caribbean producers at levels that are higher than the region's historic exports to the EU, although the WTO did not explicitly condemn the practice as a violation of its rules. The WTO did rule that the EU can continue to give preferential access to EU markets for traditional ACP bananas.

The EU subsequently appealed against the ruling, but the WTO Appeals Body dismissed this on all the substantive points. Soon after the report was released on 5 September 1997, the leaders of the Windward Islands held an emergency meeting to discuss their response to the ruling. The European Commission has signalled that it will try and resist the ruling, while the EU member states appear to be split on how to respond.

Before the WTO ruling, the banana producing countries were making considerable attempts to restructure their industries before 2002, when the present common market arrangements for bananas end. It was hoped that the industry would be competitive in a liberalised market by that time, albeit with less people involved in the industry. An impetus behind the restructuring effort was the Cargill Report, which concluded that if certain steps were taken the banana industry in the Windward Islands could survive beyond 2002.

However the WTO ruling may end the window of opportunity for the banana industries of the Caribbean to reform themselves, with the Windward Islands being particularly effected, where bananas account for half of merchandise exports, one fifth of gross domestic product, and provide a third of all employment World Bank, 1996).

Nevertheless, there have been moves in the Caribbean to preempt the WTO ruling, by considering changes to the banana regime. The Caribbean Association of Industry and Commerce and the US-based Caribbean/Latin American Action put forward a proposal whereby the EU could end the licensing system but continue with the tariffication of banana imports from non-ACP producers, the revenue from which could go to assist the Windward Islands to restructure their economies.

However, both the Windward Island Banana Development and Exporting Company (WIBDECO) and the Caribbean Banana Exporters Association strongly opposed the initiative. The WIBDECO chairman, Arnhim Eustace described the plan as "dangerous and inimical to the best interests of the Windward Islands" (Caribbean Insight, April 1997).



The Sugar Protocol

Under the Sugar Protocol, which runs for an indefinite period and is supposedly autonomous from the Lomé Convention, the EU agrees to buy a fixed quantity of sugar every year from a number of Caribbean producers at a price which is linked to the internal (relatively high) EU price. The protocol particularly benefits Guyana and Jamaica, which export over a hundred thousand tonnes each (European Commission, 1995, p. 8). Other sugar producing countries that benefit include Barbados, Belize, St. Christopher and Nevis, and Trinidad and Tobago.

The Caribbean ACP states believe they are protected from any unilateral negotiation. However, there are pressures building that could end the Sugar Protocol. Firstly, if there is downward pressure on the EU sugar regime from reforming the CAP or greater worldwide sugar production, the Caribbean ACP price for sugar will fall as it is tied to the EU price, reducing export earnings. Secondly, there is pressure growing amongst EU sugar producers who argue that there is no longer a need to provide privileged access for ACP suppliers who compete with EU farmers.

There are efforts within the sugar industry to improve competitiveness. For example, in Jamaica, costs are being reduced, with a fundamental reorganisation of the industry, in tandem with increased mechanisation. In terms of production, the changes appear to be bearing results with an increase from 150 000 tonnes in 1995 to 200 000 tonnes in 1996 (Interpress Service, 6 November 1996). However, the industry overall is no where near being world price competitive.



The Rum Protocol

The major Caribbean ACP producers of rum to the EU market, which are Barbados, Bahamas, Guyana, Jamaica, and Trinidad and Tobago, currently have duty-free access. There have been a number of changes to how the protocol operates (including the ending of the quota on light rum). In addition, with the creation of the Single European Market, the increasing trade with Eastern Europe, and the new EU spirits regulations, Caribbean producers have been able to develop branded products and expand their export volume. Nevertheless, the Caribbean producers have made it plain that additional support for the rum industry beyond 2000, will be needed for the industry to flourish in a more liberalised climate in the future (Embassies of the Eastern Caribbean States and Missions to the European Communities, 15 April 1997, p.7).

The aid provisions of the Lomé Convention

The Lomé Conventions are supported by European Development Funds (EDF) that last for five years at a time, and by the European Investment Bank (EIB). When the seventh EDF programmes are completed, some 1785 million ECU will have been transferred to the Caribbean since 1975 European Commission, 1995, p. 10). EDF resources have been particularly important to the Eastern Caribbean countries and Belize in sectors such as agriculture, education, health, rural development, and transport (Gonzales, 1997, p. 72).

The ACP Caribbean share a concern that their region may well be marginalised in terms of aid provisions in the future. This concern was given credence by the fact that during the mid-term review of the fourth Lomé Convention, there was a move to reinforce the aid focus on the poorest countries within the ACP, in accordance with the treaty. This would adversely effect the Caribbean ACP, since most countries in the region with the exception of Guyana, Suriname and Haiti (one of the world's poorest countries, with an average income of US$ 230) are classified as intermediate income countries. Some like Trinidad and Tobago, are better off with a per capita income of around US$ 3 740, while Barbados has an exceptional regional per capita income of US$ 11 500. Nevertheless, overall GNP growth has been poor (even if Haiti is excluded), averaging 1% since 1990, and there remains significant levels of poverty (All statistics, European Commission, 1997a, p. 14).

Despite the uneven economic performance of the Caribbean ACP the region's health and education performance is better than that of sub-Saharan Africa even where incomes are comparable, revealing improvements that have been made in recent years by concentrating resources on basic needs. As a consequence, it seems likely that the under-pressure aid budget will be focused on the most needy ACP nations, at the expense of the majority of the Caribbean ACP states.

Although Caribbean leaders have consistently said that they have a greater interest in trade rather than aid, financial assistance from the EU has proved valuable to the economies of a number of countries in the region. Caribbean ACP states have made it clear that they are unhappy that "despite there being an overall increase in the volume of resources going to the region, there has been an effective reduction in the amount per capita as a result of both Haiti and the Dominican Republic joining the Caribbean ACP group at the signing of Lomé IV in December 1989, which tripled the population of the Caribbean group"(Interpress Service, 21 November 1996).

The commodity export compensation facility of the Lomé Convention

The EU's commodity export compensation facility provides compensation to ACP countries for falls in agricultural prices by guaranteeing earnings through the Stabex fund, while mineral export earnings are underwritten the Sysmin fund. From 1976 to 1995 the two schemes have been worth some 112.6 million ECU to the Caribbean ACP countries (European Commission, 1995, p. 10).

Stabex transfers, including those for bananas have been valuable for Belize, Jamaica and particularly the four Windward Islands; and the Sysmin facility has been of assistance to Guyana, Jamaica, and the Dominican Republic.

With regard to the Stabex and Sysmin commodity support arrangements, questions have been raised over their effectiveness. There has been long-standing opposition to these provisions due to the fact there is a belief that there has not been adequate control over how the resources have been used. In the early period of both schemes there were examples of misappropriation of resources. In addition, the EU states were not happy with the allocation arrangements, as they were given no say in the process. More recently the EU has gained greater influence in regard to the control of funds. However, this has led to the position that both Stabex and Sysmin are now criticised for no longer responding rapidly enough to support export earnings. Furthermore, neither Stabex or Sysmin are sensitive to the degree of poverty in the country that needs assistance. So as a result of the limited amount of resources overall and the consequent focussing of money on the poorest countries, there is a distinct possibility that both Stabex and Sysmin will not continue beyond the year 2000 in their existing forms for the Caribbean ACP. Any such move would have serious consequences for the restructuring process that is currently underway in the sugar and banana industries of the Caribbean, and particularly for that of the Windward Islands, as the restructuring is being financed in part by the Stabex scheme.

The options for reforming the geographical coverage of the Lomé Convention

It is suggested within the EU Green Paper that the geographical coverage of the Lomé Convention might be altered to be responsive to the issues that have been discussed previously, such as the diversity within the ACP Group, and the need for differentiation in the ACP-EU relationship with regard to objectives and priorities, concerning the preferential trade regimes, and the provision of aid for each ACP region.

There are four possible options: the status quo, with a few adjustments; an overall agreement supplemented by bilateral agreements; dismantle the ACP, by splitting up the Lomé Convention into regional agreements; or a specific agreement for the least developed of the ACP countries, possibly open to other least-developed countries (LLDC) (European Commission, 1997a, pp. 26-27).

The Caribbean ACP would be most happy with a continuation of the present arrangement as it would safeguard its relationship with the EU, preserving the existing political and institutional benefits, within a wider strategic grouping of the ACP. The Caribbean ACP would object to the other options, such as a new EU-ACP Caribbean agreement, with the inclusion of the Spanish speaking countries of the Caribbean; an agreement between the EU and the Association of Caribbean States, of which the Caribbean ACP countries are members; or an agreement between the EU and Latin America, of which the Caribbean ACP would be part.

A proposal has been put forward by Caribbean and Pacific non-governmental organisations (NGOs) for regionalisation based on the characteristics of a country rather than on the geographic position of it. A special category of vulnerable island states would be recognised by the EU (Eastern Caribbean States Mission Bulletin, 17 April 1997). However, any such arrangement would only be acceptable to the ACP Caribbean, if the existing all-inclusive structure of the Lomé Convention was retained.

However many Caribbean ACP governments believe concepts such as differentiation and graduation could contribute to the splitting of the ACP, even if this was not the intention. As Sir Shridath Ramphal, the Caribbean Chief Negotiator in the Lomé process has made clear "ACP solidarity, ACP unity, ACP togetherness made the Lomé Convention possible", and that the upcoming negotiations and what comes beyond "must be founded on the rock of ACP solidarity" Quotes from a speech by Sir Shridath Ramphal, Caribbean Chief Negotiator, titled, "The Caribbean and the Argument Against Splitting the ACP", given at the UK Consultation of the European Commission's Green Paper on the future of EU-ACP Relations. London 19 June 1997).

The bottom line is that the EU-ACP relationship is as much about power as it is about finance, trade and business relations, and without a unified ACP the power and influence is lost.

The political dimension

Caribbean expectations of its links with the EU after 2000 are conditioned by a perception that the region is of less interest to Brussels, than other regions. For many policy makers in Europe, the Caribbean is seen to fit better in an American sphere of interest.

However, there are still common bonds between Europe and the Caribbean. There are and will continue to be important historical and cultural ties between the two regions. Furthermore, there is a developing understanding of the vital role that the EU, within the context of a future Lomé Convention, can play with the Caribbean in sustaining the Caribbean's record of good governance, democracy, security, and human rights, while trying to prevent the trafficking of drugs and a rise in the associated crime levels. Many islands of the Caribbean are being targeted by the South American drug cartels as transit points for drugs on the way both to North America and the European continent. With many Caribbean countries struggling to compete in conventional industries, there are signs that the drug trade is increasingly being seen as a means of economic survival. A recent EU report looking at the Eastern Caribbean, warned that drug trafficking is becoming a real concern, and is posing a threat to the region's democratic system. The Independent, 30 December 1996).

Tied in with the drug issue is the WTO decision with regard to the banana protocol. The United States in particular is being heavily criticised by the Caribbean for pushing for reform of the protocol, which helps to sustain a large part of the Caribbean's legitimate economy. Without bananas, Caribbean officials argue, drugs may take centre stage in their economies.

With the drug trafficking issue and others to the fore, the framework of any future Lomé Convention should it is suggested be made more transparent, with a greater role for the involvement of civil society in the Caribbean, with regard to policy development, and its subsequent implementation. A more engaged population in the Lomé process will do more than anything to safeguard its future. A further dimension to this is the participation of a vibrant private sector in a future Lomé process.

The importance of the private sector in a future Lomé agreement

With the development of the globalisation of world trade, and an emphasis on international trading competitiveness as opposed to preferential trade and aid, a new partnership will be required between the private sector and the public sector in the Caribbean to develop a range of goods and services that are internationally competitive. Furthermore, as has been argued, "with the decline of bilateral and multilateral aid flows to the region, the private sector is being called on to fill the gap in terms of capital accumulation both through indigenous investments and the attraction of foreign direct investment" Lowe, 1996, p. 5).

Considering the increased role the private sector will have to have in the Caribbean ACP, the EU and the Caribbean ACP are attempting to develop and promote the private sector to play a full role in future development cooperation programmes. The mid-term additions to the Lomé Convention (Article 6 and Annex LXXX) emphasised decentralised cooperation and private sector-led development. However, as is sometimes the case the theory does not correspond to the reality of the situation, ,the convention is still government dominated, with little opportunity for the private sector to become fully involved.

There are a number of private sector associations within the Caribbean ACP, those for tourism, rum and rice are of particular note, that have played a significant role in attracting investments, improving the competitive performance of their respective industries, and promoting the importance of their product, both to domestic and international parties. All are important, the tourism association in particular, in developing a developmental path for the Caribbean.

However, in each case, the private sector associations have been unable to fully capitalise on EU assistance in regard to the developing, funding and implementing of programmes, which could if utilised properly provide the backbone of development efforts in the region.

If the EU is serious about engaging the private-sector to take a more prominent role in leading future developments in the Caribbean, the private sector associations that have been mentioned, and others, should be listened to when it comes to programme design, and be given the resources to play a full part in managing those developmental programmes. If the private sector is neglected, the potential for a continued EU-ACP relationship may well be undermined, which could ultimately damage the prospects of meeting the objective of EU-ACP cooperation, which is to achieve sustainable development.

The EU-ACP Caribbean relationship in a western hemispherical context: Lomé, NAFTA and beyond

Over the last ten years integration has occurred within the Caribbean and between the Caribbean ACP and other regional blocs like the Andean Pact and the Southern Cone Common Market (MERCOSUR).

Furthermore, the Caribbean ACP benefits from the US Caribbean Basin Initiative (CBI) and CARIBCAN in Canada. Both offer tariff and quota free entry to their markets, although with important exceptions, such as textiles, petroleum products and certain agricultural products.

However, the greatest development within the western hemisphere, which will hopefully complement the relationship the Caribbean ACP has with the EU, is the planned for creation by 2005 of a Free-Trade Agreement of the Americas (FTAA), a forerunner of which is the North American Free Trade Area (NAFTA).

If the Caribbean ACP gained NAFTA membership, it would give it security within a large trading bloc with the advantage over the current trade agreements with the US and Canada that it is based on treaty, and not at the discretion of the two North American countries which can withdraw their support unilaterally. One other important difference is that the Caribbean ACP would be obliged to provide reciprocity for imports from the NAFTA countries.

This would mean that due to the provisions in the Lomé Convention, the Caribbean ACP, having granted tariff-free access to NAFTA exports, would have to provide equivalent access to EU exports, unless the EU sanctioned a waiver from the obligation of reciprocity. However, by all accounts, the EU would be reluctant to do this Bernal, 1994, p. 141).

"If reciprocal arrangements with the EU were formulated, more than half of Caribbean ACP countries imports would be duty free, with a resulting loss of protection. This in turn would seriously affect government revenue, the balance of payments and the protection of domestic suppliers" (Davenport et al, 1995, p64).

However, it has been argued that the effects of reciprocity on the Caribbean ACP states can be mitigated. One possibility is that the negative effects of the trade concessions can be reduced by trade-offs in other areas, such as investment Bernal, 1994, pp. 145-46).

These measures are for the future, but at the present time the Caribbean ACP specifically, and the wider Caribbean more generally are in a difficult situation regarding NAFTA. This situation will require a strong political and economic relationship with the EU to safeguard the position of the Caribbean during the period of transition.

Since the United States, Canada and Mexico agreed to become a single market as part of NAFTA in 1993, their trade with one another is increasing. However, the Caribbean ACP states are suffering from the impact of that success and finding it very difficult to compete, because they are not members of the agreement. A number of sectors of the economy, from textiles to sugar cane are losing jobs, markets and income as a result of NAFTA. This is because capital and investment possibilities are going to Mexico rather than the Caribbean Basin, as Mexico can now export its products to the United States duty free, which makes it more profitable for industry to operate from Mexico.

The negative effect on the Caribbean of NAFTA was widely expected before the treaty was agreed in 1993, and as a consequence the US made an undertaking that it would try to reduce the damaging effects of NAFTA by extending similar trade preferences to the region.

However, plans by President Clinton to give the Caribbean "NAFTA parity" have been unsuccessful in the light of Congressional opposition, the members of which are uncertain of the benefits free-trade arrangements can bring to the United States. Of particular interest is the case of Mexico, where trade with the US has gone from a slight deficit to a large surplus. This has dampened down the enthusiasm the US once had for extending similar trade agreements to its poor Southern neighbours.

In addition, Brazil, a significant player in developing a FTAA, does not want to be hurried into further trade deals. Since opening up its economy, it has suffered from a large trade deficit. "Brazilian industry was subjected to an intense competitive shock, without that opening being reciprocated" Luiz Felipe Lampreia, the country's foreign minister has argued. It was "not reasonable", he has said, to expect the country to embark swiftly on further market opening (The Economist, 1 March 1997). "Rather, Brazil first wants to consolidate MERCOSUR."

Notwithstanding the problems surrounding the expansion of NAFTA/FTAA, US officials have argued that Caribbean ACP countries are to blame for their economic difficulties rather than the trade rules with regard to NAFTA. In the case of Jamaica (one of the Caribbean countries most ready to join NAFTA) US representatives have highlighted the revaluation of the Jamaican currency that increased its value by 12.5% in 1996, making their country's products more expensive, and a range of regulatory obstacles that have damaged the country's economic standing (International Herald Tribune, 31 January 1997).

This is despite Jamaica and other Caribbean ACP countries carrying out economic retrenchment, including selling state companies, reducing budget deficits and increasing foreign reserves, all having been done at a high social cost.

It is apparent therefore that during the period of uncertainty for the ACP Caribbean with regard to the development of a Free Trade Agreement of the Americas, the EU within a revised Lomé framework would be crucial in providing a degree of stability and reassurance for the region.


Conclusion


It is evident that there are a myriad of influences that are affecting the Caribbean ACP-EU relationship including global liberalisation, the reduction in tariff levels, and the increased competition faced by the Caribbean ACP in their "preferred markets". There are tremendous pressures being encountered to reform, transform or even end the relationship as it now stands. Even if the basis of the relationship is altered, there are a number of issues that can sustain a post-2000 Caribbean ACP-EU relationship. The trade and aid pillars of the Lomé Convention that will probably continue in a revised form, at least for the early years of the century, will assist the Caribbean ACP in managing its economic transition by encouraging export diversification, more open and competitive trading, while also assisting to mitigate the worst of the Caribbean's social problems that are apparent and will probably worsen as economic restructuring takes place. Furthermore, the relationship could provide a degree of stability for the Caribbean ACP countries to prevent them from being marginalised or undermined as an American free trade area is slowly constructed.

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