After Lomé IV:
A Strategy for ACP–EU Relations
in the 21st Century
Christopher Stevens, Matthew McQueen and Jane Kennan
Commonwealth Secretariat Institute of Development Studies
Introduction to the Report
This report was prepared in late 1998 by the Institute of Development Studies at the University of Sussex. It is part of a Commonwealth Secretariat project, financed by the Trade and Investment Access Facility, to support members of the African, Caribbean and Pacific (ACP) Group of States in their negotiations with the European Union (EU) on post-Lomé arrangements. The report is intended to assist the ACP countries to develop a detailed strategy both for the current negotiations on a broad ‘Framework Agreement’, and for the subsequent consideration of putting this into effect.
The report is divided into three parts.
Part 1 reviews the forces that are undermining the credibility of the Lomé Convention and which must be taken into account in the formulation of a successor regime.
Given the EU’s proposals for Regional Economic Partnership Agreements (REPAs), Part 2 analyses two relevant examples: the free trade agreement (FTA) negotiated between the EU and Morocco, and the one under negotiation (at the time the report was written) with South Africa.
Part 3 sketches the broad lines of one possible strategy that would take account of the information conveyed in Parts 1 and 2.
This extract comprises:
the Executive Summary of the report;
the contents pages of the report; and
a form for ordering copies of the report, which is to be published in Spring 1999 in the Commonwealth Secretariat’s series of Economic Papers.
This report has been prepared to assist the ACP to develop a detailed strategy for their relationship with the EU after the expiry of the Lomé Convention. As such, it aims to provide a contribution both to the current negotiations and to appropriate policy formation within ACP countries.
The report is based on the premise that a continuation of the status quo in terms of effective as opposed to nominal access to the European market is not an option. This is because forces operating outside of the Convention will undermine Lomé preferences if the relationship is not put on a footing more relevant to the twenty-first century.
Since the EU’s proposal for the successor regime, with regional economic partnership agreements (REPAs) at its core, is not satisfactory, the task is to identify alternative strategies. These need to take account of the changes to be expected over the next five to ten years, the evidence of other relevant agreements, and the varying needs of different ACP states.
The report approaches this task through:
a review of the trends in international trade policy that are undermining the effectiveness and credibility of the Lomé Convention;
relevant examples of the type of agreement that the EU appears to have in mind in its REPA proposal;
the broad lines of a strategy to implement the ACP’s desire to extend the World Trade Organization (WTO) waiver on Lomé and to provide an adequate ‘safety net’ should subsequent negotiations prove to be unsatisfactory.
The Forces Undermining Lomé
The current negotiations are the most significant since those that gave birth to Lomé I. The WTO banana dispute has had a disproportionate impact by fracturing the shell of a relationship that had been weakened already by underlying change. The economic importance of the ACP to the EU is much less than it was in 1975; at the same time, Europe’s trade policy relations with other, economically more important, regions has blossomed. Hence, while Lomé I was unique in terms of the breadth, depth and institutional richness of its trade regime, Lomé IV is just one of many and suffers from certain anomalies compared with more recent accords.
One of these anomalies is its status within the WTO framework. In its judgement on the EU banana regime the WTO Dispute Settlement Panel brought into question the compatibility of the entire Lomé relationship with international trade rules. Although the current waiver appears to have resolved the issue until February 2000, it needs to be replaced when it expires with a more robust justification. The reason for the use of the term ‘appears’ is that, as the dispute on bananas illustrated, the precise terms of a waiver can be subject to close scrutiny with the aim of striking down aspects of the regime that have not been supported unambiguously. It remains open, therefore, to WTO contracting parties to challenge parts of the Lomé relationship even before February 2000 if they believe that they cannot be supported by the precise wording of the waiver.
The WTO ‘problem’ is an intractable one since none of the ‘pegs’ that support discrimination in favour of certain developing countries but not others is entirely fool-proof. None provides a fully robust justification for the EU–ACP trade regime.
Even variations within the Generalised System of Preferences (GSP) could be subject to challenge. This was illustrated at the very end of the research project, when Brazil announced that it was lodging a complaint against the treatment by the EU of exports from the Andean Community of instant coffee. The special preferences for the Andean states are provided within the GSP — what has been called in this report the ‘Super’ GSP.
Similarly, Article XXIV, which covers free trade areas and customs unions, might not provide defence against a challenge by an aggrieved state. The treatment accorded to the EU–South Africa free trade agreement (FTA), if it is concluded, may provide case law that would then apply to REPAs.
The WTO also presents a challenge to ACP preferences in a different sense. By presiding over further liberalisation of the products of particular interest under Lomé (clothing and temperate agriculture) it is contributing to the erosion of effective market access. Preference erosion has been a feature of EU–ACP trade policy for many years but, unless there is a sharp reversal in the trend of international trade policy formation, it is likely to accelerate markedly over the next five to ten years. The phase-out of the Multifibre Arrangement will remove a major stimulus to clothing investment in ACP states and a key competitive advantage to ACP exports. The liberalisation of temperate agriculture may take longer to come into effect, but it would be imprudent for the ACP to assume that, for example, the Sugar and Beef Protocols will still offer them advantageous prices by the end of the next decade.
The loss of favourable prices for agricultural exports may come sooner. The EU’s internal changes for the Common Agricultural Policy may tend to focus on reforms that have a disproportionate adverse effect on the ACP. Moves, for example, to shift subsidies from consumers to tax-payers would result in price falls that would be offset for EU farmers (but not ACP suppliers) by direct transfers.
The EU has been vague about its plans for REPAs, but there exist examples from other agreements that provide guidance. A detailed analysis of the EU–Morocco Agreement suggests that there may be major pitfalls to be avoided by the ACP. The proposed terms of the EU–South Africa FTA reinforce this need for caution.
There is little reason to expect that ACP exports to the EU will derive significantly improved market access from a REPA. Both economic theory and the empirical evidence of the Morocco Agreement also suggest that the static and dynamic gains expected of liberalisation may occur only very partially. This is because opening up domestic markets to just one, not necessarily efficient, supplier in the absence of vigorous competition policy may not result in the expected changes in the structure of production.
The sections of the Morocco Agreement on ‘new areas’ of trade policy are particularly relevant to the ACP given that the EU has proposed to introduce them into the REPAs. These ‘new areas’ include policies on trade in services (including rights of establishment), competition policy and government procurement.
Of particular concern for the ACP should be the fact that, while Morocco is obliged to adopt EU competition rules, Europe has not forgone the right to use anti-dumping action. Given that the misuse of anti-dumping policy is widely considered to be one of the most disruptive features of the current international trade regime, and that the application of effective competition policy in the exporting state should remove the possibilities for predatory dumping, it is unfortunate that the FTA has not been used as a vehicle to introduce new disciplines. The ACP may wish to press in a REPA for constraints to be placed upon the EU’s use of anti-dumping policy. This is an area in which Lomé is silent and on which, therefore, a new agreement could represent an improvement.
Both the Morocco and the South Africa agreements suggest that the rules of origin in any REPA may be a problem for the ACP. The rules in the Lomé Convention are superior to those in both of the two FTAs, in the sense that they are less of a constraint on ACP exports. Since the EU has indicated a desire to rationalise its multiplicity of origin rules, there is a danger that those incorporated into a REPA will differ from those in Lomé.
The ACP have indicated that they wish to obtain a WTO waiver to cover the period to 2010, and an integral part of the EU’s proposal is that a waiver be sought at least to 2005. Hence, any post-Lomé strategy is likely to incorporate some provision to obtain a new WTO waiver.
The report argues that:
a carefully constructed waiver, accepted by consensus, would provide the ACP with legally secure preferences;
but this may be difficult to achieve.
It is very important that the ACP begin as soon as possible the task of building a consensus within the WTO in support of a waiver. It would be imprudent to rely on the EU to do this. Achieving such a consensus would require overcoming a range of possible objections from other developing countries and transition economies, as well as from some developed states.
As the banana panel ruling demonstrates, it is also vital that any waiver be drafted in such a way as to provide secure support for all those facets of the current trade regime that the ACP wish to protect. The required level of specificity will make the task of achieving a consensus more difficult because it will reduce the scope for compromise through the use of general terminology.
The ACP have indicated that the GSP as currently formulated represents an inadequate alternative to Lomé, but the possibility remains open that an improved one could form an important part of a post-Lomé strategy. At the very least, it would provide a safety net against the failure to obtain either a WTO waiver or acceptable terms for a REPA.
The report identifies a strategy for improving the GSP in key areas. This would involve removing the deficiencies of the origin rules as compared with those in Lomé and providing a means whereby market access for non-least developed ACP states could be brought up to Lomé standards.
No single criterion would distinguish all ACP states as a separate category. Such separation is required to allow the EU to offer to the ACP, and only to the ACP, improved terms under the GSP. Without it, the EU would have to generalise the improvements to a range of other medium-income and poor states. This would not only be politically unacceptable to the EU but would vitiate the objective of providing a competitive advantage to ACP states.
However, a combination of criteria can be devised which would tend to include all ACP states but exclude most others. It would involve a combination of income, vulnerability and size as the determinants of a group of states deserving of special treatment.
Identifying technical criteria is only the first stage; the key task would be to persuade other WTO members that this was a legitimate and acceptable method of classification. As in the case of a waiver, therefore, the main task for the ACP is the political challenge of pressing their case in the WTO. The function of technical reports such as the present one is to supply helpful analysis to support this political strategy.
Introduction to the Report v
Executive Summary vi
The Forces Undermining Lomé vi
The Terms of a REPA vii
A Strategy viii
[order form - adapt from the one on EP32 page]