• Part I: Thoughts on reforming the Lomé Convention
  [Title page]

  • I. Introduction: Basic deliberations and reform objectives
    
    • 1. Present political and economic situation
      
    • 2. Development policy
      
    • 3. German and European interests regarding future cooperation with ACP countries
      

  • II. Proposals for reform
    
    • 1. Political cooperation
      
    • 2. Simplifying the Convention, institutions, bodies composed on a basis of parity
      
    • 3. Trade policy
      
    • 4. Development cooperation
      
    • 5. Individual instruments of the Lomé cooperation program
      
    • 6. Funding the cooperation program
      

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Arbeitspapiere zur EU-Entwicklungspolitik

Working papers on EU-Development Policy

Documents de travail sur la politique du développement de l’UE

8

Part I:

Thoughts on reforming the Lomé Convention

BMWi, AA, BMF, BMI, BML, BMZ

Bonn, September 8, 1997

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I. Introduction:
Basic deliberations and reform objectives

1. Present political and economic situation

The consequences of global liberalization and globalization and of opening up towards the east have changed the EU’s foreign policy and foreign economic interests as compared to those of 1975, when the first Lomé Convention was concluded. The struggle for new export markets focuses mainly on South-East Asia and Central and Eastern Europe, and on South America. By contrast, the importance of the ACP countries in terms of foreign trade has declined for years given their low share in world trade and the low volume of investment flows from the EC to these countries. However, more recently there have been clear signs of an improvement in the economic situation of a considerable number of African countries.

The increasing liberalization of trade that has followed the Uruguay Round has made EU trade preferences for ACP countries less important for the development of these countries’ economies. The need to support competitiveness in order to integrate ACP countries into global trade has grown. At the same time, the ACP preferences are increasingly the subject of criticism since they discriminate against other developing countries. They contradict GATT/WTO obligations and the EU’s efforts to expand its development cooperation with non-ACP countries.

For the development of a country, its involvement in global trade and the inflow of direct investment are increasingly outweighing official development assistance (ODA) in importance. Moreover, as a result of new, competing claims on EU member states’ budgets and new global financial requirements (e.g. for Eastern Europe or for protecting the global climate), it is becoming more difficult to ensure a constant flow of ODA, which comes, after all, from national budgets. This means that the Lomé Convention must be made more efficient and scarce financial assistance must be used more effectively.

2. Development policy

ACP-EU cooperation is part of the EU’s global development cooperation. It is governed by the most comprehensive agreement, equipped with the most differentiated set of instruments and accounts for the largest share of funds. The special role of the ACP countries thus far has been based on historical reasons, on these countries’ special relations with some of the EU member states. Today, this is no longer justified. What would be desirable for the period after 2000 would be to include the Lomé cooperation program in an overall EU development policy concept which draws on the experience of ACP cooperation, uses instruments and procedures that should be as similar as possible to those of ACP cooperation, and is implemented by the Commission in a consistent and coordinated manner. The Lomé discussion is one framework in which efforts must be made to solve horizontal problems such as quality control, decentralizing, or concentrating on certain tasks.

The Lomé cooperation program is characterized by dialogue between partners, a contractual basis that makes assistance predictable, and the broad scope of cooperation. These fundamentals of the cooperation should be preserved, whereas specific instruments and the concrete design of cooperation need to be thoroughly reviewed.

Efficient and sustainable development is only possible if the developing countries assume re-

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sponsibility for their own development. In the past, ACP countries have tended to see the responsibility for their fate as lying more with the industrialized countries, but now a process of rethinking has begun among political decisionmakers. The reform of Lomé must continue this process; the process does not allow for any clinging on to vested rights and entitlements, insists on the fulfillment of conditions vital to success and creates performance incentives.

3. German and European interests regarding future cooperation with ACP countries

In spite of the small share the Lomé countries have in German foreign trade, the difficult economic situation on the African continent, and the changed geopolitical framework, Germany continues to be highly interested in close and trusting cooperation with the ACP countries.

• A successful global structural policy to protect peace and the environment can only be realized in close cooperation not least with the ACP countries. Today’s (global) problems require, in addition to bilateral cooperation, a multilateral approach in the EU context.

  The EU is an important international actor bearing international responsibility. For this reason, and because of Africa’s geographic proximity to Europe, the EU cannot be indifferent to crises in Africa. One major aspect of an active peace policy is crisis prevention, which is less costly and more humane than remedying the damage and starting reconstruction.

• Moreover, if economic stagnation and political destabilization persist in Africa, there is the risk of an increase in migratory flows, which would affect Europe in particular. For this reason, poverty reduction and social progress in the ACP countries are in the EU’s – and particularly in Germany’s – very own interest, as is increased cooperation on illegal immigration issues including repatriation. To this end, the economic, development and migration policy measures of the EU vis-à-vis the ACP countries should be more closely coordinated and linked in future, possibly with regional differentiations (integrative approach).

• The preservation of natural life-support systems and enhanced environmental and resource protection, too, are in Europe’s – and particularly Germany’s – interest, as many of today’s environmental problems have a global impact. Germany has a vital interest in improving environmental standards where that is necessary. A new agreement should reflect this objective. To the extent that a new agreement contains regulations on foreign investment, environmental aspects should be taken into account just as in the MAI.

• In addition, the EU has an interest in strengthening economic development in the ACP countries, particularly in Africa, since the EU and especially Germany would benefit from that particularly in their trade relations given the geographic proximity to these countries.

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II. Proposals for reform

1. Political cooperation

1.1 Composition of the ACP group and regional differentiation

Within the group of ACP countries there is considerable variation, not only in the level of development but also in national interests. This poses difficulties for the negotiating process and particularly for achieving results that do justice to the specific characteristics of regional subgroups.

If cooperation is to become better adapted to present-day conditions, it would be practical to regionalize the Lomé Convention by splitting it into individual agreements with the African, Caribbean and Pacific countries, which then might be connected by means of a framework agreement, if necessary. By separating the agreements, cooperation could be better oriented to the interests of each group of countries, and development policy could be differentiated in accordance with the specific needs of each region.

As the Commission stated in its Green Paper on the future of EU-ACP relations, this would also be in line with the course of cooperation with regions and subregions that the EU has been pursuing over the last few years in the field of its foreign relations (Chapter IV D, third option).

Moreover, this could make it possible in the medium term to open up the regionalized Lomé cooperation program for other countries in the given region as well. Thus, the limited scope of the agreement, which for historical reasons covered only one certain group of countries, could gradually be expanded.

• The agreement with Africa should be designed in such a way as to preserve the continent as a unit even in the context of the desired regionalization. A further division of Africa by regions or regional organizations does not appear practical for the time being. Africa’s existing organizations do not seem suited yet to be partners in agreements given their lack of stability. Furthermore, the dynamic Southern African region should not be disconnected from the rest of the continent.

• The agreement with the Caribbean countries might include other countries and territories of the Caribbean as well. In the longer term, harmonization with the EU’s trade and development cooperation with Central and Latin American countries might be an option. Except for Haiti and Guyana, all ACP countries in the Caribbean are middle to high-income countries. Thus, the focus is on the EU’s foreign economic and trade relations.

• The agreement with the Pacific countries could include other countries in the region if they wish (e.g. the Marshall Islands). This group of countries could maybe be given additional trade concessions, e.g. regarding the cumulation of origin, which the EC would not be accept for the entire group of ACP countries. The Pacific countries share similar specific impediments to development: large distances, small markets, vulnerability to natural disasters. Regional integration is at the forefront of cooperation.

The framework agreement to link the regional agreements could lay down the objectives and principles of cooperation (currently part I of the Lomé Convention) and the general goals and criteria for development cooperation, including the goals and principles pertaining to sustainable development and environmental protection.

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Also, the total volume of financial assistance and its distribution by region could be part of the framework agreement. Regulations relating to institutions that are open to all ACP countries, such as the CDI and the TCA, could be laid down in the framework agreement as well.

Regional agreements should cover the sectors and instruments of cooperation, the importance of which will vary according to the given region. For instance, in Africa it is crisis prevention, rehabilitation measures and activities to reduce population growth that are of particular significance. For the Caribbean and Pacific countries, on the other hand, specific problems arise from their situation as island nations (small land area, transport problems, etc.) and to the periodic occurrence of hurricanes.

This means that the distribution of funds to the various instruments must be part of the regional agreements. The same goes for provisions governing cooperation on trade and economic policy, which should support the creation of regional markets and regional economic organizations.

These proposals largely correspond to options 2 and 3 offered in the Commission’s Green Paper in Chapter IV D: a global agreement to be supplemented by bilateral agreements or a separation of the Lomé Convention into regional agreements.

However, increased regionalization of future cooperation can only be reached if the ACP countries agree. The EU should make it clear in the negotiations that increased regional differentiation offers some advantages to the ACP countries since it strengthens cooperation within regional groups and allows for cooperation with the EU to become better adapted to requirements.

1.2 Strengthening the political dimension

There is basic agreement among the Lomé partners that the policy dialogue, which has thus far played a very small role in the framework of the Lomé Convention, should be extended and intensified. It should not only deal with implementing the Convention but also address overriding political issues of mutual interest in future. This enhanced dialogue should also be possible outside the annual meeting of the Council of Ministers.

Thus far, this consensus has not been put into practice, even though the revised Lomé Convention signed on November 4, 1995, in Mauritius introduced a provision to that end in Paragraph 3 of Article 30.

One reason that this provision has not been implemented is that except for SADC, the ACP side has not formed any regional subgroups thus far that would be available for substantive dialogue. The ACP-EU Council of Ministers with all 71 ACP countries represented is too ponderous for such a dialogue.

The EU’s policy dialogue with the ACP countries should, where appropriate, be held separately with the three regional groups sub-Saharan Africa, Caribbean and Pacific, oriented to current problems and regional interests. In Africa, further subgroups could be modeled on the SADC example. Dialogue would thus also contribute to strengthening regional cooperation within the ACP group.

The design of specific structures for the dialogue will have to be reserved for future negotiations (cf. para. II. 2).

Suitable issues for the policy dialogue with the ACP countries include: conflict prevention measures, international terrorism, migration, drugs, mine clearance, health and environmental issues, but also the definition of common values and human rights issues.

In the process, care must be taken not to duplicate dialogue in the EU/ACP framework that is already taking place in other international organizations, e.g. in the UN context. Dialogue should only be held on those topics that can be meaningfully addressed in the Lomé framework.

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1.3 Cooperation on migration

The reform of the ACP Convention must lead to an agreement on increased cooperation towards preventing and controlling illegal immigration, including repatriation. To this purpose, a readmission clause should be incorporated into the Lomé Convention similar to the model clause agreed within the EU for mixed agreements.

2. Simplifying the Convention, institutions, bodies composed on a basis of parity

In the various Conventions, the Lomé cooperation program has constantly been developed and expanded since 1975. At this stage, the clear focus on priorities has been lost in the multitude of provisions on objectives and measures in the Convention’s almost 400 Articles.

One major goal of reform should therefore be, not least, to make the agreement(s) a manageable, operational instrument of cooperation. To this end, the provisions of the agreements should be limited to the main statements on principles and objectives, focal areas in terms of contents, instruments and procedures, and institutions, dispensing with details. Generally speaking, the agreement should have a clearer structure.

The equal-representation bodies of the Convention (Council of Ministers, Committee of Ambassadors, Joint Assembly) are not playing the prominent role in practice that they were meant to have according to the Convention. For one thing, this is due to the size and different interests of the ACP group (problem of finding the „lowest common denominator", which is, however, an EU problem, too), but also to the automatic procedure which provides for an ACP-EU Council of Ministers to be held each year, no matter whether issues are up for decision or not.

In order to restore the importance of Council of Ministers meetings, regional groups should be formed and the frequency of meetings and their agendas (greater focus on political issues) should be handled more flexibly, with Council of Ministers meetings being held only when issues require the consultation of Ministers. The practice of discussing rather technical issues at the ministerial level, which has thus far been common, should be abandoned. The role of the Committee of Ambassadors, which could be given the same regional structure as the Council of Ministers, should be strengthened not least in this context. The Committee of Ambassadors could relieve the Council of Ministers, particularly with regard to technical issues, and become a body to uphold the policy dialogue during the period between Council of Ministers meetings. Committees and subcommittees on specific subjects should be reviewed to examine whether they are really needed, with the aim of reducing their number (there are 10 at this point!) substantially (to a maximum of 3 or 4).

3. Trade policy

3.1 WTO conformity of the Lomé Convention

The Lomé IV Convention, like its predecessors, only provides for trade concessions by the EC. Among ACP countries, only Benin, Burundi, Burkina Faso, Mauritania, Mauritius, Senegal, Suriname and Togo grant trade concessions to the EC as well. This is why, given the lack of reciprocity, the GATT contracting parties have not recognized the Lomé Convention as a free trade agreement consistent with the criteria of Article XXIV (elimination of duties and quantitative restrictions for substantially all the trade). The Convention, being a unilateral preferential arrangement, required a waiver in accordance with Paragraph 5 of Article XXV of the GATT. Since the preferential arrangement of the Lomé Convention is different from the GSP and gives an advantage to ACP countries (in other words, it discriminates against other developing countries), it was not possible to justify the Lomé preferences on the basis of the GATT arrangements for the benefit of developing countries. The waiver expires February 29, 2000, with the end of the validity of Lomé IV.

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It is doubtful whether the WTO would grant another waiver for one or several agreements with the ACP countries after 2000, as the ACP preferences put non-ACP developing countries, particularly LLDCs, at a disadvantage. Such uncertainty is no suitable basis for longer-term investments. Future agreements with ACP countries should therefore conform to GATT rules. They should avoid discrimination against other developing countries and contain mutual trade concessions. The EU would in this case maintain, or expand, its current preferences for ACP countries, while ACP countries would gradually take down their barriers to market access for the EU over a period of 10 years or less (a special regulation for LLDCs would be conceivable). Individual products that are particularly sensitive could be exempted from complete liberalization.

In order to reach this goal, multilateral free trade agreements could be concluded between the EC and the three regional groups – Africa, the Caribbean and the Pacific region – with the initial design providing for free trade between the EC and the respective countries of each group only, but not among the group’s member states. In order to foster regional integration, efforts should definitely pursue the longer-term goal of creating free trade zones within each regional group as well. This could intensify the division of labor among ACP countries and larger markets could be created thus contributing to improved export structures in the countries in question, and amounting to a first step towards the gradual integration of ACP countries in world trade.

Further liberalization of trade in the sphere of cooperation with the ACP countries should also be beneficial for the goals of sustainable development including environmental protection objectives.

A considerable number of ACP countries (39) are least developed countries (LLDCs), with the majority of them located in Africa (33). These countries might suffer a deterioration in their prospects for development in the short term if they were obliged to grant reciprocity under a free trade agreement. Nonetheless, these countries should be included in the envisaged regional trade agreements in order to prevent them from becoming marginalized and to integrate them into contractual relations. It must be expected that these countries will be unable to grant reciprocity within the period envisaged by GATT/WTO of no more than ten years. In this case, a waiver in accordance with Article XXV of the GATT might be needed.

If the WTO cannot be convinced to grant such a waiver, the special provisions for LLDCs in the framework of the GSP could be replaced by a new and improved set of rules, taking into consideration those Lomé preferences that go beyond the GSP. Since 39 of the 48 LLDCs are ACP countries, the agricultural preferences under Lomé would only have to be extended to another nine countries.

At the WTO Conference in December 1996 in Singapore, an action plan was approved for improved market access for LLDCs. The EU is currently discussing concrete measures to implement this action plan. The Commission proposed that the LLDC provisions should be harmonized with the Lomé preferences in the GSP framework, with a few agricultural products that are particularly sensitive being exempted from liberalization. It remains to be seen what the results of negotiations on these proposals will be. The results will have to be incorporated into deliberations on the future trade regime with the ACP countries.

In its Green Paper (Chapter V C), the Commission pointed out that the main difficulty of free trade agreements with individual regions or countries („differentiated reciprocity" option) was feasibility, since many ACP countries lacked the technical and institutional preconditions for such negotiations. Moreover, according to the Commission, this option would amount to an end to commodity protocols and agricultural preferences in their current form. The latter problem would be mitigated by the creation of three regional free trade agreements, since the commodity protocols could be linked to these agreements, unless they become obsolete in 2000 as the ob-

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ligation to liberalize is met, as in the case of the Rum Protocol. The agricultural preferences can be integrated into the free trade agreements.

The Commission is right, however, in arguing that feasibility is difficult due to limited administrative capacities. The negotiating process would certainly take its time and would need thorough preparation in the form of analyses of trade flows and of sensitive products. However, as more than half of the ACP countries are LLDCs, for whom an interim regime would probably have to be found, the negotiations on reciprocity would initially be limited to a smaller number of countries.

3.2 Additional agreements in the field of services

The additional agreements on the liberalization of services that the Commission has proposed for the field of trade do not have our support, since according to Paragraph 1 of Article XIX of the GATS a new global round of negotiations on the liberalization of services will start no later than January 1, 2000, and special negotiations with the ACP countries might disrupt these multilateral negotiations considerably. Moreover, further liberalization steps in this field would fall under the principle of most-favored-nation status and would thus have to be granted to all WTO members.

3.3 Extending the cumulation of origin

The cumulation of origin (value added by other countries that is necessary for the establishment of origin) between all ACP countries must be maintained at all costs even if separate regional agreements are concluded, in order not to endanger traditional trade flows. At this point, the cumulation of origin between ACP countries and third countries is only allowed to a very limited extent („a neighboring developing country belonging to a coherent geographical entity", list of countries). If the Lomé Convention is regionalized, the opportunity arises to expand the cumulation of origin among the developing countries of each region.

It should be examined whether the cumulation of origin could also be offered with other regions (e.g. the Mediterranean).

3.4 Freedom of establishment for enterprises

Investment is the basis for the development of export industries. Foreign investment requires a suitable political and economic framework. The Lomé Convention provides only a limited guarantee of such a framework. Article 274 of the Lomé Convention contains, as a basic principle, a ban on discriminatory treatment of foreign companies. The same Article waives this ban for the case that an ACP country is unable to provide non-discriminatory treatment. No definition is given of such inability. Thus, Article 274 does not really guarantee a right to national treatment, thus not creating a sufficient framework for investment.

The objective must therefore be to grant foreign enterprises most-favored-nation status or national treatment, with preference being given to the more favorable regimen, for the establishment of corporations, subsidiaries and branch establishments and for conducting business. One conceivable solution would be to exclude certain areas from the obligation to grant national treatment, such as air and maritime traffic and inland waterway traffic.

In the field of financial services, ACP countries must not be granted better treatment than other WTO members.

The staff employed in the branch must, except for persons that function as employers (management), be recruited in the country of establishment.

However, it must be clear that even with a regulation in the EC Agreement with regard to third countries, the right of establishment continues to come under the jurisdiction of the EC member states. In concrete terms, this means that the provisions laid down in each EC member state on immigration (visas), residence, working conditions and provision of services continue to

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apply irrespective of the arrangements made under the Lomé Convention.

Regarding the design of the contract, there is the possibility of asking the ACP countries in one provision of the Convention to accede, if possible, to the Multilateral Agreement on Investment (MAI) which is currently under negotiation in the OECD. Another solution would be to include the obligation to extend most-favored-nation status or national treatment in the Convention, just as in the „Europe" Agreements and the Mediterranean Agreements. There is also the possibility of concluding investment protection and promotion agreements with EC member states, which should not be given up.

3.5 Sugar protocol

According to para. 2 of Article 8 of Protocol No. 8 of the Lomé IV Convention, the sugar protocol will continue to be effective even after the Lomé IV Convention expires in 2000. The period for giving notice to terminate the protocol is two years. Such a step requires a unanimous decision of all EU member states.

The sugar protocol provides for the import of 1.3 million tons of sugar from certain ACP countries at a price to be negotiated on an annual basis and in line with the level of prices in the EU. Since the EU’s demand for supply is not high enough, a similar quantity of EU sugar needs to be exported with export refunds, which means costs for the EU budget of about ECU 600 million per year. This export quantity is not subject to GATT/WTO restrictions on export subsidies (reduction of quantities by 21%, reduction of subsidies by 36%). This means that there is a connection between market access obligations for ACP sugar and export opportunities without the reduction of subsidies in the WTO framework.

The sugar protocol has caused high market regulation costs and is questionable in development policy terms as the guarantee of acceptance perpetuates certain crop structures, and as it discriminates against those ACP countries that do not benefit from sugar cultivation.

Opportunities for reforming the sugar protocol are limited at this point, as the EC, by importing under the sugar protocol, is meeting its obligations for market access in accordance with the provisions of the Uruguay Round. In this context, the EC made the commitment of providing duty-free market access for approx. 1.3 million tons of sugar.

This is why in order to reform the sugar protocol, a solution is required that is future-oriented.

One starting point can be the expiry of the Lomé waiver in 2000, since the sugar protocol will be a violation of GATT rules once the waiver expires. In the framework of negotiations on a new trade regime, the sugar protocol needs to be addressed as well. Since free trade agreements should be concluded at least with those ACP countries that are more advanced, their sugar quotas would need to be included in the free trade regime, and the sugar protocol would need to be terminated with regard to these cases. Care must be taken in this connection to ensure that any EC export subsidies that may become necessary would continue to be exempted from WTO obligations to reduce subsidies.

Another opening would be the further liberalization of agricultural markets that is to be expected as a result of the new round of WTO negotiations starting in 1999. If the external protection of the EC should undergo further reduction, a decrease in the EC intervention price for sugar must be expected. This would lead to a decrease in ACP countries’ earnings from the sugar protocol, which means that requests for assistance must be expected. In such a case, the termination of the sugar protocol in its current form should be made a prerequisite for the provision of potential restructuring support. Should the EC intervention price near world market levels, the sugar protocol might be replaced by a more liberal import regulation open to all developing countries.

Both options are based on the assumption that notice is given in 1998 to terminate the protocol, which means that the pertinent negotiations need to be launched in time.

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4. Development cooperation

4.1 Objectives and focal areas of development policy

The foremost objective of the EU’s development policy continues to be the improvement of the economic and social situation of people in the developing countries as part of a global policy aiming to secure natural life-support systems and global peace. The catalog of objectives laid down in Article 130 u of the EC Treaty continues to be binding for ACP cooperation.

The global experience with development policy, and the sobering results of cooperation with Africa (both bilateral and multilateral), require that the EU’s development cooperation undergo at least a shift in emphasis in some areas.

Sustainable development is only possible if the recipients of aid assume responsibility for their own development. In this context, assistance should focus more on reducing dependence on the donor countries (help towards self-help). The role of government is mainly to provide and guarantee a stable framework based on the rule of law to encourage private economic initiative. Africa’s central governments, too, are increasingly accepting the need to have stakeholders actively involved in decision-making at all levels.

For many developing countries, private capital transfers are becoming more and more important vis-à-vis official development cooperation, which is stagnant. Achieving international competitiveness and a framework suitable to attract private investment is an objective that all ACP countries should pursue and which should receive increased support in cases where a given ACP country desires and initiates institutional reform (ownership). However, as measures are implemented, a distinction must be made between more advanced and structurally weak countries. Official development assistance cannot and should not replace private capital transfers, but it is an effective accompanying and complementary element.

An important element to private sector development is support for local capital markets, with the aim of facilitating enterprises’ access to financial services. However, financial sector support should mainly take the form of organizational and technical assistance in order to avoid the creation of EDF-subsidized competitors for existing financial systems. Direct support to enterprises through grants or increased volumes of subsidized loans is undesirable as well, as this would pose the risk of distorted competition. Thus, assistance should focus on information and advisory services, which can be improved and, using existing institutions, expanded.

The crises that Africa and other developing regions have undergone during the last few years show that crisis prevention is a task, not least, of development policy. Targeted development policy measures can contribute to the peaceful resolution of conflicts, the elimination of the underlying causes of conflicts, and thus make future expensive emergency relief dispensable. The conflict in Rwanda/Burundi in particular has withdrawn substantial funds from EU development cooperation which went into emergency and refugee aid.

In addition to general development policy objectives, the following focal areas for the EU’s future development cooperation can be derived from the above:

• increased support for economic and political reform processes through structural and sectoral adjustment measures, decentralized cooperation and positive measures (e.g., measures to promote democracy),

• strengthening the financial sector,

• supporting and accompanying private sector cooperation,

• more crisis prevention and less emergency aid,

• strengthening human resources, developing local institutions and capacities (both governmental and nongovernmental).

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In all areas of development cooperation with ACP countries, the equal participation of men and women should be a special concern. Moreover, the aspect of environmental protection should be given due attention in the above-mentioned measures.

4.2 Preconditions and criteria for the EU’s development cooperation

Aside from the size of the population and the per capita income, decisive elements to justify development assistance are the willingness of developing countries to help themselves, their own efforts, and their readiness to reform (performance, good governance, participatory development). The mid-term review of Lomé IV has set the right course for the future: flexible programming by means of tranches, disbursement of funds in accordance with performance criteria.

The criteria laid down by the German Government for development cooperation – respect for human rights, popular participation in political decision-making, the rule of law and certainty of the law, a market-oriented and social economic order, and development-oriented state action – apply to the development cooperation of the EU as well. They are decisive for the kind and volume of development cooperation and are the basis for development policy dialogue. For instance, in relation to those countries that are not yet sufficiently reform or development-oriented, instruments such as policy dialogue, positive measures, decentralized and NGO cooperation (project-tied aid) must be used, whereas activities in reform countries can make greater use, for instance, of non-project-tied assistance in the framework of sector programs.

The binding character of funding commitments made under the EDF has been limited by the system of allocation by tranches ever since the 8th EDF. In order to create a greater performance-based incentive, one could proceed in a manner similar to that used in the new Mediterranean cooperation program, simply giving an indicative financial planning figure for funds to which the recipient country is not necessarily entitled but which will only be disbursed if the developing country’s performance is satisfactory (quality performance, not just quick disbursement!). This is basically the same as the „ongoing programming" proposed in the Commission’s Green Paper (Chapter VI B).

4.3 Number of instruments

National and regional indicative programs are the main steering instrument for development cooperation. They are oriented to the above objectives and criteria and result in the highest possible level of fair distribution of resources among the partner countries and in the efficient use of funds. This is why previously nonprogrammable funds should be included in the indicative programs to the highest degree possible in future. For instance, emergency aid funding for crises in Africa could be taken from the indicative programs of the countries in question, since it will not be possible as a rule to carry out new projects in these countries in the given situation anyway.

4.4 Kind of assistance

Project-tied assistance has generally proven its value and should therefore be continued, except for structural adjustment aid, which can be extended in the form of direct budget support.

The Commission, on the other hand, has proposed in its Green Paper (Chapter VI C) gradually converting assistance into direct budget support, with certain minimal conditions regarding the capability of ACP countries to administer and control the funds to be met.

EDF funds come from member states’ tax revenue, and those responsible are accountable to the public for the utilization of these funds. Sufficient monitoring of utilization and results achieved is easier with project-tied aid. In the case of direct budget support, there is a risk of funds being shifted to benefit sectors that are not in line with EU development policy principles.

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The approach of giving increased support to sector-specific concepts depending on the recipient country’s reform orientation (e.g. financial or transport sector, etc.) can be used while maintaining project-tied aid and does not necessarily require a shift towards direct budget support.

A stronger concentration of projects on individual sectors (sector approach) is to be welcomed in principle, as this may lead to synergistic effects between individual projects and will enhance the effectiveness of the assistance.

The EIB continues to play a complementary role in the Community’s cooperation with the ACP countries. The Council will have to lay down the financial volume of lending after the current ACP mandate of the EIB expires in 2000. The focus of the EIB’s activities has to remain on the current and future member states of the Community. The specific design of the EIB’s lending policy and conditions vis-à-vis the ACP countries will have to be discussed in the context of the upcoming medium-term review of the EIB’s strategy. In this connection, there should also be an examination of the usefulness of interest subsidies funded from the EU budget and/or the EDF.

4.5 Concentration, coordination and division of labor

Comparative studies have confirmed that both the EU and large bilateral donors are active in the developing countries in almost every conceivable sector. Not only does this lead to the dissipation of energies and low levels of influence on important political decisions in the developing country, but it also poses the risk of duplication or even contradictory action on the part of the Commission, member states, and other donors.

Concentration on a few focal areas would enhance the effectiveness of cooperation, reduce the administrative effort involved and make coordination among donors easier. The policy of in-country sector coordination and operational coordination, which has already started to operate, must be further developed, the objective being to divide tasks and work between the Commission and the member states.

Until today, the political and economic interests of the member states have been the main factor preventing any serious discussion of such a division of labor. The reform of the Lomé cooperation program, together with the current austerity policy of most member states, provides the opportunity once more to address this important topic at the political level. The „15 plus 1" formula must not be perpetuated, or at least, solutions at the level of individual country programs must be sought.

5. Individual instruments of the Lomé cooperation program

5.1 STABEX

The STABEX system compensates for fluctuations in export earnings in the form of nonrepayable grants, in order to stabilize the export earnings of the ACP countries, which continue to be highly dependent on commodity exports, and to ensure constant economic development. Funding is provided to compensate for declines in export earnings for most agricultural commodities and semi-finished goods (except for sugar). For many years, two products accounted for the bulk of transfer payments: coffee and cocoa. This changed for the first time in the year of application 1994 after the commodity prices for coffee and cocoa had stabilized.

Compensation for the fluctuation in export earnings, however, has a number of serious disadvantages, since it amounts to an indirect intervention in market mechanisms. The system perpetuates the supply structure since the funds are primarily used, as laid down in Article 186 of the Lomé Convention, in those sectors that experience fluctuations in export earnings, and the diversification of the product range is only a secondary objective. STABEX transfer payments mitigate the pressure to diversify and to reduce costs through rationalization.

For some time now, the funds have rarely been used for the quick compensation of lost earn-

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ings (which was the original intention), but in some cases to support structural adjustment programs. This has led to a conflict between the original purpose of quick compensation for lost earnings and the need to adapt the utilization of funds to the national development strategy.

Moreover, only a small number of countries receive STABEX funding, which at ECU 1,800 million accounts for about 14 percent of the 8th EDF, which means that these countries derive a disproportionately large benefit from EDF funds.

In spite of the serious shortcomings of the STABEX system it must be recognized that massive fluctuation in export earnings is indeed a major problem for ACP countries.

In order to avoid the negative incentives of the STABEX system in future, it should be abolished in its present form. It should be examined whether instead the existing structural adjustment facility could be expanded so as to compensate – at least partly – for balance-of-payments problems caused by structural adjustment or fluctuations in earnings. There should be a ceiling for the total volume of funding for the facility, and funds should be allocated on condition that a structural adjustment program is carried out that has been agreed with the IMF and/or the World Bank. The allocation of funds should not take place automatically but on the basis of previously defined criteria. If these are met, the country in question will be eligible for funding from the facility. Since most countries that are carrying out structural adjustment programs in the framework of Lomé are in Africa, the facility might even be limited to Africa.

So far, the STABEX system has also been used to compensate for fluctuations in earnings caused by natural disasters, particularly hurricanes in the Caribbean and in the Pacific. These problems could become part of a special arrangement in the framework of regional agreements with the Caribbean and Pacific countries under the provisions on emergency aid and reconstruction. This would also be of advantage to these countries as compensatory measures would be carried out when needed and would not be contingent on the volume of earlier exports of certain products to the EU.

5.2 SYSMIN

The SYSMIN system makes it possible to finance specific programs or projects to rehabilitate mining enterprises. Funds amounting to ECU 480 million are available for this purpose under the 7th EDF, of which only about 35 percent had been tied down in contractual form by the end of 1994.

This goes to show that little use is made of this financing facility. Since funding is provided in the form of concessional loans, this financing instrument may not be very attractive compared to the grant system of programmable aid. The SYSMIN system does not have the purpose of compensating for short-term fluctuations in export earnings but was basically created as a compensation for the fact that the mining countries cannot benefit from the STABEX system. However, this has resulted in new imbalances in the distribution of funds, since the SYSMIN system accounts for almost 5 percent of EDF funding, with only about 13 countries benefiting.

Since SYSMIN provides funding mainly for projects that are planned on a longer-term basis and could be integrated into National Indicative Programs, the SYSMIN system should be phased out. The specific problems of the mining countries could then be catered for in the National Indicative Programs.

5.3 Centre for the Development of Industry (CDI)

The CDI is an institution with equal representation from EU and ACP countries serving industrial development and the private sector in the ACP countries.

The structure of equal representation and the relatively large number of bodies (Committee of Ambassadors, Committee on Industrial Cooperation, Governing Board) has thus far been a

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great impediment to any effective monitoring of the CDI’s work. Since there is no clear distribution of responsibilities with regard to monitoring the budget and the efficiency of activities, the CDI has repeatedly been the subject of criticism. The relatively large number of organs that can cover their costs from the CDI budget also leads to increased administrative costs of the CDI. This can be seen from the fact that generally more than 50 percent of the CDI’s funds have thus far been spent on staff and administrative costs, which means that less than 50 percent was available for its operational activities.

In order to improve the CDI’s efficiency, the number of bodies should be reduced and the member states should create a clear structure of responsibility for the Commission, to be supported by the Presidency, to monitor the CDI.

The Governing Board should therefore be abolished, and control over the CDI should be exerted, just as in the case of the Technical Centre for Agricultural and Rural Cooperation (TCA), by the Committee of Ambassadors. The latter should be supported by the Committee on Industrial Cooperation, where EU interests are represented by the Commission and the Presidency. The Committee on Industrial Cooperation should be authorized not only to monitor budget planning but also the CDI’s operational activity (laying down objectives and measures, monitoring the success and efficiency of implementation).

In order to enhance the efficiency of the management, the past parity-based structure of the CDI leadership, under which the Director and the Deputy Director are nominated by ACP and EU respectively, should be abandoned, and the post of Deputy Director, abolished.

Regarding the contents of its work, the CDI should concentrate on a few important areas that are not covered by other institutions. One new focus has already been set through the revision of Paragraph 2 of Article 89 of the Lomé Convention, according to which the CDI concentrates its activities on those countries that have laid down support for industrial development or the private sector in their indicative programs or have already received financial and other support to this end from other Community institutions. The list of tasks in Article 90 of the Lomé Convention should be streamlined and revised accordingly.

After CDI reform, it would also be conceivable for the information and advisory services extended by the CDI to be expanded, as proposed by the Commission (Green Paper, Chapter V A). Preferential use should be made of private consultants to this end. The idea of having the enterprises involved contribute to covering the costs should continue to receive attention in this connection as well.

We still need to wait for the results of the comprehensive 1996/97 evaluation of the CDI. In the light of these results, the decision will have to be taken whether, and in what form, the CDI should continue to operate.

5.4 Technical Centre for Agricultural and Rural Cooperation (TCA)

The TCA serves to provide advice and support to ACP countries as they seek to develop their agricultural sectors. It has an important task, and given the significance of agricultural production for most ACP countries, this task deserves continued support.

Thought should be given to whether the range of clients of the TCA could be expanded to include other countries besides the ACP countries. Possible candidates would be those LLDCs that are not members of the Lomé Convention. At the same time, the work of the TCA could concentrate more on the LLDCs among the ACP countries, since they tend to be the most dependent on agricultural production and in need of special support.

6. Funding the cooperation program

The EU member states agreed in the Final Act of the Maastricht Conference in the Annex to the Treaty that the European Development

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Fund will continue to be financed by national contributions in accordance with the current provisions". For budgetary reasons, the German government continues to oppose the integration of EDF funds in the Community budget at this point. Moreover, providing funding from national budgets also allows for better monitoring.

At this point, various forms of assistance to ACP countries such as emergency and refugee aid, decentralized cooperation, environmental measures, etc., can be financed both from EDF funds and from the Community budget.

This contradicts the principle of budget clarity and leads to a lack of transparency with regard to funding sources. The possibility of twofold funding for similar forms of assistance from different sources should thus be avoided in future. For measures such as emergency and refugee aid, which can receive funding both according to Articles 254 and 255 of the Lomé Convention and from budget lines under Chapter 7-2 of the Community budget, either funding from the Community budget or under the ACP Convention should be abolished. Our objective should be to concentrate funds for measures to benefit ACP countries even more than in the past at the EDF.