1. Introduction


2. Overview of the Evolution of ACP/EC Cooperation

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1. Introduction

There is at present no clearly articulated Caribbean position from the private sector or government as to what a post-Lomé arrangement with the EU should entail. Within these groups there are several individual views on to how to proceed, and many believe that the prevailing uncertainty does not permit any reasonably precise statements as to the type of relationship that should be pursued.

An adequate consultation process on post-Lomé arrangements is yet to get underway at the national and regional levels involving NGOs, the private sector, governments and labour unions. At present, no networks for this purpose have been established. In addition, most of the discussion thus far has focused on future EU development cooperation policy and its implications for the Caribbean.

In this paper, an argument is developed for a common Caribbean external trade policy towards the EU that takes into account the needs of the region in the future as well as the evolving trends in the EU, the Western Hemisphere and internationally. The argument is specific and makes hard choices thereby avoiding deliberate ambiguity that seeks to cover possible errors of judgment. Needless to say, these views are entirely those of the author.

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2. Overview of the Evolution of ACP/EC Cooperation

The basic innovations of the first Lomé Convention were as follows:

• Trade rules: non-reciprocity in trade that involved one-way duty-free access for 99.5% of ACP products. Such access was unlimited for industrial products and went beyond the General System of Preferences (GSP), which has competitive need ceilings on some of these products. Tariffs under Lomé for agricultural goods are also lower on a wide range of commodities.

• Trade protection: Protocol arrangements were established to ensure stable and remunerative prices for two basic agricultural export staples to the EC, sugar and bananas.

• Trade promotion: Tariff reductions were considered insufficient for promoting trade. A marketing effort had to be undertaken in view of the new competition expected from the enlargement of the EC, etc. Consequently, a special allocation was made for this purpose.

• Rules of origin: Criteria for substantial transformation and the provision for cumulative treatment of value-added in one ACP/EC tariff zone facilitated attaining origin status through the use of materials and other inputs from the ACP and EC.

• System for the stabilization of export earnings (STABEX): Against the backdrop of the G-77 search for a Common Fund and Integrated Commodity Programme, a system to stabilize export earnings that covered twelve (12) products (mainly agricultural) was created.

• Industrial cooperation: A Centre for the Development of Industry was set up to assist in industrial promotion and to provide information to small- and medium-size industries in the ACP in search of technology, markets, etc. This Centre is jointly managed. The European Investment Bank (EIB) was also assigned a role in terms of financing industrial development.

• Financial assistance – A special European Development Fund (EDF) allocation for national and regional projects subject to programming cycles and reflecting priorities was outlined in the Convention.

• Institutions – Lomé was established as a contractual relationship, unlike the GSP which is a unilateral offer subject to arbitrary withdrawal and change. The Lomé agreement is a mutually ratified international contract that offers greater security to investors, traders and policy planners. In terms of its management, it also involves a wide participation of EC institutions such as the EC Parliament and the European Investment Bank which did not participate in other EC non-regional arrangements during the periods of Lomé I and II.

Since 1975 Lomé has evolved in several ways. The trade provisions have been widened to include new or better access for some other ACP CAP (Common Agricultural Policy) products such as rice, strawberries and tomatoes. In this process, equal border treatment has been accorded to these products equivalent to that granted to the Mediterranean countries particularly with regard to the reduction of levies. Tropical fruits and vegetables have also been subject to better access conditions. The safeguard clause was adjusted to account for the level of development of the country, the degree of material injury and the importance of the industry to the economy. Rules of origin have been relaxed through more liberal derogation procedures, and recently, by the extension of cumulation to

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non-ACP countries in the region. Trade development has received added emphasis in Lomé IV in terms of improving competitiveness.

The STABEX scheme was extended to cover more products and more countries with more liberal eligibility criteria being introduced for claiming transfers as well as improved terms and conditions of re-payment. STABEX now only provides grants and, in Lomé IV it has been transformed into a sector adjustment mechanism to stimulate competitiveness, diversification and structural adjustment. A complimentary programme was developed for mineral products, SYSMIN (System for Stabilizing Minerals). STABEX was also enlarged to cover more products and countries.

In the financial domain, the overall volume of aid was adjusted from Convention to Convention, largely to take some account of inflation. Greater diversification of the instruments of financing has been introduced to respond to the variety of ACP needs. This move was characterized by special funds for emergency purposes, desertification, culture, toxic waste and the environment. A structural adjustment facility was also added. The concessionary nature of funding was also strengthened through debt relief and the shift from EDF special loans to grants. Some ACP participation in aid management was also secured by creating a mechanism of joint consultation and advice. Decentralized cooperation was introduced in Lomé IV and strengthened under the Second Protocol of Lomé IV. In this regard, greater emphasis has been laid on direct funding of NGOs and the private sector. The private sector has been specifically targeted for operations that would develop this sector institutionally and otherwise. In the recent mid-term review, phased programming replaced multi-annual programming.

Institutionally, there was also some evolution. Relations at the consultative level among ACP and EC Parliamentarians and social and economic partners were strengthened with the aim of fostering greater development participation in the implementation of the Convention. This initiative underscored an EC concern for human rights and democracy in the ACP states which steadily increased after Lomé II. Good governance is now a pre-condition for enjoying Lomé benefits. A Joint Technical Centre for Agricultural and Rural Cooperation was also set up to provide more information and undertake research and training. In addition, a joint management committee to advise project preparation, approval and evaluation was established along with improved guidelines for project disbursement and project selection.

These broad features underlay the changes described above and shape the program’s evolution. The first charge was that the Convention moved from being essentially an economic agreement to one in which political, social and cultural concerns attained much greater weight. This trend has gained in strength at the same time as economic benefits have declined.

The second was the introduction of conditionalities through changes in development philosophies and approaches and the alignment of EC development policy with that of other Western donors (national and international). In this regard, it should be noted that Lomé I was neutral with respect to development policy choice. Lomé III was a watershed in this regard since it placed emphasis on rural and agricultural development with strategic focus on food self-sufficiency, basic needs and small-scale operations. It was a choice for unbalanced growth and was justified in the light of the contemporary situation prevailing predominantly in Africa. It ignored the terms of trade decline, the critical importance of export earnings and the need to address transformation rather than insulation from the terms of trade. Lomé III also side-stepped industrial processing and a better balance in the blending of industrialization with agriculture (agro-processing).

Lomé IV struck a better policy balance by underscoring the need for structural adjustment, especially programs that support the transformation of production structures. More emphasis was placed on reviving existing exports and developing potential exports. It, however, linked EC development policy to that of the

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IMF/ World Bank by focusing on the need for efficiency and on the importance of a correct market-oriented policy framework for development.

In the process of reshaping Lomé I, a gap emerged between means and objectives. The addition of several new areas of cooperation since Lomé I has not been matched by the corresponding provision of resources. Furthermore, the overall financial package has only been adjusted for price increases even though the number of ACP members has grown from the original 46 to 70. Although this resource constraint was reduced somewhat by improving the quality of aid (terms and conditions) and debt relief, the bulk of the adjustment came through the effective use of these resources through enhanced project choice and implementation.

Partly as a result of the above, but mainly stemming from international (terms of trade, debt, commodity crises, etc.) and national developments, the capacity of Lomé to serve the development needs of the ACP was severely reduced. The latter observation was highlighted by the divide in negotiating Lomé IV. In order to respond to declining economic fortunes, ACP sought innovations in terms of debt relief (bilateral and multilateral) and EC support for stable remunerative international commodity prices (in particular cocoa and coffee). In terms of consolidation, major changes to STABEX, SYSMIN and the volume of financial assistance (ACP requested 15 Billion ECUs) were requested. The Community responded with innovations in the duration of the Convention (10 years as against 5 in Lomé III), wider geographic coverage (inclusion of Haiti, Namibia and the Dominican Republic) and the structural adjustment facility. Minor adjustments were made in STABEX, SYSMIN and financial aid (grants rather than special loans and EC multilateral debt relief). 8,500 million Ecu were allocated under the First Financial Protocol of Lomé IV and this has been increased to 12,000 ECU under the Second Financial Protocol.

Lomé IV therefore did not arrest the historical decline since Lomé I. Real per capita aid, which fell by 30% in Lomé II as compared to Lomé I, and 12.5% in Lomé III as compared to Lomé II, continued its downward spiral. In nominal terms, the financial envelope was augmented by only 20% under the First Financial Protocol of Lomé IV. Under the second financial Protocol of Lomé IV, there was an increase of over 20% in real terms.

On the trade side, the lack of diversification persisted. Primary products still heavily dominate ACP exports and ten products account for 80% of these exports. This situation was accompanied by falling ACP market shares (from 7% of EC imports in 1976 to 4.5% in 1991). The trade balance remains favourable to the EC in spite of the non-reciprocity provision.