United Kingdom Journals

Lomé V: towards a new trade horizon?

Joseph A. McMahon

Reader in Law
The Queen's University of Belfast

<J.A.McMahon@qub.ac.uk>

Copyright © 1997 Joseph A McMahon.
First Published in Web Journal of Current Legal Issues in association with Blackstone Press Ltd.

Summary

In 1996, the Commission published a Green Paper on the future of the relationship established with the African, Caribbean and Pacific countries under the Lomé Convention. The purpose of the Green Paper was to promote debate on the future of that relationship before negotiations open for a successor convention in 1998. This article examines the various trade options identified in the Green Paper and assesses them against the criteria identified by the Commission and the objective of the gradual integration of developing countries into the international trading system which is one of the objectives of the Community's development co-operation policy listed in Article 130u of the Treaty.

Contents

1. Introduction

2. The Green Paper and the Trade Options

3. Which Option?

(a) Option 1: The maintenance of the status quo

(b) Option 2: Integration of the ACP into the Community's GSP schemes

(c) Option 3: Status quo plus reciprocity

(d) Option 4: Differentiated reciprocity.

4. Conclusion - A New Trade Horizon?

Bibliography

1. Introduction

In 1975, the first Lomé Convention established a relationship between the Community and 46 African, Caribbean and Pacific (ACP) countries, that relationship has been enlarged and strengthened by successive conventions. Negotiations for a successor to the current convention, Lomé IV, will begin in September 1998 and to promote debate on the future of the relationship in November 1996, the Commission published a Green Paper. The foreword to the Green Paper concludes:

"On the threshold of the 21st century the ACP countries are looking forward, perhaps for the first time, to real prospects for development. But at the same time the standing and strength of government structures in these countries are under severe strain. This is not the time to slacken our efforts or downgrade the quality of our partnership. We should rather raise our political sights in the best sense of the term." (Commission 1996)

The Green Paper is a frank and detailed review of the nature of the relationship established with the ACP. The proposals made in it are not formal; these will be made in time for the start of negotiations. What is clear, however, is that a fundamental revision of the Lomé relationship, which is recognised as being a key part of the Community's external policy, is considered necessary by the Commission. The responsibility the Community feels for the ACP dictates that a successor to Lomé IV will be negotiated but it will, indeed should, not be simply Lomé V.

It would not be possible to examine all aspects of the Green Paper in sufficient detail within the confines of this article, so discussion is limited to only one area, that of the trading relationship between the parties. As a potential justification for the choice of this aspect of a multi-faceted relationship, Article 130u sets as one of the objectives of the Community's development co-operation policy, the integration of developing countries into the international trading system. The method adopted is to discuss the trade aspects of the Green Paper and, in particular, the models for the future trading relationship. In the final section efforts will be made to assess whether the new Convention will downgrade the quality of Community-ACP trade partnership.

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2. The Green Paper and the Trade Options

The existing level of trade treatment offered to the ACP under the fourth Lomé Convention allows for trade free of customs duties and equivalent charges, quantitative restrictions and measures having equivalent effect, for industrial products. For agricultural products, those subject to the Common Agricultural Policy (CAP) would enjoy a margin of preference over imports from all other third countries. Provision was made in each convention for the possibility of improving the agricultural trade treatment through consultations with the ACP States should they request special treatment for a product not already covered by such treatment. The existing range of agricultural concessions granted to the ACP by the Community, contained in Annex XL to Lomé IV, include duty-free access for various tropical products, various forms of relief from the import measures relating to imports of products subject to the CAP and imports of various products under arrangements made by protocols to the Convention. The agricultural concessions granted in areas covered by the CAP have been characterised as follows:

"... although ACP countries may enjoy relative preferences over non-ACP suppliers outside the EU, they still face the barriers of protectionism in the EU erected in the interest of domestic EU producers. The ACP's relative disadvantage vis-à-vis EU suppliers is still substantial." (Davenport, Hewitt & Koning 1995, p 12)

The mid-term review of the Convention offered the Community the opportunity to realise changes to the trade regime to take account of the effect of the Uruguay Round but the main focus of these changes related to the provisions on trade development. However, changes were made to the trade regime by expanding the coverage of preferential treatment and through the relaxation of quantitative restrictions and/or expansion of the import calendars for certain agricultural products, such as sheepmeat, poultry meat and milk products. The changes introduced by the mid-term review confirm that the granting of preferences, although an important factor in the trading relationship, is not the only aspect of that relationship. The insertion of Article 95 on trade development by the third Lomé Convention and the amendments introduced by Lomé IV and the mid-term review of that Convention confirm that the emphasis in the future would be the promotion of internal conditions within ACP States leading to export growth and diversification. This does not imply that trade preferences do not have a role to play in the future but as the Joint Declaration on Trade Development recognises there has been a "serious deterioration of trade performance of ACP States over the last twenty years." This deterioration has occurred despite the provisions of the four Lomé conventions on trade preferences.

Whether or not these limited reductions will compensate the ACP for the preference erosion they will suffer as a result of the reduction in the level of the most-favoured-nation tariff, for example on tropical and agricultural products, the phasing out of the Multifibre agreement and the changes to the trading system for temperate agricultural products, is doubtful. For example, the competitive advantage enjoyed by ACP exports of textiles and clothing to the Community as a result of their exemption from the Multifibre Agreement will disappear. It has have estimated that the ACP will suffer a loss of $177 million export revenue for tropical products and a net loss of $226 million as a result of changes in temperate agricultural trade (Davenport, Hewitt and Koning pp 38-48). Of all the developing countries it, therefore, appears almost certain that the ACP will be the most detrimentally affected by the outcome of the Uruguay Round. Examination of the status quo led Cosgrove to conclude that the Lomé Convention had failed ACP trade, for although exports of ACP manufactured products have increased since 1976, the extent of the growth and diversification of that trade has been disappointing (Cosgrove 1994). Maintenance of the status quo under the first option will continue this poor export performance of the ACP.

Part 1 of the Green Paper examines the nature of relationship established between the Community and the ACP over the last twenty plus years and those factors, internal and external, which have affected that relationship. On trade, it confirms the point made above that the preferences granted by the Conventions have declined in value and, although such preferences still retain some value, they will decline further as a result of other factors such as the Uruguay Round and other approaches to liberalisation. ACP export growth and diversification have not occurred as a consequence of the preferences, which have not even allowed the ACP to retain their market share in the Community. The Green Paper continues:

"The reasons for ACP countries' poor overall export and growth performance, despite the breadth and depth of the Lomé preferences, are varied. Lack of critical factors such as infrastructure, shortage of entrepreneurship, low levels of physical and human capital, low levels of savings and investments and undeveloped financial sectors, on the supply side, have limited the benefits that could be derived from the preferences." (Commission 1996 p 17)

This helps to explain the emphasis placed during the mid-term review on the need to encourage trade development and regional integration. However, one factor missing from the above analysis is the extent to which the export performance of the ACP have been affected by debt problems and the resulting constraints imposed by structural adjustment programmes agreed with the World Bank and the IMF.

Given that there will be a new agreement to succeed Lomé IV, the next question addressed is the nature of that agreement. The Commission identify three core areas around which the future of the Community's co-operation policy with the ACP could be restructured; the social and economic dimension; the institutional dimension and the public sector; and, trade and investment. In each case, the Community, in line with its own development co-operation policy, would support the efforts of the ACP to achieve those conditions, political, economic and social, which would lead to sustainable development.

According to the Commission the integration of the ACP into the international economy constitutes the challenge for the new relationship to be established in the area of trade and investment. The Commission offer a menu of four main trade arrangements for the new convention before moving on to discuss investment protection and promotion. The first option is the continuation of the present trade arrangement. A variation on this would allow for improvements in market access together with a relaxation of rules or agreements in a number of trade-related areas (standards, competition policy, intellectual property). A further variation would restrict this offer to only the least developed, requiring the more advanced ACP states to choose one of the other options.

The second option is the integration of the existing trade arrangement into the Generalised System of Preferences (GSP), thereby reducing the convention to an aid package. The GSP would be reformed to ensure that the least developed ACP continue to benefit from the current arrangement. The third option would require all ACP countries to extend reciprocal trade treatment to the Community, thereby promoting the integration of the ACP into the international economic system. A variation on this option constitutes the fourth option which is differentiated reciprocity, allowing for variable reciprocity between the Community and various regional groupings within the ACP. Variations or enhancements on both the third and fourth options would allow for the conclusion of agreements in various trade related areas and an agreement on services.

The Commission present two further options which involve a mixture of the four options above. The fifth option is differentiation under a single framework allowing the ACP to choose which of the four options they want depending on, amongst other factors, their level of development and their capacity to grant reciprocal concessions. There would, therefore, be four tiers to this trade arrangement; region to region free trade areas, bilateral free trade areas, non-reciprocal preferences and graduation into the GSP. The sixth and final option continues to allow for differentiation but without the overall framework, although the aid package would remain. Under all the options, improvements would be made to the existing provisions on investment protection and promotion. The Commission conclude their discussion of the future trading arrangements by noting:

"Failure to devise an appropriate framework may result in the breaking up of the ACP group, the drifting away of some ACP regions and countries from the present link with the EU, and further marginalization of the poorest ACP countries." (Commission 1996, p 63)

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3. Which Option?

Each of the four main options are examined in detail below to determine which, if any, of them presents an appropriate framework to ensure the future development of ACP trade with the Community. This examination is conducted in the light of the existing provisions of the Lomé Conventions, as modified most recently by the mid-term review, and the new international trade reality resulting from the successful conclusion of the Uruguay Round and the birth of the new World Trade Organisation (WTO).

(a) Option 1: The maintenance of the status quo

This option appears to confirm that the ACP would remain at the top of the pyramid of trade privileges granted by the Community. However, closer examination of the first option reveals that the status quo is not actually being maintained, as the Commission point out that this option should be supplemented by a requirement that the ACP submit and bind a tariff schedule under the GATT. The existing Convention has a waiver from the GATT as a result of the non-reciprocity provision. This is evidence of the existing incompatibility of the Convention with the rules of international trade. The inappropriately named "status quo" option would still require a waiver because of the differential treatment accorded to the ACP countries as against other developing countries under the current trading arrangements. Any new waiver, like the current one, would be subject to annual review, thereby reducing the security of existing arrangements. The Understanding on the Interpretation of Article XXV concluded during the Uruguay Round requires that the Contracting Party requesting the waiver, in this case the Community, should describe the policy objectives to be pursued and the reasons which would prevent the realisation of those objectives being realised by measures which are consistent with GATT obligations. It is by no means clear that all of the ACP are in a sufficiently exceptional position, as opposed to other developing countries, to justify the granting of a waiver.

Moreover, in the case of the Caribbean and Pacific countries, the maintenance of the existing arrangements would be a factor frustrating regional integration. The promotion of regional integration among the ACP and between the ACP and other developing countries has been one of the goals of the Lomé relationship. For example, an amendment to the rules of origin on cumulation introduced by the mid-term review allows the ACP to request that products from neighbouring developing countries, other than an ACP State, belonging to a coherent geographical entity, be considered as originating in the ACP State.⁽¹⁾ The apparent generosity of this new provision is limited by the fact that cumulation can only occur within a region and is further limited by the exclusion of certain products by Annexes X and XI to the Protocol on the rules of origin from the provision.

In both the Caribbean and the Pacific potential exists for regional co-operation between the member countries of the Lomé Convention and developed countries in both regions. However, the Community could not contemplate the accession of ACP countries to regional arrangements involving other developed countries, as such arrangements, by their vary nature, would involve discrimination against non-members. Yet, endorsement of the objective of "open regionalism" notably by Asia-Pacific Economic Co-operation limits, if not eliminates, this problem for the Pacific countries but the possible extension of the North American Free Trade Area to include all of the American continent, unless carried out on the principle of open regionalism, would present a problem for the Caribbean countries. If the goal of the trading arrangements is to create an environment in which trade and investment can develop, it hardly seems reasonable to select an option for the future development of the trading relationship which restricts policy options for the ACP or condemns them to a trading relationship which has significantly failed to develop their trade since 1975.

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(b) Option 2: Integration of the ACP into the Community's GSP schemes

This, more WTO-consistent, option would allow the ACP to develop regional links with other developed countries, and would encourage greater regional integration between developing countries. It would also place the ACP, in terms of access to the Community market, on a par with other developing countries, save those countries that have entered into a regional trade arrangement with the Community. The ACP's position in the pyramid of trading privileges would therefore be taken by the Mediterranean countries, who have concluded regional trade arrangements with the Community.

The GSP is a unilateral concession by the Community and so this option would not improve the predictability of the trading arrangements and thus encourage greater investment in the ACP. In addition, this option presents two particular problems. Firstly, the least advanced ACP countries would suffer from the removal of Lomé preferences. They could be compensated for such losses through improvements to the Community's GSP which could make preferences for all least developed countries equivalent to those granted to the ACP. This would not constitute a major extension of the GSP as the vast majority of those countries classified as least developed are in fact ACP countries. This solution would also accord with the Comprehensive and Integrated Plan of Action adopted by the WTO in December 1996 to promote the exports of the least developed countries (WTO 1997a). Whilst a solution can be found for the first problem associated with the integration of the ACP into the Community's GSP, the second problem is perhaps insoluble. The various protocols to the Convention allowing for special treatment of various ACP products would have to be discontinued.

Protocol 6 of the first Lomé Convention on bananas noted that the Community and the ACP States agreed that no ACP State was to be placed "as regards access to the market and market advantages, in a less favourable situation than in the past or at present." The completion of the internal market led to a common organisation of the market in bananas which allows for the continuation of traditional levels of ACP banana exports to the Community whilst setting a quota for Latin American or dollar-zone producers and non-traditional ACP exporters (OJ 1993 L 47/1). The import regime allows for the continuation of traditional levels of ACP banana exports to the Community whilst setting a quota for Latin American or dollar-zone producers and non-traditional ACP exporters. The initial quota was set by Article 18(1) at two million tonnes, although provision existed for an additional quota to be fixed every year on the basis of the forecast supply balance. Under the regulation, for quantities within the quota, the duty would be set at 100 ECU per tonne and for those in excess of the quota, the duty would be increased to 850 ECU per tonne. Of this tariff quota, 90000 tonnes was reserved for duty-free entry of non-traditional ACP bananas and the allocation of quantities between these countries was subject to a further Community Regulation.(Regulation 478/95 OJ 1995 L 49/95) This regulation also confirmed special arrangements for Colombia, Costa Rica, Nicaragua and Venezuela as part of the Banana Framework Agreement (BFA) concluded during the Uruguay Round. Imports of bananas, irrespective of source, would be subject to various licensing procedures.

The new regime was applauded by ACP producers as it allowed for the continuation of their traditional exports to the Community. However, the dollar-zone producers were very critical of the regime and a complaint was made to the GATT on the basis that the level of the quota was set below the level of imports since 1988. As a result of the complaint, the tariff quota was increased by 100000 tons for 1994 and 200000 tons for 1995 for dollar zone and non-traditional ACP exporters. This did not put an end to the dispute and a further complaint was made by Ecuador, Guatemala, Honduras, Mexico and the United States to the WTO in February 1996. The final report of the Panel was issued in April 1997 (WTO 1997b)

The ACP pointed to the severe economic damage which would be caused to ACP banana producers if the Panel decided that the banana regime was contrary to the rules of the WTO. The ACP claimed that the obligations of the Community to ACP banana producers extended beyond the Banana Protocol so that the Community was required to safeguard the traditional markets of, and advantages enjoyed by, the ACP. As the Banana Protocol had been as aspect of the Lomé relationship since 1975, these markets and advantages had been enjoyed since that time and so the relevant reference period was 1975-91. Moreover, certain of the markets were effectively "guaranteed" markets, so by drawing a distinction between traditional and non-traditional ACP banana exporters and by setting the reference period for most of the ACP as the period 1988-91, the Community had acted contrary to the provisions of the Lomé Convention. The resulting banana regime was, in the opinion of the ACP, clearly covered by the terms of the waiver, including potential Community breaches of Articles I and XIII covering traditional ACP banana exports.

As for the outcome of all these arguments, the Panel concluded that the Community had acted inconsistently with Article XIII GATT dealing with the administration of tariff quotas, which requires a member to treat all imports in a similar manner. By drawing a distinction between various types of imported bananas, traditional ACP bananas, non-traditional ACP bananas, BFA bananas and others, the Community banana regime had breached this article (WTO 1997b, para. 7.90). In their examination of the Lomé waiver, they pointed out that the waiver was limited to that preferential treatment which was required by the Convention, it could not extend to all preferential treatment which the Community might wish to accord to the ACP.

The ruling of the Panel, recently upheld on appeal, may well signal the death-knell for the Community banana regime. In any event the regime is set to expire in 2003 and it is unlikely that the simple re-enactment of the existing trading regime will be one option for the future. The prospect of further changes to the banana regime to accord with the new rules of international trade must be a matter of some trepidation for ACP exporters of bananas, especially for the Caribbean exporters, given the high export dependence of these countries on exports to the Community market (Davenport, Hewitt & Koning 1995, p 16). Despite over twenty years of co-operation under the banana protocols to the Lomé Conventions, ACP bananas remain uncompetitive on the Community market when compared to dollar-zone producers. Greater competitiveness and reduced export dependence are required before the special treatment of traditional ACP banana exports is brought to an end. Irrespective of when the reform of the banana regime occurs, the Community must adopt a system of trade and non-trade measures consistent with the WTO and WTO rules which also meets the demands of the ACP banana exporters. This will represent a real challenge to the Community which must be met irrespective of any changes to the trading relationship.

Under Protocol 7 of Lomé IV, the Community and the ACP States agreed to take special measures to enable traditional ACP exporters of beef and veal "to maintain their position on the Community market, thus guaranteeing a certain level of income for their producers." The special measures involved the reduction in import duties, other than customs duties, on beef and veal originating in certain ACP States by 92%. The concession is limited to six countries (Botswana, Kenya, Madagascar, Namibia, Swaziland, and Zimbabwe) and each country is given an import quota. It has been estimated the impact of reform as a result of the Uruguay Round Agreement on Agriculture on Protocol 7 to Botswana, one of the beneficiaries of the protocol, to be $11.6 million; this negative impact would increase significantly if the Protocol had to be abolished (Page and Davenport 1994, p 36).

The special commodity arrangement for sugar, Protocol 8 to Lomé IV, involves an undertaking by the Community to "purchase and import at guaranteed prices" specific quantities of cane sugar which the ACP states undertake to deliver to it. Article 1 of the Protocol continues by noting that the implementation of these undertakings is to take place within the common organisation of the EC market in sugar and this common organisation should not prejudice the undertaking given by the Community. The quantity of sugar benefiting from the Protocol is set at 1.3 million tonnes and this is subdivided between those ACP states listed in the Protocol. The quantity of sugar cannot decline below this figure without the consent of the ACP states concerned. Under Article 5 of the Protocol, the sugar is to be marketed in the Community at prices freely negotiated between buyers and sellers. The Community agreed to intervene only when quantities of sugar could not be marketed within the Community at a price equivalent to or in excess of the guaranteed price.

Although the Protocol represents a limited guarantee of free and assured access for one important commodity to the Community, its provisions have been subject to criticism, in particular the provisions on price and on quantities. Concern about the evolution of prices was discussed at Special Ministerial Conference of the ACP in May 1990, where the Secretary-General of the ACP group commented:

"The prolonged freeze of the guaranteed sugar price, which has now turned into a decrease, combined with the reluctance of the Community so far to adopt other measures to counteract the effects of such actions and to alleviate the effects of international developments, pose a serious threat to the ability of the protocol to meet its objectives." (The Courier, No. 120 (July-August, 1990) p 35)

Similar problems have occurred in relation to the allocation of quantities under the Protocol, despite offer by Portugal on accession to the Community to buy 0.3 million tonnes of ACP sugar. In 1995, the Commission and the ACP negotiated a five year agreement providing for an annual quota based on demand within the Community (OJ 1995 L 181/1). It is clear that the additional quota is outside the context of the Sugar Protocol as the quantity imported will not benefit from the Community guaranteed price.

Whilst abolition of the Protocols may solve certain problems for the Community, it would have a devastating effect on the ACP. The problems with bananas have already been noted but the problems in relation to sugar appear even more difficult. As a result of the Uruguay Round Agreement on Agriculture it is estimated that the ACP will suffer an overall loss of $76 million as a result of the changes to exports of sugar (Page and Davenport 1994, p36).

Article 1 of the Sugar Protocol contractually obliges the Community to import ACP sugar "for an indefinite period", although Article 9 allows for denunciation on two years notice. Denunciation by the Community would only add to the problems which ACP sugar exporters are likely to face as a result of the Uruguay Round and would breach the commitment in Protocol 22 of the UK Act of Accession and the spirit of the arrangements enshrined in the Sugar Protocol. Even if the legal problems can be solved, what is certain is that free trade in protocol commodities, notably, bananas, will lead to a significant reduction in ACP exports. It may be possible that the trade treatment guaranteed under the protocols could be continued by some form of preferential arrangement. This would require a waiver from the GATT which would have to be limited to a set time period but which would suffer from the same shortcomings, identified above, concerning whether or not the ACP are in such a special position so as to justify the granting of a waiver.

Whilst this second option would eliminate the trade and investment aspects of the relationship established in 1975 and render aid the primary focus of the future of that relationship, it assumes, of course, that the relationship could survive the impact of the termination of the various commodity protocols. Both this and the first option encounter difficulty either with the new rules of international trade or with the impact of those rules on the proposed new arrangements; indeed the second option could destroy the basis for any future partnership.

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(c) Option 3: Status quo plus reciprocity

The third option is a potential solution to both of these difficulties, and a potential factor enhancing the relationship, as it involves the maintenance of the existing arrangements with the additional requirement that the ACP grant reciprocal concessions to the Community. Potentially, this would allow the new trading arrangement to be covered by Article XXIV GATT through the creation of a free trade area between the parties, thereby integrating the ACP into the international trading system and creating an environment more conducive to greater investment. The latter objectives would be further enhanced if this arrangement was accompanied by agreements in various trade related areas and on services.

In the negotiations for the original Lomé Convention, both parties agreed that the promotion of trade, which recognised the differing levels of development, should be the objective of their trade co-operation. The only matter of dispute was how this was to be achieved. For the Community, this involved the establishment of reciprocity and for the ACP it involved the unhindered access of all their products to the Community market. Neither party achieved their objective. According to Article 7 of the first Convention, given the "present development needs" of the ACP States, there would be no requirement to grant reciprocal concessions to the Community for the concessions which they had been granted. According to Article 7(2), the only obligations to be imposed on the ACP was that they should not discriminate against the Member States and grant the Community treatment no less favourable than most-favoured-nation treatment. This represented a partial victory for the ACP position that there should be no obligation to grant reciprocal concessions. Complete success was not achieved until 1985 when Article 25 of Lomé III provided that the trading arrangements "shall not comprise any element of reciprocity for those states as regards free access." The abolition of the element of non-reciprocity would therefore represent a return to the pre-Lomé relationship between the parties.

There are more significant problems with this approach and they stem from Article XXIV GATT. To be consistent with the GATT, free trade areas, or in this case interim agreements leading to the formation of a free trade area, must comply with the provisions of paragraphs 5 - 8 of Article XXIV. What this option envisages is the creation of one large free trade area between the Community on the one hand, and the ACP, on the other. This is what both Part IV of the Treaty of Rome and the first Yaoundé Convention attempted to achieve and the GATT examination of both these arrangements gives some idea of the potential problem areas.

In relation to Part IV, the one member of the GATT Working Party questioned whether or not Article XXIV allowed for the co-existence of a customs union and a free trade area, and whether Article XXIV was really appropriate given the level of development of some of the parties (GATT, 1958, pp 102-104). The Working Party doubted whether the actual provisions of Part IV would actually lead to the creation of a free trade area (GATT 1958, p 90). Reference was made to Article 133(3) of the Treaty under which the associated countries were allowed to levy new import duties. Such new duties, it was argued, would infringe paragraph 8(b) as there would be no elimination of duties on substantially all the trade between the parties (GATT 1958, p 95). One final criticism of Part IV was that it breached Article I:2 GATT by extending preferences permitted by that article to countries who were not entitled to deviate from the most-favoured-nation provision (GATT 1958, pp 91-92). For most members of the Working Party, Part IV of the Treaty would not lead to the creation of a free trade area and was in fact merely a preferential agreement and so contrary to the GATT. A similar lack of enthusiasm greeted the first Yaoundé Convention. It was viewed as a mere extension of the preferential system established by Part IV and, therefore, could not be fully justified in terms of the legal requirements of the GATT (GATT 1966, 100).

This option would have to avoid these problems by ensuring that genuine concessions were granted by the ACP to the Community and that these covered "substantially all the trade" between the parties. This raises two problems. The first is in relation to "substantially all" the trade. The definition of this concept has raised particular problems in the history of the GATT and, although not directly addressed in the Uruguay Round Understanding on the Interpretation of Article XXIV, the preamble of the understanding recognises that the contribution which regional arrangements make to world trade is "diminished if any major sector of trade is excluded." Traditionally, one of the most problematic areas of exclusion has been agriculture and the Green Paper recognises that agriculture remains a sensitive area by arguing for the continuation of the status quo on the grounds that it would provide a breathing space for the CAP to evolve as a result of agricultural negotiations within the WTO and the enlargement of the Community to the East. Yet to be acceptable, agriculture must be included within the scope of the free trade area. This problem is further exacerbated by the fact that the Uruguay Round Agreement on Agriculture gives special and differential treatment to developing countries with respect to the scope, and implementation, of their obligations with respect to market access, domestic support and export subsidisation.

The second problem relates to the extent to which the ACP as a group are in a position to grant reciprocal concessions and whether or not the ACP as a group could agree on such concessions and a "plan and schedule" for the creation of the free trade area within a reasonable length of time. On this latter point, as a consequence of the Uruguay Round Understanding on the Interpretation of Article XXIV reasonable length of time is to be limited to ten years. If the free trade area is not to be established within that time frame, the parties have to provide an explanation of the exceptional circumstances justifying a longer time frame. Negotiation of reciprocal concessions (in both trade and services) and a plan could present an insurmountable obstacle to this option, especially as inter-ACP regional integration efforts have not been a total success. Equally, it appears that treating all the ACP as a group ignores the range of problems which these countries suffer from. Greater differentiation may be required.

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(d) Option 4: Differentiated reciprocity.

This option would solve the problems of the ACP negotiating as a group as it would allow for the establishment of either bilateral or regional free trade areas. This, and the previous option, would allow for the new trading arrangement to promote regional integration both within the ACP and between the ACP and other developing countries. Bilateral free trade areas would solve the negotiating problems identified above but this option would have to be restricted to the larger ACP countries who are in a position to offer reciprocal concessions covering substantially all areas of trade. One further problem here is that the region to region free trade area option assumes that the ACP regional agreement is functioning properly.

To counter problems relating to the limited size of the domestic markets of most of the ACP States, successive Conventions have encouraged the growth of regional co-operation among the ACP. This has resulted in the establishment of various regional organisations which split the ACP into seven groups; the Caribbean, the Pacific, the Indian Ocean, Central Africa, Eastern Africa, Southern Africa and Western Africa (Zehender 1988). This pattern has been used since the second Lomé Convention to support regional integration in the ACP. The amendments introduced at the mid-term review, for example to Article 243 on structural adjustment support, confirm not only the importance attached by the Conventions to regional integration but also the close relationship between reform at the regional level and reform at the national level.

There have been problems associated with this means of co-operation. Nomvete (1988) identified the problem areas in Africa as being parochialism; lack of grassroots support; the "dearth" of local private entrepreneurs and technical and management skills; the economic dependency of many African states; problems with the transport infrastructure; the multiplicity of organisations in an area and associated problems of an operational and institutional nature; and, finally, those which are inherent in the very nature of economic co-operation. According to Langhammer (1988), sub-Saharan Africa has never experienced the three factors which make for successful regional integration; economic homogeneity; sustained economic growth at a national level; and, a legally binding political commitment to economic integration. Consequently, he argues that the goal to be fostered should be economic co-operation between sub-Saharan countries rather than economic integration.⁽²⁾

The failure of regional integration programmes not only in Africa but through the developing world adds some credence to Langhammer's assessment that co-operation, not integration, is the way forward. However, the future for regional integration may be brighter than predicted by Langhammer given increasing emphasis by the Community in seeking regional solutions to development problems and by it addressing the range of policy measures necessary to achieve successful integration. For the Caribbean and the Pacific, the regional solution, involving either integration or co-operation with non-member countries, is feasible given the presence of other developed and developing countries in the region. This increases their policy options (Gonzales 1997). Policy options for Africa are limited to the Mediterranean countries.

Although a start has been made on resolving those factors noted above which frustrated the process of regional integration and co-operation in the 1970s and 80s, especially in Africa, further efforts will have to be made if this option is to succeed. Moreover, the option assumes that all ACP countries, including the least developed, would conclude either bilateral or regional free trade agreements with the Community which will be consistent with the rules of the WTO. This may not be a realistic assumption not only because of the problems associated with free trade agreements between developed and developing countries but also because of the increased vigilance of the WTO to ensure that all regional arrangements are consistent with the Article XXIV. Finally, as this option promotes differentiation, the continuation of the commodity protocols would be called into question and existing agricultural preferences would have to be renegotiated as part of the effort to establish a free trade area.

As options five and six involve a mixture of the four options above, they suffer from all the identified disadvantages. There are, of course, additional problems. For example, the fifth option, differentiation under a single framework, recognises the various problems of the ACP by anticipating four tiers to the trading arrangement; region to region free trade areas; bilateral free trade areas; non-reciprocal preferences; and graduation into the GSP. The option would require each ACP state to pick which tier it wishes to join, but it should not imply that as trade develops, an ACP state will be moved to the next, more advanced tier of the arrangement. The first two tiers would require the arrangement to conform to Article XXIV GATT. At the least this demands a level of reciprocity that would be incompatible with the granting of non-reciprocal preferences or graduation into the GSP. In addition, the fragmentation of the ACP under this option would lead to issues of deflection of trade and investment. Even greater problems would arise under the sixth option, differentiation leading to a variety of arrangements, which would definitely require an Article XXV GATT waiver. Such a waiver may be granted if all the ACP countries opting for the granting of non-reciprocal preferences are classified as least developed countries. Like the second option, the only common feature of the ACP group under this final option would be the aid package.

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4. Conclusion - A New Trade Horizon?

None of the options are problem-free, raising the question which, if any, are to be chosen as the future trading arrangement for the Lomé relationship. The Commission believe that some changes in those arrangements are necessary, not least to ensure their greater conformity with the new rules of international trade. The ACP clearly would like the existing arrangements, although not ideal, to continue for, as the Deputy Secretary General of the ACP Group recently commented, "The path to the ideal trade regime -like that to hell - is paved with good intentions." (The Courier No. 162 (March-April 1997) p 20). Can this difference to be resolved and, if so, how? There is no doubt that the difference can be resolved as there will be a Lomé V. The question of the precise trade arrangement(s) contained in that convention is much more problematic.

The new atmosphere engendered by the WTO concerning the rules of international trade make it evident that the new convention will be more consistent with those rules than previous conventions (Van Dijk 1996). The existing convention has a waiver until the year 2000 and maintenance of this option would require another waiver. As this would not constitute an improvement, in terms of consistency, some adaptation of the existing agreement is necessary. The minimum requirement would be to require some element of reciprocity. Not all ACP countries are in a position to offer reciprocal concessions; of the list of least developed countries, only nine are not members of the ACP. If reciprocity is offered and free trade areas are contemplated, such areas must be consistent with Article XXIV and with Article V of the General Agreement on Trade in Services (GATS), if the agreement extends to services. This too is problematic.

The solution to these problems may be to admit that, in relation to trade, the time has come when the ACP group should be broken up. As Davenport, Hewitt and Koning (1995, p 78) conclude,

"... the best advice to the ACP would be to rely not on the eroding and devaluing preferences which Europe offers them for sometimes dimly perceived historic reasons, nor to do exclusive aid-related deals with the EU, but to look to buoyant markets elsewhere, especially in Asia and in other regional groupings which offer them fewer words embodied in grand treaties but more action in the form of trade dynamism."

The answer to the question of how the ACP should be broken up has already emerged. Regional integration efforts show seven regions; the Caribbean, the Pacific, and five regions within Africa (central, eastern, southern and western Africa and the Indian ocean).

Of these seven, the Caribbean and Pacific members of the group should be encouraged to pursue regional integration and co-operation options in their own areas. Existing trading opportunities would, as far as possible, be accommodated within the Community's GSP. As the aid package would remain, Community efforts would be directed to those factors responsible for poor overall export and growth performance through the continuation of efforts to promote trade development and regional integration. For the least developed Caribbean and Pacific countries, existing trade opportunities would be maintained through changes to the Community's GSP to grant all such countries free and unhindered access to the Community market. This would also be the basic trade provision for the least developed African members of the ACP. For the remaining African states, reciprocity would be expected in the conclusion of bilateral free trade agreements or regional co-operation agreements.

The solution is not perfect but it does take into account the new international trade reality facing the parties. The solution is not without its problems; notably in the area of the commodity protocols, especially bananas, irrespective of the current problems in this area. If after over twenty years of co-operation, ACP banana exports remain uncompetitive on the Community market, perhaps the time has come to end that co-operation. This sense of realism should also ensure that the new convention marks the end of the historic links with the ex-colonies. The time of Lomé has passed; real prospects for development of the ACP countries rests on a recognition of this fact.

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Bibliography

Cosgrove (1994) "Has the Lomé Convention failed ACP trade?" (1994) 48 Journal of International Affairs 223.

Commission (1996) Green Paper on relations between the EU and the ACP on the eve of the 21st century: Challenges and options for a new partnership, (Brussels).

Davenport, Hewitt & Koning (1995) Europe's Preferred Partners? The Lomé Conventions in World Trade (ODI).

GATT (1958) Basic Instruments and Selected Documents, 6th Supplement.

GATT (1966) Basic Instruments and Selected Documents, 14th Supplement.

Gonzales (1997) "The future of EU-Caribbean links" The Courier No. 161 (January-February ) 72-73.

Langhammer (1993) "Integration 'through the market'; high costs and the risks of failure" The Courier No. 142 (November-December) 56-59.

Nomvete (1993) "Regional Integration in Africa, a path strewn with obstacles" The Courier No. 142 (November-December) 49-55.

Page and Davenport (1994) World Trade Reform: Do Developing Countries Gain or Lose? (ODI).

van Dijk "The EU's Trade Policy for the ACP Countries: Is It Conflicting with Multilateralism" in. Van Dijk and Sideri (ed) Multilateralism versus Regionalism: Trade Issues after the Uruguay Round (1996, Cass), pp 59-75.

WTO (1997a) WTO Focus No. 15 (January-February) pp. 11-12.

WTO (1997b) "European Communities - Regime for the Importation, Sale

and Distribution of Bananas", WT/DS/27.

Zehender (1988) "Regional co-operation in perspective - some experiences in sub-Saharan Africa" The Courier No. 112 (November-December) 51-53.

Footnotes

1. Annex LXXXVI, Lomé IV. Developing country is defined as any country listed as such by the Development Aid Committee of the OECD and South Africa. High Income countries and countries with a GNP in excess of $100 billion are excluded. As for the list of neighbouring developing countries they are; for Africa - Algeria, Egypt, Libya, Morocco, Tunisia and South Africa; for the Caribbean - Colombia, Costa Rica, Cuba, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Venezuela; and for the Pacific - Nauru. Back to text.

2. Ibid., pp 56-59, "Integration ‘through the market’; high costs and the risks of failure". This conclusion is based on three assumptions, namely, that: "African co-operation will be based on a sub-regional ‘open-club’ system. Secondly, it will rely primarily on the existing institutional framework... Finally, dialogues with non-member countries on concrete issues like aid, market access and resource management will be institutionalised and streamlined. (p 56.) Back to text.