The European Union and the Developing Countries: The Contonou Agreement

The European Union and the Developing Countries

The European Union and the Developing Countries The Cotonou Agreement

edited by Olufemi Babarinde and Gerrit Faber

MARTINUS NIJHOFF PUBLISHERS LEIDEN / BOSTON

A C.I.P. Catalogue record for this book is available from the Library of Congress.

Printed on acid-free paper.

ISBN 90 04 14199 5 © Copyright 2005 by Koninklijke Brill NV, Leiden, The Netherlands Koninklijke Brill NV incorporates the imprints Brill Academic Publishers, Martinus Nijhoff Publishers and VSP. http://www.brill.nl All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the Publisher. Authorization to photocopy items for internal or personal use is granted by Brill Academic Publishers provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers MA 01923, USA. Fees are subject to change. Printed and bound in The Netherlands.

Preface This conception of this project dates back to the European Studies Association (EUSA) meeting in spring 1999, where both of us had separately presented papers on the on-going negotiation of the future of the enduring relationship between the African, Caribbean, and Pacific (ACP) countries and the European Union (EU). Our panel of four presenters, which was wellattended, was the only one devoted to the subject of EU–South relations at the biennial meeting. Moreover, our quick and unscientific analysis of the volumes on display at the Book Exhibition hall revealed a paucity of scholarship on EU–South relations in general, and ACP–EU relations in particular. This seeming lack of interest in the topic inspired us to contemplate an edited volume, which would enable a comprehensive analysis of the future of the ACP–EU relations from a team of experts on the subject. We set out to sketch the volume, its chapters, and sequence before approaching contributors. Our hope was to edit a volume as though we were the co-authors as opposed to the co-editors, by minimizing the inevitable overlaps between chapters, while maintaining a consistent level of sophistry without being needlessly esoteric throughout the volume. Following in the ensuing chapters of this volume are original contributions by scholars in their own rights on the subject of ACP–EU relations. The analyses are, by design, invariably and universally descriptive, positive, and conjectural rather than theoretical, normative, and retrospective. We hope that this volume will fill a noticeable void in the scholarship on the EU, and that we have produced a reference book that can be useful to students and practitioners of ACP–EU relations and international development. We would like to acknowledge many people who, by their direct and indirect support, helped to make this project a reality. Foremost, we want to express our gratitude to the contributors for their contributions and for their patience with the editors in bringing this project to fruition. We thank anonymous referees for their useful suggestions. Finally, we acknowledge Georgia Lessard and her wonderful staff, especially Kay Stroehle, at Thunderbird’s Instructional Program Development and Support department for their invaluable assistance on this project. We are grateful to all of the contributors who have participated in the project.

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Contents Preface Tables Charts Abbreviations 1 From Lomé to Cotonou: ACP–EU Partnership in Transition Olufemi Babarinde and Gerrit Faber 2 The Changing Environment of ACP–EU Relations Olufemi Babarinde 3 The Negotiation of the Cotonou Agreement: Negotiating Continuity or Change? Joseph A. McMahon 4 Negotiating Economic Partnership Agreements: Contexts and Strategies Stephen Wright 5 Economic Partnership Agreements and Regional Integration among ACP Countries Gerrit Faber 6 An Alternative Strategy for Free Trade Areas: The Generalized System of Preferences Christopher Stevens 7 European Development Aid in Transition Paul Hoebink 8 Political Dialogue in a “New” Framework Karin Arts 9 The Role of Civil Society in the Cotonou Agreement Maurizio Carbone 10 Foreign Direct Investment in the Cotonou Partnership Agreement: Building on Private Sector Initiatives Dirk Willem te Velde and Sanoussi Bilal 11 The EMU and the ACP countries Peter Macmillan and Alison Watson 12 Conclusion: Synopses and Future Research Olufemi Babarinde and Gerrit Faber References List of Contributors Index

vii

v viii ix x 1 17 37

65

85

111

127 155 177 197

219 261 267 289 293

Tables 1.1

Selected Data of ACP Countries

5.1

Selected Economic Indicators of ACP Countries

103

5.2

Membership of RIAs in West and Central Africa

106

5.3

Membership of RIAs in South and East Africa

107

5.4

Average Applied Tariffs and Other Duties and Charges in West and Central Africa in Percentage Terms

108

5.5

Average Applied Tariffs and Other Duties and Charges in South and East Africa in Percentage Terms

109

6.1

Fishing Vessel Characteristics Necessary for Originating Status

122

7.1

131

7.2

EDF and EIB Budgets for Financial Cooperation with ACP Countries Top 15 recipients of EC Aid to ACP Countries, 1986–1998

134

7.3

Cotonou Agreement Financial Resources for 2000–2007

149

7.4

Distribution of Programmed Resources under EDF 9

152

10.1

Foreign Direct Investment and Host-Country Development

200

10.2

Inward FDI Stocks as a Percentage of GDP

206

10.3

Gross Exposure to Investment in Developing Countries

208

11.1

EMU, the EU, and the U.S.: Some Comparative Statistics

222

11.2

The ACP Countries: Selected Economic Information

246

11.3

The ACP Countries: Selected Economic Information

253

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13

Charts 10.1

FDI as Percent of Total Fixed Investment in ACP Countries

ix

205

Abbreviations AASM

Associated African States and Madagascar

ACP

African, Caribbean, and Pacific

AGOA

Africa Growth Opportunity Act

APEC

Asian-Pacific Economic Cooperation

ASEAN

Association of Southeast Asian Nations

AU

African Union

BCEAO

Banque Centrale des États de l’Afrique de l’Ouest

BEAC

Banque des États de l’Afrique Centrale

CA

Cotonou Agreement

CAP

Common Agricultural Policy

CACM

Central American Common Market

CARICOM

Caribbean Common Market

CBI

Cross Border Initiative

CDC

Commonwealth Development Corporation

CEMAC

Central African Economic and Monetary Community

CFA

Communauté Financière Africaine

CFSP

Common Foreign and Security Policy

CDE

Centre for the Development of Enterprise

CET

Common External Tariff

CID

Center for Industrial Development

CIB

Industrial Cooperation Board

COMESA

Common Market for Eastern and Southern Africa

COREPER

Committee of Permanent Representatives

CRNM

Caribbean Regional Negotiating Machinery

CSO

Civil Society Organization

CSP

Country Strategy Paper

CSS

Country Support Strategy/ies

CU

Customs Union

DG

Directorate General

DSB

Dispute Settlement Body x

EAC

East African Community

EBA

Everything But Arms

EBAS

EU–ACP Business Assistance Scheme

ECHO

European Commission’s Humanitarian Aid Office

EC

European Community

ECB

European Central Bank

ECU

European Currency Unit

ECGD

Export Credits Guarantee Department

ECOWAS

Economic Community of West African States

EDF

European Development Fund

EEC

European Economic Community

EIB

European Investment Bank

EKN

Exportkreditnämden

EMU

Economic and Monetary Union

EPA

Economic Partnership Agreement

ESCB

European System of Central Banks

EU

European Union

FDI

Foreign Direct Investment

FICs

South Pacific Forum Insular Countries

FSU

Former Soviet Union

FTA

Free Trade Area

GATS

General Agreement on Trade in Services

GATT

General Agreement on Tariffs and Trade

GDP

Gross Domestic Product

GNI

Gross National Income

GNP

Gross National Product

GSP

Generalized System of Preferences

HIPC

Highly Indebted Poor Country

IFC

International Finance Corporation

IMF

International Monetary Fund

INFAC

Investment Facility xi

IOC

Indian Ocean Commission

IOR-ARC

Indian Ocean Rim-Association for Regional Cooperation

LDC

Least Developed Country

LDLIC

Least Developed, Landlocked, and Island ACP State

M&A

Mergers and Acquisitions

Mercosur

Common Market of the Southern Cone

MFA

Multifiber Arrangement

MFN

Most Favored Nation

MIGA

Multilateral Investment Guarantee Agency

NAFTA

North American Free Trade Agreement

NEPAD

New Partnership for Africa’s Development

NGO

Non-governmental Organization

NIP

National Indicative Program

NTB

Non-tariff Barrier

OCT

Overseas Countries and Territories

ODA

Official Development Assistance

OECD PARI

Organization for Economic Cooperation and Development Programme d´Assistance Regionale Intégré

PPP

Purchasing Power Parity

PRSP

Poverty Reduction Strategy Paper

R&D

Research and Development

REPA

Regional Economic Partnership Agreement

RIA

Regional Integration Agreement

SAARC

South Asian Association for Regional Cooperation

SACU

Southern African Customs Union

SADC

Southern Africa Development Community

SAP

Structural Adjustment Program

SCM

Subsidies and Countervailing Measures

SEM

Single European Market

SMEs

Small and Medium-sized Enterprises

xii

SSA

Sub-Saharan Africa

SSI

Sector Specialization Index

STABEX

Stabilization of Export Receipts Scheme

SYSMIN

System for the Stabilization of Mineral Exports

TRIPS

Trade Related International Property Rights

TRIMS

Trade Related Investment Measures

UEMOA

West African Economic and Monetary Union

UN

United Nations

UNCTAD

United Nations Conference for Trade and Development

US

United States of America

WTO

World Trade Organization

xiii

Chapter 1

FROM LOMÉ TO COTONOU: ACP–EU PARTNERSHIP IN TRANSITION Olufemi Babarinde and Gerrit Faber

1. Introduction At a 23 June 2000 gathering in Cotonou, the capital of Benin, the 15 member states of the European Union (EU) and 77 Sub-Sahara African, Caribbean, and Pacific (ACP) countries signed a new partnership agreement. Otherwise christened the Cotonou Agreement, the new pact succeeded and replaced the durable Lomé Conventions, which had expired on 29 February 2000 after a quarter-of-a-century of shelf life. The Cotonou Agreement (hereafter, Cotonou) is the outcome of 18 months of protracted and arduous negotiations between the partners. On the one hand, Cotonou constitutes an affirmation and a continuation of an age-old tradition and relationship that was formally begun in

Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 1– 15. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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March 1957, when the Treaty of Rome was signed.1 On the other hand, the new partnership agreement amounts to a profound shift in the nature and essence of the relationship, relative to previous ACP–EU conventions. In a sense, the name change from ‘Lomé Convention’ to ‘Cotonou Agreement’ is both symbolic and an embodiment of the shift in philosophy and in design of the relationship. It is symbolic, partly because the agreement could, and was supposed to, have been signed earlier in May 2000 in Fiji.2 It is, however, also an embodiment of a break from the past as if to signal that the new relationship would not be business as usual, but the dawn of a new era. A careful scrutiny of the composition of the two groups of partners, as well as of the scope and instruments of cooperation, might enable a conclusion that the Cotonou Agreement is essentially a continuation of past practice. Indeed, Forwood aptly argues that: ‘Despite modifications in the instruments and objectives, all the features of Lomé have fundamentally been rolled over into the new convention. In the area of trade, where the most obvious change has taken place, the framework for trade will be determined at some point in the future, and the current arrangements will continue for at least another decade. Rather than radical overhaul, the story of Lomé is one of incremental change.’3

Other authors discern a different kind of continuity. For example, Raffer argues that ‘After a quarter of a century, the EU has finally been able to move decidedly towards the situation it had initially wanted when signing Lomé I but was unable to force on ACP countries then’, thus suggesting that perhaps the EU made many more concessions to the ACP than it was prepared to do during the negotiations of Lomé I, and that from Lomé II onwards, the EU has been rolling back these concessions.4 In contrast, however, Oyejide and Njinkeu conclude that ‘Although its trade elements are not yet in place, the Agreement already clearly indicates that these trade elements will represent a major departure from those associated with the Lomé Convention’, thus suggesting that Cotonou amounts to a break with the past.

1

2

3 4

Part Four of the European Economic Community (EEC) treaty made special allowances for the Overseas Countries and Territories (OCTs) of the European signatories of the treaty. To be sure, the relationship between the two groups of countries, which was not always benign, can be traced back to the fifteenth and sixteenth centureies, the era of European adventurism, through the colonial era of the late nineteenth and early twentieth centuries. The Agreement was initially slated for a May 2000 signing ceremony in Fiji, which had to be scrapped because of a coup d’etat in early May in the country. Forwood, 2001. Raffer, 2001.

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ACP–EU Partnership in Transition

Notwithstanding the foregoing, the fact that the two groups of countries have had a ‘special relationship’ for over 25 years makes it almost impossible to create a completely new form of cooperation agreement all of a sudden. And, indeed, the ‘Lomé acquis’ is visible in many parts of the Cotonou Agreement. This raises the question whether the new agreement constitutes a genuine innovation on the Lomé Convention and, second, whether this amounts to a more effective vehicle for development cooperation. This is the focus of the present volume. 2. A Brief History As noted earlier, ACP–EU relations can be traced to the European Economic Community (EEC) Treaty of Rome in which provisions were made to preserve the special economic relationships that existed between some EEC countries and their colonies, also known as Overseas Countries and Territories (OCTs), and also to promote their economic and social development. Following the independence in the early 1960s of most of their OCTs, the EEC negotiated and concluded an association agreement with its largely francophone former colonies in Sub-Saharan Africa (SSA). The accord between the EEC (with six member states) and 18 Associated African States and Madagascar (AASM) was signed in Yaoundé, Cameroon in 1963. The essentially reciprocal trade, technical cooperation, and economic assistance pact was renewed for another five years in 1969 (Yaoundé II). The accession of the U.K. to the EEC in 1973 paved the way for the Community to negotiate and conclude a new, single agreement with the AASM group and former British colonies in SSA and in the Caribbean and Pacific islands.5 The agreement was signed in Lomé, the capital of Togo, in 1975 between the EEC (with nine member states) and 46 ACP countries. The Convention was subsequently renegotiated, signed, and entered into force in 1980 (Lomé II), 1985 (Lomé III), and 1990 (Lomé IV). A midterm review of the fourth Convention was undertaken as required in 1995, which involved a new financial package. At each successive Lomé Convention, new issues were introduced, which was partly a tribute to the logic of gradualism and incrementalism that underpinned ACP–EU relations. Broaching new and sometimes sensitive topics was also as much a sign of the changing time as it 5

Protocol 22 of the U.K.’s accession accord stipulated that an economic and social development package that was comparable to the EEC-AASM pact would be extended to the U.K.’s former colonies in Africa, especially south of the Sahara. However, led by Nigeria, and almost fortuitously, both groups of less-developed countries announced their preference for a single negotiated accord, purposely to enhance their solidarity and to pool their limited resources.

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was a reflection of the partners feeling more comfortable with each other. Among the sometimes delicate and controversial issues that have been introduced in ACP–EU relations since 1975 were nonreciprocal trade concessions (Lomé I), the globalization of ACP–EU cooperation (Lomé II), and economic, social, and cultural rights as well as human dignity (Lomé III). Others included human rights, structural adjustment policy, economic diversification, intra-ACP regional cooperation, democratization, and rule of law (Lomé IV). According to most observers, Lomé remained the most farreaching, elaborate, and complex North–South contractual agreement among its contemporaries.6 During most of the accord’s 25-year history, it was widely held as the undisputed flagship of the EU’s development initiative, largely because of its unrivaled extensive concessions to the ACP group. Thus, it occupied the apex of the EU’s pyramid of privileges for almost two-and-a-half decades. One of the principal provisions of all four Lomé Conventions was nonreciprocal trade preferences, which allowed more than 90 percent of ACP exports, predominantly primary commodities, to enter the EU duty free. Special protocols that governed the exports of ACP sugar, rum, beef, veal, and bananas to the EU were appended to the Convention. Another privilege of the pact was the provision of economic assistance to the ACP countries via the European Development Fund (EDF). The disbursement of funds and the management of the EDF, which was first introduced for the OCTs in 1958, were based on ‘need’, defined by, among other requisites, per capita income. The third privilege the ACP group enjoyed was the provision of two commodity insurance schemes, viz., the stabilization of exports (STABEX) in Lomé I and the system of minerals (SYSMIN) in Lomé II, respectively, for countries that were dependent on agricultural exports and on the exports of minerals. The insurance schemes were designed to help mitigate the economic and budgetary impacts of shortfalls in export revenues of the aforementioned primary commodities. A fourth privilege was the provision of industrial and technical cooperation to enable the utilization of the know-how of the EU to facilitate the industrialization and development of ACP societies. To this end, a Center for Industrial Development (CID) and an Industrial Cooperation Board (CIB) were established. A final major provision of the arrangement was the creation of a handful of institutional frameworks to facilitate policy dialogue.7 In spite of the aforementioned privileges, many ACP countries remain in the ranks of the Least-developed countries. Lomé was unable to catapult even a 6 7

See, for example, Babarinde, 1998. It is important to bear in mind that the last two provisions are not unique to the Lomé Convention, because they can be found in other EU agreements with developing countries.

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majority of the ACP countries to the community of middle-income countries after 25 years of privileged concessions. Economic and social progress in the ACP group was uneven over time and space, but, generally, dramatically slow or even in reverse (see Table 1.1 in the annex to this chapter). It eventually dawned upon the partners and development experts that in many ACP countries—particularly in SSA—the Lomé Conventions were not effective in improving the environment for viable private investment in productive activities. The Lomé Conventions insufficiently addressed macroeconomic imbalances, low quality of public services, and lack of competition. As a result, economic growth was low, and financial and technical aid could not be very effective.8 It was only toward the end of the Lomé era that the EU tried to more effectively channel aid to those countries that attempted to formulate and implement policies that contributed to economic growth. With the benefit of hindsight, it might be argued that this change was a prelude to the much larger alterations that the Cotonou Agreement was to bring about. To its credit, however, Lomé had its moments and accomplishments, without which it would be difficult to fathom why it existed for as long as it did. One of its bright spots was that it remained, throughout its existence, the largest North–South economic relationship, involving almost one billion of the world’s population—71 ACP states (roughly 630 million people) and 15 EU states (roughly 370 million people)—spread across multiple continents.9 Lomé, thus, sensitized each side to the concerns, yearnings, vulnerabilities, and constraints of the other group, in an increasingly and extremely competitive global economy. Another achievement was that the relationship provided a forum for dialogue and cooperation in international fora, thus raising the visibility and stature of both groups of countries, especially the ACP group. Furthermore, none of the Lomé Conventions was imposed on the ACP group. Instead, all four Conventions were negotiated, signed, ratified, and implemented. It could, therefore, be argued that another achievement of Lomé was the fact that, despite the size of the countries involved and the fragility of many of the issues, the partners persevered and the relationship did not collapse. Moreover, Lomé attracted more developing countries to the ACP fold, as its membership grew by more than 50 percent between its inception in 1975 and its expiration in 2000. However, during the 1990s, it became clear that these achievements were insufficient compared to the cost of the cooperation. 8

9

These notions were already discussed at the end of the 1980s, e.g., in T. Killick and C. Stevens, 1989. See also: World Bank 1981, 1983, 1984, 1994; Ravenhill, 1986; Faber and Roelfsema, 1997; Collier and Gunning, 1999. These statistics were applicable to the Lomé Convention at the time of its expiration in February 2000.

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3. Is Cotonou Really Groundbreaking? Is the Cotonou Agreement a mere change of rhetoric or is there a change of substance? This question constitutes the essence of the discussions in the chapters of this inquiry. First, however, we will turn next to a cursory review of some of the significant innovations of the Cotonou Agreement. The Nature of the Agreement The Cotonou Agreement differs from the Lomé Conventions in a number of formal aspects. Most importantly, the Cotonou Agreement is a framework agreement consisting of objectives, principles, and options for instruments, while the Lomé Conventions were self-contained rule systems. This appears from several facts. First, the text of the new agreement contains only 100 articles, while Lomé IV-bis had 369 articles. Many of the implementation rules have been shifted to the annexes of the Cotonou Agreement. This applies for the trade rules during the preparatory period (2000–2008) and the implementation of financial cooperation. Second, the Cotonou Agreement itself has been concluded for a period of 20 years. The practical parts will or can be renegotiated at shorter intervals. The Financial Protocol applies for a five-year period, while the trade regime has to be negotiated before the preparatory period lapses. Consequent to the framework nature of the agreement, its implementation depends on the outcome of further negotiations and discussions. Both parties have already agreed to the financial package for the first five years of the agreement, while the trade part will require major negotiations between them in the years up to 2008. The Objectives The Cotonou Agreement is explicit as to its objectives: the reduction and eventual eradication of poverty is the prime goal of the cooperation. Poverty reduction should be ‘consistent with the objectives of sustainable development and the gradual integration of the ACP countries in the world economy’ (Cotonou, Article 1). This is more precise and different from Lomé IV in which the parties said that their central objective was ‘to promote and expedite the economic, cultural, and social development of the ACP states, and to consolidate and diversify their relations’ (Lomé IV, Article 1). It was only in Lomé IV-bis that improving international competitiveness was included as an objective of trade development (Article 15a), but it was not an overall objective 6

ACP–EU Partnership in Transition

as in the Cotonou Agreement. Thus, the objectives of the Cotonou Agreement are highly consistent with the objectives of the policy of development cooperation of the EU as formulated in Article 177 of the EC Treaty.10 The Principles of Cooperation The Cotonou Agreement has reaffirmed and refined the cooperation principles. Under Lomé IV, the principles of cooperation were equality between partners, the right of self-determination, and security of the ACP–EU relationship. The change in the new agreement is striking. While the principles of equality and sovereignty of ACP states in determining their development strategies are retained from Lomé, they are now qualified in the sense that there should be ‘due regard for the essential elements’ (Cotonou, Article 2). These essential elements are respect for human rights, democratic principles, and the rule of law (Cotonou, Article 9). In addition to the aforementioned, three new principles were added:  participation of other sections of society in the cooperation between the ACP and the EU ‘in order to encourage the integration of all sectors of society, including the private sector and civil society organizations, into the mainstream of political, economic, and social life’. The development of the private sector has become a priority in the new agreement. In Title I on development strategies, the first area for which such a strategy is outlined is the private sector;  dialogue and fulfillment of mutual obligations; parties will be accountable towards each other for meeting their obligations; and  differentiation and regionalization, which enables the parties to attune the ways and means of cooperation to the level of development, needs, performance, and long-term strategy of the affected ACP country. The changes in the principles make it clear that there is a strong wish—at least on the part of the EU—to put the ACP–EU relationship on a new footing by broadening the cooperation from a state-to-state relationship to a state-to-civil society and to private sector organizations. Similarly, the regionalization and differentiation principle does away with the previous practice under Lomé to continue to support a country even if it implemented policies that were inimical to development, human rights, rule of law, etc., as long as it did not suppress large sections of the populations or disregarded human rights on a large scale.

10

One might argue that poverty reduction has a higher priority in the Cotonou Agreement compared with the EC Treaty.

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Political Dialogue The parties have agreed to regularly engage in ‘comprehensive, balanced, and deep political dialogue, leading to commitments on both sides’ (Cotonou, Article 8). Subjects to be discussed in the dialogue include arms trade, excessive military expenditure, drugs and organized crime, and ethnic, religious, or racial discrimination. In addition to conflict prevention and peace promotion, the dialogue will regularly assess the ‘developments concerning the respect for human rights, democratic principles, rule of law and good governance’. If a country does not meet its obligations concerning human rights, democratic principles, and the rule of law, ‘appropriate measures’ may be taken, including suspension as a measure of last resort (Cotonou, Article 96). A comparable procedure applies for the obligation of good governance (Cotonou, Article 97). Trade Arrangements For 25 years, Lomé has granted the ACP nonreciprocal preferences that were more generous than the other preferential systems the EU operated. There are several options for the replacement of this system after 2007. Regional groups of ACP countries can negotiate Economic Partnership Agreements (EPAs) with the EU that liberalize trade in a reciprocal way during a 10–12-year period. Least-developed ACP countries can opt for the continuation of nonreciprocal preferences under the EU’s preferences for the Least-developed countries (LDCs) that cover almost all products.11 Non-LDC ACP countries that are not in a position to conclude an EPA can try to export under the EU’s GSP after 2007, which is also nonreciprocal in nature. These options are World Trade Organization-compatible, and do away with the discrimination that previously favored the ACP group, based on history and geography. EPAs are characterized by the mutual obligation to liberalize trade. Financial Support The changes in the aid mechanism are in line with the foregoing. The distribution of resources will be based on more explicit criteria than before, namely, need and performance. The latter is a striking innovation. Under Lomé, ACP countries got indications of the amounts of EDF money they could 11

Except arms, and, temporarily, some temperate zone agricultural products (such as sugar). This system is indicated as the Everything but Arms (EBA) initiative by the EU.

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expect for the five-year period of a particular EDF. There were no general criteria for the allocations. The performance yardstick now introduced will be assessed ‘in an objective and transparent manner on the basis of the following parameters: progress in the implementation of institutional reforms; country performance in the use of resources; effective implementation of current operations; poverty alleviation or reduction; sustainable development measures; and macroeconomic and sectoral policy performance’ (Annex IV to the Cotonou Agreement, Article 3). The financial cooperation will be reviewed on a country-by-country basis. There will be annual operational reviews and midterm and end-of-term reviews. A second major change in the aid section involves the pledges to support capacity building of community organizations and non-profit nongovernmental organizations in all spheres of cooperation (Cotonou, Article 7). A third change is the demise of the STABEX and SYSMIN mechanisms. Hailed as the major innovation of Lomé I and Lomé II, but unable to effectively tackle the instability of export receipts, these aid instruments have now almost disappeared. All told, it is evident that the traditional approach to development cooperation through state-to-state relations and government interventions that characterized Lomé has given way to a more mixed approach in which the participation of civil society and the private sector in the formulation and implementation of development strategies is actively supported. Furthermore, the EU seems determined to hold the ACP states more accountable, in return for trade and aid benefits, through political dialogue and reviews of aid implementation. Does this mean that the EU is finally taking the ACP countries seriously? Or should it be seen as the eventual translation of the decreased strategic importance of the ACP for the EU compared to the 1970s? Whatever the answer to these questions, one may argue that the ACP–EU relationship now has more in common with the contractual relationships between the EU and other developing countries. The discriminatory concessions to the ACP group in terms of trade and aid regimes are disappearing, as is the uncritical attitude towards the ACP as a result of ‘automatic entitlements’. 4. The Organization of the Volume Over the past quarter-of-a-century, the environment within which the ACP–EU relationship has existed has naturally and understandably changed. That changed international climate has profoundly affected what is required from the new Cotonou Agreement and has also changed the challenges ACP countries have to address in order to improve their standards of living. In 9

Olufemi Babarinde and Gerrit Faber

Chapter Two, Olufemi Babarinde identifies the most salient factors as well as analyzes how they have impacted the convention and necessitated a new and different arrangement for the twenty-first century. The negotiation of the new agreement that lasted from 1998 to early 2000 is the subject of Chapter Three. During that time period, the pressures for change and for conservation of the past came together. Formally speaking, these negotiations took place between two groups of countries, the EU and the ACP. In practice, the negotiations were much more complex, as noted by Joseph A. McMahon in his discourse of the negotiations and outcomes in terms of the interests and power positions of the parties. The Cotonou Agreement necessitates a continuous negotiating process until at least 2008, when the old nonreciprocal preferential trading system will expire. EPAs will replace it. Which international contexts and strategies will influence the outcomes of these negotiations? How can ACP countries organize themselves in order to optimize the gains that accrue to them from the EPAs? An important issue in this context is the traditional Lomé principle that all ACP countries have the same rights and obligations. Should a new regime adhere to this myth of equality? These and ancillary issues are the subjects of the discourse by Stephen Wright in Chapter Four. The trade regime of the Lomé Convention had at least two problems: its effectiveness, and compatibility with the World Trade Organization (WTO) obligations of the partners. In the transition period up to 2008, the ACP and the EU will have to clarify the options they are going to apply to solve these problems. In Chapter Five, Gerrit Faber discusses free trade areas (FTAs) between groups of ACP countries on the one hand and the EU on the other hand. Relying on a number of economic-theory-based conditions, the chapter investigates the economic effects of FTAs. The chapter then applies these conditions to the practice of regional integration among ACP countries, and answers the question whether FTAs will be a means to stimulate development in ACP countries. The alternative to free trade areas might be a reformed Generalized System of Preferences (GSP), which is the focus of the analysis by Christopher Stevens in Chapter Six. The chapter analyzes the amendments of the GSP that would be required to make it a trade instrument to serve the development objectives of the Cotonou Agreement. Apart from the trade arrangement, development aid has always been the main instrument of ACP–EU relationship. Although this policy area was not the most debated element of the negotiations, a number of important changes have been introduced. These changes are analyzed by Paul Hoebink in Chapter Seven against the background of the history of EU aid programs and a description of the decision-making structures of the EU aid machinery. Will the 10

ACP–EU Partnership in Transition

EU become a more effective and efficient donor for the ACP group under the Cotonou regime? An important aspect of the ACP–EU cooperation has always been political dialogue, which took place at different levels, including meetings of parliamentary representatives in the Joint Assembly. The new agreement continues and reinforces the dialogue (Cotonou, Article 96). Is such a dialogue an effective instrument to help create a development-oriented environment? Karin Arts tries to answer these questions in Chapter Eight by analyzing two examples of political dialogue during the negotiations of the Cotonou Agreement (on migration and on the possible accession of Cuba to Cotonou) and three cases of recent political dialogue between the EU on the one hand, and Haiti, Fiji, and Côte d’Ivoire on the other. One of the most innovative provisions of the Cotonou Agreement is the inclusion of non-state actors in the ACP–EU partnership. The implementation of the Lomé accords was the exclusive preserve of nation-states, and dialogue was very much a government-to-government affair, embodied in a ‘top-down’ development strategy. In light of the disappointing performance of ACP countries, and in view of an emerging consensus in the international development community that favors a ‘bottom-up’ approach to development, non-state actors have been accorded prominent roles in the new pact. In order to avail themselves of the concessions in Cotonou, civil society is to be involved in programming, political dialogue, and project implementation. The feasibility of the new ‘participative development’ paradigm is the focus of Maurizio Carbone’s analysis in Chapter Nine. Foreign Direct Investment (FDI) can provide a vital complement to domestic resources and foreign financial aid. Sanoussi Bilal and Dirk Willem te Velde argue in Chapter Ten that FDI, although not the sole panacea, can contribute to the transfer of technology and can help developing economies to take full benefit of their potential competitive and comparative advantages. In Chapter Eleven, Peter MacMillan and Alison Watson examine the potential impact the Economic and Monetary Union and the introduction of the Euro will have on the ACP group, particularly on those countries that are very dependent on trade with, and credits from, the EU. They further examine what the advent of the Euro is likely to mean for those African/ACP countries that already have a pegged currency regime with Europe, especially in terms of advancing their development. Chapter Twelve is, foremost, a synopsis of the conclusions of the volume’s chapters. In addition, it identifies research questions for future analysis. After reading these chapters, the reader will be able to answer the central question that this volume addresses: Is Cotonou only old wine in a new bottle? 11

Olufemi Babarinde and Gerrit Faber

The authors will discuss the innovations of Cotonou in terms of potentials and conditions that have to be met in order to realize a successful implementation.

12

ACP–EU Partnership in Transition

Annex Table 1.1

Selected Data of ACP Countries Pop (Millions) 2002

Country AFRICA Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verdeb Central Africa Republic Chad Comorosb Congo Congo RDC Côte d’Ivoire Djiboutib Eq. Guineab Eritrea Ethiopia Gabon The Gambia Ghana Guinea Guinea Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique

GN Income (U.S. bn $) 2002

GN Income p.c. ($) 2002

GDP % Growth 2001– 2002

GDP % Growth 1980– 1990

GDP % 1990– 2002

13 7 2 12 7 16 0.46

9.3 2.5 5.1 2.9 0.7 8.7 0.62

710 380 3,010 250 100 550 1347

15.3 6 3.1 4.6 3.6 4.4 NA

3.6 2.5 11.0 3.6 4.4 3.4 NA

2.7 4.9 5.1 4.0 -1.8 2.4 NA

4 8 0.76 4 52 17 0.67 0.49 4 67 1 1 20 8 1 31 2 3 16 11 11 3 1 18

1 1.8 0.24 2.2 5 10.2 0.59 2.2 0.8 6.5 4 0.4 5.5 3.2 0.2 11.2 1 0.5 3.8 1.7 2.7 0.8 4.7 3.6

250 210 310 610 100 620 880 4490 190 100 3060 270 270 410 130 360 550 140 230 160 240 280 3860 200

-0.8 9.9 NA 3.5 3 -1.8 NA NA 1.8 2.7 3 -3.1 4.5 4.2 -7.2 1 3.8 3.3 -12.7 1.8 4.4 3.3 4.4 7.7

1.4 6.1 NA 3.3 1.6 0.7 NA NA NA 2.3 0.9 3.6 3.0 NA 4.0 4.2 4.5 -7.0 1.1 2.5 0.8 1.8 6.0 -0.1

2.1 2.5 NA 1.6 -4.4 2.8 NA NA 4.3 4.6 2.5 3.3 4.3 4.3 0.7 1.9 3.5 7.4 2.1 3.1 4.2 4.4 5.2 6.9

13

Olufemi Babarinde and Gerrit Faber Pop (Millions) 2002 Country Namibia Niger Nigeria Rwanda Sao Tomé & Principeb Senegal Seychellesb Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Uganda Zambia Zimbabwea Total Africa, SSA CARIBBEAN Antigua & Barbudab Bahamasb Barbadosb Belizeb Cubab Dominicab Dominican Republica Grenadab Guyanab Haiti Jamaica St Kitts – Nevisb St Luciab

GN Income (U.S. bn $) 2002

GN Income p.c. ($) 2002

GDP % Growth 2001– 2002

GDP % Growth 1980– 1990

GDP % 1990– 2002

3.5 2 39.5 1.8

1790 180 300 230

2.7 3 -0.9 9.4

1.3 -0.1 1.6 2.2

3.7 2.6 2.4 1.7

0.16 10 0.08 5 9 45 33 1 35 5 25 10 13

0.05 4.6 0.59 0.7 NA 113.4 12.2 1.4 9.7 1.3 5.9 3.5 6.2

312 470 7607 140 NA 2500 370 1240 290 270 240 340 480

1.1 NA 6.3 NA 3 5.5 3.6 6.3 4.6 6.7 3.3 -8.4

NA 3.1 NA 0.5 2.1 1.0 2.3 6.7 NA 1.7 2.9 1.0 3.6

NA 3.9 NA -3.8 NA 2.2 5.5 3.2 3.5 2.0 6.9 1.1 1.1

687.62

309.99

449.78

2.9

1.6

2.6

0.7 0.33 0.27 0.26 11 0.71

0.64 4.31 2.5 0.8 44.4 0.27

9096 13255 9123 3252 3952 3733

NA NA NA NA NA NA

NA NA NA NA NA NA

NA NA NA NA 3.9 NA

9 0.09 0.88 8 3

19 0.42 0.65 3.6 7

2230 4498 742 440 2690

2.7 NA NA -0.9 1.1

3.1 NA NA -0.2 2.0

6.0 NA NA -1.0 0.7

0.37 0.16

0.33 0.63

8850 3951

NA NA

NA NA

NA NA

2 11 133 8

14

ACP–EU Partnership in Transition Pop (Millions) 2002 Country St Vincent/the Grenadinesb Surinameb Trinidad & Tobago Total Caribbean

PACIFIC Cook Islands East Timor Fijib Kiribatib Marshall Islands Micronesia Naurub Niue Palau Papua New Guinea Samoa Solomon Islandsb Tongab Tuvalub Vanuatub Total Pacific

GN Income (U.S. bn $) 2002

GN Income p.c. ($) 2002

GDP % Growth 2001– 2002

GDP % Growth 1980– 1990

GDP % 1990– 2002

0.12 0.42

0.35 0.54

2986 1283

NA NA

NA NA

NA NA

1

8.8

6750

2.7

-0.8

3.5

36.31

94.24

2611

1.4

NA

NA

NA NA 0.83 0.08

NA NA 1.73 0.05

NA NA 2085 538

NA NA NA NA

NA NA NA NA

NA NA NA NA

NA NA 0.01 NA NA

NA NA 0.18 NA NA

NA NA 13408 NA NA

NA NA NA NA NA

NA NA NA NA NA

NA NA NA NA NA

5 NA

2.8 NA

530 NA

-0.5 NA

1.9 NA

3.1 NA

0.46 0.09 0.01 0.19 6.67

0.25 0.13 0.05 0.26 5.45

NA NA NA NA -0.5

NA NA NA NA NA

NA NA NA NA NA

549 1311 458 1333 833

a

denotes data from 2003 World Development Indicators denotes data from The World Economic Factbook 2003/04 (Euromonitor), and income data are in terms of domestic output, i.e., reported as GDP instead of national output or GNP; NA means ‘not available’. Sources: 2004 World Development Indicators (The World Bank).

b

15

Chapter 2

THE CHANGING ENVIRONMENT OF ACP–EU RELATIONS Olufemi Babarinde

1. Introduction On 23 June 2000, the Cotonou Agreement (hereafter, Cotonou), was signed by the European Union (EU) and 77 Sub-Sahara African, Caribbean, and Pacific (ACP) countries.1 The pact marked both a continuation of, and a new beginning in, the long-standing relationship between the two groups of countries. As noted in Chapter One, it is a North–South partnership that dates back to the origins of the EU in the 1950s, when the European Economic Community (EEC) was established.2

1

2

Since the signature of the Cotonou Agreement, Cuba acceded to the African, Caribbean, and Pacific (ACP) group in December 2000, and East Timor joined in May 2003. They thus became the 78th and 79th members of the group, although Cuba has yet to sign the Cotonou Agreement. Part Four of the European Economic Community (EEC) treaty made special allowances for the overseas Countries and Territories (OCTs) of the European signatories of the treaty. To be sure, the relationship between the two groups of countries, which was not always benign, can be traced back to the fifteenth and sixteenth centuries, the era of European adventurism, through the colonial era of the late-nineteenth and early-twentieth centuries. Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 17– 35. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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Olufemi Babarinde

Given that a cursory review of the precursors of Cotonou has already been furnished in Chapter One, that exercise will not be repeated here.3 Against the backdrop of the preceding chapter, therefore, the purpose of this chapter is to flesh out the forces that have characterized the changing climate of ACP–EU relations, particularly since the final decade of the twentieth century. Whereas this chapter provides a broad overview of some of the forces that inspired and necessitated Cotonou, how they were tackled in the new agreement is the subject of subsequent chapters. In any case, in order to provide the context for the discourse in this chapter, the ensuing section will provide in-depth analyses of the forces that comprise the changing environment of ACP–EU relations and explicate why Cotonou had to be different from its forerunners. The penultimate Section 3 will examine the Cotonou Agreement, highlighting inter alia, its main provisions and innovative features. The discourse concludes with a summary and an analysis of Cotonou’s new approach, especially the likelihood that it will accomplish in two decades or less what Lomé failed to achieve in its two-and-a-half decades.

2. The Imperatives of Cotonou There is no doubt whatsoever that the environment within which ACP–EU relations have existed and will continue to exist has profoundly changed. For starters, the EU has become a more visible actor on the global stage, inter alia, by concluding a series of formal bilateral and multilateral relationships with virtually every nook and cranny of the world. To the extent, therefore, that the ACP–EU relationship is merely a part of the EU’s myriad external economic relations nowadays, it must be fine-tuned in order to coexist with other EU third-country accords, as well as compete with them for scarce EU resources. Additionally, both the competencies and the memberships of the EU and the ACP countries have grown since 1975, implying a diffusion and divergence of interests, which, in turn, would necessitate a fine-tuning of the age-old relationship. In any case, the focus of this section is to identify and explicate three imperatives that inform the Cotonou Agreement as a noticeable departure from the ‘business as usual’ approach that characterized the (re)negotiation and implementation of Lomé.

3

See, among others, Babarinde, 1994; Cosgrove-Twitchet, 1978; Dolan, 1978: 369–394; Frey-Wouters 1980; Ravenhill, 1985; and Stevens, 1980.

18

The Changing Environment of ACP–EU Relations

The Global Arena Imperatives THE END OF THE COLD WAR

Another imperative on the global stage was the swish of the ostensibly impenetrable Iron Curtain and the concomitant end of the Cold War in 1989– 1990. The end of the Cold War ended an ideologically based bipolar world between the erstwhile Soviet Union-led camp and the U.S.-led Western alliance. Similarly, the dismantling of the Berlin Wall that had partitioned the European landscape during much of post-World War II affected ACP–EU relations in at least two significant ways. First, it broadened the horizon and scope of the EU’s external economic relations. In other words, the EU had to redefine its relationship with its eastern neighbors, but in the broader context of its overall external relations. In redefining the relationship, the EU had to take short- and long-term perspectives, both of which had profound consequences for the ACP. In the short term, the EU provided immediate assistance to the former communist governments, especially as they began reforming their inefficient and neglected economies. In the long term, the EU also had to provide adequate financial and nonfinancial resources to prepare the former totalitarian European states to ‘return to Europe’, via institutional reforms and economic transformations, as it prepared them for eventual EU membership. After all, Article 49 of the Consolidated Version of the Treaty on the EU4 invites any European state to apply for membership, and East and Central European countries promptly queued up. Indeed, the EU welcomed aboard eight countries from Eastern and Central Europe on 1 May 2004.5 In any event, in both of the above scenarios, ACP countries felt threatened and reacted negatively, and the European Commission’s response was just as snappish. The perception of the ACP group was that funds that had previously been earmarked for the group were being redirected to Eastern Europe.6 ACP countries would now have to compete for EU attention cum resources, because of a more immediate and urgent need in the EU’s neighborhood. Second, the collapse of the totalitarian states and planned economies of Eastern Europe meant, in a sense, the vindication of laissez-faire marketoriented economies and of pluralist democracy. The EU was, thus, emboldened 4 5

6

See Title VIII, Article 49 of the Consolidated Version of the Treaty on European Union (1997). At its 12–13 December 2001 summit in Copenhagen (Denmark), the European Council completed accession negotiations with ten countries, only eight of which were from Eastern Europe—the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic, and Slovenia. Cyprus and Malta were the other two welcomed to join the EU (Eurecom, December 2002), and they all did in May 2004, bringing the total membership of the EU to 25 (http://www.eurunion.org/News/ urecom/ 2002/eurecom1202.htm). For a trenchant discussion, see, for example, Cosgrove, 1993: 63–74.

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Olufemi Babarinde

by the enthusiasm and the vigor with which East European countries pursued the precepts of liberal democracy, free and fair elections, and so forth. If postCommunist Eastern Europe could democratize its polity and liberalize its economy, why couldn’t and shouldn’t the ACP countries be compelled to follow suit? Besides, political and economic reforms in ACP states might increase the odds of those societies benefiting from the concessions of the ACP–EU relationship. Ostensibly, enabling civil society and other non-state actors to join the economic and political arenas would widen the political landscape, revitalize political dialogue, enable fresher ideas, and, ultimately, increase the chances for (sustained) development, ceteris paribus. Additionally, the willingness of East European countries to subscribe to transparent decision-making also meant that the EU could no longer turn a blind eye on the political intransigencies of ACP (and non-ACP) states. In a sense, therefore, the positive developments of Eastern Europe could prompt a renaissance of the principles of rule of law, human rights, pluralist democracy, economic liberalization, etc., in ACP–EU relations. To that end, the EU proposed making the disbursement of its limited resources to its ACP partners more contingent-based and more performance-oriented. Previous attempts by the EU to influence the behavior of ACP governments under the Lomé conventions had been resisted on the grounds that such overtures encroached on their sovereignty. To be sure, the inclusion of these conditionalities in the EU’s negotiating mandate for the Cotonou Agreement was also greeted with resistance, but the EU side prevailed.7 The insistence of the EU to include such conditionality clauses in the new pact can be attributed to global changes that emanated from Eastern Europe, as well as to the realization by the ACP group that it had to compete for the EU’s resources in the new dispensation. GATT/WTO OBLIGATIONS

Perhaps the most important reason why the innumerable concessions of Lomé were no longer tenable was the conclusion of the Uruguay Round of the GATT and the entering to force of its successor, the WTO, in 1995. These events occurred about the same time Lomé IV was due for its midterm review. To be sure, one of the virtues the GATT/WTO tries to promote is the Most Favored Nation (MFN) principle that aspires to establish and advance equal treatment and nondiscrimination among its member states. Given the exclusivity of most of the privileges of Lomé, the conventions were vulnerable on legal grounds. Arguably, the most susceptible of the concessions under Lomé was the 7

For example, see ‘Comparing the ACP and the EU Negotiating Mandates’, The Courier, No. 173, January–February 1999: 72–74, and ‘After Lomé, What Next?’ West Africa, 9–22, November 1998: 798–802.

20

The Changing Environment of ACP–EU Relations

nonreciprocal trade regime, which was not compatible with WTO rules because it was extended to only and all ACP countries, irrespective of their level of development. Such a restricted market access privilege is a violation of the MFN principle. Although allowance is made in the GATT/WTO for North– South arrangements such as the ACP–EU pact to elicit a waiver from the WTO for restricted nonreciprocal trade preferences, such exemptions are not meant to be indefinite.8 In response, and to remedy the problem by complying with Article XXIV (GATT/WTO), the EU proposed a series of free trade agreements (FTAs), also known as Economic Partnership Agreements (EPAs), with individual and blocs of ACP states in future ACP–EU relations.9 The EU wanted FTAs to replace nonreciprocal trade preferences exclusively for ACP countries. In other words, nonreciprocal trade regimes would be a privilege of the past, perhaps with the exception of the least-developed and highly vulnerable (ACP and non-ACP) countries.10 Another area where the Lomé accord was inconsistent with GATT/WTO rules was in regards to the special protocols on veal, rum, sugar, bananas, etc. Clearly, as designed, the protocols favored ACP producers over non-ACP exporters. Not surprisingly, therefore, some non-ACP exporters of bananas, for example, complained to the EU and to the WTO about the discriminatory nature of the relevant protocol. Their complaints became more strident by the mid-1990s. In fact, by 1994, two Dispute Settlement Panels on bananas ruled that the protocol was incompatible with Article XXIV of the GATT. The EU, however, blocked the adoption of both reports. Following the inauguration of the WTO, the U.S. government, joined by four other governments,11 filed the first of a series of complaints with the WTO in 1995, challenging the legality of the Banana protocol. The complainants alleged that the protocol was in violation of the MFN, national treatment, and nondiscrimination clauses of the GATT, because it discriminated against importers and distributors of non-ACP bananas, especially the so-called ‘dollar banana’ producers of Central America. In 1997, the WTO’s Dispute Settlement Body (DSB) ruled against the EU and 8

9

10

11

The ACP group and the EU indeed requested such a waiver from the World Trade Organization (WTO) after the midterm review, as a transitional measure to help mitigate the impact of the cessation of nonreciprocity in ACP–EU relations. The waiver was granted in 1997 and expired in February 2000. For a trenchant discourse of both partners’ negotiating mandates, see ‘Comparing the ACP and the EU negotiating mandates’, The Courier, No. 173, January–February 1999: 72–74, and ‘After Lomé, What Next?’ West Africa, 9–22, November, 1998: 798–802. See also, Green Paper on Relations between the European Union and the ACP countries on the Eve of the 21st Century: Challenges and options for a new partnership (1996). The least-developed and highly vulnerable countries tend to have a large pre-literate population, depend on commodity exports, be susceptible to the volatile commodity markets and prices, be encumbered by huge external debt, be unattractive destinations for FDI, and so on. The Central American countries were Ecuador, Guatemala, Honduras, and Mexico.

21

Olufemi Babarinde

the ACP states, citing several areas where GATT rules were violated.12 Despite the EU’s attempt to modify the banana regime of Lomé, it was later determined by the DSB that the EU’s proposed remedies on the protracted banana dispute did not sufficiently comply with the EU’s WTO obligations under the previous DSB ruling on the subject.13 The DSB ruled that while the EU could, under certain circumstances, grant preferential treatment to ACP banana exporters, the EU’s quota and licensing system of Lomé still discriminated against nonACP producers.14 In the final analysis, legal imbroglios that stem from the commodity protocols of Lomé have rendered such exclusive privileges increasingly indefensible. GLOBALIZATION AND REGIONALIZATION

A third global imperative is the advent of globalization and regional integration. Both are in vogue and are clearly evident in many regions of the world. However, there are growing misgivings in some quarters of the world about globalization in particular.15 In light of this, the EU seems to be taking the view that the phenomenon need not be zero-sum or be disastrous for the South, nor widen the gulf between the North and the South. It seems the EU is hoping to use the ACP–EU relations to demonstrate that globalization can be positive-sum and beneficial to all and sundry. To this end, and in consonance with WTO principles, the EU, during the negotiations of Cotonou, argued that regional integration could and should be used to effectively link ACP societies to the global economy. The EU took the view that ACP countries would be better positioned to advance their development only if they were properly and effectively integrated into the global economy. Hence, the EU proposed replacing the nonreciprocal trade regime with a series of FTAs/EPAs that, after a transition period, would allow ACP states to develop their national and/or regional infrastructures and capacities. The EU/European Imperatives WIDENING OF THE EUROPEAN UNION

Every enlargement of the EU has certainly influenced the need for a different ACP–EU relationship since 1957. Each time the EU has welcomed new members to its fold, the relationship between the EU and the ACP group has 12 13 14 15

See, among others, Eurecom, October 1995: 2, October 1997: 1, and November 1998: 2. The DSB ruling was in response to a complaint by Ecuador, and later by the EU. See Eurecom, February 1998: 3 and April 1999: 2–3. Seattle 1999 and Prague 2000 are two examples where organized movements against globalization forced the IMF (International Monetary Fund) and the World Bank to either cancel or abruptly end their meetings.

22

The Changing Environment of ACP–EU Relations

been affected. Before the first enlargement of the 1970s, ACP–EU relations were tilted in the direction of former French and Belgian colonies in Africa. As noted in Chapter One, U.K. accession in 1973 brought about a more comprehensive and expanded relationship between the EU and its ACP partners. Specifically, former British colonies were brought into the ACP–EU picture. The enlargement of the 1980s further sensitized EU external relations to Latin America—the former colonies of Portugal and Spain. Following the 1986 accession, EU contacts with Latin America steadily grew as Spain, in particular, lobbied for the region within the EU, both in the Commission, when policies are being formulated, and in the Council, when the fate of policies are being decided. The 1986 enlargement arguably marked the beginning of the ebbing of the ACP group’s importance with respect to the EU’s pyramid of privileges. The enlargement of the 1990s, when Austria, Finland, and Sweden acceded to the EU, continued the ebbing of ACP importance in Brussels, especially as the new EU member states historically had no colonial ties with the ACP countries.16 The 1989–1990 political earthquakes in Eastern Europe and the eventual accession of East and Central European states to the EU by 2004 will further challenge the importance of the ACP group in the EU. For instance, it is a well-known secret that Sweden and Finland have enthusiastically championed the impending accession of their Baltic neighbors. As noted above, the latest enlargement will amount to a fiercer competition by the ACP group for the EU’s finite resources, especially as its internal and external obligations grow. Additionally, given the lack of any colonial ties with the ACP group among the former Communist bloc countries, and in view of their own economic challenges/needs, it is yet to be seen if, upon accession, East European countries would enthusiastically support, for example, a considerable increase in the tenth EDF package. COMMISSION REFORMS

A second European imperative that has informed the changed environment of ACP–EU relations is the growing competence and bureaucratic apparatus of the EU. The increased number of Directorates General (DGs) of the European Commission and of its Eurocrats has translated into a proliferation of ideas and policies, as well as the diffusion of influence within the supranational entity. More poignantly, the cultivation of an ACP–EU relationship, for which the DG for Development was created, is no longer the only (external/development) policy for which there is a bureaucracy to lobby on its 16

Sweden, however, has a credible history of generously assisting LDCs, especially SSA, financially.

23

Olufemi Babarinde

behalf. Given the importance the EU has attached to enlargement,17 it would be naïve to think that the DG and Commissioner for Enlargement would not carry more weight within the European Commission nowadays, relative to their Development counterparts. Indeed, the DG for Enlargement and Commissioner Günter Verheugen have become among the busiest in Brussels and beyond, nowadays. DEEPENING INTEGRATION

The consolidation of European integration is equally forcing changes in ACP–EU relations. Most notably and most recently, the entering to force of the European Union Treaty of Maastricht (1993) and of Amsterdam (1999), and the imminent entering to force of the 2001 Nice Treaty necessitated the modification of some aspects of its relationship with the ACP countries (and others). After all, EU mandates on external economic relations derive from the establishing treaties—the legal bases for EU policies around the world, including ACP–EU relations. For example, the Common Foreign and Security Policy (CFSP) of the Maastricht treaty provided the legal underpinnings for the inclusion of political dialogue, economic partnership, and social development in the negotiation of Cotonou. Article 11.1 of the consolidated European Union Treaty provides that the CFSP shall ‘Preserve peace and strengthen international security…promote international cooperation, develop and consolidate democracy, rule of law, and respect for human rights and fundamental freedoms’.18 In order to comply with the provisions of the article, the EU overtly pushed for development cooperation policies to promote pluralist democracy, human rights, the rule of law, and good governance in ACP societies. Similarly, in the negotiation of Cotonou, the EU also pushed for explicit provisions for poverty alleviation and eradication to be placed at the core of future ACP–EU relations (as discussed in subsequent chapters of this volume). The EU also argued for the inclusion of gender equality as a means of enabling sustained economic development. The aforementioned measures were proposed by the EU partly to make the ACP–EU relationship consistent with the European Union Treaty of Maastricht. Another example of how the deepening of European integration would affect the new ACP–EU pact was the launching of the SEM initiative, which 17

18

A Commissioner with the Enlargement portfolio was created under the Prodi presidency to underscore the seriousness with which the EU treats the issue. See either the Official Journal of the European Union, C 325, 24 December 2002, or http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/c_325/c_32520021224en00010184.pdf. The provision is also available in the Treaty on European Union, http://europa.eu.int/eur-lex/en/treaties/dat/ eu_cons_treaty_en.pdf.

24

The Changing Environment of ACP–EU Relations

sought to eradicate trade barriers within the EU and create an opportunity for one-stop shopping. To that end, Lomé concessions, such as the Banana protocol, were inconsistent with the logic of the SEM. The banana protocol, for example, restricted the distribution of imported ACP bananas within the EU, which was a clear violation of the free movement of goods (Title I, Treaty of Amsterdam).19 The negotiation of ACP–EU relations also had to be altered by yet another attempt by the EU to consolidate its integration, namely, the inception of the euro. For instance, in 1998, the Council of Ministers for Finance agreed to allow the CFA Franc, which is widely used by France’s former colonies in SSA, to be pegged to the euro. The implications of the euro for ACP–EU relations are the subject of another inquiry in this volume. 20

THE GLOBAL VISIBILITY OF THE EU

In addition to the structural position of the EU in the global market,21 the growing visibility of the EU in the international arena, as noted earlier, also necessitated an alteration in the relationship between the EU and the ACP group. The enhanced profile of the EU on the global stage means that more constituencies are dependent on its benevolence nowadays, especially in light of evidence of growing poverty in absolute terms, unequal distribution of wealth in the world, and increasing donor fatigue. Already, the EU is the largest provider of economic assistance and relief measures across the globe. Yet the demands on its finite resources have not abated, even in the face of budgetary constraints at the national and supranational levels. One can, therefore, appreciate why it would be frustrated, especially if the previous privileges of Lomé have failed to advance the development of ACP societies. ACP Imperatives22 DISAPPOINTING RESULTS IN ACP SOCIETIES

Notwithstanding the concessions of the Lomé Convention and the preferential access to the EU market, the overall welfare of the ACP countries has been disappointing. Perhaps the most telling of the statistics is the share of ACP products in total EU imports (imports from the South), which has precipitously declined from roughly eight percent (20 percent) in 1975 to

19 20 21 22

Treaty of Amsterdam, http://europa.eu.int/eur-lex/en/treaties/dat/ ec_cons_treaty_en.pdf. See, among others, van Dijck and Faber, 2000; Rhodes, 1998; and Piening, 1997. By this, we mean the EU is more dependent on export markets in different regions of the world. To be clear, the discourse that follows is from the perspective of observers/critics of the ACP–EU relationship, including some ACP countries, particularly in the Caribbean.

25

Olufemi Babarinde

under four percent (nine percent) by the late 1990s.23 Conversely, the nonACP developing countries of Asia and Latin America more than doubled the proportion of their products in total EU imports from the South. Despite the poor performance of the ACP group, most of the member countries still `depend today, as in 1975, on the exports of the same handful of primary commodities for foreign exchange, thus implying a lack of diversification. For example, in 1998, of their total export earnings, oil accounted for roughly 80 percent in the Congo, and 90 percent in Angola and Nigeria. In that same vein, the degree of commodity dependence was estimated at 90 percent in Botswana (diamonds), Burundi (coffee), Rwanda (coffee), and Zambia (copper). Other commodity-concentrated economies in the late 1990s included Ghana (cocoa at 46 percent), Sudan (cotton at 43 percent), Central African Republic (diamonds at 41 percent), and Malawi (tobacco at 40 percent). Indeed, labor-intensive primary products constitute over 80 percent of ACP exports to the EU, while the share of such products in total extra-EU imports has declined since 1975.24 Not surprisingly, and despite two-and-ahalf decades of EU concessions, 42 of the 64 countries in the World Bank’s unenviable category of least-developed countries (LDCs) are ACP Member States.25 Additionally, an estimated 45 percent of the SSA and almost 40 percent of the Caribbean peoples still live below the poverty threshold, surviving on $2 or less daily. UNWIELDY GROUP

Another ACP imperative for altering ACP–EU concessions stemmed from the size of the group, which had increased from 46 in 1975 to 77 in 2000, at the time Cotonou was signed. The argument was that the group had grown too large for any meaningful and effective development strategies to be 23

24

25

Trade data for this inquiry were (reported in U.S. dollars and in percentages) obtained from a variety of sources, including the Direction of Trade Statistics (various years), The International Monetary Fund, Washington, D.C.; and International Trade Statistics Yearbook (various years), The United Nations, Geneva. While it is plausible that the ACP group could have diversified their markets, hence the reason for the decline of their exports in total EU imports, it is doubtful that the group would have consciously restricted its exports to the EU, the only economic entity that granted it unfettered nonreciprocal dutyfree access to its market, and instead increased its exports to other non-EU countries with far less generous trade concessions. More importantly, what we are after here is the extent to which the ACP group availed itself of the EU’s nonreciprocal concessions. Ceteris paribus, one would expect the ACP group’s share of total EU imports to increase (steadily) since 1975, unless the concession was a sham or the ACP group was incapable of taking advantage of the concessions, or both. The bulk of the EU’s imports from ACP countries included food beverages, raw materials, textiles, fuel products, and other primary products. 2004 World Development Indicators, The World Bank, Washington, D.C., 2004. East Timor is excluded from this observation, because it did not join the ACP group until May 2003. Otherwise, the number of ACP countries in the least-developed countries would have been 43 out of 64.

26

The Changing Environment of ACP–EU Relations

developed. The growing concern among observers was that it was time to abandon the straitjacket ‘one size fits all’ logic that underpinned previous ACP–EU arrangements. It was argued by the EU and by observers of the relationship that perhaps the reason why previous concessions had not advanced the development of ACP societies was because the strategy was predicated on a flawed assumption that all ACP countries suffered the same maladies. Critics pointed out that previous concessions made little distinction between the development challenges of ACP countries.26 The new thinking that informed the strategy and the EU’s negotiating mandate for the new agreement was to cluster ACP countries by needs and levels of development. Doing so, for example, would allow the EU to devote certain resources/concessions to certain ACP states, while complying with WTO rules. Furthermore, clustering would enable a narrower and more accurate diagnosis of afflictions among ACP countries, which, in turn, should lead to a more effective panacea. Clustering, argued the EU, would also allow an individual ACP country or a subgroup of ACP countries to travel at different speeds, by concluding a series of free trade agreements with the EU, and to enable intra-ACP cooperation and integration. To this end, opportunities would exist for differentiated treatments, vis-à-vis national indicative programs, of land-locked and island countries. On these points, both partners agreed that the arrangement would promote South–South interaction, a departure from the stodgy North–South framework of previous accords. INSTITUTIONAL REFORMS

A third reason why an altered approach was considered necessary was the fact that the most recent of the pre-Cotonou models was not designed to reward performance; after all, some ACP countries, such as the Bahamas, Barbados, Fiji, Mauritius, and Trinidad, and Tobago have availed themselves of EU concessions, and should have been rewarded. Thus, in the negotiation of Cotonou, the EU introduced performance-based provisions/concessions, exemplified by its positive differentiation initiative. It was also felt that the reason why most ACP countries showed no evidence of development might have something to do with the cumbersome procedures that governed the disbursement of the EDF. In fact, almost € 10 billion of unspent funds remained from the Lomé Conventions, arguably due to the burdensome procedures for accessing funds, the incompetence of ACP bureaucrats, and extenuating circumstances in ACP societies. To that end, both parties,

26

For example, see negociation10_en.htm.

‘ACP–EU

Negotiation’,

27

http://europa.eu.int/comm/development/event/

Olufemi Babarinde

especially the ACP countries, wanted the procedures for accessing funds to be streamlined. POLITICAL AND ECONOMIC REFORMS IN ACP COUNTRIES

Another important reason why a different approach was considered essential was the advent of political and socioeconomic reforms, albeit grudgingly, in ACP countries. Reforms, manifested largely in democratic renaissance and socioeconomic emancipation were increasingly noticeable in many ACP countries since the early 1990s. To be sure, ACP countries did not always embark on reforms of their own volition, but were pressured to do so by Western governments and the external donor community, which increasingly tied development assistance and debt relief measures to the development of pluralist politics and a veritable market economy cum expansive space for the private sector. The pressure to reform in Africa and other ACP states was consequent to the deteriorating economic condition and growing public discontent in many ACP countries, coupled with the swish of the Iron Curtain in the defunct Soviet bloc Eastern Europe, where economic and political reforms were quickly embraced in their bid to ‘return to Europe’. In any event, in many ACP countries, nowadays, the relationship between the state and non-state actors (civil society) is being redefined, governments and the populace are paying more than a lip-service attention to the notion of good governance (accountability, popular participation, and transparency), human and minority rights are becoming important in the popular lexicon, and adjudication increasingly relies on the rule of law. In addition, microeconomic and macroeconomic policies in virtually all ACP countries continue to emphasize the private sector, enterprise development, reduced state intervention and involvement in the economy, and creating an enabling environment for private capital. In short, in the reform-minded ACP societies of today, there is an auspicious window of opportunity for both the EU and its ACP partners to explore a different, and, hopefully, a more effective approach to their relationship.

3. The Cotonou Agreement:27 The Devil Is in the Detail Next, we turn to a discourse of the new partnership agreement, with special emphasis on its innovative provisions, thereby highlighting how it has accommodated the foregoing imperatives. The new accord essentially builds on the acquis of the Lomé Convention by reforming the relationship. Unlike 27

The Cotonou Agreement, http://europa.eu.int/comm/development/ cotonou/index_en.htm.

28

The Changing Environment of ACP–EU Relations

its precursor conventions that were concluded for five- or ten-year periods, the Cotonou Agreement has a 20-year duration. However, the pact is to be reviewed every five years, and some of its components, such as the procedures for the implementation of financial assistance, may be reviewed annually. Similarly, the financial protocol is designed for five-year periods. The agreement is divided into six parts, all but two of which are further subdivided into titles, chapters, and sections. The six parts deal with general provisions; institutional provisions; cooperation strategies; development finance cooperation; general provisions for the least-developed, landlocked, and island ACP states (LDLICs); and final provisions, in that order. Appended to the main text are five annexes, respectively on financial protocol, institutional support, implementation procedures, management procedures, and trade regime applicable during the preparatory period. Finally, there are five major protocols that cover varied and all-too-familiar issues from the Lomé era, such as rules of origin, sugar, beef, veal, and bananas. Summarily, the main objectives of the new partnership agreement are the reduction and eventual eradication of poverty, sustainable development, and the gradual integration of ACP countries into the global economy. The new agreement is also based on the fundamental principles of equality of the partners, ownership of the development strategies by ACP countries and populations, inclusion of different kinds of actors, and differentiation and regionalization of the cooperation agreement. The accord is intended to significantly advance the economic, social, and cultural development of the ACP societies; to help them cope with the challenges of globalization; and to strengthen ACP–EU partnership. Consequently, each ACP country is to take the lead in setting up its own development strategies and initiatives, which must be supported by the financial and ancillary instruments of the Convention, and driven by the stated objectives of the new partnership. Additionally, the development initiatives are to be integrative and holistic with a view to the political, economic, social, cultural, and environmental aspects of sustainable development. Next, we will flesh out the five major interrelated dimensions of the Cotonou Agreement. The Political Dimension This provision addresses such issues as political dialogue, peace building, and other essential and/or fundamental elements of sustainable development in ACP countries. Essentially, this dimension calls for regular dialogue between the EU and the ACP groups to address specific political issues of 29

Olufemi Babarinde

mutual interest or of general significance. Such dialogues would include the employment of regional initiatives and conflict prevention, and resolution policies to tackle the perennial problems of political instability within and between ACP countries. The dimension also identifies respect for human rights as well as democratic principles and the rule of law as ‘essential elements’ of sustainable development. Serious violations of any of the elements would trigger sanctions on the affected ACP country. Consequent to the ACP group’s earlier opposition in the 1999 Santo Domingo Declaration, ‘good governance’ was derogated from ‘essential elements’ to ‘a fundamental and positive element’. What it means is that, while the partners acknowledge the importance of good governance, violations would not necessarily result in financial penalties. To be sure, the partners clearly recognized that a politically stable, democratic, and rule-abiding society is a precondition for sustainable development and the eradication of poverty, as stated in the preamble and variously in the agreement. The onus of creating such an enabling and favorable climate, however, shall rest squarely on individual ACP countries. The Civil Society Dimension This provision is intended to encourage and maximize participation of nonstate economic and social actors in the implementation of the new pact’s programs and projects. It is an attempt to decentralize cooperation and depart from the previous paradigm of state-state political dialogue and top-down implementation of projects and programs. It is, thus, recognition of the failure of the old approach, which excluded civil society and denied crucial ownership of programs and projects that were funded by Lomé. This dimension is intended to facilitate interaction and the sharing of vital information between ‘public actors’, defined as local, national, and regional governments/authorities, and ‘non-state actors’, defined as the private sector, economic and social organizations, and civil society. It is also designed to facilitate networking between EU and ACP partners. In other words, in addition to the accord’s institutions, viz., the Council of Ministers, the Committee of Ambassadors, and the Joint Parliamentary Assembly, political dialogue is to encompass civil society, the private sector, and other non-state actors. This principle of an expanded participatory approach to sustainable development would not only enrich the dialogue among society’s stakeholders, but would also increase the odds of achieving the stated objectives of the accord. The implicit assumption is that the involvement of civil society, both in the development of pertinent initiatives and strategies as 30

The Changing Environment of ACP–EU Relations

well as in the implementation of projects and programs, would encourage ownership/empowerment and ultimately facilitate sustainable development in ACP countries. The Poverty Reduction Dimension This is arguably the epicenter of the objectives of the Cotonou Agreement, especially given its frequent recurrence in the agreement. The reduction of poverty in ACP countries is explicitly stated as the central objective of the agreement in its preamble, Title 1 of Part 3 ‘Development Strategies’, and other provisions. Indeed, virtually every aspect of the new agreement, directly or otherwise, targets or alludes to poverty reduction/eradication as a major goal. To combat poverty in ACP societies, the strategy reflects both the international commitments of the partners under the auspices of august bodies, such as the UN, as well as the multidimensional nature of poverty. The new accord calls upon each ACP country to design its own consolidated and integrated development framework that is workable and measurable. It further provides for the inclusion of non-state actors in such undertakings in order to encourage local ownership of economic and social programs/projects. To that end, the approach to poverty reduction aims to develop strategies and policies that are broad-based and cover the gamut of important stakeholders. Such an integrated and global approach to poverty reduction/eradication would have to heed private sector development and investment, economic and structural reforms and policies, economic sector development, tourism, social sector development, youth-related concerns, cultural issues, regional cooperation and integration, gender equality issues, environmental and natural resources concerns, and institutional and capacity building. The Trade Dimension The much-vilified nonreciprocal trade preferences the ACP partners enjoyed under the expired Lomé Convention are to be gradually replaced, as expected, by a series of ‘economic partnership agreements’ (EPAs) with the EU, such that ACP–EU trade regime is in consonance with WTO rules. EPAs are to be negotiated and concluded by 1 January 2008, when the new trading arrangements are to enter to force. Formal negotiations of the EPAs commenced on schedule in September 2002. In 2004, the EU is to assess the cases of those ACP countries that are not in the category of ‘least developed’ and are deemed unsuitable for EPAs, and WTO-compatible alternative 31

Olufemi Babarinde

arrangements are to be explored for them. In 2006, a formal and comprehensive review of the arrangements that is planned for every ACP Member State will be undertaken in order to ensure that additional time is not needed for preparations or negotiations. The agreement stipulates that EPAs will be concluded with only those ACP countries that consider themselves ready for the regime, at the level they consider appropriate, and in accordance with regional integration processes within the ACP region. The EPAs will establish the timetable for the gradual removal of barriers to trade between the EU and ACP states, after the entering to force of the new trade regime. Meanwhile, in 2000, the EU commenced the liberalization of all imports from the world’s poorest or least-developed countries (including qualified ACP states), so that by 2005, all exports from the affected countries will enter the EU duty free. Additionally, the accord provides for a ‘preparatory period’, defined as 2000–2008, during which both the public and the private sectors of ACP countries are to enhance their competitiveness, strengthen regional organizations, and support regional integration initiatives. Finally, whereas the new accord maintains the commodity protocols (sugar, beef, veal, banana), they are to be reviewed later in the context of the new trading arrangements and ensured that they are WTO-compliant. In essence, the new agreement aims to gradually liberalize trade between the two partners, gradually integrate the ACP economies to the global economy, increase production and trading capacities, and ensure the compatibility of new trading arrangements with WTO rules. For all practical purposes, the trade dimension is designed to utilize trade as an engine of growth and sustained development, by gradually liberalizing trade relations between the partners and concluding free trade arrangements with ACP countries/groups. This is consistent with the EU’s recent initiative in this regard, such as the FTAs it concluded with the Republic of South Africa and with Mexico.28 It also ensures compliance with WTO principles of nondiscrimination and MFN. Furthermore, the dynamism that would be generated by ACP trade and the gradual integration of their economies into the world market, would, other things being equal, stimulate sustained development. The Financial Cooperation Dimension The agreement includes provisions on both the implementation of development assistance and the size of the assistance. In other words, on the 28

The EU–Mexico FTA, which was concluded in December 1999, entered to force on July 1, 2000 (Eurecom, July/August 2000: 2), while the EU–South Africa FTA, which was concluded in 1998, has also entered to force.

32

The Changing Environment of ACP–EU Relations

one hand, the new pact addresses varied reform issues, such as how development assistance will be determined and disbursed, while on the other hand, the pact identifies the financial instruments and their allotted amounts. The instruments and the implementation of the development aid regime are a departure from the past. For example, grants will henceforth be applied to offset shortfalls in export earnings, especially for commodity-dependent ACP countries, thereby replacing STABEX and SYSMIN. The two commodity insurance schemes are effectively converted to structural adjustment support, and enable a broader number of ACP beneficiaries. Additionally, in contrast to past practice, the new aid regime is centralized and rationalized, such that each ACP country is entitled to a lump sum for a five-year period. However, access to the funds will not be automatic, as it will, hereafter, be based on need and past performance—that is, result-oriented. Furthermore, the financial resources will not be locked to specific projects, although certain sectors will be emphasized in order to maximize overall impact. Another innovative idea in the pact is the establishment of a system of Country Support Strategy (CSS), which is designed to take stock of the sociopolitical and economic climate as well as the development strategies of an applicant ACP country. Finally, the new agreement has replenished the ninth EDF to a tune of € 13.5 billion during the first five years of the agreement, € 10 billion of which are intended for long-term financing, another € 1.3 billion for regional financing, and € 2.2 billion for investment financing.29 Moreover, the unspent € 9.9 billion from the previous EDF, plus another € 1.7 billion of funds from the European Investment Bank (EIB), will also be available to the ACP group. 4. In Conclusion: Praxis and Analysis This inquiry has examined the main forces that necessitated Cotonou. After all, Lomé could have been renegotiated and renewed as it had been on three occasions during its 25-year history. However, the environment in which the age-old ACP–EU relationship has existed has profoundly changed since the inception of the first Lomé Convention in 1975. The world has become ‘smaller’ as a result of technological advancement, which has concomitantly altered and broadened the horizon of both partners with regard to new challenges and aspirations. The advent of globalization and regionalization, for example, has impacted both partners differently, and had to be accommodated by the new ACP–EU partnership in the new millennium. 29

As also noted in other chapters of this volume, the 9th EDF was not a significant increase over the 7th and 8th EDFs, in annualized terms.

33

Olufemi Babarinde

Additionally, current international obligations of EU and ACP countries under the auspices of multilateral institutions, such as the WTO and the UN, have made some previously acceptable privileges no longer justifiable. Moreover, both partners have grown in membership, thus suggesting a concomitant divergence of interests within and between the groups. Besides, after 25 years, perhaps ACP–EU relations had become stale, especially since it did little to advance development in most ACP countries. Cotonou is designed to reinvigorate the age-old relationship. Undoubtedly, the new partnership agreement contains some innovative ideas as well as some old ones. On the one hand, the new partnership agreement does not appear to be profoundly dissimilar, at least substantively, from its forerunners, because most of the issues it covers have been broached in the preceding conventions. Cotonou, therefore, amounts to a repackaging of essentially old ideas save a few bold initiatives, such as the (regional) EPAs, augmenting the visibility of civil society and other non-state actors. On the other hand, the new pact has attempted to refine the long-standing relationship in order to make it user-friendly, more effective in the development of ACP societies, and more flexible and adaptive to a dynamic global environment. The jury is still out on how likely the ‘new and improved’ partnership agreement is to alleviate and eradicate poverty in ACP societies, effectively integrate their economies into the global economy, promote pluralist democracy and the rule of law, and, ultimately, advance and sustain the development of their societies. There is little doubt that the ACP group will have to sustain and intensify reform efforts that were begun in the 1990s in their societies in order for the Cotonou Agreement to be effective. Certainly, the goals of any initiative by the ACP group or its subset must be compatible with the agenda of the Cotonou Agreement. One such encouraging example was the New Partnership for Africa’s Development (NEPAD) initiative, which African leaders and the African Union (AU) launched on 11 July 2001 purposely to rid their societies of severe and widespread poverty, promote and sustain Africa’s economic growth and development, and stop the continent’s marginalization in the globalization process.30 From the foregoing, it could be concluded that the aforementioned goals of NEPAD and the ambitions of the Cotonou Agreement are coterminous. It is nonetheless without doubt that the Cotonou Agreement still faces some challenges and lingering questions ahead. First, while the expansion of political dialogue to include civil society is noble and long overdue, are state 30

For more on NEPAD, nepadEngversion.pdf.

see,

for

example,

34

http://www.nepad.org.ng/PDF/About%20Nepad/

The Changing Environment of ACP–EU Relations

actors that had monopolized the decision-making space in ACP societies, virtually since independence, prepared to share the center stage with nonstate actors? Second, given resource constraints, does the EU have the manpower and resiliency to concurrently negotiate several EPAs with ACP countries and groups of ACP countries during the preparatory period? Third, will the ACP states develop the requisite capacity to negotiate, conclude, and implement bilateral trade agreements during the allowed period? Adhering to the specified timetable will be a challenge for both sides, particularly the ACP group, given its antecedents and paucity of infrastructure and qualified personnel. On this point, it is interesting to note that many ACP countries had already missed a March 2001 deadline, when they were expected to indicate their preference on the EPAs, that is, whether they intended to negotiate on a bilateral or a multilateral basis. If the latter, they should also specify the regional bloc with which they preferred to be classified. On the other hand, it is heartening to note, albeit not surprisingly, that the EU came through on one of its obligations under the Cotonou Agreement to liberalize trade for the world’s poorest countries. Specifically, the EU’s Council of Ministers for Trade agreed to a new policy to remove trade barriers to all nonmunitions exports of the world’s 48 least-developed countries, which went into effect 5 March 2001. The ‘Everything but Arms’ (EBA) concession is in conformity with WTO principles of nondiscrimination, because it is extended to both qualified ACP and non-ACP countries.31 Most notably, by excluding armaments, the EBA can combat a major contributor to instability and, thus, poverty in many ACP countries. What is unclear, however, is how the relatively affluent ACP states will be affected by, as well as cope with, the monstrous and ostensibly irredeemable Common Agricultural Policy (CAP) and other EU policies that continue to subsidize EU producers. The EU has yet to develop the political will and muster the courage to seriously address the vexing problems of the infamous CAP, much to the chagrin and the detriment of the farm community in the ACP and other underdeveloped societies. Will Cotonou deliver and succeed where its precursors have not? Only time will tell, but on the basis of the foregoing analysis, its odds of making a difference in ACP societies are better than its antecedents. Meanwhile, some of the pertinent issues raised in this discourse are fleshed out and analyzed further in ensuing chapters.

31

See, for example, Eurecom, March 2001: 3–4.

35

Chapter 3

THE NEGOTIATION OF THE COTONOU AGREEMENT: NEGOTIATING CONTINUITY OR CHANGE? Joseph A. McMahon

1. Introduction This chapter focuses on the negotiations between the European Union (EU) and the African, Caribbean and Pacific (ACP) countries of the Cotonou Agreement, the replacement for the Lomé IV Convention that had governed their relationship since 1990. When that Convention was signed, it was hailed as a ‘Convention for a changing world’.1 The major innovation was undoubtedly introduced by article 366(1) under which the duration of the Convention was extended to ten years, although the next paragraph did offer the opportunity of a mid-term review to coincide with the renewal of the Financial Protocol to the Convention. In May 1994, negotiations on the mid-term review 1

The Courier, No. 120 (February–March 1990), p. 2. Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 37– 63. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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Joseph A. McMahon

opened. When negotiations were concluded 18 months later, a new Financial Protocol had been signed and various revisions had been introduced to the provisions of the Convention. The mid-term review confirmed the completion of the process of transforming the Convention from a mere economic and commercial agreement to a political and development device.2 It is against this background that the parties would have to negotiate a successor to Lomé. At the opening of these negotiations the President of the Council of ACP Ministers commented:3 ‘Of course, there have been disappointments in realizing the goals of the Convention in full measure; and the faults of omission and commission that marked the progress of Lomé through the last quarter of this century have been on all sides. But those deficiencies have never been so large as to question the value of the journey itself. As we enter into discussions once more at another time that is new, so new indeed that it represents a shift of eras, let us be positive about the past and ambitious for the future. The question that will engage us over coming years is not whether to go on together but how to revitalize our partnership for development.’

A number of questions arise from this. Why have there been disappointments in realizing the goals of the Convention in full measure? Are those deficiencies so large as to question the value of the journey itself? Is this time different? Are there good reasons to be positive about the past and ambitious for the future? How is the partnership for development to be revitalized? This chapter will seek to address these questions through an examination of the history of the Lomé relationship, the nature of the changed environment facing the parties during the negotiations for the Cotonou Agreement and their respective negotiating positions. The chapter will conclude by addressing the final question, namely, what exactly was the outcome of the negotiations, a continuation of the past relationship or a changed relationship to revitalize the partnership for development? 2. Positive about the Past? Answers to the question of why there have been disappointments in realizing the goals of the Lomé Conventions in full measure are many and varied. If the area of trade is highlighted, an examination of the history of the negotiations between the parties may cast some light on why there have been disappointments in realizing the goals of the Conventions in this particular 2 3

Lowe, 1995. EU, 1998b.

38

Negotiating Continuity or Change?

area. As to why the area of trade has been highlighted, it has been a constant theme of the relationship between the EU and the ACP. Even before the Lomé Conventions, article 3(k) of the original Treaty of Rome listed as one of the activities of the Community increased trade with the Overseas Countries and Territories (OCT) to promote their economic and social development. The Yaoundé Conventions were concerned with the creation of free trade areas (FTAs) between the Associated African States and Madagascar and the Community. Moreover, the Preamble to Lomé I recorded the parties’ resolve to establish a ‘new model of relations between developed and developing nations, compatible with the aspirations of the international community for a more just and more balanced economic order’.4 During the negotiations for Lomé I, the ACP requested that the principle of non-reciprocity should operate with respect to the trading relationship to be established. On this issue, according to article 7(2) Lomé I, the only obligation to be imposed on the ACP was that they should not discriminate against the member states and grant the EU treatment no less favorable than most-favored-nation treatment. This represented a partial victory for the ACP position. Complete success appeared to have been achieved by article 25 Lomé III, which provided that the trading arrangements ‘shall not comprise any element of reciprocity for those states as regards free access’.5 However, the ACP countries were to be disappointed in their request for the free and assured access of all their products to the European Community (EC) market. The request was again unfulfilled when it was repeated in the Lomé II negotiations. The Lomé I provision, article 2(2a), repeated almost verbatim the trade treatment provisions of the Yaoundé II Convention (1969)—industrial free trade and preferential treatment for agricultural products subject to the Common Agricultural Policy. Article 11(4) allowed 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. Requests had been made during the course of Lomé I and II for special treatment to be afforded to certain products, but

4

5

EC, 1976: 5. At the signing ceremony for Lomé II, the President of the ACP Council of Ministers commented that Lomé I marked ‘a first step, albeit a significant one, towards a fundamental restructuring of the international economic system and global power relations’. The Courier No. 58 (November 1979), p. 4. Annex XL Lomé III states that the ‘ACP States shall grant to the Community treatment no less favourable than that which they grant to developed States under trade agreements where those States do not grant ACP States greater preferences than those granted by the Community’. See also Annex XXXVII, Lomé IV.

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Joseph A. McMahon

these met with limited success.6 The ACP argued that concessions granted to third countries were a factor in the disappointing results of trade cooperation under Lomé but there is little support for this argument. The argument was addressed to the EC’s Generalized System of Preferences (GSP), and it is noticeable that the EC used the need to protect ACP trading interests as a reason for restrictions in the GSP.7 There is support for the ACP position that they had suffered from an erosion of preferential margins thus raising the possibility of preference redundancy.8 The Kiel study of EC-ACP trade went on to identify a number of exogenous barriers to ACP export growth, such as drought and desertification, plant and animal diseases, and costs arising in the areas of transport, travel and communications. In addition to these barriers, there were a number of ACP policy-induced barriers to export growth and diversification. Amongst these were factor price distortions in the areas of minimum wages and low-interestrate policies. Such distortions were often accompanied by price distortions in goods markets as a result of tariffs and quantitative restrictions. The final ACP policy-induced factor identified by the Kiel Study was disincentives to the formation of an indigenous entrepreneurship given the significant size and involvement of the government in economic activities. The conclusion offered was that the only way to achieve success was the definition and implementation of new economic policies by the ACP countries.9 Faced with the evidence of poor export performance and the limited role which preferences could play in the improvement of that performance, Lomé III effected little change on the 1975 provisions. However, a start would be made on eradicating ACP policyinduced barriers to export growth and diversification, such as the establishment of a coherent trade strategy for which financial and technical cooperation was available. Increased emphasis on trade development emerged in Lomé IV as the title on trade development was expanded with a greater emphasis to the development of trade in the context of national and regional programs of EU aid. The mid-term review of the Convention continued the emphasis on trade development and the promotion of internal conditions within ACP states that would lead to export growth and diversification. The review recognized that there had been ‘serious deterioration of trade performance of ACP states over

6

7 8 9

For example, at the second ACP-EEC Council of Ministers meeting in 1977, a request for special treatment was made for melons and tomatoes (The Courier No. 43 (May–June 1977), Yellow Pages II. See also Annual Report of the ACP-EEC Council of Ministers (1982), pp. 6–7, where a request for special treatment of strawberries is reported. On the latter, see Annex XIII Lomé III. Commission, 1980. Kiel, 1986. Kiel, 1986: 91.

40

Negotiating Continuity or Change?

the last twenty years’ despite the provisions of the four Lomé Conventions on trade preferences.10 This analysis of the disappointing results of the trade arrangements of the Lomé relationship was confirmed by the 1996 Commission Green Paper on relations between the Union and the ACP on the eve of the twenty-first century, part one of which was a frank and detailed review of the nature of the ACP–EU relationship. For example, the paper concluded that ‘the bulk of ACP countries have lacked the economic policies and the domestic conditions needed for developing trade’.11 Almost echoing the conclusions of the Kiel study over a decade earlier, the Green paper concluded:12 ‘Furthermore, it is now widely believed that beyond political stability, which is a fundamental precondition for growth, and initial endowments, sound policies play a major role in influencing exports and growth. Macroeconomic stability, realistic and stable exchange rates, good institutions and good governance, and efficient resource allocation policies, in particular stable and credible import and taxation regimes, as well as reduced trade protection…are significant determinants of competitiveness and hence export performance.’

The emphasis on trade development evident in Lomé III, and more so in Lomé IV and the mid-term review, had clearly failed to generate more than a limited number of successes. Beyond trade, the Commission described the results of cooperation on aid under the Lomé Conventions as ‘patchy’. As an explanation of this, the Commission pointed to the range of aid instruments used by the EU and inconsistencies between the conditions governing those instruments as factors that have reduced the effectiveness of aid. However, the Commission highlighted the institutional and economic policy situation in some of the ACP states as a major constraint reducing the impact of aid operations. Reflecting problems that emerged with development aid throughout the 1980s, the approach to development aid had been changing to increase its effectiveness. For example, there was an enhanced political dimension, and an instrument to support structural adjustment at the macroeconomic and sectoral levels had been created. Evaluations of this latter type of aid had confirmed its effectiveness but more could be done to enhance the impact of such support. Overall, the conclusion offered by the evaluation of aid policy

10 11 12

Cosgrove, 1994. Commission, 1996: iv. Commission, 1996: 17.

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was that the institutional and economic policy situation in the ACP had been a major constraint on the impact of aid operations.13 If trade and aid have been unsuccessful in meeting the objectives of the Conventions, the evidence must be that the socioeconomic performance of the ACP has been generally disappointing. This was vindicated in the Green Paper, which pointed to various problems including low per capita GDP, continuing problems of poverty, environmental degradation, and inadequate food production.14 Added to these poor socioeconomic indicators was the political instability of a number of ACP states, largely, but not exclusively, Sub-Sahara African states. There is an evident sense of disappointment in the Green Paper that cooperation has not been successful. The Conventions promised much. For example, Lomé I promised that the Convention would establish a new model of relations between developed and developing countries, but this model was not taken up elsewhere and the partnership envisaged by the Convention did not emerge. As noted above, even within their own terms of cooperation the results were patchy. Successful cooperation would have, for example, created a larger number of ACP countries that were more integrated into the international trading environment. The income generated from this could have brought about real and positive social and economic change in the ACP. The vicious circle could have been completed as greater political stability emerged, and development aid would have become more concentrated on those perceived to be in greatest need. The sense of what could have been achieved by the Conventions may have been influenced the President of the ACP Council of Ministers in commenting on the need to be both positive about the past whilst being ambitious for the future. However, this time the backdrop to the negotiations would be different. 3. This Time It Is Different After the analysis offered in the first part of the Green Paper, the European Commission concluded:15 ‘that future cooperation between the EU and the ACP countries must be seen against a radically changed international backdrop. Also, the European Union is set to undergo far-reaching changes and the various ACP countries will move in 13

14 15

Commission, 1996: 13. Interestingly, the Commission recently asserted that ‘EC external assistance programmes have a reputation for slow and unresponsive delivery, poor quality, and excessively centralised and rigid procedures’. Commission, 2000: 5. Commission, 1996: 21–22. Commission, 1996: 35.

42

Negotiating Continuity or Change? widely divergent socioeconomic and political directions. In the face of a loss of legitimacy for the principle of development aid, compounded by budget constraints and a European social crisis, the lessons learned from past successes and failure should help to improve the effectiveness and impact of future cooperation.’

The most obvious manifestation of the radically changed international backdrop is the influence of the World Trade Organization (WTO), and for the ACP, the rulings of its Dispute Settlement Body in the Bananas dispute. In dispute here was the EU Regulation establishing a common organization of the market in fresh bananas, which ACP producers had applauded as it allowed for the continuation of their traditional exports to the EU. However, dollar-zone producers were very critical of the regime. A complaint to the GATT was unsuccessful but a subsequent complaint to the WTO led to a ruling that the EU had acted inconsistently with various provisions of the GATT, the General Agreement on Trade in Services (GATS), and the Import Licensing Agreement. Attempts by the EU to justify the regime using the Lomé waiver led the Panel to conclude that the EU had gone beyond what was required by the terms of Protocol 5 of the Lomé Convention and the waiver did not therefore cover such actions.16 In their view, the Lomé waiver was limited to that preferential treatment which was required by the Convention; it could not extend to all preferential treatment which the EU might wish to accord to the ACP.17 Further impact on the trading position of the ACP from the outcome of the Uruguay Round in 1994 arose from preference erosion as a result of further reductions in the level of the most-favored-nation tariffs, and will continue as a result of the phasing out of the Multifiber Arrangement (MFA). The latter involves the complete elimination of all quantitative restrictions on textiles and clothing, and a reduction in the tariff levels on these products. As ACP exports of textiles and clothing to the EU have been exempt from the MFA since 1974, the competitive advantage that they have gained on that market will progressively decline.18 However, the most significant impact of the Uruguay Round may well not be in these areas but in the area of agricultural concessions. As a consequence of the Agreement on Agriculture, there will be changes in three areas—market access, domestic support, and export subsidies. As for the impact of such reforms on the ACP, of all the developing countries, it appears almost certain that they will be the most detrimentally affected by this Agreement. 16 17 18

WTO, 1997a, 7.103 and 1997b, 110. WTO, 1997a, 7.108. Davenport, Hewitt, and Koning, 1995: 47–48.

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Davenport, Hewitt, and Koning estimated that the ACP would suffer a loss of $177 million export revenue for tropical products, that they would lose their comparative advantage on the EU market for some other products, and that they would suffer a net loss of $226 million as a result of changes in temperate agricultural trade. Nowhere is this damage more apparent than with respect to trade under the Protocols to the Conventions, which give the ACP special trade concessions for bananas, rum, beef and veal, and sugar. Page and Davenport estimated that the final effects the Uruguay Round changes on net exports would, for example, lead to a reduction of $11.3 million per annum in Botswana’s exports of meat from an average of $67 million per annum in the period 1990–92, and a reduction of $24.1 million per annum in exports of sugar from Mauritius from an average of $363 million per annum for the same period.19 Annexes XXVII and XXIX of Lomé IV recognized that the outcome of the Uruguay Round would affect the trading position of the ACP and offered the possibility of amendments to take account of the outcome, especially for agricultural products. The mid-term review of the Convention offered the EU the opportunity to realize changes to the trade regime to take account of the effect of the Uruguay Round but, as noted above, the main focus of the changes to the trade regime related to the provisions on trade development. As well as a changed international environment, there is no doubt that this time is different for the EU. In addition to the negotiations for the renewal of the relationship with the ACP, the EU will also be conducting negotiations on its enlargement with the countries of Central and Eastern Europe and attempting to reform various internal policies, such as the Common Agricultural Policy, ahead of the accession of these countries to the EU. Externally, the EU will continue to develop its relationship with other developing countries in the Mediterranean, Asia, and Latin America.20 The major change in this area is the emergence of a coherent external policy made up of the common commercial policy, cooperation in the area of foreign policy, and the development cooperation policy.21 The insertion of article 177–181 into the EC Treaty as a result of the 1991 Maastricht 19 20

21

Page and Davenport, 1994. The Commission has noted, ‘Over the past fifteen years Community external assistance, originally concentrated on ACP countries, has acquired a global reach. Two-thirds of it now goes to areas outside the ACP—to Central and Eastern Europe, the Newly Independent States, Balkans, the Middle East, the Mediterranean countries, Asia and Latin America’. (Commission, 2000: 3.) See article 3 of the Treaty on European Union that provides: ‘The Union shall in particular ensure the consistency of its external activities as a whole in the context of its external relations, security economic and development policies. The Council and the Commission shall be responsible for ensuring such consistency and shall cooperate to this end. They shall ensure the implementation of these policies, each in accordance with its respective powers’.

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Negotiating Continuity or Change?

Intergovernmental Conference marked an important stage in the history of the EU’s development cooperation policy as it provides a road map to the future of the policy. The objectives set in article 177 are a reflection of the past development of the policy. However, the gradual and patchwork development of this policy led to inconsistencies in the treatment afforded to certain developing countries, whereas the new objectives afford the EU an opportunity to develop an integrated policy. However, the measures taken by the Council under article 179 to further the objectives set in article 177, shall not, according to article 179(3), ‘affect cooperation with the African, Caribbean and Pacific countries in the framework of the ACP-EEC Convention’. The special position of the ACP in the EU’s development cooperation policy is thus guaranteed. As for changes within the ACP, the foreword to the Commission Green Paper concluded:22 ‘On the threshold of the twenty-first 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.’

This would be accomplished, the Commission argued, through a restructuring of the future of the EU’s cooperation policy with the ACP around three core areas: the social and economic dimension; the institutional dimension and the public sector; and trade and investment. In each case, the EU, in line with its own development cooperation policy, would support the efforts of the ACP to achieve those conditions—political, economic, and social—which would lead to sustainable development. The need for a fundamental revision of the Lomé relationship was thus recognized. 4. Ambitious for the Future The publication of the Green Paper was the starting point for a major debate on the future of the relationship between the EU and the ACP, and the mechanisms for such cooperation. The result of this debate was the publication of a further communication from the Commission on the guidelines for the negotiation of agreements to replace Lomé IV which were the basis of an agreement reached within the Council on the negotiating 22

Commission, 1996.

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mandate for the new agreement.23 Throughout the discussion, it was recognized that the relationship with the ACP partners represented a significant element of the EU's external persona, so the continuation and further development of the Lomé relationship was never seriously questioned despite the disappointing results of cooperation under the Conventions. These results did lead to contrasting approaches between the member states to the question of how best to achieve a new Convention that would help realize the goals set for the EU’s development cooperation policy.24 To promote the integration of the ACP countries into the world economy, several member states advocated the need for a framework that would be WTO-consistent and thus obviate the need for a GATT waiver. Each of the member states adopting this position did so for different reasons. For example, the United Kingdom pointed to the negative impact of a GATT waiver on the predictability of the trading arrangements. Germany, and to a lesser extent, Austria and the Netherlands, indicated the need to avoid discriminating against other developing countries. These countries, supported by other member states, called for a more global approach. This was hardly surprising in the case of Germany and the Netherlands, as they had consistently argued since the creation of the European Community in 1957, for a more global orientation to the EU’s development cooperation policy.25 Other member states, particularly France, objected to the potential globalization of the Convention and argued for the Convention to continue to focus primarily on Africa. Supported by Italy, Portugal, and Spain and, to a lesser extent, Belgium, these member states advocated the regional economic partnership agreements as a means of revitalizing the Lomé trading relationship. The need to protect their agricultural producers can be viewed as one reason for this approach. This approach is also evident in the EU’s relationship with the countries of the Mediterranean. It was against this divergence of opinion between the member states on the geographical coverage of the new Convention, its trade arrangements, and changes to various aspects of aid policies that the Council had to agree on the negotiating mandate of the EU. It could be expected that the new Convention to replace Lomé IV would not therefore be a simple re-working of the existing Convention but rather would require the creation of an agreement establishing a new partnership for development. 23 24 25

Commission, 1997. Posthumus, 1998. Evidence of this can be gleaned from the 1957 Protocol to the Treaty on the import of Bananas from Latin America into Germany, and the 1963 Declaration of Intent adopted by the Council which (cont. p. 10) (cont. from p. 9) essentially offered Commonwealth Africa the opportunity to take part in the renewal of Part IV of the Treaty of Rome or to conclude separate arrangements with the Community.

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The EU Negotiating Position The October 1997 Commission communication set five major policy guidelines for the future of ACP–EU relations:26 – to give the new partnership a strong political dimension; – to make poverty alleviation the cornerstone of the new partnership; – to open up cooperation to economic partnership; – to effect a complete overhaul of the practicalities of financial and technical cooperation; and – to preserve the integrity of the ACP as a group whilst permitting differentiation. For the Commission, the Lomé relationship was, and should remain, a link based on three core areas: political dialogue, development cooperation, and economic and trade cooperation. After many debates, the Council confirmed these core areas on 29 June 1998 when it issued the negotiating mandate for the future of ACP–EU relations.27 Echoing article 177 of the EC Treaty, it was agreed that the eradication of poverty and the integration of the ACP states into the global economy would be the focus of new cooperation with the ACP. There would be three essential elements in the negotiating mandate: an intensified and expanded political dialogue; simplified and more flexible development cooperation; and a new, more balanced approach to economic partnership with particular stress on the advantages of regional cooperation and/or integration. THE POLITICAL DIALOGUE

The goal of this dialogue would be to increase the effectiveness of development cooperation and, in the opinion of the EU, this required discussion of such concepts as good governance, respect for human rights, democratic principles, and the rule of law. Given the requirements of article 177(2) of the EC Treaty that EU policy in the area of development cooperation contribute to the general objective of developing and consolidating democracy and the rule of law and to that of respecting human rights and fundamental freedoms, it was not surprising that the EU should attach great significance to the enhancement of political dialogue between the parties. Political dialogue has always been a feature of the relationship between the EU and the ACP, as has the concern with human rights and democratic principles, although dialogue on the latter has been a problem area. For 26 27

Commission, 1997: 3–6. EU, 1998a.

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example, one innovative feature of Lomé III was the Joint Declaration of the parties on article 4 by which they reiterated ‘their deep attachment to human dignity as an inalienable right and as constituting an essential objective for the attainment of the legitimate aspirations of individuals and of peoples’. In Lomé IV this Declaration was transformed into an article, article 5(1), which was located in the chapter dealing with the objectives and principles of cooperation—the Lomé acquis. Article 5 was further amended during the midterm review to include the following: ‘Respect for human rights, democratic principles and the rule of law, which underpins relations between the ACP states and the Community and all provisions of the Convention, and governs the domestic and international policies of the Contracting Parties, shall constitute an essential element of this Convention.’

A new EU declaration on article 4 of the Convention, Annex IIIa, effectively incorporated article 177 of the EC Treaty into the Convention. Therefore, cooperation under the Lomé Convention would be closely linked with ensuring the observance and enjoyment of fundamental human rights. The allocation of financial resources to the promotion of human rights as permitted by article 5(3) merely confirmed the importance that the parties now attached to this goal. The inclusion of this article constituted a great political victory for the EU as it had long argued for the inclusion of a human rights clause in the Convention.28 If the existing relationship already provided for political dialogue, the question was, what was the nature of the enhancements to be made? What would be added, from the EU’s point of view, was closer coordination between development cooperation policy and the objectives of the Common Foreign and Security Policy. Logically, good governance, respect for human rights and the rule of law can only flourish in times of political stability. To reinforce such stability, the enhanced political dialogue would become wider, deeper, and more transparent. In essence, cooperation would no longer be seen as intergovernmental, but should extend to the private sector, industry, and non-governmental organizations—in other words, the broad spectrum of civil society. This would encourage a sense of ownership in the process of elaborating and implementing the development strategy of each ACP State and so promote the success or sustainability of that strategy.

28

See, for example, the 1977 Lusaka meeting of the ACP Council of Ministers, The Courier No. 47 (January–February 1978), Yellow Pages III. See, further, Cremona, 1996, and Commission, 1995.

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Negotiating Continuity or Change? DEVELOPMENT COOPERATION

In this core area, the alleviation of poverty was seen as the primary goal. The range of policies advocated was threefold: the stimulation of economic growth as a result of increased competitiveness and greater private sector development; the boosting of employment and support for social policies; and the integration of environmental protection into the development process.29 In essence, these reflect the goals of the EU’s Development Cooperation Policy by encouraging the integration of the ACP states into the international economic system and integrating the poor into economic and social life. As to how these goals were to be achieved, more systematic and comprehensive support for private sector development would be given through a series of measures to build confidence and allow for reforms in the policy and institutional environment. In combination with the enhanced political dialogue, greater efforts needed to be made to create an appropriate political, legal, administrative, investment, and financial climate. This approach would build on existing elements of cooperation, for example, through a more coherent strategy to support regional cooperation and integration and greater support for trade development measures. Areas of cooperation that had not proved successful in the past would be enhanced. New areas of cooperation, where these can have an impact on socioeconomic development, would be supported. It was recognized that there would have to be an increase in the level of aid dedicated to socioeconomic problems. However, there would be new principles governing financial and technical assistance. These were a result of the demand for efficiency in development aid operations so that they become more effective; a demand which arose, in part, from the experience and evaluation of cooperation under the Lomé Conventions. So, the principles to ensure the effectiveness of aid would be fully enshrined in the new agreement, with a choice of instruments to allow for flexibility and selectivity.30 This would ensure that help is directed to those ACP states who are most in need; need would be defined in terms of development indicators and would be supplemented by criteria based on merit, that is, performance and sound management.31 As for the management of aid, an alternative to the system of joint aid management was considered necessary if aid was to be effective. This alternative would depend on the nature of the dialogue to be 29 30

31

Commission, 1996: 14–21. The criteria are pertinence, efficiency, effectiveness, impact, and sustainability/reproducibility. See OECD, 1992. Commission 1997: 29.

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established by the new Convention. Finally, the new partnership would require greater consistency and coordination within the EU, for the lack of both have hampered past efforts. This would help in the implementation of article 178 of the EC Treaty, under which the EU is required to take the objectives of article 177 into account in the implementation of policies that are likely to affect developing countries, and article 180 of the same Treaty that requires greater coordination between the EU and the member states. TRADE AND ECONOMIC COOPERATION

Whereas the successful realization of the EU’s negotiating directives in the core areas of political dialogue and development cooperation would represent the continuation of the journey initiated by the first Lomé Convention, realization of the negotiating objectives in the core area of trade and economic cooperation would represent a fundamental transformation of the Lomé relationship. The negotiating mandate envisaged the negotiation of new cooperation agreements with the ACP, to replace the current preferential trade arrangements that were seen as not providing sufficient impetus to promote ACP development. So, existing policy would be refocused on the complementary objectives of sustainable economic and social development, the alleviation of poverty, and integration into the world economy, as demanded by article 177 of the EC Treaty. This entailed greater support for regional integration efforts within the ACP through the negotiation of differentiated agreements as part of the process of global integration. Such agreements would take the form of either economic cooperation agreements, which would not be totally reciprocal, or economic partnership agreements, which could include free trade areas, with a long transitional period. The existing preference scheme would be maintained until 2005, and it was recognized that an exception to the WTO rules would be needed not only for the continuation of existing arrangements, pending the negotiation of new agreements, but also for the economic cooperation agreements. The ultimate goal was to ensure the gradual and smooth integration of the ACP into the world economy. What such integration entails is greater trade not only between the EC and the ACP, but also between an ACP country and other ACP countries and other developing countries. However, with the advent of globalization, tariffs have has ceased to be as important as they once were and the focus has shifted to domestic economic/trade related policies. Only some of these policies are regulated through the WTO. This presents a considerable challenge, primarily for the ACP, but also for its

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development partner, the EU. Failure in the negotiations on trade and economic cooperation was not an option for it had been recognized that:32 ‘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.’

The ACP Negotiating Position The question of how to revitalize the partnership had been the subject of as much debate within the ACP as the same question had within the EU.33 As in the latter debate, the continuation of the relationship was not seriously questioned, however, in contrast to the EU, the prescription of how to revitalize the partnership would be fundamentally different. One starting point for the elaboration of the ACP approach to the negotiations was the meeting of the ACP Heads of State and of Government in Libreville in November 1997. Such meetings were not a facet of the relationships that had developed within the ACP countries. However, faced with the possible breakup of the ACP group and concerns about the geographical coverage of the new Convention, the Libreville meeting was used as an opportunity to signify the solidarity of the ACP as a group in the negotiations that were to come. The ACP negotiating position would be based on the resulting Declaration, paragraph five of which recognized that the ACP–EU cooperation was ‘one of the effective and coherent frameworks for facilitating the achievement of the ACP’s socioeconomic development objectives’.34 As for the nature of ACP–EU relations in the next millennium, the Summit Declaration concentrated on the same aspects of the new relationship as the EU’s negotiating directives—political cooperation, development cooperation (and development finance), and trade and investment. POLITICAL COOPERATION

The ACP Heads of State and of Government recognized that a broader and more intensive political dialogue with the EU would enhance the partnership. Such cooperation could contribute to conflict prevention, management, and resolution. In this regard, it was recognized that the achievement of peace and stability was an essential pre-condition for development and that the 32 33 34

Commission, 1996: 63. ACP, 1997a and b. ACP, 1997c.

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contribution to be made to such stability would require greater differentiation in the new partnership. Such differentiation would have to be positive, in the sense that cooperation policies would be adapted to the specific needs of individual countries or regions. Part 3(1) of the Declaration recognized that a positive regional differentiation approach in the new partnership would be seen as supportive of existing ACP efforts to promote regional cooperation and integration. The further development of the Libreville Declaration into the ACP negotiating position confirmed the desire for a broader and more intensive political dialogue.35 However, the negotiating position made it clear that this dialogue should not take the form of political dictation or be tinged with any notion of conditionality.36 It appeared that the ACP was keen to ensure that the EU’s Development Cooperation Policy would not be ruled by the demands of a Common Foreign and Security Policy. Such subordination would threaten the success of any development objectives agreed to between the parties. It would also be contrary to the existing Lomé acquis, as article 2 Lomé IV established the fundamental principles of cooperation, equality between partners, respect for their sovereignty, mutual interest and interdependence, and the right of each state to determine its own political, social, cultural, and economic policy options. For the ACP, the enhanced political dialogue must concern the central objective of the Convention—the sustainable development of the ACP. This would require a dialogue, for example, on the debt problems of the ACP and on activities within the EU that affect the stability of the ACP. There was no doubt that the ACP would welcome dialogue on conflict prevention and management, and dialogue to promote reconstruction in the aftermath of such conflicts. Such dialogue would have to be conducted at an appropriate level. DEVELOPMENT COOPERATION

The ACP negotiating position recognizes that the central objective of the ACP–EU relationship is development, and the Libreville Declaration stressed, just as successive Lomé Conventions have, that the development of each ACP country is their first and foremost responsibility. This responsibility required firm foundations to be laid for a human-centered, equitable and sustainable development based on sound economic policies, respect for the rule of law, and social justice. Such foundations could be laid by a consolidation, renewal, and upgrading of existing elements of the Lomé relationship. As the negotiating position made clear:37 35 36 37

ACP, 1998a and b. ACP, 1998a: 11. ACP, 1998a: 85.

52

Negotiating Continuity or Change? ‘A key feature of the new agreement should be the eradication of poverty through development of economic and social infrastructure, creation of incomegenerating activities and the fight against exclusion which, after all, is the principal objectives of development cooperation.’

Therefore, both the EU and the ACP agree that the eradication of poverty would be a central element of the new partnership for development. For the ACP, special attention would need to be given to certain issues if this goal was to be realized. These included the enhancement of human capacity through a reduction in hunger, disease, and illiteracy, with especial attention to be given to the young and women. Special attention was focused in this area not only on the need for the ACP to implement the principles agreed at various international conferences, but also on the need for developed countries to honor the obligations assumed in these conferences. As in the EU’s negotiating directives, all sections of civil society were seen as having a role in the realization of this goal. Equally important was the creation of an appropriate infrastructure for sustainable growth and development, through, for example, the modernization of the state or enhanced regional cooperation and integration. In this area, the ACP countries were keen to ensure that the new agreement would provide the necessary financial resources for their development. It should establish coherent and consistent objectives as part of a simplification and rationalization of aid mechanisms and instruments. TRADE AND ECONOMIC COOPERATION

Whereas the approach of the ACP to political and development cooperation could be seen as broadly in line with the approach advocated by the EU’s negotiating directives, the ACP approach to trade and investment was fundamentally different from that of the EU. This would suggest that one of the major problems to be overcome in the negotiations for a successor convention would be the new trade arrangements. The area of difference was not so much the continuation of preferential treatment, which even the ACP recognized as being insufficient to promote their development, but the relationship with the WTO. For example, the Libreville Declaration, after reaffirming the commitment of the ACP to the obligations arising from the international trading system, continued:38 ‘Nevertheless, we are deeply disturbed by the prospect of disruption in our fragile and vulnerable economies and disintegration of the social fabric of our 38

ACP, 1997c: Part II.

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Joseph A. McMahon countries that would arise from the insensitive application of WTO rules and obligations.’

The WTO ruling in the Banana dispute was cited as an example of the disruption and disintegration feared by the ACP. Further disruption could be caused, according to the Declaration, by the unrestrained liberalization of trade in agricultural products; hence, the call for special and differential treatment for developing countries in the application of WTO rules. In the search for a fair international trading system (i.e., developmentoriented), the ACP proposed that the existing system of non-reciprocal trade preferences be maintained for a period that would be sufficient for the ACP to improve the competitiveness of their economies. In contrast to the EU’s proposal for the extension of the WTO waiver until 2005, the ACP was seeking a transition period that was ‘more realistic and consequently longer’. A period of at least ten years was suggested. Indeed, after the end of this period, the ACP advocated that preferences be maintained for the least developed ACP countries and other vulnerable ACP countries. For other ACP countries, the transition period would be used to promote regional integration within the ACP in preparation for the negotiation of the economic partnership agreements with the EU. Thus, the ACP negotiating position recognized the current limited nature of regional cooperation and integration within the ACP, hence the need for a longer transition period than that advocated by the EU. Such a longer period would allow the ACP to anticipate the adjustment costs of the move towards freer trade. It would also allow the ACP to gauge the impact of developments within the EU (such as enlargement, reform of the common agricultural policy, economic and monetary union, and the proposed review in 2004 of the GSP) as well as international developments (such as the outcome of any new round of multilateral trade negotiations, especially in agriculture). As a result of the demand for a longer transition period, and in contrast with the EU’s position, the arrangements for the period 2000-2005 would, for the ACP, involve an improvement in the existing preferential regime and further development of existing schemes of trade development and investment promotion. The ACP negotiating position also called for the continuation (and enhancement) of the various product protocols to the existing Convention. For example, it was proposed that the existing protocol on beef and veal be improved, whereas the existing banana protocol should be consolidated to guarantee existing market access and quotas. As for the sugar protocol, using the special legal status of the protocol, no review of the protocol was recommended during the negotiations, although the EU was 54

Negotiating Continuity or Change?

urged to adopt measures that would not damage the ACP (and EU) investments in this area. 5. The Negotiations On the opening of the negotiations on 30 September 1998 that would lead to the Cotonou agreement, Commissioner Pinheiro stated:39 ‘Our goal should be to draft a new blueprint of mutual obligations which is better adapted to the challenges of tomorrow's world and which provides a more effective response to everyone's expectations and ambitions.’

The contrasting negotiating positions of the parties did, in fact, reveal a great deal of convergence as to the drafting of this new blueprint, which both parties agreed should be ‘a simple and readable Convention accessible to all’.40 For example, it was agreed that the new Convention should focus on the elimination of poverty whilst ensuring respect for the objectives of sustainable development and the progressive integration of the ACP into the global economy. As for the political dimension of the relationship, a ‘broad measure of agreement emerged on the fundamental principles of the partnership,’ a fact that was not surprising given agreement on the Lomé acquis between the parties in Lomé III. Therefore, the parties agreed that the new agreement would provide for equality between the parties, respect for sovereignty and ownership of development strategies by the ACP. These principles would provide for the greater involvement of civil society and would involve differentiation within the ACP. Building on this acquis, both parties recognized the importance of peace-building and conflict prevention. The ACP expressed concern over the EU’s proposal to replace the notion of ‘conditionality’ with that of ‘contract’. On development cooperation, the parties also agreed on the need for reforms in various areas and the need to design policies to improve access to productive activities and resources. Where the parties disagreed in this area was over the rationalization and simplification of the range of aid instruments. Whilst the EU regarded the existing instruments as too complex, the ACP wished to maintain them. Discussions of the future trade relationship revealed no fundamental disagreements between the parties, which was not surprising given the generality of the discussions. 39 40

EU, 1998c. EU, 2000, Memorandum 1.

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Joseph A. McMahon

Once the parties had agreed on a working method and structure, the inaugural negotiating meeting was held on 17 and 18 November 1998 between the Commission and ACP Ambassadors. At this point, differences of opinion began to emerge as to how the trade relationship should be strengthened, with the ACP arguing for a ten-year transitional period to prepare themselves for the new arrangements as opposed to the five-year period advocated by the EU. The negotiations intensified in December and January as preparations were made for the first ministerial negotiating conference that was to be held in Dakar on 8 and 9 February 1999. The EU presented its proposals on the rationalization of the existing instruments of financial and technical cooperation and a new rolling system of programming for allocating resources according to need and performance. It was recognized that the parties needed to agree on shared definitions of democracy, human rights, the rule of law, and good governance given their importance to the essential elements of the new partnership. However, some doubt was expressed as to whether or not good governance should be one of the essential elements; in the end, agreement was finally reached on this with the parties agreeing to work on an agreed definition. It was also agreed that a range of options would be presented at the ministerial conference on the procedures and arrangements for applying the non-execution clause. As for the outcome of the Dakar Conference, broad agreement was reached in each of the three areas. On the political aspects of the relationship, agreement was reached on the improvement of the implementation of the non-execution clause, which met the concerns of the ACP. However, opinions still diverged as to whether or not good governance should form one of the essential elements of the partnership, with the ACP expressing the view that the concept remained ill defined and subjective. On development cooperation, it was agreed that the conclusions of the various UN Conferences on sustainable development were to be used as a frame of reference for future cooperation. The content of the various policies as well as the principle of differential implementation and the involvement of civil society were all subject to broad agreement between the parties. As for the financial aspects of cooperation, although agreement was reached on the creation of a new Investment Facility and the rationalization of the instruments, no agreement was reached on the number of such instruments. In particular, the ACP wished to maintain Stabex and Sysmin as separate instruments and were undecided about the EU’s proposals for a new rolling system of programming for allocating resources according to need and performance. On the question of trade cooperation, it was acknowledged that the current trade arrangements were not sustainable but as for their 56

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replacement, discussion of the proposed regional economic partnership agreements and other options would continue. Differences of opinion also emerged as to the future of the various product protocols. The Conference concluded by asking the negotiators to start the process of drawing up ‘key sentences’ in those areas where agreement had been reached.41 In the months that followed, key sentences would be drawn up in the political area reflecting agreement on the fundamental principles of the partnership and on the institutional framework to govern the new relationship. One area of disagreement on the institutional structure was the continuing status of the Committee of Ambassadors. Disagreements also surfaced as to the rules for applying the non-execution clause. For the EU, appropriate measures should be taken if consultations did not lead to a mutually acceptable solution and, in cases of special urgency, without the need for consultations. For the ACP, these approaches ran counter to the fundamental principle of the equality of the parties and the overall objective of establishing a genuine dialogue between the parties. Their concerns were further exacerbated by possible overlaps between the essential elements of the agreement and the political performance criteria in the financial cooperation area. On development cooperation, consensus would emerge across a number of areas, from human and social development to youth and gender issues. Key sentences on financial cooperation were also agreed to as a result of the ACP acceptance of the principle of allocations based on need and performance. However, the ACP remained dissatisfied with the financial arrangements for debt relief initiatives. In contrast to other areas, progress in the area of trade cooperation was not as promising. The ACP returned to the issue of the future of the product protocols and requested improved access to the EU market during the transition period, which they again argued should be ten years. The second ACP–EU ministerial negotiating conference in Brussels on 29 and 30 July 1999 was described as ‘all in all, a disappointing conference’.42 On the political front, discussions on the inclusion of good governance continued to illustrate differences between the parties. However, at least the ACP had now committed itself to this principle being included in the essential elements of the new agreement. More problematic was the question of how to implement the non-execution clause. Key sentences relating to development cooperation were adopted by the ministers, with the parties agreeing on the need to adopt an integrated approach, including not only the parties but also civil society, to the elimination of poverty. Although 41 42

EU, 2000, Memoranda 5 and 6. EU, 2000, Memorandum 9.

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the ACP side committed itself to the principle of involving civil society, it emphasized the primacy of the national authorities. It also considered it necessary to conduct a study on how to identify the various nongovernmental actors and expressed some concern as to the issue of monitoring and evaluating the activities of these actors. Nevertheless, work could begin on transforming the key sentences into the draft articles of the future agreement. On the instruments and management of financial cooperation, progress was also made, although disagreements remained in the areas of arrangements for support arising from export earnings shortfalls and the scope of debt relief. It was perhaps because of the lack of progress on the trade front that the conference overall was described as ‘disappointing’. As indicated, no substantial progress had been made before the ministerial conference. Indeed, the negotiations began to reveal differences between the member states and within the ACP. The United Kingdom argued that a ten-year waiver from international trade obligations imposed under WTO rules was not possible, that regional economic partnership agreements were not practicable for all ACP countries, and that an enhanced GSP might be an option for some of the ACP. The Netherlands, who argued that a menu of options was needed, supported the British position on regional economic partnership agreements. This argument was, in turn, supported by some of the ACP. Having reaffirmed their negotiating directives, subsequent discussions from the EU confirmed the essential elements of the directives: that the new trade agreements would have to be compatible with WTO rules, so preferences could not be maintained indefinitely and an appropriate time limit had to be set on the transitional period.43 The goal was to ensure that the new trade regime was at least as favorable as that of the Lomé Convention. Given the differences between, and within, the parties, it is not surprising that no agreement was reached, beyond recognition that further discussions were needed. The time for such discussions was, however, diminishing as both sides reaffirmed their determination to conclude their negotiations before the expiry of Lomé IV in February 2000. The next ministerial meeting was scheduled for December 1999. On the political front, substantial progress had been made since the Brussels conference, and agreement was finally reached on the issue of good governance as an essential element of the new partnership. Agreement was also reached on the issue of fighting corruption, leaving only various aspects of the issue of migration to be dealt with at the final ministerial meeting. It 43

The details of the EU coordination meeting of 29 July are given in EU, 2000, Memorandum 9.

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was agreed that the parties would initiate negotiations on defining a framework for the repatriation of illegal immigrants. However, the undoubted highlight of the December meeting was the agreement between the parties on the general approach in the area of trade cooperation, with agreement being reached on the principles, objectives, and schedule for the implementation of the new regional economic partnership agreements. The remaining issues were resolved at the ministerial meeting held in Brussels on 2 and 3 February 2000, which also concluded the negotiations. The EC Commissioner for Development and Humanitarian Aid described the resulting agreement as:44 ‘a remarkable, innovative achievement which faces up to the challenges of globalization by setting out an integrated and comprehensive approach to development, poverty eradication, trade and political dialogue. This Agreement represents a major contribution to the effort to create international governance and promote North–South dialogue in the post-Seattle era.’

The reference to the failed WTO Ministerial meeting in Seattle is worthy of comment. The meeting witnessed a number of disagreements between the developed and developing country members of the WTO in a number of areas. These included problems with the implementation of the commitments entered into as a result of the Uruguay Round, and the possible expansion of the mandate of the WTO to cover social and environmental issues. For the EU, its position on the negotiation of new commitments in the area of agriculture had caused friction with other countries. As for the future of the WTO, this was by no means assured, for as the prospects of multilateral approaches to trade liberalization receded, regional approaches were seen as one way forward. Against this background, a successful outcome to the negotiations for a successor to the Lomé Convention acquired great symbolic significance. For once, the ACP held the upper hand in the negotiations, and concessions favoring the ACP seemed to emerge on the new trade regime. This may be contrasted with the position of the ACP throughout the previous negotiations, which was essentially reactive. Given the problems of securing agreement on the EU’s negotiating directives, this is perhaps not surprising, as there was little room for the Commission to maneuver in the negotiations. The contrast with the negotiations for the first Lomé Convention is particularly striking, as at that time, it was the EU that made concessions to ensure an agreement, notably on Stabex and aid. This time, all the concessions seemed to come from the ACP as the resulting agreement comes closest to the goals set by the EU’s negotiating directives. This raises 44

EU, 2000, Memorandum 10.

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the question as to the nature of the negotiations and, in particular, the notion of equality incorporated within the Lomé acquis. One approach to the analysis of the negotiations is to use the framework advocated by Galanter for analyzing how the basic structure of the legal system creates and defines the ability of the law to achieve redistributive change.45 Actors in the legal system are placed on a continuum between oneshotters (those who rarely have recourse to the courts) and repeat players (those who often participate in similar litigation), and the approach locates players according to differences in size, state of the law, and resources. Although created to deal with litigation, by focusing on each party’s relative position of advantage and their power to influence the outcome, this approach can also be used to consider the asymmetry of bargaining power evident in the negotiations of the Cotonou Agreement. The EU is clearly located at the repeat player end of the continuum whereas the ACP countries are located towards the one-shotter end of the continuum. The ACP needed an agreement with the EU, for both economic and financial reasons; the converse is not true. Paradoxically, it could be argued that the EU needed an Agreement with the ACP for political reasons. The conclusion of an agreement with the ACP would help the EU to assert that it was interested in addressing, and solving the problems of developing countries. This would show that it was capable of establishing a constructive dialogue with developing countries, especially as such a dialogue had been absent from the WTO Ministerial Conference in Seattle.46 Moreover, the nature of the parties and the negotiating process clearly favored the EU. In contrast to the relatively homogenous group of countries that constitute the EU, the ACP countries are a much more heterogeneous group. Despite this heterogeneity, reaching agreement on the ACP negotiating mandate was easier than reaching agreement on the EU’s negotiating directives. The fact that the EU is a significant global economic actor and the ACP states are not, may partially help to explain the contrast here. The Commission, using the expertise of the Directorate-General for Development, conducted the negotiations; it could also access the experience of the Directorate-General for External Relations, which had conducted negotiations with other groups of developing countries. The Commission had also been fully involved in the process leading to the establishment of the negotiating directives, so it was fully aware of the scope it had for making 45 46

Galanter, 1974. Interestingly, the failure of the WTO Ministerial also strengthened the position of the Commission’s Directorate-General for Development who had surrendered to pressure from the Directorate-General for Trade to bring the Lomé relationship into line with the requirements of the WTO. On the role of the Directorate-General for Development in the Lomé relationship, see Babarinde, 1995.

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concessions. The ACP Ambassadors in Brussels, who lack the negotiating experience that has been accumulated in the Commission, conducted detailed negotiations for the ACP. The ACP Secretariat played no formal role in the negotiations, and even if it could propose initiatives, its position is weak given its reliance on the Commission for support. However, the Secretariat does have a view of the common good for the ACP, which may not be as well defined in the case of the ACP Ambassadors, where national interest may be the dominating factor. The dominating factor for the ACP was to conclude an agreement. So, for example, despite the fact that the ACP negotiating mandate called for the maintenance and improvement of Stabex and Sysmin, the ACP abandoned this in the face of the EU’s negotiating directives that these schemes could not be continued. Paradoxically, the break up of the ACP into smaller regional groupings, whilst increasing their homogeneity, may also increase their bargaining strength. 6. Continuity or Change? There is no doubt that the first Lomé Convention represented an important milestone in the relationship between the ACP and the EU. Another milestone has been reached with the signing of the Cotonou Agreement. However, this time it is different, for this is a time of both continuity and change. Whereas the negotiation of the Lomé Convention heralded the formal creation of the ACP, the Cotonou Agreement represents the beginning of the end for this group as a single coherent entity. Likewise, in 1975, it could not be said that the EU had a consistent and coherent development cooperation policy. By 2000, the EU had developed new relationships with a range of developing countries, of which the Cotonou Agreement is merely one example. This range of agreements is illustrative of a more consistent and coherent development cooperation policy. Take, for example, the development of the EU’s relationships with the countries of Latin America and Asia.47 At the time of Lomé I, the EU’s relationships with the countries of Latin America were limited to a series of commercial agreements, which granted special trade concessions and a promise to consider concessions in the EU’s GSP. Accompanying these agreements was a mechanism for dialogue, which would be limited to economic and trade relations. As the ACP–EU relationship moved into the 1980s, the range of countries with which the EU would establish relationships would expand, and the nature of the dialogue 47

McMahon, 1998, Chapters 4 and 5.

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and agreements would change, all in an attempt to deepen, extend, and diversify the existing relationships. Trade Agreements would become framework agreements for cooperation and agreements would be reached with regional groupings in Latin and Central America. Dialogue between the EU and the countries of Latin and Central America would be further facilitated through the San José and Rio Group dialogues and the scope of cooperation would be extended through the European Communities Investment Partner scheme. The enlargement of the EU to include Spain and Portugal led to further intensification of the relationships in the 1990s through the conclusion of new agreements with both individual countries (e.g., Mexico) and regional groupings, such as Mercosur.48 The pattern of incremental growth evident in the EU’s relationships with the countries of Latin and Central America is also evident in the relationships established by the EU with the countries of Asia. Again, the movement is from Commercial Cooperation Agreements through to Partnership and Development Agreements and from an Agreement with the regional grouping, ASEAN, to the development of enhanced cooperation through dialogue by means of the biennial Asia-Europe Meeting. Beyond the narrow concern with establishing economic and trade relations and, in particular, the encouragement of regional groupings in both areas, the EU has increasingly emphasized in both regions the importance of dialogue beyond the narrow confines of trade, to encompass issues of development, such as poverty alleviation, and political issues, especially human rights. To some extent, this is what the EC Treaty has dictated as the development cooperation policy of the EU; another part of the changed backdrop against which the negotiation of the Cotonou Agreement was to take place. However, the EC Treaty in article 179 (3) also seeks to safeguard the position of the ACP within the development cooperation policy of the EU. In conclusion, it is worth asking whether or not that position has been safeguarded. The ACP no longer stands atop the pyramid of privilege. As has been highlighted, the position of other developing countries within the EU’s development cooperation policy has been significantly improved since the first Lomé Convention. The three pillars on which the Cotonou Agreement is built, political dialogue, development cooperation and trade and economic cooperation, are the pillars on which the EU has built its relationships with other developing countries, either bilaterally or regionally. Those within the EU favoring a global approach, as opposed to a regional approach, to development cooperation are finally winning the struggle. Despite the 48

See the agreement with Mexico ([2000] OJ L 276/45), which establishes a free trade area between the parties.

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admonishment of the United Kingdom and the Netherlands during the negotiations of the new trade arrangements, their approach is at least consistent with the new international reality of trade and the need for a more global approach by the EU to the problems of developing countries. Two points are worth noting. First, only eight of the fifteen member states reaffirmed the negotiating mandate, Denmark, Finland, Greece, Luxembourg and Sweden were silent. Second, several ACP countries supported the United Kingdom and the Netherlands on this point. Were these countries acknowledging the new international reality or registering their disappointment with past Conventions? Or both? Returning to the comment of the President of the ACP Council of Ministers at the opening of the negotiations for the Cotonou Agreement, it is clear that the parties have sought to revitalize their partnership for development and to embark on a new journey. This journey is different from that embarked on in 1975 when the goal, according to the seventh recital of the Preamble, was to ‘establish a new model for relations between developed and developing states, compatible with the aspirations of the international community towards a more just and more balanced economic order’. Some of this model remains, however, this time, in the second recital of the Preamble, the parties have affirmed ‘their commitment to work together towards the achievement of the objectives of poverty eradication, sustainable development and the gradual integration of the ACP countries into the world economy’. A similar commitment has been made to the countries of Latin America and Asia in their relations with the EU, as noted in Chapter 2. So, on their journey the ACP will be joined by other developing countries as the Community seeks to implement its global development cooperation policy. Whether the Cotonou Agreement is the most appropriate vehicle through which to realize this policy or promote the commitment of the parties remains an open question.

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Chapter 4

NEGOTIATING ECONOMIC PARTNERSHIP AGREEMENTS: CONTEXTS AND STRATEGIES Stephen Wright

1. Introduction The end of the Lomé Conventions has led to a new era of relations between the African, Caribbean, and Pacific (ACP) group of 78 developing countries and the European Union (EU). Disillusionment with the four Lomé Conventions left many observers speculating whether there would be a continuation of agreements once Lomé IV expired in February 2000. However, for political and psychological reasons as much as economic ones, there was consensus that a new agreement should be negotiated between the parties. After several years of discussions, representatives of the ACP and the EU came together in Cotonou, Benin, and signed a Partnership Agreement on 23 June 2000 to deepen development cooperation and to help integrate the ACP economies into the global economy. Much work has still to be done in finalizing the details of the economic partnership agreements (EPAs), as these primarily free-trade 

Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 65– 84. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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agreements are called, prior to their full implementation in January 2008. This chapter focuses upon the international contexts and strategies which are important and relevant in influencing the outcomes of these negotiations. It also seeks to address the question of how best the ACP group can organize itself to gain most from the EPAs. An important issue is how unified the ACP will remain during negotiations, or more significantly, whether EU negotiators will demand fragmentation or differentiation of the ACP group of states. The 1996 Green Paper spelled out the EU’s preference in stating that, ‘Not all ACP states are at present capable of embarking on a standard political and economic partnership with the EU…For reasons of effectiveness, differentiated cooperation policies and procedures have become essential’.1 The Green Paper went on to state four possible options for the future ACP–EU agreement: the status quo, with differentiated procedures; a new agreement supplemented by bilateral agreements; the break-up of Lomé into regional agreements; and finally, an agreement for only the least developed members of the ACP.2 The negotiating position of the ACP group is relatively weak, but members are striving to maintain a unified and coordinated strategy in negotiations, seen most notably during the ACP summit in Fiji in July 2002 where its theme was aptly titled ‘ACP Solidarity in a Globalized World’. The ability of the ACP to alter EU perspectives is likely to be limited, as the case of the Barcelona Accords of 1995 testifies. This agreement between the EU and Mediterranean states to establish a free trade area (FTA) by 2010 was finalized on virtually the exact terms laid down in preliminary negotiations by the EU.3 The agenda of Europe is crowded with perhaps bigger and more consuming issues than development policy, notably with the war on terrorism and the impending enlargement of membership in 2004 and afterwards, and so it is difficult to know how these negotiations will unfold. The ACP has criticized the EU for its lack of interest, evidenced by the abolition of the Development Council, the failure of EU ministers often to turn up to ACP–EU meetings, and the downsizing of EU missions in many ACP states. The EU insistence that the EPA negotiations must include civil society groups and NGOs was coolly received by ACP delegates at the ACP–EU Council of Ministers meeting in June 2002. What will be the likely net benefits and gains for both parties? How will these new partnerships fit within the tightening restrictions of the World Trade Organization (WTO), and the intense bargaining surrounding the Doha Development Round, launched in November 1 2 3

See Commission of the European Communities, 1996: 5. Idem: 7. Colton and Neaime, 2003.

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2001? Will the changed environment of the post-September 11 world significantly affect the underlying philosophy of North–South relations? Will the ACP be better off with individualized and/or regionalized agreements, or will they continue to strive to maintain the previous model of ‘one-size-fits-all’ development? At this stage, what can be written about the negotiations is still rather speculative, but the issues will be addressed within the following framework. It is important to briefly set out the context of ACP–EU relations within which negotiations are held. This will be taken up in section 2. The main characteristics of the two groups of states will be discussed in section 3. We will draw lessons from previous negotiations between the two groups in section 4, which illuminate the likely paths of this impending dialogue. The final section will draw from international relations theories to see what assistance they might offer in terms of predicting the outcome of these negotiations. 2. The Context for Negotiations The change of name from Lomé to Cotonou indicates the evolution of development cooperation between the EU and the ACP. More specifically, it points to the desire by the EU to reconfigure the structures and parameters of its global development policy, including that toward the ACP group, and to some extent it may reflect a hardening of attitude by policy-makers within Europe.4 Conversely, there have been positive signs in the efforts made to promote economic development, notably with the EU’s ‘Everything But Arms’ agreement in March 2001, opening the EU market to the world’s poorest fortyeight countries, and the Monterrey Consensus agreements in March 2002, promising more aid and investment for development, in which EU members played an important role. A survey of the contexts within which negotiations will occur is helpful in order to offer insights into likely negotiation outcomes. Emphasis has shifted from aid to investment, from preference to free trade, and reflects wider trends within the global arena, such as the emphasis upon sustainable development. For organizational purposes and to simplify our discussions, three themes are selected: globalization; neoliberalism; and regionalism. These very much influence the scope and role the negotiations will likely take, and in turn help to shape the negotiating stances of the main players.

4

Gibb, 2000.

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Globalization The current restructuring of the international system of capitalism, generally referred to as globalization, is consolidating winners and losers in global political economy, although not all scholars are convinced about contemporary globalization’s voracity or uniqueness.5 ACP countries are striving to find ways to remain competitive within the global economy. Their economies are increasingly marginalized, unable to compete in the high-tech commerce of information technology, finance, and services, and relegated to the continuation of primary commodity exports, the prices of which have generally sagged.6 Forty years of development cooperation with Europe has done little to break this pattern of relations, a stern indictment itself of the Lomé, and their predecessor Yaoundé, agreements. In the 1960s, there was optimism that, ‘The approach to an African Common Market as a complementary institution to the EEC would make the prospect of integration into a world trading system considerably more feasible and less painful’.7 For Africa, and the other regions, that has not happened. As Thomas Klak concluded about the Caribbean, it ‘may be better depicted as a region that is increasingly irrelevant in economic and geographical terms’.8 The ACP group is increasingly marginalized from the EU, as its share of trade continues to diminish, standing currently at about 4 percent of the EU’s total trade. How can the EPAs prevent the ACP group falling off the European economic radar screen? Whatever agreements are hammered out within Cotonou clearly need to address the poor development performance of the ACP economies. However, major differences of strategy are emerging as to what policies to pursue. It is likely that the voice of the EU will dominate here. Agreements on debt forgiveness and foreign direct investment, for example, are crucial economic and social factors to be included by the ACP within negotiations, though how successful the group will be in these areas is uncertain. Efforts to promote greater democratization (and cooperation) both at the national and international levels—what Archibugi and Held have couched as ‘cosmopolitan democracy’9—are to be pursued through these negotiations, though it is unclear what progress will be made. The Monterrey Consensus and the Cotonou EPAs both call for greater transparency, accountability and monitoring of 5

6 7 8 9

For comprehensive discussions on how globalization is affecting the developing world see special issues on globalization in Third World Quarterly, 21(6), December 2000, and The Journal of Development Studies, 37(2), December 2000. Lipumba, 1999. Rivkin, 1963: 46. Klak, 1998: 12. See also Herbst, 2000. Archibugi and Held, 1995.

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performance within the ACP and other developing states, and the differing levels of compliance will undoubtedly have implications for the successful and timely negotiation of EPAs with individual states and within regions. Neoliberalism Neoliberal political and economic strategies are likely to provide the basis for agreements between the ACP and EU. The Washington consensus forged by the International Monetary Fund (IMF) and World Bank (WB)—and the U.S. Government—has spread to the Geneva-based WTO, and influences the parameters of the EPAs. Promotion of free trade and foreign direct investment (FDI), rather than trade preferences and aid, have become critical demands for European policy makers. Changes to the Lomé IV agreement on aid were fashioned on a neoliberal agenda, but the Convention’s only moderate success served to intensify EU demands to implement more trade-focused strategies under Cotonou. The successful restructuring of Central European political economies provides ammunition to those who wish to push for ‘meaningful’ change in the ACP region. Neoliberalism also calls for the streamlining and skill-sharpening of the bureaucracies of ACP states, especially those in Africa.10 But it is clear that FDI to the ACP countries has been negligible, and certainly will not come to the ACP countries in equal amounts. Similarly, most ACP economies are considered too weak to simply open up to full free trade, and the espoused benefits of opening borders to trade have been criticized by many.11 EPAs are therefore likely to be staggered in implementation to take account of the inability of many ACP states to completely open up their own markets to EU products, thereby contributing to differentiation of ACP members and their strategies. WTO policy has been especially important in pressurizing change in trade relations between Europe and its ACP partners, most notably in undermining discriminatory and preferential access to the EU market previously allowed under Article XXIV of the GATT agreement. The EU did not negotiate for special dispensation for Lomé IV in the mid-1990s when the WTO was established, but did apply for a waiver in February 2000, to lapse when Cotonou is fully implemented in 2008.12 The ACP, along with most developing states, is already disillusioned about the WTO trade regime because members did not get to participate fully in its development, and also because there is continuing discrimination against the agricultural and semiprocessed goods that 10 11 12

Goldsmith, 1999. For example, see Rodrik, 2001. LeClair, 1997; Weiler, 2000.

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they produce.13 The collapse of the 1999 Seattle WTO meetings can be partly attributed to the pressure exerted by developing countries to seek greater tariff benefits in the agricultural sector, and the outcome of the Doha Round in 2004/2005 will undoubtedly have an impact on the EPA negotiations. In light of this, there was an agreement in October 2002 to forge a joint ACP–EU ministerial committee to monitor developments within the Doha Round, and to attempt to influence decisions there to mesh with the objectives of the EPAs. The ongoing trade tensions and disagreements over development strategy between the EU and the U.S. (added to by U.S. steel ‘protectionism’ in 2002) will guarantee that the U.S. (and the WTO) will not allow European slippage into maintaining preferential treatment for ACP members. There is little to be gained by EU recalcitrance in any case, but the likely impact on ACP trade options could be significant. And as Raffer points out, WTO pressure can be used to EU advantage, as ‘The new WTO regime shaped by the EU and the U.S. will apparently serve to cleanse trade relations from disliked historical obligations’.14 An added dimension to the ACP–EU relationship is the aggressive strategy adopted by the U.S. government at the end of 2002 in pursuing FTAs with a number of countries around the world. On the U.S. agenda are FTAs with Central American and Caribbean states, and with the states of the Southern African Customs Union (SACU). Opportunities to join FTAs with the U.S. could be used as leverage by ACP states in their negotiations with Brussels. Regionalism Regional organizations have become an integral part of the global landscape since the 1950s, led by the success of the EU. Numerous regional organizations exist in the three continents represented by the ACP, although there are few if any stellar cases of achievement. For Africa, Pius Okigbo’s words on integration written in 1967 still ring true today in that the difficulties, ‘are mainly internal—physical geographic bottlenecks, lack of basic infrastructure, paucity of natural endowments and resources, lack of political will and abundance of political rivalries, suspicion, and jealousies. It is these, rather than threat from an external group, that make the development of an African common market remote’.15 A more recent study of African regional integration lists a variety of problems: lack of sincerity and political commitment; overdependence on foreign donors; foreign countries’ dominance; unrealistic 13 14 15

Helleiner and Oyejide, 1999. Raffer, 1999: 132. Okigbo, 1967: 157.

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schedules; uneven benefits; and continuing political instability.16 And one study recently concluded that ‘deeper integration is more likely to occur as a consequence [of structural adjustment policies] rather than through the efforts of regional and subregional entities especially established for this purpose’.17 And yet Daniel Bach argues that regionalization and ‘trans-state integration [are] stimulated by market distortions as opposed to trade liberalization, a situation which accounts for the overall failure of the IGO’s programs towards market integration’.18 The creation of the African Union (AU) in July 2002 addressed some of these issues by creating a vehicle for the pursuit of a single market for the continent, though this achievement is many years away from realization. The AU may help to rationalize the overlapping and often redundant nature of existing regional organizations within the continent. A similar picture emerges when one looks at integration efforts in other regions. A study of Caribbean regional integration by Jay Mandle concludes that, ‘such cooperation looks as if it is not realistically on the West Indies agenda’. Mandle goes on to say that ‘it would appear to be a better choice to get on with the modernization effort on a country-by-country basis than to delay until some time in the indefinite future when regional cooperation will become a reality’.19 And Evelyn Colbert was equally pessimistic about the prospects for regionalism within the Pacific Islands, given their very heavy continuing dependence upon external aid and the 20 million square miles that the islands cover.20 Regional integration and the promotion of intra-regional trade have long been touted as likely ingredients for assisting economic development, and EU negotiators are emphasizing development on a regional level utilizing existing organizations. The EU’s Green Paper argued that, ‘The path of regional cooperation and integration seems advisable not only because of the generally inadequate economic size of many ACP countries but also because such an option can encourage political leaders to adopt a more strategic approach to developing their economies’.21 How this relationship will be used is unclear at present. Will regionalism be used to promote collective self-reliance, or simply to tie these economies more closely to the EU trade orbit? This debate hinges upon how one perceives regionalism. Björn Hettne sees the ‘new regionalism’ as focusing upon political and economic factors, reflecting the post-hegemonic multipolar world order, where pressures for regionalism come from above and 16 17 18 19 20 21

Mshomba, 2000. Fine and Yeo, 1997: 429. Bach, 1999: 12–13. Mandle, 1996: 177. Colbert, 1997. See also Fairbairn et al., 1991. Commission of the European Communities, 1996: 6.

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below, from inside and outside the state. In this perception, regionalism and globalism are both contradictory and complementary elements, making regional ‘strategy’ difficult to pinpoint.22 It is possible that intra-regional trade will be pushed as a boost to development, though it is difficult to comprehend how this could be successful after decades of failure. Intra-regional trade as a percentage of total trade still remains at less than 10 percent for all the regions within the ACP, and it is difficult to see how intra-regional trade can be significantly expanded. Alternatively, regions could be converted into FTAs with the EU and with each other, pursuing the long-term goal in Africa of a single African market. Another possible scenario would see the EU developing differential relations with each of the regional organizations, and/or specified groups of Leastdeveloped countries depending upon levels of development, trade, capacity, etc. The European Commission already has these regional organizations broken down into seven sub-groups for the purposes of regional cooperation fund disbursement, and so it would require little extra effort to differentiate more substantially.23 Or possibly the EU might support the extension of commodity regimes (fruit, timber, coffee, etc.) across the ACP, linking together common economic sectors in non-geographical ‘regions’. 3. The Negotiators While we should not underestimate the complexity of these negotiations, and the many groups interested in their outcome, for reasons of simplicity we will isolate the main actors into two groups, namely the ACP and the EU. Overlapping both groups are other organizations, such as the ACP–EU Joint Parliamentary Assembly, launched in October 2000, which is attempting to influence the agenda of negotiations through frequent assemblies and other meetings. What are the main strategies being pursued by the groups? How unified are the groups in their negotiations? How vital is unity to the success of the respective camps? The ACP Group The ACP group now encompasses 78 developing states, of which the majority is in Sub-Saharan Africa. Despite valiant efforts, most states remain relatively impoverished and marginalized, and largely dependent upon the export of 22 23

Hettne, 1994. Kennes, 1999. These seven regions are Central Africa, Eastern Africa, Indian Ocean, Southern Africa, Western Africa, Caribbean, and Pacific.

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primary products. As Jean-Robert Goulongana, the ACP Secretary-General, stated at the end of 2000, ‘After more than two decades of cooperation and in spite of successive Lomé Conventions granting this preferential access, there has been no great increase in ACP produce on the EU market’.24 This was echoed in the Nadi Declaration following the ACP Fiji summit meeting in July 2002, where it was stated that ‘the envisaged benefits have not materialized for most of the poor countries’.25 For most states, options are limited. To be competitive in the global economy would require massive changes in technological capability, education, infrastructure, and overall capacitybuilding that appear difficult to achieve. For many states, particularly in Africa, there remain serious threats to political stability, and uncertainties surround the viability of civil society groups to participate in EPA negotiations. The ACP has steadfastly maintained its position calling for a unified strategy to negotiations within Cotonou. As an ACP Deputy Secretary-General has remarked, ‘From an ACP perspective, facing the EU as one rather than three separate regions is probably the best option in terms of the countervailing power it would provide in the context of negotiations’.26 This is logical in that greater negotiating strength is likely from a concerted group position, rather than having states or regions negotiating separately. Furthermore, the ACP wants agreements for which all members are eligible, rather than divide up agreements for specific states and/or regions. But would a fragmented negotiation strategy automatically be detrimental to ACP interests? Do different regions actually have different objectives? How likely is it that the ACP can forge a common strategy in the face of European insistence on fragmentation? There is, after all, relatively little that binds these continents together besides common poverty and an historical association with Europe. These are very different geographical and cultural regions, with different objectives and levels of development, with an understaffed Secretariat struggling to operate in light of payment arrears by members.27 The EU Commission itself does not really see the ACP as a unified group, and is pursuing that viewpoint in negotiations. The Green Paper stated that ‘The “ACP group” is strictly speaking neither a political nor an economic entity. It was established in the framework of relations with the European Union for essentially historical reasons’. The Paper goes on to say that ACP development interests ‘diverge widely because of their very different income levels and living standards, their economic structures and trade strategies, and their 24 25

26 27

Goulongana, 2000. The Nadi Declaration at the ACP Solidarity in a Globalized World Summit, July 2002, Fiji. Full Declaration found at www.acpsec.org. Greenidge, 1999: 119. Ravenhill, 1993.

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relative appeal for foreign investment’.28 The ACP does, however, possess the power to ‘embarrass’ the EU, and in unity there would be a stronger voice to claim that the EU is ‘deserting’ the group. In terms of specific strategies, the Green Paper outlined what the Commission considered to be the possible options for the ACP to pursue. These included non-reciprocity, multilateralism, unilateral liberalization, South–South reciprocity, and North–South reciprocity.29 Perhaps the ACP states will push to benefit from currency protection within the Euro zone, though it is difficult to conceive how such protection will be organized. Another possible strategy will be to exclude non-ACP developing countries from the negotiations for fear of diluting further the preferences that they have gained to date under previous agreements. An important question to ask is whether Lomé failed simply because of its unified structure. A sign of ACP difficulties in a common platform was evident in 2001 when the ‘Everything But Arms’ initiative was non-exclusive to the ACP, and some ACP states were excluded. Likewise, some states pushed for continued favored treatment in sectors such as sugar, rum, and rice, thereby breaking from a united stance. This indicates a likelihood in divergence within the ACP, breaking on fault lines of rich versus poor members, or divided over negotiations on specific commodities. Internally, some ACP states are better able to organize civil society groups to promote agreements, whereas other states may be less favorably treated with more closed and non-transparent societies. The effort to maintain a unified stance in negotiations carried on from the July 2002 Fiji summit to the opening of ACP–EU negotiations in Brussels in October 2002. There the ACP was able to wrestle a concession from the EU that negotiations were to be broken down into two phases. Phase I is to be completed by September 2003, and under this phase the ACP is to present a unified stance. Key elements of the overall EPAs are to be agreed upon, particularly relating to market access, agriculture and fisheries, trade in services, other trade related issues, development cooperation, and legal issues. The ACP strategy is to negotiate the fundamental elements of the EPAs with one voice, and then move on to Phase II negotiations which will involve the EU negotiating with regions separately. How successful the ACP strategy will be is difficult to determine, as there remain fundamental differences over the status of Phase I negotiations. The ACP argues that these are formal negotiations that should lead to a written, binding agreement, whereas the EU position is that these are talks merely to clarify the issues, and not binding.30 28 29 30

Commission of the European Communities, 1996: 6. Idem: 10. Details of the October 2002 meeting in Brussels can be found at www.acpsec.org

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The EU is also attempting to condense Phase I—thereby weakening the solidarity of the ACP—and move quickly to the ‘real’ negotiations on a differentiated basis with regions and individual states. A report published in October 2002 on the Caribbean highlights some of the likely divergences in ACP strategy.31 The Caribbean states are currently negotiating three different trade regimes: some sort of FTA with the United States, possibly within the Free Trade Area of the Americas (FTAA) concept; the Doha Development Round; and the EPA with the EU. Caribbean states also have different priorities concerning their main export products. The challenge of keeping a unified front within the stresses and strains of negotiating several trade regimes simultaneously is evident, and only magnified when one includes other EU and ACP agendas—including some talk during 2002 of an ACP free trade area. The European Union In reality, the EU is the critical player in the Cotonou negotiations. Although there are considerable efforts to create a harmonized European development policy, we can envisage likely fracture points between the fifteen (and soon to be twenty-five) member states who continue to hold different perspectives on development policy, as well as between the different institutions of the EU. There is a multi-layered decision-making structure, including Commission, Council, Parliament, NGOs, and individual states, just to name a few. Even within the Commission, arguably the main player in these negotiations, there are differing preferences as there are currently ‘five commissioners and four directorates-general [who] have active policy responsibilities for development cooperation in various forms’.32 Even within the Europe of Six in the 1950s, it was difficult to reconcile opinions about the relationship with (former) colonies. As the EU has expanded to fifteen members, newer members, such as Finland and Sweden, have strong views on development policy, but do not have the colonial or postcolonial linkages shared by countries such as France or Britain. Spain and Portugal have attempted to shift attention to Latin America as a critical development and trade focus. The May 2002 summit in Madrid brought together Latin American and EU leaders, and offered both parties the chance to improve trade at the potential expense of the U.S.—and possibly to the detriment of the ACP states who have arguably less to offer the EU than Latin American states. A similar ‘distraction’ is the development of the Euro31 32

Davenport et al., 2002. Cosgrove-Sachs, 1999: 352.

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Mediterranean FTA by 2010. The divergence of opinion over priorities has created difficulties for the Commission in constructing development policy, notably in constricting national preferences within an overarching European framework. The further enlargement of the EU into uncharted territory in Central Europe and beyond, starting in 2004, is placing strains on European cooperation and more important issues on the European agenda, and is detracting from a focus on development strategy. And the debate over Turkish membership will likely dominate many minds over the coming decade. The ‘need’ for development spending in the new members of the EU (as articulated by the new members themselves) is also placing significant political strains on the ACP–EU axis of friendship. As Olufemi Babarinde has concluded, ‘each enlargement of the EU has seen a redefinition and elaboration of the EU’s relationship with the South’.33 It is also unclear what impact ‘post-September 11’ thinking is having on traditional development policy, given the U.S. impulse to rid the world of evil, and the growing tensions in Europe and the Middle East in early 2003. At the level of integration theory, there are further complications for a unified European perspective. Arguments abound about the utility of neofunctionalist approaches, the significance of flexible integration, and the likelihood of multi-polar and multi-speed Europe in the light of agreements forged at the Amsterdam and Nice summits. If there can be alternative policy perspectives over Schengen, common defense, security, and the euro, why should there be unanimity over development policy? Similarly, the EU perceives that the ACP group is equally fractured and ‘multi-speed’ with states pursuing different agendas. Having made the case for multiple approaches within the EU, there are some clear indications of what strategies the Commission is likely to pursue in the ongoing negotiations. These were laid out in a 1996 Green Paper, and many elements found their way into the Cotonou Agreement signed in June 2000. A key provision of the EU stance is differentiation, namely the breaking up of the ACP into distinct component parts for the basis of negotiations. Another is the emphasis upon regional organizations. A third is the renewed commitment to political conditionalities, notably respect for human rights and democratization. Linked to this is the desire by the EU to engage civil society groups within the ACP in the negotiation process. Overall, the Green Paper indicated a hardening of attitude toward the ACP group. A complete end to agreements is politically unacceptable, but a new agreement primarily written on EU terms is the path EU negotiators are 33

Babarinde, 1998: 140. For broader discussions of EU policy, see Caporaso, 2000, and Dinan, 1999.

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following. Strategies of regionalism, differentiation, and neoliberalism hold the key to the likely outcome. The EBA initiative in March 2001 is indicative of a likely strategy. The initiative allowed duty- and quota-free access to the goods of the poorest forty-eight countries of the world, and not just ACP states. However, the EU was unable to agree to open up certain markets, and protection has remained on bananas until 2006, and on rice and sugar until 2009. Although on paper this appears generous, critics argued that this makes little difference to the EU as the LDCs rarely have the ability to compete in the EU market anyway. Development assistance and massive levels of FDI are required to make ACP states competitive, and without this FTAs make little difference. 4. Lessons from Previous Negotiations Previous negotiations have proceeded on the principle of a unified stance and strategy by the ACP group. The issue, since the 1960s, could be phrased as ‘How can the weak confront the strong and “get something out of them”, given the power imbalance’.34 Notable exceptions to this group rule, which could provide a model for differentiation or fragmentation today, are negotiations for Nigeria’s trade relations with the EU in the 1960s, and those of South Africa in the 1990s. Both negotiated individually with the EU, and in both cases obtained significant concessions for themselves. One aspect of differentiated negotiations could be either having regional powers, such as Nigeria and South Africa, conducting separate negotiations on behalf of themselves or for their regional groupings. In the negotiations for Lomé I during the early 1970s, Nigeria spearheaded the talks, but on behalf of the whole ACP group. Although there are similarities running through these negotiations since 1958, the context of the talks has differed considerably. During the negotiations linked to the Treaty of Rome in 1957, the African actors were colonies, and so had a very limited role in the negotiations. These Association agreements naturally reflected the disparity in strength between the blocs, but also reflected intense differences between the European Six. In the early 1960s, both in response to Britain’s request for EU membership and the independence of most of Britain’s former colonial possessions, fresh negotiations occurred to which there was considerable opposition within the Commonwealth bloc. The reactions quickly changed when Nigeria decided to apply for preferential trade access to Europe, and negotiated a solid partnership.35

34 35

Zartman, 1971: 5. See Okigbo, 1967; and Zartman, 1971.

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The ACP group’s strongest leverage was in the early 1970s during the negotiations for the first Lomé Convention. In a competitive Cold War environment, following the collapse of the Bretton Woods free trade era, and with the OPEC oil price revolution picking up in October 1973, the ACP group was able to extract a very positive treaty for itself. The EU was clearly focused upon maintaining access to raw materials and trade partners within the ACP, and did not wish to forfeit these relations. Other benefits to the EU, as pointed out by Ravenhill, included maintaining the stature of the EU in global development; the maintenance of francophone and anglophone (and later lusophone) connections with the EU; the psychological satisfaction of promoting noblesse oblige and caring for the global poor; the protection of EU investments in Lomé countries; and the assistance to European countries in multilateralizing their markets.36 To some extent, many of these arguments are still valid today in the context of the Cotonou negotiations. In subsequent rounds of negotiations, the conditions were not quite as propitious for the ACP, and steadily through Lomé II to IV the EU clawed back terms of agreement. As Christopher Clapham laconically summed up, ‘Rhetoric aside, the renegotiations of the Convention from Lomé II onwards essentially consisted in the EC telling the ACP states how much aid they were going to get, and the ACP complaining that it was not enough’.37 There was little need to be concerned about ACP challenges and defections in the postCold War world of the 1990s, and the assumption is that this attitude will carry over to negotiations under Cotonou. One slight pressure for the EU is the apparent new found interest in Africa after 1998 by the Clinton and Bush Administrations, and some speculate that this might have tipped the scales in favor or renewing the ACP–EU agreement in some shape or form. A clear lesson from previous negotiations is that the ACP is in a stronger position when negotiating collectively. However, this is difficult to achieve, and may be strained under Phase II of the negotiations. Although there are pressures to promote horizontal integration via regional organizations within the respective continents, the ACP continues to promote vertical integration with the EU. There are benefits to both the ACP and EU of this ‘collective clientelism’, or ‘vertical integration’, where ‘a group of weak states combine in an effort to exploit the special ties that link them to a more powerful state or group of states’.38 Unfortunately, under Cotonou there is less reason for the EU to maintain these ties. For the ACP, differentiation will diminish their ability to define the agenda. 36 37 38

Ravenhill, 1985: 35. Clapham, 1996: 101. See also Laurent, 1983. Ravenhill, 1985: 18. See also Frey-Wouters, 1980.

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5. Negotiation Outcomes Many of the issues that will influence the outcome of the negotiations have been addressed already. The EU is seeking a strategy to differentiate or fragment the ACP countries into regional blocs, or else into developing and least developed categories. The ACP is striving to resist such fragmentation in order to maintain the maximum possible leverage. In this final section, it is worthwhile to consider briefly potential outcomes of the EPAs not solely through ACP or EU eyes, but through theoretical lenses of the field of international relations. How can different theoretical perspectives help predict possible outcomes of these negotiations? How can theory help define gains of the respective parties? For the facilitation of debate and to illuminate various possibilities, I am using five broadly and loosely defined theoretical approaches: normative/idealism, neorealism, postmodernism, rational choice, and dependency. These theories are offered in thumbnail sketch only and are not elaborated upon, nor is there any attempt to test them. They are presented only as brief overviews or characterizations to help us frame some thoughts about possible outcomes of the negotiations.39 Normative/Idealism Though many scholars pay scant attention to the normative approach, elements of this approach touch on the development debate and the Cotonou agreement. Many can see normative elements in the rhetorical policies of support for development, but find idealism much more difficult to see in the real world of implemented policy. The ideal vision is of a developed world, where peaceful integration abounds and the quality of life improves for all. The EU, as the world’s largest trade bloc, has an obligation to help the poor of the developing world—or at least to be seen trying to help the poor. Regional integration, along with global cooperation through the United Nations, aims for the common good of all. From this perspective, one can posit that the EU has a genuine commitment to the Cotonou partnership, and will negotiate to everyone’s advantage. Certainly, the EU will want to avoid the embarrassment of being shown not to care about the developing world. The EU will recognize that the ACP group has the right to protect its interests in a unified stance. Elements apparently played down from Lomé will be revitalized, such as the increased flow of grants and aid, and the softening of structural adjustment requirements 39

Herbst, 1987.

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that impact social programs. The realization that everyone in the world is better off when poverty and hunger is eradicated will lead to an unprecedented agreement, helping to stave off the widening of North and South and the advent of ‘global apartheid’ in development. The EU will work to promote social democracy within the ACP group, but will refrain from pursuing the harsher elements of direct intervention in their policies. Neorealism The neorealist perspective emphasizes the likely importance of these arrangements to the states themselves. The development of an ACP–EU development ‘regime’ is desirable, where common values and norms link the partners together for mutual benefit. However, given the failure of previous agreements and the absence of a common value system, this is unlikely. Interdependency provides an uncertain balance in the world system, and the hope is that a successful Cotonou agreement will strengthen such linkages. But an analysis indicates that this ACP–EU relationship is not truly interdependent, but one in which the EU exerts a form of hegemony over the ACP group. The relationship is certainly not of equals. There is little need to appease the claims of developing states for advantageous access to European markets, and little difficulty in resisting them. The uneasy relationship of the EU with other major trading centers, such as the U.S. and Japan, takes precedence in consideration over those with the ACP. New structures of power relations might well influence the thinking of European negotiators, seeking not only to differentiate ACP countries but also to spin off portions into different orbits. The Caribbean would make more sense being linked to Latin America, the Pacific Islands to the Asia-Pacific bloc. Africa and the Mediterranean could be drawn more into the European umbrella. Another scenario will see ‘soft hegemons’ emerging inside the regions, such as Nigeria in West Africa or South Africa in Southern Africa, and these countries will broker arrangements for their regions with the EU. In this way, new balances of power will develop within Cotonou. The collective voice of the ACP will be demonstratively weakened, and the Europeans will pursue their own agenda without constraint. Postmodernism Postmodernist perspectives (there cannot be one, and apologies for drawing this approach very broadly, and with some abuse) will deny that such a development debate can occur. Grand theory and global solutions are 80

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impossible to define and defend, and simply show underlying power assumptions, in this case the power of the EU to define the parameters of dialogue and negotiation. Probing further, there can really be no EU or ACP position, as this masks multiple positions within countries and constituencies. Finding a true common ground between all these groups is impossible. A postmodern interpretation will likely support a fragmented strategy for all parties, where agreements will be negotiated between individual countries on individual issues. It is impossible to develop a framework of equality without ‘deconstruction’ because the imbalance of power is ingrained. Debates over the meaning of development will essentially derail the negotiations, as participants will want their independent ‘voices’ heard. A meaningful global development strategy is simply impossible, or at best is ‘constructed’ by the powerful voices. Feminists (post modern or otherwise) also raise objections to the current negotiations and the strategies that have underpinned successive Lomé agreements, and most likely the Cotonou partnership. Women have been outside of the development debate, relegated to gendered exclusion. As Eloise Turner argues about the EU position, ‘Neither the complexity of roles nor the gendered income distribution is fully recognized, and the solutions proposed are thus inappropriate’.40 Globalization has increased the marginalization of women and children because of the change of employment opportunities open to them. Low-tech assembly jobs are considered ‘women’s work’ and as Cecilia Green concluded succinctly about the Caribbean, ‘the assumption of male privilege dies hard’.41 A more egalitarian negotiation process will have to bring in the voices of women, and this will have a significant impact on the outcomes. A final area to note here is the emphasis within Cotonou on civil society groups, especially focusing upon human rights. As Karin Arts has stated, since the early 1990s ‘in its relations with developing countries, the EU more and more consistently pursues development and human rights simultaneously’.42 Given the desire to bring in NGOs, political parties, trade unions, human rights and grassroots movements, and other civil society groups, postmodernists see a clear result of developing multiple voices and multiple negotiation strategies within each country’s delegations. How will such opinions be reconciled in a common platform across the ACP, or even within individual countries? How will views of differing social classes be brought into Cotonou? How will different societies, at differing levels of civil society development, accomplish these tasks? How can Cotonou empower civil society groups during the 40 41 42

Turner, 1999: 33. Green, 1994: 171. For a more general discussion of these issues at a global level, see Özler, 1999. Arts, 1999: 8.

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negotiations when globalization has tended to marginalize them?43 To postmodernists, this is ample evidence that such goals are impossible to achieve as laid out, and complete differentiation is the only path to follow. Rational Choice Rational choice theory continues to make advances in the social sciences for its claimed ability to provide explanatory power to understand actions. Policy decisions are made based on rational calculations of gain by the individual actor. Action is taken to bring the greatest rewards. Negotiations can take place individually, or via the group, but will depend upon a clear articulation of preference hierarchies or choices. Economic gain is normally the primary motivation of decision, with little emphasis placed on moral calculations.44 Political incentives are also very high priorities for decisions, such as reelection. Rational choice draws from historical theorists such as Thomas Hobbes and the utilitarians, but more importantly from modern game theory and the enduring capacity of neoclassical economics. Rational choice delineates clear sets of priorities for different groups of actors within the negotiation process, and it gauges where important priorities coincide. It is a difficult task to open the black box of government and unbundle the different roles of individuals. There will most likely be different gains to be made by civil society groups as opposed to government elites, and so it is vital to recognize who has final authority for decisions, something that is unclear under Cotonou. How will one account for ‘shadow or warlord governments’ in Africa or corrupt elites in determining how they weigh their rational choice? And as rational choice emphasizes the importance of electoral considerations in framing choices, how will leaders be swayed by voters in ACP countries (those that have open elections)? Even at a simplified level, it is evident that the rational gain of the EU decision-makers will be different to those of ACP leaders. However, identifying the key European decision-makers will be difficult as rational choice theorists perceive ‘the European Union as a system of countervailing institutions in which actors behave strategically to reach their preferred outcome’.45 Bluntly though, there is little economic gain for the EU in terms of privileging the ACP, and much to gain by developing a more comprehensive trade stance toward all developing countries within the WTO rules. For the ACP, rational gain is to maximize exclusive economic concessions from the 43 44 45

Adams et al. 1999. Rule, 1997: 79–81. See also Geddes, 1995. Moser and Schneider, 2000: 3.

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EU, at least in the short term. One question to ponder concerns how much the EU is willing to bear financially in order to make the EPAs successful. Game theory suggests that the ACP will wish to make a quick agreement in order to keep out other non-ACP developing states, which could draw economic benefits away from members. Rational choice also posits that both sides have clear political incentives to make an agreement, as the costs of failure are unacceptable. Whether this all means that the EU will deal with the ACP as a unified group or as a fragmented group (each state bargaining for its best deal) is open to interpretation. Dependency Despite various ideological challenges, dependency theory still holds some sway in discussions of development. Core-periphery relations can still explain some elements of political economy, even though globalization is affecting such relations in dynamic ways. Dependency perspectives highlight the continuing marginalization of the ACP group under the pressures of globalization and neoliberal strategies, and there is the likelihood that any framework within Cotonou will do little to truly improve the status and economic position of the ACP states. An argument can be made that marginalization diminishes the level of exploitation, as multinational corporations become wary of investing in unstable and excluded regions. Cotonou is likely to be a ‘no-win’ situation from a dependency perspective. Political and economic conditionalities will remain key EU requirements, and from this theoretical standpoint there will be little discretion for the weaker ACP during negotiations. The further intrusion of ‘policy dialogue’, under which the EU demands greater accountability from the ACP in development policy, provides a further mechanism to maintain uneven and dependent relations. The creation under Cotonou of a European conflict protection and settlement policy to help Africa police itself smacks of a neo-colonial and paternalistic approach. Fragmentation of the ACP will be pushed by the EU, as it will be easier to control ACP demands and goals. But even an ACP unified stance means little in the face of the overwhelming power, both economic and political, that the EU possesses. And there is always the IMF, the WTO, and the WB to continue to act in the name of the Northern developed countries, pushing structural adjustment that continues to debilitate ACP societies. So, from a dependency perspective, there is likely to be little difference in which negotiation strategy the ACP uses, as the end result will be the same. In fact, radical dependency

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scholars argue for an end to these agreements and a complete change of direction for third world development strategy.46 6. Conclusion This chapter has addressed the main elements of the negotiations within the Cotonou Agreement, and has presented arguments from a variety of perspectives as to the outcomes of a unified or fragmented ACP approach to the negotiations. It is uncertain exactly how unified the EU will be during these negotiations, but definitely the EU holds the dominant hand. There are, of course, many things that can influence outcomes. These can be practical policy issues emanating from the dynamic and changing context of ACP–EU (and global) relations, and we cannot be aware of what international events might take place over the next five years. Similar problems of prediction can be seen when we turn to our international relations theories. So much for the academy! Drawing together all possible scenarios, and taking a pragmatic, personal and ‘balanced’ view of likely scenarios, it appears that the most likely one to occur will be EPAs with terms harsher for the ACP than under Lomé. Greater emphasis will be placed on trade diversification, foreign investment and capacity-building, whereas aid and discriminatory preferences will be eliminated or certainly downplayed. The ACP will attempt to remain unified in negotiations, and its best chances of successful negotiation lie in such an approach. Despite these efforts, however, it is likely that EU insistence on differentiation will win out, and various regional or individual state agreements will be brokered rather than a single common agreement. This will be perceived by the EU as in the best interests of itself and the ACP group. Such differentiation could benefit certain ACP states better able to negotiate with the EU, and there are likely to be ACP members who fare poorly. However the negotiations conclude, Cotonou provides a different type of ‘partnership’ between the ACP and the EU than what has been witnessed over the past forty years. Unfortunately, there is little evidence to suggest that these economic partnership agreements will bring any more development success to the ACP than previous ones.

46

For example, increasing ‘disorder’ in developing societies helps prevent the incorporation into Western models of development, as argued by Chabal and Daloz, 1999.

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Chapter 5

ECONOMIC PARTNERSHIP AGREEMENTS AND REGIONAL INTEGRATION AMONG ACP COUNTRIES Gerrit Faber

1. Introduction What would the conclusions be of an unbiased reader, going through the second title—Economic and Trade Cooperation—of the Cotonou Agreement? That reader would probably draw the following conclusions. First, there is a strong emphasis on WTO conformity. Apparently, the wish not to deviate from WTO rules is so strong that WTO conformity has been upgraded to an objective of this cooperation (Article 34). One would expect it to be a principle, at best. Articles 36 and 37 reiterate WTO conformity. Second, the transition period between 2000 and 2007 will be used to negotiate economic partnership agreements (EPAs) between (groups of) ACP countries and the EU that ‘shall aim notably at establishing the timetable for 

Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 85– 109. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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the progressive removal of barriers to trade between the Parties in accordance with the relevant WTO rules’ (Article 37.7). This hints at the reciprocity of the trade preferences under the EPAs, which will require the ACP countries to give EU exports free entry to their markets. Third, there is strong emphasis on regional integration among ACP countries: there will be support for regional integration in the preparatory phase (Article 37.3), and the negotiations on the EPAs will take into account regional integration processes within the ACP (Article 37.5). It might be concluded that the EU and the ACP have a clear idea of the organization of their future relationship: WTO compatible, reciprocal free trade agreements (FTAs) preferably built on regional integration among ACP countries, supplemented with other cooperation areas. The term EPA has been created for these accords. However, careful reading reveals that other outcomes are possible. For example, non-least-developed ACP countries ‘might decide that they are not in a position to enter into EPAs’ (Article 37.6). Alternatives would be considered for such countries. For leastdeveloped ACP countries, ‘duty free access for essentially all products’ will be introduced (Article 37.9). It is striking that the nonreciprocal solutions get comparatively little attention; by going into much more detail, the agreement, as such, seems to prefer the reciprocal trade arrangements for the post-2007 period. The European Commissioner for Trade, Pascal Lamy, confirmed this right before the start of the EPA negotiations: ‘We…expect our ACP partners to do their bit to contribute to the common goal. They have to establish sound policies. They must, above all, foster regional integration in return for EU market opening’.1 The option of reciprocity was not an idea that the ACP group enthusiastically accepted. The European Commission’s November 1996 green paper on ‘Relations Between the European Union and the ACP Countries’ contained options for the future shape of the ACP–EU trade cooperation.2 Two main directions could be discerned; namely, coverage of ACP exports by the EU Generalized System of Preferences (GSP), or the introduction of uniform or differentiated reciprocity. The first option may be attractive for the least-developed ACP countries, as their preferential position remains the same, for as long as they remain least-developed. However, the GSP is unilateral, and preferential margins decline as the general and sectoral competitiveness of the beneficiary countries increases. The ACP group was not in favor of the GSP solution. The group first aimed at maintaining the status quo and, realizing that this position would be unproductive, 1 2

Interview with Pascal Lamy in: The Courier ACP–EU, No. 193, July–August 2002. European Commission, 1996.

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subsequently accepted the principle of reciprocity, which is embodied in EPAs.3 These agreements may cover many areas of cooperation, such as trade in goods, services, direct foreign investment, technical assistance, and harmonization of regulation. The core of an EPA is a Free Trade Area (FTA). FTAs are defined by free trade in goods among the members, while keeping the power to make decisions in trade policy matters with respect to third countries, at the level of the individual parties to the agreement. The EPA approach to the renewal of the trade regime of the Lomé Convention presents a number of questions. First, on theoretical grounds, are FTAs between the ACP countries and the EU likely to produce better results than the nonreciprocal Lomé preferences? Second, even if promising, is it likely that (groups of) ACP countries will be able to conclude viable FTAs (or EPAs) with the EU? Which conditions will have to be met in order to realize the potential benefits? This chapter will address these questions. It provides an economic analysis of the FTA approach for future ACP–EU relations. The composition of the chapter is as follows. In section 2, the background for the new approach is given. Section 3 presents the economic theory of integration in order to explain the (in)effectiveness of both the present and the new approach. Section 4 formulates the conditions that have to be met to make FTAs successful. Section 5 addresses the question of whether the new approach will work in practice. Conclusions are drawn in section 6. 2. The Economic Theory of FTAs Economic theory of regional integration can shed light on the question of whether the EPA approach of the Cotonou Agreement has the potential to contribute to ACP development. EPAs are a kind of regional integration agreement (RIA). As far as trade is concerned, an EPA comes close to a free trade area (FTA). The potential effects of FTAs and customs unions (CU) are best shown by customs union theory. Viner shows that a CU affects trade in two ways.4 First, countries gain from preferences because of the trade creation effect. This takes place if a tariff reduction in favor of the partner country allows high-cost domestic production to be replaced by more efficiently produced goods imported from the partner country. Second, countries lose from a CU because of trade diversion, which arises if trade shifts from sources that have a comparative advantage to sources that have 3 4

ECDPM, 1998. Viner, 1950.

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preferential access to markets. Two extensions of Viner’s analysis are relevant. Lipsey has developed the concept that positive consumption effects arise if a CU leads to lower prices for consumers.5 Another extension has been made to account for FTAs in particular. The absence of a common trade policy in an FTA can give rise to indirect trade deflection. This occurs if a member country, characterized by relatively high trade barriers, shifts its imports from the world market to the partner, while the latter country— having relatively low trade barriers—increases its imports from the world market.6 In practice, this means a shift of tariff income from the first country to the latter country. A country gains from participating in an FTA if the trade creation and the consumption effects outweigh trade diversion and indirect trade deflection. For this to happen, three conditions are important. First, FTAs must result in a substantial fall of intra-FTA trade barriers. In that case, the price reduction resulting from preferential access has large trade creation effects. Second, if trade shifts to sources in the FTA that are efficient (nearly as efficient as the most efficient producers on the world market), trade diversion and indirect trade deflection do not hurt very much. Third, indirect trade deflection will be absent if the high tariff partner simultaneously lowers its tariffs (and other trade barriers) to the level of the low tariff partner. Therefore, countries that join an FTA that consists of efficient producers are likely to gain from preferential trade, particularly if they lower their trade barriers on imports from third countries at the same time. Venables analyzes the distribution of the gains from regional integration agreements (RIAs) for different groups of countries, particularly poor countries and industrialized countries.7 He uses Ricardian and HeckscherOhlin-Armington models to extend CU theory to countries that are characterized by their factor endowment. Assume that two poor countries that have abundant unskilled labor, compared to the global average, decide to integrate. Assume further that one of the two countries has more abundant unskilled labor than the other. After the introduction of an FTA, the member state that is extremely endowed with unskilled labor will suffer trade diversion as its partner will enjoy a comparative advantage in goods that use skilled labor in production. The other country that is less endowed with unskilled labor will gain from trade creation, as it substitutes its production of unskilled labor-intensive goods for imports from its partner. The result is a divergence of real income levels. This tendency has been observed in the 5 6 7

Lipsey, 1960. Pelkmans, 1997. Venables, 2000.

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former East African Community (EAC) and in the Economic Community of West African States (ECOWAS). Integration among industrialized countries, by contrast, is likely to give rise to convergence. In that latter scenario, the extremely endowed country is most abundant in skilled labor and thus the richest. Regional free trade will bring trade diversion to the country with the higher endowment of skilled labor, that is, the richer. Gains from trade creation will mainly flow to the poorer, less extremely endowed partner. The conclusion of this analysis is that regional integration among poor countries tends to lead to income divergence, which encroaches upon the viability of these FTAs and CUs. The prospect for North/South FTAs is much better. Trade creation will be concentrated in the poor member state and trade diversion in the rich partner. The trade creation, trade diversion, trade deflection, and the consumption effects are static welfare effects of integration. Since these static welfare effects are generally considered to be small, dynamic welfare effects are more important in the long run. First, trade may create positive production externalities in developing countries. If companies in these countries can produce more, they can create economies of scale and ‘learning by doing’ effects. Second, preferences will change the competitive environment in which firms operate. For instance, this will reduce X-inefficiencies because of foreign competitive pressures, and it will reduce the domestic market power of firms. Regional integration can have effects beyond the static and dynamic welfare effects. What these nontraditional effects have in common is that they tend to increase the credibility of the countries’ policies in ways that cannot be realized through unilateral or multilateral liberalization.8 Two main nontraditional effects are distinguished; namely the effects of overcoming time inconsistency, and signaling. Time inconsistency occurs when a government deviates in the short run, due to strong incentives, from a firstbest policy that is expected to improve welfare effects in the long run. A well-known example in the area of trade policy is a change in the terms of trade. In a free trade situation, the economy will adapt and the allocation of factors of production will change in such a way that a maximum welfare will be attained. This occurs through falling factor rewards in, for example, the import competing sector, and rising factor rewards in the export sector. However, a government will get strong incentives to intervene, for example, to use trade barriers to compensate for the falling wage level or to ‘protect the employment in the sector’, according to the political rhetoric one often finds 8

Francois, 1997.

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in these situations. Structural Adjustment Programs (SAPs) are another case in point.9 An FTA can help to overcome time inconsistency by introducing reciprocity in reforms that makes withdrawal costly, as it will be followed by loss of market access in partner countries. A reciprocal regional trade arrangement, by making the cost of even a small deviation from an agreed trade liberalization large, either by forcing the country to exit from the agreement or by having members punish the deviating country, makes it easier to overcome small temptations that culminate in a greatly distorted economy overall. It can be concluded that an FTA will contribute to overcoming time inconsistency of policy reforms  if the first-best policy in a country is time inconsistent, and  if the FTA binds the government to the time inconsistent policy, and if a policy reversal—in extreme cases, an exit from the FTA—has a cost that is higher than the benefits of the policy reversal. The second nontraditional effect is signaling. By entering into an FTA, a government may be conveying a message to foreign actors, for example, investors, about its economic policy preferences (making it clear that there is now a liberal government), the condition of the economy (e.g., the export sector is competitive), or the future relationships of the country with its neighbors (e.g., conflicts will be solved by peaceful means). This effect will occur if two conditions are fulfilled:  there has to be a significant information asymmetry (e.g., there is substantial doubt about the government’s commitment to reform); and  there has to be a significant cost to enter the FTA that cannot be recovered upon leaving, (e.g., the negotiating cost, adaptation of laws and regulations, restructuring of the economy). Ethier shows that FTAs that aim to lock in the less-developed partner’s economic reforms stimulate foreign direct investment.10 He argues that preferences and regional integration may have a dynamic effect on economic development. If reforms are successful and attract an inflow of FDI, countries gain competitiveness. If more countries reform simultaneously, they compete for FDI. Trade preferences by an industrialized country to a particular developing country stimulate FDI to that partner. Therefore, reciprocal preferences ensure the success of reforms and provide pressure on other developing countries to follow suit. Economic theories of CUs and FTAs contribute to the explanation for the lower-than-expected results from the nonreciprocal Lomé preferences. First, 9 10

Collier and Gunning, 1995. Ethier, 1996.

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the positive static and dynamic effects of regional integration derive from falling prices and more competition in the importing country. In a situation of nonreciprocal trade preferences, the welfare improving trade creation and consumption effects will not occur in the preference-receiving countries, since these countries do not reduce trade barriers, as a result of which prices of imported products will not fall and competition does not increase. On the contrary, developing countries in general, and the ACP group in particular, have relatively high trade barriers, as will be shown below. The convergence that could be the result of North/South integration as analyzed by Venables, was not allowed as far as the effect has to come from trade creation in the ACP countries. The main beneficial effects from the nonreciprocal preferences were to come from trade creation and diversion in the EU, which would raise import demand for the products from the ACP. However, trade creation in the preference donor is likely to be limited, as will be argued below. This is, in fact, an adapted version of the Infant Industry argument.11 Like that argument, the reasoning for nonreciprocal preferences may backfire as well. If countries create industries in which they do not have a comparative advantage, but which are only based on preferential market access, preferences have to be kept in place indefinitely; meanwhile these preferences create vested interests to keep them in place. Second, in the case of nonreciprocal preferences, the dynamic effects in preference-receiving countries are limited. As competition is not increased in those countries, since they do not lower trade barriers, economies of scale in export industries are the only source of potential dynamic effects. So, on theoretical grounds, it was not realistic to expect very large effects on economic development, unless there were other strong factors, such as large preferential margins.12 Furthermore, time-inconsistency and lack of credibility of economic policies cannot be solved by nonreciprocal preferences, as sanctions on deviations are completely lacking and no sunk costs are incurred by the preference-receiving country to obtain the preferences. The conclusion of this overview of economic theory is that there are potential gains from regional integration between the EU and ACP countries. It is also clear that these gains cannot be taken for granted. In order to reap these gains, certain conditions have to be met, be it in terms of initial 11

12

A temporary trade barrier may be necessary to create a competitive industry that initially supplies the domestic market, according to the infant industry argument. Equally, a tariff preference could be necessary to protect an exporting industry against its rivals at the export market. As a result of multilateral trade liberalization, these margins have been falling and are low, generally speaking. As far as preferential margins are high (for agricultural products and clothing, for example), quotas limit the trade effects.

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conditions or of policies that are pursued after the FTA has been introduced. Furthermore, integration theory mostly assumes that there is a high degree of information sharing among partners, that free trade is immediately introduced for all goods, and that policy switches (e.g., between tariff revenue and income tax) are without costs. Finally, integration theory predicts small effects from nonreciprocal preferences. 3. The Sequencing of EPAs The text of the Cotonou Agreement gives the impression that the parties have a clear sequence in their minds: groups of ACP countries integrate among themselves and these regional integration agreements (RIAs) negotiate with the EU on EPAs. Without a proviso, Article 35.2 of the agreement says: ‘Economic and trade cooperation shall build on regional integration initiatives of ACP States, bearing in mind that regional integration is a key instrument for the integration of ACP countries into the world economy’. This sounds attractive for three reasons. First, EPAs with groups of ACP countries lowers the number of these agreements, which makes them more efficient instruments of cooperation for the EU, as every EPA has its negotiations, institutions, and financial and technical support. Second, the ACP countries are in a better negotiating position if they operate in groups. This is not only a matter of power. Given the limited negotiating capacities of individual ACP countries, pooling their resources may increase the effectiveness of their proposals and the way these are handled. Third, the EU runs less risk of being considered a neo-colonialist power if it negotiates with groups of ACP states instead of with individual countries that are very small and less resourceful, compared to the EU. However, the proposed sequence of, first, the development of local trading blocs that, second, conclude EPAs with the EU also has (potential) shortcomings. The first shortcoming is that the economic benefits of integration among (very) poor countries are often very small and, perhaps even more serious, may be unevenly distributed as argued earlier. In the preceding section, the probability of a divergence in economic development among the members of a South/South RIA was reviewed. It is precisely on such RIAs that the EU wants to construct the EPAs. Tables 5.1–5.3 give some basic data on the ACP RIAs that might conclude EPAs. With the exception of the Caribbean Common Market (CARICOM), all RIAs mentioned have extremely low per capita levels of income. Of the 77 ACP countries that existed at the expiration of Lomé, 37 belong to the leastdeveloped category. They fit very well into Venables’ model, which predicts 92

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that integration among these countries concentrates the trade diversion effects in the extremely endowed countries (i.e., the country with the highest share of low skilled labor) and the benefits in the less extremely endowed member. In addition, the economic effects of integration among countries in Sub-Saharan Africa (SSA) will most probably be very small. Trade among SSA countries is extremely low, and this also applies to intra-trade inside SSA RIAs. The share of intra-regional trade as a percentage of total exports was 8.6 percent for the ECOWAS, 7.0 percent for the Common Market for Eastern and Southern Africa (COMESA), 5.1 percent for the Southern Africa Development Community (SADC), and 10.4 percent for the West African Economic and Monetary Union (UEMOA) in 1993.13 In the foreseeable future, the prospects for SSA economic integration are not bright, the reason being that ‘SSA countries have the export capacity to meet only a very small share of regional import needs’.14 The reason for this conclusion is that their exports are highly concentrated in a few products that do not cater to the needs of other SSA countries. It might be argued that the economic effects of integration are of secondary importance, as the political objectives are the primary arguments for integration among developing countries. This might be the case, but it is equally true that if integration produces divergent economic development or small net benefits in the presence of concentrated and visible restructuring costs, support for integration will dwindle. This may bring the integration process to a standstill or, eventually, give rise to military conflicts.15 To expect that these RIAs will become the foundations for FTAs with the EU may prove a delusion for many RIAs, particularly in SSA. A second shortcoming—not isolated from the first one—is that there is a lot of overlap in membership of RIAs among developing countries, particularly in Africa. Tables 5.2 and 5.3 list the membership of RIAs in SSA. ECOWAS, UEMOA, and CEMAC (the Central African Economic and Monetary Community) have together a membership of 22 countries. Eight of these countries are members of two RIAs. In East Africa and Southern Africa, the overlapping membership is even more extreme. COMESA, EAC, IOC (the Indian Ocean Commission), IOR-ARC (Indian Ocean RimAssociation for Regional Cooperation), and SADC have a combined membership of 25 countries (not counting non-ACP countries). Of these, eight countries have double memberships, four have triple memberships 13 14 15

Yeats, 1999: 28. Yeats, 1999: 67. World Bank (2000: p. 14 et seq.) mentions the American Civil War, the breakup of Pakistan, the fate of the East African Common Market, and the conflict between Honduras and El Salvador in the CACM, as examples of unequal distribution of integration benefits leading to sharp conflicts.

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(including South Africa), and three are members of four RIAs. Overlapping membership reduces the credibility of RIAs.16 By being member of more than one RIA, the countries concerned show that they want to keep open alternative options, which enables them to trade off opportunities for regional schemes as they see fit. However, regional integration is a reciprocal process by nature; it can only be successful if there is a firm commitment of the participating countries. Costs and benefits of regional integration are likely to be unevenly distributed over time. If a country has a difficult time as a result of the restructuring of economic activities, a high degree of political commitment is required to defend the RIA domestically. Solidarity from the other member countries is helpful. If governments can easily put their stakes in an alternative RIA, the credibility of a particular RIA is undermined, which makes it a less attractive negotiating partner for an EPA with the EC. A related problem is, that most RIAs in SSA (CEMAC, COMESA, EAC, ECOWAS, SADC, SACU—Southern African Customs Union, UEMOA) have a CU or higher forms of integration as a final objective. A CU has a common external trade policy which excludes overlapping membership in the sense that a member state of a CU—or a higher form of integration—has shifted the powers over trade policy to the CU and can no longer negotiate on its own over trade policy matters. The fact that there is so much overlapping membership casts further doubts on the commitment of many countries to the objectives of the RIAs to which they belong. A third shortcoming of ACP RIAs is that many of them have a history of member countries not implementing agreed liberalization measures or of indulging in policy reversals without sanctions. The complete collapse of the East African Community in 1977 is a well-known example of nonimplementation. The three members have picked up their integration plans again in the second half of the 1990s. In 2004 the three countries resolved to establish a CU. SADC members concluded a Trade Protocol in 1996 to establish a FTA in 2004. At the turn of the century, the protocol had not been ratified by a sufficient number of countries. The COMESA FTA was launched in October 2000, many years behind schedule. The ECOWAS Treaty envisaged a common market in 1989. However, this RIA ‘has failed to achieve free trade in goods, let alone in factor services’.17 In many instances, countries have reinstated trade barriers on intra-RIA trade that had been removed earlier. Faber and Roelfsema mention such cases for Kenya,

16 17

Matambalya, 1999. World Bank, 2000.

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Tanzania, Zambia, and Zimbabwe in the second half of the nineties.18 As a result of this history of non-compliance with agreed objectives and measures, RIAs in SSA do not constitute lock-in mechanisms that improve the credibility of governments with respect to economic reforms. In the Pacific region, the eight partner countries do not have a formal regional agreement, or something that resembles such an arrangement, that exclusively binds them together. Instead, they are members of the South Pacific Forum Insular Countries (FICs), which is part of the South Pacific Forum, which is mainly political in nature and supports members in negotiations with the EU. Papua New Guinea is member of the Asian-Pacific Economic Cooperation (APEC), which strives for regional free trade on a non-discriminatory basis. A viable RIA among Pacific ACP countries does not exist at the start of the transition period of the Cotonou Agreement. Waiting for such a RIA to emerge might take a long time. In the Caribbean region, regional integration has been established in CARICOM since 1973. Although the economic relations between its members (intra-regional trade) are relatively small, there are working institutions such as a Caribbean Regional Negotiating Machinery (CRNM), which was established to formulate and implement coherent negotiating positions for multilateral, plurilateral, and bilateral negotiations.19 CARICOM has working nonreciprocal agreements with Canada, Colombia, Mexico, and Venezuela. The upshot of this discussion is that it is unlikely that the sequence of first, regional, and then interregional, integration that underlies the trade section of the Cotonou Agreement will prove realistic for most ACP countries. The likelihood of a divergent economic development among very poor partners in a RIA, the small economic effects of integration in SSA—the largest of the ACP blocs—and the lack of commitment to RIAs, and the weak or absent lock-in effects in SSA, in particular, do not bode well for the development of reasonably strong RIAs that cover most ACP countries and that are able to negotiate with the EU. This conclusion is underlined by the absence of a RIA among the eight Pacific ACP countries. 4. FTAs between the EU and the ACP? Does this mean that the form of trade cooperation that is preferred in the Cotonou Agreement is bound to fail? The answer to this question is not as simple as the preceding section might suggest. Given the strong preference of 18 19

Faber and Roelfsema, 2000. Nicholls c.s., 2000: 1173.

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the EU for EPAs, a different strategy should or will be followed: the sequence will have to be reversed. Instead of waiting for viable RIAs to emerge as negotiating partners, EPAs can be used to reinforce regional integration among ACP countries. The EU will have to create or support its negotiating partners, with the exception of CARICOM. The question to be addressed in this section is, in which way and under what conditions will EPAs stimulate integration in ACP regions? It can be argued that the simultaneous establishment of FTAs with the EU will stimulate regional integration among groups of ACP countries. The first argument is that a North-South FTA has a tendency towards concentrating trade creation in the southern partners, which will produce a tendency of convergence with the EU, according to Venables’ approach. Given the right economic policies—this assumption will be discussed below—viable economic activities will be stimulated. Second, regional integration is not costless, as economic theory assumes. In practice, poor countries refrain from integration because short-term costs precede long-term benefits: the trade creation bears fruit only after a painful restructuring of the economy in terms of patterns of production and government revenue. Furthermore, it is the lack of funds for redistribution that often hampers RIAs among poor countries. In an EPA, the EU will provide funds for the ACP RIAs that can be used to sustain social safety nets, to improve regional infrastructures, to increase institutional capacities to participate in regional integration, and to change tax systems away from border taxes. Third, an ACP RIA that concludes an FTA with the EU will be a much more credible commitment mechanism than an all-ACP RIA. ACP countries that have opted for membership of a RIA cum FTA with the EU will have to surrender their trade policy powers to the RIA that negotiates with the EC. Overlapping membership will be impossible. Reversals will be sanctioned, as the process is reciprocal in nature. Thus, a national government can much more easily stick to its economic reforms if these are embedded in such an EU/ACP FTA. These arguments will be further discussed below. The first argument depends on the realization of sufficient beneficial economic effects. It is difficult to give an estimate for such diverse groups of countries, where reliable statistical data are scarce. For some groups, trade with the EU is very small and is likely to remain so. For these countries, the effects of EPAs will be relatively small. This applies in particular to the Pacific ACP countries.20 A number of studies have been ordered by the European Commission in order to get an idea of the size of the static effects 20

The solution for the sugar protocol will dominate the economic effects for the Pacific ACP countries; for Fiji, in particular.

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of EPAs.21 The studies use different methodologies, which complicates their comparability. Taking this into account, it seems fair to conclude that the static effects are small for all potential EPAs, and small and negative for an EPA with SADC and EAC. For the Pacific and Caribbean regions, the discontinuation of the commodity protocols for sugar, bananas, and rum are much more important in quantitative terms than the static welfare effects of EPAs. The static effects do not only depend on the reciprocal liberalization of trade between the ACP and the EU. Much will also depend on the lowering of trade barriers that hamper imports from third countries into the ACP countries. Many of these countries have relatively high trade barriers. For example, the average tariff of many SSA countries was higher than 20 percent, while the incidence of non-tariff measures stood at 46 percent at the end of the 1980s.22 Tables 5.4 and 5.5 give more detailed country information on tariffs and other charges per SSA country at the end of the 1990s. CARICOM is implementing a program to reduce its Common External Tariff (CET). This will bring the number of tariff bands down to three while reducing the height of the tariffs. Still, the maximum rate will still be 20 percent.23 So there is sufficient scope for lowering tariffs on imports from the rest of the world, which will diminish trade diversion, thus contributing to a better net effect. This means that ACP countries entering into EPAs should continue to participate in the WTO-based multilateral liberalization process. Most economists agree that the dynamic effects from integration will be more substantial than the static effects. As far as economic integration increases competition and the size of markets, production will get more efficient. It will rationalize (state) monopolies and force domestic firms to produce more efficiently. Small developing countries, like the ACP countries in particular, would benefit from these effects. These effects can only be realized if trade liberalization is combined with improved domestic market institutions that monitor competition and ensure that regulation does not segment markets. The EU can play an important role in this issue by supplementing trade liberalization with deeper economic and political integration. Experience with FTAs in Central and Eastern Europe shows that FTAs, in many cases, include the ‘export of institutions and regulations’. Vogel shows that in a climate of trade liberalization, countries will harmonize their standards towards the level of the countries with the highest standards.24 If the EU takes an active stance, not only in economic, but in legal 21 22 23 24

McQueen, 1999, reviews these studies. Rodrik, 1998. Nicholls c.s., 2000. Vogel, 1995. This is the California effect. Many U.S. states have implemented the very tough Californian product standards in order to derive a competitive advantage.

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(competition) and technical (standards) cooperation as well, the benefits from FTAs will be increased considerably. The second argument, mentioned at the start of this section, is that the EU will be involved in ACP integration through the financial support for economic restructuring, policy reform, and capacity building. The gains from integration can only be reaped after a reduction in inefficient lines of production. This process will be painful, the more so because employment and welfare levels are low in most ACP countries. It can reasonably be expected that production will decline in the heavily protected manufacturing and service sectors. Restructuring is less painful, the quicker production and employment expand in other sectors. In theory, this could happen in those sectors where ACP countries have comparative advantages and the capacity to expand production quickly, such as labor-intensive manufactures and agricultural products. An improvement of market access to the EU for these product categories would bring short-term results. Apart from this, funds will be necessary for shifting sources of government income from tariffs to taxes, for social safety nets, for capacity building in order to improve the implementation of public functions that are required if markets are to function for the benefit of the citizens at large, and for retraining. The EU does not stand empty-handed. The Financial Protocol to the Cotonou Agreement supplies the 9th EDF with €15.2 billion. Part of this is to be used for macro-economic and structural reforms, for sectoral policies and reforms, and for institutional development and capacity building, according to Article 60 of the agreement. Under the Lomé Conventions, the EU was also involved in structural adjustment operations. Furthermore, the EU has supported economic integration among developing countries with financial and technical aid through the Cross-Border Initiative (CBI) and the Programme d’Assistance Régionale Intégré (PARI). By combining financial support and EPAs, one of the reasons why economic integration among developing countries has been so difficult to realize may be taken away, viz., the absence of funds to bridge periods of painful adjustment in production and policies, and to finance capacity building in the integration institution and its member states. The third argument in favor of EPAs is the increase of the credibility of governments in their structural reform policies as a result of an FTA. As a result of long-term reciprocity, liberalization of trade in goods and services, of capital flows, and the reform of institutions and regulations cannot be rescinded as easily as was the case in Structural Adjustment Programs

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(SAPs).25 This anchor function is considered to be an important advantage of FTAs over nonreciprocal preferences. For an individual ACP country, a linking up with the EU makes a RIA credible: its institutions gain authority— they are negotiating with the EU—and the EU may sanction infringements on obligations. By linking ACP RIAs to EPAs, the RIA becomes much more attractive in terms of economic benefits and credibility. The question, of course, is whether the EU is willing to support sustained adjusters among the ACP and, as importantly, to sanction policy reversals by individual ACP countries or their regional institution? The answer is not readily evident. The EU does not have a tradition of supporting ACP countries that seriously adjust their economy. Faber and Roelfsema concluded that ‘Lomé instruments are not biased in favor of countries that are sustained adjusters’.26 This conclusion draws on research with respect to the distribution of benefits from aid and trade cooperation over ACP countries in the first half of the 1990s. In her analysis of the way the EU stimulates ACP countries to meet their obligations with respect to human rights, good governance, and democracy, Arts finds a number of cases where aid under Lomé was suspended.27 In the 1990s, there is a growing willingness to resort to this kind of action, underpinned by more explicit articles in the conventions. Trade preferences have not been used as a sanction up to now, although this was clearly possible under Lomé IV-bis.28 The Cotonou Agreement opens the same possibility in Article 96. Thus, there is a growing preparedness to use sanctions against ACP countries not meeting their obligations in the areas of human rights, democracy, and good governance. Under an EPA, the reciprocal nature of the agreement would make sanctions in the area of economic policies and trade a logical outcome. However, in practice, this conclusion may turn out not to hold. Is the EU willing to play the role of hegemon in the proposed EPAs? This role implies more than just the preparedness to apply negative sanctions in case an ACP country or ACP RIA does not meet its obligations under the EPA. What will the EU do in case external shocks destabilize an ACP economy to such an extent that it jeopardizes the economic reforms introduced under the aegis of the EPA? Will the EU supply the ACP state with massive and immediate 25 26 27 28

Collier and Gunning, 1995. Faber and Roelfsema, 1997. Arts, 2000: ch. 8. Arts assumes that the most prominent case where trade preferences could have been suspended was Nigeria. From 1993 onwards, the EU suspended aid instruments, but not trade preferences. One could argue that the effects of this suspension would have been small, as Nigeria’s main export product, crude oil, enters the EU duty free from all origins. The suspension would have been a meaningful signal, however.

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support, as the USA did with Mexico when the latter country ran into the peso crisis of 1994 just after NAFTA was launched? Since a number of ACP countries are tied to the Euro, and most ACP economies are relatively small, the EU is capable of doing this. However, decision-making in these issues has to be very quick. It is not certain, to say the least, that the EU could act effectively in such a situation. Furthermore, the USA has a higher stake in Mexico’s economic performance than the EU has in the economic development of individual ACP countries. The conclusion is that the function of EPAs as a commitment mechanism strongly depends on the preparedness and capacity of the EU to use sanctions to enforce the obligations under the EPAs, and to protect the ACP countries against external shocks that undermine their capacity to meet their obligations. 5. Discussion and Conclusions New initiatives are needed to increase the effectiveness of the trade policy instruments that the EU uses in its policy of development cooperation with the ACP countries. Merely giving nonreciprocal preferences has not worked very well. The main reason for this failure is that nonreciprocal preferences have not improved supply conditions in developing countries. FTAs in the shape of EPAs can give a new impetus to production and trade. For this strategy to succeed, the ACP and EU should avoid trade diversion and deflection, and create as much trade as possible. This requires MFN liberalization together with regional integration. This chapter shows that EPAs could have important benefits for ACP economies by creating competitive market conditions that lead to dynamic welfare effects, and by reinforcing economic reforms. The success or failure of the new approach depends on a number of factors that have been analyzed above. This chapter argues that the expectation underlying the Cotonou Agreement—that effective negotiating partners in the shape of ACP RIAs will develop in the short term—will not materialize, with the exception of the Caribbean region. In the Pacific region, no ACP RIA is in the making. In SSA, regional integration suffers from overlapping membership, lack of commitment, and small or negative economic effects. As a result, the EU will have to use EPAs as instruments to stimulate viable RIAs among ACP countries in SSA. This puts a number of responsibilities on the EU in order to create successful EPAs. First, the EU will have to be willing to act as the hegemon in EPAs, sanctioning infringements on obligations, and supporting ACP countries that have run into externally caused difficulties threatening their participation in EPAs. If 100

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EPAs are to work as commitment mechanisms that effectively lock-in ACP policy reforms, ACP countries should both run the risk of losing substantial benefits if they do not meet their obligations, and feel secure that they will be supported in case of external shocks. Second, substantial funds will have to be provided by the EU for social safety nets, for capacity building in order to improve the implementation of public functions that are required if markets are to function for the benefit of the citizens at large, and for (re)training. Third, in order to make EPAs successful, the market access for sensitive ACP export products should be improved. Fourth, for the full benefits of regional free trade to be realized, a deeper or a higher level of integration is necessary. Harmonization of competition policy, and of regulations with respect to product norms and standards, is called for. Given these conclusions, it is interesting to read the mandates for the EPA negotiations, as drawn up in the summer of 2002. Although these mandates only indicate starting positions, a few differences of opinion are worth mentioning. The sequencing of the negotiations is a clear issue. The ACP mandate maintains that regional integration among ACP countries could be stifled or undermined by EPAs. For that reason, ‘ACP States must be allowed to first consolidate their own regional integration processes. Moreover, they do not have the capacity to liberalize in parallel and concurrently with the EU’.29 The EU recognizes the problems ACP countries have in realizing regional integration. During the transition period, regional integration processes among the ACP should be supported, and EPAs should be introduced after that period has lapsed. The implicit conclusion of the EU is that after 2007, regional integration and EPAs should develop in parallel. As has been argued in section 3 above, this is a more promising strategy than waiting for the introduction of EPAs until effective ACP integration bodies have arisen, as the ACP prefers. Adjustment costs are a related issue. The ACP mandate argues that ‘The positive impact of EPAs needs to be maximized and their adjustment costs minimized so that their implementation is sustainable. In addition, EPAs should result in trade creation and not in trade diversion so as to avoid any welfare loss’. This is in contradiction with the theory and practice of economic integration. The positive welfare effect of trade creation is produced by a better allocation of factors of production, which means a restructuring of economic activities. Trade creation and adjustment are two sides of the same coin. In addition, the ACP mandate calls for ‘the provision of additional resources, with rapid and flexible disbursement procedures’. 29

EPAwatch, 2002.

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The EU mandate does not mention additional resources and instruments for adjustment. Instead, it contains a plea to use the period up to 2008 to strengthen the ACP capacity to define and implement appropriate trade strategies and policies, in order to enhance competitiveness, and to strengthen regional organizations and integration ‘where appropriate with assistance to budgetary adjustment and fiscal reform’. This seems to imply that the EU wants to use existing EDF funds for adjustment. A third important issue will be market access. ACP members want a guarantee that they will not be worse off after 2007 in their trade relations with the EU, compared to their present position. Given the interdependent nature of trade policies, this guarantee is difficult to imagine. On the other hand, improved market access for ACPsensitive products in agriculture, clothing, and other sectors would be helpful to create quick results from EPAs. The EU is reluctant to offer this. After repeating that, at present, 93 percent of ACP exports enter the EU duty- and quota-free, the EU promises to ‘further abolish remaining tariffs, focus on cooperation with the ACP countries to remove non-tariff barriers, and assess technical hurdles (such as rules of origin), with a view to facilitating market access for the ACP’.30 Given these starting positions, it is doubtful, at least, whether viable EPAs will come out of the negotiations. Both sides are reluctant to invest large amounts of political capital in EPAs. The ACP countries are afraid of restructuring and adjustment, and for that reason ‘cannot a priori accept to provide reciprocity in EPAs with the EU’, according to the ACP mandate. This is a denial of the basic presumption of the EPA concept. The EU is expecting a great deal from the dynamic and nontraditional effects of FTAs. The problem is that these effects, if they materialize, will do so only in the long run, while successes in the short run are vital to keep the integration going. These could be produced by improving market access for the ACP in the EPA framework, and by creating funds to cushion external shocks on ACP RIAs that are implementing EPAs with the EU. A period of six years has been earmarked for the EPA negotiations. This is not too long, as it is clear that both sides will have to move considerably before these negotiations can give rise to EPAs that will boost development in ACP countries.

30

EU Press Release, 2000.

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Annex Table 5.1

Selected Economic Indicators of ACP Countries GNP p.c. at PPP Dollars 1999

HD Index

Africa Angola*

632

0405

Benin*

886

0411

6032

0593

Burkina Faso*

898

0303

Burundi

553

0321

Cameroon

1444

0528

Cape Verde*

3497

0688

Central African Rep.

1131

0371

Botswana

Chad*

816

0367

1360

0510

Congo

NA

0507

Congo (RDC)*

879

0430

1546

0420

Djibouti*

NA

0447

Equatorial Guinea*

NA

0555

1012

0408

599

0309

Gabon

5325

0592

The Gambia*

1492

0396

Ghana

1793

0556

Guinea*

1761

0394

Guinea Bissau*

595

0331

Kenya

975

0508

Lesotho*

2058

0569

Liberia*

NA

NA

Madagascar*

766

0483

Malawi*

581

0385

Comoros*

Ivory Coast

Eritrea* Ethiopia*

103

Gerrit Faber

Mali*

GNP p.c. at PPP Dollars 1999 693

HD Index 0380

Mauritania*

1522

0451

Mauritius

8652

0761

Mozambique*

797

0341

5369

0632

Niger*

727

0293

Nigeria

744

0439

Rwanda*

NA

0382

Sao Tomé & Principe*

1335

0547

Senegal

1341

0416

10381

0786

Sierra Leone*

414

0252

Somalia*

NA

NA

Namibia

Seychelles

South Africa

8318

0697

Sudan*

1298

0477

Swaziland

4200

0655

Tanzania*

478

0415

Togo*

1346

0471

Uganda*

1136

0409

Zambia*

686

0420

2470

0555

Zimbabwe Caribbean Antigua and Barbuda

NA

0833

Bahamas

NA

0844

Barbados

NA

0858

Belize

4492

0777

Dominica

4825

0793

Dominican Republic

4653

0729

Grenada

5847

0785

Guyana

3242

0709

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Economic Partnership Agreements and Regional Integration

Haiti*

GNP p.c. at PPP Dollars 1999 1407

HD Index 0440

Jamaica

3276

0735

St Kitts–Nevis

9801

0798

St Lucia

5022

0728

4667

0738

NA

0766

7262

0793

NA

NA

Fiji

4536

0769

Kiribati*

St Vincent and the Grenadines Suriname Trinidad and Tobago Pacific Cook Islands

3186

NA

Marshall Islands

NA

NA

Micronesia

NA

NA

Nauru

NA

NA

Niue

NA.

NA

Palau

NA

NA

Papua New Guinea

2263

0542

Solomon Islands*

1949

0614

Tonga

4281

NA

Tuvalu*

NA

NA

Vanuatu*

2771

0623

NA

0771

Samoa*

*Belonging to the group of least-developed countries

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Table 5.2

Membership of RIAs in West and Central Africa* ECOWAS

UEMOA

Benin

*

*

2

Burkina Faso

*

*

2

Cameroon Cape Verde

CEMAC

* *

Central African R.

*

Chad

*

Congo

*

Côte d’Ivoire

Overlap

*

*

2

Equatorial Guinea

*

Gabon

*

Ghana

*

Guinea

*

*

Guinea-Bissau

*

*

2

Liberia

*

Mali

*

*

2

Mauritania

*

*

2

Niger

*

*

2

Nigeria

*

Senegal

*

*

2

Sierra Leone

*

The Gambia

*

Togo

*

*Abbreviations are explained in the text.

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Economic Partnership Agreements and Regional Integration

Table 5.3

Membership of RIAs in South and East Africa* SADC

Angola

*

Botswana

*

SACU

COMESA

IOC

IORARC

*

Overlap 2

*

Burundi

2 *

Comoros

*

*

DR Congo

*

Djibouti

*

Egypt

*

Eritrea

*

Ethiopia

*

Kenya

*

Lesotho

EAC

*

*

2

*

Madagascar

2 *

Malawi

*

*

Mauritius

*

*

Mozambique

*

Namibia

*

*

*

2 *

* *

*

Rwanda

3

*

4 2 3

*

Seychelles

*

South Africa

*

*

*

*

Sudan

*

4

*

3

*

Swaziland

*

Tanzania

*

*

Uganda

*

3

*

*

*

*

*

4 2

Zambia

*

*

2

Zimbabwe

*

*

2

*Abbreviations are explained in the text.

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Gerrit Faber

Table 5.4 Average Applied Tariffs and Other Duties and Charges in West and Central Africa, in Percentage Terms Average Applied Tariffs Benin

Other Duties & Charges

6.7

Burkina Faso

23.8

Cameroon

15.5

26.7

Central African R.

12.6

22.6

Chad

15.5

24.3

Congo

12.9

25.1

Cape Verde

Côte d’Ivoire

15.9

Equatorial Guinea

18.2

18.5

7.6

10.5

Gabon Ghana

NA

Guinea

NA

Guinea-Bissau Liberia Mali

16.7

Mauritania Niger

18.1

Nigeria Senegal

28.7

Sierra Leone The Gambia Togo

19.2

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Economic Partnership Agreements and Regional Integration

Table 5.5 Average Applied Tariffs and Other Duties and Charges in South and East Africa, in Percentage Terms Average Applied Tariffs Angola

21.1

Botswana

12.3

Burundi

12.3

Comoros

30.0*

Other Duties & Charges

DR Congo Djibouti Egypt Eritrea Ethiopia Kenya

14.0*

16.0

Lesotho Madagascar

16.3

Malawi

15.5

Mauritius

21.5

Mozambique

13.1

Namibia

12.3

Rwanda

11.3

Seychelles

28.0*

5.0 18.0

South Africa Sudan Swaziland

12.3

Tanzania*

25.6

Uganda

9.0*

Zambia*

16.0

Zimbabwe

24.1

10.0

*=simple average

109

Chapter 6

AN ALTERNATIVE STRATEGY FOR FREE TRADE AREAS: THE GENERALIZED SYSTEM OF PREFERENCES Christopher Stevens

1. Introduction The arrangement under which the EU offers liberal trade access to the ACP through a unique regime was once a strength, but it is now a source of weakness. It has adverse consequences for the ACP, for other poor developing countries, and for the multilateral system. What holds the ACP back from embracing change enthusiastically is the absence of any clear alternative that guarantees the maintenance of existing benefits (the acquis) whilst providing a more secure foundation for improvements in the future. Among the problems of the Economic Partnership Agreements (EPAs), as discussed in Chapter 5, is that they fail to remove the main weakness of Cotonou: the absence of guarantees that the acquis will be maintained. 

Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 111– 125. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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This chapter explores an alternative approach. It argues that the Generalized System of Preferences (GSP) could be improved in such a way as to secure large parts of the acquis whilst reducing the adverse consequences of current policy for other developing countries and the multilateral system. Parallel reforms would be required to secure some aspects of the acquis (notably in respect of the commodity protocols), and to provide meaningful cooperation in the new areas of trade policy. Hence, GSP reform is not an alternative to Cotonou options such as EPAs; it is an adjunct to them. This complementarity is a strength rather than a weakness of the GSP reform strategy. By removing from contention a large part of the current acquis, it allows attention to be focused on the remaining areas and the need to make trade policy relevant to the twenty-first century. Moreover, it removes the greatest danger for the ACP in the EPA route: that the EU will use the threat of withdrawing existing preferences on traditional exports to secure changes that favor its own interests. 2. The Need for Change Proliferating Trade Agreements The Cotonou Agreement effectively rolls over the Lomé IV trade provisions until 2007, with the proviso that this period is used to negotiate a more secure successor regime. This intention will only be fulfilled if the WTO waiver (obtained at Doha) for the transitional trade arrangement is renewed each year. The ending of Lomé-style preferences for the ACP, whether through a failure to obtain a waiver or to agree on a new regime from 2001, would be damaging to the interests of both development and trade policy. It would leave untouched the extensive preferences of the EU to other countries, many of which are wealthier than the ACP and are already better placed to take market share. It would tend to raise the average level of EU trade barriers. And it would leave the trade policy of the EU no less at odds with the most-favored-nation (MFN) principle of the WTO than it is now. This situation has arisen because during the quarter century since the first Lomé Convention was signed, the EU has negotiated many new agreements. There has been a tremendous growth in the number of countries to which the EU now offers preferences that are as good as (or better than) those available under Cotonou. Moreover, this complexity has grown substantially in recent years since the EU has been in a trade policy negotiating frenzy. Accords have been agreed with non-acceding Eastern European and some former Soviet Union (FSU) states, with Tunisia, Morocco, South Africa, Mexico, and Chile. Negotiations are under way with other FSU states and Mercosur. Of the 93 agreements that have 112

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been notified to the WTO Committee for Regional Trade Agreements, the EU is a signatory in 28.1 The result is that the most-favored-nation (in the literal rather than the WTO sense) regime is provided by the bilateral agreements of the EU with its Southern and Eastern neighbors, the special tranche of the GSP that has been dubbed the ‘Super’ GSP and, of course, Cotonou. From the perspective of both development and trade policy, any change to the multi-tiered regime of the EU should now be in the form of upgrading the minority of less favored countries rather than downgrading the more favored. This is the fundamental argument for: – introducing a single comprehensive tariff regime which would initially simply incorporate the multiple high-level agreements and rationalize the status quo; – upgrading most Standard GSP states over the next ten years by including them in this comprehensive regime (with only the most competitive being excluded); – eventual harmonization of the tariffs payable under this comprehensive regime to cover the residual, super-competitive beneficiaries of the standard GSP and the OECD states. The second reform is desirable in its own right, to make EU trade policy more developmentally coherent, but it may also serve the shorter-term interests of the ACP countries. The ACP–EU trade relationship has been under a GATT/WTO spotlight since 1994, when a ruling over the banana regime cast doubt on its legality, and it is likely to remain so. None of the proposed Cotonou regimes is guaranteed WTO-compatible; in all cases, the EU will need to build a consensus. By including ACP preferences within a broader package of measures that benefit other developing countries as well, the task of consensus-building may be facilitated. A reciprocal EPA, by contrast, may be more difficult to sell: nonmembers not only gain nothing positive, they may actually suffer trade diversion in any ACP markets to which they export. New Preferences for Old Not only does the EU need trade policy reform—so do the ACP states. Even without the stimulus caused by the end of Lomé, the ACP states need to refashion their trade regime with the EU. Whilst the Cotonou Agreement provides the ACP with very favorable access for their current exports to the EU market, the regime has a rather short remaining shelf-life. Framed three decades ago, the 1

Cernat, 2000.30

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regime still reflects the circumstances of the late 1960s/early 1970s in which EU tariffs were generally quite high and preferential rates for favored suppliers were limited. Since then both of these features have changed substantially. Successive GATT Rounds have led to a fall in many EU tariffs and the removal of old-style non-tariff barriers (NTBs) such as quotas. At the same time, the proliferation of preferences means that the ACP states are no longer treated more favorably than many of their competitors. Whilst there has been no dilution in the acquis, its value to the ACP has fallen substantially. There are now only two product areas in which the Cotonou Agreement confers significant competitive advantages to ACP states. They are clothing/textiles and the Common Agricultural Policy (CAP) products covered by the core Agreement and its Protocols. Of these, the clothing/textiles advantages will be reduced substantially when the Multi-fiber Arrangement (MFA) is phased out at the end of 2004. And the current strategy of the EU for bringing economic rationality into the CAP is reducing the gains that the ACP obtains from the Protocols. Under Agenda 2000 the EU approach to CAP reform is focused on a reduction in guaranteed prices rather than an easing of import restrictions. Hence, ACP suppliers under the Protocols face the prospect of a reduction in the prices they receive for their exports without any compensating gains from increased volumes. As tariffs fall so does the relative importance of other policy influences on trade increases. ‘New trade-related policy instruments’ are growing in absolute, as well as relative, importance, as an outgrowth of trends in the nature of national and global markets. At present, to the extent that preferences in these areas exist, they are effectively reverse ones. They tend to discriminate against developing countries. This is because the special deals that exist tend to be bilateral (or restricted) ones between industrialized countries. But scope exists to extend them to developing countries. The EU has indicated a willingness to broaden the scope of EPAs beyond merchandise trade. The details of any such ‘new preferences’ are unclear, not least because the implications of the new and emerging trade policy to which they would relate is imperfectly understood. Certainly, there are no clear guidelines to be obtained from the other trade agreements of the EU: to the extent that these touch on new trade policy, the references are either vague or, in the case of the Europe Agreements with the potential new members of the EU, highly country specific (e.g., over labor migration). But the rationale for new preferences is clear: it may be possible to establish, within a limited membership group and on the basis of mutual self-interest, rules to discipline the application of new trade policies that go beyond what is currently feasible at the multilateral level. 114

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EPAs could provide a framework for negotiating mutually beneficial arrangements on ‘new trade policy’, but they suffer from one substantial flaw. This is that the ACP states fear they will be required to make ‘concessions’ to the EU simply to maintain the existing (and eroding) ‘old preferences’. Whilst some ACP countries and regions accept the rationale for reciprocity in relation to new trade policy (where ‘concessions’ favoring EU suppliers would be offset by new gains), they do not accept that it applies to the acquis. A merit of GSP upgrading is that it could remove the acquis from this bargaining. If the ‘old preferences’ of the ACP could be guaranteed through the GSP, the complementary EPA negotiations could concentrate on the areas where both sides are willing to trade concessions. In order to fulfill this task, though, the GSP would need to be upgraded in such a way that it: – offers ACP states access similar to the Cotonou transition period regime; – does not accelerate the erosion of their preferences. Without the first of these, the GSP could not provide an adequate alternative. But without the second, the ACP would lose on the swings what they gain on the roundabouts. This chapter identifies necessary improvements to the GSP that share these twin features, and would also make overall EU trade policy more coherent (and ease consensus-building in the WTO). 3. The Principles of Good Practice If it is to be upgraded, against what criteria should the GSP be judged? Desirable features of a trade agreement are that it fosters a supply response and promotes trade between the signatories. Potentially undesirable features are that it undermines the supply response through restrictive features and that such trade growth as occurs is at the expense of commerce with other partners. Both outcomes are possible; it all depends upon the details of the accord. The features of agreements that have the potential to mitigate or exacerbate the dangers can be identified analytically. There are ways in which a trade agreement can be supportive of a supply response and, by the same token, ways in which it can be undermining. The fundamental rationale for trade preferences is that they will allow favored countries to export goods that otherwise would not be able to gain access to the granting country’s market. This implies that there will be investment in production and distribution to take advantage of the improved access. Investors are normally assumed to require reasonable stability and certainty before committing their money to an enterprise that may have a gestation period of some years. Hence, agreements that provide such predictability (through

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contractuality and objective dispute settlement) are more likely to foster a supply response than those that do not. The danger of trade distortion can be reduced if the provisions of an agreement facilitate, and do not obstruct, the third-country trade of its signatories. Trade with third parties will be obstructed to the extent that the agreement results in trade diversion. This could result from: – a pattern of tariff reductions in relation to market characteristics; a rule of thumb is that deep preferences for relatively uncompetitive suppliers accounting for only a small share of imports are most likely to result in diversion; – provisions within the agreements, such as cumulation under the rules of origin, which may favor the sourcing of imported production inputs from uncompetitive signatories to the agreement rather than more competitive third parties. By contrast, there are other features in trade agreements that could foster thirdparty trade. These include wide-ranging cumulation provisions that allow a large number of countries to contribute towards meeting origin thresholds, and broadbased preferences available to states that account for a significant share of imports. 4. The GSP as a Vehicle of Reform The GSP could provide a vehicle for ‘leveling up’ the disparate tariff regimes of the EU for many merchandise exports. It needs to be supplemented on some CAP products, on services, and on ‘new areas of trade policy’, but it is possible to identify appropriate vehicles to achieve this. There are two elements to the upgrading: utilizing the existing differentiation within the GSP to provide additional tariff cuts to ACP states, and improving the architecture of the scheme for the benefit of all. Differentiation in the GSP Despite its title as the generalized system of preferences and its WTO justification under the Enabling Clause (under which industrialized countries may favor developing countries as a group as part of Special and Differential Treatment), the current GSP is riddled with discriminatory provisions that provide varying levels of preference to different states.2 There are, in fact, three

2

The internal architecture of the GSP was being reviewed by the EU states at the time of writing. Proposals from the EU Commission would alter the formula for establishing preferential tariff reductions. But they

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GSPs: the Standard GSP, together with special GSPs for least-developed states (extended in 2001 with the ‘Everything but Arms’ (EBA) initiative), and for Andean/Central American states (collectively dubbed the ‘Super’ GSP). The two Super GSP schemes provide similar higher-level preferences on the goods actually exported by the beneficiaries to the EU to those offered by the bilateral agreements and the Lomé Convention.3 The 2001 decision by the EU to extend duty- and quota-free access to the Least-developed countries, except for armaments (and bananas, rice, and sugar, which will be liberalized progressively over the period to 2008), mainly affected agricultural goods. The least developed already received duty-free access for all industrial and manufactured goods before EBA. The impact is likely to be positive, though modest.4 The product coverage of the Standard GSP, by contrast, is narrower than is the case with the higher-level preferences and the tariff reductions on MFN levels are sometimes less deep. Given that some of the Standard GSP states are poorer than some of those covered by the higher-level preference agreements, this discrimination cannot be justified on development grounds. Some ACP states fall into the least developed category and so receive tariff preferences under EBA that are actually better than provided under the core Cotonou Agreement (excluding the Protocols). But 36 members of the group are not least developed and so would receive only the Standard GSP preferences if the Cotonou transition period preferences were to end without a successor. And none of the ACP states are covered by the Andean/Central American GSP. The task is to identify the products that ACP states currently export to the EU (or might reasonably expect to export in future) that face a significant Standard GSP tariff, and any characteristics that distinguish the non-least-developed ACP from other Standard GSP beneficiaries. The latter could be used as the criteria for one or more special GSP regimes that would extend to the non-least developed ACP (but not, at least initially, other Standard GSP states) duty-free access on exports that would otherwise face significant tariffs. There are many possible permutations for the criteria needed to ensure equivalence to the core Cotonou Agreement for actual and potential exports. It has been demonstrated that for traditional, non-Protocol ACP merchandise exports, it is not difficult to identify extensions to the internal GSP differentiation that would provide ACP states with equivalent access to that obtained under

3

4

would not fundamentally alter its position in the ‘pyramid of privilege’ of the EU or the undesirable features identified in this chapter. The italicized words are important. The regime excludes some of the preferences available under Lomé and some bilateral agreements on CAP products (as well as the high profile case of bananas). How far the states have a supply capacity for the excluded products has not been studied in detail (except for bananas), and so the impact of these exclusions is not known. Stevens and Kennan, 2001.

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Cotonou for many producers.5 Moreover, this could be done in such a way as to extend the benefits initially only to ACP states (plus the Super GSP states that benefit already). In this way the ACP preferential margin would not be eroded. Although the GSP is not a suitable vehicle for dealing with future access of products covered by the Cotonou Protocols or CAP items subject to quotas in the bilateral agreements of the EU, other arrangements can be identified. In these cases, future EU trade policy for the medium term will be determined largely in the current WTO agricultural negotiations. The medium-term strategy for harmonizing EU trade policy should be linked to these negotiations, which are likely to take some years to complete. Improving the GSP Architecture By itself, an extension of GSP tariff preferences would be insufficient to offer the ACP full Cotonou equivalence since there are other ways in which the GSP is inferior. All GSP tiers, even EBA and those for the Andean/Central American states, suffer from institutional weaknesses. These include lack of contractuality and rules of origin that are relatively onerous. To deal with this, upgrading must also include institutional reform. Such change would also improve access for non-ACP Standard GSP beneficiaries without eroding preference margins and would strengthen EU trade policy generally. CONTRACTUALITY

The GSP is a wholly autonomous EU policy and, as such, can be changed at will without notice at any time. It is thus the very antithesis of the contractual relationship of Cotonou and the bilateral agreements of the EU. It is a fundamental flaw in the quality of the market access obtained by Standard and Super GSP beneficiaries. The introduction of an element of contractuality into the GSP would represent a tangible gain for these states without eroding ACP preference margins. There are a number of ways in which this could be done. This section notes two that, between them, represent broadly the range of approaches. They are: binding in the WTO or an extra-GSP contract. Binding GSP rates in the WTO would provide the ultimate in contractuality and, in that sense, would represent an advance on Cotonou. Up until now, however, it has not been considered either a theoretical or a practical possibility. This is because the only tariff rates on merchandise trade bound in the WTO are 5

Stevens and Kennan, 1999a and b.

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MFN ones. Any move to make GSP rates binding would require change ‘at both ends’: – WTO procedures would need to change to allow for the possibility of multiple rates being bound; – the EU would have to accept the loss of the freedom of manoeuvre that the autonomous nature of the GSP currently affords. The Ruggiero proposal that GSP tariffs for least-developed countries be bound has raised the possibility for change at the WTO end. The mechanics of such binding have still to be established, as has the possibility that it could either extend beyond the least developed to include some other developing countries, or involve more than one GSP tariff rate for different groups of developing states. But a possibility exists that previously did not. An extra-GSP contract has many precedents. The EU has a long history of concluding trade and cooperation agreements with countries in which there are no specific provisions on tariff treatment and the actual regime faced by exporters from those countries is determined by the GSP. To the extent that the trade and cooperation agreements move beyond the political sphere, they contain additional provisions that supplement the tariff treatment of the GSP. Such an approach could be used for most or all GSP states. Whilst the GSP is an autonomous EU policy, there appears to be no reason in principle why the EU could not bind itself in a framework agreement to forgo its autonomy in relation to specific trade partners. On this approach, the EU would commit itself in a binding fashion not to remove the benefits of the GSP regime as part of the package of reforms designed to make its trade policy more coherent and to ease the WTO passage of Cotonou. DISPUTE SETTLEMENT

As an autonomous EU policy, the GSP contains no provisions for dispute settlement. The EU is judge and jury in its own case. Again, any improvement on this unsatisfactory state of affairs would represent a gain for Standard and Super GSP beneficiaries without eroding ACP preferences. The most appropriate way of settling disputes over day-to-day trade issues will depend upon the approach adopted towards contractuality. If the route of WTO binding is adopted, then WTO dispute settlement procedures will also apply. If the route of the Framework Agreement is followed, then this should provide the forum for dispute settlement. In practice, of course, the two approaches can be combined. Even if the EU were to bind its GSP rates in the WTO, there could still be a framework agreement with some or all GSP states. And if there were a framework agreement, it would be in the interests of both

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parties for it to include dispute settlement procedures. This would avoid having to use the WTO sledgehammer to crack the nut of minor disputes. GRADUATION

Together with its non-contractual nature, graduation is the principal weakness of the GSP. Under the GSP, countries can be graduated out on two grounds:6 – The first (the ‘graduation’ or ‘solidarity mechanism’ criterion) is based on a combination of a country’s development index and its sector specialisation index (SSI). The development index is calculated by comparing income per capita and the value of its manufactures exports with those of the EU; the SSI by comparing exports to the EU within a sector and in total. The level of SSI that ‘triggers’ the possibility of graduation out of the GSP depends upon the country’s development index. Graduation occurs if, in addition to the development index: the SSI ratio meeting the criteria set out in the GSP, a country’s exports within that sector exceeded two percent of all beneficiary countries’ exports to the EU in that sector in the relevant statistical reference year. – The second (the market or lion’s share criterion) removes from preferential treatment any country whose exports to the EU of products covered by the GSP in a given sector exceeded 25 percent of all beneficiary countries’ exports to the EU in that sector in the relevant statistical reference year. The fact that countries can be graduated out on the basis of market share, regardless of their income level, means that no state is safe from the potential loss of preference. And, because graduation can also occur in relation to sector specialization, states may lose GSP preferences even if they are not dominant suppliers. Hence, ACP states could be vulnerable to graduation if they transferred to the GSP from Cotonou when it expires. There could be common cause, therefore, between some ACP and some GSP states in a reform of the graduation rules. The ACP states most vulnerable to graduation for particular products are Côte d’Ivoire, Mauritius, Trinidad and Tobago.7 Five other ACP states might become vulnerable if their development index rises. RULES OF ORIGIN

Whilst the rules of origin applying to their exports have long been a source of irritation to ACP states, this has been combined with a realization that in many 6

7

At present, the graduation mechanism is applied only when the GSP is renewed. Under the review currently being considered, it would be done annually. Srevens and Kennan, 2000.

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respects they are more favorable than those applied to non-ACP states under the GSP or, even, some bilateral agreements. However, the GSP rules have evolved significantly in recent years, and the format of the rules applying to the ACP has been altered substantially in Cotonou compared with Lomé. This is in accordance with an EU desire to consolidate its multifarious sets of origin rules. In 1997 the System of European Cumulation of Origin was introduced. It incorporates a new Single List, which is the EU’s stated intention to substitute gradually for the rules currently incorporated into its preferential trade agreements. On many products of interest to the ACP the Cotonou and GSP rules are now identical. Two areas in which differences remain are fisheries and cumulation. These could be candidates for bringing the GSP up to the standard of Cotonou. In the case of fish products, the origin of goods is established by relation to the characteristics of the vessel that caught the fish. Table 6.1 sets out the criteria under which a vessel confers originating status on fish caught from it under each regime. The GSP rules are the more onerous. All of the officers and threequarters of the crew must be nationals under the GSP in order for a state to acquire originating status for the fish it exports. Under Cotonou the requirement is only that half the crew (officers and men) be nationals. The Cotonou rules on regional cumulation are the least restrictive in any EU trade agreement with developing countries. Processing in any ACP, OCT, or EU state counts towards obtaining originating status. In the GSP, cumulation is allowed, but only: – between members of recognized regional economic groups (only the Association of South-East Asian Nations (ASEAN), the Central American Common Market (CACM), the Andean Community, and the South Asian Association for Regional Cooperation (SAARC) have been recognized so far); – if processing in State B adds 100% value to the materials originating in State A.

Improving the GSP for Non-ACP States Thus far, the proposed changes to the GSP have focused specifically on the ACP. The first subsection suggested an extension of existing intra-GSP differentiation to reduce tariffs for ACP but not other Standard GSP states. The institutional

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Table 6.1 Status Criterion for vessel or factory ship Registered or recorded

Fishing Vessel Characteristics Necessary for Originating

GSP a in the beneficiary country or Member State

Cotonou b in ACP or EC Member State or OCT

Flag

of the beneficiary country or Member State

of an ACP or EC Member State or OCT

Ownership

50% by nationals of the beneficiary country or Member States or by a company having its head office in the beneficiary country or a Member State, of which the manager/managers, Chairman of the Board of Directors or of the Supervisory Board, and the majority of the members of such boards are nationals of the beneficiary country or Member States and of which, in addition, in the case of companies, at least half the capital belongs to the beneficiary country or Member States or to public bodies or nationals of the beneficiary country or Member States.

50% by nationals of States party to the Agreement or of an OCT, or by a company having its head office in one of these states or an OCT, of which the Chairman of the Board of Directors or of the Supervisory Board, and the majority of the members of such boards are nationals of States party to the Agreement or an OCT, and of which, in addition, in the case of partnerships or limited companies, at least half the capital belongs to those States party to the Agreement or to public bodies or nationals of the said states or of an OCT.

Master and officers

nationals of the beneficiary country/Member State

Crew

at least 75% nationals of the beneficiary country/Member State

at least 50% of crew, master and officers must be nationals of a State that is a party to the Agreement or of an OCT.

a

Commission Regulation (EC) No 1602/2000 of 24 July 2000 amending Regulation (EEC) No 2454/93 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code: Article 68. b The Cotonou Agreement: Article 3 [http://europa.eu.int/comm/development/ cotonou/agreement_en.htm].

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changes proposed in the second subsection are either of general applicability but of a kind that avoids preference erosion (such as contractuality) or could be limited to ACP states if the EU so decided (origin rules, for example). There are two reasons for this. One is to avoid preference erosion for the ACP. The other relates to the willingness of the EU to liberalize. The EU already accords the ACP access that is as good as the reforms would provide; it is evident, therefore, that the EU is willing to accept the suggested degree of liberality in its trade policy with respect to the ACP. The object of the exercise is to prevent the EU backtracking towards a less liberal trade policy. The same does not apply to the current Standard GSP states: it is evident that the EU does not yet have the political will to lower its import barriers against Indian clothing or Brazilian agricultural exports. Whilst it would be desirable from a broader development perspective to liberalize to all developing countries on products in which they have a comparative advantage, it remains to be seen how far the EU is willing to go in this direction. Although it is outside the scope of this chapter to consider the evolution of EU trade policy towards all developing countries, it is relevant to assess how far an extension of the GSP could be used to ‘buy support’ in the WTO for the continuation of ACP access. The developing countries with the greatest objective interest in ending ACP preferences are those that export the same goods to the EU but on less favorable terms. These are the states that benefit only from the Standard GSP. Such states might be induced to support the initial grant and subsequent annual renewal of a Cotonou waiver and a generous successor regime if it were part of a broader trade policy reform package that benefited them as well. This could be achieved both by making universal the suggested institutional reforms on graduation and the rules of origin, and by extending GSP tariff cuts. If the latter were made on products that are not significant exports, it would not lead to preference erosion. This subsection identifies the countries that could legitimately claim in a WTO panel that they suffer material injury from EU discrimination in favor of the ACP. The countries and the products on which they compete with the ACP have been identified through an analysis of the top 15 exports to the EU in 1997 of all the main competitors of the ACP and of the tariff levels of the EU in 2000.8 This research unearthed just 12 product groups in which there are significant ACP exports and effective preferences (in the sense that there exist competitors, some or all of which pay a tariff of 5% or more). They are shrimps, cuttle fish/squid, coconut oil, palm kernel/babassu oil, preserved tuna, cocoa butter, 8

Stevens and Kennan, 2000.

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coffee extracts, tobacco, methyl alcohol, knitted clothing, woven clothing, and aluminum. Only 30 countries compete with the ACP to a significant degree on any of these products. Of these, only 13 export to the EU on Standard GSP terms. The developing countries are (in declining order of the number of products on which they compete significantly with the ACP) China, Brazil, India, Indonesia, Thailand, Malaysia, Philippines, Argentina, Libya, Saudi Arabia, and Uruguay, plus Chile, which now has an FTA with the EU. The Russian Federation, an economy in transition, also competes on two products. This small number raises the possibility that a tailor-made solution could be found to the problems of obtaining WTO support for a trade regime after the Cotonou transition period has lapsed. A relatively modest number of specific changes to other aspects of EU trade policy might be sufficient to win the support of those countries that have a strong objective interest in the treatment by the EU of the ACP (and are not also beneficiaries of EU preferences that have questionable WTO credentials). Just what changes might be politically acceptable to the EU lobbies is a matter of conjecture, but some illustrative examples can be given. In three cases (Argentina, Brazil, and Uruguay—plus Chile) several major exports are excluded altogether from the GSP. The inclusion of some of these products would be beneficial to the exporters and, whilst it would erode ACP preference margins, the effect would be limited. In most cases, the excluded products are CAP items. The EU could offer GSP inclusion as a controlled method of (very limited) improved market access as part of its WTO Agricultural Round offer. For another three countries (India, Indonesia, Philippines), clothing items form an important part of the product groups in which they face relative discrimination. The issue of clothing is a sensitive one for the ACP. Following the phase-out of the MFA in 2005, relief from tariffs (some of which are still relatively high at around 10%) will be the only remaining advantage that the ACP states have in this area. The ‘cost’ to the ACP in terms of preference erosion for the ‘gain’ of WTO support would be quite high. On the other hand, it is likely that many ACP countries will be unable to compete head on with South Asian and Chinese suppliers of standardized clothing items after the phase-out of the MFA, with or without a tariff preference. So GSP tariff cuts on selected items that are important for Asia but not the ACP might be feasible. 5. A Way Forward? EU trade policy has evolved out of all recognition since Lomé I was signed. The ACP used to sit at the apex of the pyramid of privilege; now they are among their 124

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peers as just one subgroup that receive most favored nation treatment in the literal rather than the WTO sense of the term. Many elements of EU trade policy today are barely mentioned in the Cotonou text simply because they were less important in the early 1970s which is the era in which these documents have their origin. Policy change is in the interests of the ACP as well as the EU, but it should serve to extend the boundaries of EU liberalism. This means that the acquis should be taken as a given: something that the EU will continue regardless of the outcome of the negotiations on the trade regime after the expiration of the transition period of Cotonou and not a trump card to obtain trade diversion in favor of European exporters. The real negotiations could then focus on the new areas of policy in which the EU and those ACP states that perceive a self-interest could agree on reciprocal preferences. It also means that the goal of making the kaleidoscopic trade policy of the EU more coherent should be achieved by upgrading the less favored states rather than downgrading the more favored ones. There are now just two groups of states that are disfavored by the EU: the ten (mainly OECD) states that trade on MFN terms (in the WTO sense) and the 42-odd non-ACP developing countries that benefit neither from the Super GSP nor from a bilateral agreement and so have access only to the Standard GSP. A strategy of upgrading the GSP during the transition period of Cotonou could achieve both ends: preserving (a large part of) the acquis, and improving conditions for the disfavored. It is not an alternative to an EPA or other postCotonou accord covering services and new trade policy issues. And it would need to be complemented by action (probably in the WTO Agreement on Agriculture negotiations) to secure the Protocols until such time as the CAP is truly liberalized. But it would provide an important element in a broad set of negotiations that might see the Lomé/Cotonou format of a single, all-embracing accord replaced by a ‘family of agreements’.

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Chapter 7

EUROPEAN DEVELOPMENT AID IN TRANSITION Paul Hoebink

1. Introduction Development aid to former colonies was the initial policy of development cooperation of the European Union (EU).11 In more than 40 years, this area of common policy evolved to the present situation, which is characterized by a separate section on development cooperation in the Treaty on European Union (Title XX of the EC Treaty). This makes the EU the only donor in the world that has a mission statement on development cooperation in its ‘constitution’. For a long time, the successive Lomé Conventions and their precursors have been the main symbols of the importance of development cooperation in European integration.

1

Development cooperation was said to be one of the prices that Germany had to pay for its reintegration into Europe, the other price being the Common Agricultural Policy. As French colonies would mainly profit from EU subventions, the Netherlands resisted the inclusion of development cooperation into the Treaty of Rome. Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 127–153. © 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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On the other hand, EU development cooperation, in general, and development aid in particular, has been harshly criticized for long procedures, slow disbursements, inefficiencies, and ineffectiveness. The aid paragraphs were not the most debated elements in the negotiations for the new Cotonou Agreement, but a number of important changes have been made. These changes will be discussed in this chapter against the background of the history of EU aid programs, a description of the complex decisionmaking structures on EU aid, and the few experiences with the implementation of the Cotonou Agreement as far as aid is concerned. The chapter will try to find an answer to the question of whether these amendments will make the EU a more effective and efficient donor for the ACP countries. First, it briefly discusses the history of EU aid to its developing partners in the Lomé Conventions (section 2). Section 3 discusses the decision-making procedures of the aid programs in the Lomé and Cotonou Conventions. Some other aspects of the Lomé aid program are evaluated in section 4. A comparison of the aid paragraphs in the Lomé Conventions and the Cotonou Agreement will be undertaken in section 5. The first experiences with aid implementation under Cotonou are the subject of section 6. Conclusions will be drawn in section 7. 2. EU Aid to ACP Countries: An Overview For a long time, the EU has claimed that its aid program was special and has characterized it as a ‘new model’. It was said to be stable, because it was planned on a multiyear basis. It was supposed to be non-political, lacking the political interference that often accompanies bilateral aid, in particular, from larger donors. Furthermore, it was designed to be administered in association with the recipients, free from the commercial strings of tied bilateral aid and addressing the needs that the recipients themselves formulated. This was emphasized already in the first document of the European Commission on development policy in 1971.2 This is called the ‘acquis’ with regard to development assistance, symbolized by the principles of additionality, neutrality, and joint management. Although acquis suggests universal acceptance, it has been discussed from the beginning of the aid program. The legal basis for the European Development Fund (EDF), which is the main component of aid to the ACP states, can be found in Part IV of the EC Treaty. In 1957, the six founding members decided to create the European Development Fund (EDF) for the provision of financial and technical aid, to 2

Grilli, 1993:91.

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give the European Investment Bank (EIB) the task of providing loans, and to create a free trade area between the EC and the associated countries. These associated countries were a number of African and Caribbean states who had special links with four member states. At the time, all of them were still colonies. It was a continuation of the ‘associationism’, which France, in particular, tried to build up with some of its overseas territories. Aid was distributed mainly towards French colonies in West Africa, Equatorial Africa, French Polynesia, some Caribbean Islands, the Belgian colonies of RwandaBurundi and Congo, Dutch New-Guinea, and Somaliland, which, at the time, was a UN trust territory of Italy’s. Thus, the Treaty of Rome laid the basis for the later Conventions of Yaoundé, Lomé, and Cotonou. Two Yaoundé Conventions, signed in 1963 and 1969, continued the European Development Fund (EDF 2 and 3). In these Conventions, the EDF aid was dispersed over a larger group of 18 newly independent (African) states and the overseas territories. Following Britain's accession to the EU, aid was extended to 26 primarily Commonwealth countries. In 1975, the Lomé Convention was signed with 46 ACP countries. A new EDF (EDF 4) was included. The dominant paradigm for the provision of aid was ‘partnership’, both as a principle and in the definitions of (shared) powers and roles. The Lomé Convention and its financial protocol were extended three times. Lomé II (1980–1985) and Lomé III (1985–1990) were also accompanied by EDF 5 and EDF 6 respectively, while Lomé IV (1990–2000) had two five-year financial protocols—EDF 7 and EDF 8. Throughout the duration of the Lomé Conventions, the EDF remained the EU’s principal instrument for financial cooperation with the ACP countries.3 The succeeding Cotonou Agreement and its accompanying EDF 9 have continued this relationship with the ACP group, although some modifications have been instituted in the aid instrument. The first three EDFs financed traditional projects and technical assistance. In the Lomé Conventions, new instruments were added. Some of them were introduced in order to respond quickly to changing situations. The crisis in world market prices for raw materials, which hit many of the ACP countries in 1973, henceforward led to the creation of STABEX and SYSMIN, purposely to compensate qualified ACP countries for unexpected shortfalls in export revenues. Humanitarian assistance is another example here.

3

Giaufret, 1999:144–153.

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In addition, ACP countries have benefited from financial flows from the general budget of the EC. New budget lines were used to create pilot funds for areas of cooperation, which later could be integrated in the traditional cooperation agreements.4 The first budget line for external aid was introduced in 1967 for food aid under the Food Aid Convention. Actions and resolutions of the European Council and the European Parliament created about 130 budget lines over the next thirty years. They were introduced for a whole set of areas of cooperation, such as humanitarian assistance, women in development, the environment, and population activities. This budget line approach eventually became unmanageable for the Commission. Thus, at the end of the 1990s, the system was changed. The number of budget lines was suppressed to make the system more rational and transparent. A large number of budget lines have been cut and replaced by spending ceilings. In the negotiation process on Cotonou, there was an increasing debate as to whether EDF aid to the ACP countries should be integrated into the external aid section of the general budget of the European Communities. As can be seen in Table 7.1, funds for the ACP countries have grown over the years from the first allocation of € 581 in the Treaty of Rome and € 666 in the first Yaoundé Convention to nearly € 13 billion in the Lomé IV-bis Convention for EDF 8.5 A growing part of these funds has been reserved for special funds like STABEX and SYSMIN. To this, the funds from other budget lines should be added. It has been calculated that over the 13-year period from 1986 to 1999, € 30 billion was committed to ACP countries, of which almost 77 percent was provided under the Lomé Conventions.6 If we look at per capita aid, we see a growth in current Euros/ECUs, but a clear decrease in ‘real’ terms as far as the EDFs are concerned. Over the years, the ACP countries’ share in the total aid flow from the EU has fallen. The aid flow of € 30 billion between 1986 and 1999 accounted for 40 percent of all aid committed by the EC and 45 percent of all disbursements. The ACP countries were still the predominant aid receivers in the 1960s and 1970s. After these decades, other countries, mainly in the Mediterranean and in Eastern Europe, have replaced them. At the end of the 1970s, 10 of the 15 top receivers of EU aid were still ACPs. Twenty years

4 5 6

Cox and Chapman, 1999:36. Throughout the text, € should be read as ECUs until the year 2000; and after that as Euros. Cox and Chapman, 1999:51.

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Table 7.1 EDF and EIB Budgets for Financial Cooperation with ACP Countries 1957–2000, in Millions of Current and Constant € 1957 Rome Treaty EDF 1 EDF Total

1963 Yaoundé 1 EDF 2

1969 Yaoundé 2 EDF 3

1975– 1980 Lomé I EDF 4

1980– 1985 Lomé II EDF 5

1985– 1990 Lomé III EDF 6

1990– 1995 Lomé IV EDF 7

1995– 2000 Lomé IV-bis EDF 8

581

666

828

3,072

4,724

7,400

581

620

748

2,150

2,999

4,860

7,995

9,592

-

-

-

446

525

600

-

-

STABEX

-

-

-

377

634

925

1,500

1,800

SYSMIN Risk Capital

-

-

-

-

282

415

480

575

-

46

80

99

284

660

825

1,000

-

64

90

390

685

1,100

1,200

1,658

581

730

918

3,462

5,409

8,500

Grantsa Special Loans

EIBb Total EDF and EIB Per Capita EDF 1c Per Capita EDF 2d

10,800 12,967

12,000 14,625

10.7

9.7

10.5

12.3

13.5

17.9

21.9

23.6

62.9

50.3

41.2

31.5

22.6

24.2

24.3

23.6

a

Interest rate subsidies, regional cooperation assistance, structural adjustment support out of Lomé IV included; also humanitarian assistance (emergency and refugees) from Lomé IV-bis. b Ceiling set by the EIB Board; total ceiling amount never disbursed. c In current €. d In constant €. Sources: Grilli, 1993:99; The ACP–EC Courier, Special Issue, January–February 1996.

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later only five of them were on this list; seven top receivers could be found in the Mediterranean and the Middle East.7 Looking at the distribution of Lomé aid across countries and regions, Sub-Saharan Africa (SSA) is by far the biggest region in the group, both in terms of aid received and of population. A total of € 18.5 billion was allocated to SSA, which represented 78 percent of commitments made between 1986 and 1998. During the same period, Caribbean and Pacific ACP countries received 6.2 percent (€ 1.5 billion) and 3.7 percent (€ 876 million) of all aid, respectively.8 Additionally, € 1.6 billion or 6.7 percent of the ACP aid represented regional assistance (to regional groupings in West Africa, Southern Africa, Indian Ocean, and others). The remaining € 1.3 billion—or 5.4 percent—could not be allocated by country or subregion.9 Commitments to Africa showed a substantial variation around 1990: at € 491 million in 1986, a steep increase to € 2.3 billion in 1988, a fall to € 1.0 billion in 1990, and again an increase to € 2.7 billion in 1994. These fluctuations partly reflected a lack of agreement on STABEX disbursements, because aid rose again in 1994 when STABEX funds for both 1993 and 1994 were committed. In 1998, commitments to SSA stood at nearly € 2.5 billion and were thus quite close to their 1994 high. One can observe comparable fluctuations in the Caribbean and the Pacific, but the reasons were partly different. In the Caribbean, commitments increased from € 49 million to € 137 in 1989, but declined to € 74 in 1990, and rose again to € 292 million in 1993. Afterwards, flows rose significantly, up to € 403 million in 1996 before dropping to € 150 million in 1998. The steep increase can be explained by the inclusion of Haiti and the Dominican Republic in the ACP group during Lomé IV. The Dominican Republic accounted for 35 percent and 26 percent of all aid to the Caribbean in 1992 and 1993, respectively, while commitments to Haiti represented around 26 and 32 percent in 1994 and 1995, respectively. In the Pacific, aid allocations started at € 27 million in 1986, rose to € 127 in 1988, dropped to € 54 million in 1989, and further to € 35 in 1992, before it increased to € 128 in 1994. The main beneficiaries of EC aid to the ACP group over the years have been countries of SSA (Table 7.2). A minor exception here is Papua New Guinea, which ranks 22nd during the entire period. Jamaica and Haiti appear

7 8

9

OECD (several years). This is with inclusion of the Caribbean and Pacific OCTs, which did receive, respectively, around 8 percent and 11 percent of all Lomé aid to those regions. Figures in this paragraph are derived from Cox and Chapman, 1999:46–47. The figure ‘not allocated’ is largely due to the fact that, for EDF 5, there is no country or regional breakdown available. Over the years, this figure goes down to € 2 million in 1995.

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in the top 15 of ACP aid receivers for 1996–1998.10 The top 15 recipients account for 45 percent of all commitments made to the ACP group between 1986 and 1998. The main recipients of EC aid to SSA over the period in question are Ethiopia (consistently at the top), Côte d'Ivoire, Mozambique, Cameroon, and Nigeria. The main recipients in the Caribbean ACP region have been Jamaica, Haiti, the Dominican Republic, and Trinidad and Tobago, which together account for 59 percent of all aid to the region between 1986 and 1998. Papua New Guinea, where around 70 percent of the region's population lives, accounts for 56 percent of total commitments to the Pacific, followed by Solomon Islands (9 percent). Shifts in the main beneficiaries among the ACP and Overseas Countries and Territories (OCTs) have been modest over the period (Table 7.2). Changes in the top 15 countries occur mainly because of a decrease in aid following suspension (e.g., Sudan) or an increase in aid as a result of a crisis (e.g., Rwanda, which ranked in the top 2 during the first half of the 1990s), or because of rehabilitation and post-war reconstruction (as in the cases of Mozambique and Angola). It should be noted that the EU—not counting the member states—is the largest single source of foreign aid in many ACP countries. In general, EU aid is more than 10 percent of the total aid volume in ACP societies. This means that the EU often is the most important donor, together with the World Bank. This holds for smaller ACP countries in particular. They receive a relatively high proportion of EU aid and they mostly have only a few donors. The main issue concerning Lomé aid is the large difference between commitments and disbursements. The exact rate of disbursements is difficult to calculate, but more general figures do give an indication. During the 80s and 90s the ratio of disbursements against commitments has been improved. Disbursements were 46 percent of commitments in the five-year period 1986–1990. This share rose to 64 percent in the period 1991–1995. This increase was partly due to the introduction of fast-disbursing forms of aid like program aid. It meant that over the whole period from 1986 to 1995, more than € 5.2 billion in committed aid was not disbursed (€ 23.8 billion was committed, but only € 18.6 billion was disbursed), which represents 21.9 percent of total committed aid.11 Over the period of 1986 to 1998, the figure is slightly better: 18.1 percent.12 Undisbursed aid accounted for 27.5 percent of aid committed to SSA. For the Caribbean, the Pacific, and the regional funds, these

10 11 12

Jamaica was even in the overall top 15 of aid receivers from the EC (OECD:1999). Cox and Koning, 1997:47. Cox and Chapman, 1999:51.

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percentages were 36.1, 24.5, and a high 42 percent, respectively.13 It means that large volumes of aid go unspent and residuals are finally transferred to new EDFs over time. Table 7.2 Top 15 recipients of EC Aid to ACP Countries, 1986–1998, Share of Total Aid Committed, in Percentages

Ethiopia Côte d’Ivoire Nigeria Sudan Cameroon Kenya Senegal Mozambique Guinea Tanzania Zaire Mali Malawi Niger Uganda Top 15

1986–1990 5.7 5.5 4.1 3.4 3.2 3.2 3.1 3.0 2.6 2.5 2.4 2.1 2.1 2.0 1.9 47.0

Ethiopia Rwandaa Mozambique Côte d’Ivoire Cameroon Zambia Uganda Tanzania Zimbabwe Angola Sudan Nigeria Burkina Faso Kenya Guinea Top 15

1991–1995 6.1 4.1 4.0 3.6 3.4 3.2 3.1 3.0 2.7 2.7 2.6 2.6 2.5 2.4 2.4 48.5

Ethiopia Malawi Zambia Mali Mozambique Jamaica Madagascar Ghana Angola Guinea Tanzania Uganda Haiti Sudan Côte d’Ivoire Top 15

1996–1998 10.4 4.3 3.3 3.1 3.1 2.8 2.8 2.8 2.5 2.5 2.5 2.3 2.3 2.3 2.2 49.3

a

In 1991–1995, € 259 million of emergency assistance went to the Rwandan crisis. Some of this aid may have benefited Burundi, but the data do not allow differentiation. Source: European Commission/Overseas Development Institute.

Looking at the sectoral allocation of EDF aid, we can observe several trends. Over the years, spending in productive sectors—agriculture, manufacturing, and mining—is decreasing. This sector received about 14 percent over the years 1986 to 1998, coming down from a high of more than 20 percent in 1989. This was partly due to the fall in STABEX and SYSMIN transfers. Economic infrastructure is the single most important sector for project aid, and its share is increasing. For example, more than 20 percent was used for 13

This overall figure is mitigated by the fact that a large volume of unallocable funds from EDF 5 appear in the statistics, which have a disbursement rate far above commitments. (Cox and Chapman, 1999:51; Cox and Koning, 1997:46).

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roads in 1998. In comparison, the allocation to social sectors has always been relatively low, not more than 7.5 percent over the period. This is also true for cross-cutting or multi-sector projects, like environment and women in development; these projects received 8.9 percent, of which more than 60 percent was for rural development. Non-project aid has been doubled over the years to 43 percent of total allocations in 1998. This is mainly caused by the growing volume of program aid, which went up to more than 30 percent of the total in 1998. Smaller proportions of non-project aid went to food aid and humanitarian assistance, although the latter was sometimes as high as 22 percent of the total in years of catastrophes (e.g., the 1994 Rwandan crisis). Only a very small share (1.6 percent) of the non-project aid allocations went to NGOs between 1986 and 1998.14 At the beginning of this section, the acquis of EU development cooperation was introduced. The question can be asked, whether the practice of EU aid implementation meets the high standards of the acquis. To begin with, the distribution of aid presented above showed that this was by no means ‘politically neutral’. In effect, from the beginning onwards, the main recipients were the (former) colonies of the EC-six, later extended to part of the former colonies of the U.K. The exclusion of other least-developed countries did bring the Community’s aid program under the nominator of ‘continuation of colonial patterns’15 or even ‘collective clientelism’.16 It meant, among other things, that Francophone African countries were clearly receiving a larger part of the cake than other (Anglophone) countries.17 Also, the claim of ‘additionality’ can be questioned. On the one hand, it is clear that ACP countries receive more than other least-developed or developing countries, because of their special status as partners in the Lomé Conventions and Cotonou Agreement. It is suggested that the conventions brought EU member states to higher aid volumes because they had to spend a fixed percentage on EDF. At least it caused some member states, like Belgium and the United Kingdom, to spend much larger volumes on multilateral aid than on bilateral aid.18 On the other hand, we see that part of total EU aid committed to Lomé and Cotonou went down over the years. During each negotiation on 14 15 16 17 18

Cox and Chapman, 1999:52–54 and Cox and Koning, 1997:48–50. Grilli, 1993:125–127. As the title of Ravenhill’s book (1985) suggests. Grilli, 1993:97. One would suggest that donors with high aid volumes would spend relatively high volumes also on multilateral aid, because of the humanitarian character of their aid programs. In fact, obligatory contributions to multilateral organizations, like the ones to EDF, caused (in the European case) donors with relatively small aid volumes to spend a large part of it on multilateral aid.

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renewal of Lomé, including the negotiations of the Cotonou Agreement, there was pressure on the EU ‘to globalize its Lomé policy’.19 In particular, the small growth of the EDF after the first enlargement of the EU (with the accession of the United Kingdom), and the diminishing per capita aid could be seen as signs of ‘decreasing additionality’. The third and last element of the acquis is said to be the joint-management rules that are contained in the Conventions and should be seen as a symbol of the ‘partnership’. ‘Partnership’ is stressed more than once in all relevant documents and speeches. Although it is true that the first conventions were innovative and experimental in leaving a large part of the initiative to the beneficiaries, one could state that, in practice, these ambitious goals were never attained. This is mainly due to the complex decision-making process in, what finally is the center of gravity, Brussels, to which we will turn in the following section. 3. Decision-Making on Lomé and Cotonou Aid Programs20 Two Regimes According to Article 179.3 of the EC Treaty, cooperation under the Convention falls outside the scope of the procedures set for EU development policy. This is largely due to the fact that the Convention, and now the Cotonou Agreement, is not financed by the regular budget of the EC.21 Internal Agreements on the financing and management of EDF aid, concluded by the Council of Ministers of the EC, underpin the policy formulation process on the EC side. These agreements provide for a weighing of votes in the Council of Ministers, which is different from the regular EU one. In the EDF framework, the weight of each member state in qualified majority voting depends on its contribution to the EDF. The Internal Agreement also establishes the EDF Committee and stipulates the contributions of each of the member states to the EDF, which were agreed at the time of the signing of the Financial Protocol. The regular EU aid system and the EDF have different principles that govern the preparation of projects and financing decisions. The determination of 19 20

21

Grilli, 1993:97. This paragraph is largely based on Hoebink/Koulaïmah (1998), which was part of the larger evaluation of the Lomé Convention, and on interviews in Brussels in February 2002. In 1998, officials of DG VIII (now DG Dev), of the Council Secretariat, and of the Permanent Representations of the most important member states in Brussels were interviewed, as well as officials of the ACP Secretariat and ACP Embassies. In February 2002, some additional interviews were conducted in DG Dev, at the EuropeAid Cooperation Office, and with some of the Permanent Representations. Giaufret, 1999:144–153.

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the volume of aid granted under the EDF is separate from the regular EU budget. This means that the European Parliament is excluded from the process, and that the EDF does not obey the EU budget regulation. This is the reason for the existence of a separate Internal Agreement. From the EU side, decisions on the aid program are the responsibility of the European Commission (subject to approval by a thematic committee or by the EDF committee, in certain circumstances related to levels of expenditure). However, under the National and Regional Indicative Programs, the initiation, participation, and approval of the recipient country are required. The EDF also has two further characteristics: once the funds are allocated to the various instruments and national or regional indicative programs, the commitment of funds can start without any limits. In the budget, on the other hand, commitment of multi-annual funds is subdivided in yearly allocations. The second characteristic is the unlimited nature of the EDF. Whereas unspent appropriations under the EC budget are lost, this is not the case for the EDF, which only expires only after the utilization of all funds. The pressure on Commission services to commit and disburse funds in a quick manner is, therefore, less acute on those in charge of EDF than on those responsible for budget lines. Although the Lomé and Cotonou Conventions do not come under the EU budgetary system, they are submitted to a number of EU controls. First of all, the Court of Auditors is also responsible for auditing the implementation of the European Development Fund. Second, the European Parliament discusses, on an annual basis, whether to discharge the Commission for its spending under the EDF. The EP refused to do so for 1994. The existence of two separate systems can be problematic for ACP–EU policy formulation in two respects. First of all, there are certain elements in the EDF procedures leading to inefficiency, lengthy processes, and lack of EP involvement. On the other hand, however, the EDF system of the Lomé Convention has certain positive characteristics, which the EC budget does not have (such as participation of the recipient in the policy-making process or predictability of finance). Second, the two systems have been intertwined from the moment that the EU had its own development policy formulation process, which also affects ACP countries. Indeed, the general principles of Title 20 EC Treaty also govern the Lomé and Cotonou Agreements. Although they were integrated in the revision of Lomé IV in 1995, they remain of EU, and not joint ACP–EU, inspiration. The content of resolutions on crosscutting themes such as poverty, gender, or environment are supposedly applying also to cooperation with the ACP countries, although the ACP side did not participate in their formulation. This causes a pre-emption of joint formulation processes. Inconsistency also occurs if an ACP country is recipient of both EDF aid (with 137

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all the corresponding joint management) and EU aid (with separate management and financing rules). Decision Making and Aid Management by the EU On the EU side, the Commission is responsible for initiating legislation and executing the development policy of the EU. The conduct of external relations is shared between three Directorate Generals (DGs)—External Relations, Development, and Trade—which is down from five in the previous Commission. Relations with the ACP countries are the primary responsibility of the DG for Development, although other DGs implement policies that affect ACP countries directly. They include the DG for Trade (which is responsible for trade and the WTO), ECHO (which carries out emergency aid to the ACP), as well as other sectoral DGs like the DG for Fisheries (which negotiates fishery agreements with the ACP), or the DG for Agriculture (which takes care of the food aid and the banana portfolios). The DG for Development, itself, is responsible for general development issues and for cooperation with the ACP countries. Its first task is to generate horizontal development policy guidelines (such as gender or poverty) that will be adopted by the Development Council of the EU. At the level of execution of policies, the services of DG Development, both instrumental and geographical, and the delegations of the Commission in the field, implement the policies under the scrutiny of committees composed of member states' representatives and chaired by a Commission representative. For aid under the Lomé Convention, the responsible committee is the EDF Committee. It meets once a month and scrutinizes EDF projects above a certain level of expenditure (2 million Euros under Lomé IV-bis).22 Recently, after the signing of Cotonou, the task of the committee was expanded with more strategic issues, in order to lessen micromanagement by member states. Already under Lomé IV-bis, the first discussions have taken place about the mandate for the negotiations on the National Indicative Programs (NIPs). In the programming phase, the EDF Committee now discusses the various national programs—the Country Strategy Papers (CSPs) that include the NIPs. Furthermore, it was agreed that midterm reviews of CSPs and NIPs would be discussed. In exchange, the ceiling for projects to be discussed in the Committee would be lifted.23 The EDF Committee draws its existence from the Internal Agreement. 22 23

Ninety-five percent of EDF projects were above this ceiling. The ceiling was lifted to € 15 mln or 25 percent of the NIP, but between € 8 and 15 mln the written procedure would be followed, which gives member states the possibility to ask for an oral procedure within the EDF Committee. Some people within DG Dev are of the opinion that, through this new

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Its voting modalities reflect the member states’ contributions to the EDF.24 A favorable vote consists of a weighted majority or a minimum of six (EDF 7) or eight (EDF 8) member states. Member states' representatives come from the Ministries of Development Cooperation in the capitals. All of them are junior staff members, intervening on the basis of clear-cut instructions. In the framework of a research project, officials participating in the EDF Committee were interviewed. According to some of them, particularly inside the Commission, the EDF Committee is not relevant for the improvement of quality of the projects and project cycles, and is not a prerequisite for quality. The EDF Committee is considered a tribunal at the end of a process, a formal obligation. Some of the interviewed people describe most of its activities (95 percent) as ritualistic. This is because most questions that are asked by the member states’ representatives are thought to be irrelevant or even absurd (one-fourth not in accordance with guidelines, one-fourth based on national interests, one-fourth already present in documents or absurd, and one-fourth idiosyncrasies of individual member states or individuals in member states' delegations). A clever chair might manipulate relevant questions: ‘Good questions could be submerged easily by good manipulation by the Commission’. Most of the time, the same type of questions come from the same people. All the delegates have to report back and are supposed to make a certain set of remarks for the minutes only.25 An analysis of EDF Committee minutes over four years shows that almost all (nearly 90 percent of the) projects have been directly accepted in the EDF Committee. Nevertheless, some member states see the EDF Committee as a ‘police officer’. Its mere existence is thought to have a beneficial effect. The Council of Ministers is the decision-making body of the EU. The Presidency of the EU—which rotates over the member states on a six-month basis—and the General Secretariat of the Council prepare the work of the Council. Each presidency wants to put forward certain priorities and achieve results before the end of its term. Priorities may change from presidency to presidency. The interviews make it clear that it is seen as much easier to change priorities, than to change actual implementation. A successful Presidency is said 24

25

This leaves France with the largest number of votes (52), with Germany at second place (50). The United Kingdom and Italy (both 27), together with Spain (13), have a relatively low number of votes; the Netherlands a rather large number (12). Ireland and Luxemburg have two and one vote, respectively. The ‘biases’ of the member states were said to be: United Kingdom (considered to be the best prepared in all kinds of topics)—poverty, macroeconomics, governance, transparency; Denmark—gender; Netherlands—ownership of reforms; Sweden—environment, gender, poverty, ownership; France— very difficult to define, depends on country; Germany—depends on which ministry is involved, there are struggles between Finance and GTZ, but sustainability and decentralization are important themes; Italy, Spain, and Portugal do not seem to have a real policy line, only coordination with bilateral aid is of concern; Belgium—only interested in a few countries.

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to coordinate its program and objectives very early with the Commission and in a flexible way. If the Commission does not agree on certain issues, it could keep the Presidency pending, and come out with a weak document. In this sense, the Commission is seen as a chess player, able to strategically play around as different member states and different Presidencies have different priorities. Various Council working groups deal with developing countries. They work on the basis of proposals by the Commission, and report to the Committee of Permanent Representatives (Coreper). In the Council working groups, member states are represented by individuals on the staffs of their delegations in Brussels. In general, these are middle-level diplomats who mostly cover several groups: the Development Cooperation Group, ACP Group, ACP-Fin Group, and—within the CFSP framework—the Africa Group and South Africa Group. ACP-Fin mostly has representatives from the Ministries of Finance and, on special occasions, from Ministries of Trade. The Scandinavian countries used to send representatives from Ministries of Development Cooperation as well. The Northern European member states are considered to have a development lead, the Mediterranean to have a trade emphasis. On the EU side, the ACP group prepares the agenda and the EU positions for joint ACP–EU meetings. The ACP-Fin group deals with financial issues: the annual report of the Court of Auditors, the Statement of Assurance, the EDF calls for contributions, the preparation of the Joint Development Finance Committee, issues such as debt relief for highly indebted poor countries (HIPC); as well as the reporting of the Commission on contracts and their allocation over the member states. Apparently, member states are curious about knowing their rate of return from the EDF: the ratio between orders from, and contributions to, the EDF. Those who put forward most questions or complaints are Spain (often) and Italy (sometimes), whereas France and Belgium seem satisfied. In recent times, Germany has put a lot of emphasis on its rate of return.26 Some member states are said not to favor sectoral or structural adjustment, because it could hurt the amount of orders they get out of the EDF. The Development Cooperation Group, as well as the ACP Group, typically meets once a week. The agenda is mostly filled with reports on ongoing business, preparation of meetings, and drafting regulations and conclusions. In the framework of the post-Lomé IV negotiations, a Lomé ad hoc Group has been set up to discuss the mandate of the Commission. It meets very frequently, with active participation of Coreper development specialists and representatives 26

In the case of Germany, this is quite predictable, since this country receives considerably less orders from the EDF than its contribution. France and, particularly, Belgium score well above their contribution, but Italy does as well (with, e.g., a score of 23 percent of member states orders under EDF-VII and a contribution of 13 percent). Spain only slightly underscores its contribution.

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from the capitals. For the negotiations with South Africa, a separate group existed that monitored the negotiations. The ways in which member states operate in these groups show substantial differences. Some member states adequately coordinate the preparation for the different groups in their capitals and treat development cooperation as an integral part of foreign policy. Other member states are said to have little or no vision on development policy. They are in the lead, or try to get control through other ministries such as Trade and Agriculture, rather than through Development Cooperation. In general, this is seen as a North-South divide, with some discussion whether Germany belongs to the ‘South’ or to the ‘North’ (since, for example, on trade issues, Germany does not show a development lead). Southern member states are known to defend their agreed upon national position, which obviously is a compromise between various national interests. These differences seem to overlap with member states' differing perceptions of the Community. If member states have an efficient bilateral program, they are said to be extremely critical of the Commission. Other countries have a more pro-Community aid attitude. The Nordics are seen as attaching greater importance to the UN system. If there were, for example, a discussion on coordination, they would not leave that to the Community, but bring it up to a higher level. France and the U.K. are described as clearly the most influential member states with regard to Lomé. Many interviewees see the Commission as an instrument of Paris and London: ‘Brussels is not as multilateral as many people think; it doesn't have a real multilateral mix. In reality, it is a bilateral instrument for France and the UK’. The link between Committees and Council Groups has been criticized for its weakness. The reason may be that the Committees are there to assist the European Commission in its execution function, which includes programming, but not to be a ‘translator’ of the EU Council of Ministers´ resolutions into concrete guidelines. The member states, themselves, should secure this link. Some think that project proposals for the EDF Committee should be obligatory literature for the members of Council groups. Member states could also force the Commission into the direction they prefer by co-financing, it is said, but this is a very difficult and time-consuming process, so a well-coordinated intervention in the Committees could have a more direct and larger influence. Council resolutions are not seen as important. This is due to, first, bureaucratic reasons: people in the Council working groups do not relate or speak with people in the EDF or Food Aid Committee. However, it is said that in recent strategic discussions, more bridges have been built. There is also a follow-up problem. The rate of compliance with resolutions by the Commission, translating them into policy guidelines and implementation, is said to be very 141

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low. The Commission is seen to have problems with its actual follow up capacity. The main cause is understaffing—less staff per unit of budget than some other donors—and management problems; a lack of technical advisors (understaffing in cross-cutting issues such as social development and gender, in particular); and a staff that is described as being too gray, not in the gerontological sense, but in vision and leadership. Second, most resolutions are not internalized by the national level, even if they are supposed to apply to the EU and bilateral levels. This probably relates to a lack of coordination in the member states. Third, some people think the member states are not trying to get their views accepted at the right level and that they should go more upstream. Member states should, in this view, give a sensible input to policies, management, procedures, approaches, and not be involved too much in micromanagement of projects. This should mean rebuilding confidence and improving the relations between the Council and the member states. Fourth, some see Council resolutions as unimportant because of the division of power. It is stated that the development policies of the Northern European countries— Germany, Denmark, and the Netherlands—are not reflected in the EUdevelopment policy: ‘In some words it might be found, but not in deeds and practice’. This means, according to this view, that in the final analysis, the Council Groups have very little or no influence. Actions or resolutions have no influence, because the Commission overruns them. The Council Groups are said to be constantly operating on the sidelines. They concentrate on issues such as poverty and gender, not on the real issues at stake in Lomé or Cotonou (like trade). Within the European Parliament (EP), the Development Committee is responsible for development policy and the relations with the ACP. It prepares reports on the various aspects of EU development policies for the EP plenary session that then adopts final resolutions. Though formally not in a position to exert much control on the ACP–EU cooperation, the EP is seen as an institution that can influence policy formulation, be it in a limited way. It can play this role by pushing the Commission, through its direct and informal links with ACP countries and through working with NGOs in this field. The staff of the Commission sees the EP as an ally and ‘opinion former’. The influence is seen as depending on the abilities of individual MPs, their interests and charisma. Through informal contacts, the Commission is strengthening these links. More recently the Parliament has been pushing the Commission through resolutions on the aid spending in social sectors.

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ACP Common Institutions for Financial Cooperation On the ACP side, there is the Committee of Ambassadors, which is not dealing very much with aid issues, and the ACP Secretariat. The ACP Secretariat is not an executive organ; it is only an advisory body to, first, the Committee of Ambassadors, second, to the Joint Assembly, and third, to the Joint Ministerial Committee. It has a specific mandate for its advisory role. The ACP Secretariat interrelates with the Commission, the Council, and the Joint Secretariat. It has regular meetings on technical issues in the joint groups and committees. It communicates with the Commission on a mixture of technical and administrative subjects that are discussed in the Joint Assembly, and it has an advocacy role towards the EU member states. With the ACP states, it deals mostly on project issues—25 to 33 percent of its time is said to be spent on these project issues. There is a negative opinion on the ACP Secretariat by most of the people interviewed. It is seen as undisciplined and uncoordinated. Half of the personnel is said to lack the expertise needed. Too many nominations are thought to be politically motivated. Furthermore, its facilities are considered to be inadequate. There are also linguistic problems. Some think that the Secretariat is very dependent on the Ambassadors, which makes it very complicated to draw agendas and set meetings. The conclusion is that the policy formulation cycle on aid is complex, both in the past under Lomé and now under Cotonou. It is complex by nature and reflects the complexity of the EU itself. In the area of development policy, this complexity is enhanced, by the following factors: the coexistence of national and EU policies, which are supposed to be complementary and coordinated partly through common guidelines; the coexistence, within the European development policy, of two financial and procedural systems—the budget/EC Treaty which provides for a relatively important role for the EP, and the EDF system with its own rules of procedure; the coexistence of a unilateral development policy defined strictly within the EU framework; and a contractual development policy embedded in the Lomé and Cotonou Conventions and which is characterized by decision-making in joint institutions. This complexity is nurtured by a fragmented EU development vision, which was stated in the Maastricht Treaty, but absent in the policy formulation cycle. The policy output seems to obey a logic of constant compromise seeking and bargaining between the member states, whilst the Commission does not take (or is not allowed to take) sufficient lead in the definition of such a vision. Hence, there is an overall impression of

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incoherence and absence of clearly defined priorities, which is also due to the lack of interconnectedness between Council Groups and Committees. 4. Other Aspects in the Evaluation of EDF Aid Programs Apart from the issues discussed in the last section, other aspects were raised in an evaluation of EU aid to ACP countries.27 This evaluation, covering the period 1996–1998, was amply used in the negotiation of the new agreement. Two main principles were supposed to dominate the implementation of the Lomé Conventions from the start—partnership and predictability. In the first phase of the evaluation, based on an analysis of existing documents, it was already concluded that ‘the history of Lomé is one of a slow retreat from these principles’.28 The conclusion was that with each new convention, new conditions were added to the provision of aid. First, the policy dialogue; later, prior agreement on the structure of expenditure (the requirement for sector programs) and tighter financial controls; and finally, new priorities, from poverty reduction to environment and gender, and the insistence of reforms. In this, it was stated, the EU moved in parallel with other donors, although with some time-lag due to the five-year periodicity of the Conventions. Furthermore, it turned out that a proliferation of objectives was visible. Poverty reduction was stated to be the primary goal of the cooperation effort, but in Lomé IV-bis democratization and human rights were given central roles. The focus of aid policy was further shifted away by new instruments, Council resolutions and special budget lines. Transparency and accountability were considered to be limited. Donor coordination, even between European donors, was stated to be weak.29 It turned out to be very difficult to say anything on relevance, efficiency, effectiveness, and impact of the aid to ACP countries on the basis of existing documentation. For that reason, the conclusion was drawn that both the Commission and the ACP governments were more driven by inputs than by objectives or results.30 The impact on the priority objectives of poverty reduction, good governance, and the protection of human rights was called ‘limited’. Some targeted programs did have some effects on a local level, but often with high administrative costs. It turned out that physical outputs were much easier to obtain than policy-based returns. It led to the main conclusion, in the second phase of the evaluation:31 If the European Community is to help 27 28 29 30 31

ADE, 1997 and Montes, 1998. ADE, 1997. Montes a.o., 1998: ii and 28–30. ADE, 1997: iii and 54–56. C. Montes a.o., 1998:i.

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in meeting the OECD development targets—especially that of reducing by half the proportion of people living in extreme poverty by the year 2015— and if it is to build a new partnership with ACP countries, EC aid programs must be result-oriented. The reasons for this performance could be found, according to the evaluation, in the small capacity and low commitment of ACP governments, and in the weak coordination and weak management by the Commission. The approach of aid ‘entitlement’, which was still preeminent during the Lomé period, meant that all ACP countries did have a right to aid. Selectivity appeared in Lomé IV and Lomé IV-bis, but conditionality still has a low priority compared to the right to aid based on poverty and other criteria. In a co-management enterprise, weak governments have a larger influence on aid outcomes than in a situation in which donors have the ability to look for other channels to provide aid. Weaknesses in the Commission’s management were found to be caused by staffing problems and administrative and policy constraints imposed on the Commission.32 Staffing problems are partly caused by the low numbers of staff that the Commission can employ.33 There is a clear shortage of in-house specialists. New policy initiatives by the Council expanded the agenda and, thus, the administrative burden. Enhanced administrative and financial controls were put on top of this. Fragmentation of the aid bureaucracy and unclear procedures did not help to solve these problems. In sum, the EU aid administration was overstretched, which led to insufficient project preparation, large time-delays, insufficient monitoring of performance, and low flexibility.34 The assessment of projects, program aid, and aid to sector programs shows more mixed results. With regard to sectoral spending, it was already concluded in the first evaluation of existing documents that spending for infrastructure was a basic constant, but that it gradually changed from financing individual projects to the support of overall infrastructure programs. Rural development acquired a first place in Lomé III, but was relegated to a lower position after a general failure of integrated rural development programs. This resulted in a shift to social sector programs. In the social sectors, changes were observed: a shift from higher education to

32 33

34

Idem, ch.3. Already for a long time, member states have put a ceiling on new recruitment of Commission staff. The Commission had 2.9 staff members per $ 10 million of ODA in 2000. Only the Netherlands was lower among the member states, with 2.4 staff. To compare: the Netherlands has 800 staff members for a budget that is not much smaller than the United Kingdom's aid budget, while the U.K. has 3200 staff members. C. Montes a.o., 1998:40–52.

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primary education, and from projects, via support for programs, to a focus on policies. The physical outcomes of transport projects clearly were the most concrete signs of success. The Commission is said to have a strong engineering and technical presence, and there is a general agreement that infrastructure projects have been one of the areas where EU aid performs best. However, road maintenance and the financial sustainability of these projects appear to be rather weak, as it was only recently that attention was paid to institutional weaknesses in this respect in ACP countries. Projects in rural development and agriculture, in general, produced uneven results, due to the constraints in this sector and to the large dispersion of funds over many activities. In health, the EU has been involved in a series of innovative programs recently, after it shifted away from curative services and specialized activities. Support to industry was limited and generally not very successful.35 Food aid and STABEX support, in general, led to negative comments. STABEX was once hailed as an innovation that ‘should remedy the harmful effects of the instability of export earnings’. In the way it was mostly used, it was a form of budget or balance of payments support.36 STABEX was severely criticized in the evaluation report. Before 1990, STABEX funds were used to finance inadequate projects, but supported the stabilization of export earnings to at least some extent. After 1990, when conditionality was introduced through the ‘Framework of Mutual Obligations’, the monitoring of activities improved, but the delays in disbursements seriously hampered the effectiveness in terms of stabilization. This effectiveness was limited anyway by the size of STABEX. It did not have a clear effect on sector diversification either.37 SYSMIN, much smaller in financial terms than STABEX, financed rehabilitation of mines and transport links. Since these activities could just as easily be paid out of regular aid funds, the pre-evaluation argued that ‘the maintenance of SYSMIN as a separate instrument [can be] hardly justified’.38 So it was no surprise that the Commission concluded in its Green Paper that the two instruments were ‘ill-suited’ in the present context of cooperation. With a reference to the complicated management procedures, the Commission

35 36

37 38

Although no recent evaluations of CDI and EIB were available (idem, p.22). There were three main recipients of STABEX: Ivory Coast, Cameroon, and Ethiopia. Uganda, Kenya, and Papua New Guinea were in the second echelon. Together, these countries received more than half of the STABEX funds in the nineties. Montes, 1997:21 and ADE, 1997: annex 2. ADE (1997: annex 3).

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pleaded for one overall financial package, disbanding all separate instruments like STABEX and SYSMIN.39 In sum, the recent evaluations of EU aid to ACP countries were quite negative on the efficiency and management of the funds by the Commission. But a deeper look at actual spending and at the project level did not show large differences between EU aid and aid of other multilateral and bilateral donors in the same sectors. The same sectors seem to be ‘difficult’ for all donors, and with its emphasis on physical outputs, the Commission’s aid performance might be comparable to that of most other donors. One could draw the following conclusion, as observed by Philip Lowe, then DirectorGeneral of DG VIII:40 In effect, the recipient countries did not spend sufficient aid and, when they did, they did so at the detriment of all economic logic. Spending on prestigious projects got priority over the programs for the struggle against poverty. At the other hand, Europe restricted itself primarily to disbursing aid and did not worry so much on the utilization of the money. The procedures were slow and did not engage sufficiently the recipients. 5. A Comparison of the Aid Paragraphs of Lomé and Cotonou A first major difference between the aid paragraphs of the Lomé Conventions and the Cotonou Agreement is in the amount and types of aid. Compared to Lomé IV-bis, the volume of (new) aid grew with just a bit more than half a billion Euros (Table 7.3). The total amount of € 25 billion looks impressive, but this is because of the leftover of € 9 billion from previous EDFs. In fact, aid per capita went down from € 23.6 to € 21.2.41 Of this new aid money, € 10 billion is meant to finance long-term development projects and programs as proposed in the NIPs. More changes have been made in the types of aid. Under Lomé there was: (a) programmable aid (the major part of the portfolio, distributed along country and regional lines through national or regional indicative programs); (b) non-programmable aid (such as STABEX, SYSMIN, humanitarian aid, and structural adjustment support); and (c) loans (via the EIB for enterprise development).

39 40 41

European Commission, 1996: xiv, 15–16. Interview with L’Intelligent/Jeune Afrique, No.2062, 18 au 24 Juillet 2000. Translated by the author. In current €. Own calculations on basis of figures in The ACP–EU Courier, September 2000.

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Each of these three instruments was programmed via its own methods and procedures. Although the major part of aid was provided via the NIPs, it still meant that it was very difficult to come to a coherent strategy in which the aid instruments were connected to each other, but also to trade and other relations. In the Green Paper for the negotiations on the new Convention, the Commission made it quite clear that it wanted to simplify the aid instruments. Through this simplification, the Commission not only hoped to attain more possibilities to come to coherent strategies, it also hoped that it could speed up the disbursement of aid to acceptable levels and, thus, respond to one of the main criticisms of the member states. In the Cotonou Agreement, there is one single grant facility left, next to an investment facility (via the EIB). This means that STABEX and SYSMIN vanished as specific instruments, although Article 68 opens the possibility to give additional support ‘to mitigate the adverse effects of any instability in export earnings’.42 This is also mentioned in Article 60 under the ‘scope of financing’. Furthermore, debt reduction and humanitarian assistance are integrated in this grant envelope, with specific chapters in the financial part of the agreement (Part IV). New is support for sectoral policies (Article 69) through all kinds of aid instruments. Under this sectoral policy support, there is also room for financing ‘thematic and cross-cutting issues’, like environment and gender. It is also very important that the amounts left over from earlier EDFs, are consolidated in the new aid envelope, meaning that there will be no parallel programming efforts left from these EDFs. These important simplifications should give the Commission and the partner countries large opportunities to rationalize the financial part of their cooperation. It brings the possibility to concentrate aid on a few sectors and to get rid of a whole series of projects in these sectors, and change that into budgetary assistance. The disappearance of STABEX and SYSMIN saves time-absorbing procedures and, thus, a fair amount of energy of the aid administration in the Commission and the ACP states can be used in a more coordinated effort. The formulation of Article 69 on sectoral policies is very broad and open, which leaves a lot of space for initiatives by the aid recipients and EU Delegations. A second major reform introduced in Cotonou is a change in the programming process. At least on paper, consultations between the EU and each ACP government on the use of aid does get far more importance. The

42

All quotations out of the Cotonou Agreement are from the special issue of The Courier (September 2000). In Annex 2, the conditions and eligibility criteria are stipulated.

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Table 7.3

Cotonou Agreement Financial Resources for 2000-2007

Overall amount = € 25 billion Of which: 9th EDF = € 13.5 billion consisting of: Long-term envelopea Regional envelope Investment facility

= = =

10.0 1.3 2.2

Remaining balance from previous EDF = € 9.9 billion EIB individual resources = € 1.7 billion a

Including CDE (Centre for the Development of Enterprise) = € 90 million; CTA (Centre for the Development of Agriculture) = € 70 million; Joint Parliamentary Assembly = € 4 million. In addition to the € 25 billion allocated to ACP countries, a sum of € 175 million has been earmarked for the OCTs. Source: Cotonou Agreement

new programming shows several changes (Annex IV).43 First of all, the implementation of all operations (including trade and including a paragraph on ‘coherence’) is laid down in a Country Support Strategy (CSS). The financial cooperation is worked out in an indicative resource allocation covering a period of five years. Thus, the CSS will be translated into an Indicative Program that will gradually be rolled forward. It is planned that this rolling programming will be based on national development strategies, in particular, the Poverty Reduction Strategy Papers (PRSPs) and sectoral programs of the aid recipient. This is to promote ‘ownership’ and ‘sustainability’. The CSS will also take into account the activities of other donors, in particular EU member states, so as to enhance the principle of complementarity in Article 180 EC Treaty. This should also lead to better fine-tuning of activities of member states and the EU Delegation. The regulations allow for changes in the NIP to make it more 43

This means that the long Chapter 5 in the Lomé Convention is exchanged for a very small Article 81 and a long Annex IV with an elaboration of the implementation and management procedures, in six chapters and 37 articles.

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flexible and quicker to disburse. The CSS can be updated and reviewed. In the process of formulating and reviewing the CSS, the EU Delegations have much scope for influence. They are the main negotiating partner of the local government. Furthermore, it is envisaged that non-state actors and local governments participate in the formulation process.44 It all allows for a decentralized cooperation. This on-rolling programming would allow the Commission to distribute aid more according to performance; this orientation was introduced in Lomé IV-bis, which allowed for the disbursement of aid in tranches. Other important changes include the Investment Facility and relate to technical assistance (TA). The Investment Facility replaces all risk capital and interest subsidies of the Lomé Conventions. It is worth € 2.2 billion and will function as a revolving fund for loans and risk capital for private sector development.45 The articles on TA are clearly revised in the light of recent critique on TA. The new and revised articles aim at a better embedding of TA in local demands for expertise and the use of national consultants or intraACP TA.46 Smaller changes allow for the direct financing of decentralized cooperation and of NGOs (Articles 57 and 58). The provision of budgetary aid remains possible (Article 61), but is tied to the conditions that public expenditure is sufficiently transparent, accountable, and effective; that macroeconomic and sectoral policies are established by the country itself and agreed to by its main donors; and that procurement is open and transparent. The upshot of this overview is that although the volume of aid under the new EDF has not grown, ACP countries could possibly get more and quicker money out of this ninth EDF, because of a greater flexibility through onrolling programming and the modernization of aid instruments. However, questions remain. One of them is whether authoritarian and non-democratic regimes in ACP countries will allow critical NGOs to get disbursements out of funds for their indicative programs. Little has changed here in the approval system, which leaves the last word with the local government.47 44

45 46

47

These negotiations with non-state actors also include the volume of financing that might go to proposals coming from these actors, since there is a ceiling of 15 percent of the first allocation that might go to non-state actors. See Annex II of the Convention for terms, conditions, and regulations. Based on a comparison of Chapter IV, Article 275, of the Lomé Convention, and Title III, Article 79, of the Cotonou Convention. Although not all sentences in the article have a stronger wording. Subsection h of Article 275, for example, stated that national human resource constraints should be taken into account in project and program appraisal. This was not included in the new article. Article 35 of Annex IV leaves the approval of all financial operations with the National Authorizing Officer (NAO) to be appointed by the government (mostly, the Minister of Finance); all this, of course, in close cooperation with the head of the EU Delegation.

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6. Some Primary Results of Cotonou: the Country Strategy Papers48 In March 2002, it was clear that there were already serious delays in the preparation of the NIPs for EDF 9. Only 58 out of 76 CSSs and related NIPs had been produced. The process of formulating these CSSs turned out to be much more time-consuming than expected. In principle, according to Annex IV of the Agreement (Article 2), the CSSs will be formulated ‘following consultations with a wide range of actors in the development process’. These actors involve organizations that represent civil society, the private sector, and local representatives of EU member states. The ACP government and the EU delegation will take the lead during the whole process. Furthermore, the CSS should be based on the national policy agenda, in particular on the PRSP, and should be an ‘open’ document, more than a negotiating mandate. This means that much more time is needed to produce the documents required than was the case under EDF 8. Fourteen months after the signing of the Financial Protocol, the first documents could be presented to the EDF Committee, compared to eight months under EDF 8. It turned out that in many ACP states, European consultants were hired who prepared the draft CSS on the basis of an analysis of existing documents, comparisons with other donors’ involvement, and in principle also by consulting EU member states, civil society and private sector representatives. Then the draft CSS enters into the ‘Brussels machinery’ in which it is discussed in geographical units of DG Development and Europe Aid, and later with other DGs and the EIB. Only in a much later phase will it come back again to the ACP country to be discussed with the national government and member state representatives. The new programming effort did not have a smooth start; at this stage it is not clear whether this is due to teething problems or if there are more structural problems. In any case, in Benin, as well as in Mali, complaints were heard on what was called the ‘solo activities’ of the EU delegation, which was under pressure to come up with texts. Several local representatives of member states and civil society organizations complained about the lack of consultation and participation in the entire process. They saw the process of drafting the CSS dictated by time constraints and a lack of genuine will to involve all actors.

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This section is mainly based on interviews with staff of the delegations and member states’ missions in Cotonou and Bamako in March and September 2001, and with Commission staff in February 2002.

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Table 7.4

Distribution of Programmed Resources under EDF 9a

Sectors Transport and Storage Structural Adjustment/Program Aid Government/Regional Integration Water Supply and Sanitation Rural Development Education Mineral Resources/Mining Health Civil Society Multi-sector Basic Social Services Agriculture Food Aid Business Environment Protection Trade Culture Nonspecified Total

Programmed Resources (%) 31.4 21.2 7.9 7.1 6.1 6.0 5.3 4.4 2.9 1.4 1.1 1.0 0.9 0.5 0.1 0.1 2.6 100.0

a

On basis of an analysis of 58 CSSs. Source: European Commission, DG Development.

In February 2002, one CSS had been signed, 18 had been formally adopted by the Commission (most of them for African countries), and 27 had received a favorable opinion from the EDF Committee. At that time, 18 Country Support Strategies (CSSs) had been published in full at the Web site of the Commission. It turned out that the six new ACP states, in particular, had problems in producing their CSS, as well as countries with severe civil disturbances. At the end of August 2002, the EDF Committee and the Commission had approved 45 CSPs, of which 30 had been signed. There were 33 CSPs lacking, 21 of which were for African countries. A first look at the (draft) CSSs indicates that under EDF 9, a major part of the aid will go to the transport sector. In the first 58 CSSs, 31.4 percent is programmed to be spent on this sector. Program aid for structural adjustment programs under the lead of the IMF and the World Bank is again an important aid sector. Rural development is the third sector in the list. As in the past, and in contradiction with European Parliament’s resolution, not much more than 10 percent will be allocated to health, education, and other basic social services, 152

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although this figure comes close to 20 percent if water and sanitation are added. Amazingly little is programmed to be spent on the strengthening of civil society, which increases the NGOs’ fear that this will be left aside. 7. Conclusions The twenty-first century seems to leave little room for preferential treatment of a group of countries whose only common characteristic seems to be that they were once colonies of EU member states. Preferential treatment with regard to aid seems to be a symbol of centuries past. In this sense, the diminishing volume of aid for ACP countries, in a relative sense, is symbolic of the shrinking stature that Lomé and Cotonou have in the total construct of European relations with developing countries. The aid envelope for the years 2000–2007 is filled with money from earlier EDFs. In per capita terms, relative and absolute, the new EDF—not including the leftovers from the past—represents a clear reduction. This chapter presented a review of EU aid to ACP countries. A number of shortcomings were found. Some of them are not addressed in the new agreement. The split between the budget/EC Treaty aid system and the EDF is not abolished, which means that this source of complexity and inefficiencies will persist. Furthermore, the agreement does not—and can not—give a solution for the lack of interconnectedness between Council Groups and Committees that hinders an efficient management of EU aid to ACP countries. These are problems that the EU itself should address. Apart from this, the Cotonou Agreement reflects, in its aid paragraphs, recent developments in thinking about development cooperation. Its emphasis on flexibility, performance of the recipient states and the possibilities of adjusting to changing situations, its new articles on technical assistance and NGOs, all present images of this new thinking. Probably the most important improvements are the paragraphs and articles, which could lead to more coherence between the different instruments, to more complementarity and coordination between the EU and its member states in the provision of aid, in line with the EU Treaty. This will be reflected in the Country Support Strategies and in the possibilities that the new agreement gives for sectoral and budgetary support. However, the first country strategy documents seem to leave things mostly as they were. Its on-going programming, and a critical follow-up by NGOs in the partner countries and by other European institutions, might lead the way to a real change in programming and distribution of Cotonou aid.

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Chapter 8

POLITICAL DIALOGUE IN A ‘NEW’ FRAMEWORK Karin Arts

1. Introduction Political dialogue has always been an important aspect of ACP–EU relations. It takes place at various levels and in several forms, depending on the nature and importance of the subjects or situations giving rise to it. General dialogues take place on global and regional issues, such as political, security, or economic problems. Comprehensive discussions are held in the context of the Lomé/Cotonou programming exercises. More specific dialogues take place on economic or social policies (not) pursued by an ACP state.1 The latter is sometimes also referred to as ‘policy dialogue’. In broad terms, the content of this chapter extends to all variations of ACP–EU dialogue. However, the relatively advanced state of both the substance and procedures 1

Political dialogue is formally conducted on the basis of reciprocity. Therefore, in theory, it could also extend to the individual policy choices of an EU member state. In practice, this has not happened, and, given the dynamics of ACP–EU relations and the power differences between them, it is unlikely to happen in future. Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 155–175. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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for political dialogue on the performance of the parties to ACP–EU agreements in the areas of fundamental human rights, democratic principles, and good governance calls for special attention. ACP and EU emphasis on the political dimension of development processes grew rapidly, particularly during the 1990s. Under the Lomé IV and Lomé IV-bis Conventions, an interesting practice of ever-more-regular and structured political dialogue started to take shape. That practice was facilitated by increasingly elaborate substantive and procedural Lomé Conventions provisions, primarily those that addressed the role of human rights, democratic principles, the rule of law, and good governance in development policy and development cooperation. These treaty provisions also set out the means through which these objectives could be pursued in ACP–EU relations. The ACP–EU Partnership Agreement signed in June 2000 in Cotonou, Benin, strongly aims to expand the phenomenon of political dialogue. Much more explicitly than before, the Cotonou Agreement posits political dialogue as a firm basic pillar of the ACP–EU partnership, alongside development assistance and economic and trade relations (Article 2).2 The dialogue shall cover all the aims and objectives of the Cotonou Agreement ‘as well as questions of common, general, regional or sub-regional interest’, according to Article 8(3). A basic premise underlying the partnership is the acknowledgement in the preamble ‘that a political environment guaranteeing peace, security and stability, respect for human rights, democratic principles and the rule of law, and good governance are part and parcel of long-term development’. An important related breakthrough brought about by the Cotonou Agreement is its opening up to civil society actors. In recognition of their ‘complementary role…and potential for contributions…to the development process’, the preamble further states that non-state actors shall, in the future ‘where appropriate’, be informed and consulted on ACP–EU cooperation policies, strategies, and priorities. They can also be involved in implementation efforts, and can be provided with financial resources and capacity-building support (Article 3). Under the Cotonou Agreement, civil society involvement also extends to ACP–EU political dialogue. This chapter analyzes the proposed expansion of political dialogue under the Cotonou Agreement in order to gain an insight into its prospects for success. It first reviews the historical record, in order to gain an insight into the effectiveness of ACP–EU political dialogue in the past and the conditions that have to be met in order to make such a dialogue a (more) meaningful 2

Cotonou Agreement (2000), preambular paragraph 4.

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exercise. It is followed by a general analysis of the most important features of the Cotonou framework for political dialogue. Thereafter, the post-Lomé IVbis practice and climate in this realm of ACP–EU relations is examined. Two examples of collective ACP–EU political dialogue (respectively, on the Cotonou negotiations on migration issues, and on the accession of Cuba to Cotonou), and three selected cases of recent political dialogue between the EU and individual ACP countries (Haiti, Fiji, and Côte d’Ivoire) are briefly analyzed for this purpose, on the basis of published written statements by the parties involved. The three cases covered illustrate both potential incentives and potential obstacles to the broadening of ACP–EU political dialogue in the future. Which of the two prevails, incentives or obstacles, depends primarily on the real agendas and the level of commitment on the sides of ACP and EU states, and the institutions that are involved in implementing the Cotonou Agreement once it enters into force. The conclusion of this chapter attempts to assess where the balance will tip in order to shed light on the question of whether the dialogue envisaged in the Cotonou Agreement could become a (more) effective instrument to help create an environment that is (more) conducive to development. 2. ACP–EU Political Dialogue in the Past The ACP and the EU have a uniquely long joint history of political dialogue to draw on.3 For roughly three decades, that is, since the mid-1970s, political aspects such as human rights and democratic principles have been the subjects of various degrees of such a dialogue. At the time, the flagrant violations of the most basic human rights in countries like the Central African Republic, Equatorial Guinea, and Uganda were the immediate causes. These atrocities sharply raised awareness in governmental and non-governmental circles in Europe of the intricate and complex relationship between development cooperation and human rights. More specifically, they gave rise to challenging questions and criticism from civil society organizations and from the European Parliament about the ways in which the European Commission and Council of Ministers handled the dilemmas involved. At first, instances of ACP–EU political dialogue were scattered, conducted in an ad-hoc manner, and reserved for only the most serious negative human rights or democratic conditions. The EU at times found it necessary to unilaterally resort to punitive measures against ACP countries, in 3

This section is entirely based on earlier research done by this author, as published in Arts (2000).

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response to disrespect for human rights, for democratic principles, and later on, also for good governance norms. However, as a result of ACP–EU interaction over time, political dialogue matured and became a regular feature of their development cooperation relationship. Influenced by the end of the Cold War and the positive changes in the human rights or democratization record of a considerable number of ACP countries during the 1990s, the scope for discussion widened. In the spirit of a more constructive cooperation, among others, it came to include attention for the identification and application of positive measures in support of developments conducive to increasing respect for human rights, democracy or governance in ACP countries. Ever more precise and elaborate legal and procedural arrangements were created for conducting the enhanced positive and negative political dialogue in practice. These arrangements will be presented in the next section of this chapter. In this way, the resulting ACP–EU political dialogue framework gradually built up at least some limits to, and checks on, EU unilateral action in the domain of development cooperation and human rights-related concerns. My earlier more elaborate study of the historical record of ACP–EU human rights dialogue identified a set of preconditions to be met for the effectiveness of that dialogue to be maximized.4 These preconditions apply to other instances of political dialogue as well. At the most basic level, one needs to be clear and in agreement about what the standards to be met or the commitments entered into are. Then, in order to take a position in an adequate, responsible, and timely manner, in the sense of forming and expressing an opinion on the situation involved, a solid and accessible set of information is required. Adequate consultation between relevant ACP and EU actors increases commitment to the priorities set and solutions opted for, and thereby significantly enhances the overall chances of success. Despite the rather unique headway made in ACP–EU political dialogue, certainly when compared to other fora, on all accounts (standards, information, and consultation), major shortcomings still exist. The mutually agreed standards are very general and require (and allow) flexible interpretations in varied situations. Position-taking generally leaves a lot to be desired, for example, in terms of the level of detail, clarity, or timeliness. The matter of gathering and systematically assessing reliable and quality information on the human rights situation in relevant countries has received too little attention. As regards consultation, the EU and ACP Councils of Ministers only created the first signs of a genuine consultative practice on serious human rights problems in 4

Ibid., p. 209.

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July 1998.5 This failure to meet the basic identified preconditions for effective dialogue takes root in a mosaic of more fundamental obstacles. These arise, among others, from the inherent inequality of the ACP and EU actors, and from their inconsistent behavior resulting from pursuing multiple interests and aims at the same time.6 The paper commitment to ACP–EU political dialogue has been significantly strengthened over time, through the adoption of increasingly detailed treaty provisions on the matter. However, the above-mentioned shortcomings of the practice of political dialogue during the period up to the Cotonou Agreement provide ample reasons for concluding that the relevant ACP and EU actors would be well advised to concentrate on actually realizing their paper commitment by ensuring that the basic preconditions for effective political dialogue will be met soon. Rather than adopting new substantive treaty provisions on new topics, this would entail: a more detailed interpretation of the general standards agreed upon; considering the option to develop a system for assessing the human rights, democracy, or governance situation in a particular state; finding ways to enhance the depth of ACP–EU human rights-related consultations; reducing inconsistencies in policy making and implementation; and allocating resources for building up an adequate information base and other practical facilities required to support an effective political dialogue. The remaining sections of this chapter will explore the extent to which the content of the Cotonou Agreement and recent practice show points of departure for the future realization of the long-standing paper commitments to, and the basic preconditions for, genuine ACP–EU political dialogue. 3. Political Dialogue in the Cotonou Agreement: The General Framework At the beginning of February 2000, ACP and EU states put an end to 18 months of tough negotiations on the framework for ACP–EU relations during the period 2000–2020. According to the ACP General Secretariat, ‘[t]he final two rounds of negotiations, marked uncharacteristically by extended periods of negotiating recess to allow for internal EU consultations, were almost derailed by political issues–good governance and the extension of EU migrant and repatriation policy to the ACP states’.7 As stated before, the formal end result of this difficult process is a prominent role for political 5 6 7

Ibid., pp. 285–287. Ibid., pp. 364–374. ACP Press Release (no date).

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dialogue in the Cotonou Agreement, elaborated in a set of comprehensive treaty provisions that set out the objectives, substance, and procedures for that future dialogue. The compromise struck by the Cotonou negotiators consists of a confirmation of elements that were already contained in previous Lomé Conventions, combined with new items. According to Article 1 of the Cotonou Agreement, its main objective, still, is to promote and expedite the development of ACP states. New is the stipulation that the objective will be pursued in order to contribute to peace and security and to promote a stable and democratic political environment. Equality of the partners, ownership of development strategies, broad participation in the partnership, dialogue and mutual obligations, and differentiation and rationalization are all supposed to be ‘fundamental principles’ in exercising ACP–EU cooperation (Article 2). Except for the first two listed principles, all are new. The Lomé principle of ‘security of their relations based on the acquis of their system of cooperation’ 8 was dropped. Whereas in Lomé IV-bis explicit references to political dialogue were tucked away in one paragraph at the end of the article that spelled out the 9 mandate of the ACP–EU Council of Ministers, Cotonou shows an important qualitative change. All politically oriented provisions are grouped together in 10 one separate Title called ‘The political dimension’. This title opens with an elaborate general statement on the objectives and scope of the envisaged political dialogue, and the participants therein. According to Article 8, the Cotonou parties shall ‘regularly engage in a comprehensive, balanced, and 11 deep political dialogue leading to commitments on both sides’. The language used clearly indicates that the envisaged political dialogue is not an exercise without obligations. The objectives of this dialogue are multiple: ‘to exchange information, to foster mutual understanding, and to facilitate the establishment of agreed priorities and shared agendas’. Furthermore, it is meant to facilitate ACP–EU consultations within international fora, and to prevent recourse to the non-execution clause, that is, the possibility to suspend the Cotonou Agreement in response to serious violations of, among others, human rights or democratic principles. Article 8(3) sets such a wide 8

9

10 11

See Lomé IV-bis (1995), Article 2. This principle had been guaranteed since Lomé III (signed in December 1984). Its deletion can be seen to reflect the loss of comparatively privileged status that the ACP countries were confronted with since Lomé IV-bis. Lomé IV-bis (1995), Article 30(3), according to which the Council of Ministers ‘shall conduct an enlarged political dialogue’ for which the parties ‘shall organize themselves to ensure an effective dialogue’. Cotonou Agreement (2000), Title II of Part 1. Emphasis added.

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scope for political dialogue within the Cotonou framework that, basically, any subject could be addressed. Environment, gender, migration, and cultural heritage are slightly emphasized over other options. Article 8(4) clarifies a bit more what sorts of issues are to be taken up for political dialogue. It refers to: ‘specific political issues of mutual concern or of general significance for the attainment of the objectives of this Agreement, such as the arms trade, excessive military expenditure, drugs and organized crime, or ethnic, religious, or racial discrimination. The dialogue shall also encompass a regular assessment of the developments concerning the respect for human rights, democratic principles, the rule of law, and good governance.’

Article 8(5) adds two other items to the potential agenda for dialogue, namely, policies to promote peace and policies concerning violent conflict. There are no requirements of form. Rather, according to Article 8(6): ‘[d]ialogue shall be formal or informal according to the need, and conducted within and outside the institutional framework, in the appropriate format, and at the appropriate level’. It is specifically provided that representatives of civil society organizations, alongside regional and sub-regional organizations, 12 ‘shall be associated with’ political dialogue under the Agreement. A second key component of ‘the political dimension’ of Cotonou consists of a set of essential elements and a procedure for addressing problems in these domains. As in Lomé IV-bis, respect for human rights, democratic principles, and the rule of law are essential elements of the Cotonou Agreement. This entails that, in case one such element is seriously violated by a state party, the other state parties may eventually, and in principle, after a prescribed consultation procedure only, suspend the Cotonou Agreement in response (Article 9.2 and 96). The unique Cotonou consultation procedure is an enhanced version of what was first created by Lomé IV-bis. Except in ‘cases of special urgency’, it entails that, if in the view of a state party to the Cotonou Agreement another state party has failed to meet any of the essential elements, the former can invite the latter to hold consultations ‘that focus on the measures taken or to be taken by the party concerned to remedy the situation’, according to Article 96(2a). In case no agreement is reached, or consultations are refused, ‘appropriate measures’ might be taken. Primarily as a result of continuous ACP insistence on the need to provide greater protection to states that are subjected to the consultation mechanism, a number of important new procedural guarantees were built into the Cotonou 12

Ibid., Article 8(7). For further information on the position of civil society actors, see also Articles 4, 6, and 9(4).

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Agreement. Rather than simply inviting the other party for consultations, as was the case under Lomé IV-bis, Cotonou Article 96(2a) now requires the party initiating the consultation procedure to ‘supply the other party and the Council of Ministers with the relevant information required for a thorough examination of the situation with a view to seeking a solution acceptable to the parties’. This requirement builds an extra check into the procedure and increases legal certainty, as the allegations on failure to meet one or more of the essential elements will have to be supported by relevant information, transferable to both the state party involved and the ACP–EU Council of Ministers. According to the same Article 96(2a), the consultations are bound to start, at the latest, 15 days after the invitation and will last no longer than 60 days. Under Lomé IV-bis, the consultation period was limited to thirty days. In practice, this proved too short, given the complexity of average consultation procedures and the serious implications of their potential outcome. Another improvement over Lomé IV-bis lies in the fact that the Cotonou Agreement defines the term ‘cases of special urgency’, which is the exception clause to the application of the consultation procedure, right in the relevant article—Article 96(2b)—as ‘exceptional cases of particularly serious and flagrant violation of one of the essential elements…that require an immediate reaction’. While Lomé IV-bis employed almost the same definition, this was only declared in Annex LXXXIII to that convention. Incorporation of this explanation in the treaty provision proper leads to a clearer (both in terms of content and legal status) and more streamlined legal text. Finally, the Cotonou Agreement also elaborates on the concept of ‘appropriate measures’, which may be taken in case consultations do not bring results, and which were not defined at all in Lomé IV-bis. According to Article 96(2c) of Cotonou, these are ‘measures taken in accordance with international law, and proportional to the violation’. Priority must be given to measures ‘which least disrupt the application of’ Cotonou. As was the case in Lomé IV-bis, suspension of the Partnership Agreement is deemed to be ‘a measure of last resort’. While these features of ‘appropriate measures’, in themselves, reflect the basics of general international law on the matter, their incorporation into the Cotonou Agreement again strengthens legal certainty and provides an explicit possibility for review of any actual measures taken in response to breaches of essential elements. Concerning the substance of the essential elements in ACP–EU relations, the previously undefined ‘democratic principles’ and ‘the rule of law’ are now defined in the Cotonou Agreement. This is another clear improvement over Lomé IV-bis. According to Cotonou Article 9(2), democratic principles are 162

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‘universally recognized principles underpinning the organization of the state to ensure the legitimacy of its authority, the legality of its actions reflected in its constitutional, legislative, and regulatory system, and the existence of participatory mechanisms’. The fact that democracy may have many different forms is acknowledged in the same provision with the observation that, ‘[o]n the basis of universally recognized principles, each country develops its democratic culture’. In Article 9(2), it is stated that the rule of law is the foundation for ‘the structure of government and the prerogatives of the different powers…which shall entail, in particular, effective and accessible means of legal redress, an independent legal system guaranteeing equality before the law, and an executive that is fully subject to the law’. Similarly, good governance is now defined as well. According to Cotonou Article 9(3), it is: ‘the transparent and accountable management of human, natural, economic, and financial resources for the purposes of equitable and sustainable development. It entails clear decision-making procedures at the level of public authorities, transparent and accountable institutions, the primacy of law in the management and distribution of resources, and capacity building for elaborating and implementing measures aiming, in particular, at preventing and combating corruption.’

Compared to Lomé IV-bis, Cotonou has increased the status of good governance from ‘a particular aim’ to a ‘fundamental element’ of ACP–EU cooperation.13 This enhances its legal status, but like before, keeps governance requirements at a lower profile than the essential elements. Most importantly, this means that failure to meet the general good governance standard prescribed in the Cotonou Agreement will not give rise to the consultation procedure and/or appropriate measures. However, it was agreed in Article 97 that, in situations where the EU is ‘a significant partner in terms of financial support to economic and sectoral policies and programs, serious cases of corruption should give rise to consultations’ and might lead to punitive measures against the ACP state in question. In sum, the Cotonou Agreement consolidates and deepens the arrangements for political dialogue of its predecessor. It elaborates a number of components, which will be useful for making future ACP–EU political dialogue (more) fruitful. Here one should consider the clearly more prominent status of the political dimension of ACP–EU cooperation, expressed, for example, through the inclusion of an elaborate separate treaty 13

Lomé IV-bis (1995), Article 5(1); Cotonou Agreement, ibid., Article 9(3).

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title on it. The broadened scope and the essentially unlimited list of topics for dialogue clarify the potential agenda and ensure the possibility to raise and address any important aspect that might arise for ACP and EU states. The definition of previously undefined key concepts, and the new procedural guarantees relating to the provision of information and extending the duration of the consultation procedure are useful innovations too. On the other hand, the Cotonou Agreement also incorporates changes that are not likely to promote increased effectiveness of ACP–EU political dialogue in the future. Civil society actors are portrayed as having a role in that dialogue. Unfortunately, neither Cotonou nor the Compendium attached 14 to it provides any details at all as to what exactly that role would be and how it should be performed. While as such civil society involvement could certainly be very useful, simply writing the option into the agreement without any further specification is not helpful. To the contrary, it raises many queries and potentially complicating factors. Of still greater significance in this respect, however, is the inclusion of good governance as a new, so-called ‘fundamental element’. This legal qualification did not exist before, and caused fierce disagreement during the negotiations between the ACP and EU states on the status of good governance norms in Cotonou. The EU initially wanted ‘good governance’ and ‘corruption’ to feature as essential elements of the new agreement. The ACP strongly resisted this and, among others, argued that if corruption were to be included, bribery should be accorded the same 15 treatment. Overall, the ACP, in the end, criticized the EU for simply pushing its own agenda and felt steamrollered. They expressed this in a rather unusual press release by the ACP General Secretariat ‘on the conclusion of the successor agreement to the Lomé Convention’, which was issued just after Cotonou negotiations had ended. According to the ACP Ministerial 16 negotiators: ‘The ACP, after reviewing the texts agreed during the December negotiations, attempted to amend them because they found them to be imbalanced as a result of the overemphasis given to EU objectives, particularly political objectives, while those of the ACP—such as development—were often ignored. Some 14

15

16

In an attempt to streamline the text of the Cotonou Agreement proper, a so-called Compendium has been designed ‘to complement, specify, or develop’ the main text of the agreement and to provide policy or operational guidelines for implementation in specific areas or sectors of cooperation. See Commission of the European Communities (2000a). Bribery is now referred to, in Cotonou Article 9(3), as an example of the serious cases of corruption, which are supposed to be avoided through good governance. In Article 97, which sets out the consultation procedure to be followed in serious cases of corruption, bribery is not explicitly mentioned. ACP Press Release (no date).

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Political Dialogue in a ‘New’ Framework attempt was made to remedy this criticism, but the text still is unbalanced, with EU objectives not only repeated ad nauseam, but often elaborated, whilst those of the ACP, such as the arms trade and the EU’s role in this, do not merit a mention.’

This statement seems not to augur well for the future of political dialogue in the Cotonou framework. After all, it suggests a lack of joint priorities and common commitment, and it seems to confirm that the inherent inequality between the groups of states involved is a seriously complicating factor. Unfortunately, all in all, the positive achievements of some of the new treaty provisions have perhaps lost much of their glory as a result of fierce clashes over the details of the Cotonou articles on political dialogue in general, and topics such as good governance or migration, in particular. The negotiations on migration will be explored in the next section, as one example of actual ACP–EU political dialogue in practice. In addition, exchanges on the accession of Cuba to the Cotonou Agreement, and the invocation of human rights-related consultation procedures as a result of the provisional application of Articles 9 and 96 of the Cotonou Agreement will be reviewed. 4. Post-Lomé IV-bis Practice in ACP–EU Political Dialogue Two important topics that gave rise to significant collective ACP–EU political dialogue in the post-Lomé IV-bis era are migration issues and the accession of Cuba to the Cotonou Agreement. ACP–EU Dialogue on Migration Apart from trade and good governance, perhaps the most controversial subject of the Cotonou negotiations was migration. While migration, as such, is not a new topic in ACP–EU relations,17 the main text of the Cotonou Agreement for the first time includes a very elaborate general provision on it. Article 13 combines elements from previous Lomé Conventions with a few striking new insertions. The references in Article 13(2 and 3) to fair and nondiscriminatory treatment of third country nationals, to combating racism and xenophobia, and to non-discriminatory treatment of workers with ACP or EU nationality, all touch familiar grounds. They are followed by a number of entirely new provisions. Strategies for poverty reduction, for improvement of 17

For an analysis of trends in ACP–EU political dialogue on migration issues in the past, see Arts (2000: 260–264). For an overview of earlier treaty provisions on the matter, see ibid., pp. 179–180 and 184– 185.

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living and working conditions, for employment creation, and for training (a major part of ACP–EU development cooperation) are seen as directly contributing ‘in the long term to normalizing migratory flows’ in Article 13(5a). The Joint ACP–EU Council of Ministers is mandated to address illegal immigration in the political dialogue framework, in order to come to a preventive policy. Yet one remarkable step further is made in Article 13(5ci) where the obligation is introduced to accept, on request and without further formalities, the return and readmission of one’s nationals who are illegally present in the territory of an ACP state (in the case of EU nationals) or that of an EU state (in the case of ACP nationals). The statement in 13(5b) that ‘the Parties agree in particular to ensure that the rights and dignity of individuals are respected in any procedure initiated to return illegal immigrants to their countries of origin’ is cold comfort. The EU has also used the Cotonou Agreement as an instrument to pave the way for concluding bilateral agreements on readmission and return of nationals. According to Article 13(5cii), such agreements can even cover, ‘if deemed necessary by any of the Parties, arrangements for the readmission of third country nationals and stateless persons’, that is, non-nationals. Obviously, these Cotonou provisions on migration are the result of very difficult negotiations, in the same vein as what was observed above on the cluster of issues involved in good governance, corruption, and bribery. The original proposals of the EU went beyond what was ultimately agreed, and apparently extended to mandatory repatriation and remigration agreements on request of the Union, and to the return of legal migrants. On the latter aspect, ‘the EU negotiators subsequently contended that this category had been included in error’.18 More specifically, the initiative to incorporate references to the readmission of third country nationals and stateless persons created ill feeling. The ACP negotiators expressed their opinion on the course of events in a very clear manner in the aforementioned press release issued by the ACP General Secretariat: ‘When the full import of the latter proposals, in particular, were exposed to the ACP Ministers, there was growing indignation. The Group felt that the EU was seeking to have them agree to arrangements that were, in some cases, illegal, and in others, far more than the EU had required of other partners with whom such agreements had been concluded…The EU claimed that a recent Council decision enshrined in Community regulations now requires them to take this approach, but the clear breaches of international practice could not be defended, and the burden that such an easy facility would impose on the ACP states undermined 18

ACP Press Release (no date).

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The tone and content of this statement, which was published just after the Cotonou negotiations had ‘successfully’ ended in compromise, clearly indicate that the ACP and EU states are far apart in their ideas on the place of migration issues in their cooperation relationship, and about the means to be(come) active on them. The uncompromising ‘take-it-or-leave-it’ attitude of the EU of ensuring that its positions, especially on migration, are adopted in the Cotonou Agreement, created resentment among ACP countries, as also noted earlier in Chapters Two and Three. Forcing through such a controversial topic, which clearly reflects a unilateral EU agenda much more than a joint ACP–EU agenda, is not likely to enhance the climate for mutual dialogue on the same or other topics in the future. ACP–EU Dialogue on Cuba Another interesting example of recent ACP–EU collective political dialogue is the issue of the accession of Cuba to the Cotonou Agreement. Cuba is the only country in its region with which the European Union has no cooperation agreement as yet. The reasons obviously lie in the political nature of Cuba’s current regime.20 Since December 1996, a string of EU common positions on Cuba has made the intensification of relations conditional on positive changes in the sphere of human rights and democracy.21 However, when Cuba was allowed to be part of the Cotonou negotiation process by being granted official observer status, an opening towards accession was seemingly created. Cuba, itself, clearly indicated its desire to sign on to the successor agreement to Lomé IV-bis, and the ACP–EU Joint Assembly and the ACP Group were strongly in support of Cuba’s accession.22 While the opinions of the EU member states differed, with France and Southern EU member states in favor, and the Netherlands and Scandinavian countries against Cuba’s accession at that stage, an exploratory EU Presidency Troika visit was

19 20 21

22

Ibid. See, e.g., Mouradian, 2001 and Lister, 1997: 166–168. Common Position of 2 December 1996 on Cuba, regularly renewed since. See, e.g., Official Journal, L 322, 12 December 1996, pp. 1–2, and Official Journal, L 286, 30 October 2001, p. 1. See, e.g., Agence Europe (15 October 1999: 12). The second ACP Summit, in the ‘Santo Domingo Declaration’, welcomed the CARIFORUM wish that Cuba be an ACP country and a signatory to the new ACP–EU Convention, Agence Europe (8 December 1999: 2, preamble, 2nd paragraph). See also Agence Europe (27 and 28 March 2000: 14) and the reference to the renewal of Cuba’s application for accession in March 2000 in ACP Press Release (27 April 2000).

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scheduled for the end of April 2000.23 However, Cuba cancelled this visit at the last minute, in response to EU support for a resolution against Cuba passed by the UN Commission on Human Rights. A few days thereafter, Cuba formally withdrew its application for accession to the ACP–EU Partnership Agreement.24 The ACP Group strongly and openly regretted the course of affairs. It invited Cuba to attend the ACP Council of Ministers meeting preceding the signature of the Cotonou Agreement in June 2000. At the meeting, it became clear that there was, in principle, agreement among the ACP states to admit Cuba as a member of the ACP Group, as the first (and most likely, the only) 25 non-signatory to the ACP–EU cooperation agreements. In August 2000, the ACP Group sent a high level mission to Cuba, for purposes of expressing solidarity, and to assess the situation, especially the options for renewed political dialogue between Cuba and the EU.26 The ACP mission found out that a main reason why Cuba withdrew its accession application was that, in its view, it: ‘had been subjected to discriminatory treatment which had never before been applied to other candidate countries.…The EU `Troika´ had stated that its visit to Cuba was a fact-finding mission, after which the EU would make a decision regarding Cuba’s entry into the ACP–EU partnership. According to Cuban authorities, such a procedure had never been applied before to any other country. The Cuban authorities confirmed, nonetheless, that they are still interested in becoming a member of the ACP Group and acceding to the Cotonou Agreement, on condition that the EU refrains from imposing any prerequisite conditions on the country.’

In the view of the ACP Group, accordingly, Cuba then had ‘declared its willingness to dialogue now with the Europeans who, therefore, now have the ball in their court’.27 Finally, in December 2000, Cuba was formally admitted to the ACP Group. With Cuba’s admission to the ACP group, the Cuba saga reached a temporary stalemate. From the perspective of the broader prospects for ACP– EU political dialogue, there were a few interesting aspects to this phase of the dialogue on Cuba. First, it is clear that the ACP countries have managed to forge a strong alliance among themselves in relation to the position of Cuba 23 24 25 26 27

Agence Europe (1 April 2000: 5). Agence Europe (29 April 2000: 9) and ACP Press Release (27 April 2001). Agence Europe (11 May 2000: 6) and (23 June 2000: 5). ACP Press Release (4 August 2000). Ibid.

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vis-à-vis the ACP Group and the European Union. Strong expressions of solidarity with Cuba were extended throughout the year preceding the country’s admission to the ACP Group. And, after the breakdown of EU– Cuban dialogue as a result of Cuba’s withdrawal, the ACP were even prepared to take the unprecedented step of admitting the country as a new member. Never before had a country that is not a party to the ACP–EU cooperation treaty been permitted to do so. In fact, the constituent document of the ACP Group, the ‘Georgetown Agreement’, had to be formally amended in order to allow for Cuba’s membership.28 Thus, and that is the second aspect of this case that is relevant to overall prospects for future ACP–EU political dialogue, the ACP Group and ACP states have shown determination and creativity in finding a way to accommodate Cuba within ACP ranks, regardless of the position of the EU. While this, of course, was by no means a satisfactory solution for the broader issue, at least a clear and independent ACP line was set, followed through, and in the end, turned into a concrete measure. It had been quite a while since the ACP group asserted itself as such.29 Perhaps this heralds a shift back to the ACP taking a strong position and a collective political determination to counter certain EU stands. If that were the case, the implications for future ACP–EU political dialogue would be significant. ACP–EU Dialogue with Individual ACP Countries Apart from collective political dialogue in the post-Lomé IV-bis era, there are all sorts of examples of such dialogue with individual ACP countries as well. The formal, human-rights-related, consultation procedures are of special interest in this regard. On the basis of some recorded written statements by the parties involved, the examples of Haiti, Fiji, and Côte d’Ivoire will be briefly reviewed below, in further illustration of the overall climate for ACP– EU political dialogue. All three cases came about as a result of the provisional application of Article 96 of the Cotonou Agreement.30

28 29

30

Agence Europe (15 December 2000: 4); ACP Press Release (14 December 2000). See Arts (2000: 355). During the 1970s and 1980s, the ACP managed for a long time to resist inclusion of human rights references into the Lomé Conventions. They also maintained a strong position against the lenient EU policy on apartheid, and concerning the position of ACP migrant workers and students in Europe. For the terms of the transitional arrangement until the formal entry into force of the Cotonou Agreement, see Official Journal L 195, 1 August 2000, pp. 46–48.

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By the end of September 2000, a consultation meeting took place between the EU and Haiti. The consultation process was initiated by the EU, in response 31 to irregularities during the elections in Haiti earlier in the year. Soon it became clear that there was a relatively sharp ACP–EU division on the significance of the irregularities involved, and, more generally, on the reading of the situation in Haiti and the necessity for, and appropriateness of, sanctions. The representatives of Haiti and of fellow ACP countries, Dominican Republic and St. Lucia, stressed the need for a supportive attitude, that is, ‘to help Haiti improve its capacity to organize elections and 32 consolidate its democracy’ rather than impose sanctions. The EU representatives were not convinced. Apparently, without further meetings taking place, the Union then unilaterally broke off consultations with Haiti at the end of January 2001. It imposed severe sanctions. The second tranche of the financial resources available for Haiti under Lomé IV-bis (EDF 8) was withheld. Direct budget aid was stopped. The remaining resources of the first tranche under EDF 8 were redirected to ‘projects that are of direct benefit to the Haitian people, to strengthen civil society and the private sector, and are liable to support democratization and underpin the rule of law’, and the 33 procedure for allocating resources under EDF 9 was halted. The course of affairs during the Haiti consultation process was severely criticized by the ACP group; for example, in a statement published in early February 2001:34 ‘The ACP General Secretariat was of the view that the consultation procedures under Article 96 of the Cotonou Agreement must be clearly defined. In this particular case in point, it regretted that only one formal meeting has been held between the two parties. The discussions the EU representatives are said to have held in Haiti without any notification to the Haiti side, which was, therefore, not prepared to explain, cannot be considered as being within the framework of the consultations enshrined in Article 96 of the Cotonou Agreement. The aim of consultations being to remedy a situation, and sanctions being a last resort, the ACP Secretariat hereby strongly appeals to the European side to engage in true consultations with Haiti, whose economic situation is already in a very precarious situation.’

31 32 33

34

Commission of the European Communities (2000b). Agence Europe (29 September 2000), ACP Press Release (27 September 2000). EU Council Decision 2001/131/EC, Brussels, 29 January 2001, Official Journal L 48, 17 February 2001, pp. 31–32. ACP Press Release (5 February 2001).

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This statement, in effect, amounted to an ACP vote of ‘no confidence’ in the way the EU chose to implement Article 96 of the Cotonou Agreement on the consultation procedure in relation to Haiti. It strongly challenged the Union’s behavior towards Haiti and called for ‘true consultations’ in the future. All in all, the Haitian case under review seems to have been a textbook example of failure to implement the Cotonou Article 96 consultation procedure in a constructive and proper way. FIJI

Also at the request of the EU, formal consultations were held with Fiji in midOctober 2000 in response to a coup. During the consultation meeting, Fiji reportedly handed a dossier to the EU on the measures it had adopted for a return to constitutional rule. It apparently replied convincingly to most EU questions. In response, the EU took note of Fiji’s good intentions, pointed out a number of priority tasks to be performed (among others, restoring the Constitution and bringing the authors of the coup to justice), and expressed its plan to pursue the dialogue and to examine Fiji’s request for additional aid ‘in the light of the development of the political situation’. The representative of Fiji ‘welcomed the outcome of this initial phase of consultations’. He even stated that he ‘found nothing negative in the EU’s final statement’. The ACP 35 Group’s representative also expressed satisfaction with these consultations. In April 2001, the EU Council of Ministers formally ended the consultation procedure. In view of the specific commitments made by the Fijian authorities in the course of the consultation procedure, and the generally positive developments in Fiji since October 2000, the Council decided to resort to relatively mild countermeasures. Ongoing development cooperation, trade, regional and humanitarian projects were left untouched. However, notification of the allocation of Cotonou resources for Fiji, and the financing and implementation of new projects from Lomé EDF funds were postponed until 36 elections had taken place (planned for the end of August 2001). Clearly, the Fiji consultation process was conducted in a much more constructive atmosphere than was the case in the Haitian consultations. Parties seemed genuinely prepared to listen to the various arguments on both sides and managed to arrive at a mutually acceptable outcome.

35 36

ACP Press Release (19 October 2000). EU Council Decision 2001/334/EC, Brussels, 9 April 2001, Official Journal L 120, 28 April 2001, pp. 33–35.

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CÔTE D’IVOIRE In February 2001, Article 96 was invoked to start a consultation procedure for Côte d’Ivoire, because of human rights violations, and irregularities and violence during presidential and legislative elections. Côte d’Ivoire handed a memorandum to the EU and reportedly handled EU questions reasonably well. Throughout, the ACP Group’s representative emphasized strongly that the objective of the consultation procedure was to remedy problems, and not to apply sanctions. The EU representative ‘considered this demand completely justified and registered his agreement for the consultations on Côte d’Ivoire to be conducted in keeping with the rules governing real 37 political dialogue’. The ACP Secretariat was particularly ‘very pleased at the will to dialogue which underscored the launching of these consultations’ and ‘satisfied that the European Union has recognized the pertinence of its 38 demands concerning the procedures for political dialogue’. This resulted in a joint decision ‘to extend the consultations for three months and to jointly 39 assess the progress achieved at the end of that time’. Reportedly, intensive dialogue continued during the following months. Finally, by the end of June 2001, the EU Council of Ministers formally ended the consultation process. Convinced of the goodwill of the authorities involved, and in reward of concrete measures taken to improve the situation in Côte d’Ivoire, the Council decided to gradually resume cooperation, including the allocation of 40 EDF 9 resources. The Côte d’Ivoire consultations also seemed a positive experience, which led to a mutually acceptable outcome. 5. Conclusion: the Prospects for Future ACP–EU Political Dialogue The three cases covered in this chapter show both potential incentives and potential obstacles for ACP–EU political dialogue to expand in the future. The historical record of ACP–EU political dialogue clarifies that the phenomenon is not new to ACP–EU relations at all. In fact, the experiences of the past provide a rich learning ground for the future. If taken seriously, they can be a great aid in improving the quality of ACP–EU political dialogue. For example, the historical record helps to identify a number of preconditions that need to be met in order to realize a truly effective political dialogue. These preconditions evolve around the need to create effective implementation tools. These include: standards which are detailed enough for practical application without too wide 37 38 39 40

ACP Press Release (16 February 2001). Ibid. Ibid. EU Council Decision 2001/510/EC, Brussels, 25 June 2001, Official Journal L 183, 6 July 2001, pp. 38–41.

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a scope for interpretation; genuine consultation of all relevant parties; a solid information base for assessing the human rights situation in particular countries; and other practical support facilities. Some of the Cotonou Agreement provisions on political dialogue improve the prospects for ACP–EU political dialogue in the future. These include the ones that clarify the meaning of a number of central concepts in the political dialogue arrangements, such as democratic principles, the rule of law, and good governance. Some new procedural guarantees, for example, on the provision of information to back up allegations of disrespect for any of Cotonou’s essential elements, reinforce the position of ACP countries that may be subjected to the consultation procedure. Such changes should be seen as positive, as they are clear efforts to create an environment in which the basic preconditions for effective political dialogue can be met. However, some other new Cotonou provisions in the Title on political dialogue could well undo this positive trend. The determination, with which the EU pushed through the adoption of new, and quite far-reaching, articles on good governance as a fundamental element of ACP–EU cooperation, and on migration, certainly deserves no price. A more patient attitude, of first testing out the Lomé IV-bis consensus system and applying it systematically in practice, could well have paved the way for a greater common ACP–EU ground in the future. On the basis of a proven record of ACP–EU political dialogue, it would, after all, be more convincing and more justified to argue for its expansion. The jump ahead forced through by the Union, at this stage, has understandably caused a lot of consternation among the ACP countries. The consequences of this course of affairs remain to be seen, but are likely to be negative and to manifest in terms of falling commitment and trust in the new political dialogue package. Post-Lomé IV-bis practice of ACP–EU political dialogue shows a varying picture as well. The dialogues on migration and on human rights and democracy in Haiti represent a pattern close to EU unilateralism, or in any case, clear failure to arrive at consensus visions. In regard to Cuba, the ACP managed to develop and stick to a common position on Cuba, independent of the position taken by the EU. In a sense, one could argue that here the ACP Group showed its own example of unilateralism, perhaps in a conscious attempt to break through the EU pattern of behavior. The consultation procedures on Fiji and Côte d’Ivoire seem to suggest that previous experiences with human rights consultation procedures enabled outcomes that were mutually acceptable to both groups, as a result of better preparation and a more genuine dialogue. Whether, ultimately, the incentives or obstacles to ACP–EU political dialogue will prevail will depend primarily on the real agendas and level of 173

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commitment on both sides. For the ACP, it is of utmost importance to strengthen their internal coalition building and the presentation of their positions on important subjects and/or country situations. For the EU, the primary challenge is to increase consistency. It cannot expect full cooperation from the ACP in political dialogue on human rights and related concerns without reciprocating in other areas of great (potential) importance to the ACP. After all, political dialogue is supposed to extend to all aims and objectives of the ACP–EU Partnership Agreement. A particularly poignant example in this respect was the process that led to the adoption of the ‘Everything but Arms’ (EBA) proposal, intended to offer extended trade preferences to all leastdeveloped countries. While a large number of least-developed countries are ACP countries, and the non-least-developed ACP countries are likely to be affected by the proposed extension of trade preference, the EU did not consult the ACP on the EBA initiative at all. As explained by Deputy Prime Minister Ms. Billie Miller of Barbados in her statement at the ACP–EU Council of 41 Ministers Meeting of 11 May 2001: ‘To turn to the Cotonou Partnership Agreement…—to be frank—if we are to be guided by what we have agreed in writing as honorable partnership, then the beginning is less than auspicious. We know that the EU is dedicated to the concept of ‘regional partnership agreement’; by the same token, we are dedicated to maintaining the solidarity of the ACP. Before the ratification by the EU and before the WTO waiver had been obtained, it did not sit well with us that the EBA was announced and without reference to us in the ACP—no consultation, as we agreed at Cotonou…Even before Cotonou is ratified, it appears that it is being undermined. We are glad of the benefits which will accrue to the LDCs, but at the same time, we are not disposed to permit the EBA to foment division among the ACP—the LDCs and the non-LDCs. But, at least some impact on Cotonou and the existing commodity protocols ought to have been considered from the onset…. There must be consultations on our problems. The North is not the only one depository of the wisdom on these matters.’

Another important issue to be tackled is the need to clarify the exact importance of ACP–EU political dialogue under the Cotonou Agreement, and its relationship to similar exercises in different fora. During the last couple of years, there has been a proliferation of political dialogue fora. For example, different groupings of African countries and the EU get together in political dialogue, among others, under the Cotonou Agreement, in the frame of the

41

ACP Press Release, 12 May 2001.

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Europe–Africa Ministerial Meetings and Africa–Europe Summits, in EU– SADC Ministerial Conferences, and ECOWAS–EU Ministerial Meetings. While dialogue in the sub-regional meetings is likely to be more general and focus more on regional issues than on national issues that are possibly discussed in the framework of Cotonou, there are limits to the level of commitment and resources that the states involved can and should make available for political dialogue. It is not clear how the various fora for political dialogue, involving different constellations of the same states, relate to each other, if at all, and whether the outcomes of the various dialogues actually inform each other. Either unnecessary overlap between them, or an entire lack of mutual cross-fertilization, could easily lead to political dialogue fatigue and futility. The years to come are likely to be another rich learning ground for ACP– EU political dialogue. The formal conditions for such a dialogue are now more advanced than ever before. Whether the material conditions will be created for a full realization of the envisaged dialogue to the satisfaction of all and for the sake of creating conditions conducive to development in ACP countries, will depend on the political will of the ACP and EU actors involved.

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Of which, the first one was held in Cairo in April 2000, and the second planned for Burkina Faso in 2002.

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Chapter 9

THE ROLE OF CIVIL SOCIETY IN THE COTONOU AGREEMENT Maurizio Carbone

1. Introduction One of the most innovative elements of the new Partnership Agreement between the European Union (EU) and the African, Caribbean, and Pacific (ACP) group, signed in June 2000 in Cotonou, is that it enshrines the principle of participative development. Contrary to the Lomé Conventions, which have often been considered a ‘closed shop’ reserved for central governments, the Cotonou Agreement extends partnership to a wide range of non-state actors. ACP governments continue to be responsible for determining the development strategy for their people; yet, non-state actors must be involved not only in project implementation, but also in political dialogue, planning, and evaluation of results. This change, which represents a radical departure from past practices, was influenced by three major factors. First, over the last decade, processes of political and economic liberalization in developing countries have created new space for non-state actors. Second, donor enthusiasm for nongovernmental organizations (NGOs) as agents of economic and political 

Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 177–195. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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development led to an expansion in their number and scale. Third, the decision of the EU to place poverty reduction as a central objective of its cooperation and development strategies made it essential for the new Cotonou Agreement to ensure the widest possible participation of all sectors of society. Although the term civil society is commonly used, there is still no consensus on a shared definition. While some scholars view it as the social area between the family and the state, others claim that actors in the market should be excluded. The Cotonou Agreement refers to ‘non-state actors’ to include both private bodies and civil society. As the role of the private sector is examined elsewhere in this volume, the analysis here will focus only on the role of civil society. By civil society organizations (CSOs), we mean those organizations that, enjoying autonomy from the state, do not only deliver services, but also seek to have a significant influence on public policy making. Indeed, the Cotonou Agreement, breaking with the tradition of the Lomé Conventions, takes into account the fact that many CSOs in the South have moved from a ‘supply-side’ approach, where they concentrated only on delivery of services or development projects, to a ‘demand-side’ approach, where they now seek to become more active participants in the development process.1 With this background in mind, this chapter reviews some of the major issues regarding participation in the ACP–EU cooperation strategies, analyzes their relevance in the context of the general debate on development policy, and assesses the main innovations introduced by the Cotonou Agreement compared to the Lomé Conventions. 2. Participation in the Context of the Lomé Conventions In post-war development strategies, the state was regarded as the motor of development: the state alone was thought to be capable of exercising leadership, forcing the rest of society, including the market, to conform. With decolonization, more power became vested in the newly independent states. The case for state-led development was built on a response to local circumstances: where market institutions and local entrepreneurs were weak, only state enterprises were capable of investing or taking over foreign-owned plants. The Lomé Conventions reflected these ideas and, indeed, almost no opportunities were provided for non-state actors. The only exception was constituted in a series of micro-projects which were introduced by Lomé I in 1

An extensive literature exists on the role of the civil society in developing countries. Amongst others, see Clark, 1991; Van Rooy, 1998; Fisher, 1998; Hulme and Edwards, 1997.

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1975 to finance small projects intended to affect positively the living standards of rural communities. This scheme, which ensured some degree of participation from decentralized actors, enjoyed only limited resources and faced too many implementing problems to really make a difference.2 Outside of the ACP–EU framework, the European Commission has been co-financing development activities proposed by NGOs for more than 25 years. The EU Budget line B7-6000 (‘Co-Financing with NGOs’), was set up in 1976 to enable the European Commission to support activities proposed by European NGOs specialized in development cooperation. These operations were intended to make a direct and lasting contribution to improving the living conditions and development prospects of the poor in developing countries. From 1979 onwards, a specific component for raising the awareness of the European public was introduced, with the purpose of mobilizing the European public in favor of strategies and activities that would have a positive impact on disadvantaged peoples in developing countries, in the framework of the fight against poverty. The B7-6000 budget line’s appropriation has been increasing annually. Usually, 90 percent of this line’s funds are allocated to co-finance various activities undertaken by NGOs and their partners in the developing countries, while the remaining 10 percent are allocated to co-finance activities to educate and raise the awareness of European public opinion on development issues.3 Decentralized Cooperation In the 1980s, state activism was subject to criticism. The new emerging consensus was that the state was too big, inefficient, and needed to be ‘rolled back’. The ideological impulse came from the election of conservative governments in the USA and the United Kingdom; the World Bank and the IMF added support to the idea that governments should not intervene where markets work.4 Development policy and aid transfers came to be dominated by what Robinson called the ‘New Policy Agenda’.5 This agenda varied from one donor to another, but it was driven by beliefs organized around the twin poles of neo-liberal economics and liberal democratic theory. First, markets 2 3

4 5

See Bossuyt, 1998. Randel and German (1999) provide an overview of the relationship between the European Union and northern NGOs; in their essay, they focus also on the history of the NGO–EU Liaison Committee (CLONG), which, over the years, has provided an important channel for dialogue on both development issues and practical matters related to the NGO co-financing program. Recently, the CLONG had been replaced by CONCORD, a new confederation of NGOs set ‘to keep development cooperation high on the political agenda of the European institutions’. See Rapley, 1996. See Robinson, 1993.

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and private initiatives were seen as the most efficient mechanisms for achieving economic growth and providing most services to most people. The growing recognition given to civil society by international donors was an important counterweight to some of these market-oriented strategies: donors thus supported civil society in providing services to those who could not be reached through the market. Second, the debate on good governance highlighted the need for pluralism and a prominent ‘people’s voice’ in national development planning. NGOs were seen as vehicles for democratization and essential components of a thriving civil society, which, in turn, was considered essential to the success of the New Policy Agenda’s economic dimension. The ‘myth of the state’ was thus shattered, opening up some grounds for non-state actors as the ‘myth of the market’ took control in the 1980s. As this unraveled in the late 1980s, a new myth was needed: ‘the myth of the market plus civil society’.6 Against this background, the EU introduced the concept of decentralized cooperation in 1990 in Lomé IV.7 Decentralized cooperation aimed at strengthening and diversifying the basis of long-term development in ACP countries by facilitating the involvement of non-state actors. It also implied a transfer of decision-making and management responsibilities to support initiatives that originated from the local communities and organizations. In contrast with the traditional NGO co-financing scheme, it was meant to directly fund Southern organizations, aiming also at reducing the number of ‘intermediaries’ in managing aid, by delegating responsibility for programs to the lowest level possible.8 Despite some initial optimism, the results were disappointing. First, many ACP governments felt that devolving responsibilities implied losing control over aid resources. Second, the European Commission itself was reluctant to come up with clear principles, eligibility criteria, and procedures to avoid conflict with ACP governments. Third, knowledge of the modalities of decentralized cooperation was extremely low among ACP civil society organizations. A recent commentary concludes that ‘on the whole, there has been a strong tendency to see decentralized cooperation as another instrument or funding line to support microlevel activities. It was seldom seen as a new approach to development cooperation’.9 6 7

8

9

See Hulme and Edwards, 1997. Desequelles (2000) points out how the political interest of the EU in a more participative development was also present in the re-negotiation of other EU cooperation agreement in the 1980s and 1990s (MEDA and ALA). See Bossuyt (1995, 1998, 2000) and Huggins (1997) to better understand the concept of decentralized cooperation. ECDPM (2001), Cotonou Newsletter No. 2: Mainstreaming Participation, Maastricht: ECDPM.

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In the midterm review of Lomé IV, the EU wanted to expand the level of resources for decentralization, but the ACP group opposed the idea. A compromise was found: with a view of broadening participation in formulating future indicative programs, a ‘Joint Declaration on the Consultation and Information of Agents of Development’ was agreed. According to the declaration, the ACP group would try to organize an ‘exchange of views’ with decentralized actors, and would provide ‘relevant information necessary for their participation in the implementation of the programmes’. This attempt to ‘democratize development’ by using the instrument of decentralized cooperation was strongly criticized by some scholars. Gordon Crawford, for instance, argued: ‘The EU’s ostensible objectives of promoting democratic practices and good governance would be undermined by its proposals to directly finance NGOs. Democratization is not enhanced by the removal of decision-making from the national arena to unelected and unaccountable external bodies. At worst, it can lead to the situation where donors become cast as the “alternative state”, taking on the role of patron and encouraging uncritical attitudes by civic groups through fear of exclusion from donor funds.’10

The Post-Lomé Debate in Europe The negotiation of a new convention between the EU and the ACP Group offered a new opportunity to discuss the issue of participation. The 1996 Green Paper on the future of the relationship between the EU and the ACP group envisaged a ‘more active participation by non-governmental bodies’, not limited to the implementation stage, but extended to dialogue on cooperation strategies.11 Following the publication of the Green Paper, the European Commission launched an extensive series of meetings with a wide range of actors, including civil society, private sector bodies, trade unions, and local governments, from both the EU and the ACP Group. At the end of this consultation process, a senior Commission official concluded that ‘one of the principal lessons of the debate arising out of the Green Paper relates to the considerable added-value which involvement of non-state actors and civil society can bring. It is important both in terms of the consolidation of democratic processes and in the formulation of our cooperation strategies. It was absolutely 10 11

See Crawford, 1996:512. Among the several commentaries on the Green Paper, see Koulaïmah-Gabriel (1997) on the issues of non-state actors.

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These lessons were included in the Communication on the guidelines for the negotiation to replace Lomé IV, which, in turn, laid the foundation for the negotiating directives adopted by the Council.13 The EU mandate dedicated an entire chapter to the ‘actors of partnership’. A participatory partnership was viewed as a fundamental principle of future cooperation: while acknowledging the primary role of national authorities in defining strategies and programs for development, the EU called for a full involvement of a whole range of actors in planning, as well as implementing, development projects and programs. ACP Resistance to Further Civil Society Involvement The ACP Group put less emphasis on the issue of civil society. The starting point for the negotiating mandate was the Libreville Declaration adopted by the ACP Heads of State and Government in November 1997.14 The ACP Group mandate was vague: although it emphasized the need for improved participation, it did not refer to the mechanisms for extending partnership to decentralized actors. It only addressed a few words to the new actors, particularly those from the private sector.15 The ACP Group was divided, but the fears that opening Lomé to non-state actors might further weaken the role of the state, prevailed. Such worries were clearly expressed by Carl Greenidge, former Deputy Secretary-General of the ACP Group: ‘The role of the state in ACP countries is a matter which needs to be more clearly defined, especially in light of the pressure which structural adjustment programmes put on finances of the government budget. It is not by any means clear that the EU…appreciates the problem. Communities hold politicians, elected or not, responsible for the provision of certain services. They cannot

12

13

14

15

Bernard Petit was the head negotiator for the EU in the negotiations that resulted in the Cotonou agreement. For his interview, see Petit, B. (2000) ‘The Cotonou Agreement is the only one of its kind in the world’, The Courier (special issue on the Cotonou Agreement), Brussels: European Commission. For detailed analyses of the negotiating positions of both parties, see ECPDM (1998); McMahon (1999); Forwood (2001); Salama and Dearden (2001). McMahon (1999) points out how, since the formal establishment of the ACP Group in 1975, the Heads of State and of Government had never met. The significance of this first meeting was a clear message that the ACP was seeking to renew the cooperation initiated by the Lomé Convention. ECDPM (1999), How Can Dialogue Be Extended to Decentralized Actors? Lomé Negotiating Brief No. 7, Maastricht: ECDPM.

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The Role of Civil Society in the Cotonou Agreement abdicate the provision of those to NGOs, especially where politically or socially 16 sensitive matters are concerned.’

In the meantime, a major meeting between CSOs from ACP countries was held in Entebbe, Uganda, on 31 October 1997 to discuss the future of the ACP–EU relationship. The meeting resulted in the Entebbe Declaration, which ‘affirmed the determination of civil society across the ACP to be part of the process of building the ACP Group into a vital force on the international scene, to advance the interests of its people in the era of globalization, both in its dealings with the European Union, and within other global fora’.17 The ACP CSOs called for their full involvement in political dialogue, formulation, decision-making, implementation, and evaluation processes. At the national and sub-regional level, they also requested the establishment of committees comprising government, the private sector, civil society actors, and the EU delegations. Seven CSOs, representing the Caribbean, the Pacific, and the four major African sub-regions (Southern Africa, Eastern Africa, Central Africa, and West Africa)18 were mandated to set up the ACP Civil Society Forum. They had the following objectives: to provide a platform for ACP civil society to formulate common positions on ACP–EU cooperation; to facilitate dialogue between ACP civil society and ACP and EU institutions; to support the participation of ACP civil society organizations in the ACP–EU development cooperation framework; to access and share information on developments of ACP–EU cooperation; to promote the views and concerns of marginalized social groups in ACP countries; and to dialogue and network with EU civil society organizations.19 These seven CSOs immediately launched a dialogue on the future of the ACP–EU relationship with their governments, succeeding to different extents. The most successful case is the Pacific, where the Pacific Concerns 16

17 18

19

See Greenidge (1999:120). Similar concerns were expressed by Greenidge in another paper (1998:60), where, by focusing on the role of Northern NGOs, he manifested his concerns about the fact that the EU could choose them as partners in its development policy: ‘It is likely that this approach will, in time, lead to pressure to modify the central role played by the government and ambassadors in the negotiations and in the monitoring of the implementation of the Conventions’. ACP NGO Conference, 1997. These seven CSOs are: Caribbean NGO Policy Development Centre, Barbados; CONGAC, Cameroon; Econews Africa, Kenya; Enda Tierre Monde, Senegal; Mwengo, Zimbabwe; Pacific Concerns Resources Center, Fiji; Third World Network Africa Secretariat, Ghana. See Corre (2001) for further details. In her contribution, in addition to the ACP Civil Society Forum she analyzes strengths and weaknesses of two other non-state actors. The ACP Business Forum was established in 1998 to strengthen the capacity of the ACP private sector intermediate bodies to effectively participate in the formulation, programming and implementation of ACP–EU cooperation at national, sub-regional, and global ACP–EU levels. The ACP Local Government Platform was created in 1999 to strengthen the partnership between local governments and articulate interests, and foster dialogue at the ACP–EU level.

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Resource Centre, in a joint project with a European NGO, the European Centre on Pacific Issues, took the initiative to promote the process of decentralized cooperation in the Pacific region. In the Caribbean, the Caribbean Policy Development Centre was able to organize several meetings in cooperation with local research institutes, trade unions, farmers’ organizations, and other stakeholders. In Africa, the situation differed from region to region. In West Africa, ENDA Tiers Monde organized seminars in cooperation with national organizations in eight countries of its region. In Southern Africa, MWENGO was also very active and organized several meetings at the national and regional level.20 Civil Society Involvement as an Issue in Post Lomé Negotiations The negotiations for a successor to Lomé IV started in September 1998 and ended in February 2000. The fundamental principles of the partnership, such as equality between the parties, respect for sovereignty, ownership of the strategies by the countries concerned, and differentiation were relatively uncontroversial issues. Other questions proved more contentious,21 and amongst these, involvement of civil society was one of the most controversial. Discussions on this topic were constantly postponed. During the ministerial negotiations held in Brussels in July 1999, all parties acknowledged the importance of associating non-state actors in order to strengthen the partnership between the EU and the ACP Group. However, the EU argued for consulting and informing non-state actors in political dialogue, dialogue on cooperation strategies, and implementing the cooperation agreement; the ACP Group, while accepting that non-governmental actors should be associated, stressed once again the primary role of national authorities in development, and even questioned governance, accountability, and transparency of CSOs.22 An agreement was finally reached in December 1999 ‘once the formula ‘partnership actors’ (presupposing NGO involvement in all stages of a project) was adopted rather than the formula ‘cooperation actors’ (placing emphasis only on their role in implementation)’.23 The views of Poul Nielson, EU Commissioner for development policy and humanitarian aid, and those of

20 21

22 23

These initiatives are analyzed in great detail by Graumans (2000). Karin Arts (2003) confirms that different perceptions of the Lomé record among the EU and the ACP Group, and the need for change in relation to a number of important issues, made the negotiations difficult and, at times, gave rise to frustration and irritation. Klaus Schilder (2000) offers good insights on the different positions on this issue. See Elgstrom, 2000:192.

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Jean-Robert Goulongana, ACP Secretary General, are reported here to exemplify the satisfaction for reaching a good compromise.24 According to Poul Nielson, ‘Dialogue plays a key role in the success of development cooperation activities. It is at the heart of the relationship between the ACP Group and the European Union. We will have to make all possible efforts to ensure that we tackle the real issues and potential difficulties at an advanced stage. Partnership goes hand-inhand with ownership and mutual confidence…Each country must own and be accountable for its policies. The agreed framework for cooperation programming and implementation gives concrete substance to the partnership approach and allows for progress in the co-ordination process. The association of civil society and the promotion of a more direct involvement of all stakeholders are also major components that doubtless will contribute to the success of the partnership.’25

For Jean-Robert Goulongana, ‘The inclusion of civil society and economic and social actors in the ACP–EU partnership is a further new feature. The objective is to involve these parties in the definition of strategies and priorities, which hitherto were the exclusive jurisdiction of governments. The aim is, therefore, to establish a mechanism which reconciles State responsibilities and recognition of the increasing role played by non-State actors in the development process. The involvement of civil society in the partnership is not as simple as it might appear at first sight, but is a complex issue because of the disparity of the situation of civil society in the different ACP countries. Imagination, flexibility, and pragmatism will all, therefore, be required.’26

3. The Cotonou Agreement: New Opportunities for Civil Society By ensuring the participation of a wide range of actors in the planning, implementation, and evaluation phases of the ACP–EU partnership, the Cotonou Agreement represents a radical break with the past.27 The importance of civil society is already stated in Article 1, which defines the 24

25 26 27

Both opinions were presented in the special edition of The Courier, published in September 2000, to celebrate the new Cotonou Agreement. See Nielson, 2000:3. See Goulongana, 2000:4. This opinion is not shared by everybody. Martenczuk (2000:467) for example, argues that the role of non-state actors is ‘only weakly reflected in the other parts of the Agreement, which essentially remains an intergovernmental agreement. This is particularly true with respect to the pivotal role that the ACP governments maintain in the field of financial cooperation’.

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objectives of the partnership as ‘building the capacity of the actors in development and improving the institutional framework necessary for social cohesion, for the functioning of a democratic society and market economy, and for the emergence of an active and organized civil society shall be integral to the approach’. Article 2 includes participation as one of the four ‘fundamental principles’ of cooperation: ‘apart from central government as the main partner, the partnership shall be open to different kinds of other actors in order to encourage the integration of all sections of society, including the private sector and civil society organizations, into the mainstream of political, economic, and social life’. Article 6 establishes that non-state actors include private sector, economic and social partners (including trade union organizations), and civil society ‘in all its forms, according to national characteristics’. This means several things. First, European CSOs are not included in this definition, even though in other parts of the agreement there is a reference to a partnership between ACP and EU civil society actors. Second, recognition of non-state actors is to be done by the ACP Group and the EU, and depends ‘on the extent to which they address the needs of the population, on their specific competencies, and whether they are organized and managed democratically and transparently’. National characteristics play an important role; however, non-state actors should have clearly defined interests, be representative, and operate in a transparent and accountable manner.28 Third, the Cotonou Agreement does not restrict ‘civil society’ to NGOs. A broader concept is used to include categories such as human rights groups, grassroots organizations, women’s associations, environmental movements, farmers’ organizations, indigenous people’s representatives, religious organizations, research institutes, cultural associations, and media.

28

In a recent communication on non-state actors, the European Commission (2002:15) states that ‘the EC can support NSAs who share the objectives of promoting poverty reduction, good governance, and sustainable development, and who are able to prove their capabilities in working in key development areas: addressing the needs of vulnerable social groups including gender specific needs, environmental concerns, human rights, and democracy, promoting good governance, enhancing economic and social development, as well as promoting and strengthening social and political dialogue. A clear organizational structure, which reflects the basic principles of democracy, transparency, and accountability, as well as independence from state and administrations are also basic conditions for access to funding’.

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Forms of Participation Article 4 establishes that, ‘where appropriate’,29 non-state actors must be:  informed and involved in consultation on cooperation policies and strategies, on priorities for cooperation, especially in areas that concern or directly affect them, and on the political dialogue;  provided with financial resources, under the conditions laid down in the agreement in order to support local development processes;  involved in the implementation of cooperation projects and programs in areas that concern them or where these actors have a comparative advantage;  provided with capacity-building support in critical areas in order to reinforce the capabilities of these actors, particularly as regards organization and representation, and the establishment of consultation mechanisms including channels of communication and dialogue, and to promote strategic alliances. The Cotonou Agreement does not contain specific dispositions to implement these new provisions. However, specific guidelines are incorporated in the ‘Compendium on Cooperation Strategies’, and, as regards programming, in the ‘Guidelines for Programming under the 9th EDF’.30 The Compendium and the procedures for implementing financial assistance contained in the annexes will be reviewed on a regular basis and adapted if necessary (Article 100). This approach allows as much as flexibility as possible to incorporate best practices and to be able to adapt to the evolutionary nature of civil society. In the words of Françoise Moreau, ‘this new approach embodies the dynamic nature of the partnership and gives the cooperation system greater flexibility’.31 29

30

31

The issue of the words ‘where appropriate’ raised some concerns. See for instance Eurostep (2000), which claims that ‘the text on civil society is crafted in a manner that guarantees that the degree of participation of civil society in the partnership is left in the hands of the governments’. The European Development Fund (EDF) is the main instrument for development cooperation in the ACP countries. It is not part of the general EU budget, but is funded by the Member States, covered by its own financial rules, and managed by a specific committee. The Member States set the EDF budget in the Council via agreements that are subsequently ratified by the national parliament of each Member State. The European Commission and other institutions established under the ACP–EU Partnership play a key role in the day-to-day management of the Fund. Each EDF is concluded for a period of around five years. See Moreau (2000:7). Françoise Moreau was the EU administrator in charge of the negotiations on non-state actors. For an opposite opinion, see Martenczuk (2000:481), who claims that ‘it is not sure whether this technique necessarily increases the transparency and readability of the agreement as a whole. On the other hand, the agreement now gives the ACP–EC Council of Ministers the power to amend these annexes by simple decision. Given the relatively long duration of the Partnership Agreement, this may, in fact, be a useful innovation to provide a measure of flexibility for cooperation in the financial area’.

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Consultation Programming is the process of consultation by which resources are allocated to a country (or region) in the ACP Group. In the past, programming meant drafting a general strategy document between central administrations, in a very bureaucratic way. With the Cotonou Agreement, programming is used as a strategic tool for conducting a systematic analysis of a country’s priorities and for identifying a coherent package of EU support. For the first time ever in the relations between the EU and the ACP Group, non-state actors must be involved in the programming process.32 According to Athanassios Theodorakis, ‘the new programming process will be a participatory and coordinated mechanism for enhancing complementarity between the Community and partner countries. It is designed to promote the involvement of each segment of society and facilitate the coordination of actions on the part of the players, centered around national strategies. This redefinition of programming has a simple goal: ACP countries should take over and manage their own development’.33 The first step in the programming exercise is the elaboration of a Country Support Strategy (CSS), which provides an outline of a country’s own development strategy and the initial EU response. The CSS should focus on a limited number of sectors where the EU is deemed to have a comparative advantage,34 taking also into account the roles and activities of other donors.35 The second step is to draw up, on the basis of the CSS, a National Indicative Programme (NIP), which contains the concrete operations and focal areas where resources will be spent, and a timetable for their implementation. The NIP will cover five years, be reviewed annually, and be subject to a sort of ‘performance test’ after 2.5 years (‘midpoint review’) and at the end of the five year period (‘final review’).36 32 33

34

35

36

See ECDPM (2001), Cotonou Infokit: Participating in Programming (9), Maastricht: ECDPM. Athanassios Theodorakis, at that time, Assistant Director General in the Directorate General for Development of the European Commission, published this opinion piece on the programming process in the May–June 2001 issue of The Courier. The European Union structures its development policy around six priorities adopted by the EU Development Council on 10 November 2000: trade and development; regional integration and cooperation; support for macroeconomic policies and promotion of equitable access to social services; transport; food security and sustainable rural development; and institutional capacity-building. The EU can also decide to co-finance operations in sectors where another donor has the overall responsibility for policy dialogue and implementation. At the regional level, civil society must also be involved in preparing and developing a Regional Support Strategy (RSS) based on the region’s own medium-term development objectives and strategies; it will be also involved in the Regional Indicative Strategy (RIP), which identifies focal sectors and themes for EU aid, and appropriate measures and operations to achieve the objectives set for those sectors and themes.

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In the spirit of the new participatory approach, non-state actors are to be involved in the process leading to the definition of the ACP–EU support strategy. A two-track approach is foreseen. First, non-state actors are encouraged to exchange information and share their experiences with the government. Specifically, CSOs should play an active role in the process of analyzing the political, economic, and social situation of the country, as well as constraints, capacities, and prospects, including assessment of basic needs. Second, CSOs should take full part in drawing up a draft NIP for submission to the EU on the basis of the development objectives and priorities set in the CSS. Implementation Besides programming, non-state actors are to be involved in the implementation of projects. For this reason, they are provided with financial resources. Contrary to the Lomé Conventions, the Cotonou Agreement has rationalized the grant instruments in a single long-term ‘development envelope’ so that resources could be administered in an integrated and coherent manner. There was no intention to reserve a ‘special envelope’ for non-state actors; in principle, though, there is no ceiling as to the resources that can be accessed, directly or indirectly. Such provisions provoked some concerns among representatives of the ACP civil society. First, they wondered how ACP countries ruled by authoritarian or undemocratic regimes would be induced to share ‘their’ funds with non-state actors, which are often critical of states’ practices. Second, they regretted the fact that the National Authorizing Officer (NAO) will still be the main authority in charge of deciding about individual proposals.37 Third, the bureaucratic procedures of ACP–EU cooperation are often slow and not always transparent; this may act as a disincentive for nonstate actors to invest in accessing funds.38 Against these fears, a commentator noted how ‘development cannot be achieved by giving resources to all types of separate entities, whether they are governmental or non-governmental actors. You have to ensure that all the actors dialogue and work together, and then divide the tasks and resources according to the comparative advantage of each group. That is the meaning of promoting and facilitating the process of dialogue so that everybody comes to the conclusion that it is in their interest to work jointly, decide, and then 37

38

The NAO is a senior government minister or official and is the principal contact point for all dealings with the EU related to the implementation of cooperation activities. ECDPM, 2001. Cotonou Infokit: Obtaining resources (10). Maastricht: ECDPM.

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divide tasks on the basis of each other’s strengths and weaknesses’.39 Furthermore, it should be added that a number of resources can now be accessed by Southern NGOs directly. This is very important, even more so when an antagonistic state-civil society relationship is in place.40 In the Cotonou Agreement, non-state actors can access financial resources in three ways: 1. Directly accessible EDF resources These resources will emerge from the programming dialogue, as part of the NIP. As a rule of thumb, it was envisaged that up to a maximum of 15 percent of the initial indicative resource allocation could be directly destined in this way to non-state actors. Following an authorization by the NAO, these resources can be directly accessed by non-state actors via the EU delegations and can be used, inter alia, for activities related to information, consultation, dialogue, and capacity building. 2. Other EDF resources These are also EDF resources, but may not be part of the NIP. Three types of resources are foreseen: (1) public-private partnerships: in this case, governments and non-state actors collaborate with other forces in designing and implementing projects under the NIP; (2) decentralized cooperation: in line with the principles introduced by Lomé IV, proposals may come directly from non-state actors and do not need to fit into the sectoral priorities of the NIP; (3) microprojects: in line with the scheme introduced by Lomé I, civil society actors may apply directly for limited amounts of money to implement small projects. 3. Resources from the EU budget These resources are available in the EU budget as part of the budget lines for external actions; they are managed by the European Commission in Brussels and monitored by the European Parliament. The best known example is the co-financing budget line, through which partnerships may be established between European and Southern NGOs.41

39

40

41

This opinion was expressed by Geert La Porte in a debate organized by GEMDEV, a French think tank on development issues, and is now published in Poznanski (2000). It should also be added that in the event of suspension of cooperation, in accordance with Article 96 and Article 97 of the Cotonou Agreement, resources may continue to be available to non-state actors, in particular, those resources directly available to them. In the same spirit, if cooperation is suspended at the time of programming, support for non-state actors can nevertheless be provided. See the programming guidelines published by the European Commission in 2001.

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Evaluation Aid will be allocated according to an assessment of each country’s needs and performance, combined with regular adjustments through a system of ‘rolling programming’.42 Performance will be assessed ‘in an objective and transparent manner’ on the basis of progress made in implementing institutional reforms, in the use of resources, and in macroeconomic and sectoral policy performance.43 Non-state actors must be consulted when the national programs are reviewed. During the evaluation, CSOs can criticize and contribute to the improvement of development cooperation programs. If they were not previously involved in the consultation process, they can still influence cooperation strategies, priorities, and implementation at this later stage.44 The Cotonou Agreement introduces another major innovation: civil society should be associated in political dialogue. However, the Cotonou Agreement does not provide further explanations on how this role should be played. It is only mentioned that the institutions of the partnership, such as the Council of Ministers and the Joint Parliamentary Assembly, should consult civil society.45 Capacity Building Support The opportunities offered by the Cotonou Agreement for full participation will not be effectively used in the absence of well-informed and organized non-state actors. The Cotonou Agreement stresses the need to strengthen the capacity of non-state actors with a view to helping them better organize to assume new roles and responsibilities in the development process. Ensuring an effective participation of non-state actors should be a collective responsibility of all parties concerned, but fundamentally it is up to non-state actors to take initiatives to respond to the opportunities offered by the Cotonou Agreement. This may raise several problems: first, because there is little experience with dialogue in the ACP–EU tradition of development cooperation; and second, because the relationship between governments and civil societies in ACP countries is not always harmonious. As a consequence,

42 43

44 45

For a detailed analysis, see Chapter 7 by Paul Hoebink in this book. See ECDPM, 2000, Implementing the New ACP–EU Partnership Agreement, Lomé Negotiating Brief no. 8, June 2000, Maastricht: ECDPM. See Bossuyt, 2000. On this point, see Chapter 8 by Karin Arts in this book.

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some ACP governments may not be keen to strengthen the capacity of nonstate actors, as requested by the Cotonou Agreement.46 A crucial role should be played by the EU delegations, which, in the Commission’s thinking, should perform two functions: act as critical observers and as facilitators.47 As critical observers, the EU delegation should ensure that non-state actors are familiar with, and are effectively involved in, all stages of the programming process. As facilitators, the EU delegation should provide information and contribute to the capacity-building of nonstate actors. In some countries, existing dialogue and cooperation mechanisms between civil society and the state may already be adequate. When this is not the case, the EU delegation is expected to contribute, through its local knowledge and contacts, to the setting up of the dialogue, in cooperation with the NAO.48 An important task should also be performed by Northern NGOs, even though their role in the Cotonou Agreement is minimal. The challenge for Northern NGOs is to gradually move away from direct intervention at operational level and to develop closer partnerships with their Southern partners. In a recent Communication on the relations with non-state actors, the European Commission states that Northern NGOs ‘can provide assistance for facilitating and promoting the initiation or consolidation of in-country dialogue processes, and helping key organizations to participate in the dialogue, in the programming exercise and in the drawing up of programs involving the allocation of resources to NSAs. These activities should be furthered in terms of transferring know-how to rural and marginalized populations, advancing not only an ‘inclusive participatory approach’, but also ownership of the development process at large’.49 46 47

48

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ECDPM (2001), Cotonou Infokit: Building Capacities (11), Maastricht: ECDPM. Commission of the European Communities (2001), Programming Guidelines under the 9th EDF. Brussels: DG Development. Amongst others, the following activities can be included: (1) providing adequate information (e.g., through a local newsletter, etc.) to non-state actors on the overall partnership agreement, on the programming dialogue with the government, on the country support strategies, and on the modalities of access to financial resources; (2) facilitating efforts of non-state actors at local, national, and regional levels to develop their capacity to organize and structure themselves, as well as to increase their capacity in terms of analyzing issues, providing policy inputs, and lobbying; (3) promoting dialogue between non-state actors and governments at different levels (regional, national, local) with a view to contributing to the establishment of new public-private partnerships; (4) facilitating communication, structured dialogue, and exchange of experiences between non-state actors in and among ACP countries and with their EU counterparts. This can be done, for example, by supporting the activities of existing or emerging facilitation structures such as the ACP–EC follow-up committee of the European Economic and Social Committee, the ACP Business Forum, the ACP Civil Society Forum, and the ACP Local Government Platform. Commission of the European Communities (2002), Participation of non-state actors in EC development policy, COM (2002) 598:16.

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4. Conclusions The Cotonou Agreement represents a radical change in the relationships between the EU and the ACP Group. It sets out a comprehensive and integrated approach to alleviating poverty, contributing to sustainable development, and assisting ACP countries to integrate into the world economy. The complex and multidimensional nature of poverty requires increased efforts to promote the exchanges of information and experiences on effective strategies to fight poverty. A vibrant civil society is a critical precondition for a more equitable, democratic, pluralistic, and humane society. Collective action by poor people helps overcome many of the disadvantages they face in society and the marketplace, and increases their bargaining power with interlocutors from the state and the market. The Cotonou Agreement clearly acknowledges the important role played by civil society in development. Indeed, while recognizing the right of ACP states to determine their development strategy in ‘all sovereignty’, it also includes participation as one of the four fundamental principles of the partnership. For the first time in the history of the relationship between the EU and the ACP Group, non-state actors are involved in the planning, implementation and evaluation stages of the new Cotonou Agreement and, at the same time, have greater access to funds and capacity-building support. This innovation is timely. Political reforms, economic liberalization, and decentralization processes in ACP countries have stimulated a new role for the state and created new space for non-state actors. In the last Lomé Convention, there was a strong attempt to make decentralized actors partners in cooperation, but their involvement was mainly limited to the implementation stage. By giving a stronger voice to non-state actors, the new Cotonou Agreement has absorbed and enhanced the concept of decentralized cooperation.50

50

Stephen Hurt (2003:172) has recently expressed some caution about the involvement of civil society actors in the Cotonou Agreement: ‘The inclusion of non-state actors should be welcomed if it contributes to the creation of a more democratic society within ACP states. However, it is possible that the increasing incorporation of democratically unaccountable non-state actors, especially the private sector, into the process may actually serve to weaken the process of democratization. The inclusion of non-state actors within the Cotonou Agreement should be analyzed with regard to a number of ambiguities as to who is regarded as important within civil society, and why they are now included. Their inclusion could be linked to a desire to improve the conduit between development cooperation and democratization in a supportive role for the state. However, it could be alternatively viewed as a means to weaken the dominance of ACP states, especially with regard to a state’s economic dimensions, by shifting the political landscape more in favor of neo-liberal policies of the ‘nightwatchman’ state and the private provision of essential services such as health, education, and transport’.

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The tasks at hand are now to make the best possible use of these new opportunities and to ensure an effective involvement of non-state actors. In a July 2001 seminar in Brussels, 120 CSOs from more than 50 ACP countries made clear that they were not ‘simply seeking more funding’, but wanted to influence the decisional process.51 In the meantime, some progress has been made in the consultation process.52 According to the European Commission, consultations during the first phase of programming have been satisfactory, but should be improved in view of the review process. Analysis shows that in most countries (48 out of 55), non-state actors have been consulted and the Country Strategy Papers53 have been changed accordingly in more than 50 percent of the cases (30 countries out of 55).54 This view is supported by some reports produced by ACP civil society organizations. Focusing on five countries (Benin, Cameroon, Dominican Republic, Tanzania, and Uganda), these reports show that, even though some factors have hampered effective engagement, CSOs have been broadly consulted.55 It is clear that the timing of the programming exercise was probably too tight to ensure a smooth participation: in most countries; indeed, many CSOs, not being well aware of 51

52

53 54

55

See ‘Civil Society: A New Role under Cotonou?’ published in The Courier, September–October 2001. For an insight into the challenges that the ACP Civil Society Forum faces in the future, see Bibiane Mbaye Gahamanyi (2002). For instance, Karin Arts (2003:101) has recently written that despite ‘the vagueness of some of the relevant agreement and compendium texts, lack of clarity about procedures (e.g., for “recognition” of non-state actors), and lack of agreements for non-state actors’ access to funding’, however, ‘at least some interesting progress has been made in practice, including the formal participation of non-state actors in the national programming exercise under the ninth European Development Fund (EDF), which occurred on a wider scale than before, and in many ACP countries for the first time ever’. Paul Hoebink provides a critical review of the civil society’s participation in the preparation of the Country Strategy Papers in Chapter 7 of this volume. Formerly known as Country Support Strategy. These data are included in the latest communication on the participation of non-state actors in EU development policy, COM 2002:598). Guggi Laryea (2003) has summarized these factors as follows: (1) the short period set aside for consultation: the few weeks foreseen for consultations with civil society has proven to be too short for any meaningful engagement; (2) the quality and timing of information sent to NSAs about the process: many organizations complained that they received information on the process of consultation only a few days before consultations were set up. Furthermore, as many organizations were new in the process of ACP–EU cooperation, the information was inappropriate; (3) the limited range of NSAs involved in the process: only a few large, well placed CSOs have been involved; little attempts were made to involve smaller grassroots or remote NGOs. Furthermore, existing civil society networks that aim to represent a wide range of actors were not used; (4) the lack of institutional mechanisms to facilitate this consultation: insufficient efforts were made to establish mechanisms that would provide for a system of stable and sustained consultations for all the actors involved, and for joint work on input into drafting of the programs following consultations; (5) the insufficient reporting back to NSAs on the results of the consultations: civil society actors involved in the consultation process have been little informed on the results of the consultations, and subsequent decisions have been taken and documents produced by the official parties.

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the Cotonou Agreement and of its opportunities, had no time to dialogue among themselves or to prepare inputs and proposals. However, this first programming exercise should be seen as the first step in the context of a partnership that will last for 20 years. The rolling nature of the programming process, as well as the involvement of civil society in the review process, offers opportunities for positive developments in the future.

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Chapter 10

FOREIGN DIRECT INVESTMENT IN THE COTONOU PARTNERSHIP AGREEMENT: BUILDING ON PRIVATE SECTOR INITIATIVES Dirk Willem te Velde and Sanoussi Bilal

1. Introduction The Cotonou Agreement is based on three pillars: (1) the political dimension (with the inclusion of policy dialogue, the promotion of peace and the prevention of conflicts, and the reinforcement of the principles of human rights, democracy, the rule of law and good governance); (2) an economic partnership (fostering sound macroeconomic policies, negotiating new ACP– EU trading arrangements, strengthening regional integration initiatives, private sector development, support for economic, financial, and institutional reforms as well as business initiatives); and (3) development support (including various forms of aid and support to promote sustainable development efforts in the ACP, financed by the European Development

 Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 197–218. © 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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Funds). The ultimate objective of the Cotonou Partnership Agreement is to achieve sustainable development and alleviate poverty in the ACP countries. The strength of the Cotonou Agreement is that it does not rely mainly on foreign aid to develop the ACP economies, but encompasses a partnership based on a much deeper approach. Too often, development policies rest on the generosity (or lack of it) of donor countries. Yet, to generate sustainable development in the ACP countries, donor support will not suffice. Moreover, over the last two decades, aid flows have been reduced by about a half, casting serious doubts over the various aid initiatives of industrialized countries. The recent pledge by the richest nations, following the lead of the UK, to significantly improve their aid contributions and to support continental initiatives, such as the New Partnership for Africa’s Development (NEPAD), is a positive step. But financing for development will have to come from other sources as well, namely the private sector. In this respect, private investment, from either domestic or foreign origins, has a central role to play. Significant investment is a necessary (although not sufficient) condition to enhance domestic production and to create jobs. By fostering economic activities, private investment can contribute to an increase in productivity, infrastructure development, and economic growth in a way that could lead to sustainable development and poverty alleviation. In view of the limited domestic resources and saving capacity in most developing countries, foreign investment can provide a vital complement to domestic resources for the economic development of ACP countries. Foreign Direct Investment (FDI) can also contribute to the transfer of technology and know-how from industrialized nations, and create innovation and linkages to the international economy. FDI can also help economies in a competitive environment take full benefit of their potential competitive and comparative advantages, as well as to upgrade their position on the value chain. A general investment policy, conducive to both domestic and foreign investment on similar principles, is, therefore, of crucial importance. It follows that ACP governments must create an environment that will encourage the investment of domestic and foreign capital in their economies. The partnership with the EU, as envisaged in the Cotonou Agreement, could provide a significant impetus to stimulate the development of such a favorable environment to attract investment. While the successive Lomé Conventions exclusively referred to government relations, the Cotonou Agreement explicitly provides for an integrated private sector approach, stressing the importance of the privatepublic sector partnership. These components should contribute to stimulate not only domestic, but also foreign investors’ confidence in ACP economies. 198

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Yet, FDI should not be seen as a panacea. The links between FDI and development are somewhat complex, as they depend on many factors, related both to the type of investment and the environment under which FDI is taking place. The purpose of this chapter is to discuss the prospects for development by fostering FDI, as envisaged in the Cotonou Agreement. Section 2 briefly reviews the general debate on the effects of FDI on development. After discussing the relative importance of FDI in ACP economies in Section 3, Section 4 seeks to identify the main factors that determine FDI in ACP countries. Section 5 identifies the main provisions contained in the Cotonou Agreement relating to investment, and discusses their potential impacts on investment promotion and on development. Section 6 concludes. 2. Foreign Direct Investment and Development There has been an ongoing debate about the effects of FDI on development since at least the 1970s. Much of the debate has focused on the effects of FDI at the aggregate level, distinguishing between potential costs and benefits. Table 10.1 lists seven areas through which FDI may have an impact on development. The table shows that FDI can have positive and negative dynamic effects on development in all of these areas. A review of the relevant literature will not be attempted here since this has already been done by, among others, Dunning, Caves, and UNCTAD.1 While FDI was traditionally seen as an additional source of capital, vital for the development of countries with insufficient economic capacity and infrastructure, and where domestic saving rates are notoriously low, there is currently the view that FDI can also bring new techniques and skills. However, there is a heated discussion about the impact of FDI on development, and at least a significant part derives from the observation that (foreign) multinationals are different from local (non-multinational) firms. Foreign multinationals tend to be larger, pay higher wages,2 are more capital and skill intensive, and introduce more up-to-date technology.3 Some characteristics of multinationals relate simply to the size of the firm, which itself is often related to higher pay, more training, and use of the latest

1 2 3

Dunning, 1993; Caves, 1996; and UNCTAD, 1999. See ODI, 2002. See, for example, Dunning, 1993 and Caves, 1996.

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Table 10.1

Foreign Direct Investment and Host-Country Development Differences between foreign owned and local firms

Potential dynamic benefits of FDI

Potential dynamic costs of FDI

1. Employment and Income

Foreign firms (multinationals) are larger than local firms; foreign firms pay higher wages (especially for skilled employees), allowing for other factors.

Provides employment and incomes directly.

May indirectly crowd-out other employment by replacing existing employment or pushing up factor prices; may lead to increased wage inequality.

2. Capital

Foreign firms tend to be more capital intensive.

Stable source of external finance, improving the balance of payments, and potentially raising fixed capital formation.

May preempt investment and opportunities of domestic firms.

3. Market access

Foreign firms tend to be more trade intensive.

Firms can gain access to export markets by using global networks of multinationals.

Multinationals can maintain tight controls of export channels.

Entry by foreign firm may lead to more competition.

The entry of foreign firms can lead to further concentration and market power.

Provides up-to-date techniques, skilled personnel, and advanced management techniques. Positive spillover effects on domestic firms through backward and forward linkages, demonstration effects and human resource development.

Spillovers are not automatic or free. Reliance on foreign technology and skills may inhibit development of local capabilities. Increased linkages raise dependency of domestic firms on multinationals.

4. Structure of factor and product markets 5. Technology, skills, and management techniques

Foreign firms are more skill intensive, tend to use more up-todate technologies, and train more.

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Foreign Direct Investment in the Cotonou Partnership Agreement Differences between foreign owned and local firms

Potential dynamic benefits of FDI

Potential dynamic costs of FDI

6. Fiscal revenues

Multinationals can raise fiscal revenues for the domestic government through the payment of taxes, in the case of new economic activities with more value added.

If multinationals crowd-out domestic firms, fiscal revenues may actually be lower through the use of special tax concessions, eventually leading to an erosion of the tax base. Special tax concessions are an implicit subsidy and, in case of lack of transparency, can lead to rent-seeking behavior.

7. Political, social and cultural issues

Foreign firms can expose host country to other norms and values, e.g., environmental management, ethics.

Foreign firms may lead to political, social, and cultural problems, by imposing unacceptable values (labor and environmental standards), interfering with political regime, and are said to exacerbate existing problems of corruption.

Source: Table taken from UNCTAD (1999), amended further using Dunning (1993), Caves (1996), Te Velde and Morrissey (2001).

technologies.4 However, allowing for factors such as size, foreign ownership is still related to better performance.5 This could be related to ‘foreignness’, but also to being a multinational as such. Multinationals are tagged into a global 4 5

Tan and Batra, 1997. See ODI (2002) on pay, and Tan and Batra (1995) on training.

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production network, which both forces them, and enables them, to be competitive.6 Te Velde discusses the econometric evidence of FDI on growth and productivity.7 There are different types of econometric studies. Macro and meso studies usually find positive and significant correlations between FDI and GDP per capita or productivity. This may come as no surprise as FDI tends to locate in higher value-added industries. It is often not clear whether productivity increases at the macro level are driven by spillovers to, and learning effects in, local firms, or only because of a composition effect. It is thus important to understand whether and how positive spillovers to local firms occur, because FDI associated with positive spillovers has long-lasting effects for development, whereas FDI without spillovers may have only oneoff effects, which may disappear when the foreign investor leaves the country. Micro-econometric studies can account for the composition effect testing whether local firms can improve their productivity as a result of foreign presence. A significant body of evidence finds that the productivity level of foreign firms is higher than in domestic firms,8 but that the effects on productivity levels and growth in domestic firms are mixed. As a result of foreign firms in a sector, domestic firms in the same sector could be better off as (foreign) competition forces them to upgrade technologies.9 They could be worse off when foreign firms steal the market of existing local firms.10 Or they could not learn at all if the productivity gap is too large to learn anything.11 In Morocco, Venezuela, and the Czech Republic, the presence of foreign firms lowers productivity growth in domestic firms. Most econometric work on the effects of FDI on development tends to ignore economic and policy factors affecting the link between FDI and development. It is often shown that FDI is correlated with growth and productivity, but this masks the fact that different countries with different policies and economic factors tend to derive different benefits and costs from FDI. Whether the positive effects of FDI outweigh the negative effects, shown in Table 10.1, will depend on the economic and policy factors in the hostcountry, as well as sector and strategies of multinational affiliates. Recently, researchers have begun to stress the importance of local capabilities in deriving 6 7 8

9 10 11

Lall, 2000. Te Velde, 2002. For examples, Haddad and Harrison, 1993; Aitken and Harrison, 1999; and Djankov and Hoekman, 1999. For an exception, see Matsuoka (2001) for Thailand. As in the case of Indonesia, see Blomström and Sjöholm, 1999. As in Venezuela, suggested by Aitken and Harrison, 1999. As in Mexico, see Blomström, 1986.

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benefits for the local economy, such as an educated and trainable workforce, investment in R&D, and the ability to conduct an outward-oriented trade policy.12 One implication could be that countries with relatively few local capabilities (as may be the case in many ACP countries) are less able to derive benefits from FDI. On the other hand, however, researchers have also suggested that countries have more to gain the further they have to catch-up. It can, therefore, be concluded that much work needs to be done to gain a fuller understanding of the link between FDI and development of ACP countries. What is clear is that blind faith in the potential positive impacts of FDI does not account for a possible role of domestic policies and institutions in deriving benefits from FDI. While Te Velde13 and others discuss the effects of policies to make FDI work for development, there is, at present, only a limited insight into what the poorest countries can do. 3. Foreign Direct Investment: Could It Be Important for ACP countries? When discussing the positive and negative aspects of FDI, one tends not to examine the relative importance of FDI to development, compared to other factors. It will not come as a surprise that, perhaps with the exception of very few countries, FDI is unlikely to be responsible for all, or even most, growth in developing countries. Rather it is domestic investment or other factors (institutions, aid, quality of workforce, and infrastructure) that play a role. Nevertheless, this section argues that the importance of FDI in ACP countries should not be underestimated nor overestimated. While FDI is the most important source of external finance for developing countries as a group, its role should not be overstated for ACP countries. Official aid-flows to ACP countries are as important as FDI-flows, with the average annual inflows of both FDI, as well as aid, amounting to U.S.$ 15 billion over 1996–1999.14 Much of the FDI-flows to developing countries is skewed towards a few large non-ACP developing countries: Brazil receives as much FDI as the ACP as a whole. Within the ACP, large countries, such as Nigeria, receive a large share of FDI. Nor should the role played by FDI be ignored or underestimated. Chart 10.1 shows FDI as percent of total fixed investment.15 While FDI includes not only fixed investment, but also financial transfers arising out of cross-border 12 13 14 15

Borensztein et al., 1996; Te Velde, 2001; and Balasubramanyam et al., 1996, respectively. Te Velde, 2002. Data from World Bank, World Development Indicators, Washington D.C.: World Bank, several years. UNCTAD, 2001.

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Mergers and Acquisitions (M&A), most FDI in ACP countries appears to be fixed investment. With this in mind, Chart 10.1 shows that FDI is responsible for more than a quarter of total investment in ten ACP countries (all small countries, except for Angola and Mozambique). On average, FDI accounts for a seventh of total investment in ACP countries. There are reasons to think that the importance of FDI in the national economy is likely to increase further. According to Table 10.2, the stock (accumulated flows) of FDI as a percent of GDP has been increasing for all regions since the 1980s, particularly in developing countries, including SubSahara African (SSA) countries. Given the present push towards liberalization of the FDI regime (pull factors), as well as technological developments (push factors), this general trend is likely to remain for developing countries over years to come, leaving aside temporary fluctuations induced by economic slowdowns and waves of privatization. FDI in developed countries is currently experiencing a decrease, due particularly to a slowdown in big M&A deals. FDI in developing countries is unlikely to remain focused on primary sectors only. UNCTAD shows that the sectoral composition of FDI in individual least-developed countries varies.16 Most or significant FDI goes to the fishery sector in the Solomon Islands, agricultural production in Laos, the petroleum sector in Angola, manufacturing in Cambodia and Nepal, the hotel sector in Ethiopia, and the telecommunications sector in Uganda. On this basis, it appears that FDI locates not only in natural resources sectors (albeit very important in general), but that different industries are important for different countries. The data for Uganda indicate that around one fifth of total investment occurs through FDI, and more than half of that is in the secondary industry. Hence, FDI is already financing a significant part of total investment in ACP countries; its influence, in terms of total investment, is likely to increase, and its impact will not be limited to natural resources sectors only. Any private sector development program should consider how both foreign and local investment fit in.

16

Idem.

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Chart 10.1 FDI as Percent of Total Fixed Investment in ACP countries, Average 1996–1999 Angola A ngola St . V incent and t he St. Vincent/Grenadines Trinidad and Tobago St . Lucia Lesot ho Swaziland Grenada St . Kit t s and Nevis Seychelles M ozambique B ahamas, The M alawi Nigeria Guyana Cot e d'Ivoire Dominica Togo Papua New Guinea Uganda Gambia, The Dominican Republic Jamaica Namibia Sierra Leone B elize Zimbabwe Liberia Gabon Et hiopia Tanzania Zambia Fiji Djibout i Senegal Tonga B enin A nt igua and B arbuda Cent ral A f rican Guinea-B issau M ali Cape V erde Sudan Chad Somalia B ot swana Niger M adagascar B arbados Comoros Guinea Ghana M aurit ius Kiribat i Cameroon Hait i B urkina Faso Kenya M aurit ania Sao Tome and Principe Congo, Rep. Rwanda B urundi Suriname Solomon Islands Samoa Congo, Dem. Rep. Erit rea

0

10

20

Source: UNCTAD World Investment Report. 205

30

40

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Table 10.2 Inward FDI stocks as a Percentage of GDP, by Region and Country, 1980–1999

Developed countries Developing countriesa Africaa SSAa South & East Asia Central & East Europe Latin America & Caribbean

1980 4.7 5.4 6.0 4.9 7.9

1985 6.1 9.1 9.5 8.7 9.7

1990 8.3 10.5 12.4 14.3 11.2 1.5

1995 8.8 13.4 19.9 23.5 15.0 5.2

1999 14.5 28.0 21.0 29.9 23.3 12.1

5.7

8.6

10.5

11.9

19.5

a

excluding South Africa. Source: UNCTAD (2001).

4. Determinants of Foreign Direct Investment in ACP countries Various factors drive foreign and domestic private investment in developing countries. This section considers which factors drive FDI, with an emphasis on policy factors. Of course, most factors driving FDI also affect domestic investment. Traditional reviews of determinants of FDI indicate that FDI inflows are mainly driven by economic pull factors (or fundamentals) and push factors. Pull factors include market size and growth of the host country, availability of an educated, trainable but cheap workforce, availability of natural resources, good quality infrastructure (transport as well as communications and other utilities), and governance factors (rule of law, absence of instability and corruption). Economic push factors, on the other hand, include firm growth and technological development in home countries.17 But apart from these economic fundamentals, it is often argued that policies at different levels can still be very important in affecting the level and impact of outward FDI; policies in the host countries aim to promote inward FDI; policies at bilateral, regional, and multilateral levels aim to protect and promote FDI flows between countries and regions. The provisions for FDI in the Cotonou Partnership Agreement are part of a range of factors affecting the volume of inward FDI and the impact of FDI on development in ACP countries. 17

Dunning, 1993 and Wheeler and Mody, 1992.

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Home-Country Policies Home-country policies aim to affect the level and type of FDI abroad. Homecountry policies that aim to stimulate outward FDI include outward investment, or trade missions, and investment insurance. Insurance offered by the home country is based on the belief that outward FDI is good for the home country, so that social benefits outweigh private benefits. Public (and private) agencies provide political risk insurance for foreign investors against the main political events of expropriations, war (political violence), restrictions on remittances (transfer and inconvertibility), and, sometimes, breach of contract (host-country policy reversal). Risk insurance is a rapidly moving area, and the private sector is taking on certain areas, which the public sector used to cover. Public and private coverage of risk insurance—particularly for investment in least-developed countries—has increased in many developed countries. Table 10.3 shows that the maximum investment exposure by the UK’s Export Credit Guarantees Department (ECGD) increased from £282 million in 1995/1996 to £1289 million in 1999/2000; exposure to investment guarantees by the Swedish Exportkreditnämnden (EKN) increased from $87 million in 1998 to $434 million in 2000; and exposure by the Multilateral Investment Guarantee Agency (MIGA) increased from $1.6 billion in 1995 to $5.4 billion in 2000. The collective coverage by all Berne Union members also increased, and total coverage amounted to 8 percent of all FDI flows to developing countries in 1998. However, coverage of the poorest countries has been low. Only 7.5 percent of the ECGD coverage went to just four African countries (South Africa, Egypt, Morocco, and Zimbabwe), while most of the 1998–99 increases in the EKN coverage concerned activities in Lithuania and the Czech Republic (not the poorest countries). The coverage by MIGA of investment in SSA has increased only up to 12 percent of total coverage. Admittedly, it would be difficult for insurers to expand investment insurance to high-risk, low-income countries, as this could compromise the break-even stance as well as potentially saddling host-countries with huge (mostly bilateral) debt.

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Table 10.3 Gross Exposure to Investment in Developing Countries (U.S. $ billion)

ECGD MIGA EKN

1995 0.282 1.623

1996 0.320 2.277

1997 0.549 2.499

1998 0.862 2.862 0.087

1999 0.908 3.676 0.459

2000 1.289 5.365 0.434

Source: Annual reports of ECGD, MIGA and EKN.

Other home-country policies aim to influence the ‘quality’ of FDI, sometimes through voluntary initiatives. In order to maximize the social and environmental benefits from investment for developing countries, other measures are put in place. One example is the enforcement of codes of conduct at company level or at public body level, thereby enforcing OECD guidelines (including anti-corruption/bribery legislation) and other voluntary codes. Both the Swedish Swedfund and EKN have an environmental policy; the Commonwealth Development Corporation (CDC) and its capital partners have adopted a set of business principles. The British ECGD has recently also become more active in safeguarding environmental standards. The benefits to developing countries depend on the effects of these measures on the volume of FDI and the actual improvements in the quality of FDI in terms of social, economic, and environmental development in developing countries. Host-Country Policies Te Velde classifies host-country policies into three categories, by nature of the market failure they try to overcome.18 First, policies that attract FDI can be justified by the information failure on the side of foreign investors. Potential foreign investors are less well informed about opportunities in foreign markets, and host-countries want to signal this as they think that FDI offer net benefits to the country. While this has often led to an undesirable practice of offering fiscal advantages to attract multinationals, well-organized investment promotion can help to attract multinationals when basic fundamentals are also reasonably favorable, as the (early) examples of Costa Rica, Ireland, and Singapore indicate. General trade and privatization policies are also likely to influence multinationals. Multinationals are usually more trade-intensive than local firms 18

Te Velde, 2001.

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and, hence, are more sensitive to changes in trade conditions, such as tariff and non-tariff barriers, communication and transport infrastructure, and customs regulations. There has also been a trend towards privatization of public services, some of which have been taken over by foreign firms. Privatization will temporarily increase the volume of FDI (as was the experience in many Latin American countries). Second, policies aimed at upgrading FDI towards higher value-added processes, address general failures in the market for skills and technology, with implications for the private sector in general.19 Firms may lack interaction with R&D institutions, have no access to an appropriately skilled workforce, and may have insufficient incentives to provide general training. This requires coordination bodies that can plan for developments in technology and skills. Often this involves the public sector as well as the private sector, in order to develop skills relevant to a country’s development strategy. Third, a country may want to capture and maximize spillovers from multinationals to local firms by developing linkages. Institutions that develop suppliers (including small and medium-sized enterprises) and improve linkages fall into this category. Bilateral, Regional, and Multilateral Policies The idea behind most of these international policies and rules is to provide a stable, non-discriminatory and transparent framework within which foreign investors can operate. There has been a proliferation of bilateral investment treaties governing FDI between the countries involved. Contents differ by country, but may include rules on admission of FDI and protection against performance criteria, and often include dispute-settlement provisions. The UK has concluded 95 Investment Promotion and Protection Agreements since 1975, around 30 less than Germany. ACP countries have concluded much fewer investment treaties, on average five per least-developed country, but increasingly, treaties are signed amongst developing countries. There are also provisions for FDI within or between regional groupings. The provisions in regional treaties on investment are sometimes broader than in bilateral investment treaties. They can contain provisions for entry and establishment of FDI, exempting certain industries, using a negative list as in the North American Free Trade Agreement (NAFTA). Incentives may also be included, sometimes indirectly, as in the EU. The restrictive approach in the European Union on state aid, limits the subsidies that governments can offer 19

Lall, 2000.

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multinationals (and other firms, although there are certain exceptions for small and medium-sized enterprises—SMEs). The treatment and protection of FDI after concluding a regional agreement closely follow the provisions of bilateral agreements. At the multilateral level, there are voluntary and regulatory frameworks that affect FDI. The OECD Guidelines for Multinational Corporations contain codes of conduct. Under the WTO Agreement on Trade in Services (GATS), countries can make voluntary commitments in particular sectors, but once signed up, most-favored nation, national treatment, and market access principles apply (exceptions to committed sectors have to be mentioned). It does not include procurement of government services, but the right to establish a foreign presence (FDI) in committed sectors is included. There are also a number of WTO agreements at the multilateral level, which govern the relationships between the government and multinationals. The WTO agreement on Trade Related Investment Measures (TRIMS) affects trade in goods only, and certain exceptions exist for least-developed countries. The WTO agreement on Trade Related Intellectual Property Rights (TRIPS) requires upgrading of the intellectual property system, although it allows for delayed implementation in developing countries, and certain exceptions on health grounds are also possible. The WTO agreement on Subsidies and Countervailing Measures (SCM) affects trade in goods only, which should limit the amount of subsidies given to exporting firms, although subsidies seem permissible for countries with a Gross National Product (GNP) per capita of less than $1000 per year. Finally, there are bilateral, regional, and multilateral (public) investment funds. Bilateral investment funds include the Swedish Swedfund, a public body, which provides loans and equity; and CDC, a public-private partnership, which is striving towards equity provision only; regional investment banks, one of which is the European Investment Bank (EIB); multilateral public bodies include the International Finance Corporation (IFC), a direct equity investor. Conclusions While it is likely that economic fundamentals are the most important drivers of FDI, policies are in place at different levels potentially affecting the ‘quantity and quality’ of FDI. The provisions in the Cotonou Partnership Agreement form only a small part in the web of policies that can affect FDI. Hence, it is a major challenge to separate the effects of provisions in this agreement on FDI flows, from effects of other policies and economic fundamentals, even if we could know exactly what future negotiations on investment would look like. 210

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Further, the overview does not suggest whether a general development policy or a more targeted approach is the most efficient and effective way to promote investment for development. However, as the previous sections indicated, foreign firms are different from local firms, and FDI does play an increasingly important role in ACP investment. Hence, an active policy towards FDI and local firms should be part of any private sector development program. While policies should not be discriminatory, equal policies will have different effects because firms show different characteristics. Foreign multinationals may need more information on investment conditions, while SMEs may have a more pressing need for support services such as quality control and training. These enterprises, due to their small size, would also benefit more from reduction in start-up costs, while multinationals would benefit more from training incentives (e.g., tax deductions), as multinationals tend to train more. 5. The Cotonou Agreement and Investment The underlying principles regarding the approach to investment promotion and facilitation in the ACP rest on some basic considerations: an open economy; a stable and democratic environment; the respect of the rule of law and some core principles of good governance; the active involvement of the private sector; the strengthening of regional integration together with the integration of the ACP into the world economy; sound macroeconomic policies; and a business friendly environment. The Cotonou Agreement, with its various components, entails all these elements in some form or another. The justification for the approach adopted under the Cotonou Agreement is that trade liberalization, and more generally, openness, of the ACP economies, will stimulate competition and, hence, business activities. Accompanied by sound economic policies and proper institutional arrangements, this should lead to higher domestic as well as foreign investment. The new ACP–EU partnership approach to stimulate foreign investment is based on three key components. First, ACP countries should adopt domestic economic policies that will boost the confidence of foreign investors (Section 5.1). Second, business initiatives (including investment) should be encouraged, and the private sector should be fully associated to main policy decisions. In this respect, the Cotonou Agreement clearly differs from the four successive Lomé Conventions in that it recognizes the private sector (and civil society), alongside governments, as pivotal partners for development (Section 5.2). Finally, the negotiation of regional economic partnership agreements (EPAs),

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by creating larger markets and locking in policy reforms, should stimulate FDI (Section 5.3). Setting the Appropriate Economic Environment The Cotonou Agreement (Article 22) stresses the need to promote sound macroeconomic policies and to engage in structural policy reforms to provide a favorable business environment. These include: (a) the control of inflation and budgetary balance through disciplined and transparent fiscal and monetary policies; (b) the liberalization of trade policy and foreign exchange regimes; (c) current account convertibility; (d) labor market reforms; and (e) the development of efficient financial systems, including banking transactions, capital markets, and financial services. The development of business institutions (associations, intermediary organizations, chambers of commerce, etc.) and instruments (finance provision, guarantee facilities, technical support) are also considered as key components of the development cooperation between the ACP and the EU (Article 21). These should help develop a business culture in the ACP, a better exchange of information, improved entrepreneurial skills, technology, and know-how. In sum, the private sector development should stimulate domestic and foreign investment. These general objectives set in the Cotonou Agreement help determine the strategy of the aid component of the ACP–EU cooperation—the European Development Fund (EDF)—as well as to reinforce political commitments by the ACP to adopt appropriate market reforms and policies. Beyond the general claim to promote an investment-friendly environment, the EU is committed, under the Cotonou Agreement, to provide specific investment support in several areas. These include tourism—in particular for SMEs—where the Commission shall support development initiatives, investment support, and promotion programs (Articles 23 and 24). The agreement also pledges to support capacity-building initiatives with the establishment of investment promotion agencies (IPA) to facilitate foreign investment, with the active promotion of an ACP–EU private sector business dialogue.

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Favoring Private Sector Initiatives The private sector is at the center of the ACP–EU partnership approach. The Cotonou Agreement explicitly provides for the development, strong cooperation with, and active involvement of, the private sector and civil society. Building on private sector initiatives, the Cotonou Agreement aims at providing a comprehensive framework to stimulate investment in the ACP economies. The recognition in the Cotonou Agreement of the key roles of market forces and of the private sector as an engine for growth and development marks a major departure from the previous 25 years of exclusive government-togovernment cooperation under the four successive Lomé Conventions. The Cotonou Agreement provides for an integrated approach to the private sector development (at the macro-, meso-, and microeconomic levels). It promotes an effective public-private sector dialogue, and provides for support to structure and build the capacities of the representative private sector organizations. This includes supporting measures to stimulate a business culture; to develop entrepreneurial skills; to strengthen business institutions; to favor transfer of technologies, know-how, and best practices; to encourage inter-firm linkages and networking; and to promote business development through the provision of finance, guarantee facilities, and technical support (Articles 21 and 75). The support to several private sector structures in the ACP includes the reinforcement of the somewhat dormant Association of ACP National Chambers of Commerce, Industry and other Economic Operators, and the development of the more promising ACP Business Forum. This latter organization, which started as an informal, bottom-up process, aims at regrouping ACP private sector actors to foster public-private dialogue and to effectively participate in the formulation, programming, and implementation of the ACP–EU cooperation at the national, sub-regional, and overall ACP–EU levels. A major innovation in the Cotonou Agreement is the new Investment Facility (INFAC), which marks an important shift from previous risk capital operations (Articles 76 and 83.2.d). The INFAC, managed by the EIB, provides for €2.2 billion to be operated on market-related terms, from the ninth EDF for a period of five years. The fund should become financially sustainable, as no further replenishment from EDF resources is foreseen. The aim of this fund, which focuses on the private sector, is to stimulate regional and international investment to support the development of the private sector by financing projects and commercially viable enterprises and companies, and to provide for the sustainable development of local financial and capital 213

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markets. Strict commercial conditions are set to provide risk capital in the form of equity and quasi-equity investments in ACP enterprises, guarantees, and other credit enhancements, in support of both domestic and foreign investments, as well as loans or lines of credit on concessional terms, to the benefit of small businesses, local financial institutions, and enterprises in the process of being privatized. Other initiatives available to the ACP private sector under the Cotonou Agreement to stimulate investment include: (a) DIAGNOS, an institution dedicated to identify constraints in the business environment and to design programs of support for the development of the ACP private sector; (b) the EU–ACP Business Assistance Scheme (EBAS), which aims to increase the competitiveness of ACP enterprises and to strengthen the capacities of private intermediaries; and (c) the PROINVEST-program, managed by the Centre for the Development of Enterprise (CDE), which is dedicated to facilitate and support investment promotion for ACP SMEs, intermediary organizations, and private consultants. Parallel to these measures to promote, finance, and support investment (Articles 75 and 76), the Cotonou Agreement also aims at providing investment guarantees and investment protection (Article77, Article78 and Annex II Article15). Investment guarantees and protection could be important tools to mitigate the perceived risk associated with investment. While the ultimate way to generate confidence from investors and to attract significant and sustainable flows of domestic and foreign investment rests on the creation of a favorable economic environment and business-friendly climate, the availability of risk insurance schemes and investment promotion and protection agreements can provide useful safeguards to investment in the ACP economies. However, we have to bear in mind that public risk insurance is usually financed out of budgets of economic or industry departments in developed countries, and not out of aid budgets. If aid is, nevertheless, used to underwrite FDI to developing countries, we need to consider several issues in order to make financial guarantees work for development (not only for the investors). For example, (a) How can we be sure that financial guarantees (for political risk) are effective in leveraging additional investment in poor countries, i.e., would investors have invested without guarantees?

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(b) How can we be sure that money used for guarantees is more efficient than other uses of (aid) money? For instance, are the main obstacle good economic projects, financial capital, or a bit of both? (c) How can we be sure that guarantees for investment are being used for good projects that help to deliver (sustainable) development? (d) What is the trade-off between imposing more stringent conditions attached to an investment, and losing potential investors interested in guarantees? (e) Could we identify countries, sectors, situations, etc., where guarantees work better (more effectively); for instance, sectors with large sunk costs and long-run required pay-back times, or countries where reforms could potentially lead to more productive projects, but where this information is not known to investors or rating agencies? All these are issues for which there has been only limited research. EPAs and Investment: the Role of Regional Integration Regional and sub-regional integration processes may stimulate trade and investment flows. Regional integration arrangements, by lowering regional barriers, can lead to the creation of larger markets. This, in a liberalized environment, should stimulate competition, leading to a more efficient allocation of resources along the comparative advantages of countries. As a result, more trade among the members of a region and additional investment can take place. This is the basic thrust of Article 1 of the Cotonou Agreement, which states that ‘regional and sub-regional integration processes which foster the integration of the ACP countries into the world economy in terms of trade and private investment shall be encouraged and supported’. The support for regional integration in promoting cross-border domestic and foreign investment, as indicated in Article 29, is also one of the main justifications for the negotiation of EPAs, or alternative trading arrangements, between the EU and the ACP, which started in September 2002. According to the European Commission, negotiations on EPAs are much more than negotiations on securing preferential market access only. They are about creating economic integration between the EU and ACP groupings, replacing, by 2008, the current nonreciprocal preferences in the trade relations between the EU and the ACP countries by WTO-compatible free trade agreements, based on reciprocity. EPAs are also about enhancing ‘cooperation in all areas relevant to trade’ (Article 36.1), providing a stable, predictable and transparent policy framework for an enlarged market, which will increase competitiveness of the ACP economies. ‘To this end economic 215

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and trade cooperation shall aim at enhancing the production, supply and trading capacity of the ACP countries as well as their capacity to attract investment’ (Article 34.3). To the extent that domestic and foreign investments are constrained by the size of markets, the creation of larger markets at the regional level can provide new business opportunities and thus generate more private investment, including from foreign origin, to take advantage of economies of scale. Regional agreements such as EPAs can provide not only larger integrated markets, but they may also entail new national and regional policies and institutions that may affect the flows and effects of FDI. EPAs can potentially affect both interregional and intraregional FDI. They can affect interregional FDI through (external) tariff jumping FDI, when lower trade barriers reduce the costs of setting up plants in a region compared to the costs of serving the same regional market by trade. The combination of lower internal barriers and significant fixed costs of production can also lead to a consolidation of plants in several member states of a region into one plant, which is being used by the parent to serve the region as a whole. This may also induce FDI in the most cost-efficient location, usually nearest the largest market or the location with the better (transport) infrastructure, to supply the whole region. This redirection of further FDI-flows may take place at the expense of other locations, in member states of the region where production is less cost-effective. Hence, regional integration can create winners and losers among countries of one region in terms of FDI attracted, comparable to trade creation and trade diversion for trade in goods. The type of regional agreements among ACP countries, and with ACP groupings and the EU, will have a determinant impact on the potential benefits from EPAs or alternative trade arrangements, in terms of trade and investment-flows and, ultimately, their effects on economic growth, sustainable development, and poverty alleviation. The question for the ACP countries is whether the potential benefits in terms of investment promotion contained in the Cotonou Agreement and, in particular, the EPAs, could materialize, and under which conditions. 6. Conclusions Clearly, investment, in general, and FDI in particular, has an important role to play in the development of ACP countries. It is true that FDI can have ambiguous effects on the development path of some countries, with possible negative effects on the local economy. But on the whole, FDI tends to 216

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generate higher growth and productivity, which could lead to a reduction of poverty. Ultimately, the impact of FDI depends on the type of investment attracted and on the different policies and economic factors prevalent in the host countries.20 More research is definitely needed in this field to better understand the linkages between FDI and development. Several factors have already been identified as determinant for the flows of FDI. There are the so-called pull factors, such as market size and (prospects of) economic growth, which could be fostered by the strengthening and deepening of ACP regional groupings and the creation of EPAs, as well as better education, productivity, natural resources, infrastructure, and proper governance. These can be influenced by appropriate domestic policies and international support, which aim mainly at attracting FDI, upgrading FDI (in terms of quality and higher value-added processes), and maximizing the linkages between the international economy (and multinationals) and the domestic economy (and local firms). And there are the push factors, dependent on the home country policies and economic conditions, such as risk insurance, codes of conduct, standards, firm growth, and technological development. ACP countries currently receive about as much FDI as official aid-flows on an annual basis. In the future, however, the importance of FDI for the ACP economies is likely to increase. This is one of the underlying objectives of the Cotonou Agreement. The new ACP–EU partnership intends to develop stronger linkages between the public and private sectors, and to foster a business-friendly environment in ACP countries that should encourage both domestic and foreign private investments. While the principles of the Cotonou Agreement seem to be sound, the effectiveness of the provisions it contains relating to investment remain to be seen. Implementation is a serious concern. Building capacity for privatesector development and setting the right economic environment are long-term and resource-consuming exercises, which will need the strong political support of both EU and ACP decision-makers. Another issue of concern relates to the effective impact of EPAs on FDI. The European Commission seems to rely on the potential benefits of regional integration in ACP countries and the regional EPAs. This can be explained by the rather successful European history with its own economic integration process. As a consequence, the EU seems to have adopted regional agreements as the model of closer economic relations with its partners. Yet, there are no studies that systematically address the effect of economic 20

For example, ODI, 2002.

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integration on FDI after allowing for various factors affecting FDI. Theory suggests that increased investment can be a benefit from integration, but this has not been put to the empirical test for South–South integration.21 Besides, can regional integration raise FDI to poor countries, including the poorest of an ACP region? Currently, large ACP countries, such as Nigeria, receive a large share of FDI. Will further integration of ACP regions and the creation of EPAs attract more FDI for all regions and countries or only to some regions and countries at the detriment of others? Will some member countries of a region, most probably, the more developed, attract most of the FDI at the expense of their poorer partners? Similarly, can different types of regions be distinguished with respect to how they affect FDI inflows from outside the region? And do the effects of forming regions amongst developing countries on attracting FDI depend on the type of regional integration, advancement in integration, and the position (core/periphery, relatively more and less developed) of host countries in the region? If only certain types of regions attract more FDI, this has direct consequences on the process of creating and adjusting regional institutions and provisions intended to attract FDI. Similarly, if some countries in a region do attract more FDI at the costs of others, adjustment policies and complementary measures need to be put in place. It is, therefore, essential that these questions be thoroughly investigated to provide the necessary information and guidelines for an effective implementation of the Cotonou Agreement. Moreover, such information will be of vital importance to the policy-makers in charge of negotiating new trading arrangements between the ACP and the EU, such as the EPAs or possible alternatives. It is only with this condition that proper policies and frameworks can be put in place to foster FDI that will benefit the ACP countries and contribute to their sustainable development.

21

World Bank, 2000.

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Chapter 11

THE EMU AND THE ACP COUNTRIES Peter Macmillan and Alison Watson

1. Introduction On 1 January 1999, eleven member states of the European Union—Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain—embarked upon what is arguably the greatest innovation in international monetary relations since Bretton Woods— the Economic and Monetary Union (EMU) of Europe. Greece joined them on 1 January 2001.1 Responsibility for the monetary policy conducted in these twelve states has been transferred to the European System of Central Banks (ESCB)—comprising the European Central Bank (ECB) and the twelve existing national central banks—and a single European currency, the euro, is now in operation. Financial instruments, including government securities, have been re-denominated in euros. From 1 March 2002, the euro thus became the sole legal tender in the so-called ‘eurozone’.

1

Three member states of the European Union—Denmark, Sweden, and the United Kingdom—are not EMU members, but may join later. Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 219–259. ” 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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Much has been written regarding the potential impact of such changes upon those states that are currently members of EMU,2 as well as on those member states that, for one reason or another, are not.3 Indeed, when the member states embarked upon the process of EMU, it was with the realization that such an action would have a profound impact upon their economies, upon all of the states with which the EU trades, as well as upon many with which it does not. The creation of the euro has the potential to fundamentally impact the world economy in a number of areas. First, the euro, as the currency of a large economic zone, may achieve some of the basic characteristics of an international currency. Second, the euro is likely to strongly influence competition, efficiency, and economic growth within the eurozone. Third, the introduction of the euro is likely to have a pronounced effect on world financial markets. Fourth, the eurozone’s monetary policy and the way in which it is formulated could have an effect upon the behavior of international exchange rates. For major economic players, such as the United States, China, and Japan, such effects may be wide-ranging. For lesser players, though, the impact may be even more significant. This chapter will deal with the impact that the introduction of the euro might have upon the countries of the African, Caribbean, and Pacific (ACP) group of states. Given the long-held special association with the EU that these countries have enjoyed, the effect of the euro on their economies may be significant. One subgroup of the ACP countries that may be most strongly influenced is comprised of those countries of Western and Central Africa that currently peg their exchange rates to the euro in the framework of the African Financial Community, otherwise known as the Communauté Financière Africaine (CFA). The outline of this chapter is as follows: in the next section, we outline the potential international role of the euro. In the third section, we discuss the CFA franc zone, and in the fourth, carefully outline the potential consequences of the introduction of the euro for the ACP countries. The final section concludes. 2. The International Role of the Euro In 1990, the European Commission noted that ‘due to its weight in the world economy, EMU will necessarily have far-reaching implications for the international economic and monetary system’.4 The Commission was then estimating that the euro would emerge as an international currency. Currency 2 3 4

See, for example, Feldstein, 1997 and Wyplosz, 1997. For example, see Cobham and Macmillan, 1999. European Economy, 1990: 24–25.

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(money) is defined by the three functions it fulfills: a means of payment or medium of exchange, a unit of account (numeraire), and a store of value. An international currency is one that fulfills one or more of these functions beyond the country (or group of countries) of issue. An international medium of exchange may act as a vehicle currency when used by the private sector to settle claims in international trade and international financial transactions, or as an intervention currency when used by (foreign) governments or monetary authorities in balance-of-payments financing and in foreign exchange transactions. Similarly, an international unit of account functions as a quotation currency when used by the private sector abroad to denominate financial assets or to invoice foreign trade, and as a pegging currency when used as an anchor for foreign currencies and to define or express exchange rate relationships abroad. An international store of value emerges when a foreign currency is used by governments or monetary authorities as a reserve currency (held in international reserves), or within the private sector as an investment currency (used to settle foreign asset contracts).5 There are a number of important elements that have a bearing on the ability of a currency to assume an international role. First, the size and strength of the economy that issues the currency will have a significant bearing, particularly on its use as a vehicle currency. In Table 11.1 we present some comparative statistics on the size of the eurozone (and the EU) relative to the U.S. In terms of population, we can see that the eurozone (and therefore the EU) is larger than the U.S. We can also see that the eurozone domestic market (in terms of GDP) is smaller than that of the U.S., although future expansion of the eurozone to include the other EU members would bring about rough equality. In terms of exports, we can see that the eurozone is more important in the world economy than the U.S., but is a less important import market. This in itself would tend to suggest that the euro should assume a position as one of the world's leading currencies. Size by itself, however, will not automatically lead to the internationalization of the euro. It is also important that the euro exhibits both price stability and low exchange rate volatility. Volatility is likely to strongly influence the risk associated with both holding euro-denominated assets, and using the euro as a vehicle currency. Price stability is likely to be enhanced by institutions that ensure the credibility of monetary policy within the eurozone. A significant literature suggests that the credibility of monetary

5

See Padoan (2000); Matsuyama, Kiyotaki, and Matsui (1993); and Alogoskoufis and Portes (1997), for more on the functions of an international currency.

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Table 11.1 Country EMU EC U.S.

EMU, the EU, and the U.S.: Some Comparative Statistics Population 303.98 337.93 281.55

GDP 6139.65 8016.80 8696.57

Exports 829.8 760.1 650.0

Imports 776.7 775.9 986.2

Notes: The population figures are for 2001, are measured in millions, and come from the World Bank (2002), World Development Indicators. GDP, Exports, and Imports are all 1999 figures, are measured in billions of euros at market prices, and come from Eurostat (2001), The Eurostat Yearbook.

policy is enhanced if monetary policy is conducted by a monetary authority independent of (elected) government.6 An independent monetary authority, not prone to political pressure, has no incentive to reduce unemployment through the creation of surprise inflation. Therefore, monetary policy announcements, such as inflation targets, are more likely to be believed by the private sector, which is therefore more likely to adjust expectations in line with a policy announcement, thereby making it easier to keep inflation under control. The significance of this was recognized in the Treaty on European Union, with the institutional aspects of EMU aiming to ensure a high degree of independence in the central bank's monetary policy decision-making procedures. The primary objective of the ECB is the maintenance of price stability within the eurozone.7 The Treaty also makes it explicit that the ECB shall not seek to take instructions from any other institution or body, and that no EU body or institution should seek to influence the ECB.8 The Treaty also explicitly prevents the ECB from financing potentially inflationary government budget deficits, through the printing of money or through any other means.9 It should also be noted that the wording of these articles is much stronger and clearer than the statutes of most central banks:10 as Henning notes of the ECB, ‘the degree of legally sanctioned independence [is] extraordinary by international standards’.11 6

7

8 9 10

11

See, for example, Alesina and Summers, 1993; Grilli, Masciandro, and Tabellini, 1991; and Cukierman 1992. See Article 105(1). This article also states that the ECB should support the general economic policies of the EU as long as the objective of price stability is not compromised. See Article 108 and Article 7 of Appendix 2, respectively, of the treaty. See Article 101(1). For example, in the West German Bundesbank Act of 1957, the main responsibilities and operations of the Bundesbank were much more vaguely defined. See Articles 3 and 12 of the Act. Henning, 1994: 365–366.

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This aim of euro credibility was further emphasized in the later Stability and Growth Pact (SGP) agreement reached in Dublin in December 1996. The latter elaborates on the provisions made in the Maastricht Treaty by implementing the excessive deficit procedure laid down in Maastricht, and establishing a limit of 3 percent of GDP for budget deficits. The Pact defines the conditions under which any breaches to this limit can be accepted, and establishes how and when fines against states that exhibit excessive deficits can be levied.12 A major reason for the existence of the Pact is to prevent the conduct of member states' national fiscal policies from interfering with the exercise of monetary policy. Given the ECB's objective of price stability, some member states may face strong incentives to pursue a relaxed fiscal policy resulting in large budget deficits that may put upward pressure on eurozone interest rates, raising the burden of government debt throughout the eurozone. If other member states adhere to the rules of the SGP in aggregate, more restrictive fiscal policies will be necessary. This may induce member states to place political pressure upon the ECB to relax monetary policy. In an extreme case, a member state may run a budget deficit so large it becomes unstable, which may result in considerable pressure upon the ECB to ‘bail out’ the offending government by monetizing its debt. In each case, the ECB may find its credibility damaged. Rules on the size of budget deficits may limit the possibility of these spillovers. The policies and the behavior of Community institutions influence the volatility of euro exchange rates: of particular importance is the exchange-rate intervention policy of the ECB. Article 105(2) makes the ECB responsible for eurozone foreign-exchange operations. However, the ECB appears, in the main, to be following a policy of ‘benign neglect’, by not actively intervening in the foreign exchange markets to influence euro exchange rates. This policy may be attractive to the ECB, as exchange-rate fluctuations will have a relatively small impact upon eurozone macroeconomic performance as a result of its being a relatively large and closed economy. It also allows the ECB to enhance the credibility of its monetary policy by being seen to focus exclusively on the objective of price stability, rather than appearing overly concerned about (an apparently) hurt political pride over the international value of the euro. However, the ECB has intervened significantly in foreign-exchange markets on two separate occasions: on 22 September 2000 in a coordinated action with the monetary authorities of the U.S., Japan, the U.K., and Canada; and unilaterally on 3 November 2000. The principal reason for these 12

See Eichengreen and Wyplosz, 1998.

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interventions was to halt the almost continuous depreciation of the euro against the major currencies that had begun in January 1999. The ECB has stressed that interventions such as these only take place under extreme conditions, such as the 1999/2000 severe exchange-rate misalignment.13 A reasonable conclusion would appear to be that the exchange-rate policy of the ECB is conducted in order to enhance the credibility of monetary policy, but does little to reduce exchange-rate volatility. However, it should be noted that by historical standards, euro exchange-rate volatility is not extensive. It should also be noted that there is some anecdotal evidence that the depreciation of the euro either prevented, or has at least delayed, its use as a reserve currency by a number of monetary authorities, as they decided on a policy of ‘wait and see’ concerning the stabilization of the euro.14 There is also the possibility that the euro, at some point in the future, may be involved in some form of international exchange-rate agreement. In this regard, Article 111 of the EC Treaty is crucial in that it lays down the legal relationship between the ECB and the Council of Ministers on exchange-rate policy. Representatives of the Council hold the authority to negotiate formal and informal exchange-rate arrangements with foreign governments (under consultation with the ECB). Formal agreements that peg the euro to a second currency, such as the dollar or yen, however, would require a unanimous vote within the Council after consultation with the ECB, the Commission, and the European Parliament. Additionally, since the ECB is responsible for the operation of monetary policy and for foreign exchange intervention, an exchange-rate agreement that necessitates the active use of these two policy instruments is only likely to be workable if it has the active support of the ECB.15 It, therefore, seems unlikely that any formal exchange-rate agreement that could be perceived as jeopardizing the ECB's goal of price stability, is workable. Deep and liquid domestic financial markets also facilitate the emergence of an international currency. The introduction of the euro has reduced exchangerate risk, and the associated risk premia on euro-denominated financial assets. This, along with the liberalization of EU financial services, has reduced capital market segmentation and allowed considerable consolidation across European 13

14

15

See, for example, ‘Euro Soars’, Financial Times, 23 September 2000, and ‘Duisenberg Comments Send Euro Tumbling’, Financial Times, 1 June 2001. See ‘Central banks in Asia Spurn “Weak” Euro in Favour of Dollar’, Financial Times, 3 May 1999, and Eichengreen and Mathieson, 2001. Wim Duisenberg, the ECB President, has described a possible target zone involving the euro, the dollar, and the yen as ‘not desirable’. See the ‘ECB, Bonn in clash on Euro Single Currency, Duisenberg Signals Clear Hostility to Lafontaine Stance on Target Zones to Control Turmoil’, Financial Times, 23 October 1998.

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capital markets. Such developments make it easier to diversify and to liquidate financial holdings, and reduce the transaction costs16 associated with trading in euro-denominated securities, stimulating the use of the euro as an international currency. Some scholars stress the dynamic nature of this process: the existence of external scale economies (often referred to as network externalities) means that increased use of the euro, and euro-denominated financial assets, could lead to further reductions in transaction costs and, therefore, increase its use as an international currency.17 The euro, then, seems likely to transform the international economy. However, concerns over the volatility and perceived weakness of the euro may have delayed its emergence as a key international currency. Additionally, its emergence is likely to be gradual due to the incumbency advantage and inertia effects that may prolong the international role of the dollar.18 However long it takes, it seems likely the euro will evolve into a key international currency and, sooner or later, will have a significant impact upon most of the economies of the world. 3. The CFA Franc Zone There are a number of ways in which the introduction of the euro may impact upon the ACP countries. First, there is the effect that economic growth in the eurozone, as the result of the euro’s introduction, may have on the ACP countries. Second, the ACP economies may benefit from expected improvements in the efficiency of the eurozone economies. Third, the euro may result in greater synchronicity in eurozone business cycles, which, in turn, is likely to have an impact upon the trading performance of many ACP economies. Fourth, the performance of the euro in terms of both internal and international stability is likely to impact upon the ACP countries. Fifth, ACP countries may enjoy improved access to international capital markets, and European financial markets in particular. Sixth, the extent of foreign direct investment in the ACP economies may be influenced. Finally, the evolution of the euro into an international currency to rival the U.S. dollar could possibly be

16

17 18

Transaction costs include (at least) information costs, execution costs, costs associated with uncertainty, costs associated with negotiation, and search costs. See, in particular, Portes and Rey, 1998. In other words, investors are used to dealing in dollars, and will continue to do so—at least in the short run—thus prolonging the dollar’s international role. Bergsten, 1997, notes that these features have a powerful role to play in international finance. Sterling, for example, maintained its role as an international currency far in excess of the strength of the British economy for half a century.

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to the benefit of the ACP countries.19 We will examine each of these elements in more detail below. Relations between the eurozone and the ACP economies are not uniform throughout the whole ACP area. The effects of the introduction of the euro should, therefore, differ according to the share of economic and financial transactions that each ACP country has with the eurozone, relative to other economic partners. For this reason, those ACP states that are most closely tied to the states within the eurozone, and in particular those in the CFA franc zone, arguably will discover that the euro has the greatest impact on their economies—whether that is positive or negative. Given the probable importance of its relationship with the eurozone, it is useful, at this point, to outline the manner in which the CFA franc zone operates. The CFA franc zone is a monetary area covering 14 Sub-Sahara African (SSA) countries, twelve of which are former French colonies.20 It was created on 26 December 1945, the day that France ratified the Bretton Woods Agreement and made its first declaration of parity to the International Monetary Fund (IMF).21 In recent years, countries in the CFA franc zone have demonstrated their interest in regional integration by formalizing a traditional administrative division (dating back to colonial times) into two distinct African monetary unions. The West African Economic and Monetary Union, otherwise known as the Union Economique et Monétaire de l’Ouest Africaine (UEMOA), comprises Benin, Burkina Faso, Côte d’Ivoire, GuineaBissau, Mali, Niger, Senegal, and Togo, whilst the Central African Economic and Monetary Community (CEMAC) comprises Cameroon, the Central African Republic, Chad, the Republic of the Congo, Equatorial Guinea, and Gabon. Both groupings have followed the EU’s lead by committing themselves to the multilateral surveillance of economic policies as a central tenet of their organization. Such policy harmonization is intended to allow the CFA franc zone to create the conditions necessary for macroeconomic stability, including budgetary discipline. In January 2000, the UEMOA embarked upon a full economic union, involving the eradication of all local produce tariffs that remained between member states, as well as the implementation of a standardized business law. UEMOA is characterized by the recognition of a common monetary unit, the Franc of the African Financial Community, that is issued by the Central Bank of West African States (Banque Centrale des États de l’Afrique de l’Ouest— 19 20

21

Note that this list is not exhaustive, but should include the main relevant issues. The Comoros Islands also participate. Equatorial Guinea is a former Spanish colony while GuineaBissau is a former Portuguese colony. The modern franc zone, however, dates from 1960, when the 12 former French colonies were granted independence.

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BCEAO) whose headquarters is located in Dakar, Senegal. Besides the sole right of monetary issue that it enjoys throughout the UEMOA member states, the BCEAO (on whose executive board France is a member) has responsibility for the monetary policy of UEMOA member states, the keeping of the financial accounts of those states, pooling the UEMOA’s foreign exchange reserves, and the definition of the banking law that is applicable to both banks and other financial establishments. The primary monetary authority of CEMAC is the Bank of Central African States (Banque des États de l’Afrique Centrale—BEAC), which is located in Yaoundé, in the Cameroon (and again, on whose executive board France is a member). The present agreements, guiding the way in which the franc zone operates, were signed in 1973. The two African monetary unions actually each have an individual single currency which they share and which have the same acronym—CFA franc.22 For the UEMOA member states, the denomination CFA franc means franc de la Communauté Financiere d’Afrique (franc of the African Financial Community). For countries in the CEMAC area, CFA franc means the franc de la Coopération Financière en Afrique Centrale (franc of Financial Cooperation in Central Africa). The French Ministry of Finance guarantees full convertibility for the CFA franc, through special operations accounts at the French Central bank (Banque de France). These special operations accounts can run into deficit, a fact that effectively means that the franc zone countries have unlimited overdraft facilities, allowing the CFA states to avoid short-run balance of payments difficulties by being able to call on extra finance. In return for such a facility, the two CFA zone central banks are required to deposit 65 percent of their international reserves into their special operations accounts.23 France also provides wide-ranging technical and financial assistance to the member states of the franc zone, and the French authorities also participate in monetary policy formulation for the CFA zone. Each of the two zones also engages in annual monetary negotiations that determine, for each individual member state, their credit ceiling with their respective central bank. The central banks also preserve the power to place restrictions on the refinancing facilities that are available to the commercial banks, as well as on their ability to lend to the private sector in each state.24 This followed the suspension of a system of

22

23 24

At the time of its creation, the CFA franc stood for Franc des Colonies Francaises d’Afrique (Franc of the French colonies of Africa). In 1958, it became Franc de la Communauté Francaise d’Afrique (Franc of the French Community of Africa). See Hadjimichael and Galy, 1997. See Dearden, 1999. There are similar arrangements guaranteeing the convertibility, at a fixed parity, between the French franc and the Comorian franc.

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repurchase of CFA banknotes in 1993, where, up until that point, the convertibility of banknotes was free and unlimited.25 Despite the role that France has played using its currency as an anchor currency for the franc zone, the CFA franc has undergone periods of uncertainty. The most significant of these was the devaluation of the CFA franc by fifty percent on 12 January 1994, following over thirty-five years of being tied to the French franc at the same rate. Such a change required the unanimous agreement of both the member states of the franc zone and France, and was prompted by prevailing international financial conditions, such as the collapse of commodity prices, and by the impact of French domestic economic policies. In particular, in the early 1990s, the CFA franc zone countries were faced with the consequences of world recession and the results of the appreciation of the France franc as the French government attempted to meet the requirements of the Maastricht Treaty’s convergence criteria for EMU.26 As a result, the economic performance of the CFA franc zone deteriorated, resulting in a significant amount of capital flight. The lower rates of economic growth that ensued, coupled with the overall deterioration in the CFA franc zone’s balance of payments position, culminated in the 1994 devaluation of the CFA franc and in the implementation of structural adjustment policies in most of the CFA member states. This devaluation had significant and, at times, mixed effects on the countries of the franc zone, although, in general, it can be said that the overall result was a general improvement in the CFA franc zone countries’ current account positions. For those in UEMOA, the devaluation certainly brought about the beginnings of a process of economic reform. In Burkina Faso, for example, the government restructured its development program (helped by various international agencies) and export levels, and economic growth increased as a result. Mali's adherence to economic reform alongside the economic impact of the devaluation also pushed up economic growth, and for Senegal, the devaluation signaled the beginnings of an ambitious program of economic restructuring. For Côte d’Ivoire, the devaluation initially caused a large increase in inflation (to 26 percent), but this soon fell and the economy began to improve. Once again, this was in part due to the large devaluation, although improved prices for primary products, such as cocoa, and a restructuring of the Ivorian economy, coupled with policies of external 25

26

Thus, since 1993, changing CFA franc notes outside the franc zone has been impossible. In addition, the CFAs themselves are not interchangeable. This had the effect of reducing the French government’s financial liabilities, thus aiding France’s efforts to achieve the Maastricht convergence criteria. See Dearden, 1999.

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finance, also helped. Similarly, for Togo, the devaluation provided an important catalyst for renewed structural adjustment (aided, too, by a more peaceful domestic political situation at that time). For the countries of the CEMAC, the results of the 1994 devaluation were slightly more mixed. Although the economy of Equatorial Guinea responded well to the devaluation, and for the Central African Republic, exports of coffee, cotton, diamonds, and timber increased (leading to an estimated rise in gross domestic product of 7 percent in 1994 and almost 5 percent in 1995), for Congo, the devaluation resulted in 61 percent inflation in 1994 (although this has since subsided). Similarly, for Gabon, there was an initial increase in inflation to 35 percent (although this was down to 6 percent in 1996).27 Of all the countries in the franc zone, it was probably a CEMAC country, Chad, who benefited least. At this point, it is interesting to note, given the impact of the devaluation on the franc zone and, thus, of French desire to achieve the Maastricht convergence criteria, what the Treaty itself says regarding the CFA franc zone area. In actuality, the EC Treaty does not deal specifically with the relationship between France and the CFA franc zone countries, although the Treaty does provide for the possibility of monetary and foreign exchange arrangements with third countries in Article 111 (3).28 This states that: ‘where agreements concerning monetary or foreign exchange regime matters need to be negotiated by the Community with one or more States or international organizations, the Council, acting by a qualified majority on a recommendation from the Commission and after consulting the ECB, shall decide the arrangements for the negotiation and for the conclusion of such agreements. These arrangements shall ensure that the Community expresses a single position.’

In accordance with this, and as a result of a series of discussions during the first six months of 1998, the members of the Monetary Committee of the European Union presented a recommendation to the European Council on the conduct of exchange rate behavior of the EU, vis-à-vis the CFA franc (and the Comorian franc). These discussions were prompted by the difference in opinion over the status of the CFA franc with regard to the EMU. Germany and the other EMU member states stated that the CFA agreement falls, 27

28

The IMF provided a one-year standby arrangement in 1994–95, and a three-year Enhanced Financing Facility (EFF) at near commercial rates beginning in late 1995. Those agreements mandate progress in privatization and fiscal discipline. Although, of course, this is just as relevant for states in the ACP as a whole, as opposed to states in the CFA franc zone in particular.

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according to the EC Treaty, under the competence of the European Union. However, France denied this competence because the CFA link is the responsibility of the French Ministry of Finance and, consequently, is a budgetary rather than a monetary agreement. In the end, the European Commission and the Monetary Committee recognized the French competence in this case. The essence of the recommendation was that France should be allowed to maintain the basic features of the existing agreement with the CFA franc zone. This decision was based on two major economic reasons. First, it was determined that the existing agreement regarding convertibility of the CFA franc vis-à-vis the French franc was indeed based on a budgetary commitment from the French treasury. Thus, the Banque de France is not actually involved. Therefore, when France joined the EMU on 1 January 1999, the French treasury guaranteed unlimited convertibility of the CFA franc into euros, without such a guarantee having any monetary policy implications.29 No financial obligations for the ESCB would result from either the principle of convertibility of the CFA franc, or from any modifications that would subsequently take place to the existing agreement.30 The second major economic reason for the Monetary Committee’s recommendation was that, given the relative sizes of the eurozone and the CFA franc zone, it was felt that the possible impact on monetary conditions in the eurozone that the guarantee of convertibility would have, would, in actuality, be extremely limited. Thus, the primary objective of the Community’s monetary policy—to maintain monetary stability—would not in any way be compromised. Nevertheless, although the French Treasury still guarantees the link, changes cannot be made without the approval of the ECB, and the European Council has to approve any changes to the CFA agreement. A change, such as the fifty-percent devaluation in 1994, for example, would now require the unanimous agreement of the member states and France. Moreover, after this European Union agreement of 1998 and France’s accession to the single European currency, the CFA franc was effectively pegged to the euro from 1 January 1999.31 This was done at a rate of 655.957 CFA francs per euro.

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The ECB should, along with the Commission and the future Economic and Financial Committee, be involved in the decisions taken by the parties to the agreement through prior notification or consultation. Official Journal of European Communities, 22 September 1998. It has a fixed parity vis-à-vis the French franc and, thus, to the euro.

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4. The Consequences of the Euro for the ACP Countries As we briefly discussed above, the introduction of the euro is likely to influence the ACP countries in several ways. These influences stem from a number of distinct, but often related, sources, which we will now discuss. The Impact of Economic Growth The first of these influences was the economic growth of ACP countries within the eurozone as the result of the euro’s introduction through existing trade linkages, via a number of mechanisms. At the microeconomic level, efficiency gains from the removal of transaction costs associated with separate exchange rates, and the associated increase in price transparency should stimulate intraeurozone competition. This, in turn, should lead to dynamic increases in productivity and output through reductions in X-inefficiency, the realization of (dynamic) scale economies, and technological innovation. At the macroeconomic level, the elimination of exchange rate uncertainty and the resultant reduction in risk premia on euro-denominated assets should lead to higher investment levels and, perhaps, contribute to an increase in growth. However, it should be noted that constraints on eurozone growth are likely; first, because of a restrictive monetary policy as the ECB pursues price stability, and second, because of inflexibilities in product and labor markets. The introduction of the euro, to the extent it stimulates growth, should stimulate imports from third-party countries. This effect will be strongest in those countries with high levels of exports, particularly of goods with high income elasticities, to the eurozone. However, a substitution effect may also be significant: the introduction of the euro, as was discussed above, may lower the costs of eurozone enterprises, and lead to a switch in demand towards goods produced in the eurozone, at the expense of goods previously imported from abroad. In the annex to this chapter, we present some economic information on the ACP countries in Tables 11.2 and 11.3. In order to facilitate our discussion of the impact of the euro, we have split the ACP countries into five groups: the CFA (further split into the UEMOA and CEMAC countries); ‘Anglophone Africa’; ‘Other African’ ACP countries; ACP Caribbean economies; and ACP Pacific economies. The CFA countries are dominated by Côte d’Ivoire and Cameroon, both in terms of population (about 30 percent of total population; see column (2) of Table 11.2) and GDP (about 40 percent of total GDP). The data presented in column (3) of the same table, suggests living standards are low in the CFA. 231

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The average per-capita income in the CFA for the year 2000 was $510,32 ranging from $203 in Niger to $4378 in Gabon. Most of the CFA economies are dependent upon agriculture (see column (4) of Table 11.2). The main economic activities in the region include subsistence agriculture, fishing, the production of agricultural goods such as cotton, coffee, palm oil, timber, and cocoa beans, and the production of oil (see column (5) of Table 11.2). Some economies, such as Senegal, now benefit from the provision of commercial and trading services (such as the development of free trade areas) that facilitate the development of international trade. Living standards are higher in the CEMAC countries, due largely to the relative abundance of oil. The exports of the CFA countries constitute 35 percent of their GDP (column (6) of Table 11.3). This average figure masks considerable variation amongst the CFA members: the exports of the oil-rich Equatorial Guinea and the Republic of Congo constitute 95 and 79 percent of GDP respectively, resulting in a high level of exports from the CEMAC economies (38 percent of GDP) relative to the UEMOA economies (32 percent of GDP). Benin, Burkina Faso, Niger, the Central African Republic, and Chad33 export a relatively small proportion of their GDP.34 The eurozone is the destination for 41 percent of CFA exports (Table 11.3, column (7)), which suggests that the introduction of the euro will have some impact upon the CFA economies. However, this figure is strongly influenced by the importance of this export market to the economies of Cameroon and Côte d'Ivoire. Although the eurozone is an important export market for all CFA economies, an interesting difference between CEMAC and UEMOA members is apparent: all the CEMAC economies, with the exception of Gabon, send more than 40 percent of their exports to the eurozone. Of the UEMOA, only Burkina Faso, Côte d’Ivoire, Mali, and Nigeria send more than 22 percent of their exports to the eurozone. According to column (9) of Table 11.3, other important markets include: the U.S. (for Niger, the Republic of Congo, Comoros, and in particular, Gabon); the CFA (for Côte d'Ivoire, Senegal, and Cameroon); Thailand (for Mali and Chad); Brazil (for Benin); India (for Guinea-Bissau); Hungary (for Togo); Poland (for the Central African Republic); and China (for Equatorial Guinea). This suggests that all of the CFA economies are likely to benefit in some measure from increased growth in the eurozone. However, Cameroon, Côte d'Ivoire, the Republic of Congo, Equatorial

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Per capita income is measured in U.S. dollars at 1995 prices. Chad has significant unexploited oil reserves currently under development and is likely to become a major oil exporter in 2004. (See ‘Black Gold’, The Economist, 24 October 2002.) With the exception of Benin, these economies have the lowest living standards in the CFA.

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Guinea, and Comoros may experience stronger than average growth effects due to the importance of the eurozone as an export market. Column (10) of Table 11.3 presents some summary data on the exports of the CFA to the EU.35 Most exports are of agricultural products (e.g., cotton, cocoa beans, timber, coffee, palm oil, fish, and vanilla). Others are due to mining and extraction activity (e.g., petroleum and petroleum products, and diamonds). A point of interest is that the UEMOA countries mainly export agricultural produce, with low income elasticity, whilst most CEMAC exports are derived from mining activity or oil extraction, with higher income elasticity (although still low relative to, for example, manufactured goods). Conceivably, this could result in higher GDP growth in the CEMAC economies relative to the UEMOA economies.36 Growth is likely to be highest in sectors with higher income elasticities, such as industrial manufactured products. However, these sectors are still small in the CFA economies, but could be encouraged by strong growth in the eurozone. Substitution effects are difficult to estimate, but are likely to be strongest in sectors where CFA producers currently enjoy cost advantages over eurozone competitors. Since the CFA economies largely export primary products (and the eurozone largely produces manufactured goods), substitution effects seem likely to be small. Available evidence on the scale of induced import and substitution effects is scarce. One IMF study37 suggests that for every one-percentage-point increase in eurozone GDP, there will be an increase in income of around 0.2 percentage points in the CFA economies. The same study concludes that substitution effects will not be negligible, but will be small and not exceed positive-induced import effects. It seems likely that the net effect will be positive but small. Future enlargement of the eurozone may also have an impact upon the CFA economies. Column (7) of Table 2b presents data on the percentage of exports destined for the EU. The difference between this figure and the percentage of exports destined for the eurozone, gives a measure of the impact of the expansion of EMU membership to include the U.K., Denmark, and Sweden.38 A glance at the data suggests that, with the possible exception of Niger, additional induced import effects are likely to be very small (additional substitution effects are likely to be negligible, except perhaps in 35

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Data on the composition of exports is not easily available. We will implicitly assume exports to the EU are representative of exports to the eurozone. Chad is the most exceptional case to this categorization, due to its reliance on exports of cotton to the EU. Feldman et al., 1998. For all countries, unless otherwise specified, almost all of the difference between exports to the eurozone and to the EU is due to exports to the U.K.

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the oil production sector). Further future expansion of the eurozone to include several Central and Eastern European and Mediterranean countries may reinforce induced import effects, particularly for counties such as Togo and the Central African Republic that export significant amounts to Hungary and Poland respectively.39 We turn our attention now to, first, the ‘Anglophone African’ grouping of countries. Standards of living are generally lower than for the CFA economies; GDP per capita, excluding South Africa,40 is around $336. The main economic activities in the group are subsistence agriculture, primary agricultural produce, oil extraction, and mining. Some countries have been able to successfully develop other sectors, for example, banking and clothing manufacturing in Mauritius, and tourism in the Seychelles;41 others benefit as re-export or regional trade centers (e.g., Gambia and Kenya respectively). The Anglophone African economies, excluding South Africa, export, on average, 39 percent of their GDP—slightly more than the CFA economies.42 However, the eurozone as an export market is less important than it is to the CFA countries.43 Other important export markets include the U.K., the U.S. (particularly for Nigeria), Japan, and South Africa. The main products exported to the EU include diamonds, petroleum oils, cobalt and copper (ore and alloys,) as well as agricultural products such as coffee, tea, tobacco, fruit and vegetables, and cut flowers. The ‘Other African’ group of countries suffers generally from very low standards of living. Average GDP per capita is $214, significantly lower than the rest of ACP Africa. Subsistence agriculture dominates most of these economies. Other important economic activities include oil production, mining (diamonds, bauxite, iron-ore, and uranium), and primary agricultural produce (e.g., cocoa beans and coffee). Djibouti and Cape Verde have developed commercial and trade services sectors that facilitate the use of these countries as trading centers. The Other African economies export 39

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In addition, some countries are likely to benefit from secondary growth effects. Countries that export to the U.K, for example, will benefit to the extent that the U.K. GDP increases as its traded goods sector benefits from increased economic growth in the eurozone. Such secondary order effects are likely to be small and difficult to estimate, but will be largest for ACP countries that export a significant proportion of their GDP to countries that, in turn, export significantly to the eurozone. We exclude South Africa because it is the dominant economy of this grouping, accounting for 65 percent of total GDP. It is not typical of other economies in this group, being relatively more advanced and diverse in terms of its industrial and services sectors. These economies also enjoy a GDP per capita significantly higher than the ‘Anglophone African’ average. This average figure masks considerable variation. For examples, Uganda exports only 10 percent of its GDP; the Seychelles exports 78 percent of its GDP. Around 28 percent of ‘Anglophone African’ exports (excluding South Africa) go to the eurozone, compared to 41 percent of CFA exports.

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around 35 percent of their GDP, and around 31 percent of exports go to the eurozone (comparable to the Anglophone African grouping). Other main export markets are geographically diverse but include the U.S. (particularly for Angola), the U.K., and a scattering of other African countries. The main exports to the EU include diamonds, ores and concentrates (iron and aluminum), gold, fish (including shellfish), and coffee.44 These data suggest that growth effects from the introduction of the euro have had some impact upon the non-CFA African members of the ACP. Given that the eurozone is a smaller export market to non-CFA members than the CFA countries, it seems likely that induced import effects will, on average, be smaller. Countries with well-developed manufacturing sectors (e.g., South Africa and, to a lesser extent, Mauritius) or tourism sectors (the Seychelles) may benefit additionally from the higher income elasticities of these sectors.45 Secondary growth effects and the effects of any future expansion of the eurozone to include the U.K., Denmark, and Sweden are likely to be stronger in the Anglophone African group of countries than in the Other African grouping. This is due to the greater importance of the U.K. as an export market, and its openness with regard to the eurozone.46 The Caribbean ACP countries are also likely to be affected to some extent by the euro. Most countries in this grouping are small (less than a million inhabitants); the largest two countries, Haiti and the Dominican Republic, account for around 71 percent of the total population. The dominant economy of the group is the Dominican Republic, which accounts for around 30 percent of GDP. The economies of the Caribbean countries are more developed than those of the African ACP members, and enjoy higher standards of living relative to most African ACP members, with an average GDP per capita of $1865.47 Offshore banking, commercial services, and, in particular, tourism are becoming increasingly important to the economies of many Caribbean ACP members. Mining and agriculture are still extremely important economic activities to many countries in the group: for example, bauxite in Jamaica, Suriname, and Guyana; bananas in Belize, Dominica, St. Lucia, St Vincent

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Sao Tome and Principe has significant unexploited oil reserves currently under development and is likely to become a major oil exporter in the near future. (See ‘Black Gold’, The Economist, 24 October 2002) This may also be true, to a lesser extent, for economies that export diamonds and oil to the eurozone. Some countries in the ‘Other African’ grouping, in particular, Burundi, Cape Verde, and Namibia, could benefit more significantly as the U.K. is an important export market. Haiti is the main exception: it is the only LDC in the group, GDP per capita is much lower (around $367), and the economy largely relies on subsistence agriculture.

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and the Grenadines; and sugar in Barbados, the Dominican Republic, and St Kitts–Nevis. The exports of the ACP Caribbean economies constitute a high percentage of their GDP (42 percent) relative to most African members. This figure is strongly influenced by the Dominican Republic, which exports around 30 percent of its GDP. Most other economies, particularly the smaller ones, export a considerably higher percentage of their GDP. Although important, particularly to Antigua and Barbuda, Grenada, St Vincent and the Grenadines, and Suriname, the eurozone represents a relatively small export market to the Caribbean ACP countries (about 16 percent of total exports). The U.K. and the U.S. are significant export markets for many of the group,48 while trade amongst the Caribbean ACP members is also significant. Most merchandise exports to the EU are of primary commodities, for example, petroleum and gas, sugar, bananas, corundum, fish, and coffee, although there are significant exports to the EU of ferroalloys and ethyl alcohol from the Dominican Republic and the Bahamas respectively. It therefore seems likely that the growth effects of the introduction of the euro will induce some increase in imports from the Caribbean ACP countries, but the net effects will be small, difficult to predict, and unevenly distributed. Where the eurozone is a significant export market, for example for Antigua and Barbuda, Grenada, and St Vincent and the Grenadines, direct gains may be more significant. However, where the eurozone is not an important export market (e.g., Dominica, St Kitts–Nevis, St. Lucia, and Haiti), any benefits may be negligible. However, the importance of relatively high income elasticity sectors within the group, in particular tourism, may have some positive impact. Any future expansion of the eurozone to include (at least) the rest of the EU is likely to have some impact upon many of the Caribbean ACP countries. Strong secondary growth effects, in the U.K. in particular, may result in positive induced import effects in the economies of Dominica, St. Kitts–Nevis, St. Lucia, the Bahamas, Belize, and Guyana. The Pacific ACP group largely consists of small islands and is dominated by Papua New Guinea, which accounts for around 71 percent of total population, and is responsible for approximately 57 percent of group GDP. Although there is considerable variation in living standards amongst the group, average GDP per capita is U.S. $1136—lower than the average Caribbean figure but higher than the average African figure. Many of the

48

The U.S. is a particularly important export market to the Dominican Republic, Haiti, St. Kitts -Nevis, Trinidad and Tobago, Jamaica, and the Bahamas.

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Pacific Islands rely on aid to maintain standards of living,49 often supporting large government sectors (e.g., Palau, the Cook Islands, and Niue). Otherwise, the economies of the group are largely dominated by agriculture and fishing, while tourism is an important sector for many in the group (e.g., Fiji, Tonga, Vanuatu, and Kiribati) and mining activity is important to the economies of Papua New Guinea (gold and copper) and Nauru (phosphate).50 Some members (e.g., Nauru, Vanuatu, and Kiribati) are attempting to develop financial sectors. An unusual but important source of finance to the Tuvaluan government results from the lease of telephone lines and the Internet domain name of the country to companies from the western hemisphere. Reliable data on the Pacific ACP members’ exports is hard to come by. However, available data suggests that (with the exception of Vanuatu) the eurozone is not an important export market. While the Pacific ACP members are, in general, open economies, their major export markets are the U.S., Japan, Australia, and New Zealand. Additionally, most exports are low income elasticity goods, based upon agriculture (e.g., coffee, palm oil, copra, sugar) and fishing, although there are some exports of manufactured goods (in particular, from Tonga and Tuvalu). This suggests that the growth effects of the introduction of the euro are likely to be inconsequential for most Pacific members of the ACP, although there remains the possibility that some sectors, such as tourism, may see some (small) benefit. The Effects of Price and Exchange Rate Stability The second way in which economic developments in the eurozone may impact upon the ACP countries is with regard to the internal stability that arises through the introduction of the euro. The introduction of the euro eradicates exchange-rate volatility within the eurozone, which, as was discussed in the second section, should lead to an increase in eurozone market efficiency and transparency. Assuming the ECB continues to credibly pursue a low-inflation target, ACP countries exporting to the eurozone will enjoy access to a more predictable and transparent large (single) market. This should encourage the ACP economies exporting to the eurozone to (further) exploit comparative advantages in their trade. Countries exporting to the eurozone will also benefit from reduced costs of trading: currency conversion costs, hedging costs, and

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For example, the Cook Islands, Kiribati, the Marshall Islands, Micronesia, Niue, Palau, Samoa, and Tonga. Nauru’s phosphate reserves are forecast to be exhausted in 2003—see ‘Paradise Well and Truly Lost’, The Economist, 20 December 2001.

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information costs will all fall as exporters are able to contract and sell in one currency rather than several. A second important consequence of the introduction of the euro is that for the CFA countries, the value of export contracts denominated in euros will be known with certainty in domestic currency terms. The effect this has on reducing the uncertainty attached to exporting to the eurozone may not be large, since membership of the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) kept the French franc stable relative to other EU currencies during most of the eighties and nineties. Additionally, the benefits of internal stability to the ACP countries may be reduced or even reversed if there are significant movements in euro exchange rates. Large movements in euro exchange rates will influence the export performance of the CFA and the non-CFA ACP countries significantly, but in different ways. Changes in euro exchange rates will influence the trade performance of CFA members in countries outside of the eurozone (and outside the CFA franc zone). Whereas, changes in euro exchange rates will influence the trade performance of non-CFA members in the eurozone export markets (and in the CFA export markets). Fluctuations in the euro-dollar exchange rates are likely to be the most significant to the ACP countries, given the importance of the U.S. as a major export market and that the bulk of primary product exports are denominated in dollars. The benefits of eurozone internal stability to the CFA countries are likely to be enhanced if the euro emerges as a significant international currency. Increased use of the euro as a vehicle currency and as a quotation currency in commodity exchanges would further reduce uncertainty over the domestic value of export receipts to the CFA countries.51 A further potential benefit to the CFA countries lies in the possibility of enhancing the credibility of monetary policy. The CFA economies, if they wish to retain their euro-peg, must use monetary policy to defend the value of their currencies. Any deterioration in competitiveness in the CFA economies cannot be corrected through depreciation, but through reductions in inflation relative to the eurozone. If private sector actors (including those on the foreign exchange markets) believe CFA governments are committed to the peg, then inflationary expectations should remain low (assuming inflation in the eurozone is low), which should help minimize cost push factors in inflation.52 51

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If the euro does emerge as a significant international currency, non-CFA members of the ACP will only benefit in this respect if the euro is at least as stable as the dollar. The CFA countries may also ‘import’ low inflation from the eurozone, given that most of the CFA countries import the bulk of their manufactures from the EU. This is also true of many of the rest of the African ACP members, and to a lesser extent, some of the Caribbean countries. The Pacific ACP economies generally do not import many goods from the EU. Any benefits that accrue to the non-CFA ACP members are likely to be small, relative to the impact of changes in euro exchange rates.

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However, there is a possibility that the CFA countries may decide to devalue (or pull out of) the euro-peg, potentially leading to higher inflation. Such an event may occur if the CFA countries suffer a large asymmetric shock relative to the eurozone (for example, a sharp recession in the CFA economies), and/or the euro-peg comes under speculative attack on the foreign exchange markets. It should be noted, however, that asymmetric shocks are no more likely under the present arrangements than they were when the CFA currencies were tied to the French franc. Additionally, the operational features of the CFA are likely to help minimize the possibility of speculative attack, in particular, the French Treasury guarantee of ‘unlimited’ convertibility of the CFA currencies into euros.53 We argued in the second section above, that the ECB is likely, in the main, to pursue a policy of ‘benign neglect’ towards the exchange rate, but may intervene when fluctuations in the euro become large by historical standards. Although it is impossible to predict the future course of exchange rates, we tentatively conclude that changes in euro exchange rates are likely to be large enough to have a significant impact upon the competitiveness of the ACP countries, but to an extent no greater than that predicted by past movements in major currencies. This suggests that the net stability effects to the ACP countries upon the introduction of the euro may be positive, although small and unevenly distributed. Benefits will accrue to the CFA countries, countries that export a significant proportion of their GDP to the eurozone (where the euro is used as the vehicle currency), and countries that import a significant proportion of their GDP from the eurozone. However, the extent (and the distribution) of any benefits is dependent upon the behavior of future euro exchange rates, and, in particular, the euro-dollar exchange rates. The Impact of Improved Access to International Capital Markets As we discussed in section two above, one consequence of the introduction of the euro is the consolidation within European financial markets. Significant consolidation has already taken place in corporate bond, equity, derivative, and money markets. Only government bond markets remain significantly

53

Additionally, we should not overstate this benefit since most (but not all) of the eurozone members enjoyed relatively low inflation before the euro was adopted. ACP countries will benefit to the extent that inflation under the ECB is lower than prevailed (on average across the member states of EMU) before the introduction of the euro. The French Treasury would need to offset purchases of CFA currencies through corrective fiscal policies or increased borrowing. Therefore, the only economic constraint on convertibility would be if France could not meet its obligations under the EU’s Growth and Stability Pact. Given the relative size of the economies involved, it seems likely that any speculative attack on the CFA currencies will have an insignificant impact on the French government’s budget position.

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segmented along national lines.54 This may result in a number of consequences for the ACP countries: increased depth and liquidity in European financial markets should lower transaction costs associated with international borrowing and lending in euros. This should allow private sector actors, as well as overseas governments, to raise funds at lower cost relative to borrowing in the currencies replaced by the euro. Available evidence suggests that offshore borrowing in euros has increased substantially since its introduction.55 ACP central banks may also benefit from the introduction of the euro, by allowing them to alter the currency composition of foreign-exchange reserves at a lower cost. Economic theory suggests that the reserves held by a central bank should be determined by exchange-rate arrangements, the denomination of external debt, and currency composition of external trade flows. The importance of each these factors will be partly influenced by the maturity of financial markets.56 Additionally, countries have an incentive to hold debt in the same currencies as those denominating trade; that is, to match debt service payments with export proceeds. The introduction of the euro should reduce costs associated with adjusting the currency composition of external debt positions and foreign-exchange reserves. It should, therefore, benefit countries that use the euro extensively as an intervention currency, where external trade is denominated in euros, and those countries where high levels of debt are held in euros relative to other currencies.57 The introduction of the euro may also generate capital flows out of the eurozone towards (some of) the ACP countries. The euro, since it reduces the number of quotation and investment currencies used in the eurozone, increases the exchange-rate risk associated with holding a eurozone asset, relative to a portfolio of assets denominated in the European currencies replaced by the euro. Participants in financial markets may opt to reduce their holdings of eurodenominated assets, and diversify their portfolios by increasing their holdings of assets denominated in other currencies, in order to reduce exchange-rate risk. The main beneficiaries of the introduction of the euro, in terms of finance, will be the industrialized countries with mature financial systems. The benefits accruing to most ACP countries are likely to be small and extremely difficult to 54 55 56

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See Danthine et al., 2001, for a full discussion. See Detken and Hartmann, 2001. For example, if a country benefits from developed financial markets, then these markets can be relied upon to finance trade and for debt servicing—reserves will be held mainly for intervention in the foreign exchange. In countries with underdeveloped financial markets, reserves will be used to directly finance trade and service debt. If the euro does gradually emerge as an international currency, these benefits will increase through time.

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evaluate. Most private sector actors in the ACP countries are unlikely to borrow or save through international financial markets, relying instead on their domestic banking sector. Some of the wealthier ACP countries, particularly those with a developed banking sector and large manufacturing and/or service sectors (e.g., South Africa, the Bahamas, and some of the other Caribbean members), are better placed to take advantage of any reduction in transaction costs associated with borrowing or saving in euros. Most ACP countries are also likely to benefit little from any shift out of euro-denominated financial assets. The major beneficiaries will be those countries with developed financial systems. Some countries with their own currency (who are better placed to benefit from international portfolio diversification) may also benefit. Any member of the CFA, or any other ACP country in monetary union with a major industrialized country or participating in a credible currency peg with a major international currency, is unlikely to benefit since there will be little or no gain from diversification into these currencies. Other Consequences In this section we will briefly examine three additional issues that could be of importance. The introduction of the euro is likely to influence flows of foreign direct investment (FDI), the prices of primary commodities, and international relations between the U.S., the EU, and the ACP countries. A number of observers/scholars have suggested that the introduction of the euro may influence FDI flows in ways that are not easily predictable.58 One possible outcome is that firms decide to locate production for the European market outside of Europe in order to take advantage of lower production costs abroad. There is also a possibility that the increased efficiency of the eurozone may encourage firms to locate within the eurozone, rather than in third countries. The ACP countries are most likely to benefit if real exchange rates with the euro display low volatility so as to minimize the costs associated with movement in the exchange rate. The CFA economies would appear to be well placed, since a credible euro-peg would eliminate any nominal exchange-rate volatility and keep CFA inflation low relative to most other ACP countries. Other important factors influencing the flow of FDI to ACP countries could include transport costs to the main European markets, the economic and political stability of a country, the infrastructure, and the language(s) spoken. A second possible consequence of the introduction of the euro is that it could increase the synchronization of eurozone business cycles. This may 58

See Feldman et al., 1998, and Bekx, 1998, amongst others.

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occur for at least two reasons: first, as the result of increased trade integration within the monetary union that facilitates the transmission of shocks. This effect is likely to be strong where intra-industry trade (rather than inter-industry trade) predominates.59 Second, a single currency will eliminate idiosyncratic movements in the business cycles of EMU members caused by exchange-rate shocks (relative to other EMU members), or from the unregulated exercise of independent monetary and fiscal policy.60 Greater synchronization in eurozone business cycles is likely to produce greater swings in demand at a global level. This is likely to lead to greater swings in the prices of primary commodities in particular, to the detriment of many ACP economies.61 However, the introduction of the euro is also likely to have a stabilizing influence on commodity prices. Country specific exchange-rate, monetary, or fiscal policy shocks from within the eurozone, which may influence the demand for primary commodities, will be eliminated.62 Greater synchronization of eurozone business cycles may also have some direct effects upon those ACP countries that export a significant proportion of their GDP to the eurozone. Export revenues from the eurozone countries would tend to follow an approximately similar pattern for all ACP countries exporting to the region. This could possibly lead to greater volatility in business cycles for those countries where the eurozone is an important export market. Potentially, there is a further gain the ACP countries could extract from the U.S. or EU, if the euro seemed likely to ‘usurp’ the dollar as the leading international currency. There is little doubt that the U.S. has gained some advantage, both economically and politically, through the use of the dollar as the world's major international currency. One benefit to the U.S. is the realization of significant revenues through international seigniorage.63 In most countries, the extent of the use of seigniorage is, in practice, limited by the inflationary consequences of money creation. However, since a significant 59

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Frankel and Rose (1997) present strong evidence of a relationship between bilateral trade and correlation of business cycles. The works of some authors (in particular, Krugman, 1991) suggest that the euro, along with the Single European Market, will encourage regional specialization within the eurozone. If so, the eurozone may become more prone to idiosyncratic shocks, and business cycles become less correlated. As yet, there is little evidence of such phenomena (but see Brulhart, 2001). Artis and Zhang (1997, 1999) have found evidence that the business cycles of the European Exchange Rate Mechanism (ERM) members have been moving more closely together. Canzoneri et al. (1996), among others, suggest that many of the ‘shocks’ between the European economies are caused by monetary or exchange rate factors. There is evidence that swings in European demand and strong movements in European currencies have had strong effects on the prices of commodities, but much less impact on the prices of manufactured goods. See Cuddington and Liang (2001) and Feldman et al. (1998), among others. Cuddington and Liang, 2001, found evidence that reduced exchange-rate volatility amongst the eurozone economies in the past lead to a reduction in the volatility of world commodity prices. Seigniorage is the difference between the face value of money and the (negligible) costs of producing it, and represents a source of revenue to government in addition to taxation and borrowing.

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proportion of U.S. dollars printed are held outside of the U.S., it may be possible to expand the money supply by more than would be domestically prudent, if the dollar were not the main international currency. The resulting additional revenue is often referred to as international seigniorage and has been estimated to be worth around $15 billion a year to the U.S. economy.64 A second benefit arises because the international use of the dollar reduces transaction costs associated with the dollar and dollar-denominated assets, since the relevant financial markets are deeper and more liquid than they otherwise would have been. This reduction in transaction costs is often referred to as the liquidity discount and has been estimated at $5–10 billion a year for the U.S. economy.65 International use of the dollar also allows the U.S. some macroeconomic flexibility, particularly with regard to external deficits, which may be financed in dollars. Further benefits are derived from the political power the U.S., to some extent, enjoys because of the dependence of other countries on the value and stability of the dollar. This allows the U.S. some degree of influence in political matters over other countries, as well as insulating the U.S. from outside economic and political influence. Should the euro emerge as a potential rival to the dollar, the U.S. would see these benefits (at least partially) eroded. Therefore, the U.S. and the EU may have an economic as well as a political interest in promoting the use of their currency to a dominant international position. Third countries, including members of the ACP, may be able to extract economic and political concessions in return for an undertaking to use one currency (perhaps exclusively) in, for example, adopting a currency peg, or in foreign-exchange transactions. The exact nature and importance of any concessions are impossible to predict, but could include a share of international seigniorage revenues, improved access to U.S. and eurozone export markets, and improved aid or loan arrangements.66 5. Conclusions We have noted above that increased growth in the eurozone may impact upon the ACP countries. Gains, if positive, may be significant for some countries but negligible for others. Benefits are most likely to be large if the growth effects of the euro upon the eurozone are strong (and positive) and the resultant 64 65 66

Blinder, 1996. Portes and Rey, 1998. It would not, however, be in the interests of either the U.S. or the EU to admit to any formal ‘deal’ in order to minimize any concessions extracted. It is more likely that the U.S. and the EU may appear to be a little generous in future dealings with third-party countries in order to ‘encourage’ the use of their own currency.

243

Peter Macmillan and Alison Watson

induced import effects are large. Substitution effects are likely to be small. Strong induced import effects are most likely to benefit countries that export goods with a high income elasticity (e.g., manufactured goods), rather than those countries that rely on the export of primary commodities. It was shown for the various groups of ACP countries that most of these economies heavily rely on agricultural and mining commodities that have relatively low income elasticities. The possible influence of increased-price and exchange-rate stability within the eurozone would seem likely to most benefit the CFA countries because of their currency peg with the euro. The financial benefits that derive from possible lower transaction costs in trading in euro-denominated assets and from a possible capital outflow from the eurozone are most likely to be conferred upon the more advanced and relatively industrialized ACP countries with mature financial systems. Other ACP members, particularly those that trade heavily with the eurozone and that hold the euro in reserves and use it for borrowing purposes, may also benefit from reduced transaction costs associated in euro-denominated assets. The effect of other potential consequences of the euro may be significant but are difficult to predict. Flows of FDI may be stimulated, reduced, or reversed (or some combination of all three across the ACP countries). The CFA countries would seem best placed to benefit from any possible increase in FDI flows, since a credible currency peg eliminates exchange-rate uncertainty in these economies. We also argued that the euro may increase the synchronization of eurozone business cycles to the possible detriment of many ACP countries (particularly those that rely on exports of primary products). However, whether the eurozone business cycles do converge (and the precise effect this could have on ACP economies) is a matter of considerable conjecture. A further point of note is that the benefits of the euro are likely to come later rather than sooner. The benefits that depend upon the emergence of the euro as an international currency may be particularly slow to materialize, since the ‘internationalization’ of the euro depends, to a large extent, on its perceived strength on financial markets. The almost continuous depreciation of the euro from its inception until late 2000, and its relative weakness until May 2002, appears to have led only to a gradual emergence of the euro as a major international currency.67 This effect may also be compounded by a lack of confidence in the euro, as some EMU member states are experiencing

67

For a detailed analysis of the international role of the euro, see ECB, 2002.

244

The EMU and the ACP Countries

domestic economic problems. For example, and most notably, Germany is experiencing sustained low growth and high levels of unemployment.68 The introduction of the euro is likely to have some impact upon most of the ACP countries. In some cases, the effects may be strong and positive; in others, they may be negligible. Predicting the countries that will benefit to the greatest extent is extremely difficult, and likely to achieve little more than provide a hostage to fortune. However, one important point should be emphasized: the impact of the euro is likely to be less important than other developments in the economies of the ACP countries. Strong movements in the U.S. dollar or in the prices of primary products will have important ramifications for many ACP countries (particularly in Africa and in the Pacific) that outweigh the influence of the introduction of the euro. Additionally, the degree of political stability, the stability of property rights, the impact of AIDS (in particular in a number of African economies), and the quality of economic management in many ACP countries will crucially influence their growth and also the extent to which they can benefit from the euro. A final consequence of the euro may be institutional in nature. If the CFA countries are seen to benefit from pegging their currencies to the euro, other (African) countries may join. Already, ECOWAS has hinted at the possibility of adopting a single currency, with the aim of linking up with the CFA zone in a few years.69 The U.K. adoption of the euro may encourage some Anglophone African ACP members to adopt the euro as a pegging currency. It can only be hoped that for the ACP countries (and in particular, the African members), Cotonou and the EMU and their own attempts at regional integration, will provide a catalyst to ‘obtain new successes…and prevail over the currents that originate from the past’.70

68 69

70

See The Economist, 5 December 2002. See The Economist, 7 February 2002. ECOWAS consists of the Members of UEMOA plus Cape Verde, Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone. Mandela, 1994.

245

Peter Macmillan and Alison Watson

Table 11.2 (1) African: CFA

The ACP Countries: Selected Economic Information* (2)

(3)

(4)

(5)

102.000

510

70.480

428

6.272

414

38/14(9)/48

Subsistence farming, cotton

Burkina Faso

11.270

252

35/17(12)/48

Subsistence farming

Côte d'Ivoire

16.010

743

29/22(19)/48

Coffee, cocoa beans, palm oil

1.199

210

59/12(10)/29

Subsistence farming, fishing

Mali

10.840

288

46/17(4)/37

Agriculture (esp. cotton), fishing

Niger

10.830

203

39/18(7)/44

Subsistence agriculture, uranium, reexporting

Senegal

9.530

609

18/27(18)/55

Commercial services, fishing, peanuts

Togo

4.527

327

38/22(10)/40

Agriculture

CEMAC

30.990

698

Cameroon

14.880

675

3.717

339

UEMOA Benin

Guinea-Bissau

CAR

246

Oil, agriculture, timber 55/20(9)/26

Subsistence farming, timber, diamonds

The EMU and the ACP Countries

Chad

(1)

(2) 7.694

218

(4) 39/14(11)/47

(5) Subsistence farming, livestock

ROC

3.018

841

5/71(3)/24

Oil, agriculture

Equatorial Guinea

0.457

1599

7/88(NA)/5

Subsistence farming, agriculture, oil

Gabon

1.230

4378

6/53(4)/40

Oil

Other—Comoros

0.558

436

41/12(4)/47

Agriculture, fishing

Anglophone African

351.400

780

(excluding South Africa)

308.600

336

Botswana

1.602

3951

4/44(5)/52

Diamonds

Gambia

1.303

370

38/13(5)/49

Subsistence farming, peanuts, re-exporting

Ghana

19.310

413

35/25(9)/39

Subsistence farming, cocoa, gold, timber

Kenya

30.090

328

20/19(13)/61

Agriculture, trade services

Lesotho

2.035

551

17/44(16)/39

Subsistence farming, livestock

Malawi

10.310

169

42/19(14)/39

Agriculture

1.186

4429

6/32(24)/62

Agriculture

126.900

254

30/46(4)/25

Subsistence farming, oil

Mauritius Nigeria

(3)

247

Peter Macmillan and Alison Watson (1) Seychelles

(2) 0.081

Sierra Leone

5.031

South Africa

Sudan

(4) 3/22(13)/75

(5) Tourism, fishing

147

47/30(5)/23

Subsistence farming, diamonds

42.800

3985

3/31(19)/66

Manufacturing, diamonds, gold

31.090

319

37/18(9)/45

Subsistence farming, oil

Swaziland

1.045

1467

17/44(33)/39

Subsistence farming, agroindustry

Tanzania

33.700

190

45/16(7)/39

Subsistence farming

Uganda

22.210

348

42/19(9)/38

Agriculture (esp. coffee)

Zambia

10.090

392

27/24(13)/49

Subsistence farming, copper

Zimbabwe

12.63

621

18/25(16)/57

Agriculture, mining

206.000

214

Angola (Portugal)

13.130

506

6/76(3)/18

Subsistence farming, oil, diamonds

Burundi (Belgium)

6.807

141

51/18(9)/31

Subsistence farming, coffee

Cape Verde (Portugal)

0.441

1519

12/18(9)/70

Commercial + transport services

50.950

107

58/17(NA)/25

Diamonds, agriculture

Other African

DROC (Belgium)b

(3) 7000

248

The EMU and the ACP Countries (1) Djibouti (France)

(2) 0.632

783

(4) 4/14(3)/82

(5) Commercial + transport services, re-exporting

Eritreaf

4.097

155

17/29(15)/54

Subsistence farming

Ethiopia

64.300

116

52/11(7)/37

Subsistence farming, agriculture (esp. coffee)

Guinea (France)

7.415

603

24/37(4)/39

Subsistence farming, bauxite and alumina

LiberiaJ

3.130

NA

60/10(NA)/30

Agriculture, maritime registry

Madagascar (France)g

15.520

246

34/13(11)/52

Agriculture

Mauritania (France)

2.665

496

22/31(9)/47

Subsistence farming, livestock, ironore

17.690

191

24/25(13)/50

Agriculture

Namibia (South Africa)

1.757

2408

11/28(11)/61

Diamonds, uranium, subsistence farming

Rwanda (Belgium)

8.508

242

44/21(12)/35

Subsistence farming, coffee

STAP (Portugal)

0.148

341

20/17(4)/62

Cocoa

Somalia (U.K./Italy) J

8.778

NA

60/10(NA)/30

Subsistence farming, livestock

Mozambique (Portugal)

(3)

249

Peter Macmillan and Alison Watson (1) Caribbean

(2) 22.810

1856

(3)

Antigua and Barbuda

0.068

9138

4/19(2)/77

Tourism

Bahamash

0.303

13928

3/7(NA)/90

Tourism, banking

Barbados

0.267

8282

6/21(9)/73

Tourism, sugar

Belize

0.240

3141

21/27(17)/56

Sugar, bananas, tourism

Dominica

0.073

3371

17/23(8)/59

Agriculture (esp. bananas)

Dominican Republic

8.373

2062

11/34(17)/55

Commercial services, tourism, sugar

Grenada

0.098

3832

7/24(8)/68

Tourism, agriculture

Guyanaf

0.761

941

35/28(10)/36

Agriculture, bauxite

Haiti

7.959

367

28/20(7)/51

Subsistence farming

Jamaica

2.633

1785

6/31(13)/62

Bauxite/alumina, agriculture, tourism

St. Kitts–Nevis

0.041

6830

4/26(10)/70

Tourism, sugar, banking

St. Lucia

0.156

3968

8/20(5)/72

Agriculture (esp. bananas), tourism

SVATG

0.115

2771

10/25(6)/65

Agriculture (esp. bananas)

Suriname

0.417

994

10/20(8)/70

Bauxite

250

(4)

(5)

The EMU and the ACP Countries (1) Trinidad and Tobago

(2) 1.301

5123

(3)

(4) 2/43(8)/55

(5) Oil and gas, banking, tourism

Pacific

7.182

1136

Cook Islandsa, k

0.021

NA

18/9(NA)/73

Agriculture

Fiji

0.812

2395

18/29(14)/53

Subsistence farming, tourism, sugar

Kiribatii

0.091

561

21/6(1)/73

Fish, copra, tourism

Marshall Islands

0.052

1602

13/16(2)/72

Agriculture

Micronesial

0.118

1735

19/4(NA)/77

Subsistence farming, fishing

Naurua

0.012

NA

NA

Phosphate mining, banking

Niuea

0.002

NA

NA

Agriculture

Palaui

0.019

6725

5/8(1)/87

Subsistence farming, fishing, tourism

Papua New Guinea

5.130

927

26/44(9)/30

Subsistence farming, oil, gold, copper-ore

Samoa

0.170

1440

17/27(15)/57

Agriculture, foodprocessing, aid

Solomon Islandsk

0.447

643

50/4(NA)/46

Agriculture, fishing, forestry

Tonga

0.100

1768

28/15(5)/56

Agriculture, tourism

Tuvalua

0.011

NA

251

NA

Subsistence farming, fishing

Peter Macmillan and Alison Watson (1) Vanuatu

(2) 0.197

(3) 2802

(4) 20/41(4)/70

(5) Subsistence farming, tourism, banking, fishing

*See the end of the Annex for explanatory notes on column titles and sources of data.

252

The EMU and the ACP Countries

Table 11.3

The ACP Countries: Selected Economic Information

(1) African: CFA

(6) 35

(7) 41(10)

(8) 43

UEMOA

32

40(11)

42

Benin

15

15(2)

16

Brazil (32)

Leather (38), cotton (29)

Burkina Faso

11

22(8)

24

Indonesia (11)

Cotton (53)

Côte d'Ivoire

46

56(15)

58

CFA (12)

Cocoa (35), timber (9)

Guinea-Bissau

32

17(0)

17

India (53)

Fish (52), cotton (22)

Mali

25

31(3)

31

Thailand (19)

Cotton (64)

Niger

15

32(15)

46

U.S. (30)

Radioactive elements (93)

Senegal

31

15(8)

16

CFA (25)

Fish (50), ground nut oil (20)

Togo

36

15(4)

16

Hungary (39)

Coffee (21), phosphates (18)

CEMAC

38

43(8)

44

Cameroon

31

65(13)

68

CFA (6)

Petroleum oils (37), timber (26)

CAR

13

48(3)

48

Poland (34)

Diamonds (81)

Chad

17

45(5)

46

Thailand (9)

Cotton (82)

ROC

79

40(3)

40

U.S. (23)

Petroleum oils (40), timber (23)

Equatorial Guinea

95

42(2)

42

China (27)

Petroleum oils (94)

253

(9)

(10)

Peter Macmillan and Alison Watson (1) Gabont

(6) 37

(7) 12(8)

(8) 12

(9) U.S. (67)

(10) Timber (42), petroleum oils (27)

Other— Comoros

26

71(50)

78

U.S. (21)

Vanilla (36), essential oils (33)

Anglophone African

32

22

32

(excluding South Africa)

37

28

37

Botswanam, s

28

NA

77

SACU (18)

Diamonds (83)

Gambia

48

81

84

Japan (6)

Diamonds (64)

Ghana

49

34

46

Togo/U.K. (12)

Gold (24), cocoa (20)

Kenya

26

24

28

U.K. (13), Uganda (10)

Fruit and veg. (24), cut flowers (19), tea (18), coffee (17)

Lesothos

28

NA

NA

SACU (65)

Diamonds (90)

Malawi

26

25

29

SA (16)

Tobacco (54), tea (27)

Mauritius

64

36

69

U.K. (32)

Clothing (55), sugar (19)

Nigeria

52

28

30

U.S. (38)

Petroleum oils (86)

Seychellesq

78

61

70

Thailand (11)

Fish (94)

Sierra Leonev

17

70

73

U.S. (7)

Diamonds (46)

South Africa

29

18

29

U.K. (10)

Diamonds (16), gold (13)

254

The EMU and the ACP Countries

Sudan

(1)

(6) 17

32

(7)

(8) 35

(9) Saudi (21)

(10) Gold (23), petroleum oils (21)

Swazilands

66

NA

12

SA (65)

Sugar (61)

Tanzania

15

22

29

U.K. (7)

Fish (33), gold (19), coffee (14)

Uganda

10

61

68

U.S. (7)

Coffee (56), tobacco (11)

Zambia

31

16

22

Japan (12)

Cobalt (26), cotton( 17), copper (16)

Zimbabwe

30

23

31

SA (12)

Tobacco (29), ferroalloys (10)

Other African

35

31

33

Angola (Portugal)

90

13

14

U.S. (64)

Petroleum oils (50), diamonds (45)

Burundi (Belgium)q

9

45

78

U.K. (32)

Coffee (92)

Cape Verde (Portugal)

23

43

55

U.K. (12)

Footwear (41), clothing (20)

DROC (Belgium)n

24

58

59

U.S. (21)

Diamonds (76)

Djibouti (France)

45

2

3

Somalia (41)

Oilseeds(18), leather(18)

Eritreas

16

NA

NA

Sudan (27), Ethiopia (27)

Fish (29), precious metal waste and scrap (28)

Ethiopia

15

47

51

U.S. (12)

Coffee (65)

255

Peter Macmillan and Alison Watson (1) Guinea (France)

(6) 26

39

(7)

(8) 39

(9) Russia (17)

(10) Aluminium (51), diamonds (33)

Liberia

NA

54

54

Ukraine (16)

Diamonds (48), timber (31)

Madagascar (France)

25

65

67

U.S. (9)

Clothing (42), fish (20)

Mauritania (France)

41

53

57

Japan (23)

Iron (72), fish (26)

Mozambique (Portugal)

15

34

37

SA (13)

Fish (50), aluminium (13), cotton(12)

Namibia (South Africa)m,s

49

NA

NA

U.K. (43)

Fish (47), diamonds (19)

Rwanda (Belgium)r

8

75

77

U.S. (5)

Coffee (83)

STAP (Portugal)

33

84

85

Africa (6)

Fish (57), cocoa (20)

Somalia (U.K./Italy)

NA

13

13

Saudi (57)

Natural gums, resins, etc. (65)

Caribbean

42

16

25

Antigua and Barbudau, v

71

31

39

Turkey (19)

Sugar (16), crustaceans (9)

Bahamasu

51

13

37

U.S. (23)

Ethyl alcohol (83)

Barbadosq

51

8

25

Caribbean (41)

Sugar (41)

Belize

47

17

40

U.S. (33)

Bananas (29), fish (20), sugar (18)

256

The EMU and the ACP Countries (1) Dominica

(6) 51

5

(8) 35

(9) Caribbean (30)

(10) Bananas (58), ferroalloys (17)

Dominican Republic

30

17

17

U.S. (51)

Ferro-alloys (35), bananas (10)

Grenada

61

55

58

Caribbean (20)

Spices (74)

Guyana

97

12

33

Canada (25)

Sugar (57), rice (14)

Haiti

13

13

14

U.S. (82)

Coffee (43), essential oils (17)

Jamaica

44

15

28

U.S. (39)

Corundum (51), sugar (16)

St. Kitts–Nevis

52

2

28

U.S. (55)

Sugar (67)

St. Lucia

56

2

47

U.K. (45)

Bananas (92)

SVATGu

59

48

63

Caribbean (18)

Bananas (62)

Suriname

17

26

31

Norway (17)

Corundum (50), bananas (17)

Trinidad and Tobago

65

12

16

U.S. (41)

Petroleum oils and gas(60)

Pacific

46

8

18

Cook Islandss, x

NA

NA

Japan (42)

Pearls (54), fish (19)

Fijir

69

1

19

Australia (41)

Sugar (92)

Kiribatix

23

19

20

Marshall Islandss, w

8

NA

NA

Kazakhstan (32) U.S., Japan

Copra (64), fish (22) Fish, coconut oil

30

NA

NA

Japan, U.S.

Fish (94)

Micronesiao, s, y

(7)

NA

257

Peter Macmillan and Alison Watson (1) Nauruw

(6) NA

5

(7)

Niues, w

NA

NA

Palaus, w

8

Papua New Guineam

(8) 5

(9) NZ (41)

(10) Phosphates

NA

NZ (89)

Coconut cream, copra

NA

NA

U.S., Japan

Fish, copra

45

12

18

Australia (30)

Palm oil (31), coffee (27)

Samoa

33

5

5

Australia (72)

Copra (81)

Solomon Islands

NA

6

13

Japan (59)

Fish (62)

Tonga

NA

2

4

Japan (54)

Radio equipment (45), vanilla (25)

Tuvaluv

NA

8

25

Hungary (29)

Footwear and clothing (70)

Vanuatup

44

36

39

Japan (38)

Copra (61)

Notes: In column (1), the members of the ACP have been split into six groups. The members of the Western African Economic and Monetary Union (UEMOA), and the Central Africa Economic and Monetary Community (CEMAC), along with Comoros, form the CFA. CAR stands for the Central African Republic, and ROC is the Republic of Congo. Column (2) gives total population in millions for the year 2000 (source: World Bank, World Development Indicators (2002)), except for a which is a July 2001 estimate from the CIA World Factbook (http://www.cia.gov/cia/publications/factbook/). Column (3) gives GDP per capita for the year 2000 in constant 1995 U.S. dollars (source: World Bank, World Development Indicators (2002)), except for b which is calculated using GDP data for 1995. In column (4), data are presented in the form A/B/C/D, where A, B, C, and D refer to value added as a percentage of GDP, in agriculture, industry, manufacturing, and services, respectively, for the year 2000 (source: World Bank, World Development Indicators, 2002). Exceptions are: f, g, and i which are 1999, 1997, and 1998 respectively, and h, j, k, and l which 258

The EMU and the ACP Countries

are estimates for 1999, 2000, 1995, and 1996, respectively, and come from the CIA World Factbook. Column (5) gives a brief indication of main economic activity (activities) in each ACP member. The information comes from various IMF County Reports, the CIA World Factbook, and various issues of the Courier. Column (6) presents exports of goods and services as a percentage of GDP in the year 2000 (source: World Bank, World Development Indicators), except m, n, o, and p which are 1999, 1997, 1998, and 1995, respectively. Column (7) is the percentage of total merchandise exports to the eurozone in 1997; for the CFA countries, the figure in brackets is the percentage of total merchandise exports to France in 1997. Column (8) presents merchandise exports to the EU as a percentage of total in 1997. Column (9) gives the most important non-eurozone export market for each ACP member in 1997. The source of all four of these figures is the IMF, Direction of Trade Statistics, 1998, except s where data pertain to 1998 and come from the CIA World Factbook: q excludes exports of goods in special categories and r excludes exports to countries and areas not specified in the statistics. SA represents South Africa, SACU the South African Customs Union, and Saudi is Saudi Arabia. Column (10) presents the main exported products (as a percentage of total product exports in brackets) of each ACP member in the year 2000 to the EC, (source: Eurostat, http://europa.eu.int/comm/ development/stat/extrd00/ index_en.htm), except s where the data come from the CIA World Factbook and apply to total exports in 1998, and x and y where the data are from the UN 1998 International Trade Statistics Yearbook (Vol I) and apply to total exports in 1995 and 1994, respectively. In some cases, official export data include boats and planes used to transport goods (and people); where this has been a problem, we have excluded exports of aircraft or boats (represented by t and u respectively).

259

Chapter 12

CONCLUSION: SYNOPSES AND FUTURE RESEARCH Olufemi Babarinde and Gerrit Faber

The Cotonou Agreement finally entered into force on 1 April 2003, following the completion of the ratification process of the requisite legal instruments by the required 15 countries of the EU and two-thirds of ACP countries, in conformity with Article 93 of the pact. By 23 May 2002, all 77 ACP countries had ratified the agreement, while Belgium was the last of the EU countries to ratify the pact in February 2003. The completion of the ratification process, thus, gave new impetus to the ongoing negotiations of the Economic Partnership Agreements (EPAs) between the European Commission and qualified ACP countries, a process that was begun on 27 September 2002. The Cotonou Agreement has been widely hailed, including in this volume, as a departure from past practice. Is it really? In reality, it carries over many of the provisions and privileges in previous ACP–EU pacts, but such that they are consistent with the EU’s global development policy. Thus, many exclusive ACP privileges of the past, such as non-reciprocity, specialized commodity insurance schemes, and so on, are now memories of  Olufemi Babarinde & Gerrit Faber (eds.), The European Union and the Developing Countries, pp. 261–266. 2005 Koninklijke Brill NV. Printed in the Netherlands. ISBN 90 04 14199 5.

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the past. In their stead, the EU has introduced new initiatives, such as the Everything-but-Arms (EBA) scheme, and has reinforced the import of democratic institutions, good governance, rule of law, civil society, and regional integration. What follows in the remainder of this chapter is a synopsis of the preceding chapters’ main conclusions, followed by a look at potential future research questions/issues. Cotonou, unlike its precursors, is undoubtedly a more comprehensive and refined pact between the ACP countries and the EU. The environment, within which the enduring relationship has existed since 1958 in Part IV of the European Economic Community (EEC), has changed, necessitating the need to revise the agreement and bring it into synch with the EU’s relationships and agreements with other parts of the world. Besides, the relationship had to be in conformity with relevant provisions of the Treaties of Maastricht (1993), Amsterdam (1999), and Nice (2003). However, is the new agreement veritably and profoundly different from its precursors? The foregoing were some of the conclusions drawn and questions posed in Chapter Two of the volume. In the ensuing Chapter Three on the negotiation of Cotonou, it is concluded that the agreement is somewhat a break from the past, partly because it is approached from a global as opposed to a regional perspective. Consequently, the ACP group lost its long-standing status at the apex of the EU’s pyramid of privilege, largely because of the simultaneous accentuation of the privileges in the EU’s pacts with other developing countries. In essence, the three pillars upon which Cotonou is erected—political dialogue, development cooperation, and economic cooperation—are the same as in other relations between the EU and developing countries. The theme of an ebbing leverage of the ACP group vis-à-vis the EU was continued in the conjectural analysis in Chapter Four, where it is speculated that it is more likely that the EU preference of negotiating differentiated EPAs with the ACP group will prevail. Although the ACP group would much prefer a unified strategy to the negotiation of the EPAs, it is argued that the EU will perceive a differentiated approach to be in the interest of both the EU and the ACP countries. It is further concluded that the outcomes of the negotiations will be a different kind of ‘partnership’ than the ACP group has been accustomed to in the past. In fact, Chapter Five, which explores one of the options of ACP–EU trade regimes, concludes that the previous nonreciprocal arrangement of the defunct Lomé Convention did not alleviate the development challenges of ACP countries, because it stifled the supply conditions of ACP countries and resulted in a costly trade diversion. The chapter also concludes that the new partnership that is likely to emanate from the EPAs stands a better chance of successfully improving ACP societies if 262

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MFN liberalization and regional integration accompany them and result in trade creation. Another conclusion of the chapter is that the EU should be poised to play the role of a hegemon purposely to, inter alia, encourage the ACP countries to sustain reforms and to help mitigate the effects of external shocks on their economies. Chapter Six, which analyzes the degree to which the GSP constitutes a credible and viable alternative in the Cotonou Agreement, concludes that it is, instead, a fitting complement to the EPAs, and not a substitute. In the face of a declining status in the development orbit of the EU, the chapter presents GSP as a complement to the EPAs. It is argued in the chapter that the GSP approach alleviates pressure on ACP countries to conform to the dictates of the EU, because the EU would not be able to leverage existing privileges to extract negotiating outcomes that are favorable to its interests (e.g., trade diversion for EU exporters), as would be the case under the EPAs. There is also evidence of complementarity in the aid provisions of Cotonou, according to one of the conclusions of Chapter Seven. It is noted that the aid regime of the new pact promotes the coordination of the aid programs of the EU and of its member states for the ACP groups via the Country Support Strategies (CSS). Another conclusion of the chapter is that the stature of the ACP group in the ranks of recipients of EU aid has shrunk, especially when compared to the aid envelopes for the group in the precursor pacts. The amount announced in the first five years of Cotonou— € 13.5 billion—is further proof of the declining stature of the ACP group in the EU’s development orbit, because it remained unchanged from the preceding package of Lomé IV-bis. Relying on a handful of contemporary cases on political dialogue, Chapter Eight concludes that the relevant provisions of Cotonou should improve the prospects for effective deliberations between the ACP group and the EU in the future. Specifically, the chapter posits that the clarifications of the meanings of key concepts, such as good governance, rule of law, and democratic principles, should go a long way to enhance the effectiveness of political dialogue and its outcomes. Overall, the chapter concludes that the relevant articles of Cotonou are partly marked improvements and partly sui generis, compared to previous ACP–EU conventions, largely because the future of ACP–EU relations are predicated on adherence by ACP countries to the aforementioned concepts. The manner in which the EU pushed through the more elaborate and refined provisions on political dialogue, coupled with the adoption of the EBA initiative, both of which are described as ‘unilateralist’ in the chapter, are further evidence of the relative hegemony of the EU. However, the EU accords so much importance to civil society/nonstate actors in the Cotonou Agreement because they were involved in the 263

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debate over the future of the ACP–EU relationship, and will be involved in the implementation and evaluation of pertinent provisions of the accord. On the basis of five reported cases and other data, Chapter Nine concludes that the EU has broadly consulted civil society actors in the crafting and implementation of the Cotonou Agreement. This is a departure from past practice, where state actors enjoy almost a monopoly over decision-making, which has given way to ‘decentralized cooperation’. Chapter Ten, which is a discourse about the role of FDI in the Cotonou Agreement with respect to alleviating the economic plight of ACP societies, concludes that the importance of investment flow to ACP economies will increase over time. It further concludes that the current situation, whereby FDI as a percentage of official aid flow is roughly 50 percent, is untenable if the private sector is to help rejuvenate ACP countries’ economies. Another conclusion is that the ACP societies will have to create an enabling, investment-friendly environment through ‘pull factors’, such as competitive education, modern infrastructure, and so on, which will help to galvanize domestic and foreign investment. These are long-term endeavors that the chapter argues will require the strong political support of both EU and ACP authorities. The penultimate chapter reiterates the same theme in its analysis of the potential impact of the nascent euro on ACP economies and on the efficacy of the Cotonou Agreement. Chapter Eleven conjectures that, ceteris paribus, the introduction of the euro will have effects on ACP economies that are likely to be negligible. The benefits that are likely to accrue to the ACP economies will be substantial if the resultant growth effects of the introduction of the euro are positive and strong in the eurozone, and induce member countries to import ACP products. The effects on ACP economies will, in turn, depend on the income elasticities of export products, which tend to be low for ACP export products, given their dependence on agricultural and mining commodities. In addition, the chapter conjectures that ACP subgroups, or countries that peg their currencies to the euro, also stand to benefit, especially from increased prices and exchange rate stability in the eurozone. This volume has subjected some of the most critical aspects of the Cotonou Agreement to intellectual inquiry. Admittedly, we have not exhausted the discourse of salient issues in the Cotonou Agreement, and some issues linger, such as the role of women, the place of ecology, and so forth. The omission of such issues from this inquiry was partly by design, partly because we were unable to assign them, and partly due to space and time constraints. Nevertheless, future research on these key issues will undoubtedly shed additional light on the overall capability of the Cotonou 264

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Agreement to alleviate the socioeconomic plight of ACP societies and advance their development. It will also illuminate the degree to which there is a future in ACP–EU relations in general. The new ACP–EU pact introduces new approaches and instruments that are also employed in other international agreements. Further research is needed to ascertain where, for instance, Cotonou deviates from existing approaches, and to analyze the effectiveness of the new instruments. One potential area of intellectual inquiry pertains to the efficacy of regional integration arrangements between rich and poor countries as envisaged in the EPAs. This, however, is not an entirely new area of intellectual pursuit. For example, there have been research outputs on the 1994 North American Free Trade Agreement (NAFTA)—a free trade area between the rich USA and Canada on the one hand, and poorer Mexico on the other—many of which have concluded that the Mexican economy has been boosted by the regional integration pact. Will the EPAs have comparable effects on ACP economies? Only time will tell, but we need to bear in mind that, unlike the Mexican economy, ACP economies are, on average, smaller and weaker. Furthermore, Mexico appears to be more politically relevant to the U.S. than the ACP countries are to the EU. Finally, unlike NAFTA, the EPAs will entail regional integration among mostly poor countries. In any event, the following inclusive research questions can serve as useful guides for theoretical and empirical analyses:  Is the creation of a free trade area between the EU and a group of very poor countries increasing regional integration and political coherence among the poor participants?  Do EPAs and reciprocal arrangements increase the credibility of ACP governments as far as their economic policies are concerned? If yes, what is the effect on investment, growth, and poverty reduction in ACP countries?  Are EPAs the stepping stones towards integration of the ACP countries in the world economy, or do they only constitute the spokes in a new hub-and-spoke system connecting the EU with three continents? Another area for intellectual inquiries in the Cotonou Agreement centers on the provisions of the new pact on participation. By drawing private sector and civil society organizations into the preparation and implementation of development strategies and into political dialogue, large sections of the population and the economy can potentially learn about, and influence their opportunities for, development. Governments will be forced to increase their accountability and look for public support. However, it is widely known that 265

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foreign aid and policy prescriptions can be detrimental to the feeling of ownership of reforms in the developing country, and stifle local initiatives. The EU may push its ideas about good governance and civil society to such an extent that the ACP populations just see this as the new whim of a donor. Relevant research questions in this respect are: – Has more participation of private sector and civil society organizations taken place? If so, which sections of the population have been drawn into the process? – What has their influence been? Have these organizations been taken seriously? Are there important sections of society that have not been able to participate? If so, why? Have groups been marginalized, and why? – Has participation increased the viability and effectiveness of development programs in ACP societies? A possible third area of intellectual inquiry is a comparison of, say, the EBA initiative of the EU and the U.S. government’s Africa Growth Opportunity Act (AGOA), both of which purport to make the EU and U.S. markets more accessible to the ACP group and Sub-Saharan African countries, respectively. The aforementioned are only three examples of areas for new research. To be sure, this volume raises more questions that need further scrutiny than are discussed here. The EPA negotiating process and political dialogue will produce much material for research. The issues of foreign direct investment and development, and the instruments used in Cotonou, also merit the attention of researchers. We hope that the chapters of this volume and the foregoing research questions will inspire scholars in relevant disciplines to break new grounds of intellectual enlightenment about the effectiveness of the different approaches to cooperation between poor and rich countries.

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287

Contributors

Karin Arts is Associate Professor in International Law and Development at the Institute of Social Studies in The Hague, The Netherlands. She published widely on ACP–EU development cooperation. She edited (with A. Dickson), European Development Policy: From Model to Symbol? She has advised several governmental and non-governmental organizations on the human rights and gender aspects of ACP–EU relations. Olufemi Babarinde is Academic Director of the Full-Time MBA in International Management program and Associate Professor of International Studies at Thunderbird, The Garvin School of International Management in Glendale, Arizona (USA). His research areas and publications have focused on, inter alia, African integration and regionalism, African enterprises, Nigeria, the Euro, External relations of the EU, and ACP–EU relations (e.g., The Lome Conventions and Development, 1994). Sanoussi Bilal, a Swiss national, is a Senior Programme Officer for the ECDPM's programme on ACP–EU Trade relations. With a background in international relations, economics, and international trade, his expertise and publications are in the fields of trade policies and development, economic integration, political economy, regulation, and trade-related areas. Before joining ECDPM, he worked on trade and immigration issues at the University of Geneva, on internal market issues at the European Institute of Public Administration, and trade and development issues at the Overseas Development Institute. His current activities relate mainly to the trade policies and capacity development of the African, Caribbean, and Pacific (ACP) countries and the European Union, in the context of their regional integration process and the multilateral (WTO) framework.

289

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Maurizio Carbone is a lecturer at Carnegie Mellon University and a Center Associate at the European Union Center of the University of Pittsburgh. In the past, he has taught at Duquesne University and the University of Pittsburgh. He was also a visiting scholar at Université Libre de Bruxelles and the University of Trento in Italy, and has worked for the European Commission, DG Development. He has published chapters in books edited by Nugent, van der Hoek, and articles in The ACP–EU Courier, Rivista Italiana di Politiche Pubbliche, Review of African Political Economy, Journal of International Development, and Teoria Politica. He is currently working on a book on the politics of EU foreign aid and the EU policymaking process. Gerrit Faber is Associate Professor of International Economics at the Utrecht School of Economics, Utrecht University, the Netherlands. His main research interests are trade policy issues related to European integration and development cooperation. Among his most recent book publications are Challenges to the New World Trade Organization and The External Economic Dimension of the European Union (both co-edited with Pitou van Dijck). Paul Hoebink is Associate Professor at the Centre for International Development Issues Nijmegen at the Catholic University of Nijmegen. He has taught there since 1979 in the M.A. Program in Development Studies. His research is focused on development cooperation policies, aid administration, implementation of development programs and projects, aid effectiveness, project and program evaluation. He was involved in the ‘Aid for Poverty Alleviation’ study by ten European research institutes, and the ‘Aid Administration’ study of the same, but smaller, group of institutes. His latest research is on policy coherence, good governance, and new forms and instruments of development cooperation. Part of the team evaluating the Convention of Lomé (1999), he regularly advises Dutch NGOs and the Dutch government, as well as the European Commission. Peter Macmillan is a lecturer in Economics at the University of St Andrews, Scotland. His primary areas of research include European integration and macroeconomics. Previous related publications include: “Economic and Monetary Union” (with A. M. S. Watson) in P. Barbour (ed), The European Union Handbook (FitzRoy-Dearborn: London, 1996) and “Outsider or Latecomer? The United Kingdom and EMU” (with David Cobham), The Brown Journal of International Affairs, 1999.

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Joseph McMahon is Professor of Commercial Law at University College, Dublin, where he teaches International Trade Law in the graduate program on International Commercial Law. After his undergraduate studies at the Queen's University of Belfast, he undertook doctoral research at the University of Edinburgh. His doctoral thesis, ‘European Trade Policy in Agricultural Products’, was published by Martinus Nijhoff. He writes extensively on international agricultural issues, for example, Agricultural Trade, Protectionism and the Problems of Development: A Legal Perspective (1992) and Trade and Agriculture: Negotiating a New Agreement (2001) (editor and contributor), the European Community's Common Agricultural Policy (for example, ‘The Law of the Common Agricultural Policy’. 2000) and its Development Cooperation Policy (for example, ‘The Development Cooperation Policy of the European Community’, 1998). He has also contributed to various edited collections and published articles in major legal journals on each of these issues and their interconnection. He has previously been a member of staff at the Queen's University of Belfast, the University of Leicester, and Victoria University of Wellington, New Zealand. Christopher Stevens is a Fellow at the Institute of Development Studies (IDS) at Sussex University, Brighton, United Kingdom. He has advised and written extensively on the impact on developing countries of the Single European Market, the GATT/WTO trade negotiations, the Generalized System of Preferences, and the Lomé Conventions. Dirk Willem te Velde has been a Research Fellow in the International Economic Development Group at the Overseas Development Institute in London, the UK, since 2000. He holds a Ph.D. in Economics from the University of London. He works on trade and investment policy, specializing in policy towards, and the impact of, Foreign Direct Investment in developing countries, and has advised UN organizations, the European Commission, the World Bank, and bilateral development agencies. He has published widely in international academic journals and has contributed several book chapters. He was previously at the National Institute of Economic and Social Research. Alison M. S. Watson is a lecturer in International Relations at the University of St. Andrews, Scotland. She has written on various aspects of European integration, and is particularly interested in examining the interface between politics and economics in the EU. Her primary current research lies in examining the role of children in the international system.

291

Contributors

Stephen Wright is Professor of Political Science and Director of the International Office at Northern Arizona University. He has a Ph.D. from the London School of Economics, and taught in Nigeria and Britain before moving to the United States. His teaching and research interests include the European Union, regional trade agreements, and the political economy of Africa. Recent books include Nigeria: Struggle for Stability and Status (1998), and African Foreign Policies (1999). He is currently working on a book manuscript titled Politics and Society in Contemporary Europe.

292

Index

Andean/Central American states, 117–118 Anglophone Africa, 231 Anglophone African, 234–235, 245, 247, 254 Angola, 13, 26, 103, 107, 109, 133–134, 204–205, 235, 248, 255 Antigua and Barbuda, 104, 236, 250, 256 APEC, 95 Argentina, 124 Article XXIV of the GATT, 21, 69 ASEAN, 62, 121 Association of ACP National Chambers of Commerce, 213 Australia, 237, 257–258 Austria, 23, 46, 219

AASM, 3 ACP Ambassadors, 56, 61 ACP Business Forum, 183, 192, 213 ACP Caribbean economies, 231, 236 ACP central banks, 240 ACP Deputy Secretary-General, 73 ACP exports, 4, 26, 43, 86, 102, 123 ACP Fiji Summit, 73 ACP Free Trade Area, 75 ACP Heads of State and Government, 182 ACP Pacific economies, 231 ACP Secretariat, 61, 136, 143, 170, 172 ACP Secretary General, 185 ACP-Fin group, 140 African Common Market, 68, 70, 93 African Union (AU), 34, 71 AGOA (Africa Growth and Opportunity Act), 266 Agricultural exports, 4, 123 Agricultural products, 8, 39, 44, 54, 91, 98, 233–234 Aid implementation, 9, 128, 135

Bahamas, 14, 27, 104, 236, 241, 250, 256 Banana protocol, 21, 25, 54 Bananas, 4, 21, 25, 29, 43–44, 46, 77, 97, 117, 235–236, 250, 256–257 Bank of Central African States, 227

293

Index

CEMAC, 93–94, 106, 226–227, 229, 231–233, 246, 253, 258 Central Africa, 13, 72, 106, 108, 183, 220, 227 Central African, 26, 93, 103, 157, 226, 229, 232 Central African Republic, 106, 108, 234, 258 Central and Eastern Europe, 44, 97, 234 Central Bank of West African States, 226 Centre for the Development of Enterprise (CDE), 214 CET, 97 CFA, 25, 220, 225–235, 238– 239, 241, 244–246, 253, 258– 259 CFSP, 24, 140 Chad, 13, 103, 106, 108, 226, 229, 232–233, 247, 253 Chile, 112, 124 China, 124, 220, 232, 253 CIB, 4 CID, 4 Cold War, 19, 78, 158 Colombia, 95 COMESA, 93–94, 107 Committee of Ambassadors, 30, 57, 143 Commodity exports, 21, 68 Common trade policy, 88 Commonwealth, 46, 77, 129, 208 Commonwealth Development Corporation (CDC), 208 Comoros, 13, 103, 107, 109, 226, 232–233, 247, 254, 258 Complementarity, 112, 149, 153, 188, 263

Barbados, 14, 27, 104, 174, 183, 236, 250, 256 Barcelona Accords, 66 BCEAO, 227 BEAC, 227 Belgium, 46, 135, 139–140, 219, 248–249, 255–256, 261 Belize, 14, 104, 235–236, 250, 256 Benin, 1, 13, 65, 103, 106, 108, 151, 156, 194, 226, 232, 246, 253 Berlin Wall, 19 Berne Union, 207 Bilateral investment treaties, 209 Botswana, 13, 26, 44, 103, 107, 109, 247, 254 Brazil, 123–124, 203, 232, 253 Britain, 75, 77, 129 Budget of the EC, 130, 136 Burkina Faso, 13, 103, 106, 108, 134, 175, 226, 228, 232, 246, 253 Burundi, 13, 26, 103, 107, 109, 129, 134, 235, 248, 255 CACM, 93, 121 Cambodia, 204 Cameroon, 3, 13, 103, 106, 108, 133–134, 146, 183, 194, 226– 227, 231–232, 246, 253 Canada, 95, 223, 257, 265 CAP, 35, 114, 116–118, 124–125 Capital markets, 212, 225, 239 Caribbean Policy Development Centre (CPDC), 184 CARICOM, 92, 95–97 CBI, 98 CDC, 208, 210 CDE, 149, 214 294

The Cotonou Agreement

Article 69: 148 Articles 75 and 76: 214 Article 96: 8, 11, 99, 161– 162, 169–172 Article 100: 187 Council of ACP Ministers, 25, 30, 35, 39–40, 42, 48, 63, 66, 136, 139, 141, 157, 160, 162, 166, 168, 171–172, 174, 187, 191, 224 Council of Ministers for Finance, 25 Council of Ministers of the EC, 136 Council working groups, 140– 141 Court of Auditors, 137, 140 CRNM, 95 CSO, 178, 183–184, 186, 189, 191, 194 CSP, 138, 152 CSS, 33, 149–152, 188–189, 263 Customs Union (CU), 70, 87, 94, 259 Cuba, 11, 14, 17, 157, 165, 167– 169, 173 Customs union theory, 87 Czech Republic, 19, 202, 207

Conditionality, 20, 52, 55, 145– 146 Conflict prevention, 8, 30, 51–52, 55 Congo, 13, 26, 103, 106, 108– 109, 129, 226, 229, 232, 258 Cook Islands, 15, 105, 237, 251, 257 Coordination, 58, 141, 144–145, 153, 188, 209, 263 COREPER/Coreper, 140 Corruption, 58, 163–164, 166, 201, 206, 208 Costa Rica, 208 Côte d’Ivoire, 11, 13, 106, 108, 120, 133–134, 157, 169, 172– 173, 226, 228, 231–232, 246, 253 Cotonou Annex II, Article 15: 150, 214 Annex IIIa, 48 Annex IV, Article 3: 9, 149– 151 Annex LXXXIII, 162 Article 1: 6, 160, 185, 215 Article 2: 7, 151, 156, 160, 186 Article 4: 48, 148 Article 6: 186 Article 8: 8, 156, 160–161 Article 9: 7, 161–163 Article 13: 165–166 Article 21: 212 Articles 21 and 75: 213 Article 34: 85, 216 Article 35: 92 Article 36: 215 Article 37: 86 Article 60: 98, 148

Debt relief, 28, 57–58, 140 Decentralized cooperation, 150, 179–181, 184, 190, 193, 264 Deepening integration, 24 Democracy, 19–20, 24, 34, 47, 56, 68, 80, 99, 158–159, 163, 167, 170, 173, 186, 197 Democratic principles, 7–8, 30, 47–48, 156–158, 160–162, 173, 263 Dependency theory, 83 295

Index

East African Community (EAC) , 89, 94 Eastern Africa, 72, 183 EBA, 8 EBAS, 214 European Community (EC), 39, 46, 144 EC Treaty, 7, 44, 47–48, 50, 62, 127–128, 136–137, 143, 149, 153, 224, 229–230 ECB, 219, 222–224, 229–231, 237, 239, 244 ECGD, 207–208 ECHO, 138 ECOWAS, 89, 93–94, 106, 175, 245 ECOWAS-EU Ministerial Meetings, 175 ECU, 130 EDF, 4, 8–9, 23, 27, 33, 98, 102, 128–130, 132, 134–135, 137– 141, 143–144, 147–153, 170– 172, 187, 190, 192, 194, 208, 212–213 EDF Committee, 136–139, 141, 151–152 EEC, 2, 3, 17, 40, 45, 68, 122, 131, 262 Egypt, 107, 109, 207 EIB, 33, 129, 147–149, 151, 210, 213 EKN, 207–208 Elections, 20, 82, 170–172 EMU, 219, 220, 222, 228–230, 233, 239, 242, 244–245 ENDA Tiers Monde, 184 Entebbe Declaration, 183 Entrepreneurship, 40 Environmental degradation, 42 Environmental movements, 186

Devaluation of the CFA franc, 228 Development Committee, 142 Development cooperation, 3, 7, 9, 24, 44–53, 55–57, 61–63, 65, 67–68, 74–75, 100, 127–128, 135, 139–141, 153, 156–158, 175, 166, 171, 179–180, 183, 185, 187, 191, 193, 212, 262, 267 Development Council, 66, 138, 188 DG for Agriculture, 138 DG for Enlargement, 24 DG for Fisheries, 138 DG for Trade, 138 DG VIII/Directorate-General for Development, 23, 60, 136, 138, 147 DIAGNOS, 214 Directorate-General for External Relations, 60 Dispute Settlement Body (DSB), 21, 22 Dispute Settlement Panels on bananas, 21 Diversification, 4, 26, 40, 84, 146, 241 Doha Development Round, 66, 75 Domestic saving rates, 199 Dominica, 14, 104, 236, 250, 257 Dominican Republic, 14, 104, 132–133, 170, 194, 235–236, 250, 257 Donor fatigue, 25 Dutch New-Guinea, 129 Dynamic welfare effects, 89, 100

296

The Cotonou Agreement

EU-SADC Ministerial Conferences, 175 Evaluation of EU aid, 144 Export Credit Guarantees Department (ECGD), 207

Environmental protection, 49 Environmental standards, 201, 208 EPA, 8, 10, 21–22, 31–32, 34– 35, 65–66, 68–70, 73–75, 79, 83–87, 92, 94, 96–102, 111– 115, 125, 211, 215–218, 261– 263, 265–266 EPA Negotiations, 66, 70, 73, 86, 101, 102, 115 Equatorial Africa, 129 Equatorial Guinea, 103, 106, 108, 157, 226, 229, 232, 247, 253 ESCB, 219, 230 Ethiopia, 13, 103, 107, 109, 133– 134, 146, 204, 249, 255 EU budget, 137, 179, 187, 190 EU Commissioner for development, 184 EU Council of Ministers, 66, 141, 160, 162, 166, 171–172, 174 EU Delegations, 148, 150, 183, 190, 192 EU Presidency, 167 Euro-Mediterranean FTA, 75–76 Europe-Africa Ministerial Meetings, 175 European Central Bank (ECB), 219 European Commissioner for Trade, 86 European Commission, 19, 23– 24, 42, 72, 86, 96, 128, 134, 137, 141, 147, 152, 157, 179– 182, 186–188, 190, 192, 194, 215, 217, 220, 230, 261 European Council, 19, 130, 229– 230 European Parliament, 130, 137, 142, 152, 157, 190, 224

Factor price distortions, 40 FDI/Foreign direct investment, 11, 68–69, 90, 197–200, 203, 206, 225, 241, 266 FICs, 95 Fiji, 2, 11, 15, 27, 66, 73–74, 96, 105, 157, 169, 171, 173, 183, 237, 251, 257 Financial protocol, 6, 29, 37–38, 98, 129, 136, 151 Financial services, 212, 224 Finland, 23, 63, 75, 219 Fishery sector, 204 Food aid, 130, 135, 138, 141, 146, 152 Food Aid Convention, 130 Framework of Mutual Obligations, 146 Franc of the African Financial Community (CFAF), 226– 227 France, 25, 46, 75, 129, 139–141, 167, 219, 226–230, 239, 249, 255–256, 259 Francophone African countries, 135 French Central Bank, 227 French franc, 227–228, 230, 238– 239 French Ministry of Finance, 227, 230 French Polynesia, 129 FSU, 112 FTAA, 75 297

Index

Hegemony, 80, 263 HIPC, 140 Hotel sector, 204 Human resource development, 200 Human rights, 4, 7–8, 20, 24, 30, 47–48, 56, 62, 76, 81, 99, 144, 156–161, 165, 167–169, 172–174, 186, 197 Humanitarian assistance, 129– 130, 135, 148 Humanitarian projects, 171 Hungary, 19, 232, 234, 253, 258 Hunger, 53, 80

Gabon, 13, 103, 106, 108, 226, 229, 232, 247, 254 GATS, 43, 210 GATT, 20–22, 43, 46, 69, 113– 114 GATT/WTO, 20–21, 113 Gender equality, 24, 31 Gender issues, 57 Georgetown Agreement, 169 Germany, 46, 127, 139–142, 209, 219, 229, 245 Ghana, 13, 26, 103, 106, 108, 134, 183, 245, 247, 254 Global production network, 201– 202 Globalization, 4, 22, 29, 33–34, 46, 50, 59, 67–68, 81–83, 183 GNP, 15, 103, 210 Good governance, 8, 24, 28, 30, 41, 47–48, 56–58, 99, 144, 156, 158–159, 161, 163–166, 173, 180–181, 186, 197, 211, 262–263, 266 Government-to-government cooperation, 213 Graduation, 120, 123 Grassroots organizations, 186 Greece, 63, 219 Grenada, 14, 104, 236, 250, 257 GSP, 8, 10, 40, 54, 58, 61, 86, 112–113, 115–125, 131, 263 Guinea-Bissau, 106, 108, 226, 232, 246, 253 Guyana, 14, 104, 235–236, 250, 257

IFC, 210 Migration, 11, 58, 114, 157, 161, 165–167, 173 Illiteracy, 53 IMF, 22, 69, 83, 152, 179, 226, 229, 233, 259 India, 124, 232, 253 Indicative Programs, 27, 137, 147, 149, 150, 181 Indigenous people’s representatives, 186 Indonesia, 124, 202, 253 Industrial and technical cooperation, 4 INFAC, 213 Infant Industry Argument, 91 Information asymmetry, 90 Information failure, 208 Information technology, 68 Infrastructure, 22, 35, 53, 70, 73, 96, 134, 145–146, 198–199, 203, 206, 209, 216–217, 241, 264 Infrastructure development, 198 Institutional capacity, 188

Haiti, 11, 14, 105, 132–134, 157, 169–171, 173, 235–236, 250, 257 298

The Cotonou Agreement

Labor-intensive manufactures, 98 Laos, 204 Latin and Central America, 62 Least-developed countries, 4, 8, 26, 32, 35, 72, 105, 117, 119, 135, 174, 204, 207, 210 LDC, 8, 23, 26, 77, 174, 235 LDLIC, 29 Least-developed ACP countries, 8, 86, 174 Libreville Declaration, 52–53, 182 Libya, 124 Lock-in mechanism, 95 Lomé, 87, 129 Lomé Convention, 1–6, 10, 20, 25, 27–28, 31, 33, 37–39, 41, 43, 48–50, 52, 58–59, 61–62, 65, 73, 78, 98, 112, 117, 127– 130, 135–137–138, 143–144, 147, 149–150, 156, 164–165, 169, 177–178, 182, 189, 198, 211, 213, 262 Lomé I, Article 2(2a), 39 Lomé IV, Article 1, 6 Lomé IV, Article 15a, 6 Lomé IV, Article 2, 52 Luxembourg, 63, 219

Interest rate subsidies/Interest subsidies, 150 Inter-firm linkages, 213 Internal Agreement, 136–138 International exchange-rate agreement, 224 International Finance Corporation (IFC), 210 Intra-FTA trade barriers, 88 Intra-trade inside SSA, 93 Investment guarantees, 207, 214 Investment in R&D, 203 Investment promotion, 54, 199, 208–209, 211–212, 214, 216 IOC, 93, 107 IOR-ARC, 93, 107 Ireland, 139, 208, 219 Iron Curtain, 19, 28 Italy, 46, 129, 133, 140, 219, 236, 249, 256 Jamaica, 14, 105, 132–134, 235– 236, 250, 257 Japan, 80, 220, 223, 234, 237, 254–258 Joint Assembly, 11, 143, 167 Joint Development Finance Committee, 140 Joint Ministerial Committee, 143 Joint Parliamentary Assembly, 30, 72, 149, 191

Maastricht Intergovernmental Conference, 44–45 Maastricht Treaty, 24, 143, 223, 228 Madagascar, 3, 13, 39, 103, 107, 109, 134, 249, 256 Malawi, 13, 26, 103, 107, 109, 134, 247, 254 Malaysia, 124 Mali, 13, 104, 106, 108, 134, 151, 226, 228, 232, 246, 253

Kenya, 13, 94, 103, 107, 109, 134, 146, 183, 234, 247, 254 Kiel study, 40–41 Kiribati, 15, 105, 237, 251, 257 Labor and environmental standards, 201 Labor market reforms, 212 299

Index

NAFTA, 100, 209, 265 National Authorizing Officer, 150, 189 National Indicative Programme/National Indicative Program, 27, 138, 188 National treatment, 21, 210 Nauru, 15, 105, 237, 251, 258 Negotiating Mandates, 20–21 Neo-functionalist approaches, 76 Neo-liberal agenda, 69 Neo-liberalism, 67, 69, 77 Neo-realist perspective, 80 NEPAD, 34, 198 Nepal, 204 Netherlands, 1, 17, 37, 46, 58, 63, 65, 85, 11, 127, 139, 142, 145, 155, 167, 177, 197, 219, 261 New Economic Partnership for African Development (NEPAD), 34, 198 New Zealand, 237 NGO, 66, 75, 81, 135, 142, 150, 153, 177, 179–181, 183–184, 186, 190, 192, 194 Nice summit, 76 Nice Treaty, 24 Niger, 14, 104, 106, 108, 134, 226, 232–233, 246, 253 Nigeria, 3, 14, 26, 77, 80, 99, 104, 106, 133–134, 203, 218, 232, 234, 245, 247, 254 NIP, 138, 147–149, 151, 188–190 Niue, 15, 105, 237, 251, 258 Nondiscrimination, 20, 21, 32, 35 Non-least developed ACP, 117 Non-programmable aid, 147 Non-project aid, 135

Mandates for EPA negotiations, 101 Market access to the EU, 98 Mauritius, 13, 27, 44, 104, 107, 109, 120, 234–235, 247, 254 Mediterranean, 4, 44, 46, 66, 76, 80, 130, 132, 140, 234 Mercosur, 62, 112 Mexico, 21, 32, 62, 95, 100, 112, 202, 265 MFA, 43, 114, 124 MFN, 20–21, 32, 100, 112, 117, 119, 125, 263 Micro-projects, 178, 190 Middle East, 44, 76, 132 Mid-term reviews, 138 MIGA, 207–208 Migrant and repatriation policy, 159 Migration, 11, 58, 114, 157, 161, 165–167, 173 Migratory flows, 166 Mining, 134, 152, 233–235, 237, 244, 248, 251, 264 Ministries of Development Cooperation, 139–140 Ministries of Finance, 140 Ministries of Trade, 140 Monterrey Consensus, 67–68 Morocco, 112, 202, 207 Mozambique, 13, 104, 107, 109, 133–134, 204, 249, 256 Multilateralism, 74 Multinational corporations, 83, 210 Multinationals, 199–201, 208– 211, 217 MWENGO, 183–184 Nadi Declaration, 73 300

The Cotonou Agreement

Portugal, 23, 46, 62, 75, 139, 219, 248–249, 255–256 Postmodernist perspectives, 80 Poverty alleviation, 9, 24, 47, 62, 198, 216 PPP, 103 Preferential margins, 40, 86, 91 Price distortions, 40 Price transparency, 231 Primary commodities, 4, 26, 236, 241–242, 244 Private investment, 5, 198, 206, 215–217 Private sector, 7, 9, 28, 30–32, 48–49, 150–151, 170, 178, 181–183, 186, 193, 197–198, 204, 207, 209, 211–214, 217, 221–222, 227, 238, 240–241, 264–266 Private-public sector partnership, 198 Productivity gap, 202 Program aid, 133, 135, 145, 152 Programmable aid, 147 PROINVEST-program, 214 Project aid, 134 Project cycle, 139 PRSP, 149, 151 Public-private partnership, 190, 192, 210 Pyramid of privilege, 4, 23, 62, 117, 124, 262

Non-reciprocal trade preferences, 54 Non-state actors, 11, 20, 28, 30– 31, 34–35, 150, 156, 177– 178, 180–183, 184–194, 263 Non-tariff barriers, 102, 114, 209 Non-traditional effects, 89, 102 North-South FTA, 96 North-South reciprocity, 74 NTB, 114 OCT, 2–4, 17, 39, 121–122, 131– 133, 149 ODA, 145 OECD, 49, 113, 125, 132–133, 145, 208, 210 OECD Development Targets, 145 OECD Guidelines for Multinational Corporations, 210 OPEC, 78 Pacific Concerns Resource Center (PCRC), 183 Pacific islands, 3, 71, 80, 237 Pacific region, 95, 100, 184 Palau, 15, 105, 237, 251, 258 Papua New Guinea, 15, 95, 105, 132–133, 146, 236–237, 251, 258 PARI, 98 Peace-building, 55 Peso crisis, 100 Petroleum sector, 204 Philippines, 124 Poland, 19, 232, 234, 253 Policy dialogue, 4, 83, 144, 155, 188, 197 Policy reversals, 94, 99 Political instability, 30, 42, 71

Quantitative restrictions, 40, 43 Racism, 165 Rational choice theory, 82 Reciprocity, 21, 39, 74, 86–87, 90, 98, 102, 115, 155, 215, 261 301

Index

Saudi Arabia, 124, 259 Saving capacity, 198 Scandinavian countries, 140, 167 SEM, 24–25 Senegal, 14, 104, 106, 108, 134, 183, 226–228, 232, 246, 253 Seychelles, 14, 104, 107, 109, 234–235, 248, 254 Singapore, 208 Single African Market, 72 SMEs, 209–212, 214 Social safety nets, 96, 98, 101 Social sectors, 31, 135, 142, 145 Solomon Islands, 15, 105, 133, 204, 251, 258 Somalia, 14, 104, 249, 255–256 Somaliland, 129 South Africa, Republic, 14, 32, 77, 80, 94, 104, 107, 109, 112, 140–141, 206–207, 234– 235, 241, 247–249, 254, 256, 259 South Pacific Forum, 95 Southern Africa, 72, 80, 93–94, 132, 183–184 Soviet Union, 19, 112 Spain, 23, 46, 62, 75, 139–140, 219 Special and Differential Treatment, 54, 116 SSA, 3, 5, 14, 23, 25–26, 93–95, 97, 100, 132–133, 204, 206– 207, 226 SSI, 120 St Kitts and Nevis, 14, 105, 236 St Vincent and the Grenadines, 15, 105, 235–236 St. Lucia, 14, 105 STABEX, 4, 9, 33, 56, 59, 61, 129–130, 132, 134, 146–148

Regional approach, 59, 62 Regional infrastructure, 22, 96 Regional integration, 10, 22, 32, 50, 54, 70–71, 79, 85–92, 94– 96, 100–101, 152, 188, 197, 211, 215–218, 226, 245, 262– 263, 265 Regionalism, 67, 70–72, 77 Religious organizations, 186 Rent-seeking behavior, 201 Repatriation, 59, 159, 166 Republic of Congo, 232, 258 Research institutes, 184, 186 Restrictions on remittances, 207 RIA, 87–88, 92–96, 99–100, 102, 106–107 Right to establish, 210 Rio Group, 62 Rule of law, 4, 7–8, 20, 24, 28, 30, 34, 47–48, 52, 56, 156, 161–163, 170, 173, 197, 206, 211, 262–263 Rules of origin, 29, 102, 116, 118, 120, 123 Rural development, 135, 145– 146, 152, 188 Russian Federation, 124 Rwanda, 14, 26, 104, 107, 109, 129, 133–134, 249, 256 Rwanda-Burundi, 129 Rwandan crisis, 134–135 SAARC, 121 SACU, 70, 94, 107, 254, 259 SADC, 93–94, 97, 107, 175 Sanctions, 30, 91, 94, 99–100, 170, 172 Santo Domingo Declaration, 30, 167 SAP, 90, 99 302

The Cotonou Agreement

Trade distortion, 116 Trade diversion, 87–89, 93, 97, 100–101, 113, 116, 125, 216, 262–263 Trade policy, 87–89, 94, 96, 100, 112–116, 118–119, 123–125, 203, 212 Transfer of technology, 11, 198 Transparency, 28, 68, 139, 144, 184, 186–187, 201, 231, 237 Treaty of Amsterdam, 25 Treaty of Rome, 2–3, 39, 46, 77, 127, 129–130 Treaty on European Union/Treaty on the EU, 19, 24, 44, 127, 222 TRIMS, 210 Trinidad and Tobago, 15, 27, 105, 120, 133, 236, 251, 257 TRIPS, 210 Tunisia, 112 Turkey, 256 Turkish membership, 76

Stability and Growth Pact (SGP), 223 Structural adjustment, 4, 33, 41, 71, 79, 83, 90, 98, 140, 147, 152, 182, 228–229 Sudan, 14, 26, 104, 107, 109, 133–134, 248, 255 Suriname, 15, 105, 235–236, 250, 257 Sustainable development, 6, 9, 29–31, 45, 52, 55–56, 63, 67, 163, 186, 193, 197–198, 213, 216, 218 Sustainable growth, 53 Sweden, 23, 63, 75, 139, 219, 233, 235 SYSMIN, 4, 9, 33, 56, 61, 129– 130, 134, 146–148 Tanzania, 14, 95, 104, 107, 109, 134, 194, 248, 255 Tariffs, 40, 43, 50, 88, 97–98, 102, 108–109, 113–114, 117, 119, 121, 124, 226 Tax concessions, 201 Technical assistance (TA), 49, 87, 129, 150, 153 Technological innovation, 231’ Telecommunications, 204 Terrorism, 66 Thailand, 124, 202, 232, 253–254 Tied bilateral aid, 128 Togo, 3, 14, 104, 106, 108, 226, 229, 232, 234, 246, 253–254 Tonga, 15, 105, 237, 251, 258 Tourism, 31, 212, 234–237, 248, 250–252 Trade creation, 87–89, 91, 96, 101, 216, 263 Trade deflection, 88–89

UEMOA, 93–94, 106, 226–228, 231–233, 245–246, 253, 258 Uganda, 14, 104, 107, 109, 134, 146, 157, 183, 194, 204, 234, 248, 254–255 UN, 31, 34, 56, 129, 141, 168, 259 UNCTAD, 199, 201, 203–206 United Kingdom, 46, 58, 63, 135–136, 139, 145, 179, 219 Unskilled labor, 88 UN trust territory, 129 Uruguay, 20, 43–44, 59, 124 Uruguay Round, 20, 43–44, 59 US/U.S.A/USA, 19, 21, 26, 69– 70, 75–76, 80, 97, 100, 179, 303

Index

WTO, 10, 20–22, 27, 31–32, 34– 35, 43, 46, 50, 53–54, 58–60, 66, 69–70, 82–83, 85–86, 97, 112–113, 115–116, 118–120, 123–125, 138, 174, 210, 215

221–223, 225, 232, 234–238, 241–243, 245, 253–258, 265– 266 Vanuatu, 15, 105, 237, 252, 258 Venezuela, 95, 202

Xenophobia, 165 Warlord governments, 82 West Africa, 20–21, 80, 89, 129, 132, 183–184 Western and Central Africa, 220 Women in development, 130, 135 World Bank (WB), 5, 15, 22, 26, 69, 83, 93–94, 133, 152, 179, 203, 218, 222, 258–259

Yaoundé Convention, 39, 129– 130 Zambia, 14, 26, 95, 104, 107, 109, 134, 248, 255 Zimbabwe, 14, 95, 104, 107, 109, 134, 183, 207, 248, 255

304