How effective
have Lomé preferences been?
54. In considering the future trade relationship
between the EU and the ACP countries it is of course necessary
to determine how effective past and present preferences have been
in improving ACP trade and contributing to the elimination of
poverty. There was considerable agreement in evidence as to the
figures though more doubt as to their interpretation. The Foreign
and Commonwealth Office memorandum stated that "Trade performance
has ... been poor overall and the ACP share of the EU market is
declining, from 4.7 per cent to 2.8 per cent between 1990 and
1994"[97].
55. Dr Stevens pointed out[98]
that in 1976 the ACP countries were the second most important
source of EU imports from the five developing country regions.
In contrast, by 1995 the ACP were the second least important source
of EU imports from these country groups and the only one to witness
a declining share. A similar picture was found in the share of
EU exports to the five regions. Again, the ACP had moved in the
period 1976-95 from being the second most important destination
for EU exports to the second least important. What is clear, then,
from these bare statistics is that the trade preferences granted
to the ACP have not prevented a serious decline in the trading
position of ACP countries relative to the European Union.
56. One purpose of the trade preferences was to grant
the ACP developing countries a period in which the economies might
diversify out of their traditional dependence on a few primary
products. Evidence from the University of Reading gave details
of the ACP performance in this area, "One or two ACP countries
very often account for a large proportion of `ACP' exports of
any given non-traditional export and there are substantial annual
variations in export volumes. Overall product concentration ratios
of exports are substantially higher than in comparable developing
countries, only a few countries have seen a significant decline
in their concentration ratios, and in a sample of 39 ACP countries
for which there is adequate data, only 8 countries increased the
number of products ... exported over the last 25 years"[99]
. According to the European Commission, traditional commodities
still account for around 80 per cent of ACP total export earnings.
Exports to the EU are heavily concentrated among a few products.
Manufactures account for a relatively small share of ACP exports,
and in a number of cases, this has fallen over time[100].
57. Not only does there remain a worrying dependence
on a few exported products, there is also a significant dependence
on the EU as an export market for ACP products. The EU accounts
for 58 per cent of total merchandise exports. This compares with
Latin American and South East Asian dependence on the US market
of 23 per cent and 25 per cent respectively[101]
58. Whilst there was agreement on the bare facts
of ACP performance there was some variation in the analysis of
what these facts implied. Some of the evidence received saw the
trade preferences as one reason for the failure to diversify.
This was certainly the view of MAFF with regard to the four commodity
protocols, "Although the ACP have benefited from this resource
transfer, the presence of a guaranteed high price market has reduced
the incentive for diversification and, in some cases, helped to
maintain high cost production"[102]
It was also suggested that the non-reciprocal preferences offered
under Lomé encouraged the ACP economies to remain highly
protected and thus unintegrated into the world economy. Thus the
United Kingdom Government's position paper stated, "the current
trade relationship does not encourage any of the ACP to start
opening up their own markets as part of their gradual integration
into the world economy and a liberalised trade environment"[103].
Mr Richard Eglin from the World Trade Organisation (WTO) considered
preferences to be damaging when "they conceal from the least
developed and developing countries market signals that in the
long term these countries have to integrate into the world economy"[104].
59. A closer look at the figures, however, suggested
to some that it is too simplistic to brand the Lomé trade
preferences a failure. Dr Stevens said that the data do not necessarily
support the "piece of conventional wisdom" that there
is an inverse relationship between preferences and trade performance.
He pointed to the performance of the Mediterranean countries (high
preferences) in comparison to South Asia/Latin America (low preferences)
in their exports to the EU.[105]
60. Mr Bloomer thought that "as trade instruments"
the Lomé preferences had been a success, "There is
only 7 per cent of the Lomé preferences which actually
have a differential preference of more than 5 per cent over the
other countries outside the ACP group, so where there is a significant
preference for the ACP group of more than 5 per cent the preferences
have worked considerably well and the ACP countries that have
diversified into those areas, particularly Mauritius, Zimbabwe
and Jamaica, for instance, have seen their own share of the European
Union market grow and in fact grow faster than other countries
outside the ACP group who did not have those similar preferences".[106]
According to this argument the limited impact of the preferences
is in part due to the fact that they are not generous enough to
give much advantage in most products.
61. Evidence from the University of Reading[107]
pointed to changes in the structure of ACP merchandise exports.
Non-traditional products had increased as a share of ACP non-oil
exports from 7.9 per cent in 1988 to 13.5 per cent in 1994, with
a value of ecu 1856 million (£1,259 million). There had been
some successes in export diversification, for instance in Mauritius.
With regard to ACP dependence on the EU market they emphasised
that it was important to differentiate among ACP countries. Of
the 33 African ACP countries 19 depended on the EU for more than
50 per cent of their merchandise exports but only 10 of them increased
their dependence over the period 1970-1993. Of the remaining 14
only four increased their dependence over that period. In other
words, though ACP dependence is high and trade preferences have
had little impact on it, the degree of dependence has not been
increasing. This is, however, of somewhat limited comfort. Similarly,
when the University of Reading points out that the decline in
ACP market share is due to the fact that twenty-six products account
for 70 per cent of non-oil exports to the EU with a consequent
vulnerability to the commodity markets, this merely underlines
the failure of these economies to diversify.
62. Dr Stevens gave a more detailed account of the
nature of the ACPs' trading difficulties, "The deep-seated
element is that the nature of the European economy has changed
(and will continue to change) in ways that affect its relative
demand for the types of goods that the ACP are currently able
to produce. Such changes are manifest in other OECD countries
as well with the result that the foreign exchange earnings of
ACP states are falling and, hence, so is their capacity to import".[108]
There was a decline in the relative importance of merchandise
trade and, within that trade, a decline in the value of primary
products and an increase in the share of manufactures. Thus the
ACP countries, particularly dependent on primary products, have
seen the value of their exports suffer.[109]
63. The Department of Trade and Industry admits in
its memorandum that "It is of course possible, perhaps likely,
that the ACPs' trade performance would have been even worse in
the absence of preferences. Moreover, except in cases where tariff
reductions are fully passed on to EU consumers or distributors,
preferences will increase the profitability of ACP export sales
to the EU"[110].
This argument must, of course, remain hypothetical. If we grant
that without trade preferences the ACP performance would have
been worse, we can at least conclude that, to quote again from
the DTI memorandum, "the solution to under-development does
not rest with market access alone. Developing countries need to
be able to build the necessary supply capacity to enable them
to take advantage of the trade opportunities that exist".[111]
64. All witnesses were agreed that, whatever the
value of trade preferences, they were certainly inadequate to
develop the trading performance of the ACP countries. The problem
was rather that of supply-side constraints. Mr Bloomer made clear
that the trade instruments had "failed to overcome the multiple
factors which are acting against the development of trade in Africa,
the Caribbean and the Pacific".[112]
In addition to such external problems as the debt burden and weak
foreign direct investment there were internal problems including
an "unreliable institutional environment" and crony-ism,
a lack of production and communication infrastructure, a lack
of human capital in terms of investment in health and education.[113]
The Catholic Institute for International Relations (CIIR) also
mentioned a "lack of information about opportunities for
producers..low investment and skill levels...[and] national policy
frameworks discouraging exports".[114]
65. Similar evidence came from Mr Eglin of the WTO,
"it is less to do with market access and more to do with
assisting the developing countries and the least developed countries
to produce higher quality goods, goods to an international standard,
to diversify their exports, to produce higher value added goods,
in other words to help them in situ rather than to continue
to rely only on getting rid of the trade barriers".[115]
The British African Business Association (BABA) commented that
ACP trade difficulties were "much more to do with a lack
of competitiveness than with a lack of adequate preferential margins".[116]
66. The argument as to the relative importance of
market access and supply-side constraints is not, perhaps, one
which can be resolved except by the ideologically enlightened.
Some consensus, however, emerges from the evidence - that Lomé
trade preferences have failed to stem a decline in the ACP's trading
position with the EU; that such trade preferences, however
generous, will in any event be ineffective if no action is taken
to deal with the supply-side constraints which hinder the ACP
economies from producing competitive goods. There is, moreover,
a practical point which means that any discussion about Lomé
V must concentrate on remedying supply side weaknesses. This is
the fact that the value of Lomé trade preferences is being
steadily eroded with the gradual liberalisation of the world trading
system. This is no doubt a further reason for the failure of ACP
countries to benefit greatly from the preferences.
67. The average tariff rate for industrial goods
has declined as the momentum accelerates towards multilateral
trade liberalisation. The FCO memorandum added, "The lowering
of barriers and resulting liberalisation of trade has increased
trade opportunities worldwide and the value of world trade has
increased by 49 per cent".[117]
In addition there was the prospect of agricultural liberalisation
being discussed at the next trade round of the WTO and the future
reform of the EU's own Common Agricultural Policy (CAP). This
raised the prospect of a decrease in tariffs on agricultural products
both from the EU and globally which would further affect the benefits
accruing from the Lomé preferences. The Secretary of State
was convinced that "The status quo is not an option. Trade
preferences are becoming less and less useful because the international
system is reducing barriers. Over time they become less and less
valuable because the barriers are eroding".[118]
68. The University of Reading gave further detail
of the ways that the Uruguay Round had "substantially lowered
the margin of trade preferences available to the ACP countries
under the Convention. Most favoured nation (MFN) tariffs on traditional
tropical products such as coffee and cocoa beans have been reduced
to zero, and the tariffs on industrial products reduced on average
by 38 per cent to an average of 4 per cent, although tariffs on
some `sensitive' products such as footwear, clothing and some
simple manufactures have been decreased by a smaller proportion.
Tariff escalation (increased rates of duty at higher levels of
processing) has also been reduced...further decreasing the effective
degree of tariff preferences available to the ACP on EU imports
of processed and manufactured goods".[119]
Quotas on the imports of clothing under the Multifibre Agreement
(MFA) were also due to expire in December 2004, removing another
current advantage for the ACP (ACP countries being legally exempt
from the quotas) over their competitors.
The proposals
of the European Commission
69. The current trade proposals of the Commission
in the Draft Negotiating Mandate are found from paragraph 3.2.1
of that document where the objectives of economic and trade cooperation
are defined as to:
(a) Foster the gradual and smooth integration
of the ACP economies into the world economy;
(b) Create a new trading dynamic reflecting the
parties' mutual interests and so helping stimulate increased interest
among economic operators;
(c) Strengthen EC-ACP cooperation in international
economic and trade negotiations.[120]
70. The European Union proposes a process culminating
in Free Trade Areas (FTAs) between the EU and each of the three
ACP regions (Africa, Caribbean, Pacific). This will be achieved
through "the creation of highly integrated EC-ACP economic
areas. This will involve strengthening the economic partnership
by introducing reciprocity into trade relations and extending
cooperation to other trade-related areas". The Draft Negotiating
Mandate adds, "the economic partnership will be strengthened
gradually, taking account of each partner's level of development
and the ACP countries' political commitment to regional integration".[121]
As a stage on the road to the three FTAs agreements would be negotiated
with regional sub-groups "engaged in a regional integration
process".[122]
These regional agreements would be negotiated in the five years
after the expiry of the current Convention (2000-2005).
71. The Draft Negotiating Mandate explains that "The
trade arrangements in these agreements would be aimed at gradually
liberalising trade between the partners, consolidating the ACP
countries' current access to the Community market and introducing
reciprocity for Community exports...regional economic partnership
agreements establishing free-trade areas covering essentially
all trade between the parties, excluding no sector and established
over an interim period. These agreements will also include greater
cooperation in other trade-related areas".[123]
72. The Commission assures the reader[124]
that negotiations will take account of each country's level of
development and their capacity to adapt to the liberalisation
process. Reciprocity would not be sought from the Least Developed
Countries (LLDCs) which were not part of a regional sub-group
entering into an agreement with the EU. It is envisaged that for
the first five years of Lomé V, whilst the overall Convention
("global agreement") is in place but the regional agreements
are still being negotiated the current Lomé trade preferences
will continue. This will require a further five year waiver from
the WTO.
73. The Convention will establish the procedures
and approach for the eventual conclusion of economic partnership
agreements (i.e FTAs) with each of the three ACP regions. It will
be prepared to assist studies of the impact of such agreements
on the ACP economies. Furthermore, the Convention will identify
the sub-regional groups to negotiate the regional agreements with
over the next five years. Special assistance will be given to
LLDCs which are faced with particular adjustment efforts in being
part of a regional agreement with the EU.
74. The Commission states that products originating
in the LLDCs will enjoy the same access to the EU as under the
current Convention. Moreover, the same access will be granted
to those LLDCs outside the ACP. They will all continue to benefit
from this access after the five-year period (2000-2005). Those
non-LLDCs which by the year 2005 have not negotiated regional
economic partnership agreements with the EU will migrate to the
Community's Generalised System of Preferences (GSP), taking account
of any changes to the GSP resulting from the intended revision
exercise.
75. The Commission also mentions a number of trade-related
areas for the negotiations, including effective protection for
intellectual property, the fulfilment of obligations on standardisation
and certification, the effective application of the Agreement
on the Application of Sanitary and Phytosanitary Measures, the
promotion of competition policy and consumer policy and safety,
environmental and labour standards, the establishment of a regulatory
framework for telecommunications infrastructure, the protection
and promotion of investment, liberalising the settlement of current
account transactions and ensuring the convertibility of national
currencies for such transactions, and the guarantee of free repatriation
of foreign direct investment.[125]
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