Memorandum from the Catholic Institute
for International Relations (CIIR)
CIIR has programmes in 22 countries in Africa,
Middle East, Latin America, Asia and the Caribbean. For the past
20 years, we have undertaken policy research and advocacy on the
impact of European Union policies on the development of these
regions' economies and social development. At the same time, in
half of these countries, through skillshare programmes and technical
assistance CIIR development workers have contributed to social
development in both state and non-government sectors. It is on
the basis of this experience that the following memorandum has
been written.
The Lomé Convention represents an important
model of development co-operation for two principal reasons: it
is based on a longstanding contractual relationship between two
partners each with transparent rights and obligations; it has
attempted to integrate different policies, particularly trade
and aid, in the interests of development and thus has an implicit
commitment to policy coherence.
CIIR's submission presents our analysis and
recommendations of two main themes in the context of the Lomé
renegotiation: trade/investment and the coherence of European
Union policies.
Trade/Investment and Coherence
Today, for most of the ACP countries, trade
and investment, far more than aid, determine whether they have
the opportunity for sound and sustainable development. For this
reason provisions for trade and investment are critical themes
in evaluating whether Lomé IV is effective, or a future
Lomé V can realise its goals.
Economic measures are only a means to an end.
Open markets, the "smooth and gradual integration" of
the least developed countries (LLDCs) into the global economy,
a core provision of the Maastricht Treaty, and "globalisation",
if it is not to become a new post-marxist ideology, have to be
judged empirically on whether they contribute effectively to the
Union's other development objectives of "sustainable economic
and social development of the developing countries, and more particularly
the most disadvantaged among them" and the "campaign
against poverty". The same caveat must apply to trade and
investment policies in Lomé V. The balance between building
up a domestic and export market, as Japan's development towards
post-war prosperity illustrated, is a delicate one that should
not be prejudged with simplistic formulas such as "export-led
growth" as a universal panacea.
1. Non-reciprocal trade preferences and commodity
protocols have been a key instrument of the Lomé Conventions
and will be treated first. They express a commitment to a non-protectionist
partnership with positive discrimination in favour of the weakest
partner. This commitment, of course, has not always been expressed
in practice: the retention of protectionist measures within the
European Union, particularly in the Common Agricultural Policy,
being the most notable example. One side effect of this has been
damaging dumping of cereals and beef, particularly in Africa,
depressing local production and undermining rural livelihoods.
While it needs to be acknowledged that the value
of such preferences is being eroded as tariffs are lowered, and
that their benefits can thus only be of short-term importance,
the argument that they are misguided is spurious. Mauritius, where
manufacturing industry benefited from export revenue under the
Sugar Protocol, Zimbabwe and Kenya's horticultural sector, and
Jamaica and Botswana's exploitation of the Lomé trade preferences
all illustrate that, given the right conditions, preferences and
commodity protocols can contribute to the expansion and diversification
of developing country exports. Lack of technology, transport infrastructure
and information about opportunities for producers, incomprehensible
and strict EU rules of origin, local and EU bureaucracy, low investment
and skill levels, corruption and national policy frameworks discouraging
exports, have contributed to ACP countries share of the EU market
dropping from 6.7 per cent in 1976 to 3.4 per cent in 1994.
The response to these failures needs to be contained
in new provisions in Lomé V that will target the market
opportunities and capacity of medium and small firmsboth
in and out of a vibrant "informal sector" which, in
many ACP countries, shows the most dynamism. CIIR would highlight
the future role of non-governmental organisations and local government
in strengthening this sector in "de-centralised" development,
as well as state sponsored trade capacity enhancement measures.
This will involve provision of micro-credit, training in information
technology, management, finance and marketing skills. European
measures to sponsor fairtrade products within the EU by the most
advantageous tax and tariff arrangements, ought to be part of
a new package; this will require dialogue with leading European
supermarkets.
In the long run, for most ACP countries, improving
export supply side capacity is likely to be of greater importance
than the continuation of preferences. The optimum solution is
to use preferences with other development instruments during the
next decade, to increase supply capacity and overcome supply constraints.
There will be no incentive for producers, however, unless the
SYSMIN and STABEX provisions, and national government policies,
are reformed to offer price stability and predictable income expectations
that can sustain livelihoods.
It is similarly vital that the EU should avoid
sudden cuts in preferences to the significant number of countries
most dependent on them. The case of the Windward Island banana
producers is a good example of how adjustment compensation funds
need to be in place and being disbursed before major changes
in preferential agreements are imposed by WTO decisions. The claim
in early September 1997 by the banana producers that they would
be forced to grow poppy and market opium is a telling example
of the implications of rule-based trading as an end in itself
rather than a means to development.
2. It is important that HMG does not permit
without protest the role of the WTO to be manipulated in order
to block poor countries continuing to benefit from preferential
access to the EU. The preamble to the WTO's founding document
makes clear that it is an instrument designed to raise living
standards and procure sustainable development. Likewise the provisions
for Special and Differential Treatment, and GATT article XXV which
permits a waiver with a 75 per cent majority vote, are designed
to accommodate the interests of the least developed countries
many of who are to be found amongst the ACP states. This would
indicate a certain flexibility within the WTO system.
The combined weight of the 71 ACP countries
and the member states of the European Union, with political will
and unity of purpose, could be used to find a place in the WTO
system for a continuation of preferential access in Lomé
V. It would probably help if the ACP were willing to promote the
extension of the generous Lomé trade provisions to the
world's remaining least developed countries: Afghanistan, Bangladesh,
Bhutan, Cambodia, Laos, Maldives, Nepal and Yemen (Burma, though
in this group, excludes itself through gross infringements of
Lomé human rights conditionality). Notwithstanding, this
would not resolve the problem of the non-LLDC countries in Lomé
receiving the same preferences as the least developed. Some "graduation"
from one set of provisions to another, according to levels of
the human development index or other economic criteria, may therefore
be the unpalatable requirement for the ACP to get a Lomé
V WTO waiver.
3. It is now widely, but not universally, accepted
that the different paths taken by the Asian Tigers to high growth
rates all rely to some degree on government channelling and regulation
of foreign direct investment. Yet the OECD's multi-lateral investment
agreement (MAI), which further limits governments' capacity to
regulate foreign capital, is strongly being promoted by the European
Union in order to protect investment and to place multi-nationals
under the same regime as national companies. If foreign direct
investment is to reach the least developed countries, and quantities
are negligible at present in the glut of capital flows between
the OECD countries, it must be judged exactly as trade: does it
enhance or divert the economy from sound and sustainable development?
The significant percentage of FDI that is formed
by acquisitions and mergers either is damaging, removing key companies
and their suppliers from the hands of national entrepreneurs,
or represents a lost opportunity as investment is diverted from
creating new productive assets. However developing countries are
particularly vulnerable to large multi-national corporations making
deals amongst themselves before tendering. This effectively creates
cartels which name the price for FDI to a nation-state desperate
for investment, and subsequently form effective monopolies. Construction,
water and agribusinesses have particular opportunities in the
developing world for acting in these ways.
The EU should therefore ensure in Lomé
V that ACP regions begin to introduce competition policies, with
technical assistance provided to put regulatory frameworks in
place. This should be just as much an aspect of creating a "favourable
investment climate" as reflecting the Washington consensus
of economic measures demanded of the developing world and carefully
monitored by the IMF and World Bank.
Likewise the EU should ensure that European
companies operating in ACP countries comply with minimum standards
in key areas of environmental pollution, workers' rights, and
consumer protection, as well as being subject to penalties for
corruption in the home country. It is important that ACP government
are not prohibited by bilateral or multilateral investment agreements
from insisting on a realistic degree of local sourcingthis
is equally relevant in the service sector for example for beneficial
forms of tourismand seeking taxation arrangements freeing
companies from fiscal demands at home so that developed countries
may benefit fully from some of their profits.
The encouragement of FDI by ACP countries makes
little sense in terms of capital flows while Japan and Germany
block minor forms of debt relief acceptable to the UK. Substantial
debt relief is a pre-requisite for trade and investment to have
more than palliative effects on the economic deterioration of
the least developed countries. The EU should use its voting muscle
in the world's financial institutions to press for further debt
reform and to isolate powerful actors who block it.
4. CIIR's recommendations on Lomé V and
trade/investment are:
The EU should use its influence in
the WTO and through EU trade policy to ensure that moves away
from non-reciprocal to reciprocal agreements are carefully managed
with adequate time given, technical assistance and compensation
packages for the most vulnerable effected. The EU should thus
have as a development objective the smooth and rapid adaptation
of ACP countries to the new system of EU-developing country relations.
The EU should provide an annual report
on the progress of Lomé V with a focus on the degree to
which trade/investment policy is contributing towards equitable
and sustainable development, eradication of poverty, technology
transfer and diversification away from primary commodities, as
well as a review of the success of targeted aid/trade packages.
The EU should rapidly simplify its
procedures for market access, particularly rules of origin, and
provide technical assistance and promotion of existing preferential
trade provisions targeted at poor producers in the ACP countries.
The EU should explore ways of stopping
sanitary and phytosanitary rules being used as a technical barrier
to trade and reduce the ceiling for import content in rules of
origin from 85 per cent of product value deriving from country
of origin.
The EU should support and sponsor
the creation of regulatory mechanisms in ACP regions directed
at ensuring minimum standards and provide technical assistance
and training in areas of competition policy and corporate taxation.
5. The Maastricht Treaty commits the European
Union to coherence between its development and other policies.
The council of Ministers, European Commission and Parliament are
responsible for "the consistency of its external relations,
security, economic and development policies"this is
the third item of the fundamental common provisions of the European
Union. As the flagship of European Union development policy, it
is vital that reforms in Lomé V demonstrate a coherence
in favour of the EU's development objectives. The implementation
of previous Conventions has manifestly failed to do so.
Unfortunately the Commission's Green Paper is
muted on coherence stating in perhaps realpolitik terms that coherence
can never "become an international commitment on the part
of the Community" and referring to it as "a matter of
political judgment". This is all the more regrettable given
that, de facto, Commission development thinking about Lomé
has and does try to combine trade and aid into a coherent package
even if this is far from the primary concerns of the trade directorate.
Moreover Lomé V will be affected by a range of actual or
potential future policies: the Common agricultural and fisheries
policies, CFSP, expansion of the EU, evolution of trade policy,
progress on the WTO proposal for zero tariffs to be offered to
all LLDCs etc.
For coherence to become more than a rhetorical
commitment, institutional weakness on the EU and ACP sides both
need to be addressed. This is partly a question of adequate funding
and staffing but also a lack of mechanisms for consultation. A
permanent forum for feedback from development agencies and the
private sector on matters of policy and performance is urgently
needed, beyond the useful but limited meetings sponsored by the
EU for consultation over Lomé V.
Procedures that NGOs have suggested are: establishing
inter-directorate committees within the European Commission, requiring
an annual report on progress towards policy coherence, establishment
of a clear complaints procedure enabling a range of actors to
lodge evidence of damaging incoherence, and making coherence a
regular agenda item on Council of Ministers' meetings.
6. CIIR's recommendations are:
Effective policy coherence requires
prioritisation of the EU's development objectives and this should
be made explicit . Poverty eradication should be placed as the
top priority.
Lomé V should be used as an
opportunity to move towards a coherent approach to development.
It should thus spell out future EU coherence mechanisms in some
detail including how it is intended to co-ordinate action in multilateral
organisations.
Catholic Institute for International Relations
September 1997
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