Select Committee on International Development Minutes of Evidence


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 firms—both 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 sourcing—this is equally relevant in the service sector for example for beneficial forms of tourism—and 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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