What is the Lome/Cotonou Agreement

REPAS OR RIP-OFF? A CRITICAL REVIEW OF THE COTONOU AGREEMENT FROM THE PERSPECTIVE OF THE AFRICAN, CARIBBEAN AND PACIFIC (ACP) MEMBER COUNTRIES FINAL REPORT ON CPDC COMMISSIONED STUDY by DENNIS PANTIN AND ROGER HOSEIN ECONOMICS DEPARTMENT THE UNIVERSITY OF THE WEST INDIES ST. AUGUSTINE CAMPUS TRINIDAD AND TOBAGO February 11, 2004 2 TABLE OF CONTENTS Executive Summary Introduction 1. 4 Historical Background to ACP-EU Relations and the Main Features of the Lome Agreements 5 1.1 1.2 1.3 1.4 1.5 1.6 Historical Backgrounds Main Features of the Lome Agreements Lome I (1975-1979) Lome II (1979-1984) Lome III (1984-1990) Lome IV (1990-2000) 5 6 7 7 8 8 10 13 14 15 15 16 18 21 22 22 27 27 32 35 35 37 55 56 2. The Cotonou Agreement: Broad Related Provisions 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 December 2007: End of Non-Reciprocal Reference Political Dimension Participatory Approaches Poverty Reduction New Trading Agreements Financial Cooperation Economic Partnership Agreements (EPAS) Institutional Arrangements The Everything But Arms (EBA) Agreement 3. Key ACP Concerns in terms of the Implications of the Cotonou Agreement 3.1 3.2 ACP Position on EPA Negotiations Caricom Position on EPA Negotiations 4. Summary, Conclusions and Recommendations 4.1 4.2 Summary Conclusions and Recommendations Terms of Reference References 3 List of Tables 1.1 2.1 2.2 2.3 2.4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Convention between the EEC/EU and the AASM/ACP Comparison of Lome IV and Cotonou Calendar of ACP-EU Trade Negotiations within the Cotonou Framework Development indicators, ACP countries (2001) The overall impact of the EBA in 2001 Comparison of Lome IV and Cotonou Main importers and exporters of sugar ACP/EU sugar protocol (2001) Top Ten Sugar Exporting ACP countries, 1999 Sugar Production for Caricom Countries for the period 1970-2002, tonnes Production of Rice in Caricom countries, tonnes Direct rice export to the EU in 2000 6 12 17 25 26 36 42 43 45 46 49 49 List of Figures 2.1 ACP/LLDC EBA countries 23 List of Boxes 1.1 1.2 4.1 Stabex and Sysmin Commodities with Duty Free Access to the EU from the ACP Bloc Thirty years of change to the EU Sugar Policy 7 9 44 4 INTRODUCTION The main objective of this study is to evaluate the implications of the Cotonou Agreement for ACP countries and to advance proposals for Caribbean action in response, including that of civic society engagement in the larger process. This study was commissioned by the Caribbean Policy Development Centre (CPDC) and the actual Terms of Reference are detailed in Appendix 1. The Study is divided into four (4) Chapters. The first chapter begins with a summary historical background to the EU and ACP preferential Agreements. This is then followed by a more detailed review of the Lome Agreement. Chapter 2 undertakes a similar, initial undertaking, as that of Chapter 1, but this time in terms of the Cotonou Agreement. Chapter 3 summarizes key concerns of the ACP in terms of the Cotonou Agreement. Chapter 4 concludes with a summary, conclusions and recommendations. A revised version of an earlier 1999 Study 1 on the impact of the WTO ruling on the EU‟s banana regime is provided separately. 1 Pantin, Sandiford, Henry (1999) 5 Chapter 1 Historical Background to EU-ACP Relations and the Main Features of the Lome Agreements 1.1 Historical Background Cooperation between African, Caribbean and Pacific countries and the European Economic Community (EEC) can be traced to 1957 with the European Treaty of Rome, which established the EEC 2. In 1963, the first formal convention between the EEC and a group of developing countries: the EAMA (Associated African and Malgache Countries) 3 was signed in Yaounde, Cameroon. The Convention provided 18 francophone colonies in Africa with preferential trading advantages and developmental aid. By 1969, a second convention was signed, also in Yaounde (Yaounde II), expanding the preferential base of countries to include Kenya, Tanzania and Uganda. Due to the political de-colonization of French-speaking Africa a large proportion of the Economic Development Finance (EDF) financial support was allotted to these countries. Great Britain became a member of the EEC in 1973 and, in so doing, brought onto the table for discussion its preferential trading arrangement with 20 former Commonwealth countries of the African, Caribbean and Pacific region. The Yaounde II Convention expired in January 1975 and in February of the same year, the first Lome Convention was signed in Lome, the capital of Togo. The Lome Conventions were to be reviewed at 5-year intervals between the two blocs of countries. The Lome Convention offered a system of preferential, non- reciprocal tariffs together with a system which compensated for the loss of income as a result of fluctuations on the export market, and included special considerations for a number of products. 2 The original members of the EEC were as follows: Belgium, France, West Germany, Italy, Luxembourg and the Netherlands. Denmark, Ireland and the United Kingdom joined later in 1973. 3 These countries were Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Congo (Brazzaville), Congo (Kinshasa), Cote d‟Ivoire, Gabon, Mali, Mauritania, Niger, Rwanda, Senegal, Somalia and Togo. 6 There were individual trading protocols on sugar, beef, veal and bananas, all of which continued to be featured in the subsequent Lome Conventions. In the case of sugar, the ACP producers were guaranteed an annual quota, purchased at assured prices higher than that prevailing on the international sugar market. Important Caricom sugar producers, such as Guyana and Barbados were able to benefit from the institution of annual quotas. The Lome Conventions also included development finance assistance to ACP exporters. 1.2 Main Features of the Lome Agreements Each of the Lome Conventions focused on specific areas and Table 1.1 provides a summary snapshot of these with further details provided in the body of the chapter Table 1.1: Convention between the EEC/EU and the AASM/ACP Convention Yaoundé I: Agreement between the EEC and 18 former, francophone African colonies, providing the colonies with commercial advantages and financial aid. 1969 Yaoundé II: Renewal of Yaoundé I, including Kenya, Tanzania and Uganda, introducing preferential trade arrangements for developing countries and access to raw materials for the EEC. 1975 Lome I: Convention included preferential trade agreements on most ACP products, each individual state having the right to decide on its policies, a cooperation system ensuring the security of relations, impartiality, respect for sovereignty, common interests and interdependence existing and the STABEX system for stabilization on agricultural export earnings as well as direct development aid. 1979 Lome II: SYSMIN system providing stabilization aid to mining industries in ACP countries 1984 Lome III: Attention shifts from industrial development towards food security and selfreliance. 1990 Lome IV: Focus on structural adjustment and crosscutting themes such as the encouragement of democracy, good governance, human rights; fortifying women‟s‟ role; environment safety; intensified regional cooperation and a greater role of the private sector, as a response to debt crises and famines. 1995 Lome IVrev: Underlining the importance of human rights, democracy and good governance, as well as regional cooperation. Eighth EDF is not increased in real terms. Decentralized cooperation via participatory partnerships was also fostered, with the inclusion of an assortment of civil society actors. 2000 Cotonou: Removal of most tariffs on imports from ACP group with sugar and beef and veal to be covered by proposed REPAs, and a new tariff only banana regime to be phased in. Shift towards participatory development paradigm. 2001 EBA (Everything but Arms): Immediate removal of all tariffs on all imports from LDCs except arms, with 3-stage removal of tariff and quotas on sugar, rice and bananas. Source: Bjornskov (2001), European Commission (2001) Year 1963 7 1.3 Lome I (1975-1979) The Lome I Convention provided preferential trading arrangements for ACP countries, developmental aid and the introduction of the Stabex arrangement, to facilitate the stabilization of agricultural export earnings for ACP primary agricultural commodity exports. Tariffs on agricultural and industrial products were lowered so that ACP countries exporting their products to the EEC paid a minimum of duties. However, restrictions in the form of rules of origin, quality and standards were imposed. The problems ensuing from this were minimized by way of the trade protocols for bananas, sugar, rum and beef and veal (Bjornskov and Krivonos, 2001). 1.4 Lome II (1979-1984) Cooperation between the ACP countries and the European Community, with regards to trade, agriculture, industry, communications and transport were emphasized in the Lome II Convention. ACP countries were able to export 99.5% of their products duty free. Aid via the STABEX fund totalled 647 million ECU, while Sysmin allocated 282 million ECU (see Box 1.1 for a discussion of the Stabex and Sysmin arrangements). Loans, grants and risk capital were also provided. Box 1.1: STABEX AND SYSMIN In the 1970s, the EU introduced new Economic Development Finance Instruments (EDF) in order to cope with a number of crises, which emerged in the ACP bloc of countries. With Lome I, the EU introduced the Stabilization of Export Receipts on Agricultural Products (STABEX). Via this program, the affected ACP member states were provided with funds to offset their losses on a wide range of agricultural products (specifically 47 products), including cocoa, coffee, groundnuts and tea as a consequence of either adverse price fluctuations or crop failures. In the 1970s, the EU also introduced the SYSMIN arrangement, which was designed to help those ACP member states with production concentrated in mining (especially bauxite, crude oil and manganese), diversify their economies and lower their overall dependence on mining. 8 1.5 Lome III (1984-1990) The specific objectives of the Lome III Convention were the promotion and advancement of economic, cultural and social development of the ACP States. The Lome arrangements were now beginning to alter its focus to include civil society. This Convention aimed to strengthen and increase the effectiveness of cooperation, which had been previously instituted through the first and second Lome Conventions. Principles such as equality, sovereignty, and individual rights to agree upon their economic, social and political policy options became more common with Lome III (ACP Group, 2000). 1.6 Lome IV (1990-2000) By the start of the 1990s, the paradigm shift in the thinking of international donors, in conjunction with the purview of the multilaterals, saw the Lome IV Convention focus on structural adjustment in the ACP member states. Signed by 12 EC Member States and 69 ACP countries, it was an intricate combination of several arrangements such as price stabilization, direct development assistance, non-reciprocal tariff concessions as well as a Protocol on bananas. The Banana Protocol in particular emphasized that ‘in respect of its banana exports to the Community markets, no ACP State shall be placed, as regards access to its traditional markets and its advantage in those markets, in a less favorable situation than in the past or at present’ (Raboy et al, 1993) Lome IV was both a trade and an aid agreement. The trade provisions of the ACP countries with the EU placed them at the top of the EU‟s offerings of trade preferences. Lome IV‟s main objectives were to enhance the competitiveness of ACP States in its domestic markets, as well as regionally and globally, through trade development and diversification. Importantly, many ACP countries had found themselves in a burgeoning debt situation. Several member states of the ACP group were also experiencing famine at that time. Under financial cooperation, there were several sectors which qualified for aid such as agriculture, food security, rural development, environment, fisheries, industry, mining, commodities, energy, private sector developments, services, trade, cultural, social and regional cooperation. 9 The Lome IV Convention was scheduled to last a period of ten years, with the financial protocol designed to continue for only five years. In 1994, as a result of changing features of the world economy, evidenced by rapid globalization and liberalization of international trade, some amendments to the Lome Agreement were negotiated, the results of which were formalized and published as revisions to the Lome IV Convention. In general the Lome Conventions provided, inter alia,:  Duty-free access of mainly primary exports to the EU markets, with some crucial ACP products enjoying an assured proportion of the European market as well(See Box 1.2 for further details);  Price stabilization schemes which enabled ACP countries to be compensated for instability in earnings from commodity exports by way of the STABEX fund and the SYSMIN fund.  Both the EU and its individual member states offered financial aid to ACP states. Box 1.2: Commodities with Duty Free Access to the EU from the ACP Bloc A significant number of ACP commodities can be imported into the EU without any quantitative restrictions, customs duties, or any other equivalent charges. These commodities are as follows: Wood products, woven fabrics and other textiles, footwear, hats, umbrellas, glass and glass products, articles of natural or cultured pearls, steel, iron, nickel, aluminum, lead, zinc, tin and products thereof, other base metals, nuclear reactors, boilers, machinery, turbines, engines and motors, industrial fans, air conditioning machines, refrigerators, freezer, recorded media, TV, electrical equipment, railway or tramway locomotives and parts thereof, motorcycles and bicycles, ships, boats, optical and photographic apparatus, navigational instruments, instruments and apparatus for physical or chemical analysis, gas, clocks and watches, musical instruments, toys, lamps and lighting, articles of animal, vegetable or mineral carving materials. These commodities are considered as originating in the ACP states if they were, to a large extent “manufactured” in these states, that is, with the strict stipulation that the non-originating materials must not exceed 15% of the price of the final product. It should be noted though that, processes such as packing, mixing, preparations for shipping and sale, simple assembly and dilution and other minor operations such as repairing, slaughtering, washing, sorting and so forth are deemed as being insufficient to support a claim that goods originate in a member state. This also holds for electrical power, fuel, plant, equipment and machines used in production. Originating products made up in two or more ACP states were treated as products originating in the ACP state where the last working took place. Sets shall be regarded as originating when all component articles were originating products or gone under sufficient process. Source: Francis and Wolf (2001) 10 Chapter 2 The Cotonou Agreement: Broad Related Provisions In 1995, the WTO was created and in this context there was a call by the EU to re-negotiate a new agreement with the ACP bloc. This round of negotiations led to the signature of the Cotonou Agreement in June 2000. Within months of the new 20-year Cotonou arrangement, the EU launched a new regime of special preferences, in the form of the Everything but Arms (EBA) Agreement, for the 49 Least Developed countries, some of whom fell outside of the ACP grouping. The Cotonou Agreement, signed on June 23 rd 2000 is a development cooperation agreement, and a series of formal arrangements, outlining political cooperation and preferential trade agreements between the European Union (EU) and ACP group. There is a twenty-year duration of the Agreement, with a review every five years; for each of which there will be a financial protocol. There will also be an annual revision of certain elements of the Agreement, such as the implementation procedures for financial support or sectoral policy guidelines. Article 1 of the Cotonou Agreement states its objective as being to “reduce and eventually eradicate poverty, consistent with the objectives of sustainable development and the gradual integration of the ACP countries into the world economy.” The Agreement is founded upon respect for the principles of human rights, democracy and the rule of law, reiterating the significance of good governance (Art. 9). Additionally, the Agreement concentrates on building a sound, minimum risk investment climate, which can foster economic growth in the ACP countries, invite investment support, protection and guarantees against expropriation and legal ambiguity (Art. 74-78). The Cotonou Agreement notes that these objectives can be attained via sustaining economic, human, social and political development in the ACP countries, through a variety of methods. 11 The Agreement highlights that regional cooperation, integration, and crosscutting themes such as human rights, democracy, women‟s rights, environmental protection, economic diversification and private sector development are all significant, and must play a role in the development of the membership of the ACP (Bjornskov and Krivonos, 2001). Development under the Cotonou Agreement is conditioned by respect for civil society based on appropriate conduct, good governance, 4 and respect for human rights and democracy. This new Agreement is encouraging a greater participatory approach, in that it enlists the support of social and other civic institutions. The Agreement also provides Structural Adjustment Programs, specific to the ACP state itself, which will be monitored by the National Indicative Programme (NIP) board. 5 EDF will be utilized to fund NIP, which is jointly agreed to by the European Commission and an ACP state, where development objectives are established. Aid continuity also now becomes an important issue, the aim being to create the most conducive environment to direct investments. The trade pillar can be sub-divided into current and future preferential trading arrangements. There is the proposal to reduce the tariff level on industrial and agricultural products, though this is still under negotiation. It is also expected that over time the barriers to trade in ACP countries will be reduced. The European Centre for Development Policy Management (ECDPM) has noted that the Cotonou Agreement entails several major alterations, such as the political reinforcements of the partnerships, the inclusion of new actors, a performance-based aid management and a new WTO compatible trade policy (ECDPM 2001). The political dialogue among the relevant parties will also be deeper and wider, encompassing non-traditional development cooperation issues, such as peace and security, arms trade and migration. Table 2.1 provides 4 According to Article 9 of the Cotonou Agreement, good governance can be defined as „the transparent and accountable management of human, natural, economic and financial resources for the purposes of equitable and sustainable development. There must be clear decision making by public authorities, the management and distribution of resources must also be handled according to the law and the institutions‟ operations must be transparent and accountable”. 5 This Indicative Programme, will encompass the operations and resources provided by the EU, their use and the implementation schedules. There will also be a recurring annual revision, so as to allocate a suitable amount of resources, given the level of need and performance. After 2.5 years, the Programme will undergo a performance test, as well as after the five-year period. 12 a summary comparison of some of the main elements of the Cotonou Agreement relative to the earlier Lome IV Agreement. 1) Objective 2) Length of Time 3) Reciprocity 4) „Aid Entitlements‟ 5) Essential Elements Table 2.1: Comparison of Lome IV and Cotonou LOME IV COTONOU AGREEMENT The focus was on structural adjustments and crosscutting To replace the Lome non-reciprocal preferences by free trade agreements themes in response to debt crises and famines. (FTA), beginning in 2008. Signed in 1990, it lasted for a 10-year period, with a mid- Signed in June 2000, it is valid for 20 years and will be revised once every term review in 1995. five years. There is also a financial protocol for each five-year period. Certain components of the Agreement will be reviewed annually on the basis of necessity. An example of this would be the implementation procedures for financial support or sectoral policy guideline. ACP countries have been privy to non-reciprocal trade The all-ACP non-reciprocal tariff preferences will cease to be maintained preferences granted by the EU, so that these countries are not after December 31st 2007. These may be substituted for reciprocal forced to allow EU goods into their home markets based on Economic Partnership Agreements (EPAs), negotiations on which began in special conditions. The ACP states can also tax EU September 2002. LLDCs will not be subject to this though, whereas nonproducts, whereas the former was allowed duty-free access LDCs who are unable to enter EPAs may opt for the EU‟s Generalized into the EU‟s markets. There are also immunities from non- System of Preferences (GSP), which is a non-reciprocal set of preferences. tariff restrictions, for example, import quotas. The impact of non-reciprocal trade preferences has been disappointing since: ACP countries‟ share of the EU market fell from 6.7% in 1976 to 3% by 1998. Additionally, just 10 products accounted for 60% of total exports. Countries were able to receive fixed allocations regardless of The EU will use the resources for the ACP in a more selective and flexible performance. manner. Based upon an assessment of individual country‟s needs and performance levels, aid allocations will be granted. Respect for human rights and basic freedoms, democratic Good governance was added to the list of essential elements principles, the rule of law 6) Financial Arrangements Funds were made available via a minimum of 10 cooperation instruments, which can be classified into 3 main categories: programmable aid, non-programmable aid and loan finance. 7) Agreements Trading Price stabilization, direct development assistance, nonreciprocal tariff concessions, protocol on banana Only 2 cooperation instruments: the grant facility and the investment facility. Within the former, there is a new system of programming, the Country Support Strategy (CSS). The programmable and nonprogrammable aid as well as the STABEX and SYSMIN cease to exist. The Investment Facility eliminates the Lome IV risk capital and interest-rate subsidy facilities as well. Cooperation regarding trade in services, competition policy, protection of intellectual property rights, standardization and certification, sanitary and phytosanitary measures, trade and the environment, labour standards, consumer policy, protection of consumer health Inclusion of civil society and non-state actors. 8) Participation Government Source: Bjornskov and Krivonos, 2001; Brenton, 2003; De la Rocha, 2003; Maxwell and Engel, 2003; European Centre for Development Policy Management 2001. 13 2.1 December 2007: End of Non-Reciprocal Preferences The ACP‟s non-reciprocal tariff preferences will end on December 31 st 2007. The EU has proposed that these be replaced by Economic Partnership Agreements (EPAs) with each of the ACP regions (REPAs). These agreements are proposed to be WTO-compatible, so that all trade would be included and the agreements would be implemented within 10-12 years. An EPA is, in reality, a Free Trade Agreement (FTA), where a reciprocal preferential trade agreement exists and import restrictions are eliminated by each party involved. Unlike the previous agreements, ACP countries will now have to open their markets to European products, which will result in trade liberalization costs as well as economic restructuring. The EU has offered several „plums‟ for signing on to an EPA. First, financial aid will become available to the ACP member state(s) involved. Additionally, REPA countries will be able to access an investment facility of 2.2 billion euros with a primary focus on private sector development. The Least Less Developed Countries (LLDCs) will not be subject to opening up their markets, whereas non-LDCs which do not sign on to EPAs may opt for the EU‟s Generalized System of Preferences (GSP), which is a unilateral, non-reciprocal, set of preferences, less liberal than the Lome arrangements. The tariff and non-tariff reductions, as well as the exemptions are not as favorable as compared to the previous Lome Conventions, with the rules of origin being harsher as well. Previously, ACP countries were in an advantageous position, since tariff and non-tariff preferences were granted to them, with exemptions such as import quotas. ACP countries were not required to pay customs duties on their manufactured and processed products and were not subject to non-tariff barriers. However, in order to gain access to these benefits, ACP States must ensure compliance with the rules of origin, which stipulates the degree of processing which must be undergone within the ACP countries. ACP countries must not utilize more than 15% of “non-originating” raw materials in the production of its goods. Additionally, ACP countries are unable to offer products manufactured elsewhere, but assembled in an ACP country as its original product. However, ACP States, in calculating the 14 originating component, which must not be less than 85% of the total value of the product, are allowed to „cumulate‟ the value added in other ACP countries, in the EU and other specified non-ACP adjacent countries. It is proposed that ACP countries will be privy to preferences for their agricultural products as well. However, these are not as liberal, given the existence of quotas, „ceilings‟, and seasonal restrictions for fruits and vegetables. Tropical products such as coffee and cocoa, which are not in competition with European products, are able to enter duty free. Nontraditional products such as cut flowers and tropical plants are also effectively exported since there is a significant preferential margin. Based on the EU‟s Common Agricultural Policy (CAP), some restrictions do not apply to temperate products, such as high import duties, levies, quotas and subsidies. However, these preferences have only been extended until 2008 under the Cotonou Agreement, so that ACP countries will no longer have these advantages over other exporters to the EU (ECDPM, 2001). There are five pillars which substantiate the Cotonou Agreement, these being: a wide-ranging political dimension, participatory approaches, an increased focus on poverty reduction, a new framework for economic and trade cooperation as well as a reform of financial cooperation. 2.2 Political Dimension The political dimension encompasses dialogue between the ACP and EU, in order to highlight topics of mutual concern. This dialogue would be flexible in matters, at the national, regional or ACP level. Peace-building and cooperation strategies, as well as conflict prevention are also included as part of this process. With respect to good governance, a new procedure has been agreed upon by both the EU and ACP and is to be undertaken in severe cases of corruption dealing with EDF money, where the proper allocation of funds are hampered and acts as an impediment to development. There can be the deferral of cooperation if countries are found in situations of bribery and corruption (ECDPM, 2001). 15 2.3 Participatory Approaches In the new participatory approach, adopted by the EU, non-state actors such as the civil society, economic and social players and the private sector will be given a greater opportunity to participate. Civil society (which includes churches, self-help groups, community organization, registered charities, sovereign research and academic institutions and the like) will now have increased access to pertinent information and they will be included in consultation matters. In the post Cotonou arrangement, there is also the promotion of non-state actors involvement in the execution of programmes and projects. Civil society, the private sector and trade unions, in addition to the local authorities will also be granted capacity building support. Non-state actors will now be able to access financial resources and will be deeply involved in the new programming process put forward in the Cotonou Agreement (ECDPM, 2001). This new approach is representative of the „participatory democracy‟ emerging, where the policy making process requires dialogue with key stakeholders. This new process of policy formulation is expected to increase ownership, public-private partnerships, strengthen democracy and also enhance sustainability. In order for the non-state actors to be able to participate effectively, the policy framework must be clearly defined, implementation must be in the form of a process, sufficient capacity support must be available, their new roles must be highlighted and lastly, the participation level and dialogue quality must be monitored and assessed on a regular basis (Bossuyt, 2000) 2.4 Poverty Reduction The new Agreement has established a support framework for ACP development strategies regarding poverty and its economic, social, cultural, gender, institutional and environmental dimensions will be addressed. Three critical points in this context are: 1) economic development, where the focal areas are on private sector development and investment; 2) social and human development, where emphasis is placed on social sector policies; youth 16 issues; and cultural development; and 3) regional cooperation and integration with crosscutting themes such as gender equality, environmental sustainability and institutional development and capacity building (European Commission, 2000). 2.5 New Trading Agreements Within the umbrella of the new ACP Cotonou relationship, a new trading agreement has been negotiated between the EU and the ACP States. It is based on the principle that economic growth can be cultivated through open trade policies, in collaboration with social development policies. There are several objectives regarding economic and trade cooperation, such as complete conformity with WTO provisions, the encouragement of integration of the ACP States in the global economy, to foster new trade dynamics and investment as well as an increase in the production, supply and trading capacities of these countries (ECDPM, 2001). With respect to this new trading arrangement, there are several procedures, which are involved prior to its commencement. Table 2.2 below highlights some of the significant dates with regard to the new trade negotiations. Prior to its introduction, there will be a preparatory period. Meanwhile, during the period 2000-2008, the current trade regime will be maintained. Beginning in 2000, all LDC imports were liberalized based on GSP, with the sugar, beef and veal protocols being retained. However, given the new trading arrangements, these protocols will be reviewed. Those non-LDC ACP States that are incapable of entering into EPAs will be analyzed and assessed in 2004, with subsequent alternative solutions being proposed. Thus, in 2006, the EPA negotiations will be assessed again, in order to ascertain the progress, so that by January 1 st 2008, the new trading arrangements will be in effect. Finally, it is proposed that trade liberalization will commence in 2008. 17 Table 2.2: Calendar of ACP-EU Trade Negotiations within the Cotonou Framework March 2000-September 2002 Preparations for negotiations of new trading agreements September 2002 Commencement of negotiations on new trading arrangements 2004 Exploration of alternative arrangement for non-LDCs unable to conclude EPAs 2005 (At the latest) Non-reciprocal duty free access for essentially all products of LDCs 2006 Formal and comprehensive review of progress December 31st 2007 End of preparatory period January 2008 Entry into force of economic partnership agreement 2008-2018/20 Transitional period for implementation of economic partnership agreements 2018/20 Establishment of WTO compatible free trade Source: Integrated Social Development Centre (ISODEC) ACP countries will be able to utilize the two-year preparatory period, in order to fortify their regional integration processes and their trade negotiation competence. The economic and social obstacles of the ACP States will also be taken into consideration through human and social development policies, in conjunction with economic and trade reforms. Capacity building and cooperation will also be employed, in order for the ACP States to become more involved in the global economic and trade system. As a result, it is also proposed that the regime will become completely WTO-compatible and the competitiveness of the ACP States will also be enhanced, since domestic and foreign investment will be augmented, the transfer of know-how and technology will also be boosted and ACP States will be able to experience a smoother integration into the world economy (ECDPM, 2001). Within the trade-related aspect, there has been the agreement on the issue of cooperation as well as on such topics as trade in services, competition policy, protection of intellectual property rights, standardization and certification, sanitary and phytosanitary measures, trade and the environment, labour standards and consumer policy and protection of consumer health (Overseas Development Institute, 2003). 18 2.6 Financial Cooperation There are several fundamental principles as to the financial pillar of the Cotonou arrangement. Firstly, the EU‟s aid to the ACP countries must not only be evident but also efficient and accommodating. For instance, the rolling programme where the „good performers‟ will receive more money, while the „bad performers‟ receive less, will be revised on a regular basis, ensuring flexibility and ongoing information as to the developments in the country. Also, each country is responsible for its policies and will need to perform in order to gain financial aid. Entitlements will not be mandatory or automatic, but based on performance as well as need. The need criteria of the ACP member States will be validated by per capita income, population size, economic and social development indicators, such as The Human Development Index (HDI) and the degree of debt and export earnings dependency. Performance will also be assessed via the following:       The degree of completion regarding the implementation of institutional reforms, especially in areas such as respect for human rights, democracy and rule of law; The transparent and responsible management of resources, as well as the quality of budget management; The quality of dialogue and respect for stipulated timetables for execution and reviews of strategies and plans; The level of public expenditure to fight poverty, the quality of poverty-fighting programs in addition to those which seek to increase the status of women; Environmentally-conscious management and a dedication to natural resources conservation; and The performance of macroeconomic and sectoral policies such as fiscal balance, debt sustainability and economic and trade balance and the promotion of competition and private sector development (ECDPM, 2001). 19 Due to the intricacies of the Economic Development Finance (EDF) instruments, these have been regrouped and rationalized. Prior to this, these instruments operated on their own set of procedures, creating fragmentation as well as inconsistency with respect to dialogue. The allocation system was also inflexible so that presently, EDF resources are concentrated in two instruments; the first entails the provision of grants and another for the provision of risk capital and private sector loans, (ECDPM 2001). In relation to the first instrument, a specific amount will be apportioned to each country, which can then be utilized for macroeconomic support, sector programmes, traditional projects and programmes, debt relief and to aid export earnings shortfalls among other issues. It must be noted that there is now more flexibility, and the ability to re-allocate funds where necessary in light of new developments and other issues. The resources will not be restricted to only one purpose, but can be utilized where there is maximum need. Those operations funded by the grant mechanism will be overseen by a single Country Support Strategy (CSS). One will exist for each ACP country and will provide an analysis of the political, economic and social factors, charting the development strategies of each country. This system will also ascertain the level of significance of any aid funding programs and those areas where a comparative advantage exists. In turn, the EU will respond accordingly. The Lome IV risk capital and interest-rate subsidy facilities will be substituted for by the Investment Facility (INFAC), under the management of the European Investment Bank. 6 The objectives of INFAC are to encourage investment, both internationally as well as regionally, fortify the ACP financial institutions, financial and capital markets as well as assist the private sectors‟ development via project financing, to name a few. In order to achieve these objectives, risk capital will be provided as follows. According to ECDPM (2001), there will be equity participation in ACP firms as well as quasi-assistance. Foreign and local investors in addition to lenders will also be able to access guarantees and other credit improvements. Given that specific conditions are present, ordinary loans subject to concessions will also be 6 Its establishment will require EURO 2,200 million from the 9th EDF. 20 granted to small businesses, financial institutions as well as to privatised public enterprises. It will act as a revolving loan, operating across all economic sectors, where proceeds ensuing from its operations will return to the Facility. The Facility aims to build up the local financial institutions, capital markets and influence foreign investment as well, and will concentrate on those areas of intervention and operations which private capital or local financial establishments are unable to fund. Thus, the capability of the ACP private sector and public sector, as a result of this, will be enhanced, increasing the efficiency and global competitiveness. Additionally, more trade opportunities will now be open to the ACP economies. Apart from the Investment Facility, the ACP private sector is privy to several other instruments as well, such as DIAGNOS (Development of the Private Sector and the ACP-EU Partnership), EU-ACP Business Assistance Schemes (EBAS) and PROINVEST (A programme of the ACP Group and the European Commission for the promotion of investment). DIAGNOS, in collaboration with the ACP Governments, regional organizations as well as the European Commission, will seek to analyze and distinguish those limitations acting upon the investment and business environment. Subsequently, in order to aid private sector development, programmes will be designed and implemented based on a review of the macro-economic business and investment situation. DIAGNOS will assist the ACP governments, in order to support the private sector through the establishment of an appropriate institutional, legislative and regulatory framework. Studies, dialogue and workshops will also be undertaken, in accordance with its aim as well (ECDPM, 2001). EBAS‟ aim is to enable ACP firms to become more competitive as well as enhance the private financial and non-financial conciliators capacities. Short-term consultancy services are promoted so as to increase the competitiveness of enterprises and intermediaries. Firms are privy to grants of a maximum of 70,000 Euros within the total budget of EBAS of 20 million Euros (ECDPM, 2001) The objective of PROINVEST is to act as facilitator and supporter of investment within the ACP private sector. Initiated in 2001, business to business meetings as well as pre and post 21 project support have been undertaken in order to ensure ACP and European countries are in contact with each other and to also encourage investment in ACP countries. This, in turn will increase the private sector firms ability to engage in policy dialogue with its governments as well. 2.7 Economic Partnership Agreements (EPAS) One of the principal reasons given by the European Union for the phasing out of the Lome Convention and for the negotiations on the Cotonou Agreement was the widespread perception that the Lome Convention, operating through the GSP, offered generous access to the EU market but, was not beneficial to the majority of EU countries. The reason for this is that most ACP member states lack the necessary productive, technical and marketing skills amongst others which are required to take advantage of the access to the EU markets. Another aspect of the Cotonou Agreement is the proposal that the Economic Partnership Agreements (EPAs) should be signed between the ACP countries and the EU with negotiations targeted to be completed by 2004. The liberalization of ACP-EU trade has been scheduled to commence on January 1 st 2008 and to extend for a transitional period of approximately 12 years (Gonzales 2002). ACP countries have been given an outlet, via the EPAs, to renegotiate necessary and important changes, with respect to their trading relationship with the EU as well as with themselves (Rocha 2003). EPAs are being projected as a development instrument. Trade facilitation issues, such as rules of origin and certificates of origin and customs procedures must be renegotiated. Rocha suggests that as a result of the provision in the Cotonou Agreement for improved technical assistance such as standards and quality assurance and accreditation, sanitary and phyto-sanitary procedures, as well as domestic regulation concerns such as competition norms and instrument policies, certain areas of the EPAs will also have to be renegotiated as well. (Rocha, 2003) Rocha concludes that such renegotiation could prove to have significant benefits in two areas. First, ACP countries can benefit from a renegotiation of the current rules of origin and customs procedures, especially as the exporters from these countries are bogged down by 22 these rules. Secondly, ACP countries, through the importance placed on non-tariff matters, can link the negotiation and completion of EPAs, so that they can engage in further regional integration, as well as interact with the international economy concurrently (Rocha, 2003). 2.8 Institutional Arrangements Three joint institutions form the hub around which the ACP – EU agreement is founded, these are the ACP – EU Council of Ministers, the Committee of Ambassadors and the Joint Parliamentary Assembly. These institutions overseer the overall ACP – EU agreement and the two instruments that are deployed to channel resources to the ACP states, these being grants to supports the long term development of the ACP states and an Investment Facility that support financial stability and facilitates loans to the private sector. 2.9 The Everything But Arms (EBA) Agreement The EBA was introduced by the EU in 2001 and provides duty free access to the imports of 49 least less developed countries (LLDCs), some of which are member states of the ACP group.(See Figure 2.1 for list of countries) The EU‟s argument is that the EBA would substantially enhance the growth prospects of these 49 LLDCs by promoting their exports, with the EBA, liberalization on the import of all commodities started immediately, excluding rice, sugar and bananas. For rice and sugar, there is in place duty free quotas, which would increase progressively on an annual basis. The transitional period for bananas is up to 2006, and up to September 2009 for rice and sugar. It is important to recognize though, that a substantive amount of the commodities, which receive duty free treatment under the EBA, were already receiving duty free treatment under the existing GSP or Cotonou arrangement. The EBA proposes to extend the amount of quota free access it offers to the EU market to the remaining 919 of the remaining 10,200 tariff lines. 7 These 919 remaining tariff lines are predominantly agricultural goods (Brenton, 2003). 7 44 of these would have delayed implementation. 23 ACP countries Antigua and Barbuda, Bahamas, Barbados, Belize, Botswana, Cameroon, Congo, Cook Islands, Cote d`Ivoire, Dominica, Dominican Republic, Fiji, Gabon, Ghana, Grenada, Guyana, Jamaica, Kenya, Marshall Island, Mauritius, Micronesia, Namibia, Nauru, Nigeria, Niua, Palau, Papua-New Guinea, Seychelles, South Africa, St Kitts & Nevis, St Lucia, St Vincent, and the Grenadines, Suriname, Swaziland, Tonga, Trinidad and Tobago, Zimbabwe Angola, Benin, Burkina Faso, Burundi, Cape Verde, Central African Republic, Chad, Comoros, Congo, DR Djibouti, Eritrea Ethiopia, Gambia, Guinea Equatorial, Guinea-Bissau, Haiti, Kiribati, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Samoa, Sao Tome e Principe, Sierra Leona, Solomon Island, Somalia, Senegal, Sudan, Tanzania, Togo, Tuvalu, Uganda, Vanuatu, Zambia. LDC countries Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, Maldives, Myanmar, Nepal, Yemen Figure 2.1: ACP/LLDC EBA countries An important feature of the EBA is that it is embedded in the EU‟s GSP scheme and access to the EU market is governed by the rules of that scheme. 8 At present, the ACP countries can, if they wish, continue to export to the EU under the Cotonou Agreement, the rules of which governing preferential access are in important aspects, different to those of the GSP. A key difference between the EBA and other unilateral preferences granted by the EU is that preferences for the least developed countries are granted for an unlimited period and are not subject to periodic review. This contrasts with the current GSP scheme, which will cease at the end of 2004. As such, the EBA should provide investors with greater certainty of market access to the EU and therefore, stimulate greater capacity in the production of existing products and an environment facilitating to the export of a wider range of products. This is a crucial aspect of the EBA. Of the 919 product lines liberalized under the EBA, imports from 8 The main difference between an EBA and other unilateral arrangements is that preferential and differential treatment is given to the least developed countries over an indefinite time horizon. This is in obvious contrast with the GSP scheme, which will be dissolved in 2004. The EBA will improve and assure market access and will hence facilitate increases in production and export opportunities. 24 the LDCs were recorded in just 80 of the tariff lines in 2000, with 13 of these lines being products where full liberalization is delayed. The EBA initiative would result in the immediate removal of all tariffs and duties from the beneficiary states into EU. The non-ACP beneficiaries include Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, Maldives, Myanmar, Nepal, and Yemen. It is noteworthy that 40 of the beneficiaries of the EBA are currently ACP states, significantly though, all Caricom countries are excluded. The EBA can be compared to no other agreement on EU commitment to the extent that it guarantees unrestricted access to all goods from the LDCs (except arms). Table 2.3 shows some of the basic characteristics of countries which are engaged with the ACP membership and which will qualify under the EBA arrangement for duty free access to the European market. The ACP membership has an approximate population standing at 591.3mn of which 6.4mn are from Caricom. In comparison to other members of the ACP grouping the per capita income of Caricom countries is higher than those of the rest of the ACP membership. In general, Caricom member states are also much more open than those in the non-Caricom ACP. In addition, the overall Human Development scores of Caricom member states are higher than those located in the non Caricom ACP. According to Brenton (2003), the impact of the EBA is evidenced by a fall off in ACP exports of those products liberalized under the EBA in 2001 from 10.5m Euro to 3.3m Euros, a decrease of 68.2%. In the same interval, however, the exports to the EU of the non-ACP countries increased by 105% between 2000 and 2001. As concerns those products which would be exported under the EBA in a delayed fashion, bananas, rice and sugar experienced the following export trends for the period 2000 and 2001. The exports of all LDCs of these commodities contracted from Euro 62.9m in 2000 to 60.6m in 2001. In the same time period the exports of ACP countries to the EU decreased from 62.9m in 2000 to 60.5m in 2001 a decrease of 3.6%. In this same time period, however, the exports to the EU of non-ACP 25 countries of these products under the EBA which have delayed liberalization increased from Euro 59,000 to 74,000, an increase of 25%. Table 2.3: Characteristics of ACP countries Table 2.3: Development indicators, ACP countries (2001). Country GDP per capita (PPP US$) 2001 Population millions Life expectancy at birth Imports of goods & services (as a % of GDP) 2001 Exports of goods & services (as a % of GDP) 2001 HDI 2001 Antigua and Barbuda Bahamas Barbados Belize Dominica Grenada Guyana Jamaica St Kitts & Nevis St Lucia St Vincent & The Grenadines Suriname T&T Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Comoros Congo Rep Congo, Dr Cote d‟Ivoire Djibouti Dominican Republic Eritrea Ethiopia Fiji Gabon Gambia Ghana Guinea Guinea Equatorial Guinea-Bissau Haiti Kenya Lesotho 10,170 16,270 15,560 5,690 5,520 6,740 4,690 3,720 11,300 5,260 5,330 4,599 9,100 2,040 980 7,820 1,120 690 1,680 5,570 1,300 1,070 1,870 970 680 1,490 2,370 7,020 1,030 810 4,850 5,990 2,050 2,250 1,960 15,073 970 1,860 980 2,420 0.1 0.3 0.3 0.2 0.1 0.1 0.8 2.6 … 0.1 0.1 73.9 67.2 76.9 71.7 72.9 65.3 63.3 75.5 70 72.2 73.8 79 … 52 74 64 70 111 56 73 61 62 85 43 62 28 35 26 18 29 57 15 53 29 17 50 32 63 32 76 31 63 41 71 70 29 … 10 33 35 86 69 … 48 55 51 59 95 41 44 48 46 68 55 74 15 51 10 6 32 26 12 14 16 18 84 39 45 24 21 15 69 60 54 52 28 … 41 13 26 34 .798 .812 .888 .776 .776 .738 .740 .757 .808 .775 .755 .762 .802 .377 .411 .614 .330 .337 .499 .727 .363 .376 .528 .502 .363 .396 .462 .737 .446 .359 .754 .653 .463 .567 .425 .664 .373 .467 .489 .510 0.4 70.8 1.3 71.5 Non Caribbean ACP countries 12.8 40.2 6.4 50.9 1.7 44.7 12.3 45.8 6.4 40.4 15.4 48 0.4 69.7 3.8 40.4 8.1 44.6 0.7 60.2 49.8 48.5 3.5 40.6 16.1 .28 0.7 46.1 8.5 66.7 3.8 52.5 67.3 45.7 0.8 69.3 1.3 56.6 1.4 53.7 20 57.7 8.2 48.5 0.5 49 1.4 45 8.1 49.1 31.1 46.4 1.8 38.6 26 830 16.4 53 570 11.6 38.5 810 12.3 48.4 1,990 2.7 51.9 9,860 1.2 71.6 1,140 18.2 39.2 7,120 1.9 47.4 890 11.1 45.6 2,570 5.5 57 1,250 8.1 38.2 6,180 0.2 69.5 1,317 0.2 69.4 1,500 9.6 52.3 17,030 0.1 72.7 470 4.6 34.5 1,910 0.5 68.7 1,970 32.2 55.4 11,290 44.4 50.9 520 35.6 44 1,650 4.7 50.3 1,490 24.2 44.7 5,670 24.8 73.5 780 10.6 33.4 2,280 12.8 35.4 289,169 591.3 3,508.08 ACP total Source: compiled from data in the Human Development Report (2003). Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Niger Papua New Guinea Rwanda Samoa Sao Tome and Principe Senegal Seychelles Sierra Leone Solomon Islands Sudan South Africa Tanzania Togo Uganda Venezuela Zambia Zimbabwe 32 38 42 51 63 44 66 25 43 26 82 86 38 113 37 … 16 25 24 50 26 18 37 21 3,621 29 26 31 38 64 22 54 17 47 9 33 38 30 85 17 … 13 28 16 33 12 23 27 22 2,317 .468 .387 .337 .454 .779 .356 .627 .292 .548 .422 .775 .639 .430 .840 .275 .632 .503 .684 .400 .501 .489 .775 .386 .496 63.2 Table 2.4: The overall impact of the EBA in 2001 Exports of Products Exports of Products under the EBA with Delayed Liberalization liberalized under the (Bananas, Rice, Sugar) EBA in 2001 2000 2001 2000 2001 2000 2001 10657 3658 10505 3344 152 313 Exports to the EU of all LDCs (000) Euro 62963 60670 Exports to the EU of ACP countries 62904 60596 Exports to the EU of Non ACP Countries 59 74 27 Chapter 3 Key ACP Concerns in Terms of Implications of the Cotonou Agreement In previous ACP-EU cooperation agreements, all ACP countries enjoyed non-reciprocal tariff preferences for their products on EU markets. But the reverse was not true. ACP countries do not grant preferential treatment to European products. Under the Cotonou Agreement, it is proposed that this will change after 2008 when EPAs come on-stream. 3.1 ACP Position on EPA Negotiations EPA negotiations were launched in Brussels, on September 27th 2002 and are to be conducted in two phases:  The first phase entails negotiations at all-ACP-EU levels, addressing mutual topics of interests.  The second phase will be at an ACP country and region level, so that individual details can be addressed. 3.1.1 Principles and Objectives of EPAs 1) Principles Development-Oriented EPAs It is important for EPAs to act as development instruments in light of the fact that of seventy-eight ACP countries, forty are classified as least-developed countries (LDCs). Thus, there must be poverty eradication and sustainable development. Additionally, there must be consideration of the circumstances of these ACP countries, especially economic, social, environmental and structural ones. 28 Regional Integration EPAs should have, at its core, integration objectives, whereby regional integration of the ACP countries are fostered and not sabotaged. The ACP‟s strength lies in its ability to negotiate as a single group and not individually or regionally. Preservation of the Acquis Given that the ACP countries have been privy to preferential access to the EU for many years, then the EPA should uphold and develop this access, in accordance with Article 36:4 of the Cotonou Agreement. Thus, a revision must take place so as to ensure WTO- compatibility, as well as the protection of their benefits. WTO Compatibility EPAs should be WTO compatible and must also take into consideration any progression or changes in the rules, ensuring that flexibility is also maintained. Special and Differential Treatment All ACP States must be privy to special and differential treatment, especially those LDCs which are disadvantaged by their size, are landlocked and may also be island countries. 29 2) Objectives a) The strategic objectives of the ACP States include the following:  The attainment of sustainable development, the elimination of poverty as well as a smooth and gradual integration into the world economy.  The realization of sustainable economic growth, private sector expansion, boost in employment levels as well as better access to productive resources.  The intensification of ACP countries production, supply and trading ability as well as its ability to interest investors and also fortify its trade and investment policies.  Via diversification and increased value-added, ACP States seek to shift from its dependence on the production of primary products as well as its natural resource-based sectors.  Transformation of ACP countries into knowledge-based economies, which are able to compete in a globalized world, taking advantage of new opportunities as well as hosting new investment.  Remedy infrastructural and legal and administrative problems related to the export of goods and services to the EU.  Establishment of a financial facility separate from the EDF in order to enable the financing and hence, execution of the EPAs. b) The specific objectives of the ACP Group can be classified into: i. Market access ii. Trade-Related Issues iii. Development Support of EPAs i. Market Access  Agriculture and Fisheries: ACP states desire that its agricultural products be privy to export subsidies and domestic support as well. 30 Issues related to the LDCs, Small Island Developing States (SIDS), landlocked countries, heavily-indebted and net food-importing nonLDCs along with PMDT (processing, marketing, distribution and transport) must also be addressed. Non-trade issues such as rural development and environmental protection must be considered as well. The fisheries sector is also crucial so that some form of regional fisheries agreement can be negotiated.  Trade in Services: There must also be a boost in ACP countries capacity, efficiency and competitiveness in relation to its supply of services such as labour, business, tourism and so on, in order to enlarge its value and volume of goods and services traded. The EU should also offer some sort of support in order to develop the ACP services sector, considering each specific country and situation as it becomes necessary. Additionally, a safeguard mechanism with regard to trade in services must also be established and implemented.  Rules of Origin: ACP states aim to work out an efficient and transparent system so as to allow goods to be traded in a timely fashion in the absence of problems.  Customs Procedures/Trade Facilitation: There must be systems in place which can identify and extract fraudulent and illegal customs activities, enabling trade to continue without any hiccups. Facilitation of trade is important so that the customs procedures will require simplification and also lower the administrative costs involved as well. Improved communication is necessary between the EU and ACP, so that methods must be established and also executed, in light of this goal.  Safeguards: First and foremost, ACP countries must be able to shelter its domestic industries in the event that imports originating in the EU are proving to be harmful. 31 ii. Trade-Related Issues  Competition Policy: There is a need to enhance the legal and administrative aspects, as well as initiate effectual competition policies. Mechanisms must also be put in place to prohibit EU firms from threatening ACP domestic ones. The MNCs restrictive business practices must also be taken into account and dealt with.  Intellectual Property Rights: The owners and users of technology must be able to benefit equally. There should also be an intellectual property protection regime which stimulates both innovation and technological development in ACP states.  Standardization and Certification: In order to assist in trade, standardization, certification and quality assurance issues between the ACP states and EU should be as similar as possible. Support should also be given to the ACP in order to boost its capabilities in areas such as conformity assessment, standardization and also in the establishment of certification institutions. Thus, when these are established, the ACP and EU should be able to cooperate more effectively. iii. Development-Support of EPAs  Supply-Side Constraints: These constraints have hampered ACP states from accessing the Lome trade preferences. Thus, the EPA should include procedures to deal with problems such as poor infrastructure, low labour productivity, erratic provision of public utilities and so forth.  Transport: With an aim of engaging intra-ACP, regional as well as international trade, the EPA should endorse support for maritime, air and land transport services which are not only efficient but also profitable as well. 32  Measures to Address Adjustment Costs: Due to adjustment costs related to the implementation of the EPAs, the ACP states should have all their debts to the EU cancelled, extra resources, apart from the EDF, should be granted together with technical assistance and knowhow should be provided and an investment promotion package should also be included. 3.2 CARICOM Position on EPA Negotiations According to Gonzales (2002), there are several key areas which must be examined in the context of the Caribbean. The following is an analysis of factors which influence the Caribbean‟s participation in the EPA negotiations. 3.2.1 Fiscal Dependence Many Caribbean countries are highly dependent upon trade taxes. Thus, it is clearly evident that due to trade liberalization and the Cotonou Agreement, many countries will be negatively affected by this loss in trade revenue. According to Gonzales (2002), out of 16 countries, 10 showed a high dependence on trade taxes, while Haiti and Jamaica had moderate levels. Meanwhile, only Trinidad and Tobago and Guyana exhibited no dependence on trade taxes. Estimates also reveal that there is a possibility of a 60-78% fall in trade taxes. Therefore, during the EPA negotiations, it is inherently necessary for some sort of alternative revenue source to be established. 3.2.2 Adjustment Costs As seen above, adjustment costs will be necessary for the Caricom countries. These adjustment costs will also give rise to negative short-run effects such as a decrease in employment and output levels and also a loss in human capital explicit to certain industries and firms. Additionally, it is well known that many of these small islands face balance of payments problems and fluctuations in government revenue, leading 33 to macroeconomic instability. Many Caribbean economies export primary products and are agriculturally-based. Thus, these islands may face employment problems since many of the jobs are within these industries. Furthermore, it is evident that there is a lack of competitiveness which will cause the adjustment costs to become even higher. In this regard adjustment costs will be quite high for several reasons and are listed below:  There are few firms and those which exist are quite small, necessitating the need to set up new ones;  Firms tend to be largely concentrated in one area or location;  There is a deficiency in available investment prospects;  There has been a lack of specialization in human and physical capital which would, in turn, increase the value-added of some service areas.  Labour inflexibility and general factor immobility, inhibiting the transference of specialized skills;  Extreme dependence on trade taxes, resulting in a greater fiscal deficit as well as inflation.  Caribbean economies have not as yet attained sustainable development and hence will require a longer period of adjustment. Clearly, the EPA will need to entail some form of support mechanism, so that the Caricom islands may be able to adjust smoothly and also integrate into the world economy. According to Gonzales (2002), prior to the Caribbean economies participation in the EPA, their varied size as well as levels of development must be taken into consideration. There must be some degree of flexibility, where negotiation occurs based on individual issues. Additionally, the LDCs, small economies and landlocked countries must be granted leeway so that they will be able to meet the requirements of the EPAs as well as the time periods. 34 Another area, which the EPA must consider, entails that of balance of payment provisions. This is especially important since most of the LDCs, small and landlocked economies face balance of payments problems and hence, the EPA must ensure that additional time as well as facilities are granted, so as to allow their tariff structures to be adequately flexible. Additionally, these facilities will allow for the placement of quantitative restrictions during periods of increased import demand and hence, the balance of payments will be protected. The EPA must entail a transitional time period so that economies may be granted adequate time to ensure that there is compliance with tariff reductions, rules of origin, safeguards, trade remedy laws as well as investment, standards, SPS and customs procedures since, according to Gonzales (2002), observers have stated that the exclusion of some of these may increase trade transaction costs. There should also be flexibility so that economies lacking proper legislative, administrative and human resource abilities will be able to implement that which is necessary as part of the Cotonou Agreement and other laws and regulations such as TRIPS. The EPA should include some form of financial and technical assistance as well which should be very simple as well as applicable. Those economies that require structural, institutional and legislative reforms will find the technical assistance quite helpful. It will also aid their trade development abilities and further assist their smooth integration into the world economy via meeting international agreements. This assistance will also be necessary through structural adjustment loans, budgetary support, sector adjustment loans, rehabilitation loans, innovation loans,etc. Export support services will also be required in order to boost the small firm‟s chance of exporting and becoming a part of joint venture partnerships. Furthermore, information barriers may exist for new firms or small ones, so that assistance will be necessary and should be included in the EPA. 35 Chapter 4 Summary, Conclusions and Recommendations 4.1 Summary The main objective of this study was to evaluate the implications of the Cotonou Agreement for ACP countries and to advance proposals for Caribbean action in response, including that of civic society engagement in the larger process. This study was commissioned by the Caribbean Policy Development Centre (CPDC) and the actual Terms of Reference are detailed in Appendix 1. The Study is divided into four (4) Chapters. The first chapter begins with a summary historical background to the EU and ACP preferential Agreements. This is then followed by a more detailed review of the Lome Agreement. Chapter 2 undertakes a similar, initial undertaking, as that of Chapter 1, but this time in terms of the Cotonou Agreement. Chapter 3 summarizes key concerns of the ACP in terms of the Cotonou Agreement. Chapter 4 concludes with a summary, conclusions and recommendations. A revised version of an earlier 1999 Study on the impact of the WTO ruling on the EU‟s banana regime is provided separately9. Chapters 1-2 trace the evolution of EU-ACP relations from the first Yaounde Convention of 1957 to Lome IV. Chapter 3 then turns to a comparison of the main features of Lome IV versus the Cotonou Agreements. Table 4.1 below provides a summary of this comparison. 9 See Pantin, Sandiford, Henry (1999) 36 1) Objective 2) Length of Time 3) Reciprocity 4) „Aid Entitlements‟ 5) Essential Elements Table 4.1 Comparison of Lome IV and Cotonou LOME IV COTONOU AGREEMENT The focus was on structural adjustments and crosscutting To replace the Lome non-reciprocal preferences by free trade agreements themes in response to debt crises and famines. (FTA), beginning in 2008. Signed in 1990, it lasted for a 10-year period, with a mid- Signed in June 2000, it is valid for 20 years and will be revised once every term review in 1995. five years. There is also a financial protocol for each five-year period. Certain components of the Agreement will be reviewed annually on the basis of necessity. An example of this would be the implementation procedures for financial support or sectoral policy guideline. ACP countries have been privy to non-reciprocal trade The all-ACP non-reciprocal tariff preferences will cease to be maintained preferences granted by the EU, so that these countries are not after December 31st 2007. These may be substituted for reciprocal forced to allow EU goods into their home markets based on Economic Partnership Agreements (EPAs), negotiations on which began in special conditions. The ACP states can also tax EU September 2002. LLDCs will not be subject to this though, whereas nonproducts, whereas the former was allowed duty-free access LDCs who are unable to enter EPAs may opt for the EU‟s Generalized into the EU‟s markets. There are also immunities from non- System of Preferences (GSP), which is a non-reciprocal set of preferences. tariff restrictions, for example, import quotas. The impact of non-reciprocal trade preferences has been disappointing since: ACP countries‟ share of the EU market fell from 6.7% in 1976 to 3% by 1998. Additionally, just 10 products accounted for 60% of total exports. Countries were able to receive fixed allocations regardless of The EU will use the resources for the ACP in a more selective and flexible performance. manner. Based upon an assessment of individual country‟s needs and performance levels, aid allocations will be granted. Respect for human rights and basic freedoms, democratic Good governance was added to the list of essential elements principles, the rule of law 6) Financial Arrangements Funds were made available via a minimum of 10 cooperation instruments, which can be classified into 3 main categories: programmable aid, non-programmable aid and loan finance. 7) Agreements Trading Price stabilization, direct development assistance, nonreciprocal tariff concessions, protocol on banana Only 2 cooperation instruments: the grant facility and the investment facility. Within the former, there is a new system of programming, the Country Support Strategy (CSS). The programmable and nonprogrammable aid as well as the STABEX and SYSMIN cease to exist. The Investment Facility eliminates the Lome IV risk capital and interest-rate subsidy facilities as well. Cooperation regarding trade in services, competition policy, protection of intellectual property rights, standardization and certification, sanitary and phytosanitary measures, trade and the environment, labour standards, consumer policy, protection of consumer health Inclusion of civil society and non-state actors. 8) Participation Government Source: Bjornskov and Krivonos, 2001; Brenton, 2003; De la Rocha, 2003; Maxwell and Engel, 2003; European Centre for Development Policy Management 2001. 37 4.2 Conclusions and Recommendations Six (6) main issue areas of concern are identified in terms of conclusions with regard to the proposal to shift to EPAs: 4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 The Implications of the enlargement of the EU; The dilution of negotiating power from the break-up into EPAs; The breakup of solidarity among ACP partners; South Africa’s EPA experience; Implications for existing protocols given their economic significance; The limitations of the Cotonou agreement itself, in particular its WTOcompatibility foundation, the failure to include labour market liberalization in economic liberalization models and the weak link between economic liberalization and the sustainable development challenge in ACP countries. Each of these six key issues are detailed below, followed by recommendations 4.2.1 The Implications of the Enlargement of the EU By 2004, when countries from Central and Eastern Europe join, the EU will have been enlarged from 15 to 25 member states. This enlargement can prove to be both a blessing as well as a curse for the developing countries. Due to the EU‟s enlargement of its internal market, this will also boost the living standards as well as its efficiency. This, in turn, will result in a positive income effect, giving rise to a greater demand for goods and services both within and outside the EU. Fortunately for those developing countries exporting to the EU, they will now experience lower transaction costs as the EU‟s harmonized rules and regulations will now encompass a larger area, increasing efficiency as well. 38 The downside of the enlargement, however, is several diversions including trade, aid and investment issues. Firstly, this enlargement can create an attention diversion where there is a possibility that the EU may divert its attention away from non-EU members. Secondly, the higher priced products of the new members may be preferred to those of the LDCs, leading to trade diversion. There is also the issue of the investment diversion where the investment funds may be directed towards the low labour costs regions of the EU rather than the LDCs. The fear of loss of aid is another downside to this enlargement, since it will require more funds to assist in the integration process, decreasing the amount allotted to the LDCs. The migration opportunities available for the people of the LDCs to the EU may become smaller (EU-LDC Network, 2003). Also, there are concerns that these new countries may not wish to engage in any development aid or cooperation, given their own circumstances and the lack of the historic colonial link with ACP countries. Additionally, there is also concern that at the end of Cotonou, development cooperation may cease to exist. According to the Kuyvenhoven (2001), questions have arisen as to whether the EU will now become more inward-looking, discriminatory and also engage in protective trade and domestic policies. Recommendation The main recommendation here is for ACP members- both state and non-state actors should be involved in a programme of sensitization of the new EU members to the realities of ACP states. 4.2.2 The dilution of negotiating power from the break-up into EPAs The fact of a common front among the ACP countries has provided a negotiating leverage which would be diluted with a break-up into distinct A, C and P groups. As a result the EU side, which would remain united (and enlarged to 25 members) will be able to enjoy significant benefits given the already existing asymmetric bargaining power. 39 If regional EPAs are negotiated then this would break the overall negotiating capacity of the ACP bloc of countries. Those members of the ACP bloc that are landlocked or are small islands fear that they would lose out in the context of an EPA, a regional EPA or even if they choose to opt out of an EPA. (Lars, 2002). As mentioned previously, for many Caricom member states the EU is an important source of valuable foreign exchange. For some of these Caricom member states they collect a substantive proportion of their fiscal revenues from trade at the border, particularly import trade. By virtue of allowing free access to their markets for EU goods they will weaken the amount of revenues they are capable of collecting and this in turn can compromise their developmental potential and impinge adversely on their capabilities to implement poverty reduction strategies. Although the EPAs can be negotiated in regional groups, such as UEMOA, CARICOM or SADC, there are possible problems with this strategy. Firstly, in order for these countries to negotiate as a regional group, this would entail earlier negotiations among the member states since it would be necessary to both delegate power and, as well, arrive at a consensus on exactly how negotiations are to be conducted and the like. However, according to the ECDPM (2001), a strategy such as this may foster uncertainty among some of the non-LDCs, leading to a loss in unity as well, as they would prefer to negotiate „individual‟ EPAs, seeking to better defend their interests. The recommendation here is linked to that below re the third main issue area. 4.2.3 The breakup of solidarity among ACP partners The Regional Economic Partnership Agreement (REPAs), put forward by the EU may undermine ACP unity, mainly resulting from regional arrangements which differ in terms of treatment for certain ACP states. According to Hylton (2002), a divided ACP group will be unable to successfully negotiate with the EU, enabling the latter to garner market openings within the ACP states. There also are spill-over and related forms of ACP cooperation which may be compromised by EPAs. The Association of Island Developing States (AOSIS) is a good example. AOSIS fosters cooperation in terms of a common set 40 of positions at the United Nations in terms of the Programme of Action originally agreed upon in 1994 for Small Island Developing States (SIDS); now to be re-assessed at a 2004 Mauritius UNSIDS meeting. Recommendation The main recommendation here is for intra, and inter-ACP deliberations on the way forward. These should begin with open for a involving on actors (state and non-state) and be buttressed by sharing of research on the implications of available. the alternatives The Association of Small Island Developing States (AOSIS) also needs to serve as a bridge across the varying SIDS regions to ensure a common front on key issues which are shared. In addition, the lessons of the Banana experience should be used as a guide for negotiations with regards to derogations, criteria for becoming party to a dispute, etc. South Africa’s EPA experience as a Guide 4.2.4 South Africa is not privy to any preferential access to the EU market, although it produces an estimated 2,600,000 tonnes of raw sugar (European Research Office and Oxfam UK, 2001). South Africa's trade relations and development co-operation with the European Union (EU) are governed by the Trade, Development and Co-operation Agreement (TDCA), which was signed in Pretoria on 11 October 1999. The TDCA's ratification is still ongoing. In the meantime, its trade-related articles are provisionally applied (since January 2000). Their main objective is to create a free-trade area between South Africa and the EU over an asymmetric, transitional period of 12 years - which means that the EU and South Africa will open their markets to each other at a different pace. 41 However, with the proposed regional economic partnerships (REPAs), the South African Development Community (SADC) may face severe problems. A 1998 „Study on the Impact of Introducing Reciprocity into the Trade Relations between the EU and the SADC‟, as prepared by the Imani Development consultants for the European Commission10, revealed that the SADC would not reap significant benefits from a free trade area agreement with the EU. In fact, customs and government revenues will be lost; there will be an onslaught of increased competition from European imports into the domestic and regional markets, trade diversion and production loss as well. Additionally, the least developed countries in SADC such as Angola, Lesotho, Malawi, Mozambique, Tanzania and Zambia would be in a more advantageous position without a free trade agreement, since they would still be privy to non-reciprocal trade preferences. Recommendation The South Africa experience should be included in the deliberations proposed above with regard to the 3rd and 4th issue areas. 4.2.5 Implications for existing Protocols given their economic significance There are several existing and long standing protocols which have provided preferential access to ACP commodity exports which also are significant in the socio-economic realities of the countries involved. There is no clear road map for ensuring that EPA negotiations address these specifically. The economic significance of these protocols will now be detailed below in terms of Sugar and Rice. Bananas will be dealt with as a separate, special case in Chapter 4 and in the revised version of the earlier 1999 study mentioned before. 10 www.igd.org.za 42 1) The World Market for Sugar and the ACP-EU Sugar Protocol Within a global context, 110 countries both produce and consume sugar. Approximately 25% of sugar is globally traded, the bulk of this within the regional trading blocs. The traded supply of sugar is limited to a few countries, where 75% of the world sugar exports are shared by ten exporters, with the top four exporters accounting for more than 50%. Table 4.2: Main importers and exporters of sugar. Exporters Qty („000 Mt) (2002) Importers Brazil 360,556,000 Russia India 279,000,000 Belgium Thailand 62,350,000 USA Mexico 46,000,000 Japan Australia 32,260,000 South Korea Source:www.kisanwatch.org/eng/excel/sugar.xls Top Five Producers Europe India Brazil China USA 17 Mt 16 Mt 15 Mt 7 Mt 7 Mt Qty („000 Mt) (2001) 3,820 1,835 1,624 1,600 1,460 Top Five Consumers India 15 Mt Europe 13 Mt USA 9 Mt Brazil 8 Mt China 8 Mt Principal Exporters Brazil 7 Mt Europe 5 Mt Thaïland 5 Mt Australia 5 Mt Cuba 4 Mt http://www.beghin-say.com/En/beghin-say/MarcheMondial.htm 2) ACP/EU Sugar Protocol On February 28th 1975 the ACP/EU Sugar Protocol (SP) was formed based on the communal interests of European refiners as well as the African, Caribbean and Pacific (ACP) countries. The EU membership was particularly interested in procuring a stable and reliable supply of sugar, whilst the ACP countries were predominantly interested in the procurement of a guaranteed price level and the assurance of a secure market, given the extensive linkage between housing, health, and other aspects of the economy and the sugar sector. 43 3) CARICOM Sugar Quota Individual Caricom country quotas range, As Table 4.3 shows, from 15,590 tonnes for St Kitts/Nevis to 159,410 tonnes in Guyana. The Sugar Protocol‟s agreed quantity for Caricom members is approximately one third of that offered to all ACP countries Table 4.3: ACP/EU sugar protocol (2001) Barbados Trinidad & Tobago Belize Guyana St Kitts Nevis Jamaica Caricom total Total Share ACP sugar protocol agreed quantities, (tonnes) 50,312.40 43,751.00 40,348.80 159,410.10 15,590.90 118,696.00 438,109.20 1,294,700.00 33.8% Source: acpsugar.org 44 Box 4.1: Thirty years of change to the EU Sugar Policy 1968: Introduction of the EU Sugar Policy covering the six founding Member States of the Union. 1974: The accession of the United Kingdom, Ireland and Denmark to the EU prompts a second revision of the EU Sugar Policy. 1979/80: Transitional arrangements are agreed for Commonwealth Sugar Agreement sugar pending negotiation of the Sugar Protocol. 1975: Agreement of the ACP/EU Sugar Protocol. 1980: One year "rollover" agreed. Greece accedes to the EU. 1981: Third revision of the Sugar Policy. Isoglucose (High Fructose Corn Syrup (HFCS)) is incorporated into the policy and assigned quotas. 1986: Accession of Spain and Portugal to the EU. Transitional arrangements for the supply of raw sugar to the Portuguese refiners are agreed (Article 303). The EU sugar policy is "rolled over" until 1990/91. A new production levy on A&B sugar is introduced (the "elimination levy"). 1988: The "Special elimination levy" introduced to reinforce the self-financing system. 1990: German reunification; A&B quotas are agreed for the territory of the former German Democratic Republic. 1991: The EU Sugar Policy is "rolled over" until 1992/93 pending the outcome of the Uruguay Round GATT talks; the Portuguese Article 303 arrangements are similarly rolled over. The "additional levy" replaces the elimination levies and ensures the complete self-financing of the policy on an annual basis. 1993: The EU Sugar Policy is "rolled over" again, this time for only one year until 1993/94, again pending the outcome of the Uruguay Round. Inulin (a high fructose syrup) is incorporated into the policy and quotas assigned. 1994: The EU Sugar Policy is "rolled over" yet again, for one more year until 1994/95, yet again pending the outcome of the Uruguay Round (UR). The UR of negotiations is completed in December 1994. The 1995 review of the EU sugar policy (a) to ensure compliance with the EU's WTO Uruguay Round (UR) commitments whilst retaining the principal instruments of the policy, namely the production quota and self-financing systems; and (b) to implement a new raw sugar policy further to the conclusions of the Commission's report on the situation of the EU refining industry. Source: acpsugar.org 45 4) The Importance of the EU sugar market to ACP states Country Table 4.4: Top Ten Sugar Exporting ACP countries, 1999 Share of Total Sugar Exports to Sugar Exports EU Sugar EU, US$m to EU Tonnes Imports 30.4 13.2 12.6 9.8 9.3 3.8 3.2 3.2 2.9 1.8 300.6 129.2 123.6 92.8 90.6 34.1 31.5 31.4 28.6 22.4 884.7 524,959 238,636 226,929 178,760 166,235 73,332 58,173 57,092 50,428 35,415 1,694,846 Share of Sugar in total exports to the EU%. 24.5 83.9 62.4 70.2 15.6 4.3 20.4 10.3 55 9.9 2.7 Mauritius Fiji Guyana Swaziland Jamaica Zimbabwe Belize Trinidad Tobago Barbados Malawi & Total 88.9 Source: Bjornskov (2001) Table 4.4 shows that the top ten ACP sugar exporters accounted for 89% of the EU market in 1999. Guyana, Jamaica, Belize, T&T and Barbados rank among these top ten sugar exporting countries, accounting for 31.2%. These top 10 sugar exporting countries earned US$885mn from their 1999 exports to the EU with Caricom member states accruing US$306mn. The importance of the EU market is clearly brought out in the last column of the Table 4.4 where it can be observed that apart from Trinidad and Tobago, all of the other Caricom member states in the list of top ten sugar exporters to the EU collect in excess of 10% of their export revenues from sugar exports to that block of countries. In particular, 62% of Guyana‟s exports to the EU are obtained from its exports of sugar, with the corresponding shares for Barbados and Belize being 55% and 22.4% respectively. In terms of Caricom, Table 4.5 shows clearly that Guyana, Jamaica and Trinidad & Tobago (T&T) produce the largest amount of sugar as compared to the other islands: 3 million tonnes, 2.4 million tonnes and 1.05 million tones, respectively, in 2002. The level of output of sugar cane produced in the Bahamas and Belize increased by 100% and 67%, respectively, over the 1920-2002 period. All of the other Caricom producers listed 46 in Table 4.5 experienced a decline in sugar production in the 1970-2001 period, ranging from 20% in Guyana to 60% in T&T. Table 4.5: Sugar Production for Caricom Countries for the period 1970-2002, tonnes. St. Kitts & Country Bahamas Barbados Belize Guyana Jamaica Nevis Suriname 1970 27,000 1,000,000 687,029 3,754,447 4,121,087 331,216 225,000 1971 20,000 1,000,000 642,783 4,310,606 4,105,846 276,352 195,000 1972 38,000 1,000,000 678,370 3,622,903 4,133,279 248,932 210,000 1973 35,000 1,000,000 729,758 3,303,727 3,647,620 214,376 159,700 1974 38,000 956,100 837,300 4,094,519 3,846,765 220,472 146,417 1975 46,000 845,400 795,687 3,631,668 3,579,544 219,456 159,543 1976 60,000 918,500 616,765 4,039,353 3,628,315 326,136 146,700 1977 49,000 1,000,000 950,642 3,290,885 3,252,376 352,000 135,325 1978 38,000 895,000 1,141,130 4,285,700 3,640,600 362,000 119,760 1979 40,000 1,000,000 1,005,200 3,934,150 2,988,200 384,000 164,060 1980 37,000 1,000,000 1,029,770 3,830,510 2,810,390 352,000 146,339 1981 52,000 966,000 985,670 4,192,220 2,492,370 337,500 146,327 1982 55,000 804,300 1,113,080 3,906,700 2,549,270 349,600 125,391 1983 33,000 705,000 1,150,150 3,481,130 2,350,120 276,200 128,823 1984 50,000 812,800 1,038,610 3,213,380 2,449,700 298,315 130,625 1985 35,000 793,500 977,030 3,270,290 2,296,270 263,098 118,225 1986 30,000 908,200 867,305 3,364,825 2,239,370 260,370 110,967 1987 30,000 689,000 801,560 3,150,000 2,013,810 258,660 48,786 1988 42,000 699,000 789,470 2,970,000 2,603,120 270,830 50,000 1989 55,000 560,000 940,860 2,541,000 2,293,220 252,300 65,000 1990 60,000 606,000 1,089,205 2,700,000 2,491,000 170,000 65,000 1991 45,000 587,000 1,131,880 2,935,000 2,732,000 200,000 70,000 1992 35,000 527,900 1,121,720 3,081,000 2,525,000 280,000 70,000 1993 50,000 441,000 1,159,310 3,056,000 2,661,000 218,000 70,000 1994 55,000 463,700 1,218,240 3,148,895 2,450,000 180,494 90,000 1995 35,000 357,200 1,041,450 3,209,253 2,372,000 183,170 120,000 1996 45,000 534,900 1,251,780 3,221,892 2,623,915 207,000 90,000 1997 35,000 570,872 1,208,080 3,073,524 2,413,380 310,064 90,000 1998 45,000 448,700 1,178,270 2,600,000 2,260,000 244,398 90,000 1999 50,000 480,000 1,181,240 3,000,000 2,313,000 196,784 90,000 2000 62,500 520,000 1,106,610 3,000,000 2025000 191,387 120,000 2001 75,000 450,000 1,027,440 3,000,000 2,400,000 191,400 120,000 2002 55,000 425,000 1,150,656 3,000,000 2,400,000 191,400 120,000 Source: www.fao.org Trinidad & Tobago 2,610,173 2,349,221 2,576,383 2,006,200 1,974,546 1,974,546 2,321,380 1,891,000 1,550,000 1,682,551 1,709,551 1,289,521 1,220,009 1,005,900 879,200 1,029,800 1,165,300 1,104,365 1,244,430 1,224,402 1,478,413 1,300,900 1,292,300 1,210,760 1,397,780 1,326,000 1,404,080 1,417,860 1,056,855 1,254,925 1,373,000 1,029,000 1,050,000 47 5) Rice Market The EU rice regime encompasses several types and forms of rice such as rice in the husk (paddy); husked rice; semi-milled or wholly milled rice; broken rice; rice flour; groats and meal of rice; pellets of rice; flaked rice and rice starch. The rice regime, entailed within the Common Agricultural Policy (CAP) was based upon a wholesale intervention price for standard quality paddy rice, where the quality of rice determined the intervention price. Additionally, intervention regarding the rice would not be necessary, as long as the market price was greater than that of the intervention price. ACP states exporting rice face a quota and a rate of duty, which is lower than the rate for other countries as well. Guyana and Suriname are the only two of 77 ACP countries to export rice to the EU, where the former is perhaps the largest ACP rice exporter. There are two routes which an ACP rice exporting member can take advantage of, in order to export its rice to the EU, the direct ACP route and/or the Overseas Countries and Territories (OCT) route. Rice transshipped through an OCT must have been processed, to some degree before it can be sent via its route, where some of the OCTs include Aruba, Bonaire, Curacao, St. Maarten and Turks & Caicos. 6) Quota System In order to regulate and manage the quantity of ACP rice exports coming into the EU, a quota system was implemented, consisting of three individual quotas: 125,000 tonnes whole grained husked rice (ACP direct route); 20,000 tonnes broken rice (ACP direct route) and 35,000 tonnes husked rice equivalent (whole grain, OCT route). Due to increased pressure from some of the Southern European rice producers, the EU was compelled in 1997 to enforce a 35,000 tonne quota restriction on the OCT route, affecting Guyana‟s rice industry detrimentally. Prior to this quota, Guyana annually exported more than 100,000 tonnes of whole grain rice to the EU. 48 An import licensing system overseers quotas, where European rice importers receive import licenses from the European Commission. Licences are issued three times a year, with regards to the ACP direct route quota of 125,000 tonnes of husked rice equivalent, so that allocations occur in January, May and September.11 The ACP quota of 20,000 tonnes of broken rice is allocated in two tranches, in January and May. Meanwhile, there is allotment in January for the entire OCT quota of 35,000 tonnes of husked rice equivalent. At the commencement of each tranche in January, May and September, European rice importers apply for their import licence and are obliged to pay a security deposit of, currently, 120 per tonne of the received licence. The EU rice import market is controlled by a small number of large firms, so that a single importer‟s licence is restricted to a minimum of 100 tonnes and a maximum of 2,080 tonnes. In 2000/2001, the EU utilized 1.8m tonnes of rice, of which 85% was utilized for human consumption, while 7% is utilized for animal feed. For the period 1992 to 2001, the demand for rice grew by almost 20%, from 4.02kg per capita to 4.79kg per capita. 7) ACP Rice Exports to the EU Seventy percent (70%) of ACP rice exports originate in Guyana, making that country a key recipient of ACP rice trade preferences with regards to the rice sector. Another important intra Caricom ACP member which benefits from rice production is Suriname. In Guyana, the rice sector utilizes the most agricultural land, accounting for 20% of agricultural value-added and 12% of export earnings. Within this industry, numerous stakeholders, farmers, millers, exporters, input suppliers and the like are all involved, where rice is produced by the small-scale farmers, 10-20 acres being the average size of the rice farms. According to the Sustainable Development Networking Programme 12 (SDNP), an estimated 10,000 farm families derive their living from rice, with 11 12 Each allocation is known as a tranche. www.sdnp.undp.org 49 approximately 100,000 persons (14% of the entire population), directly and indirectly dependent upon this industry. Country 1970 2002 % change 19702002 Table 4.6: Production of Rice in Caricom countries, tonnes. Trinidad & Tobago Belize Guyana Jamaica 10,301 3,493 209,697 610 3,882 10,972 450,000 33 -62.31 214.11 114.60 -94.59 Suriname 145,399 192,000 32.05 Source: FAO In terms of the production trends amongst Caricom producers of rice, between 1970 and 2002, rice production in T&T and Jamaica contracted sharply by 62.3% and 94.5%, respectively as compared to Belize, Guyana and Suriname where the production trends in rice increased by 214%, 114.6% and 32%, respectively for the time interval 1970-2002. Table 4.7: Direct rice export to the EU in 2000. Country Tonnes Value (€) % Total exports Guyana 90,466 28,810,000 14.0% Suriname 37,786 13,400,000 7.8% From Table 4.7 it can be seen that direct rice exports to the EU from Guyana amounts to 14% of that country‟s total exports whilst exports by Suriname to the EU accounts for 7.8% of Suriname‟s total exports. 8) Fair Trade, Not Free Trade The principal stated aim of free trade is the maximization of the economic returns to the trading countries. Free trade may be defined as the process where goods and services are traded between countries and/or regions, in the absence of tariffs, quotas and other such 50 restrictions. Free trade encourages a country to specialize in those goods and services in which they have a comparative advantage. According to the International Federation of Alternative Trade13 (IFAT), fair trade can be defined as a trading alliance where dialogue, transparency and respect are evident, with the aim of achieving greater equity with regards to the gains from international trade. In some primary commodity markets in the global economy there has been an increasing tendency towards a fair trade movement. However, this is becoming increasingly difficult, as globalization, free trade and open markets do not propagate fair trade. Recommendation There is need for ACP producers under these protocols to maintain solidarity but also to explore linkages with non-ACP exporters to attempt to broaden the base of solidarity and cooperation in future negotiations. These protocols also require special negotiations and most likely a differing time-table for changes to be implemented. The lessons of the Banana protocol and the EU-ruling should be used to inform these deliberations. 4.2.6 The limitations of the Cotonou agreement itself, in particular its WTO- compatibility foundation, the failure to include labour market liberalization in economic liberalization models and the weak link between economic liberalization and the sustainable development challenge in ACP countries. The Cotonou Agreement is itself based on a number of planks which can be questioned. Member states of the ACP bloc of countries, particularly the original members of the Yaoundé convention, have argued that the EU has moved too swiftly in its intent to 13 www.ifat.org 51 remove a system of preferential arrangements founded on 40 years of assistance, to one premised more on the virtues of the neoclassical trading system. Many researchers also have questioned whether Cotonou and EPAs are the most suitable instruments for ACP to achieve their intended goal and have explicitly criticized them for the risk and possible negative effects they may bring to ACP countries in general and in Caricom member states in particular. It has been noted that ACP countries will not gain many additional preferences than those that they already enjoy, while they will have to actually lower the tariffs to EU products, which might have serious consequences for ACP producers. In particular, some authors (e.g. Schiff 2002) argue that EPAs will be trade diverting and will entail an important transfer of tariff revenues from ACP to EU producers, thus worsening their terms of trade and resulting in a net welfare loss. The reason being that since ACP imports from non-EU countries still will have to pay tariffs, prices are unlikely to fall and therefore EU producers will capture the tariff revenue while ACP consumers will not see any benefits. Several other studies estimate that the net impact of EPA is likely to be negative (for a list of these studies see Schiff 2002). Other arguments raised against EPAs relate to the large direct cost that their negotiations and administration will require for ACP countries, diverting scarce resources from other users like customs administration, domestic policy resource and particularly the multilateral trade negotiations (Winters 2002). 1) Is the WTO-compatible with Sustainable Development? The common mantra of all international agreements, including Cotonou, is that they must be “WTO-compatible” . This begs the question of whether the WTO agreement is itself compatible with sustainable development. As envisaged by the EU, for example, negotiated EPAs must be compatible with the rules and regulations of the WTO. At the same time, the ACP has argued that EPAs should 52 take into account the specific weaknesses of the various member states of the ACP. In contrast, the EU would like the EPA arrangement to focus on the strengths and potentialities of the member states of the ACP (Christopher and Kenman, 2001). In terms of market access, the ACP is of the view that no country should be made worse off with an EPA as compared to the benefits, which existed under the Lome Conventions. The EU in turn defensively notes that its proposed EPA arrangement will help to delimit the use of trade barriers by the ACP bloc of countries and hence bring them closer to exploiting their comparative advantages (Brenton, 2003). 2) The failure to include labour market liberalization in economic liberalization models The underlying theoretical framework, which informs the WTO is that of economic liberalization with the exclusion, however, of the labour market. This myopia on labour market liberalization disserves the liberalization project in two senses. First, it fails to acknowledge that there already is a substantial flight of human capital from ACP and other developing countries to the so-called developed countries without any compensatory payments for the investment of scarce resources in skilled manpower. This is unlike the insistence on rules for movement of other forms of capital. Second, there is the related myopia in terms of failing to recognize that liberalization of markets in goods and services by developing countries simultaneously implies a liberalization of their labour markets in that labour is embedded in the competitive goods and services originating in export markets, including the metropolitan countries (Mundell 1957).1410 14 Mundell, R. (1957). “International Trade and Factor Mobility,” American Economic Review XLVII ( June) :321-335. 53 Some commentators, however, hope that the EPA can be used as a premise for encouraging more flexible arrangements with the WTO rules, to cater for the lesserdeveloped member states of the WTO. 3) The weak link between economic liberalization and the sustainable development challenge in ACP countries The ACP countries face the challenge of sustainable development. In part, this requires that ACP countries boost their competitiveness through the transformation of those traditional structures which have led to poverty, dependence and economic vulnerability. Thus, ACP countries must generate new structures and institutional arrangements. ACP countries have focused on the agricultural sectors such as bananas, rice and sugar. However, the transformation process entails de-emphasizing these primary commodity markets and focusing on dynamic activities where local creativity and innovation can be fostered. Knowledge and learning are required in order to realize and maintain competitive advantage. Thus, the people of the ACP states must have a high degree of learning abilities, where they can not only adopt advanced technologies, but also adapt and create institutional structures, products and processes, which will, in turn revolutionize the economies of the ACP. ACP countries- particularly SIDS also face the reality of economic and environmental vulnerabilities, exacerbated by anthropogenic-caused climate change. All of this suggests that the simplistic and myopic WTO-based template of economic liberalization is inadequate to the task. Recommendation The main recommendation here is that the ACP countries-including civil societyneed to bring together all those who have been engaged in critical analysis of 54 economic liberalization and so-called globalization to both reinforce and deepen the quality of the critical analysis including the particular implications for the sustainable development of SIDS. This should then be followed by a public education programme targeted at all actors (state and non-state). Civil society itself also should seek to ensure participation in the preparation of negotiating positions of ACP Governments and involvement in the actual process itself. There also is need for a civil society watchdog to monitor sugar, rice and banana regimes and, as well, the REPA negotiations. 55 TERMS OF REFERENCE 1. To analyze the current relationship between Europe and the ACP countries focusing primarily on the implications for the Caribbean of the Lome IV protocol and the Cotonou agreement. 2. To identify/ analyze the implications of using the banana sector study as a reference point for establishing, ensuring and analyzing;    Financial trade and socio economic benefits of the above identified protocols Potential impact of liberalization The relevance of these protocols in light of the existing Caribbean trade relations CPDC/WINFA study on bananas. 3. To contextualize and define EPA‟s by the EU standards with regards to the ETA iniatives within the framework of WTO regulations and most favored nation‟s principles. 4. To compare EPA‟s and existing Lome conventions on issues such as trade and the potential impacts of either on the socioeconomic well being of the Caribbean. 5. To explain the response of the Caribbean and the ACP countries to the propositions of the EU, and to identify and reconcile issues of differences. 6. To identify and evaluate the courses of action that can be taken by the Caribbean within the region‟s development context and particular needs and requirements. 56 References Bjornskov, Christian and Ekaterina Krivonos „From Lome to Cotonou. The new EU-ACP Agreement‟. SJFI Working Paper 14/2001. Brenton, P (2003), „Integrating the Least Developed Countries into the World Trading System: The Current Impact of EU preferences under EBA, International Trade Department, World Bank. Brenton, P and M. Manchi (2003a), ‘Making EU Trade Agreements Work: The Role of Rules of Origin’, The World Economy, forthcoming. Brenton, Paul „Integrating the Least Developed Countries into the World Trading System: The Current Impact of EU Preferences under Everything But Arms‟. World Bank Policy Research Paper 3018. April 2003. CEC (2000), „Product to be liberalized for LDCs, mimeo. CEC (updated), „EU Trade Concession to Least Developed countries, EBA Proposal: Possible Impact in the Agricultural Sectors, mimeo (www.europa.eu.int/comm./trade/pdf/eba_ias.pdf). Christopher, S. and Kennman, J. (2001) the impact of the EU‟s „Everything But Arms” Proposal A Report to Oxfam, Institute of Development Studies, University of Sussex Cotonou Agreement (2000), Partnership Agreement Between the Members of the African Caribbean and Pacific Group of States of the One Part, and the European Community and its Member States, of the Other Part, Signed in Cotonou, Benin on 23 June 2000. http://acpsec.org/gb/cotonou/accord1.htm de la Rocha, Manuel ‘The Cotonou Agreement and its Implications for the Regional Trade Agenda in Eastern and Southern Africa’. World Bank Policy Research Working Paper 3090. June 2003. European Centre for Development Policy Management (ECDPM), International Centre for Trade and Sustainable Development (ICTSD) and Overseas Development Institute (ODI) (2003): „Trade Negotiations Insight: From Doha to Cotonou‟, Trade Negotiations Insights, Vol. 2, No.1. European Centre for Development Policy Management. 2001. Cotonou Infokit: From Lome to Cotonou (13). 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