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									                      Rolling Back Partnership:
 An Analysis of the Commission's Green Paper on the Future of Lomé

                                    Kunibert Raffer
                          Dept. of Economics, University of Vienna
Paper presented at the Annual Conference of the Development Studies Association, Norwich, 11-
                                     13 September 1997

     DSA European Development Policy Study Group Discussion Paper No. 9, April 1998

The future of Lomé is widely discussed at the moment. A host of options are on the
table, including those of the Commission's "Green Paper". My paper evaluates several
ideas on the future of Lomé, criticising how the system has developed from
contractuality and partnership to conditionality and donor power. In the last part, it
presents proposals for change that aim at reviving the principle of partnership. It is
suggested to use the Lomé Treaty again as a possibility to test new ideas. Since
financial commitments are fixed in advance and the necessary institutional framework
already exists, EU-ACP co-operation could play a very innovative role. Rather than
becoming a donor like any other the EU could regain the intellectual leadership in
development co-operation it held when Lomé I was signed.

1. Introduction

Interest in the future of European co-operation with the ACP states, countries in
Africa, the Caribbean and the Pacific, has brought about a wide discussion. The
European Commission's (1996) 'Green Paper' stimulated and encouraged it in an
unprecedented way. Analyzing this contribution in the light of Lomé's history
suggests that Lomé will end, at least in all but name. After shifting Lomé from
contractuality and partnership to conditionality and donor power Europeans seem
prepared to free themselves from the remnants of a unique system, once granted under
exceptional circumstances. This paper suggests the alternative of reviving the
innovative spirit the treaty initially had. Lomé should again be used as a testbed of
new and challenging ideas in development co-operation.

2. Lomé - The Success of Flexible Response

Mirroring the changes in North-South relations quite closely Lomé's history is a show
case of the increasing self-assertedness of donors since the 1970s, the worsening
position of developing countries, and the loss of whatever power they might once
have had. Lomé I was a very progressive treaty characterized by a pronounced
emphasis on equality between Northern and Southern partners. Blocking the demand
for a New International Economic Order the Europeans made far reaching
concessions, granting ACP states an unprecedentedly strong position, including a
contractual right to 'aid'. Lomé I was the best arrangement developing countries ever
got from any group of donors. Its great innovation was Stabex, deliberately offered as
an alternative to Southern demands for commodity price stabilization. Like an
insurance scheme it compensated export earnings shortfalls of selected commodities.

The European Commission (1996, p.9) frankly acknowledges as reasons for Lomé I

               'concern to defend ... economic and geopolitical interests in the age of
               the Cold War ... the international situation ... European anxiety at the
               first oil crisis, i.e. a fear of raw material shortages and a desire to hold
               on to valued overseas markets, united with geostrategic interests ...'.

Negotiations for Lomé I started in 1973, the year of the "first oil crisis". While they
took place the South tried to follow OPEC's example by establishing more commodity
cartels. The South was perceived on the brink of wielding commodity power. Frisch
(1996, p.61) stresses the bargaining power Sub-Saharan Africa had, remarking that
the establishment of the ACP group in Georgetown surprised the Europeans
envisaging parallel negotiations with three regional groups. This unexpected solidarity
might well have increased anxiety.

Lomé II, concluded at a period of less anxiety, saw a shift towards greater European
influence. The Europeans found minerals much too important for Stabex. To control
mineral exports they introduced a new system for minerals, Sysmin, rather than
extending Stabex as demanded by ACP countries. In contrast to Stabex's automaticity
Sysmin was tightly controlled by the Commission, which had the exclusive right to
approve financing. Klaus Meyer, then director-general for development, declared that
automaticity was out of the question because of European interests (Raffer & Singer,
1996 p.93). European demands that iron ore should be moved from Stabex to Sysmin
met strong resistance. The compromise was that pits already in operation continued
under Stabex while Sysmin covered new sites.

When the third treaty was negotiated anxiety and fear of Southern power were gone.
Overcoming ACP resistance once again Lomé III introduced strong conditionality and
cumbersome administrative procedures. Paying the piper the Europeans called the
tune, establishing mechanisms for intervention down to details. Expectedly the
Europeans were able to shift iron ore to Sysmin. Stabex lost its automaticity. Strict
control of the use of Stabex transfers and of all Lomé funds was introduced. Although
this strongly discourages economic development, financing diversification with
Stabex money had now to be justified to the Commission. Nevertheless, the ideas of
participation, discussion, and equality can still be found in Lomé III. The Directorate
General VIII tried to work out an alternative to IMF/IBRD-type 'Structural
Adjustment'. These attempts and the good will acquired in the past were doubtlessly
useful to make the changes of Lomé III more palatable to ACP countries. But the
search for alternative adjustment was soon discontinued. Meanwhile the EU fully
supports the Bretton Woods institutions, although they could not deliver lasting
positive results.

Conditionality and European leverage were increased under Lomé IV, and
particularly by the so-called Mid-Term Review (cf. Raffer & Singer, 1996). Flexibly
responding to changes in the political environment eroding ACP bargaining power the
EU has become more and more a 'normal donor', though a donor equipped with more
than the normal means of control. Lomé has developed from contractuality and
partnership to conditionality and dominance.

The money earmarked for an ACP country under the national indicative programme is
now paid out in two separate tranches. The second tranche is conditional upon the
country's performance as well as 'the situation in each ACP State' (The Courier, no.
144, March-April 1994, p.6). The Courier concedes 'There is some uncertainty over
what this exactly means' (ibid.), but it goes in the direction of donor 'flexibility' and
IMF conditionality. An essential elements clause was introduced, allowing the
suspension of the convention in the event of serious violation of the principles of
democracy, human rights or the rule of law, without clearly defining serious violation.
The EU's own undemocratic structures seem all right, though.

The Commission got more competences, already at the preparation stage, in the areas
of financial and technical co-operation. Examples are sole responsibility for carrying
out studies, or dealing directly with tenderers. This is believed to permit easier
comparison of proposals and to enable the Commission to use its knowledge of
markets to negotiate directly and untroubled by outside interference. Given EU-export
interests this is not unlikely to affect trade in a more down to earth manner. The Chief
Authorizing Officer got more powers, reducing those of the National Authorizing

Stabex is now used more fully for purposes related to 'Structural Adjustment', as
enforced by the Bretton Woods Institutions, which is used as an argument against a
separate Stabex. After successfully forcing their 'partners' to accept divesting Stabex
of its special function, the Europeans now argue that it should be abolished because it
has no special function. While Stabex was still sufficiently funded under Lomé I,
insufficient resources and the necessity to reduce compensation claims as much as
possible have weakened Stabex further. Consultations on reductions are often thought
to have merely a token value. But it remains the most disliked legacy restricting donor

The sobering results of the protracted and sharp wrangling on the second financial
protocol 1995-2000 show a clear orientation away from Lomé. One may doubt
whether present commitments would have been obtained without the contractual
obligation to renegotiate. A similar obligation to sign Lomé V does not exist. The
Commission (1996) frankly emphasizes the shift of European interests, speaking for
instance of redefining political and security interests (ibid., p.i) or even of the 'post-
Lomé world' in the foreword. Lomé IV/2 is the last treaty still containing a contractual
right to specified financial flows (Frisch, 1996, p.65) Therefore he expects the 'decon-
tractualization' of any 'post-Lomé solution'.

From a European point of view Lomé appears to have outlived its usefulness.
Acknowledging the right of ACP states to determine their development models in all
sovereignty Lomé allowed maintaining links with countries that had reduced or
severed diplomatic ties to Western governments during the Cold War, or to integrate
them into the Western sphere of influence. Lomé's political and ideological neutrality
allowed Angola to sign the treaty as its first step to reorient itself to the West in 1985
(Frisch, 1996, p.62). After the demise of the Eastern Bloc neutrality is no longer
useful. What was once a 'pragmatic approach' and 'plain common sense'
(Commission, 1992a, pp.16f) is now 'history' (Frisch, 1996, p.62). Since Lomé IV
political and ideological orientation has become part of the system. The EU embraced
neo-liberalism fully: privatization, liberalization, supporting the Washington
Consensus, and political conditionality have become part and parcel of Lomé.

Analyzing official European sources Frisch (1996, pp.59f) sees a clear ranking of
importance. Lomé countries are 'fairly at the end', behind the US, Eastern Europe, the
Mediterranean, Asia, and Latin America, although Art. 130u of the Maastricht Treaty
would demand a different ranking. Arguing that an upgrading of Lomé would largely
depend on the role of development policy vis-à-vis foreign policy and on Africa's
importance, Frisch hoped that evolutions in Africa and particularly South Africa
might enhance the status of ACP countries. Facts seem to prove this hope wrong.
Although welcomed as 'Lomé VI's 86th member' by the official journal The Courier
(No.164, July-August 1997) South Africa was de facto denied membership. The
general trade arrangements, the protocols on bananas, rum, beef, sugar, coal and steel
products, Stabex, Sysmin, structural adjustment support, and EDF (European
Development Fund) resources except for refugee assistance are not applicable. The
country has for instance the right to participate in the Joint Assembly. It is eligible for
tenders for EDF VIII, but not under preferential ACP conditions . Formal membership
could not be denied politically, but Brussels largely dodged financial commitments.
This new two-class Lomé - to avoid an Afrikaans expression - seems to be another
clear indication that Lomé is unlikely to survive in its present form.

Geopolitical conditions have changed perceptibly since 1973-75, and the EU's interest
in making concessions with them. Responding flexibly to geopolitical changes the
Europeans have slowly but tenaciously rolled back concessions granted in a period of
anxiety. Signing Lomé IV the Commission's Vice-President, Manuel Marin (1989),
assured that doing so 'only a few weeks after the Berlin Wall came down, underlines a
permanency in ACP-EEC cooperation which goes beyond the historic events we are
living through'. Meanwhile such assurances have become unnecessary. The EU seems
determined to use its present position to re-shape relations with ACP countries
according to its own wishes, getting rid of the last compromises it had to accept. The
continuous dilution and undermining of Lomé is cleverly used against it. In the
foreword of the Commission's (1996) Green Paper the Commissioner for
Development summarizes brilliantly: 'The post-colonial era is coming to an end.' One
might ask what the new terms of colonialism will be.

3. Which New Arrangements?

Three of four 'possible options' break up the ACP group, either into regional
agreements, via specific agreements with LLDCs or by bilateral agreements under a
very loose general umbrella. This would establish the situation the Europeans had
initially expected. Continuing one overall agreement is only possible 'with different
arrangements and priorities' (Commission 1996, p.viii). Resources will be
'budgetized'. The EDF, Lomé's separate instrument, will disappear.

According to the Commission (1996, p.39) the principle of partnership 'has come up
against a number of difficulties'. It 'has proved hard to put initial intentions, based on
the principle of equal partners, into practice'. Among the reasons that 'seriously
undermined' partnership are 'growing conditionality' or the Community's tendency to
decide for recipients 'like other donors'. The Commission uses its own undermining of
partnership to justify its abolishment.

Naturally, diplomatic lip service is paid: 'Partnership is undoubtedly still the ideal
form of cooperation relations and any future agreement between the EU and the ACP
States must endeavour to restore it.' (ibid.). To do so the Commission (1996, p.75)
proposes a 'phased and individualized approach'. Due to different perceptions between
the country and the EU joint aid management is 'time-consuming' and 'less effective'.
Thus 'the EU should take sole management responsibility' where needed, with the aim
of conferring 'steadily more responsibility' to deserving beneficiaries, recipients where
'good governance improves'. As 'standards of governance can change very rapidly'
there is 'no point' in 'five-year fixed allocations' (ibid., p.72). Annual reviews as
adopted for the Euro-Med partnership are proposed, which would provide
substantially more leverage than the present two-tranche system. Aid should be given
according to 'merit' and 'performance criteria' (ibid., pp.70f). One may expect the EU
to have a great deal of leeway in assessing merits. Co-operation should depend not
only on needs but also on a country's 'institutional and political choices.' (ibid., p.41)
The initial pragmatic approach is no longer plain common sense. Strengthening the
political dialogue is demanded. Based on experience the Commission declares
'support is appropriate only when certain conditions - primarily political - are met.'
(ibid., p.40) Economic goals, such as development, have lost importance.

Naturally, any remnants of the 'legally binding system' (Article 2, Lomé IV), even the
watered-down Stabex and Sysmin, restrict donor power. Apparently to allay fears the
Commission writes: 'The idea of compensation itself is not being challenged since
there are good reasons why special aid packages should be available to keep
macroeconomic management on track'.Complaining that 'automatic triggering ... is
making them less relevant' the Commission (1996, p.72) concludes that they 'need to
be abolished or at least amended.' As compensation is always relevant if and when
shortfalls occur this would be patently illogical, unless increasing leverage is the
relevant goal. Arbitrarily granted compensating aid would, of course, increase
leverage enormously.

Consequently the EU sees making the policy dialogue 'part and parcel of its common
foreign policy' (ibid., as the foundation of the new partnership. ACP countries
have to commit themselves to institutional reforms, and to conducting 'economic,
social and environmental policies reflecting the major undertakings made at the
Rio, Vienna, Cairo, Copenhagen, Beijing, Istanbul and Rome international
conferences' (ibid.; bold in orig.) Brussels accepts no obligation to do so. It insists
that these respective responsibilities must be seen in political terms.

Doubtlessly, partnership often restrains efficiency in the sense of quick decisions.
According to the so-called Post-Fiji study (Price Waterhouse, 1992) different views
between donor and recipient may lead to deadlock, which cannot be solved in the
traditional manner by donor-decision due to still relatively participatory structures.
Contrasting the two fundamental relationships of donor/agency power (illustrating the
former inter alia with the IBRD) and Lomé partnership the study summarizes with
great clarity:
              'We do not make any value judgements here as to the relative merits of
              the differing systems. They represent different approaches to the
              provision of aid and have developed accordingly. Centralised or donor
              dominated systems may be faster but risk imposing a solution that may
              not be the most suited to local circumstances. Conversely, a
              decentralised system in which significant weight is given to obtaining
              local agreement and consent carries with it the risk that progress will
              be slow.'

                                                  (Price Waterhouse, 1992, para 179)

The report formulated equally clearly that the nature of the partnership envisaged
under Lomé is a fundamental difficulty. Its co-operative nature means that different
views taken by the Commission and national administrations do not allow the
Commission the freedom of action bilateral donors enjoy (ibid. paras 195ff).
Partnership creates problems absent in a command-obey relationship, which are now
used as arguments to install the latter.

Criticizing present structures in the name of efficiency is the preferred means of
attack. Doing so Europeans conveniently forget that they forced rather cumbersome
and absurdly complicated planning and execution procedures into Lomé III, so
cumbersome that even the EU is not always adequately aware of procedural issues.
Thus errors, shortcomings and inefficiencies have to be expected. They were
documented by the Post-Fiji study (Price Waterhouse, 1992), both within ACP
countries and with the EU. Quite in time for the Mid-Term Review pronounced
criticism of Lomé started (cf. Bossuyt et al., 1993). One main point was the limited
results of Community aid - the Commission (1992) speaks of 'mediocre results'.
Naturally, Lomé has not been able to stop the marginalization of Sub-Saharan Africa
or to increase trade ties between the Union and the ACP group. But means have
always been quite small. The first financial protocol of Lomé IV for instance
amounted to 2,400 million ECU annually, around 5 per cent of total DAC-ODA or
roughly 10 per cent of total ODA by EU-members. The share of Stabex, an institution
meeting particularly strong skepticism, was 12.5 per cent of all funds under EDF VII,
below 1 per cent of total DAC-ODA. It is almost precisely the same percentage under
EDF VIII. Since total ODA itself is only a small percentage of flows such as trade or
debt service, expecting substantial impacts from either Lomé or Stabex is
unwarranted. Comparing these resources, e.g., with the funds flowing into Eastern
Germany since re-unification and their results so far makes one wonder how such
criticism can be presented bona fide. Furthermore incoherent EU-policies have
frequently annihilated potential gains of aid projects, sometimes creating grave

Apparently the ground is being prepared for reduced financial commitments. The
Commission (1996, p.iv) quotes evaluations proving that its aid is

              'of major importance for many ACP countries and has unquestionably
              helped to improve living standards ... financial and technical
              cooperation matches Community objectives and the needs of recipient
              countries and that effectiveness is relatively high.'
Nevertheless it (ibid., p.36) claims a 'loss of legitimacy' of aid, asserting that 'aid had
played a marginal role in the economic success of certain Asian ... countries' (ibid.,
p.5), which is at least wrong for the main 'tigers'. From the end of the Korean War till
the beginning of the 1960s South Korea received aid amounting on average to 8 per
cent of GDP, which financed around 3/4 of its imports of goods, more than half of all
investment plus, in some years, part of consumptive state expenditures (Serfas, 1987,
p.204). This does not include military aid. During 1951-61 US aid amounted to
roughly 6 per cent of Taiwan's GNP per year, covering some of 34 per cent of
imports, 40 per cent of capital formation, 37 per cent of infrastructure and 26 per cent
of human capital development (Bräutigam, 1994).

'[P]ost Lomé' the Commission (1996, p.72) wants to concentrate grants on the poorest
countries and those 'least favourably placed to attract foreign direct and portfolio
investment.' Because of the 'increased supply of investable resources seeking
profitable placement in developing countries' the Commission favours 'a new
instrument to make it easier for ACP countries to gain access to capital markets'
(ibid.). Since all EDF resources are grants this means the end of Lomé aid to quite a
few countries.

The new WTO regime shaped by the EU and the US will apparently serve to cleanse
trade relations from disliked historical obligations. Lomé needs a WTO waiver, which
- the Commission points out - is unlikely to be achieved for any new convention. The
Commission (1996, p.34) emphasizes the need 'to achieve respect for the relevant
WTO rules' while 'securing to the extent possible the benefits provided through the
commodity protocols.' What this precisely means can be guessed from a passage on
the challenges of Caribbean countries, which includes 'the move away from trade
protection (bananas, sugar, rice etc.) to open, competitive trade' (ibid., p.32a).
Although heavily depending on sugar exports the Dominican Republic was already
denied access to the Sugar Protocol when it joined Lomé IV.

A WTO panel already ruled that the banana system 'violated the world trade rules in
several ways' (Courier No.164, July-August 1997, p.9). Duty free preferences covered
by a WTO waiver were not condemned. The main scope of the banana protocol, to
secure present treatment, cannot be upheld. Preferential access to the European
market for sugar and rum at prices much higher than world levels are unlikely to
survive WTO scrutiny. The really unique but costly arrangement of guaranteed prices
connected to intra-EU prices and of guaranteed purchases (Article 5) can be abolished
elegantly because goal posts were moved from outside the playing field of new Lomé
negotiations. The political embarrassment of denouncing the Protocol pursuant to Art.
10 can be avoided. Referring to the Green Paper in a report on EU-Barbados co-
operation the same Courier speaks of the necessity to discontinue preferences on
sugar and rum (ibid., p.29), which are 'the most important benefit of the Lomé
Convention'. Contending that these privileges postpone adjustment Barbados's Prime
Minister has already accepted change.

Reciprocal trade preferences will have to be part of any new treaty. The pre-1975
situation, when preferential treatment of European exports - 'reverse preferences' - had
to be granted by associated countries, will finally be restored. Commonwealth
countries adamantly rejected reverse preferences (Frisch, 1996, p.67), in line with the
principle of unilateral preferences for Southern countries generally accepted in 1973
and legalized by the GATT shortly before. Worrying about their export markets the
US and the UK had also criticized reverse preferences heavily. Britain stopped her
attacks once she decided to join. But for the US this was

               'a key point of contention because the EC was perceived as using these
               arrangements to secure preferential access to developing country
               markets. ... the impasse was broken through an informal understanding
               (the "Casey-Soames understanding") through which the EC obtained
               "armistice" on the legal issue in the GATT by committing itself not to
               insist on reverse trade preferences from developing countries.'

                                                       (de la Torre & Kelly, 1992, p.42)

The EU did not try to protect the Lomé model during the WTO negotiations. Neither
did it demand special rules governing North-South co-operation, nor apparently to get
a waiver for Lomé V. Since the US was granted a waiver for its Caribbean Basin
Initiative until 2005 without major problems this should have been possible. As
reducing Lomé's arrangements to free trade areas would serve European export
interests better (Frisch, 1996, p.68) the present result may be welcome. With the
WTO many specificities of Lomé can be undone.

Trade preferences have been attacked by pointing at the loss in market shares of ACP
countries. While these may have happened because as well as in spite of preferences,
these are more limited than often thought. Frisch (1996, p.69) clarifies that only 7 per
cent of all ACP exports enjoyed a 'significant preference margin - defined as "above 5
%"'in 1989. Products of particular interest to the EU remain highly protected. The
complex rules of origin appear 'more of a penalty than an advantage for trading with
the EC.' (Bossuyt et al., 1993, p.40) Nevertheless some countries, such as Mauritius,
Kenya, Zimbabwe and Jamaica were able to increase exports thanks to Lomé (Frisch,
1996, p.69). In the case of Mauritius the Sugar Protocol was also extremely helpful.

Like all components of Lomé trade has suffered from what is technically referred to
as policy incoherence or inconsistency. Subsidized EU beef exports to West Africa
undermining EU aid to support local beef production or EU sugar exports practically
annihilating world sugar prices and sugar refineries financed by aid are examples. The
Maastricht Treaty demands consistency. Art.15a inserted into Lomé IV in 1995
demands coherence. The Green Paper repeatedly invokes the importance of this
principle (e.g. Commission, 1996, p.3;4;14;41;45f). Nevertheless the Commission
(1996, p.46) refuses expressly and steadfastly any commitment to coherent and
consistent policies:

               'consistency ... that is the external effects of policies other than
               development cooperation, can in any case never become an
               international commitment on the part of the Community. ...
               consistency remains a matter of judgement. The Treaty of the
               European Union answers these concerns by imposing the principle of
               consistency, particularly with regard to its external activities (Article C
               of the Treaty) and explicitly with regard to development cooperation
               (Article 130v).'
Although it is argued that the Maastricht Treaty must be respected to the digit behind
the decimal point in the case of austerity policies politically justified by the common
currency and WTO discipline is keenly cited to justify changes, the Commission has
no intention whatsoever to obey the Maastricht Treaty when it comes to aid (cf. also
ibid., p.ix). European taxpayer's money is going to be wasted for projects whose
success will be destroyed by taxpayer money as in the past. This bodes ill for the
efficiency of ODA and is a somewhat sobering illustration of what European
bureaucrats think of the rule of law.

Coherence would also demand the removal of the debt overhang. Lomé IV (Art. 239)
calls external debts 'a major development issue' constraining 'growth and
development'. The Commission (1996, p.35) stresses the importance of progress in
managing external debt, speaks of the 'bankruptcy of many African states' (ibid., p.5),
declaring: 'In the light of the enormity of the foreign debt problem facing many ACP
countries, it is hard to turn a blind eye to international initiatives in this area.' (ibid.,
p.57) But the Commission manages not to provide much help.

When Lomé IV was signed a great deal of skepticism was expressed by European
institutions with regard to 'Structural Adjustment' by the IMF and the IBRD.
Nevertheless the EU was not prepared to support ACP demands for debt reduction
(Lomé IV, Annex LI), only 'declare[ing] its readiness to exchange views' on the
general problem 'without prejudice to specific discussion' (Annex L). Soon the efforts
of DG VIII to create an alternative adjustment model were stopped. The EU preserves
its 'good guy' image by providing money on somewhat better terms and expressing
sympathy with the victims of 'Structural Adjustment'.

4. Proposing A New Innovative Lomé

The Commission (1996, p.11) sees Lomé's 'main advantages' in its role as a 'testbed
for development aid'. It has indeed the prerequisites to test innovative ideas. Financial
commitments are contractually fixed in advance, limiting donors' financial
obligations. An institutional framework exists. EU-ACP co-operation could remain a
testbed. Rather than completely dismantling a unique system and becoming a donor
like any other the EU could regain intellectual leadership in development co-
operation. Encouraged by the Commission's view on Lomé's strong points the
following is proposed:

- Simplifying Lomé by Self-Monitoring of Recipients: Change of the complicated
structures of Lomé co-operation introduced by the Europeans is needed. Lomé should
copy a most successful innovation of the Marshall Plan, self-monitoring by recipients.
The US encouraged Europeans to

monitor one another's performance. Each recipient government submitted a plan
which was inspected, vetted and monitored by other European governments in the
Organization for European Economic Co-operation. Control by peers is also a
principle advocated in business management.

This successful model would fulfill all demands of good governance, democracy and
transparency presently voiced by donors in a democratic and transparent way. To
overcome the problems of aid fatigue, lack of 'ownership' but also of mutual distrust,
an emulation of Marshall aid is advocated. The process of self-monitoring and joint
requests to the EU should be further enhanced by integrating NGOs. Present
institutional contacts between the EU and NGOs could serve as a starting point.
Public discussions including affected people, open information policies and thus
strong transparency should be encouraged. Self-monitoring groups could be formed
according to geographical or - should this be indicated - based on other criteria.

- Stabex: Initially a contractual ACP right like insurance payments it has become
fraught with conditionalities. Since price fluctuations in world markets are not the
result of domestic policies of any ACP country, this is illogical. Furthermore, Art.
186.2 of LoméIV restricts diversification to 'appropriate productive sectors in
principle agricultural, or for the processing of agricultural products'. In the case of
tropical timber ('sawn wood' pursuant to Art. 187) devoting transfers to the sector
concerned will reinforce environmentally harmful effects, which are already quite
perceptible in the case of West African wood exporters. The EU may be accused of
subsidising the destruction of tropical forests. Reducing options of industrialisation
present restrictions are a late vindication of those critics claiming that Stabex hinders
diversification, a statement not valid initially. As under Lomé I Stabex funds must
again become insurance payments depending solely on the statistical evolution of
export earnings without any conditionality or restrictions in their use. The comparable
restriction of Sysmin (Art. 217.2) should also be deleted. Self-monitoring groups
would check abuse.

- Financial Accountability of Donors: Although the Community is solely 'responsible
for taking financing decisions on projects and programmes' (Art. 222.4 of Lomé IV/2)
and jointly responsible for appraising projects and programmes or for ensuring their
execution, no treaty has ever contained a clause holding the Europeans financially
accountable. This is not at all unusual, but present practice of all public financiers.
Recipients have to pay for failures by the donor's staff, even in cases of gross
negligence, when firms or individuals in OECD-countries could successfully sue
consultants for damages. This exemption from economic and legal consequences
leads to failed projects or programmes calling for new ones to repair damages, often
financed by new loans from the same source. Particularly in the case of International
Financial Institutions (IFIs) flops thus create jobs. This perverted incentive system
creates systemic inefficiencies and failures.

Because of the predominance of grants in Lomé this problem is less pronounced than
in the case of IFIs lending at near market terms. On the other hand, the EU has always
eagerly talked about partnership, good governance and accountability but refuses to
adopt appropriate standards itself. With all its rhetoric the EU even falls short of the
IBRD's inspection panel. In spite of problematic shortcomings and restrictions and
although much remains to be done to achieve access to impartial, external arbitration
making the IBRD fully accountable, this is more than the Europeans have considered
to grant their 'partners'.

The EU could play the role of the innovator, bringing simple but necessary market
mechanisms to bear, introducing the cherished principle of the rule of law into
development co-operation. Donors and IFIs controlling the use of their money must
be liable for damage done by them in the same way private consulting firms are liable
to their clients. This market element would act as an incentive for public financiers to
perform better and protect the poor from damages done by ill-conceived projects.
Victims of development projects must be enabled to receive damage compensation.
While IFIs and donors keenly preach human rights or respect of private (especially
foreigners') property they have not seen great problems in financing projects violating
these values (for instance forced resettlements without proper compensation),
particularly so when the victims were vulnerable groups or indigenous people. The
right of victims to make donors accountable for what they facilitate is needed to
improve the lot of the poor, whose human rights and sometimes whose lives are too
often considered unworthy of respect by their governments as well as their
governments' public financiers.

There is still a long way to go before the victims of development finance will be
treated in an equally decent way transnational firms, OECD governments or
individuals in OECD countries have always been treated. The EU could set a
precedent, which could not be ignored by others and would eventually strongly
improve the quality of all aid.

- Debts and Coherence: 'Structural Adjustment' has been implemented in Africa for
nearly 25 years without lasting success. Asking what might happen to a salesman with
the same record - assuming he could stay employed that long - may give useful
guidance in judging its economic justification. Applying the most basic principles of a
market economy to IFIs themselves would make discontinuation of these policies
mandatory, particularly so as even IFIs agree that they have created great hardship.
De-linking Lomé from the 'seal of approval' of the Bretton Woods institutions would
be a first and necessary step. Reviving the search for an alternative approach -
possibly in a joint effort with Japan, a country that expressed strong criticism of
present 'Structural Adjustment'- would be needed. Unquestionably a need for reform
within debtor countries exists. But the debtor should adjust to the real international
environment, not to a textbook illusion of 'free markets' without Northern

The principle of coherence between trade and development policies (Art. 130v of the
Maastricht Treaty) demands that the problem of unsustainable debts be resolved. Until
this is achieved all aid efforts are unlikely to succeed. Debtor countries' debt service
has to be brought in line with their abilities to pay under present, protectionist
conditions, while safeguarding a minimum of human dignity of the poorest and most
vulnerable. The fairest and economically most sensible way to do so would be the
internationalisation of Chapter 9 of US insolvency laws. It deals with debtors having
governmental powers, and protects those affected by the composition plan, giving
them a right to be heard. Both the indebted municipality's employees and tax payers
expected to pay more have the opportunity to object. Creditors are to receive what can
be reasonably expected under the circumstances, and humane living standards of
people living in the indebted municipality are protected.

It could be applied internationally at once with very minor changes. Thus a neutral
court of arbitration - as usual in international law - would have to replace national
courts to avoid decisions influenced by national interests of creditor or debtor
countries. Each side nominates an equal number of arbitrators, who in turn elect one
more member to reach an uneven number. Ideally, the number of arbitrators should
not exceed five. The interests of the population affected by the plan could be defended
by trade unions, grassroots organisations, religious or non-religious NGOs, or
international organisations such as UNICEF. This would finally implement the rule of
law in international relations, introduce sound economic principles and protect a
minimum of human dignity of the population in indebted countries. As the example of
Germany shows, whose debts were roughly halved in present value terms in the
1950s, de facto insolvency does not harm a country's economic future. It is a
precondition for successful development efforts.

5. Conclusion

Flexibly responding to changes in international politics the Europeans granted
relatively generous terms to the ACP group when they feared commodity power,
slowly but tenaciously rolling back these concessions afterwards. Now the time seems
right to get rid of the Lomé legacy.

The ACP Council President calculated that Lomé IV/2 provides 5.5 ECU per head
over five years to his group, or 'two pints of beer and a packet of chips in an average
London pub' (The Courier, No. 155, January/February 1996, p.4) If the Commission's
(1996, p.39) desire of restoring partnership and its judgement on Lomé's main
advantages were genuine, it should be prepared to finance an innovative next Lomé
treaty. Two pints and some chips per head could well be spent on partnership.


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